Key to Tax Planning
Enabling the taxpayer for effective wealth management
Monday, 3rd March 2014
Forenoon Session
SIRC of The Institute of Cost Accountants of India
CA. GOPAL KRISHNA RAJU | FCA, AICWA, ACS,
PGDOR, PGDFM, DISA, (ICA) M.Phil
Tax Partner: M/s. K. Gopal Rao & Co., Chartered Accountants, Chennai
Member – Southern India Regional Council of The Institute of Chartered Accountants of India
Financial Year 2013-2014
Rates of Income tax – a snapshot
Income Slab
VSC ≥ 80
60 ≤ SC < 80
IND < 60
Upto 2,00,000
NIL
NIL
NIL
2,00,001 to 2,50,000
NIL
NIL
10%
2,50,001 to 5,00,000
NIL
10%
10%
5,00,001 to 10,00,000
20%
20%
20%
10,00,001 & above
30%
30%
30%
Education Cess and Secondary & Higher Education Cess = 3% on Tax
2
Change in Surcharge – Super Rich to pay extra
To Whom?
Income
Surcharge
Individuals, HUF, Firms, LLPs,
Co-operative Societies & Local More than 1 Crore
10% (New)
Authorities
Domestic Company
More than 10 Crore
10% (New)
Domestic Company
More than 1 Crore to 10 Crore
5% (Existing)
Foreign Company
More than 10 Crore
5% (New)
Foreign Company
More than 1 Crore to 10 Crore
2% (Existing)
Section 87A - Tax Rebate for Resident Individuals
Rebate u/s. 87A
(I am back in new form)
Max Rebate
Rs: 2000
New
Applicable Slab is
below 5 Lakh
Section 87A - Tax Rebate for Resident Individuals
•
Applicability: A tax relief of Rs.2,000/- to the individual tax payers
whose total income does not exceed Rs.5 Lakhs in a year.
•
Consequently any individual having income up to Rs.2,20,000 will not
be required to pay any tax and every individual having total income
Rs.2,20,000 to Rs.5,00,000 shall get a tax relief of Rs.2,000
•
FM’s Statistics: On account of this relief, 1.80 crore tax payers are
expected to benefit to the value of Rs.3,600 crore.
Example
Without Tax Planning – Alas God only Save him!
Entity
Raman (Individual)
Net Cash Inflow
Annual
Income
Investment
u/s. 80C
Taxable
Income
Annual
Tax
Liability
13,00,000
1,00,000
12,00,000
1,95,700
10,04,300 + 100,000 (after redemption of investment)
Example
Tax Planning at its best for a businessman or professional
Entity
Annual
Income
Investment
u/s. 80C
Taxable
Income
Tax
Liability
M/s. Raman (HUF)
3,00,000
1,00,000
2,00,000
NIL
Mr. Raman (IND)
3,00,000
1,00,000
2,00,000
NIL
Mrs. Raman (IND)
3,00,000
1,00,000
2,00,000
NIL
Master Shyam (Pvt Trust)
2,00,000
-
2,00,000
NIL
Baby Shruthi (Pvt Trust)
2,00,000
-
2,00,000
NIL
TOTAL
13,00,000
3,00,000
Net Cash Inflow
10,00,000
NIL
+ 300,000 (after redemption of investment)
FAQ on Private Trust?
•
Can only parents can create private trust? – Not necessary
(relatives, guardians, family friends can create)
•
Is it necessary to register it? – Not mandatory
•
Filing returns? – Yes Compulsory
•
Tax Tip ¤ – Create one trust for one child for maximum
benefit
•
Want to create a Private Trust? – Kindly ask a Professional!
Private Trust

Private Trust can be formed for a single member benefit or for a
group of members benefit.

For Tax Planning - Ideal for a minor child till he/she attains majority
or finishes his/her higher studies or until her marriage

Tip: For each child let there be one trust

Caution: Care should be taken while drafting the clauses of the
trust deed
to include investment methods (take the help of a
professional in that case)

A trust can be unregistered (no mandatory provision for registration)

Using the trust deed PAN can be applied for.
10
Private (Discretionary/Specified) Trust

Whether there will be any tax incidence in the hands of the
beneficiaries of the trust either at the time of creation of the trust or
when they receive any benefits under the trust either out of income
or corpus.

Where it is discretionary trust, definitely, the beneficiaries can
escape the rigour of section 56(2)(vii) since unless and until any
distribution, either of income or corpus, is made, there is no
certainty for the beneficiary as to what they will get from the trust.
11
On distribution from Private trust

On the other hand, when any money/property is distributed from
the trust to the benficiaries either by way of distribution of income
or corpus and whether such distribution takes place during the
subsitence of the trust or at the time of its dissolution, even then,
the benficiaries cannot be subjected to tax on the amount/assets
recived on distribution since they are already entitled to the same as
per the trust deed.

This view was also upheld in [Ashok C. Pratap v Addl. CIT [2012] 139 ITD
533 (Mum) : [2012] 150 TTJ 137 (Mum)]
12
Tax Planning - HUF

Hindu Undivided Family can also claim basic tax exemption of Rs:
2000,000. [plus Investment Planning eligible for further deduction u/s
80C]

HUF is not a created entity. Only its existence has to be proved.

Individual Minors (below the age of 18) can also claim basic tax
exemption of Rs: 2,00,000 (for boys and girls)

Caution: Minors income generally are clubbed into the hands of the
parent whose income is greater. Care should be taken to make their
income to accrue in the name of a private trust (where the
beneficiary is the minor child).
How to prove the existence of a HUF?
•
Family (Ration) Card – is the starting point; or
•
HUF - Affidavit

Apply for a PAN

Open Bank Account and start doing the operations

Periodically file your returns
Hindu Undivided Family – (HUF)

HUF cannot be formed!

Yes. Only its existence has to be proved.

Date of Marriage is the Date of Incorporation of HUF

How? – Family Card (Ration Card) is the key.

Using Family card – We can apply for a PAN card

Then using PAN card we can open a Bank Account – then
start doing operations.
16
Section 80EE - Deduction in respect of interest on loan
taken for residential House Property
New
Interest on Residential House
Property
Additional
deduction upto
Rs:100,000
4 conditions to
be satisfied
Let-out or SelfOccupied
(is immaterial)
New
•
Section 80EE - Interest on Housing Loan
Applicability: A new section 80EE is inserted in the IT Act, 1961 to provide an
additional deduction upto Rs. 1 lakh in respect of interest on loan taken for
residential house property to individuals.
•
The deduction shall be subject to the following conditions:1.
The loan is sanctioned by the financial institution during the period beginning on 1st
April,2013 and ending on 31st March,2014.
2.
The amount of loan sanctioned for acquisition of the residential house property does
not exceed Rs.25 lakhs.
3.
The value of the residential house property does not exceed Rs.40 Lakhs.
4.
The assesses does not own any residential house property on the date of sanction of
the loan.
•
The above deduction is over and above the deduction of Rs.1.50 lakhs allowed for self
occupied properties under Section 24 of the Income-tax Act.
•
If the limit is not exhausted, the balance may be claimed in AY 2015-16. (Carried
forward of un-exhausted claim)
Section 24(b): Interest on Borrowed Capital (Loans)

Interest payable on loans borrowed for the purpose of acquisition,
construction, renovation, repairing or reconstruction (Hint: AC3R)
can be claimed as deduction.

Interest relating to the year of completion of construction can be fully
claimed in that year irrespective of the date of completion.

Interest accrued during the construction period preceding the year of
completion of construction can be accumulated and claimed as deduction
over a period of 5 years in equal installments commencing from the year
of completion of construction.

When a person acquires a property and pays only part of the sale
consideration, interest payable on the unpaid purchase price qualifies for
deduction in the computation of income from such property.
Interest on
Borrowed
Capital
Self Occupied
Property
Borrowing
before 1/4/1999
Deduction
restricted to
30,000
Used for
P/C/R/R/R
Let Out
Property
Borrowed on or
after 1/4/1999
Deduction
restricted to
150,000
Used for
P/C
Deduction
restricted to
30,000
Used for
R/R/R
Where
the
property
has
been Actual interest payable subject to
acquired, constructed, repaired, the maximum of Rs: 30,000
renewed or reconstructed with
borrowed capital before 1/4/1999
Where the property is acquired or
constructed with capital borrowed
on or after 1/4/1999 and such
acquisition or construction is
completed within 3 years of the end
Actual interest payable subject to
maximum of Rs: 150,000 if
certificate mentioned in point 2 is
obtained
of the financial year in which the
capital was borrowed
In any other case, i.e., money Actual interest payable subject to
borrowed after 31/3/1999 for maximum of Rs: 30,000
repairs or renewal
1.
It may be noted that the deduction of interest of Rs: 30,000 are allowed
for purpose of acquisition or construction or repair or renewal or
reconstruction of house property where as the deduction to the
maximum of Rs: 150,000 is allowed only for acquisition or construction
of house property.
2.
For getting deduction of interest of maximum of Rs: 150,000, it is
necessary to obtain a certificate from the person to whom such interest
is payable specifying the amount of interest payable by the assessee for
the purpose of acquisition / construction of the property.
3.
According to Explanation to section 24, when a fresh (subsequent) loan
has been raised to repay the original loan if the second borrowing has
really been used to repay the original loan and this fact is proved to the
satisfaction of the ITO, the interest paid on the second loan would also
be allowed as a deduction.
4.
Interest on interest is not deductible. The assessee is entitled to
deduct only the interest payable by him on the capital borrowed,
and not the additional interest which because of his failure to pay
the interest on the due date is considered as a part of the loan.
5.
Any amount paid for brokerage or commission for arrangement of
the loan will not be allowed as deduction.
Planning to buy a Second House
•
You are required to pay tax on rental income from the second house even if it is lying
vacant.
•
If a person owns more than one house and it is vacant, its value is added while
calculating the owner’s wealth. A 1% wealth tax is payable on the amount exceeding
Rs: 30 lakh.
•
Commercial property is not included while calculating the wealth of a person.
•
The interest paid on a loan taken to purchase commercial property is also eligible for
tax deduction. Commercial space usually fetches a high rent than residential property.
It is also possible to take a loan against this rental income. The rental income from
commercial property is eligible for 30% standard deduction as in the case of
residential property.
Relief admissible in respect of self occupation of House Property
•
Tax Planning:
•
Relief for self occupation of house is admissible under
section 23 to an HUF also.
•
There is nothing in the words used in section 23(2)
which may show that they cannot apply to HUF which is
nothing but a group of individuals related to each other.
•
[ITO vs. Tarlok Singh & Sons 29 ITD 139 (Del)]
•
If you want to buy a house in your wife’s name but don’t want the rent to be
taxed as your income, you can loan her the money. In exchange, she can give
you her jewellery.
•
One can also avoid clubbing of income by opting for tax exempt investments.
(PPF, LTCG on MF & Equity)
•
Incidentally, a wife can help her husband save tax even before they get
married. If a couple is engaged, and the girl does not have any taxable
income or pays tax at a lower rate, her fiancé can transfer money to her. The
income from those assets won’t be included in his income because the
transaction took place before they got married.
Gifts
Tax Tip: Non -Taxable Gifts
•
Up to Rs: 50,000 in cash & Gifts in Kind
•
Cash Gifts from any relative [Relative means:
(1) spouse of the individual; (2) brother or sister
of the individual; (3) brother or sister of the
spouse of the individual; (4) brother or sister of
either of the parents of the individual; (5) any
lineal ascendant of the individual; (6) any lineal
ascendant or descendent of the spouse of the
individual; and (7) spouse of the person referred in
(2) to (6)]
•
On the occasion of marriage of the individual
•
Under a will or by inheritance
•
In contemplation of death of the payer
Gift ……… When taxable & to whom?
•
What: Gifts would be subject to income-tax in the hands of the
donee (recipient).
•
Limit: As per section 56(2)(vi), receipts of movable property, fair
market value of which exceeds 50,000 (Fifty thousand rupees),
without consideration or without adequate consideration is
taxable.
•
Who: as income in the hands of Individuals / HUFs.
•
Year: In the year of receipt
Exempted…….gifts
Section 56(2)(vii) shall not apply to any sum of money or any property received by the donee
1. from any relative; or
2. on the occasion of the marriage of the individual; or
3. under a will or by way of inheritance; or
4. in contemplation of death of the payer or donor, as the case may be;
or
5. from any local authority; or
6. from any fund or foundation or university or other educational
institution or hospital or other medical institution; or
7. from any trust registered under IT Act.
31
32
Section 56(2)(vii) – Gift of Immovable Property
Situation

Without consideration
Taxable Income
the stamp duty value of which exceeds Rs: 50,000,
the stamp duty value of such property;

For consideration > Rs: 50,000 the stamp duty value of such property as exceeds
but < stamp duty value

such consideration:
The date of the agreement and the stamp duty value on the date of the agreement
the date of registration are not may be taken
the same,
Amendment
•
Present: The existing provisions of 56(2)(vii) sub clause (b) of the
Income-tax Act, inter alia, provide that where any immovable
property is received by an individual or HUF without consideration,
the stamp duty value of which exceeds Rs: 50,000, the stamp duty
value of such property would be charged to tax in the hands of the
individual or HUF as income from other sources.
•
Catch me if you can: The existing provision does not cover a
situation where the immovable property has been received by an
individual or HUF for inadequate consideration.
•
Proposal: It is proposed to amend the provisions of 56(2)(vii) so
as to provide that where any immovable property is received for a
consideration which is less than the stamp duty value of the
property by an amount exceeding Rs: 50,000, the stamp duty
value of such property as exceeds such consideration, shall be
chargeable to tax in the hands of the individual or HUF as
income from other sources.
•
Differing Dates: Considering the fact that there may be a time
gap between the date of agreement and the date of registration, it
is proposed to provide that where the date of the agreement
fixing the amount of consideration for the transfer of the
immovable property and the date of registration are not the
same, the stamp duty value may be taken as on the date of the
agreement, instead of that on the date of registration.
•
Caution: This exception shall, however, apply only in a case where
the amount of consideration, or a part thereof, has been paid by
any mode other than cash on or before the date of the agreement
fixing the amount of consideration for the transfer of such
immovable property.
•
This amendment will take effect from 1st April, 2014 and
will, accordingly, apply in relation to the assessment year
2014-15 and subsequent assessment years.
•
May Overrule the case reported in (2012) 6 TaxCorp (DT)
53279 (DELHI), Section 50C enabling the revenue to treat the
value declared by an assessee for payment of stamp duty, ipso
facto, cannot be a legitimate ground for concluding that there was
undervaluation, in the acquisition of immovable property.
Section 43CA – Special provision for full value of consideration
for transfer of assets other than capital assets in certain cases
New
New
•
Section 43CA
Background: The provisions of Section 50C do not apply to transfer of
immovable property, held by the transferor as stock-in-trade.
•
Younger Brother of Section 50C: A new Section 43CA is inserted in the
Act, that where the consideration for transfer of an asset (other than capital
asset), being land or building or both, is less than the stamp duty value, the
value so adopted or assessed or assessable shall be deemed to be full value
of consideration for the purposes of computing income under the head
“Profits and Gains of Business or Profession”.
•
Stamp duty value may be taken as on the date of agreement of transfer and
not as on the date of registration of such transfer where consideration is
received by any mode other than cash.
New
Section 43CA
Situation

For
consideration
stamp duty value

Taxable Income
paid
< the stamp duty value of such property as
exceeds such consideration paid;
The date of the agreement the stamp duty value on the date of the
and the date of registration agreement may be taken
are not the same,
•
These amendments will take effect from 1st April, 2014 and
will, accordingly, apply in relation to the assessment year
2014-15 and subsequent assessment years.
•
May Overrule the case reported in (2012) 6 TaxCorp (DT) 51567
(ALLAHABAD) held that section 50C has no application as it was a
case of transfer of plots which was stock in trade. Since, an income
earned from such transaction is liable to be taxed as income from
business activity.
Computation of income under the head “PGBP” for transfer of
immovable property in certain cases
•
Currently, when a capital asset, being immovable property, is
transferred for a consideration which is less than the value adopted,
assessed or assessable by any authority of a State Government for
the purpose of payment of stamp duty in respect of such transfer,
then such value (stamp duty value) is taken as full value of
consideration under Section 50C of the Income-tax Act. These
provisions do not apply to transfer of immovable property,
held by the transferor as stock-in-trade.
•
It is proposed to provide by inserting a new section 43CA that where the
consideration for the transfer of an asset (other than capital asset), being
land or building or both, is less than the stamp duty value, the value so
adopted or assessed or assessable shall be deemed to be the full value of
the consideration for the purposes of computing income under the
head “Profits and gains of business of profession”.
•
It is also proposed to provide that where the date of an agreement fixing
the value of consideration for the transfer of the asset and the date of
registration of the transfer of the asset are not same, the stamp duty value
may be taken as on the date of the agreement for transfer and not as on
the date of registration for such transfer.
•
However, this exception shall apply only in those cases where
amount of consideration or a part thereof for the transfer has been
received by any mode other than cash on or before the date of the
agreement.
•
Invest in their name if they are in a lower tax bracket: Every adult enjoys a
basic tax exemption limit. For senior citizens (above 60 years), the basic
exemption limit is Rs: 2.5 lakh a year.
•
If any or both of your parents do not have a high income but you have an
investible surplus, you can plan tax by transferring money to them which can
then be invested in their name.
•
There is no tax on such gifts and the income from the investments will be
treated as theirs.
•
No such clubbing provisions come into play when money is transferred to a
parent. There is also no limit on the amount you can give to your parents.
Amendment
•
139(9): Defective Return
Fact: A large number of assesses are filing their return of income
without payment of self assessment tax under section 140A.
•
A Return of income filed without payment of self assessment tax
including interest to be treated as defective return.
•
Effective: This amendment will take effect from 1st June, 2013.
Section 56(2) – Gift of Immovable Property
•
Where any immovable property is received for a consideration
which is less than the stamp duty value of the property by an
amount exceeding Rs.50,000, the stamp duty
value of such
property as exceeds such consideration, shall be chargeable to take
in the hands of the individual or HUF as income from other
sources.
•
This amended section is applicable from the Assessment Year
2014-15.
Amendment
Section 80 C – Top 10 – Check the colour please
1.
Tuition fee – paid for children (own, adopted, step) for full time
education in India. [Note: Tuition fee paid for grandchildren is eligible
for deduction for the HUF]
2.
Principal repayment of Housing Loan
3.
Stamp Duty and Registration Charges
4.
Fixed Deposits in Banks for a LIP of 5 years
5.
NSC – National Savings Certificate
6.
PF – Provident Fund [SPF, PPF, RPF]
7.
10 year Post Office Savings Bank (CTD)
8.
Mutual Funds
9.
Insurance
10.
ULIP
80 E – Repayment of Education Loans
1.
Only Interest is eligible for deduction
2.
No Limit
3.
Deduction eligible for
succeeding seven years
4.
Deduction eligible for repayment of education loans
made for spouse or children
initial
year
and
immediately
•
For assessment year 2014-15 and within the existing limit, a
deduction of up to Rs: 5,000 for preventive health check-up is
available.
•
Therefore, you get “health bhi aur wealth bhi”.
•
Even if your parents are not dependant, you can pay for medical
insurance and claim deduction.
•
Individual / HUF
•
Individual = assessee + family (spouse + dependent children)
•
HUF = any member of the family
•
Rs: 15,000 (self/dependents)
•
Rs: 15,000 / Rs: 20,000 (parents / SC parents) -
•
The payment should be made by any mode of payment except
cash
•
Deduction is allowed to an individual in respect of medical insurance
premium paid for self, spouse and dependent children.
•
In case the premium is paid in respect of a senior citizen, then, the
maximum deduction would be Rs.20,000 instead of Rs.15,000.
•
In the case of a HUF, such deduction is allowed in respect of
premium paid to insure the health of any member of the family.
•
An additional deduction of up to Rs.15,000 would be allowed
in respect of medical insurance premium paid for insuring the
health of a parent or parents. This would be in addition to
the deduction of Rs.15,000 in respect of medical insurance
premium paid for self, spouse and dependent children. (Such
additional deduction would be available even if the parents
are not dependent on the individual).
•
The maximum deduction would, therefore, be Rs.30,000
[i.e. Rs.15,000 + Rs.15,000] and in case any of the
persons insured is a senior citizen, Rs.35,000 [i.e.
Rs.15,000 + Rs.20,000].
•
The maximum deduction available to a HUF would be Rs.15,000 and
in case any member is a senior citizen, Rs.20,000.
•
The other conditions to be fulfilled are that such premium should be
paid by any mode, other than cash, in the previous year out of his
income chargeable to tax. Further, the medical insurance should be
in accordance with a scheme made in this behalf by 1.
the General Insurance Corporation of India and approved by the Central
Government in this behalf; or
2.
any other insurer and approved by the Insurance Regulatory and
Development Authority.
Amendment
Section 10(10D) - Keyman Insurance Policy - KIP
•
Keyman Insurance Policy which has been assigned to any person
during its term with or without consideration shall continue to be
treated as a keyman insurance policy.
•
No benefit of exemption under section 10(10D) shall be
claimed on such policies.
Amendment
•
Existing provisions: of section 10(10D), inter alia, exempt any sum received
under a life insurance policy other than a KIP. Explanation 1 to the said clause
(10D) defines a KIP to mean a life insurance policy taken by a person on the
life of another person who is or was the employee of the first-mentioned
person or is or was connected in any manner whatsoever with the business of
the first-mentioned person.
•
By-pass: It has been noticed that the policies taken as KIP are being
assigned to the keyman before its maturity. The keyman pays the remaining
premium on the policy and claims the sum received under the policy as
exempt on the ground that the policy is no longer a keyman insurance policy.
Thus, the exemption under section 10(10D) is being claimed for policies which
were originally keyman insurance policies but during the term these were
assigned to some other person. The Courts have also noticed this
loophole in law.
•
With a view to plug the loophole and check such practices to avoid
payment of taxes, it is proposed to amend the provisions of clause
(10D) of section 10 to provide that a keyman insurance policy
which has been assigned to any person during its term, with
or without consideration, shall continue to be treated as a
keyman insurance policy.
•
The above amendment will take effect from 1st April, 2014
and will, accordingly, apply in relation to assessment year
2014-15 and subsequent assessments years.
•
May Overrule the case reported in (2012) 6 TaxCorp (DT) 51593 (DELHI) Held
that, The insurance company has itself clarified that on assignment, it does not
remain a keyman policy and gets converted into an ordinary policy. It is not open to
the Revenue to still allege that the policy in question is keyman policy and when it
matures, the advantage drawn there from is taxable; no doubt, the parties here, viz.,
the company as well as the individual taken huge benefit of these provisions, but it
cannot be treated as the case of tax evasion. It is a case of arranging the affairs in
such a manner as to avail the state exemption as provided in Section 10(10D); law is
clear. Every assessee has right to plan its affairs in such a manner which may result in
payment of least tax possible, albeit, in conformity with the provisions of Act. It is
also permissible to the assessee to take advantage of the gaping holes in the
provisions of the Act. The job of the Court is to simply look at the provisions of the
Act and to see whether these provisions allow the assessee to arrange their affairs to
ensure lesser payment of tax. If that is permissible, no further scrutiny is required and
this would not amount to tax evasion.
Amendment
Wealth-Tax Returns
•
Wealth-tax return can be electronically filed similar to e-IT Returns.
•
This facility stated to have come into force from 1st June, 2013. Still
the provision is yet to see the daylight
Eligible Limit- U/s 10(10D) & 80C
•
Eligibility limit for claiming deduction u/s 80C and claiming
exemption u/s 10(10D) in the case of certain disability or ailment
increased from 10% to 15% on actual capital sum assured.
•
This relaxation shall be available in respect of insurance policies
issued on or after 1st April, 2013.
Amendment
TDS on transfer of Immovable Properties
•
A new section 194-IA is inserted to provide
that every transferee (buyer), at the time of
making payment or crediting of any sum as
consideration
for
transfer
of
immovable
property (other than agricultural land) to a
resident transferor (resident buyer), shall
deduct tax, @1% of such sum.
•
No deduction of tax shall be made where the
total amount of consideration for the transfer
New
of an immovable property is less than Rs. 50
Lakhs.
Dividend from Foreign Subsidiary Companies
•
Existing: Section 115-O provides for payment of DDT on the amount of dividend
distributed by the company as reduced by the amount of dividend received from its
subsidiary if such subsidiary has paid the DDT.
•
This ensures removal of cascading effect of DDT in a multi-tier structure where
dividend received by a domestic company from its subsidiary (which is also a
domestic company) is distributed to its shareholders. But on dividend received
from foreign subsidiaries so far?
•
Proposed: The Indian Company shall not be liable to pay Dividend Distribution Tax
(Section 115-O) on the distribution to its shareholders of that portion of the income
received from its foreign subsidiary.
•
Date: The above amendment will take effect from 1st June, 2013.
Amendment
63
The following AIR transactions must be reported in your Income Tax Return:

• Cash deposits (10 lakh and above)

• Credit card bills (2 lakh and above)

• Mutual Fund purchase (2 lakh and above)

• Purchase of bonds/debentures (5 lakh and above)

• Purchase of shares of a company (1 lakh and above)

• Purchase of immovable property (30 lakh and above)

• Sale of immovable property (30 lakh and above)

• Purchase of RBI bonds (5 lakh and above)
64
65
66
67
68
80 CCG: Rajiv Gandhi Equity Savings Scheme
•
Extended: The first time investors will now be allowed to invest in
mutual funds as well as listed shares.
•
Till when: This investment can be done not in one year alone, but
in three successive years.
•
Raised: The income limit is also being proposed to be raised from
Rs.10 lakhs to Rs.12 lakhs.
Amendment
80 CCG: Rajiv Gandhi Equity Savings Scheme
•
Limit: The income limit is also being proposed to be raised from
Rs.10 lakhs to Rs.12 lakhs.
•
Applicability Extended: in addition to “listed equity shares”
“listed units of equity oriented fund” is also added
New Amendment
Taxation of Mutual Funds : Snap-shot
71
Dividends received from Mutual Funds
72
Exempt - Dividend – Section 10(35)
•
Where: Under section 10(35) of IT Act,
•
What: Any income (except Capital Gains) received by any
person in respect of the units of the mutual fund is exempt from
income tax.
73
Surplus / Deficit on (Transfer) Redemption of Units
•
What: Gains arising on transfer / redemption of Units as well as
switching between schemes will be chargeable to tax under the
Act.

Caution: The characterization of income from investment in
securities as ‘Business Income' or ‘Capital Gains' will have
to be examined on a case-to-case basis.
74
75
76
Equity Oriented Fund
A Fund which satisfies the following TWO conditions:
A.
the investible funds are invested by way of equity shares
in domestic companies to the extent of more than 65% of
the total proceeds of such fund, AND
B.
The fund has been set up under a scheme of mutual
fund specified in section 10(23D)

[the transaction should be chargeable to securities
transaction tax which implies that the transfer should
take place through a recognized stock exchange]
77
Equity Oriented Fund
•
What: Units of Equity Oriented
fund
including
ELSS
being
arising
from
subjected to STT.
•
Where:
LTCG
transfer
of
such
units
are
exempt under section 10(38) of
the Act.
•
Caution:
The
mutual
fund
would recover STT from the unit
holder as per the applicable
rates.
78
Other than Equity Oriented Fund
79
Default in Furnishing PAN
A.
Where: Section 206AA of the Act
B.
Effective: Operative with effect from April 1, 2010
C.
Mandatory: The deductee (investor) is required to mandatorily furnish his
PAN to the deductor (MF) failing which the deductor shall deduct TDS at
higher of the following rates:
1.
the rate prescribed in the Act; or
2.
at the rate in force i.e., the rate mentioned in the Finance Act; or
3.
at the rate of 20%.
–
For STCG - 30%, LTCG – 20%
80
Section
Eligible persons
Asset to be
purchased to claim
exemption
Time-limit for
purchase from date
of sale of Capital
Asset
Amount Exempt
Lock-in period
54 EC
54F
All assesses
Individual and HUFs
Specified Bonds of NHAI
and RECL (cap of Rs.
50 lakhs in a financial
year)
Residential House Property
6 months
Purchase: 1 year backward / 2
years forward &
Construction: 3 years forward
Investment in the new
asset or capital gain
whichever is lower
Capital gains proportionate to
the investment made from the
sale proceeds
(subject to other conditions of
owning / purchasing residential
house mentioned in the section)
3 years
3 years
81
Tax Tip – Maximum amount eligible for
reinvestment u/s. 54EC

Aspi Ginwala v. ACIT, Circle 5 Baroda [2012] TMI
211909 ITA No: 3226 & 3227 (Ahd)/2011 dated 30th
March 2012
82
Tax Tip – Investments in Mutual Funds

How much: Under section 80C of the Act, an assessee,
being an individual or HUF, is eligible to claim a deduction
upto an aggregate of Rs. 1 lacs on account of sums paid as
subscription to units of an Equity Linked Savings Scheme.

What is ELSS: The expression "Equity Linked Savings
Scheme " refers to Equity Linked Savings Scheme, 2005 as
notified by the CBDT, MOF, GOI vide notification dated
3/11/2005 as amended vide notification dated 31/12/2005
83
Dividend Stripping – Caution
•
Where: As per Section 94(7) of the Act
•
What: The loss due to sale of units in the schemes (where income
distributed on MF units is tax free) will not be available for set-off to the
extent of the tax free dividend income distributed; if units are:•
How:
–
Bought within 3 months prior to the record date fixed for income
distribution; AND
–
Sold within 9 months after the record date fixed for income distribution.
84
Bonus Stripping – Caution
•
Where: As per Section 94(8) of the Act
•
What: The loss due to sale of original units in the schemes (where bonus units are
issued) will not be available for set-off; if units are:-
•
How:
–
Bought within 3 months prior to the record date fixed for allotment of bonus units;
AND
–
•
Sold within 9 months after the record date fixed for allotment of bonus units.
Relief: However, the amount of loss so ignored shall be deemed to the cost of
purchase or acquisition of such unsold bonus units held on the date of transfer of
original units
85
MF Investments – Religious & Charitable Trusts
•
Set-Apart: The charitable trust can keep the total income for future use in
charitable or religious purposes for a period of five years, and claim tax
exemption in the year in which the income is earned, if the amount so earned is
invested in investments specified under Section 11(5) of the IT Act read with
Rule 17C of the I-T Rules, 1962.
•
Intimate AO: If the trust wish to avail of this exemption, they will need to give a
prior notice to the Assessing Officer specifying the purpose for which the amount
is accumulated or set apart.
•
Alternatively: The trusts can allocate upto 15% of a year's income for
application to charitable or religious purposes in future years, without attracting
income tax – under section 11(2)
86
No Wealth-Tax for MF Investments
A.
Units held under the any scheme of the Mutual Fund are not
treated as assets under section 2(ea) of the Wealth-tax Act,
1957 and are, therefore, not liable to Wealth-tax.
87
88
Tax Free Income for Non-residents Indians
•
Interest earned on Non Resident (Non-Repatriable) [NRNR]
Deposit,
•
Interest earned on Foreign Currency Non Resident (Bank)
[FCNR(B)] Deposit,
•
Overseas income of NRIs,
•
Dividend income from Indian Public/Private Company, Indian
Mutual Fund and from Unit Trust of India,
Tax Free Income for Non-residents Indians…
•
Long-term capital gains arising on transfer of equity shares traded
on recognized Stock Exchange and units of equity schemes of
Mutual Fund is exempt from tax at par with residents,
•
Remuneration or fee received by non-resident / non-citizen /
citizen but not ordinarily resident 'consultants', for rending
technical
consultancy
in
India
under
approved programme
including remuneration of their employees, and income of their
family members which accrue or arise outside India, Interest on
notified bonds.
Various Deductions for Non-residents Indians…
•
A. Home Loan Interest Deduction: Non-residents Indians are
eligible to avail deductions on home loan interest for the interest
portion of the EMI paid towards the repayment of home loans.
Various Deductions for Non-residents Indians…
b. Savings Deduction: From the various tax saving avenues available to the
general public – Equity instruments like ELSS, Debt instruments like PPF,
National Savings Certificate, Bank FDs etc and Life Insurance and Pension
Plans, Non-residents Indians are not allowed the following investments:
•
i.) Non-residents Indians not allowed to open a PPF account. An existing
PPF account can be continued till maturity.
•
ii.) Non-residents Indians are also barred from investing in National Saving
Certificates (NSC), Senior Citizens Savings Scheme (SCSS) and Post Office
Time Deposits (POTD). Existing investments (i.e., those that were
purchased before becoming an NRI) can be continued till maturity.
Various Deductions for Non-residents Indians…
c. Health Insurance Premium Deduction
•
Non-residents Indians can also claim deduction for premium paid
on mediclaim / health insurance policy of self and family (Rs
15,000 / Rs 20,000 as the case may be) and another Rs 15,000 (Rs
20,000 if either of parents is a senior citizen) premium paid to
insure the health of parents.
Various Deductions for Non-residents Indians…
d. Other Deductions
•
There are many other deductions available to resident Indians – Health
Insurance Premium, Medical treatment of disabled dependent, Medical
treatment of certain specified ailments,
Deduction for Handicapped
person, Educational loan, Deduction for Donations and Rent paid. NRIs
qualify for these deductions:
•
i). Deduction for interest paid on educational loan
•
ii). Deduction for certain specified donations
•
Deduction for Medical treatment of disabled dependent, Deduction for
Medical treatment of certain specified ailments, and Deduction for
Handicapped person are not available for Non-residents Indians
Section 90 & 90A: Tax Residency Certificate
•
Tax Residency Certificate is a necessary for claiming
benefits under DTAA but not a sufficient condition for
claiming benefits under the agreements referred to in
Section 90 and 90A.
Amendment
•
Backdrop: Section 90 of the Income Tax Act
empowers the Central Government to enter into an
agreement with the Government of any foreign country
or specified territory outside India for the purpose of –

granting relief in respect of avoidance of double taxation,

exchange of information and

recovery of taxes.
•
Further section 90A of the Income-tax Act empowers the Central Government
to adopt any agreement between specified associations for above mentioned
purposes.
•
In exercise of this power, the Central Government has entered into various
Double Taxation Avoidance Agreements (DTAAs) with different countries and
has adopted agreements between specified associations for relief of double
taxation.
•
The scheme of interplay between DTAA and domestic legislation ensures that
a taxpayer, who is resident of one of the contracting country to the
DTAA, is entitled to claim applicability of beneficial provisions either
of DTAA or of the domestic law.
•
Sub-section (4) of sections 90 and 90A of the Income-tax Act inserted by
Finance Act, 2012 makes submission of Tax Residency Certificate containing
prescribed particulars, as a condition for availing benefits of the agreements
referred to in these sections.
•
Proposal: It is proposed to amend sections 90 and 90A in order to
provide that submission of a tax residency certificate is a necessary but
not a sufficient condition for claiming benefits under the agreements
referred to in sections 90 and 90A. This position was earlier mentioned in
the memorandum explaining the provisions in Finance Bill, 2012, in the
context of insertion of sub-section (4) in sections 90 & 90A.
•
These amendments will take effect from 1st April, 2016 and will,
accordingly, apply in relation to the assessment year 2016-17 and
subsequent assessment years.
•
May Overrule the case reported in (2003) TaxCorp (INTL) 1732
(SC) held that FIIs based in Mauritius are entitled to exemption from
capital gains tax; CBDT Circular dated April 13, 2000 upheld legal and
valid
Bilateral Relief – Methods

Exemption Method: A particular Income is taxed in only one of
the two countries; and

Tax Relief Method: An income is taxable in both countries
in accordance with their respective tax laws read with the double
taxation avoidance agreement. However, the country of
residence of the tax payer allows him credit for the tax
charged thereon in the country of source.
Types of Tax Transactions
Section 90 or Section 90A
Taxing Foreign Income
Section 91, Explanation
Remittances to non-residents under section 195 of
the Income-tax Act –– matters connected thereto

The revised procedure for furnishing information regarding
remittances being made to non-residents w.e.f. 1st July,
2009 is as follows:-
1. The person making the payment (remitter) will obtain a
certificate from a CA (other than employee) in Form 15CB.
2. The remitter will then access the website to electronically
upload the remittance details to the Department in Form 15CA
(undertaking). The information to be furnished in Form 15CA
is to be filled using the information contained in Form 15CB
(certificate).
104
Set off or Carry forward of Loss- Synopsis
Section
Set off of Loss
-Inter source adjustments and exceptions
70
-Inter head adjustments and exceptions
71
Carry forward of loss
-Loss from House property
-Loss from Business / profession
-Loss of amalgamating company / demerged company / firm /
proprietary concern
-Loss of Banking company
71B
72
72A
72AA
-Speculation Loss
73
-Loss under “Capital Gains”
74
-Loss from activity of owning and maintaining race horses
74A
72: Set off or Carry forward of Loss from Business or Profession
HEAD
Salary
IFHP
PGBP
CG
IFOS
Set-Off
Strictly
Yes
Current
Yes
Yes
No
No
NO
Carried
No
Year Loss
No
Only
Forward
against
Loss to
this head
be set-off
74: Set off or Carry forward of SHORT TERM CAPITAL LOSS
HEAD
Salary
IFHP
PGBP
CG
IFOS
Set-Off
No
No
No
Against
No
current
year
STCG /
LTCG
Carried
No
No
No
Only
Forward
against
Loss to
STCG /
be set-off
LTCG
No
74: Set off or Carry forward of LONG TERM CAPITAL LOSS
HEAD
Salary
IFHP
PGBP
CG
IFOS
Set-Off
No
No
No
Against
No
current
year
LTCG
Carried
No
No
No
Only
Forward
against
Loss to
LTCG
be set-off
No
Section 70
Inter Source Adjustments and exceptions
Exceptions are the following:
1) Speculation Loss (commodity exchanges)
2) Income from owning and maintaining race horses
3) Long term capital Loss
 Loss on gambling can neither be set-off nor be carried
forward.
Section 71
Inter Head Adjustments and exceptions
Exceptions are the following:
1) Speculation Loss (commodity exchanges)
2) Income from owning and maintaining race horses
3) Loss under capital gains (both ST and LT)
4) Loss from PGBP cannot be set off against Salary Income
Section 72
Carry forward and setoff of business loss
Order of setoff:
1) Current year depreciation
2) Brought forward business or profession losses
3) Unabsorbed depreciation
•
Period of carry forward can be made not more than EIGHT
assessment years
•
However, unabsorbed depreciation can be carried forward
indefinitely (since these are not cash losses)
Section 73 Speculation Loss
•
Speculative business loss can set off against income from
speculative business of the current year only and the balance loss
can be carried forward for FOUR years only.
•
It may be noted that speculative business loss can be carried
forward for a maximum of four years as per section 73(4).
Section 36(1)(vi) : - Commodities Transaction Tax (CTT) &
Chapter VII of Finance Bill, 2013
•
Rate: A new CTT shall be levied on nonagricultural commodities future contracts at
the rate of 0.01% of the price of goods.
•
On Whom: CTT shall be paid by the seller.
•
Trading in commodity derivatives will not be
considered as “speculative transaction”.
•
Deductible:
CTT
shall
be
allowed
as
deduction as per section 36(1)(xvi) of the IT
Act if income is included in “PGBP”
New
•
Exclusion:
Agriculture
commodities
have
been kept outside the purview of the CTT
•
Applicable Date: from FY 2013-2014 when
Finance Bill 2013 comes into force.
43(5)(d) ‘Eligible Transaction’ means
•
As per clause (d) of the proviso to section 43(5), an eligible
transaction in respect of trading in derivatives shall not be
a speculative transaction.
•
Therefore, loss from trading in
derivatives is not a
speculative loss and such loss is eligible for set off against
profit from the non speculative business income.
Section 71B
•
Loss under the head Income from House
Property
If there is a loss under the head “Income from house
property”, it can be set-off against income under any other head
during the current year (no loss can be set-off against winnings
from lotteries, races, etc.).
•
If it is not possible to set-off the loss (fully or partly), it can be
carried forward to the next year for being set off only against the
income under the head “Income from house property”.
•
Loss from house property can be carried forward for a maximum
period of 8 years for set-off against income from house property.
Set off or Carry forward of Loss from House Property
71B
HEAD
Salary
IFHP
PGBP
CG
IFOS
Set-Off
Yes
Current
Yes
Yes
Yes
No
No
Year Loss
Carry Forward & Set-off
Carried
Forward
Loss to
be set-off
MAX 8
years
No
Only
against
this head
No
Disclaimer
•
These are my personal views and cannot be construed to be the views of the SIRC of ICAI or my
firm M/s. K. GOPAL RAO & Co., CAs
•
No representation or warranties are made by the SIRC of ICAI or its branches with regard to this
presentation
•
These views do not and shall not be considered as professional advice
•
This presentation should not be reproduced in part or in whole, in any manner or form, without my
written permission
Your reflections please send to my email: [email protected]