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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    If you receive any amount from your employer due to termination of employment, its taxability depends on the nature of the payment. Here’s how it is treated under the Income Tax Act, 1961: 1. Compensation for Voluntary Retirement (VRS) or Retrenchment Exempt up to ₹5,00,000 under Section 10(10C) ifRead more

    If you receive any amount from your employer due to termination of employment, its taxability depends on the nature of the payment. Here’s how it is treated under the Income Tax Act, 1961:

    1. Compensation for Voluntary Retirement (VRS) or Retrenchment

    • Exempt up to ₹5,00,000 under Section 10(10C) if received under a government-approved Voluntary Retirement Scheme (VRS).
    • Any amount exceeding ₹5,00,000 is taxable under “Income from Salary.”

    2. Gratuity

    • If received as part of termination benefits:
      • Government employees: Fully exempt under Section 10(10)(i).
      • Private sector employees: Exempt up to the least of the following (Section 10(10)(ii)/(iii)):
        1. ₹20,00,000
        2. Last drawn salary × 15 days × Number of years of service
        3. Actual gratuity received
      • Any amount beyond the exemption limit is taxable under Salary Income.

    3. Leave Encashment

    • Government employees: Fully exempt under Section 10(10AA)(i).
    • Private employees: Exempt up to the least of the following (Section 10(10AA)(ii)):
      1. ₹25,00,000
      2. Last drawn salary × 10 months
      3. Actual leave encashment received
    • Excess amount is taxable as Salary Income.

    4. Retrenchment Compensation

    • Exempt up to the least of the following under Section 10(10B):
      1. ₹5,00,000
      2. 15 days’ average salary for each completed year of service
      3. Actual retrenchment compensation received
    • Any amount beyond this limit is taxable as Salary Income.

    5. Severance Pay or Ex-Gratia Compensation

    • Any severance or compensation not covered under the above provisions is fully taxable as Salary Income.

    6. Notice Pay & Bonus

    • Any salary in lieu of notice period or bonus received is fully taxable under Income from Salary.
    Conclusion

    While certain termination benefits enjoy tax exemptions, others are fully taxable. To minimize tax liability, one can explore deductions under Section 89 (Relief for Salary Arrears & Compensation) or invest in tax-saving instruments.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    The tax treatment of a forfeited advance deposit (Pagri) depends on the circumstances under which it is received. Below are different scenarios and their tax implications under the Income Tax Act, 1961: 1. Forfeited Advance on Sale of Property (Section 56(2)(ix)) If a seller receives an advance paymRead more

    The tax treatment of a forfeited advance deposit (Pagri) depends on the circumstances under which it is received. Below are different scenarios and their tax implications under the Income Tax Act, 1961:

    1. Forfeited Advance on Sale of Property (Section 56(2)(ix))

    • If a seller receives an advance payment from a buyer for the sale of property and later forfeits it due to non-completion of the transaction, the forfeited amount is taxable as “Income from Other Sources.”
    • No deduction or cost adjustment is allowed in respect of such forfeited amount against the cost of acquisition of the property.

    2. Pagri Received by Landlord from Tenant

    • If a landlord receives Pagri (premium or goodwill) from a tenant in connection with letting out a property, it is taxable under “Income from House Property” or “Income from Other Sources” depending on the nature of the transaction.
    • If the Pagri is in the nature of capital receipt (one-time non-refundable amount), it may not be taxable immediately but could impact capital gains tax when the property is sold.

    3. Pagri Received by an Existing Tenant

    • If a tenant receives Pagri from a new incoming tenant in exchange for vacating the premises, it is taxable as Capital Gains under “Income from Capital Gains.”
    • The amount is taxed as Long-Term Capital Gain (LTCG) if the tenant occupied the property for more than 3 years; otherwise, it is taxed as Short-Term Capital Gain (STCG).

    4. Advance Deposit for Rent, Later Forfeited

    • If a landlord receives an advance rent deposit from a tenant and later forfeits it (for example, due to non-payment of rent or breach of contract), the amount is taxable as “Income from Other Sources.”

    Conclusion

    The taxability of a forfeited advance deposit or Pagri depends on who receives it and under what circumstances. If it is received by a seller of a property, it is taxed as “Income from Other Sources.” If received by a tenant, it is taxed under “Capital Gains.” If received by a landlord in connection with rent, it is taxed under “Income from House Property” or “Other Sources.”

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Yes, interest received on compensation or enhanced compensation is taxable under the Income Tax Act, 1961. The tax treatment depends on the nature of the compensation and the provisions applicable. 1. Interest on Compensation for Land Acquisition (Section 56(2)(viii)) If interest is received on compRead more

    Yes, interest received on compensation or enhanced compensation is taxable under the Income Tax Act, 1961. The tax treatment depends on the nature of the compensation and the provisions applicable.

    1. Interest on Compensation for Land Acquisition (Section 56(2)(viii))

    • If interest is received on compensation or enhanced compensation awarded for compulsory land acquisition, it is taxed under “Income from Other Sources.”
    • Tax Rate: It is taxable at slab rates applicable to the recipient.
    • Exemption (Section 10(37)): If the land acquired was agricultural land in a rural area, the compensation itself is exempt from tax, but the interest remains taxable.

    2. Interest on Compensation in Other Cases

    • If compensation is awarded in cases other than land acquisition (e.g., motor accident claims, delayed payments, consumer disputes, etc.), the interest component is taxable as Income from Other Sources.
    • Example: Interest on delayed payment of salary, compensation from court cases, etc., is also taxable.

    3. Taxability in the Year of Receipt

    • As per Section 145B, interest on compensation or enhanced compensation is taxed in the year it is received, irrespective of the year in which it was accrued.
    • However, 50% deduction is allowed under Section 57(iv), meaning only 50% of the interest amount is taxable.

    Conclusion

    Interest on compensation, whether from land acquisition or other legal claims, is taxable under “Income from Other Sources.” However, if it is related to land acquisition, only 50% of the interest is taxable after deduction under Section 57(iv). The compensation itself (excluding interest) may be exempt depending on the nature of the asset involved.

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Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    If a startup issues equity shares at a price exceeding their fair market value (FMV), the excess amount was earlier taxed as income under Section 56(2)(viib) of the Income Tax Act. However, the Finance Act, 2024, abolished this provision, commonly known as the "Angel Tax." Now, startups are no longeRead more

    If a startup issues equity shares at a price exceeding their fair market value (FMV), the excess amount was earlier taxed as income under Section 56(2)(viib) of the Income Tax Act. However, the Finance Act, 2024, abolished this provision, commonly known as the “Angel Tax.”

    Now, startups are no longer liable to pay tax on the excess amount received over FMV for equity share issuance. This change aims to encourage investments in startups without tax burdens on fundraising activities.

    Previously, eligible startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) were exempt from this tax under certain conditions. While this exemption is now redundant due to the abolition of Section 56(2)(viib), startups should still comply with regulatory guidelines for share issuance.

    This legislative change significantly enhances the startup ecosystem by providing more flexibility in raising capital without additional tax implications.

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CA Vishnu Ram
Enlightened
Asked: In:

PAN of PM CARES Fund is: AAETP3993P Address of PM CARES Fund is: Prime Minister’s Office South Block New Delhi-110011

  1. CA Vishnu Ram Enlightened
    This answer was edited.

    PAN of PM CARES Fund is: AAETP3993P Address of PM CARES Fund is: Prime Minister's Office South Block New Delhi-110011

    PAN of PM CARES Fund is:

    AAETP3993P

    Address of PM CARES Fund is:

    Prime Minister’s Office

    South Block

    New Delhi-110011

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CA Vishnu Ram
Enlightened
Asked: In:

  1. mkg Teacher

    While the Income Tax Act, 1961 does not contain an explicit standalone definition of a "startup," the term is used in various tax incentives and regulatory provisions. For practical purposes—including the availment of certain tax benefits—the government relies on the criteria laid down under the StaRead more

    While the Income Tax Act, 1961 does not contain an explicit standalone definition of a “startup,” the term is used in various tax incentives and regulatory provisions. For practical purposes—including the availment of certain tax benefits—the government relies on the criteria laid down under the Startup India Action Plan (issued by the Department for Promotion of Industry and Internal Trade, DPIIT).

    Adopted Criteria (as per Startup India):
    An enterprise is generally recognized as a startup if it meets these conditions:

    • Incorporation/Registration: It must be incorporated or registered in India on or after April 1, 2016.

    • Age of the Entity: It should be less than 10 years old from the date of incorporation or registration.

    • Turnover Limit: Its annual turnover must not exceed ₹100 crores in any financial year.

    • Innovation and Scalability: It should be engaged in innovative activities, development or improvement of products, processes, or services, or demonstrate a scalable business model with the potential for significant employment generation or wealth creation.

    For tax purposes, when a business applies for startup-related benefits under various notifications (for example, schemes providing profit-linked incentives or tax exemptions), the tax authorities look to the recognition granted under the Startup India guidelines.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share preRead more

    Under the Income Tax Act, 1961, any amount received on the issue of shares over and above their face value is credited to the Securities Premium Account. As a general principle, share premium is treated as a capital receipt and is exempt from tax under Section 10(34) of the Act. The entire share premium—regardless of its quantum—is not included in the taxable income, provided it relates to the issue of shares and is properly credited in the accounts.

    Section 10(34), Income Tax Act, 1961 (paraphrased):
    “Any amount received by a company as share premium in respect of the issue of shares shall not form part of the total income of the company.”

    What Happens When Share Premium Exceeds Market Value?

    Although the exemption under Section 10(34) covers the share premium in its entirety, issues arise when the premium received is significantly in excess of the fair market value of the shares. In such situations, tax authorities may examine the transaction under the following considerations:

    • Genuineness of the Premium:
      The premium must reflect a genuine valuation based on the company’s prospects, underlying asset values, or market conditions. If the premium is inflated beyond the fair market value, it raises the possibility that the excess amount is not a true capital receipt but a means of channeling funds that should otherwise be treated as revenue.

    • Recharacterization Risk:
      If it is found that the excess premium does not have a genuine capital character, the assessing authorities have the discretion to reclassify that portion as a revenue receipt. Depending on the facts and circumstances, such reclassification might result in the excess being treated as taxable income in the hands of the company. In extreme cases, if the inflated premium is used to disguise a dividend or to avoid dividend distribution tax, further tax implications under the concept of “deemed dividend” may arise.

    • Accounting and Disclosure:
      The entire amount received under share premium must be maintained in a designated securities premium account. Any diversion of these funds to non-capital accounts (or expenditures not allowed as a set-off against capital receipt) might also trigger reclassification and taxation.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include: Threshold Limit:If the aggregate value of gifts (money or property) received bRead more

    The key provision is Section 56(2) of the Act, which deals with transfers of property (including money) where consideration is not received or is less than the fair market value. The main points from this section include:

    • Threshold Limit:
      If the aggregate value of gifts (money or property) received by an individual or a Hindu Undivided Family (HUF) in a financial year exceeds ₹50,000, the entire amount is taxable as income under “Income from Other Sources.”

    • Exemptions:
      The Act provides specific exemptions in this regard. For instance:

      • Gifts from Specified Relatives: Any gift, whether in money or property, received from a relative is fully exempt from tax.

      • Gifts on the Occasion of Marriage: Money or property received on marriage is exempt, with no upper limit.

      • Inheritance or Will: Any property or money received as inheritance, by way of a will, or in contemplation of death is not taxable.

      • Other Notified Exemptions: Certain gifts received from local authorities, approved trusts, or other specified entities may also be exempt depending on the conditions notified by the Government.

    As per  Section 56(2)):
    “Where any person receives any money, movable property or immovable property without consideration, or where the consideration is less than the fair market value, if the aggregate amount exceeds ₹50,000 in a financial year, then such amount is chargeable to tax under the head ‘Income from Other Sources’, subject to the exemptions provided…”

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Interest on securities refers to the interest income received from government securities, debentures, bonds, or other debt instruments. This income is taxable under two different heads, depending on the nature of the assessee’s activities. Relevant Legal Provisions: 🔹 Section 56(2)(id) – Income fromRead more

    Interest on securities refers to the interest income received from government securities, debentures, bonds, or other debt instruments. This income is taxable under two different heads, depending on the nature of the assessee’s activities.

    Relevant Legal Provisions:

    🔹 Section 56(2)(id) – Income from Other Sources:

    “Income by way of interest on securities, if not chargeable under the head ‘Profits and gains of business or profession’, shall be chargeable to income-tax under the head ‘Income from other sources’.”

    🔹 Section 145 – Method of accounting:

    Income under the head “Profits and gains of business or profession” or “Income from other sources” shall be computed in accordance with the method of accounting regularly employed by the assessee.

    Computation of Taxable Interest on Securities:

    A. If Assessee is NOT in the business of trading in securities (e.g., salaried person, HUF):

    • Tax head: Income from Other Sources

    • Taxable on: Due basis or receipt basis (as per accounting method adopted)

    • Taxable Amount: Gross interest received or accrued on securities (whether taxable or exempt)

    ✅ Deductions allowed:

    • Collection charges

    • Commission or remuneration to banker/agent for realizing interest

    • Any interest on loan taken to purchase securities (as per Section 57)

    B. If Assessee is in the Business of Trading in Securities:

    • Tax head: Profits and Gains from Business or Profession

    • Entire interest is added to business income

    • All expenses related to the business (purchase, brokerage, loan interest, etc.) are allowed.

    Types of Securities & Taxability:

    Type of Security Taxable/Exempt TDS Applicability
    Government Securities (e.g. T-Bills, Bonds) Usually taxable, but some notified ones are exempt u/s 10(15) No TDS on Government bonds (u/s 193 exceptions)
    Debentures of Companies Taxable Yes (TDS u/s 193 @ 10% if > ₹5,000)
    Tax-Free Bonds (notified u/s 10(15)) Fully Exempt No TDS
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