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How to Save Long Term Capital Gains Tax from Property?

The long-term capital gains from property can be huge especially if the asset was held for really long term. These gains are taxed at 20% + cess (effectively 20.8% from FY 2018-19) which can cause a major dent in the amount received on sale. So if we have an option to save, we must save on this tax. The post below gives details of the 3 sections concerned with the Saving of Long Term Capital Gains Tax from Property.

As capital gains taxation is concerned property can be two types:

  1. Residential(house, apartment used for residential purpose)
  2. All others(this includes land, commercial buildings etc)

There are 3 sections using which tax payers can use to save tax on their long-term capital gains. We discuss these one by one:

  1. Section 54(buy residential property on sale of residential property)
  2. Section 54EC(buy specified bonds on sale of any property – land/building/residential/commercial)
  3. Section 54F(buy residential property on sale of any property – land/building/residential/commercial)

We discuss each section in detail:

Section 54 (buy residential property on sale of residential property)

Section 54 is applicable in case of long-term capital gains arising out of sale of any residential property. The exemption is up to following:

  1. Purchase of another residential property(including under construction property) 1 year before the sale of 2 years after the sale and/or
  2. Construction of residential property within 3 yearsof sale
  3. From FY 2019-20 a person can nowbuy two houses on sale of 1 house if the capital gains are less than Rs 2 crore. This benefit can be availed only once in lifetime. [proposed in Budget 2019]

The new property purchased or constructed should not be sold with-in 3 years of purchase/construction. In case the sale happens within 3 years, the purchase price of the property would exclude the capital gains exemption that was claimed.

There is NO limit to the amount of capital gains that can be exempted u/s 54. If the long-term capital gains are less than or equal to the new house purchased/constructed, the entire gains would be tax exempted. In case the capital gains are more, the difference of capital gains and cost of new house would be taxed.

The NEW House should be on the same name as on the previous property which was sold.

Even if the builder fails to hand-over the under construction property with-in 3 years, the exemption still holds.

Relevant Points:

The section 54 tax exemption is available only if the amount is invested in only one residential property in India [Budget 2014]

Under section 54, the tax payers are given 2 years to purchase the house or 3 years to construct it, however the long-term capital gains arising out of sale is taxable in the financial year the transaction happened. Both the above provisions are not consistent to each other. To avoid this, the tax payer has to deposit all their unutilized long-term capital gains in “Capital Gains Account Scheme” of banks before the due date of filing returns (in most cases before July 31). The income tax return forms ask for details of the capital gains account, which should be filled in correctly. Also, the amount which has already been utilized for purchase/construction would be exempted from capital gains.

In case the amount deposited in capital gains account has not been utilized (partially or fully) within 3 years, it would be considered capital gains of the year in which the 3 years would be completed from the date of sale.

Section 54EC (buy specified bonds on sale of any property)

You can save long term capital gains on assets if you invest the gains in specified long term capital gains bond within 6 months of sale of asset. As of today, NHAI (National Highway Authority of India), REC (Rural Electrification Corporation) and PFC (Power Finance Corporation) issue capital gains bond and have annual interest rate of 5.25%. The interest earned is taxed as per the income tax slab. Also, the bonds have tenure of 3 years which would increase to 5 years from FY 2018-19 (as changed in Budget 2018). Until this year these bonds were available for long term capital gains from any asset but from FY 2018-19 the capital gains resulting from sale of property (land/building/residential/commercial) can only be invested.

 

Section 54F (buy residential property on sale of any property)

Any long-term capital gains arising due to sale of any asset can be made exempt by:

  1. Purchase of another residential property(including under construction property) 1 year before the sale of 2 years after the sale and/or
  2. Construction of residential property within 3 yearsof sale

In case entire amount is not invested in new purchase, the exemption would be proportionate.

Amount Exempt = Capital Gains X [Amount Invested / Net Sale Consideration]

The NEW House should be on the same name as on the previous property which was sold.

Even if the builder fails to hand-over the under construction property with-in 3 years, the exemption still holds.

There are certain limitations:

  • The tax payer should not have more than 1 residential house as on the date of sell of the asset.
  • The tax payer purchases any residential house other than the new house within 1 year of sale.
  • The tax payer constructs any residential house other than the new house within 3 years of sale.
  • Budget 2014 also made it compulsory that the new house should be located in India. Also, the capital gains account scheme can be used by the tax payer if required.
  • The proceeds should not be invested in a commercial property or in another vacant plot.

Some of you may be confused between Section 54F and 54. Below is a comparison to make things more clear:

Section 54F Vs 54:

Section 54 Section 54F
When Applicable? buy residential property on sale of residential property buy residential property on sale of any property
Full Exemption? To claim full exemption all Capital Gains must be invested in new house To claim full exemption entire sale receipt must be invested in new house
Any Limit No such conditions Should not own more than one residential house at the time of sale of the original asset

We have explained all 3 sections – Section 54, Section 54EC and Section 54F which can be used to save long term capital gains tax on property. 

 

 

Money tips / Tax - 06/05/2020
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Can I claim Tax Benefit on both HRA & Home Loan?

Can I claim Tax Benefit for both HRA & Home Loan? – A question which is often asked by many tax payers. This is mainly because many employers do not allow both tax benefits together in certain situations. Unfortunately this is NOT the right thing to do.

 

Both HRA and Home Loan Interest tax sections are unrelated. You claim tax benefit on HRA (House Rent Allowance) under section 10(13A) while the tax benefit on payment of interest on home loan comes under section 24(b). However there can be issues if both the sections are used together with the intent of tax evasion.

 

We can have four situations for people claiming HRA & Home Loan tax benefit.

  1. Rented house in place of employment and own house in different city
  2. Own flat in city of employment and stay on rented house in same city
  3. Own flat in city of employment and stay with parents/siblings in the same city and pay them rent
  4. Rented house in different city and own house at place of employment

 

  1. Rented house in place of employment and own house in different city

This is a very easy situation to handle. You can easily claim tax benefit on both and NO employer has issue with this arrangement.

  1. Own flat in city of employment and stay on rented house in same city

This is tricky situation. The first logical question which comes to mind is why would any person owning house in the same city stay on rent? Most employers have issue with this arrangement and may not give tax benefit on both HRA & Home Loan.

 

But legally you can claim tax benefit on both if you can give a valid reason for this arrangement. The reasons can be its more convenient to stay. For e.g. your flat is on the outskirts with almost negligible public transport, you might not want to live there and rather stay close to your place of employment. The other reason could be the owned house is smaller for the size of family.There are misconceptions that there should be minimum distance between two houses. All this is myth! All you need a genuine reason to stay on rent.

 

Also if you move to your new owned house in the middle of financial year, its a genuine thing to do and you can claim HRA for the period you stayed on rent and house loan benefit for the entire year. In case your employer is not ready to give tax benefit on both – you can claim HRA tax benefit from employer and claim tax benefit on Home Loan while filing your Income Tax return. 

The other question is should the owned house be assumed to have notional rent? The answer is No. If you receive actual rent then show, only then you need to pay tax on that.

3. Own flat in city of employment and stay with parents/siblings in the same city and pay them rent

The situation is similar as discussed above with the difference being your landlord or landlady is your close relative like parents/siblings. Any such rental transaction is full with suspicion and so you should be very careful if you use this for tax saving. You must do the following:

  1. Actually pay the rent through Cheque/ECS etc. and receiver should give rent receipt for the same.
  2. The landlord/lady should show this rent as “income from house property” and pay taxes on the same.

There have been cases where rent paid to close relatives have been denied tax benefit by income tax department as there was NO evidence of actual transaction. So stay careful.

4. Rented house in different city and own house at place of employment

There may be case where you have rented a place where your spouse/parents stay (in a different city) while you own a house at the city of your employment and stay there. In this case you cannot claim HRA tax benefit as HRA is paid for staying on rent for purpose of employment. However you can easily claim home loan tax benefit.

Money tips / Tax - 06/04/2020
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Examples of your old & new tax regime FY 2020-21 (AY 2021-22)

Old vs New: A Comparison For Different Slabs

Taxpayers with annual income between RS.5 lakhs to Rs.10 lakhs are taxed at 20%, under the old regime. And in the new regime, they will be taxed at half that rate i.e. 10%. Also, those with an annual income of Rs.7.5 lakhs to Rs.10 lakhs will have to pay 15% income tax.

However, if the taxpayer is benefiting from exemptions and his net tax payable is less, he/she can choose to continue with the old tax regime.

OLD RATES (with exemptions) ANNUAL INCOME NEW RATE (without exemptions)
Nil Up to Rs.2.5 lakhs Nil
5% Rs.2.5 – 5 lakh 5%
20% Rs.5 – 7.5 lakh 10%
Rs. 7.5 – 10 lakh 15%
30% Rs. 10-12.5 lakh 20%
Rs. 12.5-15 lakh 25%
Rs. 15 and above 30%

Let’s take an example, a person’s annual income comes to Rs.6 lakhs. If he goes by the new rates, he will have to pay Rs.60,000. (some of the exemptions allowed in the new tax regime may be beneficial)

If he chooses the old rates, he can deduct Rs.1.5 lakhs under Sec 80C. His taxable income now is Rs.4.5 lakhs.  A simple preview of how much does the tax amount come to under different slabs with old and new tax regime will help you take the right call.

Before we begin, please note the following:-

  • The maximum amount of each of the exemptions is used here for calculation purposes.
  • Not everyone might invest in the same manner to save tax. If a person is not benefiting from the exemptions, he/she can choose the new regime.
  • The calculations made are for understanding purposes. Take advice from experts as the filing process for different assessment years may differ.
  • There are more exemptions an individual can benefit from, than the ones taken here for calculation.

For Annual Income Up To Rs.2.5 Lakhs 

  • No tax for Individuals, HUF below the age of 60 years.
  • For senior citizens, no tax up to Rs. 3,00,000.

Under old and the new scheme.

For Annual Income Up To Rs.5 Lakhs

  • For senior citizens: Rs.3,00,000 to Rs.500000 – 5%
  • Under Sec 87A, individuals with total income (after deductions) that do not exceed Rs.5 lakhs can claim a rebate of Rs.12,500.
Annual Income of Rs.5,00,000 (without exemption)
Old Regime New Regime
Income tax slab Tax Rate (%) Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs. 2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
(-) Rebate -12500 -12500
Tax Payable 0 0

For Annual Income Up To Rs 7.5 Lakhs

Annual Income of Rs.7,50,000 (without exemption)
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs. 2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
Sum 62500 37500
Health and Education cess 4 2500 4 1500
Tax Payable 65000 39000

 

Annual Income of Rs.7,50,000 (with exemption)
Annual Income 750000
Exemptions u/s 80C -150000
u/s 80CCD(1B) -50000
u/s 80D -50000
HRA -10000
Taxable Income 4,90,000
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 0 0 10 25000
(-) Rebate -12500
Sum 0 37500
health and education cess 4 0 4 1500
Tax Payable 0 39000

For Annual Income Up To Rs.10 Lakhs

Annual Income of Rs.10,00,000 (without exemption)
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 20 50000 15 37500
Sum 112500 75000
Health and education cess 4 4500 4 3000
Tax Payable 1,17,000 78,000

 

Annual Income of Rs.10,00,000 (with exemption)
Annual Income 10,00,000
Exemptions u/s 80C -1,50,000
u/s 80CCD(1B) -50,000
u/s 80D -75,000
Taxable Income 7,25,000
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 0 0 15 37500
Sum 62500 75000
health and education cess 4 2500 4 3000
Tax Payable 65,000 78,000

For Annual Income Up to Rs 12.5 Lakhs

Annual Income of Rs.12,50,000 (without exemption)
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 20 50000 15 37500
1000001 – 1250000 30 75000 20 50000
Sum 187500 125000
Health and education cess 4 7500 4 5000
195000
Annual Income of Rs.12,50,000 (with exemption)
Annual Income 1250000
Exemptions u/s 80C -150000
u/s 80CCD(1B) -50000
u/s 80D -75000
Taxable Income -975000
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 20 50000 15 37500
1000001 – 1250000 0 0 20 50000
Sum 112500 125000
Health and education cess 4 4500 4 5000
Tax Payable 117000 130000

For Annual Income Up To Rs 15 Lakhs

Annual Income of Rs.15,00,000 (without exemption)
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 20 50000 15 37500
1000001 – 1250000 30 75000 20 50000
1250001 – 1500000 30 75000 25 62500
Sum 262500 187500
Health and education cess 4 10500 4 7500
273000 195000

 

Annual Income of Rs.15,00,000 (with exemption)
Annual Income 1500000
Exemptions u/s 80C -150000
u/s 80CCD(1B) -50000
u/s 80D -75000
Taxable Income -1225000
Old Regime New Regime
Income tax slab Tax Rate Tax (Rs.) Tax Rate Tax (Rs.)
Up to Rs.2,50,000 0 0 0 0
250001 – 500000 5 12500 5 12500
500001 – 750000 20 50000 10 25000
750001 – 1000000 20 50000 15 37500
1000001 – 1250000 30 75000 20 50000
1250001 – 1500000 0 0 25 62500
Sum 187500 187500
Health and education cess 4 7500 4 7500
Tax payable 1,95,000 1,95,000

 

Income Tax / Tax - 06/02/2020
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Public Provident Fund (PPF) - Things to note

Public provident fund (PPF) is a tax-free investment product that comes with a tenure of 15 years. You need to make the periodic investment to PPF every year and the minimum you can invest is ₹500 going up to ₹1.5 lakh a year. You can choose to invest a lump sum amount in the year or invest a sum every month. You can hold a PPF account in your name or even open one in the name of a minor but together the contributions can’t exceed ₹1.5 lakh.

PPF’s returns are pegged to the average government securities (G-secs) yield and are declared every quarter. Currently, it offers a rate of 8% per annum.

You can maximize your return by investing early in the year as then your money will earn interest for the entire year.

Being a tax-free product, the contributions up to ₹1.5 lakh qualify for a tax deduction under Section 80C of the Income Tax Act. A deduction reduces your overall tax liability.

PPF accounts can be opened in banks or post offices, but you need to be a resident Indian.

Things to Note (lesser known facts of PPF)

1. Opening PPF accounts in joint names: Everybody knows that opening PPF accounts in joint names is not allowed. However, parents are allowed to open a PPF account on behalf of a minor child. In case both parents are not alive or a living parent is incapable of acting, then a court-appointed guardian is eligible to open an account on behalf of a minor. But while parents are allowed to open accounts on behalf of minors, both parents can’t open two separate accounts on behalf of the same minor. When the minor attains majority, then they will be treated as the account holder of PPF and not the legal guardian.

2. A PPF account cannot be attached: The money in the PPF account is yours and nobody can take it away. Yes, a PPF account cannot be attached by a person or entity to pay off any debt or liability. This is the gold standard of safety of an asset. Do remember our homes, if taken on a mortgage, can be taken away if we fail to pay the EMIs. But in case of PPF money, even a court order or decree cannot make a person liable to pay off her/his debts using the money from her/his PPF account. This is great protection for millions of PPF account holders. There is one caveat though — the Income Tax authority is free to attach and recover the dues of an account holder.

3. Nomination of nominees: PPF allows you to nominate more than one person. You can nominate one or more nominees to your PPF account if you so wish. The nomination is not allowed to an account opened on behalf of minors. You can change or cancel the nomination at any point of time during the PPF account period, but do note that you cannot nominate a trust to your PPF account. But being the nominee does not mean you will be allowed to continue the account. All the nominee gets is the right of ownership in terms of an authority to collect the money on the death of the subscriber and retain the money as a trustee for the benefit of the persons who are entitled to it under the law.

4. Misunderstanding about lock-in period:  As per the PPF scheme rules, the date of calculation of maturity is taken from the end of the financial year in which the deposit was made. So, it does not matter in which month or date the account was opened. If your first contribution was made on June 1, 2018. The lock-in period of 15 years will be calculated from March 31, 2019, and the year of maturity, in this case, will be April 1, 2034. Do remember this technicality if you are counting on your PPF account maturity sum for an important time-sensitive financial event, like retirement or buying a house or repaying an important loan.

5. Discontinuation of PPF account: Some investors often forget their PPF account. Lack of minimum deposit can lead to discontinuation. If your PPF account is discontinued, you will still get the amount along with interest, but only at maturity. Such a discontinued account will earn interest every year till maturity is reached on the balance available for each year. Even withdrawal or loan facility is not allowed on such a discontinued account. If you want to avail loan or withdrawal facility, you will have to continue the account by paying the prescribed penalty and minimum subscription for the discontinued period. These rules tell you that you should do everything in your power not to let your PPF account become a discontinue done. Keep a note of the account and invest the minimum amount every year.

Wealth Cafe tip - If you do not have an Employee provident fund or not using your EPF for retirement goals and are looking to invest for long term goals like retirement, PPF is a great option. It gives tax savings, security, and good interest rates.

 

Investments / Tax - 08/05/2019
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Changes in the ITR form for FY 2018-19 (AY 2019-20)

There are many changes which are notified by the CBDT in this year's income tax returns. There are changes for all those who have Income from salary, House property, Capital Gains or company owners. Government is trying to collect more data to increase transparency on how information is disclosed in the income-tax returns.

We have highlighted some major changes here for reference.

Reporting of salary income on a gross basis:

The new ITR forms have changed the mechanism of reporting of salary income. Up to Assessment Year 2018-19, an individual was required to report salary amount excluding all exempt and non-exempt allowances, perquisites and profit in lieu of salary. These items were reported separately in the same schedule and had no impact on the calculation of net salary income.

The new ITR forms have changed this reporting mechanism, which is now in sync with the columns of Form 16 (TDS Certificate issued by the employer). Now, from Assessment Year 2019-20, an individual has to mention his gross salary and the number of exempt allowances, perquisites and profit in lieu of salary shall be deducted or added to arrive at the taxable figure of salary income. Further, the new ITR forms seek separate reporting of all deductions allowable under Section 16, namely:

a) Standard Deduction

b) Entertainment allowance 

c) Professional tax

Investment in unlisted companies:

Where a company issues shares at a price which is less than its FMV and the difference between the FMV and issue price exceeds Rs. 50,000 then the difference is charged to tax in the hands of the shareholders under the head income from other sources.

In order to keep a check on the issue of shares by a closely held companies and investment made therein by shareholders, a new table has been inserted in new ITR forms to seek the following details in respect of unlisted equity shares held at any time during the previous year by an assessee:

a) Name of the company

b) PAN of the company

c) No. and cost of acquisition of shares held at the beginning of the year

d) No. of shares, face value, issue price (or purchase price) and date of purchase of shares acquired during the year

e) No. and sale consideration of shares transferred during the year

f) No. and cost of acquisition of shares held at the end of the previous year.

Buyer’s information is required in case of transfer of immovable property:

If assessee reports a capital gain, from the transfer of immovable property, in income-tax return, it would be mandatory for him to furnish the following information about the buyer:

a) Name of buyer

b) PAN of buyer

c) Percentage share

d) Amount

e) Address of property

f) Pin code

It is mandatory for the assessee to furnish the PAN of the buyer in ITR form if tax has been deduced under section 194-IA or PAN is quoted by the buyer in the registration documents.

PAN is otherwise a mandatory document to buy or sell an immovable property if the stamp duty value or the sales consideration exceeds Rs. 10 lakhs.

Classification of house property :

While providing details of your house property in ITR-1, you are required to specify whether the house is – ‘Self Occupied’, ‘Let-out’ or ‘Deemed Let-out.’ In the previous year’s ITR-1, there was no such option of ‘Deemed Let-out‘ in ITR-1. Also, while filing ITR, if there are any rent arrears that are received by you in FY 2018-19 then you have to report them property wise as received.ITR-1 & ITR-2 has introduced an additional row ‘Arrears/Unrealized Rent’ received during the year less 30%

ITR 1 and ITR 4 ask for nature of residuary income:

Up to Assessment Year 2018-19, taxpayers were required to disclose the aggregate amount of income taxable under the head of other sources. However, from Assessment Year 2019-20, it is mandatory for an assessee to specify the nature of income taxable under the head income from other sources and the deductions claimed in respect of family pension in accordance with Section 57. Such extra disclosures have been asked by the Dept. to check that the ineligible persons are not using the ITR 1 and ITR 4 for filing of return.

There is a notification by the Income-tax authorities based on which taxpayers will be required to disclose a break-up of capital gains earned from shares each script-wise. However, the form has not been notified until today and hence, we have not discussed the same here. We will write a separate post on the same.

Wealth Cafe Actionable - These changes have surely increased the back end work and data that will be required to file Income-tax Returns going forward. Do not take these changes lightly and keep yourself updated irrespective of whether you are filing the return by yourself or from a consultant.

 

Tax - 06/15/2019
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Income-tax Rates FY 2020-21 (AY 2021-22)

Before knowing the tax rates, it is very important to understand the terms Financial year (FY) and Assessment Year (AY).

The below-mentioned tax rates/ slab is on the income earned for the period 1 April 2020 to 31 March 2021. FY stands for the ‘financial year’ which is from 1 April 2020 to 31 March 2021. AY stands for Assessment year which 2021-22.

For individuals, the due date to file the income tax return for the income earned from 1 April 2020 to 31 March 2021 is 31 July 2021. However, this year due to COVID 19 economic relaxations, the due date is pushed to 30 November 2021

Income tax Rates 

  1. Income Tax Rate & Slab for Individuals & HUF:
    1. Individual (Resident or Resident but not Ordinarily Resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year & for HUF:

 

Taxable income Tax Rate
(Existing Scheme)		 Tax Rate
(New Scheme)
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,001 to Rs. 5,00,000 5% 5%
Rs. 5,00,001 to Rs. 7,50,000 20% 10%
Rs. 7,50,001 to Rs. 10,00,000 20% 15%
Rs. 10,00,001 to Rs. 12,50,000 30% 20%
Rs. 12,50,001 to Rs. 15,00,000 30% 25%
Above Rs. 15,00,000 30% 30%

 

  1. Resident or Resident but not Ordinarily Resident senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:
Taxable income Tax Rate
(Existing Scheme)		 Tax Rate
(New Scheme)
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,001 to Rs. 3,00,000 Nil 5%
Rs. 3,00,001 to Rs. 5,00,000 5% 5%
Rs. 5,00,001 to Rs. 7,50,000 20% 10%
Rs. 7,50,001 to Rs. 10,00,000 20% 15%
Rs. 10,00,001 to Rs. 12,50,000 30% 20%
Rs. 12,50,001 to Rs. 15,00,000 30% 25%
Above Rs. 15,00,000 30% 30%

 

  1. Resident or Resident but not Ordinarily Resident super senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 80 years or more at any time during the previous year:
Taxable income Tax Rate
(Existing Scheme)		 Tax Rate
(New Scheme)
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,001 to Rs. 5,00,000 Nil 5%
Rs. 5,00,001 to Rs. 7,50,000 20% 10%
Rs. 7,50,001 to Rs. 10,00,000 20% 15%
Rs. 10,00,001 to Rs. 12,50,000 30% 20%
Rs. 12,50,001 to Rs. 15,00,000 30% 25%
Above Rs. 15,00,000 30% 30%
  1. Surcharge:
    a) 10% of Income tax where total income exceeds Rs.50 lakh
    b) 15% of Income tax where total income exceeds Rs.1 crore
    c) 25% of Income tax where total income exceeds Rs.2 crore
    d) 37% of Income tax where total income exceeds Rs.5 crore
  2. Note:Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b).
  3. Education cess:4% of income tax plus surcharge
  4. Note: A resident or Resident but not Ordinarily Resident individual is entitled to rebate under section 87A if his total income does not exceed Rs. 5, 00,000. The amount of rebate shall be 100% of income-tax or Rs. 12,500, whichever is less. rebate under section 87A is available in both schemes I.e. existing scheme as well as new scheme.

 

  1. Income Tax Rates for AOP/BOI/Any other Artificial Juridical Person:
Taxable income Tax Rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Surcharge:
a) 10% of Income tax where total income exceeds Rs.50 lakh
b) 15% of Income tax where total income exceeds Rs.1 crore
c) 25% of Income tax where total income exceeds Rs.2 crore
d) 37% of Income tax where total income exceeds Rs.5 crore

Note: Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b).

Education cess: 4% of tax plus surcharge

 

  1. Tax Rate for Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore

Education cess: 4% of Income tax plus surcharge

 

  1. Income Tax Slab Rate for Local Authority:

A local authority is Income taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore

Education cess: 4% of tax plus surcharge

 

  1. Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year.

Particulars Tax Rate(%)
If turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year 2018-19 25%
If the company opted section 115BA (Note 1) 25%
If the company opted for section 115BAA (Note 2) 22%
If the company opted for section 115BAB (Note 3) 15%
Any other domestic company 30%

 

Note 1: Section 115BA - A domestic company which is registered on or after March 1, 2016 and engaged in the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it and also It is not claiming any deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or additional depreciation, can opt section 115BA on or before the due date of return by filing Form 10-IB online. Company cannot claim any brought forwarded losses (if such loss is related to the deductions specified in above point).

Note 2: Section 115BAA - Total income of a company is taxable at the rate of 22% (from A.Y 2020-21), if the following conditions are satisfied:
- Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA).
- Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point).
- Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Note 3: Section 115BAB - Total income of a company is taxable at the rate of 15% (from A.Y 2020-21), if the following conditions are satisfied:

- Company (not covered in section 115BA and 115BAA) is registered on or after October 1, 2019 and commenced manufacturing on or before 31st March, 2023.
- Company is not formed by splitting up or reconstruction of a business already in existence.
- Company does not use any machinery or plant previously used for any purpose.
- Company does not use any building previously used as a hotel or a convention center, as the case may be.
- Company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it. Business of manufacture or production shall not includes business of -

  • Development of computer software;
  • Mining ;
  • Conversion of marble blocks or similar items into slabs;
  • Bottling of gas into cylinder;
  • Printing of books or production of cinematographic film; or
  • Any other notified by Central Govt.

- Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA and 80M).

- Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point).

- Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Surcharge:
a) 7% of Income tax where total income exceeds Rs.1 crore
b) 12% of Income tax where total income exceeds Rs.10 crore
c) 10% of income tax where domestic company opted for section 115BAA and 115BAB

Education cess: 4% of Income tax plus surcharge.

 

  1. Tax Rates for Foreign Company:

A foreign company is taxable at 40%

Surcharge:
a) 2% of Income tax where total income exceeds Rs. 1 crore
b) 5% of Income tax where total income exceeds Rs. 10 crore

Education cess: 4% of Income tax plus surcharge.

Taxable income Tax Rate
(Existing Scheme)		 Tax Rate
(New Scheme)
Up to Rs. 10,000 10% -
Rs. 10,001 to Rs. 20,000 20% 22%
Above Rs. 20,000 30% -
  1. Income Tax Slab for Co-operative Society:

Surcharge:

  1. a) 12% of Income tax where total income exceeds Rs. 1 crore
  2. b) In case of Concessional scheme, surcharge rate is 10%

Education cess: 4% of Income tax plus surcharge.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Alternative Assets / Income Tax / Insurance / Investments / Salary / Tax - 06/03/2019
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TDS Rates for AY 2019-20

We have discussed in our previous articles about how to save income tax.

We have also stated that you must compute your taxable liability at the end of the financial year i.e. 31 March of the year to know your exact tax liability and pay the same to avoid any interest on delay in payment of taxes.

Many of us are not used to paying taxes as all the income that we received is already reduced by the tax. We receive post-tax income (also known as cash in hand).

TDS (Tax deducted at source) is the tax which is deducted by the income provider before paying you the income. For example- employers deduct taxes on the salary income, banks deduct taxes on the interest income etc.

Every budget, where the tax rates are updated, the TDS rates and applicability is also updated.

Apart from bank interest and salaries, there are many other ways your income can be taxed at source. We have listed the same below:

 

 

 

 

 

 

Tax - 03/12/2019
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How to save tax

Mid-January is a stressful time for most salaried individuals. Most of them are calling their CAs, talking to their friends or opening fixed deposits to make investments to avoid/reduce their taxes. It is the time when most offices require the employees to submit their investment proofs for availing the tax benefit.

Most of us know about the deduction of INR. 150,000 available to individuals. This deduction means that an amount of INR 150,000 is reduced from your total taxable income and then, the balance is taxable under the Act. Generally, people know that this INR 150,000 deduction is available when you invest in the Provident Fund (PF), an insurance policy or a new fixed deposit (FD) of 5 years every year.

These are not the only options available for tax savings. In our Article, taxation of salary, we discussed ways and reasons to make the most of your salary. Here, we are going to discuss, means made available to you under the Income-tax Act, 1961 to reduce your tax payable. To make use of any of these options, you will have to actually spend the money, invest it i.e. there will be an outflow of funds. You also need to have a backup and the relevant documents to claim the tax deductions.

The deductions for the following expenses/investments are allowed.

  • Popular INR 150,000 deduction: Claiming a deduction of INR 150,000 under section 80C of the Act can reduce your tax outgo by around Rs. 45,000 (for someone in a 30% tax bracket, calculation without considering cess). Also, the government has included many options under this to inculcate and increase the practice of investing and saving.
Product Tax Benefit
1. Insurance Policy Payments made towards the premium of self, spouse, and children. The debt should be made from the individuals' bank account who is claiming the tax deduction.
2. Provident Fund (PF) Payment made towards provident fund or superannuation fund
3. Tuition Fees Tuition fees paid to educate 2 children
4. Construction or purchase of residential house The principal amount of the loan towards purchasing or constructing a new house.
5. Fixed Deposit Investing in an FD for a period of 5 years or more and stay invested for 5 years.
6. Mutual Funds Investing in a specific tax-saving MF categorized as ELSS for a lock-in period of 3 years
7. Others National Savings Scheme, sukanya Samriddhi Scheme, Employee Provident Fund, Voluntary Provident Fund, Senior Citizens saving scheme, Unit-linked insurance plan, Infrastructure Bonds, NABARD Rural Bonds
  • Invest for retirement and taxes – Under section 80CCD (1B), an additional deduction of up to INR 50,000 for the amount deposited by a taxpayer to the National Pension Scheme (NPS) notified by the central government can be claimed. This is subject to the contribution being less than 10% of the basic salary of the employee. Contributions to Atal Pension Yojana are also eligible.
  • Employer’s contribution to NPS – Section 80CCD (2), an additional deduction is allowed for the employer’s contribution to an employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
  • Interest earned on the savings bank account:   A deduction of maximum INR 10,000 can be claimed against interest income from a savings bank account as per section 80 TTA of the Act. Interest from a savings bank account should be first included in other income and deduction can be claimed of the total interest earned or INR 10,000, whichever is less.
  • Health Insurance and preventive health check-up: A deduction of the amount paid towards health insurance premium of your family (including your spouse and children) and parents, which are different from the benefits, based on the costs related to health check-ups. The deduction limits are as follows:
Persons covered Exemption Limit Health check-up exemption Total
Self and family INR 25,000 INR 5,000 INR 25,000
self and family + parents (INR 25,000 + INR 25,000) = INR 50,000 INR 5,000 INR 55,000
self and family + senior citizen parents (INR 25,000 + INR 30,000) = INR 55,000 INR 5,000 INR 60,000
self (senior citizen) and family + senior citizen parents (INR 30,000 + INR 30,000) = INR 60,000 INR 5,000 INR 65,000
  • Save tax on loan taken for higher education- A deduction under section 80 EE is allowed to an individual for interest on a loan is taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
  • Save while you pay for a disabled dependent: Under section 80 DD medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent '

Disability is 40% or more but less than 80% - Rs.75,000

Disability is 80% or more – Rs. 125,000

  • Medical expenses of a disabled Individual - Self-suffering from disability:
    An individual suffering from a physical disability (including blindness) or mental retardation. – Rs. 75,000

An individual suffering from severe disability – Rs. 125,000

  • Save tax while you donate: The various donations specified under section 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in section 80G. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
  • Contributions given by any person to Political Parties: Deduction under this section is allowed to a taxpayer except for a company, local authority and an artificial juridical person wholly or partly funded by the government, for any amount contributed to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.

These deductions are the best ways to reduce your taxes and also save and invest your money. We have included all the sections for deductions above. However, if you have any query, please leave it in the comments below and we shall revert to you at the earliest.

Salary / Tax - 03/02/2019
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Equity Linked Savings Scheme (ELSS) - Everything you need to know

ELSS or Equity Linked Savings Scheme is a dedicated mutual fund scheme which helps you save tax. When you invest your money into a mutual fund - ELSS scheme, you get a deduction under section 80C of the Income-tax Act, 1961 of an amount up to INR 1,50,000.

An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high returns. Hence, ELSS is an equity mutual fund bearing similar risks and returns.

1. Lock-In period of ELSS of 3 years and more.

You have to stay invested for 3 years into an ELSS fund to continue the benefit of tax savings. However, many people believe that after 3 years you have to sell the ELSS. This is not true. You can stay invested for as long as you prefer based on your goals and market movements. There is no upper limit. In fact, if you want you can sell your ELSS before 3 years as well, you just have to bear the penalty and pay the tax you saved by investing in ELSS in the first place.

In fact, compared to other 80C investment options available, ELSS has the least waiting period. Like PPF has 15 years, the fixed deposit has 5 years and ELSS has only 3 years.

2. You can invest more than INR 1,50,000 into ELSS

Given that ELSS is an 80C investment option, many people assume that only INR 150,000 can be invested in any ELSS scheme. You can invest a minimum of INR 500 and maximum of anything into ELSS (like any other mutual fund).

3. It gives a higher return and hence, higher risk

ELSS are equity-based mutual funds and hence, the return on the same is higher. High returns mean higher risks. There is a good possibility that at the end of 3 years, there are negative returns in ELSS. As we have always said, equity investments are for long term goals and you must stay invested in equity for at least 7 years to avoid the risk of nil or negative returns. Countless studies prove that one can beat volatility and make superior returns from stocks by staying invested for a long period. You should remind yourself that equity has the potential to offer superior returns than other asset classes over a long period.

4. Growth or Dividend - ELSS Fund

If you choose the Growth option it ensures compounding your capital in the mutual fund investments. The final amount can be redeemed once at the end of the lock-in period.

But, the dividend option gives you some amount for various periods of time. It offers some liquidity even during the lock-in period. This dividend paid out can be further invested in other mutual funds depending on the investor’s portfolio or re-invested back into ELSS Fund.

The dividend received by the investors from these mutual funds is tax-free in the hands of the investors.

5. The tax of ELSS mutual funds

ELSS funds are equity mutual funds. Capital gain tax on ELSS funds is the same as in equity mutual funds.

If you sell your equity mutual funds after a year, the returns will qualify for long-term capital gains a tax (LTCG).

Investors will have to pay 10 % tax on profit gains exceeding ₹ 1 lakh made from the sale of stocks or equity oriented mutual fund schemes held for over one year. If you sell your equity mutual funds before a year, you will have to pay short-term capital gains tax of 15 percent on your returns.

Hence, ELSS helps you to save taxes by allowing a deduction of 1,50,000 but they are themselves not a tax-free product and returns from ELSS are taxable exceeding 1 lakh INR.

Wealth Cafe tip - Do not just look at the returns and invest in ELSS, invest with the same mindset in ELSS as you would in any other mutual fund. Also, do not just sell ELSS after 3 years. Sell them only when your goals for which you investing in ELSS is achieved or reaching near.

Mutual Funds / Tax - 03/01/2019
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Mutual Funds Taxation

Income-tax on Long term gains made from mutual fund investments was introduced in the budget last year. It is very important to know how your mutual fund gains are taxed and report correct numbers in your returns.

3 Factors that determine the Mutual Fund Taxation

Any fund which invests 65% or more in equity is called as Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.

If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, fund of funds or money market funds.

  • Holding periods of Investment–

The holding period for Equity and Debt Funds will be different for taxation purpose.

  Equity Debt
STCG If the holding period is less than or equal to 12 months If the holding period is less than or equal to 36 months
LTCG If the holding period is more than 12 months If the holding period is more than 36 months.


Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates

Now that you have clarity on what is Short term capital gains (STCG) and Long term Capital gains (LTCG). Let us move further and understand the Capital Gain Taxation for mutual fund investors.

The biggest change from FY 2018-19 is the introduction of LTCG in Budget 2018. The table below will give you a brief of the same:

 Note: Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

Where an individual/HUF total income (income from all sources) is less than the slab rate, then any income from long term or short term is a part of the slab rates.

Short Term Capital Gains on Equity Mutual funds/Equity Shares

Cost price of MF (10,000*100) 1 January 2018 10,00,000
Selling price (10,000*120) 31 March 2018 12,00,000
Gains STCG 200,000
Tax payable (15%) 30,000

Note: There is no change in the STCG with the new amendment. STCG remains taxable as it always was. It is to be computed based on the equity or debt fund. There is no impact of 31 January 2018, cut off dates prices for STCG.

Long term Capital Gains on Equity Mutual funds

There is a cut-off date of 31 January 2018, which has been introduced for the purpose of computing LTCG. LTCG is to be computed in 2 parts:

  • Units purchased on or  before 31 January 2018
  • Units purchased post 31 January 2018

Gains up to Rs. 1,00,000 is exempt while computing LTCG from equity-oriented mutual funds or shares.

Long term Capital gains on mutual funds purchased before 31 January 2018 and sold after 12 months.

There was a benefit introduced to investors by considering the cost on 31 January 2018 for the purpose of computing LTCG. However, this method can be a bit confusing so you may take expert advice. We have described the same below for your understanding:

The Cost to be considered :

Higher of Actual cost or (the formula amount)

The Formula Amount is Lower of

  • The highest price of the unit on 31 January 2018 from all recognized stock exchange.
  • Actual Selling Price

For Example:

Date of buying – 1 April 2017

Date of selling – 31 April 2018

Number of Units – 10,000

Price of  MF on following Dates

Sr. No Dates Price
1 Date of buying (1 April 2017) – Actual Cost 100
2 31 January 2018 (highest price on cut-off date) 150
3 Date of selling ( 30 April 2018) 120

Step 1 – Calculate the Formula Amount i.e. Lower of (2) and (3) i.e. 120 (lower of 150 or 120)

Step 2 – Calculate the cost to be considered i.e. higher of (1) or Step 1 answer – 120 (higher of 100 0r 120)

Hence,

Cost price of MF (10,000*120) 12,00,000
Selling price (10,000*120) 12,00,000
Gains Nil
LTCG (10%) Nil

Things to Note:

  • Comparison of prices on 31 January 2018 is done to compute the considered cost price.
  • The highest price of the MF/share as on 31 January 2018 is to be considered for this calculation.
  • Final selling price is the lower of 31 January price or the price on the selling date.
  • Hence, this cost determination method may lead to nil gains, benefitting the investor.
  • The gains will not be Nil in all the cases.
  • This method will never lead to a long term capital loss for an individual/HUF.

Long term Capital Gains on mutual funds purchased after1 February 2018

No comparison of prices as on 31 January is required. However, the exemption limit of Rs. 1,00,000 is available.

Cost price of MF (10,000*100) 1 February 2018 10,00,000
Selling price (10,000*120) 10 February 2019 12,00,000
Gains LTCG 200,000
LTCG (10%) 20,000

TAX – Savings Equity Mutual Funds

Equity Linked Savings Schemes or tax saving mutual funds are one of the most sort out for financial products under section 80 C of the Income-tax Act, 1961.

ELSS comes up with a lock-in period of 3 years. It means that once you invest in ELSS, you cannot redeem your units before the expiration of 3 years. You can claim a tax deduction of up to Rs 1.5 lakhs and save taxes up to Rs 45,000 by investing in ELSS.

Upon redemption after 3 years, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free in your hands.  LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit.

You can read about various ways to save taxes under section 80 C in out Article - How to save tax?

Note: It is not compulsory to redeem ELSS mutual funds after 3 years. You can stay invested for a longer duration. To maintain the 80C benefit, you must stay invested for 3 years.

Mutual Fund Taxation FY 2018-19 – Dividend Distribution Tax (DDT)

There are few investors who opt for dividend option in mutual funds. Hence, let us see the taxation on the dividend of such funds. Earlier there was no DDT for equity investors. However, from the Budget 2018, DDT @10% will be applicable to equity investors also.

Base Tax Rate Surcharge and Cess Total Tax
Equity Oriented Schemes Nil Nil Nil
Debt Oriented Schemes Nil Nil Nil

 

Tax Payable by Mutual Fund Companies

Equity Oriented Schemes 10% 12% SC + 4% cess 11.648%
Money Market/Liquid Schemes/debt funds 25% 12% SC + 4% cess 29.12%
Infrastructure Debt Fund 25% 12% SC + 4% cess 29.12%

Note: In spite of the 10% long term tax now payable on mutual fund investments. It is a very good form of investments and the gains made are far more to compensate the taxes to be payable on the Long term. However, it is advisable to get your returns working reviewed by an expert where you have a lot of equity/ mutual funds gains in a particular FY.

Mutual Funds / Tax - 02/23/2019

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