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Income tax Rules

Changes in the income tax rules effective from 1st April, 2023 (For Financial Year 2023-24)

In this article, we will discuss about the difference between Financial Year (FY) & Assessment Year (AY) & changes made in the income tax rules effective from 1st April, 2023 (For Financial Year 2023-24).   Difference between Financial Year (FY) & Assessment Year (AY)   From Income Tax point of view, FY is the year in which income is earned by assessee. AY is the year following the financial year in which assessee need to evaluate the previous year income and pay taxes on it. For Example – If assessee financial year is from 1st April 2022 to 31st March 2023 (i.e., FY 2022-23), then assessment year is the period which will begin after the financial year ends (i.e., AY 2023-24 from 1st April 2023 to 31st March 2024).   A taxpayer should file an income tax return (ITR) in the assessment year (AY), which is the year following the completion of a financial year. Taxpayer should calculate his/her income for full FY & calculate tax on such income, if any.He/she need to file ITR when his/her total income exceeds Rs 2.5 lakh after claiming deductions & exemptions allowed under income tax act. He/she can claim credit for advance tax, TDS & TCS paid during the financial year at the time of filing his/her ITR return.   Changes in the income tax rules effective from 1st April, 2023 (For Financial Year 2023-24)   1  New Income Tax regime to be default regime   From 1 April 2023, the new tax regime will be the default tax regime. If any assessee chooses new tax regime, then he/she will not have to invest in any investment tools such as PPF, NPS, LIC, ELSS etc. to claim deduction u/s 80C, 80D, 80CCD(1B). However, assessee will still be able to choose the old regime tax.   2.  Tax rebate limit is increased to Rs 7 Lakhs   Tax rebate limit under new tax regime has been increased to ₹7 lakh from ₹5 lakh in earlier income tax slab. Tax-free limit for salaried taxpayers under old regime is Rs 5.5 lakhs & under new tax regime is Rs 7.5 lakhs. So, it means that an individual with a salary of less than this tax-free limit under new tax regime will not have to make any investments to claim deductions. Also, no TDS will be deducted if the salary income is within the tax-free limit.   3.  New Income Tax Slab Regime for Salaried persons & pensioners including family pensioners   Up to Rs 3,00,000                                           – Nil Above Rs 3,00,000 & up to Rs 6,00,000   –  5% Above Rs 6,00,000 & up to Rs 9,00,000   – 10% Above Rs 9,00,000 & up to Rs 12,00,000  – 15% Above Rs 12,00,000 & up to Rs 15,00,000 – 20% Above Rs 15,00,000                                         – 30% Note – The new tax regime will be the default choice, but assessee can still opt for the old tax regime.   4.  Standard Deduction & Family Pension deduction   There is no change in standard deduction of Rs 50000 under old tax regime for employees. For Salaried persons & Pensioners, the benefit of standard deduction under the head salary of Rs 50,000 & family pension deduction of Rs 15,000 will now be allowed under new tax regime also.   5.  No LTCG tax on debt mutual fund   Investments in debt mutual funds will be taxed as per the income tax slab rate of the assessee from 01.04.2023. Earlier, if debt mutual funds were held for > 36 months, then it will be treated as LT capital assets & Long-Term Capital Gain @ 20% with indexation benefit was allowed but now it has been removed.   6.  Taxation on Life Insurance Policy   Any sum received from life insurance policy having premium annually in a financial year is more than Rs 5 lakh would be taxable from 1st April 2023. This Income tax rule will not be applicable on ULIP policy. Any amount received on the death of the person insured will still be exempt from tax.   7.  Tax on Online Gaming   As per the new Section 115BBJ, tax on winnings from online games i.e., all forms of winnings such as cash, kind, vouchers or any other benefit from online gaming will be liable to tax at a flat 30%, which will be deducted at source immediately at the time of receiving the winning amount. No Threshold limit has been prescribed on deducting tax on winning from online games.   8.  Conversion of Physical gold into Digital gold & vice-versa to be tax-free   Any Conversion of physical gold into digital gold receipts (EGRs) & vice versa from April 1, 2023 will be exempt from capital gain tax. It will boost the digital gold market in India & make gold investment opportunities available to Indian investors.   9.  Gifts received by Resident but not-ordinarily residents (RNOR) will be taxable   Any gift received by an RNOR over and above Rs 50,000 will be taxable in their hands.   10.  Deduction claims under section 54 & 54F will be restricted   Taxpayers who sell their house property or any other capital asset & invest the sale amount in a new house property can claim a deduction under sections 54 and 54F. Now from 1st April, 2023, deduction under sections 54 and 54F will be restricted to Rs 10 crores. Any long- term capital gain (LTCG), if the period of holding is more than 24 months will be taxed at 20% with indexation benefit under section 112.   11.  Senior Citizens Savings Scheme   Senior citizens can now deposit up to Rs 30 lakh under the senior citizens savings scheme from 1st April, 2023. Earlier, the deposit limit was restricted to Rs 15 lakhs. The maximum

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Debentures

Debentures Meaning, Types, Features, its advantage & disadvantage

In this article, we will discuss Debenture, its feature, types, advantage & disadvantage.   What are Debentures?   A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, they must rely on the creditworthiness & reputation of the issuer for support. Both corporates and governments frequently issue debentures to raise capital or funds.   Similar to most bonds, debentures also pay periodic interest payments called coupon payments. Like most bonds, debentures are also documented in legal contract between the bond issuer and the bondholders. Some debentures can be converted into equity shares while others cannot.   The contract specifies features of a debt offering such as maturity dates, the timing of interest or coupon payments, the method of interest calculation & other features. Only Corporates & Governments can issue debentures. Governments typically issue long-term debentures—those with maturities of longer than 10 years & are generally considered as low-risks investment.   Debentures of corporates are unsecured. They have the backing of only the financial viability & creditworthiness of the underlying company. These debentures pay an interest rate & are redeemable or repayable on a fixed date. A company typically makes these scheduled debt interest payments before they pay stock dividends to shareholders.   It is advantageous for companies since they carry lower interest rates & longer repayment dates as compared to other types of loans and debt instruments.   Features of Debentures   Interest Rate – Coupon rate is determined, which is the rate of interest that the company will pay the debenture holder or investor. This coupon rate can be either fixed or floating. A floating rate might be tied to a benchmark such as the yield of the 10-year treasury bond and will change as the benchmark changes.   Credit Rating – Company’s Credit Rating & debenture’s credit rating impacts the interest rate that investors will receive. Credit-rating agencies measure the creditworthiness of corporate and government issues. These entities provide investors with an overview of the risks involved in investing in debt. Any debt instrument receiving a rating lower than a BB is said to be of speculative grade.   Maturity Date – For non-convertible debentures, the date of maturity is also an important feature. This date dictates when the company must pay back the debenture holders. The company has options on the form the repayment will take. Most often, it is as redemption from the capital, where the issuer pays a lump sum amount on the maturity of the debt. Alternatively, the payment may use a redemption reserve, where the company pays specific amounts each year until full repayment at the date of maturity.   Debentures Risks to Investors   Debenture holders may face inflationary risk. Here risk is that the debt’s interest rate paid may not keep up with the rate of inflation. For example – Inflation causes prices to increase by 5%. If the debenture coupon pay interest at 4%, the holders may see a net loss, in real terms.   Debentures may carry credit risk & default risk. These are only as secure as the underlying issuer’s financial strength. If the company struggles financially due to internal or macroeconomic factors, investors are at risk of default on the debenture. A debenture holder would be repaid before common stock shareholders in the event of bankruptcy.   Example of a Debenture   Example of a Government Debenture would be Government Treasury Bond (T-Bond). T-bonds help finance projects and fund day-to-day governmental operations.   Some T-Bonds trade in the secondary market. In the secondary market through a financial institution or broker, investors can buy and sell previously issued bonds. T-bonds are nearly risk-free since they’re backed by the full faith and credit of the government. However, they also face the risk of inflation and interest rates increase.   Advantage & Disadvantage of Investing in Debentures   Advantage Disadvantage Debentures are debt instruments issued by the company that promises a fixed interest rate on the due date Payment of interest and principal becomes a financial burden for the company in case of no profits Issuing debentures is one of the most effective ways to raise funds for a company compared to equity or preference share Debenture holders are the creditors of the company. They cannot claim profits beyond the interest rate and principal amount These instruments are liquid and can be traded on the stock exchange During the recession, the company’s profit declines, and it becomes difficult to pay interest Debenture holders do not have voting rights in the company meetings. Thus, it does not dilute the interest of equity shareholders Debenture holders have no voting rights. Hence, they do not have control over management decisions During inflation, issuing debentures can be advantageous as they offer a fixed interest rate During redemption process of debenture, there is a large amount of cash outflow The holders bear minimum risk because interest is payable even in case of loss of the company Default payment has adverse effects on the creditworthiness of the company   Types of Debentures   Registered v/s Bearer – Registered debentures are registered to the issuer. The transfer or trading in these securities must be organized through a clearing facility that alerts the issuer to changes in ownership so that they can pay interest to the correct bondholder.  Bearer debenture are not registered with the issuer. The owner (bearer) of the debenture is entitled to interest simply by holding the bond.   Redeemable v/s Irredeemable – Redeemable debentures clearly indicates exact terms and date by which the issuer of the bond must repay their debt in full. Irredeemable (non-redeemable) debentures, on the other hand, do not hold the issuer liable to repay in full by a certain date. Because of this, irredeemable debentures are also known as perpetual debentures.   Convertible v/s Non-Convertible   1  Convertible debentures are bonds that can convert into equity shares of the issuing corporation after a specific period. These are hybrid

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common mistakes in investment

Common Investment Mistakes Investors should avoid while making Investment

In this article, we will discuss about common investment mistakes investors should avoid while making investment.   Common Investment Mistakes Investors should avoid while making Investment are   1   Not Investing   Of all of the mistakes that a beginner investor might make on their investing journey is not investing. Retirement is expensive & unfortunately, most of us won’t be able to save enough without a lot of help from the stock market. If you had invested that money in the stock market and it was allowed to compound, meaning you earned interest on your interest. The same amount of money contributed throughout your life would be significantly higher by investing in the stock market instead of any fixed or low return investing instruments.   2.  Using money you can’t afford to risk   When you invest money that you cannot afford to risk, your emotions and stress levels get higher, which can lead to poor and impulsive investment decisions. When evaluating stocks, consider your risk tolerance, which is your willingness to lose a portion or all of your original investment in exchange for higher returns. When determining your risk tolerance, evaluate the securities or asset classes you’re comfortable with, such as growth stocks v/s bonds v/s fixed savings instruments. Don’t invest money you can’t afford to lose, such as your emergency funds. You will make much better investment decisions by investing money that you can afford to risk.   3. Being driven by Impatience   Another investing mistake is a lack of patience. If you’re investing for the long term, stocks may not experience the desired gains right away. If a company’s management team unveils a new strategy, it may take months or several years for that new approach to play out. Too often, investors will buy shares & then immediately expect the shares to rise at highest level. What often makes investing profitable is the magic of compounding. Compounding takes time to really work, which is why those who start saving at young age (in their early 20s) often see the best returns.   4. Learning about shares & stock knowledge from the wrong places & following the crow   Getting stock, shares tips or information from the wrong sources is another common and costly investing mistake. Following the crowd is an investing mistake since it doesn’t involve research but instead mirrors what other investors are doing. Many people only hear about an investment after it has already performed well. If certain stocks double or triple in price, the mainstream media tends to cover those moves as hot takes. Television, Newspaper & the Internet (including social media) can push stocks higher into excessively overvalued territory. There is no shortage of experts in the stock market who are willing to offer their opinions while presenting them as if they are educated and endlessly correct. Even stock analysts that work for investment firms get it wrong and usually have a solid grasp of the company and the industry they cover. In other words, even if they’re qualified to render an opinion, they can still be wrong. Generally, government-backed reliable sources is a good place to start for general investment advice or guidance. You could also consult a financial advisor to guide you through the process. Not even the most experienced and successful investor can predict the future. If an investment professional guarantees a certain outcome on your investment, consider it a red flag.   5. Not doing your due diligence   Not performing due diligence when investing can be a costly mistake. With a proper due diligence strategy Investors are more likely not to be blindsided and make well-evaluated investment decisions. An individual investor should perform proper due diligence especially with highly speculative and volatile penny stock shares. The more due diligence, the better your investing results. If you’ve reviewed the company, including any warning signs and potential risks, you’re much less likely to be negatively surprised by an event.   6. Investing without goal & understanding of your risk profile   Setting goals is extremely important. Once you set a goal, you are determined and focused to achieve it. Goal-setting restructures your brain cells in order for you to be more successful in achieving them. Your brain tries to bring down all possible obstacles that keep you away from achieving these goals. Once you set a goal, like buying a house or going on vacation to your favorite destination, you are less likely to miss your SIPs or tamper with your savings. Because, suddenly, you feel like these goals matter to you the most. As important as it is to set a goal, understanding your risk profile is equally important. Different investment options have different risk profile. Understanding the risk of investing in different categories of investments will allow you to understand your risk profile in a better way. An equity-oriented portfolio will have more risk than a debt-oriented portfolio or a fixed investment portfolio.   7. Try to time the market   Market timing is generally prevalent amongst stock market investors, where they make buying and selling decisions based on their predictions about the future market price movements. Many investors also try to time the market. They try to sell off their investment when they feel the market is going to crash. These predictions might not always be true. Many researchers and experts say it’s impossible to time the market. Moreover, trying to time the market leads to your goals not getting realized. The reason being, by redeeming your investment from time to time, whenever you feel, the market is going to crash, you are missing out on opportunities like the benefit of compounding that lets you reach your goal faster.   8. Reshuffling your investments too often   By looking at the returns or a promising headline, makes a lot of investors sway towards doing the same thing. Many investors make the mistake of falling into this trap too often. Based on the predictions based on headlines

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Capital gain exemptions

Section 54, 54EC, 54F: Capital Gain Tax Exemption, Deposit in Capital Gain Account Scheme

In this article, we will discuss about Section 54, 54EC & 54F of Capital Gain Tax Exemption.   Section 54, 54EC, 54F: Capital Gain Tax Exemption   Capital Gains Exemption can be claimed under the Income Tax Act by reinvesting the amount in either purchasing/ constructing a Residential House or by reinvesting the amount in Capital Gain Bonds. Seller of the asset either has the option to claim exemption or pay 20% Long Term Capital Gains (LTCG) Tax. Following exemptions can be claimed on the sale of a Long-Term Capital Asset i.e. on sale of an asset which was held for more than 2 years: Section 54:  Asset Sold – Residential Property, New Asset Purchase – Residential Property Section 54EC: Asset Sold – Any Asset, New Asset Purchase – Specified Bonds Section 54F: Asset Sold – Any Asset, New Asset Purchase – Residential House Section 54:  (Asset Sold – Residential Property, New Asset Purchase – Residential Property)   Under this section – Any LTCG arising to an Individual or HUF, from the Sale of a Residential Property (whether Self-Occupied or on Rented) shall be exempt to the extent such capital gains is invested in the following manner:   Purchase of another Residential Property within 1 year before or 2 years after the transfer of the Property sold and/or   Construction of Residential house Property within a period of 3 years from the date of transfer/sale of property. Note – 1  Provided that the New Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition. If the new property is sold within a period of 3 years from the date of its acquisition.   2. Then, for the purpose of computing the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exempt under section 54 earlier.   3. The capital gain arising from this transfer will always be a short term capital gain (STCG).   Quantum of Deduction under Section 54   Capital Gains shall be exempt to the extent it is invested in the purchase and/or construction of another house.   If the Capital Gains amount is equal to or less than the cost of the new house, then the entire capital gain shall be exempt.   If the amount of Capital Gain is greater than the cost of the new house, then the cost of the new house shall be allowed as an exemption   Number of Houses that can be purchased for claiming Section 54 Exemption:   Capital Gains Exemption is allowed only if the Capital Gains exemption is invested in construction/purchase of 1 residential house, irrespective of the no. of houses already owned by the person, if he invests the capital gain in construction/purchase of a single residential house – then capital gains exemption can be claimed.   An exception to the above rule, in cases where the amount of Capital Gains does not exceed Rs. 2 Crores, the capital gains exemption would be allowed even if the investment is made in purchase/construction of 2 residential houses. However, this exemption of purchasing 2 residential houses can be claimed only once. This exemption once claimed cannot be claimed in again in any other year. For all other years, investment should be made in construction/ purchase of 1 residential house only.   Capital Gains Account Scheme    In Section 54, the assessee is given 2 years to purchase the house property or 3 years for the construction of the house property, but the capital gains on the transfer of the original house property is taxable in the year in which it was sold. The Income Tax Return of that year is required to be submitted in the relevant assessment year on or before the specified due date for filing the Income Tax Return. Hence, assessee will have to take a decision for the purchase/construction of the house property till the date of furnishing of the income tax return otherwise, the capital gain would become taxable.   To avoid the above situation, the Income Tax Act specifies an alternative in the form of deposit under the Capital Gains Account Scheme (CGAS).   The amount of Capital Gain which is not utilized by the assessee for the purchase or construction of the new house before the date of furnishing of the Income Tax Return should be deposited by him under the CGAS, before the due date of furnishing of ROI.   The details of deposit i.e. the Date of Deposit & amount deposited are required to be mentioned in the Income Tax Return while claiming the Capital Gains Exemption. In this case, the amount already utilized by the assessee for the purchase/construction of the new house shall be eligible for exemption.   In case, the assessee deposits the amount in the CGAS but does not utilized the amount deposited for the purchase or construction of a residential house within the specified period, the amount not so utilized shall be charged as Capital Gains of the year in which the period of 3 years is completed from the date of sale of the Original Asset & it will be LTCG of that financial year.   Other Important Points   Allotment of a flat by DDA under the Self-Financing Scheme shall be treated as construction of the house. Similarly, allotment of a flat or a house by a co-operative society, of which the assessee is the member, is also treated as construction of the house.   The assessee shall be entitled to claim exemption in respect of capital gains even though the construction is not completed within the statutory time limit.   Where the assessee made substantial payment within the prescribed time limit & acquired substantial domain over the property, although the builder failed to hand over the possession within the stipulated period, exemption u/s 54 is allowed.   House Property does not mean a complete Independent House. It includes residential units also, like flats in a multi-storeyed complex.  

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Life Insurance Policy rules

Life Insurance Policy Taxation Rules

In this article, we will discuss about Life Insurance Policy Taxation Rules. Important points that need to be considered in case of taxability of Life Insurance Policy   1.. Deduction under Section 80C 2. Exemption under Section 10(10D) on maturity of policy 3. TDS on the life insurance policy 4. Tax implication of single premium life insurance policies   Buying a life insurance plan is very important for people who have dependent family members. The policy will help you protect the financial future of your parents, spouse & children. Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers tax deduction u/s 80C of Income Tax Act.   Deduction under Section 80C   Any premium paid towards a Life Insurance Policy is allowed as deduction. A taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction u/s 80C in respect of premium on life insurance policy paid by him during the year. However, the LIC Premium is allowed on ACTUAL PAYMENT BASIS only (not on due basis). It will be allowed even if the premium payment is made in cash. In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children. No deduction is available in respect of premium paid in respect of policy taken in the name of any other person, other than as mentioned. In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF. Limit of Deduction u/s 80C – Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.   Minimum holding period   Minimum holding period in case of Life Insurance Policy is 3 years. In case policy is terminated/surrender before the minimum holding period then the deduction allowed in earlier years would be deemed as income of the previous year of termination. Further, no deduction will be allowed in respect of payment made towards such policy which is terminated during the year of termination.   Exemption under Section 10(10D) on the maturity benefit   Section 10(10D) of the Income Tax Act allows any amount received such as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy as exempt if premium paid on the policy must not be more than 20% of sum assured for policies issued before April 1, 2012 & 10% of sum assured for policies issued after April 1, 2012.   In case of policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability u/s 80U or suffering from disease or ailment given u/s 80DDB, limit will be 15% of sum assured.   Benefits of section 10(10D) also apply to any gains arising out of ULIPs & Single Premium Life Insurance Policies (if the conditions mentioned in section 10(10D) are met).   Deductions are applicable to both foreign as well as Indian life insurance companies.   TDS on the life insurance policy   In case life insurance policy is taxable, TDS u/s 194DA will be applicable if the amount received is more than ₹1 lakh. TDS rate will be 5% on the income component (amount received – total premium paid in the tenure of the policy). Any amount received under life insurance policy is taxable under the head “Income from other sources” as per the applicable income tax slab rate, if not exempt u/s 10(10D).   When will be the amount received as maturity proceeds, bonus amount, survival benefits or surrender value on life insurance policy is taxable ?   There are certain situations when Section 10(10D) does not apply, If the premium paid towards the life insurance policy is more than 10% of the sum assured for policies issued after April 1, 2012 & for policies taken before April 1, 2012, if premium paid more than 20% of sum assured, then tax benefit is not available.   Also, as per Finance Budget 2023, any sum received from life insurance policy having premium annually in a financial year is more than Rs 5 lakh would be taxable from 1st April 2023. If a policyholder already has a life insurance policy with premium exceeding Rs 5 lakhs in a financial year, then it will be exempt from tax, if all the other conditions u/s 10 (10D) are satisfied. The new tax law is applicable only to the policies purchased on or after 1st April, 2023.   This Income tax rule will NOT be applicable on ULIP policy. Any amount received on the death of the person insured will still be exempt from tax.   For ULIP plans, the tax exemption limit is limited to Rs 2.5 lakhs annual premium payment in a financial year.   Tax implication of single premium life insurance policies   For a single premium payment life insurance policy, the premium paid is often more than 10% of the sum assured. Hence, the maturity benefit of the policy will be taxable under the head “Income from other sources” as per the applicable income tax slab rate. TDS u/s 194DA @ 5% will apply on the income component (amount received – total premium paid in the tenure of the policy) if the amount received is > ₹1 lakh. For example, if a policy is taken on 12 July, 2013 with a maturity value of ₹3.5 lakh, the single premium amount will be approximately ₹95,000, which is over 10% of the sum assured. Suppose, if assessee surrendered the policy on 16 July, 2019 & he/she received Rs 1,50,000 then the insurance company would deduct TDS @ 5% on Rs 45,000 (income component). Rs 1,50,000 received as surrender value will be taxable under the head “Income from other sources” as per the applicable income tax slab rate.   Comparison of Old Regime & New Regime tax (under section 115BAD) for investing in life insurance policies  

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Summary of Income tax notice issued under section 148A & 148 for not reporting income in ITR & its Procedural requirement

In this article, we will discuss Summary of Income tax notice issued under section 148A & 148 for not reporting income in ITR & its Procedural requirement.   Reason for Income Tax Notices issued by the department    1   Non – Filing or Late Filing of ITR – Every taxpayer having Gross Total Income (GTI) before claiming deduction is > basic exemption limit, then he/she is required to file ITR within due date, failing to which they may receive a notice from the department. Also, if ITR is not filed for a particular year, department can issue a notice even after several years.   2.  Differences in Income & TDS Details – If the department find any difference between the income declared in the ITR & income reflected in other documents such as Form 26AS, AIS, TIS or Form 16, then they may issue a notice to the taxpayer. Furthermore, if the TDS claimed by taxpayer doesn’t match the TDS details mentioned in form 26AS, then also they may receive a notice from department.   3.  Non-disclosure of Income or Investments – If department suspect that taxpayer has not disclosed all their income or investments detail, then they may issue a notice to the taxpayers for non-disclosure of income or investments to the taxpayer.   4.  Tax Dues or Refund Adjustments – If a taxpayer has any outstanding tax dues or any interest, fees or penalty pending, then also department may issue a notice to recover the dues pending. Moreover, If a taxpayer has claimed any refund in his ITR then also department may adjust the refund against any outstanding dues & issue a notice for balance tax to the taxpayer.   5.  High Value Transactions – High value transactions include purchase or sale of property, investments in stocks, mutual funds, bonds, FD, TD etc. Taxpayer must report these transactions in their ITR & pay the required taxes applicable on it, otherwise if department find any differences or non-reporting of these transaction income, they may issue a notice.     Asking for Explanation under section 148A & issue of notice under section 148 by the department    As per Section 148A of the Income Tax Act, if income tax officer has information that the taxpayer has escaped income for any assessment year on which tax is payable in that case, the officer will provide a chance to the taxpayer to explain their case before issuing notice. The assessee gets a chance of opportunity of being heard by the officer.   AO will give assessee not less than 7 days but not more than 30 days for furnishing his/her explanation.   After seeing the taxpayer’s reply, the AO shall decide whether it is a fit case to issue notice for income escaping assessment under section 148. If the AO decides to reopen the case, a copy of the order & a notice under Section 148 must be issued to the taxpayer.   If the AO is dis-satisfied with the submissions filed by the assessee, then he shall pass an order u/s 148A & thereafter issue a notice u/s 148 for the relevant assessment year (RAY), directing assessee to file return of income for the RAY.   After receiving the order u/s 148A & notice u/s 148 the assessee needs to file the return of income for the RAY within time prescribed in the notice u/s 148 and proceedings for assessment will start.   Time Limit for issuance of notice under Section 148A   As per Section 148A, a notice can be issued within 3 years from the end of the relevant assessment year. However, notice can be issued beyond 3 years but up to 10 years from the end of the relevant assessment year, only if there is evidence that the taxpayer has escaped taxable income of at least Rs 50 lakhs.   AO shall obtain the approval of specified authority (Principal Chief Commissioner or Chief Commissioner) before conducting any such enquiries, also providing an opportunity of being heard to the taxpayer before passing order u/s 148A. However, this provision is not applicable in search or requisition cases.   Difference between Section 148A & 148 of the Income Tax Act   Section 148 provisions from 1 April 2021 have some amendments making it mandatory to follow the procedures specified u/s 148A, before issuing of notice u/s 148.   From 1st April 2021, the AO under the new provision u/s 148A requires to conduct an inquiry or provide the taxpayer with an opportunity to be heard in relation to the information that indicates that the income chargeable to tax has escaped assessment, which requires the assessee to explain his case & to get the proceedings dropped with the satisfaction of the AO. AO must obtain prior approval of specified authority before issuing such notice u/s 148A.   It is obligatory for the AO to issue notice u/s 148A(b) to the assessee, containing the information along with material evidence which has escapement of income, which can be countered by the assessee by way material and evidences available with him.   This is a major change from the old provision of Section 148 in which the information of reason for re-opening of case and satisfaction recorded by the AO was made available to the assessee only after issuance of notice u/s 148 in the old rule and after filing of return of Income by the assessee.   Section 148 requires that the AO issue a notice to the taxpayer if there is a ‘reason to believe’ by the AO that the taxpayer has escaped reporting any income in the RAY.   After issuing the notice, the AO may assess or reassess or re-compute the total income for such a year u/s 147 of the Income Tax Act.   Happy Readings!   Disclaimer: The information contained in this website is provided for informational purposes only, and should not be construed as legal/official advice on any matter. All the instructions, references, content, or documents are for educational purposes

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Investment Strategy

Investment Strategy for Beginners – how to plan, save & invest in different segment

In this article, we will discuss about Investment Strategy for Beginners.   Investment Strategy for Beginners   As an investor, you need to follow the below steps before starting your investment journey which are as follows:   First of all, you have to prepare your per month income & expense sheet to have a better understanding. For example –  If your per month income is Rs 40,000 per month & household & other expenses is Rs 25,000 per month then your saving is Rs 15,000 per month.   a) There is a General Thumb Rule which says – An Individual needs to save & invest at least 15-20% of their salary. So, for example – If your salary is Rs 30,000 per month then you should save & invest at least Rs 4,500 to 6,000.   b) The Second Thumb Rule says – An individual need to invest (100 – their current age) in equity investments such as equity oriented mutual fund, shares etc. & the balance amount in debt fund or secured investment fund. So, for example – If your age is 30 then 100-30 = 70% of your investment should be part of your equity investment & balance 30% should be part of your debt & fixed investment.   c) It is a general tendency in India that after getting their salary credited to their account, the individual first pays their essential expenses as required & then they spend the balance amount on their own luxuries & after that any amount left with them, they will save & invest (Income – Expense – Personal spend = Savings). This is the wrong approach to save money, the ideal scenario will be Income – Savings (which should be equal to 15-20% of their income) = Expenses & Personal Spend.   d) Remember, there is no point having a large sum of money to be sitting idle in your saving bank account because the rate of interest in saving account is largely 2-3 % which will depreciate your money & also decrease your purchasing power. India Inflation rate is around 5-6% annually, so if you put your money idle in saving bank account it will depreciate your money & also will reduce your purchasing power because the things which can afford at present will become expensive in the future years to come due to inflation rate. Since your savings which barely gets a interest rate of 2-3% will reduce your money & purchasing power considerably.   e) Always remember you just don’t have to save the money but have to invest accordingly to get the desired return to build your wealth.   Investment Procedure   1. Set Your Objectives – Set your objective before starting your investment. Whether you want to invest for short time period (say < 3 years) or you want to invest for long time period (say > 3 years). Setting long tern horizon can be a great benefit when investing in Mutual Fund & Share Market. Your investment portfolio will grow based on factors such as the amount of capital invested, the tenure of investment & the net annual earning on capital. Hence, it is advisable to begin investing as early as possible as it helps you to save a significant amount of money & enjoy the power of compounding on your investment.   2. Find what is your risk tolerance (risk appetite) capacity? The types of investments you choose will depend greatly on your risk tolerance (risk appetite). The best way to identify the risk is to conduct a comprehensive comparison between the different schemes of Investment. Doing so will enable you to figure out what levels of risk each product holds & you can invest money accordingly. Generally, there are 3 types of investors having risk taking capacity are classified: a) Low risk-taking investors b) Moderate risk-taking investors c) High risk-taking investors   3. Whether adequate amount of emergency fund has been kept in place if required by the investors? Generally emergency fund needs to be kept of around 6-8 months of individual earning of one month salary. Emergency fund has to be highly liquid assets, so that int can be withdrawn anytime 24*7. It is preferable to keep Emergency fund in Fixed Deposits as it is highly liquid assets.   4. Whether proper cover has been taken by the investor by securing his life through any Life Insurance Policy or a Term Plan & proper Health Insurance Policy? It is preferable for any investor that before starting your investment journey, you should have an ideally 1 or 2 Life Insurance policy or 1 Term Plan (in case of dependency level on earning member of the family is more). It is also advisable to have a adequate health insurance policy to be taken in the name of main earning member of the family & health insurance should cover his spouse & children also, If any.   5. Based on the risk appetite & also considering investment diversification in mind, Investor should first invest their money in safe investment mode having fixed Rate of Return (RR) generating capacity which will give them a fixed RR & also the compounding effect on their return in the long run. Always remember its the inflation adjusting return that you actually earn, hence you should invest in that investment instrument that give you inflation adjusted return.   Tips for smart Investment   a) It is preferable to first invest in fixed investment returns such as Public Provident Fund (PPF), National Pension Scheme (NPS) & Post Office Deposit Scheme.   b) Investment in fixed investment return gives you security of fixed earning even in dynamic & adverse situation which is guaranteed. Investment in PPF & NPS not only gives you the guaranteed returns but you can also claim deduction under section 80C & 80CCD (1B) of the Income Tax Act, 1961 amount to Rs 1,50,000 & Rs 50,000 at the time of filing of your Income Tax Return in the

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