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Taxonomy

income tax

Income Tax On Social Media Influencers’ Income: What You Need To Know?

Introduction: What is Social Media Income?

India has an active social media penetration of 32.8%. This raging trend looks unstoppable as social media network users are expected to reach 1529.8 million by 2040. Doesn’t this sound crazy?

Making digital content, whether it’s videos or reels on YouTube, images on Instagram, tweets on X, or blogs on other comparable sites, has become popular these days with a massive untapped potential to earn money from the audience’s views, likes, comments, and subscriptions. Have a look at the data below to visualize how big this industry is turning out to be

image 96
Source: Statista

However, making money on social media is not as easy as it sounds. There are income tax duties wherever there is earning. As a result, it is necessary to be aware of and comply with numerous income tax rules that govern income from various social networking platforms.

If you are an influencer worried about paying income tax, we have you covered. This article will discuss how the income tax law in India treats revenue generated through social networking sites and the deductions and exemptions available for such income. We will also provide some pointers on preparing your return and avoiding penalties or letters from the tax authorities. You can also learn more about concept of taxation with our blog.

Why Social Media Income is Taxable

  1. Legal Obligations for Declaring Income in India – Any income earned in India, including from social media, must be reported to the Income Tax Department.
  2. How the Income Tax Department Tracks Social Media Earnings – The tax authorities use banking and digital transaction records to track income sources, ensuring that influencers pay the applicable social media tax.

Tax Rules for Social Media Influencers in India

  1. Categorization of Social Media Income Under “Profits and Gains from Business or Profession” – Earnings from social media activities are taxed as business or professional income.
  2. Applicability of GST for Influencers Earning Over ₹20 Lakhs Annually – GST registration is mandatory if total earnings exceed ₹20 lakh in a financial year.
  3. TDS Deduction on Payments Received by Influencers – Payments exceeding ₹20,000 in a year attract a 10% TDS deduction under Section 194R.

How to Calculate Tax on Social Media Income

  1. Total Income = Gross Earnings – Allowable Expenses – Deduct all legitimate business expenses from gross earnings to calculate taxable income.
  2. Deducting Expenses Related to Content Creation: Eligible deductions include costs for equipment, internet access, advertising, software subscriptions, and travel.
  3. Example Calculation for Tax on Influencer Income
    • Total Earnings: ₹5,00,000
    • Deductible Expenses: ₹1,50,000
    • Taxable Income: ₹3,50,000 (subject to applicable tax slab rates)

Tax Filing Process for Social Media Income

  1. Maintaining Proper Records of Income and Expenses – Keep a record of invoices, bank statements, and business-related expenses.
  2. Choosing the Appropriate ITR Form for Filing – Most influencers file under ITR-3 (for business income).
  3. Steps to File Income Tax for Social Media Earnings
    • Register on the Income Tax e-filing portal.
    • Declare all income sources.
    • Deduct expenses and apply exemptions.
    • Pay tax and submit the return before the due date.

Common Mistakes to Avoid When Filing Taxes as an Influencer: Understanding the Growing Need for Compliance Among Influencers

  1. Failing to Declare Bartered Payments as Income – Free products received in exchange for promotions are taxable.
  2. Ignoring GST Compliance for High Earnings – Failing to register for GST when required can attract penalties.
  3. Missing Out on Legitimate Deductions – Not claiming allowable expenses can lead to higher tax liability.

Income Tax Slabs for Earning Through Social Media Sites

If social media earning is your regular source of income, then your income tax slab will align with the individual taxpayer in India – (In this case, we have considered Old Tax Slabs.)

Annual IncomeIncome Tax Rate
Upto Rs. 2.5 LacsNil
Rs. 2.5 Lacs – Rs. 5 Lacs5%
Rs. 5 Lacs- Rs. 10 Lacs20%
Above Rs. 10 Lacs30%

You must get your books of accounts audited if your yearly gross revenue from social networking sites surpasses Rs. 1 crore. This ceiling, however, has since been lifted to Rs. 10 crore, providing no more than 5% of total transactions or payments are made in cash.

Types of Social Media Income and Their Tax Treatment

Social media platforms offer various ways for content creators to earn money from their online presence. However, the income tax rules for all types of social media income are not the same.

Depending on the source and nature of the income, it may fall under different heads of income and be subject to different income tax rates and rules. Here are some common types of social media income and their tax treatment in India:

  • Advertising revenue: This is the income earned from displaying ads on the content or website of the social media influencer.  For example, YouTube pays a certain amount to the content creator based on the number of views, clicks, or impressions of the ads shown on their videos.
Type of IncomeIncome from Business or Profession
Income Tax TreatmentTaxed as per applicable slab (Profits after deducting the expenses related to the business activity)
Deductionsfor the expenses incurred for creating and maintaining the content, such as internet charges, equipment costs, editing software, etc.  
  • Sponsored posts: This is the income earned from promoting a product or service of a brand or company on the social media platform. For example, an Instagram influencer may post a picture or video featuring a product or service of a specific brand and get paid for it.
Type of IncomeIncome from Business or Profession
Income Tax TreatmentTaxed as per applicable slab (Profits after deducting the expenses related to the business activity)
Deductionsfor the expenses incurred for promoting the product or service, such as travel, photography, etc.
  • Affiliate marketing: This is the income earned from referring or recommending a product or service of a brand or company to the audience and getting a commission for each sale or action. For example, a blogger may provide a link to an e-commerce website where the audience can buy a product or service that the blogger has reviewed or endorsed. The blogger earns a share of the sales through a commission on every sale through the link.
Type of IncomeIncome from Business or Profession
Income Tax TreatmentTaxed as per applicable slab (Profits after deducting the expenses related to the business activity)
Deductionsfor the expenses incurred for creating and maintaining the content, such as hosting charges, domain charges, etc.
  • Donations: This is the income earned from receiving voluntary contributions from the audience in appreciation of the content. For example, an X streamer may receive donations from viewers who like their live stream or chat.
Type of IncomeIncome from other sources
Income Tax TreatmentTaxed as per applicable slab (Profits after deducting the expenses related to the business activity)
DeductionsNo permissible deductions

Income Tax Deductions and Exemptions Available for Social Media Income

Before we proceed with eligible deductions, be clear about which income category you fall into. If you are an occasional influencer, your earnings will fall under “Income from Other Sources”.

Whether your deductions will be considered by the IT Authorities will depend on the nature and quantum of your expenses. Eligible deductions in the “Income From Other Sources” case will be those “directly and wholly” incurred for content creation.

Conversely, claiming deductions in the case of “Income from business/profession” is much easier as you can consider all the operational expenses to claim deductions.

Let’s take different  cases to understand this concept better:

  • Expenses incurred for creating and maintaining the content

These include the costs of internet, equipment, software, editing, photography, travel, etc., necessary for producing and uploading the content on social media platforms. These expenses can be claimed as deductions under the head of income from a business or profession, subject to certain conditions and limits.

  • Depreciation of assets used for the content

These include the wear and tear of the assets, such as computers, cameras, phones, etc., used for creating and maintaining the content. The depreciation can be claimed as a deduction under the head of income from a business or profession, per the prescribed rates and methods.

Other Income Tax Implications For Social Media Earners

Goods and Service Tax (GST)

In the dictionary of Income tax laws, services offered by social media influencers, YouTubers, Bloggers, Twitteratis, and other individuals making earnings through social media websites are called Online Information and Database Access or Retrieval Services (OIDAR).

The plausible explanation is that such individuals employ information technology to spread data on the internet or any other electronic network.

Under income tax regulations, if an individual earns more than Rs. 20 lacs per year or Rs. 10 lacs in special category states, he or she must register for GST. Furthermore, regardless of annual turnover/sales, any influencer/blogger/social media earner who provides services to states other than his or her home state must register for GST.

The applicable GST rate will be 18% (i.e. 9% SGST and 9% CGST or 18% IGST, depending on whether the services delivered are interstate or intrastate).

Income Tax Rules for TDS on Social Media Income

According to Section 194 R of the IT Act, every individual receiving rewards or bonuses (in cash or kind) for a value exceeding Rs.20,000/- must pay TDS at 10% from July 1, 2022.

Let us look at a real-world example to better grasp this concept of income tax. Assume that your favorite movie star “Ranbir” sponsors a chocolate company, “A,” while another actor “Salman” endorses a watch brand, “B.”

Assume Ranbir charges Rs. 10,000/- for brand endorsement fees and receives Rs. 5000/- in chocolates from A as an incentive. On the other hand, Salman charges no fees as a nice gesture but receives watches worth Rs. 50,000/- (excl. GST) as a token giveaway. 

In this situation, Ranbir’s total earnings (including fees and chocolates) are less than Rs. 20,000. So, he is not required to pay TDS, whereas Salman receives presents of Rs. 50,000/-, he is required to pay TDS at 10%, or Rs. 5000/.

Key Takeaways

You’ve learned how to earn money from social media platforms like Twitter, Instagram, and YouTube. However, before you start celebrating your success, it’s important to understand the tax implications of your online income.

The amount and type of income you receive will determine the tax rate you must pay. Keeping track of your expenses and deductions is essential, as they can help reduce your taxable income and save you money. Filing your tax returns on time is crucial, and reporting your income accurately is crucial to avoid penalties or audits.

FAQs about Social Media Taxing

  1. How can social media influencers file their income tax and GST returns in India?

    Social media influencers can file their income tax and GST returns online using the e-filing portal of the Income Tax Department and the GST portal, respectively.

  2. What are the penalties and consequences for not reporting or underreporting income from social media platforms in India?

    Income from social media sites that is not reported or is underreported may result in penalties and legal implications from the Income Tax Department and the GST authorities. Penalties can range from 50% to 200% of the amount of tax evaded, plus interest and prosecution.

  3. How do social media influencers file their income tax returns and GST reports in India?

    Social media influencers can file their income tax returns and GST returns online through the Income Tax Department’s e-filing portal and the GST portal, respectively.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

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Tax Loss Harvesting

The Ultimate Guide to Tax Loss Harvesting for Long-Term Investing

Introduction

Were you sad when you saw your portfolio was all red? Or held the stock exchanges responsible for your losses? Don’t be concerned. Gain and loss are inherent in this game, but what separates champions from others is the ability to turn losses into gains. Tax Loss Harvesting is a strategy where you capitalize on your stock market losses to save on taxes.

In this post, you will discover everything there is to know about Tax Loss Harvesting, from what it is to the best tactics to use to maximize your tax savings. You will additionally learn how to use this fantastic strategy to increase your long-term benefits. So, let us begin!

Tax Rules for Stock Market Transactions

When you embark on a journey, you prepare to pack your clothes, bring vital medications, etc. Similarly, before we go on our adventure to learn about Tax Loss Harvesting, it is important to grasp the tax regulations that regulate stock market investing.

Potentially, there are two types of taxes in stock markets-

1. Short-Term Capital Gains Tax (STCG)

STCG is the tax on the gains realized by selling stocks or equities mutual funds within one year after purchasing them. In such cases, you must pay 15% of the gain tax.

2. Long-Term Capital Gains (LTCG)

LTCG is levied on gains realized when selling stocks or equities mutual funds held for more than a year. In these cases, you must pay tax on your gains at a rate of 10%. The only relief here is that you must pay LTCG taxes only if your gains exceed Rs. 1 Lac in a financial year.

Real-Life Example to Understand Taxes

To simplify it, let us consider a case where you bought 100 shares of ABC Ltd. at Rs. 500 per share on 1st January 2022. You sold 50 shares on 30th June 2022 at Rs. 600 per share and the remaining 50 shares on 31st December 2022 at Rs. 700 per share. How will you calculate your STCG and LTCG for the financial year 2022-23?

In this case, the first transaction of selling 50 shares on 30th June 2022 is an STCG, as the holding period is less than 12 months (6 months). The second transaction of selling 50 shares on 31st December 2022 is an LTCG, as the holding period is over 12 months (12 months).

In this case, your STCG is: STCG = (600 – 500) x 50 x 0.15 = Rs. 750

In this case, your LTCG is: LTCG = (700 – 500) x 50 x 0.1 LTCG = Rs. 1000

(Though LTCG is only payable if your gains exceed Rs. 1 lac, we have not taken this into account here to simplify the computations.)

Therefore, your total capital gain for the financial year 2022-23 is:

Total capital gain = STCG + LTCG

Total capital gain = Rs. 750 + Rs. 1000

Total capital gain = Rs. 1750

Tax Loss Harvesting- Way to Reduce Your Tax Burden

We’ve all bought some stocks we’re not proud of, either because we followed bad advice or because we bought at the wrong moment when valuations were sky-high.

The performance of these dud stocks hurts the performance of your portfolio. So, the ideal strategy is to post losses on these floundering stocks and offset them against capital gains from good stocks. This is the essence of Tax Harvesting. 

Tax loss harvesting is selling some investments at a loss to offset the gains from other investments. By doing so, investors can lower their taxable income and pay less tax on their capital gains. It can be especially useful for investors with short-term capital gains, which are taxed more than long-term ones.

Say you invested Rs. 2 lacs in the stock market in Jan 2022. This comprises Rs. 1 lac invested in shares of Company A and Rs. 1 lacs invested in shares of Company B. You decide to sell these stocks in September 2023.

In the current scenario, company A shares are valued at Rs. 2.5 lacs and shares of Company B are valued at Rs. 25,000/-.

 Now, see how tax loss harvesting works-

  • You can sell the shares of Company B at Rs. 25,000, which will result in a long-term capital loss of Rs. 75,000 (since you held them for more than 12 months).
  • Then, you can use this loss to offset the long-term capital gain of Rs. 1.5 lacs (Rs. 2.5 Lacs – Rs. 1 Lacs) that you invested in the shares of Company A, which will reduce your taxable gain to Rs. 75,000 (Rs. 1.5 Lacs – Rs. 75,000 = Rs. 75,000/-).
  • You can save tax on the long-term capital gain at 10%, which amounts to Rs. 7,500 (Earlier Taxable Gain was 15,000/-)

Don’t fret if you haven’t offset your capital losses against your earnings this year. The best side of tax harvesting is that losses can be carried forward for up to eight assessment years.

Performance Creative 3

Benefits of Tax Loss Harvesting

  • Helps you reduce your tax liability and enhance your post-tax returns.
  • Helps you diversify your portfolio, as the proceeds from the sale can be used to buy different securities that suit their risk and return objectives.
  • Tax loss harvesting can also create new investing opportunities, as you can buy back the same or similar securities at a lower price after a certain period and benefit from their future appreciation.
  • Tax loss harvesting can also enhance the compounding effect of investing, as investors can reinvest the tax savings to generate more returns over time.

Limitations of Tax Loss Harvesting

  • Tax loss harvesting may involve transaction costs and market risks that can reduce or eliminate the tax benefits. For example, selling a security at a loss may incur brokerage fees, commissions, or spreads that can affect the tax savings.
  • Tax loss harvesting may increase the investor’s taxable income if they sell the replacement security at a higher price. This is because the replacement security will have a lower cost basis than the original security and, thus, a higher capital gain when sold.

How Tax Loss Harvesting Can Be Helpful in Long-Term Investing?

Tax loss harvesting is a strategy that can be helpful in long-term investing, as it can help investors reduce their tax liability and increase their after-tax returns. It involves selling securities that have declined in value to offset the taxes on capital gains or income.

By doing this, investors can lower their taxable income and pay less tax in the current year. However, tax loss harvesting does not eliminate the capital gain or loss but only defers it to the future.

Therefore, investors can use the tax savings from tax loss harvesting to reinvest in the market and generate more returns over time. This can enhance the compounding effect of investing, as investors can grow their wealth faster by reinvesting the tax savings.

Moreover, tax loss harvesting can also help investors diversify their portfolios, as they can use the proceeds from the sale to buy different securities that suit their risk appetite and return objectives.

This can improve their portfolio performance and reduce their volatility in the long run. Therefore, tax loss harvesting can be useful for long-term investors who want to optimize their tax efficiency and maximize their wealth creation.

Key Takeaways

Tax loss harvesting should enhance long-term investing, not as a way to time the market or chase short-term returns. While putting this technique to practical implication, have a clear investment plan and objective.

However, tax loss harvesting may be ineffective for investors with low tax brackets or no capital gains to offset. Tax savings in such instances may be minimal or inadequate.

But, you can use Tax Harvesting to effectively rebalance your portfolio and maintain their desired asset allocation. Doing so allows you to take advantage of market fluctuations, cut down your tax bill, and reinvest your tax savings to earn good returns over time.

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FAQs:

How often should I do tax loss harvesting?

There is no fixed rule on how often you should do tax loss harvesting. It is advisable to periodically monitor your portfolio, such as quarterly or annually, and look for opportunities to harvest losses when they arise.

Is Tax Loss Harvesting risk-free?

No, it’s not so. Some of the risks involved are:
●  You may lose the opportunity to benefit from the recovery of the security that you sold at a loss if it rebounds in price before you can buy it back.
●  You may incur higher taxes in the future if you sell the repurchased security/stock at a higher price than the original security.
●  You may incur transaction costs and market risks that can reduce or eliminate the tax benefits of tax loss harvesting.

Can I do tax loss harvesting in any type of account?

No, you cannot harvest tax loss in any account. Tax loss harvesting only applies to taxable accounts, where you must pay capital gains or income taxes. Tax loss harvesting is not relevant for tax-deferred or tax-exempt accounts like PPF or NSC, where you do not have to pay taxes on capital gains or income until withdrawal or never.

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

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Capital Gains Tax: A Step-By-Step Guide

Capital Gains Tax: A Step-By-Step Guide

Introduction

Capital gains are an essential aspect of personal finance, involving the profits earned from selling assets like stocks, real estate, or mutual funds. Understanding the definition and significance of capital gains and the associated tax implications is crucial.

What is Capital Gain?

Capital gain refers to an investor’s net profit by selling a capital asset at a price higher than its purchase cost. The entire value of selling a capital asset is taxable income. For taxation in a specific financial year, the transfer of the capital asset must occur in the previous fiscal year.

Financial gains from selling an asset do not apply to inherited property unless there is a change in ownership. The Income Tax Act exempts assets received as gifts or through inheritance from being included in an individual’s income calculation.

Also Read: What is Paid Up Capital?

What are Capital Assets?

Capital assets include buildings, lands, houses, vehicles, Mutual Funds, and jewelry. The rights of management or legal rights over a company are also considered capital assets.

What are the types of Capital Assets?

The two types of Capital Assets are:

Short-Term Capital Assets (STCA): These assets are held for 36 months or less, except for immovable properties like land and buildings, where the criteria changed to 24 months from the fiscal year 2017-18. Selling a house property after holding it for 24 months qualifies any income generated as long-term capital gain if sold after March 31, 2017.

The reduced period does not affect movable assets like jewelry and debt-oriented mutual funds. Regardless of the purchase date, certain assets are considered short-term if held for 12 months or less, including equity/preference shares, securities, UTI units, equity-oriented mutual funds, and zero coupon bonds.

Long-Term Capital Assets (LTCA): These assets are held for more than 36 months or 24 months or more (from fiscal year 2017-18) for land, buildings, and house property. Equity/preference shares, securities, UTI units, equity-oriented mutual funds, and zero coupon bonds qualify as long-term capital assets for over 12 months.

How are Inherited Capital Assets Classified?

When an asset is obtained through gift, will, succession, or inheritance, the duration the previous owner held the asset determines whether it qualifies as a short-term or long-term capital asset. Additionally, for bonus or rights shares, the holding period is calculated from the date of allotment.

Tax TypeConditionApplicable Tax
Tax on Long-Term Capital GainsWhen selling equity shares or equity-oriented fund units10% on amount exceeding ₹1,00,000
Tax on Long-Term Capital GainsFor other cases not involving equity-oriented fund units or equity shares20%
Tax on Short-Term Capital GainsIn cases where Securities Transaction Tax (STT) is not leviedAdded to your Income Tax Return (ITR) and taxed according to income tax slab rates
Tax on Short-Term Capital GainsWhen Securities Transaction Tax (STT) is applicable15%

What are the Exclusions from Capital Assets?

Items excluded from capital assets are:

  • Stock, consumables, or raw materials held for business or professional purposes.
  • Goods like clothes or furniture are used for personal purposes.
  • Land for agricultural purposes in any rural part of India.
  • Special bearer bonds were issued in 1991.
  • Gold bonuses issued by the Central Government, such as the 6.5% gold bonus of 1977, the 7% gold bonus of 1980, and the defense gold bonus of 1980.
  • Deposit certificates issued under the Gold Monetisation Scheme-2015 or gold deposit bonds issued under the gold deposit scheme-1999

What are the types of Capital Gains?

The two types of gains derived from investments, based on the duration of asset ownership, can be classified as follows:

  1. Short-term Capital Gains: If an asset is sold within 36 months of acquisition, the resulting profits are referred to as short-term capital gains. For example, if a property is sold within 27 months of purchase, it falls into this category.
  2. Long-term Capital Gains for Mutual Funds and Listed Shares: For Mutual Funds and listed shares, gains are considered long-term capital gains if the asset is sold after being held for at least 1 year.
  3. Long-term Capital Gains for Immovable Properties: The profits from selling an asset held for more than 36 months are known as long-term capital gains. However, starting from March 31, 2017, the holding period for immovable properties was revised to 24 months. It’s important to note that this change does not apply to movable assets such as jewelry or debt-oriented Mutual Funds.

Key Terminology to Understand

To better understand capital gains, familiarize yourself with the following terms:

  • Full Value Consideration: The total amount received or to be received by the seller for their capital assets, taxable in the year of transfer.
  • Cost of Acquisition: The initial price at which the seller acquired the capital asset.
  • Cost of Improvement: The expenses incurred by the seller to enhance the capital asset. Note that improvements made before April 1, 2001, are not considered.

How to Calculate Short-Term Capital Gains?

  1. Begin with the full value of consideration.
  2. Deduct the following:
    • Expenses exclusively incurred for the transfer.
    • Cost of acquisition.
    • Cost of improvement.
  3. The resulting amount represents the short-term capital gain.

Short-term capital gain = Full value consideration – Expenses for the transfer – Cost of acquisition – Cost of improvement.

How to Calculate Long-Term Capital Gains?

  1. Start with the full value of consideration.
  2. Deduct the following:
    • Expenses exclusively incurred for the transfer.
    • Indexed cost of acquisition.
    • Indexed cost of improvement.
  3. Deduct exemptions from the resulting amount under sections 54, 54EC, 54F, and 54B.

Long-term capital gain = Full value consideration – Expenses for the transfer – Indexed cost of acquisition – Indexed cost of improvement – Deductible expenses from the full value of consideration.

Note that deductible expenses directly relate to the sale or transfer of the capital asset and are necessary for the transfer to occur.

An exception exists for long-term capital gains on equity shares/units of equity-oriented funds. As per the Budget 2018, such gains realized after March 31, 2018, remain exempt up to ₹1 lakh per year. Gains exceeding ₹1 lakh in a single financial year will be subject to a 10% tax rate without indexation benefits.

Types of Deductible Expenses

  1. Sale of House Property:
    • Stamp paper expenses
    • Commission or brokerage paid to secure a buyer
    • Travel expenses related to the transfer (incurred after the transfer is completed)
  2. Sale of Shares:
    • Brokerage commission for the sold shares
    • Securities Transaction Tax (STT) is not deductible
  3. Sale of Jewelry:
    • Brokerage expenses for the sale of jewelry, if a broker was involved in finding a buyer

Calculating Indexed Improvement/Acquisition Cost

The acquisition and improvement costs are indexed using the cost inflation index (CII) to account for inflation. This adjustment reduces your capital gains and increases your cost base.

The indexed acquisition cost is calculated as:

Indexed acquisition cost = (Acquisition cost * CII of the asset’s transfer year) / (CII of the financial year 2001-2002 or the year when the asset was first held by the seller, whichever is later)

For assets acquired before April 1, 2001, the acquisition cost should be the fair market value (FMV) or the actual cost on April 1, 2001, as per the taxpayer’s choice.

The indexed improvement cost is calculated as:

Indexed improvement cost = Improvement cost * CII of the year when the asset was transferred/improved

*Note that improvements made before April 1, 2001, should not be considered.

Equity and Debt Mutual Funds: Taxation

Gains on Selling Funds Effective July 11, 2014, Effective July 10, 2014, or prior

Debt Funds

  • Short-Term Capital Gains (STCG): Taxed at individual’s slab rates of income tax
  • Long-Term Capital Gains (LTCG): Taxed at 20% with indexation or 10% without indexation, whichever is lower

Equity Funds

  • STCG: Taxed at 15%
  • LTCG: Taxed at 10% for gains exceeding ₹1,00,000 without indexation

Debt Mutual Funds:

  • Qualify for Long-Term Capital Gains if held for 36 months or more
  • Gains are added to income if deducted within 36 months and are taxed based on the income tax slab rate.

Final Words

Understanding capital gains and tax implications is essential for effective financial management and optimizing tax planning strategies to make informed decisions and maximize investment returns.

FAQs

What are the conditions for claiming tax exemption under Section 54?

To claim tax exemption under Section 54, you must meet the following conditions:
●  You must purchase a new residential property within 2 years of selling the old property or within 1 year before selling the old property.
●  The new property must be located in India.
●  The new property must be worth at least the capital gains you earned from selling the old property.

What are the conditions for claiming tax exemption under Section 54F?

To claim tax exemption under Section 54F, you must meet the following conditions:
●  You must purchase a new residential property within 2 years of earning the capital gains or within 1 year before earning the capital gains.
●  The new property must be located in India.
●  The new property must be worth at least the capital gains you earned.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

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Salary Arrears

Salary Arrears: What They Are And How To Claim Tax Relief?

Introduction

You have been working hard for your employer for the past few years, and you get a pay hike effective from backdate. You get super excited to get a big fat cheque from your employer as payment for your salary arrears. You are overjoyed to spend the money on your needs and wants. But wait, there is a catch. You have to pay taxes on the salary arrears as well.

Sounds complicated? Don’t worry; we are here to help you understand this concept and how to apply it in your case. This article will explain salary arrears, how they are taxed, and how to claim tax relief. We will also provide some examples and tips to make the process easier. By the end of this article, you can save money on taxes and enjoy your salary arrears without any guilt or stress. So, let’s begin! You can explore more on tax concepts with our blog.

What is Salary Arrears?

Salary arrears are the payments you receive from your employer for the previous months or years when you were underpaid or unpaid. These payments are usually made when there is a revision in the salary structure, a court order, or a settlement agreement.

Salary arrears can arise due to various reasons, such as:

  • Change in salary scale or grade due to promotion, increment, or dearness allowance
  • Retrospective effect of a new pay commission or wage board
  • Error or omission in salary calculation or payment
  • Delay in salary payment due to financial difficulties of the employer
  • Dispute or litigation between the employer and the employee
  • Premature withdrawal from provident fund
  • Family Pension arrears
  • Gratuity payment
  • Commutation pension received

How Are Salary Arrears Calculated?

To simplify the calculation of salary arrears, let us assume you get a monthly salary of Rs. 20,000. You have been working for more than two years now. Impressed by your performance, your employer approved a salary hike of Rs. 5000/- in June. Now, due to some problems in the backend processes, you start getting your increased salary in November. You will get salary arrears for June to November and your high salary.

So, in November, you will get Rs. 30,000/- (Rs. 5000*6) as salary arrears.

How are Salary Arrears Taxed?

The joy of getting an arrear is instantly clouded with worries of “Are Salary Arrears Taxable?”. Income tax is calculated on your income in a particular financial year from one or more sources. However, receive your salary for the previous year(s) in the current year for various reasons, such as salary revision or dispute resolution. It may increase your tax liability.

The salary arrears will add to your tax liability in the current year as your income may fall into a higher tax bracket or face a change in the tax rates. You can claim relief under Section 89(1) on your salary arrears to avoid this hardship.

This relief allows you to reduce your tax burden by adjusting the salary arrears with the tax rates of the previous year (s) to which they relate. Your employer should also calculate and indicate this relief in your Form 16. By claiming this relief, you can save taxes on your delayed salary and avoid paying more than you owe.

How to Claim Relief under Sec  89(1) on Salary Arrears?

A simple tax concept follows in the case of salary arrears. If you have paid taxes in the year the salary was due, you should not be taxed again in the payment year. 

  • Step 1: Check your salary slip for any salary arrears paid in the current year. 
  • Step 2: Calculate the tax relief under Section 89 (1) by following the steps given above.
  • Step 3: Fill out Form 10E online on the income tax portal by providing the details of your income and arrears for the current year and the previous year (s) to which they relate. You cannot claim relief under sec 89 if you miss out on this form.
  • Step 4: Select the relevant assessment year and choose the applicable form for Salary Arrears. Fill in the required information, like the current year and the relevant year to which the arrears belongs.
  • Step 5: You must also mention the amount of relief and the acknowledgment number of Form 10E in your income tax return. Your employer should also calculate and indicate this relief in Part B of Form 16.
  • Step 6: Opt for e-verification through Aadhar OTP/Net Banking/ etc.

Key Takeaways

Salary arrears is a common phenomenon for many employees who receive their salary for the previous year (s) in the current year on account of wage settlement or pay fixation. While salary arrears are taxable in the year of receipt, they may also increase your tax liability due to changes in the tax rates or brackets.

However, you don’t pay more than you owe, as income tax laws provide relief under Section 89 (1). This relief lets you adjust your arrears with the tax rates of the previous year(s) to which they relate.

To avail of this relief, you must follow some simple steps and fill out Form 10E online on the income tax portal before filing your income tax return. You must also report the amount of relief and the acknowledgment number of Form 10E in your income tax return. Your employer should also reflect this relief in your Form 16. By claiming this relief, you can ensure that your salary arrears are taxed fairly and accurately.

FAQs

Is Form 10E mandatory to file?

Yes, Form 10E is mandatory to file if you want to claim tax relief on salary arrears or advance salary. It should be filed online on the income tax portal before filing your income tax return for the year the arrears are received.

What will happen if I fail to file Form 10E but claim relief under Section 89 (1) in my income tax return?

If you fail to file Form 10E but claim relief under Section 89 (1) in your income tax return, your income tax return will be processed, but the relief claimed under Section 89 (1) will not be allowed. You may even receive an intimation from the tax department.

Do I also need to submit a copy of Form 10E to my employer?

No, it’s not mandatory for you to furnish a  copy of the form 10E filled by you to your employer. Your employer may ask for it to adjust the taxes and allow tax relief if required.

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India's Online Gaming Industry Struggles with 28% Tax Burden

India’s Online Gaming Industry Struggles Under New 28% Tax Burden

Introduction

In an unexpected development, India’s thriving online gaming industry has been hit with a heavy blow as the GST council imposed a 28% tax. This decision affects one of the fastest-growing consumer internet businesses in the country and raises concerns about the future of the entire e-gaming sector. Even horse racing and casinos will be subject to this substantial tax levy.

image 58

Government Support and the Sudden Shift: Until now, the government has supported the gaming industry by establishing online gaming regulations, providing clarity on TDS (Tax Deducted at Source), and actively promoting the sector. However, the new tax imposition jeopardizes the industry.

Previous Taxation Structure: Previously, online betting and gambling were taxed at 28%, while the platform fee, representing the commission charged by participants to enter a game, attracted an 18% GST. For instance, if a participant paid Rs 100 as an entry fee, the gaming company would charge a 20% commission (its gross gaming revenue) and pay 18% GST to the government.

Implications of the New Rule: Under the new rule, companies will be required to pay GST on the entire Rs 100, significantly impacting the revenue model of gaming companies. This change substantially burdens these companies, affecting their profitability and overall sustainability.

Key Takeaway

Shifting Perspective: Previously, the government differentiated between games of skill and chance, categorizing the latter as gambling. Games of skill were considered to be influenced by the player’s expertise, knowledge, and training. However, with the implementation of the new tax, the entire gaming industry will now be subject to a 30% TDS and 28% GST on the full value of bets in online games.

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Source: Twitter

Adverse Consequences: The higher taxation on the total amount participants pay to enter games places additional financial strain on online gaming startups, discouraging players from participating.

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Source: News18

Industry experts have expressed their discontent with this new announcement, emphasizing that it is unfortunate and will result in nearly a 1000% increase in taxation. This catastrophic impact may lead to the closure of numerous startups and job losses and impede the flow of $2.5 billion in foreign direct investments (FDIs) into the sector.

Conclusion: The sudden imposition of a 28% tax on India’s online gaming industry has sent shockwaves through the sector. The burden of this tax on gaming companies’ revenue models, along with the discouragement it brings to potential players, raises concerns about the industry’s future. The adverse consequences, including the possible closure of startups and the impact on foreign investments, highlight the need to reconsider this tax burden to sustain the growth and success of India’s online gaming industry.

Tata Group Set to Revolutionize Indian Tech Industry with iPhone Production Deal

Introduction:

In a groundbreaking move, Tata Group, one of India’s leading conglomerates, is on the verge of acquiring a key Apple Inc. supplier’s factory, signaling a major shift in India’s tech industry. This exciting development would make Tata Group the first Indian company to venture into iPhone assembly, presenting a significant challenge to China’s dominance in the manufacturing space.

image 62
Source: Google

Tata Group’s Acquisition Talks with Wistron Corp: Tata Group is currently in discussions to acquire the renowned Apple supplier, Wistron Corp. The target of this acquisition is Wistron’s factory located in the southern Karnataka state of India. This facility, housing over 10,000 skilled workers, assembles the highly anticipated iPhone 14 model.

Commitments and Implications: As part of its agreement with Apple, Wistron Corp has pledged to ship iPhones worth a staggering $1.8 billion by March 2024. Once the deal with Wistron Corp is finalized, Tata Group will assume these commitments and spearhead the iPhone production in India.

Key Takeaway

A Milestone for India’s Manufacturing Sector: Tata Group’s entry into iPhone assembly marks a significant milestone for India’s manufacturing sector. Not only will it boost the country’s technological capabilities, but it also has the potential to challenge China’s position as the global manufacturing hub. Other international electronics brands may be inspired to follow suit and consider shifting their production to India.

India’s Bid for Global Manufacturing Supremacy: With this transformative move, Tata Group aims to position India as a formidable player in the global manufacturing arena. The country’s rich pool of skilled labor and Tata Group’s expertise and resources makes for a compelling proposition for international brands seeking alternative production destinations.

Tata Group’s upcoming acquisition of Wistron Corp’s factory is poised to revolutionize the Indian tech industry. By becoming the first Indian company to produce iPhones, Tata Group challenges China’s manufacturing dominance and paves the way for other global brands to consider India as their manufacturing hub. This exciting development marks a turning point in India’s quest to assert itself as a major player in the global manufacturing landscape.

Luxury Car Sales Surge, Leaving Mass Car Market in the Dust

Introduction:

Surprisingly, luxury car sales have experienced a remarkable surge in the first half of 2023, surpassing the growth of the mass car market. This surge in demand for high-end vehicles is driven by multiple factors, including the increasing affordability of luxury cars and the introduction of new offerings, particularly electric vehicles (EVs).

The Remarkable Growth in Luxury Car Sales: Industry estimates reveal that approximately 20,000 luxury vehicles were sold between January and June, indicating a staggering 38% increase compared to the 14,500 units sold during the same period last year.

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Source: Business Standard

In contrast, sales of passenger vehicles witnessed a more modest growth of around 10% totalling over two million units in the first half of 2023

Key Takeaway

Factors Contributing to the Surge: The surge in luxury car sales can be attributed to several key factors. Firstly, there is a growing base of salaried individuals who now have the means to afford luxury vehicles. This expanding consumer group is increasingly willing to invest in premium cars, increasing sales figures. Moreover, introducing new offerings, particularly EVs, has sparked significant attention and interest among consumers.

The Allure of Electric Vehicles: The introduction of electric luxury cars has played a significant role in boosting sales figures. As more environmentally conscious consumers seek to reduce their carbon footprint without compromising on luxury and performance, electric luxury vehicles have emerged as an attractive option. The combination of cutting-edge technology, sustainability, and luxurious features has captured the interest of discerning buyers, contributing to the surge in demand.

Positive Trajectory for the Luxury Car Market: The exceptional growth witnessed in the luxury car market during the first half of 2023 has set new records and points toward a positive trajectory for the remainder of the year. With a strong consumer base of salaried individuals and the allure of new offerings, the luxury car market is expected to continue its upward momentum, outpacing the growth of the mass car market.

Luxury car sales have experienced an astonishing surge, surpassing the growth rate of the mass car market. The increasing affordability of luxury vehicles and the introduction of new offerings, particularly EVs, have fueled this growth. As more consumers seek premium and sustainable options, the luxury car market is poised for continued success in the coming months.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

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Tax Collected at Source: All You Need to Know 2023

Tax Collected At Source(TCS): All You Need To Know

Introduction

Have you recently bought a car, bike, or necklace? You feel happy and proud, right? But there is a catch. You have to pay an extra tax called TCS or Tax Collected at Source in addition to other taxes on your purchase. And you can’t just pay it later or forget about it. You have to pay it according to the applicable TCS slab rates right away to the seller.

The Budget 2023 raised Tax Collection at Source (TCS) on foreign remittance through Liberalised Remittance Scheme (LRS) to 20% from the existing 5%, except in certain cases. This news caught the attention of people, with everyone trying to understand more about TCS.

This article will cover everything you must know about TCS, from TCS slab rates to TCS compliance penalties and everything in between.

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Taxpayers

What is Tax Collected at Source (TCS)?

TCS, or tax collected at source, is a mechanism to collect tax from the buyers of specific goods and services at the time of sale. TCS applies to various items, such as scrap, minerals, forest produce, liquor, jewelry, motor vehicles, etc. The Tax Collected at Source rates vary depending on the nature and value of the transaction

The seller is responsible for managing and depositing the tax with the government and issuing a TCS certificate to the buyer. The buyer can use the TCS certificate to claim credit for the tax paid against their income tax liability.

TCS means tax collected at source, which means that the seller of specific goods and services must collect tax from you, the buyer, during a sale and pay it to the government. The seller must also provide a TCS certificate showing the tax you paid and where it went. Every clause, from Tax Collected at Source rates to its exemptions, compliance, penalties, etc., is covered under Section 206 C of the IT Act 1961.

The Tax collected at Source rates depends on what you are buying and how much it costs. An example will help us grasp this idea more clearly. Say, you buy a car worth more than Rs. 10 lakhs; you have to pay 1% of the price as TCS. So, if your car costs Rs. 15 lakhs, you have to pay Rs—15,000 as TCS to the seller, who will then pass it on to the government.

List of Goods or Transactions Covered under TCS and applicable Tax Collected at Source Rates

TCS is not applicable when manufacturing, processing, or producing the goods listed below. It is only applicable when the goods are purchased for trading purposes.

The seller collects TCS at the point of sale by the list of Tax Collected at Source rates provided below.

 Type of Transaction/GoodsTCS Slab Rates
Alcoholic Liquor for Human Consumption1%
Timber obtained under a forest lease2.5%
Any Timber that is not acquired through a forest lease2.5%
Products from Forests (other than timber or tendu leaves)2.5%
Scrap1%
Minerals like lignite, coal and iron ore1%
Purchase of Motor vehicle exceeding Rs.10 lakh1%
Parking, tolling and digging for minerals and rocks1%
Tendu leaves (bidi wrappers)5%
Overseas Tour Program Package20% (40% if PAN/Aadhar are not provided)
Remittance under Liberalised Remittance Scheme or LRS of RBI (for medical treatment/education purposes)5% of Remittances over Rs. 7.00 Lacs during the relevant FY(10% if PAN/Aadhar not furnished)  
Remittance under LRS for purposes other than Education/Medical Treatment)20% of the Remittance (40% in case PAN/Aadhar is not furnished)
Education Loan-financed remittance to study abroad0.5% of the remittance over Rs. 7 Lacs in the relevant FY( 5% in case PAN/Aadhar is not provided)
Sale of goods exceeding Rs.50 lakh in a year by a seller having a turnover of more than Rs.10 crore in the previous year0.1% (1% in case PAN/Aadhar is not provided)

When Higher Tax Collected at Source Rates are Applicable

Let’s now discuss the cases covered under Section 206CCA in which the buyer has to pay higher Tax Collected at Source Rates than those discussed above.

Case 1: When the buyer has not filed his ITR return for two consecutive financial years before the relevant financial year in which TCS is to be collected.

Case 2: The time limit for filing your ITR returns has expired.

Case 3: Aggregate TDS and TCS in each of the two consecutive financial years exceeds Rs. 50000.

The payable Tax Collected at Source Rates, in such cases, will be the highest of the two rates-

  1. Two times the applicable Tax Collected at Source Rates specified by the IT Act (please refer to the table given above for the applicable TCS slab rates)
Tax slabs
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Income Tax Slabs

Classification of TCS Buyers and Sellers as Defined U/S 260 IT Act

Generally, only the trading transactions where the goods are purchased for reselling are considered.

But who are the sellers and buyers to calculate the Tax Collected at Source Rates? How are they defined under the Income Tax Act? Let us find out.

Sellers

According to Section 260 of the Income Tax Act, a seller is any person who sells any goods or grants any right to receive any goods on which TCS is applicable. The seller must have a Tax Collection Account Number (TAN) to collect and deposit TCS.

The seller can be any of the following:

  • Central Government
  • State Government
  • Local Authority
  • Statutory Corporation or Authority
  • Company registered under the Companies Act
  • Partnership firm
  • Co-operative Society
  • Any person or HUF who is subject to an audit of accounts under the Income Tax Act for a particular financial year

Buyers

According to Section 260 of the Income Tax Act, a buyer is any person who obtains any goods or the right to receive any goods on which TCS is applicable. The seller will collect TCS at a higher rate from the buyer unless the buyer gives his PAN to the seller.  The buyer can be any person except for the following:

  • Public Sector Company
  • Central Government
  • State Government
  • Embassy of High Commission
  • Consulate and other Trade Representatives of a Foreign Nation
  • Various clubs, including Sports Club and Social Club
  • Local Authority for purchase of a vehicle

Thus, TCS is applicable only when there is a sale or transfer of goods or rights between a seller and a buyer as defined under Section 260 of the Income Tax Act. The seller and the buyer have certain obligations and rights under this provision, which they must comply with to avoid paying any penalty or interest.

Rules for TCS exemptions

The applicable Tax Collected at Source rates can sometimes be exempted. Here are some of the rules for TCS exemptions-

  • TCS is not applicable when the goods are used for personal consumption by the buyer.
  • TCS is not applicable when the buyer uses the goods for manufacturing, processing, or production and not for trading purposes. The buyer has to furnish a declaration to the seller and the tax authorities for this purpose.
  • TCS is not applicable when the buyer is a public sector company, central government, state government, embassy, consulate, club, or local authority to purchase a vehicle.
  • TCS is not applicable when the sale of goods or services through an e-commerce platform and the supplier is liable to pay GST on such supply under Section 9(5) of the CGST Act. For example, hotel accommodation, radio taxi, housekeeping services, etc.
  • TCS is not applicable when the sale of goods is made by a seller whose turnover does not exceed Rs.10 crore in the previous financial year, and the sale consideration is at most Rs.50 lakh in a year.

TCS Tax Filing Dates

The buyer can claim credit for the TCS paid against their income tax liability. The filing dates for the TCS return are as follows-

Quarter EndingDue Dates for filing returnDue Dates for Generating Form 27D
June 30July 15thJuly 30th
September 30October 15thOctober 30th
December 31January 15thJanuary 30th
March 31May 15thMay 30th

TCS Compliance Checklist

The seller has to comply with various rules and regulations under the Income Tax Act and the GST Act for TCS. Here follows a comprehensive TCS compliance checklist-

  • The seller has to obtain a Tax Collection Account Number (TAN) and register under GST as an e-commerce operator.
  • The seller must collect TCS at the specified TCS slab rates from the buyers on the net taxable value of the goods or services sold online.
  • The seller has to deposit the TCS collected at the applicable Tax collected at Source rates every month by the 7th of the next month, except for March, where the due date is April 30th, using Challan 281.
  • The seller has to file a return of TCS every quarter and issue a certificate to the buyer within 15 days from the due date of filing the return in form 27EQ.
  • The seller has to issue a TCS certificate in Form 27D to the buyer within 15 days from the due date of filing the return.
  • The seller has to reconcile the TCS collected and deposited with the TCS reported in the returns and rectify any discrepancies or errors.

TCS Compliance Penalties for Non-deposit of TCS

If the seller fails to deposit the TCS collected according to the applicable Tax Collected at Source Rates, TCS Compliance penalties imposed will be as follows:

  • In the event of a delay in the deposit of TCS, interest at 1% per month or part of the month is charged in addition to the TCS amount that he fails to collect.
  • Under Sec 271 CA of the IT Act, the defaulting person would be liable for TDS compliance penalties equal to the amount of tax liable to be collected.
  • Under Sec 276BB of the IT Act, the defaulting person will also be liable for prosecution and imprisonment of up to 7 years.
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Key Takeaways

TCS is one of the important provisions under the Income Tax Act that aims to widen the tax base and improve tax collection. Tax Collected at Source Rates is the rate at which a seller collects tax from the buyer on certain goods or transactions and deposits it with the government. TCS is a way of collecting tax at the source of income and ensuring buyer tax compliance.

Knowing TCS implications is crucial because it affects the seller and buyer’s cash flow and tax liability. If TCS is not collected or deposited correctly, the seller and buyer will have to pay penalties and interest on the unpaid amount. Therefore, it is advisable to be aware of the TCS provisions and comply with them diligently

FAQs

When is TCS collected from the Buyer?

The seller has to collect TCS at the specified Tax Collected at Source rates from the buyer at the time of sale or receipt of payment, whichever is earlier-
 
For example, if a seller sells scrap worth Rs. 1 lakh to a buyer, he has to collect TCS at 1% of Rs. 1 lakh, i.e., Rs. 1000 from the buyer. The seller must collect the TCS when he debits the buyer’s account or upon receiving payment from the buyer, whichever happens first.

What is the applicable Tax Collected at Source Rates under GST?

Tax Collected at Source Rates for goods covered under GST are as follows-
● 1% of the net taxable value of intra-state supplies (0.5% for CGST and 0.5% for SGST)
● 1% of the net taxable value of inter-state supplies (1% for IGST)
●  2% of the net taxable value of supplies made by notified suppliers through notified e-commerce operators (1% for CGST and 1% for SGST)

Read more:  How Long-term investing helps create life-changing wealth – TOI. 

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Frequently asked questions

Get answers to the most pertinent questions on your mind now.

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What is an Investment Advisory Firm?

An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.

An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.

An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.

An investment advisory firm is a company that helps investors make decisions about buying and selling securities (like stocks) in exchange for a fee. They can advise clients directly or provide advisory reports and other publications about specific securities, such as high growth stock recommendations. Some firms use both methods, like Research & Ranking, India’s leading stock advisory company, specializing in smart investments and long-term stocks since 2015.