Category: Income Tax

Section 80D Deduction – Health insurance has become an integral part of our planning and has proven to be a convenient and safety net for the people that protects them in times of need. The Government has supported and encouraged people to get such health insurance policies for themselves by providing deduction from taxable income u/s 80D. The assessee can now claim 80D deduction for the medical insurance premiums and certain medical expenses, however, there are maximum limits under this section for allowing deductions.

Moreover, as is the case with 80C, the 80D deduction can be claimed only if the assessee has opted for filing returns in the old tax regime. Everything that you need to understand about the coverage, limits, extent and applicability of these sections is detailed hereunder.

Section 80D Deduction

80D deduction can be claimed for health insurance premiums paid during the financial year. The deduction under this section can also be claimed for expenditures towards the CGHS (Central Government Health Scheme), preventive health checkups and even for actual medical expenditures for senior citizens. This actual medical expenditure is allowed only if no amount was paid towards health insurance of such senior citizens.

The 80D deduction can be claimed by individuals and HUFs only. Therefore, companies paying medical insurance premiums cannot claim deduction under this section.

Individuals or HUFs can claim deductions for insurance premium payments made on behalf of self, spouse, parents or dependent children.

Maximum limit of 80D deduction

The maximum allowable limit for 80D deduction is Rs. 25,000 in a financial year and in case of senior citizens, it is Rs. 50,000. The maximum 80D deduction can go upto Rs. 1,00,000 if both the individual and the parents are senior citizens.

80D deduction for individuals

Persons insured below 60 years	Deduction Amount
Self, Spouse and Children	25,000
Parents (if below 60 years)	25,000
Preventive Health Check-up	5,000
Maximum deduction u/s 80D	50,000

Persons insured above 60 years	Deduction Amount
Self, Spouse and Children	50,000
Parents (if abo	50,000
Preventive Health Check-up	5,000
Maximum deduction u/s 80D	1,00,000

80D deduction for HUFs

Nature of payment	Deduction Amount
Health insurance premium payments for any member of the HUF	25,000
Health insurance premium payments for any member of the HUF who are senior citizens	50,000

Illustration for computation of 80D deduction

Akash, aged about 40 years, is paying health insurance premium for his wife and himself that is around Rs. 30,000 for each financial year. His parents are senior citizens and the premium for them is Rs. 55,000.

Now since, Akash and his wife are below 60 years of age, the maximum allowable amount for deduction will be Rs. 25,000.

His parents are senior citizens, thus the maximum allowable amount for deduction will be Rs. 50,000.

In aggregate, Akash can claim a 80D deduction of Rs. 75,000 for the premiums paid by him.

Mode of payment u/s 80D

A person can claim 80D deduction as per the limits explained above where the mode of payment has been any method other than cash. However, for claiming the benefit of preventive health check-ups, the mode of payment can be cash as well.

Exclusions u/s 80D

The following payments are not included u/s 80D deduction:-

• Payments made on behalf of siblings, working children or grandparents or any other relative
• Group health insurance premiums by companies on behalf of their employees
• Health insurance premiums paid in cash.

Documents required for claiming deduction

The assessee must have a copy of his valid health insurance policy and the copy of the receipt of payment made towards insurance premium for claiming 80D deduction.

Section 80DD – For medical treatment of a dependant who is a person with disability

Deduction u/s 80DD is available for resident individuals and HUFs for expenses on medical treatment, training, and rehabilitation of a dependent with a disability. Dependents include spouse, children, parents, siblings (for individuals), or any member (for HUFs).

Deduction Limits:

• Normal Disability (40% to less than 80%): Rs. 75,000 per year.
• Severe Disability (80% or more): Rs. 1,25,000 per year.

Section 80DDB – Deduction for medical treatments for specified diseases

Section 80DDB of the Income Tax Act provides deductions for expenses incurred on medical treatment of specified diseases and ailments. This section aims to provide financial relief for those incurring high medical costs for specified serious ailments.

Deduction Limits:

Age below 60 years: Up to Rs. 40,000.

Senior Citizens (60 years or older): Up to Rs. 1,00,000.

Super Senior Citizens (80 years or older): Up to Rs. 1,00,000.

Section 80U – Deduction in case of person with disability

Deduction u/s 80U can be claimed by resident individuals certified by a medical authority to be a person with disability.

The maximum deduction u/s 80U is upto Rs. 75,000 and can go upto Rs. 1,25,000 in cases of severe disability.

Summary of the deductions for medical expenses

Deductions	Section 80D	Section 80DD	Section 80DDB	Section 80U
Who is eligible?	Individuals or HUFs	Resident Individuals or HUFs	Resident Individuals or HUFs	Resident Individuals or HUFs
What is the nature of the payment?	Medical insurance premium and certain medical expenditures	For medical treatment a disabled person	For treatment of persons with specified illnesses	For a disabled person himself
What is the maximum allowable deduction?	1,00,000 if both the assessee and parents are senior citizens	Normal Disability 75,000 Severe Disability 1,25,000	Age below 60 years: Up to Rs. 40,000. Senior Citizens: Up to Rs. 1,00,000	Normal Disability 75,000 Severe Disability 1,25,000

FAQs

Q1. Can I claim the deduction u/s 80C for the disallowed portion of the medical expenditure u/s 80D?

A1. No, section 80C does not cover health insurance or medical expenses.

Q2. Can deductions be claimed under both 80C and 80D?

A2. Yes, deductions can be claimed under both 80C and 80D to the extent of the respective limits of both these sections.

Q3. Can deductions be claimed under both 80C and 80DD?

A3. Yes, deductions can be claimed under both 80C and 80DD since the former focuses on health insurance premiums and medical expenses, the later focuses on medical treatment a disabled person.

The Income Tax Department, through deductions u/s 80C, emphasizes the importance of encouraging savings and investments under Chapter VI A of the Income Tax Act. Deductions under Chapter VI-A enables taxpayers to strategically lower their tax burdens. Here, we list out the 80C deduction list and the limit allowed for deduction. It is pertinent to remember that the benefit of this deduction is available only if the assessee has opted for the Old Tax Regime.

Section 80C

Under this section, deductions upto Rs. 1,50,000 is allowed for life insurance premiums, investments in specified instruments such as EPF, PPF, NSC, ELSS and tax saving fixed deposits amongst others that will be elaborated in the 80C deduction list. This deduction from the gross taxable income is available for individuals and HUFs however, the investments in pension funds like the NPS scheme and Atal Pension Yojana are available for deduction only for individuals and not for HUFs.

Deduction u/s 80C for life insurance premium

Under this section, deduction upto Rs. 1,50,000 is allowed for life insurance premium for the life of self, spouse or children (major or minor) for individuals and any member for HUFs. However, there are certain restrictions regarding the amount of premium that can be considered for exemption depending on when the policy was issued as explained hereunder.

Case I – Policy issued before 01.04.2012

The amount of premium for deduction will be restricted to 20% of the actual sum assured.

Case II – Policy issued on or after 01.04.2012

The amount of premium for deduction will be restricted to 10% of the actual sum assured.

Case III – Policy issued on or after 01.04.2013 for persons with disability

The amount of premium for deduction will be restricted to 15% of the actual sum assured for persons with disability or severe disability as per Section 80U or suffering from disease or ailment as specified in Section 80DDB.

80C Deduction List

The assessee can opt for any of the following schemes for tax saving. The 80C deduction list is as under:-

• National Savings Certificate (NSC) investments
• Equity Linked Saving Scheme (ELSS) investments
• National Pension Scheme (NPS) investments
• Public Provident Fund (PPF) investments
• 5 year Fixed Deposits investments
• Employee Provident Fund (EPF) contributions
• Sukanya Samriddhi Yojana (SSY) investments
• Unit Linked Insurance Plan
• Senior Citizens Savings Scheme (SCSS) investments
• Repayment of housing loan principal amount including stamp duty, registration fee, and other expenses
• Payment of tuition fees in favour of any college, school, university, or other educational institutions within India for full-time education for maximum 2 children.

80C Deduction List – Schemes Explained

Employee Provident Fund (EPF):

• Contributions made to EPF by employees are deductible.
• This is a mandatory retirement savings scheme for salaried employees.

Public Provident Fund (PPF):

• Contributions to PPF accounts are eligible for deduction.
• PPF offers long-term investment benefits with a tenure of 15 years.

National Savings Certificate (NSC):

• Investments in NSCs qualify for deduction.
• These certificates have a fixed maturity period and offer assured returns.

Tax-saving Fixed Deposits:

• Fixed deposits with a lock-in period of 5 years with banks and post offices.
• Interest earned is taxable, but the principal amount invested qualifies for deduction.

Senior Citizens Savings Scheme (SCSS):

• Investments in SCSS accounts by senior citizens.
• This scheme offers regular income and tax benefits.

Sukanya Samriddhi Yojana (SSY):

• Contributions to SSY accounts for a girl child.
• This scheme offers attractive interest rates and tax benefits.

Unit Linked Insurance Plans (ULIPs):

• Investments in ULIPs, which offer the dual benefit of insurance and investment.
• These are market-linked insurance products

Equity Linked Savings Scheme (ELSS):

• Investments in ELSS mutual funds.
• These funds have a lock-in period of 3 years and offer potential for high returns.

Principal Repayment of Home Loan:

• Principal repayment of home loans for self-occupied or let-out properties.
• This is apart from the interest deduction available under Section 24

Tuition Fees:

• Tuition fees paid for the education of up to two children.
• This includes only the tuition component and not other expenses like transport or development fees.

National Pension System (NPS):

• Contributions to NPS Tier 1 accounts.
• NPS offers additional benefits under Section 80CCD(1B) for contributions up to ₹50,000.

Infrastructure Bonds:

• Investments in notified infrastructure bonds.
• These bonds typically have a long tenure and offer tax benefits.

Section 80CCC

Section 80CCC of the Income Tax Act provides deductions for contributions made to certain pension funds. This section is specifically aimed at encouraging individuals to save for their retirement. The eligible contributions include contributions to annuity plans of insurance companies for receiving pension after retirement or the plan must be approved by the Insurance Regulatory and Development Authority of India (IRDAI).

The maximum deduction limit under this section is ₹1.5 lakh per financial year. This limit is part of the overall ceiling of ₹1.5 lakh available under Section 80C, 80CCC, and 80 CCD(1) combined.

Section 80CCD(1)

Section 80CCD(1) of the Indian Income Tax Act pertains to deductions allowed for contributions made to the National Pension System (NPS) by individuals. The section applies to both salaried and self-employed individuals who contribute to the NPS.

The maximum deduction allowed under this section is 10% of the salary (for salaried individuals) or 20% of the gross total income (for self-employed individuals), subject to an overall cap of ₹1.5 lakhs. This is part of the overall limit under Section 80C, 80CCC, and 80CCD(1) combined.

Additional Deduction

Beyond the limit mentioned above, an additional deduction of up to ₹50,000 is available under Section 80CCD(1B) for NPS contributions.

Contributions made by the employer to the NPS are also eligible for a deduction under Section 80CCD(2). This is over and above the limits specified in Section 80CCD(1).

Section 80C Deduction List – FAQs

Q1. Can I avail the benefits of Section 80C deductions if I opt for the New Tax Regime?

A1. No, only assessees that are opting for the old tax regime can avail these benefits.

Q2. In how many maximum instruments can I invest for 80C deductions?

A2. The aggregate maximum allowable under this section is Rs. 1,50,000. The assessee can invest in any number of investments as mentioned in the 80C deduction list above, however, the maximum allowable deduction amount will be Rs. 1,50,000.

Q3. Can I claim deduction for insurance premium paid for cars under this section?

A3. No, insurance premium paid for cars is not covered in the 80C deduction list.

Section 194I pertaining to TDS on rent was introduced to prevent tax evasion by non-reporting of rental income by the people and to widen the tax horizon by bringing more people who earn rental income into the tax system. Section 194I was introduced in the Income Tax Act, 1961, by the Finance Act, 1994, and it came into effect on June 1, 1994.

Section 194I – Deductors and Deductees

The applicability of section 194I arises when the person making the rental payment i.e. the deductor is any of the following:-

• Any person, other than individuals or HUF;
• Individuals or HUF whose total sales or gross receipts from business or profession does not exceed Rs. 1 crore or Rs. 50 lakhs respectively in the preceding FY i.e. who are subject to tax audit.

The deductee can be any resident person.

Definition of Rent for TDS u/s 194I

Under Section 194I of the Income Tax Act, 1961, “rent” refers to any payment made under a lease, sub-lease, tenancy, or any other agreement or arrangement for the use of certain types of property. The types of property covered include:

• Land: Any land used for agricultural or non-agricultural purposes.
• Building: Includes residential, commercial, industrial, or any other types of buildings.
• Machinery: Includes any mechanical devices or equipment.
• Plant: Any equipment used for industrial, manufacturing, or production purposes.
• Equipment: Any tools or appliances used for a specific purpose.
• Furniture and Fittings: Includes movable items used to furnish a space or property.

The definition encompasses any payment for the use of these assets, regardless of whether the payment is described as rent or by any other name.

Limit and Rates for deduction of TDS

TDS u/s 194I is required to be deducted by the deductor only when the aggregate amount of rent exceeds Rs. 2,40,000 during a financial year. Earlier this threshold limit was Rs. 1,80,000, however it has now been increased to Rs. 2,40,000.

However, where the share of each co-owner in the property is definite and ascertainable, the limit of Rs. 2,40,000 will be applicable to each co-owner separately.

The rates for deduction of TDS u/s 194I are categorized as under:-

• TDS rate for rent for use of plant and machinery – 2%
• TDS rate for rent for use of land, building, furniture and fixtures – 10%
• In case the PAN of the deductee is not available, the TDS on rent will be deducted at 20% as specified u/s 206AA.

Exception to the rates specified above

On an application filed by the deductee in Form 13, if the Assessing Officer is satisfied that on the basis of the total income of the deductee, a lower rate of income tax or no deduction of income tax is justified, then the AO will issue a certificate in Form 15AA than can be furnished to the deductors for lower or nil rates of tax deduction.

Time limit for deduction of TDS

TDS on rent has to deducted at the source either at the time of credit to the account of the payee or at the time of payment, whether by cash or cheque or any other mode, whichever is earlier.

However, where the rent is not payable on monthly basis, the liability of deduction of TDS will also not arise on monthly basis. For instance, if the rent is payable quarterly or annually, the TDS on rent will also be required to be deducted on quarterly or annual basis respectively.

Even if rent has been in advance, TDS has to be deducted on such advance rent. However, TDS on rent is not required to be deducted on payment of security deposit since this is not in the nature of rental payment. However, on default by the tenant, if the security deposit is being adjusted for rent arrears, then TDS u/s 194I will be deducted on such adjustment.

Time limit for deposit of TDS

Once the TDS on rent has been deducted as per rate structure as explained above, the deductor is required to be deposited as per the following timelines:-

• Payment has been made by or on behalf of the Government – TDS has to be deposited on the same day.
• Payment has been made for all cases other than the Government – TDS has to be deposited within 7 days from the end of the month in which the deduction has been made. However, for the month of March, the TDS has to be deposited on or before 30^th April.

Interest on non-deduction/non-payment of TDS

• Case I – TDS not deducted

When TDS has not been deducted, the deductor will be liable to pay interest @ 1% per month from the date when tax is deductible till the date it is actually deducted.

• Case II – TDS has been deducted but not deposited

When TDS has been deducted but not deposited, the deductor will be liable to pay interest @ 1.5% per month from the date when tax is deducted to the date of deposit of TDS.

TDS regarding Cold storage

A cold storage is a facility for preservation of perishable items like ice cream, vegetables, fruits are stored by means of a mechanical process and storage of such goods is also incidental to its main function. The customer is not given the right to use any specified location/place or the machinery and therefore, he does not become a tenant.

Since this arrangement between the two parties is generally contractual in nature, TDS will be deducted u/s 194C i.e. TDS on contracts instead of TDS u/s 194I for rent.

TDS on landing and parking charges

It was held by the Supreme Court in the case of Japan Airlines Co. Ltd. V/s Commissioner of Income Tax (2015), that landing and parking charges payable by the airlines in respect of aircrafts are not for the use of land but the charges are for a number of services provided by the Airport Authority of India. Thus, landing and parking charges would attract TDS u/s 194C and not u/s 194I.

Important Case Study – Indus Towers Limited

M/s Indus Towers Limited owned a network of telecom towers and infrastructure services which were let out to major telecom operators in the country. The assessee contended that TDS has to be deducted u/s 194C, however, the AO held that TDS has to be deducted u/s 194I @10%.

The high Court held that the contentions of both the assessee and the AO were incorrect because the underlying object of this transaction was the use of machinery, plant or equipment i.e. the passive infrastructure and it is incidental that it was necessary to house the equipment in some premises. It was held that TDS has to be deducted u/s 194I @ 2% for use of plant and machinery.

Under the Income Tax Act, Section 194C deals with the TDS that has to be deducted on payments made to contractors, the threshold limits for deduction, applicability of such TDS, exceptions to the law and 194C TDS rate specifications. Before diving into the rates and threshold limits, let us first understand the deductors, deductees and interpretation of the important definitions pertaining to the Section 194C.

Section 194C – Deductors and Deductees

TDS u/s 194C has to be deducted for payments to contractors by any of the following persons:-

• Any individual, HUF, AOP or BOI having a total sales or gross receipts from business or profession excedding Rs. 1 crore or Rs.50 lakhs respectively in the preceeding FY,
• Companies, LLPs, firms
• Central Government,
• State Government,
• Local Authority,
• Statutory Corporations,
• Authorities constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for planning, development or improvement of cities, towns or villages,
• Societies registered under the Society Registration Act, 1980,
• Trusts, universities or deemed universities,
• Any government of a foreign state or foreign enterprises or any such association/body established outside India.

Therefore, any person other than an individual, HUF, AOP or BOI not having a total sales or gross receipts from business or profession exceeding Rs. 1 crore or Rs.50 lakhs respectively in the preceeding FY, is liable to deduct TDS u/s 194C on payment to contractors as per the 194C TDS rate structure and adhering to the timelines for such deduction and deposit.

The deductee can be resident person.

Section 194C – Applicability

Section 194C is applicable when any of the deductors as elaborated above are liable to make a payment to any resident contractor or sub-contractor as the case may be i.e. deductee in lieu of any work under a contract between the deductor and the deductee.

The key phrases here are deductors, deductees, sub-contract and work. The exhaustive list of the deductors and deductees have been mentioned above, we now proceed to the definitions of sub-contractor and work.

Meaning of Sub-contractor

Sub-contractor means a person who engages in a contractual agreement with the contractor to perform, or provide labour for the execution of all or a portion of the work undertaken by the contractor under a contract with any of the authorities, or to supply labour, in whole or in part, as specified in the contractor’s agreement with any of the authorities mentioned in this section.

Meaning of “Work” for Section 194C

Work includes :-

• advertising,
• broadcasting and telecasting,
• carriage of goods and passengers using any mode of transport other than railways,
• catering,
• manufacturing or supply of a product as per a customer’s specification by using the material purchased from him/her but does not include manufacturing or supplying a product according to a customer’s specification by using material purchased from other than such customer.

A works contract under section 194C excludes:

• Contracts for the sale of goods.
• Contracts that do not involve any labour for carrying out any work.
• Pure supply contracts where no work is involved.
• Contracts for the manufacture or supply of a product according to the requirements or specifications of a customer by using material purchased from a person other than such customer.
• Service contracts where no work is involved.

These exclusions ensure that only contracts involving labour for the execution of work are covered under section 194C.

Threshold for deduction of TDS u/s 194C

TDS u/s 194C has to deducted if the payments in case of a single contract exceed Rs. 30,000 or exceeds Rs. 1,00,000 in aggregate during the financial year.

Moreover, no TDS u/s 194C is required to be deducted by individuals or HUF under a contract for personal purposes even if his total sales or gross receipts exceeded Rs. 1 crore or Rs. 50 lakhs respectively in the preceeding FY.

When do we have deduct TDS u/s 194C?

TDS u/s 194C has to be deducted:-

• At the time of crediting such sum to the account to the payee, or
• At the time of payment,

Whichever is earlier.

Even when the income is credited to any account in the nature of “Suspense Account” in the books of accounts of the payee, such credit shall be deemed to be credit of such income to the account of the payee.

194C TDS Rate

The 194C TDS Rate Structure is as under:-

• On payment or credit to resident individual or HUF, where the PAN of the deductee is available – 194C TDS Rate will be 1%.
• On payment or credit to any person other than resident individual or HUF, where the PAN of the deductee is available – 194C TDS Rate will be 2%.
• On payment or credit to any person, where the PAN of the deductee is not available – 194C TDS Rate will be 20%.

Therefore, where the PAN of the deductee is not available, whether resident individual or HUF or any other resident, the 194C TDS rate will be 20%.

Exception to the 194C TDS rate structure:-

On an application filed by the deductee, if the Assessing Officer is satisfied that on the basis of the total income of the deductee, a lower rate of income tax or no deduction of income tax is justified, then the AO will issue a certificate than can be furnished to the deductors for lower or nil rates of tax deduction.

Time limit for TDS to be deposited

Once the TDS has been deducted as per the 194C TDS rate structure as explained above, the deductor is required to be deposited as per the following timelines:-

• Payment has been made by or on behalf of the Government – TDS has to be deposited on the same day.
• Payment has been made for all cases other than the Government – TDS has to be deposited within 7 days from the end of the month in which the deduction has been made. However, for the month of March, the TDS has to be deposited on or before 30^th April.

TDS u/s 194C for transporters

TDS will not be deducted on any sum credited or paid or due to be paid during the previous year to a contractor or sub-contractor during the course of business of plying, hiring or leasing goods carriages, where he owns 10 or less goods carriages at any time during the previous year and furnishes a declaration for the same along with his PAN.

Read the implications of inoperative PAN for deduction of TDS here.

Short term capital gain tax on shares has been a widely discussed topic with the large number of traders and investors that have entered the stock market over the last few years. While the primary focus of such traders and investors has been on booking profits at the optimum time, the short term capital gain tax on such transactions cannot be overlooked and must be kept in mind for appropriate tax planning.

How to determine long term or short term capital gain tax on shares?

Whether the capital gain is long term or short term is determined by the period of holding of such assets. The period of holding of short term capital assets is as under:-

Capital Assets	Holding Period to qualify as short term capital asset
Shares/debentures of a company listed on a recognized stock exchange in India	12 months or less
Zero coupon bonds	12 months or less
Units of equity oriented mutual funds	12 months or less
Units of UTI	12 months or less
Shares of companies unlisted in India including shares of foreign companies listed on stock exchanges outside India	24 months or less
Immovable property, being land or building or both, located in India or in foreign country	24 months or less
Units of debt oriented mutual funds	36 months or less
Others	36 months or less

Section 48 – Method of computation of Capital Gains

As per section 48 of the Income Tax Act, the computation of capital gains has been given as under:-

Sale Consideration received/accrued on transfer of capital asset	XXX
Less : Cost of Acquisition	(XX)
Less : Cost of Improvement, if any	(XX)
Less : Expenditure incurred wholly and exclusively in connection with such transfer	(XX)
Capital Gains	XXX

Section 111 A – Short term Capital Gain Tax on shares

Section 111A will be applicable for gains arising from transfer of short term capital assets. Under this section the assessee will have to pay tax on such STCG @ 15%. This section will be applicable if all the following three conditions are fulfilled:-

• The assesse is a resident, FII or non-resident,
• The capital asset is an equity share in a company or a unit of an equity oriented fund or units of business trust and
• The transaction has been chargeable to STT. However, for transactions undertaken on recognized stock exchange located in International Financial Services Centre (IFSC), where the consideration for such transaction is payable in foreign currency, no STT is payable but the benefit of section 111A shall be available.

If all the above mentioned conditions are satisfied then the short term capital gain tax on shares of such assessee will be taxed u/s 111A @ 15%.

An important point to remember here is that no deduction under Chapter VI-A is allowed on STCG covered u/s 111A i.e. no deductions u/s 80C to 80U can be allowed on such STCG.

Securities not covered u/s 111A

Securities such as debentures, preference shares, deep discount bonds, units of debt mutual funds are not covered u/s 111A and thus the benefit of this section will not be available for capital gain on transfer of such assets.

STCG other than those covered u/s 111A will be chargeable to tax at the normal rates applicable to the assessee.

Benefit of slab rate for short term capital gain tax on shares

As we have mentioned above, Section 111A is applicable on residents, FIIs and non-residents. However, residents can avail the benefit of adjustment of basic exemption limit for computation of short term capital gain chargeable to tax. This basic exemption limit benefit is not available for non-residents and FIIs.

Example – Short term capital gain tax on shares

Mr. A, a resident of India (aged 40 years), is drawing a salary of Rs. 1,90,000 annually. In addition to this, Mr. A has earned a short term capital gain of Rs. 1,25,000 on sale of equity shares on which he has paid STT. What will be the tax implication of the STCG for Mr. A?

Let us first determine whether Mr. A will be covered u/s 111A or not. This will be determined on the basis of the three conditions detailed above. In this case, we can see that:-

• Mr. A is a resident,
• The capital asset is equity shares in a company and
• He has paid STT on such sale of shares.

Therefore, Mr. A will be covered under the purview of section 111A for the short term capital gain tax on shares.

Moreover, since Mr. A is a resident of India, he can avail the benefit of basic exemption limit for computation of the taxable amount.

Total Income = Rs. (1,90,000 + 1,25,000) = Rs. 3,15,000

Assuming basic exemption limit as Rs. 2,50,000,

His salary income will be fully adjusted i.e. Rs. (2,50,000 – 1,90,000) = Rs. 60,000 can be adjusted for the STCG amount of Mr. A.

Therefore, the STCG taxable u/s 111A will be Rs. (1,25,000 – 60,000) = Rs. 65,000.

Tax u/s 111A @ 15% will be payable on Rs. 65,000 along with cess of 4%.

Set off and Carry forward of short term capital loss

If an individual incurs a short-term capital loss (STCL) from selling a capital asset, they can use it to offset gains from selling another capital asset within the same financial year. Additionally, taxpayers can carry forward any remaining STCL for up to eight years, allowing them to offset it against future short term capital gain tax and long-term capital gains (LTCG). However, it is important to note that the carry forward applies only to losses from previous years, not the current year.

Overall, India’s tax laws offer a mechanism for individuals to offset capital gains with capital losses, which can help reduce their tax liability. Understanding the rules for setting off and carrying forward losses can be advantageous for taxpayers aiming to maximize their investments while minimizing their tax obligations.

FAQs

Will the benefit of indexation be available for short term capital gain tax on shares?

No, the benefit of indexation will not be available for short term capital gain tax on shares. The indexation benefit is available only on transfer of long term assets.

What is an equity oriented mutual fund?

Equity oriented mutual funds are a category of mutual funds specified u/s 10(23D) where 65% of its portfolio is invested in equity shares of domestic companies.

Refer Notification 8/2022 issued by CBDT in relation to “Computation of Capital Gain on Specified Unit linked Insurance Policy”.

CBDT has notified the cost inflation index for FY 2024-25 vide Notification No. 44/2024 dated 24^th May, 2024. The cost inflation index for FY 2024-25 is 363. This notification shall be relevant for AY 2025-26 and the subsequent years.

The original notification for the Cost Inflation Index (CII) was issued on June 5, 2017, under reference number S.O. 1790(E). Since then, it has been updated multiple times to accommodate changes in the economic environment. The most recent update before the current one of cost inflation index for FY 2024-25 was made via notification number S.O. 2571(E), dated June 12, 2023.

What is Cost Inflation Index?

The Cost Inflation Index (CII) in India is a critical tool utilized for adjusting the purchase price of assets for inflation, ensuring taxpayers can calculate capital gains more accurately. Introduced by the Indian government, the CII reflects the inflation rate and helps in mitigating the impact of inflation on long-term capital gains. This index is particularly beneficial when an asset is sold, as it allows the purchase price to be indexed to present value, thereby reducing the taxable capital gain.

Who notifies the Cost inflation Index?

As explained above, the cost inflation index for FY 2024-25 has been notified by CBDT. The Central Board of Direct Taxes (CBDT) is responsible for notifying the CII every year. The base year was changed from 1981 to 2001 in the financial year 2017-18, to align with the more recent economic environment.

The indexation helps in adjusting the cost of the asset to its inflation-adjusted value at the time of sale. By doing this, the capital gain that is subject to tax is often significantly reduced.

Cost Inflation Index of FY 2024-25 compared to previous years

As we are aware that CBDT notifies the Cost inflation index every year, let us have a look at the cost inflation index of FY 2024-25 over the years keeping FY 2001-02 as the base year (100).

The complete details of the journey of Cost Inflation index of FY 2024-25 over the years from the base year i.e. FY 2001-02 is as under:-

Financial Year	Cost Inflation Index (CII)
2001-02	100
2002-03	105
2003-04	109
2004-05	113
2005-06	117
2006-07	122
2007-08	129
2008-09	137
2009-10	148
2010-11	167
2011-12	184
2012-13	200
2013-14	220
2014-15	240
2015-16	254
2016-17	264
2017-18	272
2018-19	280
2019-20	289
2020-21	301
2021-22	317
2022-23	331
2023-24	348
2024-25	363

Cost Inflation Index for FY 2024-25 – Practical Example

The benefit of cost inflation index for FY 2024-25 can be explained by understanding its impact on the indexed cost of acquisition.

To compute the indexed cost of acquisition, the formula is:

Indexed Cost of Acquisition = (Cost of Acquisition * Cost Inflation Index of the year of sale) / Cost Inflation Index of the year of purchase.

If you bought a property in FY 2005-06 for ₹50 lakhs and sold it in FY 2024-25 for ₹6 crores, you would use the Cost Inflation Index of FY 2024-25 and FY 2005-06 to adjust the purchase price according to inflation. As given above, the Cost Inflation Index for FY 2005-06 and FY 2024-25 is 117 and 363 respectively.

Therefore, the indexed cost of acquisition = (Rs. 50 Lakhs * 363)/117

= Rs. 155.13 lakhs

Thus, instead of calculating the capital gains taking the cost of acquisition as Rs. 50 lakhs, we use the indexed cost of acquisition as Rs. 155.13 lakhs.

Without the benefit of indexation using the Cost Inflation Index of FY 2024-25 and FY 2005-06, the long term capital gain would be = Rs. 600 lakhs – Rs. 50 lakhs = Rs. 550 lakhs.

However, with the benefit of indexation the long term capital gain is = Rs. 600 lakhs – Rs. 155.13 lakhs = Rs. 444.87 lakhs.

Benefits of Cost Inflation Index for FY 2024-25

The Cost Inflation Index is an essential mechanism in the Indian tax system, allowing taxpayers to adjust the historical cost of assets to current prices, thus providing a fair method of calculating capital gains and protecting investors from the eroding effects of inflation.

Read about the impact of TDS on inoperative PAN here.

The income tax slab for AY 2024-25 are different in old and new tax regimes. Since both old and new tax regimes currently co-exist in India, there is often confusion when determining the applicable tax rates based on the taxable income slab. Navigating through the income tax slabs and calculating the tax liability can be a complex task, especially for individuals with taxable income slab falling within multiple slabs. Therefore, it is essential for taxpayers to thoroughly understand the slabs under the provisions of both tax regimes and choose the one that minimizes their tax burden effectively.

As per the latest update from CBDT, around 8 lacs income tax returns for AY 2024-25 have already been filed from 1^st April, 2024 to 5^th May, 2024. Out of these, 7.50 lacs returns have also been processed by the department. However, before filing tax returns, it is pertinent to keep in mind the income tax slab for AY 2024-25 and the options to file under old or new scheme depending on the tax benefit which varies from person to person.

Income Tax Slab for AY 2024-25

In India, an individual’s tax liability is determined by the income tax slabs they fall into, which is based on their taxable income. As income increases, so does the applicable tax rate, resulting in higher tax payments for those in higher income brackets. Thus, in India, the progressive tax system is followed.

New Tax Regime for AY 2024-25

Till FY 2022-23, the default tax regime was the old tax regime. If an individual wanted to opt for the new tax regime, one had to file Form 10-IEA. However, from FY 2023-24 i.e. AY 2024-25, the new tax regime will be the default tax regime.

Previously, up until the fiscal year 2022-23, individuals had to file Form 10-IE to indicate their choice to opt for the new tax regime, as it was not the default option. However, from the fiscal year 2023-24 onwards, the new tax regime has become the default. This means that taxpayers will automatically be enrolled in the new regime unless they specify otherwise. To opt for the old tax regime, individuals, HUFs, AOPs (excluding co-operative societies), BOIs, and Artificial Judicial Persons (AJP) with income from business and profession must use the new Form 10-IEA. This form must be submitted within the timeframe specified under section 139(1) to either switch to the old regime or to re-enter the new scheme.

Basic Differences between the old and new tax regimes

While the basic difference between the old and new tax regimes that we often discuss is regarding the exemptions and deductions not available in the new tax structure, there are a some other major differences as explained below:-

• In the old tax regime, for individuals, the income tax slab for AY 2024-25 has been categorized on the basis of age into 3 categories – Individuals less than 60 years, resident individuals who are senior citizens i.e. above 60 years but less than 80 years of age and resident individuals who are super senior citizens i.e. above 80 years. However, the income tax slab for AY 2024-25 is the same for all categories of individuals under the new tax regime.
• In the old tax regime, the resident individuals (not NRIs) could avail the rebate u/s 87A upto 5 lacs. This limit has increased to 7 lacs u/s 87A in the new tax regime.
• The highest rate of surcharge has also changed for the income tax slab for AY 2024-25 under the old and new tax regime. Under the new tax regime, the rate of surcharge is capped at 25% of income tax for AY 2024-25.

Income Tax Slab for AY 2024-25 – New Tax Regime

The income tax slab for AY 2024-25 under the new tax regime and the rate of tax for each slab for all individuals is given below:-

Income Tax Slab for AY 2024-25 – Old Tax Regime

The income tax slab for AY 2024-25 under the old tax regime and the rate of tax for each slab for each category of individuals is given below:-

Rebate u/s 87A

Section 87A of the Income Tax Act provides significant tax relief for resident individuals with lower incomes.

The eligibility for claiming rebate u/s 87A depends on the following two conditions:-

• The individual must be a resident individual, and
• The total income after deductions must be less than 5 lacs under the old tax regime or less than 7 lacs under the new tax regime.

The amount if rebate u/s 87A is either the tax amount or Rs. 12,500, whichever is lower. This rebate reduces the tax burden for individuals and thereby effectively encouraging savings and tax compliance.

Surcharge under Income Tax

A surcharge in income tax is an additional charge on the tax liability of individuals and entities whose income exceeds certain thresholds. This surcharge is levied on the amount of income tax calculated as per the applicable income tax slab.

The surcharge rates vary based on the level of income and the category of individual as detailed hereunder:-

Total Income	Rate of Surcharge
If Total Income is more than Rs. 50 lacs and less than Rs. 1 crore	10% of income tax
If Total Income is more than Rs. 1 crore and less than Rs. 2 crores	15% of income tax
If Total Income is more than Rs. 2 crores and less than Rs. 5 crores	25% of income tax
If Total Income is more than Rs. 5 crores	37% of income tax

However, under the new tax regime, the rate of surcharge is capped at 25% of income tax for AY 2024-25.

Health and Education Cess

The Health and Education Cess is a form of tax levied in India to fund health and education initiatives. It is an additional surcharge on the total tax payable, aimed at providing necessary financial support for these critical sectors.

The cess is levied at a rate of 4% on the total income tax payable, including the surcharge, if any.

Impact on income tax slab by Budget 2024

Finance Minister Nirmala Sitharaman has not altered the income tax slab rates in the interim Budget for 2024. Consequently, the income tax slabs and rates will stay the same for the FY 2024-25, commencing on April 1, 2024. Therefore, individuals must evaluate both the old and new tax regimes to minimize their income tax liability.

To know more about the latest changes in Sec 206AA relating to TDS on inoperative PAN, read here.