FAQs – Paisa Nivaran

Paisa nivaran's FAQs

Q. What incomes are charged to tax under the head 'Capital Gains'?

Income that arises from selling a capital asset is known as capital gains. A capital asset includes any type of property that an assessee holds for any purpose. The capital assets are taxable in the hands of the receiver in the year of transfer of the capital asset. Such tax is known as capital gains tax. Capital gains tax is of two types – short-term capital gains and long-term capital gains.

The sale value of the asset is reduced by the cost of acquisition, and the profit from the sale is charged to tax as capital gains.

Given below are a few examples of capital assets –

Land
Building
House property
Patents
Trademarks
Vehicles
Leasehold Property
Machinery
Jewellery

Q. What is the meaning of capital asset?

Capital assets are significant pieces of property like investments, stocks, bonds, homes, cars, and art collectibles. Capital assets generally have a useful life of more than one year and are not intended for sale in the due course of a business. For example, a car purchased for the purpose of reselling and not for use will be considered an inventory. However, a car purchased by a individual or a business for the purpose of use in the business is considered a capital asset.

Section 2(14) of the IT Act 1961 defines the capital asset as –

Any kind of property held by the assessee, whether related to his/her business or not.
Securities held by Foreign Institutional Investors (FIIs) who have invested in securities as specified by the SEBI Act, 1992.
Any Unit Linked Insurance Policy (ULIP) that is not covered under the exemptions on clause 10D of section 10

Capital assets do not include the following –

Any stock in trade except securities specified in sub-clause (b), raw materials, or consumable stores held for a business profession.
Personal assets held by an individual for his/her use or for the use of dependants. However, assets like jewelry, drawings, paintings, sculptures, artwork, and archaeological collections.

Q. What is the meaning of the term 'long-term capital asset'?

A long-term capital asset is an asset held for more than 36 months before the date it is transferred. However, an asset is known as a capital asset even when it is held for more than 12 months in the following cases –

Equity shares or preference shares that are listed on a recognized Indian stock exchange.
Other securities listed on the Indian Stock Exchange
Units of UTI
Units of an equity-oriented fund
Zero coupon bond
Unlisted preference shares or equity shares held in a company (if these shares were transferred on or before 10th July 2014.
Mutual fund units as specified under section 10(23D), except the equity-oriented fund.

Any asset that is held for less than or exactly for 36 months or 12 months is termed a short-term capital asset and is charged to tax at a different rate.

Q. What is long-term capital gain and short-term capital gain?

Any capital gain that arises from the sale of a long-term capital asset is known as a long-term capital gain. The classification of assets as short-term or long-term is done on the basis of the period of holding. The benefit of indexation is also available on a long-term capital gain. The indexation benefit increases the asset’s acquisition cost, thereby reducing the profit and tax.

Short-term capital gain is the gain that arises from the sale of short-term capital assets. Short-term capital gains are also classified on the basis of their holding period and the type of the asset. If you have a short-term capital gain, you cannot avail yourself of the benefit of indexation. Also, the tax rates on short-term capital gains on equity mutual funds are higher than that on long-term capital gains. You can calculate the indexed cost of acquisition using an indexed cost calculator.

Q. Why are capital gains classified as short-term and long-term?

The holding period of the asset defines its taxability. Whether you have to pay tax on a capital gain depends on how long you have held the asset. The tax rates on short-term and long-term capital gains also differ from each other. Therefore, capital assets are classified as short-term and long-term.

The sale of assets held for a period longer than 1 year and fixed assets held for a period longer than 3 years are chargeable to tax as long-term capital gains. The tax rates on long-term capital gains can be 0%, 15%, or 20% of the taxable income.

Short-term capital gains are the gains that arise from the sale of short-term capital assets that are held for a period of less than 1 year or 3 years, depending on the nature of the asset. The tax rates on STCGs are usually higher than that on long-term capital gains.

Q. How to compute long-term capital gain?

Long-term capital gains arise when the owner of an asset sells it at a profit after holding it for 1 year (in the case of shares and securities) and before 3 years (in the case of assets like land, buildings, etc.).

The computation of long-term capital gains is performed as below –

Long-term capital gain = Sale Price – (indexed cost of acquisition + indexed cost of improvement + transfer cost)

Indexed cost of acquisition = cost of acquisition x cost of inflation index of the year when the asset was transferred or acquired.
Indexed cost of improvement = cost of improvement x the cost inflation index of the year in which the asset was transferred or the cost inflation index of the year of improvement.

The gain thus derived is taxed at the rates applicable based on the tax bracket and the type of asset.

Q. Is the benefit of indexation available while computing capital gain arising on the transfer of short-term capital assets?

No, the benefit of indexation is not available on the capital gain arising from transferring of short-term capital assets.

Indexation refers to the process that is used to adjust the purchase price of the asset according to the rate of inflation in the economy. The inflation rate between the year of purchase and the year of sale is taken into account to determine the real gain and impose tax only on the real profit. Indexation reduces the overall purchase price. This leads to a reduction in the amount of profit and, thus, the tax.

Since the holding period of short-term capital gains is less, the price of short-term capital assets is not affected much by the inflation rate prevailing in the economy. Therefore, the benefit of indexation is not available for short-term capital gains.

Q. In respect of capital assets acquired before 1st April 2001, is there any special method to compute the cost of acquisition?

If the property is acquired before 1st April 2001 by the assessee, the cost of acquisition of the asset is calculated as follows –

The assessee can consider any of the below options as the cost of acquisition –

The asset’s fair market value as of April 1st, 2001
The asset’s actual cost of acquisition.
The assessee can choose any of the above options as the cost of acquisition. If the option is available, the higher of the two is considered the cost of acquisition.
If the asset is of depreciable nature, this option is not available.
This option is also not available if the capital asset is a goodwill or trademark.

* Fair market value or FMV is the price at which an asset would ordinarily sell at a given date in the open market.

Q. If any undisclosed income [in the form of investment in capital asset] is declared under Income Declaration Scheme, 2016, then what should be the cost of acquisition of such capital asset?

Income Declaration Scheme 2016 does not provide specific provisions for the cost of acquisition. However, the basic objective of the Income Declaration Scheme is to allow individuals to disclose their undisclosed income and pay tax on it to avoid any kind of penalty in the future.

The cost of acquisition or any other consideration paid for acquiring the asset is irrelevant to IDS. Therefore, the fair market value of the asset is considered to be its cost of acquisition. The cost of acquisition represents the price that the asset would sell at in an open market.

Therefore, the cost of acquisition while declaring an undisclosed asset under the Income Declaration Scheme of 2016 is the fair market value of the asset.

Q. As per the Income-tax Law, the gain arising on the transfer of the capital asset is charged to tax under the head “Capital gains.” What constitutes 'transfer' as per Income-tax Law?

As per the Income Tax Act of 1961, the transfer of assets can be understood as the transfer of the rights or the ownership of any asset to another individual or company. It includes the following –

The sale or exchange of the asset
Extinguishment of rights
A compulsory acquisition under any law
When an asset is converted into stock-in-trade by the owner
The redemption of Zero coupon bonds
Any transaction that involves allowing the possession of an immovable property that is to be retained as a part of the performance of a contract.
Any transaction involving the transferring of an immovable property

Q. As per the Income-tax Law, the gain arising on the transfer of the capital asset is charged to tax under the head “Capital gains.” What constitutes 'transfer' as per Income-tax Law?

As per the Income Tax Act of 1961, the transfer of assets can be understood as the transfer of the rights or the ownership of any asset to another individual or company. It includes the following –

The sale or exchange of the asset
Extinguishment of rights
A compulsory acquisition under any law
When an asset is converted into stock-in-trade by the owner
The redemption of Zero coupon bonds
Any transaction that involves allowing the possession of an immovable property that is to be retained as a part of the performance of a contract.
Any transaction involving the transferring of an immovable property

Q. Are any capital gains exempt under section 10?

Exempted capital gains US 10:

Capital Gain on Transfer of US64 [Section 10(33)] Any income from a capital asset being a unit of US 64 is not chargeable to tax where such assets transfer occurs on or after April 1, 2002.
Long-Term Capital Gain on Transfer of BSE-500 Equity Shares [Section 10(36)]
Capital Gain on Statutory Acquisition of Urban Agricultural Land [Section 10(37)]
In the Land pooling scheme (of the Andhra Pradesh Government), compensation in the form of reconstituted plots or land is provided to landowners.
For this scheme, the capital gain exemption is available (from the assessment year 2015-16) under section 10(37A)
Under section 115JG(1), capital gains that arise on the conversion of an Indian branch of a foreign bank into an Indian subsidiary are not chargeable to tax.
Capital gain arising from any award/agreement under the Right to Transparency and Fair Compensation in Land Acquisition, Resettlement (RFCTLARR) Act, 2013, and Rehabilitation is tax exempted.

https://incometaxmanagement.com/Pages/Tax-Ready-Reckoner/GTI/Capital-Gain/Capital-Gains-Exempted-Under-Section-10.html

Q. At what rates capital gains are charged to tax?

On selling equity shares or equity-oriented mutual funds after holding them for more than a year, taxpayers have to pay long-term capital gains tax (LTCG) on the profit. The LTCG tax rate is 10% for gains exceeding ₹ 1 lakh in a financial year. However, for other types of investments, such as unlisted securities or zero-coupon bonds, the LTCG tax rate is 20%. If equity shares or equity-oriented mutual funds are sold within one year, taxpayers have to pay short-term capital (STCG) on the profits. The STCG tax rate depends on whether the securities transaction tax (STT) is applicable or not. If STT is applicable, the STCG tax rate is 15%. If STT is not applicable, the STCG tax rate will be applied as per the income tax slab the assessee falls under.

Q. Is there any benefit available in respect of re-investment of capital gain in any other capital asset?

There are tax benefits on capital gains by reinvesting them in other assets as per the Income Tax Act 1961.

Section 54EC: You can reinvest long-term capital gains from any asset except a house in bonds of the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC). The amount of capital gains that can be reinvested under this section is limited to the capital gains arising from the asset’s sale or ₹50 lakhs, whichever is lower.

Section 54F: Any individual or HUF can reinvest LTCG from any asset other than a residential house property to a new residential house (Limited to One) in India. The amount of capital gains that can be reinvested under this section is limited to the capital gains arising from the asset’s sale, but it is capped at ₹10 crores.

Reinvestment should happen within six months U/S 54EC and within one year U/S 54F. Investing in certain assets like infrastructure or renewable energy may have other tax benefits.

Q. Are there any bonds in which I can invest my capital gains to claim tax relief?

There are some bonds in which an individual can invest capital gains to claim tax relief. These bonds are known as capital gains bonds or Section 54EC bonds.

Capital gains bonds are issued by government-owned companies such as the National Highways Authority of India (NHAI), the Rural Electrification Corporation (REC), and the Power Finance Corporation (PFC). These bonds offer a fixed interest rate and a maturity period of 5 years.

To claim tax benefits on capital gains bonds, you must reinvest the capital gains from selling a capital asset, such as a house or land, in these bonds within 6 months of the sale. The maximum amount of capital gains an individual can reinvest in capital gains bonds is ₹50 Lakh.

Q. What is the meaning of stamp duty value and what is its relevance while computing capital gain in case of transfer of capital asset, being land or building or both?

The stamp duty value is the price used to calculate stamp duty; it’s a tax levied on the sale of property. U/S 50c of the Income Tax Act, if the actual sale consideration for a property is less than the stamp duty value, then the stamp duty value will be used to calculate capital gains. I.e., The seller will be liable to pay tax on the entire stamp duty value, even if they received a lower consideration. This might happen when the seller sells the property to the related party at a discounted price or at a loss.

Q. Whether interest received on amount deposited in capital gain account under capital gain account scheme is taxable?

Interest received on the amount deposited in a capital gain account under the Capital Gains Account Scheme (CGAS) is taxable under the Income Tax Act, and is taxed at the applicable rate. The tax is deducted at source by the bank or the financial institution where the account is held. The depositor will receive a TDS certificate from the bank or financial institution, which can be used to claim a deduction for the tax paid while filing the Income Tax Return (ITR). Moreover, The interest is taxable in the year in which it is credited to the account.

Q. Whether profit earned from sale of land or building or both chargeable to capital gain tax?

Profit earned from the sale of land and building or both is chargeable to capital gains tax. The tax liability depends on the holding period of the asset. If the land or building is held for less than two years, the capital gains will be considered short-term capital gains, and the tax rate will be the same as the individual’s income tax slab. On the other hand, if the land or building is held for more than two years, the capital gains will be considered long-term capital gains, and the applicable tax rate will be 20%.

Q. I want to close my capital gain account. The capital gain amount is already disbursed and only interest is lying in account. The branch manager asked for Form G with AO's endorsement on it. How to get it? Please advise procedure?

Steps to close your capital gain account with AO’s endorsement:

Download Form G from the Income Tax Department website.
Fill out the form and attach the following documents:
Passbook of account A or deposit receipt of account B, as the case may be.
A letter from your bank stating that the capital gain amount has already been disbursed and only interest remains in the account.
Copy of your ID proof.
Copy of your PAN card.
Take the form and documents to the Assessing Officer (AO) with jurisdiction over you.
The AO will review the documents and endorse the form.
Take the endorsed form back to your bank.
The bank will close your account and pay you the interest amount.

Key Points to Keep in Mind:

The AO might ask you for additional information or documents.
The process of closing your account may take a few weeks.
You cannot claim any tax benefits on the interest earned in the account after it is closed.

Q. What are the provisions relating to the computation of capital gain in case of asset transfer by way of gift, will, etc.?

Cost of acquisition: The cost of acquisition of the asset for the gift recipient will be the cost of acquisition to the previous owner plus any costs incurred by the gift recipient in improving the asset.
Holding period: The asset’s holding period for the gift recipient will be the asset’s holding period to the previous owner.
Capital gains computation: The capital gains will be computed as the difference between the asset’s sale price and the acquisition cost. The capital gains will be taxed as short-term capital gains if the asset is held for less than 24 months and as long-term capital gains if the asset is held for more than 24 months.

Q. I have sold a house which had been purchased by me 5 years ago. Am I required to pay any tax on the profit earned by me on account of such sale?

When you sell a property you have held for more than two years, the profit is considered long-term capital gains and taxed at 20% after indexation. Indexation is a method of adjusting the purchase price of an asset to reflect inflation, which can lower the amount of capital gains tax you owe. Some exemptions and deductions are available for long-term capital gains on real estate, depending on how you use the proceeds and whether you invest in another property or government bonds. Moreover, there are no such benefits for short-term capital gains.

Q. What is an Income Tax Return (ITR)?

An income tax return (ITR) is a form that taxpayers must file with the Income Tax Department to declare income from all sources. The Income Tax Department then uses this information to calculate tax and define the tax slab into which the taxpayer will fall. Taxpayers can also claim deductions and exemptions on ITR to lower the tax burden.

There are seven different ITR forms, each of which is designed for a different type of taxpayer. The most common ITR forms are:

ITR 1: For individuals with a total income of up to ₹5 lakhs
ITR 2: For individuals with a total income of more than ₹5 lakhs
ITR 3: For individuals who are engaged in business or profession
ITR 4: For individuals who are salaried employees
ITR 5: For Hindu Undivided Families (HUFs)
ITR 6: For trusts and charitable organizations
ITR 7: For individuals who have income from overseas sources

Q. Who needs to file an Income Tax Return in India?

According to the Income Tax Act in India, An individual is in obligation to file an income tax return (ITR) if he falls under any of the following categories:

If an individual is less than 60 years of age and his total annual gross income exceeds ₹2.5 lakh.
If a person is a senior citizen (aged 60-79), and his annual gross income surpasses the threshold of ₹3 Lakh.
If a person is a super senior citizen (aged 80 and above) and his annual gross income exceeds the exemption threshold of ₹5 lakh.

It is important to note that even if an individual doesn’t have a tax liability, it is required to file an (ITR) income tax return in order to avail of tax benefits.

Q. What are the benefits of e-filing the return of income?

No More Standing in a Queue: You can e-file your income tax return from the comfort of your home.
Online Status Check: Once you file your ITR electronically, it becomes easy to track the status of your return online.
No More Errors: E-filing software programs can help you avoid errors on your tax forms. This is because the software programs are designed to follow the latest tax laws and regulations.
Faster Refund: E-filed tax returns are processed faster than offline tax returns. I.e., You will get your refund faster.
Auto Saving of Records: Many e-filing software programs can automatically save your tax forms with information from your previous tax returns. This can save you a lot of time and hassle.
Easy Access to Documents: E-filing of your taxes gives you the option to save your documents online.
E-Verification: E-filing allows taxpayers to verify their identity and sign their tax returns electronically

Q. Can I revise my ITR after filing?

If you have filed an incorrect tax return, you can correct it by filing a revised return as per the current tax laws. The Income Tax Act allows taxpayers to file a revised return under section 139(5). If you come to know something wrong statement in your original return, a revised return can be filed before three months prior to the end of the assessment year or before the end of the assessment, whichever is earlier. Moreover, The assessment year comes immediately after the financial year in which the ITR is filed.

Q. How many times can I revise the return?

Income Tax returns can be filed an infinite number of times; however, if the original income tax return is filed on paper, then the revised return cannot be filed electronically or online. Moreover, The Income Tax Department do not charge any fees or penalty for the revision of income tax return. If ITR is to be filed online, the taxpayer must fill in the 15-digit acknowledgment number of the primary return. Additionally, it is to be noted that if the revised return is filled too many times, it might attract scrutiny from the Income Tax Department.

Q. If I have paid excess tax how will it be refunded to me?

If you have paid more tax than your liability, you can claim a refund by filing your income tax return online. There is no separate process for the same. You should electronically verify your return using Aadhaar OTP, EVC (Electronic verification code) generated through the bank or by sending the signed physical ITR-V to CPC (Centralised Processing Centre) within 120 days of filing the return.

You should also check your form 26AS to ensure that the excess tax paid by you is stated there. The Income Tax Department will verify the claimed refund, and will be paid only if it is found valid.

Q. Can I file my ITR without a Permanent Account Number (PAN)?

It is mandatory to have a PAN card for filing Income Tax Return; however, if you have never applied for a PAN card and never allocated a PAN number, you can get an instant e-PAN using your Aadhaar card linked to your phone number.

Follow the below steps to generate an e-PAN:

Visit the Income tax e-Filing portal homepage, and click Instant e-PAN.
On the next page (e-PAN), click on Get a New e-PAN
Enter your 12 digits Aadhaar number on Get New e-PAN
Select the “I confirm that” checkbox and click Continue.
You will be receiving an OTP after OTP validation.
After OTP validation, select the “I accept that” checkbox and click continue.
You will be showing an acknowledgment number for future reference, And you will receive an e-PAN shortly after the process completion.

Q. Is it mandatory to link Aadhaar with PAN for filing ITR?

Follow the below steps to generate an e-PAN:

Visit the Income tax e-Filing portal homepage, and click Instant e-PAN.
On the next page (e-PAN), click on Get a New e-PAN
Enter your 12 digits Aadhaar number on Get New e-PAN
Select the “I confirm that” checkbox and click Continue.
You will be receiving an OTP after OTP validation.
After OTP validation, select the “I accept that” checkbox and click continue.
You will be showing an acknowledgment number for future reference, And you will receive an e-PAN shortly after the process completion.

Q. If any undisclosed income [in the form of investment in capital asset] is declared under Income Declaration Scheme, 2016, then what should be the cost of acquisition of such capital asset?

Therefore, the cost of acquisition while declaring an undisclosed asset under the Income Declaration Scheme of 2016 is the fair market value of the asset.

Q. Is it mandatory to link Aadhaar with PAN for filing ITR?

Linking Aadhaar with PAN for filing ITR is mandatory unless you fall under one of the exemptions. The deadline to link PAN and Aadhaar is June 30, 2023. If you do not link your PAN and Aadhaar by this date, your PAN will become inoperative. This means that you will not be able to use your PAN for any financial transactions, including filing ITR.

There are a few exemptions to the PAN-Aadhaar linking requirement. These exemptions include the following:

Residents of Assam, Jammu, and Kashmir, and Meghalaya
Non-residents as per the Income-tax Act, 1961
Individuals who are 80 years old or older
Individuals who are not citizens of India

Q. What is an Income Tax Return (ITR)?

Form-16 is a TDS certificate that the employer issues to the employee as proof of deducting the TDS. The employer has to deduct the income tax at source from the employee and passing it on to the government authorities. In other words, Form-16 is a certificate that provides details of the tax deducted at the source and also acts as proof that the TDS has been submitted to the government. Companies calculate the tax payable by the employee on the basis of income and investment declaration he/she makes at the beginning of the year and deduct TDS on the basis of the same. This TDS is then deposited to the government and reflected in Form 16.

Q. What is Form 16A, and how is it different from Form 16?

Just like Form 16, Form 16 A also serves the purpose of a TDS certificate. While Form 16 is used for the TDS deducted on salary income, Form 16A is used for the TDS deducted on income other than salary. It includes the TDS deducted from interest on fixed deposits, rent receipts, and insurance commissions. It is issued by financial institutions and banks on a quarterly basis under section 203 of the I.T. Act. Following are the components of Form 16A –

PAN/TAN and Employer’s name
Employee’s name, his PAN/TAN
TDS payment number
Payment details
Date and amount of deposit

Q. What should I do if I am not getting Form 16 from TRACES?

Form 16 can only be issued and downloaded by the deductor of the TDS, i.e., the employer. In other words, the employer can log in to the TRACES website and get Form 16. If you are an employee, you must approach your employer and request them to download Form 16 and share it with you.

On the other hand, if you are an employer and still unable to find Form 16 on the TRACES website, you should check all the details entered by you, like the PAN/TAN, and ensure that your KYC is updated.

If you are still not able to download Form 16, you can also download Form 26AS from the TRACES portal. It also consists of the details of TDS deducted and deposited.

Q. What are the rules for issuing Form 16?

Here are the rules for issuing Form 16 –

Employers are required to issue Form 16 to their employees who are liable to pay income tax. It is typically issued to salaried employees.
Form 16 is issued annually by the employer and should be issued annually by 15th June of the next financial year.
Form 16 should contain details of the tax deducted at source (TDS) from the employee’s salary and the employee’s name, address, and PAN/TAN.
Form 16 should provide a detailed breakup of the employee’s salary, including basic salary, allowances, perquisites, and any other income. It should also include deductions claimed under section 80C.
Form 16 contains the total tax deducted and deposited by the employer and the details of tax paid by the employee.
Form 16 can be issued in both physical and electronic formats. If issued electronically, it should be digitally signed by the employer.

Q. What is the income limit for Form 16?

The Indian Income Tax Law provides for employers to issue Form 16 to employees if their annual income is more than the basic exemption limit and if they fall within the taxable income bracket. In other words, the employer has to issue Form 16 to every employee who earns more than Rs.2,50,000 per year. While it is mandatory to issue Form 16 if any TDS has been deducted, it is upto the employer to issue Form 16 if no TDS has been deducted. Therefore, it can be said that there is no specific income limit required for issuing Form 16 as it is based on the deduction of TDS and not on the income limit.

Q. Is Form 16 only for salaried employees?

TDS (Tax deducted at source) is applied to both incomes from salary and income from other sources like interest on FD, rent, and professional fees. Form 16 is used to reflect the details of the TDS deducted on salary and is issued by the employer to the employee after the deduction of TDS. However, there are other variations of Form 16, like Form 16A, that are concerned with the TDS deducted on income from other sources like bank interest and rent. Form 16A is issued by the banks and financial institutions that deduct TDS.

Q. Is Form 16 mandatory for ITR?

No, Form 16 is not mandatory to file ITR. You can file your ITR even without Form 16. Here’s how –

Compute your annual income from salary slips and make adjustments for allowances.
Verify the details of TDS from Form 26AS.
Compute the income from house property.
Compute capital gains. Capital gains are exempt up to Rs.1,00,000.
Determine income from bank interest, etc.
Adjust for the deductions and compute the total taxable income.
Pay the remaining tax after deducting the tax paid reflected in 26AS.
On completing the above steps, you can now file your ITR without using Form 16.

Q. Is Form 16 proof of employment?

No Form 16 is not considered to be proof of employment. It is proof of the fact that TDS has been deducted by the employer and submitted to the government. It includes the details of the salary and the amount of tax deducted by the employer and deposited with the government. Even though it is issued only when TDS is deducted from salary, it does not establish any employer-employee relationship between both parties. Proof of employment generally includes details like date of employment, salary details, job title, and the terms and conditions of the employment.

Q. Is form 16 valid without signature?

No, Form 16 is not considered valid without the signature of the employer. As per the Income Tax Act, Form 16 can be issued both physically and electronically. In both scenarios, it is important for you to ensure that Form 16 contains a valid signature. If issued physically, Form 16 should be duly signed by the employer.

On the other hand, if Form 16 is issued electronically, it should be digitally signed by the employer. A duly signed Form 16 ensures that it is not tampered with and establishes its authenticity, and serves as a validation of the employer’s acknowledgment of the deductions made.

Q. Can form 16 be issued without TDS?

Although it is not mandatory for the employer to issue Form 16 if there has been no deduction of TDS, it is still up to the employer if he wants to issue Form 16 to the employees. If he wants, the employer can issue Form 16 without deducting TDS as good work practice. There are various benefits of issuing a Form 16.

Acts as proof of income
Helps in filing ITR
Provides details of salary and deductions
Crucial to apply for loans and credit cards
Consolidates all your tax-saving investments
Helps in processing Visa
Helps in claiming a refund as you can check any overpaid taxes.

Q. What is the amount of TDS if property belongs to NRI?

TDS is deducted on a property belonging to an NRI in two cases: on sale and when the employee rents the property. The buyer is supposed to deduct TDS @20% on the sale of a property that belongs to an NRI. If the property is sold before the completion of 2 years, the buyer is liable to deduct a TDS of 30% on the sale of the property.

In the case of rent, the tenants who have occupied an NRI’s property and paying rent on it must deduct TDS @31.2%, submit it to the Income Tax department, and file Form 15CA.

Q. What are the payments covered under the TDS mechanism and the rates for deduction of tax at source?

TDS is a tax in which an amount is deducted on certain payments like salary, rent, commission, professional fees, and interest. The person making the payment has to deduct the tax, and the person receiving the payment is liable to bear the tax. This reduces the possibility of tax evasion as the tax is deducted right at the source of payment. TDS is deducted as per the rates specified in the Income Tax Act. The rates may vary depending on the type of service and products. Get to know in detail about the prevailing TDS rates.

Q. Is there any minimum amount upto which tax is not deducted?

Yes, the Income Tax Department has specified certain threshold limits or minimum limits under which TDS is not required to be deducted. In other words, if the payment amount is less than the threshold limit specified for that purpose, the payer is not responsible for deducting TDS, and the receiver is not liable to pay it. However, the threshold limit has been listed under multiple sections under the Income Tax Act and varies based on the payment type. Click here to learn about the applicable threshold limits in detail.

Q. Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?

Yes, a payee can approach the payer or the TDS deductor and request them to make the payment without deducting Tax at source. Although this is only possible if the total annual income of the payee after including the income on which TDS is being deducted is less than the basic exemption limit. In other words, if the total annual income of the payee from all the sources does not fall under the taxable bracket, the payee can request the payer not to deduct TDS. The payee must file Form 15G or 15H to request non-deduction of TDS.

Form 15G: It is applicable to individual or any other person (except a firm and company)

Form 15H: It is applicable to the request filed by senior citizens.

Q. How can I know the quantum of tax deducted from my income by the payer?

The payer deducts the TDS as per the applicable rates as mentioned in the Income Tax Law. If you want to know the amount that was deducted as tax at source by the payer, you can do the following –

You can also ask the employer or the deductor to furnish a TDS certificate in respect of the amount of TDS deducted by him/her during the year.
Log in to the government’s website or portal for Income Tax and download and view Form 26AS. This form contains details about all the TDS deducted in the previous year.
You can also use the ‘View your tax credit’ facility available at the official website of the Income Tax Department India.

Q. What to do if the TDS credit is not reflected in Form 26AS?

Sometimes, the TDS deducted by the payer is not reflected in Form 26AS. There can be various reasons for such non-reflection of TDS amount in 26AS like –

The payer forgets to file the TDS statement
Providing incorrect PAN details of the deductee in the TDS statement filed by the payer.

If such a thing happens and the TDS deducted is not reflected in 26AS, the payee must contact the payer and ask them to identify the correct reason for such an error.

If the taxpayer has proof of such deduction, he/she can claim a TDS credit manually at the time of ITR filing.

The taxpayer can approach the deductor and ask them to file a revised TDS return or file a grievance to the concerned authority.

Q. I have not received TDS certificate from the deductor. Can I claim TDS in my return of income?

Yes, you can claim TDS in your return of income even if you have not received the TDS certificate from the deductor. You can verify the amount of tax deducted at source from your income by checking your Form 26AS, which is a consolidated statement of all TDS transactions. You should claim the TDS credit in your income tax return based on the amount reflected in Form 26AS and not on any other document or source. You should claim TDS with your income tax return file, as the TDS credit is being reflected in Form 26AS. If there is a mismatch between the TDS credit in Form 26AS and the TDS claim in your return of income, the tax authorities may reject your claim.

Q. If I buy any land/building then is there any requirement to deduct tax from the sale proceeds to be paid by me to the seller?

Section 194-IA of the Finance Act 2013 mandates the deduction of tax at source from the payment of sale consideration of immovable property (excluding rural agricultural land) to a resident seller. The deduction rate is 1% of the total amount. This provision is not applicable if the seller is non-resident or the consideration is less than ₹50 lakh. If the seller is a non-resident, then the tax will be deducted under section 195 of the Income Tax Act and not under section 194-IA. I.e., if the property is purchased from a non-resident, then section 195 will be applicable instead of 194-IA.

You can also consult a tax advisor to get more information on TDS on property purchases.

Q. How much TDS will be deducted in case of payment of Remuneration to company's director?

Q. Whether TDS required to be deducted on payment made to Government?

One common question in the context of tax deduction at source (TDS) is whether it applies to payments made to the Government or its entities.

No tax will be deducted if any sum is payable to the Government, Reserve Bank of India, or a corporation established by or under a central act. This means that any payment made to these government bodies, whether it is interest, commission, rent, royalty, fees, or any other income, is exempt from TDS. This exemption is based on the rationale that the Government is the ultimate recipient of tax revenue, and hence there is no need to deduct tax from payments made to the government.

Q. What is considered as salary income?

Salary income refers to the compensation that an employer provides to an employee in lieu of the services provided by the employee in relation to the employment contract. The income received is considered as salary and taxed under section 15 only if there is an employer-employee relationship between both parties. Salary income can be received in the form of – Wages

Annuity/pension
Gratuity
Fees/Commission
Salary in Advance
Leave encashment
Transferred balance in a provident fund to the point it is taxable.
Central government’s contribution to an employee’s account under the pension scheme.

Q. What are allowances?

Allowances are periodic payments that the employer makes to the employees to help them meet specific requirements of the employee as tiffin allowance, servant allowance, transport allowance, and uniform allowance. Such allowances are given over and above the salary and are included in the total salary except in case it is specifically exempted.
Allowances can be fully taxable, partially taxable, or fully exempt.
Here are a few examples of the most common allowances –

House rent allowance
Leave travel allowance
City compensatory allowance
Children education allowance
Tribal area allowance
Border area allowance

Q. My employer reimburses to me all my expenses on grocery and children's education. Would these be considered as my income?

Yes, any reimbursement provided by the employer to the employee for the expenses incurred is considered to be perquisite under the Indian Income Tax Law. Perquisites are additional benefits provided by the employer to the employee over and above the salary and allowances. These perquisites are taxable in the hands of employees.

While allowances are the benefit provided to meet specific expenses in monetary form, perquisites are the benefits the employer provides to the employee above the salary and allowance amount and can be given in the form of goods, services, reimbursements, etc.

Since the expenses like children’s education and grocery expenses are considered perquisites under the Indian Income Tax Act, the reimbursements of the same will be taxable in the employee’s hands.

Q. What is the taxability of ex-gratia received from employer?

Any ex-gratia payment received by the employer as a token of appreciation for good work or as compensation for any injury or hazard that took place while on duty or due to death on duty is not considered a part of salary and hence not taxable.

Ex gratia payment is a monetary compensation provided by an employer to the employee or the dependents of the employee (in case of death) or in case of injury or retrenchment. For example, if a company decides to do retrenchment of employees, it has to pay legal compensation to the employees on an ex-gratia basis before laying them off.

Q. Is transport allowance can be claimed as exemption by an employee?

Yes, an employee can claim transport allowance as an exemption to some extent. As per the Indian Income Tax Law, employees were granted transport allowance of up to Rs.1600 per month. This exemption was discontinued w.e.f. A.Y. 2019-20.

However, if the employee is blind, dumb, orthopedically handicapped, or deaf, he/she can avail of an exemption of transport allowance of up to Rs.3200 per month.

Q. Is pension income taxed as salary income?

Pension is the portion set aside from an employee’s salary, which is paid out periodically, usually on a monthly basis. The Taxpayer can also opt to receive his pension as a lump sum which is called commuted pension. A periodically paid pension is called uncommuted pension. The source of pension income is usually an annuity fund that the employer and the employee create during the service period. The annuity fund invests the contributions and pays out the pension to the employee after retirement.

The taxation of pension income depends on whether it is commuted or uncommuted. An uncommuted pension is taxed as salary income in the hands of the employee. Commuted pension is partially exempt from tax depending on the type of employee. Commuted or uncommuted pension is exempted from tax in case of government employment. In the case of a non-government employee, a pension is partially exempt depending on whether the employee receives the gratuity.

Q. Any ex-gratia payment received by the employer as a token of appreciation for good work or as compensation for any injury or hazard that took place while on duty or due to death on duty is not considered a part of salary and hence not taxable. Ex gratia payment is a monetary compensation provided by an employer to the employee or the dependents of the employee (in case of death) or in case of injury or retrenchment. For example, if a company decides to do retrenchment of employees, it has to pay legal compensation to the employees on an ex-gratia basis before laying them off.

A family pension is a regular payment made to the spouse or children of a deceased employee. It is different from the pension received by an employee after retirement. Family pension is not taxed as salary income but as income from other sources. The tax treatment of family pensions depends on the amount received.

According to the Income Tax Act, 1961, a family pension received by a family member of a deceased employee is exempt from tax up to Rs. 15,000 or 1/3rd of the family pension received, whichever is less. The remaining amount is taxable as income from other sources and is subject to the normal tax rates applicable to the recipient.

Q. Are arrears of salary taxable?

Arrears of Salary is the term used for the unpaid salary due to an employee for the previous period. Sometimes, the salary may be revised or increased, but the payment may be delayed or made retrospectively. In such cases, the extra amount paid later is called salary arrears. The employer should show this amount separately in the salary slips and part B of Form 16.

Salary arrears are considered salary income in the ITR and are taxable in the year of receipt. However, some taxpayers may be concerned about paying higher taxes because of a higher tax bracket in the year of receipt or due to a change in the slab rate. To avoid this, the taxpayer can claim relief under Section 89.

Q. Is leave encashment taxable as salary?

Leave encashment is the process of converting unused leaves into money at the time of resignation or retirement. The leave encashment amount is taxable as income from salary, and the employee can claim tax relief under Section 89 of the Income Tax Act. To claim this relief, the employee has to fill and submit Form 10E online on the income tax department’s website. Employees can use Form 10E to calculate the amount of tax that can be reduced from the leave encashment amount. In the case of the employee’s death before the leave encashment, the legal heir of the deceased employee can receive the total encashment amount.

Q. Is standard deduction applicable to all the salaried person whether he is an employee of Central or State Government?

Yes, the standard deduction applies to all salaried employees, including private sector employees and state and central government employees.

The Income Tax Act provides various provisions for taxpayers to decrease their tax liability by claiming deductions and rebates. The deductions are based on how the taxpayers spend or invest their income. One of the deductions available to salaried individuals and pensioners is the standard deduction. The standard deduction is a flat amount that can be deducted from the gross salary without any proof of investment or expenditure. The standard deduction for salaried individuals is Rs. 50,000, which was increased from Rs. 40,000 in 2019.

Q. Is standard deduction applicable to family pensioners?

Family pension is taxed under the “Income from Other Sources” head in India. The family pension beneficiaries can claim a standard deduction of 1/3 of the amount of the family pension received, or Rs 15,000, whichever is less, as per section 57 (iia) of the Income Tax Act. This deduction has to be mentioned in the last row under the “Income from Other Sources” section to get the benefit. Family pension received by members of the armed forces is exempt from tax. However, family pension received by other categories of employees is taxable.

A family pension differs from a regular pension received by an employee after retirement. Family pension is paid to the legal heir of an employee who dies while in service or after retirement.

Q. What is pre-construction period?

Section 24(b) of the income tax act provides a deduction for interest on a home loan from the income taxable under the head “Income from house property” if the loan is taken for buying, building, renovating, or restoring a property. The deduction for interest is available in two categories, namely, interest for the pre-construction/acquisition period and interest for the post-construction/acquisition period. Interest for the pre-construction/acquisition period is deductible in five equal installments beginning from the year in which the construction or acquisition is completed.

Pre-construction period refers to the time span between the date of taking a loan for the construction or acquisition of a property and the earlier of these two events:

The date of repayment of the loan; or
The 31st March of the financial year preceding the year in which the construction or acquisition of the property is completed.

Q. My spouse and I jointly own a house in which both of us have invested equally out of independent sources. Can the rental income received be split up between us and taxed in the individual hands?

Yes, the rental income received can be split up between the husband and wife and taxed separately in the individual hands. If a house property has more than one owner, then the rental income from that property will be split according to the ownership share of each co-owner, and each co-owner has to pay tax on their own share of income.

For instance, Mr. and Mrs. Choudhary are the co-owner of a house in a 50:50 ratio; if the total rental income of that particular property is 20,000 per month, the couple can split the rental income to ₹10,000 each in their Income Tax Return.

Q. What is self-occupied property?

An individual may be eligible for tax deductions under Section 24 of the Income Tax Act, 1961, if he/she meets the following conditions:

The taxpayer owns a property;
The taxpayer cannot occupy the property because his/her employment, business, or profession requires him/her to live in another place where he/she does not own any property;
The taxpayer does not rent out the property, either partially or fully, at any time during the year;
The taxpayer does not derive any other benefit from the property.

Q. How to compute income from self occupied property?

A self-occupied property is a property that is used for residential purposes by the owner or his/her family. A property that is not occupied is also considered a self-occupied property for income tax purposes. Until Financial Year 2019-20, only one property could be declared as self-occupied by the taxpayer if he/she owned more than one property. The rest were deemed to be let out. From Financial Year 2019-20 onwards, the taxpayer can declare two properties as self-occupied and the remaining properties as deemed to be let out.

Q. Can a property not used for residence by the taxpayer be treated as self occupied property?

A property that belongs to the taxpayer and is used by him as his own residence for the entire year is called a self-occupied property. It means the owner does not rent out the property to anyone else during the year or any part of it. A property the owner does not use as his residence cannot be considered self-occupied. However, if the property owner resides in a different city for work or business reasons and rents a place there, and his property is either unoccupied or used by some of his family members, the property is treated as self-occupied for tax purposes.

Q. What income is charged to tax under the head 'Income from house property'?

Income earned from letting out a property consisting of a building and land attached to it is taxed under the head “Income from House Property.” House property includes different types of properties, such as residential houses, commercial buildings, apartments, offices, shops, godowns, factories, and so on. The property can be self-occupied or leased from someone else. The income from the house property is calculated based on the annual value of the property, which is the higher of the actual rent received or the expected rent of the property.

Q. What will be the tax implications if a person occupies more than one property for his residence? Can he treat all the properties as self occupied (SOP) and claim gross annual value (GAV) as Nil?

If a person holds more than one property and resides in it, he can choose any two of them as self-occupied properties (SOP) and declare their gross annual value (GAV) as nil under section 23 of the Income Tax Act, 1961. I.e., He does not have to pay taxes on the notional rent of these two properties. This provision of the income tax act was introduced in the financial year 2019-2020. Earlier, only one property could be treated self-occupied property, and the other property was deemed to be let out and taxed on its notional rent.

Q. I own two houses. One is a farmhouse that I visit on weekends and the other is in the city that I use on weekdays. Is it correct to treat both these residences as self occupied?

According to the Income-tax Law, you can claim only one property as self-occupied property, and the other property will be deemed to be let-out property for the assessment year 2019-20 and earlier. However, from the assessment year 2020-21 onwards, you can claim two properties as self-occupied properties subject to certain conditions. Therefore, you can treat both your farmhouse and your city house as self-occupied properties from the assessment year 2020-21 onwards, provided you fulfill the specified conditions.

Q. In case of a self-occupied property, how much of interest on housing loan can be claimed as deduction?

The deduction can be claimed up to ₹2 lakh for home loan interest if the owner or his family resides in the house property. The same treatment is applicable if the house is vacant. If the property is rented out, the entire home loan interest will be allowed as a deduction.

However, the deduction for home loan interest will be limited to ₹30,000 instead of ₹ 2 lakhs in case:

The loans were taken on or after 1st April 1999
The construction or the purchase is not completed within 5 years from the financial year-end in which the loan was taken.
The loans were taken on or after 1st April 1999 for the purpose of renovation or the maintenance of the house property.
The loan was taken before 1 April 1999

Q. How to compute income from a property which is self-occupied for part of the year and let out for part of the year?

If you own a property that you use for yourself for some part of the year and rent out for the rest of the year, you may wonder how to calculate your income from it for tax purposes. You have to treat the property as if it was rented out for the whole year and use the rent received as the basis for your income calculation. However, you can only include the actual rent you received for the period that the property was let out and not the notional rent you could have received if it was let out for the entire year. This way, you can account for the income from your property in a fair and accurate manner.

Q. What is the tax treatment of unrealised rent which is subsequently realised?

Section 25AA of the Income Tax Act deals with the taxation of unrealised rent that is subsequently realised by the owner of a house property. Unrealised rent refers to the rent that is due from a tenant but not received by the owner. If the owner takes legal action against the tenant and recovers the unrealised rent, it will be treated as income from house property in the year of receipt. This is irrespective of whether the owner still owns the property or not. The unrealised rent will be taxed at the normal rates applicable to the owner’s income.

Q. What are the benefits available to a senior citizen and a very senior citizen in respect of tax rates?

Senior citizens aged 60 years and above but below 80 years and super senior citizens aged 80 years and above are provided with certain tax benefits and concessions. Some elementary waivers are provided to both senior and super senior citizens. The basic tax exemption limit for senior citizens is up to Rs 3 lakhs under the old tax regime, while under the new tax regime, this is Rs. 2.5 lakh. Super citizens get a higher advantage; this exemption limit is up to Rs 5 lakh under the old tax regime Under the new regime, for super senior citizens, this basic exemption limit is up to Rs. 2.5 lakhs.

Q. At what age a person will qualify as a senior citizen and very senior citizen under the Income-tax Law?

In India, the income tax slabs are structured progressively, where the tax rates increase as the income levels rise. For income tax purposes, individuals who are aged 60 years and above but below 80 years are called senior citizens. This means individuals who have reached the age of 60 or will turn 60 during the relevant financial year are classified as senior citizens. Further, individuals aged 80 years and older are called super senior citizens. This means individuals who have reached the age of 80 or will attain the age of 80 years during the relevant financial year are classified as very senior citizens. The tax slabs for senior citizens and super senior citizens are different than the tax slabs for normal individuals, as the tax exemption limits are higher for senior citizens and super senior citizens.

Q. Is there any special benefit available under the Income-tax law to very high aged person, i.e., very senior citizens?

A person is classified as a very senior citizen for income tax purposes if their age is 80 years or older. This means individuals who have reached the age of 80 or will attain the age of 80 years during the relevant financial year are classified as very senior citizens. Yes, under the Income-tax Law in India, special benefits are available to very senior citizens (individuals aged 80 years or above). These benefits aim to provide additional relief and ease the tax burden for this age group. Very senior citizens are exempt from paying advance tax. They can pay their entire tax liability when filing the income tax return. Every senior citizen claim deduction under Section 80D for medical insurance premiums paid for themselves or their dependents. The maximum deduction allowed depends on the actual premium paid and the individual’s age.

Q. Is a very senior citizen granted exemption from e-filing of income tax returns?

Budget 2021 introduced an exemption for seniors aged 75 years and older if they meet certain eligibility criteria. Section 194P was introduced in the Income Tax Act, as per which very senior citizens are exempt from tax if:

The senior citizen must be a resident in India.
The senior citizen should be 75 years old or older during the previous year, which would be applicable for the financial year 2022-23 (ended on March 31, 2023).
The senior citizen should have pension income as their only source of income. However, they may also have interest income from the same bank where they receive their pension.
If the very senior citizen fulfills these criteria, then he/she has to submit a declaration to the bank to deduct TDS from their income in the previous financial year, i.e., during FY 2022-23. If the senior citizen has not submitted the declaration during the last financial year, then the senior citizen will be required to file his/her ITR.

Q. Is a Resident senior citizen granted exemption from payment of advance tax?

If your tax liability exceeds Rs. 10,000 in a financial year, paying an advance tax under Section 208 is mandatory. However, resident senior citizens and super senior citizens are not required to pay any advance tax on their income if they do not have income from business or profession. They file their returns through self-assessment tax after the completion of the financial year. After the income is aggregated and the eligible deductions are deducted from the income, the individual’s taxable income is ascertained. This taxable income is, then, subject to tax as per the applicable tax slab.

Q. What are the benefits available in respect of interest on deposits in case of senior citizens?

Any senior citizen as a resident individual in India can claim a deduction of up to Rs 50,000 from the interest income earned on deposits (savings or fixed) during the concerned financial year. Section 80TTB is designed to help senior citizens maintain a decent lifestyle after retirement, many of whom depend on their interest income for these expenses. This section acts as an upgrade of Section 80TTA, as the threshold limit of the tax deduction on interest income was raised from INR 10,000 to INR 50,000 for senior citizens. However, Section 80TTB has certain limits and eligibility criteria that should be followed to gain the benefits of the same.

Q. What are the benefits available in respect of expenditure incurred on account of medical treatment of specified diseases on treatment of a senior citizen?

Section 80DDB provides a deduction for the expenditure incurred on treating specified diseases for self, spouse, children, parents, and siblings. Rule 11D of the income tax covers the list of specified diseases. The amount of the deduction depends on two factors – the age of the patient and the actual amount of expenditure. For senior citizens, the maximum deduction amount is Rs.1 lakh.

Q. Is a retired senior citizen granted exemption from payment of advance tax?

If your tax liability exceeds Rs. 10,000 in a financial year, then paying an advance tax under Section 208 is mandatory. However, retired senior citizens and super senior citizens are not required to pay any advance tax on their income if they do not have income from business or profession. They file their returns through self-assessment tax after the completion of the financial year. After the income is aggregated and the eligible deductions are deducted from the income, the individual’s taxable income is ascertained. This taxable income is, then, subject to tax as per the applicable tax slab.

Q. How much is the income tax limit for senior citizens?

Senior citizens over 60 years of age are required to pay taxes. They can pay taxes by both ways; new and old tax regime.

Income Tax Slab Rate for Senior Citizens (FY 2022-23) (Old Regime)

Income level	Applicable
Up to INR 300,000	Nil
INR 300,001 to INR 500,000	5% of the income exceeding INR 300,000
INR 500,001 to INR 10,00,000	5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000
INR 10,00,001 and above	5% of the income exceeding INR 300,000 + 20% of the income exceeding INR 500,000 + 30% of the income exceeding INR 10,00,000

Additionally, as per the new tax regime the basic exemption limit is Rs. 2.5 lakh.

Q. How to compute income from a property which is self-occupied for part of the year and let out for part of the year?

Q. How much may an elderly person earn tax-free?

In India, the income tax exemption limits for elderly individuals (senior citizens) depend on their age and the financial year in question. Here are the income tax exemption limits for senior citizens for the financial year 2022-23 ( assessment year 2023-24):

Senior Citizen (60 years or above but below 80 years):

Basic exemption limit: The basic exemption limit for senior citizens for the financial year 2022-23 is INR 3,00,000. This means that the first INR 3,00,000 of income is exempt from income tax.

Very Senior Citizen (80 years or above):

Basic exemption limit: The basic exemption limit for very senior citizens for the financial year 2022-23 is INR 5,00,000. This means that the first INR 5,00,000 of income is exempt from income tax.

As per the new tax regime, this exemption limit is up to 2.5 lakh.

Q. What is tax audit?

Literally, the word Audit means to check, review, and inspect. An audit is often associated with the inspection of a company’s books of accounts. Different laws require different types of audits for example, company law requires you to conduct a company audit, Income tax law prescribes a tax audit, and cost accounting prescribes a cost audit.

Section 44AB of the Income Tax Act provides for the classes of taxpayers who are required to get their books audited by a Chartered Accountant.

The audit of the accounts of taxpayers conducted by a CA, as per the requirement of section 44AB, is known as a tax audit.

Q. What is the objective of tax audit?

Below are the objectives of the tax audit –

Ascertain/report/derive the requirements of Forms 3CA, 3CB, and 3CD.
Ensures that the books of accounts and other account records are maintained properly and reflect the actual income of the taxpayer.
It ensures that the claims for deduction are made correctly.
Helps keep check of fraudulent activities
Analyzes the accuracy of ITR filed in the A.Y. by companies and individuals.
Reporting the findings of the tax auditor after analyzing the inaccuracies in ITR.
Reporting details like tax depreciation and other compliances.

Q. What is the due date by which a taxpayer should get his accounts audited?

Any person who is covered under section 44AB and gets his/her books audited is required to obtain the audit report from the auditor before 30th September of the assessment year. If you are filing the ITR for the previous year, 2022-2023, then you need to obtain the audit report before 30th September 2023 for the A.Y. 2023-2024.

A chartered accountant is required to electronically file the tax audit report to the Income Tax Department. Once a CA files the report, it has to be approved by the taxpayer using his/her e-filing account with the Income Tax Department.

Q. What are Form Nos. 3CA/3CB and 3CD?

Any person mandated to conduct a tax audit of his/her books of accounts under section 44AB has to furnish either of the following –

Form 3CA: Any taxpayer having a business or profession and already mandated to get their accounts audited under any other law. For example, if a company needs to conduct an audit under the companies act, then it has to furnish Form 3CA.

Form 3CB: Any taxpayer having a business/profession but doesn’t have to get their accounts audited under any other law has to furnish Form 3CB. Proprietorship or partnership firms having opted for presumptive tax schemes and having a turnover exceeding Rs. 1 crore. Such companies are required to furnish Form 3CB.

Form 3CD: Form 3CD is a detailed statement of particulars that contains 41 different points. The details of various business and professional aspects must be furnished in this form.

Q. If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB?

Companies or cooperative societies might be required to conduct an audit of their books of accounts under the respective act/law. As per section 44AB, if a person is required to get their accounts audited under a law other than the Income tax law, such person is not required to get their accounts audited again in accordance with the Income Tax Law. However, it is mandatory to get the accounts audited under the other law and obtain an audit report duly signed by the chartered accountant and in the manner prescribed under section 44AB in Forms 3CA and 3CD.

Q. What is the penalty for not getting the accounts audited as required by section 44AB?

A person who has to follow section 44AB and does not get his accounts audited or submit the report as per section 44AB for any year or years may face a penalty from the Assessing Officer. The penalty amount will be the lower of the following:

0.5% of the total turnover, sales, or gross receipts in business or profession for that year or years.
₹ 1,50,000.

However, section 271B states that no penalty will apply if the person can prove a reasonable cause for such failure.

Q. As per section 44AB, who is compulsorily required to get his accounts audited, i.e., who is covered by tax audit?

The taxpayers who need to get a tax audit done:

An aggregate amount received, including the amount received for sales, turnover, or gross receipts during the previous year in cash, does not exceed 5% of the said amount.
An aggregate of all payments made, including the amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment: Threshold limit would be ₹10 crores instead of ₹1 crore (from 1/4/21 for FY 2021-22 – 5 crores)
An individual (In profession) with a gross receipt that exceeds ₹ 50 lakh during the previous year.
An assessee opted for sections 44ADA and 44AD but claimed his income was lower than the profits computed under presumptive and income exceeds the taxable amount according to the Income Tax Act.
An assessee opted for sections 44AE, 44BB, 44BBB but claimed his income was lower than the profits computed under the mentioned sections in any previous year.

Q. Who is in charge of conducting a tax audit?

A tax audit verifies the accuracy and compliance of an assessee’s income tax return and financial statements. An auditor is appointed by the government to conduct a tax audit on its behalf. An auditor can be a chartered accountant or any other person who can be appointed as an auditor as per section 141 of the companies act 2013. The purpose of a tax audit is to ensure that the assessee has complied with all the provisions of the Income Tax Act and has paid the correct amount of tax.

Q. Who is exempt from undergoing a tax audit?

A tax audit verifies the accuracy and compliance of an assessee’s income tax return and financial statements as per the Income Tax Act 1961. However, not all taxpayers are required to undergo a tax audit. There are some exceptions available for certain categories of taxpayers, as follows:

Any taxpayer earning income from the shipping business under section 44B of the Income Tax Act, 1961.
Any taxpayer earning income from aircraft operation under section 44BBA of the Income Tax Act, 1961. This section provides a presumptive taxation scheme for computing the income from aircraft operations at 5% of the gross receipts.
Any taxpayer whose books of account have been audited under any other law applicable to him. However, such a taxpayer has to furnish a tax audit report in Form 3CB, 3CA, or Form 3CD along with his return of income.

Q. How many tax audit reports can a Chartered Accountant sign?

The ICAI sets rules and regulates chartered accountants and tax audits in India, i.e., the ICAI also sets the limit for tax audits a chartered accountant can perform. A chartered accountant can perform 60 tax audits in one financial year. However, In the case of a firm of Chartered Accountants in practice, this limit applies to each partner of the firm and can be shared among them in any proportion. For example, one partner can sign 600 tax audit reports if the other nine partners do not sign any. The number of tax audit reports that a Chartered Accountant can sign in a financial year.

Q. What is TAN?

The Central Government’s Income Tax Department of India issues a 10-digit alphanumeric number to all persons who are responsible for deducting tax (TDS) or collecting tax (TCS) at the source. This is a unique number known as TAN, standing for Tax deduction and collection account number. As per section 203A of the Income Tax law, the TAN number should be mentioned on all TDS returns filed. A TAN starts with 4 alphabets followed by 5 numbers that end in an alphabet again. TAN number forms an important part of the compliance requirements for the Income Tax Act.

Q. Who must apply for TAN?

Every person who deducts tax at source and collects tax at source must apply for TAN and obtain it to make it easier to file ITR, except a person covered under the provisions of section 194IA as they are not required to obtain a TAN number.

TDS refers to the tax deducted by the payer at the time of making the payment for specified services such as rent, commission, interest, salary, etc.

The tax collected at source or TCS is the tax deducted by the seller from the buyer on the sale of certain specified goods. This amount is added to the sale price, collected from the buyer, and deposited to the Central Government.

Q. Why TAN is required?

Not knowing your TAN number might cause you to go through a lot of difficulties. Here are the reasons why you should hold a TAN number. All the provisions for the relevance of TAN are mentioned in 203A of the IT Act.

It is difficult to file TCS and TDS statements without a TAN.
When you want challans for TDS or TCS payment, you need to provide a TAN number.
You also need to quote your TAN number to be able to submit your TDS or TCS certificates. Not having the TAN number can cause difficulty in the documentation process.
TAN number is also necessary for filing various Income Tax Forms.

Q. What is duplicate TAN?

A duplicate TAN is a number that is obtained by the same person who already has a TAN allotted to him/her and is responsible for deducting the TDS/TCS on transactions through illegal means. It is an illegal practice to obtain a duplicate TAN number. However, if there are different branches or divisions of an entity, they can hold different TAN numbers. A person can also obtain a duplicate TAN in cases of loss, theft, etc, after furnishing proper evidence of such loss/theft.

Q. In case duplicate TAN has been allotted, which TAN should be used?

If you have been allotted a duplicate TAN by mistake or due to any other reason, you should continue to use the TAN number that was allotted first and has been used regularly by you. The duplicate TAN number should be surrendered and applied for consolation. This can be done using the “Form for changes or correction in TAN.” Now you need to download the Form for surrendering from the official website of NSDL-TIN, obtained from TIN-FCs or other vendors.

Q. What do we have to do if we have been allotted a duplicate TAN by oversight?

If you are issued a duplicate TAN by oversight, you can simply apply for the cancellation of the duplicate TAN, as holding more than one TAN is considered illegal. You can apply for cancellation of the unused TAN number by submitting the ‘Form for changes or correction in TAN.’ You can download this form from the NSDL-TIN website, or it can be obtained from third-party vendors or TIN-FCs. Since holding more than one TAN is an illegal practice, you should immediately apply for its cancellation as soon as you receive it and never put it to use, as it might lead to severe legal consequences.

Q. How to apply for TAN?

Here are the steps to be followed to apply for a new TAN –

Visit the NSDLs official website
Select ‘TAN’ from the ‘Services’ drop-down menu.
Click on ‘Apply Online’.
Choose ‘New TAN’
On the next page, choose the appropriate option from the list – ‘category of deductors’ and click select.
You will be redirected to Form 49B
Fill out the form and submit it
Once the form is submitted, you will receive a confirmation consisting of the following details –
- 14-digit application number
- Application status
- Applicant’s name
- Contact details
- Payment details
- Signature space
You can save the acknowledgment and also take a printout for your reference.

Q. Who will allot TAN?

When you apply for a TAN number, all your whereabouts are thoroughly checked, and the Income Tax Department allots TAN on the basis of the application that you submitted to the TAN facilitation center. These TAN facilitation centers are managed by the NSDL. The NSDL intimates or provides the TAN number, which the taxpayer has to use in all future correspondence related to the TDS or TCS. This number will have to be mentioned in many forms and used for various purposes.

Q. Can an online application be made for allotment of TAN?

Yes, you can file an online application to get the TAN number on the official website of NSDL. Make sure you read all the instructions carefully.

Fill out the required form with all the details and submit it.
After submitting the form online, they will receive the acknowledgment number.
You need to print the acknowledgment number and send it to the Pune office of NSDL.
After this, you are required to pay the fees either online or through a cheque/DD.
After receiving the application, the IT department verifies the details and issues the applicant’s TAN to NSDL.
NDSL will then send the TAN details to the applicant’s address as provided in Form 49B and also send an email containing the required TAN details.

Q. Should Government deductors apply for TAN?

Yes, a government deductor should also apply for TAN either online or offline and obtain a TAN number to use in all future correspondences. A deductor is someone who is responsible for deducting the tax from the payment amount and paying it to the government. In other words, the person who deducts the TDS/TCS and submits it to the government is known as the deductor and the person who receives the payment after the deduction of TDS is known as the deductee.

Q. Which incomes are deemed to be received in India?

Incomes deemed to be received in India are the followings:

Any amount contributed by the employer to a recognized Provident Fund (PF) that exceeds 12% of the employee’s salary or any interest credited to a recognized PF that exceeds 9.5% per annum.
Any amount contributed by the Central Government or any other employer under a pension scheme as per Section 80CCD of the Income Tax Act.
Any amount of employer contribution and interest that is transferred from an unrecognized PF to a recognized PF.

Q. What incomes are deemed to have accrue or arise in India?

Q. What is the objective of FEMA?

The Foreign Exchange Management Act (FEMA) is a law enacted by the Indian Parliament in 1999 to regulate foreign exchange transactions in India. The main objectives of FEMA are:

To facilitate the external trade and payments of India
To promote the orderly development and maintenance of the foreign exchange market in India
To simplify and amend the law relating to foreign exchange
To control and direct the activities and investments of non-residents in India
To use foreign exchange resources effectively for the country
To remove the imbalance of payments

FEMA applies to all parts of India and to all Indian citizens and agencies located outside India. FEMA is administered by the Reserve Bank of India (RBI) and the Enforcement Directorate (ED).

Q. When is a business connection said to be established?

A business connection is a relationship between a non-resident entity and an activity in India that contributes directly or indirectly to the income of the non-resident entity. A business connection may include any of the following situations:

The non-resident entity has an agent in India who has the authority to dissolve contracts on its behalf, except for contracts for the purchase of goods or merchandise.
The non-resident entity has an agent in India who usually maintains a stock of goods or merchandise from which he tidily delivers goods or merchandise on its behalf.
The non-resident entity habitually secures orders in India mainly or wholly for itself or for another non-resident entity under the same management.

Only the income that is attributable to the business connection in India is deemed to accrue or arise in India and is taxable in India. The entire income of the non-resident entity is not taxable in India.

Q. What are the other provisions under the Income-tax Act which are applicable to a Non-Resident?

A few other arrangements beneath the Income-tax Act that are appropriate to a Non-Resident are:

A Non-Resident is obligated to pay tax on income that’s deemed to accrue or arise in India, such as pay from business connection, property, asset, or source of salary in India.
A “resident but not-ordinarily resident” pays a charge on his taxable Indian income and on foreign income, which is derived from a business controlled in or a profession set up in India.
A Non-Resident is additionally liable to pay tax on income that’s received or deemed to be gotten in India, such as salary for services rendered in India, dividend from an Indian company, and interest from an Indian bank account.
A Non-Resident may claim relief from double taxation beneath the arrangements of the Double Taxation Avoidance Agreement (DTAA) between India and the country of his home.

Q. What is the extent and application of Foreign Exchange Management Act 1999 (FEMA 1999)?

The Foreign Exchange Management Act (FEMA) 1999 is a jurisprudence implemented by the Indian Parliament to govern and modernize foreign exchange transactions and markets in the country. The act aims to facilitate the external trade and payments of India and to promote the tidy growth and stability of the foreign exchange market. The act covers the entire territory of India and also applies to any person residing in India who owns or controls any branch, office, or agency across the Indian border. The act also empowers the authorities to take action against any person who violates the provisions of the act outside India.

Q. What are the Capital Account transactions?

The capital account records all economic transactions between a country and the rest of the world. Capital account manifests how much a country’s assets have changed due to transactions with foreign entities. These transactions comprise the import and export of goods, services, capital, and receiving transfers like foreign aid and remittances. The balance of payments collectively of a current and capital account, which displays how much a country’s income and assets have transformed caused by these transactions. Some definitions split the capital account into a financial account, and a capital account, where the financial account comprises transactions involving financial assets and liabilities, and the capital account includes transactions involving non-financial assets and liabilities.

Q. What are the Current Account transactions?

A current Account is a deposit account that is used for large-value transactions on a regular basis. It is mainly opened by businessmen who need to make payments to their creditors using cheques. Current Account does not offer any interest on the deposits and allows customers to deposit and withdraw money at any time without notice. A current Account is also known as a financial account, and it is different from Savings Account, which provides interest. Current Account is suitable for businesses who want to carry out their financial business transactions smoothly.

Q. Can foreign nationals resident in India open resident account?

Foreign nationals are permitted to open an ordinary savings account, as many residents in India do. In fact, even foreign tourists on a short visit to India can open an account. A foreign national who comes on a visit can open only an NRO account, while a foreign national resident in India can open a resident account as well. So, this will operate just like any other domestic account. However, one needs to be careful on the likely procedure that would be followed for repatriation. Money in the NRE account can be repatriated freely, while in the case of NRO, certain terms might need to be fulfilled. So, although Foreign nationals may be allowed to open a resident account, foreign nationals must also understand the implications and whether they are allowed to freely repatriate from a resident account or whether specific permission is needed for the purpose.

Q. Can a resident open a foreign currency denominated account in India?

A resident individual can open a foreign currency account in India with an authorized dealer, according to the Foreign Exchange Management Act, 1999 (FEMA). This account is called a Resident Foreign Currency (Domestic) Account and can be in the form of a current or savings account. The account can be opened with foreign exchange acquired in the following ways:

By receiving payment for services not arising from any business or activity in India while visiting a place outside India
By receiving honorarium, gift, or payment for services rendered from a non-resident who is visiting India
By receiving an honorarium or gift while visiting a place outside of India
By having unspent foreign exchange acquired from an authorized person for travel abroad
By receiving a gift from a relative

The account can be held either singly or jointly with another resident individual. The account does not bear any interest, and the balance can be used for any permissible current or capital account transactions.

Paisa nivaran's FAQs

Company

Services

Calculators