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When the benefit of indexation is not available in case of long term capital gain under income tax act?
Indexation benefits allow taxpayers to adjust the purchase price of assets for inflation, thereby reducing taxable capital gains. However, there are certain cases where indexation is not available for long-term capital gains (LTCG) under the Income Tax Act: Equity Shares and Equity-Oriented Mutual FRead more
Indexation benefits allow taxpayers to adjust the purchase price of assets for inflation, thereby reducing taxable capital gains. However, there are certain cases where indexation is not available for long-term capital gains (LTCG) under the Income Tax Act:
Equity Shares and Equity-Oriented Mutual Funds
Gains Taxed Under Special Provisions
Budget 2025 Changes (If Implemented)
Thus, while indexation helps reduce tax liability, it is not available for specific asset classes, particularly equity shares, certain bonds, and securities taxed under special provisions.
See lessIf a start-up sale it’s Equity in excess of fair market value, then is it liable for tax? Is there any exemption available to the start-up?
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.
See lessIs interest received on compensation charged to tax under income tax act?
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))
2. Interest on Compensation in Other Cases
3. Taxability in the Year of Receipt
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.
See lessWhat is the income tax liability on forfeited advance deposit/Pagri?
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))
2. Pagri Received by Landlord from Tenant
3. Pagri Received by an Existing Tenant
4. Advance Deposit for Rent, Later Forfeited
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.”
See lessI received amount from employer on termination of my job, is it taxable under income tax act?
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
2. Gratuity
3. Leave Encashment
4. Retrenchment Compensation
5. Severance Pay or Ex-Gratia Compensation
6. Notice Pay & Bonus
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.
See lessWhat is deep discount bond? How to compute the tax liability under income tax act?
A Deep Discount Bond (DDB) is a type of bond issued at a price significantly lower than its face value. It does not pay periodic interest (coupon payments). Instead, the investor receives the full face value at maturity, and the difference between the purchase price and maturity value represents theRead more
A Deep Discount Bond (DDB) is a type of bond issued at a price significantly lower than its face value. It does not pay periodic interest (coupon payments). Instead, the investor receives the full face value at maturity, and the difference between the purchase price and maturity value represents the gain.
Tax Treatment Under the Income Tax Act
Taxability at Maturity
Transfer Before Maturity
TDS on Redemption
Deep discount bonds are commonly used for long-term investments, offering predictable returns while being subject to capital gains taxation upon redemption.
See lessWhat is the difference between deep discount bond, zero coupon bond and strips?
Difference Between Deep Discount Bonds, Zero Coupon Bonds, and STRIPS 1. Zero-Coupon Bonds:Zero-coupon bonds are issued at a discount to their face value and do not pay periodic interest. Instead, investors receive the full face value upon maturity. The return on investment is the difference betweenRead more
Difference Between Deep Discount Bonds, Zero Coupon Bonds, and STRIPS
1. Zero-Coupon Bonds:
Zero-coupon bonds are issued at a discount to their face value and do not pay periodic interest. Instead, investors receive the full face value upon maturity. The return on investment is the difference between the purchase price and the redemption value.
2. Deep Discount Bonds:
Deep discount bonds are a type of zero-coupon bond issued at a significant discount. They typically have a long tenure and offer high capital appreciation. The key difference is that these are usually issued with an exceptionally high discount compared to other zero-coupon bonds.
3. STRIPS (Separate Trading of Registered Interest and Principal Securities):
STRIPS are created by separating the principal and interest components of a regular coupon-bearing bond. Each portion is sold individually as a zero-coupon security. These are often issued by government entities, allowing investors to buy either the principal or interest portion separately.
Key Differences:
These instruments are beneficial for long-term investors seeking assured returns with no reinvestment risk.
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