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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.

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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!

ESOP-1

How ESOPs are taxed in India

ESOP refers to an option given to employees of a company to purchase shares of the company, in return of his dedicated services to the company, at a future date at a pre-determined price. Employees have to wait for a certain duration before they can exercise the right to purchase the shares. This duration is termed as vesting period.

It is a frequently used incentive system practiced by many organizations. It has been majorly used by start-up Firms. It is a common practice among organizations to reward employees excelling at their work by giving ESOPs as a part of the salary and ensure their long-term commitment towards the company.

ESOPs are normally given at a price which is less than the market price of the share of firm. Since most organizations have now made ESOP an integral component of the total CTC for an employee, it is essential to understand how ESOPs in India are going to be taxed. Majority of the employees assume that they don’t need to pay any tax when the ESOP shares are sold, since tax has already been deducted and deposited by their organization.

Taxability of ESOPs

According to the amended provisions of Sections 17 (2) (vi) and 49 (2AA) of the Income Tax Act of India, taxation of ESOPs is done twice.

  • First, when an employee exercises his right for shares it is treated as a perquisite. When an employee exercises his option i.e. he wants to buy shares, the same are credited to his demat account. The Exercise Price (EP) at which an employee purchase the shares is lesser than their Fair Market Value (FMV) on the allotment date, sothe difference between fair market value and exercised price is treated as perquisite and taxed. This is reflected in Form 16 and Form12 B and treated as income from salary in the tax return.
  • Second, when an employee sells shares, the proceeds from this sale are treated as capital gain. If the company is listed on an Indian stock exchange and shares are held for more than 12 months by the employee it will be considered as long-term capital gain and as per the latest tax regulations it will be taxed at 10%. If shares are held for less than 12 months, it will be considered as short-term capital gain and profit will be taxed at 15%.

These days start-ups and unlisted companies, the shares of which are not listed on the stock exchanges are also allotting ESOPs to their employees. These shares will be considered short-term assets if held for less than 24 months from the exercise date. If the shares are held for more than 24 months, and sold after this period, these are considered as long-term assets.

If the employee is selling shares in less than 24 months, income will be added to his taxable salary and tax levied would be according to the respective tax slab. If shares are sold after 24 months, then it would be considered as long-term capital gain taxed at 20% after indexation of cost.

 

It is good to own the shares and its better to also know what would be your net receivable in hand after taking into account the tax implications. In this our tax advisors having expertize in ESOPs taxation can guide you. For assistance click here.

 

CRA-Income-Tax-Penalty

Common Income tax penalties in India

Introduction
Under the Income-tax Act, penalties are levied for various defaults committed by the taxpayer. Some of the penalties are mandatory and a few are at the discretion of the tax authorities. In this part, you can gain knowledge about the provisions relating to various penalties leviable under the Income-tax Act.

As per the Union List in the Constitution of India, the Central Government has the power to levy a tax on any income other than agricultural income, which is defined in Section 10(1) of the Income Tax Act, 1961, which is the charging statute of income tax in India. Income tax is the annual tax levies on the income of businesses and individuals, wherein businessmen and other individuals are required to file their income returns to the central government every year to determine the amount of tax they owe to the government. It is the key source of funding available to the government. As per the Income Tax laws in India, income tax is imposed by the government on,

  • Individuals
  • Hindu United Families (HUF)
  • Companies and firms
  • Limited Liability Partnership (LLP)
  • Association of persons, a body of individuals
  • Local authority and any other artificial juridical person

 

Tax evasion in India is a serious affair and for any defaulters or fraudsters, the Income-Tax act provides for adequate repercussions.

  • Not Filing Income Tax Returns
  • Failure to Pay Tax as Self-Assessment
  • Failure to Comply with Demand Notice
  • Failure to Get Accounts Audited
  • Concealment of Income
  • Failure to comply with Income Tax notice

 

The Income Tax Act exists to ensure tax defaulters and offenders are brought to light. Do not join this list, pay the correct tax on time.

If you have any query regarding this Click Here