Author: Guest Blogger

This post is written by Krishna Srinivasan, who is a personal finance blogger writes for Plan Your Investment. 

Have you ever received notice from income tax office?. If you have filed income tax returns with all the details about your income, deductions, etc. and these details are verified by income tax department on random basis. Income Tax department has all the transactions pertaining to your PAN card. Once you have filed income tax returns, they can verify if the details submitted are correct as per your PAN records. If the details are not matching and any discrepancy found, they will send you a notice with details about the discrepancy. There is no need to panic for getting the notice, it is normal for income tax officer to send notice for the clarifications. This article explores when income tax department would send you a notice.

Even if the notice is seeking the payment, there is no reason to panic. Find out why IT Department asking for the payment and under what section they have sent the notice. Because, the notice can be sent for many reasons and if the demand for the payment is not correct as per your data, you can appeal against the notice.

Section 143(1) – Letter of Intimation

The intimation under section 143(1) is sent by the IT Department in response for the tax return filed by the tax payer. The main reason for this notice is intimating the tax payer about the arithmetic mistake while filing the return or  claiming excessive deduction or wrong exemption found while processing the return. By receiving the notice u/s 143(1), one can not conclude that it is a demand notice. As the name suggests, it is a intimation notice to the tax payer about the refund from IT Department or tax payable. This intimation has to be sent before completion of   the assessment year.

If this intimation contains any liability of the tax payment, then assessee  may consider this as the demand notice and make the payment. It is clearly notified by the IT department that this intimation is acknowledgement for the return filing and if there is any calculation error while computing the tax. However, if it provide any pending payment,  assessee has to clear the payment or file the application u/s 154 for the rectification. Do not worry and never try to ignore this notice. It may lead to a fine.

If the net “NET AMOUNT REFUNDABLE” is less than Rs. 100 or “NET AMOUNT DEMAND” is less than Rs. 100, then assessee can ingnore this notice and he thereupon won’t receive the refund or no need to pay the pending due.

Section 143(3) & 147

Notice u/s 143(3) is issued only after the notice from the section 143(2). This section is popular for the income tax scrutiny for an assesse’s income. However, this notice is not sent to assesse immediately after filing the returns. If the evidence provided by an assesse u/s 143(2), then IT Department sends a notice seeking the further scrutiny.

If Assessing Officer (AO) finds any income is escaping from the returns, then they would send a notice u/s 147.

Section 206C – Tax Collected at Source (TCS)

We are aware of the Tax Deducted at Source (TDS) from our salaries and interest income. In the same way, for the certain goods seller has to collect the tax at the time of receiving the money. This is known as Tax Collected at Source (TCS). The specified list of goods are:

1. Alcoholic Liquor for human consumption (1%)
2. Tendu Leaves (5%)
3. Timber obtained under a forest lease (2.5%)
4. Timber obtained under any other mode (2.5%)
5. Any other forest products other than Timber. TCS is applicable for the forest products, not the agriculture products. (2.5%)

Note that, TCS also includes many other categories, but I have listed above is only related to the section 201C. TCS has to be collected at the time money received from the buyer in the form of cash or cheque or draft. The TCS rate is ranging from 1% to 5% for various product categories.

Collected tax has to be deposited within one week from the last date of the collection month. The seller has to file a return for every quarter for the income he earned from these transactions. If the seller is failed to pay the collected tax on time, he shall be liable to pay the interest at 15% per annul from the date he collected money and till when he has paid the tax. He would receive a notice from the income tax office under the section 201C for demanding the payment of TCS.

Other Sections

There are few other sections for sending the notice.

• Section 153A/153 – Related to search and seizure operations
• Section 201(1) 201(1A) – Failure to deduct tax or deposit deducted tax
• Section 210(3) – Tax officer believes that advance tax is payable.

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

A new section has been introduced in the income tax act i.e. Section 80 EE. This section has been introduced to cater to the need for affordable housing. This section allows for a deduction up to Rs. 100000/- for the AY 2014-15 (i.e. FY 2013-14) to individual assesses for interest payable on their housing loan. Few conditions are required to be satisfied for this section to be applicable.

1)  The loan is sanctioned between the FY 1/4/2013-31/3/2014.

2)  The loan sanctioned does not exceed Rs. 25 Lakh.

3)  The value of residential house does not exceed Rs. 40 Lakhs.

4)  The assessee does not own any other residential house as on the date of sanction of the loan. In other words, this house is supposed to be his self occupied property.

5)  The assessee is a first time home buyer

Where the interest payable is less than Rs. 100000/- for AY 2014 – 15, then the balance amount shall be allowed in AY 2015-16. If a deduction under this section is allowed for any interest, no deduction shall be allowed in respect of such interest under any other provisions of the Act. The benefit under this section is mainly for one time primarily for AY 2014-15 and to a certain extent for AY 2015-16 for balance interest as mentioned above.

Also it is important to note that this deduction is in addition to the deduction of Rs. 150000/- in respect of interest on loans for self occupied property U/s 24(b). This is the current scenario as per the tax laws i.e. there is a maximum deduction of Rs. 150000/- on interest on housing loan for one’s self occupied property.

In my opinion, this new section would benefit the low to medium income section of assesses. It will greatly benefit such people who are first time house buyers as not only do they get a deduction up to Rs. 150000 for interest paid on housing loan but also an additional deduction of Rs. 100000/- from their gross total income as a result of introduction of this section.

It can be said that since the maximum cap of housing loan amount is Rs. 25 lakhs, on an average the yearly interest obligation on such loans amounts to Rs. 2.5 – 2.75 lakh. Thus as a result of this section, an individual can now effectively claim this entire interest expense as a deduction (i.e. 150000/- as per Section 24 (b) + Rs. 100000/- as per Section 80EE) from his gross total income and reduce his tax obligation accordingly.

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

People generally believe that when it comes to the Salaried class, there is hardly any hope for tax savings. This observation however, is not entirely true.

The salary that an employee receives is in reality a combination of many types of income that are actually categorized differently according to the Income Tax Act, and your salary constitutes the following things:

• Basic Salary
• Different Allowances
• Different Perquisites (Perks)
• Other incomes not included in this list such as Commission, incentives, etc.

Most people do not have the knowledge that leaving aside the component of Basic salary, other components in the salary slip such as allowances and perks can enjoy tax exemption, though of course up to a certain limit. In fact, every employee, in consultation with his employer, can make alterations to his pay package so that the benefits from tax gain may be maximized.

Employees should therefore gain some knowledge regarding these simple tax gains and learn how to make use of tax exemption policies related to perks and allowances to gain as much they can instead of unnecessarily paying a high amount of taxes.

Employer’s Contribution to NPS eligible for deduction under 80CCD(2)

Section 80CCD(2) is a new section that not many people know about, and states that any contribution made by the employer towards NPS can be claimed for deduction by the employee. The two key restrictions are that the contribution must be made by the employer, and it can’t exceed 10% of your salary. Some employers like Wipro have already included 80CCD(2) them in their salary structure, so if your employer contributes to NPS then you should take advantage of 80CCD(2) as well.

The good thing about this is that the NPS contribution amount is counted in excess of the amount of INR 1,00,000 as mentioned under Section 80C, 80CCC and 80CCD.

Let’s now discuss the exemptions available with respect to common day to day allowances and perquisites.

HRA (House Rent Allowance):

The amount of HRA that an employee receives enjoys tax exemption up to the following limits

1. 50 per cent of the employee’s salary when the employee resides in either of the four metropolitan cities, in other cases 40 per cent
2. Any rent that is more than 10 per cent of the total salary of the employee
3. Actual amount of HRA received

Transport Allowance:

The amount of transport allowance that an employee spends to get to his workplace from his place of residence enjoys a tax exemption of up to a limit of Rs. 800 per month.

Rent free furnished or unfurnished accommodation:

When an employer provides his employee with rent free furnishes or unfurnished accommodation it is considered a perk and employees can enjoy exemption from taxes up to the following limits

1. If the said accommodation is in a city, the population of which exceeds 25 lakh, the tax exemption can be 15 per cent of the salary
2. If the said accommodation is provided in a city, the population of which is less than 25 lakh but more than 10 lakh, it is 10 per cent of the salary amount
3. If the said accommodation is provided in any other place with a population that is less than 10 lakh it is 7.5 per cent f the total salary

In the event of the furniture too being made available by the employer, 10 per cent of the employee’s salary is assumed to be the value of the furniture when the furniture is owned, and in the case of hire, the actual hire charges that the employer pays is considered.

The amount contributed by an employer as premium paid towards the group insurance schemes of the staff members or towards recreational amenities, including services provided by clubs etc. for the benefit employees is always considered to be under the Tax Exempt category.

Conclusion

The above information has been relayed so that employees understand the various ways through which they can save on the taxes they pay. With the help of these different exemptions, employees can alter their existing salary structure in such a way that the optimum tax benefits can be availed by employees. Employees can try to confine the allowances within the limits set for exemption while the individual’s tax plans can also be prepared in relation to the valuation of the perks or perquisites.

Employees should always ensure that the exemption limits set under 80C and 80D are always used to their maximum potential too.

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

Generally, gifts are not regarded as Income chargeable to tax. However by virtue of Section 56(2) any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under other sources subject to exclusions as below:

1. Receipts on occasion of marriage of the individual
2. Receipts under a will or inheritance
3. Receipts received from a relative.

Since 1/10/2009, Section 56(2) has been amended and the scope of gifts and will include even immovable properties or any other property besides sums of money under its ambit.

Gifts that are not taxable at all are those that are received from relatives. Relatives are defined by the following relationships of the individual:

1. Parents
2. Parents siblings and their spouse
3. Siblings
4. Spouse of siblings
5. Daughter and son
6. Spouse of daughter and son
7. Spouse
8. Spouse’s parents
9. Spouse’s siblings and their respective spouse.

Even NRIs are covered as long as they fall in the category of relatives. Therefore an individual Indian resident can receive a tax free gift from an NRI as long as he/she is that individuals relative. Any amount can be received as a gift from a relative. Also the purpose for which the gift is received from a relative is inconsequential as it is completely tax free. Thus a gift received can be used for any purpose ranging from purchasing shares to buying property to even simply keeping it with the bank.

Note on gifting on immovable properties

There is a valuation aspect involved in gifting of immovable properties:-

1. If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
2. If the property is gifted for a consideration, then the actual value of the property will be taken

In case of other properties:

1. If gifted without consideration and fair market value exceeds 50000, then the fair market value will be taken as the final value
2. If gifted for a consideration and the FMV less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

As mentioned earlier NRIs can also give gifts to resident Indians. Therefore, It is important to understand the meaning of an NRI as per the IT act.

An individual will be treated as a non resident in India in any previous year if he fulfils any of the following two conditions:

1. he/she is NOT in India in that year for period or periods amounting in all to 182 days or more, or
2. Having within the four years preceding that year NOT been in India for a period or periods amounting in all to 365 days or more, and has NOT been in India for 60 days or more in that year.

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of makemyreturns.com. He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at connect@makemyreturns.com

Capital Gains on assets are a result of a higher sale consideration than the cost of acquisition of the assets.

Short term capital gains are taxable at 15% in case of shares and equity oriented mutual funds and at 30% (maximum marginal rate) in case of other taxable assets.

On the other hand, long term capital gains on shares and equity oriented mutual funds are exempt from tax and are taxable at 20% in case of other assets such as flat, building, gold, art etc.

The Income tax act has come out with certain exemptions from taxable long term capital gains.

Section 54:- Under this section, an Individual or an HUF (Hindu Undivided Family) can get an exemption on the capital gains earned on residential house property. As per this section, the individual is required to purchase another residential house property within 1 year prior to the sale or within 2 years from the sale of the erstwhile residential house. In case of construction, the new residential house property must be constructed within 3 years from the sale of the original house property.

Section 54F:- As per this section, an individual or an HUF can get capital gains exemptions from assets other than residential house property (exemption for residential house property is covered under section 54). To claim the exemption, an individual or HUF needs to invest the sale proceeds of the old capital asset in another residential property. The timelines remain the same as covered in section 54 i.e. 1 year prior to or within 2 years from, the sale of the capital asset (other than the residential house property). In case of construction of the residential house property, the time limit is 3 years.

Section 54EC:- In this section, any person (not only individual and HUF’s) can get exemption from long term capital gains even if the capital gains are not invested in a residential house property. To gain exemption from capital gains, an individual or an HUF can invest the capital gains amount in NHAI (i.e. National Highway authority of India) or REC (Rural Electrification Corporation) bonds of the Government. The investment limit in these bonds in capped at Rs. 50 lakhs. The time limit to invest in these bonds is 6 months from the date of sale of the original capital asset.

Section 54B:– As per this section, an individual or HUF can get exemption from long term capital gains earned on sale of agriculture land. This pertains to sale of only urban agricultural land as sale of rural agriculture lands are completely exempt from tax. To claim the exemption, the assessee needs to invest the capital gains earned in another urban agricultural land. The time limit for investment is 2 years from the date of sale of the original urban agricultural land.