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leave travel Allowance

Leave Travel Allowance (LTA) Tax Exemption, Eligibility, Rules & Claims

  LTA or leave travel concession is the allowance paid by your employer to cover your travel expenses, while you go on leave with or without your family. LTA forms a part of your cost to company (CTC) and is given as a yearly benefit but can be availed of monthly. In this article, we will discuss about Leave Travel Allowance (LTA) Tax Exemption, Eligibility, Rules & Claims.   The Income Tax Act, 1961 provides various exemptions to salaried class. Exemption means exclusion from total taxable income. Such exemptions enable the employers to structure Cost to Company (CTC) of employees in a tax efficient manner. One of such exemptions available to salaried class under the law and also widely used by employers is Leave Travel Allowance (LTA) /Leave Travel Concession (LTC). LTA exemption is also available for LTA received from former employer w.r.t travel after the retirement of service or termination of service. LTA is a type of allowance which is provided by the employer to his employee who is travelling on leave from work to cover his travel expenses LTA is an important component of the salary of the employee as it is eligible for income tax exemption as per section 10(5) of the IT Act, 1961 LTA received by the employer will not be a part of his net income of the year Value of LTA provided to High Court (HC) or Supreme Court (SC) Judge & members of his family are completely exempt from tax without any conditions.   The eligible criteria/condition for claiming LTA   1.  LTA can only be claimed on actual travel cost. Actual journey is a must to claim the exemption. All the mediums of the travel i.e. road, rail or air are claimable under LTA. However, employee must submit a valid proof of cost to claim the LTA.   2.  LTA can be claimed only on travel expense. Food or stay or any such expenses excluding travel cannot be part of it. LTA is exempt from tax   3.  LTA can only be claimed on domestic travel expenses. You cannot claim LTA on the expenses incurred during the international trip (if any) of the employee   4.  Employee cannot claim LTA in every financial year. LTA can be claimed only for two journeys in a block of 4 calendar years. The block years for LTA purposes are decided by government. The current running block for claiming LTA is calendar years 2018-2021. The last running block for LTA was 2014-2017   5.  LTA can only be claimed when the employee has been on leave from work for travelling purpose, the employee should mark the period as “leave”. For example – Sanju went on a holiday to Manali with his family and friends. He received Rs 50,000 as LTA from his employer. However, he spent Rs 30,000 for the air tickets of his family. The total LTA exemption he can claim is Rs 30,000, an amount he spent. The balance amount of Rs 20,000 received as LTA will be added in his taxable income.   Expenses that can be included in LTA   Tax benefits are available only on actual travel expenses incurred on rail, road or air fares only subject to the following condition:- Travel by Air – The air fare of the economy class of the national carrier (Air India) by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.   Travel by Train – If the place of origin & destination is connected by rail & journey is performed by any mode of transport other than air, then the first class AC rail fare by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.   Travel by Other Modes a)If the place of origin & destination of the journey are not connected by rail but a recognized mode of transport exists for the route then the first class or deluxe class fare for the shortest route for the recognized mode of transport or the actual expenditure incurred, whichever is less, can be claimed as tax exemption. b) However, if there is no recognized mode of transport for the route, then the amount equivalent to the first class A.C. rail fare of the distance covered assuming that the journey has been performed by rail can be claimed as tax exemption.   Procedure of claiming LTA   It is generally employer specific. Every employer announces the due date within which LTA can be claimed by the employees & may require employees to submit proof of travel such as tickets, boarding pass, invoice provided by travel agent etc along with the mandatory declaration. It is not mandatory for employers to collect proof of travel, it is always advisable for employees to keep copies for his/her records & also to submit to employer based on LTA policy of the company/to tax authorities on demand.   Carry Forward of the unclaimed LTA of a block year to the next block year   If the employee has not claimed LTA in the last running block or just claimed it once, he can still claim one additional LTA in the next block of calendar years under the carry over concession rules under which an employee can claim LTA tax break on 3 journeys made in current block of years. However, in order to utilize the carry over concession facility, one LTA exemption with respect to journey must be claimed in first calendar year of next block. For example – If an employee had just claimed one tax exemption under LTA in last block of year i.e. between 2014-2017. Now, he is  eligible to make LTA claims up to 3 journeys in current block i.e. between 2018-2021. However, his first claim must be made in first calendar year of current block i.e. 2018.   Who are included in the travel cost claimed for tax benefit under LTA?   LTA tax exemption claim can

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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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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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All About HUF – A Clear Approach

I believe you must have heard of Hindu Undivided Family (HUF). Most of the people think that this is a person which are created by some kind of Agreements etc. Well, if you are also one of them then it’s time to bust your myth about that. Because the fact is something far different from that. So, Let’s understand the concept in a bit detail: 1. What is HUF? A Hindu Undivided Family (HUF), as its name suggests is Joint Family which is taken as a separate entity from that of the Individual Members consisting in HUF. The Head of the Family (i.e. Father/ any elected person in case of the death of Father) is called Karta which operates the business of the HUF. 2. How HUF is created? HUF does not arise from a contract. But, it is a Creation of Law. After marriage as soon as a Child is Born, HUF comes into existence. Hindu, Buddhists, Jains, and Sikhs can form HUF. HUF usually has assets which come from a Gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF. 3. Which Individuals are part of HUF? HUF consist of Co-Parceners (who are Family Members) and the distant relatives i.e. called as Members of HUF. 4. Who are Co-Parceners and Members? Co-Parceners: Co-Parceners are the Family Members and it is consist of 4 levels of Lineal descendants including the first male ancestor. It is only a Co-Parcener who can demand the Partition of 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]   Members of HUF: Any other distant Relatives who are not the Family Member (e.g. Brother-in-law, Sister-in-law etc.) would be deemed as the Member of HUF. Although they are Members of HUF, they are not the Co-Parceners. A member can not demand the Partition of HUF. [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.] 5. Partition of HUF? Under Hindu Law, Partition of HUF can be of 2 types: Total Partition & Partial Partition;   Total Partition: It is a type of Partition in which entire family property is being divided among the Co-Parceners. After the total partition HUF ceases to Exist. Partial Partition: It is a type of Partition in which some of the willing co-parceners get out of the HUF and rest of them continue the HUF. The Partial Partition may be property specific also when some of the properties are divided among the co-parceners and balance continue to be the property of the HUF.   [Imp. Note: Under the Income tax Act, ONLY TOTAL PARTITION IS RECOGNISED, a partial partition is not considered as the partition.] 6. Assessment after Total Partition: When a claim of total partition has been made by any Co-Parcener on behalf of HUF, the Assessing Officer shall enquire about it. For this, he shall serve a notice to all the Co-Parceners of the HUF and enquire whether the total partition has taken place and if yes, then on which date it is affected. If the Partition of the has been affected in the previous year, the total income of the HUF of the previous year up to the date of partition shall be the Total Income of HUF. EVERY MEMBER SHALL BE JOINTLY AND SEVERALLY LIABLE for the tax on such assessed income of HUF. The Several liability of a Co-Parcener would be proportionate to the share of joint family property allotted to him on such partition. 7. Some Important Points: Is there any minimum no. of co-parceners required for an entity to be taxed as HUF? A HUF can be formed with just two members one of whom is a co-parcener. But for an entity to be taxed as a HUF, it should have at least two co-parceners. For example; When any HUF consist of only Husband and Wife, then there is only one co-parcener (because the wife is a member but not a co-parcener) and therefore, in such case income can’t be taxed in hands of HUF. It will be taxed in the hands of Individual Co-Parceners. Can HUF pay remuneration to Karta or Any Member of HUF? Yes. As per Supreme Court decision in Jugal Kishor Baldeo Sahai Vs. CIT, such remuneration would be deductible if it is paid: – Under a valid and Bonafide Agreement; and – In the interest of and expedient for the business of family; and – Reasonable and not Excessive. What is the position of a Married daughter? Unmarried daughters would always be a Co-Parcener and have the equal right over the property just like a Son. Although, the Status of Married Daughters would be as follows: – In Her Father’s Property: She will remain a Co-Parcener even after the marriage. – In her In-Laws House: She will always be a Member but Not the Co-Parcener. Although, Husband can give his co-parcenary right to her wife. Can HUF run a Sole Proprietorship Business? Since HUF is one person as per Income Tax Act, a Proprietor of a business can be an Individual or a HUF. A Proprietorship concern is not governed by any specific law as such, and therefore there is no bar on HUF becoming a Proprietor of any concern. In case of any Ideas, Suggestions or Any other information, please do comment below. You can subscribe for our blogs @taxeffects.com and providing us your email in the “Follow” section. You can also reach us at taxeffectsofficial@gmail.com. Share It . .

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