Publisher:HOW TO DO TAX PLANNING ITS NEED AND OBJECTIVES | ACADEMY TAX4WEALTH
Sep 18,2021
How to do Tax Planning its need and Objectives
Introduction:
Tax Planning refers is the activity done by a taxpayer to reduce the tax liability imposed upon him or her with maximum use of all provided exclusions, allowances and deductions under the provisions of Income Tax Act, 1961. In simple words, it can be regarded as an analysis of financial scenario from taxation view point.
One of main reason for tax planning is insurance of tax efficiency. It allows all the aspects of the financial plan for functioning for delivery of maximum tax efficiency. It is also a crucial aspect for budgetary effectiveness.
Objectives of Tax Planning:
The following are some of the objectives of Tax Planning;
✅ Minimal Litigation: In most of the case, a little friction that exists between a taxpayer and tax collector. In such cases, it is essential to follow the compliance with respect to tax payment. The compliance must be used properly to make the friction limited.
✅ Productivity: It is one of the most important objectives of tax planning. It helps to channelize the taxable income under several investment plans.
✅ Tax Liability Reduction: A taxpayer can save maximum payable tax amount with the use of proper arrangement made by the enterprise under the required laws.
✅ Growth of Economy: The growth of the economy is co-related to growth of the citizens. Tax planning helps to estimates the generation of money in free flow.
✅ Economic Stability: Stability is largely based on the supplements while tax planning when a business is maintained properly.
Types of Tax Planning:
The following are the types of Tax Planning;
✅ Short Term and Long Term Tax Planning: The tax planning that is done on annual basis can arrive at particular objectives is known as short term tax planning. On the other hand, in case of a long term tax planning immediate pay-offs are not included.
✅ Permissive Tax Planning: In this case, planning is done confirming the provisions of the tax as provided.
✅ Purposive Tax Planning: This is method for tax planning which is done basing on the drawbacks in the laws.
Tax planning is a term which suggests methods for calculated applications under tax laws so that the taxation of a person can be managed effectively.
Also, Read; Some Important Tips for Income Tax Planning.
Tax Planning in India:
Indian tax law provides a wide range of tax saving plans for the taxpayers. With large number of options for tax deductions and exemptions through which overall tax output could be limited;
✅ As per taxation law, deductions are available under Section 80U and Section 80C and the same can be used by eligible taxpayers.
✅ These deductions occur against the tax liabilities.
✅ There are various sections under the provisions of Income Tax Act, 1961 including tax credit, exemptions to lower the overall tax liabilities.
Corporate Tax Planning:
Corporate Tax Planning is a method to lower the liabilities for a registered company. One of the most common methods includes deductions on employee's health insurance and business transport etc. The deductions and exemptions under Income Tax Act, 1961, the company can widely reduce the burden of tax in legal way.
With the rise in the profits of the company means the higher liability of tax. In such cases, it is essential that the officials dedicate more time on tax planning which helps to reduce tax liabilities. Both direct and indirect tax can be lessened with a proper tax plan at the time of inflation. Apart from that, Tax planning needs proper planning of the following;
✅ Capital budget
✅ Expenses
✅ Sales and Marketing costs.
#Build your career by joining online Income Tax Certification Course.
A Good Tax Planning Happens As a Result of The Following Aspects;
✅ The tax benefits must be claimed against the eligible investments
✅ Providing correct and accurate information to relevant Income Tax authorities
✅ To be well informed about the applicable tax laws and court judgments.
✅ Tax Planning must be conducted completely under the specified law
✅ Planning must be taken into considering and business objectives and flexibility for future changes in incorporation
✅ A person can become a fist time taxpayer or a long time taxpayer in case the taxation aspect is not planned properly.
✅ The clauses of income tax seem to be complex that common man cannot deal with the same.
The following are the business dealings of a taxpayer in such a way that the tax benefit can be availed with the help of legitimate ways, so the tax amount will be minimal.
The following are some of the common mistakes made by common man in respect of income tax:
✅ Investment in insurance products for tax saving: Generally, when the financial year is approaching, the insurance companies make a lot of phone calls to taxpayers to buy insurance products. However, this is not one of the wisest investments to do in that particular time.
✅ Compounding Power through tax saving mutual funds: Many people think that power of compounding despite all the supporting factors
✅ Optimization of all available tax saving options; Many people are of the opinion that tax planning begins and ends with Section 80C of Income-tax Act, 1961 which describes only about the investment instruments for saving tax.
For more information, Visit us at: https://academy.tax4wealth.com/
Publisher:HOW TO CALCULATE INCOME UNDER CAPITAL GAIN | ACADEMY TAX4WEALTH
Sep 21,2021
How to Calculate Income Under Capital Gain
What is Capital gains?
Capital gains are profits that are received from the sale of capital assets. There are two types of capital gain namely, long-term capital gain and short-term capital gain. A Long term capital assets are those assets which can be held for more than 36 months whereas short term capital assets are held for duration less than 36 months.
Capital gains arise due to sale of a capital asset for the amount that is more than what you paid for the same. Capital assets can be investments including stocks, mutual funds, house, land or any other real estate product. A rise in the value of any of the aforesaid product in case of sale is termed as capital gain. Similarly, a loss suffered in case of sale or decrease in the asset value for its purchase price. It is to be noted that capital gains occurs only if the asset is sold at a higher price than its actual purchase price.
Tax on Capital Gains:
The capital gain tax calculation is dependent upon capital gain types such as;
✅ The tax calculation of short-term capital gains is much simpler as compared to long term capital gains, In case of short-term gains, gains are added to total income and tax is calculated basing on the relevant tax bracket.
✅ The tax calculation of long-term capital gains is a slightly tricky work to do. As long-term capital assets are held for longer durations, the factors such as inflation plays a crucial role while calculating long-term capital gains.
Capital Gains Calculator:
Capital gains can be calculated using different online tools designed to do so. The following information must be entered while calculating capital gain tax with the use of a calculator;
✓ Sale price
✓ Purchase price
✓ Information about the purchase including date, month and year of the purchase.
✓ Information about Sales including the date, month and year of sale.
✓ Details of Investment including investment in shares, real estate, gold, debt funds, equity funds, or fixed maturity plans.
After providing the aforesaid information, the below mentioned details will be displayed towards computation of capital gains payable;
✓ Investment Type
✓ Type of Gain (Long Term or Short Term)
✓ Difference between Purchase and Sale price
✓ Cost Inflation Index of purchase year
✓ Cost Inflation Index of Sale year
✓ Purchase Index Cost
✓ Duration between Sale and Purchase
✓ Long Term Capital Gain with Indexation
✓ Long Term Capital Gain without Indexation
Formula for Short-term Capital Gains Tax:
In the case calculation of short term capital gains, the formula for computation is provided below;
✅ Short-term capital gain=
Full value consideration – (acquisition cost+ improvement cost + transfer cost)
Formula for Long-term Capital Gains Tax:
The following formula has to be used for calculation of long-term capital gains tax payable;
✅ Long-term capital gain =
Full value of consideration received– (indexed acquisition cost+ indexed improvement cost + transfer Cost)
Where:-
✅ Indexed acquisition cost = acquisition cost x cost inflation index of transfer year /cost inflation index of acquisition year
✅ Indexed improvement cost= improvement cost x cost inflation index of transfer year/cost inflation index of improvement year
Also learn; How to File ITR-2 for Capital Gains 2022-23
Cost Inflation Index (CII):
Cost inflation Index is an index that is declared and fixed by government each year. While calculating capital gain indexation is used for long term assets.
How to Calculate Capital Gains Tax using Cost Inflation Index:
Cost Inflation Index is meant to be used for calculation of long term capital gain tax. The same is notified by the Income Tax Department every financial year. For the financial year 2020-21, the cost inflation index is 301. It is important for individual to ascertain indexed acquisition cost while calculating capital gains that will be deducted from the full value. Hence, Cost Inflation Index is applicable to the acquisition cost, following which figures can become index acquisition cost. Following the same, the formula for calculation of long term or short term capital gains is computed.
While computing capital gains arising due to transfer of a long term capital gains asset and accordingly deduction will be claimed by indexing acquisition cost and improvement cost.
Illustration of Taxation on Long-Term Capital Gains (Real Estate) :
1. With Use of Indexation:
Mr. Singh in the year 2005 purchased a plot of land for Rs.1, 00,000. In January 2015 after 10 years had passed, he sold his land for Rs.40, 00,000.
✅ Cost Inflation Index = Index for financial year 2014-15/Index for financial year 2005-2006 = 1024/480 = 2.13
✅ Indexed cost of purchase = Cost Inflation Index x Purchase Price = 2.13 x 1, 00,000 = 21, 30,000
✅ Long-term capital gain = Selling Price – Indexed cost = 40, 00,000 – 21, 30,000 = Rs. 37,8 70,000
✅ Capital Gain Tax= 20% of 37,870,000 = 75, 74,000
2. Tax on capital gains without Indexation meant for stocks and mutual funds:
There is an alternate to not follow the complicated way of indexation and computing the capital gain tax directly. In such case, 10% is charged as tax for non-indexed capital gain. Hence, individuals are free to choose the methods of indexation. They can pay 20% tax and ignore the indexation method. Accordingly, they have to pay 10% of capital gains.
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Publisher:WHAT IS CAPITAL GAIN | ACADEMY TAX4WEALTH
Sep 22,2021
What is Capital Gain?
Introduction:
The term capital gain can be defined as the gains that are arising as a result of transfer of capital asset. The tax that is charged for transfer of capital asset is known as Capital Gains. Generally, income from capital gain is categorized under;
1. Long Term Capital Gains
1. Short Term Capital Gains
What is Capital Gain?
As mentioned earlier, the gains and profits arising due to transfer of capital asset are known as "Capital Gains" which are charged under the income head capital Gains.
What is Capital Asset?
Capital asset includes the following assets:-
✅ Any property that is held by a taxpayer, whether it may or may not be connected to the business or profession of the taxpayer
✅ Any Securities held according to the regulations and provisions made under the Securities and Exchange Board of India Act, 1992 (SEBI) held by FII and that invested in the aforesaid security
Also learn; How to Calculate Income Under Capital Gain
However, there are certain assets which are excluded from the definition of being a capital asset which are as follows:-
✅ Any personal effects which is movable in nature including furniture, wearing apparel held by the taxpayer for the personal use by him or for any dependent family member excluding;
✓Drawings
✓Paintings
✓Jewellery
✓Archaeological collections
✓Art work
✓Sculpture
It is to be noted that the term “Jewellery” includes the following:
✅ Precious or semi precious stones, whether it may be set or not set in utensils, furniture or any other wearing apparel
✅ Ornaments that are made of silver, gold, platinum or any other precious alloy or metal that contains one or more of the aforesaid metals, whether it may or not contain any semi precious stones and whether it sewn or not sewn into any wearing apparel.
✅ Stock in-trade including raw materials held for business purpose, consumable stores other than securities
✅ Agricultural Land not being a land situated in India. For this, the following aspects must be considered;
✅ According to the municipal jurisdiction, town area committee, notified area committee and cantonment board that has a population more than 10,000.
The distance for range of the area has to be measured aerially considering the local limits of the cantonment board of any municipality:
✅ If the population is exceeds 10,000 but limited to 1 Lakh and distance is not more than 2 kilometers
✅ If the population exceeds 1 lakh but limited to 10 Lakh and the distance is not more than 6 kilometers
✅ If the population exceeds 10 lakhs and the distance is more than 8 kilometers. The population has to be considered according to the figures of the previous last census of which the required figures have been furnished prior to the first day of the year.
✅ 7 Percent Gold bonds, 1980 or 61/2 percent Gold bonds, 1977 or National Defence Gold bonds, 1980 issued by the Government of India
✅ Special Bearer Bond, 1991
✅ Deposit Certificates issued under the Provisions of Gold Monetization Scheme 2016
✅ Gold deposit Bonds issued under the provisions of Gold Deposit Scheme,1999
#Note:
The following points have to be kept in mind to understand long term capital gains:
✅ The property considered to be a capital asset may or not be related to any business or profession of the taxpayer. This can be better analyzed with the help of an example. For example, A person who is engaged in transportation business, will use a bus to carry its passengers in that case, the bus will be considered as this capital asset.
✅ With accordance to the regulations provided under the Securities and Exchange Board of India Act, 1992 (SEBI) any securities held by a Foreign Institutional Investor that has been invested in such securities will also be considered as capital asset. Thus, the securities may not be considered as stock-in-trade.
Also learn; How to File ITR-2 for Capital Gains 2022-23
Illustration-1:
Mr. Singh bought a residential house for Rs, 90,00,000 in January 2017 and he sold the house for Rs. 96,00,000 in April 2020. In this case, the residential house will be considered as capital asset of Mr. Singh. Thus, the gain arising due to sale of residential house of Rs. 6,00,000 will be taxed under the income head "Capital Gains".
Illustration-2:
Mr. Khosla is engaged in Real Estate Business. He bought a flat to resale the same. He bought the flat for Rs. 90,00,000 in January 2019 and sold the same for Rs, 96,00,000 in April 2020. In this case Mr. Khosla is engaged in dealing properties was his normal day to day business. Thus, the flat bought by him will be considered as his stock in-trade. In simple words, the flat purchased by him is not a capital asset. Thus, the gain of Rs. 6,00,000 received due to sale of flat will be taxed under the income head "Income from Business and Profession" and not "Capital Gains".
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Publisher:HOW TO CALCULATE INCOME UNDER SALARIES
Sep 24,2021
How to Calculate Income Under Salaries
Income tax calculation under the head "Salaries"
Generally, Income from salary is total sum of the following
Basic Salary
House Rant Allowance (HRA)
Special Allowance
Transport Allowance
Any other Allowance
Some of the other components that are included under "Salaries" head are exempted from tax such as leave travel allowance, telephone bill reimbursement etc. In case, an individual receives HRA but is living on rent, then he can claim exemption on House Rent Allowance. With the use of HRA calculation, the exempted portion of HRA can be calculated.
Apart from these exemptions, in budget 2018, a standard deduction of Rs. 40,000 was introduced. However, the same increased to Rs. 50,000 in budget 2019. It is to be noted that if new tax regime is adopted, then the aforesaid exemption cannot be claimed.
Illustration
The income tax calculation under the current tax slab and new tax slabs can be better understandable with the help of an example. Jasmine is an employee of a organization located in Delhi. The following are the details of her compensation that she is getting every month;
Basic Salary: Rs. 1, 00,000 per month
House Rent Allowance: Rs 50,000 p.m
Special Allowance: Rs. 21,000 per month
Leave Travel Allowance: Rs 20,000 per annum
Jasmine a pays a rent of Rs 40,000 per month
Nature
Amount
Exemption/Deduction
Taxable(Old regime)
Taxable(New regime)
Basic Salary
12,00,000
-
12,00,000
12,00,000
HRA
6,00,000
3,60,000
2,40,000
6,00,000
Special Allowance
2,52,000
-
2,52,000
2,52,000
LTA
20,000
12,000 (bills submitted)
8,000
20,000
Standard Deduction
-
50,000
50,000
-
Gross Total Income from Salary
16,50,000
20,72,000
Apart from the above-mentioned income, Jasmine also receives the following incomes;
Interest from her savings account - Rs. 80000
Interest from fixed deposit - Rs. 12,000
Public provident Fund Investment - Rs. 50,000
LIC Premium Paid - Rs. 8,000
ELSS purchase - Rs 20,000 during the year
Medical Insurance Paid - Rs. 12,000
The following are the details of deductions that Jasmine can claim under old tax regime;
Nature
Maximum Deduction
Eligible investments/expenses
Amount Claimed
Section 80C
Rs.1,50,000
PPF deposit : Rs 50,000
ELSS investment : Rs 20,000,
LIC premium:Rs 8,000.
EPF deducted by employer (Jasmine’s contribution) = Rs 1,00,000 *12% *12 = 1,44,000
Rs, 1,50,000
Section 80D
Self :Rs 25,000 Parents: Rs 50,000
Medical insurance premium Rs 12,000
Rs, 12,000
Section 80TTA
10,000
Savings account interest 8,000
Rs. 8000
Calculation of Gross Taxable income (Old regime)
Nature
Amount
Income from Salary
16,50,000
Income from Other Sources
20,000
Gross Total Income
Deductions
80C
1,50,000
80D
12,000
80TTA
8,000
Gross Taxable Income
Total tax on above (including cess)
Calculation of Gross Taxable Income (New regime)
Nature
Amount
Income from Salary
20,72,000
Income from Other Sources
20,000
Gross Total Income
Total tax on above (including cess)
The Income tax of Jasmine under the new tax regime can be calculated as follows;
Up to Rs 2,50,000
Exempt from tax
Rs 2,50,000 to Rs 5,00,000
5% (5% of Rs 5,00,000 less Rs 2,50,000)
Rs 5,00,000 to Rs 7,50,000
10% (10% of Rs 7,50,000 less Rs 5,00,000)
Rs 7,50,000 to Rs 10,00,000
15% (15% of Rs 10,00,000 less Rs 7,50,000)
Rs 10,00,000 to Rs 12,50,000
20% (20% of Rs 12,50,000 less Rs 10,00,000)
Rs 12,50,000 to Rs 15,00,000
25% (25% of Rs 15,00,000 less Rs 12,50,000)
More than Rs Rs 15,00,000
30% (30% of Rs 20,92,000 less Rs 15,00,000)
Cess
4% of total tax (4% o12,500 + 25,500+ 37,500 + 50,000 + 62,500 + 1,77,600)
Total Income Tax
12,500 + 25,500+ 37,500 + 50,000 + 62,500 + 1,77,600 + 14,604
Exemptions/Deductions not Allowed under the new tax regime
The Individuals and/or Hindu Undivided Family opting for new tax regime under Section 115BAC of the Act are not eligible to get the below mentioned deductions/exemptions;
Clause (5) of Section 10 meant for Leave Travel Concession
Clause (13A) of section 10 meant for House rent allowance
Clause (14) of section 10 for some other Allowance
Clause (32) of section 10 meant for Allowance for the income of minor
Section 10AA meant for Exemption for SEZ unit
Section 32AD, 33AB, 33ABA meant for Deductions
Section 16 meant for Standard deduction, deduction for entertainment allowance and employment/professional tax
Clause (iia) of sub-section (1) of section 32 meant for Additional Depreciation
Section 24 meant for Interest under in respect of self-occupied or vacant property referred to in sub-section (2) of section 23
Losses incurred from house property income. It is to be noted that rented house are not eligible to be set off under any other income head that has to be carried forward as per law.
In case, an individual receives HRA but is living on rent, then he can claim exemption on House Rent Allowance. With the use of HRA calculation, the exempted portion of HRA can be calculated.
Publisher:OFFENCES AND PENALTIES UNDER INCOME TAX
Sep 27,2021
Offences and Penalties under Income Tax
Offences and Penalties:
A table containing the details of offences and penalties applicable under the provisions of Income Tax Act along with the latest amendment vide Finance Act, 2021 that are applicable for the Assessment Year 2022-23 and further are provided below:
Relevant Section
Default Name
Penalty imposable
(1)
(2)
(3)
140A(3)
Failure in paying partly or wholly
Any such amount as may be imposed by the Assessing Officer but not more than the tax in arrears
(a) self-assessment tax
(b) Fees and interest
(c) both Fees and Interest
section 140A(1)
158BFA(2)
While determining block period 's undisclosed income
Minimum : 100 % tax imposed on the income that are not disclosed
Maximum : 300 % tax imposed on the income that are not disclosed
221(1)
Tax Default
Any such amount as may be imposed by the Assessing Officer but not more than the tax in arrears
234E
When the taxpayer fails to file statement under section 200(3) with regard to section 206C(3)
Rs. 200 for every failure continued but not more than the deducted or collected tax
234F
Default while furnishing returns on income as provided under section 139(1)AB
Rs. 5,000 in case the return is filed after the specified due date under section 139(1). However , if the total income of the individual is not more thanRs. 5 lakhs then late filing charges of Rs. 1,000 will be applicable
234G
Fees deposited as a result of default in statement submission under section 35 as prescribed
Rs. 200 per day
234H
Fees deposited in case of default in intimation of Aadhaar Number
Maximum of Rs. 1,000
270A(1)
Mis-reporting or under-reporting of income
A amount equal to 50% of the tax payable on the under reported income.
In case the under report is due to misreporting by a person then the penalty will be 200% equal to the sum payable on under reported income
271(1)(b)
In case, a person fails to comply with the notice under section 115WD(2)/115WE(2)/ 142(1) or section 143(2) 142(2A)
Rs. 10,000 fixed penalty for each failure.
However, the aforesaid penalty will be imposed related to assessment for assessment years starting on or after 1st April 2017
271(4)
Distribution of profits by registered firms as mentioned in the partnership deed and due to the same partner has filed return lower than the real income
Not more than 150% of difference between the income of the partner and tax assessed and additional tax payable and tax on the income that are returned
However, the aforesaid penalty will be imposed related to assessment for assessment years starting on or after 1st April 2017
271A
Failing to maintain, keep or retains of documents as needed under section 44AA
Rs. 25,000
271AA(1)
Failing to maintain and keep information required under section 92D(1) or 92D(2)
2% of each value in respect of specified domestic transaction as well as international transaction provided
Failing to report of any such transaction
Maintenance or providing incorrect document or information
271AA(2)
Failing to furnish documents and information as prescribed under Section 92D(4)
Rs. 5,00,000/-
271AAA
In case there is initiation of search conducted prior to 1 July 2012 and undisclosed income found
10% of income that are not disclosed income
271AAB(1)
In case there is initiation of search conducted prior to 1 July 2012 and undisclosed income found
(a) 10% of income that are not disclosed as specified in the previous year if admitted by assessee.
Substantiates in the manner that was derived and on or prior to the specified payment of tax. Although the interest whereof furnished income tax return as specified in the previous year with declaration of incomes that are not disclosed earlier
(b) 10% of income that are not disclosed as specified in the previous year if admitted by assessee.
Substantiates in the manner that was derived and on or prior to the specified payment of tax. Although the interest whereof furnished income tax return as specified in the previous year with declaration of incomes that are not disclosed earlier
(c) 60% of income that are not disclosed in the specified previous year in case not covered by above point of (a) and (b)
271AAB(1A)
In case there is initiation of search conducted prior to 15 December 2016 and undisclosed income found
(a) 30% of of income that are not disclosed as specified in the previous year if admitted by assessee.
Substantiates in the manner that was derived and on or prior to the specified payment of tax. Although the interest whereof furnished income tax return as specified in the previous year with declaration of incomes that are not disclosed earlier
(b) 60% of income that are not disclosed as specified in previous year
271AAC
Determination of Income by Assessing Officer including the income as provided under section 68, 69, 69A, 69B, 69C or 69D for any previous year.
In case the incomes are not included by the assessee in ITR as per the provision of section 115BBE that are not paid
10% of tax payable under section 115BBE
271AAD
Penalty, in case of any proceeding under the Income Tax Act, it is revealed that the books of accounts are maintained by assesse is of;
Fake or false entry
Omission of any entry while computing tax liability of a person with regard to evasion of tax.
100% of any omitted and fake entry
271B
Fails to get the books of account audited under section 44AB
1/2 % of total sales, gross receipt or annual turnover or Rs. 1,50,000, which-ever is less
271BA
Fails to provide a report from an accountant as prescribed under section 92E
Rs. 1,00,000
271BB
Fails to subscribe the amount in respect of the units issued under section 88A(1)
20 % of such amount
271C
Fails to deduct TDS wholly or partly under sections 192 to 196D and if fails to pay wholly or partly tax under section 115-O(2) or second provision to section 194B
Sum equal to tax not paid or deducted
271CA
Fails collect TCS under Chapter XVII-BB
Sum equal to tax not collected
271D
Accepting loan or deposit or sum specified in contravention of the provision under section 269SS.
“Specified sum” refers to sum of money received whether it may be received in advance related to transfer of a immovable property, it does not matter if the transfer actually made or not
Sum equal to deposit or loan or sum specified or accepted
271DA
Receipt of a sum Rs. 2 lakh or more from a person in single day under section 269S
Sum equal to such receipt
271DB
Fails to provide facility for acceptance of payment by way of electronic modes of payment as prescribed under section 269SU
Rs. 5,000 rupees for each day of default
271E
Repayment of loan or deposit or sum specified in contravention of the provision under section 269T.
“Specified Advance” refers to sum of money received whether it may be received in advance related to transfer of a immovable property, it does not matter if the transfer actually made or not
Sum equal to deposit or loan or sum specified or accepted
271FA
Fails to furnish information annually as prescribed under section 285BA(1)
Rs. 500 per day of default
271FAA
Furnishing of incorrect or inaccurate information in the financial statement or reportable account
Rs. 50,000
Failure to furnish information in the annual return within specified in notice under section 285BA(5)
Rs. 1,000 per day of default
271FAB
Section 9A deals with the management of funds carried out by a eligible offshore fund investment by an eligible fund manager working on behalf of aforesaid fund will not constitute business transaction in India provided certain conditions gets fulfilled.
The provision needs that the investment fund will be furnished within a period of 90 days at the end of a financial year in respect of its business activity
In the prescribed format containing the details related to the fulfillment of the specified criteria and any documents or information as prescribed. Penalty will be imposed in case of failure of investment fund comply with the requirement.
Rs. 5,00,000
271G
Fails to furnish any document or information as needed by section 92D(3)
2% of the international transaction value
And certain domestic transaction for each failure
For more information, Visit us at: https://academy.tax4wealth.com/
Publisher:HOW TO CALCULATE INCOME UNDER HOUSE PROPERTY
Sep 30,2021
How to Calculate Income Under House Property
Introduction
The income that is earned from a property by the assessee is known as Income from House Property. If a individual owns a house and receives rental income is taxable. The actual rent received or notional rent is termed as annual value. However, if the assessee uses the house property for running a business or profession, it cannot be taxed as income from house property.
The following conditions must be fulfilled for an income to become Income from House Property;
If the building or house property or land attached to house
The owner of the property is the a taxpayer
The taxpayer must not use the house to run or engage any sort of business or profession
Terminologies Related to Income From House Property
The following are some of the terminologies that are related to income from house property;
Annual value:
It is the actual rent received by the owner of the property for renting out the property
Municipal value:
It is the value on house property as computed by the authorities of Municipal Corporation for imposition of municipal taxes.
Fair Rent Value
It is the rent that is similar property with similar characteristics in the same area of fetching.
Standard Rent
The determination of standard rent is done under the provisions of Rent Control Act that is fixed for any property. The property owner cannot charge higher rent than the fixed standard rent.
Gross Annual Value (GAV)
It is the highest of the following;
Rent received
Fair market value
Municipal Valuation
The Rent Control Act is applicable in case the Gross Annual Value is the highest of:
Standard Rent
Rent Received
Net Annual Value
Net Annual Value is computed as Gross Annual Value minus paid Municipal Taxes paid. In simple word, the formula is as follows;
Net Annual Value = Gross Annual Value - Municipal Taxes Paid
Deductions
Under Section 24 of the Income Tax Act, 1961, for ascertainment of actual taxable income, the taxpayer can claim the below mentioned deductions;
Standard Deduction
The taxpayer can claim 30% of the Net Asset Value as a deduction in respect of repairs and rent collection etc. irrespective of actual expenses incurred. The deduction is not permitted if the Gross Asset Value is Nil.
Interest on home loan:
Section 24 of the Income tax Act provides the provisions for deductions that can be claimed in respect of interest on home loan. The deduction limit under the aforesaid section is Rs 2 lakhs.
The following are the conditions that are associated while claiming exemption under tax on interest on home loan;
Loans must be availed after 1 April 1991 for construction or purchase of property
The claim can be made for existing construction, repair or reconstruction of property
Prepayment and processing charges will be considered as interest payment
The construction or purchase required to be completed within 3 years from ending of a financial year (the same year loan was availed)
Annual Value of Self Occupied House Property
If the house in which the taxpayer is residing is his only property that he/she owns. In that case annual value will be Nil. However, if he/she has more than one property, the all the purposes of occupation, then the property's annual value cannot be specified as Nil. The annual value of rest of the properties will be assessed as per the expected rent if the property is rented.
Calculation of Income from House Property
Gross Annual Value
XXX
Less: Municipal Taxes
(XXX)
Net Annual Value
XXX
Less: Deduction under Section 24
(XXX)
Standard Deduction @ 30%
(XXX)
Interest paid on Borrowed Loan
(XXX)
Income from House Property
XXX
Calculation of Income of Self Occupied & Let Out House Property
Type Of House Property
Self-Occupied
Let Out
Gross Annual Value
Nil
-
Less: Municipal Taxes or local authorities tax
Not applicable
-
Net Annual Value
Nil
-
Less: Standard Deduction
Not applicable
30% of NAV
Less: Interest on Housing Loan
Restricted to Rs. 2 lakhs
No limit
Income from House Property
XXX
(From FY 2017-18 restricted to Rs. 2 Lakhs)
Notes
Important Points for Computation of Income From House Property;
Basing on the NAV of the property, the tax of house property is calculated.
If the house of the assessee is vacant for a definite period of time and then later let out, the computation of Income from House Property should be done only for the rent received for that definite period and not for the whole year.
If the house of the assessee is vacant for a the entire year and he lives in another city due to his or her employment, but is still paying municipal taxes, then this can be set off against income from other sources during the same year.
