Investing a little time and thought into process of filing Income tax return (ITR) can allow you to claim deductions you might have missed, while submitting your investment declarations.
- Savings account interest: Your savings account is credited every quarter with interest on amount it holds at the end of quarter, this amount earned by you as interest is considered as part of your total income. However, the income tax (I-T) department, under Section 80TTA, allows exemption of up to INR 10,000 on this interest. Interest earned on post office savings will also be treated similarly.
- Rent exemption without HRA: Many taxpayers make payment towards house rent but can’t claim deductions if your salary package does not include house rent allowance (HRA) as its component. Under Section 80GG, you can avail of the exemption benefit for the rent, provided you are not eligible for any housing benefit. You will not stand eligible for this break if you, your spouse or child owns the house you accommodate in. The exemption is limited to the least of: actual rent paid less 10% of total income; or INR 5,000 per month; or 25% of total income.
- Exemptions for specified illnesses: Treatment of critical diseases like cancer, kidney failure or AIDS involves huge expenses, the income tax rules allow relief under Section 80DDB to tax-payers suffering from such diseases. Taxpayers can claim deductions if he / she suffers from any of the ailments viz. ataxia, full-blown AIDS, malignant cancers, dementia cholera, hemiballismus, thalassaemia, chronic kidney failure, parkinson’s disease, haemophilia, motor neuron disease, dystonia, aphasia.
They can claim a tax deduction of up to INR 40,000. If taxpayers is a senior citizen, the deduction can go up to INR 60,000 and the relief is enhanced to INR 80000, if the afflicted taxpayer happens to be a super senior citizen. However, if the expenses incurred on treatment of these critical ailments have been reimbursed by employers or through insurance policies, the taxpayers will not qualify for the deduction. If the reimbursement is partial, they will be eligible for the tax exemption on the balance amount.
- Ancillary charges on home loan: Home loan borrowers just know that the chief benefits of this loan are the tax benefits it offers on the principal repayment (Section 80C) and interest paid (Section 24). However, very few know that also the processing fee paid is treated as interest and can be claimed as deduction under Section 24. The processing fees and other ancillary charges are considered as interest and qualify as exemptions.
- Loans for down payments of house: Home loan-seekers often borrow from friends and relatives to arrange for the down payment. They either do not pay any interest on these loans or if they do, fail to claim deductions under Section 24, despite being eligible. Section 24 also covers interest paid on any loan taken for the purchase, renovation or reconstruction of a house. To claim exemptions, one should draw up a written loan agreement with the lender. The interest earned by the lender will be taxed as his income.
- Deduction for disabilities: If a Person suffers from 40% disability (as certified by a medical authority), he/she can claim a deduction of up to INR 75,000 under Section 80U. Expenses incurred in respect of a disabled dependent will fetch a deduction of INR 75,000 under Section 80DD. In both cases, if the disability is more than 80%, the permissible amount for deduction is INR 1.25 lakh. This is a flat deduction.
- Income of disabled child: If you make investments in the name of your spouse or minor child, the income earned from these investments is clubbed with your income under Section 64 and taxed as per the slab applicable to you. However, in case the child is disabled, income from investments made in his / her name will not be clubbed with the income of parents. The latter can use this provision to invest in taxable instruments like FDs and debt funds.
- Setting off losses: If your investments resulted in losses during the previous financial year, you can adjust some losses against capital gains from the sale of stocks, property, gold or debt funds. Short-term capital losses can be set off against both short-term capital gains as well as taxable long-term capital gains. Long term capital losses can only be set off against taxable long
term capital gains.
- Benefits for donations made: In most cases, deductions under Section 80G on donations made do not reflect in Form 16. So, you have to keep in mind that this exemption can be claimed while filing returns. Depending on where you have made contribution, you can claim a deduction of 50-100% of the donation made .But total deduction cannot exceed 10% of your total income. Cash donations are eligible for deduction if the amount exceeds INR 2,000
If you require any assistance in filing your personal income tax returns, corporate tax returns, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Visit: www.ajsh.in .
July 31st is the last day for filing an Income Tax Return (ITR). Most people regard this task as a burden, but filing an ITR filing of Return – on time is an extremely important tool to create your financial history. When you file your tax returns every year, you manage to maintain your financial record with the tax department. This financial / tax history is positively viewed and auspiciously utilized by most agencies with whom you may need to interact at times. It will help you to be in the good books of the financial institutions such as banks, Insurance companies, NBFCs etc. and also serves as a proof of income earned by an individual and total taxes paid.
It is always advisable to file one’s tax return even if the taxable income falls below the basic exemption threshold. Currently the limits are INR 2.5 lakhs for ordinary individuals, INR 3 lakhs for senior citizens and INR 5 lakhs for super senior citizens.
You can enjoy the following benefits if you file tax returns:
- ITR Receipt is an important document: Having an ITR receipt is important because it is more detailed than Form 16, entailing your income and taxation along with revenue from other sources.
- Use as address proof: If you have been filing your returns regularly, then the assessment order can act as a proof of residence.
- Easy loan or card processing: Being a diligent income tax filer makes it easier for banks to assess your financial position when you apply for loans like an auto loan, home loan etc. Providing a copy of ITRs receipts with your loan application make it easier for you to get approved it quickly.
- Compensate losses in the next financial year: Unless you file the ITR you will not be able to carry forward capital losses (short-term or long-term), if any, in a financial year to be adjusted against capital gains made in the following years. As per the income-tax provisions, if tax returns are not filed on time, unadjusted losses (with some exceptions) cannot be carried forward to subsequent years. A long-term capital loss in one year is allowed to be carried forward for eight consecutive years immediately succeeding the year in which the loss is incurred. Long-term capital loss can only be adjusted against a long-term capital gain in the following years. But short-term capital loss can be adjusted against long- as well as short-term capital gains.
- Hence, to ensure that the losses are carried forward for future adjustment, a tax return would be required to be filed within the due date (31st July) of the assessment year.
- Avoid paying additional interest: If you owe some taxes and still do not file your tax return, then you may be liable to pay additional interest u/s 234A at 1% per month on remaining tax payable by you. For instance, banks would deduct tax from interest on fixed deposits exceeding a certain limit.
- Avoid penalties or scrutiny from the tax department: From FY 2017-18, INR 10,000 would be imposed for not filing ITR. Also there could be prescribed penalties ranging from 50 to 200% in certain cases. This black mark on your financial history will remain for years to come.
- Credit card processing: Credit card companies also insist on having proof of return prior to issuing a card, so they can reject to issue you a credit card if you haven’t filed your ITR.
- For a hassle-free visa application procedure: If you are planning to immigrate to another country or exploring a high-paying overseas job opportunity, then prepare yourself well in advance.At times visa authorities ask for copies of past tax returns, therefore to apply for a visa a tax return would essential to be filed. Embassies, especially those of US, UK, Canada etc., require you to furnish the copies of your tax returns for the last couple of years at the time of the visa interview.
- To buy an insurance policy with a higher cover: Taking in consideration high cost of living, buying life cover of INR 50 lakh or INR 1 crore has become very usual from past few years. However, these covers are available against your ITR documents that verify annual income. “Life insurance companies ask to furnish ITR receipts if you opt to buy a term policy with sum insured of INR 50 lakh or more. If insurance providers have reasons (non-compliance) to believe that you are a tax-evader, they will not give you policies with more cover.
- Government tender: If one plans to start his business that require him to apply for a government tender or two, he will be need to present his tax return receipts of the previous five years. This again, is to show your financial position and whether you can meet the payment obligation or not. However, this is no strict rule. It may vary depending on the internal rules of the government department. Even the number of ITRs required can vary.
- Makes life easier for freelancers and independent professionals: Businessmen, consultants, partners of firm, freelancer or self-employed people don’t get Form16. This is the only document to prove that they have filed the ITR. Without this, they can face funding issues and transactional problems.
- High-value transactions: If you regularly file your ITR, then it will create a strong financial history and credibility. When you do any high-value transactions such as purchase or sale of property, buying a car, cash deposits in bank, investment in mutual funds, credit card bill payments, etc., by filing ITRs, one can report these transactions & substantiate the same as per one’s income.
If you require any assistance in filing your personal income tax returns, corporate tax returns, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Click Here.
ESOP refers to an option given to employees of a company to purchase shares of the company, in return of his dedicated services to the company, at a future date at a pre-determined price. Employees have to wait for a certain duration before they can exercise the right to purchase the shares. This duration is termed as vesting period.
It is a frequently used incentive system practiced by many organizations. It has been majorly used by start-up Firms. It is a common practice among organizations to reward employees excelling at their work by giving ESOPs as a part of the salary and ensure their long-term commitment towards the company.
ESOPs are normally given at a price which is less than the market price of the share of firm. Since most organizations have now made ESOP an integral component of the total CTC for an employee, it is essential to understand how ESOPs in India are going to be taxed. Majority of the employees assume that they don’t need to pay any tax when the ESOP shares are sold, since tax has already been deducted and deposited by their organization.
Taxability of ESOPs
According to the amended provisions of Sections 17 (2) (vi) and 49 (2AA) of the Income Tax Act of India, taxation of ESOPs is done twice.
- First, when an employee exercises his right for shares it is treated as a perquisite. When an employee exercises his option i.e. he wants to buy shares, the same are credited to his demat account. The Exercise Price (EP) at which an employee purchase the shares is lesser than their Fair Market Value (FMV) on the allotment date, sothe difference between fair market value and exercised price is treated as perquisite and taxed. This is reflected in Form 16 and Form12 B and treated as income from salary in the tax return.
- Second, when an employee sells shares, the proceeds from this sale are treated as capital gain. If the company is listed on an Indian stock exchange and shares are held for more than 12 months by the employee it will be considered as long-term capital gain and as per the latest tax regulations it will be taxed at 10%. If shares are held for less than 12 months, it will be considered as short-term capital gain and profit will be taxed at 15%.
These days start-ups and unlisted companies, the shares of which are not listed on the stock exchanges are also allotting ESOPs to their employees. These shares will be considered short-term assets if held for less than 24 months from the exercise date. If the shares are held for more than 24 months, and sold after this period, these are considered as long-term assets.
If the employee is selling shares in less than 24 months, income will be added to his taxable salary and tax levied would be according to the respective tax slab. If shares are sold after 24 months, then it would be considered as long-term capital gain taxed at 20% after indexation of cost.
It is good to own the shares and its better to also know what would be your net receivable in hand after taking into account the tax implications. In this our tax advisors having expertize in ESOPs taxation can guide you. For assistance click here.
Under the Income-tax Act, penalties are levied for various defaults committed by the taxpayer. Some of the penalties are mandatory and a few are at the discretion of the tax authorities. In this part, you can gain knowledge about the provisions relating to various penalties leviable under the Income-tax Act.
As per the Union List in the Constitution of India, the Central Government has the power to levy a tax on any income other than agricultural income, which is defined in Section 10(1) of the Income Tax Act, 1961, which is the charging statute of income tax in India. Income tax is the annual tax levies on the income of businesses and individuals, wherein businessmen and other individuals are required to file their income returns to the central government every year to determine the amount of tax they owe to the government. It is the key source of funding available to the government. As per the Income Tax laws in India, income tax is imposed by the government on,
- Hindu United Families (HUF)
- Companies and firms
- Limited Liability Partnership (LLP)
- Association of persons, a body of individuals
- Local authority and any other artificial juridical person
Tax evasion in India is a serious affair and for any defaulters or fraudsters, the Income-Tax act provides for adequate repercussions.
- Not Filing Income Tax Returns
- Failure to Pay Tax as Self-Assessment
- Failure to Comply with Demand Notice
- Failure to Get Accounts Audited
- Concealment of Income
- Failure to comply with Income Tax notice
The Income Tax Act exists to ensure tax defaulters and offenders are brought to light. Do not join this list, pay the correct tax on time.
If you have any query regarding this Click Here