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CA Vishnu Ram
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  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
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  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
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  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
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  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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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Section 115BB of the Income Tax Act, 1961 – Tax on winnings from lotteries, crossword puzzles, card games, and other games of any sort or gambling or betting: "Where the total income of an assessee includes any income by way of winnings from lotteries, crossword puzzles, races including horse races,Read more

    Section 115BB of the Income Tax Act, 1961 – Tax on winnings from lotteries, crossword puzzles, card games, and other games of any sort or gambling or betting:

    “Where the total income of an assessee includes any income by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of—
    (a) the amount of income-tax calculated on such income at the rate of 30%, and
    (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of such income.”

    Rate of Tax:

    • Flat 30% on the gross winnings (without any basic exemption limit).

    • Surcharge and cess (currently 4%) are added to the 30% tax.

    • No deduction of expenses or allowances is permitted against such income.

    • No benefit of slab rates or chapter VI-A deductions (like 80C, 80D, etc.) on this income.

    TDS Deduction – Section 194B:

    “If the winnings from lottery or game show or puzzle exceeds ₹10,000, the payer shall deduct TDS @30% before making the payment.”

    • For cash winnings, TDS is deducted directly.

    • For non-cash winnings (like car, bike, etc.), the winner must pay tax equivalent to the fair market value of the prize before claiming it, or the provider pays it on their behalf (grossing up required).

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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Yes, dividend is taxable under the Income Tax Act, 1961. Here's a detailed, expert-level reply tailored to your rules: Dividend income is now taxable in the hands of the recipient/shareholder as per Section 56(2)(i), under the head "Income from Other Sources". Taxability of Dividend Income (From AYRead more

    Yes, dividend is taxable under the Income Tax Act, 1961. Here’s a detailed, expert-level reply tailored to your rules:

    Dividend income is now taxable in the hands of the recipient/shareholder as per Section 56(2)(i), under the head “Income from Other Sources”.

    Taxability of Dividend Income (From AY 2021-22 onwards):

    Recipient Tax Treatment
    Resident Individual Taxed at applicable slab rates under Income from Other Sources (Section 56)
    Domestic Company Taxed at applicable corporate tax rate
    Foreign Company/Non-resident Taxed @ 20% (plus surcharge and cess) under Section 115A(1)(a) (subject to DTAA)

    TDS on Dividend – Section 194 & 195:

    • Section 194:
      TDS @ 10% if the dividend paid to resident exceeds ₹5,000 in a financial year.

    • Section 195:
      TDS on dividend paid to non-resident is generally 20% (plus surcharge and cess), subject to benefits of DTAA.

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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    As per Section 2(22) of the Income Tax Act, 1961, dividend includes both actual and deemed dividends. This refers to any distribution by a company out of its accumulated profits (whether capitalized or not), whether in cash or otherwise, to its shareholders. Example: Final dividend, interim dividendRead more

    As per Section 2(22) of the Income Tax Act, 1961, dividend includes both actual and deemed dividends.

    This refers to any distribution by a company out of its accumulated profits (whether capitalized or not), whether in cash or otherwise, to its shareholders.

    Example: Final dividend, interim dividend declared by a company to its equity shareholders.

    Deemed Dividend [Clauses (b) to (e) of Section 2(22)]

    Even if not expressly called “dividend”, the following distributions are deemed to be dividend and are taxable under the Income Tax Act:

    🔹 (b) Distribution of debentures or deposit certificates to shareholders:

    “Any distribution to shareholders of debentures, debenture stock, or deposit certificates in any form, to the extent it is out of accumulated profits.”

    🔹 Tax Treatment: Treated as dividend income.

    🔹 (c) Distribution on liquidation:

    “Any distribution made to shareholders at the time of liquidation to the extent of accumulated profits (before liquidation).”

    🔹 Important: Capital returned in excess of accumulated profits is not treated as dividend.

    🔹 (d) Distribution on reduction of capital:

    If a company reduces its share capital and pays back shareholders out of accumulated profits, such amount is treated as dividend.

    🔹 (e) Loans and advances to shareholders (Deemed Dividend):

    This is one of the most litigated and important clauses.

    If a closely held company (i.e. company in which public is not substantially interested) gives a loan or advance to:

    • A shareholder holding ≥10% voting power, or

    • Any concern in which such shareholder is substantially interested
      — then the loan/advance amount is treated as dividend to the extent of accumulated profits.

    🛑 Exception: It does not apply to a company in which the public is substantially interested (i.e., a listed company).

    📝 Clarification – What is NOT a Dividend (Section 2(22), Provisos):

    • Any distribution out of share premium account (Section 52 of Companies Act) – not considered dividend.

    • Buy-back of shares u/s 77A of Companies Act, 1956 – not treated as dividend, but subject to capital gains tax.

    • Distribution made on preference shares, unless covered under clause (a) to (e) – not deemed dividend.

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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Key Sections Providing Exemptions & Benefits A. Section 54 What it covers:Exemption for long-term capital gains arising from the sale of a residential house property, when the gains are reinvested in purchasing or constructing another residential property. Key Conditions: The new residential proRead more

    Key Sections Providing Exemptions & Benefits

    A. Section 54

    • What it covers:
      Exemption for long-term capital gains arising from the sale of a residential house property, when the gains are reinvested in purchasing or constructing another residential property.

    • Key Conditions:

      • The new residential property must be purchased either one year before or two years after the sale (or constructed within three years from the date of sale).

      • The exemption applies to the extent of the capital gains invested.

    B. Section 54EC

    • What it covers:
      Exemption for long-term capital gains (arising from the sale of any asset) if the gains are invested in specified bonds (such as those issued by NHAI or REC) within six months of the asset transfer.

    • Key Conditions:

      • Investment limit is capped at ₹50 lakh per financial year.

      • The bonds have a specified lock-in period (generally three years).

    C. Section 54F

    • What it covers:
      Exemption on long-term capital gains derived from the sale of any asset (other than a residential house property) if the net sale consideration is invested in purchasing a residential house property.

    • Key Conditions:

      • The entire net sale consideration (not just the gain) must be invested.

      • The exemption is proportionate: if only a part of the sale consideration is invested, the exemption is limited accordingly.

    D. Section 55(2)

    • Indexation Benefit:
      For assets held as long-term capital assets, the Act permits the adjustment of the cost of acquisition using the Cost Inflation Index (CII), thereby reducing the taxable capital gain.

    Additional Strategic Hints for Tax Savings

    • Hold Long-Term:
      Assets held for the long term (as defined under the Act) not only qualify for lower tax rates compared to short-term gains but also benefit from indexation (Section 55(2)).
      Tip: Refrain from selling assets before the long-term holding period to take advantage of this benefit.

    • Plan Sale Transactions:
      Consider spreading the sale of assets over multiple financial years. This can help manage the overall taxable income and take advantage of lower tax slabs, especially for individual taxpayers.

    • Documentation & Timely Reinvestment:
      Ensure that reinvestments (as required under Sections 54, 54EC, or 54F) are executed within the prescribed time frames. Maintain all relevant documentation—such as purchase agreements, receipts, and bank statements—to support the claim for exemption during assessment.

    • Review Investment Limits:
      For Section 54EC, be aware of the ₹50 lakh investment ceiling. If your capital gains exceed this amount, plan other strategies for the remaining gains.

    • Utilize Tax Planning Tools:
      Use financial planning tools or consult professionals to estimate the tax impact of a sale and the extent of exemptions available. This preemptive planning helps in optimizing investment decisions.

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CA Vishnu Ram
Enlightened
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  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Steps to Compute the Short-Term Capital Gain (STCG) Step 1: Determine the Full Value of Consideration This is the total sale price received on the transfer of the equity shares or mutual fund units. Step 2: Deduct the Cost of Acquisition Subtract the original cost at which the shares or units were pRead more

    Steps to Compute the Short-Term Capital Gain (STCG)

    Step 1: Determine the Full Value of Consideration

    • This is the total sale price received on the transfer of the equity shares or mutual fund units.

    Step 2: Deduct the Cost of Acquisition

    • Subtract the original cost at which the shares or units were purchased.

    • Note: Since the holding period is less than 12 months, no indexation is allowed.

      • Formula: Cost of Acquisition = Purchase Price (as is)

    Step 3: Deduct Any Directly Attributable Expenses

    • This includes expenses such as brokerage fees, transaction charges, and any other expenses incurred in connection with the sale.

    • These expenses are deducted from the sale value.

    Step 4: Compute the Net Short-Term Capital Gain

    • Formula:
      STCG = (Full Value of Consideration) – (Cost of Acquisition + Directly Attributable Expenses)

    Step 5: Taxation of STCG

    • The net gain computed in Step 4 is then taxed at the flat rate of 15% under Section 111A.

    • After computing the tax at 15%, add applicable surcharge and cess to arrive at the total tax liability.

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