To avoid last-minute hassles, it is always good to plan taxes and loans in advance.
Sep 15, 2017 06:29 PM IST | MoneyControl.com
In order to avoid any last minute hassles while filing your tax returns, you need to ensure that you plan your taxes in advance. If you have the right foresight and plan your loans and taxes properly, then you can surely save a lot of money.
Here are some key details on planning your taxes and loans…
There are a few components which can help in bringing down your tax liability. For this, you need to reallocate your salary. Like medical expenses which are reimbursed by the employer, certain food coupons, house rent allowance, leave and travel allowance etc., should be used efficiently to bring down your tax liability.
Proper use of tax exemption
There are several tax saving options under 80C and 80D. Under 80C, you have options like NSC, PPF, a premium of life insurance, 5-year FD with banks and post office etc. 80D includes premium paid in Mediclaim policies.
Your tax plan and financial plan must go hand in hand
Your tax-saving plan has to be in tandem with your financial plan. Opt for tax-saving options which will contribute to achieving your financial goal.
The loan factor
There are loans which can actually help in reducing your tax burden. So, you should ensure that you make use of this benefit to the maximum.
Exploiting the loan factor:
If you are planning to take a home loan for buying a home, then restructure it in the best possible way as it can give you tax benefits. Under Section 80C, the principal repayment of housing loan can give you a deduction of up to Rs 1,50,000 and under Section 24B, the interest paid on a housing loan can get you a deduction of up to Rs 2,00,000.
Now, if the home loan amount is huge, then it may cross the tax exemption limit. In such cases, you can opt for a joint loan with spouse or parents or siblings. This will help both the individuals to get the tax benefit. It, thus, becomes a useful tax-saving option for the entire family. It should be noted that stamp duty and registration charges that are paid while transferring the property are also eligible for income tax deduction under the Section 80C.
If you take a loan to buy a second home, then to you can get the advantage of tax deductions under Sections 80C and 24B. Under Section 80C, the principal loan amount will be considered and under Section 24B, the interest paid towards the loan will be considered.
Education loan can also be taken for self or for your spouse or children. You can get tax benefits if you take the loan from a scheduled bank or a notified financial company. You can easily claim a deduction for payment of interest. The tax benefits can be enjoyed for a maximum period of eight years or on the term of the loan repayment.
Personal loans also come with the tax advantage. Personal loans which are taken for renovating or repairing home are helpful. Personal loans taken to make down payment of home loan will also give you the advantage of tax benefit.
To sum up…
Thus, there are different ways and means of reducing your tax liability. Loans give you the dual advantage. They take care of your financial needs i.e., buying a home or higher education of your children and at the same time, they also give you the much needed tax-benefit. So, explore all the pros and cons of the various loans and use them to plan your taxes effectively.
The recommendation comes from the Special Investigation Team as part of its effort to clamp down on the use of black money in the economy
Indivjal Dhasmana | New Delhi | August 24, 2016 | Last Updated at 06:38 IST | Business Standard
The government is examining a recommendation by the special investigation team (SIT) to ban cash transactions of over Rs 3 lakh to clamp down on black money, the top Central Board of Direct Taxes (CBDT) official said on Tuesday.
Addressing an Assocham event, CBDT Chairperson Rani Singh Nair also favoured the proposal to advance the presentation of Union Budget to January, saying it will bring in “more efficiency” as the public expenditure will start from first day of the financial year. A key international tax official also said India-Singapore tax treaty would be broadly on the same lines as that with Mauritius, though there could be some minor differences. On banning cash transactions of over Rs 3 lakh, Nair said, “SIT recommendations are under consideration.” The income-tax department, she said, has already put a one per cent tax, to be collected at source (TCS), on cash transactions of over Rs 2 lakh. Quoting PAN is also mandatory for any mode of payment. “All these aspects are part of SIT recommendations to stop use of cash in the economy,” she said.
CBDT had earlier clarified that no tax would be collected at source when cash component of the payment for goods and services is less than Rs 2 lakh even if the total consideration is more than this amount.
The SIT, headed by retired judge M B Shah, last month submitted its fifth report to the Supreme Court on steps needed to curb black money. Noting that a large amount of unaccounted wealth is stored in cash, the SIT said: “Having considered the provisions which exist in this regard in various countries and also having considered various reports and observations of courts regarding cash transactions, the SIT felt that there is a need to put an upper limit to cash transactions.” It recommended a total ban on cash transactions of Rs 3 lakh and above and that “an Act be framed to declare such transactions as illegal and punishable under law”.
SIT had also suggested an upper limit of Rs 15 lakh on cash holding. In case any person or industry requires holding more cash, it may obtain necessary permission from the Commissioner of Income Tax of the area, it had recommended.
Nair said: “There has been a change in the mindset of young people…These young people don’t want to hoard money any more, something that has to be done if it is black. If they have money, they want to flaunt it. This is a change from the previous mindset of people hoarding black money.”
The chairperson also said that the goods and services tax would reduce generation of black money.
By Chandralekha Mukerji, ET Bureau | 16 May, 2016, 10.39AM IST | Economic Times
They may not figure in the Panama Papers , nor have wads of cash stuffed under their beds and investments in benami properties. But there are other reasons why small taxpayers can get into trouble with the tax authorities. “My mother is a senior citizen and has paid all her taxes. But she still got a notice for not filing her return for 2014-15,” says Mumbai-based marketing manager Arun Kapoor. Delhi-based finance professional Varun Sahay has received a notice for not deducting TDS when he bought a flat last year. “I had no idea that I was supposed to deduct 1% of the value of the house and deposit the amount with the government on behalf of the seller,” he says.
Once rare, such cases are now quite common. In recent months, the tax department has stepped up efforts to ensure tax compliance. New rules have been introduced to plug tax leaks and officials are cracking down on evasion. Tax records are being put under the scanner and notices are being sent to individuals if the computer-aided selection system notices a discrepancy. Thousands of taxpayers have already received tax notice ..
This week’s cover story looks at 10 common mistakes that can fetch you a notice from the tax department. Some of these mistakes are merely calculation errors that will result in a tax demand. But some others are serious transgressions that can invite penalties of up to 300% of the unpaid tax. We tell you where taxpayers are going wrong and the correct position on the matter. We also offer smart tips to help you avoid falling foul of the tax rules. We hope you will find this information useful. Individuals who manage their taxes on their own will find it particularly helpful.
1. Not reporting interest income
This is a common mistake. Interest income from fixed deposits , recurring deposits and even tax saving bank deposits and infrastructure bonds is fully taxable. Yet, 59% of the respondents to an online survey conducted by ET Wealth believed that interest income of up to Rs 10,000 a year is tax free. Actually, the tax exemption of Rs 10,000 a year under Sec 80TTA applies only to the interest earned on the balance in a savings bank account.
Another 6% of the respondents believed that no tax is payable if their bank has deducted TDS. These taxpayers don’t realise that TDS is only 10% of the income. If they fall in a higher tax slab, their liability would be higher. In our survey, almost 50% of the respondents who got this wrong have an annual income of over Rs 10 lakh. They pay 10% TDS even though they are supposed to shell out 30%.
Interest income often goes unreported in tax returns. In recent years, new rules have been introduced to plug this leak. Till two years ago, TDS kicked in when the interest from deposits made in one bank branch exceeded Rs 10,000 in a financial year. Investors used to split their deposits across bank branches to avoid TDS. Now TDS applies if the combined income from deposits in all branches of a bank exceeds the threshold. What’s more, TDS also applies to recurring deposits now.
In future, as banks start sharing data, TDS could be applied to deposits made across other banks as well. “The mechanism to track deposits across other banks already exists. If banks share the names and PANs of fixed deposit investors, lakhs of individuals could come in the tax net,” says M.K. Agrawal, Senior Partner, Mahesh K Agarwal & Co.
Smart tip: Calculate how much interest you will get on your FDs, RDs and other fixed income investments and add that to your income.
2. Ignoring income of old job
Every time an individual switches jobs , he is in danger of falling foul of the tax laws. This is because the new employer doesn’t take into account the income earned from the previous job and offers tax exemption and deduction to the employee all over again. Instead of Rs 2.5 lakh basic exemption and Rs 1.5 lakh deduction for tax saving investments under Section 80C, he gets Rs 5 lakh basic exemption and Rs 3 lakh deduction. Obviously, he will be paying much less tax than he ought to.
But this discrepancy won’t remain hidden for long and would eventually be discovered when the taxpayer files his return. The incomes in the two Form 16s would be added but he would get basic exemption and deduction only once. This also means a large tax payment at the time of filing returns because the duplicate benefits would be rolled back. The last date for paying the tax is 15 March. After this, if the unpaid tax exceeds Rs 10,000, there is a penal interest of 1% per month of delay. “The employee will have to pay the balance tax along with interest at the rate of 1% per month for delay,” says Vaibhav Sankla, Director, H&R Block.
This is a common problem faced by people who switch jobs without keeping an eye on their taxes. They are saddled with a huge tax liability when they sit down to file their tax returns in June-July.
Don’t think you can get away by not mentioning the income from the previous employer in your return. If some tax has been deducted on the income from the first employer, it will be reflected in your Form 26AS. So if you don’t report that income, the discrepancy will immediately get picked up by the computerised scrutiny system and you will get a tax notice.
Smart tip: Inform your new employer about income from previous job so that the TDS is cut accordingly.
3. Not filing tax returns
A lot of taxpayers, especially senior citizens such as Kapoor’s mother, have received notices for not filing their tax returns. Anybody with an income above the basic exemption is liable to file his tax return. The basic exemption is Rs 2.5 lakh per year for people below 60, Rs 3 lakh for senior citizens above 60 and Rs 5 lakh for very senior citizens above 80. The rest of us , including NRIs, have to comply.
Keep in mind that this is the gross income before any deductions and tax breaks. If your annual income is Rs 4.2 lakh and you invest Rs 1.5 lakh under Sec 80C, your tax will come down to zero. But you are still liable to file your tax return. Similarly, even if all your taxes are paid, you still need to file the return.
For a lot of people, confusion stems from a rule introduced four years ago, where salaried individuals with an income of up to Rs 5 lakh a year were exempted from filing returns. However, that rule has long been withdrawn. “Although the regulation was applicable only to that particular financial year, many people tend to still follow it,” says Archit Gupta, Founder and CEO of Cleartax.in.
Not filing returns is not a very serious offence if all your taxes are paid. You will only get a notice asking you to do the needful. The tax laws allow a taxpayer to file delayed returns even after the due date has passed. But if you have unpaid taxes, be ready to pay interest as well as a penalty of up to Rs 5,000.
Smart tip: Don’t miss filing your return even if your tax is zero or all your taxes are paid. File online to avoid mistakes.
4. Tax sops on house sold before 5 years
The government offers generous tax benefits to those who buy houses on loans. But if the buyer turns into a seller too early, some of these benefits are rolled back. If you sell the house within five years, the tax benefits availed of under Sec 80C for the principal repayment will get reversed.
This could mean a heavy tax liability if you have claimed deduction for the principal repayment of the home loan under Sec 80C. You won’t be able to keep this under wraps because the buyer may seek tax benefits on the same property. However, the deduction for the interest on the home loan under Sec 24 will not be rolled back.
Similarly, if you have ended a life insurance policy within three years of purchase, any tax deduction availed on the policy will be reversed. Not many taxpayers are aware of this rule about insurance policies. “No taxpayer is so honest as to report this in his ITR and pay additional tax for the previous years,” says a chartered accountant.
Smart tip: Wait for at least five years before selling a house or three years before ending a life insurance policy.
5. Misusing forms 15G, 15H to avoid TDS
As mentioned earlier, many investors try to avoid TDS by splitting their investments across different banks. Many others submit Form 15G or 15H so that their bank does not deduct TDS. These forms are declarations that the individual’s income for the year is below the taxable limit and therefore no TDS should be deducted from the interest.
However, misuse of these forms is a serious offence. “A false declaration not only attracts penalty but also prosecution. The taxpayer can be sentenced to jail for terms ranging from three months to two years,” says Sudhir Kaushik, Co-founder and CFO, Taxspanner.com. This doesn’t stop people from blindly filling the forms to escape TDS.
You need to meet two basic conditions to file form 15G. One, your taxable income for the year should not exceed the basic exemption of Rs 2.5 lakh. Two, the total interest received during the financial year should not exceed the basic exemption slab of Rs 2.5 lakh. “The total interest income includes interest from other sources as well, including PPF, NSCs and not just interest income from deposits,” says Sankla of H&R Block. Form 15H, which is for senior taxpayers above 60, imposes only the first condition. The final tax on the total annual income should be nil. So, senior citizens whose taxable income is below the Rs 3 lakh limit are eligible to file Form 15H. For very senior citizens above 80, this limit is Rs 5 lakh.
Though this is a standard practice, and investors take it lightly, don’t assume that the Form 15G and 15H will not get noticed by the taxman. “If TDS is not deducted because the person has filed Form 15G or 15H, it is separately shown in part A1 of the Form 26AS,” cautions Gupta of Cleartax.in.
Smart tip: File Forms 15G only if you fulfill both the conditions. TDS is an interim tax and you can claim a refund if you have paid more than due.
6. Not deducting TDS when buying property
Given that real estate investments involve a lot of unaccounted money, the government has extended the scope of TDS to property transactions as well. If you buy a house worth more than Rs 50 lakh, you have to deduct 1% TDS from the payment to the seller. In case the seller is an NRI , the TDS will be higher at 30%. This amount should be deposited with the government on behalf of the seller using Form 26QB. Delhibased Sahay had no idea of this rule when he bought a property in Noida last year. He now has to respond to a tax notice, and could even be slapped with a penalty of up to Rs 1 lakh.
The rule is applicable even if you pay in instalments. In such cases, the TDS needs to be deducted from each payment and the money deposited with the government within seven days.
While TDS deduction happens automatically when you buy a new property from a builder, in case of transactions between individuals, it is often ignored. Like Sahay, most buyers are unaware of the rule. Even if they are aware, they are not sure how to calculate the tax. “The TDS has to be calculated on the total sale price and not just the amount exceeding Rs 50 lakh. Many make this calculation error,” says Gupta. The total sale price is the amount payable and as registered in the sale agreement. It does not include stamp duty and brokerage.
Also, only the sale price has to be taken into consideration, not the circle rate of the property. If a property is valued at Rs 60 lakh based on the circle rate, but gets sold for less than Rs 50 lakh, the buyer need not deduct TDS.
Smart tip: Make it clear to the seller that you will be deducting 1% TDS from the payment. Make sure you have his correct PAN details.
7. Not reporting foreign assets
We usually don’t want to be alarmist but this is one area where taxpayers need to tread with caution. They can no longer afford to be unsure about their foreign income and assets. “There is a lot of exchange of information between countries and we will see an exponential rise in the number of notices being sent to taxpayers on this account,” says Tapati Ghose, Partner, Deloitte Haskins & Sells LLP.
Mis-reporting overseas assets will not be taken lightly by the government. You could be prosecuted under the Black Money Act and the penalty can be as high as Rs 10 lakh for even small errors. Experts say taxpayers who have worked abroad often go wrong when reporting their foreign assets. “The employee stock options is often acquired at no cost or be sold out during the year and therefore get missed when you take an account of your assets. Capital assets like jewellery often skips the mind as they do not generate any income. In fact, they may have been bought only as ornaments,” says Ghose.
Not just salary and perks, freelancers who receive money from foreign clients need to report this income under the foreign assets schedule. “This should also include gifts, which are deemed to be income,” says Ghose. Also, all foreign bank accounts—whether operational or not and even with a tiny balance—need to be reported. You even have to report bank accounts where you are merely a signing authority.
Smart tip: Start collecting details of your foreign assets much before the last date for filing returns.
8. Disregarding clubbing provisions
It’s quite common for taxpayers to invest in the name of non-working spouses or minor children. But though gifts made to a spouse or a minor child do not attract tax, if that money is invested the income it generates is clubbed with the income of the giver and taxed accordingly. So, if you bought a house in your wife’s name, any income from that house, whether as capital gains when you sell it or as rent, will be treated as your income.
Similarly, if a husband has invested in fixed deposits in the name of his wife, the interest will be taxed as his income. “It doesn’t matter whether your spouse’s income is below the basic exemption. the income from the investment will get clubbed to your income,” says ghose of deloitte.
The rules are slightly different in case of investments in the name of minor children (below 18 years). The earnings are treated as the income of the parent who earns more. However, the taxman has softened the tax blow by extending an exemption of Rs 1,500 a year per child up to a maximum of two children.
Parents who want to invest in the name of their children can go for tax-free options such as the Sukanya Samriddhi Yojana, PPF or tax-free bonds. Though the income will get clubbed, there will be no tax implication. Mutual funds also help bypass the clubbing provision because the tax liability is deferred indefinitely. If the child withdraws after 18, that income is his, not the parent’s.
Smart tip: Invest in tax-free options in spouse’s name. Invest the income in FDs or RDs. Income is clubbed but the income from income is not.
9. Not reporting tax-free income
This may not be a serious offence but a taxpayer is required to mention tax-free income in his return. Tax-free income includes interest earned on PPF, tax-free bonds, life insurance policies, capital gains from stocks and equity-oriented funds and gifts from specified relatives. “Even if you are not liable to pay any tax on these incomes, all your interest income, including savings bank interest, has to be reported in the ITR,” says Gupta of Cleartax.in. The taxpayer can then claim exemption for the same. While you may not receive a notice for not mentioning tax-free income, it will certainly create an inconsistency in your return.
Similarly, dividend income has to be reported in the ITR even though it is tax-free. This year’s Budget has proposed a tax on dividend income if it exceeds Rs 10 lakh. The new rule will impact HNIs who use dividend stripping strategies to earn tax-free income.
Smart tip: Mention all tax-free income in your ITR but claim exemption for it under various sections.
10. Spending, investing beyond means
We all know that reckless spending is not good for our financial health . But few people realise that spending too much can also lead to a tax notice. If your expenses or cash withdrawals exceed certain limits, your credit card company and your bank are supposed to report that to the tax department.
If these expenses are much beyond your reported income, the income tax department may send you a notice or pick up your case for scrutiny. “If cash transactions, including ATM withdrawals, exceed Rs 50 lakh in a year, a bank is supposed to report it,” says Minal Agarwal, Chartered Accountant and Partner, Mahesh K Agarwal & Company.
Similarly, if investments by an individual cross certain thresholds, mutual funds, banks and brokerages are supposed to inform the tax department. If you invest more than Rs 1 lakh in stocks, your broker will squeal on you. Invest over Rs 2 lakh in a mutual fund and your name gets into a list of high-value investors.
Buy bonds worth over Rs 5 lakh and you get noticed. Even the purchase of gold, which was till now a safe haven for unaccounted money, will require your PAN card details. If these purchases and investments don’t match your reported income, be ready for a tax notice. “The government is gradually getting to know all aspects of the individual’s financial life,” says Agarwal.
Smart tip: Avoid cash transactions as far as possible. If depositing cash in bank account, keep record of source of cash.
Got a notice? Take help from a tax expert
The first thing to do when you get a notice from the tax department is not to panic. Many notices are simply tax demands or for non-filing that can be dealt without a fuss. Only a scrutiny or reassessment notice is reason for worry. In such matters it is best to take the help of a qualified professional who knows how to respond to the notice. “Engaging a specialist would push up the compliance cost but it would ensure that the matter is skillfully handled. A chartered accountant would be better equipped to handle the situation and provide apt responses,” says a tax expert.
A new online tool launched by tax filing portal Cleartax.in will be useful here. If you have got a tax notice, the portal will help you resolve the case free of cost. All you have to do is quote your PAN number and upload the PDF file of the tax notice. The tax experts of Cleartax will examine the case and send you an e-mail within 1-2 hours explaining the steps you need to take.
If the notice relates to common issues such as TDS claims, non-filing of tax returns or verification of documents, the issue will be resolved within a day’s time. “More complex issues will have to be examined in detail and handled personally,” says Archit Gupta, Founder and CEO, ClearTax.in. If you need the further support from the site, you may have to shell out an advisory fee ranging from Rs 800 to Rs 1,600 depending on the complexity of the case.
Of late, the I-T department have been tightening their scrutiny and sending notices to taxpayers for a plethora of reasons. Apart from due taxes and penalties, the fines for not responding to these tax notices can be as as high as Rs 10,000.
Source : http://goo.gl/gkIq4Q
TNN | Mar 1, 2016, 04.36 AM IST | Times of India
Proposal (P): Increase the rate of surcharge on income exceeding Rs 1 crore to 15% from 12%.
Impact (I): This will raise the maximum marginal rate of tax to 35.54% from 34.61% on the ‘super-rich’.
P: Increase limit for tax rebate to Rs 5,000 from Rs 2,000 for resident individuals with a total income of up to Rs 5 lakh a year.
I: This will ensure an additional saving of Rs 3,090 for small taxpayers.
P: Raise deduction limit for rent paid by an individual who doesn’t have a house and isn’t entitled to HRA from the employer to Rs 60,000 pa from Rs 24,000 pa.
I: This will allow the individual to claim an additional deduction of Rs 36,000 pa, leading to a tax-saving of up to Rs 13,015.
P: Under the current provisions, dividend received by an individual from an Indian company is exempt from tax as dividend distribution tax (DDT) is already paid by the firm. It is proposed to charge the individual an additional tax at 10% on the dividend received in excess of Rs 10 lakh.
I: This will ensure that dividend earned by super-rich is also subject to tax in addition to the 15% DDT paid by Indian firms. The maximum effective tax that the dividends bear will be 32.21% (i.e. 20.36%+11.85%).
P: Make gains under the Sovereign Gold Bond Scheme, 2015, exempt from tax. Also, provide indexation benefit on transfer of the gold bonds.
I: This will give incentive for investing in gold bonds instead of the physical form.
P: For rupee-denominated bonds, give tax exemption to non-resident investors on gains arising from currency appreciation between the dates of issue and redemption.
I: This will attract non-resident investors to rupee-denominated bonds and help Indian companies raise funds abroad.
P: Don’t subject NRIs to higher rate of TDS due to unavailability of PAN if they fulfil certain conditions.
I: This will bring significant relief to NRIs.
P: Introduce e-assessment and do away with physical presence during tax hearings.
I: This will lead to an increase in paperless assessment and less face-to-face interaction between taxpayer and income-tax officers.
P: Increase the threshold limit for TDS in case of withdrawal of PF balances to Rs 50,000 from Rs 30,000.
I: Individuals with accumulated PF balances of up to Rs 50,000 will now not be subject to TDS on withdrawal.
P: Individuals with rental income less than the maximum amount not chargeable to tax should furnish Form 15G/15H for non-withholding of TDS.
I: This will bring huge relief to senior citizens and small taxpayers who have nil taxable income or income below the threshold limit but had to file I-T return to claim refunds of TDS deducted on rental income.
P: Include exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds to determine whether an individual is liable to file I-T return.
I: To determine the requirement for filing a tax return, long-term capital gains on sale of equity shares or equity-oriented mutual funds that are exempt from tax also need to be included. Also, individuals with only exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds will now be required to file return if the total exempt income exceeds the maximum amount not chargeable to tax (currently Rs 2.5 lakh).
P: Reduce the time-limit for filing of belated return to any time before the end of the assessment year or completion of assessment, whichever is earlier. However, allow a belated return to be revised within a year from the end of the relevant assessment year or completion of assessment, whichever is earlier.
I: This will reduce the time-limit for filing a belated return to one year from two years and encourage timely compliance. Revision of belated return will now be permitted, which was not possible earlier.
P: Amend advance tax payment schedule for individuals as (a) 15% of tax payable by June 15; (b) 45% of tax payable by September 15; (c) 75% of tax payable by December 15; and (d) 100% of tax payable by March 15.
I: This will increase the compliance burden.
P: Don’t subject to tax shares received by an individual in consequence of demerger or amalgamation of firms without adequate consideration.
I: This will bring uniformity in tax treatment of shares.
P: Exempt withdrawal in respect of contributions made on or after April 1, 2016, from a recognised provident fund and an approved superannuation fund, up to 40% of the accumulated balance.
I: This will increase the overall tax liability.
P: Exempt 40% of the total amount payable to individuals on closure/opting out of NPS.
I: Will reduce tax liability.
Source : http://goo.gl/tDeUEc
Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
By: PTI | New Delhi | Updated: Mar 1, 2016, 14:11 | Indian Express
Seeking to dispel fears of the salaried class, the government today said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.
In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016. “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”
Source : http://goo.gl/NPl6WJ
ALOK PATNIA Founder & CEO, Taxmantra.com | Dec 24, 2013, 04.23 PM | Source: Moneycontrol.com
Taxpayers with limited tax knowledge are bound to panic, but instead of panicking the right course of action should be to understand the reason for the notice and act accordingly.
The most common coffee discussion these days is about Income Tax Notices, it seems the IT department is in love with sending tax notices to tax payers for host of reasons, which were never heard off in past.
Usually notices sent are in relation to issues in the income tax returns filed. Notices can also be for initiating scrutiny or for opening of assessment of past years.
Taxpayers with limited tax knowledge are bound to panic, but instead of panicking the right course of action should be to understand the reason for the notice and act accordingly.
In this article we will discuss about different notices that may be served to small business and startups.
1.Notice under section 142(1):- Enquiry before assessment This notice is usually served to call upon documents and details from the tax payers, and this is basically done to take a particular case under assessment. By serving a notice u/s 142 (1) the assessing officer, in appropriate circumstances, may call upon the assessee:-
- To furnish a return of his income or the income of any other person in respect of which he is assessable, where he has not filed his return of income within the normal time allowed or before the end of the relevant assessment year.
- To produce or cause to be produced accounts or documents which the AO may require for the purpose of making an assessment under the Act.
- To furnish in writing any information on any point of matter including statement of the assessee Compliance with this notice u/s 142(1) is mandatory even if the tax payer is of the opinion that the accounts/documents requested are irrelevant.
2. Intimation under section 143(1):- Summary Assessment This is intimation cum notice for processing of income tax return filed. This intimation is usually received via email from centralized processing centre, Bangalore. The income tax return would be processed in the following manner:
- The total income or loss shall be computed after making adjustments with regard to any arithmetical error in the return or an incorrect claim, if such incorrect claim is apparent from any information in the return or, an incorrect claim apparent from any information in the return shall mean a claim, on the basis of an entry, in the return,
- The tax and interest, if any, would be computed on the basis of the total income computed, and the amount of refund due to the taxpayer would be determined.
- In case where no sum is payable or refundable and where no adjustment has been made, the acknowledgment of the return shall be deemed to be the intimation and no further intimation shall be sent.
3.Notice under section 143(2):- Regular Assessment This is a service of notice for regular assessment.. It is mandatory for carrying out scrutiny assessment. It can be served only if a return has been filed. It has to be served within the time limit of 6 months from the end of the Financial Year in which return of income is filed. It requires the assessee or his representative to be present before the AO on the desired day and time.
4. Notice under section 156 :- Notice of Demand Where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed, the AO shall serve upon the assessee a notice of demand, specifying the sum so payable.
The tax so demanded is payable, generally within 30days of the service of notice of demand, which may be reduced by the AO with prior approval of JCIT. In case of delay in payment of tax, the assessee shall be deemed to be in default and liable to pay simple interest u/s 220 (2) @ 1% for every month or part thereof from the end of the period allowed u/s 156, further penalty u/s 221(1) may be imposed.
5. Notice under section 139(9):- Defective return If the AO considers that the return filed by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within 15days from the date of such intimation or within such extended period as may be allowed by the AO. If the defect is not rectified within the aforesaid period, the return shall be considered as an invalid return and accordingly the assessee will be deemed to have furnished no return.
6. Notice under section 245:- Set off of refunds against tax remaining payable Where under any of the provisions of this Act, a refund is found to be due to any person, in lieu of payment of the refunded or any part of that amount, against the sum, if any, remaining payable under the Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.
Let say Mr. X filed his return of income for A.Y.2011 – 12 and the tax payable is Rs. 1000. Mr. X is unaware of this outstanding demand. Mr. X has filed his income tax return for A.Y.2012-13 and the refund is due to him Rs. 5000. Now while processing the income tax refund of Rs.5000 to Mr. X, the income tax department deducts the tax payable which is outstanding for A.Y. 2011-12 and will play the remaining Rs. 4000 to the assessee. But the department can do so, only after intimate the same to the assessee by giving intimation u/s 245.
7. Notice under section 147:- Income escaping assessment If the AO has reason to believe that any income chargeable to tax has escaped assessments, he may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
To initiate proceedings under 147 the AO is required to have a reason. This tangible reason should give him a belief that there is income which has expected assessment. The Supreme Court has clarified that the act nowhere states that the belief should ultimately culminate into escaped income in order to be valid reason.
To conclude – Getting notices are common these days and needs to be handled with proper care so that we don’t have any further problems. Startups should look to engage professional expert in this field so that they do not miss out anything and the matter can be handled with utmost care as these can be a barrier for growth of startup businesses.
Sakina Babwani | ET Bureau Aug 12, 2013, 08.00AM IST | Economic Times – ET Wealth
When it comes to transferring property, a sales deed may not always fit the bill, especially if you want to pass it on to relatives. In such cases, instruments like a gift deed or relinquishment deed can come to your rescue. However, blindly choosing either can lead to problems.
“You must understand the purpose of each document before getting it drafted. Know the benefits as well as drawbacks of each,” says Vaibhav Sankla, director, H&R Block. “These documents are designed to play a specific role in the transfer of property and, hence, it is important to consult a lawyer,” he adds.
This document allows you to gift your assets or transfer ownership without any exchange of money. To gift immovable property, you just have to draft the document on a stamp paper, have it attested by two witnesses and register it. Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid. Besides, such a transfer is irrevocable. Once the property is gifted, it belongs to the beneficiary and you cannot reverse the transfer or even ask for monetary compensation.
However, if you want to gift movable property like jewellery, registration is not compulsory. At the same time, a mere entry in an account book is not sufficient to establish a transfer. Apart from physically handing over the property, you need to back it with a gift deed. The process is slightly different if you are gifting company shares. You will have to fill out the share transfer form and submit it to the company or registrar, and the transfer agent of the firm. Once again, get a gift deed drawn and executed to complete the transfer, but the document need not be registered.
Advantages: The biggest benefit is that there is no tax implication if you are gifting property to certain relatives (see box). However, you still have to pay stamp duty, which can vary from 1-8% for immovable property, depending on the state in which the transfer takes place. If you are gifting property to a non-relative, the stamp duty would be higher at 5-11%. You have to pay this duty even in the case of movable property. Expect to shell out 2-8% in case of relatives, and 3-8% for non-relatives. For physical shares, the stamp duty is 0.25%, but if these are in the demat form, you don’t have to pay.
Limitations: Though a gift deed cannot be revoked, it can be challenged in court, coe rcion and fraud being the most common grou nds. So, if you have been tricked into gifting property, you can take the matter to court and have the transfer reversed. It can also be challenged on the grounds that the donor was not of sound mind or a minor. “You can never have a challenge-free gift deed, but consult a lawyer while drafting it so that the chances of it being challenged are minimum,” says Aakanksha Joshi, senior associate, Economic Laws Practice. Also, you cannot gift a property that’s held jointly.
This document is quite different from a gift deed, though the legal implications are the same. You can use this instrument if you want to transfer your rights in a particular property to another co-owner. Such a transfer is also irrevocable even if it is without any exchange of money. As with all documents related to the transfer of immovable property, a relinquishment deed needs to be signed by both parties and registered.
The stamp duty is similar to that for a gift deed. However there is no discount for relatives, nor are there any tax benefits. Also, both stamp duty and tax will be applicable only on the portion of the property that you relinquish, not on its total value. You can also use this deed to transfer movable property without registration, but it is typically used for immovable property.
Advantages: It allows seamless transfer of your share in a jointly-held property. “This document is most commonly used when a person dies without leaving behind a will and all siblings end up inheriting the property,” explains Joshi. Unlike a gift deed, you can draw the relinquishment deed for monetary consideration.
Limitations: There are no tax benefits, for as per the tax laws, the term ‘transfer’ includes relinquishment, not gift. Hence, when you are relinquishing property for monetary consideration, it will result in capital gains for the transferor. “If the consideration is less than the stamp duty value of the property, the difference between the stamp duty and the consideration will be taxed in the hands of the buyer,” says Sankla. If you relinquish it without any consideration, the stamp duty value of the property will be its sales price.