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Bonds Investments

Taxation on Gains from Bond Investment in India

  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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Capital gain exemptions

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

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

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Life Insurance Policy rules

Life Insurance Policy Taxation Rules

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

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Investment Strategy

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

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

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TDS

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

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

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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Presumptive Taxation

Presumptive Taxation Scheme under sections 44AD, 44ADA & 44AE

In this article, we will discuss about presumptive taxation scheme under sections 44AD, 44ADA & 44AE of the Income Tax Act,1961 What is Presumptive Taxation Scheme?   As per the Income Tax Act, 1961 a person engaged in business or profession is required to maintain regular books of account & also he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has provided the presumptive taxation scheme under sections 44AD, 44ADA & 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate & is not required to maintenance his books of account & to get its accounts audited. Section 44AD: For Small Businesses. Section 44ADA: For professionals. Section 44AE: For GTA Businesses Presumptive Taxation Scheme under sections 44AD Applicability i.     It is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE) ii.    Presumptive taxation scheme under section 44AD can be adopted by following persons: a) Resident Individual b) Resident Hindu Undivided Family (HUF) c) Resident Partnership Firm (not Limited Liability Partnership Firm) iii.    In other words, the scheme cannot be adopted by a non-resident & by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm. iv.    This scheme cannot be adopted by a person who has made any claim for deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant financial year Not Applicable to   i.     Business of plying, hiring or leasing of goods carriages referred to in section 44AE2.A person who is carrying on any agency business. ii.    A person who is earning income in the nature of commission or brokerage iii.   A person carrying on profession referred to in section 44AA (1) is not eligible for presumptive taxation scheme iv.   An insurance agent cannot adopt the presumptive taxation scheme. Insurance agents earn income by way of commission & hence, they cannot adopt the presumptive taxation scheme of section 44AD v.    A person whose total turnover or gross receipts for the year exceed Rs. 2 crores cannot adopt the presumptive taxation scheme. It can be opted by the eligible persons, if the total turnover or gross receipts from the business do not exceed Rs. 2 crores. Manner of computation   (i) In case of a eligible person adopting the provisions of section 44AD, income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year. (ii) In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD is amended with effect from the assessment year 2017-18 to provide that income shall be computed at the rate of 6% instead of 8% if turnover/gross receipt is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date of filing of return under section 139(1) (iii)  However, a person may voluntarily disclose his business income at more than 8% (in case of cash transitions) or 6% (other than cash), as the case may be, of turnover or gross receipt. (iv)   Presumptive income computed as per the prescribed rate is the final income and no further expenses will be allowed or disallowed. i.e. In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance/disallowances as provided for under the Income-tax Act will not apply and income computed at the presumptive rate of 6% or 8% will be the final taxable income of the business covered under the presumptive taxation scheme. Separate deduction on account of depreciation is also not available. (v)    No need to maintain books of account as prescribed under section 44AA   Payment of Advance tax   In respect of income from business covered under section 44AD: a.   Any person opting for presumptive taxation scheme is liable to pay whole amount of advance tax on or before 15thMarch of the previous year. b.   If he fails to pay the advance tax by 15th March of previous year, he shall be liable to pay interest as per section 234C.Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.   Provisions applied if a person declares income at a lower rate, i.e., at less than 6% or 8%.  A person can declare income at lower rate (i.e., at less than 6% or 8%), if he does so, & his income exceeds the maximum amount which is not chargeable to tax, then: He is required to maintain the books of account as per the provisions of section 44AA and has to get his accounts audited as per section 44AB. Consequences if a person opts out from the presumptive taxation scheme of section 44AD   1   If a person opts for presumptive taxation scheme, then he is also requiring to follow the same scheme for next 5 years. 2.  If he failed to do so, then presumptive taxation scheme will not be available for him for next 5 years. For example – An assessee opts presumptive taxation scheme under Section 44AD for AY 2021-22. However, for AY 2022-23, if he did not opt for presumptive taxation Scheme. In this case, he will not be eligible to claim benefit of presumptive taxation scheme for next five AYs, i.e. from AY 2023-24 to 2027-28. 3.   Further, he is required to keep and maintain books of account and he is also liable for tax audit as per section 44AB from the AY in which he opts out from the presumptive taxation scheme. [If

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Tax Deductions [Updated] : A Quick Summary

Every Person wants to SAVE TAXES..!! Isn’t it..?? But how could anyone do that?? How and where to Invest? What is the most tax-efficient investment? Pretty much Confused. Right..?? These are some of the very common questions which can easily be seen floating around. To achieve that purpose we need to understand the concept of TAX DEDUCTIONS. Tax Deductions are the reduction in your overall tax liability when you invest in some of the specified investments. So, today we are gonna have a quick summary of the entire deductions. So, Let’s understand them: * Deduction u/s 80C [Most Popular Deduction]   Eligible Assessee: Individual & HUF Deduction for: Various Type of INVESTMENTS. Some of the most common investments are as follows:- – Payments made Toward Life Insurance Premium (for Self, Spouse, and Children) – Payments made towards Provident Fund with a Lock in Period – 15 years – Equity Linked Saving Scheme (ELSS) with a min. lock-in period of 3 years – Tuition Fees paid maximum for Two Children. – Payment made towards the Principal amount of Housing Loan – Having a Fixed Deposit/Deposit in Post Office (Now IPPB) with a min. lock-in of 5 Years – Amount Deposited in Sukanya Samridhi Account – National Saving Certificate – Purchasing Bonds of NABARD. Max. Deduction: Rs. 1,50,000/-   * Deduction u/s 80CCC: Eligible Assessee: Individual Only. Deduction for: Premium Paid for Annuity Plan of LIC or Any other Insurer. Max. Deduction: Rs. 1,50,000 (combined with 80C)   * Deduction u/s 80CCD: There is a further classification of this particular Section. Section 80CCD(1) Eligible Assessee: Individual Only (whether Employed or Not). Deduction for: Payment towards the NPS Pension Account. Max. Deduction: 10% of Salary (Basic+DA only) /20% of GTI (in case of Self Employed) [but deduction allowed in combination with 80C] [Imp. Note- The AGGREGATE of Deductions u/s 80C, 80CCC, 80CCD(1) shall not exceed Rs. 1,50,000] Section 80CCD(1B) Eligible Assessee: Individual Only (whether Employed or Not). Deduction For: Payment toward the NPS Account made by the Employee/Self Employed person can be diverted to this section when 80CCD(1) limit has exhausted Max. Deduction: Rs. 50,000 – THIS IS AN ADDITIONAL DEDUCTION i.e. allowed without combining with 80C. Section 80CCD(2) Eligible Assessee: Individual Only (must be Employed) Deduction For: Employer contribution towards the NPS account of Employee. Max. Deduction: 10% of Salary (Basic+DA only) – THIS IS AN ADDITIONAL DEDUCTION  i.e. allowed without combining with 80C.   * Deduction u/s 80D: Eligible Assessee: Individual & HUF Deduction For: Amount paid for Medical Insurance Premium  / Medical Expenditure / Preventive Health Check. [Note: But if the Payment has been made ONLY FOR Preventive health checkup then the max. deduction allowed would be only Rs. 5,000]. Max. Deduction: Rs. 25,000 (For Self, Spouse, Children) + Rs. 25,000 (For Parents) [Note: If the Person toward whom the above payments are being made is SENIOR CITIZEN (60 years or more) then the limit of Rs. 25,000 would be increased to Rs. 30,000.  This limit has been further increased to Rs. 50,000 from Finance Act, 2018 i.e. Maximum Deduction under this Section can be availed from A.Y. 2019-20 would be Rs. 1,00,000.] * Deduction u/s 80DD: Eligible Assessee: Individual & HUF (Resident Only) Deduction For: Expenditure incurred on Medical treatment (including nursing), Training, or Rehabilitation of disabled (Divyang) DEPENDANT. Note-1: Dependant means Spouse, Children, Parents, Brother, and Sister/Any Member (in case of HUF). And to claim this deduction Certificate of Disability is Required from the Prescribed medical authority. Note-2: This Deduction is allowed when the payment is made for Dependant. If the Assessee himself is Divyang Person then he will be allowed deduction u/s 80U and not u/s 80DD. Max. Deduction: Fixed Deduction of Rs. 75,000 (if Disability is 40% or More) / Rs. 1,25,000 (If Disability is 80% or more) * Deduction u/s 80DDB: Eligible Assessee: Individual & HUF (Resident Only) Deduction For: Expenses incurred for the treatment of the specified diseases. Any reimbursement (if any) from Insurance Company shall be deducted and balance expense amount shall be allowed as deduction. Max. Deduction: Rs. 40,000 / Rs. 60,000 (for Senior Citizen ie. 60 yrs. or more) / Rs. 80,000 (For Very Senior Citizen i.e. 80 yrs. or more) [Important Note: From Finance Act, 2018 (i.e. From A.Y. 2019-20) the Deduction for Senior Citizen i.e. 60 years or more would be allowed up to Rs. 1,00,000. The category of Very Senior Citizen has been eliminited].  * Deduction u/s 80E: Eligible Assessee: Individual Only. Deduction For: Interest on Loan for Higher Education paid during the relevant previous year. Max. Deduction: 100% Interest amount [Note: The deduction of Interest would be available in max. 8 years starting with the year of payment] * Deduction u/s 80EE: Eligible Assessee: Individual only (and only when he is purchasing First home ever) Deduction For: Payment of Interest on Housing Loan which has been taken for the First Home Purchase. Max. Deduction: Rs. 50,000 But deduction would be allowed subject to the following conditions: – Value of Property to be purchased should be Max. 50 Lakhs. – Value of Loan taken should be Max. 35 Lakhs. – The Loan must have been taken between 01 April 2016 to 31st March 2017. * Deduction u/s 80G: Eligible Assessee: All Assessees Deduction For: Donation made towards Certain funds, Charitable Institution etc. Max. Deduction: 100% or 50% of donation made depending on the type of Donation. [Imp. Note- Donation made in cash above Rs. 2,000 shall not be allowed as deduction]  * Deduction u/s 80GG: Eligible Assessee: Individual only (whether Employed or Self Employed) Deduction For: Deduction in respect of Rents Paid. Max. Deduction: It shall be allowed LEAST of the following-                               – Rs. 5,000/- Per Month                               – 25% of Total Income                               – Rent Paid minus 10% of Total Income   [Note: Total Income shall be considered before deduction under this Section]   * Deduction U/s 80GGA: Eligible Assessee: All Assessee Deduction For: Certain Donation for Scientific Research or Rural

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