/ TDS

Guidelines on Section 194R of the Income Tax Act

194R

Introduction to Section 194R

Section 194R was introduced to streamline the deduction of Tax Deducted at Source on benefits or perquisites provided in the course of business or profession. This section mandates that any person providing a benefit or perquisite to a resident must deduct tax at a rate of 10% on the value of such benefit or perquisite. Section 194R of the Income Tax Act, addresses the deduction of tax at source on any benefit or perquisite provided to a resident arising from business or profession. Section 194R introduces a structured framework for the deduction of TDS on benefits or perquisites provided in the course of business or profession. Compliance requires careful identification, valuation, and timely deduction of TDS to avoid penalties and ensure adherence to the Income Tax Act. Businesses and professionals should familiarize themselves with the guidelines and integrate them into their financial processes. Below details for TDS on reimbursements to service providers under this section:

Scope & Coverage of Section 194R

  • Applicability:
    • Who is Covered? Applies to any person (deductor) providing benefits or perquisites to a resident (deductee) arising from business or profession. The section covers all benefits or perquisites, whether in cash or in kind, provided to a person, if these are part of their business or profession.
    • Types of Benefits or Perquisites:
      • Wholly in Cash
      • Wholly in Kind
      • Partly in Cash and Partly in Kind
      • Capital Assets: Benefits can include capital assets like cars, land, etc.
  • Liability:
    • The deductor does not need to verify whether the benefit or perquisite is taxable in the recipient’s hands.
    • There is no requirement to check the taxability of the amount itself.
    • Applies to benefits or perquisites paid or credited on or after July 1, 2022.
  • Purpose of Section 194R:
    • It requires the deduction of tax at 10% on the value of any benefit or perquisite provided to a resident in the course of business or profession.

TDS on Reimbursements:

  1. TDS Rate u/s 194R
    • Standard Rate: 10% TDS on the total value of gifts or perquisites provided to a recipient during a FY.
    • Threshold Limit: Tax Deducted at Source is applicable only if the total value exceeds INR 20,000 per recipient in a FY.
  • Invoice in the Name of the Recipient: If the invoice for the expenses (such as travel or accommodation) is issued directly in the name of the service recipient, it is treated as the service recipient’s own expense. In this case, no Tax Deducted at Source is required u/s 194R, as no benefit or perquisite has been provided by the service recipient to the service provider.
  • No TDS u/s 194R on Directly Invoiced Expenses: If the reimbursement of expenses is billed directly to the service recipient (i.e., the invoice is made in the name of the service recipient), no TDS is required u/s 194R as there is no benefit or perquisite being provided to the service provider.

TDS on Reimbursements

    • As per Circular No. 12/2022, if a person incurs expenses on behalf of another in the course of business or profession, it is considered a benefit or perquisite. Hence, Tax Deducted at Source at 10% applies on such reimbursements. Examples:
      • Travel Expenses: If a service provider incurs travel expenses while performing services and these are reimbursed by the recipient, TDS u/s 194R is applicable on the reimbursed amount.
      • Invoice in Recipient’s Name: If the expense invoice (e.g., travel, accommodation) is issued directly in the name of the service recipient, it is treated as the recipient’s own expense. No Tax Deducted at Source u/s 194R is required.

  • Additional Clarifications (Circular No. 18/2022, dated 13-09-2022):

    • Consolidated Invoices: If reimbursement expenses are included in the same invoice as the primary service or goods, and TDS has been deducted under another section (e.g., 194C, 194J), no additional Tax Deducted at Source u/s 194R is required.
    • Directly Invoiced Expenses: No Tax Deducted at Source u/s 194R if reimbursement expenses are billed directly to the recipient.
    • This circular provided additional clarification regarding the application of Section 194R on reimbursements. If the expenses are already included in the invoice for services or goods (such as u/s 194C or 194J), and Tax Deducted at Source has been deducted under those sections, there is no need for further TDS deduction u/s 194R.
    • Consolidated Invoice: If out-of-pocket expenses are included in the same invoice as the primary service or supply of goods, and TDS is deducted under another applicable section (e.g., Section 194C for contracts or Section 194J for professional services), no additional TDS is required u/s 194R.

  1. Valuation of Benefits or Perquisites

    • Fair Market Value: The Fair Market Value of the benefit or perquisite is generally used for Tax Deducted at Source calculation.
    • Exceptions:
      • Purchased Benefits: If the provider purchased the benefit, the purchase price is used for Tax Deducted at Source.
      • Manufactured Benefits: If the provider manufactures the benefit, the price charged to other customers is used for Tax Deducted at Source .
    • Exclusions:
    • GST is not included in the valuation for Tax Deducted at Source purposes.

  1. Specific Considerations for Section 194R

  • Social Media Influencers:
      • Returned Products: No benefit; no Tax Deducted at Source u/s 194R.
      • Retained Products: Treated as a benefit or perquisite; Tax Deducted at Source applicable.
  • Reimbursement of Out-of-Pocket Expenses:
    • General Rule: If a person incurs expenses as part of their business and these are reimbursed, it is considered a benefit or perquisite. TDS at 10% applies.
    • Exception: No TDS if travel bills are in the recipient’s name, paid by the consultant, and reimbursed by the client.
  • Dealers’ Conferences:
      • Non-TDS Scenarios: Expenditure for dealer/business conferences aimed at education, product launches, obtaining orders, teaching sales techniques, addressing queries, or reconciling accounts.
      • TDS Applicable: If the conference includes incentives or benefits to select dealers/customers based on targets, Tax Deducted at Source is applicable.
      • Leisure Components: Expenses for leisure trips, sponsoring family members, priority stays, or overstays are liable for Tax Deducted at Source.
  • Benefits Provided to Employees of Recipient Entity:
    • Benefits to employees, directors, or their relatives who are not engaged in business or profession require TDS by the deductor. Example: A company provides free medicine samples to a doctor employed by a hospital. The company must deduct Tax Deducted at Source u/s 194R in the hospital’s name.
  • Benefits Provided by Employer to Employees:
    • Treated as perquisites u/s 17.
    • TDS u/s 192: Employers must deduct Tax Deducted at Source u/s 192 for employee benefits and can claim credit by furnishing tax returns.
  • Benefits Provided to Consultants:
    • Option 1: Deductor treats the entity as the beneficiary and deducts Tax Deducted at Source u/s 194R. The entity can further deduct TDS for the consultant.
    • Option 2: Deductor can directly deduct Tax Deducted at Source for the consultant.
  1. Handling GST in Valuation
    • Exclusion of GST: GST is not included in the valuation of benefits or perquisites for Tax Deducted at Source purposes u/s 194R.
  1. Managing TDS When Benefit Is in Kind or Partly in Kind
    • Insufficient Cash for TDS: If the benefit is in kind or partly in kind, and the cash component is insufficient to cover the 10% TDS, the deductor has two options:
      • Advance Tax Payment by Recipient: The recipient pays the tax as advance tax. The deductor relies on the recipient’s declaration and a copy of the advance tax challan.
      • Grossing Up: The deductor deducts TDS by grossing up the benefit, treating the TDS as an additional benefit to the recipient.
  1. Computing the Rs. 20,000 Threshold
    • Inclusion Period: Include benefits or perquisites provided on or before June 30, 2022, to assess the threshold for benefits provided on or after July 1, 2022.
    • No TDS on Pre-July 1, 2022 Amounts: No TDS is required on amounts paid from April 1, 2022, to June 30, 2022.

Applicability of Section 194R on Lucky Draw Award Money:

  • Section 194R of the Income Tax Act, 1961, deals with the TDS on benefits or perquisites arising from business or profession. It covers both monetary and non-monetary benefits provided to a resident.
  • Key Phrase – “Arising from Business or Profession”: The applicability of Section 194R hinges on whether the benefit or perquisite arises in the course of business or the exercise of a profession. This is a critical factor for deciding if TDS should be deducted.
  • Lucky Draw and Personal Achievements: If award money is provided for a personal reason such as winning a lucky draw or a personal achievement that is not related to the individual’s business or professional activities, it is not connected to business or profession.
  • In such cases, the award does not fall under the ambit of Section 194R. Therefore, TDS would not be applicable under this section, as the benefit is purely personal and does not arise from a business or professional relationship. However, other sections, such as Section 194B (which deals with winnings from lotteries or games), may apply depending on the nature of the prize.

Practical Steps for Compliance of  Section 194R

    • Identify Benefits or Perquisites: Assess all benefits or perquisites provided to residents in the course of business or profession.
    • Determine Valuation: Calculate the FMV or applicable purchase/manufacture price, excluding GST.
    • Check Threshold: Aggregate benefits per recipient for the FY & Apply TDS only if the total exceeds Rs 20,000.
    • Deduct TDS: Deduct 10% TDS on the value exceeding the threshold. Ensure proper documentation and compliance with procedural requirements.
    • Deposit and Report: Deposit the deducted TDS with the government. Report the Tax Deducted at Source in the appropriate returns.
    • Maintain Records: Keep detailed records of all benefits or perquisites provided and TDS deducted.

TDS-Section-194R-1

Frequently Asked Questions on section 194R

  • Do we need to check if this perquisite is taxable in the hands of the payee?

Answer: No. Tax Deducted at Source must be deducted irrespective of the taxability of the benefit or perquisite in the recipient’s hands. All benefits provided in the course of business or profession are deemed taxable.

  • Should we deduct TDS on discounts or offers given to our customers?

Answer: No. Sales discounts, cash discounts, rebates, and similar offers do not attract TDS u/s 194R. However, free samples provided to customers are subject to Tax Deducted at Source.

  • Can the recipient claim depreciation on the asset received as a benefit?

Answer: Yes. The recipient can claim depreciation based on the fair market value (excluding GST) of the asset, on which taxes have been paid.

  • Is TDS applicable on cash discounts?

Answer: No. Cash discounts, rebates, and similar offers are excluded from Section 194R. Only benefits or incentives other than discounts or rebates (e.g., cars, electronics) attract TDS.

  • Does a company manufacturing capital goods need to deduct Tax Deducted at Source u/s 194R on 2-year free maintenance services provided to the buyer?

Answer: No. Section 194R applies only when an actual benefit or perquisite is provided, not merely for providing maintenance services unless such services constitute a perquisite or benefit as defined under the Act.

  • How should the valuation of benefit or perquisite be carried out?

Answer:

      • Purchased Benefits: Use the purchase price.
      • Manufactured Benefits: Use the price charged to other customers.
      • Exclude GST from the valuation.

Summary Section 194R:

TDS-Section-194R.

  • TDS at 10% u/s 194R applies when a service provider incurs expenses and those are reimbursed by the recipient, as it constitutes a benefit or perquisite.
  • No Tax Deducted at Source u/s 194R if:
    • The expense invoice is in the recipient’s name (i.e., it is their liability directly).
    • Reimbursement expenses are included in the same invoice as the service or goods provided, and Tax Deducted at Source has already been deducted under another section (e.g., 194C or 194J).
  • The provider of the benefit does not need to ascertain if the amount is taxable u/s 28(iv) before deducting Tax Deducted at Source.
  • Section applies even if the benefit is in cash or partially in kind.
  • TDS applies even if the benefit is in the form of a capital asset.
  • Sales discounts, cash discounts, and rebates are not considered benefits under this section.
  • The valuation of benefits should be done based on the fair market value of the perquisite provided.
  • Social media influencers provided with products to promote on social platforms are considered to have received a benefit.
  • Reimbursement of out-of-pocket expenses is not considered a benefit.
  • Dealer conferences for educating dealers about products are not considered benefits if they are purely educational and do not involve any leisure or recreational elements.
  • If the benefit is in kind and there is no cash available for Tax Deducted at Source, the provider must ensure that Tax Deducted at Source has been deposited before releasing the benefit.
  • Threshold is calculated for the entire financial year, including transactions before and after 1st July 2022, when the section became applicable.
/ Direct Tax

Budget Highlights: Tax Proposals in Finance Bill 2024

tax Proposal

Budget Highlights: Tax Proposals in Finance Bill 2024

Important Direct Tax Proposals:

  • Change in Tax Rates:
    • Changes in 3 slabs ranging from ₹3 lakhs to ₹12 lakhs result in a tax benefit of ₹10,000.
  • Standard Deduction:
    • Increased from ₹50,000 to ₹75,000 in the new tax regime. Not available for those opting for the old regime. Tax benefit: ₹7,500.
  • Family Pension Deduction:
    • Increased from ₹15,000 to ₹25,000 in the new tax regime.
  • NPS Contribution Deduction:
    • Enhanced from 10% to 14% for private employees under the new tax regime.
  • Foreign Companies Tax Rate:
    • Reduced from 40% to 35%.

Condition of Salaried Employee

salary

  • Uniform Long Term Capital Gain (LTCG) Tax Rate:
    • Set at 12.5% for:
      • STT paid equity shares and units of equity-oriented funds
      • Units purchased in foreign currency
      • Bonds or GDRs purchased in foreign currency
      • Securities of FIIs
  • Removal of Indexation Benefit:
    • Indexation for long-term capital gains removed.
  • LTCG Exemption Increase:
    • Increased from ₹1 lakh to ₹1.25 lakhs for STT paid equity shares and units of equity-oriented funds.
  • Period of Holding Changes:
    • Reduced from 36 to 24 months for gold, listed debentures, listed bonds, and all units of mutual funds.
    • Unlisted shares and immovable property continue to qualify as long-term capital assets after 24 months.
  • Capital Gain Treatment for Unlisted Bonds and Debentures:
    • Treated as short-term capital gain regardless of holding period.
  • Short Term Capital Gain Tax Rate:
    • Increased to 20% for STT paid equity shares or units of equity-oriented funds.
  • Capital Gain Exemption for Gifts:
    • Limited to Individual/HUF.
  • Fair Value Excess for Private Companies:
    • Amount received in excess of fair value no longer taxable.
  • TDS Rate on Commission:
    • Reduced from 5% to 2% effective 01-10-24.
  • TDS Rate on Rent:
    • Reduced from 5% to 2% under section 194-IB.
  • Lower TDS Deduction:
    • Allowed for buyers and sellers at 0.1% under sections 194Q/206C(1H).
  • Consideration of Other TDS/TCS:
    • For determining TDS on salary income, ensuring TDS on salary is not less than tax deductible without considering other incomes.
  • TCS on Foreign Remittances:
    • Can be claimed by the parent for a child’s expenses.
  • TCS on Luxury Goods:
    • 1% for items above ₹10 lakhs. Motor vehicles already covered.
  • TDS on Salary and Interest to Partners:
    • Above ₹20,000 at 10% under section 194T.

Sec 194T Payment to partners of firm

  • TDS on Immovable Property:
    • Applied on aggregate limit for sales above ₹50 lakhs, even with multiple buyers.
  • Interest on Late TCS Payment:
    • Increased from 1% to 1.5%.
  • Penalty Exemption for Delayed TDS Return:
    • Limited to one month from due date.
  • Correction of TDS/TCS Returns:
    • Not allowed after 6 years.
  • Employer NPS Contribution Deduction:
    • Increased from 10% to 14%.
  • Deduction Disallowance:
    • Settlements for law infractions not deductible.
  • Partners’ Salary Allowance:
    • Slabs changed; first slab up to ₹6 lakhs with deduction allowed to the extent of ₹3 lakhs or 90%, and remaining profits at 60%.
  • Vivaad se Vishwas Scheme:
    • For disputes filed post 31-01-20: settle by paying only tax amount.
    • For pre 31-01-20: settle by paying tax plus 10%.
  • Block Assessment for Search Cases:
    • Income assessed at 60% without interest and penalty, except in specified circumstances under section 158BFA.
  • Search Cases Limit:
    • Reduced to 6 years.
  • Re-opening of Previous Years:
    • Limited to 5 years; requires approval from Additional/Joint Commissioner.
  • Reassessment Provisions Revamped:
    • Re-opening with approval from Additional/Joint Commissioner.
  • Return Filing Period for Notice u/s 148:
    • Increased to 3 months; deemed return u/s 139 if filed within 3 months.
  • Employer Contribution Deduction:
    • Increased to 14% under section 80CCD.
  • ITAT Appeals:
    • Allowed for penalties under section 158BFA in search cases.
  • ITAT Appeal Period:
    • Within 2 months from end of month in which appeal is communicated to assess/PCIT.
  • Trusts and Section 10(23C) Regime:
    • Merged with section 11; no approval application for section 10(23C).
  • PCIT Condonation of Delay:
    • Allowed if reasonable cause for delay in section 12A application.
  • Section 80G Registration:
    • Rationalized timelines.
  • 12A/80G Registration Applications:
    • Decided within 6 months from end of quarter in which application is filed.
  • Merger of Charitable Trusts:
    • No exit tax for merger with similar trusts registered under sections 12AB/10(23C).
  • Income from Letting Residential Houses:
    • Not taxed under Profits and Gains of Business or Profession.
  • Foreign Assets Non-Disclosure Penalty:
    • Up to ₹20 lakhs not imposed.
  • Aadhaar Enrolment ID for PAN Linking:
    • Abolished; Aadhaar number must be intimated.
  • Commissioner Appeal Power:
    • Can set aside ex parte assessments; completion within one year from end of financial year.
  • Belated Return Assessment:
    • Limit of 12 months from end of FY in which return is filed.
  • Withholding of Refund:
    • Allowed even if not prejudicial to revenue interest.
  • Withholding of Refund for Reassessment:
    • Allowed up to 60 days; interest on delayed refund accordingly.
  • Buyback of Shares:
    • Treated as dividend; taxable under Income from Other Sources. 10% TDS applies on income from buyback.
  • Presumptive Taxation for Non-Resident Cruise Operators:
    • Introduced at 20%; leasing company rental income exempt if both are subsidiaries of the same holding foreign company.
  • Equalization Levy:
    • 2% on e-commerce supplies abolished.
  • TPO Authority:
    • To deal with specified domestic transactions not referred by AO, earlier only international transactions.

Budget

Important GST Proposals:

  1. ITC Availment Extension:
    • For FY 2017-18 to 2020-21, extended to 30-11-21. No refund for already reversed ITC.
  2. Waiver of Interest and Penalty:
    • For periods 2017-18 to 2019-20 before issue of order under sections 73/74.
  3. ITC on Cancelled to Revoked Period:
    • Available if returns filed within 30 days of revocation, subject to section 16(4) time limit.
  4. ENA, Rectified Spirit:
    • Brought outside GST.
  5. ITC Blocked for Payment u/s 74:
    • Restricted to demand till FY 2023-24.
  6. Section 73, 74 Operation:
    • Until 31-03-2024; new section 74A for uniform SCN period of 42 months with higher penalty.
  7. No Refund for Export Duty Goods:
    • Whether export made under LUT or on payment of tax.
  8. IGST Payment Refund Stopped:
    • Except for notified persons and goods/services.
  9. Conditional Waiver of Interest and Penalty:
    • For cases FY 2017-18 to 2019-20 under new section 28A.
  10. Pre-Deposit Rate for GSTAT Appeals:
    • Reduced from 20% to 10%; maximum pre-deposit before first appellate authority and GSTAT also reduced.
  11. Mandatory Monthly TDS Returns:
    • Introduced irrespective of tax liability.
  12. Summons Attendance:
    • Can be attended by authorized persons.

FAQ for ITR

FAQ for ITR 2

 

/ DTAA

Taxation of foreign companies in India

I Tax

Complete Understanding the taxation of foreign companies in India

Understanding the taxation of foreign companies in India involves navigating through various legal provisions, especially those pertaining to residency, types of income, and the applicability of Double Taxation Avoidance Agreements (DTAAs). Understanding the taxation regime in India for different types of companies and their residency status is crucial. For foreign companies operating in India, understanding the interplay between domestic tax laws, DTAAs, and various provisions concerning income and residency status is crucial. Resident companies are taxed on their global income, while non-resident companies are taxed only on income earned in India. The presence of a Permanent Establishment (PE) significantly affects the tax treatment of a foreign company’s income in India. Additionally, compliance requirements like obtaining a PAN are mandatory for companies with PE, ensuring proper filing and adherence to Indian tax laws.

1.     Residential Status and Tax Liability- Importance of Residency Status for Companies in India

Taxation under the Income-tax Act, 1961, hinges on residential status, determined by PoEM for companies. Resident companies are taxed globally, whereas non-residents are taxed only on Indian income. PoEM involves detailed factors and guidelines to establish residency, posing practical challenges for foreign companies, especially in terms of depreciation claims, loss set-offs, and tax credit entitlements. The CBDT guidelines aim to mitigate these challenges, but additional regulations are necessary for comprehensive clarity.

The tax liability of a person under the Income-tax Act, 1961, is determined based on their residential status:

  • Resident: Taxable on global income.
  • Non-Resident: Taxable only on income received, accrued, or arising in India.

Resident Company: Taxed on worldwide income.

  • Non-Resident Company: Taxed only on income received in India or income that accrues, arises, or is deemed to accrue or arise in India.

Residency and Taxation

  • Resident Companies
    • Indian companies or those with POEM in India.
    • Taxed on global income.
  • Non-Resident Companies
    • Foreign companies with POEM outside India.
    • Taxed only on income received, accrued, or arising in India.

PAN Requirement

  • Mandatory PAN:
    • Foreign companies with PE in India.
    • Required to file income tax returns in India.
  • Not Mandatory for PAN:
    • Foreign companies without PE in India earning income through royalties or fees for technical services.

Detailed Criteria under Section 6(3)

  • Indian Company (Section 6(3)(i)): Always resident in India.
  • Foreign Company (Section 6(3)(ii)):
    • Turnover exceeds INR 50 crore: Resident if POEM is in India.
    • Turnover less than INR 50 crore: Non-resident.

2. Residency Criteria for Companies (Section 6 of Income Tax Act)

  • A company is resident in India if:
    • It is an Indian company.
    • Its place of effective management (POEM) in that year is in India.
  • Place of Effective Management (POEM): Location where key management and commercial decisions necessary for the business as a whole are made. Applicable for companies with turnover exceeding ₹50 crores in a previous year.

Historical and Current Determination of Residential Status

  • Historical Basis: Previously determined by the ‘control and management’ test, where a company was resident if its control and management were situated in India during the whole of the previous year.
  • Current Basis (Post Finance Act, 2017): Determined by the Place of Effective Management (PoEM). A company is resident if PoEM is in India.

PoEM Definition: The place where key management and commercial decisions necessary for the conduct of the business as a whole are made.

Factors to Determine PoEM

Based on judgments from Indian and foreign courts and OECD guidelines, the following factors help determine PoEM:

  • Location and the business transacted.
  • Identifying critical policy decisions versus routine operational decisions, who makes these decisions, and where.
  • Intensity of deliberations on proposals.
  • Location where executive officers exercise their functions.
  • Location where records are kept.
  • Jurisdiction of incorporation and its laws.

Additional Statutory Safeguards

  • The test for control now emphasizes substance over form, incorporating court-affirmed practices legislatively.
  • CBDT Guidelines: Circular No. 6 of 2017 provides administrative guidelines on determining PoEM, including analysis of active and passive income and the delegation of powers by the Board of Directors.

Effect of Having PoEM in India

If a foreign company is deemed a resident due to PoEM in India, it is taxed on its global income, but practical challenges arise, such as:

  • Depreciation Claims: Based on tax records in the foreign jurisdiction or books maintained as per foreign laws.
  • Loss Set Off: Based on brought forward losses as per tax records or books in the foreign jurisdiction.
  • Treaty Entitlement: Entitlement to tax credits per DTAA or the Act.
  • Different Financial Years: Foreign companies must align their financial year to match India’s April-March tax year.

Guidelines Issued by CBDT (Section 115JH)

  • Depreciation Allowance:
    • Assessed in Foreign Jurisdiction: WDV from tax records on the 1st day of the previous year.
    • Not Assessed: WDV from books maintained as per foreign laws.

  • Set Off of Losses:

    • Assessed in Foreign Jurisdiction: Year-wise brought forward loss or unabsorbed depreciation.
    • Not Assessed: Year-wise brought forward loss or unabsorbed depreciation as per books.
  • These provisions assume foreign jurisdictions follow similar tax systems, which may not always be the case, necessitating further CBDT rules for divergent systems.
  • Tax Credit for Foreign Taxes: Based on DTAA or the Act, foreign companies can claim credit for taxes paid in other countries.

3. Definition of a Foreign Company

  • Foreign Company (Section 2(23A)): A company that is not a domestic company.

4. Tax Rates for Foreign Companies

  • Basic Tax Rate: 40% on business income.
  • Surcharge:
    • 2% if income exceeds ₹1 crore but not exceeding ₹10 crore.
    • 5% if income exceeds ₹10 crore.
  • Health and Education Cess: 4% on the total of income-tax and surcharge.
  • Effective Tax Rates:
    • Between ₹10 million and ₹100 million: 42.432%
    • Above ₹100 million: 43.68%

5. Minimum Alternate Tax (MAT)

  • MAT does not apply to foreign companies from DTAA countries.
  • MAT exemptions apply to royalties, fees for technical services, interest, and dividends even if no DTAA exists.

MAT Rates for Foreign Companies

Particulars Income up to INR 10 million Income between INR 10 million and INR 100 million Income in excess of INR 100 million
Foreign Companies 15.60% 15.912% 16.38%
(Breakdown) (15% + 4% HEC) (15% + 2% surcharge + 4% HEC) (15% + 5% surcharge + 4% HEC)

 

6. Taxable Income for Foreign Companies in India

  • Income received in India.
  • Income accrued or arising in India.
  • Income deemed to be received, accrued, or arising in India.

7. Double Taxation Avoidance Agreement (DTAA)

  • Foreign companies in DTAA countries can opt for provisions more beneficial under either Indian tax laws or DTAA.
  • Requirements for DTAA Benefits:
    • Tax Residency Certificate (TRC) from the country of origin.
    • Permanent Account Number (PAN) in India.

8. Taxation on Specific Incomes

  • Royalties and Fees for Technical Services (FTS):
    • Tax rate: 20% from 1.4.2024.
  • Dividends:
    • Tax rate: 20%.
    • For units in International Financial Services Centre (IFSC) from 1.4.2024: 10%.

9. Permanent Establishment (PE) in India

  • Definition: A fixed place of business in another country that results in income tax liability in that country.
  • Types of PE:
    • Fixed Place PE
    • Service PE
    • Agency PE
  • Taxation with PE: Business income derived from PE is taxed as business income in India.
  • Taxation without PE: Income such as royalties and fees for technical services is subject to TDS as per ITA or DTAA.
  • PE Concept: Critical for determining tax obligations under DTAA.
    • Business profits, royalties, and FTS are taxed at 40% if PE exists.
    • Concessional rates apply if no PE exists (e.g., 20% for royalties and FTS).

10. Business Connection, Anti-Avoidance Rules, and Multilateral Instrument (MLI) Agreements

  • These provisions ensure that DTAA benefits are utilized in good faith as per the intent of the Indian government.
  • Business Connection: Relates to the presence and operations in India influencing tax liabilities.
  • Anti-Avoidance Rules and MLI: Prevent tax evasion and ensure adherence to international tax agreements.

11. Tax Rates for Foreign Companies

Tax Rates for Different Types of Companies

  • Wholly Owned Subsidiary (WOS) and Limited Liability Partnership (LLP)
    • Treated as resident companies in India.
    • Taxed on their global income.
  • Project Office, Branch Office, and Liaison Office
    • Treated as foreign companies.
    • Taxed only on income received, accrued, or arising in India.

Foreign Companies –Income Tax Rates

Particulars Income up to INR 10 million Income between INR 10 million and INR 100 million Income in excess of INR 100 million
Foreign Companies 41.60% 42.432% 43.68%
(Breakdown) (40% + 4% HEC) (40% + 2% surcharge + 4% HEC) (40% + 5% surcharge + 4% HEC)

 

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/ Direct Tax

Key Changes Introduced by CBDT in Tax Audit Report

Key Changes Introduced by CBDT in Tax Audit Report Forms

Clause 11 of Form 3CD Reporting on the books of accounts maintained

Clause 11 of Form 3CD requires comprehensive reporting on the books of accounts maintained by the assessee, including their locations and the details of the books at each location. Here’s a detailed approach to fulfill this requirement:

Steps for Reporting Under Clause 11 of Form 3CD

Listing Books of Accounts:

  • Prepare a complete list of all books of accounts maintained by the assessee.
  • These could include ledgers, journals, cash books, bank books, sales registers, purchase registers, and other relevant records.

Addresses of Locations:

  • Identify all locations where these books are kept.
  • Include the primary address (often the registered office) and any other locations such as branch offices, warehouses, or other business premises.

Details at Each Location:

  • Specify which books of accounts are kept at each location.
  • This can be presented in a tabular format for clarity.

Verification Process for Reporting Under Clause 11 of Form 3CD

  • Physical Examination: Physically verify the existence of these books of accounts at the stated locations. Ensure that the books are being maintained in an orderly and systematic manner.
  • Compliance with Companies Act: For company assessees, verify if Form AOC-5 has been duly filed with the Registrar of Companies. This form allows companies to maintain books of accounts at a place other than the registered office. Check the accuracy of the address details and whether the form is up-to-date.

Auditor’s Duties

          Auditor’s Duties to Examine Books of Accounts:

  • Perform a detailed examination of the books of accounts to ensure they reflect the true and fair view of the company’s financial position.
  • Verify that the books are updated and maintained according to statutory requirements.

Assessment of ‘Proper Books of Account’:

  • Assess whether the books maintained are ‘proper books of account’ as per the standard accounting practices and regulatory requirements.
  • This assessment should be based on factors like completeness, accuracy, regularity, and compliance with applicable laws.

Reporting in Form No. 3CB

  • Based on the examination, clearly state in Form No. 3CB whether the books of accounts are properly maintained. Confirm compliance with relevant provisions, particularly for company assessees, ensuring that Form AOC-5 has been filed if applicable.

Sample Report for Clause 11 of Form 3CD

Clause 11(a): List of Books of Accounts Maintained

  • Ledger
  • Journal
  • Cash Book
  • Bank Book
  • Sales Register
  • Purchase Register

Clause 11(b): Address at which Books of Accounts are Kept

Address Books Maintained
Registered Office: 123 Main St Ledger, Journal, Cash Book, Sales Register
Branch Office: 456 Commerce Rd Bank Book, Purchase Register
Warehouse: 789 Industrial Zone Inventory Records

 Clause 11(c): Filing of Form AOC-5

  • Company Assessee: [Yes/No]
  • Form AOC-5 Filed: [Yes/No]
  • Date of Filing: [DD/MM/YYYY]

Clause 11(d): Auditor’s Verification

  • Based on the examination, the books of accounts are [proper/not proper] books of account as required under the law.
  • This structured approach ensures thorough compliance with Clause 11 of Form 3CD, providing a clear and detailed record of the maintenance and locations of the books of accounts.

Amended Clause 21 of Form 3CD to expand the scope of reporting expenses related to violations of laws :

CBDT revises Income Tax  Form 3CD Tax Audit Report Format, Income Tax Form 3CEB & Income Tax Form No. 65

  1. Disclosure of Expenses for Violation of Law (Clause 21 of Form 3CD)

    • The Central Board of Direct Taxes (CBDT) has amended Clause 21 of Form 3CD to expand the scope of reporting expenses related to violations of laws, both within India and internationally.
    • The CBDT has broadened the scope of this clause to include Expenditure for any purpose that is an offence or is prohibited by law & Expenditure by way of penalty or fine for violation of any law, whether enacted in India or outside India.
    • Clause 21 of Form 3CD now requires reporting of expenditures incurred for any purpose that constitutes an offence or is prohibited by law. It mandates the disclosure of penalties or fines for law violations, regardless of whether the laws are Indian or foreign.
    • Enhanced transparency in financial reporting. Greater scrutiny of compliance with legal standards both domestically and internationally. Potential deterrence for engaging in activities that could result in legal violations.

  1. Disclosure of Expenditure for Compounding of Offences (Clause 21 of Form 3CD)

    • Clause 21 of Form 3CD has been further amended to specifically address expenditures related to the compounding of offences: It now includes the expenditure incurred to compound offences under any law, whether these offences occurred in India or abroad. This ensures comprehensive reporting of all costs associated with legal infractions.
    • Clause 21 sought details of “Expenditure by way of any other penalty or fine not covered above”. Expenditure incurred to compound an offence under any law, whether in India or outside India.
    • Comprehensive reporting of all costs related to legal offences. Ensures that all compounding expenses are transparently disclosed. Aligns financial reporting with legal compliance requirements.

  1. Amendment in Clause 26 for Disallowance of Delayed Payments to MSEs

    • A new provision under Clause 26 has been added to address the disallowance of delayed payments to Micro and Small Enterprises (MSEs) Section 43B(h) Compliance clause now seeks detailed reporting on delayed payments to MSEs that violate Section 43B(h).
    • Detailed reporting on any delayed payments to MSEs that violate Section 43B(h).
    • This amendment aims to enforce timely payments to MSEs, promoting their financial health and compliance with payment norms. Promotes timely payments to MSEs, enhancing their financial stability. Ensures adherence to Section 43B(h) provisions, which disallow deductions for delayed payments. Highlights the importance of timely settlement of dues to small enterprises.

  1. New Disclosure for Specified Domestic Transactions (Form 3CEB)

    • Form 3CEB has been amended to include disclosures regarding specified domestic transactions under Section 115BAE(4). It now requires particulars of business transactions between related persons that result in more than ordinary profits.
    • Disclosure of business transactions between persons referred to in section Section 115BAE(4) that result in more than ordinary profits.
    • Prevents profit shifting and ensures fair taxation. Enhances scrutiny of related-party transactions within domestic boundaries. Promotes compliance with fair profit reporting standards.

  1. Amendments Related to IFSC and Deduction under Section 80LA (Form 65)

    • Form 65 now includes new verification requirements regarding the status of the company as an IFSC unit and details related to Section 80LA deductions.
    • Tax auditor must Ensures timely and accurate filing of applications related to IFSC status. Also Promotes transparency in the claiming of deductions under Section 80LA. Moreover Ensures proper tracking of the company’s qualification and deduction status.
    • Form 65 has been updated to include new verification requirements and details concerning the deduction under Section 80LA:
      • IFSC Certification that the applicant-company is a unit of an International Financial Services Centre. Specification of the date on which the deduction under Section 80LA ceased to be applicable. & Date of the company qualifying for the status must be provided. The form now includes a verification field where the applicant must certify that the company is a unit of an International Financial Services Centre (IFSC).
      • The applicant must specify the date on which the deduction under Section 80LA ceased to be applicable, ensuring that claims for deductions are accurately tracked and validated.
      • The date of the company qualifying for the status must also be provided.

Implications for Tax Auditors

Tax auditors must be aware of the following key points when preparing and filing these updated forms:

    • Tax Auditors Ensure that all expenditures, especially those related to legal violations and compounding of offences, are thoroughly documented and accurately reported.  All legal violation-related expenses are accurately reported.
    • IFSC-related certifications and deduction timelines are accurately verified and reported.
    • Diligently verify the timeliness of payments to MSEs and report any delays in accordance with the new requirements under Clause 26.
    • Delayed payments to MSEs are meticulously tracked and reported.  Specified domestic transactions are scrutinized for fairness and proper profit reporting.
    • Tax Auditors Pay close attention to specified domestic transactions that may result in higher-than-ordinary profits, ensuring proper documentation and reporting as per Form 3CEB amendments.
    • For companies claiming deductions u/s 80LA, ensure that the necessary certifications and dates are accurately provided in Form 65.
    • Continuously monitor updates from CBDT and ensure compliance with the latest requirements to avoid penalties and ensure accurate reporting.

These changes aim to enhance transparency, ensure compliance with legal and financial regulations, and support fair taxation practices. Tax auditors must adapt to these changes to ensure accurate and compliant financial reporting for their clients.

Amendment to Clause 26 of Form 3CD through CBDT Notification G.S.R. 155(E)

  1. Amendment Made to Clause 26 of Form 3CD

CBDT has recently announced an important change to Income Tax Form No. 3CD, a cornerstone document for tax audit reporting. these amendments, highlighted in Notification No. 27/2024 dated 05.03.2024, Objective to refine & update Tax Audit procedures to align with the evolving regulatory & legislative landscape.

The amendment to Clause 26 of Form 3CD, as per CBDT Notification G.S.R. 155(E) dated 05-03-2024, relates to the reporting requirements under Section 43B(h) of the Income Tax Act. This section pertains to the disallowance of payments to MSEs. if such payments are not made within the stipulated time frame. The amendment requires tax auditors to specifically report any delayed payments to MSEs that could result in disallowance under Section 43B(h).

  1. Need/Rationale for the Amendment

The rationale behind the amendment is to enhance transparency and compliance with payment norms to MSEs. By mandating the reporting of delayed payments, the amendment aims to:

    • Ensure timely payments to MSEs, thereby improving their liquidity and operational stability.
    • Align tax reporting with the provisions of the Micro, Small, and Medium Enterprises Development (MSMED) Act, which stipulates timely payment to MSEs.
    • Deter businesses from delaying payments to MSEs by introducing tax consequences for such delays.

  1. Problems/Issues with the Amendment

While the amendment aims to ensure timely payments to MSEs, several issues have arisen:

    • Businesses might find it challenging to track and report each transaction with MSEs accurately, especially those with a large number of transactions.
    • The detailed reporting requirement increases the workload for auditors, requiring them to thoroughly verify each payment and its timing.
    • There could be disputes between businesses and MSEs regarding the timing of payments and the classification of certain enterprises as MSEs.
    • The amendment may lack clarity in terms of the exact documentation and evidence required to substantiate timely payments.

  1. CBDT’s Corrigendum

The CBDT issued a corrigendum to address some of the ambiguities and issues raised by stakeholders post-amendment. The corrigendum:

    • Provided additional clarifications on the documentation required to verify the timing of payments.
    • Offered guidance on the classification of enterprises as MSEs based on updated definitions.
    • Simplified certain reporting requirements to reduce the compliance burden on auditors and businesses.

  1. Implications and Impact of CBDT Notification:

The corrigendum has several implications:

  • By simplifying documentation and reporting requirements, the corrigendum aims to ease the compliance process for businesses and auditors.
  • The additional clarifications help in reducing ambiguities and potential disputes, ensuring smoother implementation.
  • With clearer guidelines and reduced burdens, businesses are more likely to comply with the payment norms, thereby benefiting MSEs.
  • The corrigendum reinforces the importance of timely payments to MSEs, aligning with the broader goal of supporting the MSME sector.

  1. Tax Auditor for Reporting in Amended Clause 26 of Form 3CD

Tax auditors should consider the following when reporting under the amended Clause 26:

    • Verify that the enterprises reported as MSEs are correctly classified according to the latest definitions and guidelines.
    • Ensure that all payments made to MSEs are verified for timeliness based on the stipulated time frame.
    • Maintain comprehensive documentation to support the verification of payment timings, including invoices, payment receipts, and bank statements.
    • Clearly report any payments that are disallowable under Section 43B(h) due to delays, providing detailed justifications and evidence.
    • Communicate with clients about the importance of timely payments and the potential tax implications of delays.
    • Stay updated with any further clarifications or guidelines issued by CBDT to ensure compliance with the latest requirements.

CBDT Notification Section 43B(h)- disallowance under clause 22 of Form 3CD

The Central Board of Direct Taxes issued a Corrigendum to Notification No. 27/2024 dated March 05, 2024 vide Notification No. 34/2024 dated March 19, 2024, regarding amendment duly include disclosure of section 43B(h) disallowance under clause 26 of Form 3CD

Clause 22 of Form 3CD, pertaining to interest restrictions under MSME Development Act, was not amended. Now, Clause 22 of Form 3CD is amended to include disclosure of the amount disallowed u/s 43B(h).

By adhering to these points, tax auditors can ensure accurate and compliant reporting under the amended Clause 26 of Form 3CD.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: singh@caindelhiindia.com or call at 9555555480

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Recent Official Tax (Income Tax + TDS) Updates from CBDT

Is you don’t willing to Pay Income Tax for the FY 2022-23.

Recent Official Tax Updates from CBDT India (Income Tax + TDS)

Introduce of Income Tax

Income tax is a form of direct tax levied by the government on the income of individuals and entities. It is a critical source of revenue for the government, enabling it to fund various public services and infrastructure projects, such as healthcare, education, transportation, and defense. The income tax system is governed by specific laws and regulations, which outline how the tax is calculated, collected, and administered.

The main motive of collecting income tax is to fund government expenditures on public services and infrastructure, such as buildings, roads, and other development projects. Income tax in India is collected by the central government and distributed to state governments to support various regional development activities.

Income tax is administered by the CBDT and governed by the Income Tax Act of 1961.

The Indian tax system categorizes income into six main sources:

  • Income from Salary: Earnings from employment.
  • Income from Business or Profession: Profits generated by businesses or professional services.
  • Income from Capital Gains: Profits from the sale of assets or investments.
  • Income from Other Sources: Any income that does not fall into the other categories, such as interest earned on savings.
  • Income from House Property: Rental income or income from property ownership.
  • Income from Lottery, Horse Race, etc.: Winnings from lotteries, betting, and gambling activities.

Different types of income are taxed at different rates, and the government provides various deductions that can reduce taxable income. After accounting for these deductions, the taxable income of an individual can be calculated.

Income tax in India is charged based on the income earned by the individual, using a slab system. There are two slab systems available:

Old Vs New tax regime - Recent Update 1

  • Old System: Includes various exemptions and deductions.
  • New System: Introduced with an annual Budget, offering lower tax rates but with fewer exemptions and deductions.

New Vs old income tax system

Taxpayers have the option to choose between these two systems.

Individuals must file their income tax returns (ITRs) electronically using the appropriate form, depending on their source of income:

  • ITR-1: For salaried individuals.
  • ITR-2: For individuals and HUFs not having income from business or profession.
  • ITR-3: For individuals and HUFs having income from business or profession.
  • ITR-4: For presumptive income from business and profession.
  • ITR-5: For partnership firms.
  • ITR-7: For persons including companies required to furnish returns under sections 139(4A) to 139(4D).

Income Tax Notices 

Income tax notices

Even those earning below the taxable threshold can file returns. Non-compliance with income tax provisions can result in severe penalties, including fines and imprisonment.

Income Tax Return Forms for Assessment Year 2024-25

Common Offline Income  Tax Utility for filing ITR return – ITR 1, ITR 2 and ITR 4 for the AY 2024-25.

How to Access Income Tax Notifications:

Income Tax Government Portal:

  • Visit the official Income Tax Department website (https://www.incometaxindia.gov.in) for the latest notifications, circulars, and updates.
  • The portal provides comprehensive resources, including downloadable forms, FAQs, and detailed guides on various tax provisions.

Central Board of Direct Taxes Announcements:

  • Regularly check the “What’s New” section on the Income Tax Department website for the latest announcements and updates from the Central Board of Direct Taxes.

Income Tax Circulars and Amendments:

  • Access the “Notifications” section for detailed circulars and amendments. This section is frequently updated to reflect the latest changes in tax laws and procedures.

By staying informed through these official channels, taxpayers can ensure compliance with the latest tax laws and take advantage of any new benefits or provisions introduced by the government.

TDS in India

Tax Deducted at Source (TDS) in India is a direct tax mechanism where the payer deducts a certain percentage of tax before making a payment to the payee. This system ensures that tax is collected at the source of income, thereby facilitating regular inflow of revenue to the government and reducing the burden of lump-sum tax payments for the taxpayer at the end of the financial year.

Key Features of Tax Deducted at Source:

Scope and Applicability:

  • Tax Deducted at Source is applicable to various types of income, including salaries, interest payments by banks, dividends, rent, asset sales, and other specified payments.

TDS Rate: 

tds rate chart 24-25

Management and Governance:

  • Tax Deducted at Source is managed by the Central Board of Direct Taxes (CBDT) and is governed by the Income Tax Act of 1961.

Filing Requirements:

  • Tax Deducted at Source returns must be filed quarterly by the deductors. These returns can be e-filed for convenience and efficiency.

Purpose:

  • The main purpose of Tax Deducted at Source is to ensure that tax is collected in advance and to prevent tax evasion. It helps in spreading the tax payment liability over the year rather than a lump-sum payment at the end of the year.
  • It provides a steady source of revenue to the government throughout the year.

Rates and Deductions:

  • Different rates of Tax Deducted at Source apply to different types of payments and transactions. These rates are specified under various sections of the Income Tax Act.
  • For example, sections 194IA, 194IB, and 194IC govern Tax Deducted at Source on the sale of assets, while section 302 governs Tax Deducted at Source on dividends.

Refunds:

  • If the tax deducted is higher than the actual tax liability of the individual, a refund can be claimed. This is typically processed through the filing of an income tax return.

Compliance and Penalties:

  • Non-compliance with Tax Deducted at Source provisions can attract significant penalties, including fines and imprisonment. This stringent measure ensures that tax evasion is minimized as the responsibility of tax deduction lies with the payer.

Form 26AS:

  • The details of Tax Deducted at Source deducted are reflected in Form 26AS, which is an annual consolidated tax statement. Taxpayers can use this form to verify the tax deducted and claim credit for the same when filing their income tax returns.

Specific Sections related to TDS:

  • Section 194IA: TDS on the sale of immovable property.
  • Section 194IB: Tax Deducted at Source on rent paid by individuals or HUF not covered under tax audit.
  • Section 194IC: TDS on consideration for joint development agreements.
  • Section 302: Governs TDS on dividends.

By ensuring that tax is deducted at the source, the Tax Deducted at Source system helps streamline tax collection, improve compliance, and reduce the possibility of tax evasion. The periodic filing of Tax Deducted at Source returns and the reflection of these deductions in Form 26AS provide transparency and facilitate easier tax management for both the taxpayers and the tax authorities.

Income tax rate in case of capital Gain regulation in India

LTCG new capital gain

New Capital Gains Taxation Regime

Data on Direct Tax (DT) collections and Advance Tax collections for FY 2024-25 as on 12.01.2025 has been released

Direct Tax (DT) collections and Advance Tax collections for FY 2024-25 as on 12.01.2025 has been released.

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Beneficial Provisions relating to Labours under I. Tax & GST

Beneficial Provisions relating to “Labours” under Income Tax- “Employee or Labours

Income tax laws often include provisions that provide benefits or relief to laborers or employees. Provisions beneficial for labours is Section 10 of the Income tax Act, which deals with exemptions in income tax. For example, gratuity paid to employees exempt u/s. 10(10), leave encashment exempt u/s. 10(10AA), Provident Fund exempt u/s. 10(11) and other benefits are exempt up to certain limits. These exemptions aim to provide tax relief to employees and labours. Here are some common beneficial provisions relating to “labors” under income tax:

  • This is a fixed deduction allowed to salaried individuals, irrespective of their actual expenses. It reduces the taxable income and hence, the tax liability.
  • Employees are allowed to claim expenses incurred on travel during their leave period for themselves and their family members. The amount exempted is subject to certain conditions.
  • If an employee receives HRA as part of their salary and pays rent for accommodation, they can claim exemption on the HRA subject to specified conditions.
  • A certain amount of transport allowance received by an employee can be exempt from tax.
  • Gratuity received by an employee on retirement or death is exempt up to a certain limit as per the Income Tax Act.
  • Contributions made by an employee towards EPF and VPF are eligible for tax benefits under Section 80C of the Income Tax Act.
  • Certain medical allowances or reimbursements for medical expenses incurred by an employee or their family members may be exempt from tax up to a specified limit.
  • Allowances received by an employee for the education of their children can be exempt from tax up to a specified limit.
  • Some employers provide meal allowances to their employees, which may be exempt from tax up to a specified limit.
  • Certain professions or industries may have specific allowances or deductions available to them under the Income Tax Act.

Beneficial Provisions relating to “Labours” under Income Tax- beneficial for Businessmen :

Section 80JJAA serves as an important tool for promoting employment generation and supporting the growth of businesses, particularly in the manufacturing sector. Provisions beneficial for Businessmen is Section 80JJAA which provides deductions to employers who create new employment.  It aligns the interests of employers and employees while also contributing to broader economic objectives. Section 80JJAA of the Income Tax Act provides a deduction for eligible businesses regarding additional employee recruitment costs. Here are the details for the AY 2023-24:

Deduction Amount under Section 80JJAA: Businesses can claim a deduction of 30% on additional employee recruitment costs for three consecutive assessment years. Employers can claim a deduction of 30% of additional wages paid to new regular workmen employed in manufacturing units for three years, encouraging job creation and growth in the labour market.

Eligibility Criteria under section 80JJAA

  • The business should not result from the transfer of ownership or reconstruction of an existing business.
  • Business must be registered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
  • The business must be engaged in manufacturing goods or producing specified articles.
  • Additional employees must have been hired in the previous financial year.
  • Monthly income of the additional employee should not exceed Rs 25,000.
  • The appointed employee must have worked for a minimum of 240 days in the previous year.

Tax Benefit under section 80JJAA  : Businesses can claim a 90% tax benefit under Section 80JJAA for the assessment year relevant to the previous year of providing employment. Businesses are therefore benefitted by hiring new labour force and thus can scale its business along with which the labours will get new job opportunity.

Other Beneficial Provisions relating to “Labours” under Income Tax- Beneficial for Businessmen :

  • Businesses can claim a deduction for salaries and wages paid to their employees as a business expense, reducing their taxable income.
  • Contributions made by the employer towards EPF for employees are allowed as a deduction under the Income Tax Act. This helps in reducing the tax liability of the business.
  • Any gratuity payments made by the employer to employees are allowed as a deduction, subject to certain conditions, thereby reducing the taxable income of the business.
  • Expenses incurred by the employer on employee welfare activities such as medical facilities, education, or housing can be claimed as deductions, benefiting both the employees and the business.
  • Expenditure incurred by the employer on training programs for employees can be claimed as a deduction, encouraging skill development and enhancing productivity.
  • Contributions made by the employer towards health insurance premiums for employees are allowed as a deduction, promoting employee well-being and reducing the tax burden on the business.
  • ESOPs are often used by businesses to attract and retain talent. Under certain conditions, ESOPs may qualify for tax benefits, such as deferment of tax on the employee’s part until the sale of the shares acquired through the plan.
  • Leave encashment payments made to employees are eligible for tax benefits subject to specified conditions, thereby reducing the tax liability of the employer.
  • Businesses may provide various retention incentives to employees, such as bonuses or special allowances, which can be claimed as deductions, reducing the taxable income of the business.
  • Contributions made by the employer to approved pension schemes for employees are allowed as deductions, providing retirement benefits to employees and tax benefits to the employer.

GST Provisions beneficial for Businessmen:

Under Goods and Services Tax (GST) laws, there are provisions that benefit both laborers and businessmen by providing relief, incentives, or simplification in compliance related to labor-related transactions. Beneficial Provisions relating to “Labours” under GST law for the beneficial of Businessmen. We are discussing various aspects related to labor contracts, taxation, and regulatory requirements in India. Here’s a breakdown of the points you mentioned:

  • Types of Labor Contracts: Pure Labor Supply Contract: Only labor is supplied.
  • Works Contract: Material is supplied along with labor.
  • GST Exemptions: Pure Labor Supply in certain contexts like the construction of single residential units or under the Pradhan Mantri Awas Yojana is exempt from GST.
  • Taxation of Labor Supply with Manpower: Supply of labor along with manpower, including drivers and clerical staff, is taxable at 18% under GST. If the labor is under the employment of another person, GST is not levied.
  • Tax Deducted at Source (TDS) for Contractors: TDS at the rate of 1% for individuals and HUFs, and 2% for others, is required to be deducted if labor services are received from contractors.
  • Professional Tax and Provident Fund: If wages/salary to any employee exceeds Rs. 7,500 in a month, the employer is required to obtain PTRC registration and deduct Profession Tax from staff.
  • EPF registration is mandatory for all businesses employing more than 20 persons.

Other beneficial provisions relating to “labors” under GST law for the benefit of businessmen:

Following Provisions under GST law aim to streamline tax compliance, reduce the tax burden on businesses employing labor, and promote investments in labor-intensive activities, ultimately contributing to economic growth and development.

  • The GST Composition Scheme, which is beneficial for small businesses, allows eligible taxpayers to pay GST at a fixed rate of turnover without the hassle of maintaining detailed records and filing monthly returns. This simplifies tax compliance and reduces the administrative burden on small businessmen, including those employing laborers.
  • Businesses can claim input tax credit for the GST paid on goods and services used for business purposes, including those related to employing laborers. This helps reduce the overall tax liability for the business, making it financially beneficial.
  • Under RCM, the liability to pay GST is on the recipient of goods or services instead of the supplier for certain specified categories of goods and services. This mechanism, while increasing compliance burden, allows businesses to claim input tax credit on goods and services procured from unregistered vendors, including labor services.
  • GST laws provide for the concept of job work, where a principal manufacturer can send goods to a job worker for further processing without payment of GST. This benefits businesses involved in manufacturing processes and outsourcing labor-intensive tasks.
  • GST laws allow for zero-rated supplies of services exported out of the country, meaning that no GST is levied on such exports. Businesses providing services internationally, including those relying on labor services, can benefit from this provision.
  • Services provided by Goods Transport Agencies are subject to reverse charge mechanism under GST. However, the GST paid under RCM can be claimed as input tax credit by the recipient, which can include businesses engaged in transportation and logistics, thus benefiting from labor-intensive activities.
  • Under GST, works contract services, which often involve significant labor costs, are treated as a supply of services. Businesses engaged in works contracts may benefit from simplified compliance and input tax credit mechanisms under GST.
  • Businesses investing in training and skill development programs for their employees can claim input tax credit on related expenses, thus reducing the overall cost of such initiatives.
  • Expenses incurred by businesses on employee welfare activities, such as health insurance, medical facilities, or recreational activities, can be claimed as input tax credit, promoting employee well-being and retention.
  • GST on services provided by contractors for labor services is applicable. However, businesses can claim input tax credit on such expenses, thereby reducing the tax burden on labor-intensive industries.

New update on Employees’ Provident Fund

Increasing the wage ceiling under the Employees’ Provident Fund Organisation (EPFO) from ₹15,000 to at least ₹21,000 is being considered by the government. This move aims to broaden the scope of social security coverage, representing a step forward in the direction of achieving universal social security. By raising the wage ceiling, more employees would be brought under the purview of EPFO, ensuring a wider reach of benefits and protection for workers across various income brackets. This potential enhancement reflects the government’s commitment to bolstering social security measures and promoting financial well-being among the workforce

Employees' Provident Fund

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Overview about Income Tax Form 10IE & Form 10IEA:

Overview about Income Tax Form 10IE & Form 10IEA.

Overview about Income Tax Form 10IE & Form 10IEA:

Income Tax Form 10IE & Form 10IEA are related to the option of choosing between the old and new tax regimes in India.

Income Tax Form 10IE:

  • Form 10IE: This form is indeed required to be filed when an assessee (taxpayer) wants to shift from the old tax regime to the new tax regime. Income Tax Form 10IE is a form which is required to be filed when an assessee wants to shift from old tax regime to new tax regime. The new tax regime typically offers lower tax rates but fewer deductions and exemptions compared to the old regime. So, taxpayers need to evaluate which regime is more beneficial for them based on their individual circumstances.
  • This form allows taxpayers to make a formal declaration of their choice to opt for the new tax regime, which typically offers lower tax rates but fewer Income tax deductions & exemptions compared to the old regime.
  • It’s an important step for individuals to take if they decide that the new tax regime is more beneficial for their financial situation.

Income Tax Form 10IEA:

Income Tax Department enabled the Form 10IEA for AY 2024-25 for filing on the income tax e-filing portal

  • Form 10IEA: This form seems to be a hypothetical addition. There isn’t any official mention or documentation regarding Form 10IEA as of my last update. However, if it were to exist, based on your description,
  • it would likely serve as a means for taxpayers to opt for the old tax regime, given that the new regime became the default option in last year’s budget. Taxpayers who prefer the old regime would need to actively choose it via this form.
  • In last year’s budget, the new tax regime was made the default regime, due to which the taxpayers automatically moved to the new tax regime, that is, for opting of the old tax regime, they will have to choose it separately through Income Tax form 10IEA.
  • Your statement reflects a hypothetical scenario rather than current tax regulations. As of my last update, the new tax regime introduced in the budget did not automatically become the default regime. Taxpayers still have the option to choose between the old and new tax regimes based on their individual preferences and financial situations.
  • However, if the Government were to make such a change where the new tax regime becomes the default, then yes, taxpayers who wish to opt for the old tax regime would likely need to choose it separately through a form similar to your hypothetical Income Tax Form 10IEA. This would ensure that taxpayers actively select the old regime if they prefer it over the new one.
  • It’s essential to stay updated with any changes in tax laws and regulations as they may impact your tax planning and filing requirements.

Form 10IEA for AY 2024-25 is now available for filing on income tax portal.

All taxpayers opting for old tax regime in AY 2024-25 need to file Form 10IEA before due date of ITR Filing, New Income Tax Form 10IEA to Fill for Opting Old Tax Regime

  • Applicability: While both forms are indeed related to tax regime options, it’s not just professionals and business owners who need to file them. Any individual taxpayer who wants to switch between tax regimes would need to file these forms.
  • Filing Deadline: It’s accurate that both forms should be filed before the last date of filing the income tax return. Both the Income Tax Form 10IEA & Form 10IE should be filed before the last date of filing of the income tax return. & above both forms have to be filed by professionals & business owners.

Income tax return Forms for AY 2024-25 Ready Now at income tax portal

Income tax return forms for the new assessment year become available. Taxpayers can now access and download the necessary forms for AY 2024-25 from the income tax portal for both online and offline filing. – Update: ITR-1, ITR-2, ITR-4, & ITR-6 now available for online & offline filing, Here are the forms currently available:

  • ITR-1: For individuals having income from salaries, one house property, other sources, and having total income up to Rs. 50 lakh.
  • ITR-2: For individuals and HUFs not having income from profits and gains of business or profession.
  • ITR-4: For individuals, HUFs, and firms (other than LLP) being a resident having total income up to Rs. 50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA, or 44AE.
  • ITR-6: For Companies other than companies claiming exemption under section 11 (Income from property held for charitable or religious purposes).

Taxpayers should ensure they select the appropriate form based on their sources of income and filing requirements. It’s a good practice to review the instructions and guidelines provided with each form to accurately complete the filing process.

Question : ITR 3 – Switching to Old Tax Regime – submission of Form 10IEA – Can it be cancelled after the Form 10IEA has been submitted? Please note that ITR 3 is yet to be submitted.

Ans: Form 10IEA cannot be cancelled.

Link: https://www.incometax.gov.in/iec/foportal/downloads/income-tax-returns

/ INCOME TAX

Know your income tax under each slab in India

Income tax treatment of a company's dividend

How do you calculate your income tax under each slab in India?

Do you know how much you pay as taxes each year from your income? If you get your auditing done from an external source or have the firm you are working for make the deductions, there’s not much you would know about it. So, let’s get ahead of the game and understand these taxes and, most importantly, how to calculate your income under each slab for 2024.

What are Income Taxes?

Before we get to the core of this subject, let’s get our basics right.

Income tax is a direct tax that is paid to the Government of India based on different sources of income. It is paid by Indian residents and non-residents. The accurate or exact value of the Income Tax is calculated according to various factors. Deductions and tax slabs play a major role in this, and it requires special mention.

But the main question here is, how do you calculate income tax according to the income tax slab?

Income Tax Calculation According to Tax Slabs

Income Tax Slabs

Income tax calculation based on the slab is pretty simple and easy to understand. All you need to do is follow the steps mentioned below:

  1. Consider All Of Your Income

Now, it might seem right to only consider your income from the main source, but that is not how it exactly works. You will have to consider your income from all the sources. You might have income from different sources, such as your salary, commission, business turnover, and more. All this income is to be accounted for.

  1. Exclude the Exemptions

An exemption is a form of income that can be deducted from gross income when computing income taxes. Agriculture income, conveyance allowance, transfer allowance, and so on are all excluded from income tax calculations.

  1. Calculate Deductions that Apply to You

Deductions refer to expenses that could be reduced from taxable income in order to reduce the income tax that you have to pay.

For instance, let’s look at the Section 80C deductions of the Income Tax Act:

  • Deductions for investments that you make in PPF, ELSS, Life insurances, NSC, Mutual Funds, ULIPS, Senior Citizen Saving Schemes, and more.
  • Deductions on the interest that is received on a savings account, education, rent, and more.
  • The deductions for the premiums paid in medical insurance, donations, and more.

  1. Draw Your Net Taxable Income and Apply the Tax Slab

Taxpayers are divided into varied groups based on their taxable income. So, for every range of income, you will find a different tax slab. The current tax slab is provided here; have a look for a better understanding. Here are the tax slabs for the Financial Year 2023-24 (Assessment Year 2024-25) under the old regime:

Up to ₹2,50,000: Nil
₹2,50,001 – ₹5,00,000: 5%
₹5,00,001 – ₹10,00,000: 20%
₹10,00,001 and above: 30%

A surcharge is applicable for total income beyond certain limits. For example, a surcharge of 10% is applicable for total income between Rs.50,00,000 and Rs.1,00,00,000, and it increases to 15%, 25%, and 37% for higher income brackets.

The Income Tax Slabs for FY 2023 – 2024

Income Range Tax Slab
Up to Rs. 2.5 lakhs 0%
Rs. 2.5 lakhs to Rs. 3 lakhs 0%
Rs. 3 lakhs to Rs. 5 lakhs 5%
Rs. 5 lakhs to Rs. 6 lakhs 5%
Rs. 6 lakhs to Rs. 9 lakhs 10%
Rs. 9 lakhs to Rs. 10 lakhs 15%
Rs. 10 lakhs to Rs. 12 lakhs 15%
Rs. 12 lakhs to Rs. 15 lakhs 20%
More than Rs. 15 lakhs 30%

Now, based on this tax slab, let’s understand how you fit in. As mentioned previously, if you fit into the range of Rs. 5 lakhs to Rs. 6 lakhs, your tax slab will be 5% of your income. This income needs to be the net income after you deduct exemptions and various other deductions.

Why It’s Important For You to Pay Taxes

The thought of whether every individual needs to pay taxes might pop into your head; well, there are reasons why no one should skip this aspect.

  1. It is the Source of Building Our Nation

What is the cost of running an entire country? Especially when it is the most populated in the world. It is through the taxes that we pay the Government to perform all kinds of civil activities.

In simpler terms, without taxes, it wouldn’t be possible for the Government to run the country. Income tax is the Government’s major source of income. Most of us might feel it’s a burden, but that can directly affect the growth of the country, and mostly also a social collapse.

  1. There Will be Improvements in Healthcare and Education

A significant amount of the taxes collected each year is driven toward the healthcare and education spectrum. There are government hospitals and schools that offer services even without a minimum cost.

The quality of these services has been growing, and more is being spent on infrastructure developments. All of this ultimately makes the country more prosperous and powerful.

  1. You will Contribute to Welfare Schemes

At present, there are more than 50 union government schemes in the country. Beginning from employment programs, home loan subsidies, cooking gas concessions, pension schemes, and more, the Government has always been launching them to help the public and society.

These schemes come as an added advantage to millions of citizens. But the schemes required crores of rupees to be established successfully. By the payment of income tax, you play a role in the success of these schemes and provide the Government with more ability to establish more schemes.

This is just a heads-up for you to pay your taxes in time according to your tax slab!

Final Thoughts

This is the simplest way you can understand your tax slabs and how to calculate your income to apply it to these tax slabs. Knowing your tax slabs becomes even more important when you are self-employed or are a freelancer since you need to pay taxes by filing an ITR. We hope this post helped you to know your taxable income and how to calculate it.

/ ITR

All about updated Income Tax Return ITR-U U/S 139(8A)

updated itr

All about updated Income Tax Return ITR-U U/S 139(8A)

What is updated Income Tax Return ITR-U & how can submit it.

We can say that increase voluntary compliance by that person who pay tax to government. The government announced the concept of updated income tax return (ITR) in budget 2022. This concept in, section 139(8A) & section 140B were launched in the Income Tax Act, 1961. afterward, via a notification dated April 29, 2022, Central Board of Direct Taxes inserted Rule 12AC & notified form Income Tax Return ITR-U U/S 139 (8A), to provide some effect to the previously mentioned provision.

Describe Income Tax Return ITR-U U/S 139 (8A) 

This was launched to allow an acceptable taxpayer to file or updated an income tax return, with particular timelines although paying some extra tax, interest & penalty, in an attempt to increase voluntary compliance & to ignore the penal outcome and further legal action if such kind of inclusion was later on find out by the tax authorities.

SITUATION WHEN UPDATED INCOME TAX RETURN ITR-U UNDER SECTION 139 (8A) NOT ELIGIBLE TO FILE

Updated Income Tax Return U/s 139(8A) cannot be submitted in the following situation:

  • In case an updated Income Tax Return reduces Tax Liability in the ITR Return submitted earlier
  • If an updated ITR return is the income tax return of loss
  • In case income tax survey has been conducted U/s 133A
  • If any proceeding of reassessment, assessment, re-computation or revision is pending or completed for that relevant year
  • In case a search has been initiated U/s 132
  • If the AO has information against such person under Black Money (Undisclosed Foreign Income and Asset) or PMLA Act & Benami Property Transactions Act or Imposition of Tax Act or Smugglers & Foreign Exchange Manipulators Act & same has been communicated to the assessee.
  • In case Accounts books or any other documents are requisitioned U/s 132A.
  • If the information for the relevant AY has been received under an agreement referred to in section 90A or section 90 in respect of such person and the same has been communicated to him prior to the date of furnishing of Income Tax Return under this subsection.
  • In case Updated Income Tax Return results in the increase of Income Tax Refund
  • If Updated Income Tax Return is already submitted.
  • Other CBDT Notified Persons

ITR -U

Who can file an Income Tax Return ITR-U U/S 139 (8A)?

Any person who has made of filed his Income tax return (Whether on time, belated return or revised return) or has not filed his Income tax return for an assessment year has an better option to file an Income Tax Return ITR-U U/S 139 (8A) just in 24 months from the ending of the appropriate assessment year to give it result in extra payment of tax to the government .means to say that an Income Tax Return ITR-U U/S 139 (8A) can’t be filed to claim a repayment of taxes.

Recently, an updated return in Form of updated Tax Return can be filed for financial year 2020-21 (AY 2021-22) up to March 31, 2024 & for FY 2021-22 (AY  2022-23) up to March 31, 2025.

If a taxpayer has any omissions, errors, or incorrect information in his prior income return, he is entitled to file an updated return under Section 139 (8A) regardless of whether he has provided an original return, revised return, or belated return.

SITUATION WHEN UPDATED INCOME TAX RETURN ITR-U U/S 139 (8A) ELIGIBLE TO FILE

ITR -U required to be file in the situation like income tax return previously not filed; Reduction of carried forward loss; Reduction of unabsorbed depreciation; Reduction of tax credit under section 115JB/ 115JC; Wrong rate of tax; Income not reported correctly; Wrong heads of income chosen; Others

To give an example,

if a person who pay the tax has filed Income tax return for financial Year 2021-22 & it has come to my attention that specified income has not been reported in the authentic /belated return was not filed then, the updated return can be filed  by march 31, 2025.same as for financial year 2022-23, in case of that person who pay tax solitary that who is acceptable to file an updated return, like as return can be filed until March 31, 2026 just as an original return or a belated return is not filed. Updated income tax Return (ITR) can be filed in following situation:

  • Income tax Return previously not submitted
  • To Reduction of unabsorbed depreciation in the ITR.
  • Reduction of carried forward loss in the original income tax Return
  • When Wrong heads of income chosen in last income tax Return
  • To Reduction of tax credit under section 115JB or 115JC
  • Wrong rate of tax taken in income tax Return
  • In case Taxpayer Income not reported correctly in last ITR

How to calculate tax on updated income tax return ITR-U

In case Income tax return was not submitted earlier: 

Where the no of Income tax return has been submitted by the taxpayer, then before submit the updated return, the taxpayer have to pay the tax due together with interest & late filing fee payable, for the later in filing return &/of prepayment of tax, along with the extra tax applicable on filing of the updated income tax return ITR-U. The payment of tax is calculated after taking into account of the following points :

– The amount of advance tax (already paid)
– Any relief of tax claimed under various sections of the Income Tax Act
– Any-Tax deducted at source / Tax Collected at Source
– Any Alternative Minimum Tax credit/ Minimum Alternate Tax credit
Such updated income tax return shall also be accompanied by proof of payment of such tax, additional tax, interest & Late filing fee u/s 234F.

Is there an updated income tax return ITR-U penalty?

  • Penalties are always imposed for late filing. If the return is filed within a year of the end of the relevant assessment year, an extra 25% of the tax and interest due on the income missing to be reported will be required to be paid.
  • If the return is filed within two years of the relevant assessment year and after one year, the penalty is increased to 50% of the additional tax and interest that is owed.

Late fee for Belated ITR👇👇👇

late filing penalty for filing ITR post-deadline

  • Late Fee is ₹1,000 if GTI above ₹2,50,000
  • No Late Fee if Gross Total Income (GTI) upto ₹2,50,000
  • Late-Fee is ₹5,000 if TOTAL Income above ₹5,00,000
  • Last date for filing of updated returns (ITR-U) for A.Y. 2021-22 (i.e. for F.Y. 2020-21) is 31.03.2024

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  • Consultancy: Comprehensive Compliance Consultancy

Contact Us: For query or help, contact:singh@caindelhiindia.com or call at  9555555480

/ Direct Tax

Relief for Taxpayer on Govt waived off demands up to 1 lakh

demand 2

Big Relief for Taxpayers on Govt waived off of Small tax demands up to INR 1 lakh

The Central Board of Direct Taxes (CBDT) issued an order to remit and waived off the tax payer requests under the Income-tax Act, Wealth Tax Act, or Gift Act following the Finance Minister’s Budget speech. Tax demand would be waived off, up to a maximum celling of INR 1,00,000/- for each individual taxpayer. Details are mention here under :

  1. Income Taxpayers, check Income tax portal Login now: Pending Small tax demands of up to INR 1,00,000/- individual is going to be waived by Government of India. Which is big relief to Income Taxpayers.
  2. CBDT through an income Tax order stated that the Income Tax Dept has started remitting & extinguishing eligible old income tax Small tax demands which were outstanding as of 31st January, 2024.

This waived off of small tax demands up to ₹1 lakh is an Automated process

demand

  1. The Small tax demands waiver will be automatically applied by the Tax Dept’s CPC without any intervention needed by Income taxpayer. The Small tax demands waiver process is expected to be completed upto 2 months or as earliest. Income Taxpayers can conveniently check the status of their waived demands by logging into Permanent account number via Tax portal & Accessing “Pending Action > Response to Outstanding Demand” section.
  2. But each Income Tax taxpayer Permanent account number can only receive a maximum of INR 1 lakhs in total waiver. For a Income taxpayer or entity, the waiver will only apply to eligible demands totaling INR 1 Lakhs or less; if the total of all outstanding demands exceeds Rs. 1,00,000, the remaining demands would still be applicable. Refunds cannot be requested in exchange for the demands being waived.
  3. “Consequent to the Order of the Central Board of Direct Taxes in 375/02/2023-Income Tax Budget issued dated 13.2.2024 eligible outstanding direct tax Small tax demands have been remitted & extinguished. This is requested to you to go into your income tax portal login account & follow the path Pending Action Response to income tax Outstanding Demand to check status of ‘Extinguished Demands’ in your income tax case,” said Central Board of Direct Taxes in the order dated 13th February, 2024, which get published on 19th Feb 19, 2024.
  4. The remission & extinguishment of Small tax demands shall be subject to ceiling of INR 1 Lakhs for any specific assessee for the below kind of Small tax demands Entries:

a) Principal component of Small tax demands up to ₹1 lakh under the Income-tax Act, 1961 or corresponding provisions of Gift-tax Act, 1958 or Wealth-tax Act, 1957 and

b) Interest, fee, Penalty, Cess, or surcharge under different  provisions of the Income-tax law or respective provisions, if any, of Gift-tax Act, 1958 or the Wealth-tax Act, 1957.

Sum-Up 

Tax demand

For the withdrawal of small tax demand, The Income Tax dept has imposed a maximum of ₹ 1 lakh per person. This decision direct tax demands were withdrawn comes after as announced in the interim budget. The Income Tax dept has specified the requirements for the withdrawal in an official order, emphasising obligations up until the assessment year 2015–16.