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Tax Audit

Income Tax Audit – Meaning, Applicability, Objective, Due date of filing tax audit, Penalties for not filing

April 11, 2024

In this article, we will discuss in detail about Tax Audit & its applicability under Section 44AB of the Income Tax Act, 1961. Tax Audit meaning:   Section 44AB of the Income Tax Act, 1961 specifies that every person who earns income by any business or profession has to maintain his books of accounts & get a tax audit done except those who opted for presumptive taxation under section 44AD, 44ADA, 44AE of the income tax act, 1961 or if their turnover exceeds the specified threshold limit of Rs 1 Crore. Tax Audit refers to the activity in which an auditor examines or reviews the accounts of a business to check for tax compliance. Some companies are legally required to carry out regular audits under Section 44AB of the Income Tax Act, 1961 & for them performing periodic tax audits is mandatory. The main goal of a tax audit is ensuring that the details related to the income, expenditure & tax-deductible expenditure information are filed correctly by the business undergoing audit.   Who need to get tax audit done?   1.  Any self-employed individual who is engaged in a business with an annual turnover of Rs. 1 crore & above. 2.  A self-employed professional whose income receipts aggregate Rs. 50 lakhs or more in a financial year. 3.  An individual who qualifies for the presumptive taxation scheme under Section 44AD & Section 44ADA but claims that the specified profits (8%/6%, as the case may be) are lower than those calculated in accordance with the presumptive taxation scheme for the financial year. Provided, if: a) Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount and b) Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment. Threshold limit would be 10 crores instead of 1 crore. Note – i) Payment/receipt by a cheque/draft, which is not account payee, shall be deemed to be payment/receipt in cash. ii) Professionals are not entitled to claim an enhanced turnover limit of Rs. 10 crores u/s 44ADA. In other words, more than 95% of the business transactions should be done through banking channels.   4.  An individual who qualifies for the presumptive taxation scheme under Section 44AE (Plying, hiring or leasing goods carriages having not more than ten goods carriage vehicles), Section 44B (Non-Resident Shipping Business), Section 44BBA (Non-Resident Aircraft Business), Section 44BB (Non-resident assessee engaged in exploration of mineral oil) & Section 44BBB (Foreign Company engaged in Civil Construction) but claims that the profits are lower than those calculated in accordance with the presumptive taxation scheme.   5.  If an assessee, who has qualified for taxation under the presumptive taxation scheme opts out of it after a specified period. After opting out of the presumptive taxation scheme, the assessee is not allowed to opt into the presumptive taxation scheme for a continuous period of 5 assessment years.   Exception of Tax Audit for Individual having turnover exceeding Rs 1 crore but up to Rs 2 crores:   – If an Individual whose gross receipts or turnover from business exceeds Rs 1 crore but is up to Rs 2 crores, then he can opt for Presumptive Taxation under section 44AD of Income Tax Act, 1961 then he will not be liable to maintain books of accounts u/s 44AA & also will not be liable for tax audit u/s 44AB of Income Tax Act, 1961 if he discloses the required percentage of profit as required u/s 44AD of Income Tax Act, 1961. – This Section is applicable only for Resident Individual, HUF or Resident Partnership Firm (not Limited Liability Partnership) – The required percentage of profit as required to be disclosed u/s 44AD of Income Tax Act, 1961 is as follows: a) 6% of Gross receipt or total turnover if the amount is received through any mode other than cash. b) 8% of Gross receipt or total turnover if the amount is received through cash mode. c) No further deduction of business expenditure will be allowed from section 28 to Section 43 of Income Tax Act, 1961 under the head business income & it will be deemed to have been allowed.   Goals & Objectives of a Tax Audit:   – To make sure that even medium and small business owners maintain book of accounts, ledgers as well as receipts for revenue and expenses properly. – To report observations or discrepancies after a methodical examination of the books of account of the business. – To report prescribed information including compliance of different provisions of the Income Tax laws such as tax liability, tax paid, eligible refund amount, etc. – To enable the tax authorities to verify the correctness of income tax returns filed by the business owner. – To make it easy for the tax assessing authorities engaged in carrying out routine verifications to calculate and verify information such as total income, claim for deductions, etc. furnished by the taxpayer. – To identify and restrict any fraudulent practice by businesses.   Forms for Submission of a Tax Audit:   Form 3CA: This form is required to be furnished by a person who is carrying on a business or profession that requires that accounts are audited under any rule other than Section 44 and its subsections. Form 3CB: This form is required to be furnished by a person who is carrying on business or profession which does not require that his accounts are audited under any rule except Section 44 and any of its subsections. Form 3CD: If either of the aforementioned audit reports is prepared, the tax auditor must furnish the required particulars using Form 3CD. In India, Tax audit reports under various subsections of 44 can only be prepared by qualified chartered accountants. Currently tax audit reports from chartered accountants are filed electronically with the Income Tax Department. Once the chartered accountant has filed

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Bonds Investments

Taxation on Gains from Bond Investment in India

April 10, 2023

  In India, bonds are financial instruments that are used to raise capital by companies, financial institutions, and government entities. They are essentially debt instruments that provide a fixed rate of return to the investor. Under the Indian Income Tax Act, the interest income earned on bonds is treated as taxable income and is subject to tax at the applicable rate. The interest income earned on bonds is added to the total income of the individual or entity and taxed accordingly. However, there are certain types of bonds that are exempt from tax under the Income Tax Act. For example, interest earned on government securities, such as the National Savings Certificate (NSC), Kisan Vikas Patra (KVP), and Public Provident Fund (PPF), are exempt from tax. In this article, we will discuss about Taxation on Gains from Bond Investment in India.   Taxation on Gains from Bond Investment in India   Bond investors check many parameters while investing in bonds, such as a coupon, frequency of coupon payments, maturity & yield. Important factor to be considered in bond investment is “taxation on gains from bond investment. Few important points that need to be considered before taxation on gain from bond are:   Bonds provide coupon payments and return principal amount on maturity. Firstly, the coupon payments are the gains from bond investment; hence they are taxable. Secondly, you may sell bonds in the secondary market before maturity, or you may hold bonds till maturity. In either of the cases, if there is capital gain, then the gains are taxable.   The bonds listed on the National Stock Exchange are Listed Bonds, and bonds that are not listed on the National Stock Exchange are called Unlisted Bonds.   Short Term Capital Gain Tax is applicable if you sell listed bonds before 12 months (it is 36 months in the case of unlisted bonds).   Long Term Capital Gain Tax is applicable if you hold listed bonds for more than 12 months or hold unlisted bonds for more than 36 months.   TDS will not be deducted on interest received from Listed Bonds & Debentures.   Slab system defines the tax rate applicable to individuals considering age and income. Individuals can be Resident or Non-Resident or HUF or Association of Person (AOP) or Body of Individual (BOI) or any other Artificial Juridical Person (AJP). The applicable tax rate is called the slab rate.   Taxation of bonds in India as follows   1.  Regular Taxation of Bonds in India – Interest earned from Bonds is taxed as per marginal slab rate, and the maximum slab rate is 30 %. Appreciation of the bond price is considered as capital gain and taxed accordingly. If these bonds are held for the long term (more than 12 months for listed bonds and more than 36 months for unlisted bonds), the capital gain tax will be 10 %. Short-term capital gain tax can be 5% to 30%. Example – Mr. Suresh is a senior citizen aged 65. He has invested Rs. 10 lakhs in listed bonds. The coupon rate, i.e., interest rate, is 10% paid annually. His annual income is 9 lakhs. So, he comes under the 20% slab rate Investment amount – 10,00,000 Coupon rate -10% Annual Interest income – 1,00,000  Tax on interest income:- 1,00,000 * 20% = Rs 20,000 Suresh has to pay Rs. 20,000 taxes on interest income every year till maturity or till he resells bonds STCG Tax – Suppose after 10 months, if he sells bonds for Rs.10,50,000, then the capital appreciation is Rs.50,000 Tax on STCG – 20% X 50,000 = Rs 10,000 LTCG Tax – Suppose after three years, if he sells bonds for Rs. 13,00,000, then the capital appreciation is Rs. 3, 00, 000 Tax on LTCG – 10% X 3,00,000 = Rs 30,000 Note – i) Indexation benefits can be availed only in the case of inflation-indexed bonds or capital indexed bonds. ii) The income should be listed under the ‘income from other sources’ section in your income tax forms   Tax Free Bonds   In the case of Tax- free bonds, the interest earned from bonds is not taxed, but price appreciation of the bonds during maturity (or sale) is considered as capital appreciation. Hence capital gain taxes are applicable. Considering the holding period, either LTCG or STCG, will be applicable.   Tax Saving Bonds   Section 54EC Bonds are Capital Gain Tax Exemption Bonds that provide 100% tax exemption on the long-term capital gain earned by selling any property. These bonds are the best options to save tax after the property sale. But conditions apply, such as the time gap between property sale and bond investment cannot exceed six months. Also, the investment limit in Section 54EC Bonds is 50 lakhs. Section 54EC Bonds do not provide any exemption on short term capital gains. Note – i) Interest earned on tax exemption bond will be taxable as per the slab rate of the individuals. Income should be listed under the ‘income from other sources’ section in your income tax forms. ii) There is a lock-in-period of 5 years on these exempted 54EC bonds from the date of purchase of bonds, if these bonds are sold before 5 years from date of purchase then the LTCG exempted earlier will be taxable in the hands of assessee. Even if any loan or security is taken against these bonds will be treated as redemption & LTCG exempted earlier will be taxable.   Example – An immovable property is sold at Rs. 85 lakhs after a period of 42 months from the date of acquisition. The indexed cost of acquisition is 52 lakhs and indexed cost of improvement is Rs. 13 lakhs. Calculate the capital gain that is taxable after claiming exemption under Section 54EC if investment amount is Rs. 22 lakhs invested in NHAI bonds within 6 months from date of sale of immovable property Particulars Amount (Rs) Sale Consideration 85,00,000 Less: indexed cost of acquisition 52,00,000 Less: indexed cost of improvement 13,00,000 Long Term Capital Gain 30,00,000 Less: Investment in NHAI

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leave travel Allowance

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

April 10, 2023

  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)

April 8, 2023

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

April 8, 2023

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

April 8, 2023

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

April 8, 2023

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

April 8, 2023

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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TDS

All about TDS- Meaning, Applicability, Rates, Due dates & Amendments (AY 2023-24)

April 7, 2023

In this article, we will discuss about the Tax Deducted at Source (TDS) all sections & amendments in detail. Tax Deducted at Source (TDS)   TDS is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons  making such payments.  Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments.   Due date for depositing the TDS   TDS must be deposited to the government by 7th of the subsequent month.  For example, TDS deducted in the month of June must be paid to the government by 7th July.   Due date of filing TDS returns   Filing TDS returns is mandatory for all the persons who have deducted TDS. TDS return is to be submitted quarterly. Different forms are prescribed for filing returns depending upon the purpose of the deduction of TDS. Various types of return forms are as follows: Form 26Q – TDS on all payments except salary Form 24Q – TDS on Salary Form 27Q – TDS on all payments made to non‐residents except salaries Due dates – Q1 (April to June) – 31st July, Q2 (July to September) – 31st October, Q3 (October to December) – 31st January & Q4 (January to March)  – 31st May Rates of TDS applicable for Financial Year 2022‐23 or Assessment Year 2023‐24:   Section – 192 – Salaries   Deductor – Any Resident Person Deductee – Any person Threshold Limit – If Total Income of the Employee is upto Basic Exemption Limit, then no TDS Tax Rate – Individual Slab Rate Other Conditions – a) Tax will include Surcharge (if any) & Cess (always) b) Employer shall consider other income & deduction of employee & not consider any loss other than House Property loss if provided by employee. c) Employee can take credit of Tax on Non-monetary perquisite paid by the employer. d) In case of Arrears of salary, TDS is deducted after considering relief under section 89. e) If employee opts for Section 115BAC (New Tax Regime) – He will intimate to the employer & Form 10BA need to be filed before due date of filing of ITR return. Section -192A‐ Premature withdrawal from Employee Provident Fund Deductor – Any Resident Person Deductee – Any person Threshold Limit – Rs 50,000 Tax Rate – 10% Other Conditions – a) TDS only if amount is taxable in the hands of employee – if employee renders < 5 years of service & amount received is more than Rs 50,000 b) If PAN is not furnished, TDS is deducted as Maximum Marginal Rate (MMR) i.e. 30% tax rate + 37% maximum surcharge rate + 4% cess = 42.744%. Section -193‐ Interest on securities   Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 2,500 Tax Rate – 10% Other Conditions – No TDS if: a) Interest is payable on CG or SG Securities b) Interest is paid to LIC, GIC or any other insurer c) Interest is payable on DMAT Securities d) Interest is payable on debenture of public company to Individual/HUF (If amount not exceed Rs 5,000 p.a.) Section -194‐ Dividend   other than the dividend as referred to in Section 115‐O (Deemed dividend) – Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 5,000 Tax Rate – 10% Other Conditions – No TDS if: a) Dividend is paid to LIC, GIC or any other insurer b) Paid to Individual other than Cash (If amount not exceed Rs 5,000 p.a.)   Section -194A – Interest other than interest on securities   Banks Time deposits, Recurring deposit and Deposit in Co‐op Banks Deductor – Any Resident Payer Deductee – Any Payee Threshold Limit – Rs 40,000 (for individual), Rs 50,000 (for Senior Citizens) & Rs 5000 (for others) Tax Rate – 10% Other Conditions – If bank opting for Core Banking Solution (CBS), then limit will be checked per bank wise not per branch wise. No TDS if: a) Interest on Saving Bank account b) Interest paid by Firms to Partners c) Interest on Income Tax Refund. However, Interest on IT refund of NRI will be liable for TDS deduction at applicable rate. d) Interest is paid to any other bank, LIC, UTI or any other insurer e) Interest is paid by co-operative society to its member or any other co-operative society f) Interest on compensation awarded by Motor Accident Claim Tribunal, if amount not exceeds Rs 50,000 p.a g) If interest is credited by bank to provisioning account on daily/monthly basis for macro monitoring only by use of CBS Software    Section -194B – Winning from Lotteries, Crossword Puzzle, Card games etc   Deductor – Any Person Deductee – Any Person Threshold Limit – Rs 10,000 Tax Rate – 30% Other Conditions – If winning in kind, then the organizer will release winning only after ensuring that TDS on winning is paid to the Govt.  Section -194BB – Winning from Horse Race   Deductor – Any Person Deductee – Any Person Threshold Limit – Rs 10,000 Tax Rate – 30% Other Conditions – TDS will be deducted without set off of loss   Section -194C – Payment to Contractor   Deductor – Any Resident Payer Deductee – Any Resident Person Threshold Limit – Rs 30,000 (Single Bill/Invoice)/ Rs 1,00,000 (Aggregate Payment for whole financial year) Tax Rate – Individual/HUF – 1% / Others – 2%. Other Conditions – a) Work Contracts includes Advertisement, Broadcasting, Telecasting, Catering, Transportation of goods/passenger (other than railway) & Manufacturing/Supplying product as per customer specification out of the material supplied by such customer or its associate (Job Work). b) Payment made for personal purpose by Individual/HUF – No TDS c) Contract also includes Sub-Contracting d) TDS is not applicable on payment to Contractor engaged in plying, hiring or leasing of goods carriages u/s 44AE, where such contractor owns 10 or less goods carriages during the financial year & furnishes PAN. e) No TDS if Single Transaction is < Rs 30,000 & aggregate payment during the financial year is < Rs 1,00,000.    Section -194D – Insurance Commission   Deductor – Any Insurance Company Deductee – Any Resident Person Threshold Limit – Rs 15,000 Tax

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Gifts tax

Taxability of Monetary Gifts, Immovable Property & Prescribed Movable Property received for adequate or inadequate consideration

April 1, 2023

Taxability of Gifts received by an Individual or Hindu Undivided Family (HUF)   Any sum of money or property received by an individual or a HUF without consideration or a case in which the property is acquired for inadequate consideration. As per the Income Tax Act, 1961 which was amended in 2017, any gifts received by any person or persons are taxed in the hands of the recipient under the head ‘Income from other sources’ at normal tax rates under section 56(2)(x). From the taxation point of view, gifts can be classified as follows: Any sum of money received without consideration, is termed as ‘monetary gifts’.   Specified movable properties received without consideration, is termed as ‘gift of movable property’.   Specified movable properties received at a reduced price (i.e., for inadequate consideration), is termed as ‘movable property received for less than its fair market value’.   Immovable properties received without consideration; is termed as ‘gift of immovable property’.   Immovable properties acquired at a reduced price (i.e., for inadequate consideration), is termed as ‘immovable property received for less than its stamp duty value’.   Tax treatment of monetary gifts received by an Individual or Hindu Undivided Family (HUF)   Any sum of money received without consideration (i.e., monetary gift may be received in cash, cheque, draft, etc.) by an individual/ HUF will be charged to tax if following conditions are satisfied –   Sum of money received without consideration. The aggregate value of such sum of money received during the financial year exceeds Rs. 50,000.   Provisions relating to gift applies in case of every person, but gifts by a resident person to a non-resident are claimed to be non-taxable in India as the income does not accrue or arise in India to ensure that such gifts made by residents to a non-resident person are subjected to tax in India, the Finance Act, 2019 has inserted a new clause (viii) under Section 9 of the Income-tax Act to provide that any income arising outside India, being money paid without consideration on or after 05-07-2019, by a person resident in India to a non-resident or a foreign company shall be deemed to accrue or arise in India.   Cases in which sum of money received without consideration, i.e., monetary gift received by an individual or HUF is not charged to tax –    Money received from relatives. Relative for this purpose means: i) In case of an Individual      a) Spouse of the individual b) Brother or Sister of the individual c) Brother or Sister of the spouse of the individual d) Brother or Sister of either of the parents of the individual e) Any lineal ascendant or descendent of the individual f) Any lineal ascendant or descendent of the spouse of the individual g) Spouse of the persons referred to in (b) to (f)ii) In case of HUF, any member thereof   Money received on the occasion of the marriage of the individual.   Any distribution of capital assets on total or partial partition of a HUF   Money received under will/ by way of inheritance.   Money received in contemplation of death of the payer or donor.   Money received from a local authority.   Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)]   Money received from or by a trust or institution registered under section 12A, 12AA or section 12AB [w.e.f. AY 2023-24, this exemption is not available if a sum of money is received by a specified person referred to in section 13(3)].   Money received by any fund or trust or institution any university or other educational institution or any hospital or other medical institution referred to in section 10(23C) (iv)/(v)/(vi)/(via).   Money received as a consequence of demerger or amalgamation of a company or business reorganization of a co-operative bank under section 47.Note –   i) Gifts received on the occasion of marriage of the individual is not charged to tax. Apart from marriage there is no other occasion when monetary gift received by an individual is not charged to tax. Hence, monetary gift received on occasions like birthday, anniversary, etc. will be charged to tax.   ii) Gifts received from relatives are not charged to tax (meaning of ‘relative’ has been discussed above). Friend is not a ‘relative’ as defined in the above list & hence, gifts received from friends will be charged to tax (if other criteria of taxing gift are satisfied). For example – Mr. X received monetary consideration as gifts from his 5 friends in a financial year which is as follows: Mr. A – Rs 8,000, Mr. B – Rs 16,000, Mr. C – Rs 9,000, Mr. D – Rs 14,000 & Mr. E – Rs 13,000.Although the total amount received by Mr. X from his all 5 friends does not exceeds Rs 50,000 individually, but since the aggregate value of amount received from all the 5 friends exceeds Rs 50,000 in a financial year. The whole amount of Rs 60,000 will be added to his income & tax as per his income tax slab rates.   iii) Once the aggregate value of gifts received during the year exceeds Rs. 50,000 then all gifts are charged to tax – The important point to be noted in this regard is the “aggregate value of such sum received during the year”. The taxability of the gift is determined on the basis of the aggregate value of gift received during the year and not on the basis of individual gift. Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then total value of all such gifts received during the year will be charged to tax (i.e., the total amount of gift & not the amount in

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