FAQs on New Income Tax Regime u/s.115BAC

Mehul Shah
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FAQs on New Income Tax Regime u/s.115BAC

What is new Income tax Slab for AY 2020-21?

-> Under existing regime the taxpayers (Individuals and HUF) were taxed @20% with taxable income in the range of Rs 5 lakh to Rs 10 lakh. There were expectations from government to slash the tax rates as it was too high.

Existing Regime

Net Income Range Rate of Income Tax
Upto Rs.2,50,000 —-
Rs.2,50,000 to RS.5,00,000 5%
Rs.5,00,000 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

The Finance Minister in the Union Budget 2020 announced a new tax regime.

New Regime u/s. 115BAC

Total Income Rate of Income Tax
Upto Rs.2,50,000 —-
From Rs.2,50,001 to Rs.5,00,000 5%
From Rs.5,00,001 to Rs.7,50,000 10%
From Rs.7,50,001 to Rs.10,00,000 15%
From Rs.10,00,001 to Rs.12,50,000 20%
From Rs.12,50,001 to Rs.15,00,000 25%
Above 15,00,000 30%

Q. Is this new Income Tax slab will be beneficial for the taxpayer?

-> Under current tax system the tax rates are high but there are a lot of ways to reduce your tax liability. There are over 70 exemptions and deduction options available to taxpayers through which they can bring down their taxable income and hence pay less.

The new tax regime have more slabs and lower taxes but not many ways to reduces taxes i.e. through claiming deductions and exemptions as the taxpayer has to forgo the benefits of over 70  deductions and exemptions.

If taxpayers want to opt for the new tax regime, they should evaluate both the regimes. The income tax department has made a tax comparison utility, which is available on their web portal where an individual taxpayer can use to evaluate which option is better for him/her. The link to the same is as under: https://www.incometaxindiaefiling.gov.in/Tax_Calculator/

Pros and Cons of New Tax regime.

Pros:

  1. Reduced tax rates and compliance
  2. Tax payers have not invest compulsorily in the prescribed instruments for the specified period for the sake of lowering their taxes. Lower tax rates may help them in saving considerable tax amount.
  3. The new tax regime is optional for tax payers, they can evaluate their tax liability under both regime and can choose more beneficial regime from A.Y.2021-22 or any subsequent year. However, for the taxpayers having income from business or profession cannot switch between the new tax regime and regular tax regimes every year. Further, if the taxpayer having income from business or profession opts for the new tax regime, such taxpayers get only one chance in their lifetime to come back to the regular tax regime and will not be eligible for opting new tax regime again, unless the taxpayer’s business income ceases to exist.
  4. Tax payers are now free to formulate better investment and insurance strategies rather than depending on tax saving instruments for the purpose of saving taxes.
  5. In case of assessment proceedings before the tax authorities, documentation and proof of investments is required to be retained in the old regime, which may not be required in the new regime.

Cons:

  1. Non-availability of certain specified tax deductions.
  2. No classification of Individuals on the basis of the age. The basic exemption limit of Rs. 2,50,000/- will remain the same for all the taxpayer under new tax regime.
  3. One time option for the tax payer having business income.

Even though the new rates are lucrative, the old tax regime might be beneficial for some taxpayers, while it may not help others. This will depend on the income bracket one falls into.

Q- Which Exemptions And Deductions a taxpayer has to forego for new tax regime?

-> The following are the deductions and exemptions you cannot claim under the new tax system

  1. The standard deduction, professional tax and entertainment allowance on salaries
  2. Leave Travel Allowance (LTA)
  3. House Rent Allowance (HRA)
  4. Minor child income allowance
  5. Helper allowance
  6. Children education allowance
  7. Other special allowances [Section10(14)]
  8. Interest on housing loan on the self-occupied property or vacant property (Section 24)
  9. Chapter VI-A deduction (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except Section 80CCD(2) and 80JJAA)
  10. Without exemption or deduction for any other perquisites or allowances
  11. Deduction from family pension income

Q.  Treatment of Income from House property under new tax regime?

-> In case of a self-occupied property, the new tax regime does not allow to claim a deduction on interest for a housing loan. The deduction of Rs 2 lakh allowed in the existing system is not available in the new tax regime.

Also, the set-off of the loss of Rs 2 lakh from house property from salary income is not allowed.In case of let-out a house property, the deductions on municipal tax, standard deduction of 30% and interest paid on housing loan is restricted till the rental income. Therefore, the excess interest paid on housing loan will result in loss under the head income from house property. However, this loss cannot be set-off against any other head of income. Also, you cannot carry forward the loss from house property to future years for set off.

25 Latest Income Tax Judgements In India

Mehul Shah
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25 Latest Income Tax Judgements In India

The year 2019 has been a very significant one to the taxation regime as the government has introduced various revolutionary changes in the laws and rules and regulations.

The contribution of the judiciary including the Supreme Court and various High Courts and Tribunals has always been significant. Some of the income tax latest case laws and latest income tax judgements in India delivered by the Indian judiciary of Tribunal in this year 2019 are compiled and curated by our team as follows.

Latest Income Tax Judgements

  1. Sh. Kuldeep singh v. Income tax officer [Amritsar-Trib]

Important Tags – Gift, Best Judgement assessment u/s.144, Reason to believe, 143(3), 142(1), 147, 148

During the course of assessment proceedings, the AO observed that the assessee had made cash deposit in the undisclosed bank account. The assessee submitted that the cash deposit was from the gift received by him from his father. He further submitted that said amount represents the sale consideration derived by his father from sale of certain agricultural land and from his savings and also submitted sale deeds and record of land which proves his father was agriculturist and had sufficient agriculture land. However, the AO rejected the contention of the assessee and made addition under section 68.

Aggrieved by the same, assessee filed appeal before the Ld. CIT(A). It upheld the order of AO and confirmed the reopening of the assessment.

On further appeal, ITAT held that the AO failed to bring on record any cogent evidence to prove that sale deed executed by assessee`s father was wrong and the record of land was false or untrue. And since the assessee explained the source of bank deposits therefore income has not escaped assessment within the meaning of section 147 of the Act. Hence, the ITAT quashed the reassessment proceedings initiated by assessing officer.

2. M/s Hirsch Bracelet India Private Limited v. Assistant Commissioner of Income Tax [Bangalore-Trib.]

Important Tags – Capital Asset, Depreciation, Opportunity of being heard, Bad and doubtful debts, Revised Return, Unabsorbed depreciation, TDS, 143(3), 37

The issue revolves around three major concerns, first whether all the expenditures incurred after transfer of leasehold rights are to be allowed as deduction. The Tribunal relying on the judgement of High Court of Karnataka in case of Lawrence D’souza held that even though the business had come to a halt but being a company all the expenditures incurred were necessary to maintain its legal status till the assets are liquidated and hence allowed as deduction.

The second issue deals with whether a claim that the capital gain earned on sale of land and building is to be bifurcated separately as wrongly claimed by assessee in his return of income is to be allowed. The Tribunal held that CIT(A) has the power to examine the claim and remand the claim to AO if required, hence it was directed to AO to examine the claim placed before CIT(A).

The third issue pertains to whether the profit on transfer of depreciable assets can be set off against unabsorbed depreciation. The Tribunal held that as the transfer led to short term capital gain, is in nature of business income and hence can be set off against the unabsorbed depreciation. [Partly allowed in favour of assessee]

3. M/s. Mahesh Software Systems Pvt. Ltd. v. Assistant Commissioner of Income tax [Pune- Trib.]

Important Tags – Business Income, TDS

In terms of Rule 37BA(3)(i) benefit of TDS is to be given for assessment year for which corresponding income is assessable, therefore, where assessee raised invoice on ‘A’ in March 2011, benefit of TDS had to be allowed in assessment year 2011-12 even though tax on invoice amount was deposited by ‘A’ in April 2011

4. AIG Offshore Systems Services Inc. V. Asst DIT [Mumbai – Trib.]

Important Tags – Capital Asset, Business Expenditure, Corroborative Evidence

Where assessee being a foreign company sold shares in its Indian subsidiary, for computing long term capital gain and it claimed deduction of the legal/professional fees of lawyers/ accounting firms, keeping in view that such services received by the assessee were in relation to advise on sale of entire shareholding of Indian subsidiary and included preparation of share sale/purchase agreement etc., thus it could be concluded that such expenditure was in relation to transfer of shares of Indian subsidiary and the asseesee’s claim for deduction was valid.

5. ITO, Thiruvalla v. M/s.Toms Enterprises [Cochin – Trib.]

Important Tags – Gross Profit estimation, Block assessment, Onus to prove, Retraction, 131, 133A

Where during the course of survey u/s 131, the assessee being a company, Assessing Officer cannot make additions to income of assessee only on the basis of sworn statement of its managing director and without support of any corroborative evidence.

6. The Malad Sahakari Bank Ltd v. DCIT [Mumbai – Trib.]

Important Tags – Business Income, General deductions, Depreciation, Bad and doubtful debts, Provision of Bad debts, 37, 37(1), 36(1)(viia)

“Assessee being co-operative bank is eligible for deduction of provision for doubtful debt and loss assets u/s 36(1)(viia) to extent of 7.5 percent of business income. Depreciation on securities held as ‘available for sale’ was allowed to assessee which was computed and claimed consistently every year by assessee in its profit and loss account. Assessee was entitled to deduction u/s 36(1)(vii), where he has admittedly written off bad debts in its books of account from individual ledgers of borrowers/defaulters during relevant previous year.”

7. ETT Ltd (formerly known as Indian Express Multimedia Ltd) v. CIT [Delhi- Trib]

Important Tags – Related party transaction, Transfer Pricing, Search and seizure, International transaction, Difference of opinion, Rule 8D, Earning of tax free income, Valuation report, 92C, 92B, 14A, 80IA, 263, 115JB, 54, 69, Audit Objection

Disallowance u/s 14A is not automatic whenever there is any kind of exempt income, it has to be viewed with regard to the nature of expenses debited and whether any expenditure can be calculated. The Commissioner cannot rely on the judgement of the Assessing Officer without carrying out his own enquiry and without pointing out any legal or factual infirmity.”

8. M/s. Pratham Investments v. Dy. CIT [Ahmedabad – Trib.]

Important Tags – Business Income, Speculation loss, Difference of opinion, reason to believe, change of opinion, futures and options, 143(3), 28, 147

The reassessment proceedings could not be initiated by the Assessing officer on the ground that loss arising from changing from one plan of mutual funds to another was of capital nature when he himself had treated profits from sale of such mutual funds as business income.

9. Manoj Kumar Jaiswal v. Asst. CIT CPC TDS [Bangalore – Trib.]

Important Tags – Principle of natural justice, TDS, 10, 154, 139

No power is conferred under any provisions of Act to declare return of TDS filed under section 200(3) as non-est and, thus, treating payee as assessee-in-default and exposing him to other consequences as assessee-in-default.

10. Varun Seth v. ACIT [Delhi – Trib.]

Important Tags – Capital asset, 54F, 54, 10, 139

Where assessee invested the sales consideration from selling residential property, in a plot for purpose of construction of residential house, claim for such exemption u/s 54 could not be denied, only because the assessee could not obtain possession of plot due to developer’s failure to offer possession within a period of three years.

11. The Bank of Tokyo Mistubishi UFJ Ltd. v. DCIT (International Taxation) [Delhi Trib.]

Important Tags – 234D, Depreciation, 144C, Transfer pricing

Charging of interest u/s. 234D is not justified when refund due to assessee has been adjusted to the outstanding demand.

12. N Ramaswamy v. ITO [Chennai – Trib.]

Important Tags – Capital asset, Capital gains,54F, 54, 263, 139

Assessee entered into an agreement for perpetual lease for unlimited period and claimed exemption under section 54F.

Assessing Officer (AO) allowed the exemption claimed by the assessee. However, the Principal Commissioner (PCIT) observed that the assessee had acquired the property by way of perpetual lease deed agreement and therefore, it cannot be considered as absolute purchase of the property for claiming exemption under Section 54F of the Act. Thus, he revised the order of AO and disallowed the exemption claimed by assessee.

On appeal before the Tribunal, it held that a bare reading of section 2(47) shows that the agreement or arrangement which has effect of transferring or enabling the enjoyment of immovable property, has to be considered as transfer. Furthermore, section 269UA(2) of the Act clearly says that any lease for a term of more than 12 years including the possession of property has to be construed as transfer.Since the assessee had acquired the residential house by means of perpetual lease for more than 12 years, it had to be treated as acquisition of property within the meaning of section 54F.

Therefore, assessee was entitled to exemption under section 54F and allowed the appeal of the assessee.

13. Emmsons International Ltd. v. ACIT [Delhi- Trib.]

Important Tags – Commercial expediency, Capital expenditure, 37(1), 12

Expenditure incurred on foreign travel of spouse and children of director of assessee company when they accompany him is not a business expenditure and therefore cannot be allowed as deduction u/s 37(1). Foreign currency loss on forward contract can be allowed as business loss when assessee is engaged in the business of international commodity trading.

14. ACIT v. Shri Akshay Sobti [Delhi-Trib.]

Important Tags – Capital asset, question of law, Cost of acquisition, 54F, 54, TDS, 205.

During the year under consideration, the assessee sold a residential house property and invested sale consideration for booking a semi-finished residential flat from a builder and claimed exemption under section 54. The AO disallowed the exemption on the grounds that assessee had purchased new property beyond period of one year prior to date of transfer prescribed under section 54.

The Delhi ITAT held that assessee had booked a semi-finished flat with the builder and as per agreement, he had to make payment in instalments and the builder was to construct the unfinished bare shell of flat for finishing by the buyers on their own to make it liveable. It had to be considered as a case of purchase of property for construction of new residential house and not purchase of a flat. Therefore, he had a time window of three years available to him to construct a house property, thus, the exemption under Section 54 cannot be denied.

15. Shree Laxmi Estate P. Ltd v. ITO [Mumbai- Trib.]

Important Tags – Sale consideration of property below Jantri value, Business income, Depreciation, Additional evidence, 50C, 32, 68, 43CA

During the year under consideration, the assessee, a property developer adopted ‘Project Completion Method’ for a project which was still under construction during the year. During the course of assessment proceedings, AO noticed that there was total difference of Rs. 3,41,41,270/- between the agreement value of the flats booked and the Stamp duty Value of those properties. Addition of Rs. 3,41,41,270/- was made u/s 43CA of the Act. CIT(A) also affirmed the addition made by the AO.

Tribunal held that Section 43CA can be applied only when there is transfer of land or building or both whereas what assessee had transferred pursuant to registration of the said agreement was only the rights in the flat/ office (which is under construction) and not the property per se. Hence it could be safely concluded that there was no transfer of any land or building or both by the assessee in favour of the flat buyers pursuant to registration of the agreement during AY 2014-15. Reliance was placed on the decision of:

  1. Hon’ble Ahmedabad ITAT in the case of ITO v. Yasin Moosa Godil [ITA No. 2519/Ahd/2009 dated 13/04/2012]
  2.  Hon’ble Jaipur ITAT in the case of Mrs Rekha Agarwal vs ITO [(2017) 79 taxmann.com 290 (Jaipur Trib.) dated 17.2.2017]

Accordingly, the impugned addition of Rs.3,41,41,270/- made u/s. 43CA was directed to be deleted.

16. ACIT v. Shri Harish Narinder Salve [Delhi-Trib.]

Important Tags – Gift, Business Expenditure, Commercial expediency, revenue expenditure, capital expenditure.

During the year under consideration, the assessee (being advocate) entered into a scholarship agreement with the Exeter College, the University of Oxford and paid scholarship to two students. As per the agreement, he committed to provide annual funding for scholarship of graduate student at Oxford University for top Indian student on annual basis. He claimed that the above expenditure was deductible under section 37. However, the AO disallowed the deduction claimed by the assessee on the ground that the scholarship paid by the assessee was a gift to the college.

Delhi Tribunal held that assessee had set-up a scholarship for creating his visibility in international arena and his social standing. This had increased lot of value in his CV and the Singapore government had appointed him on certain Committees of repute. The assessee had also shown that one of the students to whom scholarship had been granted helped him in a famous Vodafone case. Therefore, the assessee had incurred the above expenditure wholly and exclusively for the purpose of his business.

17. Manoj Sharma v. ITO [Delhi – Trib.]

Important Tags – Bogus purchase, Accommodation entries, reason to believe, principle of natural justice, 69C, 147, 148

No addition on account of unexplained purchases could be made, where correct entries are found in assessee’s trading account including quantitative tally of purchases, opening stock, sales and closing stock.

18. M/s. J.C. Bhalla & Co. v. Addl. CIT [Delhi- Trib.]

Important Tags – Capital receipt, cost of acquisition, Source of fund, retrospective amendment, 40(b), 54, 28, 11, Business Income

“Assessee being a Chartered Accountancy partnership firm, would be eligible to exemption u/s 54EC, where it invested capital gains earned from sale of its client relationships and goodwill pertaining to its business of internal audit and risk consultancy(IARC) practice in specified bonds.

Where payment of bonus made to partners was specifically mentioned in a supplementary partnership deed and also specified exact amount of bonus payable, such payment could not be disallowed u/s 40(b).”

19. Dy.CIT v. Shri Arvind N. Nopany [Ahmedabad- Trib.]

Important Tags – Gift, Document seized, capital receipt, 143(3), 142(1), 56(2), 132

In this case the assessee had received gift from his brother in law out of natural love and affection. Assessee’s brother in law was the 40th richest man according to the Forbes and had high net worth. Assessing Officer doubted the donor’s relation with assessee and required the assessee to prove the identity, genuineness and creditworthiness of the donor and also required the assessee to produce the donor. Assessee submitted donor’s PAN, account statement, bank statement in order to prove the same however it was not possible to produce the donor in short notice period as the donor resided in different city.

Tribunal did not find any inference with the judgement of CIT(a) wherein it was held that as assessee has proved the identity, genuineness and credit worthiness of donor and as relation with brother in law fits in the definition of relative given in the proviso to Section 56 therefore the gift received qualifies for the exemption under section 56. Hence, Revenue’s appeal is dismissed.

20. KKB Projects Pvt. Ltd v. Pr. CIT [Surat- Trib.]

Important Tags – Revision of Order, set aside, Transfer Pricing, revenue expenditure, 40A(2)(b).

During the year under consideration the assessee was engaged in the business as a government contractor for construction works. The scrutiny assessment was finalized u/s.143(3). Subsequently, the Pr.CIT observed that there were various payments made by assessee to persons  covered  u/s.40A(2)(b)  of  the  Act  in  the  form  of  director remuneration,  rent  expenses  and  purchase  payments and was of the opinion that no proper verification has been made by the AO in respect of these payments. Therefore, Pr.CIT made revision to the order u/s.263 of the Act.

Tribunal held that the assesse has filed the audited reports containing all the details regarding related parties u/s.40A(2)(b) along with  Name, PAN, Relations, nature  of transactions and payments made.  Even otherwise, the assessee has also duly furnished the report from expert in Form 3CEB as required by Law, wherein all the details of  payment made related to party were mentioned i.e. name of persons  with whom specifically domestic transactions as entered into,  description of transaction along with quantitative details if any. Total amounts paid or payable in the transaction as per the books and as computed by the assessee having regard to arm’s length price. The method used for determining the arm’s length price which also goes to show that there is nothing on the record to suggest that assessee had made any excessive payments to the related parties which has caused loss to the Revenue.

Thus, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue.  Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT.  Therefore, the Ld. Pr.CIT was not correct in exercise the jurisdiction under section 263 of the Act. In view of these facts and circumstances, we quash the proceedings initiated in the impugned order passed under section 263 of the Act and allow the appeal of the assessee.

21. M/s. Vijay H. Lilawala v. The Income Tax Officer [Surat-Trib.]

Important Tags – Reopening of assessment, Unexplained cash credit, Peak credit.

Where the assessee explains that the cash deposits in bank represents business of assessee however no details of such business are furnished by the assessee, the entire transaction appearing the bank account cannot be added instead only the profit embedded therein is to be added. Here in the case, the profits declared by the assessee were more than the peak credit in bank and therefore addition made was deleted. [Referred case: CIT vs. Pradeep Shantilal Patel (42 taxmann.com 2)]

22. M/s Gopinath Gems v. The Income Tax Officer [Surat-Trib]

Important Tags – Bogus purchase, application of stay, reasonable cause.

Where AO has made addition of alleged bogus purchases solely on the basis of extracts of statement by third parties and has not provided the statement as well as an opportunity of cross examination of the same when requested by the assessee during the assessment proceedings, held to be gross violation of Principle of Natural Justice. Held that addition is to be deleted relying on the decision of Hon’ble SC in the case of Andaman Timber Industries vs. Commissioner of Central Excise[[2015] 281 CTR 241].

23. Nilay Kirtibhai Tailor  v. Income Tax Officer [Surat- Trib.]

Important Tags – Unexplained cash credit, Period of limitation, reassessment proceedings, Block assessment, Business income.

Where sub-section (2) of section 150 makes it clear that re-assessment permission under section 150(1) of the Act would not be available to the Department, when the period of limitation for such assessment or re-assessment has expired at the time when order which was subject to the appeal was passed. ie the assessment order in this case and thus the direction u/s 150(1) is bad-in-law

24. Ashok G. Chauhan v. ACIT [Mumbai-Trib.]

Important Tags – Capital asset, Co-owner, 54F, Surrender of tenancy right, Gift.

Where assessee’s claim for deduction u/s 54F was rejected by Assessing Officer on the ground that at time of sale of capital asset, assessee was owner of more than one residential property, in view of the fact that one residential property was jointly owned by the assessee and his wife and he could not be treated as absolute owner, deduction u/s 54F could not be denied.

25. Mohammadanif Sulatanali Pradhan v. DCIT [Ahmedabad – Trib.]

Important Tags –   Capital Gains, 54, 54F, set aside

During the year under consideration, the assessee had declared income under the head of Capital Gains in his return after claiming the exemption u/s. 54F for the investment made in 2 bungalows which were adjacent to each other. AO and CIT(A) observed that after the amendment made in section 54F; the expression earlier used as “a residential house” was substituted with “one residential house”. This amendment was effective from Assessment Year 2015-16 i.e. the year under consideration. Accordingly, it was contended by the revenue that assessee cannot claim exemption u/s. 54F for investment made in 2 bungalows. Assessee contended that as both the bungalows were in the same society, adjacent to each other and hence can be considered as one unit for the residential purposes. Accordingly exemption u/s. 54F for investment made in both of the bungalows should be allowed.

Tribunal decided the matter in favour of assessee and allowed the exemption u/s. 54F for investment made in both the bungalows, observing the following:

i) Section 54F does not provide definition for the area of a residential property to be invested in.

 a) So, for instance if an assessee buys only one property, even though area of such property is huge, he is entitled to exemption u/s. 54F.

 b) Now, merely because if assessee buys two separate properties adjacent to each other; the aggregate area of which may even be lesser than that of the property described in former instance, cannot be denied exemption just for the reason that there are two different properties based on registry documents. ii) Thus, assessee cannot be deprived of the benefit u/s. 54F merely on the ground that there were two different registries of the properties when both such properties were adjacent to each other and were used as single residential unit by the assessee.

Related:
FAQs on New Income Tax Regime u/s.115BAC
8 Income Tax Judgements and Cases on Previous Demonetisation

8 Income Tax Judgements and Cases on Previous Demonetisation

Raghav Bajaj
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8 Income Tax Judgements and Cases on Previous Demonetisation

PM Narendra Modi may have shocked the nation with his 8 PM, 8 Nov 2016 announcement , but the Prime Minister’s move was not a step which was not known or never done before. India has pulled back selected denominations of its currency twice before on 12th Jan 1946 and 16th Jan 1978.

The first was when the Governor General of India promulgated the High Denomination Bank Notes (Demonetisation) Ordinance, 1946. It declared that the high denomination bank notes of Rs 500, Rs 1,000, and Rs 10,000, issued by the RBI would cease to be legal tender on expiry of January 12, 1946 a year and a half before the country won independence from the British. The Rs 10,000 notes were the largest currency denomination ever printed by the Reserve Bank of India, introduced for the first time in 1938. However, all three notes were reintroduced in 1954.

The next event of demonetisation happened under the Janata Party government in 1978. The Ordinance was subsequently repealed and replaced by the High Denomination Bank Notes (Demonetisation) Act, 1978 on March 30, 1978.

As a consequence of recent Demonetisation in Nov 2016, people all over the country have received assessment notices pertaining to cash deposits during demonetization period. Many cash deposits during demonetisation made were genuine but still have to go through the proceedings to prove the source of such deposits and pass the test of satisfaction to the Assessing Officer. It seems that many Assessing Officers in pursuance to follow the SOPs on Operation Clean Money Project have made unreasonable additions in some cases. They have failed to realize that not every cash deposit represents unaccounted income resulting into huge tax liability u/s 115BBE at the rate of 77.25%.

It is observed that while passing order for scrutiny assessment for cash deposited during demonetisation period, various Assessing officer have made addition under different sections ie Section 68 or Section 69A or in many cases even without mentioning the section. The following Case Laws have been scouted and compiled particularly relating to previous demonetisation which can help the taxpayers to argue their case before appellate authorities and act as a precedent against this unprecedented event for issue peratining to cash deposited during demonetisation.

Sr. No. Case Law Issue where the case law can be used
1. Narendra G. Goradia vs. CIT [1998] 234 ITR 571 (Bombay) (HC)
 
“Section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 1979-80 – In relevant period assessee had tendered notes of Rs. 1000 denomination valuing Rs. 2 lakhs for encashment – There was no dispute about source of money nor about fact that there was sufficient balance on date of deposit – Assessing Officer, however, made additions of part of amount for want of details of receipts of some of high denomination notes – Whether there was no justification for adding a portion of amount tendered by assessee for encashment of high denomination notes as income of assessee from undisclosed sources for alleged failure of assessee to furnish source of acquisition of amount in such notes – Held, yes” 		Sufficient balance in cash book as on date of deposit during demonetization.      
2.
Lakshmi Rice Mills vs. CIT [1974] 97 ITR 258 (Pat.) (HC)

“It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time. Thus, the so-called findings of fact by the Tribunal were based upon placing a wrong onus of proof and applying not the correct principles of law governing such cases. On the facts, no tangible material had been brought on the record to take the shape of any legal evidence for the purpose of recording a finding that the assessee’s explanation was not worthy of acceptance. This by itself was a question of law arising from the Tribunal’s decision. Therefore, the Tribunal erred in coming to the conclusion that the cash balance did not include 140 high denomination notes when they were presented to the bank for encashment.” 		Addition made without rejection of books  
3.
Lakhmichand Baijnath V. CIT [1959] 35 ITR 416 (SC)

“Amount credited in business books can normally be presumed as business receipt. When an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business, if the explanation given by the assessee as to how the amounts came to be received is rejected by all the income-tax authorities as untenable” 		Cash Sales
4.
Gur Prasad Hari Das vs. CIT [1963] 47 ITR 634 (All.) (HC)

“Income from undisclosed sources—Burden of proof—Value of high denomination notes found in assessee’s possession must prima facie he presumed to form part of cash balance and the burden is on the Department to prove that it constituted assessee’s undisclosed income on the basis of material in the possession of Department—Tribunal having accepted that some of the high denomination notes belonged to assessee, it could not have treated the value of balance notes as assessee’s undisclosed income on the material on record” 		Burden of Proof on Department
5.
Kanpur Steel Co. Ltd. v. CIT [1957] 32 ITR 56 (ALL.) (HC)

“Income from undisclosed sources—Burden of proof—Burden of proof that the high denomination notes encashed on their demonetisation constituted suppressed income of assessee, is on the Department—Assessee encashing 32 notes of Rs. 1000 on their demonetisation and explaining the IT authorities that it formed part of cash balance of Rs. 34,000—Tribunal, after examination of the accounts, holding that only seven notes could form part of that cash balance in the state of transactions performed by the assessee and making an addition of Rs. 25,000—Not justified in the facts and circumstances of the case” 		Burden of Proof on Department
6.
Sri Sri Nilkantha Narayan Singh vs. CIT [1951] 20 ITR 8 (Pat.) (HC)

“Income from undisclosed sources—Addition—Encashment of high denomination notes—There was no material before Tribunal to presume that a Home Chest Account was maintained—Tribunal ought not to have drawn an adverse inference because no such account was produced—No onus upon assessee to indicate from whom each note was received—No material to justify the assessment of amount representing the value of high denomination notes” 		No onus upon assessee to prove from whom each note received
7.
Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC)

“Section 143 of the Income-tax Act, 1961 – Assessment – Addition to income – Assessment year 1946-47 – Assessee carried on extensive business in grain as merchant and commission agent – Assessee maintained its books of account according to mercantile system and there were maintained in its cash books two accounts: one showing cash balances from day to day and other known as “Almirah account” wherein were kept large balances which were not required for day-to-day working of business – It filed its return showing loss in business – However, ITO noticed that assessee had encashed high denomination notes of value of Rs. 2.91 lakhs on 19-1-1946 – Assessee’s explanation that those notes formed part of its cash balances including cash balances in Almirah account was rejected by ITO who took into account several surrounding circumstances and included said sum in its total income – ITO also found that portions of entries in assessee’s accounts to effect that money’s had been received in high denomination notes were subsequent interpolations – Before Tribunal assessee stated that said entries were made in nervousness after coming into force of High Denomination Bank Notes (Demonetization) Ordinance, 1946 on 12-1-1946, as it did not know it had specific proof in its possession of having high denomination notes as part of its cash balances – Tribunal accepted assessee’s explanation in respect of said interpolations and held that there was no other reason to suspect genuineness of account books – It was also found that as per book entries cash balance on 12-1-1946 aggregated to more than Rs. 3.1 lakh – However, examining cash book and taking into account all circumstances adverted to by ITO, Tribunal held that assessee might be expected to have possessed as part of its business cash balance of at least Rs. 1.5 lakhs in shape of high denomination notes on date when said ordinance was promulgated but nature of source from which it derived remaining high denomination notes remained unexplained – Accordingly, Tribunal reduced addition – Whether when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed on 19-1-1946 and it was not open to Tribunal to accept genuineness of those books and accept assessee’s explanation in part and reject same in regard to balance sum – Held, yes – Whether, therefore, it was clear that Tribunal in arriving at its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such finding – Held, yes – Whether, therefore, addition made was liable to be deleted – Held, yes” 		En-cashed high Denomination notes form part of cash balances and books of accounts considered genuine.
8.
Sri Sri Nilkantha Narayan Singh vs. CIT [1951] 20 ITR 8 (Pat.)

“Where the assessee did not maintain and hence did not produce any Home Chest Account though it was his case that the high denomination notes were savings from his personal allowance, there was no warrant for drawing an adverse inference. Assessee produced details of withdrawals for past 7 years, and claimed the amount encashed on demonetization as to be out of savings from such withdrawals, such an explanation can not be rejected by AO.” 		No books of accounts maintained: Cash from past accumulated savings

Section 153(2) – Time limit for AO to complete assessment or reassessment – based on Case laws for calculating the time limit where writ is filed before High Court against re-opening

Raghav Bajaj
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0
Section 153(2) – Time limit for AO to complete assessment or reassessment – based on Case laws for calculating the time limit where writ is filed before High Court against re-opening

1.Section 153 of the Income Tax Act provides the time limit to Assessing Officer within which the Assessing Officer has to complete the assessment or reassessment of the assessee. The matter will be time barred if it is not completed within the prescribed time limit and so the assessment can be objected as bad in law.

2. In order to complete the assessment/ reassessment u/s 147, the time limit as per sub-section (2) of section 153 shall be as follows:

Where notice u/s 148 is served on or before 31.03.2019, within 9 months from end of financial year in which notice is served.

Where notice u/s 148 is served on or after 01.04.2019, within 12 months from end of financial year in which notice is served.

3. However, there are exclusions to above mentioned time limit in certain circumstances. One such exclusion as per clause (ii) to Explanation 1 of Section 153 of the Act  is, when the assessee has filed writ petition before High Court, then the period during which the assessment proceedings is stayed by court or injunction of any court shall be excluded while calculating the time limit as per 153(2).

4. Further, as per 1st proviso to Explanation 1 to Section 153, if after vacation of stay the time period remaining to pass an order is less than sixty days it will be extended to sixty days. The relevant extract is as follows:

“Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-sections (1), (2), (3) and sub-section (8) available to the Assessing Officer for making an order of assessment, reassessment or re-computation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:”

5. The relevant portion of clause (ii) to Explanation 1 of Section 153 of the Act, 1961 is as follows:

“(ii) the period during which the assessment proceeding is stayed by an order or injunction of any Court, or……………………………………………………………………………………. shall be excluded”.

On perusal of the same, it is clear that for computing the period of limitation, the period during which the assessment proceedings is stayed by High Court shall be excluded for calculating the time limit for completion of assessment/reassessment as there have been various cases where the counsel of the department was present when the High Court was giving decision.

Further, it can be contended that, in excluding the above period, the concept of communication of the order of the Court should not be imported because the intention is clear that when the limitation for assessment has started it can be stayed only by an order or injunction of any Court and as soon as the order or injunction of the Court is vacated, the period of limitation shall re-start since after the vacation of the order of the Court, there is no embargo on the authorities to proceed with the assessment.

6. Based on the said provisions of the I.T Act, Let us understand the chronology of events as an example as follows:

Sr. No. Particulars Dates
1. Date of issuing notice u/s 148 26.03.2015
2. Date on which notice u/s 148 was served on the Appellant 31.03.2015
3. End of the Financial Year in which the notice was served 31.03.2015
4. One year from the end of the Financial Year in which notice was served – Time limit given for Assessing Officer to pass order u/s. 147 (as per section 153(2)) 31.03.2016
5. Stay order passed by the  Gujarat  High Court against Writ Petition filed by the Appellant 08.03.2016
6. Final order passed by the Gujarat High Court and stay vacated against Writ Petition filed by the Appellant 13.06.2016
7. Number of days which will be excluded in computing the time limit (As per expl 1 to sec 153(4)) [6-5] 98
8. Days remaining for Assessing Officer to complete the assessment after HC order[4-5] 24
9. Since the time remaining is less than 60 days, time period is extended to 60 days [As per proviso to Expl 1 to Sec 153] 60
10. Date within which order u/s. 147 has to be passed and served upon the Assessee [ 6 + 9] 12.08.2016
11. Assessment order passed by the Assessing Officer u/s 143(3) r.w.s.147 30.08.2016

7. Further, there are various judgements where it is very clearly stated that the period of 60 days has to be calculated from the date of passing order of High Court and the concept of communication of the order of court cannot be imported:

  • CIT vs. Chandra Bhan Bansal [46 taxmann.com 108]
  • CIT vs. Drs. X-Ray & Pathology Institute (P.) Ltd. [40 taxmann.com 115]
  • Saheb Ram Om Prakash Marketing (P.) Ltd. vs. CIT [86 taxmann.com 155]
  • ACIT vs. M/s.Sun Pharmaceutical Industries Ltd. [ITA No.1688/Ahd/2015]

8. In CIT vs. Chandra Bhan Bansal [46 taxmann.com 108], the High Court of Allahabad held that

“the terms of provisions of Explanation 1(ii) to section 153, period of limitation for assessment can be stayed only by an order or injunction of any Court and as soon as said order or injunction of Court is vacated, period of limitation shall re-start even though order vacating injunction is not communicated to department.”

9. In CIT vs. Drs. X-Ray & Pathology Institute (P.) Ltd. [40 taxmann.com 115] , the High Court of Allahabad held that

“In this case, search was conducted at the assessee’s address on September 14, 2002, and notice under section 158BC of the Act was issued on April 29, 2003. Consequent thereto the return was filed by the assessee on June 16, 2003. The search proceeding was challenged by the assessee before the High Court by filing writ petition. The assessment proceedings were stayed, vide interim order dated February 12, 2004. The interim order was vacated on August 26, 2009.Section 158BC provides to complete assessment proceedings within two years. It further provides that period during which the proceedings have been stayed shall be excluded. In the present case, the stay was vacated by the High Court on August 26, 2009. The Assessing Officer took the date of vacation of the interim order to be the date, when it was received by him on November 9, 2009, and passed the assessment order on June 22, 2010, which was clearly beyond two years as limitation would restart from August 26, 2009, and ended on April 15, 2010. Apart from the fact that the Assessing Officer had sufficient time the Tribunal has held that there is no procedure in the High Court to communicate the order to the party to make it effective. The provisions of the Income-tax Act for filing of the appeal from the date of service of the order will not be attracted to calculate the period of limitation to complete the assessment. In the present case, we are not concerned with limitation for any particular act to be performed, but the arrest of the limitation by an interim order passed by the High Court. As soon as the order was vacated, the limitation will restart and will exhaust itself on the period of limitation provided under the Act.

We do not find any error of law in the judgment of the Tribunal holding that the assessment was clearly barred by limitation. The questions of law as framed are not substantial questions of law, which may arise for consideration from the facts of the case.

10. In Saheb Ram Om Prakash Marketing (P.) Ltd. vs. CIT [86 taxmann.com 155] the High Court of Delhi held that

“Where reassessment notice was issued on 27-3-2012 but High Court stayed all proceedings qua said notice, since stay had been vacated on 9-12-2016, order in re-assessment proceedings had to be necessarily passed within 60 days i.e., on or before 8-1-2017; order passed thereafter was time barred.

11.In recent case of ACIT vs. M/s. Sun Pharmaceutical Industries Ltd. [ITA No.1688/Ahd/2015] dated 05.05.2017, the Ahmedabad Tribunal Bench held that

“The Hon’ble Allahabad High Court thereafter considered a large number of decisions rendered by various High Courts and arrived at a conclusion that concept of communication of order of the Court cannot be imported. The ld.CIT(A) has appreciated the controversy in right perspective. Dispute is squarely covered by the decision of the Hon’ble Allahabad High Courts as well by two orders of the ITAT, whose discussions have been reproduced by the ld.CIT(A) in the impugned order. Therefore, we do not see any reasons to interfere in the order of the ld.CIT(A). Accordingly, the appeal of the Revenue is dismissed.”

What is New Income Tax Slab for AY 2020-21 in India?

Raghav Bajaj
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What is New Income Tax Slab for AY 2020-21 in India?

The FM has announced New Income Tax Slab for AY 2020-21 giving taxpayers an option to pay taxes as per the new tax slabs.

Income Tax Slab for A.Y 2020-21 and 2021-22 for Individuals/HUF

New Income Tax Rate For AY 2020-21 For Individual/HUF

Entity type Income Tax Slabs
1. Individuals/HUF A.Y.2020-21 A.Y.2021-22
Individual (other than Senior or super senior citizen) and HUF (Including AOP, BOI and Artificial Juridical Person)
Individual -Senior Citizen (who is 60 years or more at any time during the previous year)
Individual -Super Senior Citizen (who is 80 years or more at any time during the previous year)
Tax rates if the assessee has opted for section 115BAC
Individuals and HUF     [Note: The option to pay tax at lower rates shall be available only if the total income of assessee is computed without claiming specified exemptions or deductions ] —

Plus: –

Health and Education cess: – 4% of income tax and surcharge.

Note: A resident individual (whose net income does not exceed Rs. 5,00,000) can avail rebate under section 87A. It is deductible from income-tax before calculating education cess. The amount of rebate is 100 per cent of income-tax or Rs. 12,500, whichever is less.

Surcharge: – 10% of income tax where total income exceeds Rs. 50,00,000.

               15% of income tax where total income exceeds Rs. 1,00,00,000.

                     25% of income tax where total income exceeds Rs. 2,00,00,000.

                     37% of income tax where total income exceeds Rs. 5,00,00,000.

Note – Enhanced surcharge levied at the rates of 25%/37% shall not be levied in case of income chargeable to tax under sections 111A, 112A and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.

However, marginal relief is available from surcharge in following manner-

In case where net income Marginal relief shall be available from surcharge in such a manner that
Exceed 50 lakhs but doesn’t exceed Rs. 1 Crore The amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs 50 Lakh by more than the amount of income that exceeds Rs 50 Lakhs.
Exceed 1 Crore but doesn’t exceed Rs. 2 Crore The amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
Exceed 2 Crore but doesn’t exceed Rs. 5 Crore The amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2 crore.
Exceeds Rs. 5 crore The amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 5 crore by more than the amount of income that exceeds Rs. 5 crore

New Income Tax Slab For Assessment Year 2020 21 For Firms/LLP

Entity type Income Tax Slabs
2. Firms A.Y.2020-21 A.Y.2021-22
Partnership Firm [including LLP] 30% 30%

Plus:-

(a) Health and Education cess: – 4% of income tax and surcharge.

(b) Surcharge : 12% of income tax where total income exceeds Rs.1 Crore.

However, the surcharge shall be subject to marginal relief

In case where total income Marginal relief shall be available from surcharge in such a manner that
Exceeds Rs. 1 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

New Income Tax Slab For Assessment Year 2020-21 For Companies

Entity type Income Tax Slabs
3. Domestic Company A.Y.2020-21 A.Y.2021-22
Where its total turnover or gross receipt during the previous year 2017-18 does not exceed Rs. 400 crore 25% —
Where its total turnover or gross receipt during the previous year 2018-19 does not exceed Rs. 400 crore — 25%
Any other Domestic company 30% 30%
Special Tax rates applicable to a domestic company
Where it opted for section 115BA (NOTE 1) 25% 25%
Where it opted for Section 115BAA (NOTE 2)              22% 22%
Where it opted for Section 115BAB (NOTE 3) 15% 15%

Note 1: Section 115BA – A domestic company which is registered on or after March 1, 2016 and engaged in the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it and also It is not claiming any deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or additional depreciation, can opt section 115BA on or before the due date of return by filing Form 10-IB online. company cannot claim any brought forwarded losses (if such loss is related to the deductions specified in above point).

Note 2: Section 115BAA – Total income of a company is taxable at the rate of 22% (from A.Y 2020-21), if the following conditions are satisfied: – Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA). – Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point). – Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Note 3: Section 115BAB – Total income of a company is taxable at the rate of 15% (from A.Y 2020-21), if the following conditions are satisfied:

– Company (not covered in section 115BA and 115BAA) is registered on or after October 1, 2019 and commenced manufacturing on or before 31st March, 2023.
– Company is not formed by splitting up or reconstruction of a business already in existence.
– Company does not use any machinery or plant previously used for any purpose.
– Company does not use any building previously used as a hotel or a convention center, as the case may be.
– Company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it. Business of manufacture or production shall not includes business of –

  • Development of computer software;
  • Mining ;
  • Conversion of marble blocks or similar items into slabs;
  • Bottling of gas into cylinder;
  • Printing of books or production of cinematographic film; or
  • Any other notified by Central Govt.

– Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA and 80M).

– Company is not claiming any brought forwarded losses (if such loss is related to the deductions specified in above point).

– Provisions of MAT is not applicable on such company after exercising of option. company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Education Cess: 4% of Income tax plus surcharge

Surcharge:
a) 7% of Income tax where total income exceeds Rs.1 crore
b) 12% of Income tax where total income exceeds Rs.10 crore
c) 10% of income tax where domestic company opted for section 115BAA and 115BAB

However, the surcharge shall be subject to marginal relief for in any other case, which shall be as under:

In case where total income Marginal relief shall be available from surcharge in such a manner that
Exceed 1 Crore but doesn’t exceed Rs. 10 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
Exceeds 10 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore
Entity type Income Tax Slabs
4. Foreign Company A.Y.2020-21 A.Y.2021-22
Irrespective of Turnover or gross receipts or income 40% 40%

Plus:-

  • Health and Education cess: – 4% of income tax and surcharge.
  • Surcharge: 2% if income exceed Rs. 1 crore but does not exceed Rs. 10 crore.

                       5% if income exceeds Rs. 10 crore.

However, the surcharge shall be subject to marginal relief for in any other case, which shall be as under:

Also Read:

  1. What is Faceless Tax Assessment
  2. FAQs on New Income Tax Regime 115BAB
In case where total income Marginal relief shall be available from surcharge in such a manner that
Exceed 1 Crore but doesn’t exceed Rs. 10 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
Exceeds 10 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore

NewIncome Tax Slab For AY 2020-21 For Local Authority

Entity type Income Tax Slabs
5. Local Authority A.Y.2020-21 A.Y.2021-22
Local Authority 30% 30%

Plus:-

  • Health and Education cess: – 4% of income tax and surcharge.
  • Surcharge: 12% of income tax where total income exceeds Rs. 1 Crore

However, the surcharge shall be subject to marginal relief

In case where total income Marginal relief shall be available from surcharge in such a manner that
Exceeds Rs. 1 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

New Income Tax Slab For Assessment Year 2020 21 For Co-operative Society

Entity typeIncome Tax Slabs
6. Co-operative Society A.Y.2020-21 A.Y.2021-22
Co-operative Society
Spceial tax regime under section 115BAD
If the conditions mentioned u/s.115BAD are satisfied 22% 22%

Plus:-

  • Health and Education cess: – 4% of income tax and surcharge.
  • Surcharge :

In case assessee has opted for section 115BAD:

Flat 10% irrespective of amount of total income

In any other case:

12% of income tax where total income exceeds Rs. 1 Crore

However, the surcharge in any other case shall be subject to marginal relief

In case where total income Marginal relief shall be available from surcharge in such a manner that
Exceeds Rs. 1 Crore The total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

What Are the Best Indian Stocks to Buy in 2020?

Shailesh Shah
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What Are the Best Indian Stocks to Buy in 2020?

Let’s starts with an example. {Don’t be sentimental, please take it as an example only}

When my grandfather went to the market to buy something, most of the FMCG products were available from Hindustan Unilever. So, my grandfather thought that the company would go very far. He invests in that company and left those equities for me. Now with my great luck, the Hindustan Unilever Company becomes no. 1 in FMCG and I got a huge profit from it. But the twist came here. In my time, Baba Ramdev came in the FMCG sector. In the name of Ayurveda and Swadeshi, He distracts the business of Hindustan Unilever. Now I have two questions.

1) If I leave this Hindustan Unilever Stocks for my grandkids, will the company still perform?

2) May it be possible that Hindustan Unilever may shut down?

It may possible that this company will perform well and give us an extraordinary return. But there is no guarantee about the returns. My Grandfather was right at his end. But I want to tell you that investing in any individual company for the long term is not a wise decision.

Twist One: Where to invest?

Now assume that if my grandfather had the choice to invest in a self-managed portfolio that automatically (right… automatically) removes the non-performing companies and includes the performing one. This portfolio is called Nifty50.

Nifty is NSE’s Index that holds top 50 companies in it. Nifty is a self-managed portfolio and it removes the non-performing companies from it and includes the performing one. It also gave higher weight to the top-performing companies. The more a company performs, the more weight it gains in the portfolio. That means I don’t need to worry about the fundamental or technical analysis. If my grandfather invested in Nifty50, he got the top 50 companies of his time. When he passed that portfolio to me, I will get the top 50 companies of my time and when I will pass that to my grandkids, they will get the top 50 companies of their time.

I know you are arguing that Nifty may also fall, and we may also get loss in it. Wait… There is a solution and there are some more twists

Twist Two: How to secure my capital if the market falls?

Yes. I am not denying. Nifty may fall drastically. But we have a solution for it. We can take hedging through Put Option against it. Hedging works like insurance. Whenever market falls Put premium will rise. In the end, it will give us an exact profit as much loss we made in Nifty. The maximum loss will be the premium of Put Option we paid initially. Other Indian stocks and indices have options with only 3 months expiries while nifty is having options with 5 years expiries. Though liquidity is available only in options of max 1-year expiries.

Surprisingly 1-year ATM Put option in Nifty is trading around 5% of Nifty. That means If I buy Nifty at Rs 10,000 then I need to pay only Rs 500 for the hedging of 1 year. The other will get nifty at Rs. 10,000 but I will buy at Rs. 10500. I will pay an extra 500 but that will ensure me that my maximum loss will be only Rs. 500 if Nifty falls drastically during that year. That means If I invest Rs. 1 crore in this strategy, my 95 lacs will be secure in any worst scenario of Nifty.

Now, this is a good talk. What will be the worst-case scenario?

For example, if nifty is running around 10000 in 2019 and in 2023 nifty will be the same at 10000. That means our loss will be 5% every year. Then you will say it is not a good strategy. Let’s check.

We take a hypothetical scenario in the above table so that we can understand the importance of hedging. We invest Rs. 1 Crore in 2019 and take hedging of Rs 5 lacs to protect that 1 Crore. Now when the market moves to 12000 in 2020 my portfolio will rise to Rs 1.2 crore. Here we will take other insurance for next year and we will pay Rs 6 lacs for that. Now when nifty falls to 8000 in 2021 our portfolio remains the same Rs 1.2 Crore because the loss will be covered from the profit of hedging and we will reinvest it to the nifty. Now when the market starts rising from 8000, we will start earnings from Rs 1.2 Crore and in 2022 when Nifty reaches 12000 our portfolio value will be reached to Rs. 1.8 Crore. Now again if nifty falls to 10000 in 2023, our portfolio remains the same at Rs. 1.8 Crore. Now if we reduce the cost of hedging, we paid every year, our portfolio value will be Rs. 1.54 Crore.

This means that … when Nifty rise our portfolio value rise & when Nifty falls then our portfolio value remains the same. Just think … only this line can help you to achieve your financial freedom.

Now above is a hypothetical scenario. What happened in real? Here is the past 15 years of performance.

What is the best strategy for hedging the Future with an Option?

Raghav Bajaj
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What is the best strategy for hedging the Future with an Option?

Please note that hedging Futures’ Risk with options depends on market situation, your risk taking capacity and the amount of your investment.

Generally, people believe if you

Long or Buy Futures it can be hedged with Long Put or Short Call

and

Short Futures or Sell Futures it can be hedged with Long Call or Short Put.

But you might not know…

Future Buy + Put Buy = Synthetic Call Buy

Future Buy + Call Sell = Synthetic Put Sell

Future Sell + Call Buy = Synthetic Put Buy

Future Sell + Put Sell = Synthetic Call Sell

This are called Formulas for Synthetic Derivatives.

That means you need to apply option strategies for hedging futures risk instead of buying or selling naked option.

There is a course from FinIdeas i.e. Smart Futures’ Trader. This course contain following most important topics for hedging future’s risk through Options.

  • Futures: Meaning, Terminology, Pricing and Settlement
  • Margin Calculation, Rewards & Risk in Futures Trading
  • How and when can we get stuck in Futures Trading? (Think but don’t take this question for granted)
  • Call – Put Options – Meaning, Payoff & Break Even Points
  • Formula for Synthetic Derivatives (Most Important topic for fund management & Risk Management)
  • Options Strategies – Bull & Bear Spreads & Ratio Spreads
  • Risk hedging concepts.
  • Hedging long Futures with necked Options trading & Options Strategies.
  • Hedging Short Futures with necked Options trading & Options Strategies.

This is an online course so you can learn at your convenience time and place. You can learn all this thing in only 8 -10 hours.

Remember: The Hedging is not only for controlling the risk but also managing funds. Happy Trading!!!

Visit FinIdeas for more details.

How to invest in Nifty and Mechanism of Nifty Index?

Shailesh Shah
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How to invest in Nifty and Mechanism of Nifty Index?

Mechanism of Nifty Index

There are more than 2000 companies listed on NSE Exchange. The company that holds the highest free-float market capitalization becomes the no. 1 company on NSE. The Nifty Index is a portfolio of such top 50 Companies. Now based on market capitalization, each company gets its weight in Index. That means the company with the highest market capitalization got the highest weight in the portfolio. There are other rules, too but the above mention is fair enough for a simple understanding of Index.

Nifty Index started from 1000 points in 1996 under the same rules. Now NSE revises the index every quarter and revises the weight of all the companies. If 50th companies market cap falls down more than 51st company, then it will automatically go out from Nifty Index and the new company enters in the portfolio. Hence, the only performing companies remain in the index.

Now let’s come back to the main question….

In which the Indian company’s stock should you invest for the long term?

After analyzing the mechanism of Nifty Index, now we understand that Nifty will never get ZERO in value. Nifty automatically removes the non-performing companies from its portfolio. On the second hand, it also gives more weight to top-performing companies.

If you want to invest in companies that are going to be No. 1 in the future, then invest in the Nifty Index. You will always have the best companies in your portfolio. You don’t need to have any fundamental or technical knowledge for the investment.

Now the question is how to invest in Nifty?

Generally, you can buy Nifty ETFs or invest in funds. Even small investors can also start their investments with NiftyBEES. You can purchase NiftyBEES the same as like you are purchasing equities of Reliance, TCS, or HDFC Bank.

The advantage of Nifty is that hedging is also available for its investment at a very cheap rate. You can secure your portfolio against worst market situations with such hedging.

To get more information about hedging and strategy, you can watch the detailed explanation by FinIdeas in the following video:

How to start investment afresh during COVID-19 ? Learn about Index Long Term Strategy.

Raghav Bajaj
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How to start investment afresh during COVID-19 ? Learn about Index Long Term Strategy.

There are 5000 + companies listed on BSE and to choose a good company from so many companies for long term becomes very difficult as the future is always uncertain. There is always a risk associated that the share price of the company you choose to invest might become Zero or Negligible after certain period of time depending on various factors.

There have been companies which have drastically eroded the wealth of the share-holders. Further, according to a survey, only 3-4% business runs smoothly till the 3rd generation and then may start facing hiccups.

So where do we invest?

If you are not able to identify good stocks to invest for your goal of having a diversified portfolio of quality stocks for long term, here is a perfect strategy for the same.

The best instrument for investment is Index like Nifty or Sensex.

Nifty over the years:

Year Nifty
2002 1100
2005 2837
2010 6135
2015 7946
2019 12168

Sensex over the years:

Year Sensex
1979 100
1988 600
1998 3600
2008 21600
2019 40000

Sensex started its journey from 100 points in 1979 and in 2019 it was trading around 40000. The various pitfalls in this journey involves incidents like:

  • Many Governments came and went
  • Harshad Mehta Fraud
  • Ketan Parekh Fraud
  • Kargil War
  • Bomb blast in BSE and Parliament
  • Several terrorists attack
  • Some bad political decisions
  • Global recession
  • Demonetisation
  • COVID-19

Despite all these incidents, the Sensex has only made progress. But at the same period of time, many companies came and disappeared.

If we talk about Nifty, then in 2008, it dropped from 6100 to less than 3000. But today it has gone up to 12000.

Now the questions arises as

“How to invest in Nifty?”

“What to do when events like Covid-19 disrupts the market?”

“How to hedge risk under in case of events like Covid-19?”I surveyed and researched a lot on the web as well as through offline webinars to find the right strategy to consider these parameters and have interestingly come up with a unique strategy called “Long Term Index Strategy” from Finideas. As a part of the strategy, it involves dynamic returns by investing into Nifty, Benefits of Leverage through Futures and protection against market through hedging. Thus, the strategy involves

Step 1: Invest in Nifty Delivery + Nifty Futures + Debt Market

Step 2: Purchase protection of Investment

The returns over a period of 6-7 years may far exceed the returns if the investment is made into shares of individual Companies forming part of Nifty.

To Learn more about the strategy, the user may go through the You Tube Video or visit the FinIdeas WebPage here.

RCM under GST applies to remuneration to employee director u/s 194J and not u/s 192 – Clarifies CBIC!

Monark Padmani
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RCM under GST applies to remuneration to employee director u/s 194J and not u/s 192 – Clarifies CBIC!

Introduction

Under the current GST Law, remuneration given to a Director (by whatever name given) is a taxable service chargeable under Reverse Charge Mechanism (‘RCM’) for levy of GST1.

On the other hand, an employee performing his functions under the contract of employment is not a taxable service exigible to GST2.

The dispute arises when a director is an employee of the company and receiving salary and remuneration as a director. There were contradictory views taken by varied appellate forums3.

The CBIC has tried to put the dispute to rest vide Circular No. 140/10/2020 dated 10th June, 2020.

The summary of the Circular can be tabulated as under:

Sr.  No. Remuneration paid to Employee of the Company? Applicability of GST Applicability of TDS under IT Act
1 Non-Employee Director (typically Independent Directors) No Yes 194J
2. Employee Director (Typically WTD, MD etc) Yes No – On Salary Component   192 – On Salary Component (Treated as any employee of the company deriving salary, PF, gratuity etc)
3. Employee Director (Typically WTD, MD etc) Yes Yes – On Non Salary Component (Typically Directors sitting fees) 194J – On Non Salary Component

Comments:

  1. A Whole Time Director (WTD) or Managing Director (MD) who is an employee of a company performs dual roles within the Company.
    • Contract of Employment – Employer-Employee relationship exists and thus no GST is chargeable on the salary component of the Director. These directors perform day to day affairs of the company and actually run the company on a daily basis. This remuneration is treated as salary in the books of the company and income tax u/s 192 is deducted at source.
    • Contract of Service – All other remuneration other than salary derived in performance of his duty as Director i.e Director Sitting fees. This remuneration is not treated as salary and income tax u/s 194J is deducted at source.
  2. On the other hand, a director by whatever name called who is not an employee of the company will derive entire remuneration as a contract of service chargeable to GST under RCM. Payment made for their participation are not in terms of employer-employee relationship and also not treated as “Salaries” in books of accounts. Further, TDS has to be deducted u/s 194J of the Act

1Notification No. 13/2017 – Central Tax (Rate) dt 28.06.17, Sr. No. 6 of the Table annexed

2Sch III of CGST Act

3 M/s. Alcon Consulting Engineers (India) Pvt. Ltd. [AR No.  KAR ADRG  83/2019] (Karnataka AAR) and M/s Clay Craft India Private Limited [RAJ/AAR/2019‐20/33] (Rajasthan AAR) holds a view that all payments to director are liable to RCM as director is not an employee of the company

M/s. Anil Kumar Agarwal [AR No. KAR ADRG 30/2020] (Karnataka AAR) hold a view that payments made to directors as employee of the company is outside scope of GST being covered by Schedule III of CGST Act, 2017

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