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Income tax adviser in India

Income Tax: Skepticism eliminated

What is Income Tax?
A tax imposed on taxable income or profits of persons (whether individual, firm, company, Artificial Juridical Person, Association of Persons, Body of Individuals or Local Authority). Taxation rates may vary by type or characteristics of tax payers.

Tax trend followed in India:
In India, two types of tax trends are followed:

  • Progressive Rates: When the tax rate increases as the taxable income increases.
  • Proportional Rates: When the tax rates are uniform, irrespective of the person or their incomes.

Income tax in itself is a vast concept and cannot be understood in entirety by a layman, so here are few answers to drive away all ifs’ and buts’ that usually arise:

  • Are gifts from relatives always tax free?
    The provisions of Section 56 of Income Tax Act, 1956, state that the section provides for a cap of INR 50,000 on gifts received from non-relatives and if gifts exceeded the amount, the same would be taxable under the head “income from other sources.” But there was no such cap on gifts received from a relative.
  • What is the meaning of Presumptive taxable scheme?
    As per section 44AA of the Income-tax Act, 1961, a person engaged in business is required to maintain regular books of account under certain circumstances. In order to provide relief to small taxpayers, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA and 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the job of maintenance of books of account. ​
  • Is occasion a necessary condition for receiving any sum from a relative as a gift?
    The need to provide an explanation on the occasion for which gift was received is not mandatory, as per the provisions of Section 56 of Income Tax Act, 1956.
  • How is long-term capital gain from NABARD bonds taxed?
    Long-term capital gains (LTCG), after indexation, from zero-coupon bonds of NABARD are taxable at 20.8% and without indexation they are taxable at 10.40%, after taking into account basic exemption limit.
  • Is deduction allowed on money invested in Senior Citizens’ Saving Scheme (SCSS)?
    Amount deposited in SCSS is eligible for deduction under section 80C of the Income Tax Act, subject to the maximum limit of Rs 1.5 lakh.
  • What are Equity Oriented Mutual funds?
    Mutual Funds that apply 65% or more of their corpus to equity or equity related securities at all times.
  • How Equity Oriented Mutual Funds are taxed?
    1. Gains on equity oriented mutual funds held for less than a year are treated as short-term capital gains and taxed at 15%.
    2. Gains on equity oriented mutual funds held for a year or more are treated as long-term capital gains and taxed at 10% for gains exceeding Rs 1 lakh in a year.
    3. For equity oriented mutual funds invested on or before 31 January 2018, gains till that date will be considered as grandfathered and will be exempt from tax.
  • Is maintaining proof or records of earnings necessary? ​​
    For every source of income one should maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, reasonable records with which one can support the claim of execution of income should be maintained.
  • Is relief available from double taxation, if income is earned in both India as well as abroad?
    A person can claim relief in respect of income which is charged to tax both in India as well as abroad. Relief is granted either, as per the provisions of double taxation avoidance agreement entered into with that country (foreign country) by the Government of India or by allowing relief as per section 91 of Income Tax Act in respect of tax paid in the foreign country.
  • When are incomes deemed to be received in India?
    Following incomes are treated as incomes deemed to be received in India: ​

    1. Interest credited to recognised provident fund account of an employee in excess of 9.5% per annum.
    2. Employer’s contribution to recognised provident fund in excess of 12% of the salary of the employee.
    3. Transferred balance in case of re-org​anization of unrecognised provident fund.
    4. Contribution by the Central Government or other employer to the account of the employee in case of notified pension scheme referred to in section 80CCD​.​
  • What is the eligibility for being taxable under Presumptive taxable Scheme under section 44AD?
    The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm). Further, a person who has made any claim towards deductions under section 10A / 10AA / 10B / 10BA or under  sections 80HH to ​80RRB in the relevant year, cannot come under the purview of this scheme.We believe that income tax cannot be illustrated and explained with few questions because of its vast dominion. Still confused and have questions regarding your income tax filing, you can reach our team of experts.

If you require any assistance in filing income tax returns, corporate returns, tax assessments, tax planning, structuring, transaction advisory, please click here.

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Rupee sliding: Reasons & Forecast

What is value of currency for an economy?
An economy is often represented by the people who live there and the value its currency has, further the value of a currency depends on factors that affect the economy like imports and exports, performance of equity markets, foreign exchange reserves, macroeconomic policies, inflation, employment, interest rates, growth rate, trade deficit, foreign investment inflows, banking capital, commodity prices and geopolitical conditions. Currencies are often influenced by income levels through consumer splurge. When income increases, people tend to expend more. Demand for imported goods increases demand for foreign currencies, thus, weakening the local currency.

Reasons for Rupee depreciation against USD:

  • Crude oil- US restricted all countries, including India to import crude oil from Iran. Iran being the second most largest exporter of crude oil to India due to geographic proximity that saves  shipping cost as well as the favourable financial terms offered by Iran, including the longest credit period among all of India’s suppliers is losing its rupee value further.
  • Trade war- US and China have been involved in heated up trade war as they are imposing import tariffs on goods from either of these countries and such a situation is not viable for a country like India.Trade war is leading the markets into period of risk off where prices of all assets are moving lower. US Dollar and Japanese Yen are observed to be the major beneficiaries from trade war. Indian Rupee is already under pressure from high crude oil prices and on-going trade war sparked another bout of capital outflows.
  • Fiscal deficit blues- As a result of hike in crude oil prices, crude oil imports from Iran and trade war between US and China India’s fiscal deficit might get hurt over the upcoming quarters as India is a net importer of crude oil and also heavily dependent on it. It is further expected that weakness in Indian Rupee might persist as it will be difficult to fund the widening current account deficit given the increased return by way of higher US Dollar rates offered by other emerging market debtors.
  • FPI outflows: FPIs (Foreign Portfolio Investors) have surfaced as net sellers in the months of FY2018 and have already sold-off around INR14,000 crores worth of equity and debt securities so far, leaving Rupee to a downslide.

Ways to protect the depreciating currency:

  • The country should sell more goods in overseas market than it buys from them and have a trade surplus, which leads to more foreign currency into the country than what is paid for imports. Thus, strengthening the local currency.
  • As the difference in interest rates between countries is one of the major factors for rupee depreciating, RBI’s move to deregulate interest rates on savings deposits and fixed deposits held by Non-Resident Indians (NRIs) proved to be a successful part of a series of steps to stem the fall in the rupee. By allowing banks to increase rates on NRI rupee accounts and bring them on a par with domestic term deposit rates, the RBI expects fund inflows from NRIs, resulting in a rise in demand for rupees and strengthening value of the local currency.
  • Some ways through which the RBI controls the movement of the rupee are:
    1. Changes in interest rates
    2. Relaxation or tightening of rules for fund flows
    3. Tweaking the cash reserve ratio (the proportion of money banks have to keep with the central bank)
    4. Selling or buying dollars in the open market
    5. Fixation of the statutory liquidity ratio, that is, the proportion of money banks have to invest in government bonds
    6. The repo rate, at which RBI lends to banks.

While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of money available, impacting its value in the positive direction.

Forecast:
Increased customs duty on total 19 categories of “non-essential items” such as washing machines, refrigerators, radial tyres, and aviation turbine fuel (ATF) witnessed an import of around INR 86,000 crores in 2017-18, leading to improvement in Current Account Deficit and attracting inflows. The Indian rupee will also be benefited from any inclusion of local government bonds in the JP Morgan government bond index for emerging markets. Also, citing the $1 billion rupee-linked bond issuance launched by World Bank’s private sector arm International Finance Corp, rise in value of rupee can be speculated.

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India: The nucleus for FDIs

Foreign businesses often channelize their funds to reap the benefits of fast growing economy, cheap labor and wide scope of earning increased returns in India. To capture and relish such benefits, FDIs are superintended towards India in huge proportions by different countries around the world. 

What is FDI?
Foreign Direct Investment (FDI) is generally termed as an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

India amidst top destinations for FDI
India ranks among the top 10 host economies for FDI, according to the United Nations Conference on Trade and Development (UNCTAD) 2018 World Investment Report. FDI inflows hit an all-time high of USD 44.5 billion in 2016, however, following the global downward trend, flows to India declined in 2017 to USD 39.9 billion.

In January 2018, the Indian government gave its approval to a number of major amendments aiming to further liberalise and simplify the national FDI policy. In the last three years, the government had already eased 87 FDI rules across 21 sectors. In 2018, India ranked 100th out of 190 countries in the Doing Business report published by the World Bank.

Russia contemplating investments in India
One such major step can be sighted by the Russian Direct Investment Fund (RDIF) moving towards investing in India eyeing to boost infrastructure funding. As mentioned by Kirill Dmitriev, CEO, RDIF in an interview that RDIF will sign two key deals at this annual summit on October 5, 2018:

  • Agreement with their partners in India to jointly invest in ports & logistics; and
  • Joint investment in mineral fertilisers, including the construction of production facilities and related infrastructure, as well as the introduction of advanced technologies in Russia and India. The agreement also provides for the supply of PhosAgro products to Indian partners on a long-term basis.

Growth spotted
The sectors attracting the greatest amounts of FDI in India include the services sector, followed by IT services and software, construction, the automobile industry and wholesale and retail trade.

FDI Equity Inflows by Country

Main Investing Countries 

 (January – March 2018)

%

 (April – June 2018)

%

Mauritius 34 33
Singapore 18 19
Netherlands 6 6
United States 6 6
Japan 7 7
Germany 3 3
United Kingdom 7 7
Cyprus 3 2
France 2 2
U.A.E. 2 2

Discerning the consistent and steady growth in the influx of FDIs, one can identify these to be a secure source of foreign funds entering in the economy subsequently. Thus, promoting all sectors in India.

Is it a lot to take in? Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements.

Source:

  1. https://en.portal.santandertrade.com/establish-overseas/india/foreign-investment
  2. http://www.dipp.nic.in/fdi-publications