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In India, there are more than 6 crore (60 million) personal income-tax return filers and the total personal tax collection for the financial year 2021-22 is budgeted at INR 5,61,000 crore ($ 74 billion). The entire process of income tax returns (ITR) filing, processing by the tax authorities, reasons for selection of cases for assessment and issuance of refunds has undergone a massive change. Hence, it is important for the tax filers to understand key changes:
a. The entire process of return filing has been digitized and the returns need to be submitted electronically (with the exception of very senior citizens above 80 years of age). The processing of tax returns has been automated and refunds are issued where there are no mismatches or issues requiring verification/scrutiny.
b. The tax authorities are using data analytics tools for this purpose. There is an integration and sharing of data seamlessly between the income tax department, Indirect taxes department (GST/customs) and other regulators. There is a greater exchange of Information agreement with other countries for cross border data sharing and exchange.
c. Access to the taxpayer’s financial information through the comprehensive data repository in the form of Form 26AS and the newly introduced Annual Information System (AIS) from the financial year 2020-21.
As such, it would be prudent for the taxpayers to ensure the correctness and completeness of the tax return filed by them to reduce the probability of the return getting selected for assessment and to ensure that there is no under reporting or mis reporting of income. This will also result in expeditious issues of refunds where applicable.
The Finance Act, 2020 introduced a new concessional personal tax regime under Section 115BAC of the Income Tax Act, 1961 (hereinafter referred to as “the IT Act”), which provides an option for individual taxpayers to avail the benefit of concessional tax rates by way of foregoing certain specified deductions.
You will need to evaluate in your case whether it is more beneficial to you to opt for the new regime or to the old regime by computing tax payable under each regime and the investments required.
The individual taxpayers would be able to claim the benefit of beneficial tax rates as below:
|Total Income||Rate of Tax*|
|In INR||New Tax Regime||Old Tax Regime|
|Up to 2,50,000||Nil||Nil|
|From 2,50,000 to 5,00,000||5%||5%|
|From 5,00,001 to 7,50,000||10%||20%|
|From 7,50,001 to 10,00,000||15%||20%|
|From 10,00,001 to 12,50,000||20%||30%|
|From 12,50,001 to 15,00,000||25%||30%|
|*Rate of tax excluding surcharge and health and education cess, which will continue to be applicable under both the regimes|
For ease of reference, the taxpayers can refer to the below table for the indicative comparative illustration under both the tax regimes (for financial year 2021-22):
|Annual Income||New Tax Regime (No deduction available)||Old Tax Regime (No deduction considered)||Benefit as per the new regime|
|(INR)||Tax Rate (%)||Tax Amount (INR)||Tax Rate (%)||Tax Amount (INR)||(INR)|
Deduction u/s 80C: Section 80C provides for deduction with respect to the certain specified investments or expenses incurred by the taxpayer, such as:
The cumulative limit for deduction is capped at INR 1,50,000 per annum. In case you are not opting for the new concessional tax regime, you need to make these investments before March 31, 2022.
Section 80CCD (1B) of the IT Act provides for additional deduction of INR 50,000/- in addition to the above referred deduction on contribution made to the national pension scheme (NPS).
a. Reinvestment benefit u/s 54F on capital gains (other than on sale of residential property)
The taxpayer may avail exemption on the long term capital gains derived from any capital asset (other than residential house property) by way of reinvesting in house property i.e. purchasing/constructing one residential house property in India.
Such investment should be made either one year before the date of transfer of the capital asset or within two years after the date of transfer (in case of purchase) or within three years after date of transfer (in case of construction). Such new residential house property should not be transferred before three years.
Further, it is pertinent to note that the taxpayer should not own more than one residential house property on the date of transfer of capital asset other than the new residential house property i.e. the taxpayer should not be holding more than two house properties.
b. Adjustment of carried forward losses and time limit
In case you have carried forward losses on account of income from house property or capital losses (short term or long term), the same may be eligible for set off for a period up to eight years subject to specified conditions.
You should check your earlier years’ tax returns for this purpose and in case you have unadjusted losses for the current year, you should carry forward the same for future set off.
In accordance with section 54 of the IT Act, the capital gain arising from the transfer of a residential house which has been held for more than two years (long-term capital asset) can be claimed as an exemption if the taxpayer seller reinvests the same in purchase or construction of one residential house in India.
The investment must be made within a period of one year before or two years after the date on which the sale took place in case of purchase, or a period of three years after the date on which the sale took place in case of construction.
Unlike section 54F, the investment required is only of the capital gains and not the net sale proceeds. The new residential house would be subjected to a lock in of three years and cannot be sold during such period.
Also, an individual is permitted to invest in two residential houses in India where the amount of the capital gain does not exceed INR 2 crore.
Section 54EC of the IT Act provides for exemption of capital gains derived from sale of long term immovable property constituting land, building or both provided such capital gains are reinvested in specified bonds including NHAI, RECL, PFCL or IRFC bonds.
Such investment is required to be made within six months from the date of transfer and the maximum exemption limit would be INR 50 lakh. Such investment in bonds would be subjected to a lock-in period of five years.
The loss under the “house property” head would be allowed to be set off against any other head only to the extent of INR 2,00,000 (w.e.f. AY 2018-19). However, any unabsorbed loss of the said head would be allowed to be carried forward for up to eight subsequent assessment years wherein only intra head adjustment of such loss would be possible i.e. no such house property loss could be set off against any other head of income other than house property.
It is pertinent to note that unlike other losses, the house property loss would be allowed to be carried forward even if the return has been filed belatedly i.e. after the due date prescribed in Section 139 of the IT Act.
In accordance with section 194-IA of the IT Act, the buyer of the property would be required to deduct tax at the rate of 1% while making payment to the resident seller where consideration for the transfer of immovable property (land or building or both) is INR 50 lakh or more.
Such buyer would, thus, be obliged to furnish a TDS certificate in Form 16B to the seller based on which the seller can claim the credit for the taxes deducted at the time of filing his tax return for such a year.
Where the seller is non-resident, Section 194-IA would not be applicable and the buyer has to deduct tax as per the specified rate under Section 195 of Income-tax Act, 1961 before making remittance to the non-resident.
The buyer would also be required to obtain a 15CB certificate from a chartered accountant. The seller has an option to apply for lower deduction certificate (commonly referred to as LDC) for the purpose of ensuring that the tax deducted on the capital gains is deducted at the applicable rates to the taxpayers and not at the higher rates.