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Summary of various Tax Saving Investments under section 80C & their features as per Income tax act

In this article, we will discuss about various tax saving investments under section 80C & their features as per Income tax act which are as follows: 1. Voluntary Provident Fund (VPF) –   a) Liquidity – Very Low Liquidity b) Lock-in-period – 5 years lock-in-period, but partial withdrawals is permissible as loan after 5 years. c) Risk – Low Risk d) Returns – 8.10% per annum (Rates fixed by government annually) e) Tax Treatment – i) Investment, Interest Earned & Maturity Amount are all tax exempt. However, if EPF/VPF contribution is above Rs 2.5 lakhs in any financial year, then the interest earned on such excess contribution is taxable in  the hands of employee making contribution. ii) TDS u/s 194A @ 10% will be deducted on interest earned in excess of Rs 2.5 lakhs in any financial year if interest amount exceeds Rs 40,000/50,000 threshold limit of TDS deduction. iii) Interest earned will be taxable under the head income from other sources.   2. Public Provident Fund (PPF) –   PPF is a popular investment scheme among investors, it is a long-term investment scheme who want to earn fixed stable returns. It is ideal for individuals with a low-risk appetite. it is backed up with guaranteed returns to protect the financial needs of investors. a) Liquidity – Very Low Liquidity b) Lock-in-period – 15 years lock-in-period and partial withdrawals is permissible after 7 years c) Risk – Low Risk d) Returns – 7.10% per annum (Rates fixed by government every quarter) e) Tax Treatment – Investment, Interest Earned and Maturity Amount are all tax exempt. Note – i) It is advisable to invest in PPF account through lumpsum method at the starting of the financial year (probably in April or May month on or before the 5th  date of the month) to cover the maximum portion of interest payable to maximise your return. ii) Interest is payable on PPF taking into consideration whether amount is deposited in the PPF account before 5th of the month or after 5th of the month, if amount is deposited before 5th of the month, then interest will be taken for the full month but if amount is deposited after 5th of the month, then interest for that particular month will be ignored. 3. Sukanya Samriddhi Scheme (SSC) –   SSY is launched by government as a part of Beti Bachao Beti Padhao campaign specially for girl’s child. a) Liquidity – Very Low Liquidity. b) Lock-in-period – SSY comes with a lock-in period of 21 years & will mature after the expiry of 21 years. However, up to 50% of the deposit amount can be withdrawn prematurely only after the girl child reaches the age of 18 years. c) Risk – Low Risk d) Returns – 7.60% per annum (Rates fixed by government every quarter) e) Tax Treatment – Investment, Interest Earned and Maturity Amount are all tax exempt 4. National Pension Scheme (NPS) –   NPS is a government backed pension scheme a) Liquidity – Very Low Liquidity b) Lock-in-period – when the investor attains 60 years of age. However, partial withdrawals are permissible only after 3 years only in certain specific circumstances such as medical emergency, child marriage etc. c) Risk – Medium Risk d) Returns – 10% – 12% per annum (variable return) e) Tax Treatment – i) Investment, Interest Earned and Maturity Amount are tax exempt upto 60% of total amount. Balance 40% amount need to be invested in purchasing annuities & will be taxable as per the income tax slab rates. ii) Only Tier- 1 account of NPS investment is eligible for tax exemption. Tier – 2 account is fully taxable. iii) If the total corpus amount from NPS is upto Rs 5 Lakhs, then the whole amount can be withdrawn & will be fully exempt from tax. 5. Unit Linked Insurance Plan (ULIPs) –   ULIPs offer both insurance coverage and investment exposure in equity. a) Liquidity – Moderate Liquidity b)  Lock-in-period – 5 years lock-in-period c) Risk – Medium Risk d) Returns – Variable Return depends on ULIP insurance product e) Tax Treatment – i) Investment, Interest Earned and Maturity Amount are all tax exempt. However, if the annual premium exceeds Rs 2.5 lakhs in any financial year during the term of the policy, then any proceeds such as survival benefit, moneyback, maturity amount will be taxable in the hands of policyholder. ii) No exemption will be allowed u/s 10(10D) of the income tax act even if premium amount is upto 10%/20% of sum assured of the policy. iii) TDS @ 5% u/s 194DA will be deducted on the income portion (Amount Received – Premium Paid) if total received amount exceeds Rs 1,00,000. 6. Five Year Tax Saving Bank FD –   FD are considered as one of the safest tax saving schemes. It is also considered by investors as their emergency fund in case of any emergency situation arises to them. As the interest rates are fixed, it is safer. a) Liquidity – Moderate Liquidity b) Lock-in-period – 5 years lock-in-period c) Risk – Very low Risk d) Returns – Fixed Return (depends upon bank FD rate) e) Tax Treatment – Investment and Maturity Amount are tax exempt. However, interest earned will be taxable as per income tax slab rate under the head income from other sources. 7. National Saving Certificate (NSC) –   NSC is a fixed income investment scheme that aims at the small & middle-income investors to invest & earned returns. It is considered as a low-risk investment. a) Liquidity – Moderate Liquidity b) Lock-in-period – 5 years lock-in-period c) Risk – Low Risk d) Returns – 7% per annum (Rates fixed by government quarterly) e) Tax Treatment – Investment and Interest Amount in the first 4 years are tax exempt. However, interest earned in the 5th year will be taxable as per income tax slab rate under the head income from other sources. 8. Equity Linked Saving Scheme (ELSS) –   ELSS

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TDS on Sale of Property by NRI – Applicability, Rate & amount on which TDS to be deducted, Procedure of TDS Payment, TDS Return & TAN No.

Applicability of TDS on Sale of Property by NRI –   Whenever any property is purchased/sold, TDS is required to be deducted. The buyer when paying the amount to the seller will deduct TDS & pay the balance to the seller. TDS which has been deducted by the buyer would then be required to be deposited with the Income Tax Department by the buyer. TDS to be deducted would be depend on the residential status of the seller. In case the Seller is a Resident Indian – the amount of TDS to be deducted would be 1% of Sale Price, only if the value of actual sales consideration exceeds Rs 50 Lakhs, whereas in case the Seller is a NRI – the amount of TDS to be deducted would depend on the quantum of money received by the seller irrespective of the Transaction Value of the Property. The residential status of the buyer would not be considered and only the residential status of the seller would be considered for computing the amount of TDS to be deducted. Rate of TDS on Sale of Property by NRI – TDS on Sale of Property by NRI is required to be deducted as per the rates mentioned below: In case of Long Term Capital Gains (LTCG) – Period of Holding – Property held for more than 2 years, TDS Rate on Sale of Property by NRI will be 20%. In case of Short Term Capital Gains (STCG) – Period of Holding – Property held for less than 2 years, TDS Rate on Sale of Property by NRI will be as per Income Tax Slab Rates of Seller. Note– Surcharge (If any) and Health & Education Cess (always) would also be levied on the above amount since the assessee is an NRI & In case of NRI Health & Education Cess @ 4% is always applicable. Hence, the effective rate of TDS on sale of property by NRI in case of LTCG would be as follows: Particulars Property Sale Price (Rs.) Less than 50 Lakhs 50 Lakhs to 1 Crores 1 Crore to 2 Crores 2 Crore to 5 Crores Above 5 Crores Long Term Capital Gains Tax 20% 20% 20% 20% 20% Add: Surcharge Nil 10% of above 15% of above 25% of above 37% of above Total Tax (including Surcharge)   20% 22% 23% 25% 27.4% Add: Health & Education Cess 4% 4% 4% 4% 4% Applicable TDS Rate (including Surcharge & Cess) 20.80% 22.88% 23.92% 26% 28.496%   Important Notes:- a) In case of STCG (i.e. if Property has been held for less than 2 years by the seller), this Surcharge and Cess would be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as explained above for LTCG. b) This TDS is required to be deducted whenever any payment is made to the NRI for purchase of property. Even if any advance is being paid for purchase of property – TDS is required to be deducted. c) This TDS is required to be deposited by the buyer with the Income Tax Department stating that this is the TDS which he has deducted from the payment made to NRI on purchase of immovable property. d) This TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs, TDS is required to be deducted. Amount on which the TDS is required to be deducted –   (1). TDS on sale of property by NRI is required to be deducted under Section 195 & is ideally required to be deducted on the Capital Gains. However, this computation of Capital Gains cannot be done by the Seller himself and should be done by the Income Tax Officer. (2). Seller shall file an application in Form-13 with the IT Department & request them to compute his Capital Gains. The procedure for filing of this form is a bit complicated & the seller can take the services of a chartered accountant for filing an application with the IT Department. Several documents like Purchase Price, Date of Purchase, any expenses on Renovation/ Construction etc. would be required to be submitted along with the Form 13. The Income Tax Officer will review these documents and if he is satisfied, he will issue a certificate for lower deduction of TDS. (3). In case there are 2 sellers (i.e. Co-owners), both of them would be required to file Form 13 separately for reducing the TDS Rates. (4). The IT Department will compute the Capital Gains of the seller & will issue a certificate for Nil/ Lower deduction of TDS depending on the capital gains arising on the sale of property. (5). Provisions of lower TDS Certificate apply to both NRI’s as well as OCI Card holders and OCI card holders can also avail the benefit in the same manner. (6). The seller is required to give this certificate to the buyer & the buyer will deduct the TDS as per the rates mentioned in the income tax certificate. (7). In case this certificate is not obtained by the seller from the IT Department, the TDS should be deducted on the Total Sale Price & not on the Capital Gains. Therefore, it is very important for the seller to obtain this certificate from the Income Tax Officer. (8). In case Seller does not opt for this certificate, he can also apply for Refund of the excess TDS deducted at the end of the year. (9). Seller can reduce his Capital Gains which will lead to lesser TDS and Tax Liability if the seller intends to reinvests the capital gain in India. (10). The details of the TDS deducted shall be mentioned in Property Sale Agreement. It is not the responsibility of the Property Registrar to ensure the TDS Deduction. The Registrar will register the Sale Agreement even if the TDS is not

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Income Tax Department Launches Mobile App for Annual Information Statement (AIS) View

INCOME TAX LAUNCHES MOBILE APP FOR AIS VIEW Income Tax Department is pacing with technology and now it has launched mobile application for AIS view. Now the taxpayer can view AIS within a click. The assessee can also provide feedback on information reflecting in AIS. The application launched is totally free of cost. AIS is Annual Information Statement in which Significant Financial transactions are reflected. It includes GST Turnover, GST Purchases, Income in which TDS is deducted, Purchase and Sale of Mutual Funds and Shares, refunds received and other reporting transactions. The taxpayer has to download the mobile app and verify it with otp send on email and mobile. They can set 4 digit password and track all the details in AIS/TIS. AIS can also be tracked by logging into income tax e-filing account. The Department is maintaining consistency with the details in portal and mobile app. OUR COMMENTS Government has shaken hands with technology and wants to widen the tax base. It is taking every useful step through which it can curb tax evasion. Mobile is easy to use and handy. The taxpayer may find it difficult to log into portal and find details in AIS. Therefore, Govt has launched mobile app so that every businessman gets handy summary of his significant financial transactions and he can pay tax timely and also take timely financial decisions. ***** The above comments do not constitute professional advice. The Author can be reached at contact@financialtreecompany.com or visit our website www.financialtreecompany.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). 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 only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this article or for any conclusion of the information. Share It . .

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PPF Investment – What is Public Provident Fund? Features, Advantage, Disadvantage & Tax Benefits

In this article, we will talk in detail about PPF investment. Public provident fund (PPF) is a popular investment scheme among investors, it is a long-term investment scheme who want to earn fixed stable returns. It is ideal for individuals with a low-risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either. Investors can also undertake PPF regime to diversify their financial and investment portfolios. At times of downswing of the business cycle, PPF accounts can provide stable returns on investment annually.  [A]. Features of a PPF account – a) Interest rates – 7.1% per annum b) Tax benefit – up to Rs 1.5 Lakhs under section 80C c) Risk – Risk free, offer guaranteed returns d) Minimum Investment amount – Rs 500 in each financial year e) Maximum Investment amount – Rs 1,50,000 in each financial year f) Lock-in-period – 15 Years [B]. PPF investment criteria – A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a PPF account annually. This investment can be made on a lump sum or SIP basis. However, an individual is eligible for only 12 yearly instalment payments into a PPF account. Investment in a PPF account has to be made every year to ensure that the account remains active. Note – It is advisable to invest in PPF account through lumpsum method at the starting of the financial year (probably in April or May month on or before the 5th of the month) to cover the maximum portion of interest payable to maximize your return. [C]. PPF lock-in-period – A PPF account has a lock-in period of 15 years on investment, before which funds cannot be withdrawn completely. An investor can choose to extend this tenure by 5 years after the lock-in period is over if required. [D]. Loan against PPF Investment – PPF provide the benefit of availing loans against the investment amount. However, the loan will only be granted if it is taken at any time from the beginning of 3rd year till the end of the 6th year from the date of activation of the account. The maximum tenure of such loans against PPF is 36 months. Only 25% or less of the total amount available in the account can be claimed for this purpose. [E]. PPF Eligibility Criteria – Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a PPF account in their name, provided it is operated by their parents. A PPF account can be held only in the name of one individual. Opening PPF account in joint names is not allowed.  Non-residential Indians (NRI) & Hindu Undivided Family (HUF) are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents. [F]. PPF Interest – The interest payable on PPF scheme is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country. Presently, Interest rates payable on such accounts at 7.1% and are subject to quarterly updates at the discretion of the government. Interest rate provided by the Government of India towards the PPF scheme is Compound Interest and not simple interest. Compound interest (interest on interest) is more fruitful for the investor, as each year the principal increases, and the interest is again calculated on the increased principal (in simple interest, the principal remains the same for each successive year). [G]. Tax Benefits on PPF – PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. In other words, all deposits made in the PPF are deductible under section 80C of the Income Tax Act. However, it should be noted that the maximum contribution in PPF cannot exceed Rs.1.5 lakh in one financial year. The total interest accrued on PPF investment is also exempt from any tax calculations. The entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. It is important to note that a PPF account cannot be closed before maturity. [H]. PPF Withdrawal – Mandatory lock-in of 15 years is imposed on the principal amount invested in such plans. In case of emergencies such as life-threatening sickness faced by the account holder or dependents, paying for higher education, child marriage, partial withdrawal can be made. However, this amount can only be extracted after the completion of 5 years of activation of the account. Up to 50% of the total balance can be withdrawn in one transaction each financial year succeeding in the 4th year. Funds invested in a PPF account cannot be liquidated before the completion of the maturity period. Individuals looking for long-term risk-free investment options providing stable yields can easily opt for this scheme. [I]. PPF Account Opening Procedure – Both offline and online procedures are available for an individual provided he/she meets requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office. Following documents is needed at the time of opening of a PPF account: KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc Duly filled account opening application form PAN Card Address proof Form for nominee declaration Passport sized photograph [J]. How to activate an inactive PPF account – In order to reactivate an inactive PPF account, you can follow the steps below: Submit a written letter to the bank or Post Office (PO) branch requesting to reactivate your PPF account Pay a minimum amount of Rs.500 for each year you have not made any contributions along with the penalty of Rs.50 per inactive year Bank or PO will process your request and reactivate your PPF account No loan or

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Set Off & Carry Forward of Losses under the Income Tax Act

In this article, we will discuss Set Off & Carry Forward of Losses. Income tax law in India provides taxpayers with some benefits of setting off & carrying forward the incurred losses. Here are the details: 1. Set off of losses – It means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be an intra-head set-off or an inter-head set-off. [A]. Intra-head set off – Losses from one source of income can be set off against income from another source under the same head of income. For example: a) Loss from the Manufacturing Business can be set off against Profit from the Textile Business, where the Manufacturing Business is one source & Textile Business is another source & common head of income is “Business”. b) Set off of loss from self-occupied property against profit from another rented house property is an intra-head set-off. Exceptions of Intra-head set-off – 1). You can set off a loss under the head ‘house property’ against any other income head to the extent of Rs. 2,00,000 only for any assessment year 2). Losses from a Speculative Business will only be set off against the profit of the speculative business. It cannot adjust the losses of speculative business with the income from any other business or profession. 3). Loss from an activity of owning and maintaining race-horses will be set off only against the profit from an activity of owning and maintaining race-horses. 4). Long-term capital loss (LTCL) will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gains (STCG) (i.e., LTCL cannot be set off against STCG). 5). Losses from a specified business under section 35AD will be set off only against profit of specified businesses under section 35AD. But the losses from any other businesses or profession can be set off against profits from the specified businesses. 6). Losses from trading in Cryptocurrency & other Virtual Digital Assets (VDA) – You cannot set off loss from the transfer of cryptocurrency, NFT, or VDA against any other income. Further, you cannot set off loss under any other head of income against profit on transfer of cryptocurrency, NFT, or VDA.  You also cannot carry forward such loss to future years. [B]. Inter-head set off – After the intra-head adjustments, taxpayers can set off remaining losses against income from other heads. For example – Set off of loss from self-occupied house property against salary income. Before making the inter-head set-off, the taxpayer has to first make the intra-head set-off. Few more examples of an inter-head set off of losses are: Loss from house property can be set off against income under any head. Business loss other than speculative business & specified business u/s 35AD can be set off against any head of income except income from salary. Note – following losses can’t be set off against any other head of income: a) Speculative Business loss b) Specified Business loss u/s 35AD c) Capital Losses (Long term or Short-term) d) Losses from an activity of owning and maintaining race-horses 2. Carry Forward of Losses –   After making the adjustments of intra-head and inter-head losses, there could still be possibility of unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rules regarding carry forward are slightly different for different heads of income. [A]. Losses from House Property – Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from house property Can be carried forward even if the return of income under section 139(1) has been filed after the due date. [B]. Losses from Regular Business (other than Speculative Business & Specified Business u/s 35AD) – Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from business or profession Not necessary to continue the business at the time of set off in future years. Cannot be carried forward if the return is not filed within the original due date as specified under section 139(1). [C]. Speculative Business loss – Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from speculative business Not necessary to continue the business at the time of set off in future years. Cannot be carried forward if the return is not filed within the original due date as specified under section 139(1). [D]. Specified Business loss under section 35AD – No time limit to carry forward the losses from specified business u/s 35AD Can be adjusted only against Income from specified business u/s 35AD Not necessary to continue the business at the time of set off in future years Cannot be carried forward if the return is not filed within the original due date as specified under section 139(1). [E]. Capital Losses – Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Cannot be carried forward if the return is not filed within the original due date as specified under section 139(1) Long-term capital losses can be adjusted only against long-term capital gains Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains The order of adjusting STCL & LTCL is not prescribed in the income tax act. Hence, STCL & LTCL are first to be adjusted against that Capital Gain which has the highest tax rate. [F]. Losses from owing & maintaining race horses – Can be carry forward up to next 4

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What is Capital Gains Tax? Type of Capital Assets, Tax Rates, Set-off and Carry Forward Rules

Capital Gain tax in India is imposed upon the profits earned on selling a capital asset. When you sell a capital asset at a higher price than the cost at which you acquired it, you make a profit. This profit is called Capital Gain Income. The income is chargeable to tax & the tax calculated on capital gains is called capital gain tax. 1. Definition of Capital Assets:   Capital asset is defined to include the following 3 things: (A) Any kind of property held by an assessee, whether or not connected with the business or profession of the assessee. (B) Any securities held by an FII as per regulations made under the SEBI Act, 1992. (C) Any ULIP to which exemption under section 10(10D) does not apply. However, the following items are excluded from the definition of “capital asset”:   (1). Any stock-in-trade, consumable stores or raw materials held for the purposes of business or profession. (However, securities held by FII shall never be considered as STOCK). (2). Personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him. But, these following 6 items shall always be considered as Capital Assets even if its being used as personal effects: (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. (3). Agricultural Land in India shall also not be considered Capital Assets and no capital gain tax would be charged on that. However, if agriculture should is situated within these ranges then it will also be considered a Capital Asset, and capital gains tax shall be charged. Within the jurisdiction of a municipality/cantonment board etc. having a population of not less than 10,000; Within the range of the following distance measured aerially from the local limits of any municipality or cantonment board:(a). not being more than 2 KMs, if the population (as per the last census) of such area is more than 10,000 but not more than 1 lakh; (b). not being more than 6 KMs; if the population (as per the last census) of such area is more than 1 lakh but not more than 10 lakhs; or(c). not being more than 8 KMs; if the population (as per the last census) of such area is more than 10 lakhs. (4). 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government; (5). Special Bearer Bonds, 1991; (6). Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999, or deposit certificates issued under the Gold Monetisation Scheme, 2015. The following points should be kept in mind:   The property, being a capital asset, may or may not be connected with the business or profession of the taxpayer. For example, Bus used to carry passengers by a person engaged in the business of passenger transport will be his capital asset. Any securities held by a Foreign Institutional Investor (FII) who has invested in such securities as per regulations made under the SEBI Act, 1992 will always be treated as a capital asset, hence, such securities cannot be treated as stock-in-trade. 2. Types of capital gain?   There are two types of capital gain:- (I). Long-Term Capital Gain (LTCG) – Capital Gain is considered long-term if the asset is held for greater than a specified period. The period is as follows: – 2 years for Immovable Property & Unlisted Shares of Company. 3 years for debt mutual fund, gold investment & any other assets. 1 year for stocks, equity-oriented mutual funds, listed debentures or government securities, zero coupon bonds & units of business trust. (II). Short-Term Capital Gain (STCG) – Capital Gain is considered short-term if the asset is held for less than a specified period. The period is as follows: – Less than 2 Years for Immovable Property & Unlisted Shares of Company. Less than 3 years for debt mutual fund, gold investment & any other assets. Less than 1 year for stocks, equity-oriented mutual funds, listed debentures or government securities, zero coupon bonds & units of business trust. 3. What are the rates at which capital gains are calculated?   The calculation of capital gain tax is done as per the nature of capital gain viz. Long Term or Short Term. Here are the calculations: (I). Taxation of Long-Term Capital Gains (LTCG) as follows:-   a). On Immovable Property & Unlisted Shares of Company – LTCG @ 20% with indexation benefit u/s 112 plus Surcharge (If Applicable) plus 4% Cess. b). On debt mutual fund, gold investment & any other assets – LTCG @ 20% with indexation benefit other than u/s 112 plus Surcharge (If Applicable) plus 4% Cess. c). Long-term capital gains arising from the transfer of “specified asset” – A taxpayer who has earned long-term capital gains from the transfer of any listed security or any unit of UTI or mutual fund (whether listed or not), not being covered under Section 112A, and zero-coupon bonds shall have the following two options: Avail of the benefit of indexation; the capital gains so computed will be charged to tax at normal rate of 20% (plus surcharge and 4% cess. Do not avail of the benefit of indexation; the capital gain so computed is charged to tax @ 10% (plus surcharge and cess as applicable). The selection of the option is to be done by computing the tax liability under both options, and the option with lower tax liability is to be selected. d). The Finance Act, 2018 inserted a new section 112A from Assessment Year 2019-20. As per the new section, the capital gain arising from the transfer of a long-term capital asset being an equity share in a company, equity-oriented mutual funds, or units of business trust shall be taxed @ 10% exceeding Rs 1,00,000 u/s 112A. Here, the Grandfathering Value concept will apply to give a higher exemption from the cost of acquisition if

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Union Budget 2023: Key takeaways from budget 2023, no tax upto Rs 7.5 Lacs in new regime

On 1st February 2023, the finance minister presented the Union Budget 2023 in the parliament. In the budget, many important announcements were made which is going to affect your income and taxes in the coming years. Here are the important points and key takeaway from the Union Budget 2023 for your quick reference: 1. New Income Tax Slab regime –   The finance minister has provided relief to the taxpayers by raising the slab structure. If you opt for the new tax regime (Salaried persons & pensioners including family pensioners), the new tax regime slab rates would be as follows:  Income Tax Slab Tax rate Upto 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% Important Points related to the new regime:   (a). The new tax regime will be the default choice, but the assessee can still opt for the old tax regime. (b). Standard deduction under the head salary of Rs 50,000 & Family pension deduction of Rs 15,000 is now to be allowed under the new tax regime. (c). Income tax rebate under section 87A limit increased from Rs 5 lakh to Rs 7 lakh under the new tax regime. (d). For salaried persons, income up to Rs. 7.5 Lacs will be out of the tax bracket now in the new tax regime. Example: If your salary income is upto 7.5 lakhs in the new tax regime, then first your tax calculation would be done as follow: Total Salary Income Rs. 7,50,000 Less: Standard Deduction Rs. 50,000 Net Taxable Income Rs. 7,00,000 Tax on Rs. 7,00,000 Rs. 25,000 Less: Rebate u/s 87A Rs. 25,000 NET TAX PAYABLE NIL (e). Currently, the highest income tax rate is 42.74% (30% income tax + 37% Surcharge + 4% Cess) if the income of the assessee is more than Rs 5 crores. It has been proposed to reduce the highest surcharge from 37% to 25% in the new tax regime, maximum income tax rate will be 39% (30% income tax + 25% Surcharge + 4% Cess). 2. Presumptive Taxation –   For Presumptive taxation under Section 44ADA & Section 44AD, the turnover/gross receipt limit has been increased to Rs 75 lakhs & Rs 3 crores respectively. The increase limit u/s 44ADA & 44AD will apply only in case the amount or aggregate of the amounts received during the year in cash does not exceed 5% of the total gross receipts/turnover. 3. Leave Encashment –   The leave encashment limit on retirement for non-government salaried employees has been increased from Rs 3 lakhs to Rs 25 lakhs. 4. For Co-Operative Society –   Extension of 15% concessional tax benefits to new manufacturing co-operative society, starting manufacturing till 31/03/2024 provided they do not avail any specified incentive or deduction. Also, the Higher limit of Rs 3 crores for TDS on Cash Withdrawal for Co-operative society. 5. For Start-Ups –   The date of incorporation for availing income tax benefits for start-ups business has been extended from 31/03/2023 to 31/03/2024. Furthermore, the benefit of carry forward of losses on the change of shareholding pattern of start-ups has been increased from 7 years of incorporation to 10 years. 6. Capital Gain Exemption –   Income tax exemption from capital gain on an investment in residential house property under sections 54 & 54F is now capped at up to Rs 10 Crores. 7. Online Gaming –   Removal of minimum threshold limit of Rs 10,000 for TDS regarding taxability relating to online gaming. Now, TDS would be without the threshold limit of Rs 10,000 & taxability will be on net winning at the time of withdrawal or at the end of the financial year. However, for the lottery, crossword puzzle games, gambling, betting, etc. The TDS threshold limit of Rs 10,000 will continue to apply. 8. Conversion of Physical gold into Digital gold –   No treatment of capital gain (i.e., not be regarded as transfer) on Conversion of Physical gold into Digital gold & vice-versa. 9. LIC policies –   Any policies taken on or after 01/04/2023, where the aggregate premium paid for life insurance policies (other than ULIP) is more than Rs 5 Lakhs, income from only those policies with aggregate premiums up to Rs 5 lakhs will be exempt. Any amount received on the death of the person insured will still be exempt from tax. Insurance policies issued till 31st March 2023 without the above Rs 5 lakh limit still be exempt from tax. 10. Other Important Amendments –   – Mahila Samman Savings Certificate will be made available for two years, with deposits of up to Rs 2 lakh at 7.5 % interest. – Senior Citizens Savings Scheme deposit limit raised to Rs 30 lakh from Rs 15 lakh. – PAN will become the common business identifier. – Reducing the TDS rate to 20% from 30% on the taxable portion of EPF withdrawal in non-PAN cases. – Taxation on income from Market Linked Debentures. – Now a taxpayer can obtain a certificate of lower deduction of TDS or NIL rate on sums on which TDS is required to be deducted under section 194LBA by Business Trusts. – Agnipath Scheme, 2022 – Any payment received from the Agniveer Corpus fund by the Agniveers enrolled under Agnipath Scheme, 2022 is to be exempt from tax. – Payment made to MSME – Payment made to MSME will be allowed as a deduction when it is actually paid as per section 43B of the income tax act.   Disclaimer: The information contained on this website is provided for informational purposes only, and should not be construed as legal/official advice on any matter. All the instructions, information, references, content, material, or documents are for educational and general informational purposes only and do not constitute any legal advice. We do not accept any

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What is Hindu Undivided Family (HUF)? How to create it and how to save taxes

Hindu Undivided Family or HUF is one of the most popular methods of saving taxes in India. However, there are many points on which people still have doubts regarding this concept. Therefore, in today’s article, we would be discussing everything about the HUF. So, let’s get started: 1. How to Save Taxes by forming HUF?   In India, there are many families which are undivided and the incomes earned by such families are joint income (and not considered individual incomes). These joint incomes cannot be taxed in the hands of any specific individual and are therefore taxed in the hands of the whole family. As these are taxed in the hands of the family, the family has a separate PAN Card from that of Individual members of the HUF who also have a separate PAN Card. The HUF is also taxed as per the Slab Rates and also it becomes eligible for various tax deductions from sections 80C to 80U. Therefore, by creating HUF, we could get the benefit of slab rates and deductions twice viz. one as Individual taxpayers and second as a HUF. Hence, all of those incomes which are covered under the family (i.e. HUF) name would be taxed separately and therefore it would result in saving of taxes. 2. Who are  “Co-Parceners” and “Members” in HUF?   [A]. Co-Parceners: Co-Parceners are the Family Members and it consists of 4 levels of Lineal descendants including the first male ancestor. It is only a Co-Parcener who can demand the Partition of HUF and can become the Karta of the HUF. It will include the following: 1. Mr. X (Karta) 2. Son/ Daughter of Mr. X 3. Grandson/Granddaughter of Mr. X 4. Great Grandson/ Great Granddaughter of Mr. X [Note: HUF can’t be expanded over the above 4 lineal descendant lines] However, a person who is adopted into the family also becomes its coparcener from adoption though not born in the family. As per the amended law since 2005, even a girl child becomes a coparcener by birth and can continue to be a co-parcener of her father’s HUF even after her marriage. However, she will only be a member of her husband’s HUF. [B]. Members of HUF: Any other distant Relatives who are not a family members (e.g. Brother-in-law, Sister-in-law, etc.) would be deemed as Members of HUF. Although they are Members of HUF, they are not Co-Parceners. Members have the right to be maintained out of the funds of HUF and receive their share at the time of partition but do not have the right to seek for partition or become the Karta. [Imp. Note: Wife is not considered as the direct part of HUF i.e. Co-Parcener. She will be a Member in Husband’s family HUF. Although, She will be a Co-Parcener in her Father’s Property. ALL CO-PARCENERS ARE MEMBERS, BUT ALL MEMBERS ARE NOT CO-PARCENER.] 3. Structure of HUF and who can form it:   By forming a HUF, you can optimize your tax liabilities and also include your family members to benefit in the future. Although HUF is governed by the Hindu law board, it can be formed by Jains, Sikhs, and Buddhists as well. HUF is governed under Hindu law board and could be formed by a married couple or by members of a joint family. HUF could be formed by two members and at least one among them should be a male member of the family. The senior most male member of the family would become ‘Karta’. For the sake of income tax, the HUF is considered as a separate entity and is therefore taxed separately. This helps to separate the tax obligations of an individual from that of his family. The income tax slab for HUF is the same as that of an individual, with an exemption limit of Rs 2.5 lakh, and qualifies for all the tax benefits under Section 80C, 80D, 80G, and so on. It also enjoys exemptions under Sections 54 and 54F with respect to capital gains. Shutting down the HUF is a difficult process and hence it is impossible to proceed with unless all the HUF members agree to the partition. 4. Corpus Fund for HUF (viz. Initial Capital):   Assets received as gifts by HUF (Relatives or non-relatives). Gifts from non-relative should not exceed Rs 50,000. Assets passed on by will that favor HUF Common ancestral property Property acquired from the sale of joint family property Assets received on the partition of a larger HUF of which the coparcener was a member (like a HUF in which the coparcener’s father or grandfather was the Karta) 5. Step for Creating an HUF:   A HUF is created by executing a deed, getting HUF PAN, and opening a bank A/c in the name of HUF. You next need to introduce capital to form the HUF corpus with money received as gifts from relatives or with assets received under a will or inheritance, as it enjoys tax exemption. Care should be taken that personal assets and funds are not transferred to the HUF account, as income generated from it shall later be clubbed under personal income under Section 64 (2). The Karta of a HUF is the senior most male member of the family and in financial terms, he can also be called the “Manager” of the family. In this account, a corpus is created where every family member can pool their income. The corpus will be handled by or authorized to handle by Karta (head of the family). Signature of Karta will be required for every transaction from the bank. These accounts are similar to individual saving bank accounts; there will be various tax benefits that are available for an individual’s account while the income of members is being pooled in the HUF account. 6. Documents required for opening an HUF account:   (a). HUF will have a unique PAN card; this PAN card along with the PAN of Karta should be produced (b). A declaration form will be provided where every

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TDS on Cash Withdrawals (Section 194N)

The Central Board of Direct Taxes ( CBDT ) has issued Clarification on applicability of Tax Deduction at Source ( TDS ) on cash withdrawals. In order to discourage cash transactions and move towards less-cash economy, the Finance (No. 2) Act, 2019 has inserted a new Section 194N of the Income Tax Act, 1961, to provide for levy of tax deduction at source (TDS) @2% on cash payments in excess of one crore rupees in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from one or more accounts maintained with it by the recipient. The above section shall come into effect from 1st September 2019. Since the section provided that the person responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year to deduct income tax @2% on cash payment in excess of rupees one crore, queries were received from the general public through social media on the applicability of this section on withdrawal of cash from 01.04.2019 to 31.08.2019. The CBDT, having considered the concerns of the people, hereby clarifies that section 194N inserted in the Act, is to come into effect from 1st September 2019. Hence, any cash withdrawal prior to 1st September 2019 will not be subjected to the TDS under section 194N of the Act. However, since the threshold of Rs. 1 crore is with respect to the previous year, calculation of the amount of cash withdrawal for triggering deduction under section 194N of the Act shall be counted from 1st April, 2019. Hence, if a person has already withdrawn Rs. 1 crore or more in cash up to 31st August, 2019 from one or more accounts maintained with a banking company or a cooperative bank or a post office, the two per cent TDS shall apply on all subsequent cash withdrawals. 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 only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this article or for any conclusion of the information. Share It . .

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Brief Study of Section 269ST of Income Tax Act, 1961

In this article, we will understand why section 269ST is introduced and what is the need of invoking such provisions. Section 269ST was introduced by finance act, 2017 in the Income-tax act, 1961 by the central government in order to curb the tax evasion, regulation, and circulation of Black money. Most of the transactions in India are done in cash (especially real estate transactions )as a tactic to evade the income tax, as cash transactions are difficult to track by the department. Therefore there is a great need and requirement to invoke such provisions with the intention of restricting cash transactions. There are already provisions in the act to restrict cash transaction. For instance, the provisions of section 40A(3) imposing restrictions on cash expenditure. Similarly, there are provisions under sections like 269SS/269T regarding accepting and repayment of loans in cash. But, there is no provision in income tax regarding cash receipts before inserting section 269ST ( i.e. before 1st April 2017 ) and this what it makes a difference between the existing provisions and 269ST. It cast a restriction on the person receiving the cash i.e. payee. Understanding the provision of section 269ST; No person shall receive an amount of two lakh rupees or more (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Provided that the provisions of this section shall not apply to— (i)  any receipt by— (a)  Government; (b)  any banking company, post office savings bank or co-operative bank; (ii)  transactions of nature referred to in section 269SS; (iii)  such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify. Explanation.—For the purposes of this section,— (a)  “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS; (b)  “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS Important Notes: 1). Applicability: This section is applicable to all persons as defined in section 2(31). It covers all types of receipts whether it is a capital or revenue. Penalty for non-compliance of section 269ST (Section 271DA) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt. Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner. Examples of transaction covered under section 269ST. Example-I:  Laxminarayan & Associates ( a partnership firm ) has entered into a transaction of purchase of immovable property from Pushp Kumar Sahu at a consideration of 25,00,000/- INR. The mode of payment is partly cash and partly by NEFT, cash portion is 5,00,000 and remaining is NEFT. In this case, Pushp Kumar Sahu has received cash in excess of 2,00,000/-INR. In which he has violated the provisions of section 269ST. Therefore penalty will be leviable u/s 271DA for receiving cash @ rate of 100%. In layman, penalty will be levied on transaction portion received in cash. Example-II: Laxminarayan & Associates ( a partnership firm) has withdrawn an amount of 3,00,000/-INR from a bank account in a single day. In this case, receiving person is Laxminarayan & associates which has received an amount exceeding 2,00,000/-but still it is not violating the provisions of section 269ST. Therefore, the penalty will not be levied u/s 271DA; because there is a clarification regarding the same by Central Board of Direct taxes that there will be no restriction on cash withdrawal from the bank. Clarifications in respect of section 269ST of the Income-tax Act, 1961 Vide Circular No. 22 of 2017 Dated 03rd July 2017. F.No.370142/10/2017-TPL Government of India Ministry of Finance Department of Revenue (Central Board of Direct Taxes) (TPL Division) *** With a view to promote the digital economy and create a disincentive against cash economy, a new section 269ST has been inserted in the Income-tax Act, 1961(the Act) vide Finance Act, 2017. The said section inter-alia prohibits receipt of an amount of two lakh rupees or more by a person, in the circumstances specified therein, through modes other than by way of an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Penal provisions have also been introduced by way of a new section 271DA, which provides that if a person receives any amount in contravention to the provisions of section 269ST, it shall be liable to pay the penalty of a sum equal to the amount of such receipt. 2. Subsequently, representations have been received from non-banking financial companies (NBFCs) and housing finance companies (HFCs) as to whether the provisions of section 269ST of the Act shall apply to one installment of loan repayment or the whole amount of such repayment. 3. In this context, it is clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one installment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the installments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST. Thanks Happy readings! Article Written By – Pushp Kumar Sahu 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 only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information contained in this article or for any

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