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Effective Changes in Income Tax Rules FY 2021-22

Are you a wise owl, saving snail or a squirrel saver?

Regardless of the type of saver you are, there is always one place through which you can improve your savings.

These are none other than taxes.

So where on earth do you start and what all could you potentially miss? Let’s see what is in store for you with the new financial year coming in!

With the new tax regime coming in, if you have chosen which tax regime to opt in for, half the battle is already won.

Incase you are still to decide on which tax regime to opt in for, you can use our Income Tax Calculator to compare and analyse between both the regimes.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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With the beginning of the new financial year a number of financial rules have already been changed. Now, if you are concerned about the money in your pocket, it is important for you to know these changes. If you fall under any of the six categories given below or know anyone who does, then this is a must read for you! Here are some changes in the Income Tax Rules FY 2021-22.

Welcoming Pre-Filled ITR Forms

To ensure ease of compliance contributing to timely filing of income tax, the Income Tax Department has started giving out pre filled ITR Forms. Fields like salary income, tax payments and TDS are set to be pre-filled. Further details like capital gains, dividend income, bank interests, interests from post office etc. will be prefilled too.

Have a Dividend Income? Changes in Income Tax Rules FY 2021-22 Impacting it.

So far you did not have to pay any tax for any dividend income received from domestic companies as well as domestic asset management firms. These taxes were deducted at source and paid by the company of the mutual funds. However, with the exemption on dividend income being removed from the budget of 2020, the same is now taxable in your hands.

In case the amount of dividend received surpasses INR 5000, it is certain that the company houses would have deducted TDS before crediting the dividend to you. In such a scenario you must ensure that TDS that appears on your Form 26AS under the head income from other sources. You must then add it to your dividend income for full and final disclosure of your taxable dividend income.

Do you have an EPF Account?

Earlier the interest received in your EPF in respect of your own contribution even if it was beyond the mandatory 12% of your salary, was fully exempt. In the budget of 2021 it was proposed that this deduction will not be available for annual contribution made beyond INR 2.5 lakhs.

The only exception here is if your employer does not contribute to your provident fund account, the budget proposes a higher contribution threshold of INR 5 lakhs. Any interest above this amount on such contributions will be taxed year after year.

No ITR Filing for Senior Citizens?

If you are a senior citizen or have one in your family, above the age of 75 years then an exemption from filing of ITR can be availed.

As per the Income Tax Rules FY 2021-22, the following conditions need to be fulfilled for the senior citizen to be applicable for the scheme:

  • You need to be a resident of India and 75 years of age or above
  • You need to have only pension income and interest income from the same bank
  • In this case, the paying bank will deduct only the necessary income from your account

Leave Travel Concession Exemption

Although the scheme was only valid until March 31, 2021, you can avail this solely on money spent up until that date. The government had provided a significant advantage to all applicants who were unable to receive LTC tax benefits. Earlier the provision was to exclude the cash allowance on the leave travel concession from taxation.

Filing Belated and Revised ITR?

Earlier the deadline for filing belated and revised ITR was 31st March along with late fee. So in case you failed to file your ITR by the due date, or noticed any omission or mistake you could correct it by 31st March. However, as per the Income Tax Rules FY 2021-22 the updated ITR must be filed latest by 31st December 2021 with a maximum penalty of INR 10,000.

These were the changes that Income Tax Department recently made. As of now, these are the changes you need to keep in mind before you compile and file your taxes for the year.

For any other queries on the topic, hit us up on TaxQ&A and we’ll be more than happy to help you out with them!

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Which Tax Regime to choose: Old or New?

Just like millions of others, did you start investing in capital markets last year? Or, landed your first job? Or, decided to become your own boss and kicked-start your own venture?

So what’s your financial story?  

Let’s begin this financial year and celebrate it by planning our finances.

Unlike, a couple of years ago when most of the financial planning revolved around ‘Tax Saving’, which meant investing in tax saving FDs, ELSS mutual funds, LIC, PPF, NPS, etc. that gave average returns, you now have more freedom to chart out your financial goals.

Let’s see how, in Budget 2020, FM Nirmala Sitharaman introduced the New Tax Regime, which allows taxpayers to take advantage of lower tax rates and explore beyond tax saving investments. However, they can also continue to opt for the Old Tax Regime and claim deductions for HRA, LTA, ELSS, LIC, etc, just like earlier.

So, Old Vs New Tax Regime – Which one to choose?

Under the the New Tax Regime there are 7 slab rates whereas under the Old Tax Regime there are 4 slab rates.

Income Level Old Tax Rate New Tax Rate
Up to INR 2.5 LPA Nil Nil
INR 2.5 LPA to INR 5 LPA 5% 5%
INR 5 LPA to INR 7.5 LPA 20% 10%
INR 7.5 LPA to INR 10 LPA 20% 15%
INR 10 LPA to INR 12.5 LPA 30% 20%
INR 12 LPA to INR 15 LPA 30% 25%
Above INR LPA 30% 30%

With the new Tax Regime, you need to let go of the traditional tax-saving opportunities. However, there are still certain benefits which you are eligible for.

Let’s take a look at what you will let go of, if you opt for the New Tax Regime.

What’s Not Covered under New Tax Regime What’s Covered under the New Tax Regime
Deductions u/s 80C Rebate u/s 87A
Medical Insurance Premium Standard Deduction on Rent Received
Standard Deduction Leave Encashment on Retirement
House Rent Allowance Life Insurance Income to Beneficiary
House Loan Interest Retrenchment Compensation
Leave Travel Allowance Voluntary Retirement Scheme
Savings Bank Interest Deduction Agricultural Income
Education Loan Interest  

Under the New Tax Regime you need to let go of the itemized deductions to enjoy lower slab rates. Where as, with the Old Tax Regime you can continue to claim itemized deductions and bring down your taxable income.

Since, it’s the beginning of the financial year, you can choose which tax regime you wish to opt for and plan your investments accordingly.

Wondering which Tax Regime to Opt for?

Taxes can be a little overwhelming, and if you are asking the same question, – “Old vs New tax regime, which one is better?”, use the Income tax calculator to compare your Tax Liability under both the Tax Regimes.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

With the new tax regime, where tax filing has become much simpler, has tax planning got easier too? Check out this video as we discuss deductions and exemptions under both regimes.

How to Opt for the New Tax Regime?

Now, in case you are a salaried individual, you need to disclose your choice to the employer at the beginning of the financial year by submitting Form 12BB. This will enable your employer to calculate and deduct the correct amount of TDS.
However, you can switch the Old/New regime when filing your ITR.

If, you are a business owner or earn professional income, you can switch to the Old Tax regime only once.

When opting to the New Tax Regime, you need to file a Form 10-IE with the Income Tax Department, before filing the ITR for a financial year. Learn the steps to file Form 10-IE.

Money saved is money earned and we at Quicko are to help you earn some money while we do your taxes.

Got question? Shoot’em on TaxQ&A and we promise to answer them all in the simplest way!

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New ITR Forms for F.Y. 2020-21 (A.Y. 2021-22)

The New Financial Year started off with the Income Tax Department releasing the New Income Tax Return Forms for the FY 2020-21 i.e. Assessment Year 2021-22.

A taxpayer uses Income Tax Return forms to report their annual income to the Income Tax Department.

The ITR Forms for FY 2020-21 (AY 2021-22) are not that different from the last years.

What Changed in the New ITR Form for F.Y. 2020-21 (A.Y. 2021-22)?

Changes Applicable to all ITR Forms for FY 2020-21 (AY 2021-22)

What are the types of ITR forms?

ITR 1 (Sahaj)

It is the simplest income tax return form. ITR 1 can be filed by:

  • Indian Resident (check your Residential status as per Income Tax)
  • Salaried Individuals
  • Individuals earning income from 1 house property (eg: Rent) 
  • Individuals earning income from other sources like savings account interest, Fixed Deposit interest, etc. 
  • Income is upto INR 50 lakh for the financial year
Download ITR 1 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 1 form for FY 2020-21 (AY 2021-22)
Download
Download ITR 1 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 1 form for FY 2020-21 (AY 2021-22)
Download

ITR 2

Individuals or HUFs who do not have any business and professional income can file ITR-2. Usually filed by taxpayers with Income from Capital Gains or those with the residential status as NRIs.

Download ITR 2 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 2 form for FY 2020-21 (AY 2021-22)
Download
Download ITR 2 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 2 form for FY 2020-21 (AY 2021-22)
Download

ITR-3

ITR 3 is filed by Individuals and HUFs having income from the business & profession and in case tax audit is applicable.

Download ITR 3 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 3 form for FY 2020-21 (AY 2021-22)
Download
Download ITR 3 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 3 form for FY 2020-21 (AY 2021-22)
Download
Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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>
Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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ITR 4 (Sugam)

Taxpayers who have opted for the presumptive taxation scheme can file for ITR 4, including:

Download ITR 4 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 4 form for FY 2020-21 (AY 2021-22)
Download
Download ITR 4 Form for FY 2020-21 (AY 2021-22)
View and Download Updated ITR 4 form for FY 2020-21 (AY 2021-22)
Download
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
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Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

The PDFs for the New ITR Forms for F.Y. 2020-21 (AY 2021-22) have been released, ITD usually releases schemas/utilities few days/weeks after launching forms.

Stay tuned!

Got questions around the New ITR Forms for FY 2020-21 (AY 2021-22)? Shoot’em on TaxQ&A and we’ll answer them all in the simplest way!

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To-Dos before the Financial Year 2020-21 ends!

The Financial Year 2020-21 is coming to an end, here’s a checklist of “To-Dos” for 31st March 2021.

Pay Advance Tax

Advance Tax is the payment of your tax liability before the financial year ends. Under this “pay as you earn scheme”, if your Income Tax liability for the financial year is more than INR 10,000 – you are eligible to pay advance tax.

Here’s how to calculate your Advance Tax liability:

  1. Estimate your incomes: You may earn incomes from various sources in the financial year like Salary, House Property, Capital Gains, Business & Profession, and other sources. Estimate your Income from all sources you are expecting to earn during the financial year.
  2. Subtract deductions and expenses: Deduct all eligible deductions such as tax-saving investments and payments (under the old tax regime) and expenses from your total estimated income.
  3. Calculate your Income Tax Liability: You will arrive at your Net Taxable Income after Subtracting deductions and expenses from your Estimated Income for the Financial year. Based on the applicable Income Tax Rates, calculate your Income Tax Liability for the financial year.
  4. Deduct Taxes Paid: The chances are tax in form of TDS (Tax Deducted at Source) or TCS (Tax collected at Source) has been deducted/collected and deposited on your behalf on incomes such as salary, rent, interest, dividend income, etc. You can refer to your Form 26AS to find the tax credit available to you in form of TDS/TCS and Advance Tax paid.

If your outstanding tax liability after deducting TDS is above INR 10,000 you are eligible to pay advance tax during the year in quarterly installments.

The last date to pay 100% of your Advance Tax Liability for FY 2020-21 is 15th March 2021.
If you miss paying your Advance Tax, a penalty may be applicable u/s 234B and 234C.

Note: Senior citizens and taxpayers opting for presumptive taxation scheme are required to pay 100% of their advance tax only once before 15th March 2021.

Assess opportunities for Tax Loss Harvesting

Tax Loss Harvesting is a lesser-known way to save taxes for a trader or even a value investor.
With Tax Loss Harvesting, you realize your notional losses and set them off against your realized gains, thereby adjusting the tax liability.

Here’s how tax loss harvesting works:

  1. You sell the stocks that have a notional loss and realize the losses before the end of the financial year.
  2. This realized loss can now be set off against other profits and therefore bring down your taxable income.

Tax Loss Harvesting also gives you an unique opportunity to rebalance your portfolio.

Now, let’s say you want to opt for tax-loss harvesting but still hold the stock. You can do so by selling the stock to realize the loss and buy the same stock again to regain the previous position as before.

Plan your Taxes : Old v/s New regime

One of the most talked-about changes was the introduction of the new tax regime under Budget 2020, which came into effect from FY 2020-21. It allows taxpayers the opportunity to choose between the old and the new tax regime.

Under the Old Tax Regime, taxpayer can continue to claim Chapter VI-A deductions for tax-saving investments such as ELSS, NPS, tax-saving Fixed deposits, and expenses including children tuition fees, LIC premium, medical expenses, etc.

Whereas, under the New Tax Regime, taxpayer cannot claim Chapter VI-A deductions, however, enjoy lower tax rates. Secondly, the taxpayer cannot set off and carry forward under the head house property.

If you are opting for the Old Tax Regime but haven’t completely utilized the 80C limit of INR 1,50,000, you still have time till 31st March 2021. A majority of taxpayers make their “catch-up investments” in Q4 i.e. the last quarter of the financial year.
Some of the most popular tax-saving investment instruments u/s 80C are ELSS (Equity Linked Savings Scheme), EPF, PPF, ULIP, Tax Saving Fixed Deposits, etc. So make sure you have made all the tax-saving investments and expenses to utilize the benefits of Chapter VI-A deductions by the 31st March 2021.

Not sure which Tax Regime is better for you?

Got questions? Shoot ’em

File ITR or submit corrections

The due date to file your Income Tax Return for FY 2019-20 (AY 2020-21) was extended several times in the last year due to Covid-19. The due date to file the original return when Tax Audit is not applicable was 10th January 2021, and it was 15th February 2021 – when Tax audit was applicable.

In case you missed filing your ITR within the due date, you can file a belated return before 31st March 2021 to get the refund for the excess tax credit available to you. However, you won’t be able to carry forward your losses when filing a belated return. You can also reduce the chances of getting a notice from the Income Tax Department, especially after the CBDT partnerships with organizations like SEBI, CBIC, and MoMSME.

Additionally, if you have filed your ITR on time, but missed reporting or misreported your incomes, you can rectify it by filing a revised return before 31st March 2021.

Link PAN with Aadhaar

It is mandatory to link your PAN with Aadhaar, in case your PAN is not linked with your Aadhaar by 31st March 2021, your PAN will be deemed to be invalid.

Got questions around any of these? Shoot ’em on TaxQ&A and we’ll take care of the rest.

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Can Losses Help You Save Taxes? | Tax Loss Harvesting

Preview of the Capital Markets

2020 was a roller coaster of a year. The year started with the biggest sell-off markets seen since the 2008 global financial meltdown due to the unfolding Covid crisis. Historically, volatility drives retail investors away from the markets. But work from home & Reddit threads drove flocks of investors to the capital markets. From Robinhood to Zerodha saw their fortune rise exponentially. 

The market saw its lowest point on 23rd March. While the economy slumped, the Square Root Shaped Recovery Theory kicked in. One of the biggest markets rallies the Indian markets have witnessed. Which meant portfolio’s swelled and a lot of retail investors booked profits. One may ask, now what?

As the financial year draws to an end, it presents a unique opportunity to save taxes on Capital Gains, and rebalance the portfolio. We help thousands of investors file taxes at Quicko. Often, we get asked, what are other avenues to save taxes beyond Chapter VI-A deductions. Tax-loss harvesting is one of the open public secrets. Most investors have heard about it, but don’t know how to take advantage of the same. So we decided to decode tax-loss harvesting for you.  

What is Tax Loss Harvesting?

Tax Loss Harvesting is a lesser-known way to save taxes for a trader or even a value investor. Currently, short-term capital gains (STCG) are taxed at 15% while long-term capital gains (LTCG) above Rs. 1 lakh are taxed at 10% without indexation. According to the Income Tax Department,

  1. Short Term Capital Loss (STCL) can be set off against both STCG and LTCG.
  2. Long Term Capital Loss (LTCL) can be set off against LTCG only. 

Taking advantage of this, one can liquidate unrealized losses, to set off Realized Capital Gains, in the above order.

Let’s look at how Tax Loss Harvesting works

Let us say, you have realised gains STCG 50,000 and LTCG 1,80,000. Effectively you are paying taxes on 50,000 @ 15% and 80,000 @ 10%.

LTCG Tax – 80,000 X 10% = 8,000

STCG Tax – 50,000 X 15% = 7,500

Total = 15,500

You also have some unrealized losses for the financial year, which can be set off against Capital Gains (if the position is liquidated). Usually, we sell our shares on a FIFO basis (first-in-first-out).

This means that shares purchased first will be liquidated first.

tax loss harvesting step 1

As we can see, by selling the shares purchased on 12/12/2018, you would end up paying more taxes as you are selling the shares on a profit. 

LTCG Tax = (940 – 540) x 20 = Rs. 8000

Total LTCG Tax is now 1,88,000

Which further increases your tax liability by 8,000

tax loss harvesting step 2

By liquidating shares bought on 10/12/2020, you will book a loss of 60,000

LTCG Tax = (940 – 1,000) x 1000 = Rs. (60,000)

This LTCL (Long Term Capital Loss) is set off against LTCG. LTCG is now 1,58,000

Which reduces your Capital Gains by 52,000

tax loss harvesting step 3

Further, by liquidating shares bought on 10/01/2021, you will book a loss of 1,000

STCL  = (940 – 960) x 2000 = Rs. (40,000)

This STCL (Short Term Capital Loss) is first set off against STCG and if any losses remain, they will be set off against LTCG.

STCG is now 10,000 & LTCG Tax is now 1,28,000

tax loss harvesting step 4

So finally, your tax liability is

LTCG Tax – 28,000 X 10% = 2,800

STCG Tax – 10,000 X 15% = 1,500

Total = 4,300

You end up reducing your tax liability by 10,700 (15,000 – 4,300)

Rebalancing your Portfolio

A common question arises while practicing Tax Loss Harvesting. Why liquidate a position if I am bullish on that position? The answer is simply to book your losses and set it off against your realised gains. In American and European markets, A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, regains that position or buys another one that is substantially similar, for the purpose of evading taxes. No such rule exists in India. However, one may look at this as an opportunity to rebalance their portfolio. 

Tax loss harvesting may differ depending on your situation so if you are not sure, consult a tax professional. 

You can also use a prototype Tax Loss Harvesting Simulator that we have built

Tweet to us & let us know if you would like us to build this feature.

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