Ask Us: About Investments – The Hindu
Corporate and government bond options have also tended to beat comparable mutual fund options.
Q. I plan to start SIP in the NPS Tier 2 account instead of investing in mutual funds. On redemption, how will capital gains be taxed?
Aarati Krishnan replies: The NPS Tier 2 account offers the ability to choose from stock, corporate bond, and government bond options and is a very inexpensive vehicle like the Tier 1 account.
Corporate and government bond options have also tended to beat comparable mutual fund options. The corporate bond option invests primarily in high quality bonds rated AA and above. However, the stock option has failed to consistently beat benchmarks like the Nifty50. Consider index funds as an alternative before opting for stocks under the level 2 account. The NPA Tier 2 account is not specifically mentioned in the Income Tax Act. But since the account does not offer any tax advantage on your contributions, some tax experts believe that the amount of your redemption will not be subject to any particular restriction. As the NPS is a market-linked vehicle, its product at maturity should be subject to capital gains tax.
As NPS units are not subject to the securities transaction tax, long-term capital gains will apply if they are held for more than 3 years and short-term capital gains if they are held for a shorter period. The long-term capital gains tax rate would be 20% with indexation benefits. But this is only an interpretation of the tax rules and could be the subject of debate.
Q. I am 25 years old and I work in a PSU bank. Recently I received a one-time salary arrears payment of which a larger portion was deducted under “Income Tax”. I am of the opinion that the amount of tax deducted will be refunded by filing the RTI. I want to know how correct it is and how and on what basis it will be refunded. In addition, in this monthly payslip, after a salary increase, part of the credited salary is also deducted as income tax. Will this monthly salary deduction be offset by investments in tax saving plans? If so, how much should I invest in tax saving programs? In addition, will the amount of tax deducted be refunded? and for when?
N. Sree Kanth replies: Your employer, the PSU bank, is obliged to deduct the tax (called TDS) on the total income of its employee if the total income exceeds the taxable limits (above ₹ 5 lakh where the reimbursement u / s 87A of the Income Tax Act, 1961 cannot be claimed). Depending on your salary structure, your employer will calculate your tax liability based on slab rates after taking into account all items such as deductions, exemptions, other income, rental income, among others, and deduct the same thing during the year at the time of the disbursement of wages each month.
In the event of arrears of more than 12 months’ wages, in which wages are assessed at a rate higher than that at which they would otherwise have been assessed in the respective previous years, relief under section 89 of the Act of 1961 income tax can be claimed, for which you must file Form 10E.
If the arrears are less than 12 months salary, these will be included in your total income and the corresponding additional tax will be deducted from it. As a general rule, you should declare your investments / expenses eligible for tax deduction to your employer so that the TDS is deducted accordingly and no excess TDS is deducted. At the end of the year, your employer will provide you with Form 16 which contains details of your salary, related tax payable, and TDS deducted during the year. After that, you, as an income tax assessor, are required to file your respective ITRs incorporating these details with any other income that will not be covered on your Form 16, such as capital gains.
If you missed it, you can include it when filing your RTI and receive the corresponding refund if applicable. You will only be entitled to a refund if your employer has deducted TDS more than your tax payable and not otherwise. This may be due to not taking into account your deductions / exemptions. Here are some examples of deductions you can claim: paying the premium for life insurance for yourself, your spouse and your children; investment in ELSS, ULIPs, PPF and NSC among others, payment of school fees for children, etc.
You can refer to Chapter VI-A of the Income Tax Act, 1961, to learn more about the different exemptions and deductions that may suit you and the corresponding conditions.
Q. My husband is a senior and a regular taxpayer. For the 2021-2022 evaluation year, he plans to opt for the “yes” with IT Sec.115 BAC. If he opts for “yes”, can he benefit from a deduction of 50,000 u / s 80 TTB, an additional boon for seniors?
A. Under section 115BAC of the Income Tax Act 1961, deductions under Chapter VI-A cannot be claimed, with the exception of sections 80CCD (2) and 80JJAA. The deduction under section 80TTB falls under Chapter VI-A, so the election to pay tax under the new tax regime will limit the benefit of the deduction for interest on deposits for the elderly.
(N. Sree Kanth is partner, GSS & Associates, Chartered Accountants, Chennai)