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- 1. “BENEFITS OF CAPITAL GAIN EXEMPTIONS AND TAX SAVING INVESTMENTS TO SAVE TAXES” Koshti Dipak Pravinkumar 227780595019 MBA (95) (Financial Management) Som-Lalit Institute of Business Management (SLIBM) Submitted To: Prof. Reshmi Banerjee Summer Internship Project Report on
- 2. AGENDA • Introduction • Provisions for Capital Gains • Calculation of Capital Gains • Capital Gains Exemptions • Tax Saving Investments • Literature Review • Research Methodology and Objectives • Data Analysis • Findings • Conclusion • References 2
- 3. INTRODUCTION • Capital gain is basically an appreciated value of a particular capital asset at the time of sale of such capital asset. • It takes place when a person sells an asset that they owned for more capital appreciation than they paid for it. • Moreover, capital gain tax means the tax imposed or applied on increased value of such capital asset. • It comes into existence when an asset transferred between the owners. • Any kind of asset that an individual possesses or holds is referred to as a capital asset. Some of them might include stocks, bonds, real estate, buildings, homes, machinery, jewelry, leasehold rights, and vehicles. • When an individual sells his asset that they own, then capital appreciation results from deducting the asset's face value or initial purchase price from the sale price. The differential amount is liable to tax based on individual’s net income. 3
- 4. PROVISIONS FOR CAPITAL GAINS Cost of acquisition refers to an amount at which a capital is purchased or bought from the seller who is selling a particular asset. Cost of Acquisition Cost of improvement is capital expenditure incurred by an assessee in making any additions/improvement to the capital asset. Cost of Improvement 4 Full value of consideration means the price at which a capital asset is been sold to another party or buyer. Full Value of Consideration
- 5. CALCULATION OF CAPITAL GAINS Short Term Capital Gains Long Term Capital Gains Full value of consideration Less: Expenses incurred exclusively for such transfer or sale Less: Cost of improvement Less: Cost of acquisition Full value of consideration Less: Indexed Cost of Acquisition Less: Indexed Cost of Improvement Less: Expenses incurred exclusively for such transfer or sale Less: Expenses that can deducted from Sales Proceeds 5
- 6. CAPITAL GAINS EXEMPTIONS • Any long term capital gain, arising to an individual or HUF, from the transfer of building or land appurtenant thereto and being a residential house property, (income from which is chargeable under the head of ‘Income from House Property’) shall be exempt to the extent such capital gain is invested in the purchase of one residential house property in India, within one year beforehand or 2 years afterwards the date of transfer, and/or in the construction of a residential house property, within 3 years after the date of such transfer provided the house property, purchased or constructed, is not transferred within a period of 3 years from the date of its acquisition. • If the new asset is transferred within a period of 3 years from the date of its acquisition, then for the purpose of computing the capital gain on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exempt under this section earlier. Section 54 - Profit on transfer of house property used for residence: 6
- 7. CAPITAL GAINS EXEMPTIONS (CONT’D) • Any long-term capital gain, arising to an individual or HUF, from the transfer of any capital asset, other than residential house property, shall be exempt in full, if the entire net sales consideration is invested in purchase of one residential house in India within one year before or 2 years after the date of transfer of such an asset or in the construction of one residential house in India within 3 years after the date of such transfer. Where part of the net sales consideration is invested, it will be exempt proportionately. • The proportionate exemption shall be that amount of capital gains which bears the same proportion which the amount invested in the new house bears to the net consideration price of the asset transferred i.e., • Long-term Capital Gain * Amount Invested ÷ Net Sale Consideration Section 54F - Capital gain on transfer of asset, other than a residential home: 7
- 8. TAX SAVING INVESTMENTS 8 Sr. No. Tax Saving Schemes Rate of Interest per annum Threshold limit for exemption Section 1. Sukanya Samriddhi Yojana (SSY) 7.6% 100000 80C 2. Post Office Saving Scheme 4.0% 10000 80TTA 3. 5 Year Post Office Recurring Deposit Account 5.8% 150000 80C 4. Senior Citizen Savings Scheme (SCSS) 8.0% 50000 80C 5. Public Provident Fund (PPF) 7.1% 150000 80C 6. National Pension Scheme (NPS) 9.0% 50000 80CCD (1B)
- 9. LITERATURE REVIEW • (K. Venkata Rami Reddy and Prof. A. Sreeram, July – December 2020) in their research work on “A review and future directions of open-ended tax saving mutual fund schemes in India” mentioned that in the financial literature review, investments in the Mutual Fund have increased, as investors see it as a vital strategy for short- and long term investments. The present study aims to conduct a widespread evaluation and fusion of the academic literature review on Mutual Fund investments. The authors are systematically reviewed, identify, and analyze 11 pertinent articles from 11 journals. The analysis delivers essential data on pragmatic studies, sample selection, study period, and data tools & techniques. Finally, we provide discussions and suggestions, followed by the study's limitations for further research. • In his study "Investor's attitude towards post office saving schemes in Cumbum town, "Gayathri (2014) found that the respondents were satisfied with the post office schemes, but he also recommended that awareness and the rate of interest be raised and that the most recent technology be used to speed up transactions. The attitudes of post office deposit systems were unaffected by ICS. Investors' Attitude towards saving at the Post Office, by Kumar & Kannaiah (2014), demonstrates that age, education, and income have no bearing on how investors feel about saving in the post office. The study discovered that post office plans were chosen to meet the needs of the spouse and children. The study also showed that the lack of stability in income earning has an impact on investors' decisions to make investments. 9
- 10. RESEARCH OBJECTIVES: 1. To be aware of capital gain exemptions and tax saving investments in order to save taxes as much as possible. 2. To get to know how, when and where these benefits are taken into account. 3. To plan your own investments in the beginning of each and every financial year. 4. To make significant investment related decisions. RESEARCH METHODOLOGY: 10 I have used secondary data for this study as the study is descriptive. The reason that I chose secondary data over primary data, is to get to know the process of filling of income tax return and get to know how capital gain exemptions and tax saving investments help individuals to save their taxes. So that I can utilize my learning to file income tax returns of my family members by myself. For my research of subject, I have gone through various books, websites and blogs on income tax laws to get better understanding of such sections applicable on such scenarios.
- 11. SCENARIO – 1: CAPITAL GAIN EXEMPTIONS 11 Mr. Felix Gallardo is currently working at S & P Global and his sources of income are mentioned below. Particulars Amount (In Rs.) Salary 650000 Savings Bank Interest 5000 Fixed Deposit Interest 55000 Dividend Income 10000 Public Provident Fund 20000 School Fees 30000 Equity Linked Saving Schemes 60000 LIC 25000 Health Insurance 15000 Medical Expenditure 4000 Residential property sold at 16/12/2022 6500000 Such property acquired at 01/04/2004 300000 New residential property purchased on 05/04/2023 8000000
- 12. POSSIBILTY – 1: IF BENEFITS OF SUCH EXEMPTIONS ARE TAKEN INTO THE CONSIDERATION 12 Computation of Income of Mr. Felix Gallardo for the FY 2022-23 Particulars Amount (In Rs.) Long term capital gain: Acquisition of a property on 01/04/2004 300000 Residential property sold on 16/12/2022 6500000 Total capital gain 6200000 New Residential property purchased on 05/04/2023 8000000 Tax on LTCG as per Section 54D 0 Net Income 516000 Tax Rate 5% Amount liable for tax 25800
- 13. POSSIBILTY – 2: IF BENEFITS OF SUCH EXEMPTIONS ARE NOT TAKEN INTO THE CONSIDERATION 13 Computation of Income of Mr. Felix Gallardo for the FY 2022-23 Particulars Amount (In Rs.) Long term capital gain: Acquisition of a property on 01/04/2004 300000 Residential property sold on 16/12/2022 6500000 Total capital gain 6200000 Net Income 6716000 Tax Rate 15% Amount liable for tax 1007400
- 14. SCENARIO – 2: TAX SAVING INVESTMENTS 14 Mr. Yash Panchal is currently working at Tally Solutions Pvt. Ltd. And his sources of generating such income in the FY 2022-23 are mentioned below. Particulars Amount (In Rs.) Salary 550000 Short Term Capital Gain 25000 Savings Bank Interest 7000 Fixed Deposit Interest 25000 Dividend Income 1000 Public Provident Fund 15000 5 Years Time Deposit 10000 Interest on Post Office Recurring Deposit 5000 LIC 25000 Health Insurance 10000 Medical Expenditure 5000 Senior Citizen Savings Scheme 100000 Sukanya Samriddhi Yojana 5000
- 15. COMPUTATION OF INCOME OF MR. YASH PANCHAL FOR THE FY 2022-23 15 Particulars Amount (In Rs.) Salary after deducting standard deduction and adding STCG 525000 Other Income: Savings Bank Interest Fixed Deposit Interest Dividend Income Interest on Post Office Recurring Deposit 38000 7000 25000 1000 5000 Aggregate Income 563000 Less: Deductions: Section 80C: LIC Public Provident Fund Senior Citizen Savings Scheme Sukanya Samriddhi Yojana 160000 145000 25000 15000 100000 5000 Section 80D: Health Insurance Medical Expenditure 15000 10000 5000 Net Income on which there is no liability to pay any tax 403000
- 16. FINDINGS • Through my research work, I have gone through various books, websites, blogs and newsletters in order to get better understanding of the procedure of filling an individual income tax return. I chose this topic because I worked as an intern at J. J. Sheth & Co. which is a chartered accountant firm where I learned how to file income tax returns of clients who dealt with transactions related to capital gains and tax saving investments as well. By reading such books related to the laws of direct taxes, I have developed better understanding of how, when and where to take benefit of such exemptions or deductions in order to save taxes. By following the given advice by my mentor, I learnt to implement those things into real life and got better results. • During the tenure of my summer internship program, I got a chance to file an income tax return of a client who sold his property in Jaipur, Rajasthan and worried about paying higher taxes because he didn’t invest such amount of capital gain neither into another property nor into the Capital Gains Account Scheme. My mentor asked me to file his return as he knew that I have practiced this a few times before. While I was filling his income tax return, I got confused about which section to apply in his case. So, to find the solution, I referred to the book published by the Income Tax Department and the IT Department official website. By doing this, not only I realized my mistake but also I found a way to reduce the taxes as the client made other significant tax saving investments during the financial year. So, I took benefit of Section 54F for capital gains and for tax saving investments, I claimed exemptions under Section 80C, 80D, 80TTA and 80CCD to help him to pay the minimum tax possible. 16
- 17. CONCLUSION All in all, with the help of my learnings at a chartered accountant firm, I got to know that how, when, where and in what scenarios to claim benefit of such exemptions in order to save taxes. As I have developed a depth knowledge of such sections related to capital gain taxation as well as tax saving investments. By taking the benefit of right section at the right time will save you a lot of taxes. And from the beginning of next financial year, I will be able to better plan my significant investments which automatically help me to save a lot of amount of taxes. 17
- 18. REFERENCES • Direct Taxes Ready Reckoner with Tax Planning (24th Edition) (AY 2023-24 and 2024-25) by Dr. Girish Ahuja and Dr. Ravi Gupta • Direct Taxes Ready Reckoner with Alternative Tax Regime, Break-even Tables and Faceless Tax Regime (46th Edition) (AY 2022-23 and 2023-24) by Dr. Vinod K. Singhania • https://cleartax.in/s/capital-gains-income • https://groww.in/p/capital-gains • https://www.investopedia.com/terms/c/capitalgain.asp #:~:text=Investopedia%20%2F%20 Mira%20Norian- ,What%20Is%20a%20Capital%20Gain%3F,own%20i s%20a%20capital%20asset. • https://incometaxindia.gov.in/Documents/Left%20Me nu/COMPANY-Income-fromcapital-gains.ht 18