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Financial/Estate Planning
Residential taxability of an individual

Residential status and taxability of an individual

The residential status under Income Tax law plays a vital role while considering taxation of certain incomes of an Individual. It is not related to citizenship of a country.

The residential status of a person is required to be determined for each assessment year in order to ascertain the scope of his total income. The residential status of a taxpayer is worked out on the basis of tenure of his physical stay in India during the Financial Year.

For tax purpose all tax payers are classified into two broad categories based on their period for which they were physically present in the country:

1. Resident
2. Non-resident(NR)

Residents are further classified into:

1. Resident and ordinarily resident (ROR)
2. Resident but not ordinarily resident (NOR)

An individual is said to be Resident in India in any previous year, if he satisfies any one the following conditions:

A) He has been in India for a period or periods amounting in all to a minimum of 182 days during the previous year, or

B) He has been in India for a total of 365 days or more during the 4 years immediately preceding the previous year and for at least 60 days during the previous year.

If any individual satisfies any of the one conditions mentioned above, he is a Resident of India. If none of the above mentioned criteria is fulfilled by an individual then he is categorized as Non-resident.

*The 60-day period mentioned above (in point b) will be substituted for 182 days in case of the following persons:-

  • A citizen of India who leaves the country as a crew member of an Indian ship or for the purposes of employment outside India.
  • A Citizen of India or Person of Indian Origin who visits India in any previous year.

A resident individual will be treated as ROR in India during the year if he satisfies both the following conditions:

a) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant financial year.
b) His stay in India is for 730 days or more during 7 years immediately preceding the relevant financial year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as NOR.

Key points to consider while ascertaining residential status of an individual

  • Receipt of Income: If an amount is 1st received outside India and then subsequently remitted to India, it will be considered as Income received outside India just remittance of such income would not make it an income received in India.
  • Citizenship of a country and residential status: Residential status of an Individual is not nexus to his citizenship. An Indian citizen may be a resident of India or not. On other hand a person may not be citizen of India /foreign citizen but resident of India.
  • Calculation of period of stay: In calculation of period of stay for purpose of determining residential status, it is not compulsory that person had a continuous stay. Total number of days of stay in India during that financial year are to be considered.
  • Residential status for a particular year: Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law laid in this regard. So, it may happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

The following table highlights the tax incidence as per residential status:

Nature of income ROR NOR NR
Income which accrues or arises in India Taxable Taxable Taxable
Income which is deemed to accrue or arise in India Taxable Taxable Taxable
Income accrue or arise outside India but received in India Taxable Taxable Taxable
Income which is deemed to be received in India Taxable Taxable Taxable
Income accruing outside India from a business controlled from India or from a profession set up in India Taxable Taxable Not taxable
Income other than above (i.e., income which has no relation with India) Taxable Not taxable Not taxable

 

For assistance in determination of your residential status and computation of tax liability based on it, please contact AJSH & Co LLP. You can click here and reach our taxation experts for further queries.

SEZ in India

Establishing a unit in SEZ in India

India is among the foremost Asian countries who have considered the idea of setting up an Export Processing Zone (EPZ) model to promote country’s exports. To attract more foreign investment and provide an internationally competitive and hassle free environment for export promotion in India, Special Economic Zone (SEZ) was introduced. In the year 2000, with an inception of SEZ policy, India had begun to walk on the path of success.

Initially, the SEZ policy was included under foreign trade policy 2000. The policy was implemented through piecemeal and ad hoc amendments to different laws, besides executive orders. In order to overcome these drawbacks and to give a stable long term policy framework with minimum regulation, the Special Economic Zone Act, 2005 was introduced. The Act provided broad legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

SEZ is a specific duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In other word, SEZ is a geographical region that has economic laws different from the country’s economic laws. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia.

Main objectives of establishing a SEZ

  • Generating additional economic activity
  • Promoting exports of goods and services
  • Promoting investments from domestic and foreign sources
  • Creation of employment opportunities
  • Development of infrastructure facilities
  • Exposure to technology and global market

Benefits and incentives of setting up a business unit in a SEZ

  • Tax benefits (tax holidays, income tax exemptions, etc.)
  • Liberal labor regulations
  • Exemption from excise and customs duty on procurement of capital assets, consumable stores, raw-materials from domestic market
  • Streamlined procedures for getting approvals (online / single window)
  • Liberal approach in foreign direct investments
  • Increased capital account convertibility
  • Relaxed export regulation
  • Full repatriation of profits
  • Non-applicability of related environmental laws

Setting up a unit in SEZ

A company planning to setup unit in a specific SEZ needs to apply with the respective Development Commissioner’s (DC) office of SEZ zone. To file an application, company needs to fill the Form-F, stipulated by SEZ rules. The applicants filing the form, needs to submit this form online through SEZ online system using module New Unit Application (NUA).

The steps for NUA are as summarized below:

1. Creating user ID: This is the initial stage for setting up a SEZ unit. For setting up a new unit in SEZ, the user, for the purpose of registration, shall login to SEZ online system and create a new user ID.

2. Raising NUA request: After registration, users are required to fill a “new user application” providing the necessary details which includes general details of company, details of directors, item / products, in which the company deals in, and other details like investments, equity, for-ex, applicant and marketing collaborations of the company.

3. Submitting Form- F and other documents: Further in this procedure, applicants need to upload the below listed documents with a filled Form – F, as mentioned in “Add Documents” field. These enlisted documents have to be submitted physically in DC’s office:

  • Copy of incorporation certificate, Articles and Memorandum of Association of the company
  • Demand draft of INR 5000/- in favor of “The Pay & Accounts Officer,< payable location>”
  • Copy of company’s profile, directors’ profile and project report
  • Copy of board resolution
  • List of imported and indigenous capital goods
  • Form 18 and 32 filed with ROC
  • Copy of residential proof and identity proof of directors
  • Income tax returns of last 3 years
  • Copy of audited financials
  • Copy of IEC of the company
  • Copy of PAN of the company
  • Copy of term sheet for incubation premises
  • Copy of term sheet for main premises
  • Letter for marketing / buyback plan
  • List of directors with their details
  • Letter mentioning website and e-mail address
  • Undertaking for pollution control
  • Affidavit

Along with these documents, applicant needs to submit Form – F containing the details of NUA.

4. Rectification of deficiencies: If the DC does not get satisfied with the submitted documents, he may raise a demand for additional documents. In case, the request is sent back by DC office and the demand is raised from DC office, applicant shall submit the documents within the stipulated

5. Approval of request: After verification of all the documents submitted and other requirements fulfilled by applicant, DC is authorized to approve the request of NUA. Further the approval, an e-mail will be sent to applicant on the registered e-mail describing the supplementary

6. Payment of registration fee: After approval from DC office, a link for payment of registration fee will be enabled; enquiring a few details for payment. On payment of fee, NSDL Database Management Ltd. (NDML) representative will verify receipt of payment and will authorize the payment upon verification of valid payment entry in SEZ online system. Upon authorization of payment, applicant can create administrator and operational users IDs.

7. Submission of lease deed details to DC’s office for approval: After acceptance of letter of approval, the unit is expected to enter into a lease agreement with the developer of the SEZ in which it is commencing business. After entering into the agreement, the unit will have to enter the lease deed details in the SEZ online system and submit it online to the DC’s office. The unit shall also have to submit a copy of the lease deed to the DC’s office in physical form.

8. Intimation of date of commencement: As soon as the unit commences production, the date of commencement of production has to be intimated to the DC’s office. The unit shall online intimate the date of incorporation through SEZ system. In addition, the DC may also require the unit to submit supporting documents in physical form.

For the Fact: As of March 2018, 223 SEZs are in operation and a massive 419 SEZs have been approved.

Deciding on which SEZ is best for your business, it can be a difficult and stress-inducing process. We at AJSH & Co LLP can guide you in setting up a SEZ unit in India as per your business requirements. To know more about this, click here.

tax

Filing tax return for a deceased person

It is a misconception that person’s tax liabilities end with his life. Filing an income tax return (ITR) is mandatory if your income is taxable. But, it’s not only the living who are required to pay their taxes. ITR for deceased person also needs to be filed in case where a person dies and had taxable income. It is common that after the death of the taxpayer, family members often concentrate only on the debts, investments, savings accounts, insurance and transfer of estates of the deceased and ignore the taxation aspect.

On the death of the assesse, the income from his / her assets and the tax liability is transferred to his / her legal heirs. So, it becomes liability of legal heirs / representative to file the return on his behalf and such heirs can pay taxes in their representative capacity. The return needs to be filed for the income earned by person passed away during that financial year up to the time of his/her death.

Procedure of filing ITR as representative of deceased assessee

Get the legal heir certificate: To register as legal heir, any of the following documents are accepted as legal heir certificates:

  • Legal heir certificate issued by a court.
  • Legal heir certificate issued by local revenue authorities.
  • Surviving family member certificate issued by local revenue authorities.
  • The registered WILL.
  • The family pension certificate, issued by State/Central Govt.

Register on income tax website as legal heir: According to section 159 of Income Tax Act 1961, the legal heir or representative is deemed the assessee. Registration as a legal heir is must for e-filing of return on behalf of deceased person. Legal heir needs to register online by submitting his details with the details of deceased. He is required to upload legal heir certificate along with other documents like copy of Death Certificate, copy of the PAN Card of the deceased, self-attested PAN copy of the Legal heir.

Computation of income of the deceased: The total earnings of the deceased during the year have to be bifurcated into two parts – Income earned while he was alive and income earned after the date of his death. Income earned during the period of April 1 to the date of death shall be considered as deceased person’s own and legal heir is supposed to file return for this income in name of deceased assessee. Income earned after the date of death till the end of the financial from the inherited asset shall be considered as legal heir’s income and he would be liable to pay tax on this income.

Filing ITR of the decease: After successful registration, the legal heir has to file the return on behalf of the deceased for income earned from the 1st April of the financial year till the date of death. The legal heir needs to log in to E-filing portal for online filing of the tax return using his own. Then the legal representative should furnish the details of the deceased like his name, PAN, date of birth, Date of death etc. Also, he need to provide the scanned copy his PAN, the death certificate, PAN copy of deceased.

Key points to consider while filing ITR of a deceased assessee

  • The ITR of the deceased should be filed in the same format and time as for all other tax payers.
  • The tax must be payable on income earned from starting of the financial year (April 1) till the date of death.
  • The legal representative gets the benefits of all the rebates and deductions that the deceased would have been eligible for.
  • Any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;
  • Property of the deceased person inherited to his legal heir shall not be reported in the Income-tax return of the deceased person, because this transaction is not carried out as transfer for the capital gain purpose.
  • Money or property received by legal heirs by way of inheritance shall not be reported in income-tax return because Section 56(2)(x) does not apply to money or property received by way of inheritance.
  • Income earned after the date of death, from any inherited property shall be considered as legal heir’s own income and is to be reported in his tax returns.
  • If the total income of a legal heir, including the income of deceased person from the date of death, exceeds INR 50 lakhs, the heir shall be required to provide details of all Assets and Liabilities held by him at the end of the financial year in Schedule AL. These details shall include all assets and liabilities including the assets acquired by way of inheritance.
  • Proceeds from the sale of property by legal heir he received by the way of inheritance  shall be taxable as capital gain in hands of a legal heir and is required to be reported under scheduled capital gains in ITR forms.

Extent of liability of a legal representative: The liability of the legal heir would be limited to the extent of assets of the deceased which are or might come into his possession.  The money to recompense the taxes does not go out of the legal heir’s pocket.

Claiming refund on behalf of deceased assessee: Where there is any refund of a tax has to be claimed in the Income-tax return a deceased assessee, the refund can be received by the legal heir just like he/she can file ITR on behalf of the deceased assessee. Usually, the refund is directly credited to the bank account. If the deceased tax payer holds a joint account with the legal heir, then it becomes convenient to receive the amount. In case of absence of a joint account, the account can be operated by the nominee who is appointed by the deceased. In the absence of a nominee, the legal heir can operate the account.

Tax compliances that legal representative need to be adhere to while filing his own ITR

Carry forward and Set off of Deceased Person’s Business loss: When a legal heir takes over in the business of his predecessor by inheritance, he is entitled to carry forward the loss incurred by the previous owner. However, the total period of carrying forward cannot exceed 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

Tax on inherited property: The tax on inheritance, called ‘Estate Duty’ was abolished in 1985 and so, there is no tax on inheritance in India. Transfer of capital asset under inheritance will is not taxable in hands of deceased as well.

Though no tax shall arise either in hands of a legal heir or deceased at the time of inheritance, yet capital gain tax liability arises in hands of a legal heir in case of subsequent sale of the inherited property. For calculation of capital gain on proceeds from sale of inherited property, the actual cost of acquisition is taken as the same at which the property was acquired by the previous owner. While determining the period of holding of, the period of holding of inherited assets by the deceased shall also to be taken into consideration.

Surrender of the PAN card: Legal heir is advisable to surrender the PAN card of the person who is no more, after submission of his last income-tax return and payment of tax dues or receipt of a refund if any.

We cannot compensate for the loss of your loved ones, but can definitely help you in the complex process of filing his / her tax returns .For further assistance click here.

 

llp registration in Delhi India

A hybrid corporate entity-Limited Lability Partnership

Limited Liability Partnership (LLP) is a new corporate structure introduced in India in April 2009, through the LLP Act of 2008. Aimed at small and medium sized businesses; a LLP is hybrid form
which integrates many of the benefits of limited corporations and the traditional partnership firms. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, and also allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as a partnership firm. Low registration fee and easy maintenance make LLP a preferred category of entity for many of the small and medium businesses in India.

Features
Most enticing features of a LLP are:

  • Simplicity and ease of formation and registration
  • No prescribed minimum capital requirement for each partner
  • Liability of each partner is limited to the contribution mention in agreement
  • Cost of formation is limited
  • Least regulatory compliances
  • Separate legal entity

The minimum number of partners required to incorporate an LLP is two. There is no constraint on the maximum number of partners in LLP in India. Among the partners, there should be minimum two designated partners with proper Designated Partner Identification Numbers (DPINs), and at least one of them should be resident in India. The rights and duties of designated partners are governed by the LLP agreement.

Documents Required
To register a LLP in India, the following documents are required:

  • PAN of the partners
  • Address proof of the partners
  • Utility bill of the proposed registered office of the LLP
  • No-Objection certificate from the landlord
  • A copy of rent agreement between the LLP and the landlord

PAN of the partners and their address proof are required to start the LLP formation procedure. The documents pertaining to the registered office of the LLP can be submitted after obtaining name approval for the LLP from the Registrar of Companies (ROC).

Following is step wise registration process for incorporation of Limited Liability Partnership (LLP):

Director Identification Number (DIN): Every individual intending to be appointed as designated partner of proposed limited liability partnership has to apply for allotment of DIN. Earlier partners had to apply for DPIN. Ministry of Corporate Affairs (MCA) has vide its notification amended the limited liability partnership rules, 2009. Now instead of DPIN, every partner who will be appointed as a designated partner has to apply for DIN. The application for allotment of DIN has to be made in Form DIR- 3. You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form must be signed by a Chartered Accountant, Company Secretary, Cost Accountant or Advocate.

Digital Signature Certificate (DSC): Designated partner of proposed LLP, whose signatures are to be affixed on the e-forms has to obtain Digital Signature Certificate (DSC) from any authorized certifying agency. Also, they should obtain either class 2 or class 3 category of DSC. This is because all the documents for LLP are filed online and are required to be digitally signed.

You can click here & let our expert help you procure DIN.

Reservation of Name: Once two DINs are available, fill Form 1 for the reservation of name of proposed LLP. But before quoting the name in the form, it is recommended that you use the free name search facility available on MCA portal. The system will provide the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. This will help you in choosing names not similar to already existing names. You need to provide six names in the order of preference in Form 1.

Once, the application for reservation of name is submitted to the MCA, it will be processed by the ROC in the State of Incorporation. The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a body corporate or a trademark.

Incorporation of LLP: Once the name approval application is accepted by the MCA and name approval letter is issued to the proposed Partners you have to apply for incorporation of the LLP through Form-2. All the details in the form must be filled correctly like – total number of partners and designated partners, amount of partner’s contribution, etc. You have to pay the prescribed registration fee based on the contribution of partners in the proposed LLP.

The form must be digitally signed by a person named in the incorporation document as a designated partner having DIN. Also, it has to be digitally signed by an advocate / Company Secretary / Chartered Accountant / Cost Accountant in practice. On the submission of the form, if the registrar is satisfied, they will register the proposed LLP. It takes 15-20 days for the registration of LLP subject to government processing time and submission of necessary documents.

File Limited Liability Partnership Agreement: LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners. It has to be carefully drafted as per the rules and provisions given in the Indian LLP Act of 2008. LLP agreement must be filed in form 3 online on MCA Portal. Agreement may be conveniently submitted online to the MCA, within thirty days from the date of registration of the proposed LLP. The LLP Agreement has to be printed on stamp paper. The value of stamp paper is different for every state.

To get your business registered as a Limited Liability Partnership, please get in touch with us. Also, for assistance in setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST and auditing. Click here.

liaison-office-in-india

Establishing a liaison office in India

Prospective companies and investors looking to enter India must precisely consider the options available for investment and avenues for establishing a business presence in the country.up to explore the Indian markets and understand the business and investment climate, as it does not allow the companies to do business but just to be in the market and understand the Indian market or carry out the research and development activities or to understand the problem of existing clients of the company and serve them better. As compared to other business structures, liaison offices permit foreign companies to build a light footprint in India keeping their financial, legal, and administrative commitments low.

General features of liaison office

  • Name of Indian liaison office shall be same as parent company.
  • Governing body for a liaison office License is Reserve Bank of India.
  • It is suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.
  • A Liaison office does not have any ownership; it is just extension of the exiting company in the foreign country.
  • Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
  • License for a liaison office is given for three years and shall be renewed every 3 years.

 
Activities allowed to liaison office in India

  • Representing in India the parent company / group companies.
  • Promoting export / import from / to India.
  • Promoting technical /financial collaborations between parent / group companies and companies in India.
  • Collecting information about possible market opportunities, source of supply, providing information about the parent company and its products to the prospective Indian customers or vice versa to its vendor.
  • Acting as a communication channel between the parent company and Indian companies.

 
Restrictions on activities of a liaison office

  • A Liaison Office is not permitted to undertake any commercial / trading / Industrial activity, directly or indirectly and therefore cannot earn any income in India.
  • A liaison office can neither borrow, nor lend money.
  • It cannot acquire, Hold, (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India, without prior approval of RBI.

 
Regulators

  • The Foreign Exchange Management Act (FEMA) governs the application and approval process for the setting up of a liaison or branch office in India.
  • Under the Act, foreign enterprises obtain permissions from the Reserve Bank of India’s (RBI) Foreign Exchange Department to establish a liaison office in the India.
  • Foreign insurance companies can set up liaison offices in India after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).
  • Foreign banks can establish liaison offices in India only if they get approval from the Department of Banking Regulation (DBR), RBI.
  • The applications from such entities are to be submitted through Form FNC Annex-1 (Application for Establishment of Branch / liaison Office in India).

 
 Investment route

The applications from these entities will be considered by the RBI through two routes:

  • RBI route – Where principal business of the foreign entity falls under sectors where 100 percent FDI is permissible under the automatic route.
  • Government route – Where principal business of the foreign entity falls under the sectors where 100 percent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from non-government organizations are considered by the RBI in consultation with the Ministry of Finance, Government of India.

The approval process generally takes 20 to 24 weeks and permission to operate a liaison office is granted for a three-year period, which can be extended at a later date (maximum three year extension).

 
Condition for setting up liaison office

An enterprise must also meet the following conditions before qualifying for the establishment of a liaison office:

  • Must have a three-year record of profitable operations in the home country; and,
  • Must have a minimum net worth of US$50,000 verified by the most recent audited balance sheet or account statement.

If a company does not meet these requirements, but is a subsidiary of a company that does, the parent company may submit a Letter of Comfort on the subsidiary’s behalf, as per Annex-2.

Documents required to begin the process of setting up a liaison office, a certificate of incorporation, Memorandum and Articles of Association (MOA and AOA), and a copy of the parent company’s latest audited balance sheet.

A liaison office must also obtain a Permanent Account Number (PAN) from the income tax department and a Unique Identification Number (UIN) from the RBI. The application for registration should be forwarded to the RBI by a designated AD Category – I Bank.

Within 30 days of establishment, a liaison office must register with the Registrar of Companies (RoC) through the Ministry of Corporate Affair’s online portal. The following documents are required for the same:

A notarized and apostilled copy of a liaison office charter or Memorandum and Articles of Association in English.

  • Full address of the enterprise’s principal place of operation outside of India.
  • Name and address of a liaison office in India.
  • List of directors.
  • Name and address of the company’s official representative based in India (the person authorized to accept delivery of notices and documents served to the company).

 
Compliance and conversion to another business structure

  • Each year, a liaison office must file an Annual Activity Certificate(AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter (Annex-3).
  • An AAC should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year.
  • If a liaison office wants to open more than one bank account in India, it has to obtain prior permission of the RBI through its AD Category – I bank justifying the reason for the additional account.
  • A liaison office can also be upgraded into a branch office (BO) structure once its bank account is re-designated as a BO account. The entity will not require a new PAN.

If you require any assistance in setting up a liaison office in India, please contact AJSH & Co LLP. If you have any query regarding this, please click here.

Tax adviser in India

Tax breaks not to be missed

Investing a little time and thought into process of filing Income tax return (ITR) can allow you to claim deductions you might have missed, while submitting your investment declarations.

  • Savings account interest: Your savings account is credited every quarter with interest on amount it holds at the end of quarter, this amount earned by you as interest is considered as part of your total income. However, the income tax (I-T) department, under Section 80TTA, allows exemption of up to INR 10,000 on this interest. Interest earned on post office savings will also be treated similarly.
  • Rent exemption without HRA: Many taxpayers make payment towards house rent but can’t claim deductions if your salary package does not include house rent allowance (HRA) as its component. Under Section 80GG, you can avail of the exemption benefit for the rent, provided you are not eligible for any housing benefit. You will not stand eligible for this break if you, your spouse or child owns the house you accommodate in. The exemption is limited to the least of: actual rent paid less 10% of total income; or INR 5,000 per month; or 25% of total income.
  • Exemptions for specified illnesses: Treatment of critical diseases like cancer, kidney failure or AIDS involves huge expenses, the income tax rules allow relief under Section 80DDB to tax-payers suffering from such diseases. Taxpayers can claim deductions if he / she suffers from any of the ailments viz.  ataxia, full-blown AIDS, malignant cancers, dementia cholera, hemiballismus, thalassaemia, chronic kidney failure, parkinson’s disease, haemophilia, motor neuron disease, dystonia, aphasia.
    They can claim a tax deduction of up to INR 40,000. If taxpayers is a senior citizen, the deduction can go up to INR 60,000 and the relief is enhanced to INR 80000, if the afflicted taxpayer happens to be a super senior citizen. However, if the expenses incurred on treatment of these critical ailments have been reimbursed by employers or through insurance policies, the taxpayers will not qualify for the deduction. If the reimbursement is partial, they will be eligible for the tax exemption on the balance amount.
  • Ancillary charges on home loan: Home loan borrowers just know that the chief benefits of this loan are the tax benefits it offers on the principal repayment (Section 80C) and interest paid (Section 24). However, very few know that also the processing fee paid is treated as interest and can be claimed as deduction under Section 24. The processing fees and other ancillary charges are considered as interest and qualify as exemptions.
  • Loans for down payments of house: Home loan-seekers often borrow from friends and relatives to arrange for the down payment. They either do not pay any interest on these loans or if they do, fail to claim deductions under Section 24, despite being eligible. Section 24 also covers interest paid on any loan taken for the purchase, renovation or reconstruction of a house. To claim exemptions, one should draw up a written loan agreement with the lender. The interest earned by the lender will be taxed as his income.
  • Deduction for disabilities: If a Person suffers from 40% disability (as certified by a medical authority), he/she can claim a deduction of up to INR 75,000 under Section 80U. Expenses incurred in respect of a disabled dependent will fetch a deduction of INR 75,000 under Section 80DD. In both cases, if the disability is more than 80%, the permissible amount for deduction is INR 1.25 lakh. This is a flat deduction.
  • Income of disabled child: If you make investments in the name of your spouse or minor child, the income earned from these investments is clubbed with your income under Section 64 and taxed as per the slab applicable to you. However, in case the child is disabled, income from investments made in his / her name will not be clubbed with the income of parents. The latter can use this provision to invest in taxable instruments like FDs and debt funds.
  • Setting off losses: If your investments resulted in losses during the previous financial year, you can adjust some losses against capital gains from the sale of stocks, property, gold or debt funds. Short-term capital losses can be set off against both short-term capital gains as well as taxable long-term capital gains. Long term capital losses can only be set off against taxable long
    term capital gains.
  • Benefits for donations made: In most cases, deductions under Section 80G on donations made do not reflect in Form 16. So, you have to keep in mind that this exemption can be claimed while filing returns. Depending on where you have made contribution, you can claim a deduction of 50-100% of the donation made .But total deduction cannot exceed 10% of your total income. Cash donations are eligible for deduction if the amount exceeds INR 2,000

 

If you require any assistance in filing your personal income tax returns, corporate tax returns, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Visit: www.ajsh.in .

 

know-about-malaysia-company-formation

Section 8 Company Formation

In India, a non-profit organization can be registered as a Trust, by making a Trust deed or as a Section 8 Company, under the Companies Act, 2013. According Indian Companies Act, 2013, a section-8 company can be established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object, provided the profits, if any, or other income is applied for promoting only the objectives of the company and no dividend is paid to its members.

Procedure for formation of section 8 company is listed below:

1. Digital Signature Certificate (DSC) & Directors Identification Number (DIN): The only secure and authentic way that a document can be submitted electronically is DSC. All filings of e-forms on MCA Portal are required to be filed with the use of DSC of the authorized signatory. Further, DIN for all the proposed Directors of the Company must be obtained. For obtaining DIN an application in Form No. DIR – 3 should be filed on MCA Portal with documents attested by a practicing professional.

2. Name approval: By submitting an application in Form – INC 1, applicant can obtain approval for selected names from the Registrar of Companies (RoC). The Applicant can give maximum six names in order of preference. The name once approved by the authority is valid for sixty days. The name once approved by the authority is valid for 3 months. Name approval generally takes 1-2 business days.

3. Main instrument: After obtaining name approval, constitutional documents i.e. Memorandum of Association (MOA) and Articles of Association (AOA) is to be drafted and subsequently filed with the RoC along with the forms and other necessary documents stated below:

  • Affidavits
  • Consent Letters
  • Certificate of Compliance from a practicing professionals
  • Subscription pages of MOA & AOA– Both documents shall be signed by each subscriber who shall mention his name, address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation, if any. The witness shall be a practicing professional
  1. Issuance of license with registration fee: For Section 8 company license, promoter has to file E-Form INC 12 accompanied by:
  • MOA and AOA
  • A declaration confirming the application by a practicing Company Secretary
  • Names, addresses, occupation and descriptions of the promoters as well as Board Members
  • A statement showing details of assets & liabilities as on date with the application
  • Estimated future annual income and expenditure, specifying the source of income and object of expenditure
  • A statement giving brief description of work, if any, already done by the association
  • A statement specifying briefly the grounds on which the application is made
  • A declaration in prescribed form on non – judicial stamp paper by each person making an application
  • A letter of authority with payment of prescribed fee
  1. Other requirement: Following forms are to be filed with the RoC after issuance of license:
  • Form INC – 7 for declaration of compliance with the requirements of the Act on application for registration of a company;
  • Form INC – 22 for notice of situation of registered office;
  • Form DIR – 12 for appointment of directors of the company; and
  • Subscribers and proposed directors may delegate their authority to a person(s) to carry out appropriate change(s) as suggested by the RoC in any of the incorporation papers that have been filed.

6. Clarifications / additional Information required by ROC: Documents submitted for the purpose of incorporation are thoroughly reviewed by the RoC. RoC may require certain clarifications, if required. The person authorized shall present clarifications with Roc as needed.

7. Certificate of Incorporation: After providing clarifications, the Certificate of Incorporation is issued by the RoC along with a unique Company Identification Number (CIN) and the Company is deemed to be incorporated from the date of certificate issued. Consecutively, company may apply for other tax and regulatory registration as may be required to run the business smoothly like PAN, TAN, Bank account, etc.

8. Subscription money: A new bank account solely at the name of the company newly incorporated shall be opened by the Board of Directors and the Subscribers. Further to that, they shall deposit their subscription money in bank account to help the company raise initial capital to start its business.

Minimum Requirements for Section 8 Company:

1. At least 2 shareholder and 2 Director (both can be the same person)
2. At least one Director shall be resident in India
3. No Minimum capital required
4. PAN is a mandatory requirement in case of Indian nationals
5. Identity Proof (Voter ID/Aadhar Card/Driving License/Passport); Passport is mandatory requirement for proof of identity in case of foreign nationals
6. Proof of Residence
7. Registered utility proof that is any office address proof
8. Any documents establishing the ownership such as sale deed / house tax receipt along with no objection certificate, in case the premises are owned by a Director and Promoters

We, a Chartered Accountant firm, serve a number of clients who need assistance for various regulatory compliances including setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST and auditing. If you require any guidance for the any professional service, please contact AJSH & Co LLP.

For further queries, click here!

Tax-Return

Filing your Income Tax Returns for A.Y. 2018-19 – Consider these changes

The Finance Act 2017 introduced last year came with multiple changes in regard with filing of income tax return (“ITR”) for A.Y. 2018-19. Thus, it is necessary for you to keep abreast of the latest amendments at the time filing the current year’s return of income. Also, the CBDT introduced the new ITR forms A.Y 2018-19 on 5th April, 2018 with alterations as compared to the ITR forms of the previous A.Y. Here we list down 10 critical changes that we should consider while filing the income tax return of taxpayers who are required to furnish their return of income for A.Y 2018-19 by 31st July, 2018.

  1. Income tax rate

Despite the fact that the tax slabs remain the same, there has been a slight revision in the income tax rates. The income tax rate for the slab INR 2,50,001 – INR 5,00,000 (applicable to Individuals, HUF, AOP, BOI and Artificial Juridical Person) has been reduced from 10% to 5%. The basic exemption limit for a resident individual aged between 60 and 80, is INR 3,00,000 and for a resident individual aged 80 or above, this limit is INR 5,00,000.

The tax slabs applicable for filing return of income for A.Y 2018 -19 for a non-senior citizen are as below:

Total income Tax rates
Up to INR 2,50,000 NIL
INR 2,50,001 to INR 5,00,000 5%
INR 5,00,001 to INR 10,00,000 20%
INR 10,00,000 and above 30%

 

  1. Rebate under section 87A

A taxpayer can claim the benefit of rebate under section 87A if he/she fulfils both of the following conditions:

  • The taxpayer is a Resident Individual
  • The total income less deductions (under Chapter VI-A) is equal to or less than INR 3,50,000

Until A.Y 2017-18, the limit to claim rebate was set at INR 5,00,000 instead of INR 3,50,000

  1. Surcharge and Cess

The rates of surcharge applicable to Individuals and HUF have been revised A.Y 2018-19 onwards.

  • Where the Individual/HUF has taxable income of more than INR 50 lakhs but not exceeding INR 1 crore, surcharge shall be levied at 10%.
  • Further surcharge of 15% is levied for individuals having an income of more than INR 1 crore. The higher and secondary education cess shall continue to be levied at 3% for the current A.Y.

 

  1. Set off of loss from house property

Until AY 2017-2018, there was no limit on the amount of loss arising from house property that could be set off against other heads of income. With effect from A.Y 2018-19 the set off of loss arising from house property against other heads of income is restricted to INR 2,00,000 and the unadjusted loss is to be carried forward for set off against income from house property for eight subsequent assessment years.

  1. Capital gains
    • Base date for Cost Inflation Index (CII)

Earlier the Base Date for CII was 1st April, 1981. However, with the changes brought about by the Finance Act, 2017, the base date for CII has been shifted from 1st April, 1981 to 1st April, 2001. The tax payers would have the option to consider the FMV of such asset as on 1st April, 2001 or the actual cost of such capital asset as the cost of acquisition while computing long term capital gains. The cost of improvement would include capital expenditure incurred after 1st April, 2001.

    • Holding period of capital assets

In order to determine whether the gain arising on the transfer of a capital asset, is a long term capital gain or a short term capital gain, the holding period of the capital asset is a key factor. Gains arising from the transfer of listed shares, units of equity oriented mutual funds and zero-coupon bonds shall be considered as long term if the period of holding such assets is more than 12 months. Further in case of unlisted shares and immovable property (land and building) the period of holding has been reduced to 24 months from 36 months. For the remaining capital assets, the period of holding continues to be 36 months.

    • Section 50CA

A new section, Sec 50CA was introduced by Finance Act, 2017. This section deals with the transfer of unlisted shares and provides that consideration for transfer of such shares shall be deemed to be the fair market value calculated by a Merchant Banker or a Chartered Accountant as on the valuation date if the transfer price is less than its FMV.

  1. Penalty for late filing of returns

The Finance Act, 2017 introduced a new fee under section 234F if the taxpayer did not furnish the return of income on or before the due dates prescribed under Section 139(1). The fees shall be levied as under:

  • INR 5,000 if return is furnished after the due date but before December 31 of the assessment year [INR 1,000 if total income is up to INR 5 lakhs].
  • INR 10,000, in any other case.

Care must be taken to ensure that wherever applicable, this fee is paid before filing the return. The new ITR forms contain fields for inputting the amount of fee paid u/s 234F.

  1. Tax deducted as source and advance tax
  • Individuals and HUF (apart from those subject to tax audit) paying rent to a resident exceeding INR 50,000 per month are required to deduct TDS at the rate of 5%. This amendment was put into effect from 1stJune, 2017 as per section 194-IB. Attention must be paid to ensure that any TDS appearing in the tax payer’s form 26AS against this section is also taken into consideration while computing the income and tax payable/refundable.
  • The advantage of paying advance tax on or before 15thMarch by way of one instalment instead of four instalments has been extended to professionals declaring profits and gains in accordance with presumptive taxation regime. This may be taken into consideration while computing interest, if any, u/s. 234B / 234C.

 

  1. Income from other sources – Gift

Finance Act, 2017 has widened the scope of provisions dealing with the taxability of gifts. A new clause (x) was inserted in Sec 56(2) whereby any sum or property received without any consideration or inadequate consideration (in excess of INR 50,000) shall be taxable as ‘Income from other sources’. This clause is applicable to all taxpayers. Earlier this provision was applicable only to an Individual and HUF.

  1. Details to be furnish in ITR forms
  • Taxpayers earning Income from Salary and Income from House Property are required to furnish break up of amounts as against only the final taxable figures as per ITR forms for the previous A.Y. They are expected to report particulars with respect to value of perquisites, profit in the lieu of salary, taxable allowances and deductions u/s 16 in case of Income from Salary and the gross rent, tax paid to local authorities, interest payable on borrowed capital in case of Income from House Property. Consequently, additional rows have been added in order to report the above figures.
  • Non-Residents would have an option to furnish details of any one foreign bank account for the purpose of claiming income-tax refund. Earlier they were allowed to provide details pertaining to bank accounts in India only.

Taxpayer’s eligible to claim DTAA relief under Capital Gains and Income from Other Sources shall be required to furnish the following details:

i) Rate as per treaty
ii) Rate as per Income tax
iii) Section of the Income-tax Act
iv) Applicable rate [lower of (i) or (ii)]

 

  1. Selecting the correct ITR form

The most important point to be kept in mind while filing the return of income is to file the correct ITR form. The CBDT recently notified the ITR forms for A.Y 2018-19. The taxpayers should select and file the form depending upon the sources from which they derive income. The various ITR forms and the taxpayers to which they apply have been listed below. It may be noted that ITR 4 is no longer in force for A.Y. 2018-19.

 

Form Applicability
ITR 1 For a resident individual (other than not ordinarily resident) having income from salaries, one house property, other sources (interest etc.) and having total income up to Rs.50 lakh
ITR 2 For other Individuals and HUFs not having income from profits and gains of business or profession
ITR 3 For individuals and HUFs having income from profits and gains of business or profession
ITR 4- SUGAM For presumptive income from business & profession
ITR 5 For persons other than (i) Individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7
ITR 6 For companies other than companies claiming exemption under section 11
ITR 7 For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F)

 

If you require any assistance in filing your personal income tax returns, corporate tax returns, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Click Here.

tax2-3

File ITR- get perks

July 31st is the last day for filing an Income Tax Return (ITR). Most people regard this task as a burden, but filing an ITR filing of Return – on time is an extremely important tool to create your financial history. When you file your tax returns every year, you manage to maintain your financial record with the tax department. This financial / tax history is positively viewed and auspiciously utilized by most agencies with whom you may need to interact at times. It will help you to be in the good books of the financial institutions such as banks, Insurance companies, NBFCs etc. and also serves as a proof of income earned by an individual and total taxes paid.

It is always advisable to file one’s tax return even if the taxable income falls below the basic exemption threshold. Currently the limits are INR 2.5 lakhs for ordinary individuals, INR 3 lakhs for senior citizens and INR 5 lakhs for super senior citizens.

You can enjoy the following benefits if you file tax returns:

  • ITR Receipt is an important document: Having an ITR receipt is important because it is more detailed than Form 16, entailing your income and taxation along with revenue from other sources.
  • Use as address proof: If you have been filing your returns regularly, then the assessment order can act as a proof of residence.
  • Easy loan or card processing: Being a diligent income tax filer makes it easier for banks to assess your financial position when you apply for loans like an auto loan, home loan etc. Providing a copy of ITRs receipts with your loan application make it easier for you to get approved it quickly.
  • Compensate losses in the next financial year: Unless you file the ITR you will not be able to carry forward capital losses (short-term or long-term), if any, in a financial year to be adjusted against capital gains made in the following years. As per the income-tax provisions, if tax returns are not filed on time, unadjusted losses (with some exceptions) cannot be carried forward to subsequent years. A long-term capital loss in one year is allowed to be carried forward for eight consecutive years immediately succeeding the year in which the loss is incurred. Long-term capital loss can only be adjusted against a long-term capital gain in the following years. But short-term capital loss can be adjusted against long- as well as short-term capital gains.
  • Hence, to ensure that the losses are carried forward for future adjustment, a tax return would be required to be filed within the due date (31st July) of the assessment year.
  • Avoid paying additional interest: If you owe some taxes and still do not file your tax return, then you may be liable to pay additional interest u/s 234A at 1% per month on remaining tax payable by you. For instance, banks would deduct tax from interest on fixed deposits exceeding a certain limit.
  • Avoid penalties or scrutiny from the tax department: From FY 2017-18, INR 10,000 would be imposed for not filing ITR. Also there could be prescribed penalties ranging from 50 to 200% in certain cases. This black mark on your financial history will remain for years to come.
  • Credit card processing: Credit card companies also insist on having proof of return prior to issuing a card, so they can reject to issue you a credit card if you haven’t filed your ITR.
  • For a hassle-free visa application procedure: If you are planning to immigrate to another country or exploring a high-paying overseas job opportunity, then prepare yourself well in advance.At times visa authorities ask for copies of past tax returns, therefore to apply for a visa a tax return would essential to be filed. Embassies, especially those of US, UK, Canada etc., require you to furnish the copies of your tax returns for the last couple of years at the time of the visa interview.
  • To buy an insurance policy with a higher cover: Taking in consideration high cost of living, buying life cover of INR 50 lakh or INR 1 crore has become very usual from past few years. However, these covers are available against your ITR documents that verify annual income. “Life insurance companies ask to furnish ITR receipts if you opt to buy a term policy with sum insured of INR 50 lakh or more. If insurance providers have reasons (non-compliance) to believe that you are a tax-evader, they will not give you policies with more cover.
  • Government tender: If one plans to start his business that require him to apply for a government tender or two, he will be need to present his tax return receipts of the previous five years. This again, is to show your financial position and whether you can meet the payment obligation or not. However, this is no strict rule. It may vary depending on the internal rules of the government department. Even the number of ITRs required can vary.
  • Makes life easier for freelancers and independent professionals: Businessmen, consultants, partners of firm, freelancer or self-employed people don’t get Form16. This is the only document to prove that they have filed the ITR. Without this, they can face funding issues and transactional problems.
  • High-value transactions: If you regularly file your ITR, then it will create a strong financial history and credibility. When you do any high-value transactions such as purchase or sale of property, buying a car, cash deposits in bank, investment in mutual funds, credit card bill payments, etc., by filing ITRs, one can report these transactions & substantiate the same as per one’s income.

If you require any assistance in filing your personal income tax returns, corporate tax returns, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Click Here.

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Periodic routine compliances of a company

With an Ease of doing business, starting a business in India is way easy, but running it in this competitive world is complex. In such complex environment maintaining data, records and managing compliances is the biggest task that every company have to deal with.

What are Periodic and Routine Compliances?

Generally, compliance means keeping up with the set rules, policies, law or standard. Periodic means timely or on a regular interval, like monthly, quarterly and so on. Thus, periodic compliances mainly refers to recording, maintaining, filing or submitting the necessary documents and informative data timely or in regular intervals.

Whereas regular compliance is primarily concerned with ensuring that the company remains on the right side of the law and ensures due and timely compliances under the concerned law. These matters are which have to be taken care of on a timely basis and with a great care every year.

Compliances might not be productive in nature but are very important for smooth functioning of the company. Hence, managing day to day operations of business along with compliance of corporate laws is taxing. Hereto, we can serve you, with our experience and professional skepticism to understand such legal requirements and ensure timely compliance, without any levy of interest or penalty.

For meeting compliances individually, every company has a unique corporate identification number (CIN) issued at the time of incorporation. To fulfill the compliances with MCA, company uses its CIN. Also, for the purpose of taxation and legalizing the existence of the company, they are issued Tax Deduction and Collection Account Number (TAN) and Goods and Service Tax Identification Number (GSTIN).

 List of Periodic Compliance

Below are some of the common periodic compliances which a company has to mandatorily ensure in its routine working:

  1. Statutory Audit of Accounts: For the purpose of filing the company’s audit report with the registrar, every company shall get its financial statements audited by a Chartered Accountant at the end of every financial year, compulsorily.
  2. Holding Annual General Meeting: It is mandatory for every private limited company to hold an Annual General Meeting (“AGM”) in every calendar year i.e. January – December. Companies are required to hold their AGM within a period of six months, from the date of the end of their financial year
  3. Filing of Financial Statements: Every company is required to file its financial statements consisting of balance sheet along with statement of Profit and Loss account, and Director’s Report in the form AOC- 4 within 30 days from the conclusion of AGM.
  4. Filing of Annual Report: Every company is required to file annual return of for its financial year within 60 days of holding of the AGM.
  5. Director’s Board of Meeting: All companies are required to hold minimum 4 board meetings each year. Here “year” means calendar year and not financial year of the company. Gap between the two consecutive board meetings shall not be more than 120 days.
  6. Filing of Tax Audit Report: Company has to conduct a mandatory tax audit in case turnover of the business exceed INR. 1 crore in the previous year, provided if company pays tax under 44AD limit exceed to INR 2 crore.
  7. Income Tax Compliances:
    • Advance tax – payment of a percentage of direct tax calculated on an estimated profit of the company on quarterly basis.
    • Goods and service tax (GST) – monthly payment of indirect tax collected / deducted by company
    • Tax deducted at source (TDS) – TDS is to be paid monthly
    • Tax returns – E-return has to be filed for the taxes paid by the company on their respective due dates for both direct and indirect tax
  1. Tax Audit: Tax Audit is means review or examining the books of accounts of business organization or individuals for the purpose of computation of income and tax and helps in filing the returns
  2. Minimum Alternate Tax: Normal tax rate applicable to an Indian company is 30% exclusive of cess and surcharge as applicable, which has been decided to be progressively reduced to 25% by 2019. As per MAT provisions, a company has to pay higher of normal tax liability or liability.
  3. Other: There are many more compliances which a company needs to fulfill like Certification of Tax compliances (Form 15CA/ Form 15CB), Transfer pricing, etc.

List of Routine Compliance

We have briefed some of the common routine compliances which company has to mandatorily ensure:

  1. Extraordinary general meeting: Also called special general meeting or emergency general meeting, is a meeting other than a company’s annual general meeting (AGM) that regularly occurs among a company’s shareholders, executives and any other member. Convening and holding a meeting and drafting its minutes is not as easy as it looks like.
  2. Change in management: It refers to change that happens in director(s) of company that means their removal, resignations or appointment for which there are specific compliances to be fulfilled with the registrar of company.
  3. Constitutional changes: Any change in name of the company, registered address, place of business, objects of business, financial year, increase/decrease of registered share capitals and so many more is constitutional change.
  4. Share issuance / transfer: There are certain procedures which are to be complied with while transferring or issuing of shares among the inner groups of the company like directors, employees and so on.
  5. Other: There are many more events which occur in a company and have obligatory compliances. For instance, voluntary liquidation / deletion of company and place of its business; branch establishment, etc.

We, a Chartered Accountant firm, serve a number of clients who need assistance for various regulatory compliances including setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST and auditing. If you require any guidance for the any professional service, we are here to serve you!

For further queries, click here!