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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.

tax2-3

File ITR- get perks

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

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

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

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

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

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Periodic routine compliances of a company

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

What are Periodic and Routine Compliances?

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

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

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

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

 List of Periodic Compliance

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

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

List of Routine Compliance

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

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

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

For further queries, click here!

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

 

OPC-Registration-Procedure

Guide for incorporation of One Person Company

Here is step-by-step guide for starting your company individually — the understanding of an OPC, the benefits of incorporating it and the legal formalities in its formation.

As per the Companies Act,1956, a Public Ltd Company requires at least 7 members or shareholders wherein a Pvt Ltd Co requires to have at least 2 members. Hence, a One Person Company was never allowed to be formed in our country earlier. However, under the provisions of the Companies Act 2013, Sec 2(62), One Person Company (OPC) is being allowed to form.

One Person Company means a company which has only one member. It is important to note that Section 3 classifies OPC as a Private Company for all the legal purposes with only one member. All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded. In case of OPC, though it is true that the One Person appears to be like sole proprietor his liability to the debtors of the Company is limited to the shareholding of the company and his personal assets are never attached for payment of the company’s liability, which in case of Proprietorship never happens.

Things you should keep in mind before forming an OPC:
Only a natural person who was a resident of India in the previous year (i.e. he has stayed in India for more than 182 days in that year) shall be eligible to form an OPC. This means that any association of persons or body of individuals or company or any other entity cannot form OPC. A minor is also not eligible to be a member or nominee in an OPC.
You cannot incorporate more than one OPC at a time.
An OPC can either be a company limited by share or limited by guarantee or an unlimited company.
Once an OPC is formed, you will still have to follow the minimum requirement i.e. the company must have an average annual turnover of Rs. 2 crore in the immediately preceding three financial years, failing which the company will lose its status.
An OPC cannot carry out Non- Banking Financial Investment activities including investment in securities of any body corporate.

Steps to be followed to Incorporate One Person Company (OPC)

  • The director is firstly required to obtain a Digital Signature Certificate [DSC] for the proposed Director(s).
  • He is then required to obtain a Director Identification Number [DIN] for the proposed director(s).
  • Thirdly, they are supposed to select a suitable Company Name and then make an application to the Ministry of Corporate Office for the availability of name.
  • The fourth step is to Draft a Memorandum of Association and the Articles of Association [MOA & AOA].
  • The fifth requirement is to sign and file various documents of the OPC including MOA & AOA with the Registrar of Companies electronically.
  • The director is required to pay the Requisite fee to Ministry of Corporate Affairs and also as Stamp Duty.
    The seventh step is to scrutinize the documents at Registrar of Companies [ROC].
  • Lastly, he is required to obtain the receipt of Certificate of Registration/Incorporation from ROC.

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

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.

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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.