As per the provisions of Section 139, every assessee whose gross total income does not exceeds the basic exemption limit for any financial year, he will be relieved from filing the return for the said assessment year.
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.
An Income Tax benefit for lower income bracket is provided u/s 87A to an extent of INR 5000 [FY 2016-17] which has now reduced to INR 2500 [FY 2017-18] and onwards by the honorable FM.
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:1. The person claiming the rebate should be a RESIDENT INDIVIDUAL.
2. The person’s total Income Less Deductions (under Section 80) is equal to or less than Rs 3,50,000
If both the above conditions are satisfied, rebate of Rs 2,500 will be available under Section 87A. The rebate is limited to Rs 2,500. Which means if the total tax payable is lower than Rs 2,500, such lower amount of tax will be the rebate under section 87A. This rebate is applied on total tax before adding Education Cess(3%). This rebate is also available to Senior Citizens who are 60 years old but less than 80 years old. For FY 2016-17 The rebate u/s 87A can be claimed upon fulfillment of the following two conditions:
1. The person claiming the rebate should be a RESIDENT INDIVIDUAL.
2. The person’s total Income Less Deductions (under Section 80) is equal to or less than Rs 5,00,000.
If both the above conditions are satisfied, rebate of lower of Rs.5000 or Total tax payable will be available under Section 87A. This rebate is applied on total tax before adding Education Cess(3%). This rebate is also available to Senior Citizens who are 60 years old but less than 80 years Note: NRI and assessee other than Resident Individual can’t claim benefit under this section.
Yes you can still file your income tax return but it is not mandatory
If you file the return with Tax Liability, you will receive a notice from the department under sectin 139(9) stating the return filed as defective. You have to respond to the notice with in 15 days from the date of receipt of notice other wise the return will be treated as invalid that means the return is treated as if it is not filed at all
A new section 234F has been inserted in Income Tax Act, 1961 with effect from Assessment Year 2018-19 (Financial Year 2017-18). 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 orequal to Rs. 5,00,000 | Return filed any time after due date | Rs. 1,000 |
More thanRs.5,00,000 | Return filed on or before 31stDecember of Assessment Year | Rs. 5,000 |
In any other case | Rs. 10,000 |
PAN stands for Permanent Account Number and TAN stands for Tax Deduction Account Number. TAN is to be obtained by the person responsible to deduct tax, i.e., the deductor. In all the documents relating to TDS and all the correspondence with the Income-tax Department relating to TDS one has to quote his TAN.
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.
It is taxable if received while in service. Leave encashment received at the time of retirement is exempt in the hands of the Government employee. In the hands of non-Government employee leave encashment will be exempt subject to the limit prescribed in this behalf under the Income-tax Law
In the hands of a Government employee Gratuity and PF receipts on retirement are exempt from tax. In the hands of non-Government employee, gratuity is exempt subject to the limits prescribed in this regard and PF receipts are exempt from tax, if the same are received from a recognised PF after rendering continuous service of not less than 5 years.
Yes. However, pension received from the United Nations Organisation is exempt.
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:As per section 28AA, the certificate so issued by the income tax officer under section 197 is valid only for the assessment year mentioned in the certificate unless cancelled before the expiry of the date mentioned in the certificate.
A General Rule “ Expenses for Payer is Income for the Payee”. As such whenever a payment is made to a Non-Resident, an element of income is generated which brings it within the purview of TAX in India.
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:
Particulars | TDS Rates |
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.
TDS is the first source of collection of Taxes in India which if not deducted as per the IT Act will result in the increment of Tax payable.
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.
Rental income in the hands of owner is charged to tax under the head “Income from house property”. Rental income of a person other than the owner cannot be charged to tax under the head “Income from house property”. Hence, rental income received by a tenant from sub-letting cannot be charged to tax under the head “Income from house property”. Such income is taxable under the head “Income from other sources” or profits and gains from business or profession, as the case may be.
Rental income from a property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under the head “Income from house property”. To tax the rental income under the head “Income from house property”, the rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax under the head “Income from house property”.
Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:-
(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.
In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services 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).
A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence. Income chargeable to tax under the head "Income from house property" in case of a self-occupied property is computed in following manner :
Particulars | Amount |
Gross annual value | Nil |
Less:- Municipal taxes paid during the year | Nil |
Net Annual Value (NAV) | Nil |
Less:- Deduction undersection 24 | |
Deduction under section 24(a) 30% of NAV ➣Deduction under < href="http://www.incometaxindia.gov.in/Pages/faqs.aspx">section 24(b) n 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).
While computing income chargeable to tax under the head "Income from house property" in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property. Deduction on account of interest is classified in two forms, viz., interest pertaining to pre-construction period and interest pertaining to post-construction period. Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed). Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:
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).
The provisions relating to deduction under section 24(b) on account of interest on housing loan in case of self-occupied property are same as applicable in case of let-out property. In other words, deduction available to taxpayer under section 24(b) in respect of self-occupied property will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post-construction period (if any). However, in the case of self-occupied property, deduction under section 24(b) cannot exceed Rs.2,00,000 or Rs. 30,000 (as the case may be). If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000:
Any subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized (whether or not the assesse is the owner of that property in that year). It will be charged to tax after deducting a sum equal to 30% of unrealized rent.
The amount received on account of arrears of rent (not charged to tax earlier) will be charged to tax after deducting a sum equal to 30% of such arrears. It is charged to tax in the year in which it is received. Such amount is charged to tax whether or not the taxpayer owns the property in the year of receipt.
No, the income earned from subletting a house property is chargeable to tax under the head “income from other sources” rather than house property Income. Since, the assessee is not the owner of the property the said rental income cannot be held as income from house property. Since, the assessee was not engaged in the business of subletting, the same cannot be construed as business income of the assessee. Accordingly, such income shall be taxable as last resort income head i.e. income from other sources.
Deduction u/s 80CCD for deposit under NEW PENSION SCHEME has been introduced for all tax payers whether employed by the Government, any other employers or Self employed individuals in addition to Section 80C with a combined limit to Rs.2 Lakhs.
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.
A new saving scheme introduced vide Finance Act 2012 and amended vide Finance Act 2013 for the Resident Individuals (NO HUF) with a Gross total income of Rs.12 Lakhs or Less to claim deduction u/s 80CCG to an extent of Rs.50,000 in addition to 1.5 lakhs u/s 80C for investment in specified equity shares and mutual funds.
The scheme was introduced by the government as RGESS (Rajiv Gandhi Equity Saving Scheme) under which an individual investing would be eligible to claim 50% of the invested amount as deduction from his total income to a maximum limit of INR 50,000.
Key features of the above deduction scheme:
No, deduction under sections 80C to 80U is not allowed on short-term capital gains referred to in section 111A. However, such deductions can be claimed from STCG other than covered under section 111A. The above statement is applicable for both the Residents & Non residents.
No, deduction under sections 80C to 80U is not allowed to be adjusted against Long-term capital gains for any tax payer. However LTCG can be adjusted against Basic exemption limit in case of Resident Individuals.
Section 80EE was re-introduced by budget 2016 to provide for additional deduction of Rs.50,000 for payment of interest on home loan over and above that is allowed u/s 24.
This Deduction of Section 80EE would be applicable only in the following cases:-
Section 80D provides for the deduction from the gross total taxable income of any Individual or HUF (resident & non-resident)with respect to the premium amount paid by any mode other than cash towards the medical / health insurance policy taken for Self, spouse, dependent children & parents.
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.
For Parents:
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.
House Rent Allowance is a deduction from gross taxable salary that can be claimed by a Salaried Individual who lives in a rented house. HRA as provided by the employer is calculated and respective deduction is given in Form 16 and accordingly the TDS u/s 192 is calculated for every employee. However, if the employer doesn’t provide HRA to any employee who is paying rent towards any furnished / unfurnished accommodation, such employee can resort to Section 80GG for deduction from Gross Taxable Income. The lowest of these will be considered as the deduction under section 80GG –
The two terms often used interchangeably is “Medical Reimbursement” and “Medical Allowance” of which Medical Re-imbursement by employer is Not Taxable while Medical Allowance is taxable at the Marginal Income Tax Rate (Income Rate Slab) of the employee.
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.
On February 1, 2018, the Finance Minister, Mr. Arun Jaitley, presented the Union Budget for the year 2018. List of all the proposals related to deductions under chapter VI-A is highlighted as under:
Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments, with both individuals and Hindu Undivided Families eligible for these deductions. Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C, with this amount being a combination of deductions available under Sections 80 C, 80 CCC and 80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.
Generally, long-term capital gains are charged to tax @ 20% (plus surcharge and cess as applicable), but in certain special cases, at the option of tax payer the capital gain can be calculated @ 10% (plus surcharge and cess as applicable).
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:
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) |
Taxable Gain | 3,87,500 | 4,71,900 |
Tax @ 20% on Rs. 3,87,500 | 77, 500 | -------- |
Tax @ 10% on Rs. 4,71,900 | -------- | 47,190 |
Basic exemption limit means the level of income up to which a person is not required to pay any tax. This Basic exemption limit is available only for Individual, HUF, AOP, BOI and artificial judicial persons
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.
Section 54 provides exemption from payment of Tax on Long term capital gain earned by virtue of sale of a Long term immovable property, being a House property to the extent of Lower of the following:
Any profit or gain arising from transfer of a capital asset [as defined u/s 2(14) of IT Act,1961] during the year is charged to tax under the head “Capital Gains”.
Capital asset is defined to include:
Any capital asset held by a person for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset.
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.
Illustration
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.
Illustration
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.
Gain arising on transfer of long-term capital asset is termed as long-term capital gain and gain arising on transfer of short-term capital asset is termed as short-term capital gain. However, there are a few exceptions to this rule, like gain on depreciable asset is always taxed as short-term capital gain.
The taxability of capital gain depends on the nature of gain, i.e. whether short-term or long-term. Hence to determine the taxability, capital gains are classified into short-term capital gain and long-term capital gain. In other words, the tax rates for long-term capital gain and short-term capital gain are different. Similarly, computation provisions are different for long-term capital gains and short-term capital gains.
No, the benefit of indexation is available only in case of long-term capital assets and is not available in case of short-term capital assets. Indexation is a process by which the cost of acquisition/improvement of a capital asset is adjusted against inflationary rise in the value of asset. Hence it is applicable only in the case of long term capital assets.
Yes, the method of computation of cost of acquisition for capital asset acquired before 1st April, 1981 differs. Generally, cost of acquisition of a capital asset is the cost incurred in acquiring the capital asset. It includes the purchase consideration plus any expenditure incurred exclusively for acquiring the capital asset. However, in respect of capital asset acquired before 1st April, 1981, the cost of acquisition will be higher of:
Generally, transfer means sale, however, for the purpose of Income-tax Law "Transfer”, in relation to a capital asset, includes:
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;
Capital gain arises if a person transfers a capital asset. section 47 excludes various transactions from the definition of 'transfer'. Thus, transactions covered under section 47 are not deemed as 'transfer' and, hence, these transactions will not give rise to any capital gain. Transfer of capital asset by way of gift, will, etc., are few major transactions covered in section 47. Thus, if a person gifts his capital asset to any other person, then no capital gain will arise in the hands of the person making the gift (*).
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.
House sold by you is a long-term capital asset. Any gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income-tax Law has prescribed the method of computing capital gain arising on account of sale of capital assets. Thus, to check the taxability in your case, you have to compute capital gain by following the rules laid down in this regard, and if the result is gain, then the same will be liable to tax.
Section 10: provides list of incomes which are exempt from tax Amongst these the major exemptions relating to capital gains are listed below:
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.
A taxpayer can claim exemption from certain capital gains by re-investing the capital gain into specified asset. The following table highlights the assets in respect of which the benefit of re-investment is available:
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 |
Yes, as per section 54EC you can claim tax relief by investing the long-term capital gains in the bonds issued by the National Highway Authority of India or by the Rural Electrification Corporation Limited. The investment should be made within a period of 6 months from the date of transfer of capital asset and bonds should not be redeemed before 3 years. This benefit cannot be availed in respect of short-term capital gain. Maximum amount which qualifies for investment will be Rs. 50,00,000. Thus, deduction under section 54EC cannot be claimed for more than Rs. 50,00,000.
Stamp duty value means the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty.
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.
Illustration
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.
Illustration
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.
Yes, in order to claim exemption u/s 54 / 54F against long term capital gain from sale of house property, one can book the flat with the builder.
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,
In addition to section 40A(3), a new section 269ST has been inserted in the Income tax Act vide Finance Act 2017 with effect from 01.04.2017, that prohibits receipt of an amount of INR 2 Lakhs or more by a person, in the circumstances specified therein, through modes other than by way of an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. In other words, No person shall receive an amount of two lakh rupees or more—
(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.
The amendment brought about under the existing section 40A(3) vide Finance Bill 2017 with effect from 01.04.2018 is basically to promote the concept of Digital India and there by discourage cash transaction. As per the amendment, the existing threshold of cash payment of Rs.20,000 has been reduced to Rs.10,000 per person in a single day, i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from “Profits and gains of business or profession“.
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;
The term “Gift” denotes anything received by anyone without consideration or inadequate consideration.
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”:
TUnder certain circumstances as given in section 64(1)(ii) , remuneration ( i.e., salary) received by the spouse of an individual from a concern in which the individual is having substantial interest is clubbed with the income of the individual. Provisions in this regard are as follows:
As per section 64(1A) , income of minor child is clubbed with the income of his/her parent (*). Income of minor child earned on account of manual work or any activity involving application of his/her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his/her parent. However, accretion from such income will be clubbed with the income of parent of such minor.
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.
As per section 64(2) , when an individual, being a member of HUF, transfers his property to the HUF otherwise than for adequate consideration or converts his property into the property belonging to the HUF (it is done by impressing such property with the character of joint family property or throwing such property into the common stock of the family), then clubbing provisions will apply as follows:
“Section 44ADA” as inserted by the Finance Act 2016 with effect from 01.04.2017 (FY 2017-18) is proposed in line with the recommendation of Justice Easwar Committee for simplification of taxation of professionals.
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”:
The presumptive taxation scheme of section 44ADA can be opted by the eligible persons if the total turnover or gross receipts from the business do not exceed the limit prescribed under section 44AB (i.e., Rs. 2,00,00,000). In other words, if the total turnover or gross receipt of the business exceeds Rs. 2,00,00,000 then the scheme of section 44ADA cannot be adopted.
A person who is earning income in the nature of commission or brokerage cannot adopt the presumptive taxation scheme of section 44AD. Insurance agents earn income by way of commission and, hence, they cannot adopt the presumptive taxation scheme of section 44AD
The scheme of sections 44AE is available to the person who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages.
There is no concession as regards payment of advance tax in case of a person who is adopting the presumptive taxation scheme of section 44AE and, hence, he will be liable to pay advance tax even if he adopts the presumptive taxation scheme of section 44AE
The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed form. The form prescribed for audit report in respect of audit conducted under section 44AB is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.
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.
According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
(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.
A person who is engaged in any profession as prescribed under section 44AA(1) cannot adopt the presumptive taxation scheme of section 44AD.
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.
Generally, as per the Income-tax Law, the taxable business income of every person is computed as follows :
Particulars Amount
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.
Concept of set-off:
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:
Let us understand the inter source and inter head setoff process in brief in a tabular format:
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 |
|
Capital Gains |
Business/ Professional Income |
||||||||
Loss from House property |
ü |
ü |
ü |
ü |
ü |
ü |
ü |
ü |
|
Short Term Capital loss |
Capital Gains |
O |
O |
ü |
ü |
O |
O |
O |
O |
Long term capital loss |
O |
O |
ü |
O |
O |
O |
O |
O |
|
Non Speculative Business loss |
Business Income |
O |
ü |
ü |
ü |
ü |
ü |
ü |
ü |
Speculative business loss |
O |
O |
O |
O |
O |
ü |
O |
O |
|
Loss from owning and maintaining race horses |
O |
O |
O |
O |
O |
O |
O |
ü |
Carry forward of Losses:
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:
The report of the tax audit conducted by the chartered accountant is to Apart from several other deductions, in computation of income chargeable to tax under the head “Profits and gains of business or profession” a person is allowed to claim deduction on account for depreciation, capital expenditure incurred by him on scientific research and capital expenditure incurred by a company for promoting family planning amongst its employees.
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:
As per the amendment in the finance budget 2017 with effect from 01-04-2018:
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.
After successful filing of Return of Income by an assessee u/s 139, the major notices that can be expected to come within a period of 1 year from the end of Financial Year in which the said return was filed is Intimation Notice U/s 143(1), Notice for Scrutiny Assessment u/s 143(2) ( within a period of 6 months from the end of the Financial Year in which the said return was filed) and Notice for Best Judgement Assessment u/s 142(1).
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:
Notice u/s 139(9) is basically intimation from the Income Tax Department for the Income tax return filed for a financial year being defective due to following common reasons:
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.