Change of base year impact on Capital gains

In Budget 2017,Finance Minister Arun Jaitely has proposed to change the base year to calculate the indexation benefit from 1981 to 2001 in the budget.  The change in the base year is across all asset classes but the impact would differ across assets that enjoy indexation benefit on long-term capital gains—real estate, unlisted shares, gold and bond funds. This article talks about Fair Market Value of asset, What is Indexation, What is Base Year, Example of Impact of Change of Base Year on the calculation of Long Term Capital Gains.

Overview of Change in Base Year and Capital Gain Calculations

Till now, capital gain was calculated with 1981 as the base year. This means that the purchase price of an asset bought before 1 April 1981 could be calculated on the basis of the fair market value of 1981.

Now on, the purchase price will be calculated based on the fair market value of 2001. Accordingly, capital gains on assets acquired before 1 April 2001 will also be calculated using fair market value as on 2001.

Gains from the sale of immovable property (land or building) after a holding period of 2 years will now qualify for long-term capital gains. Earlier this was three years.

Long Term capital gain tax would decrease if Fair Market Value of the property is more than indexed cost between 1995 and 1981. Long Term capital gain tax would increase if Fair Market Value of the property is less than indexed cost between 1995 and 1981.

Fair Market Value of Asset

Fair market value (FMV) is an estimate of the market value of an asset such as property or gold, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. Fair market value differs from the value that an individual may place on the same asset based on their own preferences and circumstances.An estimate of fair market value may be founded either on precedent or extrapolation or a formal valuation by certified Valuer.

From Income Tax Rules on Fair Mair Market Value for objects other than house/land/building valuation of jewellery,(i) the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date;

(i) the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date;
(ii) in case the jewellery is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the jewellery shall be the fair market value;
(iii) in case the jewellery is received by any other mode and the value of the jewellery exceeds rupees fifty thousand, then assessee may obtain the report of registered valuer in respect of the price it would fetch if sold in the open market on the valuation date;

The most common method to calculate the fair market value of a property is to figure out what similar properties were selling for at that time. This type of information can be ascertained from the registration offices. A little bit of home work would be required. Since no two properties would be exactly the same, some intelligent guesswork would be required. Property valuation is based not only on the property size but the location, improvements, amenities etc. So comparable method can be used as a guideline and then add or subtract accordingly. If this  sounds complicated, then there is a simpler method. Use a valuer

Government Approved Valuer: There are government approved property valuers in most major cities. you can hire a valuer to ascertain the fair market price of the property and provide you with the documentation of their evaluation.

What is Indexation?

Banking with SBI or State Bank of India: Internet Banking,Mobile Banking

Many options to open a bank account are available.  State Bank of India is the oldest Indian public sector bank. Through its network of branches in India and overseas, SBI provides a range of financial products.  This article talks about Banking with SBI, How to open an account in State Bank of India, How to do Internet Banking such as change ATM Pin, Transfer money using IMPS, NEFT and How to do Mobile Banking with SBI Bank.

As of 31 March 2016, SBI has 49,577 ATMs, offers interest on savings account at 4% p.a and annual debit card maintenance charges are Rs. 100-300 + service tax depending on the type of card. This makes SBI a good choice to open an account with.

Banking with SBI : Open SBI Bank Account

To utilize any service with SBI you would first require an account with them. You can go to SBI  branch with required documents and fill the form. Most of SBI branches now insist that you fill online application form, take print out of the form and then visit the branch. Our article How to open Saving Bank account with SBI the State Bank of India discusses it in deatil

  • Go to: https://oaa.onlinesbi.com/oao/onlineaccapp.htm
  • Fill the application form.
  • Joint Accounts can be also opened online for maximum three persons.
  • Download the Filled in Application Form.
  • A TCRN (Temporary Customer Reference Number) will be generated, please note down. TCRN will also be sent to the registered mobile number of the applicant(s).
  • Print the Application Form.
  • Attach the required documents, such as photographs and proof of identity and address, as mentioned in the Account Opening Form.
  • You must approach a branch within 30 days of submitting the information online. If the account is not opened within 30 days, the customer information is deleted.
  • Visit the branch with documents- 2 recent photographs, Original and copies Address and identity proof like AADHAR Card, Passport, Driving License etc.
  • The Account will be opened instantly unlike manual opening as the data is already available in the system.
  • You can watch detailed videos from SBI on How to fill Online Application Form for opening SBI New Saving Bank account

How to open Saving Bank account with SBI the State Bank of India 

Register for Internet Banking with SBI

Common banking transaction like transferring funds, checking balances, making payments can be effortlessly done without even physically visiting the branch.

NPS and Government Employees

NPS is applicable to all new employees of Central Government employees and State Government employees. This article talks about NPS and Government Employees, Can Government Employee choose the Fund Manager or Scheme to invest in NPS in Tier1/Tier2 account, NPS Tax Benefits for Government Employees, Comparison of NPS with Government Provident Fund(GPF) which NPS replaced, FAQ by Govt Employees on NPS

NPS and Government Employees

NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004. NPS is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments.

The New Pension Scheme works on defined contribution basis and has two tiers Tier-I and II. Contribution to Tier-I is mandatory for all Government servants joining Government service on or after 1-1-2004 (except the armed forces in the first stage), whereas Tier-II is optional and at the discretion of Government servants. Every month 10% of his salary (basic + DA) and equivalent government’s contribution will be invested in NPS.

The provisions of Defined Benefit Pension and GPF is not available to the new recruits in the Government service.

Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model” or Individual Modal through a Point of Presence – Service Provider (POP-SP). Investment in NPS can be made by the following sectors: Central/State Govt. Employees Corporates All Citizen Model (Individual) Unorganized Sector Workers.

Under the NPS, a Government employee will be entitled to exit only at the time of retirement at the age of 60, however at least 40 per cent Pension wealth would be used for purchasing annuity from a life insurance company approved by the IRDA.

How does a Government Employee subscribe to Tier 1 account of NPS

For the Government employees contribution through their nodal office to National Pension System (NPS) is mandatory. Every month 10% of his/ her salary (basic + DA) and equivalent government’s contribution will be invested in NPS. The Government employees can subscribe for NPS (Tier-I) through the following process:

  • Submit form S1 to the Drawing and Disbursing Officer (DDO) or equivalent offices.
  • The DDO shall provide and certify the employment details.Subsequently, the DDO shall forward the form to the respective Pay and Accounts Office (PAO) / District Treasury officer (DTO).
  • The form should be submitted to Central Recordkeeping Agency (CRA)

Can Government Employee choose the Fund Manager or Scheme to invest in NPS in Tier1 account?

How to cancel PAN If you have more than one PAN , Deactivation of PAN

One may have been allotted multiple PAN Numbers. Those who have more than one PAN should immediately apply for surrender of additional PAN numbers allotted to them as having more than one PAN may make them liable to a penalty of Rs. 10,000.  Income Tax Department in Feb 2017 has started deactivating PAN. So please surrender any additional PAN that you have. This article talks about Deactivation of PAN by Income Tax Department for more than one PAN, how to surrender or cancel PAN manually and through Online.

PAN is very important. Thinking of buying a car? Or taking a new phone connection? Making an investment? Well, there’s one detail you need to quote for all, and that’s your Permanent Account Number (PAN). Required for an ever-widening gamut of transactions, a PAN card is a must these days. Our article What is PAN Card? explains it in detail.

Deactivation of PAN by Income Tax Department for more than one PAN

The income tax department in Feb 2017 has started de-activating PAN of income tax payers who were allotted more than one PAN in the past. Unfortunately, in many cases, the PAN which is deactivated is the PAN on which the assessees are filing their income tax returns as shown from the image below from Complaint Board website.  You can get the deactivated PAN active again by writing to Jurisdictional Assessing Officer(explained below). It takes at least 10-15 days for the Income Tax Department for re-activating the PAN after submission of the letter to ITD. 

Complaints on deactivation of PAN

Complaints on deactivation of PAN

How to get the PAN activated?

Financial tasks you should complete before 31 March

In India, Financial Year is from 1 Apr to 31 Mar of the next year. So FY 2016-17 which is AY 2017-18 is from 1 Apr 2016 to 31 Mar 2017.  Before the deadline of 31 March 2017 one needs to finish some financial tasks. This article talks about what financial talks one should complete before 31 March.

EXCHANGE OLD NOTES
Old Rs 500 and Rs 1,000 notes can be exchanged till March 31 at designated RBI offices. Our article How to Exchange Rs 500 and Rs 1000 Notes? discusses it in detail.

Last date for Filing Income Tax Returns

FILE RETURNS FOR AY 2016-17 or FY 2015-16 to AVOID PENALTY FOR LATE FILING

Last date for filing returns for an individual is usually 31 Jul of the assessment year but many times it gets extended. So last date for filing returns for FY 2015-16 which is AY 2016-17 was 5 Aug 2016.

If one missed the last date for filing returns, one can still file returns till 31st Mar of the Assessment year . So one can still file for returns for FY 2015-16 which is AY 2016-17 till 31st Mar 2017. If you fail to file your tax returns for assessment year 2016-17 before March 31, you could be slapped with a fine of Rs 5,000.   Our article Filing Income Tax Return after Due Date: Belated return discusses it in detail.

FILE RETURNS FOR FY 2014-15 or AY 2015-16

One had to file income tax returns for FY 2014-2015 or AY 2015-16 by Sep 2015 but if one missed the deadline one could file returns before March 31, 2016. If due to any reason, the taxpayer is not able to file his income tax return, he can still submit a belated return before the end of the assessment year i.e. before 31st March 2017.
31 March 2017 is the last date to file income-tax returns for the assessment year 2015-16. The Income-tax Department can refuse to accept your returns for 2014-15 if this deadline is not met. Our article Filing Income Tax Return after Due Date: Belated return and If You don’t file the Income Tax Return on time discusses it in detail.

Save Taxes

All tax-saving investments and expenses for 2016-17 have to be made before March 31. No tax deductions will be available for 2016-17 on investments made after the financial year ends.

  • CONTRIBUTE TO PPF : The minimum annual contribution to your PPF account is Rs 500. The last date to make this contribution for 2016-17 is March 31, 2017, after which you will face a penalty of Rs 50 for each year you fail to make the minimum contribution.
  • KEEP NPS ACTIVE : NPS Tier I account holders have to make a minimum contribution of Rs 1,000 every fiscal. Not doing so for 2016-17 before March 31 can get your account frozen.

Pay Advance Tax

Advance tax means income tax should be paid in advance instead of lump sum payment at year end. It is also known as pay as you earn tax. These payments have to be made in instalments as per due dates provided by the income tax department. If your total tax liability is Rs 10,000 or more in a financial year you have to pay advance tax. Advance tax applies to all tax payers, salaried, freelancers, and businessmen. Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax. Our article Advance Tax:Details-What, How, Why and Section 234A,234B,234C : Interest Penalty for not paying Expected IncomeTax on Time discusses it in detail.

Taxpayers who opt for presumptive scheme where business income is assumed at 8% of turnover are exempt from advance tax for FY 2014-15 and FY 2015-16. However starting FY 2016-17, such taxpayers have to pay whole amount of their advance tax in one instalment on or before 15th March. Presumptive scheme is covered under section 44AD and 44AE. Starting FY 2016-17 businesses with turnover of Rs 2crores or less can opt for this scheme. This scheme has been extended to professionals such as doctors, lawyers, architects etc starting FY 2016-17, if their receipts are 50lakhs or less. Read in detail about presumptive taxation here

Due Dates for payment of Advance Tax

FY 2016-17
For both individual and corporate taxpayers

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

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