Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types - short-term capital gains and long-term capital gains.
The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.
Given below are a few examples of capital assets -
Capital assets are significant pieces of property like investments, stocks, bonds, homes, cars, and art collectibles. Capital assets generally have a useful life of more than one year and are not intended for sale in the due course of a business. For example, a car purchased for the purpose of reselling and not for use will be considered an inventory. However, a car purchased by a individual or a business for the purpose of use in the business is considered a capital asset.
Section 2(14) of the IT Act 1961 defines the capital asset as -
Capital assets do not include the following -
A long-term capital asset is an asset held for more than 36 months before the date it is transferred. However, an asset is known as a capital asset even when it is held for more than 12 months in the following cases -
Any asset that is held for less than or exactly for 36 months or 12 months is termed a short-term capital asset and is charged to tax at a different rate.
Any capital gain that arises from the sale of a long-term capital asset is known as a long-term capital gain. The classification of assets as short-term or long-term is done on the basis of the period of holding. The benefit of indexation is also available on a long-term capital gain. The indexation benefit increases the asset's acquisition cost, thereby reducing the profit and tax.
Short-term capital gain is the gain that arises from the sale of short-term capital assets. Short-term capital gains are also classified on the basis of their holding period and the type of the asset. If you have a short-term capital gain, you cannot avail yourself of the benefit of indexation. Also, the tax rates on short-term capital gains on equity mutual funds are higher than that on long-term capital gains. You can calculate the indexed cost of acquisition using an indexed cost calculator.
The holding period of the asset defines its taxability. Whether you have to pay tax on a capital gain depends on how long you have held the asset. The tax rates on short-term and long-term capital gains also differ from each other. Therefore, capital assets are classified as short-term and long-term.
The sale of assets held for a period longer than 1 year and fixed assets held for a period longer than 3 years are chargeable to tax as long-term capital gains. The tax rates on long-term capital gains can be 0%, 15%, or 20% of the taxable income.
Short-term capital gains are the gains that arise from the sale of short-term capital assets that are held for a period of less than 1 year or 3 years, depending on the nature of the asset. The tax rates on STCGs are usually higher than that on long-term capital gains.
Long-term capital gains arise when the owner of an asset sells it at a profit after holding it for 1 year (in the case of shares and securities) and before 3 years (in the case of assets like land, buildings, etc.).
The computation of long-term capital gains is performed as below -
Long-term capital gain = Sale Price - (indexed cost of acquisition + indexed cost of improvement + transfer cost)
The gain thus derived is taxed at the rates applicable based on the tax bracket and the type of asset.
A short-term capital gain arises when a capital asset held for less than 1 year and 3 years is sold at a profit thereafter.
Short-term capital gains on shares are computed as follows -
Suppose you bought 100 shares of X Ltd. at Rs.100 each and sold at Rs. 120 after holding for 6 months. Then,
STCG = Sale Price - Purchase price = Rs.120x100 - Rs.100x100 = Rs.2000
The sale price is computed as -
Sale value of an asset - (brokerage charges + securities transaction tax)
Short-term capital gains on assets are computed as follows -
STCG = sale value of the asset - (cost of acquisition + expenses incurred while transfer + cost of asset improvement)
Cost of acquisition - For a short-term asset purchased before 1st Feb 2018, it is calculated as follows -
Cost of improvement refers to the expenses incurred on improving the asset. It includes constriction, expansion, or repair of an asset. However, this does not apply in the case of equity shares.
No, the benefit of indexation is not available on the capital gain arising from transferring of short-term capital assets.
Indexation refers to the process that is used to adjust the purchase price of the asset according to the rate of inflation in the economy. The inflation rate between the year of purchase and the year of sale is taken into account to determine the real gain and impose tax only on the real profit. Indexation reduces the overall purchase price. This leads to a reduction in the amount of profit and, thus, the tax.
Since the holding period of short-term capital gains is less, the price of short-term capital assets is not affected much by the inflation rate prevailing in the economy. Therefore, the benefit of indexation is not available for short-term capital gains.
If the property is acquired before 1st April 2001 by the assessee, the cost of acquisition of the asset is calculated as follows -
The assessee can consider any of the below options as the cost of acquisition -
* Fair market value or FMV is the price at which an asset would ordinarily sell at a given date in the open market.
Income Declaration Scheme 2016 does not provide specific provisions for the cost of acquisition. However, the basic objective of the Income Declaration Scheme is to allow individuals to disclose their undisclosed income and pay tax on it to avoid any kind of penalty in the future.
The cost of acquisition or any other consideration paid for acquiring the asset is irrelevant to IDS. Therefore, the fair market value of the asset is considered to be its cost of acquisition. The cost of acquisition represents the price that the asset would sell at in an open market.
Therefore, the cost of acquisition while declaring an undisclosed asset under the Income Declaration Scheme of 2016 is the fair market value of the asset.
As per the Income Tax Act of 1961, the transfer of assets can be understood as the transfer of the rights or the ownership of any asset to another individual or company. It includes the following -
Exempted capital gains US 10:
On selling equity shares or equity-oriented mutual funds after holding them for more than a year, taxpayers have to pay long-term capital gains tax (LTCG) on the profit. The LTCG tax rate is 10% for gains exceeding ₹ 1 lakh in a financial year. However, for other types of investments, such as unlisted securities or zero-coupon bonds, the LTCG tax rate is 20%. If equity shares or equity-oriented mutual funds are sold within one year, taxpayers have to pay short-term capital (STCG) on the profits. The STCG tax rate depends on whether the securities transaction tax (STT) is applicable or not. If STT is applicable, the STCG tax rate is 15%. If STT is not applicable, the STCG tax rate will be applied as per the income tax slab the assessee falls under.
There are tax benefits on capital gains by reinvesting them in other assets as per the Income Tax Act 1961.
Section 54EC: You can reinvest long-term capital gains from any asset except a house in bonds of the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC). The amount of capital gains that can be reinvested under this section is limited to the capital gains arising from the asset's sale or ₹50 lakhs, whichever is lower.
Section 54F: Any individual or HUF can reinvest LTCG from any asset other than a residential house property to a new residential house (Limited to One) in India. The amount of capital gains that can be reinvested under this section is limited to the capital gains arising from the asset's sale, but it is capped at ₹10 crores.
Reinvestment should happen within six months U/S 54EC and within one year U/S 54F. Investing in certain assets like infrastructure or renewable energy may have other tax benefits.
There are some bonds in which an individual can invest capital gains to claim tax relief. These bonds are known as capital gains bonds or Section 54EC bonds.
Capital gains bonds are issued by government-owned companies such as the National Highways Authority of India (NHAI), the Rural Electrification Corporation (REC), and the Power Finance Corporation (PFC). These bonds offer a fixed interest rate and a maturity period of 5 years.
To claim tax benefits on capital gains bonds, you must reinvest the capital gains from selling a capital asset, such as a house or land, in these bonds within 6 months of the sale. The maximum amount of capital gains an individual can reinvest in capital gains bonds is ₹50 Lakh.
The stamp duty value is the price used to calculate stamp duty; it's a tax levied on the sale of property. U/S 50c of the Income Tax Act, if the actual sale consideration for a property is less than the stamp duty value, then the stamp duty value will be used to calculate capital gains. I.e., The seller will be liable to pay tax on the entire stamp duty value, even if they received a lower consideration. This might happen when the seller sells the property to the related party at a discounted price or at a loss.
Interest received on the amount deposited in a capital gain account under the Capital Gains Account Scheme (CGAS) is taxable under the Income Tax Act, and is taxed at the applicable rate. The tax is deducted at source by the bank or the financial institution where the account is held. The depositor will receive a TDS certificate from the bank or financial institution, which can be used to claim a deduction for the tax paid while filing the Income Tax Return (ITR). Moreover, The interest is taxable in the year in which it is credited to the account.
To withdraw from a capital gains account, you are required to fill out Form C. The withdrawn amount must be used within 60 days and cannot be deposited immediately into the account. You must fill out Form D if the second withdrawal is still needed.
Capital gains accounts can be transferred from one branch to another within the same Bank, but not from one Bank to another. Account type can also be changed from a term deposit to a saving account; however, if you transfer a term deposit to a saving account before the term deposit matures, you will be charged a penalty.
Profit earned from the sale of land and building or both is chargeable to capital gains tax. The tax liability depends on the holding period of the asset. If the land or building is held for less than two years, the capital gains will be considered short-term capital gains, and the tax rate will be the same as the individual's income tax slab. On the other hand, if the land or building is held for more than two years, the capital gains will be considered long-term capital gains, and the applicable tax rate will be 20%.
Steps to close your capital gain account with AO's endorsement:
Key Points to Keep in Mind:
When you sell a property you have held for more than two years, the profit is considered long-term capital gains and taxed at 20% after indexation. Indexation is a method of adjusting the purchase price of an asset to reflect inflation, which can lower the amount of capital gains tax you owe. Some exemptions and deductions are available for long-term capital gains on real estate, depending on how you use the proceeds and whether you invest in another property or government bonds. Moreover, there are no such benefits for short-term capital gains.
An income tax return (ITR) is a form that taxpayers must file with the Income Tax Department to declare income from all sources. The Income Tax Department then uses this information to calculate tax and define the tax slab into which the taxpayer will fall. Taxpayers can also claim deductions and exemptions on ITR to lower the tax burden.
There are seven different ITR forms, each of which is designed for a different type of taxpayer. The most common ITR forms are:
According to the Income Tax Act in India, An individual is in obligation to file an income tax return (ITR) if he falls under any of the following categories:
It is important to note that even if an individual doesn't have a tax liability, it is required to file an (ITR) income tax return in order to avail of tax benefits.
If you have filed an incorrect tax return, you can correct it by filing a revised return as per the current tax laws. The Income Tax Act allows taxpayers to file a revised return under section 139(5). If you come to know something wrong statement in your original return, a revised return can be filed before three months prior to the end of the assessment year or before the end of the assessment, whichever is earlier. Moreover, The assessment year comes immediately after the financial year in which the ITR is filed.
Income Tax returns can be filed an infinite number of times; however, if the original income tax return is filed on paper, then the revised return cannot be filed electronically or online. Moreover, The Income Tax Department do not charge any fees or penalty for the revision of income tax return. If ITR is to be filed online, the taxpayer must fill in the 15-digit acknowledgment number of the primary return. Additionally, it is to be noted that if the revised return is filled too many times, it might attract scrutiny from the Income Tax Department.
If you have paid more tax than your liability, you can claim a refund by filing your income tax return online. There is no separate process for the same. You should electronically verify your return using Aadhaar OTP, EVC (Electronic verification code) generated through the bank or by sending the signed physical ITR-V to CPC (Centralised Processing Centre) within 120 days of filing the return.
You should also check your form 26AS to ensure that the excess tax paid by you is stated there. The Income Tax Department will verify the claimed refund, and will be paid only if it is found valid.
It is mandatory to have a PAN card for filing Income Tax Return; however, if you have never applied for a PAN card and never allocated a PAN number, you can get an instant e-PAN using your Aadhaar card linked to your phone number.
Follow the below steps to generate an e-PAN:
Linking Aadhaar with PAN for filing ITR is mandatory unless you fall under one of the exemptions. The deadline to link PAN and Aadhaar is June 30, 2023. If you do not link your PAN and Aadhaar by this date, your PAN will become inoperative. This means that you will not be able to use your PAN for any financial transactions, including filing ITR.
There are a few exemptions to the PAN-Aadhaar linking requirement. These exemptions include the following:
The new ITR forms have incorporated a few changes after the introduction of Section 89A. One of the key changes is the disclosure of income on which Section 89A relief was claimed in the previous year. This change is applicable to ITR 2, 3, and 4.
Section 89A was introduced to provide relief to taxpayers who had income from retirement benefits accounts maintained in notified countries. Under this section, the income from such accounts is taxed in India in the year in which it is received rather than the year in which it accrues. This helps taxpayers to avail of the foreign tax credit relevant to tax paid outside India on such income.
If an individual having his a gross income exceeding ₹2.5 lakh, and he does not have any tax liabilities or even have a refund, he still needs to file an income tax return. On the other hand, a person does not need to file an ITR if his income is below the taxable limit of ₹ 2.5 lakh. However, there are exceptions to this law.
A person is still required to file an ITR if he has:
If there are discrepancies between the actual TDS and the TDS credit as per Form 26AS. In such a situation, the employee will have two options as followings:
If the income tax return has been filed in an incorrect manner, or the wrong form has been filed, and any wrong statement has been given, then the ITR will be declared defective by the Income assessing officer of Income Tax. The income tax department will then send you the notice to rectify the mistakes you have made while filing the ITR. And if you don't rectify the mistakes within 15 days of the error being noticed, the ITR will be declared Invalid by the Income Tax Department, which means it will be assumed that the no income tax return was filed in the first place. However, Income Tax Laws allow taxpayers to file a revised income tax return if the wrong ITR has been filed.
An individual requires to file ITR if he has investments in foreign assets. However, he must disclose the details of these assets in Schedule FA of his ITR. This is mandatory for all residents and ordinarily resident Indians who hold any asset located outside India.
The following are some of the foreign assets that an individual need to disclose in Schedule FA:
You must disclose the following information about each foreign asset:
The holdings of equity shares of a cooperative bank or credit societies, which are unlisted, are required to be reported. This is because the Income Tax Department of India considers these shares to be 'specified investments.' Specified investments are investments that are held by a taxpayer in any entity that is registered under the Companies Act and is not listed on any recognized stock exchange.
The Income Tax Department of India requires residents to report the details of the property and identity of the buyer in Schedule CG if they have sold land and building situated outside India. This is to ensure that all income from capital gains is taxed in India.
The information that should be reported in Schedule CG:
Details of assets held as stock-in-trade of business are also required to be reported in Schedule AL-1 of ITR-6. This is because stock-in-trade is considered to be an asset of the company.
The information that is required to be reported for stock-in-trade:
Farmer Producer Companies (FPCs) are not required to furnish details of shareholding in the Schedule SH-1 of ITR-6. Since FPCs are not considered to be 'companies' for the purposes of the Income Tax Act of 1961. Instead, FPCs are considered to be 'cooperative societies.'
Here are the steps you must follow to track the status of your ITR -
Pre-login ITR Status
Step 1. Visit the homepage of the e-filing portal
Step 2. Click on 'Income Tax Return Status.'
Step 3. On the next page of the ITR status, enter the valid mobile number and your acknowledgment number and click on 'continue.'
Step 4. Enter the 6-digit OTP received on your registered mobile number in step 3 and click 'Submit.'
Step 5. Once the validation is complete, you can view the ITR status.
Post-login ITR Status
Step 1. Log in to the e-filing portal or online portal through a valid user Id and password.
Step 2. Click on e-file > income-tax returns > view the filed returns.
Step 3. The view filed returns shows all the returns you have filed. You can download the ITR-V acknowledgment, intimation order, and the complete ITR form in PDF.
Step 4. Click 'View details'
Here are the tax benefits -
Yes. You can get your income tax return e-verified by any representative assessee or authorized signatory on your behalf using any of the following methods -
Once you have filed your ITR, the next step is to e-verify your return online. Just verifying your return is not enough. You also need to check if it has been e-verified. Here's how you can know if your e-verification is complete -
If you are e-verifying your return yourself,
If you are a representative assessee or an authorized signatory -
Section 194P of Budget 2021 to provide relief to senior citizens from the burden of compliance. As per this section, citizens of age 75 years and above are exempt from filing ITR. However, there are a few conditions -
If your self-assessment/ Advance tax does not reflect the amount you deposited in your annual 26AS, you should first identify the possible reasons for this and then ask the deductor to file a revised TDS return. And if there is a mismatch other than the TDS amount, you can -
If your 26AS does not reflect the amount deposited by you, the first thing you need to do is to identify the reason for such a mismatch.
After identifying the reason, you must take the following corrective actions -
If there is any mismatch other than the TDS, the following corrective actions can be taken -
As per the provisions of the Income Tax Act, the residential status of individuals can vary between resident but not ordinarily resident, resident but ordinarily resident, and non-resident. Depending on the residential status of an individual, the taxability also differs. Here is the taxability of individuals with different residential status
|Source||Resident and ordinarily resident||Resident but not ordinarily resident||Non-resident|
|Income received or deemed received in India||Yes||Yes||Yes|
|Income accrued or arising or deemed to accrue or arise in India||Yes||Yes||Yes|
|Income accruing or arising in India in the year from a business set-up and controlled from India||Yes||Yes||Yes|
|Income accruing or arising in India from a business controlled from outside India||Yes||Yes||Yes, to the extent of income attributable to India|
|Income that accrues or arises outside India from a foreign source||Yes||No||No|
The residential status of a HUF is as follows -
If Karta does not satisfy any one of the above conditions, the HUF is treated as a resident but not ordinarily resident.
If the HUFs control and management is situated wholly outside India, it is considered to be non-resident.
In India, the Income Tax Law has divided all types of income into 5 different categories -
If the assessee has not been allocated a Taxpayer Identification (TIN) number in the jurisdiction of residence, the assessee can mention the passport number under the column residential status instead of TIN. The country in which the passport was issued should also be mentioned in the jurisdiction of residence.
TIN number, or Taxpayer Identification Number, is an 11-digit number that is assigned to enterprises for tracking their transactions.
Any individual who does not satisfy any of the below conditions is considered a non-resident in India -
While filing the ITR, you are presented with a drop-down menu where you have to select the type of company you have. In this deep-down, you can simply select a foreign company. As per the Income Tax Law, a foreign company is not required to furnish a PAN number. However, it is necessary to mention the PAN number if the foreign company has been allotted one. Therefore, you can select 'Foreign Company' as the type of company from the drop-down menu.
All the transactions relating to capital gains have to be filed under ITR -2. As per the Indian Income Tax Act, the assessees are required to provide details of the land sold while filing their ITR forms. The details that you need to furnish include 'the date of sale,' 'the date of purchase of the house property, purchase price, sale price, and brokerage. Exemption on capital gains is available under sections 54, 54EC, and 54F.
In case the unlisted equity shares are transferred in the form of a gift, will, merger, demerger, bonus issue, or amalgamation, since the cost of acquisition is zero for the beneficiary, he/she can enter zero in the relevant column against 'cost of acquisition' and 'sale consideration.' Also, the quantitative details are required only for reporting while filing the ITR and not while computing tax liability. Therefore, you can simply enter zero in the ITR against the relevant column and file your ITR.
Yes, as per the Indian Income Tax Act, you are required to report your foreign assets in schedule FA. It is mandatory for individuals to file their ITR even if they do not fall under the taxable income bracket. Schedule FA requires individuals to report all the foreign assets they hold during the previous year. Individuals must also report the same in the column 'whether you have held unlisted equity shares at any time during the year' while filing the ITR.
Yes, if you sell land or a building to a non-resident, it is mandatory to provide the PAN of the buyer in table A1/B1 in schedule CG. However, it is mandatory to furnish PAN of the buyer only if TDS is deducted under section 194IA or it is mentioned in the documents. Under section 194IA, any transferee who has to pay consideration for the transfer of any immovable property has to deduct tax at 1%.
Yes, as per section 12A of the Income Tax Law in India, you have to provide ISIN details and scrip-wise bifurcation and computation of LTCG arising from the sale of mutual funds/shares on which STT has been paid. As per section 12A, long-term capital gains are allowed on the sale of equity mutual funds, listed equity shares. If the capital gains exceed the threshold of Rs.1 lakh, the long-term capital gains are taxable at 10%. It also provides for the mandatory declaration of scrip-wise details on LTCG from the sale of shares on which STT has been paid.
The individuals are required to report the value of assets and liabilities in schedule FA if their total income is more than Rs. 50 lakhs. It is mandatory for resident taxpayers to file schedule FA and not for non-resident taxpayers. While schedule FA requires assessees to report the assets even if they have held them for just one day in the previous year. However, schedule AL requires the assessees to declare their assets held at the end of the previous year.
Form-16 is a TDS certificate that the employer issues to the employee as proof of deducting the TDS. The employer has to deduct the income tax at source from the employee and passing it on to the government authorities. In other words, Form-16 is a certificate that provides details of the tax deducted at the source and also acts as proof that the TDS has been submitted to the government. Companies calculate the tax payable by the employee on the basis of income and investment declaration he/she makes at the beginning of the year and deduct TDS on the basis of the same. This TDS is then deposited to the government and reflected in Form 16.
Just like Form 16, Form 16 A also serves the purpose of a TDS certificate. While Form 16 is used for the TDS deducted on salary income, Form 16A is used for the TDS deducted on income other than salary. It includes the TDS deducted from interest on fixed deposits, rent receipts, and insurance commissions. It is issued by financial institutions and banks on a quarterly basis under section 203 of the I.T. Act. Following are the components of Form 16A -
Form 16 can only be issued and downloaded by the deductor of the TDS, i.e., the employer. In other words, the employer can log in to the TRACES website and get Form 16. If you are an employee, you must approach your employer and request them to download Form 16 and share it with you.
On the other hand, if you are an employer and still unable to find Form 16 on the TRACES website, you should check all the details entered by you, like the PAN/TAN, and ensure that your KYC is updated.
If you are still not able to download Form 16, you can also download Form 26AS from the TRACES portal. It also consists of the details of TDS deducted and deposited.
Here are the rules for issuing Form 16 -
The Indian Income Tax Law provides for employers to issue Form 16 to employees if their annual income is more than the basic exemption limit and if they fall within the taxable income bracket. In other words, the employer has to issue Form 16 to every employee who earns more than Rs.2,50,000 per year. While it is mandatory to issue Form 16 if any TDS has been deducted, it is upto the employer to issue Form 16 if no TDS has been deducted. Therefore, it can be said that there is no specific income limit required for issuing Form 16 as it is based on the deduction of TDS and not on the income limit.
TDS (Tax deducted at source) is applied to both incomes from salary and income from other sources like interest on FD, rent, and professional fees. Form 16 is used to reflect the details of the TDS deducted on salary and is issued by the employer to the employee after the deduction of TDS. However, there are other variations of Form 16, like Form 16A, that are concerned with the TDS deducted on income from other sources like bank interest and rent. Form 16A is issued by the banks and financial institutions that deduct TDS.
No, Form 16 is not mandatory to file ITR. You can file your ITR even without Form 16. Here's how -
No Form 16 is not considered to be proof of employment. It is proof of the fact that TDS has been deducted by the employer and submitted to the government. It includes the details of the salary and the amount of tax deducted by the employer and deposited with the government. Even though it is issued only when TDS is deducted from salary, it does not establish any employer-employee relationship between both parties. Proof of employment generally includes details like date of employment, salary details, job title, and the terms and conditions of the employment.
No, Form 16 is not considered valid without the signature of the employer. As per the Income Tax Act, Form 16 can be issued both physically and electronically. In both scenarios, it is important for you to ensure that Form 16 contains a valid signature. If issued physically, Form 16 should be duly signed by the employer.
On the other hand, if Form 16 is issued electronically, it should be digitally signed by the employer. A duly signed Form 16 ensures that it is not tampered with and establishes its authenticity, and serves as a validation of the employer's acknowledgment of the deductions made.
Although it is not mandatory for the employer to issue Form 16 if there has been no deduction of TDS, it is still up to the employer if he wants to issue Form 16 to the employees. If he wants, the employer can issue Form 16 without deducting TDS as good work practice. There are various benefits of issuing a Form 16.
If you are an employee, you cannot fill out Form 16 yourself. Form 16 has to be filed and issued by your employer or an authorized signatory of your employer. If you want to get Form 16 issued, you can approach your employer and ask them to issue Form 16. Form 16 contains details of the employee's salary and deductions, which the employer must compute.
However, if you are an employer, you can fill out Form 16 and issue it to your employees. Make sure all the calculations regarding the salary details, and deductions are accurate. You are also responsible for verifying the information provided sign it.
If there is any error in Form 16, you can do the following -
If there is an error even after entering the correct details in Part 1 and Part 2 of Form 16 and Form 16A on the validation screen, the deductor should first check that the details mentioned in the TDS statement and the details on the validation screen are same and do not contradict each other.
You should ensure that if you have filed any correction statement, the details of it should be in accordance with that mentioned in the correction statement. The details that you must check include the token number and the amount of TDS deducted.
It is mandatory for all employers to issue Form 16 to all their employees, Form 16 is a certificate issued to employees, and it contains Tax deducted at source, salary, and other information. However, employers may not issue Form 16 to employees in case no tax is deducted at the source. If the employer is being late in issuing Form 16, then a penalty of ₹100 per day will be imposed. Moreover, if you have been employed by more than one employer, you will be provided Form 16 from each of your employers. The due date for issuing Form 16 is 15th June of the financial year.
The due date to issue Form 16 is June 15th of the year for which it is being issued. For example, Form 16 for the financial year 2022-23 must be issued by June 15th, 2023.
Form 16 is a certificate issued by an employer to an employee that shows the amount of tax deducted from the employee's salary during the financial year. It is an important document for employees to file their income tax returns.
If your employer does not issue Form 16 by the due date, you can request a copy from them.
No, the TDS deductor cannot download Form 16 if he has not been registered on the TRACES (TDS Reconciliation Analysis and Correction Enabling System). In order to download Form 16, the deductor must register themselves on TRACES and must have a valid TDS account number. However, The deductor can still issue Form 16 to their employees, on condition that it must be in physical form and must be signed by the deductor.
If the Company name is incorrectly updated in Form 16 (Part A), you must first inform your employer about the same. Your employer must have to file a TDS correction statement with the Income Tax Department. Upon completing the TDS correction statement process, your employer will be able to download the new Form 16 (Part A) with the updated company name on it.
It is important to note that you and your employer cannot manually correct the company name on Form 16; your employer can only file a TDS correction statement in order to update the company name on Form 16 A.
If you have been employed under more than one employer in a financial year, each employer will issue Form 16 (Part A) regarding the period for which you were employed with each of the employers.
Particulars of how you can file ITR with multiple Form 16:
You can use Form 12B to inform your new employer about your previous earnings and investments.
Form 16 is a certificate of tax deducted at source, which is issued by every employer to their employees. If no tax is deducted at the source, then the employer will no longer be required to issue Form 16. However, even if no tax has been deducted by the employer, you may still be required to file an income tax return if you have income from other sources, such as interest, dividends, or others if any, may be taxable. If you file an income tax return, you will be required to provide information about your income from salary along with income from other sources, even if no tax has been deducted at source.
If you have missed the due date for submitting proof of tax-saving investments or reimbursements to your employer, you can still claim these deductions and exemptions at the time of filing your income tax return and get credits from the Income Tax Department, even if these are not reflected in your Form 16. All you need to do is provide the necessary information and documents to support your claim.
Some of the deduction that you can claim in your ITR which is not reflected in Form 16:
The Central Pension Accounting Office (CPAO) has authorized all banks to issue Form 16 to all pensioners, including family pensioners. This is in accordance with the provision of the pension scheme booklet. Form 16 is a certificate that contains information about the tax deducted at source from the pension that was paid to a pensioner during the previous financial year. Pensioners then can use this to claim any deduction while filing Income Tax Returns.
The bank will issue Form 16 and the pension statement, in which your pension is generally credited to you. The pension statement contains information about the amount of pension that was paid to you during the previous financial year and the date on which the pension is credited.
Form 16 is a must for all salaried employees whose salary income exceeds the threshold limit of ₹2.5 lahks annually. Employers provide Form 16 to employees on or before the 15th of June every financial year. However, if you haven't received Form 16 from your employer due to any reason, such as business closure, and your improper exit formalities, you can still file your income tax return without Form 16. You can use your salary slip, which has the details of your deductions, to file your Income Tax Return. It is to be noted that you should ensure that you have received Form 16 in a correct manner and check all the details of the total tax deducted at source from your salary.
If you have changed your employer in the middle of a financial year, then your new employer might ask you to provide Form 16 from your previous employer to calculate the correct TDS on your salary Income. However, if you cannot get Form 16 from your previous employer at the time of joining, you still have some alternatives as followings:
If you are a registered user on TRACES and you have updated your communication and address details on TRACES, you might notice that your Form 16A still shows a different address. This is because the details updated in the 'Profile' Tab of your TRACES account are not reflected in the TAN database. To edit your address details in Form 16A, you need to submit a TAN change request form (Form 49B) at www.protean-tinpan.com. This will ensure that your TAN database is updated with your latest information, and your Form 16A will show the correct address.
TDS is deducted on a property belonging to an NRI in two cases: on sale and when the employee rents the property. The buyer is supposed to deduct TDS @20% on the sale of a property that belongs to an NRI. If the property is sold before the completion of 2 years, the buyer is liable to deduct a TDS of 30% on the sale of the property.
In the case of rent, the tenants who have occupied an NRI's property and paying rent on it must deduct TDS @31.2%, submit it to the Income Tax department, and file Form 15CA.
TDS is a tax in which an amount is deducted on certain payments like salary, rent, commission, professional fees, and interest. The person making the payment has to deduct the tax, and the person receiving the payment is liable to bear the tax. This reduces the possibility of tax evasion as the tax is deducted right at the source of payment. TDS is deducted as per the rates specified in the Income Tax Act. The rates may vary depending on the type of service and products. Get to know in detail about the prevailing TDS rates.
Yes, the Income Tax Department has specified certain threshold limits or minimum limits under which TDS is not required to be deducted. In other words, if the payment amount is less than the threshold limit specified for that purpose, the payer is not responsible for deducting TDS, and the receiver is not liable to pay it. However, the threshold limit has been listed under multiple sections under the Income Tax Act and varies based on the payment type. Click here to learn about the applicable threshold limits in detail.
Yes, a payee can approach the payer or the TDS deductor and request them to make the payment without deducting Tax at source. Although this is only possible if the total annual income of the payee after including the income on which TDS is being deducted is less than the basic exemption limit. In other words, if the total annual income of the payee from all the sources does not fall under the taxable bracket, the payee can request the payer not to deduct TDS. The payee must file Form 15G or 15H to request non-deduction of TDS.
Form 15G: It is applicable to individual or any other person (except a firm and company)
Form 15H: It is applicable to the request filed by senior citizens.
The payer deducts the TDS as per the applicable rates as mentioned in the Income Tax Law. If you want to know the amount that was deducted as tax at source by the payer, you can do the following -
Under section 206AB, the tax is deducted at higher rates as per this provision provides the following conditions are satisfied:
Tax should be deducted at higher rates for every income or amount on which tax is deductible under the provisions of Chapter XVII-B except the following -
A non-resident who doesn't own a permanent establishment in India or a person who doesn't have to furnish income return and is notified by the central government.
Sometimes, the TDS deducted by the payer is not reflected in Form 26AS. There can be various reasons for such non-reflection of TDS amount in 26AS like -
If such a thing happens and the TDS deducted is not reflected in 26AS, the payee must contact the payer and ask them to identify the correct reason for such an error.
If the taxpayer has proof of such deduction, he/she can claim a TDS credit manually at the time of ITR filing.
The taxpayer can approach the deductor and ask them to file a revised TDS return or file a grievance to the concerned authority.
If you do not have a PAN, you cannot furnish Form 15G/15H for non-deduction of TDS from interest. In this case, the bank will deduct TDS at the higher of the following rates:
For example, if you are a resident individual below the age of 60 and your interest income is more than Rs. 10,000 in a year, the bank will deduct TDS at the rate of 20% even if you do not have a PAN.
You can apply for a PAN card online or at the nearest PAN card issuing authority. Once you have your PAN card, you can submit Form 15G/15H to the bank to request that no TDS be deducted from your interest income.
The Tax collected at source is regulated by the Income Tax Department of India. A specific percentage of tax is deducted by the payer at the time of the transaction made to the receiver, and the deducted amount is then deposited to the government.
And if you fail to deposit TDS to the government within the stipulated time limit, you will face adverse consequences such as interest, penalty, and rigorous imprisonment of upto seven years. I.e., it is not recommended to use TDS for personal use instead of depositing it to the government. Everyone should comply with the income tax provisions and pay taxes on time.
Yes, you can claim TDS in your return of income even if you have not received the TDS certificate from the deductor. You can verify the amount of tax deducted at source from your income by checking your Form 26AS, which is a consolidated statement of all TDS transactions. You should claim the TDS credit in your income tax return based on the amount reflected in Form 26AS and not on any other document or source. You should claim TDS with your income tax return file, as the TDS credit is being reflected in Form 26AS. If there is a mismatch between the TDS credit in Form 26AS and the TDS claim in your return of income, the tax authorities may reject your claim.
Section 194-IA of the Finance Act 2013 mandates the deduction of tax at source from the payment of sale consideration of immovable property (excluding rural agricultural land) to a resident seller. The deduction rate is 1% of the total amount. This provision is not applicable if the seller is non-resident or the consideration is less than ₹50 lakh. If the seller is a non-resident, then the tax will be deducted under section 195 of the Income Tax Act and not under section 194-IA. I.e., if the property is purchased from a non-resident, then section 195 will be applicable instead of 194-IA.
The remuneration paid to a company director is related to different provisions of TDS depending on the nature of the payment. If the payment is in the form of salary, then section 192 will be applicable, and TDS will be deducted as per the income tax slab rates. However, if the payment is in the form of fees or any other compensation for professional services rendered by the director. In that case, section 194J will be applicable, and TDS will be deducted at a flat rate of 10%. This is usually the case for non-executive directors or independent directors who do not have an employer-employee relationship with the company. They earn income from their directorship under the head 'income from business or profession.'
One common question in the context of tax deduction at source (TDS) is whether it applies to payments made to the Government or its entities.
No tax will be deducted if any sum is payable to the Government, Reserve Bank of India, or a corporation established by or under a central act. This means that any payment made to these government bodies, whether it is interest, commission, rent, royalty, fees, or any other income, is exempt from TDS. This exemption is based on the rationale that the Government is the ultimate recipient of tax revenue, and hence there is no need to deduct tax from payments made to the government.
The Central Board of Direct Taxes (CBDT) clarified this issue in circular no.17 dated 29.9.2020. It has stated that TCS is to be collected on the sales consideration that includes GST as well. This is because TCS is not a tax on income but an interim levy on the possible income earned from the sale of goods. Therefore, it does not affect the valuation of goods or services under GST. This is also in line with the circular issued by the Central Board of Indirect Taxes and Customs (CBIC) in Dec 2018, which clarified that TCS is not a part of the taxable value for GST purposes.
Salary income refers to the compensation that an employer provides to an employee in lieu of the services provided by the employee in relation to the employment contract. The income received is considered as salary and taxed under section 15 only if there is an employer-employee relationship between both parties. Salary income can be received in the form of - Wages
Allowances are periodic payments that the employer makes to the employees to help them meet specific requirements of the employee as tiffin allowance, servant allowance, transport allowance, and uniform allowance. Such allowances are given over and above the salary and are included in the total salary except in case it is specifically exempted.
Allowances can be fully taxable, partially taxable, or fully exempt.
Here are a few examples of the most common allowances -
Yes, any reimbursement provided by the employer to the employee for the expenses incurred is considered to be perquisite under the Indian Income Tax Law. Perquisites are additional benefits provided by the employer to the employee over and above the salary and allowances. These perquisites are taxable in the hands of employees.
While allowances are the benefit provided to meet specific expenses in monetary form, perquisites are the benefits the employer provides to the employee above the salary and allowance amount and can be given in the form of goods, services, reimbursements, etc.
Since the expenses like children's education and grocery expenses are considered perquisites under the Indian Income Tax Act, the reimbursements of the same will be taxable in the employee's hands.
Yes, you have to file an ITR, do a self-assessment, and pay taxes in such a case. If you have worked in three different companies within a year and your salary in each of them individually did not exceed the threshold limit, the employers are not responsible for deducting TDS. However, if your total salary from the three employers is clubbed together, and, the annual salaried income turns out to be more than the threshold limit/basic exemption limit, then you have to pay taxes even if no TDS has been deducted by the employer. In this case, you must do a self-assessment and file an ITR.
As per the Indian Income Tax Act, an employer is required to deduct TDS from the employee's salary before making the payment. The employer also has to issue Form 16 to the employee only if there has been any deduction of TDS. However, if no tax is deducted or the employee's income is below the minimum threshold limit, then it is not mandatory for the employer to furnish Form 16. However, the employer can still provide Form 16 to the employee as good work practice. Form 16 has various benefits apart from acting as a TDS statement. These are as follows -
Any ex-gratia payment received by the employer as a token of appreciation for good work or as compensation for any injury or hazard that took place while on duty or due to death on duty is not considered a part of salary and hence not taxable.
Ex gratia payment is a monetary compensation provided by an employer to the employee or the dependents of the employee (in case of death) or in case of injury or retrenchment. For example, if a company decides to do retrenchment of employees, it has to pay legal compensation to the employees on an ex-gratia basis before laying them off.
Yes, an employee can claim transport allowance as an exemption to some extent. As per the Indian Income Tax Law, employees were granted transport allowance of up to Rs.1600 per month. This exemption was discontinued w.e.f. A.Y. 2019-20.
However, if the employee is blind, dumb, orthopedically handicapped, or deaf, he/she can avail of an exemption of transport allowance of up to Rs.3200 per month.
Pension is the portion set aside from an employee's salary, which is paid out periodically, usually on a monthly basis. The Taxpayer can also opt to receive his pension as a lump sum which is called commuted pension. A periodically paid pension is called uncommuted pension. The source of pension income is usually an annuity fund that the employer and the employee create during the service period. The annuity fund invests the contributions and pays out the pension to the employee after retirement.
The taxation of pension income depends on whether it is commuted or uncommuted. An uncommuted pension is taxed as salary income in the hands of the employee. Commuted pension is partially exempt from tax depending on the type of employee. Commuted or uncommuted pension is exempted from tax in case of government employment. In the case of a non-government employee, a pension is partially exempt depending on whether the employee receives the gratuity.
A family pension is a regular payment made to the spouse or children of a deceased employee. It is different from the pension received by an employee after retirement. Family pension is not taxed as salary income but as income from other sources. The tax treatment of family pensions depends on the amount received.
According to the Income Tax Act, 1961, a family pension received by a family member of a deceased employee is exempt from tax up to Rs. 15,000 or 1/3rd of the family pension received, whichever is less. The remaining amount is taxable as income from other sources and is subject to the normal tax rates applicable to the recipient.
The taxability of retirement benefits like PF and Gratuity depends on the type of employee and the conditions specified in the Income Tax Act. For Government employees, both PF and Gratuity are fully exempt from tax. For non-Government employees, Gratuity is exempt up to a limit of Rs 20 lakh. PF is exempt if received from a recognized PF after completing at least 5 years of continuous service. However, if the employee has not completed 5 years of service, PF is taxable as salary income in the year of receipt. The exemption limit for Gratuity is calculated as the least of the following: 15 days' salary for each completed year of service or part thereof; actual amount received; or Rs 20 lakh. The salary for this purpose includes basic pay and dearness allowance.
Arrears of Salary is the term used for the unpaid salary due to an employee for the previous period. Sometimes, the salary may be revised or increased, but the payment may be delayed or made retrospectively. In such cases, the extra amount paid later is called salary arrears. The employer should show this amount separately in the salary slips and part B of Form 16.
Salary arrears are considered salary income in the ITR and are taxable in the year of receipt. However, some taxpayers may be concerned about paying higher taxes because of a higher tax bracket in the year of receipt or due to a change in the slab rate. To avoid this, the taxpayer can claim relief under Section 89.
If you have faced losses from letting out house property, you can ask your employer to consider this loss against your salary income while computing the TDS on your salary, but it is limited to ₹2 lakh. Excess losses from house and property cannot be claimed for the deduction when computing the TDS on salary.
Leave encashment is the process of converting unused leaves into money at the time of resignation or retirement. The leave encashment amount is taxable as income from salary, and the employee can claim tax relief under Section 89 of the Income Tax Act. To claim this relief, the employee has to fill and submit Form 10E online on the income tax department's website. Employees can use Form 10E to calculate the amount of tax that can be reduced from the leave encashment amount. In the case of the employee's death before the leave encashment, the legal heir of the deceased employee can receive the total encashment amount.
Yes, the standard deduction applies to all salaried employees, including private sector employees and state and central government employees.
The Income Tax Act provides various provisions for taxpayers to decrease their tax liability by claiming deductions and rebates. The deductions are based on how the taxpayers spend or invest their income. One of the deductions available to salaried individuals and pensioners is the standard deduction. The standard deduction is a flat amount that can be deducted from the gross salary without any proof of investment or expenditure. The standard deduction for salaried individuals is Rs. 50,000, which was increased from Rs. 40,000 in 2019.
Family pension is taxed under the “Income from Other Sources” head in India. The family pension beneficiaries can claim a standard deduction of 1/3 of the amount of the family pension received, or Rs 15,000, whichever is less, as per section 57 (iia) of the Income Tax Act. This deduction has to be mentioned in the last row under the “Income from Other Sources” section to get the benefit. Family pension received by members of the armed forces is exempt from tax. However, family pension received by other categories of employees is taxable.
A family pension differs from a regular pension received by an employee after retirement. Family pension is paid to the legal heir of an employee who dies while in service or after retirement.
Section 24(b) of the income tax act provides a deduction for interest on a home loan from the income taxable under the head “Income from house property” if the loan is taken for buying, building, renovating, or restoring a property. The deduction for interest is available in two categories, namely, interest for the pre-construction/acquisition period and interest for the post-construction/acquisition period. Interest for the pre-construction/acquisition period is deductible in five equal installments beginning from the year in which the construction or acquisition is completed.
Pre-construction period refers to the time span between the date of taking a loan for the construction or acquisition of a property and the earlier of these two events:
Yes, the rental income received can be split up between the husband and wife and taxed separately in the individual hands. If a house property has more than one owner, then the rental income from that property will be split according to the ownership share of each co-owner, and each co-owner has to pay tax on their own share of income.
For instance, Mr. and Mrs. Choudhary are the co-owner of a house in a 50:50 ratio; if the total rental income of that particular property is 20,000 per month, the couple can split the rental income to ₹10,000 each in their Income Tax Return.
A property that belongs to the taxpayer and is used by him as his own residence for the entire year is called a self-occupied property. It means the owner does not rent out the property to anyone else during the year or any part of it. A property the owner does not use as his residence cannot be considered self-occupied.
An individual may be eligible for tax deductions under Section 24 of the Income Tax Act, 1961, if he/she meets the following conditions:
A self-occupied property is a property that is used for residential purposes by the owner or his/her family. A property that is not occupied is also considered a self-occupied property for income tax purposes. Until Financial Year 2019-20, only one property could be declared as self-occupied by the taxpayer if he/she owned more than one property. The rest were deemed to be let out. From Financial Year 2019-20 onwards, the taxpayer can declare two properties as self-occupied and the remaining properties as deemed to be let out.
Calculation of Income from self-occupied property:
|Gross annual value||XXX|
|Less: Municipal Taxes||XXX|
|Net annual value||XXX|
Less: Deduction under Section 24
Standard Deduction @ 30%
Interest paid on loan
|Income from house property||XXX|
A property that belongs to the taxpayer and is used by him as his own residence for the entire year is called a self-occupied property. It means the owner does not rent out the property to anyone else during the year or any part of it. A property the owner does not use as his residence cannot be considered self-occupied. However, if the property owner resides in a different city for work or business reasons and rents a place there, and his property is either unoccupied or used by some of his family members, the property is treated as self-occupied for tax purposes.
Income earned from letting out a property consisting of a building and land attached to it is taxed under the head “Income from House Property.” House property includes different types of properties, such as residential houses, commercial buildings, apartments, offices, shops, godowns, factories, and so on. The property can be self-occupied or leased from someone else. The income from the house property is calculated based on the annual value of the property, which is the higher of the actual rent received or the expected rent of the property.
If a person holds more than one property and resides in it, he can choose any two of them as self-occupied properties (SOP) and declare their gross annual value (GAV) as nil under section 23 of the Income Tax Act, 1961. I.e., He does not have to pay taxes on the notional rent of these two properties. This provision of the income tax act was introduced in the financial year 2019-2020. Earlier, only one property could be treated self-occupied property, and the other property was deemed to be let out and taxed on its notional rent.
According to the Income-tax Law, you can claim only one property as self-occupied property, and the other property will be deemed to be let-out property for the assessment year 2019-20 and earlier. However, from the assessment year 2020-21 onwards, you can claim two properties as self-occupied properties subject to certain conditions. Therefore, you can treat both your farmhouse and your city house as self-occupied properties from the assessment year 2020-21 onwards, provided you fulfill the specified conditions.
The deduction can be claimed up to ₹2 lakh for home loan interest if the owner or his family resides in the house property. The same treatment is applicable if the house is vacant. If the property is rented out, the entire home loan interest will be allowed as a deduction.
However, the deduction for home loan interest will be limited to ₹30,000 instead of ₹ 2 lakhs in case:
If you own a property that you use for yourself for some part of the year and rent out for the rest of the year, you may wonder how to calculate your income from it for tax purposes. You have to treat the property as if it was rented out for the whole year and use the rent received as the basis for your income calculation. However, you can only include the actual rent you received for the period that the property was let out and not the notional rent you could have received if it was let out for the entire year. This way, you can account for the income from your property in a fair and accurate manner.
Section 25AA of the Income Tax Act deals with the taxation of unrealised rent that is subsequently realised by the owner of a house property. Unrealised rent refers to the rent that is due from a tenant but not received by the owner. If the owner takes legal action against the tenant and recovers the unrealised rent, it will be treated as income from house property in the year of receipt. This is irrespective of whether the owner still owns the property or not. The unrealised rent will be taxed at the normal rates applicable to the owner's income.
Income in the form of rent on the property is charged to tax under the head of Income from house property and in the hands of the property owner. If any person other than the property owner receives rent (as in the case of subletting), then such income is not considered income from house property and is charged under the head income from other sources.
However, in the below cases, the receiver of rent is deemed to be the property owner -
If you have 5 properties that you have let out to different people and earn rent from them, you still need to calculate the income from each property separately. As per the Income tax act, there are certain provisions relating to deductions on house property that might require you to compute taxes separately. You cannot club the income from all 5 properties in one calculation.
If a property is let out throughout the year and has not been vacant or self-occupied during any time during the previous year, the income from the house property is determined in the following way-
|Gross Annual Value||zzzz|
|Less: Municipal Taxes paid during the year||zzzz|
|Net Annual Value (NAV)||zzzz|
|Less: Deduction U/S 24|
Deduction U/S 24(a) @ 30% of NAV
Deduction U/S 24(b) on account of interest on borrowed capital
|Income from house property||zzzz|
As per section 23(1) of the Income Tax Act, the gross annual value or GAV of a house property that is let out throughout the year and not self-occupied or vacant during any part of the year is calculated as follows -
Any rental income from a property that is land or a building and of which the taxpayer is the registered owner is chargeable to tax under the head 'Income from house property.' Since a shop is considered to be a building, it is taxed under the head income from house property, and all the provisions for house property apply to it.
However, if the shop or the commercial property is sublet by you, the rental income from such property is charged to tax under the head income from other sources.
When the rent received by the property owner includes the rent from the property as well as the rent for other services, it is known as composite rent. The tax on composite rent is calculated as follows -
The reasonable expected rent of a property that is let out throughout the year is computed by comparing the following -
The higher value of the above is considered as the reasonable expected rent. However, if the said property is included under the Rent control act, then it should not exceed the standard rent.
Municipal value refers to the property's value as derived by the municipal authority after conducting a careful survey.
Fair rent refers to the reasonable expected rent that the property is expected to generate. It is determined based on the rent prevailing in similar properties in the same locality.
Actual rent refers to the actual rent of the property that is received during the year if it is let out. At the time of computing the Gross Annual Value (GAV) of a let-out property, the actual rent is calculated as follows -
In accordance with the provisions of section 23(1)(c), if a property or any part of it is let out and was vacant during the year or a part thereof, and the actual rent receivable or received is less than the reasonable expected rent due to such vacancy, then the actual rent is considered as the Gross Annual Value (GAV) of the property. If the expected reasonable rent is more than the rent receivable if there is no vacancy, then the expected reasonable rent is considered to be the Gross annual value (GAV) of the property.
Yes, the interest paid on loans taken from friends and relatives can be claimed as a deduction while determining the income from house property if the following conditions are met -
Senior citizens aged 60 years and above but below 80 years and super senior citizens aged 80 years and above are provided with certain tax benefits and concessions. Some elementary waivers are provided to both senior and super senior citizens. The basic tax exemption limit for senior citizens is up to Rs 3 lakhs under the old tax regime, while under the new tax regime, this is Rs. 2.5 lakh. Super citizens get a higher advantage; this exemption limit is up to Rs 5 lakh under the old tax regime Under the new regime, for super senior citizens, this basic exemption limit is up to Rs. 2.5 lakhs.
In India, the income tax slabs are structured progressively, where the tax rates increase as the income levels rise. For income tax purposes, individuals who are aged 60 years and above but below 80 years are called senior citizens. This means individuals who have reached the age of 60 or will turn 60 during the relevant financial year are classified as senior citizens. Further, individuals aged 80 years and older are called super senior citizens. This means individuals who have reached the age of 80 or will attain the age of 80 years during the relevant financial year are classified as very senior citizens. The tax slabs for senior citizens and super senior citizens are different than the tax slabs for normal individuals, as the tax exemption limits are higher for senior citizens and super senior citizens.
A person is classified as a very senior citizen for income tax purposes if their age is 80 years or older. This means individuals who have reached the age of 80 or will attain the age of 80 years during the relevant financial year are classified as very senior citizens. Yes, under the Income-tax Law in India, special benefits are available to very senior citizens (individuals aged 80 years or above). These benefits aim to provide additional relief and ease the tax burden for this age group. Very senior citizens are exempt from paying advance tax. They can pay their entire tax liability when filing the income tax return. Every senior citizen claim deduction under Section 80D for medical insurance premiums paid for themselves or their dependents. The maximum deduction allowed depends on the actual premium paid and the individual's age.
Budget 2021 introduced an exemption for seniors aged 75 years and older if they meet certain eligibility criteria. Section 194P was introduced in the Income Tax Act, as per which very senior citizens are exempt from tax if:
If your tax liability exceeds Rs. 10,000 in a financial year, paying an advance tax under Section 208 is mandatory. However, resident senior citizens and super senior citizens are not required to pay any advance tax on their income if they do not have income from business or profession. They file their returns through self-assessment tax after the completion of the financial year. After the income is aggregated and the eligible deductions are deducted from the income, the individual's taxable income is ascertained. This taxable income is, then, subject to tax as per the applicable tax slab.
Any senior citizen as a resident individual in India can claim a deduction of up to Rs 50,000 from the interest income earned on deposits (savings or fixed) during the concerned financial year. Section 80TTB is designed to help senior citizens maintain a decent lifestyle after retirement, many of whom depend on their interest income for these expenses. This section acts as an upgrade of Section 80TTA, as the threshold limit of the tax deduction on interest income was raised from INR 10,000 to INR 50,000 for senior citizens. However, Section 80TTB has certain limits and eligibility criteria that should be followed to gain the benefits of the same.
Section 80DDB provides a deduction for the expenditure incurred on treating specified diseases for self, spouse, children, parents, and siblings. Rule 11D of the income tax covers the list of specified diseases. The amount of the deduction depends on two factors - the age of the patient and the actual amount of expenditure. For senior citizens, the maximum deduction amount is Rs.1 lakh.
Section 80DDB deduction limits
|Patient's Age||Maximum Limit(Rs.)|
|Individuals(less than 60 years)||40,000|
|In case of a senior citizen (aged 60 years or more)||1,00,000|
If your tax liability exceeds Rs. 10,000 in a financial year, then paying an advance tax under Section 208 is mandatory. However, retired senior citizens and super senior citizens are not required to pay any advance tax on their income if they do not have income from business or profession. They file their returns through self-assessment tax after the completion of the financial year. After the income is aggregated and the eligible deductions are deducted from the income, the individual's taxable income is ascertained. This taxable income is, then, subject to tax as per the applicable tax slab.
Senior citizens over 60 years of age are required to pay taxes. They can pay taxes by both ways; new and old tax regime.
Income Tax Slab Rate for Senior Citizens (FY 2022-23) (Old Regime)
|Up to INR 300,000||Nil|
|INR 300,001 to INR 500,000||5% of the income exceeding INR 300,000|
|INR 500,001 to INR 10,00,000||5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000|
|INR 10,00,001 and above||5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000 + 30% of the income exceeding INR 10,00,000|
Additionally, as per the new tax regime the basic exemption limit is Rs. 2.5 lakh.
In India, the income tax exemption limits for elderly individuals (senior citizens) depend on their age and the financial year in question. Here are the income tax exemption limits for senior citizens for the financial year 2022-23 ( assessment year 2023-24):
Senior Citizen (60 years or above but below 80 years):
Basic exemption limit: The basic exemption limit for senior citizens for the financial year 2022-23 is INR 3,00,000. This means that the first INR 3,00,000 of income is exempt from income tax.
Very Senior Citizen (80 years or above):
Basic exemption limit: The basic exemption limit for very senior citizens for the financial year 2022-23 is INR 5,00,000. This means that the first INR 5,00,000 of income is exempt from income tax.
As per the new tax regime, this exemption limit is up to 2.5 lakh.
Literally, the word Audit means to check, review, and inspect. An audit is often associated with the inspection of a company's books of accounts. Different laws require different types of audits for example, company law requires you to conduct a company audit, Income tax law prescribes a tax audit, and cost accounting prescribes a cost audit.
Section 44AB of the Income Tax Act provides for the classes of taxpayers who are required to get their books audited by a Chartered Accountant.
The audit of the accounts of taxpayers conducted by a CA, as per the requirement of section 44AB, is known as a tax audit.
Below are the objectives of the tax audit -
Any person who is covered under section 44AB and gets his/her books audited is required to obtain the audit report from the auditor before 30th September of the assessment year. If you are filing the ITR for the previous year, 2022-2023, then you need to obtain the audit report before 30th September 2023 for the A.Y. 2023-2024.
A chartered accountant is required to electronically file the tax audit report to the Income Tax Department. Once a CA files the report, it has to be approved by the taxpayer using his/her e-filing account with the Income Tax Department.
Any person mandated to conduct a tax audit of his/her books of accounts under section 44AB has to furnish either of the following -
Form 3CA: Any taxpayer having a business or profession and already mandated to get their accounts audited under any other law. For example, if a company needs to conduct an audit under the companies act, then it has to furnish Form 3CA.
Form 3CB: Any taxpayer having a business/profession but doesn't have to get their accounts audited under any other law has to furnish Form 3CB. Proprietorship or partnership firms having opted for presumptive tax schemes and having a turnover exceeding Rs. 1 crore. Such companies are required to furnish Form 3CB.
Form 3CD: Form 3CD is a detailed statement of particulars that contains 41 different points. The details of various business and professional aspects must be furnished in this form.
Companies or cooperative societies might be required to conduct an audit of their books of accounts under the respective act/law. As per section 44AB, if a person is required to get their accounts audited under a law other than the Income tax law, such person is not required to get their accounts audited again in accordance with the Income Tax Law. However, it is mandatory to get the accounts audited under the other law and obtain an audit report duly signed by the chartered accountant and in the manner prescribed under section 44AB in Forms 3CA and 3CD.
A person who has to follow section 44AB and does not get his accounts audited or submit the report as per section 44AB for any year or years may face a penalty from the Assessing Officer. The penalty amount will be the lower of the following:
However, section 271B states that no penalty will apply if the person can prove a reasonable cause for such failure.
The taxpayers who need to get a tax audit done:
A tax audit verifies the accuracy and compliance of an assessee's income tax return and financial statements. An auditor is appointed by the government to conduct a tax audit on its behalf. An auditor can be a chartered accountant or any other person who can be appointed as an auditor as per section 141 of the companies act 2013. The purpose of a tax audit is to ensure that the assessee has complied with all the provisions of the Income Tax Act and has paid the correct amount of tax.
A tax audit verifies the accuracy and compliance of an assessee's income tax return and financial statements as per the Income Tax Act 1961. However, not all taxpayers are required to undergo a tax audit. There are some exceptions available for certain categories of taxpayers, as follows:
The ICAI sets rules and regulates chartered accountants and tax audits in India, i.e., the ICAI also sets the limit for tax audits a chartered accountant can perform. A chartered accountant can perform 60 tax audits in one financial year. However, In the case of a firm of Chartered Accountants in practice, this limit applies to each partner of the firm and can be shared among them in any proportion. For example, one partner can sign 600 tax audit reports if the other nine partners do not sign any. The number of tax audit reports that a Chartered Accountant can sign in a financial year.
The Central Government's Income Tax Department of India issues a 10-digit alphanumeric number to all persons who are responsible for deducting tax (TDS) or collecting tax (TCS) at the source. This is a unique number known as TAN, standing for Tax deduction and collection account number. As per section 203A of the Income Tax law, the TAN number should be mentioned on all TDS returns filed. A TAN starts with 4 alphabets followed by 5 numbers that end in an alphabet again. TAN number forms an important part of the compliance requirements for the Income Tax Act.
Every person who deducts tax at source and collects tax at source must apply for TAN and obtain it to make it easier to file ITR, except a person covered under the provisions of section 194IA as they are not required to obtain a TAN number.
TDS refers to the tax deducted by the payer at the time of making the payment for specified services such as rent, commission, interest, salary, etc.
The tax collected at source or TCS is the tax deducted by the seller from the buyer on the sale of certain specified goods. This amount is added to the sale price, collected from the buyer, and deposited to the Central Government.
Not knowing your TAN number might cause you to go through a lot of difficulties. Here are the reasons why you should hold a TAN number. All the provisions for the relevance of TAN are mentioned in 203A of the IT Act.
A duplicate TAN is a number that is obtained by the same person who already has a TAN allotted to him/her and is responsible for deducting the TDS/TCS on transactions through illegal means. It is an illegal practice to obtain a duplicate TAN number. However, if there are different branches or divisions of an entity, they can hold different TAN numbers. A person can also obtain a duplicate TAN in cases of loss, theft, etc, after furnishing proper evidence of such loss/theft.
If you have been allotted a duplicate TAN by mistake or due to any other reason, you should continue to use the TAN number that was allotted first and has been used regularly by you. The duplicate TAN number should be surrendered and applied for consolation. This can be done using the “Form for changes or correction in TAN.” Now you need to download the Form for surrendering from the official website of NSDL-TIN, obtained from TIN-FCs or other vendors.
If you are issued a duplicate TAN by oversight, you can simply apply for the cancellation of the duplicate TAN, as holding more than one TAN is considered illegal. You can apply for cancellation of the unused TAN number by submitting the 'Form for changes or correction in TAN.' You can download this form from the NSDL-TIN website, or it can be obtained from third-party vendors or TIN-FCs. Since holding more than one TAN is an illegal practice, you should immediately apply for its cancellation as soon as you receive it and never put it to use, as it might lead to severe legal consequences.
Here are the steps to be followed to apply for a new TAN -
When you apply for a TAN number, all your whereabouts are thoroughly checked, and the Income Tax Department allots TAN on the basis of the application that you submitted to the TAN facilitation center. These TAN facilitation centers are managed by the NSDL. The NSDL intimates or provides the TAN number, which the taxpayer has to use in all future correspondence related to the TDS or TCS. This number will have to be mentioned in many forms and used for various purposes.
Yes, you can file an online application to get the TAN number on the official website of NSDL. Make sure you read all the instructions carefully.
Yes, a government deductor should also apply for TAN either online or offline and obtain a TAN number to use in all future correspondences. A deductor is someone who is responsible for deducting the tax from the payment amount and paying it to the government. In other words, the person who deducts the TDS/TCS and submits it to the government is known as the deductor and the person who receives the payment after the deduction of TDS is known as the deductee.
Yes, even if there are multiple DDOs (drawing disbursing officers), each of them should apply for TAN separately. This is so because the TAN application requires you to fill in details such as division name, branch's name and location and the designation of the person who is responsible for deducting the TDS/TCS. All the DDOs should apply for TAN separately and fill in the relevant and accurate details in the application for allotment of TAN.
Yes, each branch or division of the company can have a separate TAN as their name, location, and the name of the designated person changes from branch to branch and division to division. At the time of filing the TAN allotment application, the applicant has to clearly mention details such as the name of the company/branch/division, the location of such company/branch/division, and the details of the person responsible for deducting the tax should be clearly mentioned in the application.
No, the TAN application cannot be made on plain paper. It must be made on Form 49B, which is a standard form that can be downloaded from the Income Tax Department website or the NSDL website. You can also get the form at TIN facilitation centers.
The application form must be filled in capital letters and signed by the applicant. If you are applying online, you will need to print out the acknowledgment form and sign it. The signed acknowledgment form must then be mailed to the NSDL office address mentioned on Form 49B.
Form 49B is to be used for applying for a new TAN. Form 49B can be downloaded from NSDL or the income tax department website. It can also be accessed through the TIN facilitation centers. Form 49B can not be made on a plain piece of paper but can be filled on a typewriter in capital letters and with a good impression.
You do not have to attach any documents with your application for TAN Allotment.
But, if you apply online, you need to download the acknowledgment that appears after submitting the form, sign it, and send it to NSDL by Post.
NSDL e-governance Infrastructure Limited,
5th floor, Mantri Sterling,
Plot No. 341, Survey No.997/8,
Near Deep Bungalow Chowk,
The envelope should be superscribed as 'APPLICATION FOR TAN-Acknowledgment Number.' (e.g., 'APPLICATION TAN - 88301020000244').
TAN application status can be tracked using the TAN acknowledgment number; You can call the TAN call center (020-27218080).
Form 49B is to be used for applying for a new TAN. Form 49B can be downloaded from NSDL or the income tax department website. It can also be accessed through the TIN facilitation centers. The TIN facilitation center assists the applicants in filling Form 49B. However, if the applicant submits an incomplete or incorrect Form, the TIN facilitation center will reject the application. It is advisable to fill Form 49B in a prescribed and correct manner.
The applicant has to pay Rs 65 (Rs 55 for the application fee + 18.00% Goods & Services Tax) for TAN application processing. This fee is non-refundable even if the application is not approved. The applicant should make the demand draft/Cheque payable to NSDL-TIN.
The department will check the details submitted in Form 49B. If the application is correct, NSDL will either mail the TAN details to the applicant's address given in Form 49B or send an email with the TAN details for online applications.
The new TAN number will be intimated to the deductor by NSDL (National Securities Depository Limited) in the following ways:
There are three ways for a deductor to know his TAN :
There are two options to know the status of your TAN application:
Through the application number:
Through the transaction number:
TAN refers to Tax Collection and Deduction Account Number, which is a 10-digit alphanumeric code that must be obtained by anyone who deducts or collects tax. TAN is essential to quote in TDS/TCS return (including any e-TCS/TDS return), any TDS/TCS payment challan, and TDS/TCS certificates.
All TCS/TDS/Annual Information returns, whether filed in paper or electronic format, require the mention of TAN. The return, whether in paper or electronic format, will be rejected if the correct TAN is not quoted.
If you are about to change or make corrections to the data associated with the TAN, the Income Tax Department should be notified by filling out the Form for changes or corrections in TAN data for the TAN allotted and paying the required fees at any of the TIN facilitation centers, or at NSDL-TIN website. This includes any changes in address or other details that were used to obtain the TAN.
Incomes deemed to be received in India are the followings:
According to Section 9 of the Income Tax Act 1961 (ITA 1961), income is deemed to have accrued or arose in India if it meets any of the following conditions:
The Foreign Exchange Management Act (FEMA) is a law enacted by the Indian Parliament in 1999 to regulate foreign exchange transactions in India. The main objectives of FEMA are:
FEMA applies to all parts of India and to all Indian citizens and agencies located outside India. FEMA is administered by the Reserve Bank of India (RBI) and the Enforcement Directorate (ED).
A business connection is a relationship between a non-resident entity and an activity in India that contributes directly or indirectly to the income of the non-resident entity. A business connection may include any of the following situations:
Only the income that is attributable to the business connection in India is deemed to accrue or arise in India and is taxable in India. The entire income of the non-resident entity is not taxable in India.
A few other arrangements beneath the Income-tax Act that are appropriate to a Non-Resident are:
The Foreign Exchange Management Act (FEMA) 1999 is a jurisprudence implemented by the Indian Parliament to govern and modernize foreign exchange transactions and markets in the country. The act aims to facilitate the external trade and payments of India and to promote the tidy growth and stability of the foreign exchange market. The act covers the entire territory of India and also applies to any person residing in India who owns or controls any branch, office, or agency across the Indian border. The act also empowers the authorities to take action against any person who violates the provisions of the act outside India.
The capital account records all economic transactions between a country and the rest of the world. Capital account manifests how much a country's assets have changed due to transactions with foreign entities. These transactions comprise the import and export of goods, services, capital, and receiving transfers like foreign aid and remittances. The balance of payments collectively of a current and capital account, which displays how much a country's income and assets have transformed caused by these transactions. Some definitions split the capital account into a financial account, and a capital account, where the financial account comprises transactions involving financial assets and liabilities, and the capital account includes transactions involving non-financial assets and liabilities.
A current Account is a deposit account that is used for large-value transactions on a regular basis. It is mainly opened by businessmen who need to make payments to their creditors using cheques. Current Account does not offer any interest on the deposits and allows customers to deposit and withdraw money at any time without notice. A current Account is also known as a financial account, and it is different from Savings Account, which provides interest. Current Account is suitable for businesses who want to carry out their financial business transactions smoothly.
Foreign nationals are permitted to open an ordinary savings account, as many residents in India do. In fact, even foreign tourists on a short visit to India can open an account. A foreign national who comes on a visit can open only an NRO account, while a foreign national resident in India can open a resident account as well. So, this will operate just like any other domestic account. However, one needs to be careful on the likely procedure that would be followed for repatriation. Money in the NRE account can be repatriated freely, while in the case of NRO, certain terms might need to be fulfilled. So, although Foreign nationals may be allowed to open a resident account, foreign nationals must also understand the implications and whether they are allowed to freely repatriate from a resident account or whether specific permission is needed for the purpose.
A resident individual can open a foreign currency account in India with an authorized dealer, according to the Foreign Exchange Management Act, 1999 (FEMA). This account is called a Resident Foreign Currency (Domestic) Account and can be in the form of a current or savings account. The account can be opened with foreign exchange acquired in the following ways:
The account can be held either singly or jointly with another resident individual. The account does not bear any interest, and the balance can be used for any permissible current or capital account transactions.
The tax liability of a person depends on the residential status of the person who earns the income.
Therefore, residential status is an important factor in determining the taxability of the income.
An individual's residency status is one of the main factors that determine the extent and extent of their taxable income under income tax law. An individual's residency status is not the same as their citizenship. A person can be an Indian citizen but not a resident for tax purposes or vice versa. An individual's status of residence depends on the number and nature of his stay in India during a given financial year.
According to the Income-tax Act 1962, there are three classes of residential status for individuals, namely:
According to the new section 6(1A) of the Income-tax Act, 1961, introduced by the Finance Act 2020, an Indian citizen's residential status for taxation purposes depends on two constituents: His income from foreign sources and his taxability in any other country.
Income from foreign sources is illustrated as income earned across the Indian border, except for income from a business or profession controlled or set up in India. I.e., from the assessment year 2021-22 onwards, an Indian citizen who has a total income of more than ₹15 lakh (excluding foreign sources) and who is not subject to tax in any other country will be deemed to be a resident of India for taxation purpose.
A HUF can have any one of the following different residential status for the purpose of Income-tax Law:
The residential status of a HUF depends on the norms specified in the Income-tax Law for each class. I.e., the residential status of a HUF may be different from year to year. For instance, a HUF may be a resident and ordinarily resident in one year, a non-resident or a resident but not ordinarily resident in another year, and so on.
To determine an individual's residential status, one must check if he is s resident or non-resident of India. A resident is someone who meets one of these norms:
A non-resident is someone who does not meet either of these norms.
There are some exceptions to the second criterion for Indian citizens who work abroad or on Indian ships.
If he is a resident, one must check if he is a resident and ordinarily resident (ROR) or a resident and not ordinarily resident (RNOR). A ROR is someone who meets both of these norms:
An RNOR is someone who does not meet both of these conditions.
To determine the residential status of a HUF, one must check two conditions: first, if the HUF is a resident or non-resident in India, and second, if the HUF is ordinarily resident or not ordinarily resident in India.
Condition 1: Determining whether resident or non-resident
A HUF is a resident in India if it has some or all of its control and management in India.
Condition 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident
A resident HUF is ordinarily resident in India if its manager (i.e., karta or manager) meets both of these conditions:
A resident HUF is not ordinarily resident in India if its manager (i.e., karta or manager) does not meet or meet only one of these conditions.
A company is a resident in India if:
This rule is applicable from Assessment Year 2017-18. The CBDT has issued final guidelines for the determination of the POEM of a foreign company.
The guidelines have a test of Active Business Outside India (ABOI). A company has ABOI if passive income is less than 50% of total income. It also has to meet some conditions on assets, employees, and payroll.
If a company has ABOI, its key decisions are assumed to be outside India if most board meetings are outside India.
If not, the key decision-makers and their location have to be identified.
However, According to CIRCULAR NO.8, DATED 23-2-2017, companies with annual turnover or gross receipts of INR 50 crores or less are exempt from the POEM guidelines.
The Income-tax Law specifies different classes of residential status for a person other than an individual or a HUF, i.e., partnership firm, company, etc., may have any one of the following residential status:
The residential status of the taxpayer is not fixed and has to be determined every year based on the criteria laid down by the Income-tax Law. Therefore, the taxpayer may be a resident in one year and a non-resident in another year or vice versa.
Direct taxes are taxes that are paid by individuals or different entities directly to the government. In India, direct taxes include Income Tax and Wealth Tax. These taxes are based on the income or wealth of the taxpayer and cannot be shifted to anyone else. Direct taxes are divided into two main categories: Income Tax and Corporate Tax. Income Tax is levied on the income earned by an individual, a Hindu Undivided Family, or any other taxpayer except companies. Corporate Tax is levied on the profits made by companies from their businesses.
The income tax is calculated on the total income of an individual for a financial year. The income tax is applicable to the following sources of income: