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Tax evasion vs tax avoidance: How are the two different?

 

Tax evasion and tax avoidance are distinct concepts, despite both aiming to minimise tax payments. Tax planning and avoidance employ legal strategies, whereas tax evasion is unlawful and can result in severe penalties.

 

 

Interpreting tax evasion

 

Tax evasion relies on deliberately deceiving tax authorities. This deceit can manifest in various ways, including:

 

 

  • Concealing income: Not disclosing all sources of earnings, such as cash received from a side business or unreported interest from investments.

 

  • Exaggerating deductions: Asserting deductions for costs that aren’t valid business expenses or claiming personal deductions for which you don’t qualify.

 

  • Submitting fraudulent tax returns: Filing a tax return with intentionally inaccurate information.

 

These deceitful actions are intended to unlawfully decrease a taxpayer’s tax obligation.

 

 

Section 276C of the Income Tax Act is the primary provision addressing tax evasion in India. This section specifies the penalties for individuals intentionally trying to evade taxes, which can range from imprisonment to fines. The magnitude of the penalty is determined by the amount of tax evaded. Additionally, tax evasion can result in legal complications under the Prevention of Money Laundering Act (PMLA), especially, when income concealment occurs through illicit methods.

 

 

Understanding tax avoidance

 

Tax avoidance centres on using legitimate strategies to reduce your tax liability. It utilises the structure of tax laws to your benefit. Section 80C of the Income Tax Act serves as an ideal illustration, permitting deductions for certain investments and promoting tax-efficient planning. As long as your approaches adhere to the Income Tax Act and avoid any fraudulent actions, tax avoidance is entirely legal and acceptable.

 

 

Some common tax avoidance strategies include:

 

 

  • Optimising deductions: This entails claiming all the deductions permitted under the Income Tax Act that you qualify for. Examples include deductions for medical costs, charitable donations, and specific investment expenses.

 

  • Using tax-advantaged accounts: Investing in retirement accounts such as the Public Provident Fund (PPF) or the National Pension System (NPS) enables deductions from your taxable income.

 

  • Benefiting from tax credits: Some tax credits, such as education credits, can directly decrease the tax amount you owe.

 

Tax avoidance, although legal, can present a complex issue with ethical implications. Here’s why:

 

 

  • Equity: Some contend that aggressive tax avoidance tactics, especially by large corporations or affluent individuals, can compromise the fairness of the tax system. They advocate for everyone to contribute equitably to support public services.

 

  • Intent vs literal interpretation of the law: Tax avoidance frequently utilises legal loopholes or capitalises on technical aspects of the law. While permissible, it may be viewed as unethical when it contradicts the intended purpose or spirit of the law.

 

  • Societal consequences: Diminished tax revenue resulting from widespread avoidance can curtail the government’s capacity to finance crucial social programs and infrastructure.

 

Globalisation has paved the way for international tax planning, which can be an intricate yet lawful strategy for multinational corporations. Here’s how international tax planning plays a role in tax avoidance:

 

 

  • Tax treaties: These are agreements between nations designed to prevent double taxation and tax evasion. Companies can utilise these treaties to manage tax implications when operating across borders.

 

  • Transfer pricing: This pertains to the pricing of goods and services exchanged between related companies in various countries. Companies can employ transfer pricing tactics to allocate profits to jurisdictions with lower taxes, thereby lowering their overall tax liability.

It’s crucial to differentiate between tax avoidance, which utilises legal methods to reduce tax liabilities, and tax evasion, which involves intentionally deceiving tax authorities. Tax evasion is prohibited under Section 276C of the Income Tax Act and could activate provisions of the PMLA. Tax avoidance or tax planning, when carried out within legal limits, is acceptable.

 

Source- Livemint

Has your income tax slab changed from today? Finance Ministry says this

 

The Finance Ministry has issued a clarification amidst the dissemination of misleading information on social media platforms regarding the new tax regime. It emphasizes that there are no new changes taking effect from April 1, 2024. Taxpayers have the flexibility to choose between the old and new tax regimes based on their preferences and financial circumstances, with the option to opt out of the new regime until filing their return for Assessment Year 2024-25. Eligible individuals without business income can alternate between the old and new regimes for each financial year.

 

On the social media platform, the Finance Ministry posted: “It has come to notice that misleading information related to the new income tax regime is being spread on some social media platforms. It is therefore clarified that:

 

1)There is no new change which is coming in from 01.04.2024.

 

2)The new tax regime under section 115BAC(1A) was introduced in the Finance Act 2023, as compared to the existing old regime (without exemptions) (SEE TABLE BELOW)

 

3)The new tax regime is applicable for persons other than companies and firms, is applicable as a default regime from the Financial Year 2023-24 and the Assessment Year corresponding to this is AY 2024-25.

 

4)Under the new tax regime, the tax rates are significantly lower, though the benefit of various exemptions and deductions (other than the standard deduction of Rs. 50,000 from salary and Rs. 15,000 from family pension) is not available, as in the old regime.

 

5)The new tax regime is the default tax regime, however, taxpayers can choose the tax regime (old or new) that they think is beneficial to them.

 

6)The option for opting out from the new tax regime is available till the filing of return for the AY 2024-25. Eligible persons without any business income will have the option to choose the regime for each financial year. So, they can choose a new tax regime in one financial year and an old tax regime in another year and vice versa.

 

 

Income tax slabs as per the new tax regime are as follows

 

Income from ₹0 to ₹3,00,000: 0% tax rate

Income from ₹3,00,001 to ₹6,00,000: 5%

Income from ₹6,00,001 to ₹9,00,000: 10%

Income from ₹9,00,001 to ₹12,00,000: 15%

Income from ₹12,00,001 to ₹15,00,001: 20%

Income above ₹15,00,000: 30%

 

 

Old regime tax slabs

 

1) Income up to ₹2.5 is exempt from taxation under the old tax regime.

2) Income between ₹2.5 to ₹5 lakh is taxed at the rate of 5 per cent under the old tax regime.

3) Personal income from ₹5 lakh to ₹10 lakh is taxed at a rate of 20 per cent in the old regime

4) Under the old regime personal income above ₹10 lakh is taxed at a rate of 30 per cent.

 

Source- Livemint

Tax harvesting can help you save tax. Should you do it?

 

Did you know profit from equity investments over 12 months old are taxed at 10 per cent? However, gains up to Rs 1 lakh are exempt.

 

That means if you have a Rs 5 lakh investment and the gain is Rs 1 lakh or below, you can withdraw your investment without paying tax. This is only if your investment is at least a year old.

 

What is tax harvesting?

 

The above example is a type of tax harvesting.

 

Basically, if your investment gains are within the Rs 1 lakh limit, you can sell your investment, realise the gain, and reinvest without paying taxes. This strategy allows you to escape tax.

 

Is it worth it?

 

Not really. Because you are saving only a small amount in tax (Rs 10,000 on Rs 1 lakh gain) each year.

 

This hassle of selling and reinvesting each year may not be worth it, especially for long-term investors. In fact, for larger investors, the savings are even more minute.

 

We analysed the strategy in greater detail in one of our stories. During the number crunching, we found that an investor who followed tax harvesting each year earned just 0.29 per cent higher post-tax returns than an investor who didn’t.

 

Are there other issues?

 

It takes T+2 days (2 working days; not counting the day of the withdrawal request) for the investment money to be transferred to our bank account. But what if the NAV of the mutual fund sees a significant jump in that period? You’ll miss out on that opportunity.

 

To conclude, the result doesn’t justify the effort, especially for an investor with a bigger investment corpus.

 

Source- Valueresearchonline

Will I be taxed twice for protecting the money needed to reach my long-term goal?

 

Most of my money is in equities. Now, if three years before retirement, I move it to a debt fund, I believe I will have to pay capital gains tax as the gains are likely to be more than the basic exemption limit of Rs 1 lakh. But then later, will I be taxed again if I set up a Systematic Withdrawal Plan (SWP) from the liquid fund to my bank account? – Anonymous

 

Yes. The realised capital gains will be taxed in both instances.

 

However, paying capital gains tax in both instances does not mean paying twice the taxes. In fact, in each instance, only the gains for the relevant holding period are taxed.

 

In addition, it always makes sense to switch your money from equity to a fixed-income option two-three years before reaching your long-term goal. That’s because equity is capable of throwing nasty surprises over shorter periods.

 

Therefore, as you come closer to the goal, it is important to move your money to a less volatile asset class (fixed-income) in a systematic manner.

 

This is where an SWP (systematic withdrawal plan) can be useful. Diverting your money from equity funds to a fixed-income fund through SWP reduces the risk of exiting at a market low.

 

Source- Valueresearchonline

Budget 2024: Tax exemption deadline extended by one year for these categories

 

The interim budget has maintained the existing tax rates while extending income tax benefits by a year in three significant areas: startups, Indian branches of foreign banks located in GIFT City (Gandhinagar, Gujarat), and sovereign funds as well as foreign pension funds.

 

 

Startups

 

The tax exemption under Section 80-IAC has been extended until March 31, 2025, with a one-year extension.

 

Startups that have had a turnover of less than ₹100 crore in any of the preceding financial years qualify for a three-year tax holiday at any point within the initial ten years of their establishment. To be eligible, the startup must be registered as a private limited company or a partnership firm, or a limited liability partnership. Additionally, it should be actively engaged in innovation, development, or enhancement of products, processes, or services. Alternatively, it should demonstrate a scalable business model with significant potential for employment generation or wealth creation. Importantly, the startup should not have been formed by dividing or reconstructing an existing business.

 

 

Startups that were established on or before March 31, 2023, were entitled to a three-year tax holiday under Section 80-IAC of the Income Tax Act, 1961. The deadline for incorporation has now been extended by one year. Consequently, startups incorporated on or before March 31, 2025, are now eligible for this benefit. This extension creates a one-year opportunity for recently formed startups to take advantage of the tax relief, potentially fostering additional entrepreneurship and business development within the specified timeframe.

 

 

IFSCs

 

Tax exemption for International Financial Services Centre units under Sections 10(4D) and 10(4F) has been prolonged by one year, now applicable until March 31, 2025.

 

 

The role of the International Financial Services Centres Authority (IFSCA) is pivotal in the advancement of GIFT City as a prominent global financial hub. Established in 2020, IFSCA serves as the consolidated regulator for financial entities operating within GIFT City in Gandhinagar, Gujarat. Noteworthy tax benefits are extended to entities within the IFSC, including:

 

 

Derivative contracts issued by Foreign Portfolio Investors (FPIs) within GIFT City and overseen by the IFSCA are officially acknowledged as valid legal contracts. This legalization essentially permits the use of specific financial instruments, such as Participatory Notes (P-notes), allowing foreign investors to indirectly access Indian securities. The Indian branches of foreign banks situated in GIFT City are now authorized to utilize these Offshore Derivative Contracts (ODCs) for investments in the Indian stock market.

 

 

Entities in GIFT City qualify for a ten-year tax exemption out of a total of fifteen consecutive years. In the previous year’s budget, the period allowed for transferring funds from other countries into GIFT City was prolonged by two years. This time, it has been extended even further.

 

 

An equivalent one-year extension has been granted to airline leasing finance companies intending to relocate their base to GIFT City.

 

 

Sovereign wealth funds and pension funds

 

Tax exemption for Sovereign Wealth Funds and Pension Funds under Section 10(23FE) has been prolonged by one year, now applicable until March 31, 2025.

 

 

Sovereign wealth funds and pension funds (specified funds) are eligible for a tax exemption on the interests, profits, and dividends earned by their units in GIFT City from investments made between April 2020 and March 2024.

 

 

The tax exemption offered to sovereign wealth funds and pension funds in GIFT City serves as a compelling incentive to attract foreign investment. This tax relief has the potential to enhance GIFT City’s appeal to these funds, fostering greater foreign investment in India. This, in turn, can contribute to the growth of GIFT City as a global financial hub, positively impacting the Indian economy by promoting job creation and infrastructure development.

 

Source- Livemint

Tax-saving mutual funds and Section 80C: Why lock-in is good news

 

Despite 2023 being such a good year for equities and equity mutual funds, Equity-Linked Tax Savings Schemes (ELSS), or tax-saving mutual funds, got minuscule inflows. The Nifty Midcap index returned nearly 40 percent. The Nifty 100 Index returned nearly 18 percent. Mid-cap funds got a net inflow (more money came in than went out) of Rs 21,520 crore. Small-cap funds got net inflows of Rs 37,178 crore.

 

But ELSS got a net inflow of just Rs 3,773 crore in 2023. Presumably, the culprit is the 3-year lock-in that comes mandatory with all ELSS funds.

 

Curiously, many investors who dip their toes into equity markets come across acquaintances who sagely convey some variant of the following beliefs…

 

“Equities will only benefit you in case you hold them for several years”

 

“Time in the market trumps timing the market”

 

“Do not be perturbed by short-term stock market fluctuations… as these smoothen out over time”

 

“While investing, beware of greed and fear”.

 

Warren Buffett, that doyen of investing, has also alluded to the virtues of long-term investing when he quipped: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”.

 

It may also be an apt moment to recall Blaise Pascal, who remarked, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

 

So why are we suddenly recounting all these lessons?

 

Many of these investors say they ardently believe in long-term investing. However, they seem to be averse to walking the talk.

 

It seems that investors understand that needless activity in their portfolios is undesirable, and yet hesitate to invest in an option which helps them avoid such needless activity.

 

There are others, who are open to investing, but only up to the amount of income tax benefit available u/s 80C of the Income Tax Act, 1961, which currently is Rs 1.50 lakh. A distaste for ‘lock-in’ may result in investors under-investing in a scheme which may actually be suitable as well as beneficial to them.

 

This could result in a missed opportunity, especially if the ELSS in question has been performing well over the long term.

 

Viewing ELSS through the lens of its wealth creation potential (akin to that of any other non-ELSS equity scheme) may motivate us to think beyond the immediate income tax benefit which they confer.

 

I have noticed that these same investors unhesitatingly choose options with longer lock-ins so long as they are ‘safe’. This includes tax-saving Bank Fixed Deposits, Government Small Savings Schemes, etc. Many of these entail lock-ins of five or more years. Besides, the upside is fixed – as they usually offer a fixed rate of interest. Hence, the scope for wealth creation is limited.

 

Is too much transparency killing ELSS?

I have been dwelling on this paradox and I think that sometimes the transparency offered by markets and mutual funds may work against the tendency to remain inactive. Constant stimulus in the form of real-time prices, publication of Net Asset Values (NAVs) on a daily basis, talking heads on TV, social media influencers, etc, perpetuate the desire ‘to do something’.

 

Why lock-in helps

The Law of the Farm states that we cannot sow something today and reap it tomorrow. A realisation that all good things take time is the first step towards wealth creation.

 

The concept of investing broadly involves sacrificing spending today in order to accumulate wealth tomorrow.

 

Wealth accumulation involves two aspects

 

1) Consistent addition to the corpus

 

2) A continuous compounding of this corpus.

 

Compounding is interrupted if we constantly tinker with the process.

 

Lock-ins help ensure that we are constrained from doing so.

 

My suggestion is do not get repelled by the mandatory lock-in of three years, in an ELSS. “Lock In Accha Hai”.

 

Source- Moneycontrol

Union Budget 2024: Will FM Sitharaman address the complexities in India’s tax system?

 

Budget news: India’s indirect tax landscape stands at a critical juncture, calling for sweeping policy changes that can propel economic growth and foster a more business-friendly environment. The Goods and Services Tax (GST) has been pivotal in India’s tax reform journey, while ever-evolving, it requires further refinement and adaptation to address the evolving needs of businesses. One key area of concern is the complexity of the current GST structure, which often leads to confusion and compliance challenges for businesses.

 

To begin with, a significant change that the industry is eagerly anticipating is the inclusion of petroleum products and real estate under the GST ambit. As of now, these sectors remain outside the purview of GST, leading to a fragmented tax system. Bringing them into the GST fold would not only simplify the tax structure but also promote transparency and reduce the cascading effect of taxes.

 

 

Tax rationalisation

 

The issue of tax rate rationalisation is yet another area that demands attention. While GST was envisioned as a single tax rate regime, the current structure comprises multiple tax slabs. Simplifying and rationalising these rates can reduce classification disputes, improve compliance, and enhance the ease of doing business. A comprehensive review of the existing rates, considering the revenue implications and industry feedback, is essential for creating a more harmonised tax structure. This move aligns with the government’s vision of ‘One Nation, One Tax,’ providing a more cohesive and integrated tax framework.

 

Another crucial aspect of GST that demands attention is the inverted duty structure. Certain sectors face a scenario where the input tax credit exceeds the output tax liability, resulting in accumulated credits and financial stress for businesses. Rectifying this anomaly by revising rates or providing alternative mechanisms for credit utilisation can enhance the efficiency of the GST system.

 

Additionally, the implementation of an e-invoicing system has been a significant step towards digitisation and automation in the GST regime. Expanding the scope of e-invoicing to include all businesses may further streamline the tax administration process, reduce errors, and enhance data accuracy. It also aligns with the broader digital transformation agenda, promoting a technologically advanced tax ecosystem.

 

GST compliance

 

In the realm of GST compliance, the introduction of a simplified return filing system has been a positive development. However, there is room for further improvement. Businesses often grapple with the complexity of return filing, and a user-friendly, intuitive interface can go a long way in easing the compliance burden. Moreover, incorporating advanced data analytics and artificial intelligence in the GST network can help tax authorities identify potential tax evasion and streamline the audit process.

 

The Production-Linked Incentive (PLI) scheme has been a flagship initiative to boost manufacturing in India but aligning it with indirect tax policies is essential for its effectiveness. Integrating the PLI scheme with GST can help businesses seamlessly claim incentives and foster a conducive environment for manufacturing growth. Clarity on the tax treatment of incentives received under PLI would provide certainty to businesses and encourage investments in strategic sectors. Furthermore, extension of existing schemes as well as inclusion of new sectors would certainly help in promoting Government’s ‘make in India’ initiative.

 

Foreign trade policy plays a pivotal role in India’s economic landscape. Aligning indirect tax policies with the foreign trade policy can enhance export competitiveness and attract foreign investments. Simplifying export procedures, providing quicker GST refunds, and ensuring a hassle-free movement of goods across borders are essential elements to strengthen India’s position in the global market.

 

One of the key demands from the industry is the implementation of the ‘faceless assessment’ mechanism in indirect tax administration. This initiative, which has been successfully introduced in direct taxes, aims to reduce interface between taxpayers and tax authorities, minimising the scope for discretion and corruption. Extending this concept to indirect taxes can further enhance transparency, reduce compliance costs, and instill confidence in businesses.

 

On the international front, aligning India’s indirect tax laws with global standards is imperative. With the rise of digital transactions and e-commerce, revisiting the taxation of digital goods and services becomes essential. Adopting measures such as the Equalisation Levy on digital transactions is a step in the right direction, but a comprehensive and internationally aligned approach is necessary to address the complexities of the digital economy. Furthermore, the inclusion of environmental considerations in indirect tax policies can promote sustainable practices. Introducing green taxes or incentives for eco-friendly practices, benefits for sectors promoting same, can align with global efforts towards environmental conservation while encouraging businesses to adopt environmentally responsible practices.

 

In conclusion, the indirect tax landscape in India may require a holistic tweaking to meet the evolving needs of businesses and promote economic growth. From further refining GST framework to aligning with the PLI scheme, foreign trade policy, and embracing digital transformation, the path ahead is multifaceted. A collaborative approach involving industry stakeholders, tax experts, and policymakers in crafting tax policy may not only fosters economic growth but also showcase the government’s intent at creating a fair, transparent structure.

 

The time is ripe for India to embrace these policy changes and position itself as a dynamic and competitive player in the global economic arena.

 

BUDGET FAQs

 

What is indirect tax?


Indirect tax is a tax imposed on the consumption of goods and services, not directly on an individual’s income but added to the price of the goods or services purchased.

 

What is GST


The Goods and Services Tax is abbreviated as GST. In India, it is an indirect tax that has taken the place of numerous other indirect taxes, including services tax, VAT, and excise duty.

 

When will the Budget be announced?


FM Nirmala Sitharaman will announce the Union Budget on February 1, 2024

 

Source- Economictimes

Four ways to save tax on long-term capital gains

 

The reintroduction of long-term capital gains tax of 10 per cent on stocks and equity funds prompted investors to look for ways to reduce their tax liability. So, we show you four methods to reduce tax on your long-term gains made from equity and equity-oriented investments.

 

Use the Rs 1 lakh exemption wisely

 

Investors are allowed a basic exemption of Rs 1 lakh every year on long-term capital gains (LTCG) from the sale of equity shares or equity-oriented fund units.

 

So, if you don’t need to withdraw all your investments at once, consider spreading out your withdrawals over multiple financial years. This way, you can reduce your tax liability.

 

For example: Let’s say you have Rs 2 lakh long-term gains from equity shares. You can cash out Rs 1 lakh in a given year to reduce your tax liability. Try to wait until the next financial year to redeem the remaining Rs 1 lakh to avoid tax on it. If you cash out all at once, you’ll owe Rs 10,000 in taxes [(2 lakh – 1 lakh)*10 per cent].

 

Consider loss realisation

 

Long-term capital gains can be used to set off both short-term and long-term capital losses . If your long-term capital gains, after applying the basic exemption, exceed Rs 1 lakh, consider setting off some losses at the end of the year. This will effectively reduce your tax liability.

 

For instance, imagine you have long-term capital gains of Rs 1.4 lakh and capital losses of Rs 40,000. In such a case, you have to pay taxes on LTCG, as shown in the below table. But if you choose to set off the losses against the gains, you won’t owe any taxes. See the table below.

 

 

Choose the right investment products

 

To reduce capital gains tax, your investment choices matter. For a debt-heavy portfolio, opt for products with debt-like features, like equity savings funds , which are taxed favourably like equities. Avoid investing directly in debt or debt-oriented funds, as they incur higher taxes (especially burdensome if you’re in a tax bracket over 20 per cent).

 

For a mixed portfolio of debt and equity, both face different tax treatments. Consider switching to equity-oriented hybrid funds, which offer exposure to both asset classes with tax treatment similar to equities. For a 60 per cent equity and 40 per cent debt portfolio, equity hybrid funds with over 65 per cent allocation to equity can help you maintain a lower 10 per cent tax rate on your gains.

 

Section 54F (for house purchase)

 

While not applicable to everyone, if you happen to be planning to build a new house or invest in a house property, then Section 54F can assist in minimising your capital gains tax. Here’s how:

 

Step 1: Sell a non-property asset (can be anything like stock investment or gold sale)

 

Step 2: Use the long-term capital gains to:

 

  • Buy a home (ensure you purchase it a year before or within two years after you have sold that non-property asset)

 

  • Construct a home (ensure you build the home within three years of selling the non-property asset)

 

Please note that starting from April 1, 2023, the maximum exemption limit under this section is capped at Rs 10 crore.

 

These are some smart ways to efficiently reduce your tax burden on long-term capital gains. Choose the option that suits your needs to ensure you don’t pay unnecessary high taxes. Remember, money you save is money you earn!

 

 

Source- Valueresearchonline

Know about Section 195 – Income Tax for NRIs in India

 

The law says that if you earn income, you must pay income tax. But if you do not fall in the tax bracket or have paid excess tax, the Government will refund you, but that will come later; after you have paid income tax.

 

One mechanism that the Government has in place to ensure tax payment and curb evasion is TDS or Tax Deducted at Source. It is a basic form of income-tax collection; you may have seen such deductions reflected in your salary slip. TDS is also applicable on a range of income types, including interests earned and commissions received.

 

The Income-Tax Act, 1961 has specific sections to address the issue of TDS for different types of earnings – Salary (Section 192), Securities (Section 193), Dividends (Section 194), interest other than interest on Securities (Section 194A), lottery wins (Section 194B) and even prize money on horse racing (Section 194BB).

 

And then there is Section 195.

 

The NRI Tax

 

Section 195 spells out the tax rates and deductions on payments made to Non-Resident Indians (NRIs), who are required to file tax returns in India for income received or accruing or arising in India or deemed to accrue or arise in India. But this can be a tricky area. For example, TDS does not come into play when a Mutual Debt Fund pays up the proceeds of redemption to a Resident Indian, but it does not mean an NRI is exempted. This is where Section 195 comes into play – it identifies the key areas pertaining to tax for NRIs.

 

 

As is done with Resident Indians, the deduction is to be made at the time of crediting or making a payment, whichever event occurs earlier; this includes crediting in Suspense Accounts or any other account where the payment is credited.

 

 

While, Section 195 does not prescribe any threshold limit, and the TDS amount has to be computed on the entire amount payable. The onus of making the deduction falls on the payer – i.e. anyone making the payment to an NRI, irrespective of whether the entity is an individual or a company/organisation.

 

 

TDS Rates

 

What this means is that the payer needs to be aware of TDS rates under Section 195:

 

  • Income from investments: 20%
  • Long-term capital gains in Section 115E: 10%
  • Income by way of long-term capital gains: 10%
  • Short-term capital gains (as per Section 111A): 15%
  • Any other income by way of long-term capital gains: 20%
  • Interest payable on money borrowed in foreign currency: 20%
  • Royalty from Government/Indian concern: 10%
  • Other royalties received: 10%
  • Fees for technical services from Government/Indian concern: 10%
  • Any other income (e.g. rent on property owned): 30%

 

Surcharge and education cess, which must be statutorily added at the prescribed rate, can be ignored if payment is made as per the Double Tax Avoidance Agreement (DTAA).

 

 

NRI Exemptions

 

As stated earlier, computing TDS for NRIs can be tricky; for instance, Section 195 does not mention salary paid to an NRI in India; this is instead covered under Section 192. Sometimes, an NRI may have to be reimbursed by cheque payment for out-of-pocket expenses; this is not covered under Section 195 as there is no income element in the process.

Also, under Section195 (3) and Rule 29B, an NRI can apply for a nil-deduction certificate, provided the following conditions are fulfilled:

 

  • The NRI concerned is up-to-date on tax payments and tax returns
  • He/She has not defaulted in payment of tax, interest or penalties
  • He/She has been carrying on business in India for at least five years without a break, and the value of his/her fixed assets in India exceeds Rs 50 lakh.

 

 

Such certificates are valid until their expiry or cancellation by the assessment officer.
Also, if as an NRI, you are looking for tax breaks, you could look at the account categories that ensure that. Let us say you have an NRE Account with ICICI Bank; funds lying in such accounts will not attract any tax.

 

 

However, if you have an NRO Account, the interest earned on it would be taxable at the rate of 30%, in addition to the applicable cess and surcharge.

 

 

TDS Procedure: To deduct TDS under Section 195, the payer should first obtain Tax Deduction Account Number (TAN) under Section 203A, by filling Form 49B, available online.

 

  • PAN is a must for both the payer and the NRI concerned, who must be told of the deduction and the TDS rate. Also, the deducted amount has to be deposited by the 7th of the following month through authorised banks or the income-tax department.
  • Following this, TDS return can be filed electronically by submitting Form 27Q; this has to be done on specific dates: on Jul 31 (for the first quarter; Oct 31 (for the second quarter); Jan 31 (for the third) and May 31 (for the fourth).
  • The TDS certificate in a specified format i.e. Form 16A (Certificate of Deduction of Tax) can be issued to the NRI within 15 days of due date of filing TDS Returns, as given above.

 

Source- ICICIBANK

 

Taxpayers Alert: These 10 income tax changes will be applicable from April 1

Income Tax: As the new financial year is about to start from April 1, there are major changes in the income tax that will come into effect. From changes in the income tax slab to the latest rule of no Long-Term Capital Gain (LTCG) benefit on debt mutual funds, here are 10 big changes that will come into force from April 1.

 

1. No LTCG benefit on debt mutual fund 

The government recently scrapped LTCG—tax applied on long-term gains benefit on debt mutual funds which will be applied to investors who invest in debt mutual funds after March 31.

 

2. Default Tax regime

The New Tax Regime will become the default income tax regime from the beginning of the new financial year. However, taxpayers will still have a choice to toggle and select between the old tax regime and the new tax regime.

 

3. Tax rebate limit extended

The government extended the tax rebate limit from Rs 5 lakh to Rs 7 lakh in Budget 2023. A tax rebate is a refund that taxpayers are eligible for if the taxes paid by them exceed their tax liability. Simply put, taxpayers with an income of up to Rs 7 lakh in a financial year need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual.

 

4. Standard deduction 

Under the new tax regime, a salary exceeding Rs 15.5 lakh will get a standard deduction– a flat deduction from the gross salary, of Rs 52,500. For pensioners, the finance minister has announced the extension of the benefit of the standard deduction in the new tax regime.

 

5. Tax slab changes 

In Budget 2023, Finance Minister Nirmala Sitharaman announced a new break up for tax slabs under the New Tax Regime:

0-3 lakh – nil

3-6 lakh – 5%

6-9 lakh- 10%

9-12 lakh – 15%

 

6. LTA 

The government has hiked the tax exemption on leave encashment on the retirement of non-government salaried employees to Rs 25 lakh from Rs 3 lakh.

 

7. Market-linked debentures (MLD)

Market-linked debentures will be taxed under short-term capital gains – a tax levied on capital gains from the sale of an asset held for a short period.

 

8. Life insurance policies

Maturity proceeds from life insurance premium which exceeds Rs 5 lakh will be taxable from April 1. This new income tax rule will not be applied to ULIP (Unit Linked Insurance Plan) – an insurance plan that offers the dual benefit of investment to fulfill your long-term goals, and a life cover for financial protection.

 

9. Gold to e-gold receipt conversion

Physical gold conversion to e-gold receipt will not attract capital gains tax.

 

10. Advantages to Senior Citizen

 The maximum deposit limit for the senior citizen savings scheme will be increased to Rs 30 lakh from Rs 15 lakh.

The maximum deposit limit for the monthly income scheme will be increased to Rs 9 lakh from 4.5 lakh for single accounts and Rs 15 lakh from Rs 7.5 lakh for joint accounts.

 

Source: Zeebiz

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