With the evolving tax landscape in India, choosing between the old and new tax regimes has become a critical financial decision for taxpayers. While the new regime offers lower tax rates, the old regime continues to provide a wide range of deductions and exemptions.
For FY 2025–26 (AY 2026–27), making the right choice can significantly impact your overall tax liability. This article provides a structured comparison to help determine which regime is more beneficial based on individual income profiles.
Understanding the Two Tax Regimes
Old Tax Regime
The old tax regime allows taxpayers to claim various deductions and exemptions, including:
Section 80C (LIC, PPF, ELSS, etc.)
House Rent Allowance (HRA)
Standard Deduction
Interest on Home Loan
New Tax Regime
The new tax regime is designed to simplify taxation by offering:
Reduced tax rates
Minimal exemptions and deductions
Simplified compliance
The new regime is now the default option unless the taxpayer chooses to opt out.
Tax Slab Comparison for FY 2025–26
Old Regime (Individuals below 60 years)
Up to ₹2.5 lakh: Nil
₹2.5 lakh – ₹5 lakh: 5%
₹5 lakh – ₹10 lakh: 20%
Above ₹10 lakh: 30%
New Regime
Up to ₹3 lakh: Nil
₹3 lakh – ₹6 lakh: 5%
₹6 lakh – ₹9 lakh: 10%
₹9 lakh – ₹12 lakh: 15%
₹12 lakh – ₹15 lakh: 20%
Above ₹15 lakh: 30%
Key Differences
Deductions and Exemptions
The old regime provides access to a wide range of deductions and exemptions, whereas the new regime allows only limited benefits.
Ease of Filing
The old regime involves more documentation due to multiple deductions. In contrast, the new regime offers a simplified filing process.
Suitability
The old regime is generally more suitable for individuals with significant investments and eligible deductions. The new regime is better suited for those who prefer a simplified structure with minimal tax planning.
Which Regime Should You Choose?
Old Regime may be preferable if:
Total deductions exceed ₹2–3 lakh
There is an ongoing home loan
Regular investments are made in tax-saving instruments
New Regime may be preferable if:
Simplicity and ease of compliance are priorities
Deductions are minimal or not actively claimed
Lower tax rates are preferred without investment obligations
Illustrative Example
Consider a salaried individual with an annual income of ₹12 lakh:
Under the old regime, if deductions amount to ₹2.5 lakh, the taxable income reduces significantly, potentially lowering the overall tax liability. Under the new regime, although deductions are not available, the reduced tax rates may still offer comparable or better outcomes.
A detailed calculation is recommended before making a final decision.
Important Considerations
Salaried individuals have the flexibility to switch between regimes each financial year.
Individuals with business income are subject to restrictions on switching regimes.
It is advisable to evaluate both regimes before filing the income tax return.
Conclusion
There is no universally optimal choice between the old and new tax regimes. The decision depends on an individual’s income structure, investment patterns, and financial objectives.
A careful evaluation of both options ensures that taxpayers can minimize their tax liability while remaining fully compliant with applicable regulations.
With the tax return filing season for financial year 2023-24 all set to begin, it is good to understand the various changes made in the tax return forms. The Assessment Year 2024-2025 brings with it several significant changes in the Income Tax Return (ITR) forms.
These modifications are aimed at simplifying the tax filing process and ensuring better compliance.
In this blog post, we will explore the crucial updates introduced in the ITR forms for the upcoming assessment year.
Changes in Income tax return forms for AY 2024-25
1. The new tax regime is the default tax regime; taxpayers must opt out to use the old regime
[ITR 1, 2, 3, 4, and 5]
The Finance Act 2023 has made the new tax regime under Section 115BAC the default for individuals, HUFs, AOPs, BOIs, and AJPs. Taxpayers who prefer the old regime must explicitly opt out of the new one in their tax return. Those with business income need to file Form 10-IEA by the due date if they wish to switch to the old regime.
2. Disclosure of the sum payable to MSME beyond the prescribed time limit
[ITR 3, 5, and 6]
The Finance Act 2023 added a new clause (h) in Section 43B, stating that any sum payable to a micro or small enterprise beyond the time limit specified in the MSME Act will not be allowed as a deduction. New ITR forms require the disclosure of such sums.
3. Assessee recognized as MSME and Disclosure of the sum payable to MSME beyond the prescribed time limit
[ITR 5 and 6]
The new ITR-5 mandates that an assessee should furnish information regarding its recognition status as a Micro, Small, and Medium Enterprise (MSME). It is also required to provide the registration number allotted as per the Micro, Small and Medium Enterprises Development Act, 2006. Additionally, the Finance Act 2023 added a new clause (h) in Section 43B, stating that any sum payable to a micro or small enterprise beyond the time limit specified in the MSME Act will not be allowed as a deduction. New ITR forms require the disclosure of such sums.
4. Reporting of all banks held at any time
[ITR 2, 3, and 5]
Taxpayers must now disclose all bank accounts held at any time, except dormant accounts, in the new ITR forms.
5. Details of Legal Entity Identifier (LEI)
[ITR 2, 3, 5, and 6]
The LEI is a 20-character code used to uniquely identify parties in financial transactions globally. The RBI mandates that any single payment transaction of INR 50 crores and above must include LEI information for both the sender and receiver. The new ITR forms now require taxpayers to provide their LEI details if they seek a refund of INR 50 crores or more.
6. Furnishing of due date for filing of return
[ITR 3, 5, and 6]
A new column in ITR forms now asks taxpayers to select the applicable due date for filing their return. The options available are July 31st, October 31st, or November 30th.
7. Individuals/HUFs liable for audit can verify ITR using EVC
[ITR 3]
Rule 12 has been updated to allow individuals and HUFs required to undergo tax audits under Section 44AB to verify their income tax returns using an electronic verification code (EVC), instead of only through a digital signature.
8. Furnishing of the reason for tax audit under Section 44AB
[ITR 3, 5, and 6]
New ITR-3 forms ask for additional details from taxpayers subject to audit under Section 44AB. These include the reasons for the audit, such as exceeding sales/turnover limits or not opting for presumptive taxation under Sections 44AD/44ADA/44AE.
9. Furnishing of acknowledgment number of the Audit Report and UDIN
[ITR 3, 5, and 6]
Taxpayers must provide the acknowledgment number and Unique Document Identification Number (UDIN) when reporting audits conducted under Section 44AB, including those under Section 92E.
10. “Receipts in Cash” column added to claim enhanced turnover limit
[ITR 3, 4, and 5]
The Finance Act 2023 increased the turnover limit for presumptive taxation under Section 44AD from INR 2 crores to INR 3 crores, provided cash receipts do not exceed 5% of total turnover. Similarly, Section 44ADA’s limit was raised to INR 75 lakhs from INR 50 lakhs under the same condition. The new ITR forms include a column for “receipts in cash” to reflect these changes.
11. Disclosure of information pertaining to the Capital Gains Accounts Scheme
[ITR 2, 3, 5, and 6]
Schedule-CG in ITR forms now requires more detailed information about sums deposited in the Capital Gains Accounts Scheme (CGAS), including the date of deposit, account number, and IFS code.
12. New Schedule 80GGC seeks details of contributions made to political parties
[ITR 2, 3, 5, and 6]
The new ITR forms now include Schedule 80GGC, which requires detailed information on contributions to political parties or electoral trusts, including the date of contribution, amount, transaction reference number, and bank details.
13. Schedule 80U inserted for claiming deduction if the assessee is a person with a disability
[ITR 3]
A new Schedule 80U has been added for claiming deductions under Section 80U for individuals with disabilities. It requires details such as the nature of the disability, date of filing Form 10-IA, and UDID number if available.
14. New Schedule 80DD seeks details towards maintenance & medical treatment of a person with a disability
[ITR 2 and 3]
The new ITR forms include Schedule 80DD for claiming deductions under Section 80DD for medical expenses or insurance premiums for family members with disabilities. It asks for information such as the nature of the disability, the type of dependent, and their PAN or Aadhaar number.
15. Reporting of dividend income derived from a unit located in IFSC
[ITR 2, 3, 5, and 6]
Section 115A has been amended to tax dividend income received from units in an IFSC at a reduced rate of 10%. The new ITR forms include this change in Schedule OS.
16. Schedule-OS includes an additional column for the declaration of bonus payments received under life insurance policies
[ITR 2 and 3]
Amendments in the Finance Act 2023 require the reporting of income from high-premium life insurance policies under Section 56(2). The ITR forms have been updated to include this in Schedule OS.
17. Reporting of sums received by a unitholder from the business trust
[ITR 2, 3, and 5]
Section 56(2)(xii) now includes the requirement for reporting sums received from business trusts by unitholders to avoid dual non-taxation. This change is reflected in the new ITR forms under Schedule OS.
18. Adjustment of unabsorbed depreciation from WDV of the block of assets as on 01-04-2023
[ITR 3 and 5]
Taxpayers opting for the Section 115BAC regime must adjust unabsorbed additional depreciation into the written down value (WDV) of assets as of April 1, 2023. Schedule DPM in the new ITR forms has been amended to reflect this change.
19. New Schedule 80-IAC seeks details in respect of eligible startup
[ITR 5 and 6]
The new ITR-5 includes Schedule 80-IAC, requiring startups to provide details such as the date of incorporation, nature of business, certificate number, first assessment year claiming the deduction, and the amount claimed.
20. New Schedule 80LA seeking details towards offshore banking unit or IFSC
[ITR 5 and 6]
A new Schedule 80LA in ITR-5 seeks details about deductions for offshore banking units or IFSCs, including the type of entity, type of income, registration details, and amount of deduction claimed.
21. New ‘Schedule 115TD’ inserted for reporting tax payable on accreted income
[ITR 5 and 6]
The new ITR forms include Schedule 115TD for reporting tax on accreted income for entities losing charitable status. This schedule requires details on the computation of accreted income and tax payable.
22. New field for opting concessional regime under Section 115BAE
[ITR 5]
A new field in ITR-5 allows resident cooperative societies engaged in manufacturing to opt for the concessional tax regime under Section 115BAE. The form requires the date of filing Form 10-IFA and its acknowledgment number.
Conclusion
The modifications in the income tax return forms for assessment year 2024-2025 reflect the Government’s commitment to simplifying tax compliance and enhancing transparency.
By understanding these changes and preparing accordingly, taxpayers can ensure a smooth and hassle-free filing experience. It is advisable to consult with a tax professional to navigate these updates effectively and make the most of the new provisions.
We hope you liked the post as much as we enjoyed researching and drafting it. Should you require any information/ clarification, please feel free to reach out to us at contact@vprpca.com.
Here is the question every CA student can associate himself with – “How will I manage CA studies, office, college, CA classes together?”
Quite a justified query. Articleship is no facile task.
You have to “manage” (allow me to explore this word later) your office work, clients, colleagues, CA classes, studies, friends, social media, college et cetera altogether.
Whoa. Seems like a mountain to climb!
I don’t think so.
Quite frankly, as an Article, I didn’t realize that I managed so many things until I was writing this blog. On the other hand, social media is full of memes and other content reflecting that life as an article is nothing but retribution.
As candidly I may put it, it is no punishment. Nah. Articleship is just a hard teacher. It makes you go through life-changing experiences and then says “Manage to survive or you won’t manage to survive”.
The principle of life is that every problem has a solution. Even the most daring goals can be achieved if you have the determination to do it.
If you really want to come out from articleship into CA as a polished professional, you cannot keep cribbing about life.
As the saying goes, there is no need to do different things to be successful, you just need to do things differently.
And this is what Articleship teaches you. Management.
I won’t take you back to our textbooks by defining management in the words of George Terry. Instead, let us look at management from the view of an Article.
Difficult to manage time for learning and maintaining contacts together? Network with people and engage primarily into technical conversations with them (don’t forget that you have the license to learn – You are an Article). This will ensure that your contact list keeps growing, but not at the cost of your learning curve.
Difficult to manage graduation studies and CA Final together? Most of college graduation studies form the preface of what we study at CA Final. So next time you think you are ‘forced’ to study B.Com., just read one chapter in the book assuming it as a prologue and move on to read the CA Final portion as well to get in-depth knowledge on the topic. Meets the purpose?
The situation is different for each of us. But then, the dictum remains the same – “Manage to survive”.
Don’t waste the best years of your life going with the flow of the crowd.
You have to find out ways to make things work. And all of this can only be brought about by keeping your head down and working hard.
This is why our profession invokes high respect from the society. Apart from the tough academic content in our course, the structure is such that hardwork and sincerity is imbibed in every individual who has fully undergone the course.
To sum it up, articleship is not a cakewalk. Not at all. It is your perspective that matters the most.
India of the 21st century is a dream for any aspiring business owner.
There are many different ways and forms of entity to do business in India, because of which people who are interested to start their own business may get confused regarding which type of entity to choose. Hence, to remove the confusion regarding the types of entity to choose, let us discuss the tax and legal compliances that different type of entities have to follow, giving the intended user the proper view, by which he will be able to decide which form of entity will suit best for him.
First let us see the types,
The types of entities generally used to start a business are:-
1. Sole proprietorship
2. Partnership firm
3. Limited Liability Partnership (LLP)
4. Private limited company
Sole proprietary concern:-
Sole proprietary concern is a business organization which is owned, controlled and managed by a single person.
It is a business which is operated at a small scale and hence the rules and regulations relating to sole proprietorship are minimal as compared to other forms of businesses.
To start a sole proprietary firm, the incorporation expenses are very low and less time consuming.
The liability of the proprietor is unlimited (means liability can go up to personal assets).
There is no requirement of initial capital in this case, being a sole owner results into very low scalability.
Proprietary firm is eligible to get registration for ESIC (Employee State Insurance Corporation), EPF (Employee Provident Fund), shops and establishment registration, but on the other hand he is not eligible for benefits under the startup scheme. Sole proprietary firm is eligible to be registered under MSME development Act 2006 (Micro, Small and Medium enterprises).
There is no prescribed limit as to registration of sole proprietorship under GST but registration will be required as per the basic limits of GST (for e.g. when sales of goods exceeds ₹40lakhs or interstate supply and such other rules).
The proprietor is under no obligation for statutory audit, but he will be required to do tax audit if turnover exceeds 1 crore in the previous year, in case transactions is > 95% are non-cash (online) than the limit is increased to 10 crores.
The entity can get registered under presumptive taxation i.e. tax payable at lower rates (i.e. 8%/6%) if the turnover is within the prescribed limit, if not covered under this, than tax payable as per slab rates for the business as well as the owner of the entity.
A proprietor will not be willing to withdraw salary for himself as he can reinvest the same to grow the business, however, drawings are allowed.
Hence, sole proprietorship is good in terms of compliance, low cost and time for incorporation but in this growth is the constraint.
Partnership firm –
A partnership firm is governed by Indian Partnership Act 1932, where two or more people come together to start a partnership firm, and these people are known as partners.
Partnership can be of 2 types-
1. Registered partnership firm; and
2. Unregistered partnership firm.
It is easy to form a partnership firm as the legal compliances are less as compared to company. The growth of the firm is very limited. Every partner shall bring capital into the firm for the initial capital requirement.
The liability of the partners in the partnership firm is unlimited (means it can extend to their personal assets). Same as sole proprietary, partnership firm can also get registration under ESIC, EPFO, and shop and establishment, Micro, Small and Medium enterprise (MSME) Act 2006 and will also be eligible for benefits of startup scheme if it is an eligible startup as prescribed.
GST registration is not mandatory to partnership firm but it is decided upon the limits on turnover as per the GST Act 2017. There is no requirement of audit to a partnership firm but tax audit will be applicable if turnover exceeds 1 crore in previous year but, if the aggregate turnover >95% is non cash than the limit will be 10 crores. It can apply for presumptive taxation if the amount is lower than the prescribed limit.
The tax rate applicable to a firm is 30% and if Turnover greater than 1 crore than surcharge of 12% and health and education cess of 4 %, the total of which comes to 34.944%
Remuneration to the partners in the firm is subject to a limit as per the Income-tax Act 1961 and the same will be allowed as deduction to the partnership firm and some more benefits on tax deduction are allowed to the registered firm. The remuneration and such other incomes received (except for profit) from the firm will be the taxable in the hands of partners.
Limited liability partnership –
Limited liability partnership is a kind of corporate version of a partnership firm.
The big change is, the liability of the partner is limited to the extent of contribution and cannot extend to their personal assets. The LLP is a separate legal entity different from its members.
The firm requires initial funds for incorporation and various other activities which is bought by the partners. LLP has great potential and as a result the growth in this type of firm is higher than the previous two types, though the incorporation expenses are relatively higher.
LLP can get benefits of startup scheme as it is eligible to be one. It can get registration under ESIC, EPFO, Professional tax, shops and establishment also it can get registered under MSME ACT by fulfilling the necessary condition. There is no specific law for LLP under GST hence, no compulsory registration, but if it crosses the prescribed limit than registration is necessary.
The expense for compliance of law, annually is a bit higher than the other two mentioned above, it shall have to conduct statutory audit if its turnover is greater than ₹ 40 lakhs in a year. Tax audit will be applicable similarly as above (will be applicable if turnover exceeds 1 crore in previous year but, if the aggregate turnover >95% is non cash than the limit will be 10 crores.). LLP cannot opt for taxation under presumptive basis as it is specifically removed from the sectionand has tax at a rate similar to that of a partnership firm i.e. 34.944%.
Hence, LLP is a firm where the expenses for incorporation and such other for compliance are higher than the two previously mentioned but it is also better than those two in many terms.
Private limited company –
A private limited company is an entity incorporated for the purpose of doing business. The process of incorporating a company is comparatively expensive as well, that is why to pay the expenses it requires initial capital. It is one of the most popular type of entity to do business in India and every year thousands of companies get incorporated. The liability of members of a private limited company is limited to the extent of shares held by them. Being a company it enjoys perpetual succession and can raise funds through various kind as a result of which it can expand its business very well.
In private limited company there is one type i.e. One Person Company (OPC), so OPC is again a kind of sole proprietorship but in the form of company and has a nominee. This type of company is suitable for small business, lack of management skill as one person cannot be good at all part of business all these acts as growth constraint. The compliance of an OPC is minimal as compared to a private limited company
A company can get registered in EPFO, ESIC, Shops and establishment, professional tax and such other things as it will employee people, it becomes necessary to get registered under such funds, have its own bank account, GSTIN if required. A private company can get registered under MSME act and can also avail benefits under Startup scheme.
A company has to comply with various rules such as appointment of auditor, annual ROC filling, Board meeting, annual general meeting if applicable, tax audit, maintenance of records for the period prescribed. It cannot opt for presumptive taxation, as the LLP and a Company are specifically removed from the section. Income tax rate applicable for a company is 25.168% as per sec 115BAA and 17.16% as per sec 115BAB. There is no restriction on amounts of remuneration to owners and at the same time it is deductible to the company, but it will be taxable to the owner (salary, dividend received and such other amounts as prescribed)
To conclude, there is no one-size-fits-all approach. The right type of entity depends on the type of business, scalability, capital etc!
It is best to seek professional advise on structuring the entity before incorporating the business.
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Should you require any further information or clarification, please get in touch with us at contact@vprpca.com
The concept of brand valuation has gained significant importance in recent years due to the increased awareness of the value of intangible assets. A brand is one of the most valuable intangible assets a company can possess. It represents the identity and reputation of the company in the market, and therefore, it is essential to measure its financial value. Brand valuation is the process of determining the monetary value of a brand. In this article, we will explore the different methods used for brand valuation and the importance of brand valuation for businesses.
The Importance of Brand Valuation
Brand valuation is essential for several reasons. Firstly, it helps companies understand the financial value of their brand. Knowing the value of their brand can help companies make better business decisions. For example, a company may use the value of its brand to negotiate better terms with suppliers or attract investors. It can also help companies prioritize investments in brand-building activities.
Secondly, brand valuation helps companies measure the effectiveness of their branding efforts. By comparing the value of the brand before and after a marketing campaign, companies can determine the impact of their efforts on the brand’s value. It can also help companies identify areas where they need to focus their branding efforts.
Thirdly, brand valuation can be used to identify potential risks to a brand’s value. For example, if a company operates in a highly competitive industry, it may be at risk of losing market share to its competitors. By regularly valuing the brand, companies can identify potential risks and take corrective action to protect the brand’s value.
The Methods of Brand Valuation
There are several methods used for brand valuation. The most common methods are as follows:
1. Cost-Based Method
The cost-based method involves estimating the cost of creating a brand from scratch. This includes the cost of developing a name, logo, and other branding elements, as well as the cost of marketing and advertising. This method is usually used when a brand is new or when the brand’s value is not well-established.
2. Market-Based Method
The market-based method involves analyzing the prices of similar brands in the market. This method is based on the assumption that the value of a brand is determined by the price that consumers are willing to pay for similar brands. This method is commonly used in industries such as real estate, where the value of a property is determined by the prices of similar properties in the same area.
3. Income-Based Method
The income-based method is the most commonly used method for valuing brands. This method involves estimating the future earnings that are attributable to the brand and discounting those earnings to their present value. This method is based on the assumption that the value of a brand is determined by its ability to generate future earnings.
There are two main approaches to the income-based method:
a. Relief from Royalty Method
The relief from royalty method involves estimating the royalties that a company would have to pay if it were to license the use of the brand to a third party. This method is based on the assumption that the value of a brand is determined by the amount of money that a company would save by owning the brand instead of licensing it.
b. Multi-Period Excess Earnings Method
The multi-period excess earnings method involves estimating the future earnings that are attributable to the brand and discounting those earnings to their present value. This method is based on the assumption that the value of a brand is determined by its ability to generate future earnings, as well as its ability to generate excess earnings.
Factors Affecting Brand Valuation
Several factors can affect the value of a brand. Some of the essential factors are as follows:
Brand Awareness
Brand awareness refers to the degree to which a brand is known by potential customers.
The level of brand awareness is a significant factor in brand valuation. A brand that is widely recognized and has a positive reputation is likely to have a higher value than a brand that is relatively unknown or has a negative reputation. Companies can increase brand awareness through various marketing and advertising efforts, such as social media, search engine optimization, and content marketing.
2. Brand Loyalty
Brand loyalty refers to the degree to which customers are willing to purchase a particular brand over other brands. A brand with a high level of loyalty is likely to have a higher value than a brand with a low level of loyalty. Companies can increase brand loyalty by providing high-quality products or services, offering excellent customer service, and creating a positive brand image.
3. Market Position
The market position of a brand is another essential factor in brand valuation. A brand that is a market leader in its industry is likely to have a higher value than a brand that is a follower or a new entrant. Companies can improve their market position by offering unique products or services, having a strong brand identity, and providing exceptional customer service.
4. Financial Performance
The financial performance of a company is also a critical factor in brand valuation. A company that has strong financial performance, such as high revenue and profits, is likely to have a higher brand value than a company with weak financial performance. Companies can improve their financial performance by implementing effective cost management strategies, expanding their product or service offerings, and increasing their market share.
5. Competitive Environment
The competitive environment in which a brand operates is another critical factor in brand valuation. A brand that operates in a highly competitive industry may have a lower value than a brand that operates in a less competitive industry. Companies can improve their competitive position by developing innovative products or services, offering superior customer service, and creating a strong brand identity.
Conclusion
Brand valuation is an essential tool for companies to understand the financial value of their brand. There are several methods used for brand valuation, including cost-based, market-based, and income-based methods. The income-based method is the most commonly used method and involves estimating the future earnings that are attributable to the brand and discounting those earnings to their present value.
Several factors can affect the value of a brand, including brand awareness, brand loyalty, market position, financial performance, and the competitive environment. Companies can improve the value of their brand by implementing effective marketing and advertising strategies, providing high-quality products or services, offering excellent customer service, creating a strong brand identity, and improving their financial performance.
In today’s highly competitive business environment, companies must have a clear understanding of the value of their brand. By valuing their brand regularly and taking steps to improve its value, companies can maintain a competitive advantage and achieve long-term success.
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Should you require any further information or clarification, please feel free to get in touch with us at contact@vprpca.com
Finance Bill 2023 has been passed in the Lok Sabha today (24th March, 2023) with 64 amendments proposed to the Bill.
There are a few last-minute changes and were not originally part of the proposals during the Union Budget.
A few key amendments to the Finance Bill 2023 are as follows:
1. Increase in tax rate for Royalties and Fees for Technical Services under the Income-tax Act, 1961
The tax rate under section 115A of the Act for taxation of royalties and fees for technical services is 10%. Based on the amendment passed in the Lok Sabha, the rate is proposed to be increased to 20%. This rate will further be increased by applicable surcharge and cess.
This will result in more claim of tax treaty benefits as most international treaties provide a tax rate of 5% or 10% or 15% (which are more beneficial than the new rate of 20%). Further, tax treaty rates are not increased by surcharge and cess.
Thus, even the withholding tax rates and related compliances will increase.
The impact of this will be that the cost of importing technologies as most Indian deductors have to withhold tax on a gross-up basis.
2. Removal of indexation benefit for debt oriented mutual funds
If any mutual fund has Assets under Management (AUM) less than 35% in equity instruments, then it will be classified as a debt-oriented mutual fund.
Further, irrespective of period of holding, the income will be taxed as per slab rates without any indexation benefit (in line with the tax treatment of Fixed Deposits).
3. Income from (Real Estate Investment Trust) REITS/InvITs (Infrastructure Investment Trusts) to be taxed as Income from other sources rather than being taxed as Capital gain.
4. There has been a 25% hike in the STT (Security Transaction Tax) on options.
5. Offshore banking units operating in Gift city (Gujarat International Finance tec-city) to get 100% deduction on income for 10 years.
The Finance Bill 2023 is currently pending before the Rajya Sabha. Once it is passed by the Rajya Sabha, it shall become a law upon receiving Presidential assent.
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Should you require any further information or clarification, please reach out to us at contact@vprpca.com
Today, we look at one amendment which proves that the Government is proactively reading news articles.
What is the law now?
If you sell a residential house or shares in a company and earn huge capital gains, then you are liable to pay capital gains.
But if you invest the money in a residential house (subject to few conditions), the entire amount of capital gains would be tax exempt.
This provision was originally introduced in order to ensure availability of housing for everyone.
But, the super rich were misusing it to save tax.
There were news reports everyday that various super rich businessmen and startup owners were buying luxurious house properties worth tens of crores in a South Mumbai/ Delhi etc
They were using this exact exemption to avoid capital gains taxes on sale of the shares in their startup.
Since they were technically investing in a residential house, they were not liable to capital gains tax.
What is proposed by Budget 2023?
The capital gains exemption cannot exceed INR 10 crores. So the taxpayer will end up paying capital gains tax on the amount exceeding Rs 10 crores.
Observations/ Verdict –
This is a favourable amendment from the Treasury’s perspective but raises a few important questions –
1. The market for luxury homes is already stagnant (the supply is much higher than the demand). This amendment will affect the market even further w.e.f 1 April 2023.
2. Section 54/ 54F provide for withdrawal of exemption in case the new asset (residential house) is sold within 3 years i.e. the cost of acquisition of the house will be considered as 0. If the asset (where cost is restricted to INR 10 crores) is sold within 3 years, the taxpayer will have to pay taxes on the entire sale consideration, which does not seem to be the intent of the law. A consequential amendment should be made in this provision as well.
3. Seemingly, the limit of INR 10 crores is per person and not per asset. So if an asset which was held in a joint ownership is sold and a new asset is purchased in joint ownership too, it will prompt misuse of this exemption which is not line with the Government’s intention.
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Stay tuned for such insight in our Budget 2023 Series! The author can be reached at vijay@vprpca.com.
“So good that the only question remains – Pehle kyu nahi kiya?”
Today, let us look at one of the most beneficial amendments (on a ground level) proposed in the Budget 2023.
Let us take a scenario.
Mr. Raman is running a business providing professional services. He raises an invoice of Rs 1,00,000 on Mr. Modi for providing financial planning services on 25 March 2022.
But Mr. Modi is a busy man. He settles the invoice only on 25 October 2022. He pays Mr. Raman Rs 90,000 (after withholding TDS at the rate of 10% – INR 10,000)
Mr. Raman follows accrual basis of accounting. So, he had to record the invoice dated 25.03.2022 in FY 2021-22 itself and offer it to tax.
Mr. Modi however follows cash basis of accounting. He recognised the expense of Rs 1,00,000 in FY 2022-23 i.e. on the actual date of payment. Consequently, TDS was deposited in Q2 of FY 2022-23.
As per existing Income tax Rules, Mr. Raman can claim credit of TDS (Rs 10,000) only in the year when he offers the income to tax i.e. FY 2021-22.
But the TDS was actually withheld and deposited in FY 2022-23. Thus, the credit will reflect in Form 26AS only in FY 2022-23.
Due to this rule, Mr Raman cannot claim TDS credit in FY 2022-23, since he is not offering the income to tax in that year!
This was absurd – as the taxpayer was paying the same amount twice.
This problem was arising when the assessees were following different methods of accounting or there was a difference in recording the entries.
Practically, what was happening –
1. On advice from their CAs, people like Mr. Raman would defer their invoice date to FY 2022-23 and claim TDS credit in that year; or
2. People would go ahead and claim the TDS credit of INR 10,000 in FY 2022-23 itself. If caught or served with tax notices, they would have to pay the tax.
3. (Rare) On bad tax advice, people would claim fictitious TDS credit of Rs 10,000 in FY 2021-22 itself. This would usually result in direct notice from Income Tax denying the TDS credit (as it was not reflecting in Form 26AS).
As you can see this rule was absolutely unnecessary and unfair. The taxpayer should not pay double tax for some administrative fault.
The validity of this Rule was contested in the Courts as well.
Now, Budget 2023 has rectified this –
Where income is included in the ITR filed by the assessee and tax is deducted in subsequent years, then an application can be filed by the assessee within 2 years from the end of FY in which TDS was withheld.
So, in our example, Mr. Raman can file the form (to be prescribed) with the tax officer by 31 March 2025 (since tax was deducted in FY 2022-23).
What if scrutiny assessment has already taken place or intimation under section 143(1) is already issued? Nowadays, intimations and refunds are processed within 24 hours of filing the returns!
No worries, the law requires the tax officer to pass a rectification order. In that rectification order, the tax officer will grant TDS credit which will be then received by the assessee.
Overall, this is one of the most beneficial amendments on the ground level.
The author concurs with this view and would only point out one thing –
The real efficacy of this provision will lie in the application form (yet to be prescribed) and required supporting documents. Hopefully, it is in faceless mode.
Secondly, the tax officer would want to verify the genuineness of the transaction. Hopefully, this does not require any indemnity bond to be executed (it unnecessarily increases hassle and cost).
After all, this is a routine and recurring issue. It deserves a simple way out.
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Stay tuned for such insight in our Budget 2023 Series! The author can be reached at vijay@vprpca.com.
Budget 2023 Series #2 – Tax collection at source for overseas tours and remittances
“Kahin pe nigaahein, kahin pe nishaana”
Today, we look at one of the most controversial proposed amendments in Budget 2023.
Currently, section 206C(1G) of the Income-tax Act, 1961 provides TCS provisions at –
– 5% for any overseas tour packages
– 5% for any foreign remittances under Liberalised Remittance Scheme (LRS) above Rs 7 lakhs per year in aggregate
TCS functions in a way that the receiver of income adds the specified percentage (5% in our case) to the invoice value and deposits it with the Government.
So, any one buying a foreign tour worth Rs 10 lakh for their family would have to effectively pay Rs 10.5 lakhs (Rs 10 lakh + 5%). The credit for this Rs 50,000 can be claimed while filing the income tax return.
Now, Budget 2023 proposes to revise these limits to-
– 20% for overseas tour packages
– 20% for LRS remittances without any threshold limit (except for medical and educational purposes)
These are highly controversial just due to the sheer magnitude of the change.
Let’s break them down individually –
LRS remittances
Under Foreign Exchange Management Act, 1999, an Indian resident can remit amounts overseas upto USD 2,50,000 per year (approx. INR 2 crores) without approval of the RBI.
Remittances under LRS are made for various purposes like foreign education, medical treatments, investments in foreign real estate or foreign stocks, transferring money to relatives etc
The Income-tax law is already levying TCS of 5% on remittances above INR 7 lakh.
By increasing the rate from 5% to 20%, the Government is deviating from the intention of these TCS provisions.
The reason for introduction of TCS on these transactions was that the Income tax Department could monitor and track the foreign remittances.
Fair enough.
The intention was never to block the money involved in such remittances.
But now, the intention seems to have moved away from “tracking” and is now to “redirecting” funds into India itself.
But this will have far reaching negative consequences as well
For instance, if Mr. Nirmal is sending Rs 10 lakh for living expenses to his daughter Ms. Sitha who is studying abroad. He would now have to remit Rs 12 lakh for this!
Increasing rate of TCS on LRS remittances is surely a weird way of saying “Invest in India”.
Overseas tour packages
The Government brought the earlier TCS of 5% for dual reasons –
1. Collect data of individuals going on foreign trips (one can argue that linking passport with PAN would have been an easier route)
2. Discourage foreign tourism by blocking 5% of TCS (thereby promoting domestic tourism)
While the first objective was fulfilled, the second objective could not be fulfilled.
The number of Indians flocking abroad has skyrocketed, especially in the aftermath of Covid lockdowns.
So, what was the only route to promote domestic tourism?
No, it was not to develop better infrastructure or provide incentives to develop the tourism industry!
Instead, it is to put a larger dent in the pockets of the middle class looking for a luxurious vacation.
To put it in numbers in terms of the above example, anyone paying Rs 10.5 lakhs for a foreign tour would now have to pay Rs 12 lakhs for the same package.
This is aimed to promote domestic tourism instead of going on foreign tours.
Let’s put this into perspective –
I went on a solo trip to Kedarnath last year. While it was thoroughly enjoyable due to the sheer divinity in the place, I would not recommend anyone to visit Uttarakhand on a solo trip.
The infrastructure is really poor and in the name of tourism, people are trying to loot every penny from tourists.
I was blessed to have met locals in Uttarakhand who guided me correctly and saved me from being overcharged or misdirected. But everyone may not be this lucky.
There is no security or regulation to control the miscreants and the law enforcement is usually hand in glove with them.
And I am Indian; I can only imagine what poor foreign tourists would be going through.
Forget attracting foreign tourists, the current status of our tourism infrastructure is in shambles.
I do not mean to sound negative or condemn the beauty of India.
I have been to the Swiss as well and can say with pride that the views in Kashmir and Uttarakhand are no less.
But a good view and climate is not the driving force for tourism development.
For tourism to flourish, the Government should focus on building a better infrastructure rather than making foreign travel more expensive.
So, when the Government is proposing the said amendment in TCS regulations, the rich businessmen would not mind this much – they would pay lesser advance taxes instead.
But the salaried middle class will stand to lose the most.
The Government is literally holding a gun to their head – either shell out more money or “enjoy” your vacations in India (at your own risk).
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Stay tuned for such insight in our Budget 2023 Series! The author can be reached at vijay@vprpca.com.
