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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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Traded Crypto, Stocks or F&O? You are on Taxman’s radar!

The New Financial Year is here and crypto is again making it to the headlines, and this time it is because of the 30% tax rate.

There was quite some ambiguity regarding crypto tax. The Budget 2022 brings clarity on the taxation of Virtual Digital Assets (VDA) such as Crypto, NFT, etc. 

From 1st April 2022, the tax treatment of crypto, NFTs and other virtual digital assets will be:

  • Income tax at 30% rate
  • Losses cannot be set off against other incomes 
  • Losses cannot be carried forward
  • Losses from other incomes cannot be set off against income from crypto & other VDAs
  • Receiver of the Crypto, NFT, etc as Gift is taxed
  • Cannot claim expenses & allowances in case of Transfer of crypto, NFTs, etc.
  • TDS will be  deducted at 1% on payment if the transfer amount exceeds INR 50,000 for individuals

The Budget 2022 announcement sparked a conversation around the legality of cryptocurrency in India. However, Financial Minister Nirmala Sitharaman later clarified that – ‘just because income from cryptocurrency is taxable, doesn’t mean cryptocurrency is legal in India’. Ouch!

According to a report by Economic Times, the volume of trade on popular cryptocurrency platforms soared on 31st March 2022 (Last day of F.Y 2021-22) and since then the volume witnessed a steep decline up to 70%.

It is not difficult to connect the dots here. The new Tax rules on crypto come into effect from 1st April 2022, and investors & traders squared off their positions before the start of the new financial year so that the 30% tax liability doesn’t apply to them. 

But, does that mean that tax does not apply to that income? That income should be reported when filing the ITR and will be taxed.

That’s not all, the Income Tax Department has been sending notices to taxpayers who traded crypto and haven’t reported them while filing their ITR.

Notices for Not Reporting Crypto Trading

Wondering how ITD knows about our crypto trades?

Well, Signing up on a crypto exchange platform requires us to complete our KYC process. This means all our transactions on that platform are accessible to the ITD either through PAN. Aadhaar or linking bank account. 

Now, if you traded crypto but did not report in your ITR, the ITD can send you a notice dated back up to 8 years. The objective of the notice would be to get an explanation regarding the same. 

Although there is an ambiguity around – under which income head should crypto trading be taxed, the notice seems to consider it under the head ‘Capital Gains’. However, it is not explicitly stated under the Income Tax Act. One school of thought suggests it should be under ‘Income from other sources’, since it is taxed similar to activities such as lottery, gambling, etc.

How to Respond to Crypto notices?

Now, if you have received such a notice, you must respond to that notice within the stipulated time.

You need to provide a valid reason for not reporting your crypto trades and back your claims with relevant documents if necessary. You can respond by
Logging into your Income Tax Profile – Pending Actions- E-proceedings

Or you can also submit your response via email as will be mentioned in the notice.

Depending on the case, the Assessing Officer can ask you to perform certain actions, which may include filing a revised return, paying tax, interest and penalty.

Clarification for Not Reporting Equity and F&O Trading

Unlike crypto platforms, KYC has always been mandatory for participating in capital markets for equity, mutual funds, debt, derivatives trading, etc. 

In July 2020, the CBDT had partnered with SEBI to curb tax evasion through exchange of information and data such as PAN details, ITR information, and trading transactions with SEBI.

ITD is now sending out communications through SMS/Emails to taxpayers where they suspect capital market participation or any other high-value transactions, but it’s not reflected in the Income Tax Return.

How to Respond to SMS from ITD?

If you receive such a communication from the ITD, you need to share an appropriate response.

Login to the Income Tax Portal and Navigate to ‘Pending Actions’ > Compliance Portal > Select the relevant e-campaign.
After that, you will be required to provide Feedback In AIS.

The transactions for which the feedback is required would be marked as ‘Expected’

Based on your response, select the most appropriate option.

We understand communications from the ITD can be intimidating. Whether it is for not reporting your trades, or for variances between the ITR you have filed and the calculation made by the ITD.

And we are here to help you with exactly that. Not sure how to respond?
Mail us a screenshot or a PDF of your notice/communication at
And we’ll help you respond to it.

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Your Checklist before the Financial Year Ends

Summer is coming, and so is the New Financial Year.

But hey! F.Y 2021-22 left us a note saying, there are certain tasks that you might not have ticked off your checklist. And till you do that, your welcome party of the New Financial Year might fall a bit short.

So, what can these tasks be? Let’s take a look

Make Tax Saving Investments

Section 80C of the Income Tax Acts offers you an array of Investment options like ELSS, PPF, NSC, and more. You can claim deductions of up to INR 1.5 lakh in a year and get returns ranging from 6%-14%.

Exhausted your INR 1.5 Lakh limit under 80C? You can claim an additional deduction of up to INR 50,000 u/s 80CCD(1B) by investing in the  New Pension Scheme Account.

That’s not all! You can also claim deductions for the following payments & contributions:

  • Payment of Medical Insurance premiums u/s 80D
  • Interest paid on education loan u/s 80E
  • Interest paid on Electric Vehicle loans u/s 80EEB
  • Donation to Charitable organizations u/s 80G and so on

Check out Chapter VIA of the Income Tax Act to get a comprehensive list of all the deductions that you can claim.

However, if you want to claim these deductions for F.Y 2021-22, buckle up and make those investments, payments, and contributions by 31st March 2022.

Oh! But, remember these are only applicable under the Old Tax Regime.

Make contributions to keep your Investments/Saving accounts active

If you have invested in certain schemes which require a minimum annual contribution. For example, if you have a PPF account you need to make a minimum yearly contribution of INR 500 to keep it active. Similarly, if you have a Sukanaya Samriddhi Yojana account for your daughter, you need to make a minimum annual investment of INR 250.

So if you are yet to make these contributions, here’s your reminder to do that before 31st March 2022

Link Your PAN to Aadhaar

The Government has extended the due date…yet again…to link your PAN to Aadhaar to 31st March 2022.  As of 24th January 2022, more than 43.34 crore Permanent Account Numbers (PANs) have been linked with Aadhaar.

Not linking your PAN with Aadhaar will come with consequences like
– Your PAN becoming inoperative
– A penalty of upto INR 1000

So if you have still not linked your PAN to Aadhaar, consider this as your final call to do it.

Opt for Tax Harvesting

To all the investors out there, now is the time to optimize your Income Tax Liability.

Tax Loss Harvesting

In FY 2021-22, if you have booked profits in asset classes such as equity share and mutual funds you are liable to pay tax at

  • 15% for STCG (where STT is paid)
  • 10% for LTCG (above INR 1 lakh)

Now, under tax-loss harvesting, you can sell your loss-making securities to realize losses and set them off against your realized gains. If you wish to hold the same stocks in your portfolio, you may choose to buy them back.

This method of realizing your unrealized losses and setting them off against realized gains to optimize your tax liability is called Tax Loss Harvesting.

Tax Gain Harvesting

We all know that Long Term Capital Gains are taxed at 10% but there is an exemption limit of INR 1Lakh. Under Tax Gain Harvesting, you can sell your investments to realize LTCG up to INR 1 Lakh – which is tax-exempt. You may also choose to reinvest the entire amount back to maintain your portfolio.

Tax gain harvesting can help you save up to INR 10,000 in taxes every year.

Last Chance to file your ITR for F.Y 2020-21 (A.Y 2021-22)

If you are yet to file your ITR for F.Y 2020-21, make sure to file a Belated Return u/s 139(4) before 31st March 2022.  However, filing a belated return comes with its share of repercussions:

  • Interest Penalty u/s 234A in case you have tax liability
  • Late Filing Fees u/s 234F
  • inability to carry forward losses (except house property loss under the old tax regime)

Also, if you have filed your ITR but want to make amends to it…you can do that and file a revised return before 31st March 2022.

It’s still not too late to pay Advance Tax

15th March 2022 was the last date to pay the 4th and last installment of Advance Tax for F.Y 2021-22. If you miss out on paying Advance Tax or pay less than the required amount, then you will be liable to pay a penal interest u/s 234B and 234C at the rate of 1% per month or part of the month.

So although it is past the due date, you can still pay your Advance Tax at the earliest to save up as much as possible on the penal interest.

Determine your Residential Status for F.Y 2021-22

The pandemic turned the world upside down forcing people to relocate across the globe.

So, in the last year or so you might have shifted back to India, traveled abroad, or got stuck somewhere given the travel restrictions. Now, all of these may affect your residential status

Taxability in India depends on the residential status of an individual. According to Income Tax Act, there are three residential statuses

1. Ordinary Resident of India

2. Resident but Not Ordinary Resident of India (RNOR)

3. Non-Resident of India (NRI)

And each of these categories will be taxed differently. For example, ordinary residents in India will be taxed in India on their income earned globally. On the other hand, NRIs will be taxed on income earned, accrued, or received in India.

Submit Proofs of Investments and Expenses to your employer

As salaried individuals, if you have made tax-saving investments and payments throughout the Financial year, you need to submit the proofs of those investments to your employer. This also includes submitting proofs for claiming tax-exempt allowances like HRA, LTA and so on.

To submit the relevant documents to your employer and watch that TDS get optimized.

Go through your AIS

To put it very simply, AIS is the summary of your Financial year. It contains details of TDS deposited on your behalf, Advance Tax paid, high-value transactions, securities transactions and much more.
So, go through your AIS in to get an understanding of your transactions, taxes you have paid, any pending tax dues that you may have, and so on. And guess what, if you notice any discrepancy or mismatch in your AIS  you can submit online feedback and get it corrected too.

So how many of these tasks have you ticked off your checklist? Share your thoughts with us.

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