Tag Archives: Tax adviser in India

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
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.

transfer pricing law in India

Transfer pricing law in India

Introduction

Transfer Pricing (“TP”) regulations have been at the forefront of corporate headlines over the last few years due to the increasing number of controversies resulting out of tax structuring by multinational companies in India. What makes the topic both contentious and interesting is that regulators view the various techniques applied to inter-corporate transactions as purportedly planned with the intent of achieving benefits of comparable labor cost and tax advantage at the cost of a countries tax revenues.

Hence, there was a need to introduce a uniform and internationally accepted mechanism of determining reasonable, fair and equitable profits and tax in India in the case of such multinational enterprises.

Statutory rules and regulations

A separate code on transfer pricing under Sections 92 to 92F of the Indian Income TaxAct, 1961 (“the Act”) covers intra-group cross-border transactions and specified domestic transactions. Since the introduction of the code, transfer pricing has become the most important international tax issue affecting multinational enterprises operating in India. The regulations are broadly based on the Organisation for Economic Co-operation and Development (“OECD”) Guidelines and describe the various transfer pricing methods, impose extensive annual transfer pricing documentation requirements and containharsh penal provisions for noncompliance.

The Indian Transfer Pricing Code prescribes that income arising from international transactions or specified domestic transactions between associated enterprises should be computed having regard to the arm’s length price. It has been clarified that any allowance for an expenditure or interest or allocation of any cost or expense arising from an international transaction or specified domestic transaction also shall be determined having regard to the arm’s-length price. The Act defines the terms international transactions, specified domestic transactions, associated enterprises and arm’s length price.

Type of transactions covered

The Indian transfer pricing regulations are applicable to an international transaction as well as to specified domestic transactions entered into two (or more) associated enterprises.Section 92B of the Act defines the term “international transaction” to mean a transaction between two (or more) associated enterprises involving the sale, purchase or lease of tangible or intangible property; provision of services; cost-sharing arrangements; lending/borrowing of money; or any other transaction having a bearing on the profits, income, losses or assets of such enterprises.

Further, the Finance Act 2012 extended the application of transfer pricing regulations to “specified domestic transactions”, being the following transactions with certain related domestic parties, if the aggregate value of such transactions exceeds INR 5 crore:

  • Any transaction related to businesses eligible for profit-linked tax incentives, for example, infrastructure facilities (Section 80-IA) and SEZ units (section 10AA); and
  • Any other transactions as may be specified.

Associated enterprises (“AEs”)

The relationship of associated enterprises is defined by Section 92A of the Actto cover direct/ indirect participation in the management, control or capital of an enterprise by another enterprise. It also covers situations in which the same person (directly or indirectly) participates in the management, control or capital of both the enterprises. For the purposes of the above definition, Section 92A of the Act specifies certain parameters have been laid down based on which two enterprises would be deemed as AEs.

Arm’s length principle and pricing methodologies

The term ‘arm’s length price’ is defined by Section 92F of the Act to mean a price that is applied or is proposed to be applied to transactions between persons other than AEs in uncontrolled conditions. The following methods have been prescribed by Section 92C of the Act for the determination of the arm’s-length price:

  • Comparable uncontrolled price (CUP) method
  • Resale price method (RPM)
  • Cost plus method (CPM)
  • Profit split method (PSM)
  • Transactional net margin method (TNMM)
  • Such other methods as may be prescribed

These regulations require a taxpayer to determine an arm’s-length price for international transactions or specified domestic transactions. However, transfer pricing provisions will not apply if the arm’s-length price would result in a downward revision in the income chargeable to tax in India.

Documentation requirements

Taxpayers are required to maintain, on an annual basis, a set of extensive information and documents relating to international transactions undertaken with AEs or specified domestic transactions. Rule 10D of the Income Tax Rules, 1962 prescribes detailed information and documentation that has to be maintained by the taxpayer.

Further, it is mandatory for all taxpayers, without exception, to obtain an independent accountant’s report in respect of all international transactions between associated enterprises or specified domestic transactions. The report has to be furnished by the due date of the tax return filing (i.e. on or before 30 November) to avoid stringent penalties prescribed for noncompliance with the provisions of the transfer pricing code.

 For a more detailed discussion of specific transfer pricing rules, or to obtain further assistance in transfer pricing compliance, transfer pricing study, planning activities,addressing and resolving intercompany transfer pricing issues, please contact AJSH & Co LLP. If you have any query regarding this Click Here.

tas adviser in india

Tax Planning With Mutual Funds

Mutual fund is an investment programme funded by shareholders that trades in diversified holdings and is professionally managed.Your Fixed Deposit may be offering decent returns with little option for liquidity, while the stock market may give you decent returns with easy liquidity and slightly higher probability of losses. A Mutual Fund is a fine balance between the two offering you good returns while providing you with decent liquidity.

Tax saving mutual fund schemes or ELSS (Equity Linked Savings Schemes) are one of the best tax-saving option available under Section 80C, qualifying for up to Rs.1.5 Lakh of income tax deductions. Similar to other tax saving options, ELSS also comes in with a mandatory 3 year lock-in period.Always consider the taxation policy before investing.

Funds are invested in the equity markets in such a way that even if one investment incurs losses, the other investment manages to mitigate the loss. Despite this, investment in stocks may inherently be volatile and should be done only after assessing your risk appetite. Also, even though ELSS has a mandatory 3 year lock-in period, investment should be done if you are open to 5-7 years of investment horizon as they can offer superior returns over a long period.

Some tax-saving schemes are as follows:

  • Tata India Tax Savings Fund – Direct (G)
  • L&T Tax Advantage -Direct (G)
  • Aditya Birla SL Tax Plan Direct-G

With professionally managed Mutual Funds, you can be assured that your investments are managed by people with many years of experience with market analysis. They will have enough knowledge to take calls on buying and selling those stocks and other investments. This is particularly helpful if you do not have the knowledge or time to handle individual stock or fixed-income investments.

If you are new to the entire investment scenario, it is advised to seek professional help. Professionals can advise on the available range of viable investmentsand will help you chalk out your entire investment plan. We canalso assist you with our tax advisory services at AJSH & Co LLP.

If you have any query regarding this Click Here.

GST consultant in India

FAQ’s on levy of GST on supply of services to the co-operative society

  1. Services provided by the Central Government, State Government, Union territory or local authority to a person other than business entity, is exempted from GST. So, Property Tax, Water Tax, if collected by the RWA/Co-operative Society on behalf of the MCGM from individual flat owners, then GST is not leviable.
  2. Similarly, GST is not leviable on Non-Agricultural Tax, Electricity Charges etc, which are collected under other statutes from individual flat owners. However, if these charges are collected by the Society for generation of electricity by Society’s generator or to provide drinking water facility or any other service, then such charges collected by the society are liable to GST.
  3. Sinking fund, repairs & maintenance fund, car parking charges, Non- occupancy charges or simple interest for late payment, attract GST, as these charges are collected by the RWA/Co-operative Society for supply of services meant for its members.

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