/ DTAA

Form No.67 not compulsory but directory requirement for FTC

Form No.67 is not compulsory but a directory requirement.

Form No.67 is not compulsory but a directory requirement, Disallowance of Foreign Tax Credit due to delay in filing the same not valid: ITAT

  • Income tax Form No.67 is not Compulsory However a directory requirement, the Income Tax Appellate Tribunal Bangalore Bench has held that Income tax disallowance of Foreign Tax Credit due to delay in filling of form 67 is not valid. Shri. Y. Sridhar, Chartered Accountants appeared for the Income tax assessee &  K. Sankar Ganesh appeared for the revenue.
  • Income tax assessee filed the ITR on 24-07-2017 admitting an income of INR 69.22,004/- which included income from other sources of Rs.6,96,084. The income from other sources included dividend income of INR 4,77,500/-  received from a Denmark Company. On this dividend received from Denmark, TDS of INR 1,28.925/- was deducted @ 27%.
  • The appellant later stage filed income tax Form No. 67 on 08-02-2020 & made a rectification application on 29-05-2020 before the Income Tax Dept  Centralized Processing Centre Bangalore for giving credit to the Taxes deducted outside India. The Income Tax Dept Centralized Processing Centre rejected the claim through order stating that fresh claims of relief were being sought in the rectification application & which is not a mistake apparent from the records.
  • On appeal, the National Faceless Assessment Centre denied Foreign Tax Credit  available to the Assessee merely because there was a delay in filling Income tax  Form 67 as it was filed after the deadline date for submission original return of income specified U/s 139(1) of the Act.
  • it was observed that income atx Rule 128(9) of the Rules does not provide for Foreign Tax Credit disallowance of in case of delay in submissions income tax Form No.67 and filing of income tax Form No.67 is not compulsory however a directory requirement.

Foreign-Tax-Credit

The Income Tax Appellate Tribunal Bangalore Bench decided that following an appeal

FTC is not disallowed under Rule 128(9) of the ITR if Form No. 67 is filed late;

  • In addition, the Double Taxation Avoidance Agreement (DTAA) supersedes the Income Tax Act (ITA) to the degree that it is in the taxpayer’s best interest, and Form No. 67 submission is merely a directory requirement rather than a requirement in itself. Considering that the DTAA has no clause allowing the FTC to be denied due to a procedural rule’s non-compliance.
  • For simply being late in compliance with a procedural obligation, the same cannot be denied. Consequently, despite the delayed furnishing of Form No. 67, the Tribunal accepted the FTC claim.
  • Income Tax Appellate Tribunal  bench that non-submission of Income tax Form No.67 before due date under section 139(1) of the income tax Act is not fatal to the claim for Foreign Tax Credit.
  • By following the case of Sanjay Patil Vs Assessing Officer Order dated, the Income Tax Appellate Tribunal held that the Assessee is entitled to Foreign Tax Credit & Assesses Officer is directed to allow the claim.
/ compliance calendar

Taxation & Statutory Compliance for October 2022

Taxation & Statutory Compliance for October 2022

  • Company Law Compliance – DIR-3 Financial Year 2021-22 15-October -22 “Every Director who has been allotted DIN on or before the end of the financial year, and whose DIN status is ‘Approved’, would be mandatorily required to file form DIR-3 KYC before 30th September of the immediately next financial year. Such due date is further extended till 15th October 2022.”

  • The Company Law Compliance – AOC-4 Financial Year 2021-22 29-October -22 Form AOC 4 is used to file the financial statements for each financial year with the Registrar of Companies (ROC).

  • Company Law Compliance – Form-8 Financial Year 2021-22 29-October -22 Statement of Account & Solvency by all LLPs.

  • The Company Law Compliance -MSME Return Apr-Sep, 2022 30-October 22 Half-yearly return with the registrar in respect of outstanding payments to Micro or Small Enterprise.

  • Labour Law Employees’ State Insurance / Provident Fund  Sep-22 15-October -22 Due Date for payment of Provident fund and ESI contribution for the previous month.

Goods and services Tax Compliance

  • Goods and services Tax Compliance – ST GST CMP-08 Jul-Sep, 2022 18-October -22 Form GST CMP-08 is used to declare the details or summary of self-assessed tax payable by taxpayers who have opted for a composition levy.

  • The Goods and services Tax Compliance – GSTR – 3B Sep-22 20-October 2022 “1. GST Filing of returns by a registered person with aggregate turnover exceeding INR 5 Crores during the preceding year.

  • Registered person, with aggregate turnover of less than INR 5 Crores during the preceding year, opted for monthly filing of return under Quarterly Return Filing and Monthly Payment of Taxes(QRMP) scheme”

  • Goods and services Tax Compliance – GSTR-7- TDS return under GST Sep-22 10-October -22 GSTR 7 is a return to be filed by the persons who are required to deduct Tax deducted at source under GST.

  • The Goods and services Tax Compliance -GSTR -5 Sep-22 20-Oct-22 GSTR-5 is to be filed by a Non-Resident Taxable Person for the previous month.

  • Goods and services Tax Compliance GSTR-3B-State-B Sep-22 24-Oct-22 “Due Date of filing of GSTR-3B for the taxpayer with Aggregate turnover up to INR 5 crores during the previous year and who has opted for Quarterly filing of return under Quarterly Return Filing and Monthly Payment of Taxes(QRMP) scheme.

  • The Goods and services Tax Compliance – GSTR -5A September 2022, 20-Oct-22 GSTR-5A is to be filed by OIDAR Service Providers for the previous month.

  • Goods and services Tax Compliance – GSTR-3B-State-A September -2022, 20-Oct-22 “Due Date of filing of GSTR-3B for a taxpayer with Aggregate turnover up to INR 5 crores during the previous year and who has opted for Quarterly filing of return under Quarterly Return Filing and Monthly Payment of Taxes(QRMP) scheme.

  • The Goods and services Tax Compliance – GSTR-8- Tax collected at source return under GST Sep-22 10-Oct-22 GSTR-8 is a return to be filed by the e-commerce operators who are required to deduct Tax collected at source under GST.

  • Goods and services Tax Compliance – GSTR-1 Sep-22 11-Oct-22 ” 1. GST Filing of returns by a registered person with aggregate turnover exceeding INR 5 Crores during the preceding year. GST Registered person, with aggregate turnover of less than INR 5 Crores during the preceding year, opted for monthly filing of return under Quarterly Return Filing and Monthly Payment of Taxes(QRMP) scheme under Goods and Services Tax (GST)”

  • The Goods and services Tax Compliance – GSTR-1- Quarterly Return Filing and Monthly Payment of Taxes(QRMP) scheme  September  2022, 13-Oct-22 GSTR-1 of a GST registered person with turnover less than INR 5 Crores during the preceding year and who has opted for quarterly filing of return under Quarterly Return Filing and Monthly Payment of Taxes .

  • Goods and services Tax Compliance – GSTR -6 Sep-22 13-Oct-22 Due Date for filing return by Input Service Distributors.

Income tax Compliance

  • The Income Tax compliance – Form No. 15G/H Jul-Sep, 2022 15-Oct-22 Upload declarations received from recipients in Form No. 15G/15H during the quarter ending September 2022.

  • Income Tax Audit Report U/s 44AB Financial Year 2021-22 31-Oct-22 Audit report U/s 44AB for the assessment year 2022-23 in the case of an assessee who is also required to submit a report pertaining to international or specified domestic transactions U/s 92E.

  • The Income Tax compliance – FORM NO. 3CEB Financial Year 2021-22 31-Oct-22 Report to be furnished in Form 3CEB in respect of the international transactions and specified domestic transactions.

  • The Income Tax compliance – FORM NO. 3CEJ FY 2021-22 31-Oct-22 Due date for e-filing of the report (in Form No. 3CEJ) by an eligible investment fund in respect of arm’s length price of the remuneration paid to the fund manager (if the assessee is required to submit a return of income on October 31, 2022).

  • Income Tax Audit of accounts in case of Companies eligible for weighted Deduction Financial Year 2021-22 31-Oct-22 Submit a copy of the audit of accounts to the Secretary, Department of Scientific and Industrial Research in case the company is eligible for weighted deduction U/s 35(2AB) [if the company does not have any international/specified domestic transaction].

  • The Income Tax compliance – Income tax return Financial Year 2021-22 31-Oct-22 “Due date for filing of return of income for the assessment year 2022-23 if the assessee (not having any international or specified domestic transaction) is

    (a) corporate-assessee or

    (b) non-corporate assessee (whose books of account are required to be audited) or (c)partner of a firm whose accounts are required to be audited or the spouse of such partner if the provisions of under section 5A applies”.

  • Income Tax Form No. 3CEB Financial Year 2021-22 31-Oct-22 Intimation by a designated constituent entity, resident in India, of an international group in Form no. 3CEB for the accounting year 2021-22.

tax-deducted-at-sources compliance

  • The Income Tax compliance – Form 24G Sep-22 15-Oct-22 The due date for furnishing form 24G by an office of the government where Tax Deducted at Source / Tax collected at source for the month of September 2022 has been paid without the production of a challan.

  • Income Tax – Tax Deducted at Source Certificate September -22 15-Oct-22 Due date for issue of Tax Deducted at Source Certificate for tax deducted U/s 194-IA, 194-IB, and 194M in the month of August 2022

  • Income Tax- Tax Deducted at Source Challan cum Statement Sep-22 30-Oct-22 Due date for furnishing of challan-cum-statement in respect of tax deducted U/s 194-IA, 194-M, 194-IB, in the month of September 2022.

  • The Income Tax compliance – Tax Deducted at Source return Jul-Sep, 2022 31-Oct-22 Quarterly statement of Tax Deducted at Source deposited for the quarter ending September 30, 2022.

  • Income Tax- Tax Deducted at Source / Tax collected at source liability deposit Sep-22 7-Oct-22 Due date of depositing Tax Deducted at Source / Tax collected at source liabilities under Income Tax Act, 1961 for the previous month.

  • The Income Tax compliance – Tax Deducted at Source Liability Deposit Jul-Sep, 2022 7-Oct-22 Due date for deposit of Tax Deducted at Source when Assessing Officer has permitted quarterly deposit of Tax Deducted at Source U/s 192, 194A, 194D, or 194H.

  • Income Tax – Tax collected at source Return Jul-Sep, 2022 15-Oct-22 Quarterly statement of TCS deposited for the quarter ending September 30, 2022.

  • Income Tax compliance – Tax collected at source Certificate July- September , 2022 30-Oct-22 Quarterly TCS certificate in respect of tax collected by any person for the quarter ending September 30, 2022.

/ TDS

In & out of E-TDS Challan 26QB – Income Tax Dept.

CHALLAN 26QB: FOR TDS ON PROPERTY SALES    

In compliance with the provisions laid down in section 194-IA, where a buyer purchases an immovable property such as a house or part of a building other than agricultural land, it is required to deduct TDS on such property at 1% at the time of payment to the seller in case cost greater than Rs.50 Lakh. Corporate and non-corporate deductors may use the method.

List of Particular of the Information/ details to be required In Challan 26QBB

  • Deductor and deductee PAN category, whether it is corporate or non-corporate
  • Deductor and deductee Full name
  • Deductor and deductee address
  • Choice of more than one deductor or deductee
  • Information of the transferred property and full address of such property
  • Date of arrangement or reservation, consideration for sale, and payment type (lump sum or installment)
  • The amount that is paid or attributed
  • TDS number and other statistics, such as TDS rate, interest, charges, etc.
  • Mode of payment (net banking or e-payment by a bank branch visit)
  • Payment/credit date and tax deduction date

Protective measures while making the payment of Challan 26QB i.e TDS on property

  • One percent TDS on the gross sales consideration required to be deducted and paid to the income tax department, the buyer is allowed to deduct TDS. Only the buyer can deduct TDS, not the seller.
  • If sales consideration is less than Rs. 50 Lakh, No TDS will be deducted. If installments are charged, TDS will be deducted on each installment.
  • On the whole sales amount, tax is to be paid.
  • The buyer is not entitled to accept a TAN number (Tax Deductible Account Number).
  • The seller must have his PAN number, otherwise, 20 percent of the TDS would be deducted. The PAN number also requires to be provided by the buyer.
  • TDS shall be withheld at the point of payment or at the point of the seller’s credit, whichever is earlier.
  • Within 7 days after the end of the month in which TDS is deducted, TDS is to be deposited along with Form 26QB.
  • The buyer must give the TDS certificate to the seller after payment of the TDS to the government.

What is the Procedure to pay tax under property TDS via Challan 26QB?

  • Visit the website https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp to pay for TDS by using Challan 26QB
  • After that, click on Challan 26QB and choose the taxpayer type:
    • Taxpayer for corporations: 0020
    • Non-firm taxpayer: 0021
  • Full information such as the Financial Year and Assessment Year, the name of the deductor and deductor, the address of the deductor and deductor, property descriptions, and the sum of tax deducted.
  • Pick the payment mode. Select e-tax payment for online payment directly, and e-payment for offline payment on corresponding days.
  • If you vote for online payment via net banking, By using the correct username and password, log in to your net banking account.
  • Thereafter The system will create printable acknowledgment after the correct payment, which consists of details such as TDS payment and banking details.
  • Take the print out of your acknowledgment slip if you want to pay offline. The slip of acknowledgment will be valid for Ten days after completion. By visiting the designated bank branch, you can pay tax via cheque or Demand Draft. You will get a copy of your Challan 26QB from the bank after making a successful payment.

tds return due date

STEPS TO BE FOLLOW FOR MAKING INCOME TAX PAYMENT THROUGH CHALLAN:

  • Press on the e-pay tab or pay taxes online on the TIN NSDL website and choose the respective Challan. If you open the screen with the form, enter the following details:
    1. Permanent Account number
    2. Your Residential address
    3. year of Assessment for which the tax is to be paid
    4. Minor Head code
    5. Applicable Tax (income tax on salaried workers)
    6. Type of payment: You must pick 100 in the case of advance tax, 300 in the case of self-assessment tax and 400 in the case of daily assessment tax to make any payment only if the income tax department has increased the query.
    7. Choose a bank name from the drop-down list of banks
  • Click the Proceed button after filling in all the required details. The TIN system will display all the information entered by you along with your name in the income tax department database for the Permanent Account Number entered by you.

Note: Permanent Account Number is Compulsory for the payment of income tax. Paying of tax would not continue without a correct Permanent Account Number (PAN) number.

  • You will get an opportunity to check the information you entered. If you notice any errors, click on the Edit button to correct the details. If all the filled-in details are correct, tap submission. You will be directed to its net-banking site via the TIN system.
  • Log in with a user ID and password to your net banking account and enter the payment details. Your pay has to be split into separate elements such as income tax and education cess, etc.
  • Through debiting your account and on a satisfactory deposit, your bank will process the transaction online; a printable certification representing CIN (Challan Identification Number) will be created by the machine. The CIN number, payment information, and name of the bank from which the payment was made would be included in the Challan acknowledgment. Challan recognition is the evidence of payment being made. After a week of making payment, you can check the Challan status online in the Challan Status Enquiry section on the NSDL-TIN website using your CIN.

How to pay income tax using the offline Challan?

By visiting your particular bank branch, you can also pay income tax by using respective Challan offline. You may make payment by cheque or Demand Draft. A counterfoil containing the Corporate Identification Number (CIN) number and payment information will be provided by the bank during deposit. After a week of payment, you can check your Challan on the Tax Information Network (TIN) NSDL website.

Challan 287:

Under Pradhan Mantri Garib Kalyan Yojana Scheme or PMGKY scheme, 2016 while making an income tax payment

Normally Challan 287 are using Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) Scheme, 2016, for making tax payments by taxpayers preparing to planning to disclose income during the period From 17 December 2016 until 31 March 2017 under the PMGKY Scheme.

Pradhan Mantri Garib Kalyan Yojana Scheme or PMGKY, 2016

You could report all of declaring any of your disclosed income (either in the form of cash or deposit) to pay tax, cess, or penalty under the taxation and investment regime of PMGKY, 2016. under the Pradhan Mantri Garib Kalyan Yojana Scheme, 2016, the tax on such declare any of your disclosed earnings is to be deposited in government accounts with the help of  Challan 287 under the income tax.

How to make payment of tax under PMGKY?

Under Pradhan Mantri Garib Kalyan Yojana, 2016, you can pay tax on your disclosed income by following the steps below:

  • Declare income such as deposits and cash: under government PMGKY, 2016, you are expected to report your unaccounted deposits and cash.
  • Pay tax and make the deposit: As recommended by the Income Tax Department, you are expected to pay tax at a 50 percent rate on reported income. Afterward, in Pradhan Mantri Garib Kalyan Yojana, 2016, you are expected to pay 25 percent of the total declared amount. The money therefore charged will be blocked for four years by the state, and will be charged to you without interest.
  • Payment of income tax using Challan 287 and proof of payment: You are expected to pay tax using Challan 287 after completing the above steps and to receive a counterfoil in respect of the payment made. The counterfoil is seen as evidence of the payment you have made.

Protective measures while filing income tax challan 

  • For filing taxes by using Challan 287, the PAN number is compulsory. If you do not have a PAN number, apply for the Permanent Account Number (PAN)number and the application date of the quotation, and the number of the certificate.
  • Make sure the bank counterfoil contains the following details:
    • Seven Digit BSR code of the branch of the bank via which the payment was made
    • Date of Challan’s deposit
    • Serial Number of Challan
    • CIN Number

Challan 286:

For making the payment of Undisclosed income under the Income Tax Declaration Scheme 2016

The Finance Act, 2016 consists of the requirement under the Government’s Income Tax Declaration Scheme 2016, to pay taxes on undisclosed income received during the previous year. Challan 286 may be used to pay income tax on certain income to the state. As specified by the Income Tax Department, income tax on such undisclosed income is payable at a Forty-five percent rate. This Income Tax Declaration Scheme 2016 is effective as of June 1st, 2016.

Online Check the status of TDS Challan with the Tax Dept.

Check the status of your tax challan deposited in banks online. Taxpayers can verify the status of their verity either through the CIN or the TAN. Banks can verify the online status of the tax deposited in their banks by choosing either a bank branch or a nodal bank branch.

TIN Facilitation used to charge the Fee for TDS & TDS return Filling:

TDS return filling fee

/ GST

Why B2C is Taxable but B2B is Exempted?

pre-packaged food

Why B2C is Taxable but B2B is Exempted? – A Clever Step by Govt on GST levy?

  • The pre-packaged and labelled food items (up to 25kg packing) were included in the scope of the GST, making some food items taxable when sold to B2C customers but remaining exempt when sold to B2B customers. ultimately increasing government income.
  • The govt of India came under heavy shelling on social media after the price of a number of retail commodities for daily consumption, including rice, wheat, flour, and milk-based products, increased on Monday,
  • The main reason for targeting consumer purchased goods is that there is no ITC burden on the government and all proceeds flow to the exchequer, according to Swatantra Kumar Singh (A Delhi based GST expert). B2B transactions do not incurred  any Gain since dealers take that input taxes have already been paid.
  • They also said that “The govt of India simply has made this another source of income. With the GST compensation they were receiving to make up for a shortfall in collections ending on July 1 2022, the tax is meant to assist states in collecting some money”
  • GST Taxation specialised also given the criticism point of view of copious references the govt has made to the Legal Metrology laws to explain the levy of GST,
  • According to a GST expert, a comprehensive law like the one on the GST should be self-sufficient and not require the definitions of other laws in order to justify or explain a levy.
  • The chief minister of Karnataka announced on Monday that he will ask the GST Council for help in directing dealers not to charge customers the new GST fee on “pre-packaged and labelled” goods.
  • He explained that media that these taxes were not intended to be passed on to customers. In responding to a volley of questions on the sudden increase in in pricing of a variety of everyday necessities, including puffed rice and milk-based goods like lassi and curd. These kind of levies of GST on pre-packaged and labelled food items were not meant to be passed on to consumers,
  • In response to a barrage of inquiries about the abrupt rise in pricing of a variety of everyday necessities, including puffed rice and milk-based goods like lassi and curd, he told the media that these taxes were not intended to be passed on to customers.
  • The chief minister insisted that businesses previously did not receive input tax credits under the GST Law for packaging materials used for goods exempt from the GST. They can now claim “reimbursement” of the input taxes they paid due levy on the GST charge, he claimed.
  • Chief Minister’s of The Karnataka explain that however, baffled GST law specialists, who found it misleading. There are barely Most of the things taxable inputs of GST in most of the items that have now been slapped with a 5% levy of GST,
  • “Pre-Packaged Commodity” is defined by Ministry of Finance i.e if the buyer is not present at the place of packaging of commodity having whatever nature, check it whether it sealed or not, so that the quantity of commodity is pre-decided

Companies began producing 25+ kilogramme bundles to avoid GST.

pre-packaged and labelled food items (up to 25kg packing)

  • To circumvent the 5 percent GST on pre-packaged, pre-labelled goods weighing up to 25 kg, Companies selling branded rice, wheat flour, or atta, and pulses have started producing bulkier packs. These pre-packaged foods are primarily intended for kirana shops, where consumers can purchase goods in loose form without paying GST.
  • The Central Board of Excise and Customs stated that 5% tax on smaller packets went into force. Pre-packaged foods that weigh more than 25 kg in a single packet would be free from GST,
  • Manufacturers of grains and pulses are now able to produce single packs weighing more than 25 kg and sell them to kirana retailers. The owner of the kirana shop only needs to rip open the packet and sell the products to consumers in line with their needs
  • In the meanwhile, Confederation of All India Traders (CAIT)  wants the GST on pre-packaged food goods removed.
  • No loose commodities or items are currently being sold in the nation, according to Confederation of All India Traders (CAIT), as even the smallest item, weighing up to 100 grams, is being sold in packaging.
  • “85% of the country’s population uses Non-branded products, and the proposal to levy a tax has been criticised nationwide.
/ Audit

Latest Amendment in Tax Audit under section 44AB

Tax Audit under section 44A

Income Tax Audit Form No. 3CD amended by The Central Board of Direct Taxes through Notification No. 33/2018, 

The new features of Form 3CD will be in effect from 20th August 2018 to incorporate further reporting requirements related to Goods and Service Tax (GST), Transfer pricing, Statement of Financial Transactions, Section 32AD, Income from other sources as referred to in clause (x) of sub-section (2) of section 56, Cash Receipt / Payment of More than 2 Lakhs from a single person in a day.

taxaudit

The following rules are made as under Income-tax Rules, 1962, namely:-

  1. These rules may be called the Income-tax (8th Amendment) Rules, 2018.
  2. Changes in Appendix II, in Form No. 3CD,-
  • Under the serial number 4, there is a Requirement to furnish the GST No.
  • in serial numbers 19 & 24, Section “32AD” has been added to allow the deduction in respect of investment in notified backward areas of Andhra Pradesh, Bihar, Telangana, West Bengal.
  • Under the serial number 26, clause (f) of section 43B is added which allows the liability towards Railways for use of their assets on an actual basis.
  • After serial number 29,
  • No. 29A is added for section 56(2)(ix) of the Act. to tax, the advance amounts received against the capital asset in the course of negotiation, but later forfeited and no transfer effected.
  • It is worthwhile to be noted that any amount comes under this head then specifies the Nature of income and amount.
  • No. 29B to show whether any amount is to be included as referred to in clause (x) of sub-section   (2) of section 56 chargeable under the head ‘income from other sources
  • It is worthwhile to be noted that any amount comes under this head then specify the Nature of income and amount.
  • After serial number 30, Sr. No. 30A is added for section 92CE, According to this section any primary transfer pricing adjustments made in the case of an assessee, the assessee is required to make a secondary adjustment provided that:
  • The given primary adjustment is more than 1 crore; and
  • It also pertains to the assessment year on or after 1 April 2016.  

Where such an amount is not recovered, then the balance should be treated as an advance given to AE and recovered along with the interest. 

  • No. 30B is added which provides that where the assessee has incurred expenditure during the previous year as an interest or of similar expenditure exceeding one crore rupees as referred to in sub-section (1) of section 94B.

It is noted that where the above provision follows, the assessee should provide the following:-

Amount of expenditure by way of interest or of similar nature incurred.

  1. Earnings before interest, tax, depreciation, and amortization during the previous year.
  2. Expenditure as an interest or of similar nature as per (i) above which exceeds 30% of EBITDA as per (ii) above:
  3. Amount of interest expenditure brought forward as per section 94B.
  4. The Amount of interest expenditure carried forward as per section 94B.
  • no. 30C is added for section 96 of the Act. to ascertain whether the assessee has entered into an impermissible avoidance arrangement where such agreement creates such rights between the parties, by misuse of the provision of the Act, which not created in the normal course between parties dealing at arm’s length.

It is noted that the assessee provide the following details if cover under the above provisions as follows:-

  • Nature of the impermissible avoidance arrangement.
  • Amount of tax benefit in the previous year arising to all the parties to the arrangement.

In serial number 31, Clause (ba), (bb), (bc) and (bd) has been included pertaining to section 269ST of the Act as follows:-

  1. “(ba) Particulars of each transaction where an amount received in aggregate of INR Two Lakhs from a person in a day or in respect of a single transaction or in respect of transactions during the previous year, where such amount is received other than by a Cheque or bank draft or any of the electronic clearing system. The following information is required as stated below:-
  • Name, address, and PAN No. of the assessee;
  • Nature of the transaction;
  • Amount of receipt;
  • Date of receipt;
  1. (bb) Particulars of each transaction where the amount received in aggregate of INR Two Lakhs from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, received by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year. The following information is required as stated below:-
  • Name, address, and PAN No. of the assessee;
  • Amount of receipt
  1. (bc) Particulars of each and every transaction payment made in an amount exceeding INR Two Lakhs in the aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a person, otherwise than by a cheque or bank draft or use any electronic clearing system through a bank account during the previous year. The following information is required as stated below:-
    • Name, address and PAN of the payee;
    • Nature of transaction;
    • Amount of payment
    • Date of payment.
  1. (bd) Particulars of each and every transaction payment made in an amount exceeding INR Two Lakhs in the aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a person, otherwise than by a cheque or bank draft or use any electronic clearing system through a bank account during the previous year. The following information is required as stated below:-
    • Name, address and PAN of the payee;
    • Amount of payment.

It is further advised to be noted that the Particulars at (ba), (bb), (bc) and (bd) are not required to provide if the amount is receipt by or paid to a Government company, a banking company, a post office savings bank, cooperative Bank.

  • In sr. number 34, in place of item (b), the following Para shall be substituted as:-

Whether an assessee is required to furnish the statement of TDS or TCS. If the assessee is required for the above then he specifies the following below information’s:-

  • Tax deduction & Collection Account Number
  • Type of Form
  • Whether the statement of TDS or TCS contains information about all details/transactions which are required to be reported
  • serial number 36A is included for deemed dividend u/s 2(22)(e). It suggests that the assessee who holds not less than ten per cent voting power received by way of loan or advance provide the information regarding Amount and Date of Receipt.
  • After serial number 41 and the entries relating thereto, the following shall be inserted, namely:-

Sr. No. 42 inserted in respect of form no. 61, 61A, 61B

The auditor must satisfy himself that all the required information is submitted, if not provided then ensure that same should be provided in Form 3CD.

  1. Form 61- it provides the detail of form 60. The transaction under rule 114B follows and document with that regard has been collected by the assessee without PAN, then assessee collects detail in Form 60.
  2. The Form 61A-Furnish the information regarding the transaction given under rule 114E implemented during the financial year.
  3. Form 61B- Statements of the Accounts which should be reported in accordance with FATCA and CRS for a calendar year.
  • No. 43 inserted w.r.t. to country by country reporting under section 286 of the act.

Section 286 specifies the companies liable to comply with country by country reporting. They are requiring to complying with the reporting requirement of form 3CEAC and Form 3CEAD, wherever applicable.

The information required is stated below : 

  1. Parent entity name
  2. Name of the alternate reporting entity (if applicable)
  3. Date of furnishing report
  • No.44 inserted to provide the following information regarding the Break-up of expenditure of entities whether registered or not under the GST as follows:-
  1. Total expenditure incurred during the year.
  2. Expenditure relating to goods and services not liable to tax
  3. In case the expenditure of entities falling under the composition scheme
  4. Expenditure relating to the entities not registered in GST

Conclusion:

The liability of the Auditor is increased towards the requirement of documentation and verification towards the compliance of the provisions and rules of the Act.

Latest Amendment in Tax Audit u/s 44A

THE DTC REPRESENTATION OF THE ICAI SUGGESTS ON TAX AUDIT UNDER INCOME TAX FOR THE AY 2020-21 :

In the light of the above and in the interests of the nation as a whole, it is humbly requested that the due date of filing of income U / S 139(1) for all assesses be extended to at least 31.03.2021 from the existing extended due date of 30.11.2020 for AY 2020-21. At the same time, the ‘defined date’ for filing tax audit reports shall be extended from 31.10.2020 to 28.02.2021 for AY 2020-21.

Furthermore, it is also desired that the online JAVA utility file ITR Form 5 & 6 be published at the earliest opportunity on the e-filing portal of the Income Tax Department to allow the assesses concerned to file their return of income within the specified timeframe.

Tax Audit Form Update for the AY 2024-25

  • Central Board of Direct Taxes notifies the Tax Audit Form Update for the AY 2024-25 vide updating the Form schema releasees dated on 29th March 2024 

Tax Audit Form Update for the AY 2024-25.

Tax Audit Form Update for the AY 2024-25. ,

Popular Articles related to Tax Audit : 

/ INCOME TAX

File your Income Tax Return-ITR

Income Tax Return filling

File your Income Tax Return(ITR)

  • Government of India is enforcing the Income tax on the income of a person. Every person is responsible for Income tax filing whose income is above the maximum exemption limit specified by income tax act 1961.
  • The Income tax dept make the assessment of theses these income return, and if any income tax amount has been paid in short or error, the excess paid income tax is refunded by the tax department to the assessee’s officially declared bank A/c .
  • Assesses who is willing to avoid penalties, all the person must have to file Online Income tax return on time. The official tax filing return is a different kind of form-based compliance required to file with income tax department that contains details about an assesses income & loss exemptions along with and taxes paid on it income earing.
  • Income tax return type i.e. ITR 1, ITR 2, ITR 3, ITR 4S, ITR 5, ITR 6, & ITR 7 are all are e-filling ITR Filing forms to be used by the Income Tax Dept as per specified manner.

System of Income tax Refund:

what is meaning, income tax refund process, & How to claim an Income tax refund?

  • Every person who should be familiar with the compliance under “Income tax refund.” In case person have properly completed his taxes filing in the past years, He will surly have gotten a income tax refund based on his financial statement and relevant required reports.
  • According to provisions relating to income tax refunds are specified in under sections 237 to 245 of the Income Tax Act. 1961.
  • When a Assesses has paid excess in income tax than his/her actual income tax burden, they may be eligible to get an Income tax refund. Advance tax, self-assessment tax, TDS, TCS, & even foreign income tax credit are all possibilities.

Income tax refunds are usually get in these two way to maintain tax filling transparency:

  • Via Cheques: Instead, a income tax refund bank account cheque may be send via speed post to the Assesses’s home address. It is essential to provide the correct home address again. Income tax refund cheque will be returned till the right home address is not provide correctly.
  • Via RTGS/NEFT: income tax authorities will credit your bank account directly with the eligible income tax refund. To the specified Indian bank A/c, Assesses have to required provide the below following details. i.e Ten digit bank’s account No, the bank’s MICR code, & communication address along with the name.

When submitting taxes online, people can choose the payment method that is most convenient for them.

  • Discrepancies in the communication address, bank account, or refund calculation, on the other hand, can result in delays or even cancelation.
  • Taxpayers can track the status of their return by entering their PAN and evaluation year on the official site 10 days after the assessing officer submits it to the refund banker.
  • Filing an ITR is a simplistic approach to get an income tax refund. It must be physically confirmed by sending signed ITR-V (acknowledgment) within 120 days after submitting returns using an Aadhar number OTP and an EVC issued via a bank account, or it must be validated using an Aadhar number OTP and an EVC issued via a bank account.

Also read : Implication of cash transaction under income tax Act

Kind of Income tax return

Important things to be keep in mind before Online Income tax return filing 

ITR

  • Key thing on income tax return is to make sure that all of your Income details is completely disclosed over there.
  • Moreover, salaried persons can file to do e filling ITR only on the basis of his Form 16. In case they overlook details like as stock market transactions, interest income & other important details that required to be declared when filling income tax return.
  • Normally Salaried taxpayers usually use the ITR 1 or ITR 2 forms to file his income tax returns. Incom e tax return – ITR 1 is for whose have a 1house property & income up to INR 50,00,000/-.
  • In case person have more than 1 house or house is co-owned, they have to file the income tax return Form ITR 2. Even if income amount are accurate, Assesses should pick the exact form that applies to them, as the income tax dept. will deemed erroneous income tax form filed and can be considered as invalid return.
  • To complete online Income tax filing we have to take the assistance of legal & Taxation compliance firm like online ca services. www.caindelhiindia.com is a leading firm in Delhi/NCR that can help us to get Online ITR Filing compliance & getting your Income tax refunds.

Online ITR Filing Amendment – FY 2021-22 (AY 2022-23)

Also Read :

Tax Audit

Implication of cash transaction under income tax Act

/ NRI

Income Tax Deductions to NRI in India

NRI.

Income Tax Deductions to NRI in India

BRIEF INTRODUCTION

So as defined above, “a non-resident could be a one who isn’t resident in India”, therefore we need to know who shall be considered as Resident in India.

NON-RESIDENT INDIAN

  • Where the NRI stayed in India for 182 days or more during the financial year; OR
  • Where the NRI have got stayed in India for 60 days within the financial year and for in total of 365 days within the preceding 4 years.

However, there are certain exceptions to the second condition –

  • If you’re an Indian citizen who has left India within the yr as a crewman of an Indian ship or for the aspect of employment abroad; or
  • If you’re a PIO or a citizen of India who comes on a visit to India;

Then the second condition of 60 Days and 365 days won’t apply to you, which suggests that within the above situations you may be considered resident in India if and only if you were present in India within the relevant year for a period of 182 days or more.
Therefore, you’re a Non-Resident if you do not fulfil any of the above conditions.

RESIDENTIAL STATUS

Residential-Status-for-Income-Tax

  • Residential status of an individual is set on the idea of the number of days a personal has physically stayed in India. Residential status has nothing to do with the nationality or domicile of a personal.
  • It should also happen that an Indian, who is citizen of India, is also a non-resident for tax purposes during a particular year and an American citizen could also be resident in India for taxation purposes during a particular year.

TYPES OF NON-RESIDENT INDIAN(NRI)

Under income tax Act 1961, non-resident is broadly classified under the subsequent three heads:

  • Non-Resident Indian/Person of Indian Origin
  • Foreign Company
  • Other Non-Resident Person

SALIENT FEATURES

  • Residential status is something, which is to be determined for every previous year. Residential status of assessment year isn’t relevant. Also, you’ll be a resident during a previous year and non-resident in another. Hence, it’s to be determined for every previous year.
  • It is very much possible to possess dual residential status in a very previous year, i.e., you’ll be a resident in India within the previous year and also resident in another country tell us. it’s going to happen thanks to different set of rules laid down by countries for determination of Residential status.

MEANING OF NON-RESIDENT INDIAN(NRI)

“Non-Resident Indian (NRI)” is a personal who may be a citizen of India or an individual of Indian origin and who isn’t a resident of India. In India Non-Resident Indian is especially governed by two Acts-

  • Income Tax Act, 1961 &
  • Foreign Exchange and Management Act, 1999(FEMA).

The term “Non-Resident Indian” is defined differently under both the Acts, however one must understand that for the needs of Income-tax, the FEMA Act holds no relevance and you only have to confirm to the provisions of income tax Act 1961.
Person of Indian origin (PIO) – it is an individual who either himself, or any of his parents or any of his grandparents were born in undivided India.

DEFINITION UNDER FEMA ACT, 1999

FEMA, an acronym for foreign exchange Management Act, has its rule stating that if an individual stays within the country for a period but 182 during the continuing fiscal year, then the same shall be regarded as an NRI. Typically, yr starts 1st of April and lasts till 31st March of the subsequent year.

Additionally, the subsequent persons are included within the list of NRIs:

  • People employed in organizations and therefore the ones carrying businesses overseas.
    • People staying outside India because of some constraints for an unfixed period.
    • Government servants deputed by the govt to be stationed overseas.

DEFINITION UNDER INCOME TAX ACT

Currently, an individual shall be considered to be NRI under the IT Act if he or she fulfils the subsequent conditions.

  • If the concerned person is absent for more than 182 days within the current yr.
  • If the concerned person has not been present for a period of twelve months or more during four preceding financial years.

NRI tax consultants are available in handy in cases like these. they supply services within the sector of advisory, consultation, analysing residential status, consultation on paying and filing IT returns, investment advice, checking eligibility for residency, etc.

DEEMED RESIDENCY PROVISION

residential-status..

  • According to the finance bill of 2020, an individual is to be considered as a resident of India if that person isn’t being taxed in the other country.
  • This bill has been introduced as a countermeasure to prevent the tax evaders. These people last and settle in countries that have little to no tax-paying requirements. this protects their money from tax-paying.
  • Umpteen numbers of misinterpretations of this bill have surfaced, like someone working during a country like Dubai or Qatar if he/she doesn’t pay tax in this country, then they have to pay tax in India. this can be completely baseless and wrong.
  • In accordance with the new bill, an individual shall pay tax in India after settling outside if he/she makes money from India itself.

PAYMENT OF INCOME TAX BY NON-RESIDENT INDIAN(NRI)

After you’ve got determined your residential status, the subsequent step is to spot income taxable in India as per your residential status. Simply put,

  • In case of Resident Individuals: The global income would be taxable in India i.e., the entire income earned by the said person would be taxable in India, whether in India or outside India.
  • In case of Non-Resident Individuals: The income earned or accrued in India or which is deemed to accrue in India, shall be taxed in India. Therefore, your income from any country besides India isn’t taxable in India.

INCOME EARNED OR ACCRUED IN INDIA

NRI Taxability

India follows “source rule” basis of taxation, i.e., the entire income which accrue or arises in India shall be taxable in India. Hence, the identification of the source of Income becomes a matter of utmost importance. Where it has been determined that the income has its source in India, irrespective of whether direct or indirect, the said income shall be taxed in India. Some of these incomes are:

  • Salary income received in India.
    • Salary income received, in respect of services rendered in India.
    • Rental income received, in respect of property situated in India.
    • Capital gain arising in respect of transfer of property or asset situated in India.
    • Any income from deposits in India like interest on fixed deposits
    • Any interest received on savings checking account, etc.

NON-RESIDENT INDIAN(NRI) INCOME TAXABLE IN INDIA

  1. Income from Salary: Your salary income is taxed in India under two situations.
  • Situation A: If it’s received in India- If you’re an NRI and you have got received any salary in India directly into an Indian Account or somebody else has received it in your behalf in India, then such salary income would become taxable in India.
  • Situation B: If it’s earned in India- Your income is claimed to be earned in India if it’s earned for services rendered in India. Therefore, if you’re a NRI and your salary earned is for the services rendered in India, it shall be taxed in India.
    You will be taxed at the slab rate to which your income belongs to.
  1. Income from House Property: Income arising from property located in India, whether in the form of rented or lying vacant and the same be taxed for an NRI. The calculation of such income shall be within the same manner as for a resident.

Income from House Property

An NRI, like resident is allowed

  • A standard deduction of 30%,
    • To deduct property taxes,
    • To take advantage of interest deduction if there’s an equity credit line, and
    • Claim the principal repayment of loan as deduction under section 80C. Also, tax and registration charges paid on purchase of a property can even be claimed under section 80C.

It is to be noted that, where the income is received in NRO account, whether or not received directly, the same would be susceptible to tax in India since the source of income i.e., the property is situated in India.

  1. Income from Other Sources: Indian sourced income within the sort of interest on fixed deposits and saving accounts is taxable in India. However, the amount received in NRE and FCNR account shall be tax free, whereas that received in NRO account would be subject to taxation in India.
  2. Capital Gains: Any sought of capital gain arising in relation to transfer of capital asset, being situated in India, shall be taxed in India. Also, the capital gains on investments made in India in the form shares, securities shall be taxable in India.

Where an NRI sell a capital asset, being a house property, then

  • TDS be deducted @ 20%, in case of Long-term capital gains, or
  • TDS be deducted @30%, in case of Short-term capital gains.

The buyer whether or not he’s an individual is liable for deducting tax at source and paying it to the govt. Since the onus of deducting tax on payments made to NRI, lies on the customer, and hence the same shall obtain a Tax Deduction Account number (TAN) and issue a TDS certificate for the same.

SPECIFIC PROVISIONS WITH INVESTMENT INCOME OF NRI

Investment-Options-in-India-for-NRIs

As a NRI you’ll be able to avail of a special provision associated with investment income. A NRI income shall be taxed @ 20%, where he invests in certain assets in India.

INVESTMENTS ELIGIBLE FOR SPECIAL TREATMENT

The income derived from the subsequent assets in India acquired in foreign currency shall qualify for special treatment:

  • Investment in the shares of Indian Companies (Public or Private company)
    • Investment in the debentures, being issued by a publicly-listed Indian company.
    • Deposits made with the banks and public companies.
    • Any security of the Central Government

No deduction under Section 80 is going to be allowed while calculating investment income.

SPECIAL PROVISION IN RESPECT OF LONG-TERM CAPITAL GAINS

On long term capital gain arising from the transfer or sale of those assets, no advantage of indexation and deduction under Section 80 is allowed. But you’ll be able to still save your taxes, by availing exemption on the gains earned under Section 115F. Under this, you’re required to reinvest the web consideration received within the amount of six months from the date of sale of the first asset, into the subsequent assets:

  • Shares in an Indian company
    • Debentures of an Indian public company
    • Deposits with banks and Indian public companies
    • Central Government securities
    • NSC VI and VII issues

The entire capital gain would be exempt if the entire of the net consideration is re-invested. However, if the price of recent asset purchased, falls short than the consideration, then the capital gain would be exempt proportionately, i.e.,

Total Capital Gain         X         Cost of New Asset

—————————–

Total net consideration

Exemption=

NOTE: The exemption is withdrawn if the new asset purchased is transferred or converted into money within a period of three years from the date of purchase. The NRI is eligible to withdraw the amount from the special provision, at any point of time and in such an event, the investment income and LTCG shall be charged to tax as per the standard provisions of Income Tax Act, 1962.

Income Tax Deductions applicable for the Financial Year 2024-25

All the Important Income Tax Applicable Due Dates & Limits

All the Important Due Dates and Limits applicable

All the Important Due Dates and Limits applicable

/ INCOME TAX

Income Tax Audit Applicability & Application in India 

An Overview Income Tax Audit 

Tax audit Limit

  • A tax audit may only be undertaken by a Chartered Accountant or a partnership of Chartered Accountants. If the latter is used, the name of the signatory who signed the report on behalf of the company must be included in the audit report. When registering at the e-filing site, the signatory must enter his or her membership number.
  • The Statutory Auditor can also conduct tax audits. It is crucial to know that the number of tax audit reports that Chartered Accountants can file is limited. A Chartered Accountant is only allowed to conduct 60 tax audits each year. In the event of a corporation, the tax audit limit will apply to each of the partners.

Who is required to undergo a tax audit?

Income Tax Audit Applicability.
If a taxpayer’s sales, turnover, or gross earnings surpass Rs 1 crore in a fiscal year, he or she must have a tax audit performed. However, under some other instances, a taxpayer may be obliged to have their accounts audited. In the tables below, we have classified the numerous situations:

NOTE: The Rs 1 Crore threshold limit for a tax audit is planned to be enhanced to Rs 5 crore with effect from AY 2020-21 (FY 2019-20) provided the taxpayer’s cash receipts are restricted to 5% of gross receipts or turnover and cash payments are limited to 5% of aggregate payments. The following are the many types of taxpayers:

Nature of Business or Profession Category of Taxpayer When audit is Mandatory?
Any Professions (Specified or Non-specified) Any When the gross receipts exceeds Rs. 50 lakhs during the relevant previous year.
Business Bothe Payment and Receipt in case does not exceed 5% of the Total Receipts and Payments respectively. If the previous year’s total sales, turnover, or gross receipts from the business exceeded Rs. 5 Crore.
Business Either payment or receipt in cash exceeds 5% of the total receipts and payment respectively If the previous year’s total sales, turnover, or gross receipts from business exceeded Rs. 1 crore.
Business eligible for Presumptive Tax Scheme under Section
44AD		 HUF or Resident Individual If an assessee’s income exceeds the maximum exemption level and he has chosen for the plan in any of the previous five years but does not do so in the current year.
Business eligible for Presumptive Tax Scheme under Section
44AD		 Resident Partnership Firm The taxpayer has chosen for the plan in any of the previous five years but does not do so in the current year.
Profession eligible for Presumptive Tax Scheme under Section
44ADA		 Resident Assessee The taxpayer contends that his professional earnings are less than those calculated under Section 44ADA, and that his overall income exceeds the maximum exemption limit.
Business eligible
for Presumptive
Tax Scheme un-
derSection44AE		 Any Assessee involved in the transportation, employment, or leasing of commodities The taxpayer contends that his company earnings are less than the profit determined under Section 44AE.
Business eligible
for Presumptive
Tax Scheme un-
der Section 44BB		 Non-resident assessee engaged in exploration of mineral oil The taxpayer contends that his company earnings are less than the profit determined under Section 44BB.
Business eligible for Presumptive Tax Scheme under Section
44BBB		 Foreign Co. engaged in civil construction Taxpayer contends that his profits from business are lower than the profit computed under Section 44BBB

Income Tax Audit Applicability & Application in India

The purpose of a tax audit

The primary goals of a tax audit are as follows: • Proper bookkeeping without fraud activities, and verification of the same by an auditor.

  • For reporting anomalies discovered thorough review of the books of accounts.
  • For reporting different information such as tax depreciation, compliance with income tax law provisions, and so forth.
  • Auditing simplifies the computation of taxes and deductions.
  • The primary responsibility is to check the information provided in the taxpayer’s income tax return about income, taxes, and deductions.

Appointment of Tax Auditors in a Firm

  • The Board of Directors is in charge of appointing tax auditors in a company. The Board may also transfer this authority to another officer, such as the CEO or CFO. Auditors in a partnership or sole proprietorship can be appointed by a partner, sole proprietor, or a person approved by the assessee. Furthermore, a taxpayer may engage two or more chartered accountants as joint auditors to conduct the tax audit. If all of the joint auditors agree with the findings, the audit report must be signed by all of them. In the event of disagreements, the auditors must state their views independently in a separate report.

Letter of Appointment for Tax Audit

  • Before proceeding with the tax audit, the tax auditor must acquire a letter of appointment from the concerned assessee. The appointment letter must be officially signed by the person authorized to sign the income tax return. The auditor’s compensation must be included in the letter.
  • In addition, the appointment letter should state that no other auditor has been entrusted with the duty for the current fiscal year, and it may provide information on the prior auditor. The latter is given in order to promote communication between the newly appointed auditor and his predecessor.

Tax Auditor’s Removal

  • Management has the authority to fire a tax auditor if the auditor has delayed the submission of the report to the point that it is no longer feasible to submit the audit report before the stated due date. A tax auditor cannot be fired because he provided an adverse audit report or because the assesee is concerned that the tax auditor would give an unfavorable audit report. If a Chartered Accountant is dismissed on unjust grounds, the Institute of Chartered Accountants of India (ICAI)-established Ethical Standards Board has the authority to intervene.

Accounts audited in compliance with any other legislation

  • If a taxpayer is required to have his books of accounts audited under another legislation, such as statutory audits of corporations under company law requirements, the person is not obligated to undertake his audit again for taxes purposes. The taxpayer just has to receive the audit report required by income tax legislation before the return’s due date.

Penalty for failing to complete a tax audit

Penalty for non-filing or late submission of a tax audit report

  • If a taxpayer is obligated to have a tax audit performed but fails to do so, the following penalties may be imposed:
  • 5 percent of all sales, revenue, or gross revenues
  • 150,000 rupees
  • If a taxpayer who is obligated to have his or her accounts audited fails to do so, a penalty may be imposed under Section 271B of the Income Tax Act. The penalty for failing to complete a tax audit is 0.5 percent of the turnover or gross revenues, up to Rs.1, 50,000.

However, if there is a justifiable explanation for such failure, no penalty under section 271B shall be imposed. So far, Tribunals/Courts have accepted the following legitimate causes:

  • Natural Disasters
  • The Tax Auditor’s Resignation and the Resultant Delay
  • Long-term labour issues, such as strikes and lockouts
  • Accounts lost due to circumstances beyond the Assessors’ control
  • The partner in charge of the accounts’ physical incapacity or death
/ Foreign Exchange Management Act

Foreign Account Tax Compliance Act (FATCA)

Foreign Account Tax Compliance Act (FATCA)

Foreign Account Tax Compliance Act (FATCA)

Overview of the FATCA

The seeds of the financial crisis were sown many years ago, when interest rates were extremely low and lending standards were extremely lax, resulting in the construction of a home price bubble in the United States. The bubble burst, and the years 2007-2009 were defined by a historic financial crisis, with individuals losing their jobs and their investments becoming worthless. With significant unemployment and a looming financial catastrophe, the government sought to stimulate the economy. In 2010, as part of the Hiring Incentives to Restore Employment (HIRE) Act, the Foreign Account Tax Compliance Act (FACTA) was enacted in US taxation.

The HIRE Act was passed to encourage businesses to hire unemployed workers. Increased business tax credit for each new employee hired and retained for a minimum of 52 weeks, payroll tax holiday, and increased expenditure deduction limit on the purchase of new equipment were some of the incentives granted under the HIRE Act.

Any corporation formally classed as a “foreign financial institution” (FFI) must declare to US authorities any financial accounts held for US persons or citizens, as well as any foreign entities in which US individuals or citizens own a substantial share. Failure carries a 30 percent withholding tax on gross US profits as a penalty.

FATCA, which was implemented at the same time, requires U.S. citizens to report any overseas account holdings and assets on an annual basis. It will aid in the elimination of tax evasion by American people and businesses that invest and earn revenue in other countries. By introducing FATCA into the picture, the US government not only attempted to reduce tax evasion, but also raised revenue inflows to support the HIRE Act’s incentive strategy.

FATCA in India

FATCA aims to make the global financial system more transparent. In 2015, the Indian government agreed to implement FATCA as part of an intergovernmental agreement between India and the United States. As a result, it encourages the tracking of income made by NRIs in the United States from their non-US investments and assets.

According to the inter-governmental agreement, tax officials must seek self-declaration from NRI investors about FATCA compliance using Form 61B in accordance with Rules 114F and 114H of the Income Tax Rules 1962.

Non-Compliance of FATCA Norms

Noncompliance with FATCA rules in India can result in bank accounts being frozen, mutual fund investments being suspended, and PPF and NPS accounts being blocked.

To Whom FATCA Act Apply?

Individuals and businesses that are classified as US persons for tax reasons are affected by the FACTA legislation. These include the following:

  • United States citizens or NRIs who have migrated to the US and are now its naturalized citizens
  • United States Corporations, US Partnerships, US Estates and US Trusts.
  • United States permanent residents or green cardholders
  • NRIs and Persons of Indian Origin (PIO) working in the US via B1/B2, H1-B, E-2, or L1/L2 visa

Report on which foreign assets?

All the individuals and business entities have to report annually on its Foreign assets which include:-

  • Foreign Pensions
  • Foreign Stockholdings
  • Foreign Partnership Interests
  • Foreign Financial accounts
  • Foreign Mutual Funds
  • Foreign Issued Life Insurance
  • Foreign Hedge funds
  • Foreign Real Estate held through a Foreign Entity

House properties owned by NRIs in India are not included in FATCA’s list of designated assets. As a result, FATCA does not apply to money derived from them. In India, however, this revenue is subject to taxation.

Antiques, jewellery, vehicles, art pieces, and other collectibles are among the assets that are exempt from FATCA. It is not necessary to report safety deposit boxes. FATCA does not require you to report foreign currency stored in your possession but not with a financial institution.

FBAR vs. FATCA

The Foreign Bank Account Report (FBAR) is similar to FATCA in that it aims to catch tax evaders who hide money in foreign bank accounts. FBAR reporting is unique in that it applies to foreign account balances of $10,000 or more (even if the accounts were only open for a minute!). You must file FinCEN 114 electronically by June 30 each year if it applies. Only bank accounts must be declared on the FBAR; no other assets must be disclosed.

FATCA, on the other hand, is a more comprehensive programme. While bank accounts and other foreign assets must be reported, the thresholds are substantially higher. If your assets surpass the following amounts, you must file FATCA:-

  • Single foreign taxpayers: $200,000 on the last day of the tax year or $300,000 at any time during the year
  • Married taxpayers living outside the United States: $400,000 on the last day of the tax year and $600,000 at any time during the year.
  • Single taxpayers in the United States: $50,000 at the end of the tax year or $75,000 at any time during the year.
  • Married taxpayers in the United States: $100,000 at the end of the tax year or $150,000 at any time during the year.

CRS vs. FATCA

The Organization for Economic Cooperation and Development (OECD) created the CRS or Common Standard on Reporting and Due Diligence for Financial Account Information, in response to the success of FATCA. The CRS is founded on rules that are similar to the FATCA, although there are significant variations between the two. While both laws were designed to prevent tax evasion, the CRS has a wider scope of application. Except for the United States, it covers 90 countries. Under the CRS, reporting of all financial accounts is required, but FATCA does not.

FATCA only applies to persons who live in the United States, and it contains a $50,000 threshold that exempts US taxpayers with overseas financial holdings worth less than $50,000. There are no such exclusions in the CRS.

Renouncing to avoid FATCA may be unrealistic for few people

Many Americans are considering giving up their citizenship as more information about FATCA’s intrusive nature becomes accessible. You can avoid FATCA reporting responsibilities by giving up your US citizenship, but it isn’t always that simple.

To begin with, renouncing costs $2350. That’s right, handing over your passport will set you back $2350. Some expats may find this price tag prohibitive, and they will be compelled to continue filing US taxes as citizens.

Second, you may be classified as a “covered expat,” which means you may be subject to an exit tax.

It’s vital to remember that if you plan to relocate to the United States, you’ll need to show that you’ve paid your US expat taxes for the previous five years. So, if you haven’t paid your US taxes in a while, you’ll need to do so before filing for renunciation.

Foreign Institution Compliance

Non-U.S. Foreign Financial Institutions (FFI) and Non-Financial Foreign Entities (NFFE) must comply with US federal law by reporting to the IRS the identity of US persons and the value of their assets kept in their banks. If an FFI or NFFE enters into an agreement with the IRS to report on their account holders, they may be forced to withhold 30% of payments to the foreign payee as a tax penalty if the payee does not comply with FATCA.

Non-Compliance

Failure to complete annual reports detailing foreign accounts and assets can result in severe penalties. The IRS imposes a $10,000 penalty each violation, with an additional penalty of up to $50,000 if the offence is repeated after the IRS has been notified. A penalty of 40% would be imposed on any underestimate of tax due to non-disclosed assets.

No penalty will be imposed if the failure to disclose is deemed reasonable; this will be determined on a case-by-case basis. FATCA is implemented through bilateral intergovernmental agreements (IGAs), which differ from jurisdiction to jurisdiction, making global compliance difficult.

  • Some IGAs let FFIs to report locally – but only through that jurisdiction’s specific local mechanism, as FATCA obligations have been incorporated into local legislation in a unique fashion.
  • Others allow FFIs to report directly to the US tax authorities, but there is a risk of conflict with local regulations governing data protection.

Form 61B, the yearly FATCA and CRS report, is due by May 31 of the following year. Failure to file Form 61B would result in a fine of Rs 500 each day. A penalty of Rs 50,000 is imposed for providing false information.

FATCA reporting doesn’t have to be complicated

We understand! Financial reporting in a foreign country might be perplexing. The good news is that you don’t have to tackle it alone if you know you need to submit FATCA. We can assist you in completing Form 8938 in order to comply with FATCA reporting obligations and avoid fines for non-compliance.

This is something that many Americans have already experienced. The bank sent them a letter alerting them of the new Foreign Account Tax Compliance Act legislation and its implications for their bank accounts. Unfortunately, as a result of the Act, several financial organizations (particularly banks) have refused to service US people. For them, being compliant and sharing information with the IRS is too expensive.

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/ INCOME TAX

Income tax treatment of a company’s dividend:

Income tax treatment of a company's dividend

Income tax treatment of a company’s dividend:

If a shareholder receives a dividend from a domestic company, he is not required to pay any tax on that dividend until Assessment Year 2020-21 because it is exempt from tax under Section 10(34) of the Act. In such cases, however, the domestic company is required to pay a Dividend Distribution Tax (DDT) under section 115-O.

As a result, if the dividend is distributed on or after 01-04-2020, the provisions of Section 115-O will not apply. As a result, if the dividend is distributed on or after January 4, 2020, domestic corporations will not be required to pay DDT, and shareholders would be required to pay tax on the dividend income. Because dividends are now available at a price of the shareholder, several elements of the Act have been resurrected, including the ability to deduct expenses from dividend income, the deductibility of tax from dividend income, and the treatment of inter-corporate dividends, among others.

This section will teach you about the taxability of dividends distributed by domestic corporations on or after January 4, 2020.

Under the Income Tax Act, the term “dividend” has a specific meaning.

Income tax treatment of a company's dividend.

A dividend is typically defined as a company’s distribution of profits to its shareholders. However, in accordance with Section 2(22) of the Income-tax Act, the dividend must include the following.

  1. Distribution of accumulated profits to shareholders, which requires the release of the company’s assets.
  2. Distribution of debentures or deposit certificates to shareholders from the company’s accumulated profits, as well as the issuance of bonus shares to preference shareholders from the company’s accumulated profits.
  3. A distribution made to the company’s shareholders upon its liquidation from its accumulated profits.
  4. Distribution to shareholders of accumulated profits from the company’s capital reduction.
  5. A loan or advance made to a shareholder by a closely held company from its accumulated profits.

Taxability on or after 01-04-2020 of the dividend received:

The taxability of dividends in the hands of the company as well as shareholders would be as follows beginning with Assessment Year 2021-22.

Domestic companies’ obligation:

  • On or after 01-04-2020, domestic companies are not required to pay DDT on dividends distributed to shareholders. Domestic corporations, on the other hand, must deduct tax under Section 194.
  • According to Section 194, which applies to dividends distributed, declared, or paid on or after 01-04-2020, an Indian company must deduct tax at a rate of 10% from dividends distributed to resident shareholders if the total amount of dividend distributed or paid to a shareholder during the fiscal year exceeds Rs. 5,000. However, no tax would be deducted from any dividend paid or due to the Life Insurance Corporation of India (LIC), the General Insurance Corporation of India (GIC), or any other insurer in respect of any shares in which it owns or has a full beneficial interest.However, in accordance with the relevant DTAA Taxability, the tax in the hands of the shareholders shall be deducted where the dividend is payable to the non-resident or to a foreign company.

Taxability in hands of shareholders:

  • Application from assessment Year 2021-20 Section 10(34) provides for an exemption for shareholders from dividend income. The dividend received in the course of the 2020-21 financial year is therefore now taxable by the shareholders. As the whole amount of the dividend is taxable in the hands of the partner, therefore, Section 11 5BBDA providing for taxability of the dividend above Rs 10 lakh does not have any significance.
  • The taxability of dividends and the rate at which they are taxed will be determined by a number of factors, including the shareholders’ residential status and the relevant head of income. In the case of a non-resident shareholder, the provisions of Double Taxation Avoidance Agreements (DTAAs) and Multilateral Instruments (MLIs) will also apply.

In the hands of a resident shareholder, the dividend is taxable.

  • A person can trade or invest in securities. The income he receives from his trading activity is taxable as business income. Thus, the dividend revenues shall be taxable under the head business or occupation, where shares are held for trading purposes. While the income in kind of the dividend is held as an investment, the income generated by the heads of other sources shall be taxable.
  • The revenue is calculated by the accounting method regularly followed by the assessor, which is taxable under head PGBP. A taxpayer may follow either a mercantile accounting system or an accounts’ cash basis for the purposes of the calculation of business revenue. But the accounting approach used by the assessee does not affect the basis for the dividend income charge as Article 8 of the Law stipulates that in the year it is declared, distributed or paid by a company a final dividend, including a deemed dividend, is taxable. In the previous year, however, the provisional dividend is taxable in which the amount of that dividend is made available to the shareholder unconditionally by the Company. In other words, the provisional dividend is taxable on the basis of receipt.

Income dividend deductions:

  • If a business earnings dividend is taxable, the assessee can claim the deduction for the dividend’s earnings, such as collection fees, interest on loans, and others.
  • However, if the dividend is taxable under the other sources category, the assessee can deduct only the interest expense incurred to earn the dividend income up to 20% of the total dividend income. Any other expenses including commission or remuneration payable to a banker or any other person to make such a dividend shall not be deducted.

Dividend income tax rate:

  • Divide income shall be charged at a normal rate as a tax in the case of an assessee with the exception of the Dividend Income, which applied to the GDRs issued by such a company under an Employees Stock Option Scheme, being an employeen of the Indian enterprise or its affiliate engaged in the information technology, entertainment, pharmaceutical or bio-technology industry. In that case the dividend shall, without deduction under the Income Tax Act, be taxed at a concessional tax rate of 10%. However, in foreign currency, the GDR should be bought by the employee.

Taxation of non-resident shareholders, including FPIs:

  • A non-resident generally invests in India either directly as a private equity investor or indirectly as a Foreign Portfolio Investor (FPIs). A non-resident individual may also be a promoter of an Indian company. A non-resident person normally holds shares of an Indian firm as an investment and, as a result, any dividend income is taxed under the head other sources, unless the income is related to the non-Permanent resident’s Establishment in India. Securities held by foreign portfolio investors (FPIs) are always recognized as capital assets, not stock-in-trade.
  • So also in the case of FPIs, the income from the dividend under the other sources is always taxable.

Dividend Income tax rate:

  • Dividend income is taxable at 20 per cent in the hands of a non-resident (including FPIs and NRIs) without providence for a deduction under any provision of the Income Tax Act. •Dvidend income is taxable at a rate of 20 per cent. But the dividend income of an Offshore Banking Unit investment division is taxable at the rate of 10%.
  • Moreover, if a dividend is received in connection with the GDRs of a foreign currency bought by an Indian or Public Sector Company (PSU), the rate of tax shall be 10% without any deduction.
Section Assessee Particulars Tax
Rate
Section
115AC		 Non-resident Dividend on GDRs of an Indian Company or Public Sector Company (PSU) purchased in foreign currency 10%
Section
115AD		 FPI Dividend income from securities (other than units referred to in section 115AB) 20%
Investment division of an offshore banking unit Dividend income from securities (other than units referred to in section 115AB) 10%
Section 115E Non-resident
Indian		 Dividend income from shares of an Indian company purchased in foreign currency. 20%
Section
115A		 Non-resident or foreign co. Dividend income in any other case 20%

Withholding tax:

  • In the case of a dividend paid to a non-resident shareholder, the tax must be deducted under section 195 of the Income Tax Act. However, where the dividend is issued or paid in respect of GDRs of an Indian Company or a Public Sector Undertaking (PSU) purchased in foreign currency or to Foreign Portfolio Investors (FPIs), the tax must be deducted in accordance with sections 196C and 196D, respectively.
  • The withholding tax rate on dividends, according to section 195, shall be as specified in the relevant year’s Finance Act or under the DTAA, whichever is appropriate in the instance of an assessee. The withholding tax rates under sections 196C and 196D, on the other hand, are 10% and 20%, respectively.
  • The dividend withholding tax rate distributed or paid by a non-resident shareholder may be explained using the table below.
Section

(chargeability

of income)

 Section

(withholding

of tax)

 Nature of Income

 

 

 Rate of TDS

(Payee is any

other non-
resident)

 Rate of TDS

(Payee is a

foreign
company)
Section
115AC		 Section 196C

 

 Dividend on GDRs of an Indian Company or Public Sector Company (PSU) purchased in foreign currency 10%

 

 10%

 
 Section 115AD  Section 196D Dividend income of FPIs from securities Investment division of an offshore banking unit  20% 10%  20% 10%
Section 115E Section 195 Dividend income of non-resident Indian from shares of an Indian company purchased in foreign currency. 20%* –
Section 115A Section 195 Dividend income of a non-resident in any other case

 

 30%* 40%*

* Where a tax withholding rate in accordance with the DTAA is lower than the Finance Act rate, tax is deducted in accordance with the DTAA rate.

Under DTAA taxability:

  • The dividend earnings are generally taxable in the source country as well as in the assessee’s country of residence, thereby providing the assessee’s tax credit in the country of origin. In Indian, therefore, the revenues of the dividend are taxable as provided by the Act or by the DTAA, whichever is more profitable.
  • Dividends are taxable in the source nation in the hands of the beneficial owner of shares at a rate ranging from 5% to 15% of the gross amount of the dividends, according to the majority of the DTAAs India has signed with other countries.
  • Dividend tax rates are further reduced under the DTAA with countries like Canada, Denmark, and Singapore when the dividend is paid to a firm that owns a particular percentage (usually 25%) of the company generating the dividend. However, there is no minimum time restriction under these DTAAs for which the receiving firm must keep such an ownership. As a result, MNCs were frequently detected abusing the laws by raising their stock in the company just before the dividend was declared and dumping it after receiving the payout. In India, dividend income is tax-free in the hands of shareholders; hence this circumstance does not exist. However, following the proposed revision, India will face the risk of foreign companies avoiding taxes by artificially expanding their holdings in dividend-paying domestic companies.
  • India is a signatory towards the Multilateral Convention (MLI), which requires it to put in place the OECD-recommended measures to prevent base erosion and profit shifting. MLI is a binding international legal instrument that is being developed in order to quickly implement the OECD-recommended measures to prevent Base Erosion and Profit Shifting in existing bilateral tax treaties. For dividend income the minimum period of time in which a shareholder receiving dividend income must retain their shareholding in the company paying the dividend is set by Article 8 (Dividend Transfer Transaction) of MLI, which allows the benefit of the reduced dividend tax rate.

Inter-corporate dividend:

  • Because the taxability of dividends is being proposed to be shifted from companies to shareholders, the Government has added a new section 80M to the Act to eliminate the cascading effect when a domestic company receives a dividend from another domestic company. However, nothing prohibits a local corporation from receiving a dividend from a foreign company and distributing it to its shareholders. In such cases, the taxability is as follows.

Domestic co. receives dividend from another domestic co.:

  • Section 80M eliminates the cascading impact by requiring that an inter-corporate dividend be deducted from the total income of the firm receiving the dividend if it is delivered to shareholders 1 month just before return’s due date.

Domestic co. receives dividend from a foreign co.

  • Dividends received from a foreign corporation by a domestic corporation in which that company has 26% or more of its equity shares are taxable at a rate of 15% plus supplements and cessation of health and education in accordance with Section 1 15BBD. Such tax shall be computed on a gross basis, with no allowance for expenditure deductions.
  • Dividend from a foreign company in which that domestic company holds less than 26%, by a domestic company, is taxable at a normal tax rate. For the purposes of earning this dividend income, the domestic company can claim a deduction for any expenses it incurred.

No MAT on a foreign company’s dividend revenue.

  • MAT provisions apply to a foreign company only if it is a resident of a country with which India has DTAA and conducts business through a PE in India. Under Section 44B, Section 44BB, Section 44BB, Section 44BBA or section44BBB, however, it should not be taxable. Once the foreign company is found to be responsible for paying MAT, it will make certain adjustments in its profits.
  • However, if it is credited (or debited) into the profit and loss account, the following revenue (and costs claimed in relation thereto), if it is taxable at a rate less than MAT rate is added back to (or cut off) the net profit.
  • Capital gain from securities;
  • Interest;
  • Royalty;
  • FTS

Thus, a foreign company is not liable to pay MAT on the aforesaid incomes.

  • Regarding the taxability of dividends in the hands of a foreign company, section 1 15JB of the Finance Bill, 2021 has been amended to provide that dividend income and expenses claimed in respect thereof be added back or reduced from net profit if such income is taxed at a rate lower than the MAT rate due to the DTAA.
  • It should be noted that dividend income in the hands of a foreign company is taxable in accordance with the provisions of the Act or relevant DTAA, whichever is more advantageous.

Dividend income advance tax liability:

If the deficiency in the advance tax payment or failure to pay it on time is due to dividend income, no interest will be levied under section 234C if the assessee had also paid that amount of tax in successive advance tax instalments. However, in respect of the deemed dividend as set out in Section 2(22) this benefit cannot be provided (e).

Conclusion on Tax Treatment of Dividend Income:

  • Since the Dividend Distribution Tax was repealed by the Finance Act of 2020, dividends paid by corporations on or after April 1, 2020 are now taxable incomes to the investor.
  • Section 115BBDA of the Income Tax Act, which allows for the taxation of dividends in excess of Rs. 10 lakh, is no longer relevant because the full dividend amount is now taxable in the hands of the shareholders.
  • Under Sections 194 and 195 of the Income Tax Act of 1961, an Indian company is required to deduct the applicable tax at source.
  • The distribution of a Dividend on Equity Shares to a resident shareholder in excess of INR 5000 in a financial year is covered by Section 194.
  • TDS at a rate of 10% will be deducted by the payer in the event of resident shareholders, and TDS at a rate of 20% will be deducted if the payee does not give the PAN.
  • In the event of non-resident shareholders, the payer is required to deduct TDS at a rate of 20%.

Following the repeal of DDT, businesses may prefer to incorporate a corporation rather than a firm or LLP, but only if they can handle the additional compliance requirements that a corporation must meet.