Deduction in Respect of Medical Treatment – Section 80DDB

Deduction in Respect of Medical Treatment – Section 80DDB

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

Deduction in Respect of Medical Treatment – Section 80DDB: Section 80 DDB covered in Chapter VI-A of the IT Act 1961-2020 allows for deductions for medical treatment, among other things.

What Diseases are Recognized by this Special Provision?

  • Neurological ailments with a disability level of 40% or above are certified by specialized physicians, including  Dementia, Dystonia Musculorum Deformans, Motor Neuron Disease, Ataxia, Chorea, etc. Hemiballismus, Aphasia, and Parkinson’s Disease.
  • Malignant cancers;
  • Acquired Immunodeficiency Syndrome (AIDS) in its entirety;
  • Chronic Renal Dysfunction;
  • Haematological diseases such as Hemophilia and Thalassaemia.

Section 80DDB

Who is Eligible to Receive the Deduction Under Section 80DDB?

Individuals and HUFs are the only entities who can legitimately claim a deduction under Section 80DDB. The provision does not extend to non-residents.

Additionally, the deduction may only be requested by the individual who bore the expenditures.

Medical costs, on the other hand, can be paid for the healthcare and other medical expenses of the following individuals:

  • Individuals: In the context of individual medical expenses might well be spent for the taxpayer or any of his dependents’ medical care. In this article, the term “dependents” specifically refers to the individual’s spouse, kids, parents, siblings.
  • Hindu Undivided Family (HUF): In the context of a HUF, medical expenses made for medical treatment of any former member of the HUF can be taken as a deduction.

What is the Sum of the Deduction Under Section 80DDB?

The deduction amount is characterized by two parameters: the patient’s age and the actual amount of spending.

The amount is fixed to the lesser of the following:

  • The actual cost spent for the treatment or
  • Rs. 40,000 /– (in the case of a normal citizen), whichever is smaller.

If the individual is a senior citizen, the highest limit of deduction is Rs.1 lakh.

National Pension Scheme Under Section 80CCD

National Pension Scheme Under Section 80CCD

Leave a Comment / Saving Schemes / By / January 5, 2024

National Pension Scheme Under Section 80CCD: NPS is the acronym for The National Pension Scheme. It is a pension scheme designed for both private citizens as well as government employees. The NPS is among the most acclaimed options available to individuals who want to create a trust for their retirement that includes a regular monthly income.

It is widely observed to be one of the cheaper investment options invested in a range of investment avenues with exposure to the equity market. The returns being directly related to market performance, no guarantee of any particular amount can be stated.

What is Section 80CCD?

According to the 1961 income tax act, this provision is associated with the deductions offered to individuals who make contributions to the NPS. Until 2015, as per the 80CCD, the claim for tax deduction eligible for an individual was up to 1 Lakhs per annum against the contributions made to the NPS.

Who are Eligible to Join the NPS?

Any citizen of the country within the age of 16 to 65 who comply with KYC norms (know your customer) can opt for NPS accounts. The NPS is opened to everyone in the society, including people in business, self-employed individuals and non-salaried people of the country. NRI (non-resident Indians) are eligible to open an NPS account.

How to Register under the NPS?

Two ways of registering for the NPS account are:

Offline Registration of the Account

Given below are the steps to open your NPS account offline:

  1. First, the candidate needs to visit their nearest office of the point of presence-service provider or POP-SP.
  2. They will be required to submit their registration form in physical format with required documents for compliance with KYC.
  3. Documents proving your identification, date of birth, photograph and address proof has to be submitted.
  4. You need either your Aadhaar or your PAN card to open an account.
  5. You will have to choose any one among two Central Recordkeeping Agencies for your account.
  6. All documents such as address proof, identity proof, electricity bill, water bill, school leaving certificate, PAN card, driving license, rent receipt; will be accepted.
  1. Suppose one fails to provide any of the documents listed above. In that case, the only other way is to submit a copy of their certificates of identity and address with a signature from personnel of the parliament or Member of the Legislative Assembly or Gazetted Officer or a Municipal Councillor can be accepted.

Online Registration of the Account

Given below are the steps to open your NPS account online:

  1. At first, the candidate will have to visit the website of NDSL.
  2. There are two ways of registering; one is Aadhaar based, and the other is through PAN-based verification.
  3. For Aadhaar based verification, you will have to generate your eKYC from the Aadhaar website from the link provided on the NDSL website.
  4. After submitting the eKYC form, personal details concerning name, gender, address, contact details are taken from it.
  5. You will need scanned copies of a cancelled cheque and photograph for online submission, which you will upload.
  6. For PAN registration, you can apply with your PAN number through the Karvy or NDSL website.
  7. You have to provide certain specified details of your bank and your account number for it to be verified.
  8. You will be needed to upload scanned copies of a cancelled cheque, your latest photograph, signatures and most importantly, your PAN card.
  9. It is mandatory to make the minimum contribution of Rs 500 if you want a Tier I account and Rs 1000 for a Tier II account.
  10. Then you will have to e-sign the form. In case of problems with e-signatures, you have to mail a physically attested copy of your CRA within 30 days of PRAN.
  11. In the case of non-resident Indians, additional documents such as passports might be required.

About the NPS Account:

Tier I Account

The most basic NPS account offered by the government is the Tier I account. It is rigid in terms of withdrawal, with an equity exposure that helps plan the future requirements of its subscriber after retirement. There also income tax benefits available on the contributions made in a Tier I account. A minimum contribution of 1000 is necessary.

‌Tier II Account 

The add-on account is called the Tier II account. It is not as rigid as Tier I accounts, with the availability of flexible withdrawal schemes and no limit for the minimum balance required for subscribers. Income tax benefits are not available on contributions made in a Tier II account. There is no need for a minimum annual contribution.

Return Policy

One can expect a 12% to 14% return from the NPS Equity scheme in the long run. The maximum Equity investment can go up to 75%. The returns offered are much higher than most other tax-saving investments such as PPF. The scheme has been in effect for over a decade and has shown annualised returns of 8% to 10%.

For medical emergencies or educational purposes, one can withdraw an amount up to three times. All of these will be partial withdrawal without tax added to them.

How is the NPS Return Calculated?

The Indian calculation for the National Pension Scheme uses the formula:

A = P (1+r/n) ^ Nt

  • P= The principal sum
  • r/n= The Rate of Interest offered per annum
  • N/n= The number of times the interest compounds
  • T/t= The total tenure

Assets for Fund Investment Scheme 

The sets of considered assets for the investment of the NPS funds are categorised on the basis of return characteristics.

  • Asset Class E – The maximum investment considered in this class is 50% of the total stated contribution. The investments are made predominantly in the legal equity market.
  • Asset Class C – Investment is in fixed instruments apart from Government securities such as Debentures, Corporate Bonds, etc.
  • Asset Class G – investments directly in government securities.
  • Asset Class A – The alternative investment schemes include instruments such as MBS, AIFs, CMBS, etc.

Scheme Preference

Scheme Preference is referred to the Pension fund scheme chosen by a subscriber for investing in the pension contribution amount.

There are two methods available to invest in the account:

  1. Active Choice: Among the E, C and G Asset classes, the subscriber is given the task of selecting a Fund manager and sorting the Pension Ratio that is to be invested among the individual funds. The subscriber can specify the desired percentage in which their money will be invested among the class assets in active choice. However, the allocation in the Equity market cannot cross 50%.
  2. Auto Choice: The subscriber has the task of selecting a Fund manager. According to the Lifecycle Fund, their funds will be invested according to the Lifecycle matrix based on the age of the concerned subscriber. In auto choice, the system will begin to automatically calculate the percentages in asset allocation on the basis of the subscriber’s age.

About Pension Fund Manager

The Fund Manager is the one responsible for the implementation of a fund’s investment tactic and handling its activities professionally and with efficiency. They make crucial investment decisions, manage analysis, conduct researches, develop policies and also benefits packages.

About Annuity Service Providers 

The Annuity Service Provider is responsible for managing the funds, payments and providing for their subscribers, Annuity Services at the tie of their exit from the NPS system.

Charges Applicable for NPS

Although the NPS has the lowest fund management charges of about 0.01%, the fees and charges should not be ignored.

POPs Charges

POPs stand for Points of Presence, such as banks that are appointed by the PFRDA. The POPs provide services through their network of branches known as POP-SP. POPs ensure that all the jobs that are related to NPS are met in time. Their charges are stated below:

  1. Initial Contribution
  2. Initial Subscriber Registration
  3. All Non-financial Transactions
  4. eNPS
  5. Persistency Fee

CRA Charges

CRA is Central Recordkeeping Agency. They are in charge of recordkeeping, customer service, administration and functions for all its NPS subscribers. Their fees are:

  1. PRA Opening Charge
  2. Charge per transaction
  3. Annual Maintenance Charge

Investment Management Fee: The fees that Fund Managing companies like ICICI, LIC get for managing pension funds of its clients are Investment Management Fees. The investment management fee is about 0.01% currently (Rs 100) to manage Rs 10 lakhs.

Custodian Fee: The Stock Holding Corporation of India, also called the SCHIL, is accountable for the custody of all assets. The fees required for their maintenance is called Custodian Fee.

NPS Trust Fee: The NPS Trust has the responsibility of taking care of the funds under NPS. The trust holds a legal account with Axis Bank and is designated as the Trustee Bank.

Tax Benefits Under National Pension Scheme

Under subsection 80CCD (1B), an exclusive tax benefit is offered to all NPS subscribers. Additional deduction for a Tier I account may be up to Rs. 50,000. The Tax benefits of under corporate division are:

  1. Corporate Subscriber: NPS Contribution up to 10% of the salary (basic + DA), subtractable from the taxable income except for any monetary limit.
  2. Corporates: The employer’s contribution for NPS to 10% of the salary (basic + DA) can be subtractable from the account’s profit and loss.

What is Meant by Net Asset Value? 

Net Asset Value or the NAV is the cost of one unit of a fund. It is calculated at the end of each and every working day that lies between Monday and Friday. The calculation is done by the addition of all securities and cash in the said fund’s portfolio, from which the liabilities are subtracted, and the result is divided by the number of units issued by the fund.

About Exiting the NPS

The different categories of withdrawal from NPS according to the Regulations of 2015 are stated below.

Normal Superannuation

The least of 40% of the total accumulated pension of a subscriber has to be put to use for purchasing an Annuity providing for the monthly pension to the subscriber, and the amount is paid to the subscriber as a lump sum.

Upon Death

The least of 80% of the total accumulated pension of a subscriber has to be put to use for purchasing an Annuity to provide for the surviving spouse, and the amount is paid in one single payment to the subscriber.

Note: For both these cases, if the total corpus balance is less than or equals Rs. 2 lakhs on the date of retirement, the complete withdrawal option can be availed by the subscriber or the legal nominee (in case of death of subscriber).

Pre-mature Exit

The least of 80% of the total accumulated pension of a subscriber has to be put to use for purchasing an Annuity to provide a monthly pension. If the total corpus balance is less than or equals Rs. 1 lakh, on the date of resignation, the complete withdrawal option can be availed by the subscriber.

Transfer of ITC In Case of Death of Sole Proprietor

Transfer of ITC In Case of Death of Sole Proprietor

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

Transfer of ITC In Case of Death of Sole Proprietor: In case of the death of the sole proprietor, the ITC or Input Tax Credit remaining in their account can be utilised by the transferee under Section 18 (3) of the CGST Act of 2017. According to the CGST rule 41 (1) f 2017, the person who is a relative can file Form number ITC-02 GST online on their official portal and request to transfer the deceased person’s input tax credit in the electronic credit ledger to the successor’s account.

The successor or the transferee who wishes to transfer the Input Tax Credit left in the account of a deceased relative will have to visit the official site of GST and fill up an application with their request.

Provisions That Mention Transfer of ITC in Case of Death

The following sections say the successor or transferee’s terms must follow to get the unutilised credit and continue or discontinue the business.

  1. Section 18 (3): It provides transfer of input tax credit remaining in the account.
  2. Section 29 (1) (a): It provides why a person wants to transfer the business.
  3. Section 22 (3): It provides the transferee or the successor be liable to get the Registration.
  4. Section 85 (1): It mentions who is liable if there is a business transfer from one owner to another.
  5. Rule 41 (1): It states that the registered person can file Form GST ITC 2 online on the portal and place a request to transfer the remaining ITC lying in the electronic credit ledger to the transferee.

Guidelines for Transfer of ITC in case of Death of the Sole Proprietor

  1. After the death of the sole proprietor, any person who is a transferee or a successor can continue the business. They can transfer the remaining input tax credit in the electronic credit ledger as per the rules, which are as follows.
  2. The transferee or successor will be liable to register the succession from the date of transfer or shift. The reason for transfer to another person many include any reason including death of the proprietor.
  3. They have to file an application in form GST REG 01 in the online portal.
  4. They have to mention the reason to obtain the Registration as the death of the proprietor.

For Cancellation of Registration

  1. If the legal heirs of the departed do not wish to continue with the ITC, they can apply for cancellation as per Section 29 (1).
  2. The legal heirs can apply for cancellation of the Registration online by filling up Form GST REG 16 on the official portal to transfer the business.
  3. They can mention the reason for cancellation as the death of the proprietor.
  4. The reason for cancellation is compulsory.
  5. The transferee’s name who acquires the business must mention their GSTIN and the GSTIN of the transferor.
  6. They can link their GSTIN on the site.

Input Tax Credit and Liability

  1. Credit Transfer: Section 18 (3) allows a person with registration to transfer the unutilised input tax credit lying in their electronic credit ledger to the transferee under rule 41 of the CGST Rules.
  2. Liable Person: Section 85 (1) allows the transferor and the transferee or the successor to jointly be liable to pay any interest, tax, or penalty that may be due in the case of the business transfer. In such a case, the business transfer may be in whole, part, by sale, gift, lease, license, hire, leave, or any other means.
  3. Liability to pay Tax: Section 93 (1) states that the person who takes over the business after the owner’s death will have to pay the tax, penalty or interest that is due from the previous person.
  4. Manner of transfer: Rule 41 (1) states that the registered person will have to file Form GST ITC 2 online through the common portal and place a request for the transfer of the tax credit in the electronic credit ledger to their account. They can get the credit if there is a sale, de-merger, merger, amalgamation, lease or transfer in the ownership of the business for any reason, including the death of the original owner.
  5. Requirement for credit transfer: The successor or transferee has to fill Form GST ITC 2 before applying to cancellation of the Registration. After the authorities have accepted the transfer, they will credit the unutilised input tax credit to the new owner according to the Form GST ITC 2 in their electronic credit ledger.
Interest on Refund of Income Tax – Section 244A

Interest on Refund of Income Tax – Section 244A

Leave a Comment / Income Tax / By / January 4, 2024

Interest on Refund of Income Tax – Section 244A: Many a time, it so happens that while paying tax, a person’s paid tax is excess in comparison to the tax due on him/her. In such cases, the Income Tax department refunds the excess amount of tax to the taxpayer.

When the tax amount is paid in excess, the taxpayer is undoubtedly entitled to a refund by the tax department. The excess tax can be paid in the form of advance tax, tax deducted at source,

self-assessment tax, or payment of tax on regular assessment. If the tax amount is paid in excess in any of the cases mentioned, the taxpayer will get a refund. Section 235 to 245 of the Income Tax Act deals with the refund of the excess tax amount.

When the excess tax amount paid by the taxpayer is returned to him/her at a delayed time, he/she is entitled to interest on the excess tax amount. Here, in this article, we will discuss the interest on refund of income tax.

When Refund Arises?

Section 237 of the Income Tax Act states that, when a person satisfies the Assessing Officer that the amount of tax paid by him/her or on his/her behalf for any year has exceeded the amount of tax due, in such a case, the person shall be entitled to a refund.

Interest on Refund of Income Tax

Who Can Claim Refund?

In general, a person who satisfies the Assessing Officer that the amount paid by him/her is excess compared to the tax due can claim a refund for the same. But, there are specific provisions for special cases in income tax where the refund can be claimed by a person other than the payer. Section 238 of the income tax act reviews the provisions for special cases for the claim of the tax refund.

Section 238 of the income tax act states the following:

  • When the income of one person is added or included in the total income of another person while assessing tax. Under the provisions of the act, the latter is entitled to claim a refund in respect of his clubbed income.
  • If in case a person dies, is incapable, or is insolvent, and is unable to claim the amount of refund due to him/her. The refund in such cases can be claimed by his/her legal representative, trustee, or guardian.

Interest on Refund

When a taxpayer pays in excess, the Income-tax department is not able to process the refund on time due to some reasons. If the refund amount is not returned to the taxpayer on time, he/she is entitled to interest on the amount of refund. Section 244 of the income tax acts speaks of the interest due on a refund. The following are the provisions of interest on refund given under the income tax act:

  • According to the income tax act, if the refund arises out of any tax deducted or collected at source or paid by way of advance tax. In such cases, the taxpayer is entitled to an interest of 0.5 percent per month or part of a month on the refund amount. The interest in such cases shall be given out from the 1st day of April of the assessment year until the refund amount is granted to the taxpayer. There is also a condition that states that the taxpayer must have filed the tax return before the due date to claim interest.
  • If the refund arises out of the tax paid through self-assessment, in such a case, the taxpayer should be entitled to an interest of 0.5 percent per month or a part of the month on the tax amount. Here, the interest shall be calculated from the date of furnishing return or payment of tax, whichever is later, to the date on which refund is transferred to the taxpayer.

The income tax act also lays down specific provisions for the non-payment of interest on the refund amount. According to the Income-tax act, no interest shall be paid by the income tax department on the refund amount if the amount of refund is less than 10% of the tax amount due.

GST Practitioner

GST Practitioner – Eligibility, Functions and Steps for Registering

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

GST Practitioner: GST (Goods and Services Tax) law is the new indirect tax law in India that is levied on most goods and services that are consumed by consumers. GST is a unified taxation system employed throughout a country. In India, there are two components to GST, the State GST and the Central GST. A GSTP or GST practitioner is the person authorised by the State or Central Governments to help the people who pay tax in GST compliance. A person who is registered to pay his tax has to authorise a GSTP in their GST portal to allow the practitioner to work on their behalf. Although this work can be performed by any person but with the help of GSTP, the following work can be done without any error. Any discrepancies arising related to the correctness of the information fall on the person even though a GST practitioner has been appointed. The person remains completely liable for all purposes.

GST Practitioner Eligibility

To become a GST Practitioner, one should

  • one should be an Indian citizen,
  • They should be a person of sound mind.
  • They should not be adjudged as insolvent and
  • Condemned by a competent court.
  • The candidate should also pass any of the following examinations, such as the Institute of Chartered Accountants and Cost Accountants examination or the Institute of Company Secretaries examination.

Moreover, the candidate should also satisfy any of the following conditions –

  • Should have bachelors or postgraduate degree.
  • A degree examination of Foreign University approved by any Indian University.
  • Any other examination announced by the Government.
  • He/She can be a retiree above the rank of Group-B gazetted officer who has worked for at least two years in the department of tax in state government or the department of revenue, central board of excise and customs GOI.
  • He has been recruited as a sales tax practitioner or tax return preparer under the present law for less than five years.

GST Practitioner Functions

On behalf of the Taxpayers, the GST Practitioners are allowed to do the following activities given below,

  • Apply for fresh registration on behalf of the taxpayers
  • File request for correction or withdrawal of registration
  • Provide monthly, quarterly, and yearly GST returns such as GSTR – 1, GSTR – 9, etc.
  • File refund claims or pays taxes, interest, penalty, fees or any other amount on behalf of the registered persons.
  • Appear as a licensed diplomat before any officer of department, appellate authority or tribunal
  • Generate challan and deposit cash into the electronic cash ledger
  • Viewing GST announcements

Steps To Become A GSTP

The process of becoming a practitioner is relatively simple. Here are some of the essential steps to become a certified GST Practitioner-

  • The person has to make an application in GST PCT-01 electronically.
  • After enquiring as required, the authorised Officer registers the applicant as GSTP by issuing the GST PCT-02 form certificate. Likewise, the official body shall decline the application if the candidate is not qualified to become a GST Practitioner.
  •  The certificate remains valid until it is withdrawn.
  • The candidate registered as a GST Practitioner must pass an exam administered by the National Academy of Customs, Indirect Taxes and Narcotics (NACIN).

Steps for Registering As A GSTP

  • Step-1: Go to the website of www.gst.gov.in and click on New Registration
  • Step-2: On the New Registration page, click the “I Am” option and then choose GST Practitioner from the dropdown list. Enter name, e-mail address, PAN, contact number, and Captcha code and click on continue.
  • Step-3: Enter the OTP received on e-mail and contact number. Click on continue.
  • Step-4: A TRN (Temporary Reference Number) will be generated; enter TRN and Captcha.
  • Step-5: Enter the new OTP received on the registered mobile no.
  • Step-6: Register all details and upload the required documents.
  • Step-7: Verify the name, place and date and click on ‘Submit with EVC’ on the Verifying page.

GST Practitioner Exam

GST Practitioner Exam is a Multiple-choice question (MCQ) test that is being conducted in an online mode. NACIN declares the GSTP exam results within one month from the date of the exam. The exam is held twice a year.

  • Applicants must log in to “https://nacin.onlineregistrationform.org/NACIN/” to register for the GSTP exam.
  • Once the registration portal is opened, he/she needs to provide the GST registration number and PAN details, and the screen will display the application.
  • After the form filling session, the candidate has to choose any of the 3 test centres and a copy of passport size photo and signature.
  • After the submission of the application form, a payment of Rs. 500 should be paid through the online process. The passing criteria are 50% for an eligible person.
  • The person registered as a GST Practitioner is expected to pass this exam within two years of the admission date.

FAQ’s on GST Practitioner

Question 1.
What are the two ways a GSTP application can be submitted?

Answer:
The two ways a GSTP application can be submitted by using the DSC token or EVC and e-signature. While submitting the form by DSC token, the emSigner from eMudra should be installed on the laptop. While submitting through EVC and e-signature, the candidate receives 2 OTPs on its e-mail id and registered phone number, and after entering the OTP, candidates can submit the application.

Question 2.
Who is responsible for correcting the details of the provided forms?

Answer:
The responsibility for correcting any details provided in the return or other details filed by the GSTP shall stay with the registered person on whose account such details are provided. If the registered person fails to respond to the confirmation request, then it will be treated as deemed confirmation.

Question 3.
Can we save their registration application?

Answer:
One can save their Registration Application up to 15 days from the day the TRN is generated.

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.

Benefits in Income Tax for Senior Citizens

Benefits in Income Tax for Senior Citizens – Income Tax Benefits for Senior Citizens

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

The term “senior citizen” is defined by legislation as a citizen between the ages of 60 and 80 on the penultimate day of the preceding financial year.

IT Returns Must Be Filed

In case a senior citizen or super senior citizen makes even the slightest amount of money through the budget year, they must still report income tax. Regardless of whether the income is not eligible for taxation, a tax return must be essentially filed to receive a tax deduction or provide official documentation of revenue generated during a budget year.

Senior citizens must fully implement the following income tax forms depending on what type of their revenue to file a tax return:

  • ITR 1 should be submitted when the overall income is up to Rs 50 lakhs from wage, one house estate, other alternative sources, or farming produce up to Rs 5,000.
  • ITR 2 should be submitted if the total income exceeds Rs 50 lakhs or if the earnings from two residential properties, capital gains, or agricultural productivity surpasses Rs 5,000.
  • In the case of annual income from a business or profession, the taxpayer must complete ITR 3.
  • ITR 4 extends to presumptive income.

It is mandatory for residents to submit their returns online. However, submitting the form online is not generally required for super senior citizens. They can register their ITR 1 (Sahaj) and ITR 4 (Sugam) either online or in person.

Individuals over the age of 80 as that of at the end of the preceding financial period are specifically referred to as super senior citizens.

What are the Sources Of Revenue for the Senior Citizens?

Senior citizens frequently earn their revenue from the below sources:

  • retirement plans.
  • Savings account returns or fixed deposit programs
  • Rental revenue from the tenancy of a house.
  • Capital Gains are a fundamental consideration.
  • Schemes for senior citizens to focus on saving money.
  • various projects involving reverse mortgages
  • Post office deposit programs that also pay the interest
  • And there are plenty more.

Senior Citizens Income Tax Brackets

  • Both Income tax and the Health and Education Cess are not chargeable to earnings up to INR 3 lakh.
  • Whenever the income is somewhere between INR 3 lakh and INR 5 lakh, the tax rate is 5%, and the Health and Education Cess is 4% of the income tax.
  • When the income is within INR 5 lakh and INR 10 lakh, the tax rate is 20%, and the Health and Education Cess is 4% of the income tax.
  • When income surpasses INR 10 lakh, income tax is collected at a rate of 30%, and the Health and Education Cess is charged at a rate of 4% of income tax.

Whether we prefer it to or not, we all care about the consequences and make considerable investment decisions to save and spend funds in order to have a safe and secure future.

Individuals are frequently on the search for investment decisions that will actually offer them a reasonably reliable and consistent source of income during their future post-retirement period.

The majority of senior citizens in India continue to endure financial hardships in old age since the overwhelming bulk of them have been unable to make a decent living. If they have any, their funds are insufficient to meet their day-to-day needs, specifically medical costs.

The Income Tax Act of India gives several incentives to senior citizens in order to significantly reduce their problems and issues and help to alleviate their stress and tension during this point in life.

What Tax Exemptions Do Senior Citizens Have From Income Tax Returns?

The standard exemption ceiling for regular individual taxpayers, up to which they are not actually needed to pay any income tax, is typically priced at Rs. 2.50 lakhs for the current financial year 2020-21.

The baseline exemption amount for Senior Citizens, on the other hand, is set at Rs. Three lakhs, i.e., Rs 50,000 more than usual taxpayers.

What Other Economic Privileges Do Senior Citizens Have In Terms Of Income Tax?

Here are some of the tax breaks and incentives that may help senior citizens with their financial obligations.

Health Insurance Tax Benefits

Section 80 D provides a bonus to senior citizens in exchange for paying their health insurance premiums.

Health insurance payments paid for senior people, or super senior citizens are eligible as a deduction under this provision up to a threshold of INR 50,000.

Furthermore, a deduction of INR 1,000,000 is actually conceivable under section 80DDB for expenditures spent in the medical treatment of a certain ailment. These two deductions have only been legally allowed under the previous tax structure.

The following conditions and related disorders are currently listed in Income Tax Rule 11DD and are allowed for deduction under Section 80DDB:

  1. Dementia, Dystonia Musculorum Deformans, Chorea, Motor Neuron Disease, Ataxia, Aphasia, Parkinson’s Disease, and Hemiballismus are examples of neurological diseases that have been verified by a specialist neurologist and where the severity of impairment has been confirmed to be 40% or above.
  2. Cancer that is malignant.
  3. Acquired Immunodeficiency Syndrome or AIDS
  4. Kidney failure is chronic.
  5. Hematological illnesses such as hemophilia and thalassemia

Interest Income Advantage

Senior persons who are Indian residents would not have to pay income tax on interest earned up to Rs.50,000/- in a budgetary year.

This is due to the changes in the Finance Act of 2018.

This would include revenue from savings accounts, fixed deposit programs, and post office deposit schemes. It also incorporates any profits made on deposits with a Co-operative Society engaged in banking, as defined under section 80 TTA of the Income Tax Act.

TDS is automatically deducted if the interest income surpasses INR 50,000. Citizens above the age of 60, on the other contrary, can file Form 15H to make the claim of exemption from TDS deduction on cash generated by such investments.

There is no Obligation to Pay Advance Tax

The term “advance tax” specifically refers to a sum of money paid in advance to the Indian government that all people are obligated to pay.

Regular citizens must submit an advance tax if their tax burden is Rs.10,000/- or more in a current budget year, whereas senior citizens are entirely exempt from this legal obligation provided they make a decent living through a business or occupation.

They must only actually pay Self-Assessment Tax after evaluating their overall tax burden for the budgetary year.

There is no Taxation Applied Under the Reverse Mortgage Scheme

A senior citizen can indeed reverse mortgage any of his resources to generate monthly revenue.  The senior individual holds possession of the property and enjoys monthly compensation for it. The total sum paid directly to the owner in installments is completely independent of Income Tax.

Reimbursement According to Section 80CCD (1B)

Investments in the National Pension Scheme are authorized as a reduction under this provision, subject to a limit of INR 50,000. This tax deduction is in addition to the amount reduction legally permitted under Sections 80C and 80CCC.

An NPS account can be established when you’re under the age of 65.

Exemption under Section 80G

If senior citizens or super senior citizens contribute to specific humanitarian causes and organizations, they can request a tax exemption for their financial contribution. Tax breaks are permitted by law at either 50% or 100% of the total amount paid, depending, of course, on the charity.

Exemption in compliance with Section 80C

This provision authorizes senior citizens and super senior citizens to exclude up to Rs 1.5 lakhs from their overall total revenue for approved investment and expenditure schemes.

This clause comprises the following investment schemes:

  • Fixed deposits plan to extend for five years
  • Contributing in an Equity-Linked Savings Plan (ELSS).
  • Active participation in the Public Provident Fund (PPF).
  • Paying of life insurance premiums (LIP).
  • Contributing to a Senior Citizen Savings Plan (SCSS).
  • National Savings Certificates and schemes alike
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.

Is Interest on Home Loan Considered as a Part of Cost of Acquisition

Is Interest on Home Loan Considered as a Part of Cost of Acquisition?

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

Legal Basis

According to Section 24B, at the time of computing income, payment of interest is allowed as a deduction from house property on a home loan.

According to Section 48, 49, and 55, the purpose of computing the capital gains is considered for the computation of the cost and capital gain. No statement in this Section acknowledges that on sale of a house property, the interest paid on a home loan to be considered as a cost acquisition to compute capital gain.

So, the Income Tax Act hasn’t provided any statement or provision on whether an assessee can claim the double benefit of deduction can be claimed by an individual under section 24B and also at the time of computing capital gain, the addition of the same interest on the sale of house property in the cost of acquisition.

The Decision of ITATs and High Courts

In the case of double deduction of home loan interest, there are several case laws related to different decisions.

ITAT Chennai Bench (ACIT v C.Ramabrahmam)- 2012

Some funds were borrowed for purchasing a house property by the individual. Under Section 24(b), the individual had claimed the interest paid on the loan as a deduction. Under Section 48, the interest paid on loan treated as “cost of acquisition” was claimed as a deduction when the house property was sold in computing the capital gains. In the case of capital gains, the interest allowed as a deduction cannot be allowed again by the concerned/assessing officer under Section 24(b).

The individual’s situation and the view were held by the CIT(A). Income from house property and capital gains like different heads were covered under Section 48 and Section 24(b) for deduction and capital gains computation. The operatives of each other are not excluded by any of them. In acquiring the asset, the expenditure was the interest in question. Hence, the individual had to include the paid interest on the home loan under Section 48 although it had been claimed under Section 24(b) as both provisions are different from each other in every way. The CIT(A)’s view was kept by the ITAT, Chennai branch as it dismissed the revenue’s appeal.

ITAT Bangalore Bench (Captain B L Lingaraju Vs. ACIT)- 2016

A short-term capital gain result was earned by a Taxpayer for the sale of his house property. The deduction of interest paid on housing loans in the previous years was claimed and the income from houses like these is offered to tax. The interest paid on housing loans by the taxpayer was included as a part of the cost of acquisition at the time of computation of capital gains. The interest claimed was disallowed by the assessing/concerned officer as part of the cost of acquisition as at the time of reporting income, the interest had already been claimed under the head income. The CIT(A) upheld the assessing/concerned officer’s decision and it was filed with the Commissioner of Income Tax Appeal and CIT (A).

An appeal was filed by the taxpayer on Karnataka High Court before the Tribunal on the ground that the court’s decisions were not considered by the CIT (A) in the case of Shri Hariram Hotels and the property was purchased out of a loan borrowed by the taxpayers.

The taxpayer was advised by the Tribunal that reliance on various other judgments of the Madras High Court, Delhi High Court, and of other Tribunals should’ve been placed by him. The other judgments were not considered by the tribunal in relevance to this case even though the jurisdictional High Court has its judgment.

Although it was justified by the Tribunal that the High Court followed its original judgment in the case of Shri Hariram Hotels and MaithreyiPai (CIT v/s MaithreyiPai 1985 152 ITR 247 Karnataka). The interest paid on loan received, at the time of capital gains computation, from directors for the purchase of shares was deducted by the taxpayer in the MaithreyiPai case. For the cost of acquisition deductions, the interest paid had to fall on the borrowings for the acquisition of capital assets held by the High Court. In the MaithreyiPai case, the decision of the High Court was followed by the Tribunal for hypothesis and held, in the present case, the interest paid on a home loan couldn’t be granted a claim to the taxpayer for capital gain computation as the presented interest was already allowed as a deduction from house property. Under the scheme of the Act, in case of the same amount deduction twice, no taxpayer is allowed to do so.

Home Loan Considered as a Part of Cost of Acquisition

Conclusion

The Apex Court gave a decision and reference paragraph in the case of Escorts Ltd and observations on the possibility of claiming double deductions were given by Another v Union of India (1993) 199 ITR 43 (SC) under the Income-tax statute:

“In our view, there was no difficulty at all in the interpretation of the provisions and The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier…..…A double deduction cannot be a matter of inference; it must be provided for in clear and express language regarding its unusual nature and its serious impact on the revenues of the State.”

The head of income for both would certainly invite litigation when in a position to claim expenditure. Hence, at the time of claiming a double deduction, the litigation cost should be considered by an individual with tax-saving benefits possibilities. From this, we may conclude that the case was favorable towards the individual when the claim amount as a deduction from house property was not being paid by him (due to the subject limit of Rs.2 Lakhs or Rs.30,000). The amount for double deduction would not proceed as earlier, the excess interest was not allowed as deduction.

Types or Classification of Mutual Funds

Types or Classification of Mutual Funds – Based on Objectives and Maturity Period

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

Types or Classification of Mutual Funds: Mutual funds are a trust that is handled by professionals whose primary task is to accumulate funds from multiple investors & further invest them in numerous securities such as stocks, precious metals, bonds etc.

Mutual funds provide individual or small investors reach to professionally managed portfolios of bonds, equities, and other types of securities. For each shareholder, therefore, proportional participation leads to the gains or losses of the fund.

The funds are invested in such a process that the losses can be efficiently compensated with the profits.

Suppose a person is facing complexity in finding the time to do research over multiple investment options available in the market & make a choice. In that case, mutual funds are the most reliable way to remove their hassle. Mutual funds are acknowledged as the easy and flexible mode of investment, which also grants liquidity to the investor.

Mutual funds are allocated based on Investment objectives & Maturity period.

Based on Investment Objectives

  • Growth or Equity funds: Equity funds are the funds into which the bulk of the investment is made in equity shares. Therefore it offers a high risk but also the potential of huge returns. To achieve long-term growth is the primary goal for investment under such kind of funds. There may be funds that focus primarily on a single sector of the market, e.g. the equity fund of the banking sector.
  • Debt or Income Funds: The investment made under such kind of funds are in securities such as debentures, government securities, bonds etc. Since investment is addressed in debt instruments, the risk factor is low & income is regular and stable. Income or Debt funds are pretty limited volatile as compared to equity funds. The investment goal made under such type of safe funds and to accomplish moderate growth of funds.
  • Balanced funds: The money that is invested in both equity & debt instruments is called Underbalanced funds. The investment goal is to achieve both moderate growth and profits. They guarantee stable returns & recognition in capital to the individuals who have invested money in balanced funds.
  • Money Market or Liquid funds: For short-term investments, such funds are made as commercial papers, treasury bills etc., under which the timeline is less than 91 days. In order to attain liquidity is the main objective of such investment under liquid funds, average return on funds and increase in capital.
  • Gilt funds: These kinds of funds carry no credit risk because they are government securities and are considered the safest sort of funds.

There are also alternatives to choose for the growth option and dividend option. In the choice of growth, the income is not distributed; whereas in the dividend option, the income earned is distributed among the unitholders; therefore, the income obtains reinvested in the same fund.

Classification of Mutual Funds

Based on Maturity Period

  • Open-Ended Fund: The funds in which the maturity date is not fixed are Open-ended funds. The investors hold the opportunity to sell and buy units at any time at NAV. Investors can make an investment at any time during the year & redemption can also be made on an unbroken basis as these are the liquid funds.
  • Close-ended fund: The funds where the maturity period is fixed are called Close-ended funds. Like open-ended funds, These funds are not available for subscription all the time. Instead, they are available for investment during a specified period of time, i.e. when these are launched initially.
  • Interval Funds: The combined version of Open-ended, as well as closed-ended funds, are considered Interval funds. These funds are available at predetermined intervals for trading in the stock exchange.
Gross Annual Value of House Property

Gross Annual Value of House Property

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

What is the Gross Annual Value of House property?

The tax revenue that may be made from immovable property is defined as the gross annual value (GAV). GAV will implement regardless of whether the property is rented out for business or residential usage.

Section 23 clearly states that revenue from residential housing is taxed as income annually.

Even if the residential property is not rented out for the entire year or is merely rented out for a small portion of the year, the notional Rent due is chargeable to taxation as its yearly worth.

What Exactly Is House Property?

The following components are included in a house property:

Dwelling Residence, small shops, Godown, Theater Complex, Workshop plot, Hotel Land, so on and so forth.

Before determining the gross annual value or the net annual value, these points must be fully grasped:

  • Suppose the landowner has only a single asset and is self-occupied for household use. In that case, the Gross Annual Value (GAV) and Net Annual Value (NAV) is computed as Zero because you are not deriving any additional revenue from it.
  • If the individual has only a single asset and is reasonably placed distant from his or her current workplace, the Gross Annual Value and Net Annual Value are evaluated as NIL if no revenue is obtained from that residential property.
  • As per the Income Tax Act, if the owner currently acquires more than one self-occupied residential property, but only one is maintained for private purposes, the other properties shall be regarded as “deemed to be let out” because you can’t live in two houses simultaneously and have to assess and pay taxes on it.
  • As previously indicated, the Annual Value is zero in the case of a single self-occupied household. Tax deduction for interest paid under section 24 could still be claimed.

The consequent loss can be offset against other types of income, but it cannot be essentially be carried forward.

Section 24 permits a person to make a claim of exemptions on the interest paid on a house loan.

To claim this deduction, you must complete all three of the following conditions:

  1. The loan was issued after April 1, 1999, for the specific purpose of acquisition or building.
  2. The purchase or building is finished within five years after the end of the financial year in which the loan was legally obtained.
  3. There is interest documentation readily available for the loan’s interest received.

Bear in mind that if any of these conditions are completely met, your interest deduction may be restricted to Rs 30,000.

  • Before April 1, 1999, the loan was obtained for the buying, building, repair, or reconstruction of a property.
  • The loan was easily obtained on or after April 1, 1999, to buy, construct, renovate, or rebuild the property.

Other Factors to Take into Consideration

  • You could deduct pre-construction interest if you borrowed money to buy or build a residence. This is not permitted in the event of a loan for renovations or rebuilding. Pre-construction interest is deductible in five equal payments beginning with the year construction is successfully completed.
  • Municipal taxes can only be deducted if they were paid by the owner during that budget year.
  • The standard deduction is 30% of the above-mentioned Net Annual Value. This 30% deduction is granted regardless of whether your total expenditure on the property is significantly larger or considerably lower.
  • If the current owner or family dwells in the house property, the owner or his family are eligible to claim a tax deduction of up to Rs.2 lakh on their home loan interest, i.e., The exemption for interest on a home loan is restricted to a maximum of INR 2,00,000 in the context of self-occupied property.
  • When the house, is uninhabited the same technique is often used. If you rented out the property, you could deduct the entire interest on the house loan literally.

Gross Annual Value of House Property Criteria

The following criteria evaluate the gross annual value of a house:

  • The actual Rent received/receivable is the Rent received or out to be received by the landlord of the residential asset when the house property is rented off.
  • Municipal value is the value evaluated by municipal authorities for the specific reason of enforcing municipal taxes on real estate. Municipalities often levy home tax/municipal taxes dependent on the yearly letting value of such residential property.
  • A fair rent is a Rent that a roughly comparable property in the exact or pretty similar neighborhood may command.
  • The Rent Control Act specifies a standard rate where the owner cannot claim a substantially increased rate than the standard Rent.
  • Expected Rent is the greater of the municipal value and the fair Rent, limited to an absolute max of Standard Rent.

For illustration, in this case, we will consider that the rent values are:-

Fair Rent = Rs 15,000*12 = 1,80,000

Municipal Value = Rs 10,000*12 = 1,20,000,

Standard Rent = Rs 20,000*12 = 2,40,000

Actual Rent Rs = 18,000*9 = 1,62,000

Value of House Property

How Gross Annual Value of House Property is Calculated?

Let us check how the Annual Value Of House Property is calculated:

  • Firstly, directly compare and contrast Fair Rent and Municipal Value and then choose the greater of the two. You will get a Reasonable Expected Rent.

We can simply logically deduce from the given numbers that – of the two options, fair Rent and municipal Rent – fair Rent is greater, i.e., Rs 1,80,000, consequently we will be using fair Rent as the reasonable expected Rent.

  • Now, check Reasonable Expected Rent against Standard Rent and then choose the lowest of the two to find the Expected Rent (also known as Annual Letting Value).

In this particular case, the reasonable expected Rent is less than the standard Rent, which is Rs 1,80,000.

  • Now, evaluate your Expected Rent to your Rent Received, Receivable, or Actual Rent, and choose the one which is the highest number of the three to determine the Gross Annual Value of your home accurately.

In this case, especially, the expected Rent is greater than the actual Rent, which is Rs 1,80,000.

Now that we have the GAV or Gross Annual Value of a property, which is Rs 1,80,000, we must approximate the NAV or Net Annual Value or Annual Value of your land.

Calculation of the Annual Value

Based on Section 23(1)(a) of the Income Tax Act, the Annual Value of a Home is the amount of money for which the residential property may reasonably be expected to be rented year after year.

The Net Annual Value, or NAV, is the difference between the Gross Annual Value and the Municipal Taxes.

To compute NAV, use the following formula:

NAV = GAV – Municipal Taxes

In the preceding example in this case,

Gross Annual Value = Rs 1,80,000

Municipal Value = Rs 1,20,000,

Therefore, NAV= Rs (1,80,000-1,20,000)

= Rs 60,000

Scenarios of House Property

When it concerns renting out the property, there are three primary scenarios:

  • Option 1: When a house is rented out for the whole previous year.
  • Option 2: When a residence is rented out and has been empty for the majority or a significant portion of the preceding year.
  • Option 3: When the house property is rented out for a part of the year and inhabited for the vast majority of the rest of the year.