Vaishali resumed work in 2021 after taking a sabbatical for three years. Although she had investments and had to pay taxes on her passive income, she had to inform her accountant, Mohit, about her job and other investments she made this year. He sent her the tax to be paid along with the calculations. Soon after seeing the mail, she called Mohit to discuss it in detail.

The conversation started with a concerned Vaishali asking about the new tax rule on dividends earned from mutual funds. She received a good amount of income as dividend from her portfolios. Mohit explained that the dividends she earned last year would be taxed as per her tax slab and that this rule has been in effect since April 2020 for the sale of mutual funds and listed stocks. However, from this year onwards, the existing 15% surcharge on Long term capital gains through sale would extend to other asset classes including physical gold, real estate properties, debentures, debt funds, and others.

When Vaishali asked if there was a way to improve her tax slab, Mohit recommended she switch to a growth option in her mutual funds. This way, her portfolio value increases without additional tax implications. He also explained now that she is earning from her regular job, she can afford to do the switch without any direct impact on her lifestyle.

Next, Vaishali moved the conversation to cryptocurrencies. She expressed that while the crypto regulations were still developing at the beginning of 2021, there was a lot of promise in the space. She had made a bold choice of trading in various cryptocurrencies and, more recently, in NFTs. However, the trade had not yielded the results she had hoped for.

Vaishali wanted to clarify if the profit/loss set-off would be the same as other fund classes. Mohit shared that a 30% tax would be levied on her profits from the sale of cryptocurrency. He also explained how the profits could not set off the loss she made from selling off another crypto asset.

Additionally, he also shared how 1% TDS will be levied on every crypto transaction, whether it is a purchase or sale of an asset, including those received as gifts.

Before Vaishali could ask another question, Mohit underlined one of the most beneficial rules that were implemented this year: the window to revise tax returns has increased from 5 months to 2 years from the due date of filing the return. Vaishali had previously mentioned to Mohit about missing the window to revise her FY 2021-22 return, and this rule will help her remedy that situation.

Vaishali’s father was a state government employee who also contributed to the National Pension Scheme (NPS). She asked him about her father’s tax status. Mohit explained that investing in the NPS is a good choice for a person of her father’s age as it promises a flow of money after the age of 60. Mohit could see a visibly elated Vaishali when she learned that state government employees could now claim up to 14% deduction under Section 80CCD(2) for NPS contribution.

He also informed her to keep her father’s contribution towards Provident Fund under Rs. 2.5 lakhs as the new rule implemented a tax on amounts beyond the said limit.

Vaishali seemed to have gained better clarity on her financials when a question popped into her head about home loans. She had recently purchased an apartment by taking out a loan and hoped to get a tax exemption on the interest paid. Mohit informed her that the previous deduction of up to Rs. 1.5 lakh on home loan interest for house property valued less than Rs. 45 lakhs under Section 80EEA is no longer available, but other home loan interest deductions up to Rs. 2 lakhs will remain valid as Section 24 of the Income Tax Act.

Moreover, as far as Vaishali was concerned, she had received her home loan sanction letter before 1st April 2022, making her eligible for the claim for the entire tenure of the home loan.

There were a few more clarifications pending, and Mohit was quick. Although Mohit had explained everything in detail, he knew Vaishali might need some notes to understand the new updates that came into existence this year. He showed her a table with three new additional rules and sent it to her via email for future reference:

The parent/guardian of a person with a disability can claim a tax deduction on health insurance taken on behalf of the concerned person

Tax exemptions shall be provided to those who received money for COVID-19 medical treatment

Up to Rs. 10 lakhs of relief received by a family member of a COVID-19 deceased patient will be tax exempted

As they reached the end of the discussion, Mohit asked Vaishali to choose between the new and old tax regime. He suggested that while the new budget rules and their impact on Vaishali’s financials were being discussed, she must also take time to understand the rules that have come into play in 2020. While the new regime offered more slabs with lower tax rates, Mohit recommended that she take a decision on the basis of investment requirements and current financial commitments. He also shared a detailed blog, highlighting the difference between the old and new tax regimes for a holistic understanding.

Mohit also included a table on income tax slabs, for Vaishali’s quick reference:

Vaishali was grateful to receive this summary and knew her weekend will be spent reading and understanding RBL Bank’s blog on the two tax regimes in order to plan her investments better for the current financial year.

While tax planning is a long and tedious process, it is imperative to remain informed of the new changes and updates. This will help make modifications to the investment strategy and avoid any last-minute surprises.

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