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Tax Filing 15

Foreign citizen – a resident Indian

In the Constitution of India, as per Income Tax Act 1961, Central Government has the power to levy tax on any income other than agricultural income. The government imposes a tax on taxable income of all persons who are individuals, Hindu Undivided Families (HUF’s), companies, firms, LLP, association of persons, body of individuals, local authority and any other artificial juridical person. Levy of tax on a person depends upon his residential status.

For tax purposes under Indian income tax law, an Individual can be: Resident or Non-Resident. Further the Resident category is classified into two parts i.e. Ordinary Resident and Not Ordinary Resident.

nri

Does taxability changes on the basis of Residential status?
Yes, Indian income tax law has different tax treatment for incomes earned by each of this category. For instance, if you fall under resident status, there will be tax on overseas salary. But, if you are a non-resident, same will be non-taxable.

With our blog, we intend to help you understand who an RNOR is and why endowed with special status.

Instance to explain RNOR

Kartik resided in India till October 08, 2010 and thereafter migrated overseas. He is doing well in the business that he set up there. He transfers money to his Non Resident External (NRE) account and Non Resident Ordinary (NRO) account regularly. He visits India on an average 70 days every year. In the FY 2017-18, he resided in India for 190 days. He had income from salary, earned from overseas and India, both; and other income which consisted of interest from bank.

Now, you might have a list of questions in mind. Let’s consider them gradually.

1. What is the residential status of Kartik?

To be a Resident for a financial year, he needs to satisfy either of the following condition:

  • He is in India for 182 days or more during the financial year

OR

  • He is in India for at least 365 days during the 4 years preceding that year and at least 60 days in that year

In case anyone is an Indian Citizen and leave India for employment outside of India or as a member of the crew on an Indian ship, in other words if you take up a job outside India, the 60 days minimum period will be increased to 182 days.

Being in India for 190 days in FY 2017-18, Kartik concludes to be a resident.

2. Is he an Ordinary Resident or Non-Ordinary?

To be a RNOR, you have to fulfill any of the conditions understated:

  • If you have been an NRI in 9 out of 10 financial years preceding the year

OR

  • You have during the 7 financial years preceding the year been in India for a period of 729 days or less

With an average of 70 days, Kartik fulfill second condition and results to be a Resident but Non Ordinary Resident.

3. Does he have to pay any tax in India?

The RNOR is endowed with special status in order to provide some benefits to returning NRIs. For Indian income tax purposes, an RNOR is treated at par with NRIs. That means an RNOR needs to pay tax only on income received or accrued in India. Any other income will not be taxed. And you can continue this status for a period of 2 years after returning back to India. However, once you have attained the status of a Resident, all of your income within and outside India will be taxable.

Here, Kartik has income from two sources: income from salary and income from other sources. Salary income earned in India is fully taxable whereas salary from oversea is non-taxable. Interestingly, income from interest on bank accounts needs to be bifurcated whether it is accrued from NRE or NRO. NRE account is a bank account for his foreign earnings and exempted from tax. Neither the balance, nor the interest earned on these accounts is taxable. NRO account is to manage the income earned in India. These incomes include rent, dividend, pension, interest, etc. Therefore, income from NRE account’s interest will not be taxable and interest from NRO account will be a part of taxable income.

4. Is he required to file an income tax return?

If an individual’s income exceeds the basic exemption limit, before deductions in the financial year then they are required to file Income Tax Return. The same rule applies on NRI as well. Therefore, Yes, Kartik needs to file an Income Tax Return if his Gross Total Income exceeds the basic exemption limit. Even if the tax payable calculated be “NIL”, then also he has to file the return.

There is a saying in Income Tax, “An Indian Citizen may not be resident Indian, but a Foreign Citizen may be resident Indian.” With this blog, we made sure that you conclude the same. Our team can assist you for kinds of tax planning, tax compliance, filling of returns, assessments and tax representations.

If you have any query regarding this Click Here

01-Do-not-Panic-It-Is-Just-An-Income-Tax-Notice-copy

Income Tax Notices: How to avoid them?

Paying taxes and filing tax returns go hand in hand. There has been an increase in the number of tax notices sent by authorities in the recent years. The rise is not necessarily due to lack of paying taxes or filing returns, but because the tax authorities are now equipped with an integrated database on taxpayers which allows them to track almost all financial transactions.

Third Parties like Bank, Mutual Fund companies, companies issuing shares, bonds, debentures and real-estate related sub-registrar offices report high value financial transactions to the IT department through the Annual Information Return (AIR).

The 10-digit PAN, which has been made mandatory for all high value transactions, not only enables the tax department to know how much you have earned, but also provides information on how you have been spending and investing this money. High value transactions include, but are not limited to, the following:

  1. Cash transactions of over 2.5 lac rupees.
  2. Purchase & sale of all immovable property exceeding 30 lac rupees.
  3. Cash deposits in bank aggregating to 10 lac rupees or more.
  4. Donation of over 2,000 rupees to registered trust or political parties.

The common reasons why individuals may receive these notices are outlined below:

1. Incomplete or Incorrect PAN Details 

Non-submission of PAN details while making an investment or taking up a job will lead to a higher rate of tax deducted at source (TDS), 20 per cent instead of 10 per cent. If the PAN submitted is incorrect, one could even be slapped with a penalty of up to 10,000 rupees. The higher implication of submitting incorrect PAN details is that the TDS will not be credited to your account. This often results in an additional tax demand. The tax refund may also be credited to a different account in case of wrong submission of PAN details.

2. Lack Of Reviewing Form 26AS Before Filing The Return 

The Form 26AS contains the details of the tax paid by an individual during a financial year. Form 26AS is easily accessible online. Before filing the return, it should be ensured that Form 26AS has correctly credited the tax deducted. If the bank, bond issuer or employer has deducted TDS, it should be ensured that this has been mentioned in the Form 26AS. All the investments with TDS should also be duly reflected in the tax return. In case of any mismatch, notice shall be issued from the department. This includes income received by previous employers.

3. Discrepancy In Income, Expenses & Investments Reported

Financial services firms, merchant establishments and some registration authorities are required to report certain high-value transactions to the Central Board of Direct Taxes (CBDT). This information is then matched with the returns filed by the taxpayer and a notice is promptly issued if there is a mismatch.

4. Lack of Filing Returns despite income exceeding 2.5 Lac Rupees

If the gross taxable income is above 2.5 lac rupees then it is mandatory to file the tax return, even if there is no tax liability.

5. Wrongly Avoiding TDS Through Forms 15G and 15H

The bank deducts TDS if the interest income on bank deposits exceeds 10,000 rupees (50,000 rupees for senior citizens in FY 2018-19) in a year. However, if you are not liable to pay tax, you can avoid TDS by submitting the Form 15G or 15H. You may receive a notice from the tax department if you try to evade taxes, such as by splitting the deposits in different banks or bank branches as the PAN number would be linked with the accounts.

6. Delay In Filing Of Return Or Payment Of Tax

Delay in filing of tax return and/or payment of the tax liability can trigger the issuance of tax notice. Hence, the statutory liabilities should be completed within the stipulated timelines.

7. Material Change In Income/ Tax Refund Claimed

Significant change, primarily decrease in income or increase in refund claimed, compared to previous year may raise doubts over the income tax return filed and may cause the authorities to further investigate this. Individuals should cooperate with the IT department and provide the relevant documents as requested.

8. Non-Declaration Of Exempted Income

Exempted income like long-term capital gains from securities, up to 10,000 rupees earned on your savings bank account, the PPF interest income etc., even though exempt, still needs to be disclosed in the tax return. Non-disclosure can prompt the authorities to investigate the return filed further for other discrepancies.

9. Being Chosen For Random Check

The Income Tax department also performs random checks on the returns submitted. Hence, receiving a notice does not necessarily mean submission of a wrong Income Tax return. In such cases, the steps mentioned in the notice should be followed and provision of requested documents should be made to the IT department so they can complete their checks and close the case.

Avoiding these common mistakes can help your tax returns be filed more accurately and avoid receipt of income tax notices.

We, a Chartered Accountant firm, serve a number of clients who need assistance for various legal, financial and tax matters who have benefitted from our professional services. We also assist in setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST matters and auditing. Find out more on how we can help your business by speaking to one of our advisors at AJSH & Co LLP. If you have any query regarding this Click Here.

Company formation in India

Case study: Company formation in India

Background
The client is a London based company with presence in over 80 countries across six continents. The company helps its clients to successfully deliver projects around the world by sourcing and supplying top professionals in fields such as IT, Telecom, Project Management, Cyber & IT Security, Presales, Sales & After Sales, Compliance and Security. With offices in Europe, Middle East & Africa, Asia and America, the Company is striving to be at the top in delivering the best possible services and support to organizations that need complex services on a global basis. 

Case Overview

The Company is helping many of the worlds’ leading companies to achieve their business goals by providing them a world class outsourcing, staffing and contingent workforce services by aligning their hiring processes to each client’s distinct requirements. Support for achieving that, comes from the staff specializing in the following departments of the business:

  •  Recruitment & Outsourcing
  • Legal
  • Accounting
  • Accommodation
  • Travel
  • Visa & Immigration
  • In-Country support services
  • Health and safety support

 The client wishes to expand its operations and provide its discrete services in India. 

Challenges

The primary objective of the client was to provide their services in other countries. For this purpose they needed to set up their company at a location where they could set up a robust and reliable distribution network. Apart from this, they had various other requirements with respect to their business and location as well. Some of their requirements were:

  • Setting up of the business in a location in India where companies from the same industry were located;
  • Secure a specific name pattern for the Indian Company similar to its other entities around the world;
  • Appointment of a Director who is ordinarily resident and citizen of India to satisfy the Indian Companies Act requirement; and
  • The Indian Company would provide support in project specific needs of their clients tailored to meet their objectives along with local operational support in the territories where its client does not operate. 

 Business Solution

The client approached us for assistance in incorporation / formation of an Indian Company. After having a detailed discussion with the client and understanding their requirements, our team listed down their preferences keeping in mind their requirement to set up business in India at minimum cost. We assisted the client in identifying the desired location, apply for the name in the desired pattern, appoint a nominee Indian director and complied with other applicable statutory requirements of shareholding, directorship etc. Thus, we successfully incorporated an Indian Company for the client as specified.

Current Status

The Company has expanded its operations to India with an endeavor to expand even more. Their customers are highly satisfied with their delivery times generating a goodwill for them. They were able to increase their business by more than twice as planned. The client recently shared with us their requirements to expand further into many more countries with our assistance. Thus, we extended our services happily to them.

We have served a number of clients for their company incorporations who have benefitted from our professional services. For a more detailed discussion on company incorporations in India, or to obtain further assistance in setting up business in India, company registration in India, company formation in India, post-registration compliances, accounting and bookkeeping, tax compliances, please contact AJSH & Co LLP. If you have any query regarding this Click Here.

TAX HIGHLIGHTS FROM THE UNION BUDGET 2018-19

Tax highlights from the Union Budget 2018-19

The Union budget was presented to the Parliament on 1 February 2018 by the Finance Minister Arun Jaitley. It was highly anticipated, since it was the first budget after the implementation of Goods and Service Tax (GST) in India. The budget included the annual financial statement and the finance bill of India for the financial year 2018-19.

Taxation Highlights 

  • Direct Tax Collections for FY 2017-18 are at Rs 6.56 lakh, which shows a growth of 18.2% up to December, 2017. As many as 85.51 lakh new taxpayers filed their tax returns in 2016-17, as against 66.26 lakhs in 2015-16. The number has increased from 6.47 crore in FY 2014-15 to 8.27 crore by FY 2016-17.
  • Rebates in presumptive income schemes for small businesses with income below Rs 2 crore and similar schemes for professionals with income below Rs 50 lakh were proposed by the Finance Minister. There was additional income tax collection of Rs 90,000 crore in 2016-17 and 2017-18.
  • In order to boost the MSME sector, the corporate tax for companies with turnover up to Rs 250 crore was reduced to 25 %, decrease of 5%.
  • The emoluments were proposed to be revised for President of India at Rs 5 lakh from Rs 1.50 lakh per month, Rs 4 lakh for vice president from Rs 1.25 lakh per month and Rs 3.5 lakh for governors from Rs 1.10 lakh per month.
  • For salaried taxpayers standard deduction of Rs 40,000 was announced. It has substituted transport allowance of Rs 19,200 and medical allowance of Rs 15000. The income tax slabs remain unchanged.
  • In regards to capital gains tax, long-term capital gains are proposed to be taxed at 10 % on gains arising from the transfer of listed equity shares over Rs 1 lakh, without the allowance for indexation benefit. Short term capital gains tax remains unaltered at 15 %.
  • Exemption in interest income on bank deposits was also raised to Rs 50,000 for Senior citizens, along with income from Bank FDs and post offices which previously had Rs 10,000 exemption. Hence, TDS shall not be required to be deducted under section 194A. This will be applicable on all fixed deposit schemes and recurring deposit schemes.
  • The budget also proposes 10 % dividend distribution tax on income by equity-oriented mutual funds as well as 100 % deductions for cooperative societies that earn income from fishing, cottage industries, sale of agricultural harvest, cottage industries and milk supplied by the members to milk cooperative societies under Section 80P.
  • No adjustment would be required for transactions in immovable property where Circle Rate value does not exceed 5% of the consideration. This would benefit the Real estate sector.
  • PAN number is mandatory for any entity entering into a financial transaction of Rs 2.5 lakh or more. From April 1 onwards PAN will be used as Unique Entity Number for non-individuals.
  • It is also proposed to amend Employees PF Act to reduce contribution of women joining the workforce for the first time to 8% from 12% or 10% (as applicable) for the first three year. There will be no change in employer’s contribution. This will encourage more women to find employment.
  • Government announced 8.33% contribution to EPF for new employees for three years and 12% government contribution to EPF in sectors employing large number of people.
  • The Pradhanmantri Vaya Vandana Yojana (PMVVY) scheme has been extended until March, 2020. The current investment limit of Rs 7.5 lakh per senior citizen is also proposed to be increased to Rs 15 lakh.
  • Under section 80DDB, the deduction limit for medical expenditure for certain critical illness was increased from Rs 60,000 in case of senior citizens and Rs 80,000 in case of very senior citizens, to Rs 1 lakh.
  • Custom duty on mobile phones is proposed to increase from 15 % to 20 %, to 15% on some of their parts and accessories and also on certain parts of televisions.
  • Cess on Income tax has been proposed to be increased by 1% to 4%, increasing the tax payable by all categories of tax payers.

We serve a number of clients who need assistance for various legal, financial and tax matters who have benefitted from our professional services. We also assist in setting up business in India, company registration in India, income tax return filling, bookkeeping and accounting. Find out more on how we can help your business by speaking to one of our advisors at AJSH & Co LLP. If you have any query regarding this Click Here.