Share & grow the world's knowledge!
We want to connect the people who have knowledge to the people who need it, to bring together people with different perspectives so they can understand each other better, and to empower everyone to share their knowledge.
Whats are the same hints for tax shavings on capital gain?
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
-
-
-
-
-
See lessHold 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.
What are covered in Dividend under income tax act?
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:
🔹 Tax Treatment: Treated as dividend income.
🔹 (c) Distribution on liquidation:
🔹 Important: Capital returned in excess of accumulated profits is not treated as dividend.
🔹 (d) Distribution on reduction of capital:
🔹 (e) Loans and advances to shareholders (Deemed Dividend):
This is one of the most litigated and important clauses.
🛑 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.
See less
Is dividend taxable under Income Tax Act?
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):
TDS on Dividend – Section 194 & 195:
-
-
See lessSection 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.
How to compute tax on lotteries and wining from games?
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:
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:
-
-
See lessFor 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).
How to compute tax on rent received from renting of plant and machinery?
Rent received from letting of plant and machinery is taxable under the head "Income from Other Sources" if it is not part of the assessee’s regular business operations. Refer Section 56(2)(ii) of the Income Tax Act, 1961: “Income of every kind which is not to be excluded from the total income underRead more
Rent received from letting of plant and machinery is taxable under the head “Income from Other Sources” if it is not part of the assessee’s regular business operations.
Refer Section 56(2)(ii) of the Income Tax Act, 1961:
See lessIs money/property received without consideration chargeable to tax?
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.
See less
What is the tax treatment of share premium received in excess of market value?
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.
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:
-
-
-
See lessGenuineness 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.