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Tax Audit

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

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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Income tax Rules

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

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

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Debentures

Debentures Meaning, Types, Features, its advantage & disadvantage

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

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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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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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Rules of investments

Thumb Rule of Investing that every investor should consider before starting their investment journey

In this article, we will discuss the Thumb Rule of Investing. Thumb Rules of Investing     In terms of investing, there are certain thumb rules that help us ascertain how fast our money grows or how fast it loses its value. Then, there are rules to make our investment process easier. Like how should we do our asset allocation, how much to save for retirement & for emergencies etc. Various points to be considered before starting investing are:   1 . The Emergency Fund Rule    As the name suggests, the money kept aside for emergency use is called an emergency fund. It is a good practice to keep at least 6 months to 1 year’s expenses as an emergency fund. While calculating your expenses you should include expenses for food, utility bills, rent, EMIs etc. & instead of keeping it idle in savings bank accounts invest these funds in liquid funds or in FD. These funds provide a little more returns than savings bank accounts. At the same time, like saving banks accounts, liquid funds & FD are highly liquid, i.e. the money is available in very short notice.   2. 100 minus age rule   The 100 minus age rule is a great way to determine one’s asset allocation i.e., how much you should allocate in equities investment & how much in debt investment. For this, subtract your age from 100, and the number that you arrive at is the percentage at which you should invest in equities. The rest should be invested in debt. For example, if you are 30 years old and you want to invest Rs 8,000 every month. Here if you use the 100 minus age rule, the percentage of your equity allocation would be 100 – 30 = 70%.  So Rs 5,600 should go to equities and Rs 2,400 in debt. Similarly, if you are 20 years old and want to invest Rs 8,000 every month, then according to the 100 minus age rule the equity allocation would be 100 – 20 = 80%. i.e., Rs 6,400 should go in equities and Rs 1,600 in debt. 3. The 10,5,3 Rule   When you invest or even think of investing money, the first thing that you usually look for is the rate of returns that you will get from your investments. The 10,5,3 rule helps you to determine the average rate of return on your investment. Though there are no guaranteed returns for investments, but as per this rule, one should expect 10% returns from long term equity investment, 5% returns from debt instruments & 3% average rate of return that one usually gets from savings bank accounts.   4. Not considering the impact of inflation on returns   One of the common mistakes that most investors tend to make is to ignore the effect of inflation on returns. We all know that the value of the rupee is not the same as what it was 10 years ago. It’s worth was way more than what it is today. And after a few years, it will decrease even further. It’s almost inevitable. In other words, inflation bites into the value of the rupee and decreases its purchasing power. So, while making any investment, your main aim should be to fetch returns that beat inflation.   5. 10% for Retirement Rule   When you start earning in your early or mid twenties, saving for retirement is the last thing in your mind. But starting to save from your first salary, no matter how little the amount is, you will be able to create a huge corpus for retirement. Ideally it should be 10% of your current salary which you should increase by another 10% every year. For example, If you are 25-year-old & earn Rs 30,000 a month. You have decided to invest 10% of your salary, i.e. Rs 3000, every month & increase it by another 10% every year. The retirement corpus you will be able create by investing in an instrument that provides 10% returns will be approx. to Rs 3.3 crores. A great way to build your retirement corpus is by investing in NPS following the 10% rule. Current Age 25 Investment amount every month Rs 3,000 % of increase in investment amount every month 10% Average rate of return 10% Retirement age 60 Tenure of investment 35 Total retirement corpus Rs 3.3 Crores approx. 6. Rule of 72   We all want our money to double & look for the ways it can be done in the shortest amount of time. Well, calculating the number of years in which your money doubles is very easy with the Rule of 72. Take the number 72 & divide it with the rate of return of the investment product. The number at which you will arrive is the number of years in which your money will double. For example, If you have invested Rs 1 lakh in an investment product that provides you a rate of return of 6%. Now, if you divide the number 72 with 6, you arrive at 12. That means, your Rs 1 lakh will become Rs 2 lakh in 12 years.   7. Rule of 114   Like the ‘rule of 72’ tells you in how many years your money can be doubled, this rule tells you how many years it will take to triple your money. Rule of 114 is similar to Rule of 72. For this, take the number 114 and divide it with the rate of return of the investment product. The remainder is the number of years when your investment will triple. So, if you invest Rs 1 lakh in a product that gives you an interest rate of 6%, then as per the rule of 114, it will become Rs 3 lakh in 19 years.   8. Rule of 144   Two multiplied by 72 is 144. Hence, you can simply understand that ‘rule of 144’ helps you calculate in how many years

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TDS – Quick and Complete Summary [Part-II]

In the last part of this summary, we have learned about the basic meaning of TDS, some concepts which were very useful and commonly applied on all sections, and the various sections under which the TDS is being deducted. Now, In the Part-II, we will get the details about the procedural parts regarding compliance of TDS. So, let’s proceed with that: 1. What is the Time Limit for Payment of deducted Tax? TDS needs to be deposited on or before the 7th day of Next Month in which such tax is deducted. For the month of March, the last date for depositing TDS is 30th April. [However, In case of Govt. Employer when TDS is deposited without Challan (i.e. through Book entry) then TDS deposit date shall be the Same Day.] 2. What is the Due Date for Quarterly Return of TDS? (i) For First Quarter (i.e. Qtr ending on 30June)       —              —               —  31st July (ii) For Second Quarter (i.e. Qtr ending on 30 Sep)   —              —               —  31st Oct (iii) For Third Quarter (i.e. Qtr ending on 31 Dec)     —              —                —  31st Jan (iv) For Fourth Quarter (i.e. Qtr ending on 31 Mar)   —              —                —  31st May 3. What is the TDS Certificate? TDS certificate is the statement issued by Deductor to the Effect that tax has been deducted and specifying the amount, Section, Rates etc under which it has been deducted. In common parlance, it is widely known as Form-16 (in case of Salary) and Form-16A (in other cases). 4. What is the Time Limit for the issue of TDS Certificate? In Case of Form-16: It is issued Annually and the due date for issue of Form 16 is 31st May of the following year from the year in which Tax has been deducted. In Case of Form-16A: It is to be issued Quarterly and the due date for issue of Form-16A; 15 days from the due date of Furnishing Return (i.e. which comes as 15Aug, 15Nov, 15Feb, 15June) [Imp. Note- If TDS Certificate is not issued within the said time limit then there is a penalty of Rs. 100/- per day per certificate up to which the failure continues subject to max. of TDS amount.] 5. What is the Lower Deduction Certificate? It is a certificate issued by the Assessing Officer (AO) u/s 197 on request of Assessee; if AO is satisfied that on the income of Assessee which is liable for tax deduction under TDS is such that deduction should be made on lower rates, then AO may issue a Certificate in this regard i.e. called Certificate of Lower Deduction. [Note- Certificate of Lower Deduction cannot be issued for TDS to be deducted u/s 194-IA] 6. What is Form 15G & 15H? It is a Self Declaration given by Assessee to the Payer (Deductor) that his/her tax on total income including the income on which TDS is to be deducted shall be Nil. On receipt of such form the Deductor submit this form to the Income-tax department and did not deduct any amount as TDS. Form 15G is for any assessee (excluding Firm & Company) while Form 15H is for Resident Individual who is Senior Citizen. Form 15G & Form 15H can be given only when there is a liability for TDS under 5 Section only i.e. 192A (RPF), 193 (Int. on Securities), 194A (Other Interest), 194DA (Insurance Amount), 194-I (Rent). It cannot be submitted against any other Section Liability. [Note- If any of Such Income received by any person (who is eligible for 15G) is exceeding the exemption limit then 15G can’t be submitted.] 6. What if there is no PAN detail of Payee? (i) In case the Payee (Deductee) has not provided the PAN then the TDS shall be deducted at the Rates HIGHEST from the following: – Rate given in relevant TDS Sections – At the Rates in Force (i.e. given in Finance Act) – 20% [Note:- But if the amount received itself is within the threshold limit of TDS then NO question of Deduction at higher rates.] (ii) If PAN is not given then there would not be provided any Lower tax deduction certificate. Also, any request submitted in Form 15G or 15H shall be taken as Invalid. 7. What are the consequences of Failure to Deduct or Pay TDS? If any such person who is liable to deduct TDS; – Does not deduct whole or any part of TDS; OR – Has deducted but not deposited whole or any part of TDS; Then Such person would be considered as Assessee-in-Default for tax not so deducted or deposited and therefore shall be liable for the Interest u/s 220 and Penalty u/s 221 for being Assessee in Default. V. Important Note: – If Deductor has not deducted the TDS and paid the whole amount to the Deductee (Payee); & – Deductee (resident only) has himself/herself declare this amount in his return and paid the tax thereon; then the Deductor shall not be considered as Assessee-in-Default. But still, he will be liable for the Interest on Late Deduction of TDS. 8. What are the consequences of Late Deduction/Payment of TDS? If any person is liable for deduction of TDS does not Deduct TDS within time OR after deduction does not Pay within Time then s/he shall be liable to simple interest as follows: Late Deduction: 1% Per Month or part thereof [From When Deductible –to– When Deducted] Late Payment: 1.5% Per Month or Part thereof [From Deducted –to– Actual Payment] And such interest shall be paid before filing of Return of TDS. 9. Default in Furnishing Quarterly Return of TDS? When a Person fails to Deliver the Quarterly

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