Archive for September, 2021

Taking the gods to the kids, in the form of toys

US-based siblings Avani Modi Sarkar and Viral Modi help the Indian diaspora connect with their roots

Baby versions of Hindu gods Ganesha, Krishna and Hanuman with squeezy bellies, these toys when pressed, belt out shlokas.

Baby versions of Hindu gods Ganesha, Krishna and Hanuman with squeezy bellies, these toys when pressed, belt out shlokas.

Last year, Mindy Kaling, creator of the upbeat series Never Have I Ever, gave birth to her son. One of the gifts she received was a collection of plush toys from Modi Toys, a boutique toymaker based in New Jersey, US. Kaling described the toys on Instagram as “…a fun, engaging yet subtle way to introduce them (kids) to Indian culture, starting with diversifying their playrooms and bookshelves.” Baby versions of Hindu gods Ganesha, Krishna and Hanuman with squeezy bellies, these toys when pressed, belt out shlokas (verse, proverb or hymn, usually religious in nature). To complete the experience, there are corresponding storybooks to accompany the toys—How Ganesha Broke His Tusk, The Curious Case of Krishna and so on. “I’m so psyched my daughter knows the story of Ganesha and has a doll to show her friends,” noted Kaling.

That’s the wow factor of Modi Toys, founded by siblings, Avani Modi Sarkar and Viral Modi. Clarifying that the toys are “not just toys”, Sarkar says their mission is to help the next generation of South Asians “take pride and interest in their roots and Hindu heritage”. The duo and their oldest brother grew up in the US after their parents moved there. The parents were fairly religious and the children were encouraged to pick one ritual of their choice and stick to it. “As a result, I grew up reciting the Gayatri Chalisa whereas Viral grew up reciting the Hanuman Chalisa,” Sarkar says. Coincidentally, both the siblings became parents in 2017—the two daughters were born a week apart. Shopping for toys and books in the US proved to be hard, especially the kind that would keep the children connected to their culture, they realised. They ideated, developed prototypes and in 2018, with a $25,000 seed capital, launched their brand of toys and books. The first toy—Baby Ganesh—sold out immediately.

Founders Viral Modi and Avani Modi Sarkar

The roles of Chief Inspiration Officers, Chief Quality Officers and Chief Beta Testers are given to the kids in the family. “Since my kids and niece get special early access to our prototypes, their favourite toy is always whichever one is the newest one,” says Modi. The plush toys are helping the Indian diaspora connect their children to the culture they have left behind. “That was exactly our intent! My brother and I are not only children of immigrants, but we are immigrants ourselves. We have a sense of connection to India and our culture,” says Sarkar, recounting the story of four-year-old boy who was hospitalised for a 10-week chemotherapy. “His mother told us that during his entire stay, Baby Ganesh and Baby Hanuman never left the boy’s side, giving him comfort and giving the parents strength,” says she.

But if you thought the toys were just for children, think again. Someone bought a Baby Ganesh to present it to his grandmother along with his wedding invite. A son recounts how his father, a soon-to-be grandfather undergoing aggressive chemotherapy for acute myeloid leukaemia, was given a plush toy to hold on to for “he may very well be on his last few days of life and if he couldn’t see his first grandchild at least he could take comfort from the toy.” Buoyed by good reviews and sales, the founders left their day jobs and are now full-time entrepreneurs. The toys now have a strong presence in the US market. Their website pings with online sales notifications every so often. The duo is now targeting Canada, the UK, Australia and India.

Kaling’s Insta endorsement is, of course, a huge encouragement. “That was absolutely surreal! In fact, I have IG posts dating back to 2018 to somehow get the toys into Kaling’s hands, and there she was a couple of years down the line giving the brand the much-needed fillip,” Sarkar gushes. Looks like the gods heard her.

The toys now have a strong presence in the US market. Their website pings with online sales notifications every so often. The duo is now targeting Canada, the UK, Australia and India.

Be the first to comment - What do you think?  Posted by admin - September 19, 2021 at 6:48 pm

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How to adjust capital gains against capital losses in ITR

Synopsis

An individual taxpayer can bring down his/her tax liability by setting off capital gains from one asset with capital losses in another asset. Here’s how it can be done.

If you are not able to set off your entire capital loss in the same year, both short-term and long-term loss can be carried forward for up to eight assessment years.
Losses made on one investment can be set off against gains from other assets. Here are some points to keep in mind when you do so.

  • Capital losses (short-term or long-term) cannot be set off against any other head of income such as salary, rent or interest.
  • Long-term capital losses can be set off only against long-term capital gains.
  • But short-term capital losses can be set off against short-term or long-term capital gains. Even short-term capital losses from stocks can be set off against other short- or long-term capital gains.
  • Till recently, long-term losses from stocks or equity funds could not be adjusted against other gains because these were tax-free. But now that long-term gains from stocks and equity funds are taxable, they can be set off against other long-term gains.
  • If you are not able to set off your entire capital loss in the same year, both short-term and long-term loss can be carried forward for up to eight assessment years.
  • Capital losses for a year can’t be carried forward unless that year’s return has been filed before due date. Also, returns of subsequent years will have to be filed to carry forward the loss. Even if you do not have any income that year, file your return before the due date to carry forward the loss.

Be the first to comment - What do you think?  Posted by admin - September 18, 2021 at 7:23 am

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ITR filing: How inflation can help reduce your income tax liability

Synopsis

While high inflation is burning a hole in your pocket, there is a silver lining. High inflation also brings down your tax on long-term capital gains which are eligible for indexation benefit.

Not all investments are eligible for the indexation benefit.
Petrol prices have crossed the Rs 100 mark per litre in many parts of the country, LPG prices may soon touch four figures and cooking oil prices have shot up dramatically in the past six months. However, while high inflation is burning a hole in your pocket, there is a silver lining. High inflation also brings down your tax on long-term capital gains which are eligible for indexation benefit.

Indexation takes into account the inflation during the investment period and accordingly adjusts the purchase price of an asset. If you invest at the end of a financial year (say, March 2021) and redeem 37 months later in April 2024, you will get an indexation benefit for four years. During high inflation, this can reduce tax to zero.

Every year, the government announces a cost inflation index (CII) number for each financial year. The indexed cost of an asset can be calculated by the formula given above. The long-term capital gains tax is 20% plus surcharges. But indexation helps in reducing the tax by adjusting upwards the purchase price which cuts the long-term capital gains.

Sep 18, 2021

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107.20.00

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Calculating indexed cost
Indexed cost = (Purchase price x CII of year of sale)/CII of year of purchase

The Cost Inflation Index has shot up in recent years

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However, not all investments are eligible for indexation benefit. Instruments such as bonds and debentures that mention an interest rate are not eligible for indexation benefit. This is why savvy investors opt for debt funds instead of fixed deposits where the interest is fully taxable at the rate applicable to the individual.

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Tax on EPF, NPS, Superannuation fund: Tracking excess contribution tedious, no clarity over double taxation

Synopsis

Amendments made to the way contributions to the EPF, NPS and Superannuation fund have increased the tax burden on certain sections of the salaried class.

From a compliance perspective, the affected employees will need to undertake elaborate calculations and track the excess contributions and accretions every year.
The Employees’ Provident Fund (EPF) has been a preferred investment/retirement benefit avenue for the salaried class for many decades. This is mainly because the EPF comes with no income tax on employer contributions up to 12% of salary, annual interest, and on withdrawals if made after 5 years of continuous service. Similarly, for the National Pension Scheme (NPS), employer contributions up to 10% of salary and annual increase in the corpus are tax-free.

Exit from NPS is tax-free if 40% of the accumulated fund is invested in receiving an annuity in the future and 60% is withdrawn as lump sum. However, the annuity would be taxable when received. For Approved Superannuation Fund (ASF), employer contributions up to Rs 1.5 lakh were non-taxable till financial year (FY) 2019-20. An annual increase in ASF corpus and exit continues to be non-taxable subject to certain conditions.

With rising salary levels combined with income-tax benefits and good returns, many employees enrolled into NPS and/or ASF in addition to EPF to increase their retirement kitty.

However, amendments were made to the way contributions to the EPF, NPS and ASF are taxed and increase the tax burden on certain sections of the salaried class. These changes could actually disincentivise investments into these much-favoured investment vehicles.

The Finance Act 2020 replaced the earlier clause of ASF exempting employer’s contribution up to Rs 1.5 lakh in a financial year with the introduction of a new provision. As per the new law, employer’s contributions exceeding Rs 7.5 lakh in the aggregate annually towards PF, NPS and ASF are now taxable starting from FY 2020-21.

‘Annual accretion’ by way of interest, dividend, or similar amount on the excess contribution is also taxable. The excess contributions including accretions for a given year are taxable in later years too. The government’s rationale for this change was that the income-tax concessions were unduly benefitting the high-salaried employees and hence the need for an upper cap to the non-taxable employer contributions. The Central Board of Direct Taxes (CBDT) recently introduced Rule 3B on March 5, 2021, for computing such excess and accretions thereto.

In the context of PF, ‘annual accretion’ is the increase in the fund balance due to employer contributions and interest which is credited annually. However, as regards NPS and ASF which are Net Asset Value (NAV) based, there is typically no interest or dividend. Hence, whether an increase in NAV is to be treated as ‘annual accretion’ is not clear.

Further, if the employer’s contribution to PF is, say Rs 5 lakh and NPS is Rs 4 lakh, whether the excess over Rs 7.5 lakh, i.e., Rs 1.5 lakh is out of EPF or NPS is not clarified. Further, taxable contributions/accretions of any year shall remain a part of the fund balance and remain taxable in later years till fully withdrawn which is detrimental to the individual.

The second blow was struck through the Finance Act, 2021 whereby interest accruals on the excess of employee’s own annual contributions over Rs 2.5 lakh to EPF and Voluntary PF made post-April 1, 2021 are now taxable, though arguably only at the stage of withdrawal. The CBDT shall prescribe the methodology for the determination of taxable interest.

The increase in taxable income in the initial year due to these changes is illustrated below:

In totality, these new amendments will increase the income-tax burden of not only the affected high salaried individuals but possibly other employees with higher own contributions to EPF, i.e., through ‘voluntary PF’.

Another issue here is that of potential double taxation. In the absence of clarifications, a person who suffers tax now due to excess employer contributions to EPF and interest thereon and exits the EPF scheme before 5 years may suffer tax again on such excess amounts at the withdrawal stage.

From a compliance perspective, the affected employees will need to undertake elaborate calculations and track the excess contributions and accretions every year. Employers will need to maintain records and withhold appropriate income-tax when their contributions exceed Rs 7.5 lakh. The EPFO/private PF trusts too will need to track excess employee contributions over Rs 2.5 lakh and withhold appropriate income-tax at the withdrawal stage.

In fact, the amendments may disincentivise investments into EPF/NPS/ASF and some impacted employees may even consider opting out or reducing their contributions to mitigate the higher tax burden.

To conclude, one hopes that the government urgently resolves the issues and provides clarity or better still, completely do away with these new provisions which could be a welcome relief for the salaried class given the ongoing financial distress caused by the COVID-19 pandemic.

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How to claim LTC Cash Voucher exemption in your income tax return

Synopsis

As per the government, individuals having LTC/LTA in their salary package would have been unable to travel and claim income tax exemption on the travel tickets due to the pandemic induced lockdown. Thus, this scheme was introduced last year.

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If you have submitted eligible bills to your employer, then the employer should not have deducted tax on the amount paid to you from your LTA/LTC against those bills.
In October 2020, due to the covid-19 pandemic, the government announced an LTC cash voucher scheme that allowed salaried taxpayers eligible for LTC/LTA to claim the allowance tax exempt without travelling by purchasing goods and services as per the scheme’s conditions.

As per the government, individuals having LTC/LTA in their salary package would have been unable to travel and claim income tax exemption on the travel tickets due to the pandemic induced lockdown. As an alternative, to enable such individuals to claim their LTC/LTA amount as tax exempt, the government launched the LTC Cash Voucher scheme.

As per this scheme, an individual had to purchase goods and services attracting GST of 12% or more by digital means between October 12, 2020, and March 31, 2021. The individual would then be allowed to claim one third the amount of the bills as tax exempt LTA/LTC without submission of travel proof. If you are someone who has availed the LTC Cash Voucher scheme in FY 2020-21, here is how you can claim the money received under it as tax exempt while filing your ITR.

Maximum amount that can be claimed
To be eligible to claim the LTC Cash Voucher exemption, there are certain conditions that had to be met. Once these conditions were satisfied, the individual could claim maximum of one-third of the amount spend or up to Rs 36,000 per family member, whichever is lower by submitting bills (of purchases as specified in the scheme) to the employer.

Let us say you purchased a tab or a laptop for Rs 39,000 (inclusive of GST at 18%). The amount you will be eligible to claim tax exemption for will be lower of one of the following:
a) One-third of amount spent, i.e., one-third of Rs 39,000 = Rs 13,000
b) Rs 36,000

Thus, in the above example, you will be eligible for maximum tax exemption of Rs 13,000. “The maximum tax exemption available is Rs 36,000 per person. Thus, a family of four can claim total maximum tax exemption Rs 1.44 lakh,” says Sujit Bangar, Ex-IRS officer and Founder, Taxbuddy.com, an ITR filing website.

He adds that if a taxpayer has the made payment in cash, then he/she will not be able to claim tax-exemption under the LTC Cash voucher scheme for that particular payment.

How to claim LTA Cash Voucher scheme in ITR form
If you have submitted eligible bills to your employer, then the employer should not have deducted tax on the amount paid to you from your LTA/LTC against those bills. This amount would also be shown claimed as tax exempt in your Form 16.

Bangar says, “Tax exemption under LTA Cash Voucher scheme will be claimed under section 10(5) of the Income-tax Act, 1961. The amount of tax-exemption you are eligible for claiming will have to be shown in the exempted income schedule of the income tax return form.”

Conditions for the LTC cash voucher scheme
To be eligible to claim the LTC Cash Voucher tax exemption, these are the conditions that were to be met:
a) An employee was required to spend three times the amount of deemed LTC fare on the purchase of goods and/or services having GST of 12% or more;
b) Purchase of goods and/or services had to be made between October 12, 2020, and March 31, 2021;
c) Payment for goods and/or services had to be made via digital modes such as cheque, UPI, mobile wallets etc. Cash payments were not allowed; and
d) Individual was required to -collect the invoice having GST number of the seller and GST amount paid. These invoices were to be submitted to the employer to claim the benefit. Individuals were allowed to submit the invoices in their family member’s name.

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ITR filing of deceased person: Documents required, steps to be taken by legal heirs

STORY OUTLINE

  • According to the Income Tax Act, 1961, every individual whose total income exceeds the basic exemption limit is liable to file the relevant ITR.
  • Ideally, the legal heir who would be required to file the ITR would be determined in accordance with the Will, if any, made by the deceased.
  • In the absence of any Will, spouse or any of the children (i.e., surviving family members) may be considered as the legal representative and as such, any one of them can opt to file the return.
If a legal heir does not file the ITR of a deceased person before the expiry of deadline, then he may have to face severe consequences for non-compliance.
Even after death, a person cannot be absolved of his tax liability. The legal heirs of such deceased person are required to pay the tax dues and may be subjected to interest and/or penalty in case of non-payment of the tax due and/or not filing the ITR of the deceased. That is, if the legal heir does not file ITR of the deceased, then the former will face penal consequences. Thus, it’s important that the legal heirs should be aware of their responsibility of filing the income tax return (ITR) pertaining to the settlement of such dues of the deceased taxpayer.

According to the Income Tax Act, 1961, every individual whose total income exceeds the basic exemption limit is liable to file the relevant ITR. (Basic exemption limits for various age groups are: Rs 5 lakh for Resident Super Senior Citizen (80 years or more); Rs 3 lakh for Resident Senior Citizens (60 years or more), and Rs 2.5 lakh for other individuals under the old tax regime. The basic exemption limit is Rs 2.5 lakh irrespective of age, under the new tax regime. The provisions also state that even if an assessee’s total income does not exceed the basic exemption limit, he/she still needs to file the ITR for that particular year if he/she has:

  • Deposited an aggregate amount exceeding Rs 1 crore in one or more current account maintained with a bank or co-operative Bank in the financial year; or
  • Spent more than Rs 2 lakh on foreign travel for himself or any other person in the financial year; or
  • Incurred more than Rs 1 lakh towards consumption of electricity in the financial year.

Who is responsible for filing ITR of the deceased?
Ideally, legal heir who would be required to file the ITR would be determined in accordance with the Will, if any, made by the deceased. In the absence of any Will, spouse or any of the children (i.e., surviving family members) may be considered as the legal representative and as such, any one of them can opt to file the return.

As per the law, in the case of a deceased person who has expired during the year, the responsibility for filing the return till the date of death shall be that of the legal heir. However, for remaining period of the financial year (i.e., post-death), the responsibility for filing return shall be on the executor of the estate of deceased till the time assets under the estate are distributed to the legal heir/s. For instance, if Mr A dies on November 03, 2020 and is survived by his son say Mr B, the income tax return with respect to Financial Year 2020-21 (Assessment Year 2021-22) would be filed as follows:

  • The ITR for income from the beginning of the financial year i.e. 1st April 2020 to November 03, 2020 would be filed by Mr. B as legal heir of Mr. A.
  •  The ITR for any income accruing or arising on or after November 03, 2020 would be filed separately by the executor of the estate. The liability of the executor to file the return is only until the legal transfers are carried out. Once the assets are distributed, the legal heir would be liable to file the tax return

The legal heir will have to file returns and pay taxes in respect of the estate of the deceased, which are in or may come into his possession, i.e., he/she may inherit from the deceased person. Also, the legal heir will inherit all the liabilities of the deceased and will be held liable in the future for any proceeding initiated against the deceased before his death. Do keep in mind that the legal heir will be liable only to the extent of the assets inherited from the deceased.

Income of deceased person
It is important to note that all the income which is accrued or received from beginning of the financial year till the date of demise will be considered as the income of the deceased person. Further, tax on any income accrued or received from the assets that are inherited from the deceased will be borne by the legal heir himself. This would mean that after receiving the inheritance, any income accrued or received from the asset will be considered as the legal heir’s own income.

What if legal heir does not file ITR?
If a legal heir does not file the ITR of a deceased person before the expiry of deadline (December 31, 2021 for FY 2020-21), then he may have to face severe consequences for non-compliance. It may include penalty under section 270A which is equivalent to 50% of the tax which may have been avoided by the taxpayer by not furnishing the ITR, prosecution under section 276CC, etc.

Documents required to file deceased’s ITR
In order to register as a legal heir following documents are to be uploaded on the income tax e-filing portal:

  • Copy of PAN of the Deceased
  • Copy of PAN of the Legal Heir
  • Copy of the Death Certificate
  • Copy of any one of the legal heir proof from the below list:

*Legal Heir Certificate issued by Court of Law /Local Revenue Authority.
*Surviving family member certificate issued by the Local Revenue Authority.
*Family Pension certificate issued by Central/State Government.
*Registered will.
*Letter issued by the banking or Financial Institution in their letterhead, with official seal and signature mentioning the particulars of nominee or joint account holder to the account of the deceased at the time of demise.

  • Copy of the order passed in the name of the deceased (Mandatory only if the reason for registration is ‘Filing of an appeal against an order passed by tax department in the name of deceased’)
  • Copy of the order/notice (Mandatory only if the reason for registration is ‘Filing of return of income/form for period in which deceased was alive through condonation request’ (or) ‘A notice/order received from Income Tax Department in the name of the applicant for compliance on behalf of a deceased’)
  • Copy of Indemnity Letter. This letter guarantees that payment of all tax claims made with the tax department would be indemnified by the legal heir/s filing the return. In layman terms, the legal heir/s are providing guarantee for the payment of the tax dues of the deceased to the tax department by way of such indemnity letter

Process of filing ITR by the legal heir
In order to file the ITR of the deceased in the capacity of a legal heir, the first step is to register oneself as a legal representative of the deceased person on the income tax E-filling Portal.
Following are the steps to register as a legal heir on the new e-filing portal 2.0:
1. Log on to ‘e-Filing’ Portal https://www.incometax.gov.in

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2. Go to ‘Authorised Partners’> Click ‘Register as Representative’

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3. Click on the ‘Lets Get Started’ to create a ‘New Request’

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4. Click on ‘Create New Request’

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5. A dialogue box would appear stating ‘Category of Assessee who you want to represent’. Select the option ‘Deceased (Legal Heir)’ from the drop-down.

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6. Fill in the details required

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7. Attach the necessary documents (Maximum file size allowed is 5MB)

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8. Click on ‘Proceed’ and ‘Verify the Request’

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9. Click ‘Submit Request’. A Success Message will be displayed confirming the submission of request to ‘Register as Legal Heir’. The ‘Reason for Registration’ of the legal heir as a representative assessee should be mandatorily provided. The legal heir may choose amongst one of the following reasons:

1. Filing of an appeal against an order passed in the name of deceased
2. Submit service request such as refund re-issue/rectification etc. of proceedings concluded in the name of deceased
3. Filing of return of income/form of period in which deceased was alive through condonation request
4. A notice/order received from Income Tax Department in the name of the applicant for compliance on behalf of a deceased
5. Others
Once one has registered as a legal heir, a request will be sent to the e-Filing Admin for approval. The e-Filing Admin will check the authenticity of the request details and may Approve/Reject the request. Upon Approval/Rejection, an e-mail and SMS will be sent to the legal heir who raised the request.

In case of the request being rejected, the intimation for rejection would be accompanied by a valid reason for such rejection. For instance, upload of incorrect information or documents, etc. Accordingly, the taxpayer should take the necessary action to rectify such rejection. The estimated time for such intimation of approval/ rejection depends upon the time taken by the jurisdictional Assessing officer for verification and may usually go up to 15 days. However, considering the technical issues in the new IT portal at present, the time taken may go well beyond 15 days.

After registering as a legal heir, ITR can be filled in the normal format and in the standard procedure as followed by a natural living individual while filling his own return. Thus, the return would be verified by the legal heir who can simply sign the ITR Acknowledgement and a copy of the same can be sent to Central Processing Centre (Bengaluru).

Alternatively, the legal heir may also e-verify the return by way of generating OTP using his own details such as registered mobile number. In the beginning of the ITR, wherein Aadhaar details are required to be provided, the Aadhaar of the deceased can be provide. Further, there is a specific provision in the ITR which asks for “Aadhaar Number of the representative”, wherein the details of the Legal representative’s Aadhaar can be provided in the ITR.

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Senior citizens aged 75 and above are not exempted from ITR filing this year

Synopsis

As per the memorandum to the Budget 2021, “In order to provide relief to senior citizens who are of the age of 75 years or above and to reduce compliance for them, it is proposed to insert a new section to provide a relaxation from filing the return of income.”

Once the declaration is submitted, there will not be any requirement of furnishing the return of income by such senior citizens for this assessment year.
In Budget 2021, the government announced that eligible senior citizens aged 75 and above will be exempted from filing income tax returns (ITR). However, it should be noted that this relaxation will come into effect only from FY 2021-22, i.e., for ITRs to be filed next year. What this means is that for FY 2020-21, i.e. for ITRs to be filed this year, senior citizens who are above the age of 75 years are not exempted from ITR filing. Currently, the last date for filing ITR for FY 2020-21 is December 31, 2021 (extended from the previous deadline of September 30, 2021).

As per the memorandum to the Budget 2021, “In order to provide relief to senior citizens who are of the age of 75 years or above and to reduce compliance for them, it is proposed to insert a new section to provide a relaxation from filing the return of income.”

Who has to file ITR? What happens if you don’t file?
Abhishek Soni, CEO, Tax2win.in, an ITR filing website says, “The amendment related to relaxation for senior citizens (Age 75 years or more) in the filing of ITR after fulfilling certain conditions will be applicable from FY 2021-22 (assessment year 2022-23). Hence, it is important to note that if your income is more than the basic exemption limit, then you are required to file ITR for FY 2020-21.”

If a senior citizen misses the ITR filing deadline for FY 2020-21, then he/she will be liable to pay a late filing fee of Rs 5,000. However, the late filing fee will not exceed Rs 1,000 if the total income does not exceed Rs 5 lakh.

“Insertion of new procedural provisions or amendment to the existing procedural provisions (like TDS) is applicable from April 1, 2021. As Section 194P of the Income-tax Act, 1961 is a procedural provision, the bank shall be required to deduct tax under this provision on or after April 1, 2021, for FY 2021-22. Thus, income earned on or after April 1, 2021, will be subject to TDS under this provision. It would mean that the exemption from tax return filing to senior citizens aged 75 years and above (subject to conditions) shall be available from next year i.e., assessment year 2022-23,” says Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com.

Who is eligible for the exemption?
In order to be eligible for exemption, there are certain conditions that must be satisfied by the senior citizens. These conditions are as follows:
a) The senior citizen should be resident of India and aged 75 or more during the financial year 2021-22,

b) He/she must have pension income only and no other income. However, in addition to such pension income he may have also have interest income from the same bank in which he is receiving his pension income. This would mean that the senior citizen should have bank account with only one bank in which pension is being received.

c) This bank account should be with a specified bank. The government has specified a list of banks which qualify for this purpose.

d) He shall be required to furnish a declaration to the specified bank. The declaration should contain such particulars, in such form and verified in such manner, as may be prescribed.

Once the declaration is furnished, the specified bank would be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax on the basis of rates in force. Once this is done, there will not be any requirement of furnishing return of income by such senior citizens for this assessment year.

Soni says, “The government via a notification dated September 2, 2021 has notified the list of specified banks where senior citizens can submit the declaration for exemption of ITR filing. As per the notification, pensioners can submit this declaration with any scheduled bank where they have a bank account in which pension is received.” The senior citizens are required to submit Form 12BBA to the specified bank to avail the ITR exemption.

Thus, an eligible senior citizen having a bank account with any scheduled bank can submit this declaration. However, remember that this declaration would be for the current FY and accordingly relate to an exemption from ITR filing for the current FY which would be due next year i.e. in FY2022-23.

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ITR Filing: Which income tax return form is applicable to you for FY 2020-21

Synopsis

Even if your total income does not exceed Rs 2.5 lakh but the payer of income has deducted taxes and you need to claim a refund from the tax authorities, you will need to file an ITR.

If the ITR is not filed by the due date, i.e., September 30, 2021, penalty ranging from Rs 1,000 up to Rs 5,000 is levied.
If you are an individual taxpayer (say, a salaried individual) and your total income during the financial year (FY) exceeds Rs 2.5 lakh before taking into account common deductions such as Section 80C, Section 80D etc. available under the Income-tax Act, 1961, you are required to file ITR for the financial year 2020-21.

Even if your total income does not exceed Rs 2.5 lakh but the payer of income has deducted taxes and you need to claim a refund from the tax authorities, you will need to file an ITR without which you will not receive the refund due to you. Therefore, it’s necessary to analyse the facts which are applicable in your specific case to conclude whether you have to file ITR or not.

On March 31, 2021, the Central Board of Direct Taxes (CBDT) notified ITR forms for FY 2020-21. Having due regard to the pandemic situation, CBDT has kept ITR forms largely unchanged from last year and only changes necessary to incorporate new provisions have been made in the forms. So, if you are not a first-time ITR filer, you will not get any unpleasant surprises when it comes to reporting and disclosure requirements in the ITR forms. Also, due to the pandemic, CBDT has extended the due date to file ITR for individuals to December 31, 2021 from previous deadline of September 30, 2021.

Are you required to file ITR?
To answer the question of whether you should file ITR, the below illustrative situations may necessitate ITR filing for an individual:

  • Total income exceeds the maximum amount not chargeable to tax. The basic exemption limit for FY 2020-21 is Rs 3 lakh for senior citizens (aged 60 years or more but less than 80 years), Rs 5 lakh for super senior citizens (aged 80 years or more), and Rs 2.5 lakh for others under the old tax regime. However, in the case of an individual opting for the new concessional tax regime under Section115BAC, the maximum amount not chargeable to tax is Rs 2.5 lakh for all categories of individual taxpayers;
  • The individual needs to claim a refund of excess taxes deducted on his income or excess tax payments made;
  • The individual qualifies as an ordinarily resident of India during FY 2020-21 and holds foreign assets which need to be specifically reported in the ITR. These assets include foreign bank accounts, foreign properties, financial assets etc.;
  • The individual has undertaken specific transactions viz (a) payment of electricity bill in excess of Rs 1 lakh during the FY (b) deposited more than Rs 1 crore in one or more current accounts during the FY or (c) spent more than Rs 2 lakh on overseas travel for self or any other person during the FY;
  • The individual has incurred a loss under the head ‘capital gains’ or ‘profits and gains of business and profession’ and the same needs to be carried forward for set-off in future FY.

ITR may also be filed for other administrative requirements such as obtaining a loan, visa for overseas travel etc.

Which ITR is applicable to you for FY 2020-21?
The next important question is which ITR form should be used and by whom. The details of the ITR forms are summarised below:

ITR 1 (Sahaj)
  • Individuals qualifying as Ordinarily Resident
  • Having a total income of up to Rs 50 lakh
  • Having income from salaries, one house property, income from other sources (interest etc.) and agricultural income up to Rs 5,000
  • In case of clubbing of income, an individual can file ITR-1 form if the income of the other person (whose income the individual is reporting in his ITR) is from sources as mentioned above. For example, Mr. A will file his ITR after clubbing of income earned by his spouse. In such a case, Mr. A would be able to file the ITR-1 form only if the income of the spouse is from the sources specified above.
Non-residents/ Resident but Not Ordinarily Residents
Hindu Undivided Family (HUF)
Ordinarily Residents having a total income of more than Rs 50 lakh
Director in a company
Holding investments in unlisted equity shares
Having brought forward losses or losses to be carried forward under the head ‘income from house property
Having income from any other source, eg. more than one house property, capital gains, profits or gains of business or profession, winning from lottery
Holding assets outside India
Having 2% TDS deducted for cash withdrawal exceeding INR 1 crore (reduced to INR 20 lakh in some cases)
Having deferred tax deduction/ payment in respect of perquisite due to ESOPs allotted/ transferred by employer being an eligible start-up
ITR 2
  • Non-residents / Resident but Not Ordinarily Residents and Ordinarily Residents
  • Hindu Undivided Family (‘HUF’)
  • Having a total income of more than Rs 50 lakh
  • Director in a company
  • Holding investments in unlisted equity shares
  • Having income from the following sources – salaries, more than one house property, capital gains and income from other sources
  • Having income from sources outside India and holding assets outside India
  • Individuals/ HUF having business income/ income from profession
ITR 3
  • Individuals/ HUF having business income/ income from profession
  • Partner of a Firm
Persons other than individuals/ HUF having business income/ income from profession

ITR 4 (Sugam)
  • Resident Individuals/ HUF/ Firm (other than LLP) having total income up to INR 50 lakh
  • Having business income/ income from profession computed on ‘presumptive basis’
Having profits or gains from business or profession which are not computed on a presumptive basis
Other restrictions similar to the ITR-1 form.
ITR 5
  • Any person except individual or HUF
  • E.g. Firms/ LLPs/ Association of Persons (AOPs)/ business trusts/ investment funds
Individual or HUF
Any other person required to file form ITR-7
ITR 6
  • Companies other than those filing ITR-7
Companies required to file form ITR-7
ITR 7
  • Persons including companies which are a charitable or religious trust, political party, research association, news agency or similar organizations specified in the Act
Other categories of taxpayers

Consequences of late filing/ non-filing
If the ITR is not filed by the due date, i.e., December 31, 2021, penalty ranging from Rs 1,000 up to Rs 5,000 is levied and needs to be remitted before the ITR can be filed. This fee or a penalty has to be paid in case of belated ITRs even if the tax liability is nil. Further, in case of belated filing, taxpayers will also not be able to carry forward the losses which can be set-off with eligible incomes in the future years.

Where an individual has taxable income and unpaid taxes but does not pay the taxes or file the ITR, tax authorities may issue notice to the individual. Tax authorities may also levy a penalty on the amount of taxes not paid and this penalty would be in addition to tax that needs to be paid and interest applicable for late payment.

From FY 2020-21, one must also keep in mind that a new concessional tax regime under Section 115BAC of the Act can be opted at the time of ITR filing where such option is exercised within the due date for filing the ITR. If ITR is filed after the due date, then income tax rates and slabs under old tax regime will be applicable.

Therefore, it is not only important to file the annual ITR but also select the correct ITR form, pay the taxes on time and complete the filing of ITR within the due date to avoid consequences.

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Penalty for missing ITR filing deadline has been cut to half

STORY OUTLINE

  • Till last year, if a taxpayer missed the ITR filing deadline, the maximum penalty he/she would have had to pay was Rs 10, 000.
  • With effect from FY 2020-21, a person filing belated ITR will have to pay a penalty of up to Rs 5,000.
Till last year, there was a two-tier penalty structure for missing the ITR filing deadline.
For the financial year 2020-21, the deadline to file income tax return (ITR) is December 31, 2021, (it was extended twice – first from the usual deadline of July 31, 2021, to September 30, 2021, and then to December 31, 2021) due to the pandemic. Till last year, if a taxpayer missed the ITR filing deadline, the maximum penalty he/she would have had to pay was Rs 10, 000.

However, with effect from FY 2020-21, the penalty amount has been reduced by half, i.e., a person filing belated ITR will have to pay a penalty of up to Rs 5,000. Further, if your income is below the taxable limit then you won’t even have to pay the penalty amount if you file your ITR after the deadline subject to certain exceptions. Here is why the penalty this year is half that of last year.

The penalty you will have to pay
In Budget 2021, the government reduced the maximum time allowed to an individual (whose accounts are not required to be audited) for filing ITR by three months. Due to a reduction in the time limit of filing ITR, a consequential amendment was made in Section 234F of the Income-tax Act, 1961 under which the penal amount for filing belated ITR was reduced to a maximum of Rs 5,000 from Rs 10,000 earlier.

Earlier, an individual was allowed time till the end of the financial year, i.e., March 31 to file belated ITR by paying a maximum penalty of up to Rs 10,000.

From this year onwards, the deadline for filing belated ITR is December 31. Accordingly, for FY2020-21 the deadline for filing belated ITR was December 31, 2021, but has been extended twice – first to January 31, 2022, and then to March 31, 2022, due to covid-19. As mentioned above, an individual filing belated ITR by the deadline of March 31, 2022 will now have to pay maximum penalty of Rs 5,000.

Abhishek Soni, CEO, Tax2Win.in, an ITR filing website says, “The last date of filing belated return for FY 2020-21 was December 31, 2021 (originally) which was extended till January 31, 2022 and which is again extended by two months. Now the last date of filing belated ITR is March 31, 2022. This needs to be noted that the deadline for filing the belated return has been extended but late filing fees will be Rs. 5000/- only rather than Rs. 10,000 if you file belated ITR between January 1, 2022 and March 31, 2022.”

Up until last year, there was two-tier penalty structure for missing the ITR filing deadline. If the belated ITR was filed after the expiry of the deadline and on or before December 31, then the individual was required to pay a late filing fee of Rs 5,000. If the ITR was filed between January 1 and March 31, then a late filing fee of Rs 10,000 was levied.

Kapil Rana, Founder & Chairman, HostBook, a fintech startup offering ITR filing services, says, “As per section 234F, till FY 2019-20, if the taxpayer failed to file ITR on or before the due date, then he/she was liable to pay a fee of Rs 5,000 if the tax return was furnished on or before 31st December of the relevant assessment year, otherwise, it will be Rs 10,000 if tax return is furnished after 31st December but from FY 2020-21, the law has been changed. The maximum late filing fees of Rs. 5000 shall be payable if, return is submitted after the expiry of the due date.”

However, there is no change in the penal amount levied on small taxpayers who miss the ITR filing deadline. If you are a small taxpayer whose total income does not exceed Rs 5 lakh during an FY, then the maximum fees you are liable to pay is Rs 1,000 if the ITR is filed any time after the expiry of the deadline (i.e., December 31, 2021) but before March 31, 2022.

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Are you a DIY ITR filer? Don’t forget to report these incomes, assets in your tax return

Synopsis

Taxpayers should be aware of how incomes from other sources have to be reported in the tax return and know about the various deductions available to them. This week’s cover story looks at some of the incomes that might get missed by DIY taxpayers when they sit down to file their returns.

Some taxpayers even believe that no tax is payable if their bank has deducted TDS on the interest.
Taxpayers, tax professionals and financial advisers heaved a collective sigh of relief last week when the tax filing deadline was extended to 31 December, 2021. But experts say taxpayers should not put their tax returns on the back burner just because the deadline is more than three months away. “The extension gives you enough time to put your tax affairs in order. Utilise this time to correctly calculate your tax liability and pay the tax dues to avoid interest charges,” says Sudhir Kaushik, Co-founder of tax filing portal Taxspanner.com.

This is especially true for taxpayers who file their ITR on their own. They should be aware how incomes from other sources have to be reported in the tax return and know about the various deductions available to them. For instance, many taxpayers don’t report their interest income in their returns even though it is fully taxable. Many others do not report capital gains because mentioning the details of every transaction is very tedious. And a lot of taxpayers don’t even know that dividends are now fully taxable and must be mentioned in the return.

Other incomes to be reported in tax return

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This week’s cover story looks at some of the incomes that might get missed by DIY taxpayers when they sit down to file their returns. We reached out to tax experts to know where taxpayers are likely to go wrong while calculating their tax and how they can accurately compute their tax liability.

We also looked at some of the tax rules that one should be aware of while preparing one’s tax return. For instance, there are now two tax regimes to choose from. “The new tax regime allows for lower tax rates but most of the deductions and tax benefits allowed in the old tax regime are not there,” says Archit Gupta, CEO and Founder of tax filing portal Cleartax.com. You have to select the tax regime before filing the income tax return. The taxpayer has to communicate the selection of tax regime by sending an intimation through Form 10IE to the income tax department before he files the return.

Salaried taxpayers might have already told their employers about the tax regime they want to go with. Their tax liability would have been accordingly calculated. If not declared, the employer will calculate the default TDS liability as per the old tax regime. However, the employee can make a switch at the time of filing his return.

Calculating capital gains
A major area of concern are capital gains and the tax on such income. With a large number of people taking to mutual funds and stocks in recent years, capital gains are now common. Besides, even long-term capital gains from equity mutual funds and stocks are now taxable beyond Rs 1 lakh, which means a lot more taxpayers are in this net. “Earlier, only about one in 10 taxpayers used to have capital gains. But now a substantially higher number are reporting such income,” says Karan Batra, chartered accountant and founder of Charteredclub.com.

Calculating capital gains is a complicated exercise, not only because you need to maintain records of all transactions but also because of the different tax rates applicable to various instruments. The new income tax filing portal was supposed to auto calculate and pre-fill the capital gains and tax in the tax form of an individual. However, that has not happened and all capital gains details have to be filled in the forms.
How capital gains are taxed
Reporting the capital gains and calculating the tax can be challenging because each transaction has to be entered in the tax return. Cleartax.com lists some common investments and the tax rates that apply to gains arising from them.

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Adding to the complexity is the new rule that requires details of the scrips, buying price, selling price and dates of transactions to be mentioned in the return if the taxpayer has made long-term gains. The tax department has clarified that there is no need to mention scrip-wise details of transactions when reporting short-term gains.

The good news is that fund houses provide investors a capital gains statement that mentions all the transactions and gains made during the year. These statements not only segregate the short- and long-term gains but also calculate the indexation benefit. A capital gains statement can be quite elaborate, especially if the individual has invested through SIPs and made several redemptions during the year. Filling up details in the tax form can be quite tedious. But tax filing portal Cleartax allows taxpayers to upload their capital gains statements and all required fields automatically get populated.

Similarly, capital gains statements from specified stockbrokers and trading platforms (including Zerodha, ICICI Direct, Upstox and Groww) can be uploaded on the portal. If the statement is not in the same format, one can download an excel file from Cleartax and fill in the details. “Reporting capital gains can be challenging for a vast majority of taxpayers. Inputting details of every transaction may lead to errors. Taxpayers must use a platform that supports parsing of statements from brokerage houses and fund houses,” says Gupta of Cleartax. “That way they can be assured of accurate tax calculation and submitting an accurate income tax return,” he adds.

Don’t miss unlisted shares, foreign assets
While capital gains from listed shares and mutual funds have to be reported, taxpayers must also declare the unlisted equity shares and foreign assets they hold. Foreign assets held outside India (both as owner and as beneficiary) have to be mentioned in Schedule FA (foreign assets). There are stiff penalties waiting for non-compliance. Undisclosed foreign income or assets are taxed at 30% plus a penalty, which is 300% the tax payable on the income or value of the undisclosed asset. An additional penalty of Rs 10 lakh may be levied for failure to disclose such foreign assets in the return.

The foreign assets that need to be disclosed are foreign depository accounts, foreign custodial accounts, foreign equity and debt interest, shares held in any foreign company, and details of trusts created under the laws of another country in which the assessee is a trustee and any other capital asset.

Dividends are now taxable
Not many investors know that the dividends they receive from their mutual funds and stocks are now taxable. Till 2019-20, the tax on mutual fund dividends was deducted by the fund house itself, but the dividend distribution tax was removed last year and dividends are now fully taxed as income. Dividends from stocks also get the same tax treatment.

Tax experts say dividend income mentioned in the Form 26AS might get pre-filled in the tax form. “We are expecting that the dividend and interest income on which TDS has been deducted will be prefilled in the forms,” says Amit Maheshwari, Tax Partner, AKM Global.

But don’t count on Form 26AS alone, because companies deduct TDS from dividend payouts if they exceed a limit. Small dividend payments not subjected to TDS will obviously not be mentioned in Form 26AS. Yet, they need to be reported in the tax return. “Taxpayers should check the statements from their mutual funds, demat account and banks for the dividends received during the year,” says Batra.

Interest is also fully taxable
One lingering misconception among many taxpayers is the taxability of interest income. The interest earned on bank deposits, bonds and some small savings schemes is fully taxable, but many taxpayers choose to ignore this. Even the interest on savings bank balance has to be reported as “income from other sources” in the tax return. Although almost everyone has some interest income, three out of four people writing to ET Wealth for tax optimisation do not mention this.

Two years ago, the TDS threshold was raised to Rs 40,000 per year. Even if TDS is not being deducted, don’t assume that the interest income can escape the tax net. All interest payments are reported to the tax department by the financial institution paying the interest. Keep in mind that not only bank deposits, but even investments in Post Office schemes now require your PAN, and the information on the interest earned ultimately reaches the department.

Some taxpayers even believe that no tax is payable if their bank has deducted TDS on the interest. This is also a misconception. TDS is only 10% of the interest (20% if PAN is not provided). If a taxpayer is in a higher tax slab, he needs to pay additional tax on the interest. Check your interest income for the financial year in the Form 26AS. It will have details of the TDS deducted from interest payments. The income declared in your tax return must match the information in the Form 26AS, else be ready for a tax notice.

It’s a good idea to also report the exempted income such as the interest earned on tax-free bonds, PPF and the Sukanya Samriddhi Yojana in your tax return. You will find it easier to explain the credit of large sums when these investments mature if you have been reporting this income all along.

One common mistake that taxpayers make relates to the clubbing of income. Tax rules say that if money gifted by a spouse is invested, the income from that investment will be clubbed with that of the giver and taxed accordingly. “The law is very clear on this. Yet, we come across cases where property is jointly owned by a couple even though the entire money was paid by the husband. In such cases, the rental income cannot be divided between husband and wife. It will have to be reported as his income alone,” says Kaushik of Taxspanner. Likewise, income from investments made in the name of spouse and minor children will have to be added to the income of the giver.

Reconciling income and expenses
In recent years, the tax department has started examining expenses incurred by taxpayers. Rich taxpayers with a net taxable income of more than Rs 50 lakh in a financial year are required to also report details of specified assets such as land, building, movable assets, bank accounts, shares and bonds and the corresponding liabilities against those assets if any. Last year, it introduced a new Section E in the Form 26AS which mentions high-value transactions done during the year. These high-value expenses mentioned in the Form 26AS should match the income you declared in your return. “If a person spends Rs 10-12 lakh on his credit card and another Rs 3-4 lakh on foreign travel but declares an income of only Rs 6-7 lakh, the department will want to know how his expenses exceed his income,” says Maheshwari.

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