In recent times, many so-called “finfluencers” and “fraudcasters” have been spreading a misleading narrative about taxation. According to them, if your taxable income exceeds ₹12,00,000—even by ₹1—you will lose the rebate and suddenly have to pay ₹62,400+ in taxes. This claim sounds alarming, but it is entirely false.

The above myths emerged immediately after the Budget 2025 without proper interpretation. The summary of personal taxes slabs as per Budget 2025 can be read by clicking here.

Thankfully, the Income Tax Act provides for Marginal Relief, ensuring that an additional ₹1 in income does not create an unfair tax burden. Let’s break this down in simple terms.

The Finfluencer & Fraudcast Myth

They claim that if your income is ₹12,00,001, your tax liability will jump to ₹62,400+. The idea of suddenly losing the rebate sounds frightening and discouraging for taxpayers. However, this is a misinterpretation of tax laws and how rebates work under the new tax regime.

The Truth: Marginal Relief Applies

Under the new tax regime, taxpayers earning up to ₹12,00,000 get a rebate under Section 87A, effectively making their tax liability zero. But what happens if your income is ₹12,00,001?

Instead of immediately paying ₹62,400+ in tax, Marginal Relief ensures that you pay only ₹1 in tax!

Yes, you read that right! If your taxable income is just ₹1 above ₹12,00,000, you will not face a sudden, steep tax burden. Instead, the tax amount is adjusted in such a way that you only pay the additional tax corresponding to the extra income.

What Is the Maximum Income for Marginal Relief?

Marginal relief is available until your income reaches approximately ₹12,73,934.

• If your taxable income is between ₹12,00,001 and ₹12,73,934, marginal relief ensures you only pay tax on the excess amount above ₹12,00,000.
• Once your income exceeds ₹12,73,934, the tax liability surpasses the additional income over ₹12,00,000, and marginal relief no longer applies.

Key Takeaways

✅ Marginal Relief exists to prevent unfair tax jumps.
✅ If your taxable income is between ₹12,00,001 and ₹12,73,934, tax is adjusted fairly.
✅ You do NOT suddenly lose all benefits or pay ₹62,400+ in tax for earning ₹1 more.
✅ Don’t believe misleading financial myths—always check official tax laws!

Frequently Asked Questions (FAQs)

1. What is Marginal Relief?

Marginal Relief is a provision in the Income Tax Act that ensures taxpayers do not face a sudden jump in tax liability when their taxable income slightly exceeds ₹12,00,000 under the new tax regime.

2. How does Marginal Relief work?

If your taxable income exceeds ₹12,00,000 by a small margin, Marginal Relief ensures that you only pay tax on the excess amount instead of facing a sudden, steep tax liability.

3. Does Marginal Relief apply to all taxpayers?

Marginal Relief applies to taxpayers under the new tax regime whose taxable income is between ₹12,00,001 and ₹12,73,934.

4. What happens if my income exceeds ₹12,73,934?

If your taxable income crosses ₹12,73,934, your tax liability exceeds the additional income over ₹12,00,000, and Marginal Relief no longer applies.

5. Is it true that earning ₹1 more than ₹12,00,000 leads to ₹62,400+ in taxes?

No, this is a myth. Marginal Relief prevents such an unfair tax burden. If your income is ₹12,00,001, your actual tax liability is just ₹1, not ₹62,400+.

6. How can I ensure I am calculating my tax correctly?

It is always best to consult a qualified Chartered Accountant (CA) to understand your tax liability and Marginal Relief calculations accurately.

7. Where can I get more reliable tax information?

Always refer to official government resources or consult a professional CA instead of relying on misinformation spread by unverified sources online.

Final Thoughts

The idea that a ₹1 increase in taxable income can create a huge tax burden is a misconception spread by those who don’t understand taxation properly. Marginal relief is a critical feature in our tax system that ensures fairness and prevents sudden financial shocks. So, the next time someone tells you that earning slightly more will lead to a massive tax jump, you’ll know the truth!

For professional tax guidance, always consult a qualified Chartered Accountant (CA) instead of relying on misleading online advice!

 

 

 

 

The Finance Bill, 2025, has introduced changes in personal income tax rates for the Assessment Year (AY) 2026-27. This article provides a detailed overview of the tax slabs under both the new tax regime (default) and the old tax regime (optional) while comparing tax liabilities at different income levels.

---

Personal Income Tax Rates for AY 2026-27

New Tax Regime (Default) – Section 115BAC

Total Income (₹)	Tax Rate
Upto ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

• Health & Education Cess: 4% applies to the total tax liability.
• Surcharge: Additional tax for income exceeding ₹50 lakh.
• No deductions or exemptions allowed.

---

Old Tax Regime (Optional) – No Change in Rates

Category	Income up to ₹2.5L	₹2.5L – ₹5L	₹5L – ₹10L	Above ₹10L
Individuals (<60 yrs)	Nil	5%	20%	30%
Senior Citizens (60-79 yrs)	Nil (₹3L limit)	5%	20%	30%
Super Senior Citizens (80+ yrs)	Nil (₹5L limit)	–	20%	30%

• Rebate under Section 87A: Available for income up to ₹5 lakh (maximum rebate ₹12,500).
• Allows deductions under 80C, 80D, HRA, LTA, etc.

---

Comparison of Tax Liability under Both Regimes

To understand the impact of these tax rates, let’s compare tax liability for incomes of ₹20 lakh, ₹30 lakh, and ₹40 lakh under both regimes.

Tax Calculation for Different Income Levels

Total Income (₹)	New Regime (₹)	Old Regime (₹) (After ₹2L deductions)
₹20,00,000	₹2,08,000	₹3,66,600
₹30,00,000	₹4,99,200	₹6,78,600
₹40,00,000	₹8,11,200	₹9,90,600

Tax Breakdown for ₹20,00,000

✅ New Regime:

• Tax on first ₹4,00,000 – Nil
• ₹4,00,001 – ₹8,00,000 @ 5% = ₹20,000
• ₹8,00,001 – ₹12,00,000 @ 10% = ₹40,000
• ₹12,00,001 – ₹16,00,000 @ 15% = ₹60,000
• ₹16,00,001 – ₹20,00,000 @ 20% = ₹80,000
• Total Tax = ₹2,00,000 + 4% Cess (₹8,000) = ₹2,08,000

✅ Old Regime (After ₹2L Deductions – Net Income ₹18,00,000):

• ₹2.5L – ₹5L @ 5% = ₹12,500
• ₹5L – ₹10L @ 20% = ₹1,00,000
• ₹10L – ₹18L @ 30% = ₹2,40,000
• Total Tax = ₹3,52,500 + 4% Cess (₹14,100) = ₹3,66,600

---

Disclaimer:

This article is for informational purposes only and should not be considered as professional tax advice. While every effort has been made to ensure accuracy, tax laws are subject to change, and individual circumstances may vary. Readers are advised to consult with a qualified Chartered Accountant or tax professional before making any tax-related decisions. The author and publisher disclaim any liability for any decisions made based on the content of this article.

 

Here’s a table of the new TDS rates as per the Finance Bill, 2025:

Section	Nature of Payment	Current TDS Rate	Proposed TDS Rate
194D	Insurance Commission	5%	2%
194LBC	Income from Securitisation Trust	25% (Individuals/HUF), 30% (Others)	10% (for all)
194LBA	Income from Business Trust	No change	No change
193	Interest on Securities	No threshold	Exempt up to ₹10,000
194A	Interest (other than on securities)	₹40,000 (General) / ₹50,000 (Senior Citizens)	₹50,000 (General) / ₹1,00,000 (Senior Citizens)
194B	Winnings from Lottery	₹10,000 aggregate in FY	₹10,000 per transaction
194BB	Winnings from Horse Race	₹10,000 aggregate in FY	₹10,000 per transaction
194G	Commission on Lottery	₹15,000	₹20,000
194H	Commission/Brokerage	₹15,000	₹20,000
194-I	Rent	₹2,40,000 per FY	₹50,000 per month
194J	Professional/Technical Fees	₹30,000	₹50,000
194LA	Compensation for Land Acquisition	₹2,50,000	₹5,00,000

These changes will be effective from April 1, 2025 or any date as notified by the goverment

Introduction

Tax Deducted at Source (TDS) on rent paid to a Non-Resident Indian (NRI) landlord is governed by Section 195 of the Income Tax Act, 1961. If you are paying rent to an NRI landlord, it is essential to comply with TDS deduction regulations to avoid penalties. This article explains the applicable TDS rate, lower TDS deduction process, Form 15CA & 15CB requirements, determination of NRI status, impact of DTAA, Budget 2017 amendments, and consequences of non-compliance, with an example for clarity.

How to Determine Whether a Landlord is an NRI

Before deducting TDS, the tenant must verify if the landlord qualifies as an NRI under the Income Tax Act, 1961. A landlord is considered an NRI if:

1. Stay in India: The landlord stays in India for less than 182 days in the relevant financial year.
2. Past Stay Record: If the landlord was in India for less than 365 days in the preceding four years and less than 60 days in the current financial year, they are considered an NRI.
3. Self-Declaration: In some cases, the landlord can provide a self-declaration (Along with CA Certificate) stating their residential status, which the tenant can verify with relevant documents (passport, visa, or foreign address proof).

If the landlord is an NRI, the tenant must deduct TDS under Section 195, rather than Section 194I applicable to resident landlords.

TDS Rate on Rent Paid to NRI

As per Section 195, the applicable TDS rate on rent paid to an NRI is 30% (plus applicable surcharge & cess) on the gross rent amount. Unlike resident landlords, where TDS is deducted at 10% under Section 194I, rent paid to an NRI is subject to a higher rate.

Impact of DTAA (Double Taxation Avoidance Agreement)

If the NRI landlord resides in a country that has a DTAA (Double Taxation Avoidance Agreement) with India, they may be eligible for a lower TDS rate. The landlord can claim DTAA benefits by:

1. Providing a Tax Residency Certificate (TRC) from their country of residence.
2. Furnishing Form 10F and a self-declaration stating they are eligible for DTAA benefits.
3. Ensuring compliance with Section 90/90A of the Income Tax Act for DTAA applicability.

For example, under DTAA with the USA, the TDS rate may be reduced to 15% instead of 30%, depending on the agreement terms.

Example of TDS on Rent to NRI

Assume Mr. Sharma, an Indian resident, is paying a monthly rent of ₹1,00,000 to his NRI landlord.

• TDS Calculation: ₹1,00,000 × 30% = ₹30,000
• Monthly payment after TDS deduction: ₹1,00,000 – ₹30,000 = ₹70,000
• The deducted TDS of ₹30,000 must be deposited with the Income Tax Department.

If DTAA applies and the TDS rate is 15%, then:

• TDS Calculation: ₹1,00,000 × 15% = ₹15,000
• Monthly payment after TDS deduction: ₹1,00,000 – ₹15,000 = ₹85,000

Lower TDS Deduction Process

If the NRI landlord’s actual tax liability is lower than the 30% TDS rate, they can apply for a Lower Deduction Certificate (LDC) from the Income Tax Department. Here’s how:

1. Application by NRI Landlord: The landlord must apply for a lower deduction certificate (Form 13) from the Assessing Officer (AO).
2. Certificate Issuance: The AO reviews the landlord’s tax liabilities and issues the certificate specifying a reduced TDS rate.
3. Tenant’s Compliance: The tenant can deduct TDS at the lower rate mentioned in the certificate.

Form 15CA & 15CB Requirements

For any payment made to an NRI, compliance with Form 15CA & 15CB is mandatory before remittance:

1. Form 15CA: A declaration by the payer (tenant) to be submitted online before making the remittance to an NRI landlord.
2. Form 15CB: A certificate issued by a Chartered Accountant (CA) certifying that the tax deduction is in compliance with the Income Tax Act.
3. Submission: If the remittance exceeds ₹5,00,000 in a financial year, both Form 15CA & 15CB are required. Otherwise, only Form 15CA is sufficient for smaller amounts.

Budget 2017 Amendment Impact

Budget 2017 introduced stringent compliance measures for TDS on payments made to NRIs, emphasizing stricter enforcement of Form 15CA & 15CB. The following changes were made:

1. Expanded scope of TDS deduction: TDS compliance for rental payments to NRIs is closely monitored, making it necessary for tenants to deduct and deposit TDS accurately.
2. Strengthened penalties: Non-deduction or non-payment of TDS now attracts higher interest rates and penalties.

Consequences of Not Deducting TDS on NRI Rent

Failure to deduct or deposit TDS can lead to serious tax implications, including:

• Interest on Late Deduction/Deposit:
  • 1% per month for failure to deduct TDS.
  • 1.5% per month for failure to deposit TDS after deduction.
• Penalty Under Section 271C: The tenant may be liable to pay an equivalent amount as a penalty.
• Disallowance of Rent Expense: If TDS is not deducted, the rent paid may be disallowed as a business expense for tax purposes.
• Tenant in Default: If the tenant fails to deduct and deposit TDS, they will be considered a “defaulter” and held liable for the unpaid tax amount, along with penalties and interest.

Conclusion

Compliance with TDS on rent paid to NRI landlords is crucial to avoid penalties and legal issues. If you are unsure about tax deductions or need assistance with a lower TDS application, consult N C Agrawal& Associates, CA in Delhi and Noida to ensure seamless compliance.

You can also read our Article on TDS applicabilty on sale of property by NRI by clicking here

For expert advice, reach out to N C Agrawal & Associates, offering specialized tax and compliance services for residents and NRIs.

Tax Deducted at Source (TDS) is a mechanism by which the government collects tax at the source of income. The payer deducts a certain percentage of the payment as tax and remits it to the government on behalf of the payee. The TDS rates and applicable sections under the Income Tax Act for the Financial Year (FY) 2024-25 (Assessment Year 2025-26) are outlined below:

TDS Rate Chart for FY 2024-25 (AY 2025-26):

Section	Nature of Payment	Threshold Limit (₹)	TDS Rate (%)	Effective Date
192	Salary	As per income tax slab rates	As per slab rates	–
192A	Premature withdrawal from EPF	₹50,000	10%	–
193	Interest on securities	₹10,000	10%	–
194	Dividend	₹5,000	10%	–
194A	Interest other than on securities	₹40,000 (₹50,000 for senior citizens)	10%	–
194B	Winnings from lotteries, crossword puzzles, etc.	₹10,000	30%	–
194BA	Winnings from online games	No threshold	30%	–
194BB	Winnings from horse races	₹10,000	30%	–
194C	Payment to contractors/sub-contractors (single transaction)	₹30,000	1% (Individual/HUF), 2% (Others)	–
194C	Payment to contractors/sub-contractors (aggregate in FY)	₹1,00,000	1% (Individual/HUF), 2% (Others)	–
194D	Insurance commission	₹15,000	5%	–
194DA	Payment in respect of life insurance policy	₹1,00,000	5%	–
194EE	Payments from National Savings Scheme	₹2,500	10%	–
194F	Payments on account of repurchase of units by Mutual Fund or Unit Trust of India	No threshold	20%	Up to 30-09-2024
194F	Omitted	–	–	From 01-10-2024
194G	Commission on sale of lottery tickets	₹15,000	5%	–
194H	Commission or brokerage	₹15,000	5%	Up to 30-09-2024
194H	Commission or brokerage	₹15,000	2%	From 01-10-2024
194I(a)	Rent for plant and machinery	₹2,40,000	2%	–
194I(b)	Rent for land, building, furniture, etc.	₹2,40,000	10%	Up to 30-09-2024
194I(b)	Rent for land, building, furniture, etc.	₹2,40,000	2%	From 01-10-2024
194IA	Payment on transfer of certain immovable property other than agricultural land	₹50,00,000	1%	–
194IB	Payment of rent by certain individuals or HUF	₹50,000 per month	5%	Up to 30-09-2024
194IB	Payment of rent by certain individuals or HUF	₹50,000 per month	2%	From 01-10-2024
194IC	Payment under specified agreement	No threshold	10%	–
194M	Payment of certain sums by certain individuals or HUF	₹50,00,000	5%	Up to 30-09-2024
194M	Payment of certain sums by certain individuals or HUF	₹50,00,000	2%	From 01-10-2024
194O	Payment of certain sums by e-commerce operator to e-commerce participant	₹5,00,000	1%	Up to 30-09-2024
194O	Payment of certain sums by e-commerce operator to e-commerce participant	₹5,00,000	0.1%	From 01-10-2024

Key Changes Effective from 1st October 2024:

• Section 194H (Commission or Brokerage): TDS rate reduced from 5% to 2%.
• Section 194IB (Rent by Individuals or HUF): TDS rate reduced from 5% to 2%.
• Section 194M (Payments by Individuals or HUF): TDS rate reduced from 5% to 2%.
• Section 194O (E-commerce Transactions): TDS rate reduced from 1% to 0.1%.
• Section 194F (Repurchase of Units by Mutual Funds or UTI): This section has been omitted.

These changes aim to simplify tax compliance and reduce the burden on taxpayers. It’s essential to stay updated with these modifications to ensure accurate TDS deductions and adherence to tax regulations.

if you further need to study the detail about TDS deposit dates and tds return filing process, the same can be read at TDS Deposit dates and Return Filing

Dear Taxpayer, ANIL KAUSHAL (BOSPKXXXXL)
It is observed that you have claimed deduction under section 80GGC of Rs 500000 in your ITR for A.Y. 2023-24. It is requested that the claim may be verified and mistake, if any, may be rectified by updating the ITR for A.Y. 2023-24 by 31.03.2025.

Warm regards
Income Tax Department

Did you received the above message from income tax department? worried about , what should do?

Steps to Take Upon Receiving a SMS for Section 80GGC Deduction Discrepancy or verification

If you have received a notice from the Income Tax Department regarding a claimed deduction under Section 80GGC, it is crucial to verify and rectify the details to ensure compliance with tax laws. Section 80GGC allows taxpayers to claim deductions for donations made to political parties. However, any discrepancies or unverified claims can lead to legal and financial complications.

As a leading CA Firm in Delhi and Noida, we guide taxpayers through the proper steps to resolve such issues effectively.

Steps to Take After Receiving the Notice

1. Verify the Claimed Deduction

• Check your filed Income Tax Return (ITR) for A.Y. 2023-24 to confirm the amount claimed under Section 80GGC.
• Ensure that the donation was made to a registered political party or electoral trust through a valid payment mode (excluding cash).
• Cross-check the acknowledgment or receipt of the donation from the concerned party.

1. Gather Supporting Documents

• Please make sure you are in possession of Donation receipt or Obtain a donation receipt from the political party or trust.
• Keep a copy of the bank transaction statement as proof of payment.

1. File an Updated ITR (ITR-U) if Required

• If you find any mistake in the claim, file an Updated Return (ITR-U) under Section 139(8A) before 31st March 2025.
• The ITR-U can be filed online through the Income Tax e-Filing Portal.
• Ensure accurate reporting to avoid penalties or further scrutiny.

1. Respond to the Notice Properly (in case if you have received the Tax Notice)

• If your claim is correct, respond to the Income Tax Department with necessary documents.
• Use the Compliance Portal on the Income Tax website to submit your response.
• If required, seek assistance from a professional CA Firm in Delhi and Noida for drafting a response.

• We have already highlighted this matter earlier, emphasizing that the government is actively monitoring and identifying fake deductions claimed through updated ITRs. This issue was recently addressed and published on our website. You can read the full article by clicking here

Why Choose a CA Firm in Delhi and Noida?

Handling tax notices and rectifications requires expertise in income tax laws and compliance. Professional assistance ensures:
✅ Correct tax filing and compliance with regulations.
✅ Proper documentation and legal response to the tax department.
✅ Avoidance of penalties due to incorrect claims.

If you have received a similar notice, contact our expert team at N C Agrawal & Associates, a trusted CA Firm in Delhi and Noida, for hassle-free assistance in resolving tax discrepancies and filing Updated ITR.

When purchasing property from a Non-Resident Indian (NRI) seller, the buyer is required to deduct Tax Deducted at Source (TDS) on the sale amount. The TDS rate and procedures are different compared to transactions involving resident sellers. Here’s a breakdown of the process:

1. TDS Rate for NRI Seller

• Standard Rate: TDS is typically deducted at a rate of 20% plus applicable surcharge and cess on the total sale consideration if the property is classified as a long-term capital asset (held for more than 2 years).
• Short-Term Capital Gains: If the property is held for less than 2 years, the TDS rate is 30% plus applicable surcharge and cess.
• Important Note: These rates are subject to change as per the Finance Act. Ensure you verify the latest rates.

2. Procedure for Deducting TDS

• Obtain TAN: The buyer must obtain a Tax Deduction and Collection Account Number (TAN) before deducting TDS.
• Deduction of TDS: TDS should be deducted at the time of making the payment to the NRI seller, whether in advance or in installments.
• Deposit of TDS: The deducted TDS should be deposited to the government account using Form 26QB within 30 days from the end of the month in which TDS was deducted.
• Issue of TDS Certificate: The buyer must issue Form 16A (TDS Certificate) to the NRI seller within 15 days from the due date of furnishing the challan-cum-statement in Form 26QB.

3. Lower TDS Certificate Process

An NRI seller may apply for a lower or nil deduction certificate under Section 197 of the Income Tax Act if the actual tax liability is expected to be lower than the standard TDS rate.

• Application by NRI Seller: The NRI seller can apply for a lower TDS certificate from the jurisdictional Assessing Officer in India. The application is made using Form 13.
• Processing Time: The issuance of a lower TDS certificate can take a few weeks to a few months, depending on the assessment and verification process.
• Issuance of Certificate: Once approved, the Assessing Officer issues the lower or nil TDS certificate specifying the reduced rate of TDS.
• Furnishing to Buyer: The NRI seller must furnish this certificate to the buyer, who will then deduct TDS at the rate mentioned in the certificate instead of the standard rate.

4. Filing of TDS Return

• The buyer needs to file TDS returns on Form 27Q quarterly.
• The return should include details of the NRI seller, the property transaction, the amount paid, and the TDS deducted.

5. Non-Compliance Penalties

• Failure to deduct or deposit TDS may result in interest and penalties. The buyer may also be deemed an “assessee in default,” making them liable to pay the TDS amount along with interest.

6. Things to Keep in Mind

• Consultation: It is advisable to consult a tax professional or legal expert to ensure compliance with the regulations.
• Documentation: Ensure proper documentation, including the NRI status of the seller, property details, and any certificates related to TDS.
• Payment Consideration: TDS is deducted on the entire sale consideration, not just the capital gain portion.

This process ensures that the transaction is compliant with Indian tax laws, and both the buyer and seller avoid any future complications.

Paying rent to a Non-Resident Indian (NRI) involves specific tax deduction requirements under Indian tax laws. This article details the TDS obligations on rent payments to NRIs and explains the process for obtaining a lower TDS deduction certificate.

TDS on Rent Payment to NRIs

Deductor:
Any individual paying rent to an NRI must deduct tax at source under Section 195 of the Income Tax Act, 1961.

Deductee:
Tax must be deducted if the recipient is an NRI and the rental income is chargeable to tax in India, irrespective of any Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the NRI. Since the property is located in India, the rental income is taxable in India.

Rate of TDS:

1. Standard Rate: As per the Finance Act 2022, the standard rate is 30% plus applicable Surcharge and Health & Education Cess, amounting to 31.20%.
2. DTAA Rate: If a DTAA is in force, tax should be deducted at the rate specified in the Finance Act or the DTAA, whichever is more beneficial to the assessee.

Time of Deduction:
TDS must be deducted at the time of payment or credit of income, whichever is earlier. This rule applies even if the amount is credited to a ‘Suspense Account.’

Deposit of Tax Deducted at Source:
TDS is required to be deposited to the credit of the central government through Challan ITNS 281 within 7 days from the end of the month in which the tax was deducted. For deductions made in March, the deposit deadline is 30th April of the relevant assessment year.

Statement for Tax Deducted at Source:
The deductor must file a quarterly statement of tax deducted at source in Form 27Q by the due dates specified under Rule 31A.

Certificate of TDS:
The deductor shall issue a certificate of tax deducted at source in Form 16A within 15 days from the due date of furnishing the statement of tax deducted at source under Rule 31.

How to Obtain a Lower TDS Deduction Certificate

In some cases, the NRI landlord may be eligible for a lower TDS rate than the standard 31.20%. To avail of this benefit, the NRI must obtain a certificate for lower TDS deduction from the Income Tax Department.

Steps to Obtain a Lower TDS Deduction Certificate:

1. Application Form:

• The NRI must file an application in Form 13 to the Assessing Officer (International Taxation) under whose jurisdiction their case falls. The form should include details such as the name and address of the applicant, PAN, status (resident/non-resident), and nature and amount of income.

1. Supporting Documents:

• The NRI must submit supporting documents along with the application form, including:
  • Proof of income (such as rental agreements)
  • Computation of income
  • Past tax returns (if applicable)
  • Details of investments or other deductions claimed

1. Submission:

• The completed application form, along with the supporting documents, must be submitted to the Assessing Officer. This can be done online through the Income Tax Department’s website or physically at the respective office.

1. Assessment:

• The Assessing Officer will review the application and documents to determine the appropriate TDS rate. If the officer is satisfied with the evidence provided, a certificate specifying the lower TDS rate will be issued.

1. Issuance of Certificate:

• Upon approval, the Assessing Officer will issue a certificate under Section 197 of the Income Tax Act, specifying the lower TDS rate applicable to the NRI. This certificate must be presented to the tenant (deductor) to apply the reduced TDS rate on future rent payments.

1. Validity:

• The lower TDS deduction certificate is usually valid for the financial year in which it is issued. The NRI may need to reapply for subsequent years if they continue to qualify for the reduced rate.

Example:

Ms. Singh, an NRI, receives ₹50,000 per month as rent from her property in India. The standard TDS rate applicable is 31.20%, amounting to ₹15,600 per month. Ms. Singh applies for a lower TDS deduction certificate, providing necessary documents to the Assessing Officer. Upon review, the officer issues a certificate allowing a reduced TDS rate of 20%. The tenant must then deduct TDS at 20% instead of 31.20%, reducing the monthly TDS to ₹10,000.

Conclusion

Understanding the TDS obligations and the process for obtaining a lower TDS deduction certificate is crucial for NRIs receiving rental income from properties in India. Compliance with the stipulated rates, timely deductions, and proper documentation ensures smooth transactions and avoids penalties.

The above article has been written by CA Neeraj Bansal and he can be reach out at +91-971804655.

In India, the Income Tax Act governs the taxation of individuals based on their income, providing two distinct tax regimes: the Old Tax Regime and the New Tax Regime. Each regime offers unique advantages and considerations, impacting how taxpayers calculate their taxable income and their overall tax liability. This article explores the differences between the Old Tax Regime and New Tax Regime for the financial year 2023-24, emphasizing their tax structures, benefits, and the specific advantage provided by Section 87A.

Understanding the Old Tax Regime

The Old Tax Regime, also known as the existing tax structure, has been in place for many years. It allows taxpayers to avail various deductions and exemptions under different sections of the Income Tax Act. These deductions are crucial as they reduce the taxable income, thereby lowering the overall tax liability. Key deductions available under the Old Tax Regime include:

• Section 80C: Deductions for investments in instruments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), Life Insurance Premiums, Equity Linked Savings Scheme (ELSS), etc., up to ₹1.5 lakh per annum.
• Section 80D: Deductions for health insurance premiums paid for self, family, and parents, up to specified limits.
• Section 24: Deductions for interest paid on housing loans, up to specified limits.
• HRA (House Rent Allowance): Exemption available for rent paid if HRA forms part of salary.

These deductions significantly impact the taxable income, allowing taxpayers to potentially reduce their tax outgo substantially. The tax rates under the Old Tax Regime for individuals below 60 years for FY 2023-24 are structured as follows:

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
Above ₹10,00,000	30%

Senior citizens (60 years and above but below 80 years) and super senior citizens (80 years and above) have different slabs and rates tailored to their age brackets.

Introduction of the New Tax Regime

The New Tax Regime was introduced from FY 2020-21 onwards to simplify the tax structure by eliminating most deductions and exemptions. This regime offers a lower number of tax slabs but with slightly different rates compared to the Old Tax Regime. The idea behind the New Tax Regime is to provide a straightforward tax calculation process without the need for detailed tax planning around deductions. The tax rates under the New Tax Regime for FY 2023-24 are structured as follows:

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹7,50,000	10%
₹7,50,001 to ₹10,00,000	15%
₹10,00,001 to ₹12,50,000	20%
Above ₹12,50,000	25%

Key Differences Between the Old Tax Regime and New Tax Regime

1. Tax Structure:

• Old Tax Regime: Offers multiple tax slabs with higher rates applicable to higher income brackets. Taxpayers can reduce their taxable income significantly by availing deductions under various sections like 80C, 80D, etc.
• New Tax Regime: Provides a simpler tax structure with fewer slabs but slightly different rates. The regime does not allow most deductions and exemptions, aiming for a more straightforward tax calculation process.

2. Deductions and Exemptions:

• Old Tax Regime: Allows taxpayers to claim deductions under sections such as 80C, 80D, 24, etc., which reduce taxable income and subsequently reduce the tax liability.
• New Tax Regime: Does not allow most deductions and exemptions except those specified by the government. Tax calculation is based on gross income without adjustments for deductions.

3. Impact on Tax Liability:

• Old Tax Regime: Often results in a lower tax liability for taxpayers who can utilize deductions effectively to reduce their taxable income.
• New Tax Regime: May lead to higher tax liability compared to the Old Tax Regime, especially for those who would otherwise benefit from deductions under the old structure.

4. Section 87A Benefit:

Under both the Old and New Tax Regimes, individuals with total income up to ₹5,00,000 are eligible for a rebate under Section 87A. This rebate directly reduces the tax liability after calculating taxes:

• Rebate Amount: The rebate is the lower of 100% of the income tax liability or ₹12,500.
• Applicability: The rebate is available to resident individuals (below 60 years) whose total income does not exceed ₹5,00,000. It effectively reduces the tax burden for eligible taxpayers, making the regime more favorable, especially for lower income groups.

Example Scenario: Impact of Section 87A Benefit

Let’s consider an example where an individual’s total income after deductions under the Old Tax Regime is ₹4,80,000:

• Tax Calculation without Rebate:
• Income up to ₹2,50,000: Nil tax
• Income from ₹2,50,001 to ₹4,80,000: Tax at 5% on ₹2,30,000 (₹4,80,000 – ₹2,50,000) = ₹11,500
• Total Tax Liability = ₹11,500
• Tax Calculation with Section 87A Rebate:
• After applying the rebate of ₹11,500 (lower of 100% of tax liability or ₹12,500), the tax payable is reduced to Nil.

Conclusion

Understanding the differences between the Old Tax Regime and New Tax Regime for FY 2023-24, including the benefit of Section 87A, is crucial for taxpayers to make informed decisions about their tax planning strategies. Each regime offers unique benefits and considerations, catering to different taxpayer profiles and financial situations. Whether to opt for the Old Tax Regime with its deductions and exemptions or the New Tax Regime for its simplicity and fixed tax structure depends on individual circumstances and tax planning goals. By evaluating these factors carefully, taxpayers can optimize their tax liabilities while ensuring compliance with tax laws effectively. The inclusion of Section 87A ensures that eligible taxpayers receive additional relief, further influencing tax planning decisions.

Investing in equity shares can be lucrative, but it also comes with tax implications that investors need to understand. This article delves into the taxation rules for the sale of listed and unlisted equity shares, distinguishing between short-term and long-term capital gains, and exploring how investors can save on capital gains tax under Section 54F of the Income Tax Act.

Table of Contents

1. Introduction to Equity Share Taxation
2. Short-Term and Long-Term Capital Gains
   • Definitions and Holding Periods
   • Tax Rates for Listed Equity Shares
   • Tax Rates for Unlisted Equity Shares
3. Taxation on Sale of Listed Equity Shares
   • Short-Term Capital Gains (STCG)
   • Long-Term Capital Gains (LTCG)
4. Taxation on Sale of Unlisted Equity Shares
   • Short-Term Capital Gains (STCG)
   • Long-Term Capital Gains (LTCG)
5. Saving Capital Gains Tax Under Section 54F
   • Eligibility Criteria
   • Conditions and Compliance
   • Calculation and Exemption
6. Practical Scenarios and Examples
   • Example 1: Sale of Listed Equity Shares
   • Example 2: Sale of Unlisted Equity Shares
   • Example 3: Utilizing Section 54F for Tax Savings
7. Documentation and Compliance
   • Required Documentation for Capital Gains Calculation
   • Maintaining Records for Section 54F Exemption
8. Penalties for Non-Compliance
   • Consequences of Incorrect Capital Gains Reporting
   • Penalties and Legal Implications
9. Conclusion
   • Recap of Key Points
   • Final Thoughts on Managing Equity Share Transactions and Taxes

---

Introduction to Equity Share Taxation

Equity shares, or stocks, represent ownership in a company and are a common investment vehicle. When these shares are sold, the transaction can result in either a profit or a loss. If a profit is realized, it is termed a capital gain and is subject to tax under the Income Tax Act, 1961. The tax treatment varies depending on the type of equity (listed or unlisted), the holding period, and the gains’ nature (short-term or long-term).

---

Short-Term and Long-Term Capital Gains

Definitions and Holding Periods

• Short-Term Capital Gains (STCG): Gains from the sale of equity shares held for 12 months or less.
• Long-Term Capital Gains (LTCG): Gains from the sale of equity shares held for more than 12 months.

The holding period is critical in determining the tax rate applicable to the gains.

Tax Rates for Listed Equity Shares

• STCG on Listed Shares: Taxed at a flat rate of 15% under Section 111A.
• LTCG on Listed Shares: Taxed at 10% (without the benefit of indexation) on gains exceeding ₹1 lakh under Section 112A.

Tax Rates for Unlisted Equity Shares

• STCG on Unlisted Shares: Taxed as per the applicable slab rates of the investor.
• LTCG on Unlisted Shares: Taxed at 20% with the benefit of indexation under Section 112.

---

Taxation on Sale of Listed Equity Shares

Short-Term Capital Gains (STCG)

When listed equity shares are sold within a year, the resulting gains are classified as STCG and are taxed at a flat rate of 15% under Section 111A. Additionally, applicable surcharges and cess are levied.

Long-Term Capital Gains (LTCG)

For listed equity shares held for more than a year, LTCG exceeding ₹1 lakh are taxed at 10% without the benefit of indexation under Section 112A. Gains up to ₹1 lakh are exempt from tax.

Example Calculation:

1. Purchase Price: ₹5,00,000
2. Sale Price: ₹8,00,000
3. LTCG: ₹3,00,000
4. Taxable LTCG: ₹3,00,000 – ₹1,00,000 (exemption) = ₹2,00,000
5. Tax Liability: 10% of ₹2,00,000 = ₹20,000

---

Taxation on Sale of Unlisted Equity Shares

Short-Term Capital Gains (STCG)

For unlisted equity shares held for 12 months or less, the gains are considered STCG and are taxed according to the individual’s income tax slab rates. This can range from 5% to 30%, depending on the total taxable income of the investor.

Long-Term Capital Gains (LTCG)

Unlisted shares held for more than 12 months qualify as LTCG and are taxed at 20% with the benefit of indexation under Section 112.

Example Calculation with Indexation:

1. Purchase Price: ₹5,00,000
2. Indexed Cost of Acquisition (assuming an indexation factor of 1.25): ₹6,25,000
3. Sale Price: ₹10,00,000
4. LTCG: ₹10,00,000 – ₹6,25,000 = ₹3,75,000
5. Tax Liability: 20% of ₹3,75,000 = ₹75,000

---

Saving Capital Gains Tax Under Section 54F

Eligibility Criteria

Section 54F provides an exemption from LTCG tax on the sale of any capital asset other than a residential house if the net consideration is reinvested in purchasing or constructing a residential house property.

Conditions and Compliance

• The taxpayer should not own more than one residential house property on the date of transfer of the original asset.
• The new residential house property should be purchased within one year before or two years after the date of transfer or constructed within three years.
• The entire net consideration should be reinvested. If only a part of the net consideration is reinvested, the exemption is proportionate.

Calculation and Exemption

Example Calculation:

1. Sale of Unlisted Shares: ₹50,00,000
2. Indexed Cost of Acquisition: ₹20,00,000
3. LTCG: ₹30,00,000
4. Investment in New Residential Property: ₹40,00,000

Since the entire net consideration is reinvested, the full LTCG of ₹30,00,000 is exempt under Section 54F.

---

Practical Scenarios and Examples

Example 1: Sale of Listed Equity Shares

Mr. A sells listed shares worth ₹10,00,000 held for 14 months. The purchase price was ₹7,00,000. His LTCG is ₹3,00,000. Taxable LTCG (₹3,00,000 – ₹1,00,000) is ₹2,00,000. The tax payable at 10% is ₹20,000.

Example 2: Sale of Unlisted Equity Shares

Ms. B sells unlisted shares for ₹15,00,000 held for 5 years. The indexed cost is ₹8,00,000. Her LTCG is ₹7,00,000. The tax payable at 20% is ₹1,40,000.

Example 3: Utilizing Section 54F for Tax Savings

Mr. C sells unlisted shares for ₹60,00,000. The indexed cost is ₹30,00,000, resulting in an LTCG of ₹30,00,000. He invests ₹50,00,000 in a new residential property. The entire LTCG of ₹30,00,000 is exempt under Section 54F.

---

Documentation and Compliance

Required Documentation for Capital Gains Calculation

• Purchase and sale deeds of the shares
• Demat account statements
• Brokerage and transaction statements
• Proof of payment for the new residential property (for Section 54F)

Maintaining Records for Section 54F Exemption

• Proof of investment in the new residential property
• Completion certificate or possession letter for the new house
• Relevant banking records for fund transfer

---

Penalties for Non-Compliance

Consequences of Incorrect Capital Gains Reporting

Incorrect reporting of capital gains can lead to scrutiny, penalties, and interest charges. Accurate calculation and timely payment are crucial.

Penalties and Legal Implications

• Interest under Section 234A/B/C for default in filing and payment.
• Penalties under Section 271F for inaccurate reporting.
• Possible prosecution under severe non-compliance cases.

About the Author:-

Mr. CA Neeraj Bansal is a practicing Chartered Accountant and owner of the CA Firm “N C Agrawal and Associates”. He can be reached at his mobile +91-9718046555 or info@ncagrawal.com for any tax related help, Tax Filing and Company Registration.