A Brief guide to Income tax returns filing - PY 2012-13 / FY 2013-14

Select your relevant form

 

ITR1

• Income from salary / pension
• Income from one house property (excluding losses brought forward from previous year)
• Income from other sources (excluding lottery, horse races)

ITR2 – ITR1 categories plus / or 

• Income from Capital Gains
• Income from other sources including Lottery, races 

ITR3 

• Income from partnership firms by way of salary, interest, bonus, commission includable under the head “Profits or Gains of business or profession”

ITR4

• Individual or HUF who is carrying on a proprietary business or profession

 ITR4S – ITR1 categories plus / or 

• Income from business computed under special provisions of section 44AD & 44AE of income tax act (presumptive taxation)

ITR5 

• Returns by Firms, Association of Persons, Body of Individuals

ITR6

• Returns by companies 

ITR7

• Returns under section 139(4A) , 139(4B), 139(4C) & 139(4D) – belated returns but before completion of assessment year

Compulsory E-filing of Returns with or without digital signature – Previous Year 12-13 / Assessment Year 13-14

ITR1, ITR2, ITR3, ITR4, ITR4S, ITR5 is mandated for compulsory e-filing (with or without digital signature) if income exceed Rs.5 lacs.  Income below Rs.5 lacs can go in for manual filing.

 

Compulsory E-filing of Returns with digital signature – Previous Year 12-13 / Assessment Year 13-14

 

ITR4 & ITR5 is mandatory for e-filing with digital signature if section 44AB is applicable (audit of accounts)

 

ITR6 is mandatory for e-filing with digital signature

 

How to file returns

Visit site https://incometaxindiaefiling.gov.in/ and download the relevant ITR in excel format.

 

View your 26AS following this link https://services.tdscpc.gov.in/serv/tapn/welcome26AS.xhtml. If you have not registered in income tax website, there will be a promt to register using your PAN.  After registration or login this site provides you all details of your tax deducted by your employer or any other person like your banker on interest income. Also it provides details of advance tax paid & details of high value transactions reported in your name. Cross check the tax deducted & advance tax, ensure that these figures are reflected in your ITR returns. If there is a mismatch then there will be query from income tax as to the mismatch. If there are any discrepancies take it up immediately with the TDS deducing authorities to correct if discrepancy is in TDS or take it up with your banker if discrepancy is in advance tax payment.

Once you have filled in the ITR, convert into an XML file and go to site https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UploadReturnsHome.html?ID=1707942105  to upload your returns. If you would wish to digitally sign your returns register your token in the “Profile settings” menu or follow this link https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UpdateDscDetailsLink.html?ID=579614307.  Upload the returns.

 

Download the acknowledgement and forward it to CPC Bengaluru, if you have digitally signed the return you need not forward to CPC Bengaluru.

Reform Tax Administration

In the budget estimates presented by our Honorable Finance Minister, shortfall on account of Corporation tax, Customs Duty and Excise Duty was projected to be around 58k crores.  A huge shortfall indeed.

Now the question raised is how do we correct this shortfall or how to stop further shortfall in the above revenues?  The following "novel" actions are being taken by our tax authorities.

Corporation Tax

Novel Method 1

Stop all refunds.  No refund orders to be passed, if for an assessment year order under section 143(3) comes up for finalisation the officer ensures that the order does not have any refund (even if eligible).  So what to do?  Simple, Omit an advance tax challan!!  If a company has paid Rs.10 crores with Rs.2.5 crore in each quarter miss out one quarter payment and show only Rs.7.5 crores and negate any refund or claim an additional tax.  If in case the company immediately goes to the officer and requests for rectification of mistake the officer "off the record" says, Sir, I will pass your refund order in the next financial year, just file a Petition under Section 154, I will take it up next year!!

Novel Method 2

Send letters to companies asking them to appear before the authority asking as to why there is a shortfall in payment of advance tax.  Is there a provision in Income tax law for this?  Tax experts please guide me!!

Customs Duty

Novel Method 1

Delay assessment of bills filed under DFIA or any duty benefit schemes.  Either the assessments for these bills are taken up once a week or only 1 hour per day.  Priority given to bills filled with full payment of duty.   This is to coerce companies to pay duties, if they want their consignments to be cleared immediately.

Question : Why give benefit at all and make people run around to claim it!!

Novel Method 2

Delay refunds.  Either issue a letter seeking clarification or issue a notice demanding more details, if all fails call up the assessee or the clearing agent requesting them to pursue the refund in the next financial year.  This is an age old and time tested method, time and again adopted!!

Excise Duty

Call up the companies in January / February or March requesting them not to use CENVAT credit for payment of duty instead pay all taxes through PLA.  Is there a provision in law for this?

Imagine what would happen if in case a company official calls up the Assistant Commissioner of Central Excise and says, "Sir, I have a shortfall in my revenue can I pay my taxes later by 15 days?", will he get this opportunity?  I am sure he will be greeted with a Show Cause Notice, which will carry Interest and Penalty

Mr.Finance Minister, Is this the way to meet tax targets?  Come on Stop it we are in 21st Century and we are not idiots

When a company is at a default or "seemingly default" there is a raid, show cause notice, hearing called for and grilled.  On top of this there is interest, penalty and in some cases Jail terms also.  But what happens to our tax officers who do not pass refund orders on time, take up assessment on time and pass order denying genuine refunds on a silly ground?  I have seen so many innumerable cases getting quashed at Tribunal levels because of trivial orders passed by Quasi Judicial tax authorities, is this the way it should be?  

To clarify I will not suggest we should spare companies who are at default or who fail to comply with law, they should be prosecuted according to legal provisions, but rather I would also suggest the same should happen to tax authorities also to ensure that they are responsible enough and there is no hardship for companies in tax compliance.

Tax payments and legal compliance should be a pleasure, but unfortunately in India it is getting more and more of a pain.  Imagine attending a Transfer Pricing Hearing, Hearing under section 143(1) of Income tax, Assessment under VAT rules or a Hearing for clarification on refunds with customs.  The amount of documents demanded by the officers, the amount of clarifications demanded by them, most of the times, defy logic and in most cases I am sure the innumerable documents given by us land up in shelves unread and subsequently scrapped!!  What a waste of time and resource!!

Tax reforms should not only be in the written law but also in tax administration, this will ensure a tax friendly environment and attract more investments, unfortunately, currently our tax administration distracts investments.

Expatriates in India - Actual Tax Calculation

To bring in a clear understanding and as a supplement to my blog on expatriate taxation http://ssaravanan-vvu.blogspot.in/2012/07/expatriates-taxation-in-india.html, I have tried to demonstrate here a calculation of expatriate taxation and then finally calculate his / her take home salary in India.

Assumptions

1. The expatriate is first time in India and hence he is considered a Non Resident for tax purposes
2. His income is split into two parts
• Salary paid by overseas parent for services rendered in India- USD 50,000 per annum
• Income paid by Indian company for services rendered in India - INR 5,000,000 per annum
3. He has been given the following perquisites in India
• Furnished housing
• One Motor Car with Driver
• Indian company pays school fees for his children
• Indian company pays for maintenance of the house & domestic help
4. The country from which the expatriate is based does not have a Social Security Agreement (SSA) with India, and hence Providend Fund (PF)  has to be deducted @12% on both International & Indian salary (effective from 1.10.2008)
5. No Other Income for this expatriate in India
6. No Other tax savings in India other than 80C
7. No Sweat Equity or ESOP

The tax calculation will be as below for the expatriate

Calculation of perquisites

Calculation of Take Home Salary in India is as below

This is a simplified example of expatriate tax and his / her take home salary, but in practice there will be more complicated scenarios which need to be handled according to the relevant laws prevailing at that time

Expatriates Taxation in India

India is a fast growing economy with many multinationals setting up shop in India.  This means that quite a number of Expatriates of various nationalities come into India and they would in turn like to know tax impact on their salaries earned in India and abroad.  To ascertain tax status of these expatriates in India we need to review 

1. Section 5, 6, 9 and 10 of Income Tax Act, 1961.
2. Indian Provident Fund Scheme, 1952 (specifically notification dated 1.10.2008)

Section 6 - Residence in India
Residence in India determines the taxable status of an individual in India.  The following are the various definitions under Income Tax Act, 1961 on Resident status.

Resident	1.      Was in India for a period of minimum 182 days during that year or 2.    Was in India during the year for a period of minimum 60 days and in the preceding 4 years was in India for a minimum period of 365 days
Non Resident	A person who is not a Resident is a Non Resident
Not Ordinarily Resident	1.      Non Resident in 9 out of 10 years preceding that year or 2.      In India for a period of 729 days or less during the preceding 7 years

Section 5 - Scope of Taxation

The incomes which are taxed are as given below for each category of Residency.

Resident	1.    Received or is deemed to be received in India during the year 2.   Accrues or arises or is deemed to accrue or arise in India during the year 3.   Accrues or arises outside India during the year
Non Resident	1.     Received or deemed to be received in India during the year 2.     Accrues of arises or deemed to accrue or arise in India during the year
Not Ordinarily Resident	1.    Received or is deemed to be received in India during the year 2.   Accrues or arises or is deemed to accrue or arise in India during the year 3. Accrues or arises outside India during the year provided it is derived from a business controlled in or a profession set up in India

Section 9(1)(ii) - Income deemed to accrue or arise in India

Salaries if earned in India for 

1. Services rendered in India and 
2. for the leave period which forms part of the service contract of employment

The either of the above 2 conditions if satisfied will entail taxation in India.  Section 9(1)(ii) will hold good irrespective of Residence status.

Taxation impact under Income Tax Act

Due to operation of section 9(1)(ii) salary received for services rendered in India will be taxable in India irrespective of place of receipt of salary.  For example if an Expatriate receives salary of Rs.100,000 in India and $5,000 in US, for services rendered in India, then the entire amount of Rs.100,000 and $5,000 are taxable in India

Section 10(6) - Exceptions to the above taxation Rule

Exceptions to the taxation are provided for 

1. Employees of Consulate etc
2. Remuneration paid by a foreign enterprise for service rendered in India if 
• the foreign enterprise is not engaged in any trade or business in India
• the employee stay is not more than 90 days in the year
• the remuneration paid by the foreign enterprise is not deducted from income of the enterprise for purpose of income tax in India

Provident Fund
International worker is defined to include a Foreign National working in India.  India has signed social security agreements till todate with 3 countries namely Belgium, France and Germany.  Foreign Nationals who belong to these countries do not come under the definition of International workers.  Other Foreign Nationals should contribute the Provident Fund Scheme in India.  Provident Fund is to be 

1. Deducted at 12% - employee contribution and 12% - employer contribution - total 24% contribution
2. To be deducted on the full salary both received in India and also abroad and also from the parent company abroad

Conclusion

Expatriate employees come under purview of income tax and provident fund acts.  There are certain exemptions which can be claimed.  Taxation aspects are quite clear and hence care should be taken to abide by them

Income Tax Returns from Assessment Year 2012-13 - Mandatory e-filing

From the Assessment year 2012-13 the income tax department has made e-filing compulsory for the following categories of tax payers vide Notification number S.O.626(E), dated 28.3.2012.  

1. an Individual or a HUF whose total income is more than Rs.10 lacs
2. an Individual or a HUF, who is a resident, having assets (including financial interest in any entity) located outside India or signing authority outside India and required to furnish tax returns under ITR2 or ITR3 or ITR4

CBDT has further clarified under its Press Release No.402/92/2006-MC (12 or 2012) dated 2.7.2012 that though e-returns are mandatory for the above 2 categories, digital signature is not mandatory.  The assesses can transmit the data in the return electronically and thereafter submit for verification to ITR-V to CPC in Bangalore by ordinary post within 120 days.

 

To clarify 

• ITR1 is for tax payers with 
• salary or pension income
• Rental income from one property
• capital gains that are tax free
• Interest from interest and other sources
• ITR2 is for tax payers with
• salary or pension income
• Rental income from more than one prpoerty
• Any Capital losses or Capital gains
• Income from other sources
• Foreign assets
• ITR3 is for tax payers with 
• Interest from salary, bonus, commission or remuneration
• Capital gains
• More than one house rental income with carried forward losses
• Income from other sources
• ITR4 is for tax payers with
• Income from business or profession
• Income from other sources
• Foreign assets
• ITR5 is for Firms
• ITR6 is for Companies

E-filing of income tax returns can be done through website of the CBDT @ https://incometaxindiaefiling.gov.in/portal/index.jsp.  One has to login using their PAN number and then download the relevant ITR.  Once the ITR is completed there is a Submit Return icon available through which online return can be filled and ITR-V can be generated to forward to CPC in Bangalore.

194LLA - TDS on purchase of immovable property

From 1.10.2012, if you are buying property more than Rs.50 lacs in urban areas or Rs.20 lacs in other areas be prepared to deduct income tax @ 1% and remit the same to Income tax authorities.  This is one more tax procedure proposed to be introduced to be complied by the buyer of property.

Effective 1st October, 2012 a new section is proposed to be introduced in Income Tax Act, 1961 - 194LLA under which, TDS (Tax deduction at Source) should be deducted at the rate of 1% on all payments made for transfer of property other than agricultural land if the value of the property exceed Rs.50 lacs in urban areas and Rs.20 lacs if the property is situated in any other areas.

The buyer has to produce to the registrar the tax payment challan equivalent to 1% of the transaction value to get the land registered.  This the Government claims will help rein in information on real estate transactions immediately and will help Government curb black money as the Government feels real estate is a major area which generates black money.

Question is will this new levy help achieve the Government objective of curbing black money?  The problem with India is we are extremely good in drafting laws, debating them and enacting them.  But the major point is whether we are implementing the law as it should be implemented?  The answer is a big no!!  What is the Government doing with the data it gets from banks / registrars on large value transactions?  This TDS is more of a duplication of information to the Government.  This new TDS section will unnecessarily complicate the already complex tax laws we have in our country.

"Come on India" let us move forward with tax reforms these type of tinkering legislations lead to a vicious circle leading us nowhere.  Let us not waste time discussing and implementing 194LLA, but spend that time trying to implement GST / DTA and other landmark legislations

Budget 2012 - Direct Taxes

This article provides a brief overview of budget proposals 2012 and its implications. 

Individual Tax Payers

Basic exemption limit extended by Rs.20,000 to Rs.2,00,000.  For women exemption limit extended by Rs.10,000 to Rs.2,00,000.  No increase for senior citizens to remain at Rs.2,50,000.

Tax slabs have been slightly changed to extend the rate of 20% upto Rs.10 lacs.  The revised rate slab is as follows.

           Upto Rs.2,00,000 - Nil

           Rs.2,00,001 to Rs.5,00,000 - 10%

           Rs.5,00,001 to Rs.10,00,000 - 20%

           Rs.10,00,001 and above - 30%

80C - There is no change 

80D - In addition to the current benefits expense upto to Rs.5,000 on Medical Preventive Health check-up is allowed

80DDB - Senior Citizen age reduced to 60 years from current definition of 65 years

80TTA - Interest received from Savings Bank Account exempt upto a value of Rs.10,000

A new condition has been introduced in 80C as regards insurance premium.  Deduction under section 80C for insurance is allowed only to an extent of 10% of the capital sum assured.

Section 80CCF - infrastructure bond has been withdrawn from tax deduction

Corporate Tax Payers

No change in corporate rate of 30% for domestic companies and 40% for foreign companies. 

No change in Dividend Distribution tax (DDT) rates, remains @ 15% + 7.5% surcharge + 3% Cess (effective rate 16.60875%)

No change in MAT rate of 18.5%

Section 115JC - AMT (Alternate Minimum Tax) of 18.5% applicable to a person other than a company.

Salary TDS Provisions and Proofs to be given to Employer

Objective of this article is to explain various provisions tax savings / planning under income tax for salaried persons and documents they need to provide to their employers to enable exemptions / tax deductions by the employer

Multiple Employments - Section 192(2)

An employee who is employed with more than one employer during a financial year should provide to his present employer details of salary earned, tax deduted during his previous employment. 

Documents to be submitted to employer

1. Duly filled in Form 12B duly signed by the employee
2. If possible, Form 16 provided by the previous employer till the time the employee was in service with the previous employer (as additional proof

Loss from House Property (section 22 - 24) - (Let out Property)

If an house is let out (not occupied by the employee) then exemption can be claimed under this section if there is a loss from house property income.  The formula for calculating loss from house income is as follows (an example of Rs.10,000 per month rent, interest paid during the year is Rs.2,55,000 & municipal / water taxes paid is Rs.9,675)

                Actual Rent Received or Annual Value                                            1,20,000
   Less :  30%  of Actual Rent received or Annual Value                                    36,000
   Less :  Interest on capital borrowed for purposes of construction /
                                                                                           repair                      2,55,000
   Less :  Municipal / water taxes paid for the house                                             9,675

                Loss Under House Property                                                              1,80,675

This loss will be recognised by the employer and taken for tax deduction accordingly.

Documents to be submitted to employer

1. Details of full address of the property
2. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed
3. Details of Annual rent / municipal taxes (copy of receipts)
4. A self signed declaration with the following words: I, …………………. (name of the assesse), do declare that what is stated above is true to the best of my information and belief.  

Interest on Self occupied house

If housing loan is taken on or after 1.4.1999 for construction or acquiring of a residential unit then a deduction upto maximum of Rs.1,50,000 is allowable on interest on such housing loan.   This is not available in case loan is taken for purpose of repair or renovation of an existing residential house.  The following points are worth noting

1. This deduction is available only after completion certificate is obtained from the builder and regular EMI is commenced by the financial institution
2. All Pre-EMI's can be shown as deduction in 5 equal instalments (5 years) commencing from the year in which the construction is completed

Documents to be submitted to employer

1. Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed - clearly detailing the amount of interest paid on the housing loan

Medical Allowance - Section 17(2)(v)

Medical expenditure incurred by an employee for himself or any member of his family (who are his dependents) shall be exempted to a maximum extent of Rs.15,000 in a year

Documents to be submitted to employer

1. Medical bills pertaining to the relevant financial year and in the name of the employee or any member of the family (who are dependents)

Leave Travel Allowance - Section 10(5) - Rule 2B

 

Expenses incurred on travel for proceeding on leave to any place in India is exempt provided employer pays him a specific allowance to this regard or can allocate a portion of the salary to this allowance.  The following are the conditions to avail of this exemptions from income tax.

1. Cost of the travel is restricted to Economy Air Fare by the shortest route
2. If travelled by any other mode than Air, then exemption is restricted to cost of First Class Air Conditioned fair by the shortest route
3. The exemption can be claimed in respect of two journeys in a block of four years
4. This exemption can be claimed only for expenses incurred on family.  Family is defined as Spouse, Children, Parents, Brothers and Sisters wholly dependent of the individual

Documents to be submitted to employer

1. Proof of Travel - Tickets etc
2. Proof of availing leave to prove that the employee travelled
3. If travel by Car / Taxi then as a corroborative evidence Toll Bills, Parking bills etc.

House Rent Allowance - Section 10(13A) - Rule 2A

HRA exemption is restricted to the least of the following

1. Actual HRA Received by the employee
2. 40% of salary - Salary means Basic + Dearness allowance.  (50% of salary if the rented accommodation is situated in Delhi, Mumbai, Kolkata or Chennai)
3. Actual Rent Paid in excess of 10% of salary (Salary means Basic + Dearness Allowance)

Documents to be provided to employer

1. Proof of Rent Paid - Rent Receipt (not required to provide if monthly rent is less than Rs,3,000)
2. Rent receipt should be stamped with revenue stamp and duly signed by the landlord
3. If rent exceeds Rs.1,80,000 per annum then the PAN number of the landlord should be mentioned in the rent receipt.  If the landlord does not have a PAN then a declaration to the effect that no PAN number is available should be taken from the landlord along with the name and address of the landlord

Deductions under Chapter VIA

Deductions under Section 80C

Exemption under 80C is restricted to Rs.1,00,000 and it covers the following.

Payment towards insurance Premium

Payment of insurance premium (including ULIP's) to keep in force an insurance to cover the life of the individual or spouse of the individual or any dependent child of the individual.

It may be clarified that the amount of premium so allowed on the insurance policy is subject to a maximum limit of 20% of the actual sum assured (ie) if sum assured value for a policy is Rs.2,00,000 then the premium allowed per year under section 80C for this policy will be maximum Rs.40,000 or actual premium paid.

Documents to be submitted to employer

1. Receipt of premium paid
2. Proof of sum assured (if available in Premium receipt above not required seperately)

Contribution to Public Providend Fund

Contribution to any Providend fund set up by the Central Government and notified accordingly. 

Documents to be submitted to employer

1. Receipt of contribution made
2. In case of Passbook entry copy is submitted, to submit originals for verification and return

Deposit in Savings Certificates

Deposit in savings certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959.  Currently the Government has notified National Savings Certificate VIIIth issue.

Documents to be submitted to employer

1. Copy of the savings certificate in the name of the individual or spouse or children of the individual who are dependent on the individual

Deposit in Mutual Funds

Deposit in units of any mutual fund referred to in Clause 23(D) of section 10.  The Centre has notified that the deposit should be made in an "Equity Linked Savings Scheme"

Documents to be submitted to employer

1. Proof of investment in designated mutual funds

Repayment of loan borrowed for purpose of construction of residential house property

Deduction will be allowed on repayment of housing loan availed by an employee from any bank or reputed financial institution.  For the purpose of this deduction expenses incurred on Stamp Duty, registration fees and other expenses incurred on transfer of property is also exempt in the year of transfer.  Note - no other expenses will be allowed for deduction under this clause regarding house property.

Documents to be submitted to employer

1. Copy of payment certificate from the financial institution clearly mentioning the principal and interest repayments.

Tuition Fees of Children

Tuition Fees for any two children incurred whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India for the purpose of full time education.  Full time education includes play-school activities, pre-nursery and nursery classes.  Also note payment in nature of development fees, donations or capitation fees or fees of similar nature are not allowed as exemption.

Documents to be submitted to employer

1. Children's fees receipts - copy

Fixed Term Deposit

Investment in a term deposit for a fixed period of not less than 5 years with a scheduled bank.  Please take care to invest only in banks and schemes of the banks which are covered under "Bank Term Deposit Scheme, 2006"

Documents to be submitted to employer

1. Copy of the deposit receipt

Other deductions (more than Rs.1,00,000

Contribution to New Pension Scheme - Section 80CCD

Contribution made by an Employer into the New Pension Scheme (NPS) is exempt subject to a maximum of 10% of employee's salary (Salary defined to include Basic + Dearness Allowance).  The Employer should deduct from the employee salary NPS and deposit the same in Tier 1 account of the employee to enable the employee to avail this benefit.  This benefit overrules the limit of Rs.1,00,000 of section 80CCE. 

Document to be provided to employer

1. The law here is that employer should deduct and pay into NPS account, so proof is available with the employer himself similar to Providend Fund (PF) deduction

Contribution to Infrastructure bond - Section 80CCF

This section is extended for financial year 2011-12 and may not be continued for subsequent years.  Under this section investment of maximum Rs.20,000 in specified long term infrastructure bonds as notified by Central Government is exempted. 

Document to be provided to employer

1. Copy of infrastructure bond
2. If demat account copy of transaction statement of demat account

Medical Insurance Premium - Section 80D

No Cash Payment is allowed for this premium (ie) payment for medical insurance premium should be by "other than cash" mode to avail exemption under this section.  The deduction allowed for medical insurance premium is 2 fold.

1. Premium paid on medical insurance of family of assessee for an amount of Rs.15,000
2. Premium paid on medical insurance of parents of assessee for an amount of Rs.15,000.  If the parents are senior citizens (more than 60 years) then the exemption allowed is maximum of Rs.20,000 instead of Rs.15,000.

Document to be provided to employer

1. Copy of medical insurance premium paid
2. Copy of policy to prove that it is a Health / Mediclaim policy

Medical treatment of a dependent with disability - Section 80DD

Deduction is provided for Rs.50,000 towards medical treatment, and if treatment is for persons with severe disability then deduction is provided for Rs.1,00,000. 

Documents to be provided to employer

1. Certificate from medical authority in prescribed form

Repayment of Interest on loan taken for higher education - Section 80E

Deduction is allowed for interest on loan taken for purposes of pursuing higher education from any financial institution or Charitable institution.  Deduction is allowed for the individual's education loan or loan for spouse or dependent Children or for a student for whom the assessee is a legal guardian.  This deduction is allowed for 7 years from the year in which the loan is availed or until the loan is fully repaid whichever is earlier. 

Documents to be provided to employer

1. Details of loan and clear specification of interest on the loan

Donations - Section 80G

Generally no deductions should be provided by employer in deducting TDS from salary for purposes of donations under section 80G, the assessee should claim the same in his return.  Only those donations which are deducted by employer for donations and paid by the employer to Prime Minister's Relief fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief fund should be deducted from salary

Important Note

The above is only a illustrative list and may not cover all scenario's.  There may be certain instances when the above scenarios may be interpreted differently by taxation authorities.  Please treat this article as a basic guide and seek expert advise for taxation purposes.

Section 206AA - Compulsory quoting of PAN

 

From 1.4.2010 income tax act has inserted section 206AA which makes furnishing of PAN compulsory for all employees in case they are liable for payment of TDS. If the employee fails to produce PAN then the TDS for the employee will be deducted at the higher of the following rate

1. at the rate specified in income tax act
2. at the rate or rates in force
3. at the rate of 20% 

In short, if PAN is not obtained tax will be calculated @ the minimum rate of 20% or higher rate as per tax calculation.  It is advisable to obtain PAN numbers immediately by all employees.

 

The Vodafone verdict - Supreme Court judgement & DTC Provisions

The Supreme Court Judgement in the Vodafone case will have a short life as Direct Tax Code has specific provisions to tax such income.  Delay in implementing Direct Tax code may prompt the Government to amend the Income Tax Act, 1961 as early as during this year budget itself.  This article discusses the Vodafone judgement "as it is" and also tries to understand the provision under DTC.

The much talked about Vodafone verdict has been delivered and the trade heaved a sigh of relief on receipt of a favourable decision.  The sections under question where Section 9(1)(i), Section 195 & Section 163 of the Indian Income Tax Act, 1961.  The following are the main areas of dispute

1. Whether a share transfer involving two off shore entities one of which is registered in a tax haven called "Cayman Islands' is subject to Capital Gains tax in India since the underlying company whose shares are being transferred has assets / business / generates income in India
2. Whether the non-resident being the purchaser of shares liable under section 195 to deduct Capital Gains tax on such transfer as a representative assessee of the seller

Vodafone International Holdings BV (VIH) incorporated in the Netherlands bought shares from Hutchison Telecommunications International Limited (HTIL) registered in Cayman Islands.  The Shares transacted where of Hutchisson Essar Limited which is registered in India and carrying on business in India.

The contention of the tax department in simple words are :

Though the transaction between VIH & HTIL has been transacted overseas but the underlying assets / business of the subject matter company is in India therefore the provisions of section 9(1)(i) are being invoked and the transaction is liable to Capital Gain tax in India.  Further as per section 195 tax is deductable on payment of consideration by VIH as a Representative Assessee as defined under section 163.

Arguments of VIH in simple words are :

The transfer of shares are between two off shore entities beyond the jurisdiction of Indian tax laws, and hence the share transfer cannot be taxed under deeming provisions of section 9(1)(i) and section 195 cannot be invoked against VIH.

The Key observations of Supreme Court are :

1. Principle of "Look At" and not "Look Through" upheld.  Section 9 has a deeming provision for taxation of income.  Section 9 is not a "Look Through" provision but a "Look At" provision
2. There is no transfer of Capital assets transfer which is situated in India
3. Only if the transaction is a sham could tax authorities invoke the "Substance over form" principle or "Piercing the Corporate Veil" test
4. Section 9(1)(i) being a deeming provision can be invoked only in case of - Transfer; existence of a capital asset & situation of such asset in India.  The subject matter in this instance case is "Indirect Transfer" which cannot be deemed as income under section 9(1)(i) as there is no "Direct Transfer"

The Supreme Court further states that Tax Planning is not illegal provided the transaction in not a sham or coloured transaction.  In this instance case the companies incorported in Cayman Islands are there in existence since the last 14 years and cannot be said to be incorporated for the purposes of avoidance of capital gains tax in India. 

The Supreme Court was of the view that since this is not a Sham transaction and the transactions are between two off shore entities there is no jurisdiction for Indian Tax Laws

The was forward - DTC or No DTC

The way forward will be definitely not as per the Supreme Court ruling.  First the Government will come out with an amendment to the Income Tax Act, 1961 (may be even retrospective) to plug this gap as early as this budget. 

The Direct Tax Code 2010 (DTC) - Section 5(4)(g) on Income deemed to accrue in India, has the following provision :

"income from transfer , outside India, of any share  or interest in a foreign company unless at any time in twelve months preceeding the transfer , the fair market value of the assets in India, owned, directly or indirectly, by the company, represent at least fifty per cent of the fair market value of all assets owned by the company"

Clearly the way forward is to tax the Vodafone kind of transactions, and the language of the law is quite clear. 

Summary

In this case Supreme court interpreted the law "as it stands" which is welcome as it brings in consistency in interpreting the law and the trade is quite clear on do's and don'ts under the laws of the land.  Taxation of all business income should be possible and this should not be taken away by poor drafting of tax laws and tax havens.  Government should act swiftly to plug these holes and ensure that revenue is protected.  Caution should be taken in drafting tax laws which should contain clear provisions and not subject to interpretation and consequent litigations.  Clear provisions will enable corporates to be clear on their tax liabilities and plan their strategies around it.

HRA in Tax - Rent Receipts

"Tax Season" for employees have commenced and all of us will be busy calculating our tax liabilities and providing exemption certificates to our employers.  All of you will be aware that for claiming exemption under HRA if we are living in a rented accomodation we have to produce rent receipt from the landlord.  The following are the provisions notified by CBDT vide their Circular No.05/2011 dated 16.08.2011.

1. No requirement to produce rent receipt if rent paid per month is less than Rs.3,000 - but if in case of assessment by the income tax officer, the income tax officer may direct to produce such receipt so it is advisable to get the rent receipt
2. All rent receipts exceeding Rs.15,000 per month or Rs.1,80,000 per annum should contain the PAN number of the landlord.  If the landlord does not have a PAN then the employee should give a declaration that the landlord does not have a PAN and provide in the declaration the details of landlord like his name & address

Centralised Processing of Returns Scheme, 2011

CBDT has notified Centralised Processing of Returns Scheme, 2011 vide Notification No.2/2012 [F.No.142/27/2011-SO(TPL)] dated 4.1.2012.

This schemes details out the entire process of e-filing of income tax returns, acknowledgement of such return & processing of returns in the Centralised Processing Centers.  The scheme also provides procedure for rectification of mistakes on the returns and also provides for issuance of Order Under Section 154 of Income Act, 1961. 

This scheme will provide full clarification to all procedural aspects in relation to e-filing of Income Tax Returns.

Nil TDS on Transport Charges (Section 194C) & TDS Returns

With effect from 1.10.2009, Finance Act (2) of 2009 has provided that no TDS needs to be deducted on payments made to Transporters who provide service of Plying, hiring or leasing goods carriage.  The Caveat here is that these service providers should provide their PAN number to the deductor, if not deduction will be made at 20%.

Even though TDS is not deducted on transport charges these transport charges has to be furnished in the Quarterly eTDS return with tax deduction shown as "NIL".

To quote the words in the Finance Act (2) of 2009

"(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed."

There are instances where the transport charges are not forming part of the quarterly e-returns which is a violation, so please ensure that your e-returns capture the same

Income Tax Quarterly Returns now to be filed early by 15 days

Income Tax department has issued Notification No.57/2011 dated 24.10.2011 and notified rules called Income Tax (Eighth Amendment) Rules, 2011. 

This notification comes into effect from 1.11.2011.

Under this notification the due date for filing of Quarterly Statements for tax deduction has been advanced by 15 days.

In short.

For Quarter ending 30th June - Quarterly Statement should be filed on or before 15th July of the same financial year

For Quarter ending 30th Sept - Quarterly Statement should be filed on or before 15th October of the same financial year

For Quarter ending 31st Dec  - Quarterly Statement should be filed on or before 15th January of the same financial year

For Quarter ending 31st Mar  - Quarterly Statement should be filed on or before 15th May of the next financial year

Please take note of these changes and file Quarterly Statements accordingly.

How to handle Income Tax Scrutiny Assessments u/s 143(2) in India

Indian taxes are complicated, equally complicated is appearing for assessments before the assessing officer who is often the Assistant / Deputy / Joint Commissioner of Income Tax.  The primary objective of this article is to provide an insight into income tax assessements under section u/s 143(2), and how best one can handle this.  This article primarily may be suitable for medium sized manufacturing companies with a turnover range of Rs.100 crores to Rs.300 crores.

Along with the 143(2) intimation, an checklist of about 25 information required is sent by the Income Tax Officer.  These informations require various details relating to the company's activities including income, debtors, creditors, loans, assets etc.  As far as possible please take time and reply to all these queries precisely, with full facts and wherever annexure is required to be submitted also make the annexure.  Please ensure that not only the information is full, but also provided on time given or at the maximum one extension of time.

Then a personal hearing is called for by the Officer, would recommend that the person attending the hearing has reasonable knowledge of the business & also knowledge of income tax, so that he can explain all the queries of the officer about the business as well as income & expenses relating to the business.  Here I would suggest that a senior official from the company (maybe Head of Finance) should attend the hearing and explain to the officer about the company and also all the queries regarding financials of the company. 

The major problem with Indian Income Tax Administration is that they do not have any past records of the company like a "Permanent Audit File" so an information which was provided during the previous assessment will be asked again, so would recommend that be prepared for providing copies of all major agreements like Royalty, Third Party Manufacturing Agreement, Head Quarter Services Agreement, Distributor Agreement etc to the assessing officer, even though these agreements were live before the year under scrutiny.  Also please bear in mind that in India the officers change once in 3 to 4 years and there being no exchange of information among the officers the new officer will ask for all the details which were provided by you to the earlier officer also.  In short, for every assessment everything starts fresh.

Another twist to the tale will be Transfer Pricing.  If your company has substantial International Transactions with related parties then the Income tax Officer will transfer the file to the Transfer Pricing Officer for scrutiny of Transfer Pricing transactions.  Again the problem of "disconnect" among the officers happen here.  The Assessing Officer and the Transfer Pricing Officer do not exchange information so the Transfer Pricing Officer will also ask some details which were already provided to the Assessing Officer and also ask for one more copy of the agreements already provided to the Assessing Officer.  The scrutiny of Transfer Pricing Officer will again have its iterations of calling for additional details and personal hearing.  Here again I would strongly recommend that a company representative having reasonable knowledge about business and income tax regulations attend the hearing, so as to make the Transfer Pricing Officer more comfortable.  Here also please provide full details for any queries raised by the Transfer Pricing Officer and ensure that you attend the Personal Hearing and all the subsequent hearings on time stipulated without postponment as much as possible, this will help trust to be built on you by the Officer.

Once the Transfer Pricing Officer sends in the report, the Assessing Officer again opens the files and goes through another round of questions and personal hearing.  As usual be elaborate and complete in your answers and ensure that you attend the Personal Hearings on time stipulated without postponment.

If there are issues raised by the officer which you do not accept please present your side of the case with full details including case law citiations and preferably in writing as you would do to the higher courts.  This helps in decision making of the Assessing Officer.  Here you should take opinion from experts as if the officer rejects your side of the story then appeal is a costly and time consuming affair.

In conclusion, please be prompt & accurate in your replies and ensure that you attend the hearing on time, surely you will get over the assessments without much hurdles.

Divident Distribution Tax - Section 115O – AY2012-13

Dividend is taxable in India under section 115O of the Income tax Act, 1961. Effective rate of Dividend Distribution tax from 1st April 2011 is 16.2225% (15% basic rate + 5% surcharge + 2% education cess and 1% higher education cess). This tax cannot be avoided on payment of dividend, even if no income tax is payable by the company on its total income.

This dividend distribution tax (DDT) should be paid within 14 days of declaration of dividend or distribution of dividend or payment of dividend whichever is earlier.

For remittance of dividend abroad (overseas), If dividend tax is paid before distribution of dividend, authorised dealers (banks) do not insist for Form 15CA & 15CB

If in case dividend is paid to your group company (headquarters) abroad (this will happen mostly in case of MNC’s) filing of annual income tax returns is mandatory for such companies. As a first step those companies should apply for and obtain PAN number.

TDS on Advance

Question

Advance pymt made to Builder for residential flat - Do we need to deduct TDS on such pymt as per IT Act, India? Payment made by Indian Company to a property developer

Answer

Yes tax needs to be deducted on the Builder as it is a payment to a contractor as defined under section 194C. Section 194C(1) states that tax should be deducted either at the time of credit of such amount or payment of such amount (either by cash or cheque) whichever is earlier. So in this case as you make payment (advance) before crediting the amount, you are liable to deduct TDS under section 194C for the advance

Tax on Arrears of Income

Question

I have to receave pending salary of 7 years back with the suprime court order that is about 5 to 6 lac. I want to know will the employeer deduct the TDS and How I can save income tax on above pending salary.

Answer

Arrears of income is taxable either in the year of receipt if not taxed in the year of accrual. For example if an arrear of salary for the year 2005-06 is received in the year 2009-10 and if tax has not been paid in the year 2005-06 then it will be offered for tax in the year 2009-10.

However exemption under section 89 read with Rule 21A(2) can be claimed as under.

If an assessee receives an income due in the year 1 (not offered for tax in year 1) in year 6 then exemption under section 89 can be claimed as below

A) Calculate in year 1 tax payable "without" including the Arrear amount
B) Calculate in year 6 tax payable including the Arrear Amount
(This is "receipt" method of accounting)

C) Calculate in year 1 tax payable including the arrear amount
D) Calculate in year 6 tax payable "Without" including the Arrear Amount
(This is "Accrual" method of accounting)

Calculate : A+B & then C+D. The excess of A+B over C+D is the exemption limit. If C+D is higher than A+B then there is no exemption.

Regards
S Saravanan
http://ssaravanan-vvu.blogspot.com/

Set off Long Term Capital Gains

Question

Can we set off capital gain tax arising out of sale of property by buying more than one residential properties?

Answer

In Section 54 of the income tax act there is no specific limitation to the effect that the assessee should own only one house. Set off for Long Term capital Gain is available for more than one house. Please check Direct Tax Ready Reckoner under Article Capital Gains from transfer of land chapter. There are very good examples given there.

Long Term Capital Gain

Question

Can you please advise me on the followingI bought place and constructed house in it in 2002 with an investment of 10 lakhsNow if I sell it for 15Lakhs , a)What is the indexed acquisition costb)Do we add stamp duty paid for place registration in the total purchase cost of house.c) Do we need to consider sale price fixed by state registrar for property valuationor actual sale deed value which is less than registrar valued) what would be the capital gain tax in this case.e) what are the schemes to invest by which i can get tax exemption.f) If i purchase residential land with this amount, do I get capitalgain tax exemption.g) do I need to invest all 15L for purchasing flat or only capital gains amount to get tax exemption

Answer

In your case : Full value of consideration received Rs.15 lacs

Index for 2010-11 is 711 & Index for 2002-03 is 447, so your indexed cost of acquistion is 10lacs / 447 * 711 = 15,90,604.

As the indexed cost of acquisition is more than your consideration received there is no capital gain tax for you.

Divident Distribution Tax - Section 115O

Dividend is taxable in India under section 115O of the Income tax Act, 1961. Effective rate of Dividend Distribution tax from 1st April 2007 is 16.995% (15% basic rate + 10% surcharge + 2% education cess and 1% higher education cess). This tax cannot be avoided on payment of dividend, even if no income tax is payable by the company on its total income.

This dividend distribution tax (DDT) should be paid within 14 days of declaration of dividend or distribution of dividend or payment of dividend whichever is earlier.

This dividend distribution tax has bigger implications for attraction of foreign investments given that ultimately the effective tax rates on profits work out to 50% considering income tax of 33% and dividend tax of 16.995%. There is a strong case to reduce / remove this DDT if India has to emerge as a major destination for attracting foreign investments.