However, as per the amended provisions of section 139(1), where the gross total income of the assessee after including the exempted income u/s 10(38) i.e. Long term capital gain on sale of listed securities, exceeds the basic exemption limit, he shall be compulsorily required to file the Income Tax Return for the said financial year even if his net taxable income is less than the basic exemption limit.
This means that even if your taxable income is less than the basic exemption limit of Rs. 2,50,000 but because of exempt LTCG income, the total amount exceeds Rs 2,50,000, then filing of return of income is mandatory. The above provisions are applicable with effect from 1.04.2017.
Section 87A rebate provides for rebate from Income Tax to RESIDENT INDIVIDUALS earning income below specified limit.
For FY 2017-18
The rebate u/s 87A can be claimed upon fulfillment of the following two conditions:
- The person claiming the rebate should be a RESIDENT
- The person’s total Income Less Deductions (under
Section 80) is equal to or less than Rs 3,50,000
- The person claiming the rebate should be a RESIDENT
- The person’s total Income Less Deductions (under
Section 80) is equal to or less than Rs 5,00,000.
The probable ways of withdrawal of funds / distribution of funds of a private limited company under different case and its Tax implication is discussed as hereunder:
Case 1: In case of voluntary winding up of company
In case a company has voluntarily passed the resolution for winding up / liquidation and the company has no other debts/ loan / creditors outstanding at the time of liquidation, in such case the company can distribute the funds available with the company to the shareholders which could be in the nature of Income or Capital.
Case 2: In case of buy back of shares of company An obvious question that comes to one’s mind is whether buyback, as a means of surplus cash distribution, is more tax efficient over dividend pay-outs. The answer is not straightforward since it depends on several variable factors such as nature of shares (listed/unlisted), residential status of the investor, period of holding, etc.
There are generally no tax implications in the hands of company on buyback of its shares under the modes prescribed under Securities and Exchange Board of India (Buy back of Securities) Regulations, 1998, since Dividend Distribution Tax (DDT) and buyback tax (BBT) are not triggered.
The buyback of shares listed on a stock exchange can be considered as a tax-efficient mode of surplus cash distribution from the company’s standpoint.
In the hands of the shareholders (irrespective of residential status), a buyback triggers capital gain tax since exemption under Section 10(34A) is available only in cases where BBT is paid by the company. The buyback of listed shares held for over a year, qualifies as long term capital gain (LTCG) and the same is tax exempt under Section 10(38) of the Act if shares are bought back before March 31, 2018.
Else, the same may trigger capital gain tax implications in the hands of shareholders. However, MAT implications would get trigged in the hands of resident corporate shareholders.
In case the shares are held for a period less than a year, the gains would qualify as short term capital gain (STCG) and would generally be taxable at an effective tax rate of 16.22% (inclusive of surcharge & cess).
It will be worthwhile to note that a non-resident investor possessing a valid Tax Residency Certificate can avail the beneficial provisions of the relevant Double Tax Avoidance Agreement entered into by the Indian government with its tax residence country.
In case the shares are held as stock-in trade, then any gain arising out of buyback would be taxable as business income as per commercial principles.
Apart from tax implications in the hands of investor, one also needs to understand the withholding implications in the hands of the company. No withholding is required on payments made to a resident investor on account of buyback of shares.
However, if gains are arising to non-resident shareholders pursuant to buyback, the company is required to withhold tax at the applicable rates. Absence of adequate details of non-resident investors in case of buybacks executed over a stock exchange, could impose certain practical challenges for the company for discharging its withholding tax obligations.
A domestic company is required to pay BBT at the rate of 23.072% (inclusive of surcharge and cess) on buyback of its unlisted shares implemented under any mode prescribed under the Companies Act, 1956. BBT is an additional tax in the hands of the domestic company over and above its income tax liability.
In terms of Section 10(34A), a shareholder participating in such a buyback scheme enjoys tax exemption, irrespective of whether shares are held as capital assets or stock-in-trade and irrespective of availability of treaty benefit. Further, no MAT liability is triggered in the hands of a corporate shareholder.
These provisions, compared with the provisions of taxability of dividend distribution, make the buyback of shares a tax efficient manner of distribution of surplus cash, especially in case of large shareholders subject to tax on dividend receipt (Individuals, HUFs, certain trusts, etc).
Under this section, fee/penalty is levied if the Income-tax return is filed after the due date specified by the department. Earlier this penalty was levied by Assessing Officer at his discretion. But now, the same is payable before filing of Income-tax return.
|Total Income||Return Filed||Fee/Penalty|
|Less than or equal to Rs. 5,00,000||Return filed any time after due date||Rs. 1,000|
|More than Rs.5,00,000||Return filed on or before 31st December of Assessment Year||Rs. 5,000|
|In any other case||Rs. 10,000|
PAN cannot be used for TAN, hence, the deductor has to obtain TAN, even if he holds PAN.
However, in case of TDS on purchase of land and building (as per section 194-IA) as discussed in previous FAQ, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.
Once such a certificate is granted by the officer on him being satisfied that lower deduction of TDS is justified, the TDS will be deducted as per the TDS rate stated therein.
This certificate is required to be submitted to the person who is deducting the TDS in all the cases except where payment is being made as Interest on securities or Interest on fixed deposits U/S 197A where Form 15 G/ Form 15 H has to be submitted.
Procedure for filing Form 13 to the Income Tax Officer:
Various details that are required to be furnished by the tax payer while making an application in Form 13 are as below:
- Name and PAN no.
- Details regarding the purpose for which the payment is being received
- Details of Income for the last 3 years and the projected current year’s income.
- Details of payment of tax of the last 3 years.
- Details of tax deducted / paid for the current year.
TDS is the first way of collecting taxes. As such section 195 has been introduced in the IT Act for collection of taxes on Non-Resident payments which bears the character of Income. Under section 195, the act prescribes the rates (to be increased by applicable surcharge & education cess) that would be applicable to the Non-Resident payments depending on the nature of Income. The rates are as follows:
|Income in respect of investment made by a NRI||20%|
|Income by the way of long term capital gains in Section 115E in case of a NRI||10%|
|Income by way of Long term capital gains||10%|
|Short Term Capital gains under section 111A||15%|
|Any other income by way of long-term capital gains||20%|
|Interest payable on money borrowed in Foreign Currency||20%|
|Income by way of royalty payable by Government or an Indian concern||10%|
|Income by way of royalty, not being royalty of the nature referred to be payable by Government or an Indian concern||10%|
|Income by way of fees for technical services payable by Government or an Indian concern||10%|
|Any other income||30%|
Besides, wherever applicable, in course of making payments to non-resident, DTAA provisions has to be read in order to determine the effective rate of TDS to be applicable for that payment. For this a CA certificate in Form 15CB is required (Form 15CA to be filed online) which certifies the details of the payment, TDS rate and TDS deduction as per section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature & purpose of the remittance.
Section 40a(i) provides the list of expenses which are specifically disallowed while computing income chargeable to tax under the head “Profits and gains of business or profession” for non deduction of TDS on such payments made to a non resident outside India / in India.
Any interest, royalty, fees for technical services or other sum (which is chargeable to tax under the Act) which is payable outside India to any person or in India to a non-resident, is not deductible, if the assessee has not deducted tax at source from such payments, or after deducting tax, he has not deposited such tax with the Government before the end of previous year [or before the due date of deposit specified under section 200(1) in case due date of deposit falls in next year]. However, if tax is deposited in next year(s) after the due date of deposit, then such amount is deductible in the subsequent previous year in which the said tax is deposited by the assessee with Government.
Whether TDS to be deducted u/s 40a(i) read with section 195 on payments made to Foreign Citizens for non taxable expenses incurred outside India?
According to the amendment in section 195 of Income Tax Act in budget 2015, where any payment is made to a non resident, irrespective of its taxability under the income tax act provisions, the payer is obliged to give information of the same in the manner prescribed to the concerned officer and obtain a certificate for no deduction of TDS where the payee is not liable to be taxed in India.
The relevant extracts of the amendment is as below:
In section 195 of the Income-tax Act, for sub-section (6), the following sub-section shall be substituted with effect from the 1st day of June, 2015, namely:—
"(6) The person responsible for paying to a non-resident, (not being a company), or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed."
GST being an Indirect tax doesn’t bear the character of income and hence is not liable to be part of TDS deduction. GST which is collected has to be deposited to the government. So logically, TDS is not required to be deducted from the amount that is inclusive of Income Tax and should be deducted from the amount that is exclusive of the GST. But if GST amount has not been disclosed separately in the invoice, then TDS in such case would be deducted from the total amount i.e the amount that is inclusive of GST.
(1) If an individual transfers his or her house property to his/her spouse (not being a transfer in connection with an agreement to live apart) or to his/her minor child (not being married daughter) without adequate consideration, then the transferor will be deemed as owner of the property.
(2) Holder of impartible estate is deemed as the owner of the property comprised in the estate
(3) A member of co-operative society, company or other association of persons to whom a building (or part of it) is allotted or leased under house building scheme of the society, company or association, as the case may be, is treated as deemed owner of the property.
(4) A person acquiring property by satisfying the conditions of section 53A of the Transfer of Property Act, will be treated as deemed owner (although he may not be the registered owner). Section 53A of said Act prescribes following conditions:
(a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”..
(b) In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets.
Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed.
Thus, total deduction available to the taxpayer under section 24(b) on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).
|Gross annual value||Nil|
|Less:- Municipal taxes paid during the year||Nil|
|Net Annual Value (NAV)||Nil|
|Less:- Deduction under section 24|
|➣Deduction under section 24(a) @ 30% of NAV ➣Deduction under section 24(b) on account of interest on borrowed capital||Nil (XXXX)|
|Income from house property||XXXX|
From the above computation it can be observed that "Income from house property" in the case of a self occupied property will be either Nil (if there is no interest on housing loan) or negative (i.e., loss) to the extent of interest on housing loan. Deduction in respect of interest on housing loan in case of a self-occupied property cannot exceed Rs. 2,00,000 or Rs. 30,000, as the case may be (discussed later).
➣ Capital is borrowed on or after 1-4-1999.
➣ Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).
➣ Acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed.
➣ The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.
If any of the above condition is not satisfied, then the limit of Rs. 2,00,000 will be reduced to Rs. 30,000.
NPS Tax Benefits under Sec.80CCD (1)
The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
An individual’s maximum 10% of annual income or an employee’s (10% of Basic + DA) contribution will be eligible for deduction.
As I said above, this section will form the part of Sec.80C limit.
NPS Tax Benefits under Sec.80CCD (1B)
This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction and was introduced in the Budget 2015 for voluntary contribution to NPS.
Introduced in Budget 2015. One can avail the benefit of this Sect.80CCD (1B) from FY 2015-16.
Both self-employed and employees are eligible for availing this deduction.
This is over and above Sec.80CCD (1) i.e. If the taxpayer contributes more than Rs.1.5 lakh to the NPS in a year, the amount in excess of Rs 1.5 lakh can be treated as voluntary investment and claimed as a deduction under the new Section 80CCD(1b).
NPS Tax Benefits under Sec.80CCD (2)
There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions.
1) Amount contributed by an employer,
2) 10% of Basic Salary (Basic + DA) and
3) Gross Total Income.
This is additional deduction which will not form the part of Sec.80C limit.
The deduction under this section will not be eligible for self-employed.
Key features of the above deduction scheme:
- The allowed tax deduction u/s 80CCG will be over and above the Rs. 1.5 Lakhs limit permitted under Section 80C of the Income Tax (IT) Act, making it thus attractive for the middle class investors
- Further, the Dividend income is tax free, if the company is liable to dividend distribution tax
- The benefits can be availed for three consecutive years
- Investor is free to trade / churn the portfolio after the fixed lock-in period i.e 1 year, subject to certain conditions
- Gains arising out of higher market valuation of RGESS eligible securities can be realized after a year viz: fixed lock-in period. Provisions exist to protect the investor from general declines in the market to a certain extent. This is in contrast to all other tax saving instruments.
- Facility for pledging stocks after the fixed lock-in period
- For investments upto Rs.50,000 in your sole RGESS demat account, if you opt for Basic Service Demat Account, annual maintenance charges for the demat account is zero and for investments upto Rs. 2 lakh, it is stipulated at Rs 100
- The investments can be made in installments during the financial year in which tax deduction is claimed
This Deduction of Section 80EE would be applicable only in the following cases:-
Limit of Deduction
For Self and Family:
Maximum deduction of Rs.25,000 per year on health insurance premium for self, spouse & kids.
Maximum deduction of Rs.30,000 per year if you are a senior citizen.
Maximum deduction of Rs.25,000 per year on health insurance premium paid on behalf of parents.
Maximum deduction of Rs.30,000 per year on premium payments for senior citizen parents.
Additional Deduction (Preventive Health checkups) :
A deduction of Rs.5,000 can be claimed every year on expenses related to health check-ups. This limit includes the check-up expenses of all members in a family, including spouse, kids and parents.
- Rs 5,000 per month / Rs.60000 per year
- 25% of adjusted total income*
- Actual Rent less 10% of adjusted total Income* [Actual Rent – 10% of Adj.Total Income]
Adjusted Total Income* means Total Income Less long term capital gain, short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG)
Both the employer and the employee try to structure salary to maximize in-hand income of the employee. There are certain allowances or expense reimbursements that are not taxable in the hands of the employee. One such payment from employer is reimbursement of the medical expenses of the employee or his family.
On the other hand, Medical allowance is a fixed part of an employees’ salary which is taxable in the hands of the employee under the head “Salary”.
The reimbursement is only on actual basis (employer can’t reimburse more than you have incurred). Contrast this with fixed medical allowance, which is guaranteed regardless of whether the employee (or his family member) undergo medical treatment or not.
Reimbursement of medical expenses by the employer is exempt to the extent of Rs.15000 per financial year. Any additional reimbursement would be taxable as Salary in the hands of the employee.
In addition to above, there are specific scenarios where the entire amount reimbursed/cost incurred by the employer is exempt from tax i.e. there is no cap on tax exemption.
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- Hike in deduction limit for health insurance premium and/ or medical expenditure from Rs. 30,000 to Rs. 50,000 under section 80D.
- Deduction limit under section 80DDB is enhanced
- Deductions under Section 80JJAA is extended to footwear and leather industry
- New deduction introduced for Farm Producer Companies
- To promote agricultural activities a new section 80PA is proposed to be inserted. This new provision proposes 100% deductions of profits for a period of 5 years to farm producer companies.
- This deduction is allowed to farm producer companies who have total turnover of less than Rs. 100 crores during the financial year. For claiming this deduction, companies' gross total income should include income from:
- Exemption of interest income on deposits with banks and post offices to be increased from Rs. 10,000 to Rs. 50,000 only for senior citizens.
- Certain Deductions other than those covered under Heading A (Section 80A to 80C), Heading B (Section 80CC to 80GGC) & Heading D (Section 80U to 80VV) not to be allowed if return is not filed on time
- Amendment in section 80-IAC to promote new start-ups
In order to improve the effectiveness of the scheme for promoting start-ups in India, it is proposed to make following changes in the taxation regime for the start -ups:
- Payment made towards life insurance policies (for self, spouse or children)
- Payment made towards a superannuation/provident fund
- Tuition fees paid to educate a maximum of two children
- Payments made towards construction or purchase of a residential property
- Payments issued towards a fixed deposit with a minimum tenure of 5 years
The benefit of charging long-term capital gain @ 10% is available only in respect of long-term capital gains arising on transfer of any of the following asset:
(*) The definition of security generally includes shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities.
In case of long term capital gain arising on account of above assets, the taxpayer has following two options:
The selection of the option is to be done by computing the tax liability under both the options, and the option with lower tax liability is to be selected.
Mr. X (a non resident) purchased equity shares (listed) of Shyamal Ltd. in December 1995 for Rs. 28,100. These shares are sold (outside recognized stock exchange) in April, 2016 for Rs. 5,00,000. He does not have any other taxable income in India. What will be his tax liability?
Mr. X has purchased the listed equity shares so he is eligible to take the benefit of 10% taxation.
Mr. X has following two options:
|Particulars||Option 1 (Avail indexation)||Option 2 (Do not avail indexation)|
|Full value of consideration||5,00,000||5,00,000|
|Less: Indexed cost of acquisition (Rs. 28,100 × 1125/281)||(1,12,500)||--------|
|Less: Cost of acquisition||--------||(28,100)|
|Tax @ 20% on Rs. 3,87,500||77, 500||--------|
|Tax @ 10% on Rs. 4,71,900||--------||47,190|
We all know that if the income is below the basic exemption limit, then there will be no tax liability. But always a question arises that ‘can an individual adjust the basic exemption limit against long-term capital gain?’
The answer will depend on the residential status of the individual that is whether the individual or HUF is resident or Non-resident.
Only a resident individual/HUF can adjust the exemption limit against LTCG. Thus, a non-resident individual and non-resident HUF cannot adjust the basic exemption limit against LTCG.
A resident individual can adjust the LTCG with Basic exemption limit, but only after making adjustment of other income. That means, first income under other heads (other than LTCG) is to be adjusted against the basic exemption limit and then the remaining limit (if any) can be adjusted against LTCG.
An individual or HUF only can claim benefit u/s 54 upon fulfillment of following basic conditions:
However, with effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India. Text of Amendments in for the above Sections is given as under: “In section 54 of the Income-tax Act, in sub-section (1), for the words “constructed, a residential house”, the words “constructed, one residential house in India” shall be substituted with effect from the 1st day of April, 2015.” Besides, to keep a check on the misutilization of this exemption, a restriction is imposed upon the assessee availing this exemption. The provisions of Section 54 reads as:
- The restriction will be attracted, if after claiming exemption under section 54, the new house is sold before a period of 3 years from the date of its purchase/completion of construction.
- If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under section 54 will be deducted from the cost of acquisition of the new house.
However, the following items are excluded from the definition of "capital asset":
- Any stock-in-trade, consumable stores, or raw materials held by a person for the purpose of his business or profession.
- Personal effects of a person, that is to say, movable property including wearing apparels (*) and furniture held for use, by a person or for use by any member of his family dependent on him.
- Agricultural Land in India, not being a land situated:
- not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;
Population is to be considered according to the figures of last preceding census of which relevant figures have been published before the first day of the year.
- 6½% Gold Bonds,1977 or 7% Gold Bonds, 1980 or National Defense Gold Bonds, 1980 issued by the Central Government.
- Special Bearer Bonds, 1991, issued by the Central Government
- Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.
- Deposit certificates issued under the Gold Monetization Scheme, 2015.
Any capital asset held by a person for a period of not more than 36 months immediately preceding the date of its transfer will be a short-term capital asset.
However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months.
In case of unlisted shares in a company, the period of holding to be considered is 24 months instead of 36 months.
Mr. Raj is a salaried employee. On 8th April, 2014, he purchased a piece of land and sold the same on 29th June, 2016. In this case, land is a capital asset for Mr. Raj. He purchased the land on 8th April, 2014 and sold it on 29th June, 2016, i.e., after holding it for a period of less than 36 months. Hence, land will be a short-term capital asset.
Mr. Kumar is a salaried employee. On 8th July, 2015, he purchased shares of SBI Ltd. (listed in BSE) and sold the same on 29th June, 2016. In this case, shares are capital assets for Mr. Kumar. He purchased shares on 8th July, 2015 and sold them on 29th June, 2016 i.e., after holding them for a period of less than 12 months. Hence, shares are short-term capital assets.
- the actual cost of acquisition of the asset; or
- fair market value of the asset as on 1st April, 1981.
i.Sale, exchange or relinquishment of the asset;
ii.Extinguishment of any rights in relation to a capital asset;
iii. Compulsory acquisition of an asset;
v. Disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever
If the person receiving the capital asset by way of gift, will, etc. subsequently transfers such asset, capital gain will arise in his hands. Special provisions are designed to compute capital gains in the hands of the person receiving the asset by way of gift, will, etc. In such a case, the cost of acquisition of the capital asset will be the cost of acquisition to the previous owner and the period of holding of the capital asset will be computed from the date of acquisition of the capital asset by the previous owner.
(*) As regards the taxability of gift in the hands of person receiving the gift, separate provisions are designed under section 56.
Section 10(33): Long-term or short-term capital gain arising on transfer of units of Unit Scheme, 1964 (US 64) (transferred on or after 1-4-2002).
Section 10(37): An individual or Hindu Undivided Family (HUF) can claim exemption in respect of capital gain arising on transfer of agricultural land situated in an urban area by way of compulsory acquisition. This exemption is available if the land was used by the taxpayer (or by his parents in the case of an individual) for agricultural purpose for a period of 2 years immediately preceding the date of its transfer. .
Section 10(38): Long-term capital gain arising on transfer of equity shares or units of equity oriented mutual fund (*) or a unit of a business trust other than a unit allotted by the trust in exchange of shares of a special purpose vehicle as referred to in section 47(xvii), will be exempt from tax, if the following conditions are satisfied:
The asset transferred should be equity shares of a company or units of an equity oriented mutual fund or a unit of a business trust other than a unit allotted by the trust in exchange of shares of a special purpose vehicle as referred to in section 47.
The transaction should be liable to securities transaction tax at the time of transfer.
Such asset should be a long-term capital asset.
Transfer should take place on or after October 1, 2004.
Note: Any long-term capital gain arising from a transaction undertaken in recognized stock exchange located in an International Financial Service Center shall be exempt from tax. Such exemption is available if such transaction is undertaken in foreign current and even if no STT is paid on such transaction. [Inserted by the Finance Act w.e.f. 1-4-2017]
(*) Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds, out of total proceeds of such fund are invested in equity shares of domestic companies.
|Section under which benefit is available||Gain eligible for claiming exemption||Asset in which the capital gain is to be re-invested to claim exemption|
|section 54||Long-term capital gain arising on transfer of residential house property.||Gain to be re-invested in purchase or construction of one residential house property in India.|
|section 54B||Long-term or short-term capital gain arising on transfer of agricultural land.||Gain to be re-invested in purchase of agricultural land.|
|section 54EC||Long-term capital gain arising on transfer of any capital asset.||Gain to be re-invested in bonds issued by National Highway Authority of India or by the Rural Electrification Corporation Limited.|
|Section 54EE||Long-term capital gain arising on transfer of any capital asset.||Gain to be re-invested in units of specified fund, as may be notified by Govt. to finance start-ups.|
|section 54F||Long-term capital gain arising on transfer of any capital asset other than residential house property.||Net sale consideration to be re-invested in purchase or construction of one residential house property in India.|
|section 54D||Gain arising on transfer of land or building forming part of industrial undertaking which is compulsorily acquired by Government and was used for industrial purpose for a period of 2 years prior to its acquisition.||Gain to be re-invested to acquire land or building for industrial purpose.|
|section 54G||Gain arising on transfer of land, building, plant or machinery in order to shift an industrial undertaking from urban area to rural area||Gain to be re-invested to acquire land, building, plant or machinery in order to shift the industrial undertaking from an urban area to a rural area|
|section 54GA||Gain arising on transfer of land, building, plant or machinery in order to shift an industrial undertaking from urban area to any Special Economic Zone||Gain to be re-invested to acquire land, building, plant or machinery in order to shift the industrial undertaking from urban area to any Special Economic Zone.|
|section 54GB||Long-term capital gain arising on transfer of residential property (a house or a plot of land). The transfer should take place during 1st April, 2012 and 31st March 2017. However, in case of investment in “eligible start-up”, sunset limit of 31st march 2017 is extended to 31st march 2019.||The net sale consideration should be utilised for subscription in equity shares of an "eligible company". W.e.f. April 1, 2017, eligible start-up is also included in definition of eligible company|
As per section 50C, while computing capital gain arising on transfer of land or building or both, if the actual sale consideration of such land and/or building is less than the stamp duty value, then the stamp duty value will be taken as full value of consideration,
i.e., as deemed selling price and capital gain will be computed accordingly.
Mr. Raja sold his bungalow for Rs. 80,00,000. The value adopted by the Stamp Valuation Authority of the bungalow for the purpose of payment of stamp duty is Rs. 84,00,000. In this situation, while computing taxable capital gain arising on transfer of bungalow, Rs. 84,00,000 will be taken as full value of consideration (i.e., sale value of the bungalow). Thus, actual selling price of Rs. 80,00,000 (being less than stamp duty value) will not be taken into account while computing taxable capital gain.
Mr. Karan sold his land for Rs. 25,20,000. The value adopted by the Stamp Valuation Authority of the bungalow for the purpose of payment of stamp duty is Rs. 20,00,000. In this situation, while computing taxable capital gain arising on transfer of land, Rs. 25,20,000 (being actual sale value) will be taken as full value of consideration. Thus, stamp duty value (being less than actual selling price) will not be taken into account while computing taxable capital gain.
What is the tax treatment of Advance money forfeited under a un-materialized contract for transfer of capital Asset?
Any advance received on transfer of capital asset shall be chargeable to tax under the head 'Income from other sources', if such sum is forfeited and the negotiations do not result in transfer of capital Asset.
As per the recent decision by ITAT in the case of ACIT Vs. Sh. Vineet Kumar Kapila (ITAT Delhi), ITAT held that booking of flat with the builder has to be treated as construction of flat by the assessee and hence period of three years would apply for construction of new house from the date of transfer of long term capital asset. Therefore, the Ld. CIT(A) has rightly allowed the exemption u/s. 54 of the Act, because in the present case also the flat booked with the builder by the assesse has to be considered as a case of construction of flat and the deduction claimed by the assessee u/s. 54 of the Act was rightly allowed,
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
However, in the case of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.
Penal provisions have also been introduced by way of a new section 271DA, which provides that if a person receives any amount in contravention to the provisions of section 269ST, it shall be liable to pay penalty of a sum equal to the amount of such receipt.
The above section is applicable to all the persons- individuals, HUF, Firm, LLP, company, Trust etc, transacting in cash irrespective of the nature of transactions i.e Capital or Revenue.
Extract of relevant clause from Finance Bill, 2017
Amendment of section 40A.
In section 40A of the Income-tax Act,—
(a) in sub-section (2), in clause (a), in the proviso, after the words “Provided that”, the words, figures and letters “for an assessment year commencing on or before the 1st day of April, 2016” shall be inserted; (b) with effect from the 1st day of April, 2018,—
(A) in sub-section (3), for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted;
in sub-section (3A),—
(i) after the words “account payee bank draft,”, the words “or use of electronic clearing system through a bank account” shall be inserted; (ii) for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;
(iii) in the first proviso, for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted; (iv) in the second proviso, for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;
According to the provisions of Income Tax Law, in case of Gifts, in all situation the receiver of Gift shall be under the purview of Taxation. Section 56 of the Income Tax Act contains the relevant provisions that guide the Taxation of Gifts.
Not all the gifts received are taxable in the hands of the recipient. As per section 56(2)(vii) following Gifts received by an Individual or HUF are taxable under the head “Income from other Sources”:
In certain situations / conditions, gift received in excess of the above mentioned limit of Rs.50,000 shall not be taxable:
In case of an Individual:
All the members of HUF.
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- The individual is having substantial interest in a concern (*).
- Spouse of the individual is employed in the concern in which the individual is having substantial interest.
- The spouse of the individual is employed without any technical or professional knowledge or experience ( i.e., remuneration is not justifiable).
Relative for this purpose includes husband, wife, brother or sister or lineal ascendantor descendent of that individual [ section 2( 41 ) ].
Income of minor will be clubbed along with the income of that parent whose income (excluding minor's income) is higher.
If the marriage of parents does not sustain, then minor's income will be clubbed with the income of parent who maintains the minor.
In case the income of individual includes income of his/her minor child, such individual can claim an exemption under section 10(32) of Rs. 1,500 or income of minor so clubbed, whichever is less.
(*) Provisions of section 64(1A) will not apply to any income of a minor child suffering from disability specified under section 80U . In other words income of a minor suffering from disability specified under section 80U will not be clubbed with the income of his/her parent.
Business and Profession
Certain resident professionals referred to in section 44AA(1)* of the Income Tax Act whose total gross receipts from profession does not exceed Rs. 50 lakhs in a financial year may offer a sum equal to higher of the below as income chargeable to Tax under the head “profits & gains from business / profession”:
Although an assessee opting to pay taxes u/s 44ADA are not required to maintain books of accounts, however to avoid legal consequences, necessary documents and evidences should be kept and preserved as substantial proof to verify the stand of the assessee.
*Professionals with a technical certificate of their profession as specified u/s 44AA(1) who are eligible to opt for taxation u/s 44ADA are listed as under:
In case of persons covered under those who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA/3CB and the prescribed particulars are to be reported in Form No. 3CD.
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
(b) Rs. 1,50,000.
However, according to section 273B, no penalty shall be imposed if reasonable cause for such failure is proved.
However, he can opt for presumptive taxation scheme under section 44ADA and declare 50% of gross receipts of profession as his presumptive income. Presumptive Scheme under section 44ADA is applicable only for resident assessee whose total gross receipts of profession do not exceed fifty lakh rupees.
Turnover or gross receipts from the business XXXXX
Less : Expenses incurred in relation to earning of the income (XXXXX)
Taxable Business Income XXXXX
For the purpose of computing taxable business income in the above manner, the taxpayers have to maintain books of account of the business and income will be computed on the basis of the information revealed in the books of accounts.
In case of a person engaged in a business and opting for the presumptive taxation scheme of section 44AD, the provisions of section 44AA relating to maintenance of books of account will not apply. In other words, if a person adopts the provisions of section 44AD and declares income @ 8%/6% of the turnover, then he is not required to maintain the books of account as provided under section 44AA in respect of business covered under the presumptive taxation scheme of section 44AD.
Set off and carry forward
Specific provisions have been made in the Income-tax Act, 1961 for the set-off and carry forward of losses. In simple words, “Set-off” means adjustment of losses against the profits from another source/head of income in the same assessment year. If losses cannot be set-off in the same year due to inadequacy of eligible profits, then such losses are carried forward to the next assessment year for adjustment against the eligible profits of that year. The maximum period for which different losses can be carried forward for set-off has been provided in the Act.
Intra head set off/Inter source adjustment [Section 70]
Under this section, the losses incurred by the Assessee in respect of one source shall be set-off against income from any other source under the same head of income, since the income under each head is to be computed by grouping together the net result of the activities of all the sources covered by that head. In simpler terms, loss from one source of income can be adjusted against income from another source, both the sources being under the same head.
Example 1: Loss from one house property can be set off against the income from another house property.
Example 2: Loss from one business, say textiles, can be set off against income from any other business, say printing, in the same year as both these sources of income fall under one head of income. Therefore, the loss in one business may be set-off against the profits from another business in the same year.
Exemptions for the above:
- Short-term capital loss is allowed to be set off against both short-term capital gain and long-term capital gain. However, long-term capital loss can be set-off only against long-term capital gain and not short-term capital gain.
- A loss in speculation business can be set-off only against the profits of any other speculation business and not against any other business or professional income. However, losses from other business can be adjusted against profits from speculation business.
- The losses incurred by an Assessee from the activity of owning and maintaining race horses cannot be set-off against the income from any other source other than the activity of owning and maintaining race horses.
Loss under one head of income can be adjusted or set off against income under another head. However, the following points should be considered:
- Loss under head Capital Gains cannot be set-off with any other head of income.
- Loss under the head Profits and gains from business or profession cannot be set off with income from salary
- Speculation loss and loss from the activity of owning and maintaining race horses cannot be set off against income under any other head.
If income from a particular source is exempt from tax, then loss from such exempted source cannot be set off against any other income which is chargeable to tax.
E.g., Agricultural income is exempt from tax, if the taxpayer incurs loss from agricultural activity, then such loss cannot be adjusted against any other taxable income.
Particulars of loss
Income from Salary
Income from House property
Long Term Capital Gain
Short Term capital gain
Non Speculative Business profit
Speculative Business Profit
Income from other Sources
Gains from Activity of owning and maintaining race horses
Business/ Professional Income
Loss from House property
Short Term Capital loss
Long term capital loss
Non Speculative Business loss
Speculative business loss
Loss from owning and maintaining race horses
Many times it may happen that after making intra-head and inter-head adjustments, still the loss remains unadjusted due to inadequacy of eligible profits, such losses are carried forward to the next assessment year for adjustment against the eligible profits of that year. The maximum period for which different losses can be carried forward for set-off has been provided in the Income Tax Act.
Carry forward and set off of business loss:
If the income of the year in which these expenses are incurred falls short of these expenses, then the unabsorbed expenses can be carried forward to next year in the form of unabsorbed depreciation or unabsorbed capital expenditure on scientific research or unabsorbed capital expenditure on promoting family planning amongst the employees.
The unabsorbed portion shall be added to the amount of depreciation for the following year and shall be deemed to be the part of depreciation for that year (similar treatment would be given to other allowances as mentioned above).
However, while doing set off, following order needs to be followed:
Till the financial year 2016-17(AY 2017-18) there is no limit on the amount of house property loss set off with other heads of income but from financial year 2017-18 (AY 2018-19) that is from 01st of April 2017, set off for the house property loss with other heads of income is limited to Rs. 2 Lakhs.
The loss if any in excess to 2 Lakhs can be carried forward and set off with the income from house property in the next 8 Assessment years (Immediate).
One should be clear about the amendment; it is not limiting the housing loan interest u/s 24b for a let out property but is limiting the amount of loss that can be set off with other heads of income
This amendment is not impacting those only having a single self occupied property because for self occupied property the housing loan interest that can be claimed as deduction under sec 24b is limited to Rs. 2 Lakhs and the loss of house property which actually arises due to housing loan interest will also be less than or equal to Rs. 2 lakhs.
When we see the let out/rented out property the housing loan interest that can be claimed as deduction under sec 24b is unlimited and loss arising from the house property may be more than 2 lakhs. In this way the new amendment impacts the let out/ rented out property.
Case Law: TATA AIG GENERAL INSURANCE PVT LTD Vs DCIT ITAT (Mumbai)- ITA No.968 (MUM)2015.
Assessment under section 143(1)
This is intimation from the CPC and is a computer generated statement. All the data available in the Income Tax Return is validated by CPC with reference to the data available in the records of the income tax department.
Scope of assessment under section 143(1)
Intimation under section 143(1) is like primary verification of the return of income filed. At this stage of verification detailed examination of the return of income is not carried out. At this stage, the total income or loss is computed after making the adjustments (if any). Some of the adjustments made can be for the following matters:-
In addition to above, a notice u/s 133C as inserted by the Finance (No.2) Act 2014 w.e.f 01/10/2014 can also be issued by the prescribed Income Tax authority for Return of Income filed for AY 2015-16 and onwards within a time period of 4 years or 6 years as prescribed u/s 153.
Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing up his return of income. Once the return of income is filed up by the taxpayer, the next step is the processing of the return of income by the Income Tax Department. The Income Tax Department examines the return of income for its correctness. The process of examining the return of income by the Income Tax department is called as “Assessment”. Assessment also includes re-assessment and best judgment assessment under section 144.
Under the Income-tax Law, there are four major assessments given below:
The assessee having filed in the return the details of taxes paid, but failed to provide income details, the Income Tax Department deems the return as defective.
The assessee having claimed the tax deducted at source (TDS) as refund, failed to provide income details in the return. In such cases the return will be deemed to be defective.
The assessee having liability to pay taxes fails to pay the taxes in full before filing the return.
The Assessee who is required to maintain balance sheet and profit and loss statement as per the provisions of Income tax Act, 1961, but fails to provide such statements while preparing the income tax return.
When there is a mismatch of name in the return filed with the name as per PAN card.
In order to clear the defects in the original return filed i.e. in response to the notice sent by the department u/s 139(9), the assessee is required to file response within 15 days of the receipt of intimation or within such other time as extended by the AO on a written request filed for the same. For filing the response one should mention in the return the section under which the return is being filed and the communication reference number which is already there on the intimation given by the department.
How the scrutiny assessment can be made by the assessing officer (AO)?
For making the scrutiny assessment the AO has to issue a notice to the assessee (i.e., the tax payer) u/s 148 and assessee should be given an opportunity of being heard. The time-limit for issuance this notice u/s 148 is a period of 4 years from the end of the relevant assessment year. If the income escaped by the assessee is Rs. 1,00,000 or more and certain other conditions are satisfied, then notice can be issued upto 6 years from the end of the relevant assessment year.
In case the income which is escaped relates to any asset located outside India, notice can be issued upto 16 years from the end of the relevant assessment year.
Notice under section 148 can be issued by AO only after getting prior approval from the prescribed authority.
The objective of carrying out assessment under section 147 is to bring under the tax net any income which has escaped assessment in original assessment under sections 143(1), 143(3), 144 & 147 (as the case may be).
In the following cases, it will be considered as income having escaped assessment: