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Mistakes To Avoid Before Making Tax Saving Investments

We have entered March 2021 and soon we will be celebrating our 1 year lockdown anniversary. It Maybe not so much of a celebration but still, we have survived 1 year of COVID with some gains and some losses, and lots of learnings. Another reason to look forward to March 2021, is the last month to make all your tax-saving investments!

Choosing tax regime without comparing liability The finance ministry in the previous financial year 2020 had introduced a new tax regime that gives individual taxpayers the option to pay income tax at a concessional rate.
Read more about old regime vs new regime

Notably, if you opt for the new tax regime with lower tax rates, you will have to forego the deductions and exemptions including the standard deduction, deduction under Section 80C, interest paid on housing loan, etc. This can be helpful if you do not want to lock-in your funds for a longer period in tax-saving instruments such as Tax Saving Bank FD, Provident Fund, etc.

Comparing liability under the existing and the new tax regime while helping you to decide on the most suitable option depending on your income and expenses and customize your investment preferences accordingly.

1. Failing to ascertain actual taxable income 

When computing the taxable income, it is important to take into account all sources of income. Besides the income from salary, you may have income from a business, rental income from property, interest from bank/post office deposits, capital gains from assets, or any other source.

Determining the taxable income is an important step in streamlining your tax planning exercise which will help you to correctly estimate the amount of tax-saving investment to be made for reducing your tax liability.

2. Taking the wrong approach to insurance

The primary purpose of a life insurance policy is to provide financial protection to dependents in case of the untimely demise of the insured person. Simply opting for a policy because it offers a tax deduction under Section 80C of the Income Tax Act, 1961 is an imprudent approach.

There is a possibility that you may end up investing in investment cum insurance policies such as endowment policies, money back plans, or ULIPs that provide tax-saving components along with life cover in a bid to meet tax-saving requirements. However, you must know that these products will neither provide adequate cover nor generate optimal returns. A simple-term plan is enough to take care of your life insurance requirement at a very reasonable premium. Read this article to compute how much cover should you have

3. Not aligning your Investments as per your goals and investment objective

Ensure that you are not investing in 80C investment options only for tax savings purposes. Check how it fits into your debt - equity allocation which is determined based on your risk profile. Further, these investments should be made to achieve your goals not just for the purpose of tax savings. Align them to your requirements. Do not just invest in 80C investment options, if you have already exhausted this limit, you can explore options beyond Section 80C. Besides, certain payments that are eligible for deductions such as payment of house rent, expenses towards children's school tuition fee, interest payment on the home loan.

Read these articles to  know more about your tax planning before March 2021
1. How to save taxes before you invest your money.  
2. Ways to save taxes under various sections of the Income-tax Act.
3. Mutual Fund taxation
4. How to save taxes on health insurance

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.



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Income-Tax Relief For Home Buyers

Hello fellow investors
 
As a part of various relief measures taken by the Government in response to the economic slowdown post-COVID-19, the Finance Minister (FM) has announced a very attractive income tax relief for home buyers (new residential properties of value up to Rs 2 crore). Here is what you need to know.  
 
Income Tax relief for home buyers 

In case the declared purchase consideration of the land/building is less than the stamp value (circle rate) by up to 20%, there will be no additional tax outgo for both the seller and the purchaser for the period 12th November 2020 to 30th June 2021. Earlier, the acceptable difference was 5% which was to be enhanced to 10% with effect from 01 st April 2021.

This move will also help developers in selling off their unsold inventory at up to 20% below the circle rate and the buyers in getting cheaper homes without any additional tax burden on either party. Let’s look at the relevant provisions of the Income Tax Act to understand the applicable tax relief.

Section 43CA of the Income-tax Act - for the seller

This section provided for deeming of the stamp duty value (circle rate) as sale consideration for the transfer of real estate inventory in the case the circle rate exceeded the declared consideration. The circle rate is the minimum rate per unit area fixed by the state governments for the sale of land or property and is
aimed at reducing stamp duty evasion by declaring lower sale values in the sale-purchase deeds.

Thus, even if the real estate was sold at a price below the circle rate, the circle rate was considered as the sale value for the calculation of the business profits of the seller. For example, if a house is sold by a developer for Rs 80 lakh but its value as per the circle rate is Rs 96 lakh, the developer is supposed to take Rs 96 lakh as the sale value for
calculating his profit.

Through Finance Act 2018, a difference of 5% between the two rates was declared to be acceptable. This was increased to 10% through Finance Act 2020. Now, the FM has raised this acceptable difference to 20%. Thus, in the above case, the difference is exactly 20% as seen below and the developer can consider Rs 80 lakh for calculating his profits from the sale. 

Section 56(2)(x) of the Income-tax Act for the buyer

This section is applicable to the buyer and provides for stamp duty value to be deemed as purchase consideration even if the purchase was made at a lower price. As per the above example, the buyer is deemed to have received Rs 16 lakh (the difference between the stamp value and the sale consideration) and was supposed to declare this amount as ‘Income from other sources and pay tax on the same. Now, he will not have to pay any tax if the difference is up to 20% as is the case in the above example.

 

In summary, this announcement by the FM comes as a major relief to real estate developers who were struggling to offload their inventory due to lower demand in the market. The benefit is applicable, however, only for the primary sale of residential properties and not for commercial and secondary sales.



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Questions Related to Income Tax


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GENERAL FAQs

  1. How will I get my excess paid tax refunded back?

Once you file an income tax return, the excess fund will be transferred to your bank account or by cheque once the refund gets processed.

 

  1. Is it possible to communicate with CPC in paper form?

No, no paper communication is allowed with CPC.

 

  1. What is the toll-free CPC help line number?

It is 1800-425-2229.

 

  1. What to do when an assessee is not able to call on toll-free number from abroad?

In that case, you can use the chargeable number 080-22546500 to contact IT department.

 

  1. What is the email id to contact CPC?

There is no Email ID provided from CPC to contact them. The only way is through the toll-free and chargeable contact number.

 

  1. What are the working hours of CPC?

It is 8.00 am to 8.00 pm from Monday to Friday, excluding all the national holidays.

 

  1. How to claim a refund for TDS deducted due to late PAN submission?

Your employer can file the “Correction Statement” and provide your PAN information. In this case, you have to file IT return even if your income is below the tax slabs.

 

  1. Do I have to file Original return once again, if the Original e-return declared to be invalid due to non-receipt of ITR-V?

If the ITR-V has not been received by the CPC and you have the 120 day period remains, then you will have to sign a new ITR-V form and send it to CPC within the time frame. But if the time frame has expired, then you have to file a revised return which will be ultimately treated as original return.

  1. What is the password to open ITR-V

The password to open ITR-V is the combination of your PAN number and your DOB. It should be last 5 digits of your PAN number and ddmmyyyy of the DOB.

 

  1. Can more than one ITR-V be sent in one envelope?

Yes, more than one form can be sent together in one envelope but one needs to take care that the barcode does not get folded.

  1. Can I send the ITR-V to CPC by Registered Post?

No, ITR-V can be sent only via ordinary post or speed post.

 

  1. I am not receiving any communication from ITD CPC regarding receipt of ITR-V, Intimation u/s 143(1) or other communications. What should I do?

All the CPC communications are done by email and mobile number and that is why you must check this information first. Go to the E-filing website and access the user account and review the details. For help, contact your tax practitioner.

 

  1. How many times can I file the revised return?

You can do it multiple times till the expiry of one year time limit.

 

  1. How can a taxpayer find his Assessing Officer (AO) Code?

Go to www.allindiaitr.com and log into your account. Under the account tab, click on “services” menu and under that click on “Know Your Jurisdiction” tab.

FAQs ON BANK DETAILS

  1. What is IFSC Code and where to find it?

It is called as Indian Financial System Code, which contains 11 alpha numeric characters which is a must required thing for electronic transfers. This code can be found in the cheque leaf or from the passbook or you can get it by contacting the bank.

 

  1. What is MICR code and where to find it?

Magnetic Ink Character Recognition is required for cheque processing technology and can be found in the bank account cheque book.

 

  1. What is a bank branch code?

It is a unique code for a bank branch which helps in recognizing it.

 

  1. What is ECS?

It is an electronic fund transfer mode that can be used for paying interest, dividends, pension and to pay bills for electricity, telephone or water.

FAQs ON CONTACT DETAILS

  1. Is it mandatory to enter email id and if so, then Which email ID should I provide?

Yes, it is mandatory to provide email ID while filing e-return through online system. You must enter your personal email ID.

 

  1. Should I provide my permanent address or current address?

You can provide either of them, whichever is best available to communicate.

 

  1. Which documents will serve as proof of ‘identity’ for individuals and HUFs?
  • The following documents are needed:
  • Matriculation certificate
  • School leaving certificate
  • Educational degree certificate from a recognized institution
  • Depository account
  • Bank account
  • Credit card
  • Water bill receipt
  • Ration card
  • Property tax assessment order
  • Passport
  • Voter identity card
  • Driving license
  • Certificate of identity signed by an MP or an MLA or a municipal councillor or a Gazetted officer

FAQs ON RESIDENTIAL STATUS

  1. What will serve as the proof of ‘address’ for individuals and HUFs?

All of the below mentioned documents can be used as address proof:

  • Electricity bill
  • Telephone bill
  • Depository account
  • Credit card
  • Bank account
  • Ration card
  • Employer certificate
  • Passport
  • Voter identity card
  • Property tax assessment order
  • Driving license
  • Rent receipt
  • Certificate of address signed by an MP / MLA / Municipal councilor / Gazetted officer.

 

  1. Does taxability change as per residential status?

Yes, it does depends on the residential status of the taxpayer.

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Income-tax Rates FY 2019-20 (AY 2020-21)


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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 2019 to 31 March 2020. FY stands for the ‘financial year’ which is from 1 April 2019 to 31 March 2020. AY stands for Assessment year which 2020-21.

For individuals, the due date to file the income tax return for the income earned from 1 April 2019 to 31 March 2020 is 31 July 2020. However, this year due to COVID 19 economic relaxations, the due date is pushed to 30 November 2020

Income tax Rates 

Tax Rates for Individuals (below 60)

Income Tax Slab

(in Rupees)

Tax Rate for Individual Below the Age Of 60 Years
0 to 2,50,000*Nil
2,50,001 to 5,00,0005% of total income exceeding 2,50,000
5,00,001 to 10,00,000Tax Amount of 12,500 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000Tax Amount of 1,12,500 for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Senior Tax Payers between the age of 60 years to 80 years old

Income Tax SlabSenior Citizens (between 60 years – 80 years)
Up to 3,00,000Nil
 3,00,001 to 5,00,0005% of income exceeding 3,00,000
 5,00,001 to 10,00,000Tax Amount of 10,000 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000Tax Amount of 1,10,000for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Super Senior Taxpayers above the age of 80 years

Income Tax SlabVery Senior Citizens of and above 80 years of age
Up to 5,00,000Nil
 5,00,001 to 10,00,00020% of income exceeding 5,00,000
Above 10,00,00030% of income exceeding 10,00,000

Important Notes:

  • The income tax rates are applied to the annual income calculated. Thereafter Surcharge and Cess are added to the tax payable.
    • A surcharge is also applicable slab wise. The surcharge is calculated on the Tax amount. If the income is:
  1. Above Rs.50,00,000 and up to Rs.1 crore – then 10% surcharge is applicable
  2. Above Rs.1 crore and up to Rs.2 crore – then 15% surcharge is applicable.

In the Union Budget 2019-20, a new surcharge on income tax for super-rich individuals has been levied. So, individuals earning:

  1. Between Rs.2 crore and up to Rs.5 crore –then 25% surcharge is applicable;
  2. For Above Rs.5 crore – then a 37% surcharge is applicable.
  • An additional Cess of 4% for Health & Education is applicable to the income tax plus surcharge.
  • Section 87A allows tax rebates to Individuals whose total annual income falls below Rs.5,00,000. The rebate is limited to Rs.12,500 or the actual tax amount whichever is lower.

Income Tax Slabs for HUF

The Income Tax Slab for Hindu Undivided Family (HUF) is the same as the Tax slabs for Individuals under the age of 60 years in the year 2019 – 2020.

Income Tax Slabs for Partnership Firms

There is a flat tax rate for Partnership Firms and LLPs (Limited Liability Partnerships) and they are to pay Income Tax at the rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Local Authorities

Local Authorities to are to be taxed at a flat tax rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus a surcharge.

Income Tax Slabs for Domestic Companies

Domestic Companies have received a boost. With the turnover raised from 250 crores to 400 crores for a tax rate of 25%. The turnover slab wise tax calculation is:

Turnover ParticularsTax Rates
Gross turnover up to 400 Cr. in the previous year25% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)
Gross turnover exceeding 400 Cr. in the previous year30% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)

Added to the tax amount is:

Surcharge on tax:

  1. 7% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2.  12% in cases where the annual income is more than Rs.10 Crore

Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Foreign Companies

Foreign Companies are taxed at a rate of 40%.

Added to the tax amount is:

  1. Surcharge on tax: 2% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2. 5% in cases where the annual income is more than Rs.10 Crore
  3. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge

Income Tax Slabs for Co-operative Societies

Income Tax SlabIncome Tax Slab Rate
Up to Rs.10,00010% of Income
Rs.10,000 to Rs.20,00020% of Income exceeding Rs.10,000
Over Rs.20,00030% of Income exceeding Rs.20,000

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% – calculated on tax amount plus surcharge
  3. So, to calculate your tax liability for the year, you should keep a track of your annual income to know what Income slab you will be falling under for the year 2019 – 2020.

Income tax rates for a non-resident – Individuals

Income SlabsIncome-tax rates
Up to 2,50,000Nil
From 2,50,000 to 5,00,0005%
From 5,00,000 to 10,00,00020%
Above 10,00,00030%
Ø  Surcharge: 10% of tax where total income increases Rs. 50 lakhs

15% of tax where total income increases Rs. 1 crore

Ø  Health & Education cess: 3% of tax plus surcharge

Capital Gains Taxation on Mutual Funds/Direct Equity

For Equity Oriented Schemes/Direct Equity

  • Long Term Capital Gains (units held for more than 12 months)
  • Short Term Capital Gains (units held for 12 months or less)

For non-equity oriented schemes

  • Long Term Capital Gains (units held for more than 36 months)
  • Short Term Capital Gains (units held for 36 months or less)
 Individual/ HUFDomestic CompanyNRI

Equity Oriented Schemes/Direct Equity

Long term capital gains10%*10%*10%*
Short term capital gains15%15%15%

Other Than Equity Oriented Schemes

Long term capital gains20% (after indexation)20% (after indexation)Listed – 20% (after indexation)

Unlisted – 10% (without indexation)

Short term capital gains30%^30%^^/25%^^^30%^

 

 

 

Tax Deducted at Source (Applicable to NRI Investors)

 
 Short term capital gains$Long term capital gains$
Equity oriented schemes15%10%*
Other than equity-oriented schemes30%10% (for unlisted without indexation) and 20% (for listed)

* Income-tax at the rate of 10% (without indexation benefit) on long-term capital gains exceeding Rs. 1 lakh provided the transfer of such units is subject to STT.

$ Finance (No.2) Act, 2019 provides for a surcharge at:

  • 37% on base tax where income exceeds Rs. 5 crore;
  • 25% where income exceeds Rs. 2 crore but does not exceed Rs. 5 crore;
  • 15% where income exceeds Rs. 1 crore but does not exceed Rs. 2 crore;
  • 10% where income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore.

Further, “Health and Education Cess” to be levied at the rate of 4% on the aggregate of base tax and surcharge.

@ Surcharge at 7% on base tax is applicable where the income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed 10 crores and at 12% where income exceeds 10 crores. Further, “Health and Education Cess” to be levied at the rate of 4% on the aggregate of base tax and surcharge.

# Short term/ long term capital gain tax (along with applicable Surcharge and “Health and Education Cess”) will be deducted at the time of redemption of units in case of NRI investors.

^ Assuming the investor falls into the highest tax bracket.

^^ This rate applies to companies other than companies engaged in manufacturing business who are taxed at a lower rate subject to fulfillment of certain conditions.

^^^ If total turnover or gross receipts during the financial year 2017-18 does not exceed Rs. 400 crores.

Further, the domestic companies are subject to minimum alternate tax not specified in the above tax rates. Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.

Income-tax implications on dividend received by Mutual Fund unitholders

 Individual/ HUF Domestic CompanyNRI

Dividend

Equity oriented schemesNilNilNil
Debt oriented schemesNilNilNil

Rate of tax on distributed income (payable by the MF scheme)**

Equity oriented schemes*10% + 12% Surcharge + 4% Cess10% + 12% Surcharge + 4% Cess10% + 12% Surcharge + 4% Cess
= 11.648%= 11.648%= 11.648%
Money market or Liquid schemes /debt schemes (other than infrastructure debt fund)25% + 12% Surcharge + 4% Cess30% + 12% Surcharge + 4% Cess25% + 12% Surcharge + 4% Cess
= 29.12%= 34.944%= 29.12%
Infrastructure Debt Fund25% + 12% Surcharge + 4% Cess30% + 12% Surcharge + 4% Cess5% + 12% Surcharge + 4% Cess
= 29.12%= 34. 944%= 5.824%

* Securities transaction tax (STT) shall be payable on equity-oriented mutual funds schemes at the time of redemption/switch to the other schemes/sale of units.

** For the purpose of determining the tax payable by the scheme, the amount of distributed income has to be increased to such amount as would, after reduction of tax on such increased amount, be equal to the income distributed by the Mutual Fund. In other words, the amount payable to unitholders is to be grossed up for determining the tax payable, and accordingly, the effective tax rate would be higher. The above-mentioned rate is without considering the grossing up.

Surcharge mentioned in the above table is payable on base tax. Further, “Health and Education Cess” is to be levied at 4% on the aggregate of base tax and surcharge.

Disclaimer – The tax rates mentioned here are from the Finance Act 2019 and can be subject to changes. It is advisable to consult your tax consultant or financial advisor before finalizing your tax returns.

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Comparison of old & new Tax Regime FY 2020-21 (AY 2021-22)


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The Finance Minister introduced new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections. The following Income Tax slab rates are notified in new tax regime vs old tax regime:

Income Tax SlabTax Rates As Per New RegimeTax Rates As Per Old Regime
₹0 – ₹2,50,000NilNil
₹2,50,001 – ₹ 5,00,0005%5%
₹5,00,001 – ₹ 7,50,000₹12500 + 10% of total income exceeding ₹5,00,000₹12500 + 20% of total income exceeding ₹5,00,000
₹7,50,001 – ₹ 10,00,000₹37500 + 15% of total income exceeding ₹7,50,000₹62500 + 20% of total income exceeding ₹7,50,000
₹10,00,001 – ₹12,50,000₹75000 + 20% of total income exceeding ₹10,00,000₹112500 + 30% of total income exceeding ₹10,00,000
₹12,50,001 – ₹15,00,000₹125000 + 25% of total income exceeding ₹12,50,000₹187500 + 30% of total income exceeding ₹12,50,000
Above ₹ 15,00,000₹187500 + 30% of total income exceeding ₹15,00,000₹262500 + 30% of total income exceeding ₹15,00,000

New tax regime slab rates are not differentiated based on age group. However, under old tax regime the basic income threshold exempt from tax for senior citizen (aged 60 to 80 years) and super senior citizens (aged above 80 years) is ₹ 3 lakh and ₹ 5 lakh respectively.

However, under new tax regime person cannot claim up to 70 income tax deductions while calculating taxes. Hence, every person has to make his/her own calculation as per old and new tax regime and calculate which one is beneficial based on type of investments made and returns earned on those investments.

Which Exemptions And Deductions Are Allowed And Which Have Been Removed? 

Exemptions means the taxpayer is free from the tax burden on certain incomes. For example, you do not have to pay tax on income from agriculture.

Deduction means removing certain investments and expenditures the taxpayer makes and then calculating the gross income. For example, if you pay Rs. 20,000 as health insurance premium, you can deduct this amount from your total income.

In the ‘old tax regime’ there are 120 exemptions. Taxpayers do not benefit from all of them. Most of them complicate the direct tax system. After thorough study, the Ministry of Finance has removed around 70 exemptions.

Now the question is if you opt for the new tax regime, what are the exemptions and deductions you wouldn’t be able to claim further? Here’s a list

  • Leave Travel Allowance
  • House rent allowance
  • Standard deduction of Rs 50,000 that was available for salaried individuals
  • Deductions available under Section 80TTA/TTB ( on interest from savings account deposits )
  • Entertainment allowance deduction and professional tax ( For government employees)
  • Tax relief on interest paid on home loan for self occupied or vacant property u/s 24
  • Deduction of Rs 15000 allowed from family pension under clause (iia) ( Section 57)
  • Tax-saving investment deductions under Chapter VI-A (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except, deduction under Section 80CCD(2)—employers contribution to NPS, and Section 80JJA) and so on. These popular tax saving investment options include ELSS, NPS, PPF, tax break on insurance premium among others.

One can still claim deduction under sub-section ( 2) of section 80CCD which is basically employer’s contribution towards employee’s account in NPS and section 80JJAA ( for new employment). Also note that if the employee’s contribution to EPF and NPS exceeds more than Rs 7.5 Lakh, in the financial year in question, then the employee is liable to pay tax. Here’s a list of important exemptions that are retained in the new system

Important exemptions which are retained in the new system:

  • Income from Life Insurance,
  • Agricultural Income,
  • Standard reduction on rent,
  • Retrenchment compensation,
  • Leave encashment on retirement,
  • VRS proceeds up to Rs 5 lakhs,
  • Death cum retirement benefit,
  • Money received as a scholarship for education, etc.

An example of a comparison between old and new tax regime? 

Consider an example, a person aged 35 years has a total income of ₹11, 00,000, and has made the investment under section 80C of ₹1, 50,000, and under Section 80CCD of ₹50,000. He has claimed income tax deduction with medical and Leave travel allowance of ₹50000 and HRA of ₹1,50,000 The tax payable under new and old tax regime is as follows:

ParticularsNew RegimeOld Regime
Gross total income₹ 11,00,000₹ 11,00,000
Less: Deductions under 80C₹ 0₹ 1,50,000
Less: Standard Deduction (Medical & Travel Allowance)₹ 0₹ 50,000
Less: Deductions under 80CCD₹ 0₹ 50,000
Less : HRA deduction as per section 10(13A)₹ 0₹ 1,50,000
Taxable Income₹ 11,00,000₹ 7,00,000
Taxes payable as per slab rates
₹0 – ₹2,50,000₹ 0₹ 0
₹2,50,001 – ₹ 5,00,000₹ 12,500₹ 12,500
₹5,00,001 – ₹ 7,50,000₹ 25,000₹ 40,000
₹7,50,001 – ₹ 10,00,000₹ 37,500₹ 0
₹10,00,001 – ₹12,50,000₹ 20,000₹ 0
Total taxes₹ 95,000₹ 52,500
Which one is better ? – Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process. If you are someone who was claiming a lot of deductions under the old regime, you can probably save better sticking with the same system, as per the calculations. If you weren’t making any tax-saving investments or claiming any deductions earlier too, then maybe the new system may prove beneficial. It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax saving route for you.
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Examples of your old & new tax regime FY 2020-21 (AY 2021-22)


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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 INCOMENEW RATE (without exemptions)
NilUp to Rs.2.5 lakhsNil
5%Rs.2.5 – 5 lakh5%
20%Rs.5 – 7.5 lakh10%
Rs. 7.5 – 10 lakh15%
30%Rs. 10-12.5 lakh20%
Rs. 12.5-15 lakh25%
Rs. 15 and above30%

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 RegimeNew Regime
Income tax slabTax Rate (%)Tax (Rs.)Tax RateTax (Rs.)
Up to Rs. 2,50,0000000
250001 – 500000512500512500
(-) Rebate-12500-12500
Tax Payable00

For Annual Income Up To Rs 7.5 Lakhs

Annual Income of Rs.7,50,000 (without exemption)
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs. 2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
Sum6250037500
Health and Education cess4250041500
Tax Payable6500039000

 

Annual Income of Rs.7,50,000 (with exemption)
Annual Income750000
Exemptions u/s 80C-150000
u/s 80CCD(1B)-50000
u/s 80D-50000
HRA-10000
Taxable Income4,90,000
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 750000001025000
(-) Rebate-12500
Sum037500
health and education cess4041500
Tax Payable039000

For Annual Income Up To Rs.10 Lakhs

Annual Income of Rs.10,00,000 (without exemption)
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 100000020500001537500
Sum11250075000
Health and education cess4450043000
Tax Payable1,17,00078,000

 

Annual Income of Rs.10,00,000 (with exemption)
Annual Income10,00,000
Exemptions u/s 80C-1,50,000
u/s 80CCD(1B)-50,000
u/s 80D-75,000
Taxable Income7,25,000
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 1000000001537500
Sum6250075000
health and education cess4250043000
Tax Payable65,00078,000

For Annual Income Up to Rs 12.5 Lakhs

Annual Income of Rs.12,50,000 (without exemption)
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 100000020500001537500
1000001 – 125000030750002050000
Sum187500125000
Health and education cess4750045000
195000
Annual Income of Rs.12,50,000 (with exemption)
Annual Income1250000
Exemptions u/s 80C-150000
u/s 80CCD(1B)-50000
u/s 80D-75000
Taxable Income-975000
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 100000020500001537500
1000001 – 1250000002050000
Sum112500125000
Health and education cess4450045000
Tax Payable117000130000

For Annual Income Up To Rs 15 Lakhs

Annual Income of Rs.15,00,000 (without exemption)
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 100000020500001537500
1000001 – 125000030750002050000
1250001 – 150000030750002562500
Sum262500187500
Health and education cess41050047500
273000195000

 

Annual Income of Rs.15,00,000 (with exemption)
Annual Income1500000
Exemptions u/s 80C-150000
u/s 80CCD(1B)-50000
u/s 80D-75000
Taxable Income-1225000
Old RegimeNew Regime
Income tax slabTax RateTax (Rs.)Tax RateTax (Rs.)
Up to Rs.2,50,0000000
250001 – 500000512500512500
500001 – 75000020500001025000
750001 – 100000020500001537500
1000001 – 125000030750002050000
1250001 – 1500000002562500
Sum187500187500
Health and education cess4750047500
Tax payable1,95,0001,95,000

 

pexels-photo-921783

Five mistakes you must avoid while investing to save income tax


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In Indian taxation system, income tax is one of the main types of direct taxes levied by the government. It is the tax that is levied under the regulatory guidelines of CBDT (Central Board of Direct Taxes), and is imposed by the government on income generated by businesses and individuals (including HUFs or Hindu Undivided Families) within their jurisdiction. An income tax is therefore the tax that is levied on the earnest monthly salary and it varies from one taxable slab to another. Section 80C of the Income Tax Act, 1961 allows exemptions for various investments which people undertake for saving on taxes. However, while planning to invest in order to save payable income tax, there are certain common mistakes, which must be avoided. Following is a list of these mistakes that you must avoid while investing to save income tax:

  1. Ignoring your specific needs and requirements: This is one of the most common mistakes that many people make. Before making any investment decision, you must make a list of your specific needs and requirements so that the right kind of matched decisions can be taken. Therefore, it is important to not follow what the others are doing but to take care of your own financial aspirations.
  2. Not choosing the right amount of investment: Underinvestment and overinvestment are both factors that you must avoid. The amount that you to choose to invest obviously depends on the earnest monthly income. Therefore, if you choose to invest in a particular instrument, you must do so after taking due care of meeting your needs and that of your loved ones. After doing that, the surplus amount must then be invested. However, investing the surplus completely must be avoided because you have to contribute towards the basic savings corpus as well as keep emergency funds available.
  3. Not exploring all options: Sections 80C, 80G, 80D and 80CCD are various sections that offer exemptions on options that range from investments in health insurance to contributions towards certain charitable or other institutions. Therefore, you must have a clear understanding of the legal Sections under which exemptions are being offered so that you can have a better grasp of the available options.
  4. Lop-sided investment portfolio: The ideal investment portfolio must consist of both the debt and equity instruments and even hybrid instruments. This ensures stable benefits over a period of time and ensures that all your funds are not tied up in a single investment option.
  5. Not taking due care of present commitments: This means that if you have invested more than the surplus, then the present day commitments or immediate financial goals may not be duly met. Therefore, it is important that you take due care of present commitments while planning your long term investments.

 

8

What is travel insurance ?

With the increase in travel, one of the important things that travellers need to know about is Travel Insurance. This form of insurance helps cover a whole range of uncertainties and scenarios that can drain out a traveller’s finances. Most countries require mandatory Travel Insurance while applying for a visa. But choosing the right Travel Insurance which covers all the risks of travel is important.

 

What does Travel Insurance mean?

Travel Insurance is a type of insurance that covers different risks while travelling. It covers medical expenses, lost luggage, flight cancellations, and other losses that a traveller can incur while travelling.

Travel Insurance is usually taken from the day of travel till the time the traveller reaches back to India. Taking Travel Insurance ensures comprehensive coverage in case of any emergency in another country. Travel Insurance is also available for trips taken in the home country of the traveller like Bharat Bhraman & E-Travel, but it is a more popular option for travel abroad.

Some of the risks covered under Travel Insurance are:

  • Personal Accident Cover, which covers:
    • Insured’s Death
    • Permanent Total Disability
  • Accident & sickness medical expense reimbursement
  • Dental treatment relief
  • Emergency evacuation
  • Repatriation of remains in case of death
  • Baggage delay
  • Loss of checked baggage
  • Loss of passport
  • Flight delay
  • Hijack
  • Home burglary
  • Trip curtailment
  • Trip cancellation
  • Missed connection/missed departure
  • Bounced hotel/airline booking.

There may be more risks covered under individual policies depending on the requirements of the traveller. The amounts to which these risks are covered depends on the policy & plan that the traveller opts for. Travel Insurance also covers additional risks at an additional premium. Some of these risks are specific to the traveller or the place the person is travelling to.

 

Types of Travel Insurance:

There are single trip Travel Insurance policies meant for one journey. But for frequent travellers who travel abroad for business purposes, there is an option to buy a multi-trip Travel Insurance policy. Some policies last for an entire year and cover multiple trips to a particular destination. Opting for such policies is much more cost-effective for businessmen and frequent travellers to a particular destination. We also have student policies which are specially designed for students going abroad for studies at an affordable premium. The maximum trip length can last from 30, 45 and 60 days.

Another type of travel policy is a Group Travel Insurance policy. A group policy covers 7 or more travellers. These policies are cost-effective and offer similar benefits as single trip Travel Insurance policies. Group Travel Insurance policies are based on the age of the travellers which means it works out more cost-effective per traveller. Most travel companies opt for group Travel Insurance policies when they take groups across different countries on tours.

It is easy to pick out a policy once you know the Travel Insurance definition. While planning your trip abroad, pick out a Travel Insurance policy that provides exhaustive coverage with high coverage. It is possible to check the cost of Travel Insurance on insurance aggregators and pick out the best policy. HDFC Bank offers a variety of Travel Insurance policies through the bank’s website like Student Travel Insurance, Domestic, Senior Citizens, Family and even Individual Travel Insurance. You can easily pick out a policy that suits your need and provides the best value for money.

 

Income tax Feature Image (1)

Income-tax Rates FY 2020-21 (AY 2021-22)


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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 incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 5,00,0005%5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%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 incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 3,00,000Nil5%
Rs. 3,00,001 to Rs. 5,00,0005%5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%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 incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 5,00,000Nil5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%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 incomeTax Rate
Up to Rs. 2,50,000Nil
Rs. 2,50,001 to Rs. 5,00,0005%
Rs. 5,00,001 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

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.

ParticularsTax Rate(%)
If turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year 2018-1925%
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 company30%

 

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 incomeTax Rate
(Existing Scheme)
Tax Rate
(New Scheme)
Up to Rs. 10,00010%
Rs. 10,001 to Rs. 20,00020%22%
Above Rs. 20,00030%
  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.



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