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Let's talk about Windfall Tax

Heard about the term “windfall”? It basically means some unexpected gain. Received a big fat check from your NRI uncle out of the blue? Yeah, that is a windfall gain.

Then, what would windfall tax mean? Roughly speaking, it would be a tax on that “unexpected gain”. It is a one-off tax imposed on companies that have benefited from something that they weren’t responsible for.

So, why are we talking about Windfall Taxes all of a sudden? Well, as it turns out, there is one sector that has been making “windfall” profits amidst the Russia-Ukraine conflict and that sector is…drumroll… the oil and energy sector. And if companies are making windfall profits, they gotta pay taxes on that too right?

Windfall Taxes

What is Happening?

Economically, the world isn’t doing great. The Russia-Ukraine conflict affected the global economy in a way that no one could have imagined. Global supply chain disruption has inflated the price of oil and consequently, the price of other necessities has shot up too. As the common man continues to suffer under the woes of inflation, companies that refine and sell oil have come out as big beneficiaries owing to sky high price of oil. 

However, it doesn’t seem fair that while most people are struggling with a sharp rise in prices of oil and other necessities, few get to reap “supernormal” profits. To give some context, England based oil and gas company BP saw its profits getting doubled in the first three months of the year while Shell’s profits nearly tripled.
And owing to the huge profits they have been making, taxman’s attention turned to them.

On 26th May, the UK government announced that it would impose a 25% windfall tax on oil and gas companies. And guess what…this is not the first time that the energy sector has had to have to deal with windfall Tax. Back in the 1980s, the US had levied a windfall tax on oil companies when oil price controls were being removed and oil companies were booking superb profits. The UK had levied a “special tax” on North sea oil companies whose profits were multiplying owing to increased oil prices.

Coming back to contemporary times, Along with the UK, countries like Hungary and Italy have also jumped on the bandwagon of levying Windfall Tax on their energy sectors among others.

So, what is the purpose of the Windfall Tax? Is it just to punish companies that are managing to make more profits than others? Now that doesn’t seem fair…


Why Windfall Tax?

Continuing our trail of thought….why windfall tax? Well, in the current context many are making cases for levying it

More resources in the hands of the Government

Inflation has affected the common people the most. With the price of essential goods rising at a much faster rate than paychecks, it is only obvious that governments would have to spend more on welfare schemes to cushion the common people from the impact of inflation.
Increased revenue from windfall taxes would help the government ramp up its spending on public welfare programmes and that in turn may help households who have been hit the hardest by the rising bills. 

 It seems fair

Though this might be more of a philosophical argument, but it makes sense. If someone has managed to make a huge profit purely out of luck, it is only fair that they are asked to share some of their spoils, especially when others are suffering under the same scenario. Moreover, many of these oil companies, receive heavy subsidies from their respective governments. So again when the tables turn, it isn’t unfair to expect the companies to share some of their profits. 

 Better than long term taxes

Windfall taxes are one-off taxes and history has shown that these taxes aren’t kept in force for a long time. So companies may find windfall taxes more favourable as opposed to an increase in corporate tax rates. 

Arguments Windfall Tax

Well, not everyone seems to be onboard with Windfall tax and it shouldn’t come as a surprise that oil and energy companies will oppose it. So let’s hear their side of the story as well

It’s just unfair

The same argument of fairness that can be used to justify windfall tax can also be used to oppose it. Many argue that there is no benchmark to determine what can be called “supernormal” profits. Especially for certain businesses which have fluctuating income, some years can go great while some years can be pretty bad.
Take 2020 for example, owing to covid most of these oil and gas companies had to go through a pretty bad phase, but they did have to bear the brunt of them. So now that they are booking some profits, why share that?

Discourage investments

A very popular yet controversial argument. Many believe that windfall tax may discourage companies from investing in their growth and technology. So, if we take oil companies, for example, they may shy away from investing in technologies which can increase their profit. This is because they may feel that if their profits increase, the government may find another reason to levy windfall tax, thereby again gnawing at their profits. Companies scaling back their expansion efforts may have a detrimental effect on the economy as expansion would lead to cyclic impacts like the creation of jobs, better technology and so on.

Investors likely to suffer

If taxes eat away a significant part of profits, it would definitely mean that investors’ pie share would also become smaller. Not only would investors which may include the general public will get less dividend income, but the government would also witness reduced dividend income from state-owned oil companies. 

India and Windfall tax

Well, guess what…in India too, there have been some whispers around levying Winfall Tax on oil and gas companies. Companies like Reliance or even state-owned ONGC have been booking record profits, naturally inviting the attention of the taxman.

Like the entire globe, India is also witnessing inflation and in order to tackle that, the Indian Government has announced inflation-fighting fiscal measures worth almost INR 2 lakh crore. So, given India’s increasing expenditure burden, additional resources via windfall tax does sound like a tempting option. While some experts and policymakers believe that this is a good step to take, others may feel that it is unfair and may also have the potential to destabilise our current tax system.

Although the murmurs are getting louder, there has been no official confirmation or declaration from the Indian Government. So which team are you on?

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Inflation and Taxes

Remember when our parents used to complain about the rising price of various commodities every day? Well, we might not have understood them then, but now that we have to pay our own bills, we all surely feel the pinch of inflation. 

To put it very simply, inflation means a rise in the price of goods and services and consequently, it also means a fall in the purchasing power of money. While inflation is generally looked down upon, some economists opine that a low level of inflation at around 2% can be beneficial as it can keep the economy away from stagnation.

However, what we are witnessing today is a quite high level of inflation accompanied by slow growth. This means the price of goods and services is rising much faster than people’s income thereby eroding the standard of living of the common man.

The war between Russia and Ukraine has caused global supply chain disruptions, pushing up the prices of Crude oil and other items. This has caused leaders all around the world to take notice and come up with solutions to fight inflation.

India for example has unveiled inflation-fighting fiscal measures worth almost INR 2 lakh crore. These measures would include lowering fuel taxes, import levies and increasing subsidies on cooking gas and fertilizers.

Impact of Inflation on Income Tax

While a lot is talked about how inflation affects finances, the standard of living and spending power not much is discussed how inflation affects taxes.
That is mainly because there is no simple, straight answer to this. Inflation impacts taxes both from the perspective of the taxpayer as well as the government that is collecting and utilising the taxes. When it comes to income taxes, a high rate of inflation usually increases the tax burden on the taxpayers if taxes are not inflation adjusted. Let us understand it by means of a simple example

  • Suppose you earn INR 5 lacs a year in 2019 and hence fall into the 5% tax bracket
  • In 2020 you get a raise of 8% and your income becomes INR 5.4 LPA

    Now, if we hypothetically consider an inflation rate of 8%, it would mean that your real income has not increased at all. Your INR 5.4 lakhs today has about the same purchasing power as your INR 5 lakhs in 2019
  • However, owing to the nominal increase in your income, i.e from INR 5 lakhs to INR 5.4 lakhs you are now in the 10% tax bracket

    So although your real income did not increase owing to inflation, your tax liability did. That hurts, doesn’t it!

Capital gain is another type of income that is severely affected by a higher rate of inflation.  Consequently, capital gain taxes can significantly reduce the return on investment if they are not adjusted for inflation, Let’s consider another hypothetical case to demonstrate it

  • Let’s say that you purchased INR 1,00,000 worth of listed shares in March 2018 and sold them for INR 2,50,000 in March 2022
  • So, on paper, your long term capital gain is worth INR (2,50,000- 1,00,00) = INR 1,50,000
  • Your LTCG tax liability will be 10% of INR 50,000 (considering the INR 1 lakh exemption) which is INR 5000
    Now let us factor in inflation.
  • Considering an average inflation rate of 5% each year, the cumulative inflation rate over the period of investment i.e 4 years would be 20%
  • Therefore, the real gain from your investment is not INR 1,50,000 rather it will be 80% of INR 1,50,000 because 20% of your gain has been eroded by inflation
  • Consequently, your real gain will be 80% of INR 1,50,000 which is INR 1,20,000
  • So, your tax liability on your real gain should have been 10% of INR 20,000 (considering the INR 1,00,000 exemption limit) which is INR 2000

    However owing to your gain of INR 1,50,000 on paper, your tax liability will be more if there is an absence of inflation indexing of taxes.

What is Inflation Indexing of Taxes?

We mentioned how the absence of Inflation Indexing can increase the tax burden on taxpayers.

But what is inflation indexing?

Inflation indexing is cost-of-living adjustments built into tax provisions to keep pace with inflation. Without inflation indexation, a greater share of a taxpayer’s income can be taxed even if their real income has not increased to that rate. The two aforementioned examples showed how your tax burden can increase owing to an increase in your nominal income, although your real income might not have increased that much.

Enough with the jargon, let’s break down inflation indexing with an example closer home.

In India, the benefit of inflation indexing is allowed on Long Term Capital Gains (except on listed equity shares & mutual funds). The logic behind providing this benefit on Long Term Capital Gains is that Long Term Capital Assets like buildings, gold, and land are usually bought and held for a long time before they are sold. Now they are recorded at cost price and their value can’t be reassessed. So, once the asset is sold, the cumulative effect of inflation on the profit will be significant and the real income will be much less compared to what will be on paper.


Let’s break it down further with an example. 

  • Suppose you buy a house in 2010 worth INR 10,00,000 and you sell it in 2020 for INR 20,00,000
  • So you made a gain of INR (20,00,000- 10,00,000)= INR 10,00,000
  • Your tax liability will be 20% of INR 10,00,000 which is INR 2,00,000
  • However, considering an average of 4% inflation throughout these 10 years, your real gain will be simply 60% of INR 10,00,000 i,e, INR 6,00,000 since the rest 40% has been eroded by inflation.
  • But since your nominal gain is INR 10,00,000 you will have to pay 20% taxes on it. Now that is steep!

To overcome this very situation, the Indian government provides the benefit of inflation indexing. Here, the cost price of an asset (in case of long term capital gain) is adjusted as per inflation and while tax computation the inflation-adjusted price is taken as the cost price instead of the original cost price.

Cost Inflation Index

Every year, the CBDT announces the Cost of Inflation Index (CII) which is used to calculate the inflation-adjusted cost price of an asset.
And as we mentioned the inflation-adjusted price is then used to arrive at long-term capital gains or long-term losses.

2001-02 is taken as the base year and the CII for that year is 100. From that year onwards, the CII increases with the rate of inflation.

The following table shows the CII over the years

Financial YearCost Inflation Index (CII)
2001-02 (Base Year)100
2002-03105
2003-04109
2004-05113
2006-06117
2006-07122
2007-08129
2008-09137
2009-10148
2010-11167
2011-12184
2012-13200
2013-14220
2014-15240
2015-16254
2016-17264
2017-18272
2018-19280
2019-20289
2020-21301
2021-22317

Now, how to use this index to calculate your inflation adjusted cost price i.e. indexed cost of acquisition? The formula is

CII of the year of sale/CII for the year of purchase * Actual cost price

So, let us use this formula to understand the inflation-adjusted cost price of our previous example:

  • According to our previous example, the Cost price of the house in 2010 was INR 10,00,000 and the selling price in 2020 was INR 20,00,000
  • By using the formula the inflation-adjusted cost price will be:
    CII of the year of sale (2020)i.e. 301/ /CII for the year of purchase (2010) i.e 167 * Actual cost price. i.e INR 10,00,000
  • 301/167* INR 10,00,000 = INR 18,00,000
  • So instead of INR 10,00,000, now your inflation adjusted cost price becomes INR 18,00,000
  • Your LTCG tax liability will be 20% of INR (20,00,000-18,00,000)= INR 40,000

This is in tune with your real income, income that is adjusted to inflation and not just your nominal income.

Not just in India, many countries opt for inflation indexing of taxes to preserve the spending power of the people.

So how has inflation affected you the most? Share your thoughts with us.

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All you need to know about Sin Tax

Have you ever wondered why the liquor that you buy from the duty-free shops at the airport shops is so much cheaper than outside?

Or why income from a lottery is taxed even if it is less than the basic exemption limit?
Well, the Govt deems these activities as “sinful” and that’s why you need to pay more taxes on them to repent for your sins.

Sin tax came under the spotlight again after the conversation around 28% GST on crypto-related activities started making rounds. So what is sin tax? Is it actually effective? Let’s find out

What is Sin Tax?


Sin Tax is a tax that is levied on goods and services that are considered detrimental to the individual and society in general.
The first thing that occurs to most of us when we think about “sinful” products is alcohol and tobacco and our government thinks so too.
If we talk about cigarettes, they are slapped with the highest GST rate i.e 28%.
But wait that’s not all!

Cigarettes along with other tobacco products attract a high cess as well. Before you ask, cess is paid by the Central Govt. to state governments to make up for any loss of revenue that might happen because of a high GST. And it’s no rocket science that the cess will also figure into the total price of the end product.

So, if we were to give you a very clear picture, taxes make up more than 52% of the total buying price of cigarettes. Steep enough? Well, apparently not. WHO recommends a  tax burden of at least 75% for all tobacco products to curb their usage. Now that is steep!

Alcohol is another product that is subjected to sin tax. While there’s no GST on alcohol, they come under the purview of state governments, and most states levy either VAT or Excise duty or both. Taxes on liquor actually make up one of the biggest revenue sources for the state governments.
Maharashtra has the highest liquor tax rate while its hippy neighbor Goa has the lowest. And in case, you are wondering, taxes can make up to 80% of the end price of liquor. Let’s raise a toast to that now, shall we

Apart from products, there are also certain activities as well that are considered to have a harmful impact on society. Lottery and gambling are prime examples. Income from lottery and gambling are subjected to 30% tax and it is also subjected to…you guessed it right…additional cess too. And this rate is independent of your tax slab rate in general.
For example, if you fall under the 15% tax bracket, your income from lottery and gambling will still be taxed at a 30% rate+ cess.

So, tomorrow, if you wake up to the news of winning a lottery, don’t forget that you have to pay a pretty steep tax on it. 

The latest entrant in the club of sin tax seems to be cryptocurrencies. With an Income tax rate of 30% and the possibility of a 28% GST rate, lawmakers seem to want people to stay away from the bitcoins and the Shiba Inus (pun intended).

Sin Tax Across the World


If you think sin taxes are only prevalent in India, then you are mistaken. Most countries across the world use tax as a way to keep people away from certain things and activities that are deemed to be harmful. Take Europe for example. Most European countries impose very high excise duties on cigarettes, with countries like France, Ireland & Denmark being the leader on top of that, all EU countries levy VAT on cigarettes as well.

And it is just not vices like smoking and drinking, that lawmakers frown upon. Unhealthy food and drinks have also caught the eye of lawmakers. In England, Manufacturers of soft drinks containing more than 5g of sugar/100ml have to pay an extra levy. 

Mexico and Hungary took it a step further by levying junk food taxes on certain unhealthy food and beverages. Hungary levied a 4% tax on packaged foods and drinks having high levels of sugar and salt in certain product categories. Mexico on the other hand levied an 8% tax on all “non-essential” foods which exceeded a certain calorie threshold. 

But do sin taxes work? That is a separate discussion altogether.

Why Sin Tax?

The primary objective of a sin tax is to dissuade people from indulging in activities that are harmful to their own selves and society in general. 

By implementing a high tax rate on such goods and services, they want to make them unaffordable or too expensive for people.

The case for Sin Tax is the classic “Law of Demand”. The quantity purchased of a good varies inversely with price. In other words, the cheaper an item is, the more it will be demanded. Economics 101. Many countries of East Asia, actually bear witness to this logic. Cigarettes are relatively cheap and affordable in most East Asian countries and this region accounts for a lion’s share of the world’s smokers including a high percentage of underage smokers. 

There have been examples that have shown that sin tax works. For example, in Mexico, there has been a decrease in the consumption of foods that were taxed, and even in England, consumption of sugary drinks went down once the levy was introduced. 

The second case for sin tax is revenue generation. The sin taxes help governments generate a significant portion of their revenue. This revenue can indeed help the government fund welfare schemes to fight the effects of these very vices. 

Arguments against sin tax

Sin tax is indeed a controversial topic and not everybody will be on board with it.

Many argue that governments should not take a moral high ground in deciding what is good for individuals and what is not. Plus, sin taxes don’t differentiate between who is an addict and who is just an occasional user. So, even if you enjoy a glass of soft drinks once in a while, you still have to pay a higher tax on it. 

Continuing this very chain of thought, another argument against sin tax is that in the name of keeping people away from practices, the government can impose sin tax on a wide variety of things such as sweets, eating out, certain pieces of clothing, and so on. This directly contradicts the pillars of personal freedom and choice

Secondly, sin tax is mostly regressive. A 50% tax on cigarettes would take a lot more away from a poor person’s income than a middle class or rich person’s income.

Manufacturing houses have often said that a higher tax on cigarettes and alcohol will encourage black marketing. People might resort to cheaper and illegal alternatives which usually are extremely harmful to their health and this defeats the point of sin tax altogether. 

Lastly, many believe that sin taxes don’t work. Proponents of sin tax say that a higher price of harmful goods will keep people away from consuming them.
While this may hold true for certain goods and occasional users, it mostly doesn’t hold true for addicts. 

Addiction is an exception to the law of demand. If an individual is addicted to alcohol or cigarette, they will continue to consume them irrespective of their prices and they will end up spending less on other essential goods. 

So are you team pro sin tax or team no sin tax? Share your thoughts with us

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Musk acquires Twitter...What's Next?

The bluebird will finally be set free. That is what many believe as Twitter accepts Elon Musk’s offer of buying the company and taking it private. After weeks of intense drama and power struggle, the social media giant is being sold for a whopping $44 billion. We tried counting the zeroes, but honestly, it went on for a while.

So, how about we analyze the deal, its nuances, and the future of Twitter in a little bit more detail. Let’s begin, shall we?

Timeline of Musk acquiring Twitter

Many are saying that Musk hinted at his plan of acquiring twitter way back in 2017

On a serious note, people started taking note of Musk’s interest in Twitter from the beginning of April when he bought 9.2% shares of Twitter.

However, the truth is Musk had quietly started buying Twitter shares in January itself, and by the 14th of March, Musk had actually acquired 5% of Twitter.

After a couple of weeks, Musk started questioning Twitter, on Twitter… for not adhering to the principles of free speech. These tweets definitely hinted at Musk’s master plan but most of us still didn’t see it coming.

Fast forward to a few days later, Musk acquires 9.2 % shares of Twitter on 9th April. Twitter then invites Musk to join Twitter’s Board. Musk accepts this offer, only to reject it soon after. Classic Elon!

The best was yet to come.  On the 14th of April, Musk offers to buy the whole company for $43 billion. The board, however, was not impressed. They decided to stop Elon with the Poison Pill technique should he try to acquire more than 15% of the company. 

What is the Poison Pill technique?

Well, it is a strategy through which existing shareholders can buy additional stocks at a much lower rate so that the holding of the new investor gets diluted.

Now, coming back to the main story. Musk is not the one to give up. The Twitter Board had a meeting with Musk where he detailed the elements of his financing plan. This seemed to have caused a change of heart among the ones on the board and they accepted Musk’s offer of taking over the company. 

What is Musk’s vision for Twitter?

Musk is one of Twitter’s most influential users and also one of its harshest critics.  He wants to bring about some significant changes in the Social Media Platform which include:

Free Speech

Musk has been lobbying for free speech on the platform for the longest time. He wants to make Twitter a platform that encourages wide-ranging discourse and disagreement. To that end, he wants even his worst critic to remain on Twitter.

How would he do that? Well, from the looks of it, softening Twitter’s stance on content moderation, making Twitter’s algorithm open-source, fighting spambots, and knowing Mr. Musk, a lot more. He also mentioned that he would strive to improve the user experience on Twitter by introducing a bunch of new features.

Moving to a subscription-based model

Advertising continues to be the major source for Twitter and Musk wants to move away from that. He feels that Twitter is favoring the content that benefits the advertisers and in the process deprioritizing…you guessed it…free speech. So that is why he wants to move away from advertising to a subscription-based model. 

What will happen to my Twitter Stocks once it goes private?

Aaahh! It is time to address the elephant in the room. What will happen to the shares of the shareholders once Twitter goes private.

This is a question that many of us might be having given how easy has it become to invest in US stocks. You might be sitting here in your hometown in India and owning a bit of Apple and Google. Pretty cool if we may say so.

Once, Elon Musk acquires Twitter it will cease being a publicly listed company and become a private. So how does that work? We all have heard of private companies going public, but how does the reverse happen?

When a Public company wants to go private, the company/board or the external party offers to buy the publicly listed shares of the company at a premium. Why? Well, if you bought an apple for INR 5, and someone offers to buy it for INR 10, would you not want to sell it?
It’s the same logic here, the company/board or the external party offers to buy the shares at a higher price so that retail investors would be willing to sell them.

Truth be told, Twitter shares have not performed that great over the years especially when you compare them against other tech companies.
But once Mr. Musk cast his magic spell, things changed. The price of Twitter shares increased significantly both when he acquired 9.2% of the company earlier this month, and this week after the board accepted his offer. Currently, Twitter shares are trading at the price of $51.70 and Musk has offered to buy the social media giant at  $54.20/ share.

So, long story short if you hold Twitter shares, you will be getting $54.20 for each share…irrespective of whether you want to sell them. 

Now, let’s talk about taxes on those foreign shares

An investor gets generally two types of income from foreign stocks

  1. Dividend: When a resident individual receives dividend from a US stock, it will be taxed at a 25% rate and that income will also be taxed In India.   However, owing to the DTAA signed between India and the US, the tax that has been deducted in the US can be claimed as foreign tax credits against the tax liability in India.
  2. Capital Gains: When it comes to capital gain from US shares, the gains/profits earned are exempted from US tax laws. However, the same income will be taxable in India under the head “Capital Gains”.
    If you make Long Term Capital Gain i.e your holding period is more than 24 months, you will be taxed at 20% rate.
    In the case of Short Term Capital Gains, i.e if your holding period is less than 24 months, you will be taxed at slab rate.

    This, however, only applies to ordinary residents of India. NRIs and Not Ordinary Residents will not be taxed in India in this case, since this income was not earned in India. 

Doubts That Remain

While some are celebrating this deal some are not so enthusiastic. Skeptics say that the “free speech” that Musk apparently wants to protect on Twitter will actually come under more threat since Musk will almost become the sole decision-maker and that doesn’t seem very “democracy-friendly”.

On top of that Musk has already floated the idea of cutting down staff and that is not sitting well with the employees of Twitter. 

Amidst all this hullabaloo, we just have one question for Mr. Musk. When are we getting the “edit tweet” button?

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New ITR Forms for this Tax Season: FY 2021-22 (AY 2022-23)

The Income Tax Department has released the ITR Forms for AY 2022-23…and also…wait for it…enabled e-filing for ITR 1 (for salaried Individuals) and ITR 4 (for presumptive taxation scheme), all within just two weeks into the New Financial Year!

The ITD had launched the New Income Tax Portal on 7th June 2021. However, the portal faced a few hiccups in the initial few months because of that & covid, the ITD had extended the ITR filing due dates for FY 2020-21.

But, with ITD releasing ITR Forms, and enabling e-filing early on, this year seems to be like a different story altogether.

In the beginning of every Financial Year, the ITD releases New ITR Forms for the upcoming tax season. So, what has changed since the last year? Let’s take a look.

Largely, ITR Forms have been kept pretty much the same except for some changes:

Reporting Capital Gains

Taxpayers reporting their capital gains while filing ITR 2 (For Capital Gains) & ITR 3 ( For Business & Profession )will have to furnish a few additional details from this year, such as ;

  • Date of purchase and selling of land or building.
  • Details of year-wise improvement cost, if the taxpayer has sold any land or building.
  • The original & indexed cost of acquisition if the taxpayer has sold any capital asset.

Details about the New Tax Regime

Filing ITR 3 (For Business & Profession) or ITR 4 ( For Presumptive Taxation Scheme)? Well, you need to disclose the following details about the New Tax Regime while filing your return.

  • Whether you had opted for New Tax Regime in AY 2021-22 and filed Form 10IE. It is essentially a Form that you need to file if you want to opt for the New Tax Regime.
  • If you want to opt-in, not opt in, opt-out or continue with the New Tax Regime for AY 2022-23

However, if you have business income, you cannot choose between the new and old tax regime every year. Once you have opted for the new tax regime, you only have a one-time option of switching back to the old tax regime. Once you switch back, you cannot opt for New Tax Regime again.

Reporting Interest earned from Provident Fund

If you have been depositing more than INR 2.5 lakh in your EPF or VPF account, we have some news for you.
Starting 1st April 2021, interest earned on EPF and VPF will be taxable if yearly contribution exceeds

  • INR 2.5 lakh for Non-Government employees
  • INR 5 lakh for Government employees

So, if you have been depositing some big bucks in your EPF or VPF account, make sure to report the interest earned from it under the head “Income from Other Sources“. Chances are that the interest earned will be reflected in your Form 26AS and AIS.

Reporting Foreign Assets & Income earned from Overseas Pension Account

Foreign Assets

While filing ITR, a resident taxpayer needs to report Foreign Assets in Schedule FA if the assets were held at any time during the relevant “accounting period”.
However, the term “accounting period” was not defined properly leading to some confusion among taxpayers.
The New ITR forms have put an end to that confusion by replacing the term “accounting period” with “calendar year ending as on December 31, 2021”. So if a taxpayer has held any foreign assets between 1st January 2021 and 31st December 2021, they will have to report that while filing ITR.

Income earned from overseas pension Account

Talking about Foreign Assets, another change has been introduced in ITR Forms with regards to foreign pension accounts.
Now, an NRI can have a pension account in the country they are residing in and that will not be taxable in India. However, when the NRI becomes a Resident, the income from that same pension account becomes taxable in India. But, it may so happen that the taxpayer has already paid tax on such income in the foreign country. In that case, they are eligible to claim tax credit u/s 89A and the same needs to be reported while ITR.


Now, with ITD releasing the ITR Forms and enabling e-filing for AY 2022-23, many taxpayers may want to file their ITR early on. While this is a good idea, some experts have opined that it might be wise to wait till June 2022 to file ITR. This is because the due date to file TDS Returns is 31st May 2022. If you have had your TDS deducted, your Form 26As will only be updated after your deductor has filed the TDS returns. So you might want to consider waiting till your Form 26AS before filing your ITR.

Were you expecting any other changes in the ITR Forms? Share your thoughts with us

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