Section 269ST – Clarification on the repayment of Loan Instalments in Cash

What is Section 269ST?

Section 269ST is considered as one of the important sections which were introduced by the Government with the intention of restricting Cash Transactions to curb Black Money and Tax Theft in the industry. Though this section simple in the front end but has various different angles which people faced in their practical life at the time of implementing this section.

Applicability of Section 269ST

The section 269ST states that, no person shall receive an amount of INR 2L or more:

  • In aggregate from a person in a day or,
  • In respect of a single transaction or,
  • respect of transactions relating to one event or occasion from a person

otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

Exclusions in Section 269ST

This section will not apply to-

  • Government
  • any banking company
  • post office savings bank
  • co-operative bank
  • other persons/receipts as may be notified

Transactions referred to in section 269SS (attracted when we accept a loan from any person) will be excluded from the scope of the new section 269ST.

Penalty

  • If any person does not comply with section 269ST then they have to bear the penalty specified U/s 271DA.
  • They shall be liable to pay any amount as a penalty equal to such amount receipt
  • However, there is an exception to section 271DA; According to section 271DA if a person proves that there were good and sufficient reasons for contravention of section 269ST then no person shall be liable

FAQs

What is difference between 269SS and 269ST?

Except for the transactions referred to in Section 269SS and other receipts as exempted by Central Government by notification, Section 269ST of the Act shall apply to every receipt whether taxable or tax free, whether capital or revenue.

What is the limit for cash receipt?

Income Tax Act restricts any person to receive an amount of INR 2L or more in cash, from a person in a day, in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, under Section 269ST.

Are cash payments illegal?

Paying wages in cash is legal and maybe more convenient. Some businesses deliberately use cash transactions to avoid meeting their tax and employee responsibilities. If you receive cash for work you do, you need to: be paid (at least) the correct award wages.

Section 269SS & Section 269T – Repayment of Loan

Section 269SS & Section 269T deal with cash payment and repayment of loans and deposits. Both the sections were introduced to curb the black money. Tax evasion is one of the serious problems in India causing economic disparities. In other words, these sections were introduced to curb the increasing cash transactions which are leading to the accumulation of black money as these sections restrict such cash payments.

What is Section 269SS

An individual cannot accept loan or deposit or any other specified sum from another person via an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account if:

  • Amount of loan or deposit or specified sum is INR 20,000 or more, or
  • Sum total amount of loan, deposit, and the specified sum is INR 20,000 or more. For example, an individual wants to take a loan of INR 6,000, a deposit of INR 9,000, and an advance of INR 7,000 from his friend, he cannot accept it in cash because of the total sum is INR 22,000
  • In a case where a person had already received a loan, deposit, or specified sum from the depositor but the loan or deposit or specified sum hasn’t been paid back in such case, if the unpaid loan or deposit or-specified sum is INR 20,000 or more, or
  • Sum total amount of (1), (2), and (3) is INR 20,000 or more. Therefore, a person cannot accept a cash loan or deposit of INR 20,000 or more from another person

Exceptions to Section 269SS

  • Any loan taken or accepted from or taken or accepted by the following entities:
    • Government
    • Any banking company, post office savings bank, or cooperative bank
    • Corporations established by a Central, State, or Provincial Act
    • Any government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
    • Any institution or body or class of institutions notified in the Official Gazette

Thus, if any person accepts any loan or deposit or specified sum from the above-mentioned entities, or the entities accept any loan or deposit or specified sum from any person, provisions of Section 269SS will not apply.

  • A person earning only agriculture income accepts a loan or deposit from  another person also earning only agriculture income
  • Receiving cash from relatives during emergencies. In such cases, the intention should not be to evade the taxes
  • Partners contributing cash capital into a partnership firm

Penalty for Violation of Section 269SS

100% of the loan or deposit amount will be the quantum of penalty that can be levied by the assessing officer.

What is Section 269T

Section 269T prohibits any person to repay the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, if:

  • The amount of loan or deposit, including interest amount, is INR 20,000 or more, or
  • The aggregate amount of loans or deposits, including the interest amount, held by such person in his own name, or jointly with any person, is INR 20,000 or more

In other words, a person cannot repay the loan or deposit in cash, if the amount is above INR 20,000.

Exceptions to Section 269T

An individual paying INR 20,000 or more towards repayment of loan or deposit does not have to comply with Section 269T if he/she pays to the following parties:

  • The government
  • Any banking company, post office savings bank, or co-operative bank
  • Other notified institutions
  • Any Government company as defined in section 617 of the Companies Act, 1956
  • Any corporation established by a Central, State or Provincial Act

Penalty for Violation of Section 269T

100% of the loan or deposit amount will be the penalty leviable by the assessing officer.

FAQs

Can I repay a loan amounting to more than INR 20,000 in cash? Can I repay a loan amounting to more than INR 20,000 in cash?

No, this will be a violation of section 269T i.e. a person cannot repay a loan amounting to more than INR 20,000 in cash.

What is difference between 269SS and 269ST?

Except for the transactions referred to in Section 269SS and other receipts as exempted by Central Government by notification, Section 269ST of the Act shall apply to every receipt whether taxable or tax free, whether capital or revenue.

Can property be purchased in cash?

The income tax act restricts accepting cash in excess of INR 20,000 in a real estate transaction. So, you cannot accept cash consideration on sale of the property. The property is to be registered at actual sales consideration.

Income Tax Deduction on Donation

Donations made to certain specific charitable institutions and relief funds are fully or partially exempt from taxation. Donations made to political parties are also available for exemption. The article will give you a brief on how one can claim income tax deduction on donation to reduce tax liability.

Income Tax Deduction on Donation made to Institutions and Funds

An assessee can claim a tax deduction on donation under section 80G of the Income Tax Act 1961. According to this section, one can either claim 100% or 50% of the total amount donated as a deduction subject to the ‘with’ or ‘without’ upper limit. As stated earlier the government notifies/updates the institutions and funds where any donation is fully or partially exempt from taxation.

Deduction on Donation with Upper Limit

For institutions or funds where the ‘with upper limit clause’ is applicable, a deduction of either 50% or 100% of 10% of the adjusted gross total income can be claimed. This percentage is also specified by the government for every institution and fund. The donations made towards the following institutions will fall under this category:

  • Donation by an organization towards Indian Olympic Association
  • Money donated to the local authority or the government for the purpose of family planning promotions.
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Deduction on Donation without Upper Limit       

If one donates to funds or institutions where ‘without upper limit’ is applicable, one can claim a flat 50% or 100% of the donation amount. The Prime Minister National Relief Fund and National Defence Fund are some of the funds where the condition of claiming 100% of the donation amount as a deduction is applicable. Some of the many Trust Funds where 50% of the donation amount is available for deduction are Jawahar Lal Nehru Memorial Fund and Prime Minister’s Drought fund.

Mode of Payment

  • One will be able to claim the deduction if the donation is made via cheque, digital payment method, or cash
  • The maximum deduction that one can avail of if the payment is done via cash is INR 2000
  • There is no maximum limit on the deduction amount if the payment is made via cheque or digital payment methods
  • Donations made in kind like those in the form of clothes, food rations, and so on, cannot be claimed as deductions under this section.

Income Tax Deduction on Donation made to Political Parties

Donations made to political parties can be claimed as a deduction under section 80GGC and 80GGB of the Income Tax Act, 1961. Individual taxpayers can claim the deduction under section 80GGC and companies can claim a deduction under 80GGB. There is no maximum upper limit specified and so any amount that has been contributed can be claimed as a deduction.

It is important to note that the donation made in the form of cash are not eligible for a deduction.

FAQs

If I donate clothes to a charitable institution can I claim deduction under 80G?

No, donations made in kind like clothes or food rations cannot be claimed under section 80G

Do I need to show receipt of the donation made to a political party?

Yes, as proof of the donation, the political party will issue a receipt. It will contain the name and address of the party, the amount donated and the PAN and TAN of the party. This receipt will be needed.

Fund of Funds – Meaning, Types and Benefits

When an individual invests in fund of funds they at once get the benefit of a diversified investment portfolio. Investing in fund of funds gives investors exposure to various asset classes that too at a lower risk. This article will help you understand various aspects related to funds of funds.

What is Fund of Funds?

A fund of funds also known as a multi-manager investment is a pooled investment fund that invests in other types of funds. In simpler terms, a fund of funds is a mutual fund that invests in various other mutual funds present in the market.

The most important feature of these types of mutual funds is that these funds are managed by highly trained professional portfolio managers who can accurately predict the market condition to minimize the chances of loss. Fund of funds are mutual funds that have different kind of portfolio depending upon the main aim of the fund manager. For example, if the aim is to earn higher returns and yields, then the target will be mutual funds that have higher NAV. Similarly, if the aim is stability, then mutual funds that are low-risk will be the target.

These fund of funds mutual funds can invest in both domestic and international funds. This gives them the benefit of diversification and helps in improving the yield of the fund.

Types of Fund of Funds

Following are the various type of fund of funds prevailing in India:

Asset Allocation Funds

Asset Allocation Funds are balanced mutual funds where the investment is done in diverse securities like equity, debt, gold, etc. Investing in a diverse asset pool helps the asset allocation funds to perform better and generate higher returns at a low-risk level.  

Gold Funds

In gold funds, the fund of funds invests in mutual funds that are primarily trading in gold securities. Depending upon the asset management company, this category of fund of funds can invest in mutual funds or gold trading companies directly.

International Fund of Funds

International fund of funds is those funds that invest in mutual funds that are operating in foreign countries. These funds allow the investors to yield higher returns via the best-performing stocks and bonds of different countries.

Multi Manager Fund of Funds

The most common type of fund of funds is a multi-manager fund of funds. These funds include various professionally managed Mutual Funds having a different portfolio concentration. Such fund of funds has more than one manager, with each handling a specific asset of their expertise.

ETF Fund of Funds

ETF fund of funds are mutual funds that invest in shares in the stock market making it a higher risk fund as they are subject to market risk. If one wants to invest directly invest in ETFs they require a Demat trading account while investing in ETF fund of funds have no such limitations. Hence, investing in an ETF via a fund of funds is a more sought out option than a direct investment in this instrument.  

Advantages of Fund of Funds

There are several benefits of investing in Fund of Funds;

High Diversification

Fund of funds gives the opportunity to a higher degree of diversification as these funds invest in multiple schemes that in turn invest their corpus in various underlying assets.

Low Investment Amount

The amount of investment in a fund of funds is less as compared to other investment instruments. Hence, investors with limited finance can also benefit from multiple assets under the same roof.

Experience Fund Managers

Fund of funds mutual fund schemes is managed by highly professional personnel who perform thorough market research to yield higher returns.

Drawbacks of Fund of Funds

Following are the limitations of investing in fund of funds;

High Expense Ratio

Just like any other mutual funds, a fund of funds also incurs expenses. However, unlike funds of funds incur additional costs. Apart from the usual management and administrative expenses, they also have to incur costs of the underlying funds that they invest in.

Tax Implication

Tax will be levied on the fund of funds during the time of redemption of the principal amount. Fund of funds will attract long-term or short-term capital gains as per the holding period of the funds. It is to be noted that the dividend received on this investment is not taxable, as the burden is borne by the issuing fund house.

Difference between ETF and Fund of Funds

Category Fund of Funds ETF
NAV vs Market Value Units of FOF are bought or redeemed at NAV ETF is traded on a stock exchange at the Market price of each lot of share or fund 
Expense Ratio  High Low
Liquidity Might take few hours to days to get the money Bettter liquidity compared to FOF 
Taxation FOF are taxed same as Debt Funds ETFs are taxed as per their asset allocation

Income Tax on Gold in India

One can receive gold in several forms; in physical forms such as jewelry and coins; Or digital form through mobile wallets; Or in paper form by investing in gold mutual funds, gold exchange-traded funds (ETFs), and sovereign gold bonds (SGB). When one buys or sells gold it is important to know how it taxed on the hands of the taxpayers. This article will give an idea of how the tax on gold is computed in India.

Different Forms of gold and its Tax Treatment

Following are the ways in which different forms of gold are taxed:

Physical Gold

Physical Gold is the most common way of buying gold i.e. in the form of jewelry, gold bars and/or coins. The income arising from this form of gold falls under capital gains and the calculation of tax depends on the period of holding the gold jewelry/coins.

STCG: If the holding period (difference between buying and selling) of this form of gold is less than three years (36 months) then it will be classified as short-term capital gains. Such capital gains will be added to your income and taxed at the applicable interest rates.

LTCG: If the period of holding (difference between buying and selling) this form of gold is more than three years (36 months), it will be long-term capital gains. These capital gains will attract a 20% tax rate along with a surcharge if applicable and a 4% cess.

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Paper Gold

Paper Gold is another way of buying gold i.e. in the form of investing in gold mutual funds, gold exchange-traded funds (ETF) and/or sovereign gold bonds (SGB). This form is treated the same way physical gold is treated in terms of taxation.

STCG: If the difference between the date of investment and the date of redemption is less than three years, it is STCG. These gains will be added to your income and taxed at applicable tax rates.

LTCG: If the period of holding this form of gold is more than three years, it will be classified as LTCG. These gains will be taxed at 20% in addition to cess along with indexation benefits.

Individuals investing in SGB will earn an interest of 2.5% per annum and this earing will be classified as income from other sources. The taxation on returns from SGB is different from that of paper gold. The returns one acquires after 8 years of investment in SGB are tax-free but if one decides to withdraw pre-maturely then the returns are taxed at different tax rates. In addition to this, SGB has a 5 year lock-in period, any capital gains arising from the sale of these bonds after 5 years will be LTCG. This LTCG will be taxed at 20% with indexation including cess.

Digital Gold

Digital Gold is the latest form of owning gold in India. Various mobile wallets like Paytm, Google Pay and PhonePe have tied up with MMTC-PAMP or SafeGold to sell gold, starting from a minimum value of INR 1.

The tax treatment of digital gold is similar to paper and physical gold where the holding period decides the applicability of tax.

STCG: If the holding period is less than three years, returns are not taxed directly. They are added to the gross income and taxed at applicable tax rates.

LTCG: If the holding period is more than three years then a 20% tax on returns is to be paid, along with a surcharge and 4% cess. 

How to Save Taxes on LTCG from Investment in Gold?

The Income Tax Department provides provisions that can help in reducing the tax burden of paying 20% on LTCG from gold investments. Section 54F of the Income Tax Act provides tax exemption on the entire long-term earnings from the gold investment if the amount is reinvested into a residential property. Under Section 54EC, if the returns are invested in eligible bonds, then one can claim a tax exemption.

What is the Tax on Gold Received as Gift or Inheritance? 

In India, gifting gold or receiving gold in inheritance is considered a tradition. Therefore, apart from knowing the tax treatment of investing in gold, it is important to know the tax on gold received as a gift or in inheritance.

Tax on Gold received as Gift

If one receives gold as a gift from relatives i.e. parents, siblings or children then one does not have to pay tax on that. If one receives such a gift from someone who is not a close relative then it is considered income from another source. It is important to note that such a gift will only be taxable if its value exceeds INR 50,000.

In addition to this, if one sells the gold received as a gift then it will attract taxes as per the gains i.e. LTCG or STCG just like physical gold.

Tax on Gold received in Inheritance

If one inherits gold from their bold relative then one does not have to pay tax on that. If the gold is inherited by someone other than a blood relative then one has to pay the tax if the value of the gold is more than INR 50,000.

Here also, if one sells the inherited gold, LTCG or STCG will apply. In order to determine the holding period, one needs to consider the date of acquisition of the original owner of the items.

FAQs

How is gold ETF taxed in India?

If you are purchasing gold ETF and selling it at a profit within 36 months then it will be taxed as STCG and if sold after three years it will be considered LTCG and taxed at 20%.

I received a gold jewelry from my mother will that be taxable?

No, gold received as gift from you mother is not taxable.

Vivad Se Vishwas Scheme

Latest Extended Due Date

The deadline for filing declaration under the direct tax dispute resolution scheme ‘Vivad se Vishwas’ is extended to 30th June 2021.

What is Vivad Se Vishwas?

The Vivad Se Vishwas scheme provides for settlement of disputed tax, interest, penalty, or fees in relation to an assessment or reassessment order on payment of 100% of the disputed tax and 25% of the disputed penalty or interest or fee.

The taxpayer is granted immunity from levy of interest, penalty and institution of any proceeding for prosecution for any offence under the Income-tax Act in respect of matters covered in the declaration.

CBDT said it had received requests from taxpayers, tax consultants, and other stakeholders to extend time-barring dates in view of the severe COVID-19 pandemic raging unabated across the country.

Steps to File a Declaration under Vivad Se Vishwas

  1. Login to the Income Tax Portal

    Firstly, login to the portal and click on the Vivad se Vishwas option.

  2. Prepare and Submit DTVSV Form

    Select the year and the filing type.

  3. Fill out the Form

    Firstly, fill Form-1 correctly.
    Fill Form-2 as a final submission.
    File the required documents properly. File them with DSC or EVC accordingly.

FAQs

Can VSV form be revised?

It has been clarified in the CBDT Circular that, the Declaration in Form 1 can be revised any number of times, before the Designated Authority i.e. the PCCIT issues a Certificate of final tax amount payable under the Vivad se Vishwas Scheme.

Is Vivad SE Vishwas scheme extended?

The Central Board of Direct Taxes (CBDT) on Friday further extended the due date for filing declaration under the ‘Vivad Se Vishwas’ (VSV) scheme till 31st June 2021.

Corporate Actions – Meaning & Taxation

When a company issues a corporate action, it has a direct effect on the securities issued by that company. If an individual holds stocks in such a company or is a potential investor then it becomes essential to understand how will a corporate action affect the company. This article will give a clearer idea of some common types of corporate actions and how they can affect shareholders.

What is Corporate Action?

A corporate action is an activity that brings material change to an organization and impacts its stakeholders that includes the shareholders of the firm. A corporate action is initiated by the board of directors and approved by the shareholder of the firm.

Corporate Actions For Equity Shareholders

‌Income Tax on Buy Back of Shares

‌A buyback is a company’s method to invest in itself by buying shares from other investors in the market. Buybacks reduce the number of shares outstanding in the market. However, the buyback of shares is an important corporate restructuring method.‌

The company buys back shares from existing shareholders at an issue price. Thus, an existing shareholder sells shares to the company at the issue price.‌

Example:

Listed company ABC Ltd repurchased 1,000 shares at the market price of INR 700 and issue price of INR 100.‌

  • Unlisted Companies Exempt from tax in the hands of the investor since FY 2013-14
  • Listed Companies: Up to 05/07/2019 Buy-Back of Shares is treated as a sale of shares and thus capital gains income in hands of the investor. LTCG is taxed at 10% in excess of INR 1 lac under Sec 112A STCG is taxed at 15% under Sec 111A. After 05/07/2019 Buy-Back of Shares is treated as a sale of shares and thus capital gain income in hands of the investor. LTCG & STCG are both Exempt Income for the investor since the company pays buyback tax at 20%.

‌Corporate Actions for Dividend

‌A dividend payout is when the company shares its profit with the shareholders. It can be in the form of cash or stock, which is issued at a specified interval of time i.e. quarterly, semi-annually, or yearly.‌

Income Tax for Dividend

  • Dividend from Foreign Company: Such dividend is taxable at Slab Rates under the head IFOS (Income From Other Sources)
  • Dividend from Domestic Company: Up to FY 2019-20, this was exempt up to INR 10 lacs. FY 2020-21 Onwards, this dividend is taxable at Slab Rates under the head IFOS. TDS under Section 194 is deducted at the rate of 10% if the aggregate dividend during the financial year exceeds INR 5000. If the payee does not provide the PAN, TDS shall be deducted at the rate of 20%.
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Corporate Action for Dividend on Preference Shares

Dividend on preference shares is the dividend distributed by a Company on each preference share held by the investor. ‌

Income Tax on Dividend on Preference Shares

  • Dividend from Foreign Company: Such dividend is taxable at Slab Rates under the head IFOS (Income From Other Sources)
  • Dividend from Domestic Company: Up to FY 2019-20, this was exempt up to INR 10 lacs. FY 2020-21 onwards dividend on preference shares held by customers is taxable at Slab Rates under the head IFOS. TDS under Section 194 is deducted at the rate of 10% if the aggregate dividend during the financial year exceeds INR 5000. If the payee does not provide the PAN, TDS shall be deducted at the rate of 20%.

Corporate Action for Amalgamation

An amalgamation is the combination of two or more companies into a larger single company.‌

  • Mergers (one survivor) – purchasing company buys the selling company’s assets
  • Acquisition (two survivors) – purchasing company acquires more than 50% of the shares of the acquired company

Example:‌

Under the Merger of IDFC Bank and Capital First, Akash had purchased 10 shares of Capital First in 2011 and is still holding the stock. The companies have agreed to a swap ratio of 139:10. Hence, Akash will get 139 shares of IDFC Bank in exchange for his 10 Capital First shares.‌

Income Tax for Amalgamation

Issue of new shares in exchange for old shares is not treated as a transfer and is thus not taxable.‌

  • Sale of Shares of New Company: LTCG is taxed at 10% in excess of INR 1 lac under Sec 112A. STCG is taxed at 15% under Sec 111A. Cost of Acquisition = Original Purchase Price * Quantity. The benefit of grandfathering scheme is not available for new shares received in exchange for old shares. Thus, the Grandfathering Rule as per Sec 112A does not apply even if the new shares were allotted before 31st January 2018.
  • Sale of Shares of Old Company: LTCG is taxed at 10% in excess of INR 1 lac under Sec 112A and STCG is taxed at 15% u/s 111A. Grandfathering Rule as per Sec 112A applies if the new shares were allotted before 31st January 2018.

Corporate Action for Bonus Issue

Company issues Bonus Shares to existing shareholders as an alternative to paying dividends. The company issues bonus shares to existing shareholders as on record date in a decided ratio‌.

Example:

Listed company ABC Ltd announces bonus issue of shares of 1:5. Thus, a shareholder will receive 5 new shares for each share held.‌

Income Tax on Bonus Issue

  • On the Issue of Bonus Shares: bonus shares at the time of issue are not taxable.
  • On Sale of Shares: LTCG is taxed at 10% in excess of INR 1 lac and STCG is taxed at 15%. The Period of Holding is calculated separately for original shares and bonus shares. The Capital Gains are calculated separately for original shares and bonus shares. The Cost of Acquisition in the case of Bonus Shares is NIL.

Corporate Action for Right Issue of Equity Shares

With an objective to raise fresh capital, company offers right shares to existing shareholders as on record date in a decided ratio.‌

Example:

Listed company XYZ Ltd announces a right issue of shares of 1:5 at an issue price of INR 200 with a market price of INR 350. Thus, a shareholder can buy 5 new shares at INR 200 for each share held.‌

Income Tax on Right Issue of Equity Shares

  • On Issue of Right Shares: The issue of right shares is not taxable.
  • On Sale of Shares: LTCG is taxed at 10% in excess of INR 1 lac and STCG is taxed at 15%. The period of holding is calculated separately for original shares and right shares. Capital Gains are calculated separately for original shares and right shares. Cost of Acquisition in the case of Right Shares is a price paid for acquiring the right shares. Amount paid to acquire the rights entitlement can be added to the purchase value to arrive at the total cost of the acquisition for computing capital gains.

Corporate Action for Spin Off

Spinoff refers to the dissolution of a subsidiary business entity from its parent company to form a new smaller independent organization. In a spinoff, a particular section of the parent company is separated from the main business. The spun-off company gets its own unique identity different from the parent company. In a spinoff, the existing shareholders of the parent company receive shares of the spin-off company as special dividends.‌

Example:‌

Shareholder has 100 shares of company A, Rs10 per share. Company A spins-off one of its divisions into Company B. Company A says that for each 10 shares of Company A that you own, you will be given 3 shares in Company B. It also says that Company B made up 30% of its total value so the value of Company A’s shares will be reduced by 30%.‌

Company A’s value becomes 700 post reduction and also gets Company B’s 30 shares (300 value) leading up to 1,000 (original value)‌

Income Tax on Spin Off

  • Spin-Off When the shareholders of the parent company are allotted the new shares in a resulting company after the spin-off, there would be no tax implication.
  • Sale of Shares: LTCG is taxed at 10% in excess of 1 lac and STCG at 15%. To calculate the Period of Holding for computing Capital Gains, the acquisition date of new shares would be the same as the acquisition date of original shares.

Corporate Action for Stock Split

Stock Split is a division in the shares of the company thus increasing the number of shares keeping the market cap the same.‌

Example:

Listed company XYA Ltd announces a stock split from INR 10 face value to INR 2 face value. Thus, a shareholder having one share of INR 10 face value would now hold 5 shares of INR 2 face value.‌

Income Tax on Stock Split

  • In Stock Split, the transaction of the stock split is not taxable.
  • Sale of Shares: LTCG is taxed at 10% in excess of 1 lac and STCG at 15%. To calculate the Period of Holding to compute Capital Gains, the acquisition date of split shares would be the same as the acquisition date of original shares To calculate Capital Gains, the Cost of Acquisition would be proportionately divided between the original and split shares.

FAQs

How will I know about any corporate action taken by the company?

The companies always communicate any corporate actions that they have taken to their shareholders. If one is not a shareholder, one can visit the official websites of NSE and BSE, and look at corporate announcements.

What is the meaning of voluntary and mandatory corporate action?

In a voluntary corporate action, shareholders have the choice to participate or not to. In a mandatory corporate action, shareholders have to compulsorily participate.

Which ITR to file for Proprietorship Firm?

Just like individuals, HUFs and companies are required to file income tax, proprietorship firms are also obligated to file income tax. In India, a sole proprietorship is not taxed as a different entity, the owner of the business files the taxes for the business just like an individual return. This article will help you understand various aspects related to filing ITR for a Proprietorship Firm

What are the Tax Rates for Proprietorship Firm?

Income Tax rates for proprietor’s who are less than 60 years old

Income Range  Current Income Tax Rates New Income Tax Rates
Up to INR 2,50,000 NIL NIL
INR 2,50,001 to INR 5,00,000 5% 5%
INR 5,00,001 to INR 7,50,000 20% 10%
INR 7,50,001 to INR 10,00,000 20% 15%
INR 10,00,001 to INR 12,50,000 30% 20%
INR 12,50,001 to INR 15,00,000 30% 25%
Above INR 15,00,000 30% 30%

Income Tax Rates for proprietor’s between the age of 60 and 80 years

Income Tax Slab Old Tax Rate Health and Education Cess
Income up to INR 3 lakh Nil Nil 
Income between INR 3 lakh and INR 5 lakh 5% 4% of Income Tax
Income between INR 5 lakh and INR 10 lakh 20% 4% of Income Tax
Income that exceeds INR 10 lakh* 30% 4% of Income Tax

Income Range New Income Tax Rates
Up to INR 2,50,000 NIL
INR 2,50,001 to INR 5,00,000  5%
INR 5,00,001 to INR 7,50,000 10%
INR 7,50,001 to INR 10,00,000 15%
INR 10,00,001 to INR 12,50,000 20%
INR 12,50,001 to INR 15,00,000 25%
Above INR 15,00,000 30%

Income Tax Rates for proprietor’s more than 80 years

Income Tax Slab Old Tax Rate Health and Education Cess
Income up to INR 5 lakh Nil Nil 
Income between INR 5 lakh and INR 10 lakh 20% 4% of Income Tax
Income that exceeds INR 10 lakh* 30% 4% of Income Tax

Income Range New Income Tax Rates
Up to INR 2,50,000 NIL
INR 2,50,001 to INR 5,00,000  5%
INR 5,00,001 to INR 7,50,000 10%
INR 7,50,001 to INR 10,00,000 15%
INR 10,00,001 to INR 12,50,000 20%
INR 12,50,001 to INR 15,00,000 25%
Above INR 15,00,000 30%
  • Surcharge applicable if total income is more than INR 50 lakh and up to INR 1 crore: 10% of income tax
  • Surcharge if total income exceeds INR 1 crore: 15% of income tax

Tax Audit for Proprietorship Firm

Tax Audit will be mandatory for a proprietorship firm if they fall under the following category:

  • If the turnover of the proprietorship firm is more than INR 1 crore in an assessment year
  • In the case of a professional, if the total receipts of the proprietorship exceed INR 50 lakh
  • If the proprietorship is under any presumptive tax scheme irrespective of the annual turnover, a tax audit is mandatory.
Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Which ITR form to File for Proprietorship Firm?

Depending on the nature of the business, a proprietorship firm can file:

  • ITR 4: If the proprietorship firm falls under the presumptive taxation scheme

What are the Due Dates to File ITR for Proprietorship Firm?

The due dates for filing return for a proprietorship firm depend on tax audit applicability:

  • 31St July: For proprietorship firm where tax audit is not necessary
  • 30th September: For proprietorship firm where tax audit is necessary
  • 30th November: For proprietorship firm who have international transactions for business purpose
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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How to file ITR for Proprietorship Firm?

Proprietors have to file their income tax returns online via the e-filing portal. One needs to register on the e-filing portal to file ITR online, if this is already done then log in by entering the PAN number to file the return. After filling in all the necessary information, make sure to e-verify the return before submitting it to make sure there are no errors.

Which ITR to file for Partnership Firm?

As per the Income Tax Act, a partnership firm is ‘’Persons who have entered into a partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the firm name.’’ Just like individuals, HUFs and companies, partnership firms are also liable to pay income tax. This article will help you understand various aspects related to filing ITR for a Partnership Firm

Tax Rates for Partnership Firm

Partnership firms are liable to pay income tax at the rate of 30% on the total annual income. Apart from this, if the total income exceeds INR 1 crore, then the firm is also liable to pay a surcharge at the rate of 12%. The partnership firm must also pay education and secondary education cess in addition to income tax and surcharge.  The education and secondary education cess is 2% and 1% respectively.

A partnership firm, registered or unregistered is also suppose to pay alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Audit Requirement for Partnership Firm

A partnership firm will require an audit if they fall under the following category:

  • Carrying out a business and if total sales exceed INR 1 crore in the previous year.
  • Carrying on a profession and gross receipts in the profession exceed INR 50 lakhs in any previous year.

Income Tax Calculation for Partnership Firm

When calculating the total taxable income, the firm must also take into account certain deductions that they can claim while filing their return:

  • Remuneration or interest paid to the partners which are not in accordance with the terms of the partnership deed
  • If remuneration paid to partners is in accordance with the terms of the partnership deed but such transactions were made or were in relation to anything that pre-dates the partnership deed.
  • Salary, bonus, commission, or remuneration paid to non-working partners.

ITR Form for a Partnership Firm

Partnership firms for filing income tax returns have to file form ITR 5. Firms can file the return via Income Tax Department’s e-filing portal. One does not need to attach any supporting documents while filing ITR but if requested by the ITD, then they have to be submitted. It is not compulsory for a partnership firm to file an income tax return online if it does not require a tax audit. Moreover while filing the return, the partners must have a class 2 digital signature for the verification process.

It is important to not that ITR 5 is for filing the return for the partnership firm only and not for the partners, they have to file ITR 3.

Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

Tax Due Dates for Partnership Firm

The due dates for filing return for a proprietorship firm depend on tax audit applicability:

  • 31St July: For proprietorship firm where tax audit is not necessary
  • 30th September: For proprietorship firm where tax audit is necessary
  • 30th November: For proprietorship firm who have international transactions for business purpose

FAQs

Is a digital signature mandatory for ITR filing of partnership?

Yes, in case of online filing of ITR, the digital signature of the partners is mandatory.

Is it compulsory for a partnership firm to file ITR online?

If a tax audit is not necessary then it is not compulsory to file ITR online.

Tax Implications on VRS Compensation

Voluntary Retirement Scheme – VRS also known as ‘The Golden Handshake’ is an option that is provided to employees of an organisation to retire voluntarily from the services before the actual date of retirement. Under this scheme employees who decide to exercise this option will get a one-time lump sum payment called Voluntary Retirement Compensation.

There are several reasons for a company deciding to offer VRS, the most common reasons include reducing the cost of the operations by retrenching the surplus workforce. This article will give detailed information on VRS and its taxability in India.

What are the Tax Implications on VRS Compensation?

Under section 17(3) of the Income Tax Act, VRS falls under ‘Profit in Lieu of Salary’. As per the definition ‘Profit in Lieu of Salary’ is the amount of any compensation due or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions.

VRS is taxable in the hands of the employees and under the head ‘Income from Salary’. The following are the aspects that one needs to take into account while calculating the tax implications for VRS:

Exemption Under Section 10(10C)

As per this section, the amount that an employee receives for his/her service in;

  • public sector or any other firms,
  • authority established under Central, State or Provincial Act,
  • Co-operative Societies,
  • Local Authority,
  • Universities, IITs and Notified Management Institutes etc are considered to be exempt to the lowest of the following:
    • Three months salary for each completed year of service
    • Salary at the time of retirement multiplied by the balance months of service left before the date of retirement
    • INR 5,00,000
    • Actual amount received

Relief Under Section 89

Section 89 provides relief to mitigate the additional tax burden that may arise because of a large sum of money that suddenly paid in advance (in the form of VRS) or in arrears in a particular year. Individuals who wish to claim a relief u/s 89 must make sure to file form 10E before filing their income tax online.

Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
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Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
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How to Calculate Relief Under Section 89?

Following are the steps to calculate refile under section 89:

  1. Calculate the total tax payable

    Firstly, calculate the total tax payable on the income, which includes additional salary, arrears or compensations, in the year you receive the compensation

  2. Compute the tax rate

    Now, Calculate the tax rate on total taxable income during the year in which you receive the compensation

  3. Calculate the tax on total income

    Next, calculate the tax on total income by adding 1/3rd of the VRS amount received in each of the three preceding previous years immediately preceding the year in which the VRS is received.

  4. Compute the rate of tax

    Now, Calculate the rate of tax for each preceding three years individually.

  5. Compute the average of rate of tax

    Next, compute the average of rate of tax for three preceding years.

  6. Amount of Relief

    Finally, calculate the amount of relief = VRS amount X [Step 2 – Step 5]

It is important to note that both section 10(10C) and section 89 are mutually exclusive. It means that an individual can only claim either exemption u/s 10(10C) or relief u/s 89. Moreover, if one claims an exemption or relief in any assessment year then it cannot be claimed again in any other assessment year.

Who is Eligible to Claim VRS?

The list of eligible employees as per Sec 10(10C) who can claim VRS Exemption includes employees of ‘any other company’. Thus, private sector employees can claim exemption subject to the following conditions as per Rule 2BA:

  • An employee has completed 10 years of service or completed 40 years of age (Does not apply to public sector employees)
  • Can be claimed by all employees including workers and executives except directors
  • VRS Scheme is initiated for a reduction in the existing strength of the employees
  • A vacancy caused by the VRS is not to being filled up
  • The retiring employee shall not be employed in another company belonging to the same management

FAQs

Can I claim both exemption and relief for the VRS Compensation?

No, both section 10(10C) and section 89 are mutually exclusive. This means that one can only claim either of the two.

Can I claim exemption on VRS Compensation for more than one year?

Exemption of INR 5 lakhs is a one-time exemption, i.e. an employee can claim this exemption only once in a lifetime.