Understanding the Importance of the Tenth Schedule of Income Tax Act 1961

Introduction

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Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.

Taxation is an important aspect of any economy, and India is no exception. The Income Tax Act, 1961 (ITA 1961) is the principal legislation governing the taxation of income in India. The Act has ten schedules, each dealing with a specific aspect of taxation. In this blog, we will focus on the Tenth Schedule of Income Tax Act 1961 and its implications for taxpayers.

The Tenth Schedule of the ITA 1961 deals with the taxation of income from securities, i.e., income earned from shares, bonds, debentures, and other securities. The schedule specifies the tax rates applicable to different types of securities and the method of calculating the taxable income. It also lays down the compliance obligations for taxpayers who earn income from securities.

Understanding the Provisions of the Tenth Schedule

The Tenth Schedule of ITA 1961 is divided into four parts. Each part deals with a specific aspect of taxation.

Part A: Tax Rates

Part A of the Tenth Schedule specifies the tax rates applicable to income from securities. The tax rates vary depending on the type of security and the period for which the security is held.

• Shares and Mutual Funds: The tax rate for income from shares and mutual funds held for more than 12 months is 10%. For shares and mutual funds held for less than 12 months, the tax rate is 15%.
• Bonds and Debentures: The tax rate for income from bonds and debentures held for more than 12 months is 10%. For bonds and debentures held for less than 12 months, the tax rate is 15%.
• Other Securities: The tax rate for income from other securities, such as options and futures, is 15%.

Part B: Method of Calculation of Taxable Income

Part B of the Tenth Schedule specifies the method of calculating the taxable income from securities. The taxable income is calculated as follows:

Taxable Income = Gross Income – Expenditure

Gross income is the income earned from securities, and expenditure includes brokerage, commission, and any other expenses incurred in earning the income.

Part C: Compliance Obligations

Part C of the Tenth Schedule lays down the compliance obligations for taxpayers who earn income from securities. The compliance obligations include the following:

• Filing of Returns: Taxpayers earning income from securities are required to file their income tax returns on or before the due date. The due date for filing returns is usually July 31st of the assessment year.
• Tax Deduction at Source (TDS): If the income from securities exceeds a certain threshold, the payer is required to deduct TDS at the specified rates. The TDS deducted can be claimed as a credit while filing the income tax returns.
• Payment of Advance Tax: Taxpayers earning income from securities are required to pay advance tax if the tax liability for the year exceeds Rs. 10,000. The advance tax is payable in installments during the year.

Part D: Miscellaneous Provisions

Part D of the Tenth Schedule contains miscellaneous provisions, such as the provision for the carry-forward of losses and the provision for set-off of losses against other income.

FAQs

Q1. What is the Tenth Schedule of Income Tax Act 1961?

A1. The Tenth Schedule of the Income Tax Act,

1961 deals with the taxation of income from securities, such as shares, bonds, debentures, and other securities. It specifies the tax rates applicable to different types of securities and lays down the compliance obligations for taxpayers who earn income from securities.

Q2. What is the tax rate for income from shares and mutual funds?

A2. The tax rate for income from shares and mutual funds held for more than 12 months is 10%. For shares and mutual funds held for less than 12 months, the tax rate is 15%.

Q3. What is the method of calculating taxable income from securities?

A3. The taxable income from securities is calculated as gross income minus expenditure. Gross income is the income earned from securities, and expenditure includes brokerage, commission, and any other expenses incurred in earning the income.

Q4. What are the compliance obligations for taxpayers earning income from securities?

A4. The compliance obligations for taxpayers earning income from securities include filing of income tax returns, deduction of TDS, and payment of advance tax if the tax liability for the year exceeds Rs. 10,000.

Q5. Can losses from securities be carried forward and set off against other income?

A5. Yes, losses from securities can be carried forward for up to 8 years and set off against other income.

Conclusion

The Tenth Schedule of Income Tax Act 1961 is an important piece of legislation that governs the taxation of income from securities. It lays down the tax rates applicable to different types of securities, specifies the method of calculating taxable income, and sets out the compliance obligations for taxpayers earning income from securities.

Taxpayers who earn income from securities should be aware of the provisions of the Tenth Schedule and ensure that they comply with the requirements. Failure to comply with the provisions can result in penalties and interest, and can also lead to a loss of reputation. Therefore, it is important to understand the Tenth Schedule and stay compliant with its provisions.