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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.

 

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 .

 

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.

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

 

New-ITR-forms-17-18_Full

New requirements in ITR forms for AY 2018-19

New requirements in ITR

1. Additional disclosure requirements for Ind AS Compliant Companies.
2. Fees for late filing of return [Section 234F].
3. There is a requirement to furnish a break-up of salary. Require more details of house property income.
4. Additional details to be furnished by taxpayers opting for presumptive scheme such as amount of secured/unsecured loans, advances, fixed assets, capital account etc.
Further, new ITR 4 seeks GSTR no. of the assessee and turnover as per GST return filed by him.
5. Transfer of TDS Credit to Other Person.
6. Capital Gains in case of transfer of unquoted shares.
7. Reporting of sum taxable as Gift.
8. Now Partners cannot use ITR 2.
9. Revised Depreciation Schedule i.e. the highest rate of depreciation for any block of asset is restricted to 40%
10. Details of business transactions with registered and unregistered suppliers under GST.
11. Assessee claiming DTAA relief is required to report more details.
12. Info relating to capital gains exemption to be furnished in detail.
13. Disallowance of expenses in case of TDS default (for residuary income).
14. Taxability on remission of trading liability in case of ‘Income from other source’.
15. Income from transfer of Carbon Credits.
16. Impact on profit or loss due to ICDS deviation.
17. Details of GST paid and refunded.
18. Removal of ‘Gender’ from personal information.
19. Details of foreign bank account of non-residents.
20. Reporting of CSR appropriations.
21. Break-up of payments/receipts in foreign currency.
22. Ownership information in case of unlisted company.
23. Trusts to disclose more information in ITR.
24. Details of fresh registration upon change of objects [Section 12A].
25. Taxability of Dividend in excess of Rs. 10 lakhs [Section 115BBDA].
26. No deduction for corpus donations made to other institutions [Section 11].
27. Political Parties to confirm if cash donations are received [Section 13A].

If you have any query regarding this Click Here

tax-changes-for-landlords

Tax changes effective from 1 April 2018 (FY 2018-19)

Tax Changes effective from 1 April 2018 (FY 2018-19)

  • Penalty on late filing of ITR upto Rs.10,000
  • Reduction in time limit to revise ITR, to be done in same assessment year
  • No ITR can be filed after the assessment year
  • Transport allowance and medical reimbursement to employees are taxable
  • Standard deduction of Rs. 40,000 to salaried assesses
  • Hike in cess from 3% to 4%
  • Levy of Long Term Capital Gain Tax (LTCG) on shares and equity mutual funds
  • Senior citizens (above 60 years) interest income exempted to Rs.50,000. TDS on interest for senior citizen will be deducted only if interest income is more than Rs.50,000
  • Tax benefit on premium on medical insurance for senior citizen upto Rs.50,000

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.

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.

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Avoid these common mistakes in income tax, keep tax notice at bay

In recent months, the tax department has stepped up efforts to ensure tax compliance. New rules have been introduced to plug tax leaks and officials are cracking down on evasion. Tax records are being put under the scanner and notices are being sent to individuals if the computer-aided selection system notices a discrepancy. Thousands of taxpayers have already received tax notices.

A notice from income tax department is a reason for taxpayer’s worry. There are few common mistakes which invites a call from income tax department. Thus, knowing these mistakes could help you avoid income tax notices.

  1. Not reporting interest incomes

One should report all the interest incomes received or accrued due to him in the previous financial year (for which the return is being filed) while filing his tax returns. Not reporting of interest income from bank and other sources is one of the most prominent reasons resulting in issue of income tax notice. Income tax department gets information of interest, commission & other income of the depositor from multiple sources. Non- reporting results in automatic issue of notices by the income tax system.

Smart tip: Calculate how much interest you will get on your FDs, RDs and other fixed income investments and add that to your income.

  1. Not filing income tax returns

Individual are required to file the income tax return only if income exceeds the basic exemption limit. Lot many taxpayers don’t file the return presuming that return is mandatory only if they have the tax liability. For instance, a person with a salary income of INR 4 Lakh and 80C deduction of INR 1.50 Lakh is required to file the return of income as income is above basic exemption limit even though the tax liability is Nil. Non- filing of return results in notice. It is advisable to file the income tax return even if the income is below basic exemption limit if they have carried out any high value transactions, as it will enable them to avoid income tax notice.

Further, many people don’t file their income tax returns because they have long term capital gains which are tax-exempt and without this their gross total income is below the tax-exempt income level. However, as per recent amendments in section 139 (1) of the Act, if your exempted long term capital gains along with gross total income exceeds the minimum exemption level, you are required to file your income tax return.

Smart tip: Do not miss filing your return even if your tax is zero or all your taxes are paid. File online to avoid mistakes.

  1. Non reporting of tax free incomes

As a taxpayer, you are duty bound to report all your income even if some is tax-free. One of the reasons for income tax notice is that the investment by taxpayer is not in accordance with the income profile of the taxpayer. There are lot many taxpayers who don’t discloses exempt income on the pretext that it don’t have any tax implications. Exempt income includes income such as LIC money back, PPF withdrawals, ELSS withdrawals etc. Often the amount of exempt income is in lump sum and invested back by the taxpayers in other investment avenues. By disclosing exempt income, taxmen are automatically able to link the source of new investment from exempt income. Disclosure of exempt income in ITR forms also could be treated as
self-explanatory for the spending of the taxpayers towards foreign travel, credit card & other spending. Thus, these exempt incomes are to be reported in the ‘Exempt Income’ schedule of the ITR and you can claim exemption on these under various sections of the Income Tax Act.

Smart tip: Mention all tax-free income in your ITR but claim exemption for it under various sections.

  1. Verify 26AS before filing tax return

26AS is a taxpayer’s statement showing the data of the assessee available with the income tax department. Taxpayer should verify that their return incorporates the data available in 26AS. Taxpayer should take efforts to rectify 26AS in case it contains entry not related to him. Taxpayer can avoid notices by verifying 26AS before filing income tax return.

Smart tip: Verify 26AS before filing income tax return.

  1. Non reporting of transaction in Income Tax Return

Non reporting of transactions in income tax return form is one of the most prominent reasons for inviting income tax notices. Even though the transaction has resulted in loss, it is better to disclose the loss figure in income tax return to avoid notices. These types of incidents are often there in shares, mutual funds & property. Be careful, disclose & avoid unwanted notice from income tax department.

Smart tip: Report all transactions including the transactions resulting in losses in income tax return.

  1. Misusing forms 15G / 15H to avoid TDS

Many investors try to avoid TDS by splitting their investments across different banks. Many others submit Form 15G or 15H so that their bank does not deduct TDS. These forms are declarations that the individual’s income for the year is below the taxable limit and therefore no TDS should be deducted from the interest. These are now required to be e-filed by the banks & other recipient. As a result, the income tax systems have handy information of all the taxpayers who have wrongly filed the declaration form. Taxpayers submitting this form in a casual way started receiving notice from the income tax department. Further, misuse of these forms is a serious offence. A false declaration not only attracts penalty but also prosecution.

Smart tip: File Forms 15G only if you fulfil both the conditions i.e. your taxable income for the year does not exceed the basic exemption of INR 2.5 Lakh and the total interest received during the financial year does not exceed the basic exemption slab of INR 2.5 Lakh. TDS is an interim tax and you can claim a refund if you have paid more than due.

  1. Non deduction of TDS

TDS net is widening to include individual taxpayers who are not in any kind of business or profession. Now, purchase of property above INR 50 Lakh attracts TDS. The rule is applicable even if you pay in instalments. In such cases, the TDS needs to be deducted from each payment and the money deposited with the government within seven days. While TDS deduction happens automatically when you buy a new property from a builder, in case of transactions between individuals, it is often ignored.

In addition, payment of rent exceeding INR 50,000 p.a. also attracts TDS. Non-deduction or non-filing of the TDS return after deduction / payment invites notice from the revenue office.

Smart tip: Make it clear to the seller of property / property owner that you will be deducting TDS from the payment. Make sure you have his correct PAN details.

  1. Non reporting of Cash deposit

Change in income tax return forms is an annual feature. This year, income tax return form required taxpayer to disclose the amount of cash deposited in a bank account. Also, if your expenses or cash withdrawals exceed certain limits, your credit card company and your bank are supposed to report that to the tax department. Thus, income tax systems have already received the information from the banks of all the taxpayers regarding their cash deposits. Taxpayers with heavy cash deposits or unmatched data are catching an eye of income tax and the income tax department may send a notice or pick up such cases for scrutiny.

Smart tip: Avoid cash transactions as far as possible. If depositing cash in bank account, keep record of source of cash.

Thus, precisely don’t forget to incorporate all the income details in income tax return. Don’t fail to file the income tax return. Disclose all the transactions, mainly of shares & property. Don’t be casual in submission of Form No. 15G / 15H. Be updated about the changing tax laws, more particularly about the TDS provision on property & rent & deduct proper TDS. Report all income. Disclose all the bank accounts correctly with cash deposits figure. Verify 26AS before filing income tax return & be a happy taxpayer.

For a more detailed discussion on income tax issues, or to obtain further assistance in personal income tax filings, corporate tax filings, tax planning, income tax assessments, response to income tax notices, please contact AJSH & Co LLP. If you have any query regarding this Click Here.