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Income Tax Interest Penalty Sections 234A, 234B, 234C

Income Tax Interest Penalty for Late Filing | Sections 234A, 234B, 234C

Leave a Comment / Income Tax / By / January 10, 2024

Interest Penalty Under Sections 234A, 234B, 234C: Paying Income Tax is a must for all individuals who are qualified to pay the tax. Any individual failing to pay income tax online is liable to pay the penalty or fine. Thus it is important for all individuals to pay income tax within the time frame specified by the officials.

However, many of the individuals might end up not paying the income tax on time due to some or other reason. And if any individual comes across this situation, then he/she will have to pay an interest penalty. This interest penalty is calculated namely under 3 sections namely 234A, 234B, and 234C. Income Tax sections 234A, 234B, and 234C vary from to another and we have explained each section in detail on this page. Read on to know what is the Income Tax Penalty Interest For Late Filing is calculated under Sections 234A, 234B, 234C.

How Much Is Interest And Penalties On Taxes?

The interest and penalties on taxes are calculated under sections 234A, 234B, 234C. Each section varies from one to another. So before calculating the interest or penalty of income tax, one will have to check the section under which they are falling for. The details of each section are given below:

  1. Section 234A – For delay in filing the income tax
  2. Section 234B – For incomplete payment of tax
  3. Section 234C – For delay in periodic payment of tax

Free 234A 234B 234C Interest Calculator

Section 234A of Income Tax Act For AY 2020-21

Any individual who files the income tax after the timeline specified by the officials will have to pay the income tax interest penalties as per section 234A. Basically, the income tax should be paid by the individual before the end of a financial year. Thus it is important for individuals to pay the outstanding tax and file the Income Tax Returns on or before the specified time frame.

However, if an individual misses the timeline specified by the officials, then he/she is imposed with a simple interest charge of 1% per month for the outstanding tax amount. This simple interest is calculated from the due date of filing IT returns till the date of the return is filed.

Note: The interest under Section 234a is calculated on the basis of simple interest only.

Section 234A Calculation of Interest Penalty

Let’s understand how income tax penalties and interest are calculated under Section 234A with an example.

How is 234A Calculated?

Assuming, Mr.Kumar is an individual who has to pay the outstanding tax amount of 3 Lakhs. The due to file his tax return was on 31st July. But Mr.Kumar missed to file the ITR on 31st July and now he is filing the ITR on 15th January. Here Kumar is late by 6 months to pay the income tax. Now the penalty for Kumar is calculated as follows:

Interest = 300,000 x 1% x 6 = Rs. 18,000

As per the calculation, now Mr.Kumar will have to pay Rs.18,000 extra as a penalty or interest above the income tax amount.

Section 234B of Income Tax Act for AY 2020-21

If any individual is liable to pay a tax of Rs. 10,000 or more in a particular financial year, then the advance tax is applicable. Here the term “advance tax” refers to paying your tax debts in advance of the income tax department’s deadlines (usually quarterly). Failing to pay advance tax on time will subject to interest or penalty under section 234B if you do not pay advance tax.

These Advance taxes are tax liabilities that are incurred at a certain time interval and are administered by the Income Tax Department. Advance tax is payable by businessmen, self-employed professionals, and salaried workers when the tax payable exceeds Rs 10,000.

Basically, here the individual should have paid at least 90% of the total tax payment before the financial year ends. Any individual failing to pay the tax whose amount is more than 10% of the liability, then 1% of simple interest or penalty is charged by the officials under the Income-tax act section 234B.

However, any individual who liable to pay tax can opt under computing business income whose turnover expected to be 8 percent can be exempted from paying the advance income tax. Also, senior citizens or 60 years+ who don’t have income will also be exempted under this section.

Section 234B Calculation of Interest Penalty

Let’s understand how income tax penalties and interest are calculated under Section 234B with an example.

How is 234B Interest Calculated?

Pavan was supposed to pay a total tax of 2 Lakhs for the current financial year. TDS  equal to the income tax of Rs.1,82,650 was deducted from Pavan’s income regularly. In the month of March, Pavan paid Rs.8000 and the remaining balance amount of Rs. 9,350 was paid in the month of June. Now the penalty or interest on income is calculated under section 234B is given below:

Assessed Tax = Total Tax – TDS

= Rs 2,00,000 – Rs 1,82,650

= 17,350

90% of 17,350 = 15,615

Out of 15,615, Pavan has already paid 8000

Now the interest penalty is calculated as:

Rs. 15,600 x 1% x 3 months

= 468

Now, Pavan is liable to pay Rs.468 as a penalty under section 234B on the interest of the assessed tax.

Note: Here we have considered Rs.15,615 as 15,600 since calculations are considered as round figures. 

Section 234C of Income Tax Act for AY 2020-21

As discussed above any individual will have to pay income tax on time before the financial year ends. Failing to pay income tax on time will cost penalty interest of the assessed tax. The important dates within which the advance tax can be paid for the particular financial year are tabulated below:

Category Income Tax Due Date
Corporate taxpayer – 15% of advance tax Before 15th June
Corporate (45% of advance tax) and Noncorporate taxpayer (30%) Before 15th September
Corporate (60% of advance tax) and Noncorporate taxpayer (75%) Before 15th December
Corporate and Noncorporate taxpayer  – 100% tax advance Before 15th March

Section 234C Calculation of Interest Penalty

Simple interest of 1% per month is imposed who fail to pay the tax on time till the date of actual payment. After the tax deductions under Sections 90, 91, and 115JD, the amount to be paid is determined. Under Section 234C, the interest penalty is determined as follows:

How do you calculate 234C?

The calculation of 234C for Corporate and Non-Corporate are explained in detail below:

Section 234C Calculation for Non-Corporate Taxpayer

  1. For advance tax less than 30% of the amount payable on or before 15th September, a 1% interest rate per month for a period of three months is calculated.
  2. If the amount of advance tax paid on or before December 15 is less than 60% of the taxable amount, interest of 1% per month will be charged for the next three months.
  3. A basic interest rate of 1% per month is calculated for amounts less than 100% of the advance tax paid on or before March 15.

Section 234C Calculation for Corporate Taxpayer

  1. If 15% of the sum is deposited on or before 12th June and the advance tax is less than 12%, an interest rate of 1% per month for three months will be levied.
  2. If 45 percent of the tax is deposited on or before September 15 and the advance tax is less than 36 percent, a penalty of one percent of the interest per month is levied for three months.
  3. When a tax of 75% is paid before December 15 and the payable amount is less than 75%, a simple interest rate of 1% per month is calculated for a period of three months.
  4. A simple interest of 1% is levied when the amount of advance tax to be paid is less than 100% of the amount already paid as tax.

FAQ’s on Sections 234A, 234B, 234C

The frequently asked questions on interest penalty on Income Tax are given below:

Q. Where do I find the advance tax penalty calculator?
A. The officials of Income Tax India have come up with a free advance tax penalty calculator service on their official website. Any individual will be able to calculate their advance tax with the help of the official calculator. To access the advance tax penalty calculator, Click Here.

Q. What if the advance tax due date is Sunday?
A. If you find the due date is Sunday or a government holiday, then he/she can deposit the tax on the next working day.

Q. What is 234a 234B 234C interest?
A. 234A, 234B 234C are the sections of the Income Tax Act, which is applicable for any individual who fails to pay the tax on time. Each section varies from one to another and a detailed explanation about each tax can be found on this page.

Now that you are provided with all the necessary information on calculating interest 234a, 234B, 234C with an example. We advise you to pay all the advance tax on time to avoid penalties. If you have any questions about income tax interest penalties, ping us through the comment box below and we will get back to you as soon as possible.

Maintenance of Accounts Section 44AA

Maintenance of Accounts Section 44AA | Who Need to Maintain Account Books for Income Tax?

Leave a Comment / Income Tax / By / January 10, 2024

Maintenance of Accounts Section 44AA: The Income Tax Act specifies the books of accounts that must be kept for the purposes of income tax. Under the Income Tax Act Section 44AA and Rule 6F, maintenance of books is mandatory. These accounts are official documents that show how much money your company has made and spent over the years it has been in operation. In addition, the data you collect can be used to calculate your total tax liability.

These account books will be scrutinized by the income tax department officials from time to time. In this article, let’s understand what is Section 44AA under the income tax act, who is required to keep records, what goes into those documents, and how long those records must be available for inspection.

What is Section 44AA?

Section 44AA specifies who is needed to keep books of accounts for the purposes of income taxation. For income tax purposes, businesses and professions are required to keep books of accounts. Section 44AA specifies the specific conditions for various transactions which need to be maintained in the account books.

Who is Liable to Maintain Accounts as per Section 44AA?

A large number of professions are required to keep books of accounts in order to be audited by an Assessing Officer for income tax purposes. Individuals who should maintain the account books for income tax inspection by an Assessing Officer is specified by the officials of income tax. The list of persons in the following professions are required to keep books of account under Section 44AA and Rule 6F:

  • Accountancy
  • Architectural
  • Engineering
  • Film Artists
  • Interior Decoration
  • Legal
  • Medical
  • Technical Consultancy

However, the officials of the Central Board of Direct Taxes can add more professions to the above list from time to time. Apart from the above-mentioned profession, individuals meeting the following criteria will also have to maintain the account books:

  • These rules apply to you if you are a freelancer in one of the mentioned professions and your gross receipts exceed Rs. 1,50,000.
  • If the gross receipts for an existing profession were higher than Rs. 1,50,000 in the previous three years.
  • This also applies to a newly established profession with estimated gross receipts of more than Rs. 1,50,000.
  • Any person who is subject to Sections 44AD, 44AE, or 44AF and has declared less income than the profits calculated under these sections must maintain the account books.

What Accounts Need To Be Maintained Under Section 44AA?

The term “keeping account books” refers to keeping track of all transactions made by an individual or company during a given assessment year. As per the rule 6F, individuals will have to maintain the following books:

  1. Cash Books: All cash receipts, payments, and cash balances are recorded on a daily basis.
  2. Ledger: A ledger contains details of all accounts and can be used to produce financial statements because all entries flow from the journal.
  3. Journal: If you’re using the Mercantile Accounting format, keep a journal.
  4. The assessee issues carbon copies of bills and receipts with serial numbers. This is only applicable if the transaction amounts to more than Rs. 25,000.
  5. Medical professionals must also keep a daily case register in Form 3C, as well as an Inventory Book of their supply of medicines, drugs, injections, tools, and other consumables.
  6. Original bills and receipts for the assessee’s expenditures. If bills and receipts aren’t accessible and the amount spent is less than Rs. 50,000, the user can make payment vouchers or enter the transaction information into the cash book.

How Long You Should Maintain Books of Accounts?

All essential account books and papers must be held at the profession’s place of business, or at the profession’s main office if there are multiple branches, or at each branch office. After the end of the relevant assessment year, these records must be retained for a period of six years. The major objective of keeping these records is to guarantee that you are not involved in tax fraud or evasion, and if your case is under investigation for income tax, the Assessing Officer may examine your transaction records.

Who Needs To Audit Their Accounts?

A Chartered Accountant is legally required to audit the accounts of the following types of taxpayers:

Taxpayer Category
Audit Necessary For
An individual involved in a profession
The gross profit is more than Rs.25 lakh (Rs.50 lakh from FY2016-17)
An individual involved in a business
Exceeding Rs.1 crore in gross collections, turnover, or total sales (Rs.2 crore from FY2016-17)
An individual under Section 44AE’s presumptive income scheme
If your company income is less than the presumed income under Section 44AE, you can deduct the difference.
An individual under Section 44AD’s presumptive income scheme
If the individual’s total income exceeds the tax-free minimum income, the business income is lower than the presumed income under Section 44AD.

Due Date for Audited Records & Audit Report Submission

The deadline for having your records audited and submitting your audit report is tabulated below:

Taxpayer Statement Form Audit Form Audit Due Date
Submission Due Date
An individual involved in a profession or business who has to get audited compulsorily Form 3CD Form 3CA September 30 of that AY
September 30 of that AY
Any individual other than in the above category Form 3CD Form 3CB September 30 of that AY
September 30 of that AY

Penalty for Non-Maintenance of Books of Accounts

  1. A penalty may be imposed under section 271A if the taxpayer fails to keep accounting records as required by Section 44AA. A maximum penalty of Rs. 25,000 can be imposed.
  2. A penalty may be imposed under section 271B if the taxpayer fails to have the accounting records audited or provide an audit report as required by Section 44AB. A minimum penalty of 0.5 percent of total sales, turnover, or gross receipts can be imposed. A maximum fine of Rs 1,50,000 is imposed.

However, if the taxpayer has a good justification for not having an audit done, a penalty may not be imposed.

FAQs on Books of Accounts and Audit Requirements

Question 1.
When Assesses should maintain books of accounts compulsory?

Answer:
According to Section 44AA, if the income from a business is more than Rs.250,000 in any of the three preceding years, then books of account are required to be kept compulsorily.

Question 2.
Is an insurance agent required to maintain books of accounts?

Answer:
Insurance agents are required to keep books of accounts in order to claim expenditures. However, small insurance agents, whose yearly commission income does not exceed Rs. 60,000, are exempted from keeping a full account of expenses.

Question 3.
What is meant by books of accounts for company?

Answer:
The term “books of accounts” refers to the documenting of a company’s financial condition. It keeps track of all financial transactions.

Section 80TTB Deduction for Senior Citizens

Section 80TTB Deduction for Senior Citizens | Eligibility, Exemptions, Perks

Leave a Comment / Income Tax / By / January 10, 2024

Section 80TTB: In the year of Budget 2018, the officials have introduced the Income Tax Act of 1961. This section was introduced to help senior citizens to earn interest in fixed deposits without any deductions. However senior citizens will have to know all the information about Section 80TTB in the new tax regime, its eligibility, limitations and so on. Read on to find out more.


Eligibility To Claim Deductions Section 80TTB

Any individual who wishes to claim deductions under Section 80TTB will have to meet the following eligibility criteria:

  1. Senior Citizens who are 60+ years old
  2. Super Senior Citizens who are 80+ years old
  3. Senior and Super Senior citizens earning interest through a fixed deposit account, recurring deposit accounts and savings account.
  4. Senior and Super Senior citizens earning interest through post office deposits
  5. Interests earned through deposits held in a cooperative society involved in banking, such as a co-operative land mortgage bank or a co-operative land development bank by Senior and Super Senior citizens

Who Cannot Claim Deductions Through Section 80TTB?

The following people will not be eligible to claim the deductions under Section 80TTB:

  • Resident individuals or HUFs’ who don’t fall under the category of senior citizens
  • NRIs cannot claim the deductions under Section 80TTB
  • The interest earned on savings accounts owned by entities such as the Associate of Persons, a group of individuals or businesses.
  • Earnings generated through business fixed deposits, NCDs, or bonds shall not be eligible for Section 80TTB benefits.
  • If a senior citizen chooses the Alternative Tax Regime, which is governed by Section 115BAC, deductions under Section 80TTB will be unavailable beginning in AY 2021-22 cannot claim the deductions.

How Much Interest is Tax-Free for Seniors?

From the gross total income, a maximum deduction of less than Rs 50,000 can be exempted. However, if the senior citizen earns more than 50,000 as interest, he/she can claim a maximum of 50,000 as tax-free.

For Example:

If the interest earned on deposits is less than Rs. 50000, the entire interest earned is allowed as a deduction under this provision. Alternatively, if the amount of accrued interest exceeds Rs. 50000, companies can claim an Rs. 50000 deduction under Section 80TTB.

How To Avail Deductions Under Section 80TTB?

By simply filing the income tax returns, eligible entities can claim deductions under Section 80TTB of the Income Tax Act of 1961. However, they must first include the interest money earned from various bank accounts in their total income for the financial year.

When submitting an ITR online, make sure to include interest earnings under the “Income from Other Sources” header. Then, under Section 80TTB of the Income Tax Act, you can claim the appropriate deductions.

Advantages of Section 80TTB

Senior citizens already have a larger basic tax exemption level than normal taxpayers. Apart from this, this section 80TTB acts as a great help to them.

Also, the senior citizens’ health difficulties, both physical and mental, are frequently associated with old age, which has a significant financial impact. Thus appropriate tax breaks in the form of tax deductions have been made available to them with the help of Section TTB.

What is the Difference Between 80TTA and 80TTB?

Similar to Section 80TTB, Section 80TTA allows for deductions. However, it allows for interest deductions from the gross total income of an individual taxpayer or a Hindu undivided family up to Rs 10,000 on savings account kept in a bank, co-operative bank, or post office.

  1. Section 80TTA is available only for HUFs and Individuals other than senior citizens. Whereas 80TTB is exclusively only for senior citizens.
  2. One can claim only 10,000 as the deduction under 80TTA and under section 80TTB, one can claim up to 50,000.
  3. 80TTA is applicable only for interests earned through savings accounts whereas Section 80TTB is applicable for all kinds of fixed deposits.

Example of Section 80TTB Deduction for Senior Citizens

Let’s understand Section 80TTB with an example.

Mr. Kumar is a senior citizen who has accumulated interest from various sources of income, such as

  • Interest generated on savings = Rs 5,000
  • Accrued on fixed deposits = Rs 2,00,000
  • Income from other sources = Rs 1,50,000

Now the tax deductions which can be claimed by him as a senior citizen is explained in the table below:

Details Senior Citizens (Rs.) If Kumar was a Normal Taxpayers (Rs)
Interest on savings 5000 5000
Interest on fixed deposit 200000 200000
Earnings from other sources 150000 150000
Total earnings 3,55,000 3,55,000
Deductions under 80TTA (less) Not applicable 5000
Deductions under 80TTB (less) 50000 Not applicable
Taxable earnings 3,05,000 3,50,000
Taxation before 87A rebate 2500 5,000
Rebate available under section 87A 2500 2500
Amount of tax to be paid (inclusive of cess @4%) NIL 2600 (2600 + 4% Cess)

In this case, when compared to regular taxpayers, who must pay Rs. 2600 in tax, senior citizens have no tax liability. It should be noted that for the fiscal year 2020-2021, the Section 87A refund amount is restricted at Rs 12500 for total earnings of Rs 5 lakh. As a result, the computation discussed above is bound to vary when the same is factored in.

FAQ’s on Section 80TTB

Question 1.
What is Section 80TTB?

Answer:
A taxpayer who is a resident senior citizen, aged 60 or older at any time during a Financial Year (FY), can claim a specific amount as a deduction from his gross total income for that FY under Section 80TTB.

Question 2.
What are the benefits of Section 80TTB of the Income Tax Act?

Answer:
It gives senior citizens an additional benefit in the form of a deduction of INR 50000 on interest on FDs and other investments which cannot be claimed by HUFs and other individuals.

Question 3.
Can senior citizens claim deductions under section 80TTB for AY 2020-21?

Answer:
Yes, the senior citizen can claim the deduction under section 80TTB for FY 2019-20 and AY 2020-21.

Question 4.
Can senior citizens claim both 80TTA and 80TTB?

Answer:
No, the senior citizen can claim the deductions made under 80TTB only. Section 80TTA is not valid for senior citizens.

Best Income Tax Software for CA

Best Income Tax Software for CA | Top 5 Tax Software In India For Free

Leave a Comment / Income Tax / By / January 10, 2024

Best Income Tax Software for CA: Companies and individuals use income tax software to prepare profit and loss statements and income files for the company and individual tax returns. The income tax software handles all compliance issues. Also using the income tax software will help CAs or individuals to calculate the taxes on a real-time basis and file the income tax returns in less time. One of the advantages of using income tax software is that it notifies if any information is updated wrongly in the tool.

With a handful of Income Tax Softwares available online, one will have to carefully choose the software on which Chattered Accountants can rely. Thus to help you with that, on this page we have provided a hand-picked list of India’s Best Income Tax Software along with the features. Read on to find more.

Top 5 Income Tax Software in India for CA

  1. Clear Tax
  2. Extax
  3. CompuTax Software
  4. H&R Block
  5. Saral Tax Office

The top 5 income tax software in India along with the features are discussed below:

Clear Tax

ClearTax is software that assists you in keeping track of your tax and company reporting requirements. It is one of the top income tax software in India, and it includes a GST solution (Goods and Services Tax). This software product’s service allows you to save money on taxes by using various investment tactics.

Features or Clear Tax

  • In just a few minutes, you may e-file your tax returns.
  • This programme automatically adjusts the advance tax paid.
  • You can save time by e-filing your income tax return.
  • You can file for up to three people from the same account.
  • Cleartax chooses the appropriate ITR form for you.

Website Link: Click Here

Extax

Eztax is an online platform that assists businesses and individuals with tax planning, preparation, and savings. It simplifies the process of filing income tax returns. Both a mobile app and a web browser are available for this programme.

Features of Extax

  • You can take a picture of your Form-16 and upload it.
  • It reads Form-16 in image or PDF format automatically.
  • Eztax reduces your income tax by optimising your salary, capital gains, property, and other factors.
  • It includes a detailed Salary Survey.
  • A secure document manager is included in this income tax filing software solution.
  • It contains a tax optimizer to help you get the most out of your investment.
  • It assists you in obtaining the highest GST credit.
Price – Rs. 30 per filing
Website Link – Click Here

CompuTax Software

CompuTax is a popular software among Chartered Accountants since it simplifies the process of preparing and filing tax returns. CompuTax can also assist you to generate Balance Sheets and Profit & Loss Accounts in accordance with new Schedule VI, as well as numerous audit reports.

Features of CompuTax

  • PAN verification is simple since all data, such as PAN, TAN, NSC information, MAT credits, and so on, is automatically transferred.
  • TDS returns can be filed with little effort because all data connected to TDS returns is transferred, including advance tax, TCS, self-assessment tax from 26 AS, and so on.
  • It will handle deductions, set off losses, clubbing, carry forward losses, and so on, in addition to tax computation.

You could say it’s a comprehensive solution for Chartered Accountants, allowing them to automate their processes and reduce manual work.

Price – Rs. 4500 per year
Website Link – Click Here

H&R Block

H&R Block is an online tax preparation service. Experts provide the service, ensuring optimal tax savings. You can use this company’s services to acquire a consultation for the previous year.

Features of H&R Block:

  • It protects your papers with 128-bit SSL encryption.
  • H&R Block makes it simple to deal with tax complexities.
  • It allows customers to save time by allowing them to e-file their tax returns.
  • Users will be able to seek help with their tax returns after they have completed them.
  • It is one of the top online tax filing services in India because it provides real-time tax calculations.

Website Link: Click Here

Saral Tax Office

Saral tax office software will fully automate the process of preparing returns and calculating taxes. It also has the option of submitting an ITR. It can be said that it will automate all tax-related tasks, reducing manual labour to a bare minimum.

Features of Saral Tax Office:

  • Calculation of all types of exemptions from perquisites
  • Taxation calculation
  • Calculation of all types of exemptions and allowances
  • Depreciation calculation
  • NSC interest calculation
  • Calculating capital gains using indexation, STT, and other factors
  • Calculation of special rate taxes and rebates
  • Calculation of gratuity, arrears, and relief, among other things
  • Presumptive incomes, partnership earnings, and a slew of other options are available.

Website Link: Click Here

FAQ’s on Best Income Tax Software for CA

Question 1.
Which software is used by CA?

Answer:
Apart from the above mentioned IT software for CAs, one of the software which is widely used is Tally. Tally is an accounting programme that is widely used. Getting a good handle on it will be quite beneficial to CA professionals.

Question 2.
Which is the best income tax software in India?

Answer:
According to the sources, the best income tax return software for chartered accountants has been awarded to income tax return software – “Winman”.

Question 3.
Do I need a CA to file ITR?

Answer:
It is not required to have your returns prepared by a CA or agency. If you understand all of the basic regulations and processes, you can submit all of your tax returns on your own.

Section 44AE

Section 44AE of Income Tax Act | Business of Plying, Hiring/ Leasing Goods Carriages

Leave a Comment / Income Tax / By / January 8, 2024

Section 44AE: India is a democratic country, where a salaried individual is liable to pay the income tax as per their eligibility and income tax brackets. Income tax is nothing but a self-assessed tax, which means that an assessee calculates his own taxes and reports them to the government in an income tax return.

Since the individuals calculate their own taxes, most of them took this as an advantage and started disclosing low income than the actual income while filing the ITR. And to overcome this particular issue, the Indian government introduced sections 44AE, 44AD, and 44ADA, which mandate minimum income disclosure for businesspeople. In this article, let’s understand everything about Section 44AE in detail. Read on to find more.

What is Section 44AE?

Section 44AE comes under the Income Tax Act of 1961’s Presumptive Taxation Scheme. This Act forces the businesspeople to keep regular books of accounts and all their accounts audited from time to time. However, this presumptive taxation method allows the small taxpayers to avoid this time-consuming maintenance. Those who choose this option can calculate their income at a set rate and are exempt from accounting and auditing.

So basically, Section 44AE relates to a specific assessee who is in the business of plying, hiring, or leasing goods carriages; according to the provision, such income is charged under the head profit or gain from business or profession (PGBP) and on a presumption basis. Now let’s understand what is Profits and gains of business of plying, hiring or leasing goods carriages under Section 44AE and to whom does it apply.

Who is Eligible for the Presumptive Taxation Scheme?

Individuals falling under the following criteria is eligible for presumptive tax:

  • Section 44AE is eligible for all entities such as individuals HUFs, firms or corporations who are involved in the business of plying, hiring, or leasing goods carriages.
  • Entities must not own more than 10 goods carrier vehicles at any time in the financial year. If any assessed cross more than 10 vehicles then he/she cannot disclose the income under Section 44AE.

Amount of Income Considered as PGPB

The officials of the income tax department have set a minimum amount of income that must be disclosed under this section and they are listed below:

  • For Heavy Good Vehicles: For each month or part of a month, Rs. 1,000 per tonne of gross vehicle weight.
  • For Non-Heavy Good Vehicles: For each month or part of a month, Rs. 7,500 per vehicle.

Example Calculation on Income Tax Payment Under Section 44AE

Those who choose the Section 44AE presumptive taxation plan can estimate their monthly income at Rs. 7,500 per vehicle possessed, regardless of whether it is a light goods vehicle or a heavy goods vehicle. Taxes must be paid in accordance with this calculation.

For example, let’s assume that Mr.Ram has owned a 9-tonne vehicle for 9 months and 15 days, then in December he purchased a 13-tonne vehicle that he did not use until the end of the financial year. Now the calculation of presumptive taxes under section 44AE would be as follows:

9 Tonnes Vehicle = 7500 x 10 = 75000

12 Tonnes Vehicle = 1000 x 13 x 4 = 52000

Total taxable income = 75000 + 52000 = 127000

If you observe this example, we have considered 9 tonnes vehicles as 10 instead of 9, because 9 months 15days is equal to 10 months. And though the heavy vehicle is not used, the tax is applicable to it.

Exclusions Under Section 44AE

As per Section 30 to 38 of the income tax act, any businessperson who chooses presumptive taxation cannot claim any tax exemptions or deductions. The ultimate taxable income would be calculated based on an income of Rs. 7,500 per car each month. However one can claim the exemptions and deductions under sections 80C through 80U are available.

If the taxpayer is a partnership firm, then deductions for salary and interest paid to partners can be claimed under the Income Tax Act’s rules. While depreciation is not deductible, the written-down value of any asset used in the firm can be determined assuming depreciation has been claimed and authorised under Section 32.

Individuals who choose presumptive taxation, on the other hand, must pay advance tax like everyone else.

Declaration of Lower Income

If the assessee’s actual income is less than the income estimated under the Presumptive Scheme, the assessee can claim the lesser income as actual if he keeps his books of accounts in the manner prescribed by section 44AA and has them audited under section 44AB from time to time.

FAQ’s on Section 44AEE Presumptive Taxation Scheme

The frequently asked questions on profits and gains of business of plying, hiring or leasing goods carriages under Section 44AE are given below:

Question 1.
What is plying in income tax?

Answer:
Transportation business includes plying which means that the transports used on daily basis. Public transportation and route buses are examples of vehicles that are used on a daily basis and comes under plying in income tax.

Question 2.
What is Section 44AE?

Answer:
Section 44AE of the Income Tax Act, says that Small businesses involved in the business of plying, hiring, or leasing goods carriages with less than ten goods carrier vehicles can use the Presumptive taxation method to determine their taxable income for a given financial year.

Question 3.
What is the penalty for not getting the accounts audited as required by section 44AB?

Answer:
Yes, the assessing officer will impose a penalty if a person who is required to comply with section 44AB fails to have his accounts audited in respect of any year or years as required by section 44AB or fails to provide such report as required by section 44AB.

Depreciation Rate As Per Income Tax Act

Depreciation Rate As Per Income Tax Act On Fixed Assets for FY 2020-21

Leave a Comment / Income Tax / By / January 8, 2024

Depreciation Rates For FY 2020-21: Depreciation is a tax deduction for the reduction in the real value of a tangible or intangible asset used by a taxpayer under the Income Tax Act. It is a must to calculate the depreciation of assets used or acquired in a profession or business. This is in accordance with the Income Tax Act of 1962, which specifies varying depreciation rates for various asset classes.

What is Depreciation?

Depreciation is the term used to describe the loss in the value of an asset over time. Taxpayers can claim depreciation on assets bought and used in their profession or business when calculating gains and income from their profession or business.

Depreciation On Block of Assets

The written down method is used to evaluate the depreciation of block of assets. Block of assets are nothing but, collection of assets that belong to the same asset type. This block of assets are classified into two types and they are:

  1. Tangible Assets such as Building, Machinery, Plant, Furniture etc.,
  2. Intangible Assets such as patents, copyrights, licenses, trademarks and so on.

Depreciation Rates for Fixed Assets

The rate of depreciation for different classes of assets are tabulated below:

Asset Class Asset Type
Depreciation Rate
Building Residential buildings not including boarding houses and hotels 5%
Building Boarding houses and hotels 10%
Furniture Any fittings/furniture including electrical fittings 10%
Plant and machinery Motor cars excluding those used in a business of running them on hire 15%
Intangible assets Franchise, trademark, patents, license, copyright, know-how or other commercial or business rights of similar nature 25%
Plant and machinery Lorries/taxis/motor buses used in a business of running them on hire 30%
Plant and machinery Computers and computer software 60%
Plant and machinery Books owned by assessee carrying on a profession not being annual publications 60%
Building Purely temporary constructions like wooden structures 100%
Plant and machinery Books owned by assessee carrying on a profession being annual publications 100%
Plant and machinery Books owned by assessee carrying on business in running lending libraries 100%

Depreciation Rates As Per Income Tax Act

The depreciation rates as per the income tax act for both Part A & Part B tangible assets are given below:

Depreciation Rate for Tangible Asset Class Building

Sl.No Asset Class – Building
Asset Type
Depreciation Rate
1 Buildings used primarily for residential reasons (excluding boarding houses and hotels) 5%
2 Buildings apart from those used primarily for residential reasons and not covered by sub-items 1 (above) and 3 (below) 100.00%
3 Buildings procured on or after September 1, 2002, for installing plant and machinery forming part of water treatment system or water supply project and which is used for the purpose of the business of providing infrastructure facilities under clause (i) of subsection (4) of section 80-IA 100.00%
4 Purely temporary erections like wooden structures 100.00%

Depreciation Rates for Asset Class Furniture and Fittings

Sl.No Asset Class -Furniture and Fittings
Asset Type
Depreciation Rate
1 Furniture and fittings including electrical fittings 10.00%

Depreciation Rate Chart for Asset Class Plant and Machinery

Sl.No Asset Class – Plant and Machinery
Asset Type
Depreciation Rate
1 Plant and machinery excluding those covered by sub-items (2), (3) and (8) below 15.00%
2 Motor cars, excluding those used in a business of running them on hire, procured or put to use on or after April 1, 1990 15.00%
3(i) Airplanes, Aero Engines 40.00%
3(ii) Motor taxis, motor buses and motor lorries used in a business of running them on hire 30.00%
3(iii) A commercial vehicle which is procured by the assessee on or after October 1, 1998, but before April 1, 1999, and is used for any period of time prior to April 1, 1999, for the purpose of profession or business in agreement with the third proviso to clause (ii) of sub-section (1) of section 32 40.00%
3(iv) New commercial vehicle procured on or after October 1, 1998, but prior to April 1, 1999, in replacement of condemned vehicle of more than 15 years of age and is used for any period of time prior to April 1, 1999, for the purpose of profession or business in agreement with the third proviso to clause (ii) of sub-section (1) of section 32 60.00%
3(v) New commercial vehicle procured on or after April 1, 1999, but before April 1, 2000, in replacement of condemned vehicle of more than 15 years of age and is put to use prior to April 1, 2000, for the purposes of profession or business in agreement with the second proviso to clause (ii) of sub-section (1) of section 32 60.00%
3(vi) New commercial vehicle procured on or after April 1, 2001, but before April 1, 2002, and is put to use before April 1, 2002, for the purpose of profession or business 50.00%
3(vii) Molds used in plastic and rubber goods factories 30.00%
3(viii) Air pollution control equipment Felt

  • filter system
  • Electrostatic precipitation systems
  • Scrubber
  • counter current / packedbed / venture / cyclonic scrubbers
  • Dust collector systems
  • Evacuation system and ash handling system
 100.00%
3(ix) Water pollution control equipment Aerated detritus chambers (including air compressor)

  • Mechanical screen systems
  • Mechanically skimmed grease and oil removal systems
  • Flash mixing equipment and chemical feed systems
  • Mechanical reactors and mechanical flocculation
  • Mechanically aerated activated sludge / diffused air systems
  • Biofilters
  • Aerated lagoon systems
  • Air floatation systems
  • Methane
  • recovery anaerobic digester systems
  • Steam/air stripping systems
  • Marine outfall systems
  • Urea Hydrolysis systems
  • Activated carbon column
  • Bio
  • disc or rotating biological contractor
  • Marine outfall systems
  • Ion exchange resin column
  • Centrifuge for dewatering sludge
 30.00%
3(x) (a) Solid waste, control equipment Cryolite / mineral / lime / caustic / chrome recovery system
(b) Resource recovery and solid waste recycling systems		 100.00%
3(xi) Plant and machinery used in semi-conductor industry covering all integrated circuits (ICs) (not including hybrid integrated circuits) ranging from small scale integration (SSI) to large scale integration / very large scale integration (LSI/VLSI) as also discrete semiconductor devices like diodes, triacs, thyristors, transistors, etc., except those covered by entries (viii), (ix), (x) of this sub-item and sub-item (8) below 30.00%
3(xi)a Life-Saving medical equipment D.C Defibrillators for pacemakers and internal use

  • Colour Doppler
  • Haemodialysis
  • Cobalt therapy unit
  • Vascular Angiography System including Digital subtraction Angiography
  • Heart-lung machine
  • Spect Gamma Camera
  • Magnetic Resonance Imaging System
  • Ventilator used with anesthesia apparatus
  • Ventilator except those used with anesthesia
  • Surgical laser
  • Gamma knife
  • Fibreoptic endoscopes including audit resectoscope/pediatric resectoscope, arthroscope, peritoneoscopes, fibreoptic flexible nasal pharyngo, micro laryngoscope, video laryngo, fiberoptic flexible laryngo bronchoscope.
  • Bronchoscope, video oescophago gastroscope, video oescopghago bronchoscope, fibreoptic flexible oesophago gastroscope
 40.00%
4 Containers made of plastic or glass used as refills 50.00%
5 Computers including computer software 60.00%
6 Plant and machinery, used in processing, weaving and garment sector of the textile industry, which is bought under TUFS on or after April 1, 2001, but prior to April 1, 2004, and is put to use prior to April 1, 2004 50.00%
7 Plant and machinery procured and installed on or after September 1, 2002, in a water treatment system or a water supply project and put to use for the purpose of the business of providing infrastructure facility under clause (i) of sub-section (4) of section 80-IA 100.00%
8 1. Wooden parts used in artificial silk manufacturing machinery 100.00%
2. Match factories, wooden match frames
3. Cinematograph films, bulbs of studio lights 100.00%
4. Saltworks, condensers, reservoirs, salt pans, etc., made of clayey, sandy or earthy material or any other similar material 100.00%
5. Quarries and mines 100.00%
Sand stowing pipes, winding ropes, tubs and haulage ropes
Safety lamps
6. Flour mills, rollers
7. Sugar works, rollers 80.00%
8. Steel and iron industry, rolling mill rolls 80.00%
9. Energy-saving devices 80.00%
(A) Furnaces and specialised boilers
(i) Fluidized bed boilers / ignifluid 80.00%
(ii) Continuous pusher type furnaces and flameless furnaces
(iii) High efficiency boilers
(iv) Fluidized bed type heat treatment
(B) Instrumentation and monitoring system for monitoring energy flows 80.00%
(i) Digital heat loss meters
(ii) Automatic electrical load monitoring systems
(iii) Infrared thermography
(iv) Microprocessor based control systems
(v) Meters for measuring heat losses, steam flow, furnace oil flow, power factor and electric energy meters
(vi) Exhaust gas analysers
(vii) Maximum demand indicator and clamp-on power meters
(viii) Fuel oil pump test bench
(C) Waste heat recovery equipment 80.00%
(i) Air pre-heaters and recuperators
(ii) Feedwater heaters and economizers
(iii) Thermal energy wheel for low and high-temperature heat recovery
(iv) Heat pumps
(D) Co-generation systems 80.00%
(i) Controlled extraction, back pressure pass out, extraction cum condensing turbines for cogeneration along with pressure boilers
(ii) Organic Rankine cycle power systems
(iii) Vapour absorption refrigeration systems
(iv) Low inlet pressure small steam turbines
(E) Electrical equipment 80.00%
(i) Synchronous condenser systems and shunt capacitors
(ii) Relays (automatic power cut off devices)
(iii) Power factor controller for AC motors
(iv) Automatic voltage controller
(v) Solid state devices for controlling motor speeds
(vi) FACT (Flexible AC Transmission) devices, Thyristor controlled series compensation equipment
(vii) Thermally energy-efficient stenters
(viii) Series compensation equipment
(ix) TOD (Time of Day) energy meters
(x) Intelligent electronic devices/remote terminal units, computer software/hardware, bridges/router, other required equipment and associated communication systems for data acquisition systems and supervisory control, distribution management systems and energy management systems for power transmission systems
(xi) Special energy meters for ABT (Availability Based Tariff)
(F) Burners 80.00%
(i) Zero to ten percent excess air burners
(ii) Burners using air with high preheat temperature (above 300 degrees Celsius)
(iii) Emulsion burners
(G) Other equipment 80.00%
(i) Mechanical vapour recompression
(ii) Wet air oxidation equipment for recovery of heat and chemicals
(iii) Automatic microprocessor-based load demand controllers
(iv) Thin film evaporators
(v) Fluid couplings and fluid drives
(vi) Coal based producer gas plants
(vii) Super-charges/turbo charges
(viii) Sealed radiation sources for radiation processing plants
10. Gas cylinders including regulators and valves 60.00%
11. Glass manufacturing concerns, Direct fire glass melting furnaces 60.00%
12. Mineral oil concerns 60.00%
(i) Plant used in field operations (above ground) distribution, returnable packages
(ii) Plant used in field operations (below ground), but not including kerbside pumps including fittings and tanks used in field operations (distribution) by mineral oil concerns
13. Renewable energy devices 60.00%
(i) Pipe type and concentrating solar collectors
(ii) Flat plate solar collectors
(iii) Solar cookers
(iv) Air/fluid/gas heating systems
(v) Solar water heaters and systems
(vi) Solar crop drivers and systems
(vii) Solar steels and desalination systems
(viii) Solar refrigeration, air conditioning systems and cold storages
(ix) Solar pumps based on solar-photovoltaic and solar-thermal conversion
(x) Solar power generating systems
(xi) Solar-photovoltaic panels and modules for water pumping and other applications
14. Windmills and any other specially designed devices that operate on windmills (installed on or after April 1, 2014) 80.00%
15. Any special devices including electric pumps and generators operating on wind energy (installed on or after April 1, 2014) 80.00%
16. Books owned by assessees carrying on a profession
(i) Books, being annual publications 100.00%
(ii) Books, excluding those covered by entry (i) above 60.00%
(iii) Books owned by assessees carrying on business in running lending libraries 100.00%

Depreciation Rates for Asset Class Ships

Sl.No Asset Class – Ships
Asset Type
Depreciation Rate
4(i)
Ocean-going ships including tugs, survey launches, dredgers, barges and other similar ships used primarily for dredging purposes and sighing vessels with a wooden hull
4(ii) Vessels ordinarily operating on inland waters, not covered by sub-item (iii) below 20.00%
4 (iii) Vessels ordinarily operating on inland waters being speed boats 20.00%

Now that we are aware of Depreciation rates as per companies act for Part A tangible assets. Now let’s look at the rate of depreciation rates for Part B intangible assets.

Depreciation Rates for Intangible Assets (Part B)

The asset type such as patents, know-how, trademarks, franchises, copyrights, licenses or any other commercial or business right of similar nature will have a rate of depreciation at 25%.

Who Can Claim Depreciation?

Individuals meeting the following criteria will be eligible to claim the depreciation.

  • The assessee must own the assets in full or in part.
  • The assets must be used in the taxpayer’s business or profession. If the assets are utilised for other reasons in addition to the business, the depreciation allowed will be proportionate to the use of the business purpose.
  • Depreciation can be claimed by co-owners up to the value of the assets owned by each co-owner.

FAQ’s on Depreciation Rate

Question 1.
Can I claim depreciation on the cost of land?

Answer:
No, you cannot claim depreciation on the cost of land.

Question 2.
What is the depreciation rate on the computer as per the income tax act?

Answer:
As per the income tax act, the depreciation rate on computers is 40%.

Question 3.
Which is the depreciation rate formula?

Answer:
We can use the Straight-line method or the Written down method to calculate the depreciation rate. The straight-line methods formula which is used to calculate the rate of depreciation is (Cost of Asset – Salvage value of Asset)/ Depreciation Rate per Year.

What is Advance Tax

What is Advance Tax? Due Date, Online Payment, Eligiblity, Calculation

Leave a Comment / Income Tax / By / January 5, 2024

Advance Tax: Any individual with sources of income other than their salary is responsible to pay the advance tax. This advance tax is applicable to individuals who are earning income from rents, capital gains, stocks, bank fixed deposits, lottery winnings and much more. Any individual who is liable to pay the advance tax can simply pay the same through the concerned banks or even online. In this article, let’s understand what is advance tax, eligibility and tax exemption of advance tax in detail. Read on to find more.

What is Advance Tax?

As mentioned above, the income tax which should be paid in advance rather than a lump sum at the end of the year is known as Advance tax. Advance tax is otherwise known as Pay As You Earn tax. Thus this advance tax must be made in installments as per the Advance tax due dates specified by the officials.

Who is Eligible for Advance Tax?

The officials of the income tax department have notified the Advance Tax eligibility criteria, which outlines “who should pay the advance tax”.  Any individual can either visit the official website are also refer to the below-listed points to know advance tax eligibility criteria:

  • All salaried individuals, freelancers, and businesses whose total tax liability is Rs 10,000 or more in a financial year.
  • All taxpayers, salaried, freelancers, and businesses, are subject to advance tax.
  • Individuals earning income from House Rent or other properties.
  • Individuals earning income from stocks, capital gains, or fixed deposits.
  • Any individual who won the lottery is also liable to pay the advance tax.

Other Eligibility Criteria

  • Presumptive Income for Business: Businesses with presumptive income must pay the entire amount of their advance tax in one payment on or before March 15 if they have chosen the presumptive taxation plan under section 44AD. They also have the option of paying all of their taxes due by March 31.
  • Presumptive Income for Professionals: For example, independent professionals such as doctors, lawyers, and architects who are covered by the presumption plan under section 44ADA, must pay the entire amount of their advance tax liability in one payment by March 15th.

Advance Tax for Senior Citizens

Senior citizens who are aged 60 and above and do not own or operate a business are free from paying advance tax.

Advance Tax Due Dates FY 2021-22

The final installment of advance tax payment for the financial year 2020-21 is due on March 15, 2021. Taxpayers must pay the full amount of their advance tax liability by this date.

On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax less advance tax already paid
On or before 15th December 75% of advance tax less advance tax already paid
On or before 15th March 100% of advance tax less advance tax already paid

Note: For taxpayers who have chosen the Presumptive Taxation Scheme under sections 44AD and 44ADA – Business Income, will have to pay the 100% of advance tax before 15th March.

Calculation of Advance Tax

Follow the steps listed below to calculate your advance tax.

  1. Estimate Your Income: Estimate how much money you made in the financial year for which you’re calculating advance taxes. These are the several types of revenue that should be considered when calculating your earnings: Interest from FDs, savings accounts, and other sources, such as lottery winning, stocks, capital gains etc.,
  2. Calculation of Gross Taxable Income: To calculate your gross taxable income, multiply your salary by the figure above (while advance tax is not applicable on your salary, the sum total may change your tax slab which will change the tax liability further)
  3. Now calculate your tax liability by using the most recent income tax bracket that applies to you. Deduct the TDS that will be deducted or has already been deducted according to the TDS slab.
  4. Now, if you see that your tax liability after the deduction exceeds Rs.10,000 then you will have to pay the advance tax.

How To Pay Advance Tax?

The steps to pay advance tax is very simple. Just follow the steps listed below to know how to pay the advance tax online.

  • Step 1: Visit the official website of Tax Information Network (TIN) – Click Here.
  • Step 2: On the homepage, click on services and select “e-payment – pay taxes online”.
  • Step 3: Now move to the section “CHALLAN NO./ITNS 280” and click on “Proceed”.
  • Step 4: A new page will open. Select your tax applicable as “Income Tax“.
  • Step 5: Select “Advance Tax” in the type of payment.
  • Step 6: Enter the mode of payment and other important details as requested in the necessary fields.
  • Step 7: Click on “Proceed“.
  • Step 8: Now You’ll be forwarded to the bank’s Net Banking website once you’ve completed the form. This page should be double-checked for unpaid income.
  • Step 9: Following that, you’ll receive payment details, including your challan number. Save the payment details and challan number for future reference.

Advance Tax

Paying Advance Tax Using Challan 280

Any individual will be able to pay the advance tax online using the Challan 280. Refer to our article Challan 280 to know all the details and step-by-step procedure to pay the advance tax.

Advance Tax Exemptions

The list of exemptions under the advance tax are listed below:

  • Senior citizens who are 60+ and Super senior citizens who are 80+ years are free from advance tax.
  • Salaried individuals who are subject to TDS are exempted from the advance tax. However, when the salaried individual is earning through freelancing, or through capital gains, stocks, then they are subject to pay the advance tax.
  • If the TDS deducted exceeds the tax due for the year, there is no need to pay the advance tax

Advance Tax Refund

If the officials of the income tax department find that, if the individual has paid more tax than the actual tax, then officials will initiate the income tax refund process. For this, the individual who has paid the excess tax will have to submit Form 30 requesting the refund. Check our article on an income tax refund to know how to claim the advance tax refund.

Penalty for Paying Advance Tax After Deadline

If your advance tax payment is less than 90% of your assessed tax, you will be charged a monthly interest rate of 1% under Section 234B of the Income Tax Act. The interest is calculated as 1% interest per month on the delinquent amount until the tax is totally paid up. If you don’t pay by the second or third deadlines as notified by officials, you’ll be charged the same interest penalty.

If you do not pay your advance tax installment on time, you will be charged a 1% interest rate under Section 234C of the Income Tax Act.

FAQ’s on Advance Tax

The frequently asked questions on Advance Tax are listed below:

Question 1.
What is the advance tax slab?

Answer:
Individual advance taxpayers in India pay income tax according to a slab system. Different tax rates are prescribed for different ranges of income under a slab system. The detailed advance tax slabs are mentioned in the above sections.

Question 2.
Should I pay the late fee, if I am paying advance tax after the deadline?

Answer:
Yes, under the section of 234B and 234C of the income tax act, the individuals will be imposed with the penalty for paying the tax in delay.

Question 3.
Which challan is used to pay the advance tax?

Answer:
Challan 280 is used to pay the advance tax.

Question 4.
Can I pay advance tax offline?

Answer:
Yes, one can pay the advance tax through offline mode as well.

Question 5.
I am a freelancer, should I pay the advance tax?

Answer:
Yes, if you’re liable to pay a tax of Rs.10,000 or more then you should pay the advance tax.

Depreciation Meaning Methods Calculations

What is Depreciation? Definition, Working, Formula, Calculation

Leave a Comment / GST / By / January 5, 2024

Depreciation: In accounting, depreciation is the loss of a tangible asset’s monetary value over time due to use, wear and tear, or obsolescence. It’s an accounting method for allocating a portion of an asset’s cost to the profit and loss statement for a financial year over the asset’s useful life.

Simultaneously, the asset’s holding cost in the balance sheet is decreased to the same extent. Depreciation is a non-cash expense because it affects a company’s profitability without requiring a cash outflow. In this article, let’s understand what is depreciation, the formula and how it’s calculated in detail.

Depreciation Definition

The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.


Understanding Depreciation

Depreciation is otherwise a loss in the value of an asset, that can be caused by n number of reasons such as bad market conditions Assets such as machinery, equipment, and currency are examples of assets that are expected to depreciate over time. Thus the depreciation is the opposite of appreciation, which is the growth in the value of an asset over time.

Usually, in accounting, we can calculate the depreciation of the assets based on information of asset life. Calculation or estimating the asses value is more important for the purpose of paying income taxes such as property taxes. Usually, the depreciation depends on the market or economic conditions.

Depreciation Calculation

There are multiple methods that are used to calculate depreciation. However, to calculate depreciation, one must first compute the depreciable basis. The depreciable base is the initial value to which the depreciation percentage is applied.

Depreciable base = (Cost of the Asset) – (Salvage or Residual Value at the End of its Useful Life)

Common Methods of Depreciation & Its Calculation

The types of Depreciation are explained in more detail below:

Straight-line Method

This is a straightforward technique of calculating depreciation in which a fixed percentage is applied to the depreciable base and the depreciation amount remains constant throughout the asset’s life until it is reduced to its salvage value. The percentage is calculated by dividing the asset’s depreciable base by its useful life in years.

Depreciation Straight Line Method Calculation Example:

If an asset costs one lakh and has a ten-year useful life with a salvage value of Rs. 10,000, depreciation is charged at Rs. 9,000 for each of the ten years.

which is:

100000–1000010

Straight Line Method Depreciation Formula

Calculation of Depreciation Rate = 100 – % of the resale value of purchase price useful Life in Years Depreciation = Purchase  Price × Depreciation Rate or Purchase Price – Salvage ValueUseful Life

Written Down Value Method (WDV)

The written down method is otherwise known as the reducing balance or diminishing balance method. A fixed rate of depreciation is applied to the reducing or diminishing value of the asset maintained in the books of accounts at the beginning of the financial period, rather than to the asset’s cost, under this method. The carrying value of the asset, as well as the annual depreciation, will be higher in the early years of this technique and will decrease as time goes on.

Depreciation Write Down Method Calculation Example

For example, If an asset is purchased for 1 Lakh and the depreciation rate is 10%, the first-year depreciation will be Rs. 10,000 which is 10% of Rs. 1,00,000, the second-year depreciation will be Rs. 9,000 which is 10% of Rs. 90,000, and the third year depreciation will be Rs. 8,100 which is 10% of Rs. 81,000.

Formula To Calculate The WDV Depreciation

WDV Depreciation Rate = 1 –sc1n×100

where,

n = Remaining useful life of the asset (in years)
s = Scrap value at the end of the useful life of the asset
c= Cost of the asset/Written down value of the asset

Sum-of-years Digits Method

To calculate the depreciation rate, this method uses accelerated depreciation, which adds the years of the asset’s useful life. For example, f an asset has a five-year useful life, the total of the digits is 1+2+3+4+5=15. The depreciation for a given period will then be calculated using the asset’s remaining useful life years. As a result, the first year’s depreciation rate will be 5/15, the second year’s rate will be 4/15, and so on.

Depreciation Annuity Method

This method is not time-based, and it does not assess the useful life in years, but rather in terms of output capacity. The depreciation cost per unit for a production machine is calculated by dividing the entire cost of the machine by the total units manufactured by the machine over its lifetime. To calculate the total depreciation for the year, multiply this cost by the number of units manufactured during that time period.

Why is Depreciation so Important?

The depreciation is important because it provides various advantages which are listed below:

  • Depreciation is a tax-deductible expense, so it’s crucial to think about it if you want to save money on taxes.
  • According to the Companies Act of 2013, depreciation must be charged in the profit and loss account.
  • If it isn’t taken into account, fixed-asset expenditures aren’t taken into account, and profit can appear to be quite high, especially in businesses that require a lot of plant and machinery. This may also result in a high distribution of earnings to shareholders, resulting in a lack of finances when the company needs to replace an asset.

FAQ’s on Depreciation

Question 1.
What are the 3 methods of depreciation?

Answer:
The 3 methods of depreciation are the Straight Line Method, Write Down Method and Sum of Years Digit Method.

Question 2.
What is the simplest depreciation method?

Answer:
The straight-line method is the simplest depreciation method.

Question 3.
On which assets depreciation is charged?

Answer:
 The depreciation is charged only on fixed assets.

term deposits

What Is Term Deposits? Meaning, Features, Types

Leave a Comment / Saving Schemes / By / January 4, 2024

Term Deposits: Term Deposits are otherwise known as Fixed Deposits are an investment vehicle in which a lump-sum sum amount is deposited for a fixed length of time, ranging from one month to five years, at an agreed rate of interest. Organisations such as Banks, NBFCs (Non-banking financial companies), Credit unions, Post offices, and other financial organisations will have the options of Term Deposits. In this article, we have explained all the details of Term Deposits, it’s types. Read on to find out more.

Types of Term Deposits

The types of term deposits are:

  1. Fixed Deposits
  2. Recurring Deposits

Classification of Term Deposits

The term deposits are further classified into several ways which are discussed below:

Senior Citizen Term Deposits

A senior citizen is someone who has reached the age of sixty can enrol for this account. Most banks and financial institutions offer senior citizens a greater interest rate on term deposits. At some banks, senior citizens are also eligible for tax-advantaged term deposits.

Post Office Term Deposits

Certain financial services are also available in post offices. The Post Office Term Deposit is one such service. It can be opened as a single account or as a joint account. Post office term deposit accounts can be transferred from one post office to another, or many accounts can be held at the same post office.

The minimum deposit amount is Rs.200, and the current interest rate is 7.9% for a period of five years. Any deposit with a term of more than five years is eligible for tax benefits under Section 80C of the Income Tax Act of 1961.

Tax Saving Term Deposits

Section 80C of the Income Tax Act allows for a tax deduction of up to Rs 1.5 lakh on tax-saver deposits. These tax-saving term deposits have a 5-year lock-in period, and any earnings beyond Rs 40,000 are taxable. Interest rates typically vary from 5.5 percent to 7.75 percent.

Special Term Deposit Schemes For Children

There are a few unique deposit schemes dedicated to children’s welfare. The government’s “Sukanya Samriddhi Account” aims to improve the financial security of girl children over the age of ten. Different banks have different plans aimed at the financial well-being of children, such as Allahabad Bank’s “Sishu Mangal” deposit programme and Punjab National Bank’s “Balika Shiksha” programme. So any individuals can check with banks for children’s term deposit schemes.

Cumulative Term Deposits

Investors who do not require regular monetary income from their investment can choose a cumulative term deposit.  As a result, the interest gained is re-invested in the deposit and paid out in one lump sum at the conclusion of the term.

Non-Cumulative Term Deposits

A non-cumulative term deposit is for investors who want a consistent rate of return. The interest on a non-cumulative term deposit is credited to the investor’s account at regular intervals, such as monthly, quarterly, or annual.

Short Term Deposits

A short-term deposit has a lock-in duration that might be anywhere from one to twelve months. Short-term deposits are appropriate for investors who want to get their money back quickly.

Long Term Deposits

Lock-in periods for long-term deposits range from one to ten years. These deposits provide a greater interest rate than short-term savings accounts.

Features of Term Deposits

The features of characteristics of Term Deposits are discussed below:

  1. Interest Amount: The investor has the choice of receiving interest income at maturity or on a monthly, quarterly, or annual basis.
  2. Economic Growth: The consistent interest received on the investment assures that the investors’ wealth grows even during market downturns.
  3. Rollover: If an investor’s money isn’t needed by the term deposit’s maturity date, the deposit can be rolled over for a new term. The phrase “rollover” refers to the process of reinvesting maturity funds in a new term deposit and increasing the interest rate. As a result, when a term deposit matures, an investor does not have to use their money right away.
  4. Fixed-rate of Interest: The rate of interest on term deposits is fixed and not affected by market changes.
  5. Investment Safety: Since the term deposit interest rates are unaffected by economic fluctuations, it is one of the safest investment options accessible.
  6. Loan Against Deposit: If an investor needs financial liquidity in an emergency, they can borrow up to 60-75 percent of the deposit amount.
  7. Predetermined Investment Period: The investor has the option of choosing the tenor of the investment depending on the financial institution’s goals. The institution’s interest rate will typically be greater for a longer tenor. However, before investing, it’s a good idea to compare interest-to-tenor ratios.
  8. Low Investment Limit: The minimum investment amount varies depending on the financial institution, but it is usually Rs 1000. However, there is no maximum amount that can be placed in term deposits.
  9. Deposit Insurance: Any deposit in a qualified bank is entitled to an insurance cover of up to Rs 1 lakh under the Deposit Insurance and Credit Guarantee Corporation, according to RBI regulations (DICGC).

Drawbacks of Term Deposits

Though bank term deposits seem to be helpful, there are few disadvantages which one will have to consider and they are:

  1. Since term deposits come with a fixed tenor, it is considered ‘locked-in’. If the investor opts to withdraw from the deposit before the lock-in period ends they are liable to pay a penalty to the financial institution along with lowered interest income.
  2. Interest Earned on a deposit is taxable income and can be subject to a Tax Deducted at Source deduction under the Income Tax Act (TDS).

 FAQs on Term Deposits

Q. What are the risks of term deposits?
A. It might be costly to withdraw funds from a term deposit before it has matured. Fees and interest rate reductions apply to early withdrawals. You also won’t be able to add to your deposit with more money. With this in mind, putting your money in a term deposit can be a dangerous option if you need to make any deposits or withdrawals before the term deposit matures.

Q. Is term deposit and fixed deposit the same?
A. Yes, a term deposit is also known as fixed deposit. When a deposit is extended for a certain duration, such as 3 months, 6 months, or more, a term deposit is used, but a fixed deposit, or FD, is used when the deposit is for a period of six months or longer.

Q. What is the penalty for breaking a term deposit?
A. Many banks will refuse to pay interest on a term deposit that is ‘broken’ early, or will pay less. If you want to withdraw money from your term deposit, certain banks will require a 31-day notice. If the term is less than 31 days old, you may not be able to access the money until maturity.

overview of fixed deposits

Overview of Fixed Deposit | Interest Rates, Advantages, Types

Leave a Comment / Saving Schemes / By / January 4, 2024

Overview of Fixed Deposits: Fixed deposits are an investment option that offers stable interest rates, special rates for elderly citizens, a variety of interest payment methods, no market risk, and income tax benefits. In comparison to a typical savings account, a Fixed Deposit (FD) is a more safe investment choice that pays a greater rate of interest.

Fixed Deposit Interest Rates

In simple terms, fixed deposits are nothing but you are lending some money to the bank and in return, the bank pays interest for you. So these fixed deposit interest rates vary from bank to bank and also the Rates of interest are subject to change at any time. The rate of interest on an FD varies depending on the time period and the amount deposited.

Fixed Deposit Intrest Rates of Top 5 Banks

The top 5 interest rates offered by banks for fixed deposits are given below:

Bank Name For General Citizens (p.a.) For Senior Citizens (p.a)
ICICI Bank FD Interest Rate 2.50% to 5.50% 3.00% to 6.30%
HDFC Bank FD Interest Rate 2.50% to 5.50% 3.00% to 6.25%
State Bank of India FD Interest Rate 2.90% to 5.40% 3.40% to 6.20%
Canara Bank FD Interest Rate 2.95% to 5.50% 2.95% to 6.00%
Punjab National Bank FD Interest Rate 3.00% to 5.25% 3.50% to 5.75%

Advantages of Fixed Deposits

One of the safest investing options is fixed deposits. The list of advantages one can avail if he/she opts for Fixed deposits are given below:

  1. Safety Assurance: Most of the Fixed deposits have been assigned the FAA+/Negative rating by CRISIL and the AA/Stable rating by CARE, indicating a high level of safety. So when you are opting for fixed deposits, make sure you are choosing the FAA+/Negative rating by CRISIL and the AA/Stable rating by CARE for security purposes.
  2. High FD Interest Rates for Senior Citizens: Senior citizens get a better FD interest rate when compared to individuals.
  3. Nominations: All fixed deposits have the option of being nominated. In the event of a depositor’s death, the deposit and any interest would be repaid to the nominee, with no regard for the deceased’s heirs or legal representatives.
  4. Auto-Renewal Process: Few banks offer an auto-renewal option. Where customers can opt for auto-renewal of fixed deposits as well as a simple maturity withdrawal process.
  5. Premature Withdrawal: Few banks offer premature withdrawal. After three months from the date of deposit, you can make a premature withdrawal from your fixed deposit account. Individuals who make a premature withdrawal within six months of the deposit will be paid an annual interest rate.
  6. TDS: No TDS is deducted at source on interest earned on fixed deposits up to 5,000 in a fiscal year.
  7. Loan Facility: Up to 75% of the total principal deposit can be borrowed against fixed deposits. The interest rate on this loan is 2% more than the maximum fixed deposit interest rate. However, this depends from bank to bank.

Overview of Fixed Deposit

Factors Affecting Fixed Deposits

The list of factors that affect fixed deposits are given below:

  • Deposit Tenure: The shorter the term, the lower the interest rate; the long or medium term, the higher the interest rate.
  • Deposit Amount: Higher deposit amounts, particularly bulk deposits above Rs.1 crore, will earn you higher interest rates.
  • Depositor Type: Senior citizens often receive 0.25 percent to 0.50 percent more interest on fixed deposits than other depositors.

How To Open a Fixed Deposit Account?

Any individual can simply open a fixed deposit account by simply visiting the bank which offers the option of Fixed Deposits. Also, few banks even provide an online facility where one can create fixed deposit accounts online.

Types of Fixed Deposit Account

The types of fixed deposit accounts are:

  • Cumulative Deposit: The interest received on the fixed deposit is credited annually and paid out along with the principle at maturity. It aids in the accumulation of a corpus because interest is compounded annually.
  • Non-cumulative Deposit: The depositor receives interest on a regular basis.
    Payments can be made monthly, quarterly, half-yearly, or once a year. You can utilise your regular interest payments to cover your daily expenses.

Joint Fixed Deposits

Few banks do have the option of opening fixed deposit accounts jointly. In those cases, banks will allow a joint fixed deposit account with a maximum of three joint holders.

However, only the first listed applicant will be paid the interest on non-cumulative deposits, and their discharge will be binding on the joint holders. Interest is presumed to have accumulated in the name of the first applicant in the case of cumulative deposits. The maturity repayment will be made according to the directions on the FD application form.

Fixed Deposits for Non-Resident Indians (NRIs)

Most banks offer fixed deposit options for NRIs as well. Fixed deposits for NRIs have a maximum term of three years. The depositor’s NRO account will be credited with the repayment of the money as well as any interest received.

Banks accept fixed deposits from NRIs and Persons of Indian Origin on a non-repatriation basis, meaning that the interest and capital received cannot be transferred back to the country of residency or converted to foreign currency, according to RBI regulations. As needed, the tax will be deducted at the source.

FAQ’s on Fixed Deposits

The frequently asked questions on fixed deposits are given below:

Q. How does a fixed deposit work?
A. A Fixed Deposit secures a sum of money for the duration of the deposit. Banks give depositors the option of investing their money for durations ranging from seven days to ten years. The interest rate on a deposit is determined by the length of time the money is kept with the bank. The depositor is not permitted to withdraw funds prior to the deadline. The bank credits the depositor’s bank account with the principal and interest on the maturity date.

Q. Can I get monthly interest on fixed deposit?
A. Yes you can get monthly interest on fixed deposits. For that, you should choose periodic payouts and monthly frequency, you can earn a monthly interest payment.

Q. Is FD a good option?
A. A fixed deposit is a low-risk, low-return investment that is excellent for risk-averse and cautious investors. So, if you’re a cautious investor than, you can obviously go for fixed deposits.

changing name

Changing Name: How To Change Name in PAN, Aadhar, Passport, DL

Leave a Comment / Uncategorized / By / January 4, 2024

Changing Name: It is quite usual for people to change their names in India. Many people change their names for a number of reasons. Some do it for good luck, while others do it after marriage, and yet others wish to correct the spellings of their names.  However, anyone who wishes to change their name will have to change their name legally. The legal procedures which one needs to follow in order to change their names are explained in this article. Read on to find out.

Procedure to Change Name

In order to change the name legally in India, one will have to follow the 3 step procedures which are explained below:

Step 1: Creation of Name Change Affidavit

The first step towards changing the name is to come with a new name. Once you have decided on the new name, you will have to prepare a Name Change Affidavit. For Name Change Affidavit, one will have to seek the assistance of a lawyer.

And this Name Change Affidavit is drafted on the stamp paper. In the Name Change Affidavit, one will have to mention the earlier name, the new name. Also one will have to mention the reason why he/she wants to change the name and mention the place of residence (current address). Once the process is completed, the name change affidavit must be signed by two witnesses and stamped by a gazetted officer.

Step 2: Newspaper Advertisement for Changing Name

Once the affidavit process is completed, the next step is to post an advertisement or release notice in a local newspaper saying that the name has been changed. For that one will have to select the 2 newspapers i.e., one newspaper language should be the state’s official language and the other newspaper’s language should be English.

For example, let’s say you live in Andhra Pradesh, then you can choose state’s local newspaper such as Eenadu or Andhrajyothi and other newspaper as Times of India/Indian Express.

So basically, the prerequisites for advertising in the newspaper are to choose two popular daily publications and send them a request with the following information:

  1. Current Name
  2. Previous Name
  3. Address
  4. Date of Birth

Step 3: Gazette Procedure for Changing Name

This is the final step. Your name will be changed once the new name is finalised after your gazette notification is published. For those employed by the government, the name change gazette notification is required; for others, it is optional. However, the gazette procedure is the only considerable evidence of your name change. Now you will have to submit few documents and they are:

  • ‘Deed Changing Came Form’  which can be collected from Controller of Publication, Department of Publication
  • Declaration letter of changing the name
  • Original copies of newspaper publication
  • 2 Passport size photographs
  • Address and Photo ID proofs

Before sending in the following information, call the Controller’s Office of Publication to acquire a complete list of what needs to be supplied, and make a note of it. Also, before sending the above documents to the Controller of Publication’s office address, place them in an A4-sized envelope.

The Controller of Publication’s office will deliver information along with copies of the Gazette in which the advertisement/notification was published. One should preserve all these documents carefully for future reference.

Gazette Notification Fees

Your part of the name changing process in India is now complete. Let’s look at the online fees for changing your name in the Gazette. The government will publish your new name in the Gazette. Depending on whether you want a public notice or not, the cost of a Gazette notification is either Rs. 700 or Rs. 900.

Address To Which the Documents To Be Sent

If you are submitting address in person, then you will have to visit the following address:

Controller of Publication,
Department of Publication,
Civil Lines, Delhi – 110054

If you are changing your name online, then you can send the documents to the address, which is as mentioned on the official website of the Department of Publication.

How To Change Name After Marriage?

Now, let’s look at the steps for changing your name in India. Marriage is a life-changing event. It also requires the change of a name (or surname) for many women, though many fewer than in the past. If you’re getting married or have recently married and need to alter your name, then you can simply follow the steps listed above to get your names changed.

Name Change In Birth Certificate

Usually, in urban areas, birth certificates are issued by the Municipal Corporation/Municipal Council, whereas in rural areas, the authority is the Tehsildar at the Taluka level, and the Gram Panchayat Office at the village level. Thus the steps to change your name on Birth Certificate is so simple and they are listed below:

  1. Collect the Birth Certificate Update/Correction Form from Municipal Corporation or Gram Panchayat office, where the birth certificate was issued.
  2. Obtain an affidavit from a local notary and approach the officer about changing your name on your birth certificate. Make an affidavit on non-judicial stamp paper with a minimal stamp and include the reason for the name change.
  3. Fill out the correction form and submit it to the municipal corporation along with an affidavit or certified copy of the judge’s original signature.
  4. Following the completion of the application process, publish the advertisement in the local newspaper and your state’s official Gazette publication.

Name Change in PAN Card

PAN card name changes can be done online using TIN or NSDL. The procedure is simple and maybe completed by filling out the form for PAN Card online name change through TIN or NSDL. The fee for seeking a PAN card change is Rs.105, with an additional charge of Rs.866 if the PAN card needs to be mailed abroad.

Name Change in PassPort

If you currently hold a passport and wish to update your surname after marriage, you must apply for a re-issue rather than a new passport. Though the application process stays the same, wedding certificates, old passports, copies of one’s husband’s passport, and other fundamental formalities are required to apply for a re-issue of passport.

Name Change in Bank Documents

Individuals who wish to change their name in bank documents can simply visit the bank and request for the same. If a woman needs to change her name after marriage, she must produce a marriage certificate in order for the change to be reflected in bank records. Banks may request additional documentation to authenticate the request in accordance with their internal policies. In most cases, a marriage certificate and a joint notarized affidavit from a notary will suffice to get the job of name change completed in a bank. The bank may also request proof of the husband’s address, such as a copy of his passport.

FAQs on Changing Name

The frequently asked questions on Changing Name in India are given below:

Q. What are the reasons for changing name?
A. The list of reasons for changing name are given below:
1. Change of Gender
2. Dislike Current Name
3. Divorce
4. Identity Makeover
5. Marriage
6. Political Context
7. Religious Reasons

Q. How do I advertise my name change?
A. The sample advertisement for newspaper publication is:
Format: I, XYZ, residing at, have changed my name to ABC and will be known as ABC from here on in. I have submitted an affidavit to this effect, which was signed by on.
Example: I, Manjunath V R/o 551, 10th Main, 8th Cross, Nr. Bombay Dyeing, Yeshwanthpur, Bangalore-560022, have changed my name to Manjunath Rao forever vide affidavit dated 18.12.15 Sworn before Notary K. Venkateshan Bangalore.

Q. Does changing your name affect your credit?
A. No, changing name doesn’t affect credit report or credit score.