2023
FY 2024-2025 AY 2025-2026
Rebate on Income Tax under Section 87A of the Income Tax Act (New Tax Regime) - Providing Marginal Tax Relief (by Vijayaraghavan R(IOBian-R)
The Finance Act of 2023, effective from the Financial Year 2023-24, introduced a rebate under Section 87A of the Income Tax Act, applicable under the New Tax Regime. This rebate aims to offer marginal tax relief to taxpayers whose taxable income falls within the range of Rs. 7,00,001 to Rs. 7,27,777.
Explanation of Marginal Tax Relief under Section 87A of the Income Tax Act:
In the traditional tax regime, for senior citizens, if their taxable income surpasses Rs. 5,00,000 by Rs. 1,000 (after considering all deductions such as standard deduction, Section 80C, 80D, etc.), their tax liability stands at Rs. 10,200 plus Cess.
For instance, if a senior citizen has an annual income of Rs. 5,50,000, after a standard deduction of Rs. 50,000, their tax liability would be nil. However, if their income increases slightly to Rs. 5,51,000, they would be liable to pay Rs. 10,200 plus Cess. Thus, an additional income of Rs. 1,000 results in an increased tax liability of Rs. 9,200, with no provision for marginal tax relief under the old tax regime. The options to avoid tax liability are by investing /availing deductions under Sec 80 C, 80 D or under Sec 80 G. There is no marginal tax relief under old Tax regime in such cases.
In contrast, under the New Tax Regime, there are no avenues for investments to mitigate additional taxes. Consequently, the Budget of 2023 introduced Marginal Tax Relief under the New Tax Regime.
Under the New Tax Regime (NTR), no tax is payable for an annual income of Rs. 7,50,000 (after considering a standard deduction of Rs. 50,000). However, for an income of Rs. 7,55,000, the taxable income would be Rs. 7,05,000, resulting in a tax liability of Rs. 25,500.
To alleviate the burden on taxpayers in such cases, instead of paying the full tax liability of Rs. 25,500, it is sufficient to pay tax on the additional income above Rs. 7,00,000, which is Rs. 5,000.
Therefore, the marginal relief is calculated as follows:
Marginal Relief = Tax Payable as per Slab - Net Tax Payable = Rs. 25,500 - Rs. 5,000 = Rs. 20,500.
Hence, for taxpayers with taxable income between Rs. 7,00,001 to Rs. 7,27,777, the tax liability under the New Tax Regime is not calculated based on the slab basis. Instead, the tax liability in such cases is determined by the difference in taxable income and Rs. 7,00,000.
For example, if a person has an income of Rs. 7,60,000, their taxable income would be Rs. 7,10,000 (Rs. 7,60,000 - Rs. 50,000 standard deduction). The income tax as per the slab would be Rs. 26,000 (plus Cess). However, as per Section 87A of the Income Tax Act, the tax payable would be only Rs. 10,000, resulting in a Marginal Tax Relief or rebate of Rs. 16,000.
To know the tax po liability under Both, New and Old tax regime and to decide which tax regime.
FY 2023-2024 AY 2024-2025
FY 2023-2024 AY 2024-2025
Let’s dive in and make taxes a little less overwhelming! Here are some simple tax terms you should know:
1. Income Tax Return
An income Tax Return (ITR) is a form or document that people and businesses in India fill out to tell the government how much money they made and to pay taxes accordingly. It helps the government figure out how much tax you need to pay based on your earnings and deductions.
2. Gross Total Income
Gross Total Income is the total amount of money you earn before any deductions or exemptions. It includes your salary, business income, rent, and any other taxable income you receive. It’s the total sum of all the money you make before any taxes are deducted.
3. Net Taxable Income
Net taxable income is the amount of money you have left after deducting certain expenses and exemptions, like investments made to save tax, from your total income. It is the income that is actually considered for calculating taxes. In simpler terms, it’s the income on which you have to pay taxes after taking out certain deductions and expenses.
Also read:How to file income tax return?
4. Assessment Year (AY)
Assessment Year (AY) is the year when the government evaluates or checks your income to calculate how much tax you need to pay. It comes after the year in which you earned the income. For example, if you earned income in the year 2022, the Assessment Year would be 2023-2024. It’s the year when the government looks at your income and decides how much tax you owe.
5. Tax Deduction at Source (TDS)
Tax Deduction at Source (TDS) is when the government collects a portion of tax directly from the income you receive. For example, if you earn a salary, your employer deducts a certain amount of tax from your salary and sends it to the government on your behalf. This ensures that tax is paid regularly throughout the year.
6. Form 26AS
Form 26AS is like a statement that shows all the important information related to your taxes, like a summary of your taxes in India. It shows the taxes deducted from your income, the taxes you’ve paid, and other tax details. It helps ensure your tax records are accurate when filing your tax return.
7. Form 16
Form 16 is a certificate issued by an employer to its employees. It provides details of the salary earned by the employee during a financial year (April to March) and the taxes deducted at source (TDS) on their salary. It is essential for filing Income Tax Return (ITR) as it serves as proof of the tax deducted.
8. Surcharge
A tax surcharge is like an extra fee added to the regular tax you have to pay. It is imposed on people with higher incomes or certain types of income, such as capital gains, dividends, interest income, rental income, and other sources of income apart from regular salary income. The surcharge is calculated as a percentage of your tax amount and is meant to increase the overall tax you owe. It helps the government collect more money from those who earn more or have specific types of income.
9. Advance Tax
Advance tax is a system where you estimate and pay your taxes in installments throughout the year rather than waiting until the year’s end. It applies to individuals, professionals, and businesses whose tax liability exceeds a specified amount. By making regular payments, it helps you manage your tax obligations and avoid a large tax burden at the end of the year.
10. Self-Assessment Tax
Self-Assessment Tax is the extra tax you voluntarily pay if you still owe money to the government after considering your regular deductions and advance tax payments. It’s like making sure you’ve paid all your taxes correctly. You calculate the remaining amount and pay it before the tax filing deadline. It helps you fulfill your tax obligations and avoid penalties for unpaid taxes.
11. Section 80C
Section 80C is a rule that lets you save tax by investing in specific things like life insurance, provident fund, and other savings schemes. You can reduce your taxable income by up to ₹1.5 lakh if you invest in these things. It helps you save money on taxes while encouraging you to save and invest for the future.
12. Tax audits
Tax audits are like a thorough check by the government on your financial records to ensure you have reported your income and expenses correctly and paid the right amount of taxes. They ensure that everyone follows the rules and pays their fair share of taxes. If any mistakes or problems are found, you may have to pay more taxes or face penalties.
13. Tax deductions
Tax deductions are special expenses or investments that you can subtract from your income to pay less tax. They include things like medical expenses, home loan interest, donations, and more. Claiming deductions lowers your taxable income and helps you pay less in taxes. It’s like getting a discount on your taxes for certain expenses or investments you make.
14. Tax exemptions
Tax exemptions are specific types of income that you don’t have to pay taxes on. They include things like certain investments, allowances, scholarships, and more. It’s like getting a break from paying taxes on certain earnings.
15. Tax slabs
Tax slabs are different income ranges where different tax rates apply. As your income increases, you move into higher tax slabs with higher tax rates. It means you pay more taxes as you earn more money. The tax slabs help determine how much tax you owe based on your income level.
16. Tax-saving investments
Tax-saving investments are ways to save money and lower your tax bill. For example, investing in a Public Provident Fund (PPF) or a tax-saving fixed deposit lets you deduct the amount you invest from your taxable income. If you invest ₹1.5 lakh in PPF, that amount gets subtracted from your income, so you pay tax on a lower amount.
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March 2023
Please look to the above picture. These are the 50 transactions which IT dept is doing data mining from various sources like banks, register office, etc... Kindly do not miss any such transaction in reporting while filing your IT return or GST return. Ensure you have reported all those 50 transactions without fail apart from your other transactions which might not covered in these 50. This shows the future approach of IT, GST authorities while reviewing the filed returns. Slowly it will become a AI based comparabilities and system throws the differences with out assessing officers review. Be prepared from now on.
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INCOME TAX A.Y.2020-21
Keep updated on changes in IT Act 1961
Disclosures in New ITR forms ( SBC)
1) Taxpayers ( Individual)
Joint ownership of house property cannot file ITR 1 to 4
2). Passport:
Disclose of your Passport number in ITR 1-Sahaj and ITR 4-Sugam.
3). Cash Deposits :
For ITR 4 have to declare the amount deposited as cash in a bank account, if it exceeds Rs 1 crore during the FY.
4. Foreign travel:
If expenses are more than Rs 2 lakh on foreign travel during the FY, disclosed the actual amount.
5. Electricity consumption:
Electricity bills more than Rs 1 lakh in during the FY required disclosure.
6. Investment details:
Investment qualifying for deduction under chapter VIA will require details of investment during the period.
7. Assessment year:
The last date for filing ITR will be July 31, However, this year ITR filing date has been extended till 30/11/2020.
8. Income Tax Exemptions and Deductions:
In New Tax Regime:
Withdrawal by an employee from the Employees' Provident Fund (EPF) is not taxable after 5 years of continuous service.
9. National Pension Scheme (NPS):
Maturity or premature closure up to 40% of the amount received on such withdrawal remains tax free.
Partial withdrawal from NPS, up to 25% of the contributions made by the individual will be tax free.
Employer’s contribution to NPS up to 10% of their basic salary and dearness allowance will be tax free.
10. Insurance Plan U/s10 (10D) :
Assured sum and any bonus paid on maturity or surrender of the life insurance plan is tax free even in the new regime.
The maturity amount including interest received on the Sukanya Samriddhi Yojana will be tax free.
11. Conveyance Allowance :
Expenditure incurred on conveyance in performance of duties of an office and any allowance granted to an employee to meet the cost of travel on tour or on transfer are tax free.
12. Post office Savings A/c :
Interest received from post office savings account balance up to ₹3,500 annually per individual will remain free from tax.
13. Scholarship :
granted to meet education costs is exempt under Section 10 (16)
14. Form 26AS:
Complete profile of the taxpayer w.e.f. 01.06.2020
a) Will also provide information in respect of “Specified financial transactions” which include transactions of
- purchase/ sale of goods
-property
-services
-works contract
- investment
-expenditure,
-Loans or deposits of such value as may be prescribed but not less than of Rs 50,000.
b) Information about
-Income tax demand
-Refund
-Proceedings pending, and proceedings completed
c) 26AS, will be updated regularly winthin 3 months.
d)Form 26AS will now be a complete profile of the taxpayer
e)The CBDT to authorise DG Systems or any other officer to upload any information from any officer under any law in this form.
f) Adverse action initiated or taken or found or order passed under any other law such as custom , GST , Benami Law etc. including information about Turnover , import , export etc. will also be put in this form 26AS.
g) Form 26AS will provide information received by Tax Deptt from any other country under the treaty /exchange of information about income or assets of the taxpayer located outside India.
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Deductions under Chapter VI A of Income Tax Act:
Know how much tax may be saved
Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income
income tax, tax-saving investments, Chapter VI A of Income Tax Act, 80C, 80D, gross total income, deductions under Chapter VI A
There are taxpayers who have not yet invested in the necessary financial products to save tax. If you are one of them who still haven't zeroed in on a financial product to invest in to reduce your tax outgo for this year, here are some options for you.
Chapter VI A of Income Tax Act contains various sub-sections of section 80 that allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations etc. Such deductions allow an assessee to considerably reduce the tax payable.
The Chapter VI A of Income Tax Act contains the following sections:
80C: Deduction in respect of life insurance premium, deferred annuity, contributions to provident fund (PF), subscription to certain equity shares or debentures, etc. The deduction limit is Rs 1.5 lakh together with section 80CCC and section 80CCD(1).
80CCC: Deduction in respect of contribution to certain pension funds. The deduction limit is Rs 1.5 lakh together with section 80C and section 80CCD(1).
80CCD(1): Deduction in respect of contribution to pension scheme of Central Government – in the case of an employee, 10 per cent of salary (Basic+DA) and in any other case, 20 per cent of his/her gross total income in a FY will be tax free. Overall limit is Rs 1.5 lakh together with 80C and 80CCC.
80CCD(1B): Deduction up to Rs 50,000 in respect of contribution to pension scheme of Central Government (NPS).
80CCD(2): Deduction in respect of contribution to pension scheme of Central Government by employer. Tax benefit is given on 14 per cent contribution by the employer, where such contribution is made by the Central Government and where contribution is made by any other employer, tax benefit is given on 10 per cent.
80D: Deduction in respect of Health Insurance premium. Premium paid up to Rs 25,000 is eligible for deduction for individuals, other than senior citizens. For senior citizens, the limit is Rs 50,000 and overall limit u/s 80D is Rs 1 lakh.
80DD: Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability. The maximum deduction limit under this section is Rs 75,000.
80DDB: Deduction in respect of expenditure up to Rs 40,000 on medical treatment of specified disease from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed.
80E: Deduction in respect of interest on loan taken for higher education without any upper limit.
80EE: Deduction in respect of interest up to Rs 50,000 on loan taken for residential house property.
80EEA: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for certain house property (on affordable housing).
80EEB: Deduction in respect of interest up to Rs 1.5 lakh on loan taken for purchase of electric vehicle.
80G: Donations to certain funds, charitable institutions, etc. Depending on the nature of the donee, the limit varies from 100 per cent of total donation, 50 per cent of total donation or 50 per cent of donation with a cap of 10 per cent of gross income.
80GG: Deductions in respect of rent paid by non-salaried individuals who don’t get HRA benefits. Deduction limit is Rs 5,000 per month or 25 per cent of total income in a year, whichever is less.
80GGA: Full deductions in respect of certain donations for scientific research or rural development.
80GGC: Full deductions in respect of donations to Political Party, provided such donations are non-cash donations.
80TTA: Deductions in respect of interest on savings bank accounts up to Rs 10,000 in case of assessees other than Resident senior citizens.
80TTB: Deductions in respect of interest on deposits up to Rs 50,000 in case of Resident senior citizens.
80U: Deduction in case of a person with disability. Depending on type and extent of disability maximum deduction allowed under this section is Rs 1.25 lakh.
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Many pensioners do not file IT returns claiming senior citizenship rebate by signing the form 16 in the bank. But what they do not realize is by not filing IT a zero tax returns they loose out on one major facility, hope this information is shared with Max pensioners so they do not loose out on this benefit
FROM SHRI N V NAGARAJ A LAWYER N EX BANKER FROM MYSORE.WE THANK HIM FOR HIS INFORMATION.
Pensioner's Accidental Death
Most of the Pensioners hesitate in filing returns, but, here is an important information that shows that filing IT returns has great advantage to the family of Pensioners at the time of any accidental death of the Pensioner.
As per section 166 of the motor vehicle act, 1988 ( Supreme Court Judgement under Civil appeal No. 9858 of 2013, arising out of SLP ( C) No. 1056 of 2008 dated 31st October 2013),
The family of the Pensioner died in accident is entitled to 10 times of average income of the last three years, provided he or she had filed the IT returns for the past three years.
For example, if the monthly pension of a pensioner is 25000 /- his annual income is 3,00,000. For three years his average income also say, for easy calculations is 3,00,000, then his family will get 10 times of 3 lakhs - 30, 00, 000 Rupees from the Government. No other proof, other than IT returns will be admitted by the Court also. So, filing IT returns by the Pensioner regularly, will go a long way in providing a big economic relief to the bereaved family of the Pensioner on his / her death by accident.
Failure to file IT returns due to lack of information about this advantage leads to huge loss to the family of the Pensioner on his death
Of course this is applicable for Government Pensioners.
💐🙏
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