FAQs

1. What is income tax?

Answer : Simply put, Income Tax is the tax levied directly on personal income. It is a percentage of your income that is paid to the government towards development of a nation. In India, income tax is governed under Income Tax Act, 1961.

It has to be paid by all; an individual, an HUF, a body of individuals, corporate, etc; by anybody who generates income.

In India, as per Income Tax Act, 1961, the fiscal year starts from 1st April and ends on 31st March. Previous year is the year in which the income is earned and assessment year is the year in which this earned income is taxed.

If you earn income from 1st April 2017 till 31st March 2018, then this period will be considered as previous year whereas 1st April 2018 would be known as assessment year for the income earned.

Income Tax is calculated as per the prevalent tax slab as announced in the Union Budget. Below are the list of latest Tax Slabs for Financial Year (FY) 2017-2018 and Assessment Year (AY) 2018-2019:

Part I: Income Tax Slab for individuals (not more than 60 years old) and HUFs
Income Slab Tax Slab
Up to Rs. 250,000/- Nil
Between Rs. 250,000/- to Rs. 500,000/- 5%
Between Rs. 500,000/- to Rs. 1,000,000/- 20%
More than Rs. 1,000,000/- 30%
Part II: Income Tax Slab for Senior Citizens (more than 60 years of age but less than 80)
Income Slab Tax Slab
Up to Rs. 300,000/- Nil
Between Rs. 300,000/- to Rs. 500,000/- 5%
Between Rs. 500,000/- to Rs. 1,000,000/- 20%
More than Rs. 1,000,000/- 30%
Part III: Income Tax Slab for Super Senior Citizens (80years and more)
Income Slab Tax Slab
Up to Rs. 500,000/- Nil
Between Rs. 500,000/- to Rs. 1,000,000/- 20%
More than Rs. 1,000,000/- 30%

* Surcharge of 10% of income tax is charged when total income is more than Rs. 50 Lakh and Upto Rs.1 Crore and Surcharge of 15% of income tax is charged when total income is more than Rs. 1 Crore.

* Cess: 3% on total of income tax + surcharge


2. What is taxable income and exempt income?

Answer : Taxable Income or Gross Income includes all of the income a person receives during a year that is not clearly exempted from taxation.

Exempt Income is the income which is subject to income tax after all allowable deductions or exemptions have been deducted from the total income received.

Incomes Exempt under various sub-sections of Section 10 of Income Tax Act,1961 relating to Individuals and HUFs are:


3. What is advance tax?

Answer : Advance tax is the income tax payable if your tax liability exceeds Rs 10,000 in a financial year. Advance tax is paid in installments in the year in which the income is received, as per due dates provided by the income tax department. It is applicable for all tax payers except Senior Citizens who do not run a business.

Starting FY 2016-17, taxpayers having business income assumed at 8% of turnover have to pay whole amount of their advance tax in one installment 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 like doctors, lawyers, architects etc, starting FY 2016-17, if their receipts are less than or equal to Rs. 50 lakh.


4. What is TDS?

Answer : Tax Deducted at Source or TDS is a system incorporated by the Income Tax Act Law, under the Income Tax Act, 1961 to deduct taxes before the income has been disbursed to the person earning it. It is charged depending on the person’s income tax slab, at its point of origin. One does not get their entire salary instead a portion of income is deducted towards applicable tax and credited to the person’s account. That means, the tax on your behalf of the income earned by you is paid by your employer to the government.


5. What relief from double taxation is available for individuals whose income is taxed both in India and overseas?

Answer : Relief is granted either as per the provisions of double taxation avoidance agreement entered into by the Government of India with that country (if any) or by allowing relief as per section 91 of the Income Tax Act, 1961 in respect of tax paid in the foreign country.


6. Are Income Tax Slabs applicable to companies?

Answer : No, Income Tax Slabs are not applicable to Indian Companies. Companies are taxed at a fixed 30% on their total income. If the total come of a company is more than Rs. 5 crore but less than Rs. 10 crore, then a surcharge of 5% is charged. If the total income of a company is greater than or equal to Rs. 10 crore, then a 10% surcharge is payable.


7. Is there any category of income which are taxed at different rates?

Answer : There are certain types of income which are taxed at special rates which are different from income tax slabs. These are:

Category of Income Taxation Rate
Short Term Capital Gains from assets (other than shares and mutual funds) Applicable income tax slab rates
Short Term Capital Gains on shares and equity mutual funds 15%
Short Term Capital Gains on debt mutual funds Applicable income tax slab rates
Long Term Capital Gains from assets (other than shares and mutual funds) 20%
Long Term Capital Gains on shares and equity mutual funds Nil
Long Term Capital Gains on debt mutual funds 20% with indexation

8. Is KYC mandatory?

Answer : Yes. It is a regulatory and legal requirement.

The Reserve Bank of India (RBI) on 29th November, 2004 on Know Your Customer [KYC] Standards – Anti Money Laundering [AML] Measures, all banks are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures.

SEBI vide its circular dated 5th October, 2011 notified Uniform KYC Form and supporting documents required to be used by all SEBI registered intermediaries (including Mutual Funds) for new client accounts. The uniform KYC requirement has been in effective from 1st January, 2012.

Further, to bring uniformity in securities markets, SEBI vide its circular MIRSD/SE/Cir-21/2011 dated 5th October, 2011 has prescribed uniform KYC form and supporting documents to be used by SEBI registered intermediaries such as DPs, MFs, AMFI, PMs, Collective Income Schemes and Venture Capital Funds.


9. Do I need to submit separate KYC documentation for investments with different mutual funds and stock brokers?

Answer : To ensure uniformity, KYC registration is centralized through KYC Registration Agencies (KRAs) registered with SEBI. Thus each investor has to undergo a uniform KYC process only once in the securities market and the details would be shared with other intermediaries by the KRAs.


10. What is the list of documents required for individuals?

Answer :

Category Identity Proof Address Proof
Resident
  • Copy of PAN with recent passport size photograph
  • Unique Identification Number (UID) (Aadhaar)/ Passport / Voter ID / Driving License
  • Identity Card or document with photograph issued by any of the following: Central/ State Government and its Departments, Statutory/ Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges Affiliated to Universities, Professional Bodies such as ICWAI, ICAI, Bar Council, etc, credit cards and debit cards issued by banks with photographs to its clients
  • Unique Identification Number (UID) (Aadhaar)/ Passport / Voter ID / Driving License / Ration Card/ Registered Lease or Sale Agreement of Residence/ Maintenance Bill / Insurance Copy
  • Telephone Landline Bill, Electricity Bill or Gas Bill not more than 3 months old
  • Passbook / Bank account Statement not more than 3 months old
  • Proof of address issued by any of the following: Bank Managers of Scheduled Commercial Banks/Scheduled Cooperative Banks/ MNC Bank/ Gazetted Officer/Notary Public/ Documents issued by any Government or Statutory Body Departments, Statutory/ Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges Affiliated to Universities, Professional Bodies such as ICWAI, ICAI, Bar Council, etc,
  • Identity Card with address issued by any of the following: Central/ State Government and its
  • Proof of address in spouse name
Non Resident / Foreign National
  • Copy of PAN with recent passport size photograph
  • Copy of Passport / PIO Card / OCI Card
  • Overseas and Local Indian Address Proof are mandatory
  • Passport / Driving License
    • Telephone Landline Bill, Electricity Bill or Gas Bill not more than 3 months old
    • Passbook / Bank account Statement not more than 3 months old
    • Proof of address issued by any of the following: Banks /Gazetted Officer/Notary Public/ Documents issued by any Government or Statutory Body/ Indian Embassy / Consulate General in the country where the client resides
    • Identity Card with address issued by any of the following: Central/ State Government and its Departments, Statutory/ Regulatory Authorities
    • Proof of address in spouse name

11. What are the list of documents required for non-individuals?

Answer :

Type of Entity Documents Required
Corporate (Private / Public Limited)
  • Copy of the balance sheets for the last 2 financial years (mandatory annual submission)
  • Copy of the latest shareholding pattern including the list of individuals holding controlling shares (directly or indirectly), duly certified by Company Secretary/ Whole Time Director/any 2 directors (mandatory annual submission
  • Photograph/ Identity & Address Proof/ PAN and DIN numbers of Whole Time Directors/ any 2 directors
  • Photograph/ Identity & Address Proof/ PAN of individual holding controlling shares (directly or indirectly)
  • Copies of Memorandum and Articles of Association and Certificate of Incorporation
  • Copy of the Board Resolution for investment in securities market
  • List of Authorized Signatories with specimen signatures
Partnership Firm
  • Copy of the balance sheets for the last 2 financial years (mandatory annual submission)
  • Certificate of Registration incase of registered firm
  • Copy of Partnership Deed
  • List of Authorized Signatories with specimen signatures
  • Photograph/ Identity & Address Proof/ PAN of Partners
Trust
  • Copy of the balance sheets for the last 2 financial years (mandatory annual submission)
  • Certificate of Registration incase of registered trust
  • Copy of Trust Deed
  • List of Trustees certified by the Managing Trustee / Chartered Accountant
  • Photograph/ Identity & Address Proof/ PAN of Trustees
HUF
  • PAN of HUF
  • Deed of Declaration of HUF/ List of Coparceners
  • Bank statement / pass-book not more than 3 months old in the name of the HUF
  • Photograph/ Identity & Address Proof/ PAN of the Karta
Unincorporated Association
  • Proof of Existence / Constitution Document
  • Resolution of the Managing Body and Power of Attorney granted to transact on behalf of the Association
  • List of Authorized Signatories with specimen signatures
FIIs (Foreign Institutional Investors)
  • Copy of SEBI registration Certificate
  • List of Authorized Signatories with specimen signatures
  • Registered Society
    • opy of Registration Certificate under Societies Registration Act
    • List of Managing Committee Members
    • Committee Resolution listing the individuals authorized to transact on their behalf along with specimen signatures
    • Certified true copy of Society Rules and By Laws by the Chairman/ Secretary

    12. Can these KYC documents be only self attested?

    Answer : All the documents submitted for KYC need to be self attested and originals to be carried for verification by the intermediary where the KYC form is being submitted. Incase originals are not submitted for verification, the copies of documents need to be attested by permitted individuals / entities.

    For Resident Indians: Notary Public, Gazetted Officer / Manager of a Scheduled Commercial / Co‐operative bank or Multinational Foreign Banks (name, Designation & Seal should be affixed on the copy) are authorized.

    For Non Resident Indians: Authorized officials of overseas branches of Scheduled Commercial Banks registered in India, Notary Public, Court Magistrate, Judge, Indian Embassy / Consulate General in the country where the client resides are permitted to attest the documents.


    13. Who is a Politically Exposed Person (PEP)?

    Answer : PEP are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., head of state, senior politicians, senior Government/judicial/military officers, senior executives of state owned corporations, important political party officials, etc.


    14. What is FATCA?

    Answer : FATCA is Foreign Account Tax Compliance Act is a 2010 United States federal law to enforce the requirement for United States persons including those living outside the U.S. to file yearly reports on their non-U.S. financial accounts to the Financial Crimes Enforcement Network (FINCEN).

    The Indian Government signed an Inter-Governmental Agreement (IGA) with the United States (US) on 9 July 2015 to implement the Foreign Account Tax Compliance Act (FATCA) in India.


    15. Who are covered under purview by FATCA?

    Answer : FATCA affects both individual and entities who are treated as a ‘US person’ for US tax purposes. The FATCA will also affect entities with beneficial owners/ controlling persons from US. An account having U.S. indicia like U.S place of birth, U.S. address etc. does not necessarily mean that the account would be reported however they would be monitored closely.


    16. What information is sought under FATCA by financial institutions?

    Answer : Individual Investors are expected to provide details like Country of Tax residence, Tax Identification Number from such country, Country of Birth, Country of Citizenship, etc.

    Non-individual Investors, are required to submit the above details the individuals controlling the firm or details with CIN of the listed company {Refer SEBI circular no. CIR/MIRSD/2/2013 dated January 24, 2013 for guidelines on identification of controlling person(s)}


    17. What documents are required to open an NPS account?

    Answer : Basic identity and address proof are the only documentary requirements.

    Address Proof can be any one of the following can be submitted Passport, Ration Card with photograph, Bank Passbook, Aadhar Card, etc.

    Identity Proof can be any one of PAN Card, Aadhar Card and Photo identity Card, Passport, Ration Card with photograph, Job Card issued by NREGA, Electricity Bill, Water Bill and Bank Passbook, etc.


    18. What class of assets are permitted to investment under NPS?

    Answer : Under Tier I, there is only one scheme (default) available to Central/State Govt. wherein the contributions are allotted to three Public Sector Pension Fund Managers; SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited. These pension funds invest their AUM in the proportion of up to 55% in Government Securities, up to 40% in Debt Securities and up to 5% in Money Market Instruments.

    Under Tier II, assets under consideration for investment are segregated based on their risk returns:

    Asset class E : "High return, High risk" (equity market instruments)

    Asset class G : "Low return, Low risk" fixed income instruments

    Asset class C : "Medium return for credit risk" bearing fixed income instruments.


    19. Can I choose where my funds are invested under NPS?

    Answer : NPS gives two options, Active or Auto. Under Active Choice, the subscribers can choose a fund manager and provide the ratio in which their funds can be invested among the asset classes.

    Auto Choice is ideal for individuals who either do not have the necessary knowhow for choosing the allocation ideal for them or do not want to make that choice. Under this option, the investments are made in a life-cycle fund. Here, the ratio of funds invested across three asset classes will be determined by a pre-defined portfolio. At the lowest age of entry (18 years) the auto choice will investment 50% of wealth in E Class, 30% in C Class and 20% in G Class. These ratios of investment will remain fixed for all contributions until the subscriber turns 36. From 36 years on, the percentage of contribution in E and C asset class will decrease annually while it increases in G class annually till it reaches 10% in E, 10% in C and 80% in G class at age 55.


    20. What are the features of Post Office Schemes?

    Answer : Features of Post Office Schemes are listed below:

    • They are a safe and a secure investment option offered by the Government of India.
    • There is no tax deduction at source (TDS) except in Senior Citizen Scheme.
    • They come with the facility of nomination.
    • There is a provision of changing the nomination anytime.
    • They can be transferred anywhere within the country.
    • They offer an attractive rate of interest.
    • They can be held jointly or solely.

    21. What are the types of Post Office Schemes available and what are their features?

    Answer : Types of Post Office Schemes are listed below:

    Type Features
    Post Office Monthly Income Scheme
    • Account holder can be individual, joint or minor above the age of 10 years
    • Account cannot be opened by NRIs/ HUF
    • Minimum amount of deposit is Rs 200/- and there is no maximum amount
    • Facility of redeposit is available after maturity
    • Account can be closed after 6 months but before 1 year without interest
    • No rebate under section 80 C
    • Interest income is tax payable
    • Deposits are exempted from Wealth Tax
    • No TDS*
    • Interest is payable annually but is calculated quarterly
    • Nomination facility is available
    • Account can be transferred from one post office to any other in India
    Public Provident Fund
    • It is a statuary scheme of Central Govt of India
    • The scheme is for 15 years
    • One deposit of Rs 500/- is compulsory in each financial year
    • 8% is the rate of interest compounded yearly
    • Minimum deposit is 500/- and maximum 7000/- pa
    • The deposit can be in a lumpsum or in 12 installments annually
    • The deposit need not be made every month. Thus it suits the convenience of the investor
    • An account where the deposit is not made, is termed as discontinued account and it cant be closed before maturity
    • It can be reactivated by paying the minimum deposit ( Rs 500/-) and a penalty of Rs 50/-
    • Withdrawal is permissible every year from 7th financial year 50% of balance amount.
    • Joint account is not permissible
    • Premature closure is not permissible unless it’s a case of death
    • Deposits in PPF qualify for rebate under section 80-c of Income Tax Act
    • The interest is totally tax free
    • Nomination facility is available
    • Loan facility available from 3rd financial year
    • The best option for long term investments
    Post Office Savings Account
    • Minimum amount of Rs 20/- can be invested, in cash.
    • Minimum amount of Rs 50/- can be invested , in cheque
    • Minimum balance of Rs 500/- has to be maintained in cheque account
    • Maximum balance permitted is Rs 1 lakh in single account
    • Maximum balance permitted is Rs 2 lakh in joint account
    • Account can be open on behalf of minor also
    • Interest of P.O. Saving a/c in tax free
    National Savings Certificate
    • A Tax saving instrument under SEC 80C
    • Can be purchased individually or jointly or by minor through guardian
    • Cannot be purchased by companies, societies, trusts, NRIs, HUFs
    • Rate of interest is 8% compounded half yearly
    • Minimum investment is of Rs 500/- and no limit fro maximum amount
    • Annual interest has to be reinvested and qualifies for tax rebate for first 5 years under section 80C
    • Facility of reinvestment on maturity
    • Certificates can be transferred before maturity but cannot be encashed
    • Interest income is taxable but no TDS
    • Deposits are exempted from wealth tax
    • Nomination facility available
    • Facility of getting a duplicate certificate available in case of loss of original one
    Kisan Vikas Patra
    • Money gets doubled in 8 years and 7 months
    • Interest rate of 8.00% is compounded half-yearly
    • Encashment facility available after 2 years 6 months
    • Can be purchased by individuals, 2 adults jointly or minor over age of 10 years through guardian
    • Cannot be purchased by companies, societies, trusts, NRIs, HUFs
    • KVPs can be encashed before maturity by transfer to another post office of investor’s choice
    • Facility of reinvestment on maturity
    • KVPs can be transferred from one person to another
    • Interest income is taxable but no TDS
    • Deposits are exempted from wealth tax
    • Nomination facility available
    • Facility of getting a duplicate KVP is available in case of loss of original one
    • Facility of purchase/payment of KVP to holder of power of attorney

    22. National Pension Scheme:

    National Pension Scheme (NPS) is a voluntary defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), created by an Act of the Parliament of India. It was launched on 1st January 2004 to encourage not only the employees of the state and central governments but also the citizens working in private and public sectors.
    NPS offers two types of accounts :
    Tier – 1 Account : is a non-withdrawable account meant solely for savings and utilization post retirement. The funds can only be withdrawn once the subscribe turns 60 years of age.
    Tier – 2 Account : is a freely withdrawable account form which the subscriber can make withdrawals as per their requirements.
    Tier-2 Account cannot be opened without opening a Tier-1 Account.
    A minimum contribution of Rs. 6000/- per year with a minimum one time contribution of Rs. 500/-is required to be made under Tier-1 Accounts. Under Tier-2 Accounts, the minimum contribution amount is Rs. 2000/- per year and Rs. 250/- one time.
    Some of the benefits of this scheme are:

    • A voluntary pension scheme eligible for all Indians between the age group of 18 to 60
    • It is a transparent and cost effective as contributions are invested in pension fund schemes and the value of the investment can be checked daily
    • Opening an NPS account and acquiring a PRAN number is simple
    • As a subscriber is identified by a unique PRAN number, change of employment does not affect your existing pension savings
    • It is regulated by PFRDA with transparent investment norms. The funds are monitored and managed by fund managers of NPS Trust
    • Tax benefits on the contribution made towards NPS can be availed under section 80C of the Indian Income Tax Act

    DISCLAIMER

    You agree and understand that the information and material contained in this website implies and constitutes your consent to the terms and conditions mentioned below. You also agree that SIL can modify or alter the terms and conditions of the use of this service without any liability.
    Users are advised to use the data for the purpose of information only and rely on their own judgment while making investment decisions. The investments discussed or recommended may not be suitable for all investors. SIL does not warranty the timeliness, accuracy or quality of the electronic content.
    You acknowledge and agree that all proprietary rights in the information received shall remain the property of SIL. The content of the website cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed for any non-personal use without obtaining prior permission from SIL . We reserve the right to terminate the accounts of subscribers/customers, who violate the proprietary rights of SIL, in addition to necessary legal action.
    SIL and its owners/affiliates are not liable forany damages caused by any performance, failure of performance, error, omission, interruption, deletion, defect, delay in transmission or operations, computer virus, communications line failure, and unauthorized access to the personal accounts. SIL is not responsible for any technical failure or malfunctioning of the software or delays of any kind. We are also not responsible for non-receipt of registration details or e-mails.
    SIL is not responsible for the content of any of the linked sites. By providing access to other web sites, SIL is neither recommending nor endorsing the content of the linked websites.
    You agree that the information gathered from your profile will be used to enhance your experience on the website. We will not rent or sell the profile to any third party. In the event of necessary credit checks and collection of payments, SIL can disclose such information to other authorities in good faith. This website is for the exclusive purpose of transactions to be carried out within the territorial jurisdiction of India and all such transactions shall be governed by the laws in India. Notice is hereby given that Non Resident Indians (NRI's) and Foreign Nationals accessing this web site and opting to transact thereon shall do so after due verification at their end of their eligibility to do so. SIL undertakes no responsibility for such pre-eligibility or qualification on part of Non-Resident Indians (NRI's) or Foreign Nationals to transact on this website.