Taxonomy

Today, Union Finance Minister Nirmala Sitharaman is set to introduce the much-anticipated Income Tax Bill 2025 in the Lok Sabha. This new bill will replace the Income Tax Act of 1961, bringing significant changes aimed at simplifying the tax system for both individuals and businesses across India. The primary goal of this reform is to make tax laws more accessible, transparent, and easier to navigate.

Tax regulations have long been perceived as complex and cumbersome, often confusing taxpayers about filing requirements, deductions, and applicable rates. The introduction of the Income Tax Bill, 2025 is expected to address these concerns by streamlining provisions, introducing new concepts like the ‘tax year’, and updating regulations related to digital assets like cryptocurrencies.

Let’s review the key elements of the new bill and explain what these changes mean for taxpayers.

Why Is a New Income Tax Bill Being Introduced?

The existing Income Tax Act of 1961 has served India’s economy for over six decades. However, the numerous amendments and additions have made it complex and challenging for the average taxpayer to interpret. According to Finance Minister Sitharaman, this new bill aims to create a more straightforward tax structure that minimizes confusion and encourages voluntary compliance.

The new bill is expected to achieve the following:

  • Simplify Tax Language: Reduce technical jargon to make tax rules more comprehensible.
  • Modernize Tax Administration: Align tax provisions with contemporary economic practices, especially regarding digital transactions.
  • Promote Compliance: Introduce streamlined processes and taxpayer-friendly measures to encourage timely tax filing.
  • Ensure Fairness: Establish a Taxpayers’ Charter to protect taxpayer rights and promote fairness in tax administration.

By doing so, the government aims to ease the compliance burden for individuals and businesses. Source: Economic Times

Key Changes in the Income Tax Bill, 2025

1. Introduction of the ‘Tax Year’ Concept

One of the most notable changes is introducing a ‘tax year’, which will replace the concepts of ‘previous year’ and ‘assessment year’.

Currently, taxpayers often struggle to distinguish between the financial year and the assessment year. Under the new bill, the tax year will directly align with the financial year (April 1 to March 31), simplifying record-keeping and filing processes.

For new businesses or sources of income, the tax year will begin on the commencement date and end on March 31 of the same financial year. This change is expected to reduce filing errors and streamline the tax reporting process.

2. Revised Income Tax Slabs

The Income Tax Bill 2025 introduces revised tax slabs with more progressive rates to ease the burden on middle-income earners. The updated tax slabs are as follows:

Income Slab (₹)Tax Rate
Up to 4,00,000No Tax
4,00,001 – 8,00,0005%
8,00,001 – 12,00,00010%
12,00,001 – 16,00,00015%
16,00,001 – 20,00,00020%
20,00,001 – 24,00,00025%
Above 24,00,00030%

What This Means for You:

  • Individuals earning up to ₹4 lakh annually remain exempt.
  • Middle-income taxpayers will benefit from reduced rates in comparison to the previous regime.
  • Higher-income brackets retain a maximum tax rate of 30%.

These adjustments aim to increase disposable income for individuals in lower and middle-income categories while maintaining the progressive structure of direct taxation.

3. Simplification of Deductions: What Happens to Sections 80C and 80D?

The new bill simplifies the structure of deductions by consolidating various sub-sections under Section 80.

  • Section 80C (investments in PPF, ELSS, LIC) and Section 80D (health insurance premiums) will continue to exist. However, these sections will undergo renumbering and restructuring for better clarity. The overall deduction framework will be easier to understand, eliminating redundant clauses and unnecessary complexities.
  • This change ensures taxpayers can continue to claim deductions on eligible investments while dealing with fewer technicalities during filing.

4. Taxpayers’ Charter: Your Rights as a Taxpayer

The bill mandates the creation of a Taxpayers’ Charter by the Central Board of Direct Taxes (CBDT). This charter will:

  • Protect taxpayer rights
  • Ensure transparency in tax proceedings
  • Guarantee privacy of taxpayer information
  • Hold tax authorities accountable for timely resolution of disputes

The charter is intended to build trust between taxpayers and tax authorities, fostering a culture of voluntary compliance.

5. Digital Transactions and Cryptocurrencies

As digital assets become increasingly popular, the bill introduces new regulations for cryptocurrency transactions. The bill will:

  • Define taxation norms for gains from digital assets.
  • Outline reporting requirements for crypto transactions.
  • Provide clarity on tax treatment for virtual digital assets (VDAs).

This move reflects the government’s commitment to regulating the rapidly evolving digital economy while ensuring tax compliance. Source: Money Control

Some Common Questions You May Have:

1. How Will the New Tax Slabs Affect Me?

The revised tax slabs primarily benefit middle-income earners. For instance, if your income is ₹10 lakh per year, you will now be taxed at 10% on the portion above ₹8 lakh—significantly lower than previous rates.

2. What Happens to Existing Deductions Like 80C and 80D?

While these deductions will continue, the structure will be simplified. The familiar benefits from investments in PPF, ELSS, LIC, and health insurance premiums remain intact.

3. Will the New Concept of ‘Tax Year’ Change My Filing Process?

Yes, but for the better. The ‘tax year’ will directly correspond to the financial year, eliminating confusion around assessment years and simplifying document preparation.

4. How Does the Bill Impact Cryptocurrency Investors?

The new bill provides a clearer framework for taxing gains from digital assets, including cryptocurrencies. Taxpayers in crypto trading should stay informed about specific rules under this category.

5. Will There Be Any Change in Corporate Tax Provisions?

While the primary focus is on individual taxpayers, some corporate tax procedures have been streamlined. Subsequent policy updates will announce further details. Source: Deccan Herald

Conclusion: A Step Towards Simplified Taxation

The Income Tax Bill 2025 marks a significant shift in India’s taxation landscape. By introducing straightforward language, modernizing tax procedures, and simplifying deduction structures, the bill aims to reduce taxpayer confusion and improve compliance rates.

The new provisions surrounding ‘tax year’, updated tax slabs, and digital asset taxation reflect the government’s proactive approach to aligning tax laws with modern economic realities. As the bill progresses through parliamentary scrutiny, taxpayers are advised to stay informed and understand the potential implications for their financial planning in the years to come.

The proposed changes will take effect on April 1, 2026. This reform is not just a legal amendment—it represents a move towards a more efficient, transparent, and accessible tax system for every Indian citizen.

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As Budget 2025 approaches, all eyes are on Finance Minister Nirmala Sitharaman to unveil measures that will shape the economic landscape of India. Citizens, businesses, and economists are keen to see how the government addresses critical issues like GDP growth, infrastructure, taxation, and manufacturing. 

This will mark Finance Minister Nirmala Sitharaman’s second full-fledged Budget under Modi 3.0 and her eighth Budget presentation in Parliament. 

Based on past conventions, the Finance Minister is anticipated to deliver the Union Budget 2025 speech at 11 a.m. on February 1, 2025. However, the Finance Ministry has yet to confirm this date officially. 

Notably, she concluded Pre-Budget consultations with various stakeholders, unions, and other representatives on January 6 before commencing work on the Budget for 2025-26. Source: Mint

Stock Markets to Remain Open on Budget Day

Unlike regular weekends, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) will remain operational on Saturday, February 1, 2025, due to the Union Budget 2025-26 presentation.

Typically, Indian stock markets remain closed on Saturdays and Sundays, but this special session underscores the significance of Budget Day for financial markets.

Based on expert opinions and key trends, here’s a breakdown of what you can expect from this year’s budget.

Focus on Economic Growth

India has demonstrated resilience in the face of global challenges, but sustaining robust GDP growth remains a priority. The government is likely to introduce policies that stimulate investment and consumption. Infrastructure continues to be a cornerstone of economic growth. 

The middle class anticipates relief in personal income taxes to boost disposable incomes. Changes in the Goods and Services Tax (GST) structure are also anticipated. 

Budget 2025 may see enhanced allocations to:

GDP Growth RevivalInvestment Incentives: Expect schemes to attract private and foreign investments in manufacturing, technology, and green energy. 

Boosting MSMEs: Special focus might be placed on micro, small, and medium enterprises (MSMEs) to aid recovery and growth.
Push for Infrastructure DevelopmentRoad and Rail Networks: Expanding national highways and modernizing railways to improve logistics. 
Urban Infrastructure: More funds for smart cities and metro projects to meet urban demands.
Direct Tax Reforms & Corporate
Tax Adjustments
Higher Exemption Limits: The basic exemption limit could be raised, benefiting taxpayers.

Simplified Tax Structure: Streamlining tax slabs and reducing complexities in filing returns might be on the agenda.

Reduction in Tax Rates: Especially for small businesses and start-ups in emerging sectors like renewable energy and AI.
GST RationalizationSimplified Rates: Reduction in the number of tax slabs.

Sector-Specific Relief: Lower GST for sectors like healthcare and education.
PLI Schemes ExpansionExtend PLI benefits to sectors like textiles, toys, and green hydrogen.

Increase allocations for existing schemes to attract more global players.
Export PromotionProvide incentives for exporters and reduce bureaucratic hurdles in trade processes.
Green Economy and SustainabilitySolar and Wind Energy Projects: Incentives for private players investing in clean energy.

Green Bonds: Financing environmentally sustainable projects.
EV SectorExpand subsidies for EV buyers and enhance the EV ecosystem with better-charging infrastructure.
Agriculture and Rural DevelopmentIncrease MSP (Minimum Support Price) for key crops and allocate funds for agri-tech and irrigation projects.
Rural EmploymentExpect enhanced funding for employment schemes like MGNREGA to boost rural livelihoods.
Defense and National SecurityModernization of Armed Forces: Allocations for advanced weaponry and technology.

Domestic Defense Manufacturing: Incentives for companies producing defense equipment locally.
Digital and Tech RevolutionFunds for expanding 5G networks and investments in AI, machine learning, and blockchain technologies.
E-Governance and Digital IndiaExpanding digital payment systems and improving access to government services via digital platforms.
Source: Mint

Let’s explore the key sectors where government support and reforms are anticipated to be a major focus in Budget 2025.

Strong Support for Startups Anticipated

Industry experts expect the government to maintain robust support for India’s thriving startup ecosystem in the Union Budget 2025. They anticipate focused measures, such as enhanced financial support mechanisms and simplified regulatory frameworks, to empower the sector further.

Section 80-IAC of the Income Tax Act allows eligible start-ups to claim a 100% tax deduction on profits for any three consecutive years within a ten-year window, provided the start-up is incorporated between April 1, 2016, and March 31, 2025. Experts believe that to further boost start-up growth in India, the incorporation deadline for eligible start-ups should be extended. 

Empowering Taxpayers with Fair Reforms

According to industry experts, India’s tax reforms should empower the middle class and enhance compliance. Reducing the average tax rate to 10% for incomes up to ₹20 lakh can lower financial burdens, boost savings, and drive economic growth.

Additionally, synchronizing direct and indirect taxes—such as income tax and GST—can simplify taxation. A transparent, fair, and rewarding tax system will ease financial pressure and strengthen the economy.

Will Tax Cuts Be on the Agenda?

The Budget 2025 is expected to deliver tax relief while balancing revenue needs. Taxpayers anticipate a higher rebate for lower-income groups and an increased basic exemption limit under both tax regimes to ease inflation pressures. Enhancing presumptive taxation limits for businesses and professionals under Sections 44AD and 44ADA is also a key expectation.

Homebuyers hope for higher interest deduction limits on housing loans, with suggestions to raise the cap under Section 24(b) from ₹2 lakh to ₹3 lakh. Simplifying faceless appeals and TDS for non-residents remains crucial. Source: Economic Times

Boosting Real Estate Growth

Experts believe raising the long-stagnant tax exemption limit on home loan interest can reduce homebuyers’ financial burden and improve affordability. Granting industry status to real estate will help developers access structured financing and lower borrowing costs. Simplifying GST rates and input tax credit mechanisms will further enhance affordability. Policies for new greenfield cities and upgrading urban infrastructure are crucial to meet rising demand and ensure sustainable growth.

Strengthening Online Education

The Union Budget 2025-2026 presents a chance to boost India’s online education system, supporting the NEP 2020 goal of allocating 6% of the GDP to education.

 Experts expect the budget to focus on creating standardized quality frameworks for online programs and improving institutions’ digital infrastructure. Additionally, initiatives to bridge information gaps, offering career counseling and digital literacy programs are also anticipated. These steps will help students make informed decisions and enhance access to quality education.

Boosting Financial Education

The Union Budget 2025-26 offers a key opportunity to enhance India’s financial education through edu-fintech partnerships. The budget is expected to introduce initiatives supporting digital financial literacy, including tax incentives for platforms offering specialized financial education and skill development programs. These measures will help improve financial knowledge and empower individuals to make informed financial decisions.

Relief Measures for Study-Abroad Aspirants is Expected

The Union Budget 2025-26 should address the rising costs faced by Indian students pursuing international education due to global inflation. Key measures could include reducing education loan interest rates and expanding financial aid for study-abroad aspirants.

Encouraging collaborations with foreign universities and simplifying procedures for establishing Indian campuses can also boost opportunities. According to experts,  these steps will make global education more accessible, empowering Indian students to gain international exposure and contribute to India’s global presence in education.

Focus on Women, Youth, Farmers, and the Underprivileged

Industry experts hope for continued focus on infrastructure, fiscal prudence, and support for women, youth, farmers, and the underprivileged through skilling, welfare, and financial assistance. Key areas to address include boosting private consumption, reviewing income tax slabs, and reassessing interest rates for EMI relief. These measures can boost industries like consumer durables, encourage private investment, and promote innovation, PLIs, and sustainable growth for inclusive development. 

What the Tourism Industry Wants

The tourism industry hopes for key measures to support growth ahead of the Union Budget. This includes granting industry status to hospitality, allowing GST credit for hotel construction, and rationalizing GST rates to reduce accommodation costs. These steps would boost domestic and inbound tourism.

The industry also seeks funding for an international campaign under the Incredible India initiative. Additionally, support for the growing homestay sector and resolving GST issues for Online Travel Agents (OTAs) are crucial for streamlining operations and reducing costs.

Budget 2025 Expectations: Higher Budget for Indian Railways?

The upcoming Budget may allocate 15-20% more capital expenditure for Indian Railways in FY26, increasing the total to over Rs 3 lakh crore from Rs 2.65 lakh crore this year. The focus will be improving infrastructure, including commissioning upgraded railway stations, launching modern trains, and decongesting the track network. This boost in funding aims to enhance the efficiency and modernization of the national transporter’s operations.

Will Railways Get Bigger Allocation for Passenger Safety?

Indian Railways is at a crucial point, needing both modernization and urgent safety improvements. The tragic Odisha rail accident in 2023 and multiple incidents in 2024 highlight the ongoing safety concerns. With over 70 derailments and several fatal accidents, there is a growing demand for greater investments in safety measures. The upcoming budget may address these issues, prioritizing passenger safety with a larger railway infrastructure and upgrade allocation.

Boost for Preventive Healthcare in India

India’s preventive healthcare sector holds significant potential, especially nutraceuticals (Nutraceuticals are products derived from food sources that provide health benefits beyond basic nutrition). To unlock this, the Union Budget should focus on reducing the 18% GST on nutraceuticals to 5% for better affordability. 

Additionally, 50% capital subsidies for certified manufacturing units in smaller cities would encourage local production. Subsidies for digitization and digital payments are crucial for enhancing digital infrastructure.

Retail Sector’s Expectations from Sitharaman

The retail sector looks forward to key policy changes in the Union Budget. Stakeholders expect reduced interest rates to improve access to financing. The food & beverage (F&B) segment hopes to be recognized as an essential service with utility subsidies and land costs. 

What the Insurance Sector Wants

Industry experts see the Union Budget as a crucial opportunity for the government to enhance the life insurance sector. They suggest raising tax deduction limits under Section 80C for life insurance premiums and establishing separate limits for term insurance and pension policies. Additionally, they advocate for mandatory basic term life insurance for formal employees, similar to the Employees’ Provident Fund (EPF). These measures would foster financial security and contribute to India’s long-term socio-economic development.

Challenges Ahead

While the expectations are high, the government faces the challenge of balancing fiscal discipline with growth-oriented spending.

  • Managing Fiscal Deficit: Efforts will be needed to keep the fiscal deficit within acceptable limits while funding key initiatives.
  • Global Economic Uncertainty: India must navigate global economic pressures, including inflation and trade tensions.

Budget 2025 may need to be transformative, addressing critical areas like economic growth, taxation, infrastructure, and sustainability. With its potential to shape the future of India’s economy, this budget is highly anticipated.

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FAQs

  1. What are the key expectations from the Union Budget 2025?

    Taxpayers hope for reduced tax rates and exemptions, while industries seek financial support for growth. The healthcare, agriculture, and education sectors expect increased allocations. There are also calls for reforms in GST and infrastructure development.

  2. How will the Union Budget 2025 affect individual taxpayers?

    Taxpayers expect possible reductions in income tax slabs, increased exemptions, and higher rebates to increase disposable income and ease financial burdens.

  3. What does the business community expect from the Budget?

    The business sector hopes for lower corporate tax rates, tax incentives for new investments, and measures to improve the ease of doing business, which can stimulate economic growth.

  4. Will the Union Budget 2025 focus on healthcare?

    Yes, the healthcare sector anticipates a boost in spending for preventive care, including measures like lower GST on nutraceuticals and digital health initiatives.

  5. How will the budget impact the education sector?

    The education sector expects increased funding for infrastructure development, digital learning programs, and reforms to improve the quality, accessibility, and affordability of education.

The Central Board of Direct Taxes (CBDT) has introduced a new form, 12BAA, to help salaried individuals reduce the Tax Deducted at Source (TDS) from their salaries. This is a significant development as it provides taxpayers with a more efficient way to manage their tax liabilities.

This new regulation, allowing employees to notify their employer about TDS from other income sources or TCS (Tax Collected at Source) collected during significant purchases, took effect on October 1, 2024. CBDT introduced this new form 12BAA, which allows employees to inform their employers about tax deductions from income sources beyond their salary. These sources could include fixed deposits, insurance commissions, dividends from shares, or taxes collected when making large purchases like cars or foreign currency. Source: Economic Times

Understanding Form 12BAA

Form 12BAA is a declaration form that salaried employees can submit to their employers to claim deductions or exemptions that may reduce their taxable income. This form allows them to inform their employer about taxes paid on other sources of income or expenses. It’s similar to Form 12BB, which is used to declare investments, ensuring the correct amount of tax is deducted from the salary.

Key Benefits of Form 12BAA

  • Reduced TDS: By accurately declaring deductions and exemptions, employees can ensure that the TDS deducted from their salaries is not excessive.
  • Enhanced Tax Compliance: Using Form 12BAA helps individuals comply with their tax obligations more efficiently.
  • Simplified Tax Filing: Providing accurate information on Form 12BAA can simplify filing income tax returns.
  • Comprehensive Tax Reporting: Modified form 12BB will allow employees to report additional income details, claim house property losses, and claim TCS credit through the employer, making the tax process more efficient and reducing evasion.
  • Form 12BAA to Boost Take-Home Pay: Form 12BAA will help employees reduce tax deductions on their salary by factoring in taxes paid from other income sources, ultimately increasing their take-home pay.

How Form 12BAA Helps Employees Reduce TDS from Salaries

TDS Deduction Based on Declarations
Employees can now inform their employers about TDS deducted from other income sources or TCS collected during major purchases. Before this, there was no formal way to convey this information to employers, but the new form provides a standardized mechanism for doing so.

Mechanism for Reporting Other Taxes

-Employees can now inform their employers about TDS deducted from other income sources or TCS collected during major purchases.-Before this, there was no formal way to convey this information to employers, but the new form provides a standardized mechanism for doing so.

Source: timesofindia

When to Submit Form 12BAA

Salaried employees can submit Form 12BAA to their employers anytime during the financial year. However, submitting the form at the beginning of the financial year is generally recommended to maximize the benefits of reduced TDS.

How to Submit Form 12BAA

Submitting Form 12BAA is relatively straightforward. Employees can obtain the form from their employers or download it from the CBDT website. Once completed, the form should be submitted to the employer along with supporting documents, if required.

Important Considerations

  • Accuracy: It is crucial to ensure that the information in Form 12BAA is accurate and complete. Inaccurate information may lead to penalties or other legal consequences.
  • Supporting Documents: Employers may require supporting documents to verify the claims made in Form 12BAA. It is essential to provide all necessary documentation to avoid delays or discrepancies.
  • Regular Updates: If any income or deductions are changed during the financial year, you may need to update Form 12BAA accordingly.

Income Tax Laws on Salary Tax Deductions

Employer’s Duty to Deduct Tax

  • Under Section 192 of the Income-tax Act, employers must deduct tax from the salary paid to employees.
  • The tax deduction is based on the employee’s chosen tax regime, either the new or old system.

Choosing Between Tax Regimes

  • Employees have the option of choosing between the new tax regime, which offers lower tax rates but fewer exemptions, and the old regime, which includes various deductions and exemptions.

Investment Declaration for Lower TDS

  • Employees need to submit an investment declaration to their employer to reduce the tax deducted from salary. This helps employers adjust the TDS by accounting for eligible deductions and exemptions based on the regime selected by the employee.

Additional Tips for Maximizing Tax Savings

  • Plan Ahead: Start planning your tax deductions and exemptions well in advance to ensure that you take advantage of all available opportunities.
  • Consult a Tax Professional: If you are unsure about which deductions or exemptions you are eligible for, it is advisable to consult with a tax professional for guidance.
  • Stay Updated: Stay informed about the latest tax laws and regulations to avoid penalties or interest charges.

By understanding and effectively utilizing Form 12BAA, salaried employees can significantly reduce their TDS liabilities and optimize their tax savings.

FAQ

  1. What is Form 12BAA?

    Form 12BAA is a new form introduced by the Central Board of Direct Taxes (CBDT) to simplify the process of claiming salary tax deductions. This form allows individuals to directly declare their eligible deductions to their employers, reducing the amount of Tax Deducted at Source (TDS) withheld from their salaries. This is a significant step towards making the tax filing process more efficient and convenient for taxpayers.

  2. Who can benefit from Form 12BAA?

    Form 12BAA is primarily beneficial for salaried individuals with eligible deductions under various sections of the Income Tax Act, such as Section 80C, 80D, or 80E. By submitting this form to their employers, they can ensure that the correct amount of TDS is deducted, preventing the need for excess tax to be paid during the annual tax filing process.

  3. How does Form 12BAA work?

    To use Form 12BAA, individuals need to provide their employers with a duly filled form and supporting documents for their claimed deductions. The employer will then verify the provided information and adjust the TDS deducted from the employee’s salary accordingly. This streamlined process eliminates the need for manual calculations and reduces the chances of errors.

  4. What are the benefits of using Form 12BAA?

    Using Form 12BAA offers several advantages to salaried individuals. It simplifies the tax filing process by reducing the need for manual calculations and adjustments during the annual tax return. Additionally, it helps taxpayers avoid paying excess TDS, which can be a significant financial burden. By accurately declaring their deductions, individuals can ensure that they pay only the correct amount of tax, optimizing their financial situation.

Securing your child’s financial future is one of the most important responsibilities of a parent. With rising education, healthcare, and general living costs, ensuring a strong financial foundation for your child is vital. One of the most innovative solutions to secure your child’s future financially is the National Pension Scheme (NPS) Vatsalya. Launched by the Indian government, this scheme is designed to help parents and guardians build a nest egg from birth, ensuring long-term financial security.

Since its inception, NPS has delivered highly competitive returns, with a compounded annual growth rate (CAGR) of 9.5% for the government sector. In the non-government sector, returns have been 14% in equity, 9.1% in corporate debt, and 8.8% in government securities. Initially introduced in 2004 for government employees, NPS was extended to non-government employees in 2009.

This article will explore how NPS Vatsalya works, its benefits, and how it can be a crucial tool in your child’s financial journey.

What Is NPS Vatsalya?

NPS Vatsalya is a new pension plan announced by the Indian government, specifically aimed at securing children’s financial future. Launched by Finance Minister Nirmala Sitharaman on September 18, 2023, NPS Vatsalya allows parents to start investing in their child’s future right from birth. The idea behind the scheme is to create a lifelong financial cushion that matures into a reliable pension once the child reaches adulthood, securing them against life’s uncertainties.

NPS Vatsalya is an extension of the existing National Pension Scheme (NPS), but its unique focus on children sets it apart from other investment options.

Key Features of NPS Vatsalya

Early StartParents can begin saving for their child’s retirement from infancy, leveraging the power of compounding.
Flexible ContributionsThe minimum annual contribution is ₹1,000 with no upper limit, making it accessible to all.
Investment OptionsOffers various investment options, including equity, government bonds, and corporate bonds, to cater to different risk appetites.
Partial WithdrawalAllows for partial withdrawals before retirement under certain conditions.
Seamless TransitionOffers various investment options, including equity, government, and corporate bonds, to cater to different risk appetites.
Government-Backed The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), providing government assurance and security.
Source: Mint

*Note: It’s important to note that parents’ contributions to NPS Vatsalya do not provide any tax benefits, unlike contributions made to the regular NPS, which qualify for deductions under Section 80C of the Income Tax Act.

How NPS Vatsalya Works

Parents or guardians can open an NPS Vatsalya account for their children by submitting key documents like Know Your Customer (KYC) details, the child’s birth certificate, and proof of identity. The account can be opened through banks, pension fund houses, or the e-NPS portal. The funds will remain locked until the child turns 60. At retirement, they can withdraw 60% of the corpus tax-free, while the remaining 40% will be converted into annuities. 

For partial withdrawals, up to 25% of the corpus can be withdrawn for specific needs such as education or medical treatment for certain illnesses or disabilities. Withdrawals can be made a maximum of three times during the entire NPS tenure.  

Eligibility

Parents or legal guardians can open the NPS Vatsalya account for their children as soon as they are born. The account remains active until the child reaches the age of 18, after which it converts into a regular NPS account. This allows the child to continue benefiting from the pension scheme, contributing further, or withdrawing the accumulated amount as per NPS rules.

Contribution Structure

Parents can start investing with as little as Rs. 500 per month. There is no upper limit, allowing flexibility in contributions depending on the financial situation of the family. The funds are then invested in a diversified portfolio that includes equity, corporate bonds, and government securities.

Withdrawal and Maturity

Once the child reaches adulthood (age 18), the NPS Vatsalya account transitions into a regular NPS account. The child can choose to continue contributing or withdraw a portion of the funds while keeping the remainder invested to accumulate further for retirement.

Comparison With Other Investment Options

When it comes to investing in a child’s future, NPS Vatsalya is not the only option available. Let’s compare it with other popular schemes:

NPS VatsalyaPPFsMFs
Annual MinRs.1000 p.a.Rs.500 p.a.None
Annual MaxNo LimitRs.1.5 LakhNone
Assuming 75:25 Equity to Debt Portfolio (Since Equity Capped at 75%)
Last 10 Years12%7-8%16% Flexicap Avrg.
How to OpenVia eNPS, nsdl.com, BanksThrough BankRIA/Distributor/Direct
MaturityMatures at 60Matures in 15 Yrs.Anyday Withdrawl
Partial WithdrawalMax 25% of ContributionsMax 50% after 4 Yrs.No Restriction, 5 Yr. lock-in for Child Plan
Tax Deduction on ContributionNot ClearYesNo
Tax on Maturity60% Tax FreeNo12.5% Capital Gains after 1 Year.
Corpus in 18 Yrs at 12%Corpus in 18Yrs at 7.5%Corpus in 18 Yrs at 15%
For 10K SIPRs.76.54 LakhRs.45.74 LakhRs.1.10 Crore
10k SIP + Step up 10%Rs.1.44 CroreN/A Due to Max LimitRs.1.94 Crore
50 Year SIP at 12% CAGR – Rs.39 Crore

Source: Mint

NPS Vatsalya vs. Mutual Funds

While mutual funds are good investment options, NPS Vatsalya offers certain distinct advantages.

  • Controlled Investment: NPS Vatsalya provides a controlled investment environment, ideal for long-term wealth accumulation.
  • Flexibility of Mutual Funds: Mutual funds offer greater flexibility, allowing withdrawals at any time, though some child-specific funds may have a five-year lock-in period.
  • Choosing Based on Goals: The decision between NPS Vatsalya and mutual funds depends on your preferences and your child’s future financial goals.
  • Controlled vs Flexible Approach: If you prefer a controlled investment, NPS Vatsalya is a strong option. For more flexibility and withdrawal access, mutual funds may be a better fit.

NPS Vatsalya vs. Public Provident Fund (PPF)

PPF is another popular investment option, but it has a longer lock-in period of 15 years. The maximum annual contribution to PPF is ₹1.5 lakh, and the interest rate is currently 7.1%, subject to quarterly revisions.

Benefits of NPS Vatsalya

1. Secure Future Planning

NPS Vatsalya provides a secure way to plan for long-term financial needs, including education, healthcare, and other life events. By investing consistently, you can accumulate a substantial amount that can cater to future financial needs.

2. Power of Compounding

One of the biggest advantages of starting early is the power of compounding. When you invest in NPS Vatsalya from the time of your child’s birth, the returns start compounding over time, generating wealth without requiring large contributions in the initial years.

3. Low Management Costs

NPS Vatsalya comes with very low management fees compared to mutual funds or other child-focused schemes. This makes it a cost-effective way to accumulate wealth over a long period.

4. Professional Fund Management

The funds under NPS Vatsalya are managed by professional fund managers, ensuring that your investments are diversified and optimized for returns. This takes the burden of actively managing the investments off your shoulders, giving you peace of mind.

Key Considerations for Parents

While NPS Vatsalya offers a host of benefits, there are certain factors you should consider before investing:

  • Market Risk: Since part of the investment is in equities, there is a certain level of market risk involved. However, this risk is balanced with investments in government bonds and corporate debt.
  • Liquidity: Unlike some other child investment schemes, NPS Vatsalya does not allow premature withdrawal except under specific conditions. Parents should be prepared for long-term commitment.
  • Investment Horizon: Since the scheme matures only when the child reaches 18, it is ideal for parents looking for long-term financial planning.

Conclusion: Securing Your Child’s Future

NPS Vatsalya is a forward-thinking scheme that enables parents to build a strong financial foundation for their children. With its flexibility, low management fees, and the benefit of market-linked returns, it stands out as a viable option for parents looking to create a nest egg from birth. By leveraging the power of compounding and professional fund management, NPS Vatsalya ensures that your child’s future is secure, regardless of the uncertainties of life.

Investing in NPS Vatsalya early on can set your child on the path to financial independence, giving you peace of mind that their future is well taken care of.

FAQ

  1. What is the significance of a 14% Equity CAGR in NPS Vatsalya?

    A 14% Equity CAGR (Compound Annual Growth Rate) in NPS Vatsalya offers a substantial advantage for a child’s retirement savings. This high growth rate can lead to significant wealth accumulation over time, even with small regular contributions. It’s a powerful tool for building a strong financial foundation for the future.

  2. Is it advisable to invest in NPS Vatsalya from birth, or should I wait until my child is older?

    Starting an NPS Vatsalya account from birth offers several advantages, including the power of compounding. The earlier you start, the more time your investments have to grow. Even small contributions made early on can accumulate significantly over time.

  3. Can I withdraw funds from my child’s NPS Vatsalya account before retirement?

    While NPS Vatsalya primarily aims to provide retirement savings, there are limited circumstances under which partial withdrawals may be allowed. These typically include situations like critical illness or higher education. However, it’s important to consult with a financial advisor to understand the specific rules and requirements for withdrawals.

Is a higher gross pay better than net pay? Are you confused about gross salary and net salary in your compensation document?

Understanding the distinction between gross and net salary is crucial when managing personal finances. These two elements play unique roles in financial planning and reflect different aspects of your earnings, though both are integral to your overall compensation.

For those just beginning their careers or seasoned professionals evaluating their compensation packages, grasping the nuances between gross and net salary is essential. This knowledge will help you build a solid financial foundation and make informed budgeting, saving, and investing decisions.

In this article, we’ll examine the distinctions between gross salary and net pay and comprehensively analyze each. 

Gross Salary: Definition and Breakdown

Gross salary is an employee’s total income before any deductions are made. This figure represents an employer’s offered compensation, including wages, bonuses, allowances, and other benefits. It is the starting point from which various deductions, such as taxes and retirement contributions, are subtracted to determine the net salary (the amount the employee will take home).

Components of Gross Salary

  • Basic Salary: The core compensation amount forms the basis of the employee’s earnings. It is the fixed amount paid regularly, usually specified in the employment contract.
  • Allowances:
  • House Rent Allowance (HRA): Compensation provided to cover housing expenses.
  • Conveyance Allowance: Reimbursement for travel expenses between home and work.
  • Medical Allowance: Coverage for medical expenses or reimbursement for medical bills.
  • Special Allowance: Any additional allowances that don’t fall into other categories are often used for miscellaneous expenses.
  • Bonuses:
  • Performance Bonus: Additional pay awarded based on individual or company performance.
  • Festival Bonus: Paid during major festivals or at the end of the financial year.
  • Annual Bonus: This amount is usually given at the end of the fiscal year and is based on company performance and employee contribution.
  • Overtime Pay: Compensation for hours worked beyond the standard working hours or workweek. It is calculated at a higher rate than regular hours. Some companies provide this.
  • Commissions: Earnings based on sales or performance metrics, typically seen in sales and marketing roles.
  • Gratuity: A lump sum payment made to employees upon retirement or resignation, provided they have completed a certain number of years with the company. It’s calculated based on the basic salary and years of service. As of February 2024, the gratuity contribution rate in India was around 4.81% of an employee’s basic salary. However, this number may vary depending on the employer’s policies.
  • Other Benefits:
  • Car Allowance: Payment for the use of personal vehicles for work-related purposes.
  • Driver’s salary: This amount is paid to employees who employ drivers to commute to the workplace. This allowance is often a part of the Executive suite of employees.
  • Meal Allowance: Reimbursement or provision of meals during work hours.

How to Calculate Gross Income?

Gross income is the total amount an employee earns before any deductions, such as taxes or contributions to retirement funds. Add the base salary and all applicable allowances to find the gross income. Here’s how you can calculate it:

Gross Salary = Base Salary + Allowances

For example, let’s consider an employee with the following pay structure:

Basic Salary:₹30,000
House Rent Allowance (HRA):₹10,000
Transport Allowance:₹1,500
Statutory Bonus₹2,000

The calculation would be:

Gross Salary = ₹30,000 + ₹10,000 + ₹1,500 + ₹2,000

Total Gross Salary = ₹43,500*

*The gross income does not include deductions such as Provident Fund contributions or income tax, subtracted later to determine the net salary.

Net Pay: Definition and Breakdown

Net pay, or take-home pay, is the amount of money an employee receives after subtracting all deductions from their gross pay. It is the amount deposited into the employee’s bank account and available for spending or saving.

Components Included in Net Pay:

  • Gross Pay is the total amount earned by an employee before any deductions. It includes salary or wages, bonuses, overtime, and other forms of compensation.
  • Income Tax: A portion of the gross pay withheld by the employer as per the applicable tax laws and calculated based on income slabs and other factors.
  • Social Security Contributions: Mandatory contributions to government social security programs. It includes contributions to the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) in India.
  • Health Insurance Premiums: Deductions for any health insurance plans provided by the employer or chosen by the employee. It may include premiums for family coverage.
  • Retirement Contributions: Contributions to retirement savings plans like the Voluntary Provident Fund (VPF) or other pension schemes. Sometimes, these include employer-matched contributions.
  • Other Deductions: Any other deductions such as loan repayments, union dues, or contributions to employee welfare funds. Voluntary deductions, like charitable contributions, may also be included.
  • Bonuses and Incentives: Certain companies include bonuses or performance-related incentives in their compensation plans. These rewards can be given at regular intervals or as a single lump sum based on performance.

How to Calculate Net Pay?

Determining your net salary is a straightforward process. Here’s a step-by-step example:

Salary Breakdown

Gross Salary₹45,000
TDS₹600
Professional Tax₹250
EPF Contribution₹4,000
Insurance Premium₹1,200

Net Salary = Gross Salary – TDS – Professional Tax – EPF Contribution – Insurance Premium

Calculation – Net Salary = ₹45,000 – ₹600 – ₹250 – ₹4,000 – ₹1,200 = ₹39,950*

*You need to deduct the professional tax when calculating your net salary. The maximum amount to be deducted annually for Professional Tax is ₹2,500.

Difference Between Gross and Net Salary

AspectGross SalaryNet Pay
DefinitionTotal earnings before deductions and taxes.Take-home pay after deductions and taxes.
IncludesBasic salary, allowances, bonuses, overtime.Gross salary minus deductions (taxes, insurance, etc.).
Calculation BasisTotal before any reductions.Total after all mandatory and voluntary deductions.
Impact of DeductionsDoes not account for deductions.Reflects the impact of deductions and taxes.
Tax ConsiderationPre-tax income amount.Post-tax income amount.
UsageIt is used to determine the overall compensation package.Used for budgeting and actual take-home calculations.

In summary, the difference between gross and net pay is crucial for understanding your earnings. Gross pay is your total earnings before any deductions, while net pay is the amount you take home after deductions. By comprehending these differences, you can better manage your finances, plan your budget, and understand your actual earnings.

FAQs

  1. What is the primary difference between gross pay and net pay?

    The primary difference is that gross pay is the total amount earned before any deductions, whereas net pay is the amount received after all deductions have been subtracted from the gross pay.

  2.  How can I calculate my net pay from my gross pay?

    To calculate your net pay, start with your gross pay, then subtract mandatory deductions such as income tax and Provident Fund (PF) and any voluntary deductions like insurance premiums. The remaining amount is your net pay.

  3. Why is it important to understand the difference between gross and net pay?

    Understanding the difference is essential for accurate budgeting and financial planning. It helps you know how much you will take home after deductions, which is crucial for managing your expenses and savings.

With the tax filing deadline fast approaching, you must be concerned about your Form 16 if you are yet to get it. Form 16 is often considered indispensable for filing returns if you are salaried. But you can still file your ITR if your Form 16 is unavailable. 

In this article, we will guide you through gathering information from alternative sources to ensure that your tax filing is complete, accurate, and in accordance with the tax laws.

Let us take off on this journey to file your ITR, even if Form 16 is not on hand.

What is Form 16?

Form 16 is a certificate employers issued confirming the tax deduction at source (TDS) from an employee’s salary. It comprises two parts: Part A and Part B.

​Part A is a record of TDS deducted during a particular financial year.  It includes the employer’s TAN and PAN, the employee’s PAN, the assessment year, the period of employment, and a summary of quarterly TDS deposited with the government. 

​Part B provides a detailed breakdown of employees’ salaries, deductions, and net taxable income.

Form 16 is essential for employees because it:

  • Offers proof of tax payment. 
  • Assists in the efficient filing of the ITR. 
  • Provides a comprehensive income record.

Therefore, Form 16 is an important document that facilitates tax compliance and serves as a crucial document in your loan application process.

Why You May Not Have Form 16?

Now, let’s discuss the circumstances under which you might not receive this form:

  • Income Below Taxable Limit: If your income falls below the minimum taxable threshold, the employer is not obligated to deduct tax at source (TDS), resulting in no Form 16 being issued.
  • Employment Shifts: When you switch jobs during a financial year and do not inform your new employer about your previous income, you don’t receive your Form 16.
  • Non-compliance by Employer: Sometimes, your employer may fail to deduct TDS or delay the process due to oversight or non-compliance with tax laws, which can result in your not receiving Form 16.
  • Freelance or Contractual Work: Freelancers or contract-based workers may not receive Form 16 as their tax deductions are not processed like those for salaried employees.
  • Exemption Claims: Employees who have declared investment proofs that qualify for tax exemptions might not have TDS deducted; hence, they may not be issued Form 16.
  • Technical Glitches: At times, technical issues with the employer’s payroll system or the tax department’s e-filing portal can delay or prevent the generation of Form 16.

Alternative Documents to Form 16

While Form 16 is a primary document for ITR filing for salaried individuals, several other documents can be utilized to complete the process effectively:

Salary Slips: Your employer issues salary slips, or payslips, which detail your earnings and deductions for each pay period. 

To obtain your salary slips:

  • Request them directly from your HR/Admin department.
  • Alternatively, you can access your company’s internal employee portal, log in, and navigate to the payroll or salary section, where you can view and download your payslip.

Form 26AS: Form 26AS, or the Tax Credit Statement, is a consolidated record of all taxes deducted on your behalf and deposited with the Income Tax Department. 

To access Form 26AS:

  • Visit the e-filing portal.
  • Log in using your PAN, which serves as your user ID.
  • Navigate to the ‘e-file’ menu and select ‘Income Tax Returns’,’ then click ‘View Form 26AS’.
  • After reading the disclaimer, confirm to proceed to the TDS-CPC Portal.
  • In the TDS-CPC Portal, agree to the terms and click ‘Proceed’.
  • Choose the appropriate ‘Assessment Year’ and desired ‘View type’ (choose from HTML, Text, or PDF formats).
  • To view or download your Form 26AS, click the ‘View/Download’ button.

Bank Statements: Bank statements can be obtained through your bank’s online portal or by going to a branch. They record all transactions, including salary credits and tax deductions.

Interest Certificates: You can obtain an interest certificate from the bank or financial institution where you have a savings account or fixed deposit. Nowadays, with technology, most banks allow customers to download interest certificates from their online portal. 

Investment Proofs: Gather all documents related to investments or expenses that qualify for tax deductions, such as insurance premium receipts, home loan statements, and tuition fee receipts.

Capital Gains Statements: If you have sold any investments or property, you will need capital gains statements from your broker or the mutual fund house to calculate the capital gains tax. 

Aadhaar Card/PAN Card: Ensure you have your Aadhaar and PAN cards ready, as they are required for verification during the ITR filing process.

Step-by-Step Guide to Filing ITR Without Form 16

Step 1- Preparing your documents

You begin the process with a total of your income from all sources. Keep your pay stubs for the entire year and proof of any other sources of income. For instance, pension slips, interest certificates, rental income, and dividend income. Also, provide proof of any capital gains earned from the sale of property or shares.

If you changed jobs during the year, ensure you have pay slips from both employers for the broken periods.

Step 2- Calculating your taxable income

Download Form 26 AS from the TRACES using the steps outlined above. Check that your income corresponds to your Annual Information Statement (AIS) and Tax Information Summary (TIS).

You can download these statements from the Income Tax website’s “Services Tab” after logging in with your ID and password. These documents were introduced to encourage the self-filing of ITRs and reduce the chances of errors.

Step 3- Deductions and exemptions

Check the exemptions or the deductions available which will help reduce your taxable income. You can refer to the table below for eligible deductions/exemptions –

SectionEligible Deductions/ExemptionsExemption Limit
80 CInvestments in tax saving vehicles like PPF, NSC, Life Insurance etc.Up to Rs. 1,50,000/-
80 DMedical Insurance Premium for self and familyUp to Rs. 25,000 ( Rs. 50,000/- for senior citizens)
80 EInterest on Education LoanNo limit (Interest paid for 8 years)
80 GDonations to Charitable InstitutionsVaries (50% or 100% of the donation amount)
80 TTAInterest on Savings AccountUp to Rs. 10,000/-
HRAHouse Rent AllowanceLeast of rent paid minus 10% of salary, or HRA received, or 40% of salary (50% in metro cities)

Step 4- Filing the ITR online

Now, comes the last step of filing your ITR return by logging in to the Income Tax Portal. 

  • Please input your user ID (PAN), password, and captcha code for logging in.
  • Navigate to the ‘e-File’ menu and click ‘Income Tax Return’.
  • Select the appropriate assessment year and ITR form, and fill in the required information.  After submission, verify your ITR within 30 days to complete the process.

5 Tips for a Smooth ITR Filing Experience Without Form 16

Here are five tips for a smooth and professional ITR filing experience without Form 16:

Keeping financial records organized

Ensure you record all your income sources, including salary slips, interest income, and any other earnings. This will help you record your earnings precisely.

Utilize Form 26AS

Form 26AS is a consolidated tax statement on the Income Tax Department’s e-filing portal. It reflects all the taxes deducted on your behalf and is essential for verifying TDS and ensuring all income is accounted for.

Claim Eligible Deductions 

Collect all relevant documents for deductions you’re eligible for, such as investment proofs under Section 80C, education loan interest under Section 80E, or medical insurance under Section 80D.

Compute Tax Liability Correctly

Calculate your tax liability considering all incomes and deductions. Use online tax calculators or consult a tax professional to ensure the correct tax is computed.

Choose the Correct ITR Form 

It is crucial to select the appropriate ITR form based on your income sources. For instance, ITR-1 is for salaried individuals with income up to ₹50 lakhs, while ITR-2 is for those with income from more than one house property or foreign assets.

Key Takeaways

With the digitalization of financial records and the availability of online portals, obtaining these documents has become easier than ever. Starting the process early to gather all necessary information and avoid a last-minute rush is critical.

Do not let the lack of Form 16 cause a delay in your ITR filing. Procrastination can cause unneeded worry. So, to avoid penalties, file your tax returns on time.

If you take proactive steps and choose alternatives when Form 16 is unavailable, you can handle tax season with ease and precision. 

FAQs

  1. Can I file my ITR if I don’t have Form 16? 

    Yes, you can file your ITR using alternative documents like salary slips and Form 26AS for tax deductions and bank account statements, tax saving investment proofs, etc, at your disposal before you start the tax filing process.

  2. Will I face penalties for filing an ITR without Form 16?

    There are no penalties for filing an ITR without Form 16 as long as you report your income and deductions correctly. Also, remember to file your return by the specified deadline. To avoid penalties, verify the accuracy of total income declared during tax filing using the Annual Information Statement (AIS).

  3. Can I file an ITR without Form 16 if I am a freelancer?

    As a freelancer, you may file your Income Tax Return (ITR) without Form 16. However, since freelancers are not salaried, they rarely receive Form 16. You can file ITR using documents such as Form 26 AS, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS).

    You can also use the Presumptive Taxation Scheme (Section 44ADA of the Income Tax Act) to declare 50% of their gross annual income as net income if their total income is under ₹50 lakhs.

Loans are a crucial element of financial planning as they help you achieve your various objectives in life. Loans can help you buy a home, further your education, or purchase a car. But did you know that loans can also help you get tax breaks?

Yes, you heard me right. In this article, we’ll look at four loans that can help you get tax breaks while providing you with the financial resources to pursue your dreams.

4 Types of Loans with Tax Breaks

Being tax-savvy while borrowing empowers you to achieve your financial aspirations while optimizing your tax situation. Let’s look deeper into each of India’s four types of loans that can be a tool for tax breaks.

Education Loans: Investing in Your Future

Remember when you were preparing for your higher education? At some point, you must have considered financial aid in the form of an education loan. But did you know that an education loan comes with tax breaks under Section 80E that you or your parent can claim when filing taxes? 

Also Read: What is Paid Up Capital?

What is Section 80E? 

Section 80E of the Income Tax Act lets you claim tax deductions on educational loans. This tax break is only available for the interest portion of the loan. It can be claimed after the loan repayment has begun.

  • Purpose: The deduction applies to interest paid on educational loans used for higher education.
  • Eligibility: Only individual taxpayers are eligible for this deduction. It is not available to HUF or other types of taxpayers. The loan should be used for the higher education of the individual, their spouse, children, or a student for whom they are the legal guardian.
  • Deduction Limit: There’s no cap on the amount you can claim as an interest deduction. You can claim the entire interest paid during the financial year.
  • Duration: The deduction can be claimed for up to eight years, beginning with the year in which interest repayment begins.
  • No Limit: Unlike other deductions, the Section 80E exemption has no specific limit. You can claim a deduction for the actual interest paid during the fiscal year
  • Loan Source: Loans from friends and family do not qualify. You must take loans from a bank/financial institution or an approved charitable organization to qualify.

Impact of education loans on tax breaks

Loan Repayment and Tax Planning: Consider the timing of loan repayment. If possible, align it with your income levels to maximize tax benefits. Moreover, you can combine your interest deductions with other tax-saving options like Section 80C (for principal repayment) and Section 10(14) (for scholarships).

Reduced Taxable Income: By claiming the interest deduction, your taxable income decreases. This can lead to lower tax liability. It effectively reduces the out-of-pocket cost of the loan, making education financing more manageable.

Financial Freedom: Education loans allow you to pursue your dreams without draining your savings. You can focus on learning while the tax benefits take care of the rest.

Home Loans: Building Your Dream with Tax Breaks

Let’s discuss the tax deductions available under Sections 24(b), 80C, 80EE, and 80EEA to help you save money on your home loan repayment.

Tax Break on Home Loan Interest 

  • Section 24(b) allows you to deduct the interest you pay on your home loan. 
  • If the property is self-occupied, you can claim up to ₹2 lakh per financial year. 
  • The entire interest component is deducted from your rental income if you rent out the newly purchased home.

Principal Repayment 

Section 80C allows you to claim deductions on the principal repayment of your home loan. The maximum limit is ₹1.50 lakh per financial year.

Joint Home Loan with a Spouse

If your spouse is an earning member and applies for a loan jointly with you, it can be a suitable tax planning strategy. Both of you can benefit from the interest deduction.

Additional tax breaks for first-time homeowners

If you’re a first-time homeowner buying an affordable house, rejoice! Sections 80EE and 80EEA offer extra deductions on interest payments.

Stamp Duty and Registration Fees:

  • Under Section 80C, up to ₹1,50,000 in stamp duty and registration fees paid at the time of home purchase can be claimed.
  • This deduction helps reduce your taxable income.

Section 80EEA

  • Introduced for loans sanctioned between April 1, 2019, and March 31, 2024. 
  • Section 80EEA applies to individuals, including first-time homebuyers and those already owning a residential property.
  • It provides an additional deduction of up to ₹1.50 lakh on interest payments for affordable housing.

Personal Loans: Indirect Tax Advantages

While personal loans generally do not offer direct tax benefits, there are specific circumstances where you might be eligible for tax advantages.

When do personal loans offer tax breaks?

For Business Expansion

  • If you use the personal loan amount to expand your business, the interest paid on the loan can be considered a business expense.
  • In such cases, you may be able to claim a tax deduction for the interest paid.

Residential Property

  • When you buy, construct, or renovate a residential property using a personal loan, you may qualify for tax benefits.
  • The interest paid on the loan can be eligible for deduction under Section 24(b) of the Income Tax Act in India.

Asset Purchase

  • The interest paid could be tax-deductible if you invest the personal loan amount to purchase assets (such as gold, shares, vehicles, machinery, or equipment).
  • When purchasing an asset using a personal loan, you won’t receive immediate tax benefits in the year of purchase. However, you can add the interest amount to the acquisition cost during the year of selling the asset. 
  • Doing so increases the asset’s cost basis, which affects the capital gains calculation. The interest paid on the personal loan is then subtracted from the capital gains earned from selling the asset, reducing tax liability.
CategoryTax TreatmentImpact on BorrowerTax Limits
Business ExpansionThe interest paid may be considered a business expense while calculating profitsReduces the taxable income No specific limit( based on actual interest paid)
Home Purchase/RenovationEligible for deduction under Section 24(b).Reduce the out-of-pocket cost of home improvement.Maximum deduction of ₹2 lakhs for self-occupied property.
Purchasing AssetsInterest paid on a personal loan may be tax-deductibleIncreases the cost basis of the asset for capital gains calculation.No specific limit ( based on actual interest paid.

Car Loans for Tax Breaks

Now, let’s find out how businesses can claim tax deductions on car loans. 

Business Use:

  • If you are a self-employed professional or a business owner, you can use a car loan to purchase a vehicle for commercial purposes.
  • The key benefit lies in deducting the interest component of the car loan from your taxable income.

Here’s how it works:

Suppose you buy a car for your business, and the loan interest paid during the year amounts to ₹2.4 lakhs.

If your taxable business profit is ₹50 lakhs, you can deduct the interest payment from this amount.

Your total taxable profit for the year would be ₹47.6 lakhs after accounting for the car loan interest.

  • Another strategy is to treat the car as a depreciating asset. You can claim depreciation up to 15% annually on the car, even if you don’t take a car loan. This helps you lower your taxable income. 

3 Tips to Maximize Your Tax Breaks

  • Obtain an interest certificate from your Bank or financial institution that bifurcates the principal and interest repayments during the financial year.
  • To be eligible for the income tax benefit on your loan, you must provide all required documentation when filing an ITR. So, keep a copy of all important documents, including expense vouchers, auditor reports, bank certificates, etc., handy.
  • Avoid defaults on your loans, as they may hamper your credit score, thereby increasing your interest rates. Once a loan turns NPA, the interest deduction becomes restricted. 

The Bottom Line

If your home loan was rejected because the property offered as security was unacceptable to the bank, you may need to take out a personal loan to buy a house. You may also find that you are unable to obtain an education loan for your son in time and must take out a personal loan instead.

In such cases, we assume that personal loans provide no direct tax benefits and opt out of the tax savings. This article goes into detail about all four types of loans that can help you save money on taxes, as well as sections of the IT Act. 

Furthermore, you now know you can still claim tax breaks on personal or car and home and education loans, reducing your taxable income. So, keep track of your loans to avoid interest and other charges and claim your rightful tax benefits.

FAQs

  1. Can I claim a tax break on a second home loan?

    Yes, interest on a second home loan is eligible for deductions under Section 24(b). However, there’s no limit on the interest amount for a second property.

  2. What if I prepay my home loan? Any tax implications?

    Prepaying your home loan reduces interest payments. While there is no direct tax benefit, it does boost home equity.

  3. How does joint ownership impact tax breaks?

    Joint home loans allow both co-owners to deduct interest and principal. Ensure proper documentation and distribute tax benefits.

  4. What are the tax implications if a loan is written off and then is recovered later?

    The borrower may face tax consequences if the loan is ultimately written off. The written-off amount is treated as income for the borrower that year. If the NPA loan is eventually recovered, the amount recovered is also taxable.

Are you looking for a smart way to reduce your capital gains tax? Have you tried tax harvesting yet?

 This powerful strategy empowers you to balance your capital gains with losses, effectively reducing your tax liability. This article will delve into the intricacies of tax harvesting, explain how it works, and provide a comprehensive guide on implementing it for maximum benefit.

Let’s begin with understanding what capital gains tax is

Understanding Capital Gains Tax

First and foremost, let’s demystify the concept of capital gains tax. It’s a tax levied on the profit you earn from selling an asset, such as stocks, bonds, or real estate. These gains are classified into two categories: short-term and long-term, depending on the duration of your asset holding.

Short-term capital gains, derived from assets held for less than a year, are subject to your regular income tax rate. On the other hand, long-term gains, originating from assets held for over a year, enjoy the advantage of lower tax rates.

In India, short-term capital gains from equity investments (held for less than a year) are taxed at 15%, while long-term gains (held for more than a year) above ₹1 lakh are taxed at 10% without indexation benefit. Understanding these tax implications is crucial for effective tax planning and wealth management.

Also Read: Paid Up Capital Explained

The Concept of Tax Harvesting

Tax harvesting, or tax-loss harvesting, is a technique that provides a safety net in volatile markets. It allows you to offset capital gains with capital losses, thereby reducing your taxable income. Here’s how it works: you sell investments that have lost value, using those losses to offset gains from other assets. This strategy can be reassuring in a volatile market where some of your investments might underperform.

Let’s consider a practical scenario to see the potential of tax harvesting. Imagine you’ve earned ₹2 lakhs in capital gains from profitable investments, but you’ve also incurred ₹50,000 in losses from other investments. You can effectively reduce your taxable gains to ₹1.5 lakhs by using these losses to offset your gains, lowering your tax liability significantly. This is the power of tax harvesting, as it offers a path to substantial tax savings. You can also learn more about tax concepts with our blog.

Mechanics of Tax Harvesting

To effectively utilize tax harvesting, you must:

  1. Identify Loss Positions: Look for underperforming investments in your portfolio.
  2. Sell Assets at a Loss: Sell these investments to realize the losses.
  3. Reinvest Proceeds: Immediately reinvest the proceeds into similar, but not identical, investments to maintain your portfolio’s balance and avoid the wash sale rule.

Types of Tax Harvesting

There are two main types of tax harvesting:

Tax-Loss Harvesting

Tax-loss harvesting is the more popular strategy.  It involves selling losing investments to offset capital gains. Here’s how you can implement it:

  1. Identify Investments with Losses: Scan your portfolio for investments worth less than you paid.
  2. Sell Those Investments: Realize the loss by selling the underperforming assets.
  3. Reinvest Wisely: Buy similar investments to maintain your portfolio’s structure and avoid the wash sale rule.

Example: Imagine you bought shares in Company X for ₹10 lakhs, but their value has dropped to ₹7 lakhs. By selling these shares, you realize a ₹3 lakh loss, which you can use to offset other gains.

In a detailed scenario, consider you have ₹2 lakhs in gains from other stocks in your portfolio. By harvesting the ₹3 lakh loss from Company X, not only do you offset the ₹2 lakh gain, potentially bringing your taxable gain to zero, but you can also carry forward the remaining ₹1 lakh loss to offset future gains.

Tax-gain Harvesting

Tax-gain harvesting is less common but advantageous. It involves selling high-value investments to reset their cost basis, potentially lowering tax rates. Here’s how you can implement it:

  1. Identify Appreciated Investments: Look for significantly increased value investments.
  2. Sell to Realize Gains: Sell these investments to reset the cost basis.
  3. Reinvest in Similar Assets: Immediately reinvest to maintain your portfolio’s balance.

Example: If you bought shares in Company Y for ₹5 lakhs and they are now worth ₹8 lakhs, selling them allows you to pay taxes on the ₹3 lakhs gain now, potentially at a lower rate than in the future.

This strategy can benefit individuals in lower tax brackets, such as retirees. For instance, if your taxable income falls below the threshold for higher tax rates, realizing gains while you’re in this lower bracket can result in significant tax savings over time.

Rules and Regulations

Awareness of the wash sale rule is crucial when tax harvesting. This rule prevents you from claiming a tax deduction for a security sold in a wash sale. A wash sale occurs when you sell a security at a loss and then repurchase the same or substantially identical security within 30 days before or after the sale.

In India, the concept of a wash sale is not explicitly mentioned in tax laws. Still, it is wise to avoid repurchasing the same stock quickly to ensure the tax authorities do not disallow the loss deduction.

Timing and Strategy

Timing is everything in tax harvesting. The end of the year is often the best time to review your portfolio and harvest losses. However, you should monitor your investments throughout the year for opportunities. A combination of long-term and short-term strategies can optimize your tax savings.

For instance, during market downturns, many investments may show temporary losses. Harvesting these losses can offset gains made during more prosperous times, thus ensuring consistent tax efficiency.

Potential Risks and Limitations of Tax Harvesting

Tax harvesting, like any investment strategy, comes with its own set of risks. The primary risks include market risks, where you might miss out on potential gains from the investments you sell. There are also tax implications to consider, such as triggering short-term gains, which are taxed at a higher rate. However, you can navigate these risks by staying informed and seeking the guidance of a financial advisor.

Another limitation is transaction costs. Frequent buying and selling of assets can lead to higher brokerage fees, which might reduce the overall benefits of tax harvesting. Additionally, there’s the risk of deviating from your investment strategy, which could impact your long-term financial goals. Remember, you’re not alone in this journey of tax optimization!

Tools and Resources

Numerous tools and resources can assist with tax harvesting:

  • Software and Apps: Platforms like Wealthfront and Betterment offer automated tax-loss harvesting services.
  • Professional Advice: Consult a financial advisor to tailor a tax harvesting strategy to your needs.

Many brokerage platforms and mutual fund companies in India offer tools to help investors track their portfolios and identify potential tax harvesting opportunities. Software like Quicko and ClearTax can also assist in tax planning and filing.

Case Studies

Case Study 1: An investor realized ₹5 lakhs in losses from underperforming tech stocks, which offset ₹5 lakhs in gains from other investments, significantly reducing their taxable income.

Case Study 2: A retiree used tax-gain harvesting to reset the cost basis of their highly appreciated stocks, benefiting from lower tax rates during retirement. By selling stocks that had gained value during a year with minimal other income, they stayed within a lower tax bracket.

How to Get Started With Tax Harvesting?

Ready to dive into tax harvesting? Here’s how to start:

  1. Assess Your Portfolio: Identify which investments are underperforming.
  2. Set Up a Plan: Determine your goals and create a strategy for harvesting losses or gains.
  3. Monitor and Adjust: Regularly review your portfolio and adjust your strategy.

Stay informed about the latest tax regulations and market conditions in India. Start by thoroughly reviewing your investment portfolio and identifying potential losses or gains to harvest that might benefit from resetting their cost basis. Create a plan that aligns with your financial goals and ensures compliance with Indian tax laws.

Conclusion

Tax harvesting is a powerful strategy for minimizing capital gains tax and enhancing investment returns. By understanding the mechanics, timing your moves, and utilizing available tools, you can effectively implement this strategy and reap the benefits.

Stay informed, be mindful of regulations, and consider seeking professional advice to maximize your results.

FAQs

  1. What is the main benefit of tax harvesting?

    The main advantage is reducing taxable income by offsetting capital gains with losses, leading to potential tax savings.

  2. Can tax harvesting be done with retirement accounts?

    Tax harvesting is typically applied to taxable investment accounts, not retirement accounts like IRAs or 401(k)s.

  3. How often should I review my tax harvesting strategy?

    Reviewing your strategy at least annually, preferably towards the end of the year, and more frequently during volatile market periods is advisable.

  4. What is the wash sale rule?

    The wash sale rule prevents you from claiming a tax deduction for a security sold at a loss if you repurchase the same or substantially identical security within 30 days before or after the sale.

  5. Is professional advice necessary for tax harvesting?

    While not mandatory, professional advice can help tailor a tax harvesting strategy to your specific financial situation and ensure compliance with Indian tax regulations.

Navigating the intricacies of the Employees’ Provident Fund (EPF) can be daunting, especially when you switch jobs. Understanding your new employer’s EPF structure is crucial to maximizing your benefits and avoiding potential tax pitfalls.

Not knowing the status of your EPF trust can result in missed tax benefits under Section 80C and other applicable deductions. Let’s dive deep into the nuances of EPF, its different types of trusts, and their respective tax implications.

What is the Employees’ Provident Fund (EPF)?

The Employees’ Provident Fund (EPF) is a retirement savings scheme mandated by the Indian government. Both employees and employers contribute a percentage of the employee’s salary to the EPF account. This fund is intended to provide financial security after retirement. The key benefits of EPF include:

  • Long-term savings: Ensures financial security post-retirement by accumulating a significant corpus over an individual’s working life.
  • Tax benefits: Contributions qualify for tax deductions under Section 80C of the Income Tax Act, 1961, allowing employees to save on taxes.
  • Compounding interest: The fund grows due to compound interest on contributions and accrued interest, leading to substantial savings over time.

Joining a New Job and EPF

When you start a new job, you either open a new EPF account or transfer your balance. It’s essential to ensure the transfer is done promptly to maintain your savings and continue earning interest. Transferring your EPF balance helps consolidate your retirement savings, making it easier to manage and ensuring continuous interest accrual.

Steps to transfer EPF balance:

  1. Log in to the Member e-Sewa portal: You can access your EPF account using your Universal Account Number (UAN) and password.
  2. Submit a transfer request: The “One Member – One EPF Account” feature initiates the transfer.
  3. Verify with your new employer: Ensure your current employer approves the request to complete the transfer process.

Types of EPF Trusts

EPF accounts can be managed through two types of trusts: exempted and unexempted. Understanding the difference between them is vital for knowing the tax benefits you can claim and how your funds are managed.

Exempted trusts

The EPFO and the Income Tax Department recognize these. They must follow EPFO guidelines and provide the same benefits as EPFO-managed funds. Employers with exempted trusts manage their employees’ provident funds themselves but must comply with specific regulations to ensure the safety and proper management of the funds.

Unexempted trusts

These are not recognized by the EPFO or the Income Tax Department and do not follow the EPFO guidelines. Consequently, they do not offer the same tax benefits and may involve more employee risks. Employers with unexempted trusts manage the funds without the stringent oversight required for exempted trusts, leading to potential fund security and compliance issues.

Tax Benefits of EPF Contributions

The EPF offers significant tax benefits, making it an attractive employee saving scheme. These include:

  • Section 80C deductions: Under Section 80C, employee contributions are deductible, allowing for up to Rs 1.5 lakh deductions from taxable income each year.
  • Tax exemption on interest: Interest earned on contributions is tax-exempt, subject to certain conditions, which further enhances the tax efficiency of the EPF scheme.

Impact of EPF Trust Status on Tax Benefits

The tax benefits depend heavily on whether the EPF trust is exempted or unexempted.

Tax benefits for exempted trusts:

  • Employee contributions are eligible for Section 80C deductions, reducing the taxable income.
  • Employer contributions are not taxed, providing a substantial benefit to employees.
  • Interest earned is tax-exempt, allowing the fund to grow tax-free.

No tax benefits for unexempted trusts:

  • Employee contributions do not qualify for Section 80C deductions, resulting in higher taxable income.
  • Employer contributions are taxed as part of the employee’s salary.
  • Interest earned is taxable, reducing the overall returns from the EPF contributions.

Detailed Taxation of Unexempted EPF Trusts

Understanding the taxation of unexempted EPF trusts is crucial for employees to manage their finances effectively.

  • Employee’s contribution taxation: The employee’s contribution to an unexempted trust is taxable as part of the gross salary. It is not eligible for Section 80C deductions, which means employees cannot reduce their taxable income by the amount contributed to the EPF. However, upon withdrawal, this amount is not taxed again since it was already taxed at the time of contribution.
  • Interest on employee’s contribution: Interest earned on the employee’s contributions is taxed as income from other sources at the time of withdrawal or maturity. This interest is added to the employee’s income and taxed according to their applicable income tax slab.
  • Employer’s contribution taxation: The employer’s contribution to an unexempted EPF trust is taxable as part of the employee’s salary at the time of withdrawal or maturity. This means the contribution is included in the employee’s gross income and taxed accordingly.
  • Interest on employer’s contribution: Interest earned on the employer’s contributions is also taxable as “Profit in lieu of salary” upon withdrawal or maturity. This interest is added to the employee’s income and taxed at their applicable income tax slab rate.

How Employers Manage EPF Money?

Employers can manage EPF schemes through the EPFO or as self-managed trusts, and the management approach impacts employee benefits.

EPFO-managed EPF: Here, employer and employee contributions are deposited into an EPF account held with the EPFO. This centralized management ensures compliance with EPFO regulations and provides transparency. Employees can access their accounts through the Member e-Sewa portal, which allows them to check their balance, track contributions, and request transfers.

Self-managed EPF trusts: These can be either exempted or unexempted. The management and tax benefits vary based on their recognition status.

Decoding Exempted Trusts

Recognition and rules: The EPFO and the Income Tax Department recognize exempted trusts. To ensure the safety and growth of the provident fund, these trusts must comply with EPFO guidelines, which include rules on investment, fund management, and reporting. The EPFO also regularly audits and inspects these trusts to ensure compliance.

Compliance with EPFO guidelines: These trusts follow stringent rules, ensuring employees receive the same benefits as those managed directly by the EPFO. Compliance includes maintaining proper records, timely deposit of contributions, and ensuring the fund is invested in approved securities to safeguard employees’ savings.

Rules Exempted PF Trusts Must Follow

Adherence to EPFO Guidelines: Exempted PF trusts must adhere strictly to the guidelines set forth by the Employees’ Provident Fund Organization (EPFO). This includes maintaining accurate and up-to-date records of all employee and employer contributions, ensuring timely deposit of these contributions, and regularly providing detailed reports to the EPFO. These guidelines are designed to protect employees’ savings and ensure transparency and accountability in the fund’s management.

Investment Regulations: Exempted trusts must follow specific investment regulations laid out by the EPFO. These regulations dictate the types of securities in which the provident fund money can be invested. A significant portion of the funds must be invested in government securities considered safe and low risk. The remaining funds can be invested in other approved securities, ensuring a balanced and secure growth of the employees’ retirement savings.

Audit and Compliance: Regular audits are mandatory for exempted PF trusts. These audits ensure that the trust is complying with all EPFO guidelines and regulations. An independent auditor must conduct these audits and submit the findings to the EPFO. Non-compliance or discrepancies found during these audits can lead to penalties or the revocation of the trust’s exempted status.

Employee Grievance Redressal: Exempted trusts must have a robust grievance redressal mechanism. Employees should have a clear and straightforward process to raise concerns or complaints regarding their EPF contributions and account management. The trust must promptly address and resolve these grievances to maintain employee trust and satisfaction.

Regular Contribution Updates: Trustees of exempted trusts are required to provide regular updates to employees regarding their EPF contributions. This includes details of employee and employer contributions, the interest earned, and the total balance in the account. Providing regular updates helps employees stay informed about their retirement savings and ensures transparency in the fund’s management.

Training and Education: Exempted trusts must also educate employees about the EPF scheme, its benefits, and how to manage their accounts effectively. This includes conducting workshops and seminars and providing informational materials to ensure employees understand their rights and the importance of their EPF contributions.

Understanding Unexempted Trusts

  • Lack of recognition: The EPFO and the Income Tax Department do not recognize unexempted trusts, so they do not receive the same level of scrutiny and oversight as exempted trusts.
  • Non-compliance with EPFO guidelines: These trusts do not follow EPFO rules, leading to fewer tax benefits and potential complications for employees. The lack of regulation can result in mismanagement of funds, delayed deposits, and inadequate investment strategies, which can affect the growth and security of the provident fund.

EPF Account Management via EPFO

  • Contributions process: Both employer and employee contributions are deposited directly into an EPF account managed by the EPFO. This centralized approach ensures transparency and adherence to EPFO regulations.
  • Accessing EPF account through Member e-Sewa portal: Employees can easily manage their accounts, check balances, and submit transfer requests through the EPFO’s Member e-Sewa portal. This online portal provides a convenient way for employees to monitor their EPF savings and ensure timely updates.

EPF Account Management via Self-Managed Trusts

  • Operational differences: Self-managed trusts, depending on their recognition status, offer different levels of benefits and compliance with EPFO guidelines. Exempted trusts must adhere to strict regulations, while unexempted trusts operate with more flexibility but less oversight.
  • Benefits and drawbacks: While exempted trusts provide similar benefits to EPFO-managed funds, unexempted trusts do not offer the same tax advantages and might involve more risk. Employees in unexempted trusts may face issues with fund security, lower returns, and higher tax liabilities.

Common Mistakes Employees Make with EPF

Not transferring EPF balance: Failing to transfer the EPF balance when switching jobs can result in lost interest and benefits. It’s essential to initiate the transfer process promptly to ensure continuous growth of your EPF savings.

Ignoring trust status: Not understanding whether your EPF trust is exempted or unexempted can lead to unexpected tax liabilities. Always verify the status of your EPF trust with your employer to plan your taxes effectively.

Ensuring Maximum EPF Tax Benefits

Regularly checking EPF balance: Stay updated with your EPF account to ensure contributions are correctly deposited and interest accrues properly. Regular monitoring helps identify any discrepancies early.

Staying informed about EPF rules: Keeping abreast of changes in EPF regulations can help you maximize your benefits and avoid pitfalls. Attend employer-provided briefings or consult financial advisors to stay informed.

Understanding the nuances of EPF, especially the distinction between exempted and unexempted trusts, is crucial for maximizing your tax benefits and ensuring financial security. Proactive management and staying informed are critical to making the most out of your EPF contributions. By regularly checking your EPF balance, ensuring timely transfers, and understanding the tax implications, you can secure your retirement savings effectively.

FAQs

  1. What happens if I don’t transfer my EPF balance?

    If you don’t transfer your EPF balance, your old account may become inactive, and you could miss out on interest accumulation. Additionally, managing multiple accounts can be cumbersome and lead to potential loss of funds.

  2. Can I have multiple EPF accounts?

    Yes, but it is advisable to transfer your balance to the new account to keep all your savings consolidated. This helps in better managing and continuous growth of your retirement corpus.

  3. Are there any penalties for not complying with EPF rules?

    Employers may face penalties for non-compliance with EPF regulations, which could indirectly affect employees. Non-compliance can lead to delayed deposits and mismanagement of funds.

  4. What happens if my employer’s PF trust loses its exempted status?

    If an exempted PF trust loses its status, it no longer complies with EPFO regulations. Employees might face issues like delayed contributions, loss of tax benefits, and potential mismanagement of funds. Addressing such concerns with your employer and seeking guidance on protecting your EPF savings is crucial.

  5. How can I verify the exempted status of my employer’s PF trust?

    You can verify the exempted status of your employer’s PF trust by checking the list of exempted establishments on the EPFO’s official website. Alternatively, you can ask your employer for confirmation and documentation proving their exempted status.

Since its introduction in the 1970s, the windfall tax has stirred ongoing discussions. While proponents of the tax argue for its societal benefits, opponents raise concerns about its potential impact on business profitability and innovation.

Understanding this pivotal aspect of taxation is essential for entrepreneurs or those aspiring to venture into business. Let’s delve into the concept of windfall tax, exploring its implications, advantages, disadvantages, and more.

What is Windfall Tax?

A windfall tax is a fiscal measure governments implement to target specific industries that unexpectedly enjoy significant profits. When certain sectors experience a sudden and notable increase in earnings, the government intervenes by imposing this additional tax.

The term “windfall” denotes an unforeseen and substantial boost in profits, while “tax” signifies the government’s response to this sudden wealth accumulation. This tax is typically applied when authorities detect a rapid surge in revenue within a particular industry.

For instance, the oil and gas sectors may witness a sudden profit spike during geopolitical instability like the recent Russia-Ukraine conflict. In such cases, governments may implement a windfall tax on these industries.

Importantly, these increased profits are often unrelated to the companies’ active business strategies or expansions. Instead, they stem from external factors beyond their control. Thus, the imposition of a windfall tax aims to ensure that these unexpected gains are shared with society. You can also learn about the concept of taxation from our blog.

For example, In 2011, the UK government imposed a windfall tax on profits from oil and gas companies operating in the North Sea. The tax was intended to capture some of the extraordinary profits of high oil prices.

What is the Purpose of Windfall Tax?

  • Revenue Generation: One primary purpose of a windfall tax is to generate additional revenue for the government. Governments can fund public services, infrastructure projects, or other initiatives by taxing excessive profits without imposing additional burdens on the general population.
  • Fairness and Equity: Windfall taxes are also seen as a means of promoting fairness and equity in society. By taxing windfall profits, governments can prevent a small number of entities from disproportionately benefiting from favorable circumstances, ensuring a more equitable distribution of wealth.
  • Market Stabilization: In some cases, windfall taxes stabilize markets and prevent excessive speculation or exploitation of resources. Governments can discourage excessive risk-taking and promote stable economic conditions by taxing windfall profits.

How does Windfall Taxation Function?

For investors eyeing an upcoming Initial Public Offering (IPO), the prospect of a Windfall Tax may not be a pressing concern. Typically targeted at well-established enterprises poised to profit from external circumstances, Windfall Taxes are designed to capture unexpected gains.

In essence, Windfall Profits denote sudden gains, and taxes levied on such gains are dubbed Windfall Taxes. They aim to tax windfall beneficiaries arising from novel or unforeseen events, such as the crisis between Russia and Ukraine. Unlike taxes tied to production processes or deliberate corporate strategies, Windfall Taxes are a one-time levy imposed retrospectively atop standard tax rates.

Traders often discuss Windfall Taxes within volatile stock markets and commodities prone to price fluctuations.

How is Windfall Tax Calculated?

The government assesses profits exceeding a specified baseline over a defined period to calculate the windfall tax. Initially, a baseline profit level is established, often based on industry or business average profits from previous years.

After identifying the baseline profits, the excess profits generated during the windfall period are deducted to determine the surplus. The windfall tax is then computed as a percentage of this surplus.

It’s important to note that the windfall tax rate and the surplus calculation can vary based on government policies or specific circumstances. Additionally, governments may occasionally offer windfall tax rebates to taxpayers.

What are the Advantages and Disadvantages of Windfall Tax?

Here’s a detailed understanding of the advantages and disadvantages:

Windfall Tax in India – Latest Update:

On Monday, 15th April 2024,  the Indian government declared a rise in the windfall tax on petroleum crude, elevating it from ₹6,800 to ₹9,600 per metric ton, effective April 16. This periodic tax adjustment, undertaken every fortnight, will continue to stand at zero for diesel and aviation turbine fuel.

The reason being stated for this is that the decline in oil prices mirrored a shift in market sentiment, seemingly diminishing concerns about a wider regional conflict in the aftermath of Iran’s weekend attack on Israel.

In conclusion, a windfall tax is a targeted levy imposed on businesses or industries that experience sudden and unusually high profits. It is designed to capture some excess profits for society’s benefit and promote fairness, equity, and market stability. 

FAQs

  1. What triggers a windfall tax?

     A windfall tax is typically triggered by a sudden and significant profit increase due to external factors such as changes in market conditions, government policy, or natural resource discoveries.

  2. How is the rate of a windfall tax determined?

    The windfall tax rate is often determined based on the level of excess profits generated by the affected businesses or industries. Governments may use various methods to calculate this excess, such as comparing current profits to historical averages or industry norms.

  3. Are windfall taxes permanent or temporary measures?

    Windfall taxes are temporary measures to address specific economic challenges or policy goals. Once these goals are achieved or the economic conditions change, the tax may be repealed or modified accordingly.

As March ends, everyone is planning to file their taxes, but before doing that, it is always wise to know the new taxation policies according to the year’s budget

How Budget 2024 affects taxation:

  1. No Change in Tax Rates: The existing income tax rates and threshold limits remain the same for the old and new tax regimes. The new tax regime introduced last year is now the default option, with the old regime still available for those who prefer it.
  1. Withdrawal of Outstanding Disputed Tax Demands: The finance minister withdrew all disputed direct tax demands up to ₹25,000. This move aims to ease the burden on taxpayers and foster compliance and economic growth.
  1. Focus on Taxpayer Services: Over the last five years, the government has improved taxpayer services by introducing faceless assessment and appeal processes, updated income tax returns, and prefilling tax returns. The average processing time for returns has significantly reduced.

How To Plan Your Taxes

In India, the Income Tax applies to individuals based on a slab system, and different tax rates are assigned to different income ranges. As the person’s income increases, the tax rates also increase. This type of taxation allows for a fair and progressive tax system. The income tax slabs are revised periodically, typically during each budget. These slab rates vary for different groups of taxpayers. So, planning your taxes can be like exploring a complicated maze. So today, we’ll make it a bit easier for you to navigate by suggesting the best tax regime depending on your income, but before that, we must understand the tax regimes.

Old Tax Regime vs. New Tax Regime

Old Tax Regime:

  • Tax Rebate: Up to ₹12,500 is applicable if the total income does not exceed ₹5,00,000 (not applicable for NRIs).
  • Exemption Limits:
    • Individuals, HUF below 60 years old, and NRIs: Up to ₹2,50,000.
    • Senior citizens over 60 but under 80 years: Up to ₹3,00,000.
    • Super senior citizens aged above 80 years: Up to ₹5,00,000.
  • Surcharge and Cess: Applicable over and above the tax rates.

New Tax Regime:

  • Tax Rebate: Up to ₹25,000 is applicable if the total income does not exceed ₹7,00,000 (not applicable for NRIs).
  • Exemption Limit:
    • Individuals, HUF opting for the new regime: Up to ₹3,00,000.
  • Surcharge and Cess: Applicable over and above the tax rates.

Comparison of Tax Rates

Income Slab (₹)Age < 60 years & NRIsAge 60 to 80 yearsAge above 80 years
Up to ₹2,50,000NILNILNIL
₹2,50,001 – ₹3,00,0005%NIL5%
₹3,00,001 – ₹5,00,0005%5%5%
₹5,00,001 – ₹6,00,00020%20%10%
₹6,00,001 – ₹7,50,00020%20%10%
₹7,50,001 – ₹9,00,00020%20%15%
₹9,00,001 – ₹10,00,00020%20%15%
₹10,00,001 – ₹12,00,00030%30%20%
₹12,00,001 – ₹12,50,00030%30%20%
₹12,50,001 – ₹15,00,00030%30%25%
Above ₹15,00,00030%30%30%

Income Tax Slabs for FY 2023-24 (AY 2024-25)

The income tax slabs under the new tax regime are as follows:

Income Range (₹)Tax Rate
₹0 to ₹3,00,0000
₹3,00,001 to ₹6,00,0005%
₹6,00,001 to ₹9,00,00010%
₹9,00,001 to ₹12,00,00015%
₹12,00,001 to ₹15,00,00020%
Above ₹15,00,00030%

Advantages of the New Tax Regime

  1. Simplified Tax Planning: No need to maintain travel tickets and rent receipts.
  1. Increased Exemption Limit: The basic exemption limit was raised from ₹2.5 lakhs to ₹3 lakhs.
  1. Reduced Surcharge Rate: The surcharge rate for individuals with income exceeding ₹5 Crores decreased from 37% to 25%.

Which is the best tax regime?

There is no one size fits them all, but depending on your income, we can draw a rough estimate about which will be the best tax regime for you:

Income under 7.5 Lakhs:

The new tax regime is for you if your salary is under 7.5 lakhs. Here’s why: Under the new tax regime, your income is tax-free, whereas it was 5.5 lakhs under the old tax regime. On the other hand, under the old tax regime, it became Rs 54,600, making the new tax regime a no-brainer.

Income over 7.5 Lakhs

This is where it gets tricky. Depending on your source of income, this might vary, but for most people, the old tax regime would be better. To take complete advantage of it, one must plan their salary properly. If done correctly, the income can become tax-free, but you’ll have to pay taxes under the new tax regime. For example, if your salary is Rs 8 lakhs, you can get Rs 2.5 lakhs as an allowance from your company.

Then your effective salary becomes Rs 5.5 lakhs, hence being tax-free. Out of this, Rs 50,000 is exempted from the salary. This leaves Rs 2.5 lakhs taxable, making a tax of Rs 12,500, which is rebated, which makes the payable tax 0. You’ll be paying Rs 31,200 in taxes under the new regime. You can learn more about planning your by reading our article on 5 Ways To Restructure Your Salary To Reduce Income Tax Outgo.

Old RegimeNew Regime
Salary8,00,0008,00,000
Allowance2,50,000
Effective Salary8,00,000 – 2,50,000
5,50,0008,00,000
Exemption50,00050,000
Effective income5,00,0007,50,000
Slab 1 Tax2,50,000 x 0% = 03,00,000 x 0% = 0
Slab 2 Tax50,000 x 5% = 2,5003,00,000 x 5% = 15,000
Slab 3 Tax2,00,000 x 5% = 10,0001,50,000 x 10% = 15,000
Due Tax12,50030,000
Rebate (87A12,5000
Health and Education Cess01200
Payable Tax031,200

*Remember, a rebate is applicable on your taxable income only when it is less than 5 lakhs in the old regime and 7 lakhs in the new regime. Anything above this threshold and the rebate under section 87A is no longer available.

Freelancers and investors

If you gain your income through freelancing or investing in the market, then once again, the old tax regime will be better for you in the income Rs 3 lakhs, as after that, the income becomes taxable under the new regime, while under the old regime, it Rs 2.5 lakhs.

In this case, choosing the old regime over the new one is more beneficial as you can plan your income and minimize effective taxes. Investors can take advantage of clauses for short-term and long-term capital gains, about which you can learn more here: Short-Term And Long-Term Capital Gains: Save Upto Rs 15,000 Tax On Your Equity Holdings. In this case, planning your taxes can be tricky, and getting help from an expert is always suggested.

Planning your taxes can be challenging, but it is also highly rewarding, and staying up to date with the latest tax policies helps make the fruit of your labor even sweeter.

FAQ

  1. What are the new income tax slabs and tax rates under the new tax regime?

    The new income tax slabs under the new tax regime for FY 2023-24 (AY 2024-25) are as follows:
    Up to ₹3,00,000: Nil
    ₹3,00,001 to ₹6,00,000: 5%
    ₹6,00,001 to ₹9,00,000: 10%
    ₹9,00,001 to ₹12,00,000: 15%
    ₹12,00,001 to ₹15,00,000: 20%
    Above ₹15,00,000: 30%.

  2. What is the surcharge amount under the revised new tax regime? Is that change applicable only to those with incomes more than ₹5 crores?

    Under the new tax regime, the surcharge rate has been reduced to 25% from 37% for taxpayers earning more than ₹5 crores. This surcharge change applies only to those who opt for the new tax regime and have an income exceeding ₹5 crores.

  3. Why is it being said that there is no income tax up to ₹7 lakh?

    A tax rebate reduces your tax amount. While the tax slabs apply to all individuals (residents or non-residents), the rebate only applies to resident individuals. When computing taxes, they are first calculated per the slab rates, and then the rebate is applied to reduce the final tax amount to zero for eligible residents.

  4. What deductions are available under the revised new tax regime?

    Deductions available in the new regime include:
    Standard deduction for salaried individuals (up to ₹50,000).
    Standard deduction on pension: ₹15,000 or 1/3rd of pension (whichever is lower).
    Interest on Home Loan (u/s 24b) for let-out property.
    Employer’s contribution to NPS.
    All contributions to Agniveer Corpus Fund (section 80CCH).

  5. Will I receive an exemption on leave encashment under the new tax regime?

    Yes, leave encashment is exempt under the new tax regime. In Budget 2023, the exemption threshold for non-government employees was increased from ₹3 lakhs to ₹25 lakhs. Thus, leave encashment of up to ₹25 lakhs at retirement is tax-free under Section 10 (10AA).

Income tax applies to all salaried employees in the country. However, the nitty-gritty of how to calculate income tax on salary can be overwhelming, especially for first-timers. 

From understanding income tax slabs to deciphering different applicable deductions and exemptions, all these details are necessary to calculate tax on taxable income

In this blog, we will discuss how income tax is calculated and walk you through a detailed example. This will give you a fair idea of what is considered when calculating income tax.

Relation between Income Tax and Taxable Income

Before we discuss how income tax is calculated, it is crucial to understand the difference between earned income and taxable income. 

  • Earned income is the total annual salary, including income from salaries, house property, business, capital gains, and other sources.
  • Taxable income is calculated by subtracting tax exemptions, deductions, and rebates. You can use the tax loss harvesting strategy for long-term investments to reduce income tax. 

How is Income Tax Calculated?

Determine your Gross Salary

The first step is to determine your gross salary to know how income tax is calculated. To do so, add up the following salary components.   

  • Basic Salary
  • House Rent Allowance (only valid if you can submit proof of living on rent)
  • Leave Travel Allowance 
  • Mobile Allowance
  • Special Allowance  
  • Bonuses 
  • Overtime payments 
  • Income from other sources like house property gains, dividends, stocks, 

Subtract Deductions for Taxable Income

To calculate income tax on salary, you must subtract the net salary from the gross salary. Here are all the deductions that are eligible for income tax. 

  • All salaried employees are entitled to a fixed ₹50,000 deduction per the new income tax regime. 
  • A taxpayer can claim a tax deduction of up to ₹1.50 lakhs under Section 80C based on their investments. This deduction helps you assess how to pay less tax as it reduces the taxable income. 

The investments can include Equity-Linked Savings Schemes, Employees’ Provident Funds, Public Provident Funds, and Mutual Funds

  • All deductions under Section 57(IIA).

Taxable Income = Gross Salary – Standard Deduction (₹50,000) – HRA – Other Deductions

After removing the necessary deductions, you get your taxable income. Next, you must learn how income tax is calculated on this new taxable income. 

Determine Applicable Income Tax Slab

The next step in calculating income tax is to assess and evaluate which income tax slab your taxable income falls into to determine the tax rate.

Income Tax Slabs (in ₹)New Regime Tax Rate (%)
Up to 2.5 lakhs
2.5 lakhs to 5 lakhs5% 
5 lakhs to 7.5 lakhs10% 
7.5 lakhs to 10 lakhs15%
10 lakhs to 12.5 lakhs 20%
12.5 lakhs to 15 lakhs25%
Above 15 lakhs30% 
Up to 60 years of age
Up to 2.5 LakhsNil
2.5 Lakhs to 5 Lakhs5%
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%
Senior Citizens (60-79 years)
Up to 3 LakhsNil
3 Lakhs to 5 Lakhs5%
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%
Super Senior Citizens (80 years and above)
Up to 5 LakhsNil
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%

Calculate Taxes

Based on the taxable income calculation and slab recognition, you must apply the valid tax rate to calculate the tax on taxable income for the final tax liability. 

Income Tax Calculation Example for New Regime

To understand how income tax is calculated, let us look at the example of Ms. Rashi Gupta below.

Ms. Rashi Gupta earns an annual income of ₹12,00,000 and lives in a metropolitan city. 

Let us learn how to calculate income tax on salary for Ms. Rashi. 

Components Old RegimeNew Regime
Gross Salary ₹12,00,000₹12,00,000
Standard Deduction ₹50,000₹50,000
Deductions Under Section 80C (for Life Insurance Premiums, investments toward ELSS, PPF/SPF/RPF, NSC, etc. ) (Max Limit Up to ₹1.5 lakhs)₹1,00,000
Income From Other Sources (Interest Income from a Bank)₹12,000₹12,000
Final Taxable Income   10,2800011,28,000
Tax Liability Calculation 
Tax Under Normal Rates₹1,31,100₹84,300
Health and Education Cess (4%)4% of ₹1,31,100 = ₹52444% of ₹84,300 = 3372
Income Tax Liability₹1,36,344₹87627

According to the illustration above, Ms. Rashi pays more under the old regime scheme based on the tax slabs and deductions permitted under that scheme. However, her tax liability is lesser when she chooses the new income tax regime. 

Conclusion

Knowing how income tax is calculated on your earned income is necessary to assess your tax liability. Additionally, it is crucial to understand the different applicable deductions and exemptions to help you reduce your tax liability.

Investments offer significant deductions; thus, spending extra time on stock, share, and equity portfolio management is the need of the hour. For added assistance, you can always consult a SEBI-registered advisory that offers maximum support through daily reporting and stock management.  

FAQ On Income Tax

  1. What is the formula for calculating income tax?

    The formula for calculating income tax involves subtracting deductions and exemptions from your gross total income to arrive at your taxable income. Then, apply the applicable tax rates based on your choice of tax regime and the income tax slabs you fall under. Finally, add cess and surcharge, if applicable, to determine your total tax liability. 

  2. How much tax will I pay if my salary is 10 lakh?

    If your salary is ₹10 lakhs, your tax depends on the tax regime you opt for. Under the new regime, your tax liability would be approximately ₹78,000  (including cess at 4% on tax). This is calculated based on the slab rates of 5%, 10%, and 15% for different portions of your income up to ₹10 lakhs.
    So the calculation would be, 
    Income Tax Liability = Final Taxable Income + Education and Healthcare Cess (4%)
    Final Taxable Income = ₹75000 
    Education and Healthcare Cess (4%) = ₹3000 
    Income Tax Liability = ₹75000 + ₹3000 = ₹78,000

  3. Which salary is tax-free?

    Under the old tax regime, salaries up to ₹2.5 lakhs per annum are tax-free for individuals under 60. For senior citizens (aged 60-79), incomes up to ₹3 lakhs are exempt, and for super senior citizens (aged 80 and above), the exemption limit is ₹5 lakhs. Any income below these thresholds does not attract income tax.
    Under the new tax regime, salaries up to ₹3 lakhs per annum are tax-free.

Tax Deducted at Source (TDS) collects income tax in India under the Indian Income Tax Act of 1961. TDS is managed by the Central Board for Direct Taxes (CBDT), part of the Department of Revenue and managed by the Indian Revenue Service (IRS). 

TDS plays a crucial role in India’s fiscal system, aiming to collect taxes directly from the source of income.

TDS Meaning in India

Tax Deducted at Source (TDS) refers to the tax deducted when the money is credited to the payee’s account or at the time of payment, whichever is earlier. The purpose of TDS is to collect tax directly from the source of income. 

The deductor is required to make a specified payment. The deductor must deduct tax at source and remit it to the Central Government’s account. The payment, minus the TDS, is then paid to the deductee.

The deductee whose income tax has been deducted at the source would be entitled to a credit for the amount deducted based on the Annual Information Statement (AIS) or TDS certificate issued by the deductor.

Types of TDS Deductions in India

Below is a tabular list showcasing various TDS deductions in India, current TDS rates, and relevant sections from the Income Tax Act.  It includes specific deductions such as tax deduction at source from salary and TDS on flat rent, highlighting the broad range of rules for TDS deduction.

Income TypeSectionTDS Rate (%)
Salaries (deduction of tax at source from salary)192As per the Income Slab
Interest on securities19310
Dividends19410
Interest other than Interest on securities194A10
Winnings from lotteries and crossword puzzles194B30
Winnings from horse races194BB30
Payments to contractors and subcontractors(Exempt up to ₹30,000 for individual bills or ₹1,00,000 for aggregate in a financial year.)194C1 (Individuals/HUF), 2 (Others)
Insurance commission194D5
Payments in respect of deposits under National Savings Scheme194EE10
TDS on flat rent194I10
TDS on Purchase of property (where the property’s sale consideration or the stamp duty value is ₹ 50,00,000 lakhs or more).194IA1

This table is not exhaustive but covers some key sections and rates, demonstrating the wide application of rules for TDS deduction.

TDS Forms Required

Several forms are required for TDS compliance. 

Form IDDescriptionFrequency
Form 24This form is used for the yearly submission detailing tax deducted at source from salaries as per Section 206 of the Income Tax Act, 1961.Yearly
Form 26Used for the annual reporting of tax deducted at source for transactions other than salaries under Section 206 of the Income Tax Act, 1961.Yearly
Form 27A quarterly report for taxes deducted at source on payments like interest, dividends, or other amounts to specified individuals.Quarterly
Form 27EIt is an annual report on tax collection governed by Section 206C of the Income Tax Act 1961.Yearly
Form 24QA quarterly report that details the tax deducted from salaries at the source.Quarterly
Form 26QThis quarterly report covers the tax deduction at source for payments other than salaries.Quarterly
Form 27QQuarterly tax report deducted at source from payments like interest, dividends, or other sums to non-residents.Quarterly
Form 27EQQuarterly report on the collection of tax at source.Quarterly

You can also make a taxation checklist to ensure all necessary forms and documents are prepared and submitted correctly. 

The Annual Information Statement (AIS) and Form 26 AS

The Annual Information Statement (AIS) in India is a detailed tax document that offers a broad view of a taxpayer’s financial activities within a fiscal year, extending beyond the scope of Form 26AS. 

It shows various financial transactions, including high-value transactions, property dealings, and share transactions, reported to the Income Tax Department by entities like banks and mutual funds

It aims to simplify tax filing by compiling a taxpayer’s financial data in one place, aiding in accurate income tax return submissions, and assisting the department in pre-filling returns.

Although AIS provides a more extensive data set than Form 26AS, it hasn’t replaced it. 

Form 26AS contains tax deductions, collection details, and advance and self-assessed tax payments. Both AIS and Form 26AS are crucial for taxpayers, serving complementary roles in ensuring accurate and comprehensive tax return filing.  Taxpayers should review both documents to reconcile their financial and tax records thoroughly.

TDS Deduction: Deductor and Guidelines

Who is responsible for the deduction of TDS?

The deductor (employer or payer) is responsible for deducting TDS before making any payments. The deductor can be an individual, a partnership firm, a company, etc., making specified payments mentioned under the Income Tax Act.

How to deduct TDS?

The TDS rate depends on the nature of the payment, and the deductor must deduct TDS at the applicable rates.  Deductors should file an e-TDS return per Section 206 of the Income Tax Act. This aligns with the guidelines set on August 26, 2003, by the CBDT for filing TDS returns electronically. TDS is deducted at a higher rate if the deductee does not have a PAN.

TDS Filing Process

Requirements for Submitting TDS Return

The person submitting the return must possess the following:

  • An active TAN registered on the e-filing website
  • A correctly generated FVU file using the Return Preparation Utility (RPU) from the TIN-NSDL website 
  • Digital Signature Certificate (DSC) registered on the e-filing portal if using DSC for upload 

For those opting to upload via EVC, the main bank account details must be pre-validated.

How to Upload Statements for TDS Returns?

The deductor must prepare and upload TDS statements using Return Preparation Utility (RPU) provided by the Income Tax Department or any other third-party software. 

After preparation, the statement should be validated using File Validation Utility (FVU).

How to Submit TDS Return on the e-Filing Website?

  1. Access the Website and Sign In: Use your TAN to sign in on the e-filing website.
  2. Navigate to the TDS Return Option: Select e-File > Income Tax Forms from the main menu> File Income Tax Forms. 
  3. Locate the Relevant Form: Find the form you need to file by clicking the “File Now” button under the Tax Deducted at Source – TDS Form section.
  4. Begin the TDS Form Submission: Click “Let’s Get Started” to proceed. 
  5. Fill in the Necessary Information: Provide the required details, including selecting the form, entering the financial year and quarter, choosing the upload type, and uploading the TDS zip file.
  6. Complete the Verification of TDS Return: To finalize the submission, use the OTP sent to your registered mobile number for verification.

A confirmation message will be displayed once the process is completed.

You can still authenticate the TDS statements using an Electronic Verification Code (EVC) if a DSC is not set up.

TDS Due Dates for Return Filing

Quarterly TDS Returns:

  • 31st July for Q1 (April-June)
  • 31st October for Q2 (July-September)
  • 31st January for Q3 (October-December)
  • 31st May for Q4 (January-March)

Conclusion

Tax Deducted at Source is a crucial part of India’s tax infrastructure, ensuring that tax is deducted at the source and reducing tax evasion. Understanding TDS rates, applicable sections, and compliance requirements is essential for both deductors and deductees. Regular updates and compliance with rules for TDS deduction ensure smooth tax operations and credit. 

Also, considering varied investment avenues as part of a financial planning and taxation checklist can benefit your financial growth alongside tax compliance.

Navigating the investment market can be challenging if you are new to investing. A SEBI-registered advisory can make the process easier for you in such situations. From easing you into investment to advice on long-term investment stocks, an authorized and reliable advisory can be the ideal source for all your investment advice.  

FAQ

  1. Who is responsible for the deduction of TDS?

    The deductor (employer or payer) is responsible for deducting TDS before making any payments. The deductor can be an individual, a partnership firm, a company, etc., m who is making specified payments mentioned under the Income Tax Act.

  2.  How to deduct TDS?

    You can check your TDS deductions in the Annual Information Statement (AIS) or Form 26AS, which is available on the e-filing website of the Income Tax Department or through your net banking account if your PAN is linked to it.

Investing can be a powerful tool for building wealth, but it’s essential to understand the tax implications of your investment returns. In India, profits from the sale of assets are classified as either short-term or long-term capital gains, each with its tax rates and rules. Let’s dive into these terms and how they can affect your investment strategy.

What Are Capital Gains?

Capital gains are profits from selling a capital asset, such as property, stocks, or bonds. When you sell an asset for more than you paid, the profit is considered a capital gain subject to taxation.

Short-term Capital Gains (STCG)

If you sell an asset within 36 months (or 24 months for certain assets like unlisted equity shares) of purchasing it, any profit you make is classified as a short-term capital gain. These gains are taxed at the same rate as your regular income, which varies depending on your income tax bracket. Meanwhile, the tax on capital gains on equity and equity-based funds is 15%. For example, if you’ve invested Rs 50 thousand in equity and it grows to Rs 80 thousand in 6 months, this is how much tax you are supposed to be paying:

Equity Price50,000
Equity Price After Capital Gain80,000
Capital Gain30,000
Applicable tax30,000 x 15%
4500

So, with your capital gain of Rs 30,000, you will be paying a tax of Rs 4,500.

Also Read: Paid Up Capital Explained

Long-term Capital Gains (LTCG)

On the other hand, if you hold onto an asset for longer than the periods mentioned above, the profit from its sale is classified as a long-term capital gain. Whereas the below-listed assets shall be considered long-term capital assets if held for over 12 months.

  • Equity or preference shares in a company listed on a recognized stock exchange in India
  • Securities (like debentures, bonds, govt securities, etc.) are listed on a recognized stock exchange in India.
  • Units of UTI, whether quoted or not
  • Units of equity-oriented mutual funds, whether quoted or not
  • Zero coupon bonds, whether quoted or not

The tax rate for LTCG is generally lower than that for STCG and can be 20% with indexation benefits, which adjusts the purchase price of an asset for inflation. In the case of Equity or Equity funds, the tax on capital gain is 10%  if the capital gain is over Rs 1 lakh. To understand it, let’s take the example above, where you have bought equity of Rs 50 thousand, which grows to Rs 80 thousand in one year. So you have made a capital gain of Rs 30 thousand, which is under 1 lakh so that this income will be tax-free. But this would have been the tax calculation if your investment had grown to Rs 1.6 Lakhs.

Equity Price50,000
Equity Price After Capital Gain1,60,000
Capital Gain1,10,000
Applicable tax(1,10,000 – 1,00,000) x 10%
1,000
Tax TypeConditionApplicable Tax
Long-term capital gains tax (LTCG) Sale of:- Listed Equity shares (If Securities Transaction Tax -STT has been paid on the purchase and sale of such shares) – units of equity-oriented mutual fund (If STT has been paid on the sale of such units)10% over and above Rs 1 lakh  
Others20%
Short-term capital gains tax (STCG)When Securities Transaction Tax (STT) is not applicableNormal slab rates
When STT is applicable15%.

Why Does It Matter?

Understanding the difference between STCG and LTCG is crucial for investors because it can significantly impact their net returns. By planning the duration for which you hold an asset, you can optimize your tax liability and maximize your returns. For example, all long-term capital gains up to Rs 1,00,000 are tax-free, but they would be taxable as short-term capital gains as you’ll be paying 15% tax on the gain, and the payable tax will be Rs 15,000, making your effective income Rs 1,00,000 – 15,000 which is Rs 85,000

Capital Gain1,00,000
Applicable tax1,00,000 x 15%
15,000
Profit After Tax1,00,000 – 15,000
85,000

You can also use these criteria to help you reduce taxes on your long-term investments. Here’s an example: Let’s say you have invested Rs 40 lakhs in a company for 10 years, and your investment grows by 20% every year. Then, this is what your taxes would look like.

YearAmount in portfolio
1400000
2480000
3576000
4691200
5829440
6995328
71194394
81433272
91719927
102063912
Total Capital Gain1663912
Exemption of 1 lakh1563912
10% Tax156391

So the total payable tax becomes Rs 1.56 lakhs, but here’s a clever trick to reduce how much tax you pay:

  • If you sell your stocks and buy them back immediately, it’s like hitting a reset button on your investment. It’s still the same stock, but it’s considered a new investment for tax purposes.
  • By doing this, you can make it look like you’re not earning as much each year, so you pay less tax.

Let’s see how it works over a few years:

  • Year 2: You earn ₹80,000. That’s less than ₹1 lakh, so you pay no tax.
  • Year 3: You earn ₹96,000. Again, it’s less than ₹1 lakh, so no tax.
  • Year 4: You earn ₹1,15,200. This time, it’s more than ₹1 lakh, but you only pay tax over ₹1 lakh. So, you subtract ₹1 lakh and find that you have ₹15,200 that can be taxed. The tax rate is 10%, so you pay 10% of ₹15,200, which is ₹1,520.
  • If you continue paying these taxes yearly after the 10th year, the total tax will be Rs 78,791 instead of Rs. 1,56,391, which is 98% higher.

In simple terms, by selling and buying back your stocks, you’re spreading out your earnings to keep them below the ₹1 lakh limit each year, so you either pay no tax or a much smaller amount. It’s like slicing a big cake into smaller pieces so each slice fits into a smaller box. Each slice is still part of the same cake, but you’re packaging it differently to save space or, in this case, to save on taxes!

YearAmount in
portfolio
Capital GainTaxes paid after the
exemption of 1 lakh
140000000
2480000800000
3576000960000
46912001152001520
58294401382403824
69953281658886589
711943941990669907
8143327223887913888
9171992728665418665
10206391234398524399
Total Tax Paid78791

Tips for Investors

  • Plan Your Sales: Consider the timing of selling your assets to qualify for LTCG and benefit from lower tax rates.
  • Tax Loss Harvesting: You can offset capital gains with capital losses, so consider selling underperforming assets to reduce your tax burden.
  • Take Advantage of Exemptions: Certain exemptions, such as reinvestment in residential property or specified bonds, are available for LTCG, which can help with tax savings.

Conclusion

Investing is about picking the right assets and understanding the tax rules for your returns. By being aware of the differences between short-term and long-term capital gains, you can make more informed decisions that align with your financial goals.

FAQs

  1. What are capital gains? 

    Capital gains are profits when you sell a capital asset, like property, stocks, or bonds, for more than its purchase price.


  2. What is the difference between short-term and long-term capital gains?

    Selling an asset within 36 months (24 months for certain assets like unlisted equity shares) is considered a short-term capital gain (STCG). Selling after holding it longer is a long-term capital gain (LTCG).

  3. How are short-term capital gains taxed?

    STCG is taxed at the same rate as your regular income. There’s a flat tax rate of 15% for equities and equity-based funds.

  4. How are long-term capital gains taxed? 

    LTCG is taxed at a lower rate, generally 20%, with indexation benefits. For listed equities and equity funds, if the gain exceeds Rs 1 lakh, the tax is 10%.

  5. What is indexation? 

    Indexation adjusts the purchase price of an asset for inflation, which can reduce the taxable gain.

  6. Can I save tax on capital gains? 

    Yes, there are ways to save tax, such as planning your sales to qualify for LTCG, tax loss harvesting, and taking advantage of exemptions like reinvestment in residential property or specified bonds.

  7. Why is understanding capital gains important for investors? 

    Knowing the difference between STCG and LTCG can help you plan your asset sales, optimize your tax liability, and maximize your investment returns.

Marriage is a personal milestone and a significant financial decision, especially in India, where it can offer tax benefits. For salaried individuals, tying the knot can lead to various legal avenues to save on taxes as a couple. While marriage expenses are exempt from taxes as they are considered personal expenditures, gifts received from immediate family or relatives for the marriage are also exempt from income tax under Section 56 of the Income Tax Act.

After marriage, though joint filing is not allowed in India, there are still ways for couples to maximize their tax savings. Each spouse can leverage different avenues to enhance their income tax savings, making it beneficial to plan finances together.

This approach becomes crucial as couples envision and plan for shared financial goals such as higher education, vacations, asset purchases, and other investments. By planning early and considering tax-saving investments, couples can achieve their financial objectives and optimize their tax liabilities, making their journey together financially secure.

Let’s explore the best ways to save income tax post-marriage in the country. We will also learn what gifts are tax-exempt during marriage.

Health Insurance

When embarking on the journey of marriage, safeguarding your family’s health becomes paramount. Under Section 80D of the Indian Income Tax Law, couples can claim deductions of up to Rs 25,000 for health insurance premiums for themselves and their families. This comprises a deduction of Rs 20,000 for insurance premiums and a sub-limit of Rs 5,000 for preventive medical check-ups. However, failing to undergo the annual health check-ups forfeits the sub-limit.

To optimize deductions, couples can pay premiums for each other’s health insurance policies, doubling the tax benefits to Rs 50,000 annually. For instance, if one spouse pays Rs 14,000 for their health insurance and the other pays Rs 11,000 for theirs, the total deduction amounts to Rs 25,000. Investing in a spouse’s health insurance can reduce taxable income, offering significant savings.

Home Loans

Post-marriage, many couples aspire to build a home together. Home loans offer substantial tax benefits under Section 80C, allowing individuals a deduction of Rs 1,50,000 for home loan repayments annually. By co-borrowing the loan on a 50:50 basis, couples can double this benefit to Rs 3,00,000 per year. Similarly, Section 24(B) provides tax benefits of up to Rs 2,00,000 annually on the interest paid for the home loan, effectively doubled for co-borrowing couples.

Life Insurance Policies:

Life insurance policies offer tax benefits under Section 80C. Both spouses can individually claim deductions, with varying premiums based on age. By strategizing premiums and coverages, couples can optimize tax savings while ensuring comprehensive financial protection for their families.

Tax Efficiency Through Investments:

Proper investment planning is crucial for reducing overall tax liabilities. Couples can strategically allocate investments to capitalize on tax-saving instruments. By diversifying investments and considering tax implications, couples can compound savings while securing their financial future.

Maximizing Salary Structure Benefits:

Optimizing different components of the salary structure can unlock additional tax benefits. House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Medical reimbursement offer avenues for tax optimization. For instance, couples residing in rented accommodation can leverage HRA exemptions based on specific criteria, further reducing taxable income.

Planning for Retirement

Though retirement may seem distant, early planning ensures financial stability. Investing in retirement plans and annuity solutions offers tax-saving benefits under various sections of the Income Tax Act. Couples can capitalize on these provisions to build a substantial corpus while minimizing tax liabilities.

What are the Tax Rules for Wedding Gifts?

Some wedding gifts could be subject to tax, and the details should be known clearly. Here’s a breakdown of the gifts that can be taxed: 

TopicDetails
Tax Treatment of Wedding GiftsIf the total value of gifts received from non-immediate family members exceeds Rs. 50,000, they become taxable. The recipient is responsible for the tax.
Taxable ThresholdNewlyweds receiving immovable property as gifts from unrelated individuals are exempt from income tax but liable to pay up to Rs. 50,000 stamp duty.
Stamp Duty on Immovable PropertyNewlyweds receiving immovable property as gifts from unrelated individuals are exempt from income tax but liable to pay up to Rs. 50,000 stamp duty.
Depositing Cash GiftsCash gifts should be deposited in bank accounts around the marriage dates to avoid tax implications.
Documentation of GiftsFor proper asset documentation, maintain a record of all wedding gifts, including cash, jewelry, gold, etc..
Taxation of Gifted IncomeWhile gifts are tax-exempt, any income generated from these gifts, such as rental income or capital gains from selling property, is taxable.
Source: Outlook India

Conclusion

Marriage brings love and opportunities for financial optimization, including income tax savings. By implementing these strategies, couples in India can effectively minimize their tax liabilities and channel their savings towards their shared goals and aspirations. Always remember to maintain your records of wedding gifts and discuss financial planning with your partner in advance.

FAQs

  1.  Can married couples claim tax deductions separately?

     Yes, married couples can claim tax deductions separately based on their individual investments and expenses, maximizing their overall tax benefits.

  2.  Are there any specific tax benefits for joint investments after marriage?

    Joint investments, such as joint savings accounts or property ownership, can yield tax benefits for married couples, doubling the exemption limits in certain cases.

  3. How can spouses optimize their tax savings through income splitting?

     Spouses can optimize tax savings by transferring income-producing assets to the partner in the lower tax bracket, thereby reducing the household’s overall tax liability.

Have you failed to submit your investment declaration to your department on time? Or did you pay TDS on your interest, commission, and rental income even though your total income was not taxable? Or did you make a mistake in your advance tax calculation and pay too much?

Well, we have some good news for you. You can use the income tax refund tool to get back any excess tax deducted. Now, you must be super excited to know how. 

We have created this in-depth piece that covers everything you need to know about claiming an income tax refund. 

This article encompasses everything in detail, starting with eligibility, how to calculate your income tax refund, the claiming process, and 7 essential tips to get your income tax refund on time.

What is an income tax refund?

 An income tax refund arises whenever you pay more tax than your actual tax liability. This overpayment can be either through Tax Deducted at Source (TDS), TCS, Self-Assessment Tax, or advance tax; you are eligible for an income tax refund.

The earlier you file your return, the better your chances of receiving an income tax refund. The income tax department has significantly reduced refund processing time by leveraging technological advancements.

Faster tax return processing has resulted in faster income tax refunds. According to some media reports, the timeline for processing income tax returns in FY 2022-23 has jumped from 26 days in 2021-22 to 16-17 days in 2023-24, with the timeframe dropping further to 10 days beginning with AY 2023-24. 

Who is entitled to claim an Income Tax Refund? 

You may be eligible to claim an Income Tax Refund if you have paid more tax than your actual tax liability. Now, let’s discuss several instances to make the idea clear for you:

  • Case 1: When advance tax paid on estimated income exceeds the actual tax liability.
  • Case 2: If Tax Deducted at Source (TDS) from salary, interest, or other incomes is higher than the tax payable on regular assessment. (when you miss submitting your investment proofs on time, the employer deducts higher TDS).
  • Case 3: When self-assessment tax paid is more than the actual tax liability.
  • Case 4: In cases of double taxation, where tax is paid on the same income in India and a foreign country, India has an agreement with that country to avoid double taxation.

Pre-requisites For Claiming An Income Tax Refund

To claim an income tax refund, you must have-

  1. Valid User ID and Password.
  2. Pan Linked to your Aadhar Number
  3. Filed ITR claiming an income tax refund.
  4. The name entered in the Bank account must match the PAN Card details
  5. Pre-validated Bank account.

Procedure to Claim a Refund

Claiming an income tax refund in India is a straightforward process integrated into filing your Income Tax Returns (ITR). 

Step 1: File Your ITR

Begin by accurately filing your ITR using the correct forms and properly reporting all income, deductions, and credits. Use Form 16, Form 26AS, and other relevant documents as references to avoid discrepancies.

Step 2: Verify Your Filing 

After submission, verify your ITR through Aadhaar OTP, EVC from your bank account, or by sending a signed ITR-V to the CPC. This step is crucial as unverified returns are not processed.

Step 3: Check Refund Eligibility 

You’re eligible for a refund if your paid taxes exceed your actual tax liability. The excess can be due to higher advance tax, excess TDS, or double taxation relief under DTAA.

Step 4: Track Your Refund

Post verification, the IT Department processes your return and issues a refund if applicable. You can monitor the progress of your tax refund through the e-filing portal.

Step 5: Refund Disbursement 

The refund is credited directly to your pre-validated bank account linked with your PAN. Ensure your bank details are current and correct.

Step 6: Address Delays 

If the refund takes longer than expected, raise a query on the e-filing portal or contact the CPC.

Refunds are typically issued 7 to 120 days after e-filing and verification and credited accordingly. (IT officials are constantly working on improving this deadline.) Remember, timely filing and accurate reporting are critical to a hassle-free refund process.

Steps to Check an Income Tax Refund Status

Step 1: Go to the e-filing portal.

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Step 2: Feed in your User ID and Password

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  • Step 3: In the e-filing tab, go to View Filed Returns.
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Step 3: Check your refund status for the desired Assessment year here.

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How to Calculate Income Tax Refund Amount?

Income Tax Refund = Income Tax Liability for the financial year (tax calculated on your total income after considering all deductions and exemptions) – Total Taxes Paid ( Advance Tax, TDS, TCS, Self-Assessment Tax)

Let’s take an example to get a deeper understanding. Say, Mr Gupta has a taxable income of ₹7,50,000. After deductions under various tax-saving vehicles eligible under Section 80C, his net tax liability is ₹50,000. 

Income Tax Refund CalculationAmount (in Rs.)
Taxable Income (A)Rs. 7,50,000/-
Tax RefundRs. 62,500/-
Less: Deductions under Section 80CRs. 1,50,000/-
Net tax liabilityRs. 50,000/-
Add: Education Cess (4% of tax liability)Rs.2000/-
Total tax liability(B)Rs. 52,000/-
Less: Taxes paid Rs. 80,000/-
Tax refundRs. 28,000/-

This example illustrates that a refund is due when the total tax liability (B) is less than the taxes paid. Conversely, additional tax would be payable if the taxes paid are less than the total tax liability (B).

7 Important Points To Get Your Refunds on Time

  • File Early: Submit your ITR well before the deadline to avoid last-minute errors and delays.
  • Accurate Information: Double-check all entries for accuracy, especially bank details and PAN, to ensure smooth processing.
  • Pre-Validate Bank Account: Ensure your bank account is pre-validated on the e-filing portal to facilitate a direct refund.
  • Rectify Mistakes Promptly: If you notice errors after filing, file a rectification request as soon as possible to avoid delays.
  • Utilize Digital Signatures: If applicable, use a digital signature certificate to authenticate your ITR, which can expedite the processing.
  • Keep an Eye on Notifications: The IT Department communicates through SMS and email. Regularly check for any communication regarding discrepancies or additional documentation required.
  • E-Verification: You can opt for electronic verification of your ITR through Aadhaar OTP or EVC, which is faster than sending a physical ITR-V form.

The Bottom Line

Getting through the complexities of income tax refunds need not be a challenge. You can ensure a smooth refund experience by filing your returns accurately and on time, promptly verifying your information, and staying up to date on the status of your refund. 

Remember, the key to a quick refund is in the details, from pre-validating your bank account to understanding the nuances of interest on late refunds. Stay informed and prepared, and your careful preparation will ease the tax refund process.

FAQs

  1. Can I claim a refund for previous years’ taxes? 

    Yes, you can claim refunds for the last two assessment years, provided you have filed the returns within the due date for those years.

  2. What happens if the refund amount credited is incorrect? 

    You should immediately inform the IT Department through the e-filing portal and provide the correct details for reprocessing.

  3. What’s the procedure for claiming an income tax refund after the filing deadline?

    If you’ve missed the deadline, you may still file a belated return to claim your refund, but it must be done before the end of the assessment year.

  4. Is interest paid on delayed income tax refunds, and how is it calculated?

    Yes, the Income Tax Department pays interest on delayed refunds at 0.5% per month or part thereof, starting from the date of filing till the date of refund issuance. Typically, interest is payable if the refund is not issued within 45 days of processing of ITR. However, no interest is payable if the refund amount is less than 10% of the total tax payable.

Have you ever wondered what the multiple tax deductions under your restaurant bill indicate? Want to know what additional taxes are added to your new phone bill? 

India’s tax structure is bifurcated into direct and indirect taxes, each playing a pivotal role in the country’s economic framework. Among these, indirect tax is a substantial part of the government’s revenue and directly impacts the everyday consumer. 

This blog delves into the nuances of indirect taxation in India, exploring its features, benefits, and the list of indirect taxes prevalent in the country.

What is Indirect Tax?

Unlike direct taxes, where the tax is levied on income or assets, and the burden falls directly on the taxpayer,, indirect taxes are levied on the sale, purchase, or consumption of goods and services. This means the tax burden is shifted from the taxpayer to the consumer.

The concept of indirect tax involves collection by an intermediary (such as a retailer or a manufacturer) from the person who bears the ultimate economic burden of the tax (such as the consumer). 

An indirect tax results in higher prices of goods and services at the time of purchase. Indirect tax is thus an additional charge included in the maximum retail price of a particular product or service. 

Example:

A common example of indirect tax is GST. Say you went out to eat, and your bill amounted to ₹5,000 plus a GST rate of 5%. In this case, you will have to pay ₹5,000 plus 5% of ₹5,000. 

So your total bill would be ₹5,000 + ₹250 = ₹5,250.

The additional ₹250 that you pay is the indirect tax passed on to you (the consumer) by the service provider. 

You can also learn about the tax concepts with our blog.

Features and Benefits of Indirect Taxation in India

Indirect taxes have several key features and benefits that make them an integral part of India’s tax ecosystem:

  • Broad-based: Since these taxes are levied on goods and services, they have a wide base, covering almost all economic activities and transactions.
  • Convenience: The collection process is straightforward since the tax is included in the price of goods and services, making it easier for the government to collect.
  • Transparent: The final prices of goods and services are inclusive of indirect taxation. This allows complete transparency during filing and returns. 
  • Non-evasible: It is difficult to evade indirect taxes because they are built into the transaction process.
  • Revenue generation: Indirect taxes are a significant source of revenue for the government, funding various public services and infrastructure projects.
  • Uniform: GST has three main components: CST (Central GST), SGST (State GST), and IGST (Integrated GST). These have helped to replace the plethora of indirect taxes that were present pre-GST. 

This uniformity allows for the majority of goods and services to be bought at the same price, with a few exceptions like petrol and diesel, which are still considered under VAT (Value-Added Tax), central excise duty, and central sales tax.

List of Indirect Taxes in India

The list of indirect taxes in India has been simplified and consolidated under the Goods and Services Tax (GST) regime. 

However, there are still a few other indirect taxes outside the GST framework.

Also Read: Top 10 Stock Market Movies to Watch

What is Goods and Services Tax (GST)?

Introduced in July 2017, GST is levied on every value addition. A destination-based, multi-stage, comprehensive indirect tax, GST amalgamated several former taxes and levies, including value-added tax (VAT), service tax, excise duty, etc., into a single tax system. 

GST is applied to the supply of goods and services and aims to eliminate the cascading effect of taxes, thereby making the tax structure more efficient and business-friendly.

The slabs within GST remain uniform, regardless of the state, and are categorized into State GST, Central GST, Interstate GST, and Union Territory GST. 

. The various tax slabs within GST for goods are as follows. 

GST Slabs for GoodsExplanations
Nil RateLivestock, live fish and animal products like the meat of bovine animals, bird eggs (fresh, preserved or cooked), bones and horn-coresAll goods that are fresh or chilled that are not pre-packaged/labelled.Dairy products like fresh milk, cream, curd, buttermilk, Chena/ paneer, etc.Natural honey that isn’t pre-packaged/labelled.Live trees and fresh produce, dried produce not further prepared, nuts, seeds and grains that aren’t pre-packaged/labelled.Flours and cereals that aren’t pre-packaged/labelled; salt, bread, Pappad, Water (that isn’t aerated, mineral or otherwise sold on a sealed container)  All types of contraceptives, Human Blood, Municipal and clinical wasteDeities made of stone, marble or woodRupee  notes  or  coins   sold  to the Reserve  Bank of India or the government of India
5%Railways – transport of goods and passengers
Imported goodsRenting a motor cab without fuel costAC transport services – contract/stage or radio taxiAir transportTour operator servicesLeasing of aircrafts Newspaper printing 
12%Rail transport of goods from a third party other than Indian RailwaysAir travel excluding economyTour operator servicesFood/drinks charges at restaurants without AC/heating or liquor licenseRenting of rooms/accommodation between ₹1000 and ₹2500 per dayChit fund services by foremenLeasing of aircraftsConstruction of property for the purpose of saleTemporary intellectual property rights
18%Food/drinks charges at restaurants with liquor license, and/or AC/heating, outdoor catering Renting of rooms ranging between ₹2500 and ₹5000 per daySupply of food, shamiyana, and party arrangementTickets to the circus, Indian classical, folk, theatre, dramaSupply of work contractsMovie Tickets over ₹100Hotel accommodation for per day transactions of ₹2,500 – ₹7,500
28%Tickets to entertainment events, amusement/theme parks, water parks, films, race courses, joy rides, go-carting, ballet, casinos, and sporting events like IPLRace club servicesGambling services Accomodations and/or Food/drinks charges at AC 5-star hotels (or above)Hotel accommodation valued ₹7501 or more per unit per day e

The GST slab for services is at a fixed rate of 18% for services provided by:

  • Legal professionals, 
  • Chartered accountants, company secretaries and cost accountants 
  • Doctors and dentists
  • Engineers and IT professionals/services like Internet Telecommunications Services, Maintenance, Repair and Installation Services and other similar IT services.  
  • Architects and interior decorators/ designers
  • Teachers and private tutors (who run coaching centers)
  • Fashion designers and film artists
  • Courier services, including transportation, collection and delivery services
  • Training services by commercial coaching entities; Educational events by foreign organizations in India
  • Loans such as personal loans, home loans, and car loans

Other Indirect Taxes in India

The list of indirect taxes before GST was introduced included Value Added Tax (VAT), sales tax, service tax, stamp duty, etc. 

Even though most of the indirect taxes are now absorbed by GST, a few indirect taxes remain outside its purview:

  • Service Tax – This indirect tax applies to all the services offered to the consumers.
  • Customs Duty: Levied on imports and exports of goods, customs duty is a significant part of India’s indirect tax landscape. It helps regulate the movement of goods across international borders and protects domestic industries.
  • Excise Duty: Specific goods manufactured in India, mainly petroleum and alcohol for human consumption, are still subject to excise duty, as these items are outside the GST regime.

Implications of the Concept of Indirect Taxes in India

Indirect taxes have wide-ranging implications for both businesses and consumers:

  • Price Alteration: The inclusion of taxes in the cost of goods and services directly affects their price, potentially leading to inflationary pressures.
  • Consumption Behavior: High taxes on certain goods (like tobacco or luxury items) can deter consumption, aligning with government policies on public health and the environment.
  • Business Compliance: The GST regime, while simplifying the tax landscape, requires businesses to adhere to detailed compliance and filing procedures, impacting their operations.

Conclusion

Indirect taxation in India plays a crucial role in shaping the economy, influencing consumer behavior, and driving government policy. The transition to the GST regime marked a significant overhaul of the indirect tax structure, aiming for a more unified and efficient tax system. 

The concept of indirect taxes is an indispensable part of India’s fiscal policy, affecting every layer of the economic stratum. Understanding what an indirect tax is, its applications and its implications can help demystify how government policies trickle down to affect everyday prices and the broader economic landscape.

To reduce your tax liability, you must learn how to pay less tax via permitted deductions and exemptions in income tax.  

For example, frequent overseas travellers can use forex cards to reduce taxes since they do not have to pay TCS on forex cards if they spend within ₹7 lakhs in a financial year. Forex cards with zero to low markups are a great choice for these cases.  

Another common way is by investing in stocks and bonds. If you are unsure how to proceed with choosing and buying the right bond and stocks, you can consult a share market advisory. Their portfolio management services and constant monitoring of stocks help ensure you are updated on your purchased stocks. 

 Frequently Asked Questions Indirect Tax in India

  1. How is GST different from previous indirect taxes?

    GST merges multiple indirect taxes into one, reducing the cascading effect of taxes and simplifying compliance, thereby making the tax system more transparent and business-friendly.

  2. Can indirect taxes affect economic growth?

    Yes, indirect taxes can influence economic growth. By adjusting the rate and scope of indirect taxes, the government can impact consumer spending, investment, and overall economic activity.

  3. Are all goods and services taxed under GST?

    Most goods and services are taxed under GST. Still, there are exceptions, including alcohol for human consumption, petroleum products, and certain state-specific utilities, which are taxed under different indirect tax structures.

  4. What is Net Indirect Tax?

    Net indirect tax refers to the total indirect taxes levied by the government on goods and services minus the subsidies provided.

Understanding the nuances of income tax slabs is crucial for effective tax planning and compliance. The Assessment Year (AY) 2024-25 brings into focus the tax obligations and potential savings for individuals and entities alike. 

This article aims to demystify the income tax slabs for FY 2023-24 and AY 2024-25, guiding you through the complexities of tax planning.

What are Income Tax Slabs?

Income tax slabs are ranges of income that are taxed at specific rates set by the government within a financial year. These slabs determine how much tax you will pay on your income, with rates increasing as your income does. 

The tax slabs in India are part of a progressive tax system designed to ensure fairness; if you earn more, you pay a higher rate. 

Income tax income slabs vary for different groups, such as individuals, HUF, and companies, and are updated annually. For individuals, these categories often include special rates for senior and super-senior citizens. 

The government updates these income tax slabs annually during the budget presentation, adjusting the income ranges and tax rates to reflect economic conditions, inflation, and policy goals. 

Additionally, you can choose from old and new tax regimes, allowing you to choose the most beneficial for your financial situation. 

In essence, income tax income slabs categorize your income into ranges; each taxed at a specific rate. The lowest range typically starts tax-free, with rates escalating for higher income brackets. 

This system aims to distribute the tax burden equitably, ensuring those with higher earnings contribute more to government revenues.

Income Tax Slabs for FY 2023-24 and AY 2024-25: Old Tax Regime vs New Tax Regime 

The FY 2023-24 also continues the option between the old and new tax regimes for salaried tax slabs. While the old regime allows for numerous deductions and exemptions, the new income tax slabs offer simplified tax rates with fewer deductions. 

This choice empowers taxpayers to select the regime that best suits their financial situation, potentially leading to significant tax savings.

Income Tax Slabs (in ₹)Old Regime Income Tax RateNew Regime Income Tax Rate (FY 2023-24)
Age < 60 years Age 60 – 80 years Age > 80 years
Up to 2.5 Lakhs
2.5 lakhs to 3 lakhs5%*5%*
3 lakhs to 5 lakhs5%*5%*5%*
5 lakhs to 6 lakhs20%20%20%10%
6 lakhs to 7.5 lakhs20%20%20%10%
7.5 lakhs to 10 lakhs20%20%20%15%
10 lakhs to 12.5 lakhs30%30%30%20%
12.5 lakhs to 15 lakhs30%30%30%25%
Above 15 lakhs30%30%30%30%

Note: The “5%*” in the old and new tax regimes indicates that there is a rebate available under section 87A for certain taxpayers i.e., for those whose taxable income is 5 lakhs or less. 

Example to Understand Tax Liability of Old Taxable Income Slabs vs. New Income Tax Slabs 

To understand the income tax slabs, let us look at the example of Mr. Anish Gupta, a salaried employee with a fixed income of ₹9,00,000. 

  • As per the old regime, he is eligible for an overall tax deduction worth ₹1,00,000/- under Section 80C due to his ownership of a life insurance policy. 
  • As per the new regime, he is only allowed to benefit from the standard deduction of ₹50,000/-.

As you can see, the old tax regime is more beneficial to those who like investing in tax-saving instruments like life insurance, medical insurance, PPFs, etc. On the other hand, the new regime is best for those who have fewer investments overall.

Hence, if you are some one with long-term stock investments, we highly recommend checking what deductions and benefits apply to you under each regime, so you can make the most out of your returns.

Should You Opt for the New Tax Regime? Some Things to Consider 

When considering the new tax regime introduced in India, it is crucial to weigh several factors to determine its suitability for your financial situation:

  • Tax Rates vs. Deductions: The new regime offers lower tax rates but eliminates most deductions and exemptions. Analyze if the reduced rates outweigh the benefits of deductions you currently claim.
  • Investment and Expenses: Your investment habits and significant expenses, like home loan interest and education loans, could influence your decision, as the old regime may offer more tax-saving opportunities through various deductions.
  • Income Level: The effectiveness of each regime can vary based on your income. Lower-income individuals or those who do not utilize many tax-saving options might benefit from the new regime’s simplified structure.
  • Flexibility and Simplicity: The new regime provides simplicity and the flexibility to switch between regimes annually for salaried individuals, appealing to those seeking a straightforward salaried tax slab and tax filing process.

If you are confused between the old vs. new taxable income slabs, consider consulting a tax advisor for personalized advice, taking into account your financial goals and tax-saving potential under each regime.

What is Surcharge in Income Tax 

The surcharge is an additional charge on the income tax payable by taxpayers whose income exceeds certain thresholds. For the Financial Year (FY) 2023-24, the income tax surcharge rates apply to individuals, HUFs, AOPs, BOIs, and artificial juridical persons under both the old and new tax regimes.

Here’s a concise table summarizing the surcharge rates for FY 2023-24:

Income Levels (₹)Surcharge Rate (%)Income Levels (₹)Surcharge Rate (%)
Old Tax RegimeNew Tax Regime
Up to 50 lakhs0Up to 50 lakhs0
Over 50 lakhs, up to 1 crore10Over 50 lakhs, up to 1 crore10
Over 1 crore, up to 2 crores15Over 1 crore, up to 2 crores15
Over 2 crores, up to 5 crores25Over 2 crores25
Over 5 crores37

What is Rebate in Income Tax? 

A rebate in income tax is a provision that allows eligible taxpayers to reduce the amount of tax they owe to the government. It is not a deduction from income but a direct reduction in tax liability, making it a beneficial feature for those with lower incomes. 

One of the most common rebates under the Indian Income Tax Act is under Section 87A, which is designed to provide relief to taxpayers with a total income below a certain threshold.

For the Financial Year (FY) 2023-24, the rebate under Section 87A is available for both the old and new tax regimes. Its eligibility criteria and limits remain the same under both regimes. 

Here’s a table summarizing the rebate limits for FY 2023-24:

Tax RegimeIncome Limit for RebateRebate Amount
Old Tax RegimeIncome up to ₹5 LakhsUp to ₹12,500
New Tax RegimeIncome up to ₹7 LakhsUp to ₹25,000

It means that if your total taxable income after deductions is up to ₹5 lakhs, and you opt for the old regime, you are eligible for a rebate of up to ₹12,500. This can reduce your tax liability to zero if your calculated tax is less than or equal to ₹12,500. 

If your calculated tax is more than ₹12,500, you will only have to pay the difference. The rebate is applied to the total tax before adding the Health and Education Cess of 4%.

Deductions and Exemptions Applicable for FY 2023-24 

While learning about tax planning, it is crucial to know how to pay less tax. For FY 2023-24, you can access several deductions and exemptions to minimize your taxable income and tax liability. 

Key tax deductions for FY 2023-24 include:

  • Section 80C: Up to ₹1.5 lakh on investments and certain expenses.
  • Section 80D: For medical insurance premiums, offering up to ₹25,000 for individuals and ₹50,000 for senior citizens.
  • Section 80E: On interest paid for education loans with no upper limit.
  • Section 24: Deduction of up to ₹2 lakhs on home loan interest for self-occupied property.
  • Section 80G: For donations, with deductions varying by the entity.

Notable tax exemptions for FY 2023-24 are:

  • House Rent Allowance (HRA) and Leave Travel Allowance (LTA) for salaried individuals, which vary based on specific criteria.
  • Standard Deduction of ₹50,000 for salaried employees and pensioners under the old tax regime.

Special Mention:

Section 80TTA offers a deduction of up to ₹10,000 on the interest income from savings accounts, which increases to ₹50,000 for senior citizens under Section 80TTB

Leveraging these can significantly reduce tax obligations, making it crucial for you to plan your investments and expenses strategically.

Conclusion 

The FY-24 and AY 2024-25 bring forth considerations that require careful navigation to optimize tax liabilities. With informed decision-making, you can significantly benefit from the structured income tax slabs and available deductions.

For more assistance, you can reach out to an investment advisory to help you manage your investment portfolio.  They can help with personalized tax and financial planning, such as choosing between tax savings vs. equity investment.

Income Tax Slabs FAQs

  1. What are the types of taxable incomes in India?

    Incomes from salaries, businesses, capital gains, personal properties, dividends, gifts, etc., are all part of your taxable income.

  2. How is income tax calculated?

    In India, income tax is calculated based on progressive tax slabs that apply to your total taxable income after deductions and exemptions, with rates increasing as income exceeds certain thresholds.

  3. Can I switch between tax regimes each year?

    Yes, individuals and HUFs have the option to choose between the old and new tax regimes every year if they have no business income. However, those with business income have restrictions on switching.

  4. What is the most significant difference between the old and new tax regimes?

    The most significant difference lies in the tax rates and the availability of deductions and exemptions. The new regime offers simplified, lower tax rates but restricts most deductions and exemptions.

With the digitization of most processes, paying taxes no longer requires you to hire experts or queue in municipal offices. Be it paying taxes on property or on the profits from renting the said property, it can all be conveniently done online. 

There are also alternate payment options that you can use to pay property tax online. This further increases the convenience of the process as it lets you choose options that better suit your individual preferences.

However, paying taxes on property online can have a process that takes time to follow. Hence, here is a detailed overview of how to pay house tax online and the available options.

What is House Tax

Property tax, also known as house tax, is levied by local governments on property owners. The taxation rates are assessed based on the value of the real estate that taxpayers hold.   Beyond a legal obligation, it is also a vital resource for governments to fund public services.  

How to Pay House Tax Online

Step 1: Navigate to the official website of your local municipal corporation.

Step 2: Log in to the portal. This will require you to register if it is your first attempt to pay property tax online. You will need to submit your personal information for identity verification. 

Step 3:  Once logged in, a ‘Property Tax’ tab should be available for you to access under a Services Tab. Click on it.

Step 4: Option  for property types should be available on the screen E.g., You may see an option called “COC-603 Collection of Property Tax”; select one to continue.

Step 5: A tab with the option of assessment year should also be displayed. Select your desired financial year of assessment. 

Step 6: Further personal details such as your name, property identification number, and other property-related information will need to be submitted for calculation.

Step 7: Once the calculation is done, the total tax amount to be paid will be presented.  Preview it. 

Step 8: Once done, a list of payment options will be displayed. Select one that is most convenient. 

Step 9: Upon completion of payment, a download or print option for the challan will be displayed.

Step 10: Save and keep it handy for your future reference. 

Please Note: The exact steps may vary depending on your location and the municipal corporation that runs the portal. However, the basic steps involved in your house tax payment procedures will remain similar to the steps mentioned above. 

Benefits of Paying House Tax Online  

  1. Convenience

You no longer need to visit municipal corporations or even hire chartered accountants to file and pay your property taxes. Moreover, the online process allows for flexibility in time and location, ensuring that you can pay property tax online no matter where you are or what time it is. 

  1. Time-Saving

The online payment procedure eliminates the requirement of paperwork as well as long waiting times. This allows you to make quick transactions at your convenience.

  1. Accuracy

Digital platforms provide you with accurate, quick, and reliable calculations. This greatly reduces the risks associated with errors in manual calculations. 

  1. Security

Reputable online payment portals have advanced encryptions and security measures. This helps ensure the safety of your financial transactions that are made online. 

  1. Record-Keeping

Online payment portals also generate detailed digital receipts and transaction records speedily. This can make it easier for you to track payment history as well as access relevant information whenever required. 

Alternative Online Payment Methods for Property Taxes

Apart from the official portals of the local municipal corporations, you also have the option of using third-party platforms like Paytm. The platform has an easy, streamlined process similar to the one mentioned above and has a user-friendly interface as well. 

It is, however, recommended to use the official portals if you need to become more familiar with how to pay house tax online. 

Conclusion 

The online payment process for taxes on property has simplified the experience of paying taxes on property. This process not only offers convenience but also accuracy and security. 

Just like the online process simplifies the payment of taxes on property, a reliable financial advisory like Research & Ranking can simplify the process of achieving financial goals for property owners and property renters alike. 

The intricacies of deductions, like the HRA tax exemption rules, are often complicated to follow. The team at Research & Ranking not only provides you with personalized investment portfolios but also provides advice on tax deductions. This can include guidance on topics like how you can reduce income tax on rent

The equity research and technology provided by Research & Ranking allows for more competent portfolio management. It also provides advice on investments like high-growth stocks. This can benefit you if you are a new or even an experienced investor in the market. 

Property Tax Online Payment FAQs

  1. Is house tax a type of direct or indirect tax?

    A house tax is a tax directly levied on property owners by the municipal corporation. Since it is non-transferable, it is a direct tax.

  2. Are there deductions on property taxes?

    In India, the Income Tax Act allows the following deductions on property taxes. 

    Deduction for Rented Property: If you own a property that is rented out, you can claim a deduction for the property tax paid on that property as part of your income from house property. 
    This is deducted from the rental income received, thereby reducing the taxable income. It’s important to note that the property tax must be paid during the year for which the deduction is claimed.

    Deduction for Self-occupied Property: For a self-occupied property, while there is no specific deduction for property tax paid, you can still claim a deduction on the interest on a home loan if you have one under Section 24. 
    However, the property tax paid can reduce the Gross Annual Value of the property, which in turn could potentially reduce the taxable amount.

  3. How can I check my property tax in India online?

    To check your property tax online, you must visit your local municipal or tax department’s official portal. This can be done via a quick online search. Look for a tax payment section and then select the property tax payment option. 

    To see your property tax details, you will need to provide details such as your Property Tax Identification Number, address, mobile number, bill number, etc. 

    After this, you can proceed to pay your property tax online via the same portal.

Financial planning for businesses and individuals involves proper asset/expense allocation and being informed about tax liabilities. There are commonly two types of taxes applicable in India: indirect and direct tax. 

Being aware of the different direct tax types and how they work – especially direct taxation, is important. This can help you avoid paying any fines or penalties when filing your taxes due to any discrepancies. 

Through this blog, you will learn what direct tax is, different direct tax types, and other crucial information regarding direct tax.

What is Direct Tax

Direct tax in India is a type of taxation where the burden falls directly on the individual or organization being taxed. It is levied directly on the income or wealth of individuals and organizations. 

Governed by the Central Board of Direct Taxes (CBDT), these taxes are a primary source of revenue for the government. 

Notable direct tax types include Income Tax, levied on the annual income of persons; Corporate Tax, imposed on the earnings of companies; and Capital Gains Tax, applied to the profit from the sale of assets. 

Direct taxes are progressive in nature. The tax rate is decided based on the income earnings of businesses and individuals. It follows the simple rule that the higher the income, the higher the direct tax rate, and vice versa, thereby aiming to achieve equity in the taxation system. 

Direct tax liabilities cannot be transferred, and failure to make timely payments against direct taxes can result in fines and other consequences.  

Difference Between Direct Tax and Indirect Tax 

The primary difference between direct and indirect taxes is who bears the burden of the taxes. 

  • Direct taxes are levied on the income or wealth of individuals or organizations and must be paid directly by them to the government. These taxes cannot be passed on to someone else. Examples include Income Tax, Corporate Tax, and Wealth Tax.
  • Indirect taxes, on the other hand, are levied on the sale of goods and services and can be passed on from the seller to the buyer. The burden of these taxes shifts from the producer or seller to the consumer, who ultimately bears the tax. Examples include Goods and Services Tax (GST) and Value Added Tax (VAT).

Different Direct Tax Types 

  • Income Tax – As the name suggests, income tax is imposed on the earned income of individuals and businesses. the tax rate is determined based on the total income from different sources minus the available deductions and exemptions. 
  • Capital Gains Tax – The capital gains tax is applied to all the gains incurred by the sale of capital assets like stocks, mutual funds, real estate, etc. There are two types of capital gains tax – 
  • Short-Term Capital Gains – The tax rate for this direct tax depends on the total income of the individual and the holding period, which should be less than 36 months. 

The applicable tax rate is 15% when STT (Securities Transaction Tax) is applicable. When it it does not apply, you will taxed as per normal slab rates.

Note: STT is a direct tax applied to every sale and purchase of a security listed on recognised stock exchnages in India. It is similar to TCS and the rates are decided by the governement. STT amounts must be paid over and above the transaction value.

  • Long-Term Capital Gains – The tax rate for this direct tax is fixed at a flat 20% and is applicable for assets with a holding period longer than 36 months. 

It is applied at a rate of 10% for income over ₹1 lakh from sales of equity shares or equity-oriented mutual funds.

  • Wealth Tax – Wealth tax was abolished in the 2015 budget (effective FY 2015-16), simplifying the tax structure. As an alternative, the finance minister hiked the surcharge from 2% to 12% for people with annual incomes over ₹1 Crore and for companies with annual incomes over ₹10 Crore.  
  • Property/ Estate Tax – Another type of direct tax is property tax. The state authorities levy this tax category on individual property owners based on their area-based rating. Government lands or properties and vacant land are exempted under this tax. 
  • Corporate Tax – The corporate tax is applied to all domestic companies based on their earned income from business operations. This direct tax is also applicable to any foreign business entity running its operations in India.  
  • Securities Transaction Tax – There is a direct tax applicable on the sale and purchase of listed securities like bonds, equity, mutual funds, etc., called the securities transaction tax. This tax is applicable to the buyer or the seller based on the nature of the transaction.

Direct Taxation Rates 

Income Tax Rates: New Tax Regime for AY 2024 – 25 

Income Tax Slabs (in ₹)New Regime Tax Rate (%)
Upto Rs. 3,00,000 
From Rs. 3,00,001 to Rs. 6,00,0005% 
From Rs. 6,00,001 to Rs.9,00,000 10% 
From Rs. 9,00,001 to Rs. 12,00,00015%
From Rs. 12,00,001 to Rs. 15,00,00020%
Above Rs. 15,00,000 30%

Income Tax Rates: Old Tax Regime 

Income Tax Slabs (in ₹)Old Regime Tax Rate (%)
Up to 60 years of age
Up to 2.5 LakhsNil
2.5 Lakhs to 5 Lakhs5%
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%
Senior Citizens (60-79 years)
Up to 3 LakhsNil
3 Lakhs to 5 Lakhs5%
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%
Super Senior Citizens (80 years and above)
Up to 5 LakhsNil
5 Lakhs to 10 Lakhs20%
Above 10 Lakhs30%

Capital Gains Tax Rates 

  • Short-term capital gains follow the same tax slabs as the income tax slabs. 
  • For long-term capital gains with indexation benefits, a 20% tax is implied. 
  • For long-term capital gains without indexation benefits, a 10% tax is implied. 

Corporate Tax Rates 

Domestic Company Turnover < ₹250 crores25%
Turnover > ₹250 crores30%
Surcharge for income between ₹1 crore – ₹10 crore10%
Surcharge for income between > ₹10 crore12%
Cess4% 
International CompanyTurnover < ₹1 crore40% Tax + 3% cess
Turnover > ₹1 crore40% Tax + 3% ceess + 2% surcharge 
Turnover > ₹10 croreBasic tax + 5% surcharge 

Top Advantages of Direct Tax 

  • Promotes Equity – Based on the direct tax examples, the main purpose of imposing these taxes is to ensure a fair distribution of wealth by applying higher tax rates on high incomes and lower tax rates on low incomes. This further improves the tax system in the country.
  • Promotes Economic Well-being – Direct taxation is collected by the government. The contributions collected via different direct tax types increase the government revenue to provide better public services and infrastructure. 
  • Encourages Investments – Along with the distinctive direct tax rates applicable to individuals and businesses, there are several deductions and exemptions on a range of investments. This encourages people to save and invest more. 
  • Increases Accountability – With the strict deadlines for filing all direct tax returns, individuals and businesses are encouraged to comply with the law, improving accountability and promoting responsible citizenship.

Conclusion 

When it comes to direct tax, having a thorough understanding of all the forms, deductions, calculations, etc., is necessary before application. With the knowledge of what direct tax is and different direct tax examples and slabs, you can assess ways to reduce your tax liability.

Investments in tax-free bonds, stocks, and other such categories can help you manage your finances better and reduce your tax liability. However, assessing which stocks to buy can be challenging.  

To resolve this, you can seek consultation from an investment advisory to benefit from improved portfolio management and daily reporting. 

Direct Tax Most Common FAQs

  1. Is GST a direct tax?

    No, GST (Goods and Services Tax) is not a direct tax.

    It is an indirect tax that has replaced many indirect taxes in India, such as the excise duty, VAT, and services tax. GST is levied on the supply of goods and services and allows sellers to pass on the tax burden to the consumers, making it an indirect tax.

  2. What is the difference between short-term and long-term capital gains tax?

    Short-term capital gains tax applies to assets held for less than 36 months and taxed based on income slabs.
    Long-term capital gains apply to assets held over 36 months and are taxed at a flat 20%.

  3. How does the new income tax regime differ from the old regime?

    The new income tax regime offers lower tax rates across different slabs and benefits taxpayers who opt for fewer investments or forgo tax-deductible investments like medical insurance or life insurance.
    The Old tax regime has slightly higher tax rates but offers more deductions and is perfect for taxpayers who choose to invest in tax-efficient assets.

  4. Can investments reduce my direct tax liability?

    Yes, certain investments and expenses qualify for deductions and exemptions, reducing your taxable income and, hence, your direct tax liability under the old tax regime.

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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.

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