E-way Bill

Srishti Sharda
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E-way Bill

Electronic Way Bill is a unique document which is system generated or generated electronically for consignment of goods from one place to another. It may be either inter-state or intra-state, as such a person registered under GST cannot transport the goods worth more than Rs. 50,000/- without generating an e-way bill for the same. On generation of an e-way bill a unique number E-way Bill Number (EBN) is generated and is made available to supplier, recipient and transporter. E-way Bill can also be generated or cancelled through SMS, Android App and by site-to-site integration through API.

When should an E-way bill be issued?

E-Way bill will be issued when there is a transport of goods in a vehicle/ conveyance of value more than Rs. 50,000 (either each Invoice or in aggregate of all invoices in a vehicle/conveyance)-

  • In relation to a supply
  • For reasons other than a supply ( say a return)
  • Due to inward supply from an unregistered person.

Here, Supply is considered as payment in the course of business or payment which may not be in the course of business or in case of barter exchange.

As per the latest update for E-way Bill as on 23rd March 2018:-
The transporters need not generate the E-way bill (as Form EWB-01 or EWB-02) where all the consignments in the conveyance:

Individually (single Tax Invoice/Delivery Challan) is less than or equal to Rs 50,000 but, In Aggregate (all Tax Invoice/Delivery Challan put together) exceeds Rs 50,000.

Who should generate an E-way Bill? – EXEMPTION

The E-way bill under the GST regime will be generated by:-

  1. Every Registered person who is making the transport of goods of value more than Rs. 50,000/-* (Either individual or aggregate) to or from the registered person:
  2. In relation of Supply(Eg:- Sales);
  3. In relation of the reasons other than supply(Eg:- Sales Return);
  4. In relation to an inward Supply from an unregistered person.

*E-way bill needs to be generated even if the value of goods is less than Rs. 50,000/- in the provisions like the movement of Handicraft goods and movement of goods for Inter-state Job work.

  • Every Unregistered person who is making transport of goods
  • Every Transporter carrying goods by road, rail, air etc. also has to generate E-way bill if its supplier has not generated it.

Part A and Part B of E-way Bill system:-

An e-waybill comprises of two segments- Part A and Part B. Part A of the e-way bill contains the details like GSTIN of the supplier, GSTIN of the recipient, place of dispatch, place of delivery, document date, document number, the value of goods, HSN Code and the reason for the transportation.  This part is to be filled by the consignor or consignee.

Part B is for filling vehicle details like mode of transport, Vehicle/Transport document number, and date, place of dispatch. We need to enter the exact date and time when he starts from the source to destination because the finance ministry has clarified that the validity of an e-Way bill would start from the date transporter entered in part B.

The Process to Generate E-Way Bills:-

E-way bill can be generated or canceled through web-portal (https://ewaybillgst.gov.in) and through SMS services.For generating new e-way bill using the portal, following steps are to be done after log in to portal:-

Generate New>fill up the required details, if you are supplier select outward option and if you are the recipient then select inward option>In the next page, you need to add product name and description, HSN code and enter the estimate distance of transport.

You will need a transporter registration and GST registration to generate the e-Way bill using website.

Legality of the E-way Bill:-

When the distance to be covered by the goods:

  • is less than 100 km – The E-way bill is valid for 1 day after the e-way bill has been procured.
  • is more than 100 km – The validity would be increased by one day after the e-way bill has been procured.

Consequences of not carrying E-way bill:-

The consequences of not generating & carrying the E-Way bill can result in both monetary and non-monetary losses to the taxpayer. Goods being moved in the contravention of Law are liable for:

  • Monetary Penalty

Moving goods without the cover of an invoice and E-Way bill constitutes an offence and attracts a penalty of Rs.10,000 or the tax sought to be evaded (whichever is greater).Hence, the bare minimum penalty that is levied for not complying the rules is Rs. 10,000.

  • Detention and Seizure:-

The vehicle that is found to be transporting the goods without an Eway bill can be detained or seized and would be released only on payment of appropriate tax and penalty as specified by the officer. Under this, there could be two situations:

If the owner wishes to pay the penalty, he must pay 100% of the tax payable.

If not, the penalty will be equal to 50% of the value of goods.

Apart from the legal consequences mentioned above, it is also important to note that the vehicle, as well as the goods of the taxpayer, can be detained.

Impact of COVID – 19 on Real Estate Sector

Srishti Sharda
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Impact of COVID – 19 on Real Estate Sector

The sudden outbreak of COVID-19 has pushed the world into deep financial and economic crises. Challenges faced by the world are increasing day by day spanning across issues of unemployment, rate of poverty, disruption in demand and supply etc. In the current scenario, lockdown has brought the industrial, real-estate, financial and banking sectors to a standstill and the recovery curve will depend on the fiscal stimulus rolled out by the government. Indian debt capital markets are facing significant strain as COVID-19 spreads globally.

Although the real estate sector had been facing financial stress even prior to COVID-19, the outbreak of this pandemic has came out as double whammy for the entire sector. The extent of impact of the disease will be only known after the lock down is over. The problems which can be faced by the real estate sectors can basically be summed up into the following factors:

  • Delay in completion of the Projects: With this sudden move towards nationwide lockdown, many projects which were ongoing were left as it is and because of which many homebuyers had to suffer unexpected delay in possession causing them unnecessary expenses of rent and the EMIs. Even after the end of lockdown, it might take certain time to bring the construction activity to its fuller capacity and optimum effectiveness for completion of the projects.
  • Dispute in Demand and Supply: At the times of such emergencies, people tend to save money to spend it only on the basic necessities. Post crisis, their inclination towards investing in a property will decline as a result of which the demand for house properties will fall. Commercial real estate market will be impacted more as it is a slow mover. If Corona virus keeps impacting the economic supply chains for longer terms than expected, there is a possibility that commercial investment decisions may stray from real estate. According to a recent update, housing sales is likely to witness a YOY drop of 25-35%  in 2020.
  • Labour Issues and price stability: Many daily wage laborers have migrated from their work place to their hometown and this has caused a great problem to the builders. Also it can be predicted by looking at the present scenario that the prices will absolutely remain the same even though the cost may raise, causing the developers to suffer a fall in profit margin as they may face less demand. Although price reduction is necessary to create demand but it may turn out to be threatening to the real estate developers as such the market scenario is extremely challenging and most developers have a corresponding finance cost mounting with delay in project completion.

Steps taken by RBI to boost the real estate sector due to the COVID-19 pandemic:

  • The Reserve Bank of India (RBI) firstly, has extended loans which were given for restructuring of projects for about a period of 12 months, without downgrading the asset classification. This is for projects that were delayed for reasons which were beyond the control of realtors and comes as a major relief to the real estate sector. They say it will benefit residential projects that were delayed on account of regulatory issues.
  • The Central Bank has taken a decision to reduce the reverse repo rate by 25 basis point which is now 3.75% and has provided with additional liquidity for the National Housing Bank (NHB) which will help to accelerate and facilitate bank credit flows towards to the besieged sector in the wake of Covid-19 crisis This reduction in the reverse repo rate will help the banks in lending more amount of money.
  • The Central Bank decided to allot amount of Rs. 10,000 crore to National Housing Bank, which shall be a big relief to the real estate sector struggling under liquidity crisis. It further decided to extend the moratorium period on NBFC loan for the commercial real estate projects. It is observed that due to COVID-19 the ability of the borrowers to repay has reduced therefore, the NPA count shall not include 90-day moratorium.
  • For NBFCs and micro finance institutions, the RBI proposed to make available liquidity worth ₹50,000 crore under the Targeted Long term repo operation (TLTRO) 2.0. This will allow banks to access 3-year funding from RBI to invest in investment grade corporate papers of small and mid-sized NBFCs and MFIs which can be utilized in onward lending to the real estate sector.
  • The Reserve Bank of India has also taken additional measures to support the economy by making an one-year extension for commencement of commercial operations (DCCO) of project loans for real estate projects that are delayed for reasons beyond the control of promoters and are expected to provide relief to real estate sector. Since the repayment schedule will now be extended by a year, the cash flow will be ploughed back into the project, indirectly infusing liquidity into the stuck project.
  • Further the RBI decided that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), over and above the outstanding level of credit to these segment 2020 from their net demand and time liabilities (NDTL) for maintenance of cash reserve ratio (CRR). The aforementioned exemption will be available for incremental credit up to July 31st, 2020.
  • The government has introduced an Alternative Investment Fund(AIF) with a total collection of USD 3,570 million to bail out 1600 real estate projects which were stuck due to liquidity crunch. It is expected that these measures will boost growth by increasing the consumption in real estate and associate sector.

Countries around the world have implemented the changes to the real estate policy in order to lessen the burden on tenants and in some cases the landlords. Though the government has taken various measure but they can be proven better if the Government can take the following measures to stabilize the real estate sector in the Indian economy:

  • To solve the problem of high price and taxes paid by the people, the government should reduce the rates of GST charged by it and give some concessions.
  • Government should try to increase the money supply in our economy by maintaining the cash inflows and outflows to increase the purchasing power in the hands of the consumer and creating the demand thereof.
  • The government must take measures to boost the investments which would increase the demand to purchase residential property among the people.
  • The government needs to take appropriate safety measures after the lockdown so that the laborers can resume the ongoing projects which were stuck and take necessary step so that the workers work in a healthier environment.
  • Further the government should work on making RERA more effective so that the projects which have been halted due to lack of funds can be revived back and completed as soon as possible.
  • Lending rate for the reality projects maybe fixed at a lower repo rate in the long run and the NPA classification should be extended beyond 90 days for the projects which are very crucial.

Although the real estate sector is under crises, it is the only one expected to provide largest employment before and after the lockdown in the country and is likely to contribute to around 13 % to country’s GDP by 2025 and become the third largest globally at USD 1 trillion by 2030.

Cash Deposit during Demonetisation period

Vivek Jhaveri
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Cash Deposit during Demonetisation period

It was 8 pm on the 8th November when heartbeat of every Indian skipped a beat because the Honourable Prime Minister of India announced that since midnight 500 rupee and 1000 rupee currency notes would no longer be a legal tender. The citizens were given time until December 31, 2016 to deposit their old currency in their respective bank accounts.

Cash Deposit during Demonetisation

During the said period there has been a huge cash deposit of cash in all the bank accounts of old demonetized currency (or SBNs). The Income Tax Department had issued notice u/s. 142(1) of the I.T. Act, 1961 to more than 1.16 lakh individual and firms that made cash deposits over Rs 25 lakh after the demonetisation. A stand was taken by many taxpayers that the SBNs deposited were proceeds out of genuine cash sales made during the year and not out of undisclosed income of past years.

In addition to this, the CBDT came up with a Standard Operation Procedure Instruction/Internal Guidance Note for assessing officer with regard to handling of cases related to demonetisation vide circular dated 09.08.2019 in F.no.225/145/2019 – ITA.II. It specifically instructed the Assessing Officers to make a comparative analysis of cash sales, cash deposited (year wise and month wise). The Guidelines also suggested to keep an eye on the special indicators for bogus sales or backdated sales and to further look at the situations described below:

1. Any unusual increase in the cash sales during the period November to December 2016 as compared to previous assessment year.
2. Any sudden deposit of cash to another account or entity, which may seem inconsistent.
3. Any unusual increase in the percentage of cash trails of identifiable persons as compared to previous assessment year.

The books of accounts were produced during the course of assessment proceedings and no defect could be pointed out in the same, however still in many instances, the assessing officer has made the addition of cash deposited during the demonetisation period on the pretext that assessee has created fictitious books of accounts. The assessing officer has simply assumed that the assessee had undisclosed income since past many years and the same was deposited in bank account in the garb of bogus cash sales or cash in hand which has been skillfully portrayed in the books of accounts. The addition in such cases has been made u/s. 68 and 69 of the I.T. Act, 1961.

The following arguments may be made at appeallate stage in such cases. 

1. Assessee opting to file return u/s. 44AD is not obliged to explain individual entry of cash deposit in bank unless the AO proves that the said cash deposit has no nexus with gross receipts.
2. Cash in hand cannot be ascribed to bogus sales without bringing evidence on record, when assessee had filed Sales & Purchase details like Sales Register, Purchase Register, Sales and Purchase Invoices, Stock Register and the AO had not made any further enquiry.
3. When cash deposited in reflected as cash sales in books of accounts and if the AO has not rejected the books of accounts u/s 145(3), he cannot make any seperate addition for cash deposit. 
4.Once assessee’s option to be taxed u/s 44AD is accepted, additions u/s. 68  and u/s 69A is not permissible without proving why s.  44AD inapplicable.
5. Assessee filing return u/s 44AD cannot be asked to prove that 92% of his receipts have been expended.

As demonetisation was a historic event and the issues at hand shall be decided on the basis of judicial precedents, the following judgements would be of relevance to deal with the said issue.

In favour of the revenue:

1. Kale Khan Mohammad Hanif v. CIT 1963 50 ITR 1 SC.
The Income-tax officer had assessed the gross profits of the businesses on the basis of certain percentages of the total sales which had also to be fixed by estimates.

Whether the burden of proving the source of the cash credits is on the assessee?

It was held that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income.

2. CIT v. Devi Prasad Vishwanath Prasad
The High Court, in disposing of the application under section 66(2), expressed that the question again assumes that it was for the Income-tax Officer to indicate the source of the income before the income could be held taxable and unless he did so, the assessee was entitled to succeed. That is not, in our judgment, the correct legal position. Where there is an unexplained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is further for the assessee to prove that even if the cash credit represents income, it is income from a source which has already been taxed.

Case laws on cash deposits in favour of assessee:

1. Shree Sanand Textiles Industries Ltd. V. DCIT vide ITA No. 1166/AHD/2014.
We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with the finding of the learned CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him.

2. CIT v. Vishal Exports Overseas Limited (Gujarat High Court) Tax Appeal No. 2471 of 2009
Revenue carried the matter in appeal before the Tribunal. The Tribunal did not address the question of correctness of the C.I.T. (Appeals)’s conclusion that amount of Rs.70 lakhs represented the genuine export sale of the assessee. The Tribunal however, upheld the deletion of Rs.70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double taxation of the same income.

3. Lakshmi Rice Mills v. Commissioner of Income-tax [1974] 97 ITR 258 (PAT.)

Section 69A of the Income-tax Act, 1961 – Unexplained moneys – Assessment year 1946-47 – Whether when books of accounts of assessee were accepted by revenue as genuine, and cash balance shown therein was sufficient to cover high denomination notes held by assessee, assessee was not required to prove source of receipt of said high denomination notes which were legal tender at that time – Held, yes.

Conclusion:
When the assessing officer has not doubted the genuineness of purchases or opening stock, and has not rejected the books of accounts u/s 145(3),  then the assessing officer cannot deny the source of cash deposit out of cash sales and thus he cannot make any addition u/s. 69 of the Act.

Related:
8 Income Tax Judgements during previous demonetisation

Extensions under various provisions of Direct Tax due to COVID-19

Arohi Mehta
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Extensions under various provisions of Direct Tax due to COVID-19

The COVID-19 pandemic has broadly impacted the majority of the countries across the world. Accordingly the Government of India has taken rapid & quick steps in various sectors like medical, finance to help meet the challenge addressed by this danger of COVID-19. While the focus is primarily to stop the spread done by viruses, governments additionally have a hard-hitting task of managing the economic aftermath of this pandemic. One such measure was announced by the Finance Minister on 24th March 2020 through Press Release to give relaxation in Statutory and regulatory compliances across the Sectors for the taxpayers so that the compliances can be met and there are no penal consequences for delays which are beyond the control. Several other Orders, Notifications were also released by the Government. Here we talk about its impact or changes on our Indian Direct Tax Structure.

  1. Due Date Extensions through Press Release on 24th March 2020 by Finance Minister:
ParticularsThenNow
Belated Return of FY 18-19 (AY 19-20)31st March 202030th June 2020
Revised Return of FY 18-19 (AY 19-20)31st March 202030th June 2020
Aadhaar-PAN linking31st March 202030th June 2020
Vivad se Vishwas Scheme 2020:
Declaration & Payment without additional payment of 10%		31st March 202030th June 2020
Issue of
notice,
intimation,
notification,
approval order,
sanction order,
filing of appeal,
furnishing of return,
statements,
applications,
reports,
any other documents,
time limit for completion of proceedings by the authority		Between 20th March 2020 to29th June 202030th June 2020
Any investment/ construction/ purchase made by the taxpayer for claiming rollover benefit/deduction for FY 19-20 in respect of Capital Gain u/s 54 to 54GB of IT Act

Any investment/payments by the taxpayer for claiming deduction for FY19-20 under Chapter VIA-A of IT Act including 80C(LIC, PPF, NSC, etc), 80D(Mediclaim), 80G(Donations)

Commencement of operations for SEZ units for claiming deduction u/s 10AA of IT Act		31st March 202030th June 2020

  1. Reduced Rate of Interest through Press Release on 24th March 2020 by Finance Minister:

For delay in payments of advanced tax, self-assessment tax, regular tax, TDS, TCS, equalization levy, STT, CTT made between 20th March 2020 & 30th June 2020,  reduced interest rate at 9% instead of 12 % or 18 % p.a.( i.e. 0.75% p.m. instead of 1% or 1.5% p.m. ) will be charged for this period. 

No late fee/penalty shall be charged for delay relating to this period between 20th March 2020 and 30th June 2020.

Here is the chart showing the above relief as announced by the finance minister as compared to provisions of the section under Income Tax Act’1961:

ParticluarsSectionInterest as per sectionReduced interest rate
due to COVID-19 outbreak
Regular Tax234A12% annually (1% p.a.)9% p.a.
Advance tax234B12% annually (1% p.a.)9% p.a.
TDS201(1A)18% annually (1.5%p.a.)9% p.a.
TCS206C(7)12% annually (1% p.a.)9% p.a.
Equalisation levy17012% annually (1% p.a.)9% p.a.
STT10412% annually (1% p.a.)9% p.a.
CTT12312% annually (1% p.a.)9% p.a.

  1. Opening of ITAT Offices & Benches:

ITAT issues Office Order dated 16.04.2020 regarding opening of ITAT benches and offices from 20th April’2020 ensure all preparatory arrangements concerning social distancing in offices as also that the permitted activities are implemented in a phased manner after strict implementation of the guidelines.

  1. Issue all pending Income Tax Refunds:

Ministry of Finance (MoF) issues Press Note dated 8th April 2020 to provide immediate relief to the business entities and individuals benefiting around 14 lakh taxpayers by issuing all pending Income Tax refunds up to Rs. 5 Lakhs.

  1. PM Cares Fund:
    • Donation to PM Cares Fund:
      • Ministry of Finance (MoF) issues Press Note dated 31st March 2020 wherein it is declared that donations made to PM Cares Fund shall be eligible for 100% deduction u/s 80G of IT Act. Further limit of deduction of 10% of Gross Income shall not be applicable for donations to this fund.
      • As the date for deduction u/s 80G has extended to 30th June 2020, donations made till 30th June 2020 under this fund shall also be eligible for claiming deduction in FY19-20.
      • Any Person including Corporates paying concessional tax on income for FY20-21 under new regime can also donate up to 30th June 2020 & claim deduction u/s 80G for the FY19-20 & shall not lose his eligibility to pay tax in concessional taxation regime for the income of FY20-21.
    • Income received from Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND):
      • As per Amendment in the Income Tax Act 1961(2020) Income received from PM Cares Fund would be Exempt under section 10(23C)(i).
  1. Issue of Certificate for Lower Rate/Nil Deduction/Collection of TDS or TCS u/s 195,197 & 206C(9):

CBDT issues Orders u/s 119 & Clarification stating that certificates for FY 19-20 will be applicable for the FY20-21 till 30th June 2020 until the certificate for FY 20-21 is issued by the Assessing Officer.

  1. Submission of Form 15G & 15H for FY 20-21:
    • CBDT issues Order u/s 119 of IT Act 1961 dated 3rd April 2020 to mitigate the genuine hardship of the eligible person who is not able to submit the Form 15G & 15H for FY 20-21 timely to Bank & other Institutions by increasing validity of the Form 15G & 15H submitted for the FY 19-20 till 30th June 2020 for FY 20-21 .
    • The payer who has not deducted tax based on the said Forms shall have to report details of such payments in TDS statement for the quarter ending on 30th June 2020 following the provisions of Rule 31A(4)(vii) of IT Act 1962.

All these changes, extensions in due dates and relief in interest, fee, and the penalty for late filings of various statutory forms amid a nationwide lockdown to tackle the pandemic by the government is the key strategy of helping the individual taxpayers, businesses, and corporates which will not reduce the compliance burden. But it’s just shifted for some period and hence taxpayers should evaluate their all forms of compliance obligations and try to manage all such obligation through the e-filing or online mechanisms as though, now India has transformed into Digital India & most of the compliance work can be discharged Online so taxpayers should try to discharge it as soon as possible to fulfill the obligations within extended timelines, to avoid any issues/penal consequences at a later date. Although the government has taken steps to ease the burden for taxpayers, it is a responsibility of every taxpayer to discharge their tax obligation timely & on a priority basis.

Advance Tax- “Pay as you Earn Scheme”

Anjali Garg
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Advance Tax- “Pay as you Earn Scheme”

Benjamin Franklin once said, “In this world nothing is certain but death and taxes”. So Why is that, When is that, What is that, Who is that and How. Okay, here’s the answer to this- Advance Tax. This article will give you a good view of it.

Section 207

Accordingly, as the name implies, advance tax is the tax that one pays in advance. It is therefore the provisions of Section 207 of the Income Tax Act, that states that every Assessee shall estimate his Income and Tax Liability for any previous year and Income Tax so estimated shall be paid in advance in accordance with the manner given u/s 211 of the Income Tax Act,1961. It makes it obligatory for every individual, self-employed professional, businessman and corporate to pay Advance Tax, on any income on which TDS(Tax Deducted at Source) is not paid.

Who will pay Advance Tax- Section 208

A Person shall be liable to pay advance tax only if Tax Liability exceeds Rs. 10,000 i.e. a person shall be exempt from payment of Advance Tax if Tax Liability does not exceed Rs. 10,000.00. The Education Cess and Secondary Higher Education cess shall also be considered for the purpose of calculating the Tax Liability.

Both individuals, as well as Corporate Tax Payers, need to pay this tax. This applies to individuals particularly when they have income other than income from salary.  If the sole income of an individual is his salary, then you need not pay advance tax as the employer deducts it at source, known as TDS (tax deducted at source). But when there is revenue from other sources such as: interest earned (on saving bank account), capital gains, lottery wins, from house property or from business, then you needs to pay advance tax on all income after adjusting expenses or losses.

Who doesn’t have to pay Advance Tax?

Advance Tax is NOT applicable when;

  1. A taxpayer opts for the scheme of computing business income under Section 44AD or u/s 44ADA i.e on Presumptive Taxation Scheme for business or Profession,
  2. A senior citizen (resident individual who is 60 years or more) who does not have any income from Business & Profession.

 

How is advance Tax Calculated?

Advance tax is based on income that may be received by an individual during the year; in that sense it is estimated income. The tax is determined using the rates applicable in that financial year. Also if, the real income rose after the payment of first installment of tax on the estimated income, which was increased due to some shares/mutual funds that were sold, then in the next payment we will have to change our revenue and pay the difference accordingly.

The steps for calculating advance tax are described below:

  • Determine the Income: Determine the income you earn other than your salary. It is necessary to include any existing income which could be paid out later on.
  • Minus the Expenses: Deduct the expenses from income. You should exclude work-related expenses such as office leases, accommodation expense, internet and phone charges.
  • Compute the Net Total Income: Add other income that is received in the form of rent, interest income, etc. Deduct the TDS from the salaried income.
  • Compute Advance Tax: On the above net total income, estimate Advance Tax.If the tax due is more than Rs.10,000 then you would have to pay advance tax.

When should advance tax be paid?

The dates and percentages for both individuals and corporate taxpayers are listed below:

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

Points to Note

  1. Tax payers who have opted for Presumptive taxation scheme under Section 44AD or 44ADA have to pay the whole of their advance tax liability in one installment on or before 15 March.
  2. When the last day for payment of advance tax happens to be a bank holiday, it can be paid on the next day without any interest charges.
  3. Pay Advance tax either electronically or physically using Challan no./ ITNS 280 by visiting https://www.tin-nsdl.com or following the link given on the Income Tax website. Note that taxpayer’s PAN is mandatory in the Challan and quoting of the wrong PAN may attract a penalty of  Rs,10,000/-.
  4. After the tax is paid, it will get reflected on the taxpayer’s Form 26AS within 3-4 working days of making the payment. Check Form 26AS for confirmation of details.

What if advance tax is not paid?

When an individual is liable to pay advance tax and if he does not pay the same or less than the stipulated tax, he will be penalized and would have to pay extra (interest) in compliance with Sections 234B and 234C. However it is to be noted that Tax paid till 31st March of the financial year shall be treated as Advance tax.

Under Section 234B, when the cumulative amount of advance tax charged in accordance together with the amount of TDS is less than 90% of the overall tax obligation then interest is calculated at 1% per month or part of a month from 1st April of Assessment Year to the date of determination of income u/s 143(1) or date of regular assessment if such assessment is made.

Under Section 234C, for shortfall/ failure to pay advance tax or Deferment of advance interest is levied under this section. There are three components; for the first installment, the shortfall is calculated for 3 months @1% p.m. Similarly, for second and third installment and for the last and final installment it is calculated for 1 month only @1%.

Under Section 273, if advance tax payable by assessee is untrue and the Assessing Officer had reasons to believe or has failed to furnish a statement of the advance tax payable by him, then AO may direct such person to pay by way of penalty which shall not be less than ten per cent but shall not exceed one and a half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year falls short of

  • seventy-five per cent of the assessed tax or
  • the amount which would have been payable by way of advance tax if the assessee had furnished a correct and complete statement

whichever is less.

Why Pay Advance Tax?

Advance tax is one of the Government’s most effective tools to collect tax from the assessee all over India. This prepaid form of tax is structured in such a way as to make an assessee pay Government tax in a ‘Pay as You Earn Scheme’. This specifically aims to reduce the last moment’s burden for an assessee to pay tax obligation that can be due to either lack of time or resources.

Amendments due to Covid-19

No change in timeline for payment of tax, however for delay of deposit of Advance Tax, reduced interest rate 9% per annum or say, 0.75% per month  thereof would be applicable instead of 12% per annum or say, 1% at present for payment of all taxes falling between 20th March 2020 to 30thJune 2020. Due Date of Last Installment is 15th March which can be paid upto 31st march with one month of reduced Interest Rate.

Analysis of newly inserted Section 194O

Khushi Surana
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Analysis of newly inserted Section 194O

The Union Budget brought about an insertion of Section 194O in the Income Tax Act,1961 effective from 1st October,2020 which warranted a tax deduction of 1% of the gross amount of goods, services, or both by the E-Commerce Operator while making payment to E-commerce participant.  

E-Commerce Operators and E-commerce Participants  

As per the provisions of Section 194O,  

“e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant” and  

 “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce” 

Interpretation: E-commerce participant (say ABC Creation Ltd.), required to be a Resident in India, can be any person selling its goods or services or both through a digital platform provided by an E-commerce Operator (say, Amazon). Now if a consumer like you and me, make a purchase on Amazon, Amazon being an E-commerce operator will further make the payment to ABC creation Ltd. for the purchase so made.  

Incidence, Rate and Amount on which TDS is to be deducted under Section 194O 

The E-commerce Operator should deduct TDS @ 1% on the gross amount of such sales or service or both 

  1. at the time of credit of amount of sale or services or both to the account of an e-commerce participant or; 
  2. at the time of payment thereof to such e-commerce participant by any mode,  

whichever is earlier. 

Any payment made by a purchaser of goods or recipient of services directly to an E-commerce participant shall be deemed to be amount credited or paid by the E-commerce Operator to the E-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax. 

Illustration:  Continuing with the above illustration, Suppose Amazon credited Rs.1,00,000/- to ABC Creation Ltd. On 31.01.2020 for the sale of products during the month of January and further made payment to ABC Creation Ltd. on 05.02.2020. Further if any consumer, let say X made a purchase on 28.01.2020 of Rs.5,000/- and paid directly to the E-commerce participant (ABC Creation Ltd. in this case) via the payment gateway facilitated by the E-commerce Operator i.e. Amazon, then the following scenario will be there 

  1. Amazon has to deduct TDS as per Section 194O being an E-commerce Operator. 
  2. TDS shall be deducted on date of payment i.e. 31.01.2020 being earlier.
  3. TDS shall be deducted on gross amount being Rs.1,05,000/- (Rs.1,00,000/- + Rs.5,000/-) It will be deemed that Amazon has made payment to ABC Creation Ltd for the amount of Rs.5,000/-  credited directly by the consumer X to the ABC Creation Ltd., hence included in the gross amount of such sale. 

 

Exceptions/Exemptions under 194O  

There are 2 cases where the E-commerce participant will not be required to deduct TDS: 

  1. E-commerce participant being a Resident Individual or HUF : If an Individual or HUF, who are a Resident in India have a gross receipt of amount on sales of goods, services or both, but such amount does not exceed five lakh rupees in the previous year then the E-commerce Operator is not required to deduct TDS on such amount. 

Condition: E-commerce participant should have furnished its Permanent Account Number (PAN) or Aadhaar number to the E-commerce Operator. 

Analysis: The limit of Rs.5,00,000/- is simply because income tax upto Rs.5,00,000/- is NIL due to rebate provided u/s 87A. 

Note: If the E-commerce participant does not furnish his PAN or Aadhaar number, TDS must be deducted at the rate of 5%, as per amended provisions of Section 206AA. 

2. E-commerce participant being a Non-Resident : The provisions of section 194O is only attracted if the E-commerce participant is a Resident. No tax deduction is required to be made if the E-commerce participant is a non-resident. 

Miscellaneous provisions under this Section 

  1. A transaction in respect of which TDS has been deducted under this section or which is not liable to deduction under the exemption, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once.
  2. However, it has been clarified that the above exemption will not apply to any amount received or receivable by an E-commerce Operator for hosting advertisements or providing any other services which are not in connection with the sale of goods or services referred to in sub-section (1) of the proposed section.
  3. “services” is defined to include fees for technical services and fees for professional services, as defined in section 194J.
  4. E-commerce Operator means any person and there is no distinction has been made for resident or non-resident for E-commerce Operator. 
  5. Whether sales include tax such as GST is yet to be clarified. 

Conclusion 

Central Government in order to widen and deepen the tax net by bringing participants of E-commerce within the ambit of tax, has inserted this section. The government’s objective of identifying the whole range of sellers who are engaged as E-commerce participants and keeping a tab of all the transactions undertaken by them in the course of business will be fulfilled. This will further bring the E-commerce participant within the tax net i.e. there will be transparency on the income earned by seller of goods/provider of service through digital platforms. It will also help the government to collect revenue easily. 

 

 

Instant PAN through Aadhaar based e-KYC

CA Yash Kapadia
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Instant PAN through Aadhaar based e-KYC

General Scheme of PAN Allotment:

A new facility of instant e-PAN through Aadhaar based e-KYC has been introduced by the Honourable FM in Budget 2020.

Electronically issued and Digitally signed e-PAN is now a valid mode of issue of Permanent Account Number (PAN).

This facility is for allotment of Instant e-PAN (on near-real time basis) for those applicants who possess a valid Aadhaar Number and no requirement of submitting detailed application form. PAN will be issued in PDF format to applicants free of cost.

Applicants are required to enter his/her Aadhaar Number and validate the application with the OTP generated on their registered mobile number as available in Aadhaar database of UIDAI. A 15-digit acknowledgement number will be generated once the validation process is complete.

Applicants can check the status of their application by entering their Aadhaar Number. If the PAN is already issued, the applicant can download the PAN in PDF format. Also, a copy of the PAN will be sent to the applicant’s registered email id.

The Salient Features of this Instant e-PAN Facility:

Applicant must possess a valid Aadhaar Number which has never been linked to another PAN before.

Aadhaar Number must be linked to the registered mobile number.

Applicants will not be required to submit or upload any KYC documents.

The applicant who is already holding PAN should not use this facility as the possession of more than one PAN will result in penalty of Rs. 10,000/- under section 272B(1) of Income-Tax Act, 1961.

e-PAN also contains enhanced QR code having demographic (Name, DOB) as well as biometric (scanned photo and signatures) information of the PAN holders which can be accessed and used for PAN verification purposes in off-line mode.

How to Apply for Instant PAN:

Step 1: Visit the official e-filing home page of the IT department. (https://www.incometaxindiaefiling.gov.in/home).

Step 2: Click on the ‘Instant PAN through Aadhaar’ option under the ‘Quick Links’ section of the homepage to redirect you to the instant PAN allotment webpage.

Step 3: Click on the ‘Get New PAN’ button to redirect you to the instant PAN request webpage.

Step 4: Enter your Aadhaar Number for PAN allotment along with the captcha code. Cross-check the core requisites mentioned before confirming your request. Click on the ‘Generate Aadhar OTP’ to receive the OTP on your registered mobile number.

Step 5: Enter the Aadhaar OTP received on your registered mobile number and click on the ‘Validate Aadhaar OTP and Continue’ button once you have agreed to validate your Aadhaar details with UIDAI.

Step 6: You will be redirected to the PAN request submission page where you will be required to validate your Aadhaar details and accept the terms and conditions. Click on the ‘Submit PAN Request’ button.

Step 7: You will be given an Acknowledgement Number once you have submitted your Aadhaar details for validation. You can view the PAN allotment status by entering your Aadhaar Number.

Other Important Facts:

Foreign citizens cannot apply for instant PAN using this facility and they have to submit the detailed application.

The OTP for completing the procedure can be generated any number of times.

Aadhaar authentication may get rejected due to wrong OTP. The problem can be resolved by entering the correct OTP. If it still gets rejected, you have to contact the UIDAI.

Address as registered in Aadhaar database can only be used for PAN application and applicant cannot use different address.

The applicant will not get printed copy of PAN and if applicant wish to get the printed copy, he/she can get it by submitting PAN on these following 2 links:

https://www.onlineservices.nsdl.com/paam/ReprintEPan.html

https://www.utiitsl.com/UTIITSL_SITE/mainform.html

For any query relating to e-PAN, you may reach out at info@raseshca.com

Why Donation for Fight against Coronavirus to third party NGOs is not a good idea?

Counselvise
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Why Donation for Fight against Coronavirus to third party NGOs is not a good idea?

Earlier, the trusts were formed by affluent people of same community who infused corpus money out of their own savings and carried out charitable activities in the nature of relief for the poor, education or advancement of any other object of general public utility. However recently, there is huge trend of Sophisticated Trusts ( they prefer to call it NGOs) who would operate on a National level and lure the consumers into donation for a cause through various techniques not limited to but includes

  1. Social Media Ads – For a normal businessmen, the ads on Facebook or Linkedin is very costly but these NGOs have enough money for Ad Campaigns may be because it provides good conversion into donation money.
  2. Opt-out facility during e-commerce application – When you buy a movie ticket or a flight ticket, there is a separate check-box for Donation and it is already ticked by default and 80% of Indians because of our emotional nature and pettiness of the amount, fail to untick it.
  3. Phones through Call Centres – They get the database of Dayavan people and would call you citing a particular case whereas if not for your timely contribution, the patient will die shortly. Many a times, they dont even change the name of the patient as they go by the script!

Some of these volunteers have literally abused the prospective donors and some of the horrendeous experience can be found at https://www.quora.com/What-are-some-fraud-NGOs-in-India

In the RTI reply by AIIMS, it is clearly mentioned that AIIMS has no association with these NGOs viz. RELIEF INDIA TRUST, MSSION HEAL, A GIGGLES WELFARE ORGANISATION  and complaints have already been received from various places that these three NGOs are involved in illegally collecting money for poor patients admitted at AIIMS. AIIMS have advised not to donate to these NGOs.

It is not that every NGO is a Black sheep and it shall be extremely wrong on my part to derive any conclusions as every help counts but the million dollar question is
In situation like a worldwide pandemic like Coronavirus, should you donate money to a third party NGO just because you received an email through change.org or some online community starts a fundraising campaign ?

For coronavirus, the spread of the disease is so dreadful, that undisputedly the control has to be from the Top. The Central Government, State Government as well as Local authorities has been working in coordination till date to tackle the situation. The Corona Warriors mainly hail from Police Department and Government hospitals employees and hence when there is a dedicated Charity Fund for COVID19 called “PM CARES” monitored by Honourable Prime Minister himself and when each Chief Minister has a separate Relief Fund, I see no reason why a citizen needs to give donation to a private NGO.

No doubt, the migrant workers are affected the most and some NGOs are doing appreciable work in spearing awareness and providing help to these poorer section of the society and one such NGO, I came across is “Give India” which claims to be “India’s largest and most trustworthy giving platform for donors”. I tried to do my due diligence, to the best of my knowledge so I paid Rs. 100/- to MCA and downloaded their Audit Report for last 3 years. The Company Name is Give Foundation. My subsequent observations and fact findings are not to undermine the efforts of the NGOs including “Give India” who might be doing an incredible job but it is to provide a reply to the pseudo liberals who are encouraging citizens to give donations to such Private Funds against the PM Care Fund or Chief Minister Relief Fund.

  1. Supporters claim that Facebook has also tied up with Give India and there is no middlemen, but “Give India” is ONLY a middlemen! It does not do any charitable activity on its own! They state in their Financial statements that “It is an online donation platform and it helps raise funds and contributions from individuals across India and the world and then disburses these donations to credible Indian NGOs” Infact, looking at their audited financial statements, it seems that 10% of the total donation raised for a cause goes on to Company to fund their salaries assuming that it receives no cut from its associated NGOs.
  2. As per the latest audit report, the credit in the Profit and Loss account shows that the “Total Donation retained for covering administrative cost” is Rs. 5.09 Crore out of which the salary is paid to its employees of Rs. 4.39 Crore. The salary of its one Director is as high as Rs. 50+ lakhs pa which is funded out of your donations.
  3. The Income tax Department has also denied to consider Give India as charitable organisation and denied any exemption u/s 11 of the Income Tax Act. The litigation went till Income tax Tribunal and the Company lost at the forum of highest fact finding authority wherein the Court observed as under:

    “We find that the entire expenses incurred by the assessee are for providing advisory services to the affluent corporate and high net worth individuals who desire to make donations to public welfare trust or institution. Thus it is observed that the actual activity of the assessee during the year under consideration was confined to provide professional services to corporate and other persons who desire to do charity by advising them or by way of identifying genuine charitable institutions for them. The assessee for this service also charged fee from the donor corporate or other persons and such fee amounted to Rs.1,08,57,115/- during the year. Thus we find that no income of the assessee was utilised for providing educational activity medical relief, relief of poor and preservation of Environment (including watersheds, forests and wildlife). The entire expenses of the assessee were directed towards providing services to donors who are affluent section of the society and wish to make donation for charitable purposes. The above activity of the assessee of providing services to affluent section of the society cannot be, in our considered view held as activity of general public utility also. Thus we find that no part of the income of the assessee company was actually utilised for any charitable activity during the year”

    The Full copy of the Judgement can be downloaded at https://www.itatorders.in/appeal/ita-1465-ahd-2013-14-give-foundation-ahmedabad-the-jt-director-of-income-tax-exemp-ahmedabad
  4. Even in subsequent years also, the Income tax Department has denied its operation as a charitable Trust and the contingent liability reported out of such tax liability is Rs. 2.23 Crore ( Pg 17 of Audited Financials ) and they have paid only Rs. 86 lakhs in protest and no provision has been made in the books which is certified by Big 4 firm.
  5. The website Contact Us Page or About Us Page does not mention even the address of Registered Office ! Why would anyone do that ?

In view of the above, in my personal opinion, at least for the fight against Coronavirus, the donation, if any should directly go to National or State Fund and if someone is not comfortable to donate there just because he or she is Modi-Hater ( thats the only word which pops in my mind when I see people on social media making fun of PM Care Fund when they have a choice to remain silent! ), then at the best, they should try to provide financial help to their own domestic helpers and office staff or factory workers. Infact, a better option is when you look around, you will find a lot of noble souls who runs an NGO and whose efforts are clearly visible as how they are helping the daily wagers and donation may be made to them. And still if you are making donation to the third party NGOs, of course, “its your choice” but not at the cost of undermining the efforts of Central Government.

PS : When a businessmen pays Rs. 1,00,000/- to PM Care Fund, he gets 100% tax deduction of such amount but when he makes donation of same amount to Private NGOs, he may only get 50% tax deduction from his income. I have come across many businessmen who are nagging at the present Government to provide them tax soaps but dear, you just missed a blanket benefit which was before your eyes but you chose to ignore !

Details of PM Cares Fund

Name of the Account: PM CARES

Account Number: 2121PM20202

IFSC Code: SBIN0000691

SWIFT Code: SBININBB104

Name of Bank & Branch: State Bank of India

UPI ID: pmcares@sbi

Section 115 BAB – New Corporate tax rate for new manufacturing companies

Khushi Surana
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Section 115 BAB – New Corporate tax rate for new manufacturing companies

The Government, via Taxation Laws (Amendment) Ordinance, 2019 passed on 20 September 2019, has introduced a favorable new corporate tax rate for new manufacturing companies.  It has inserted Section 115BAB offering a low corporate taxrate of 15% (plus Surcharge and Health and Education Cess) making an effective rate of 17.16% to new manufacturing companies.

It has inserted Section 115BAB offering a low tax rate of 15% (plus Surcharge and Health and Education Cess) making an effective rate of 17.16% to new manufacturing companies.

ELIGIBILITY FOR NEW CORPORATE TAX BENEFITS UNDER SECTION 115BAB

The benefit of this section can only be utilized by Domestic companies and no other entity. However, there are some conditions attached which are explained below: 

  • The domestic company should have been set-up and registered on or after the 1st October 2019, and has commenced manufacturing or production of any article or thing on or before the 31st March 2023. 

Analysis: The government has introduced this section with an intention to favor the economic growth of the country.

The Secondary sector growth is vital for boosting the GDP growth and hence it is beneficial for both the economy and the corporates giving them a much-needed incentive to open up units of production and manufacturing. 

  • The business should not be formed by splitting up, or the reconstruction, of a business already in existence (not applicable to a business referred in Sec 33B of I.T Act,1961) 

Analysis: Splitted-up or Reconstructed businesses would not necessarily mean an addition to the existing production value being generated by the Company.

A newly set up entity would, on the contrary, mean that there is a supplementary production taking place in the country adding to the GDP growth.

The company should not use any machinery or plant previously used for any purpose. However, there are few exceptions to this condition which are as follows: 

  • Any Plant or machinery which has been imported to India from anywhere outside the country and the same is not used in India prior to the date on installation. 
  • Plant and machinery or part thereof which has been used before but the value of which, does not exceed 20% of the total value of the machinery or plant used by the company.
  • The deduction should not have been allowed on account of depreciation in respect of the plant or machinery at any previous time before installation  

Analysis: The intension behind attaching this particular condition is that the Government intends and expects companies to invest more and capitalize in the form of Plant and Machinery and other fixed assets. 

  • The company cannot use any building previously used as a hotel or a convention center, as the case may be, in respect of which deduction under Section 80-ID of I.T Act,1961 has been claimed and allowed. 

As per the definition in Section 80-ID “hotel” and “convention center” as been defined respectively: 
“hotel” means a hotel of two-star, three-star or four-star category as classified by the Central Government; 
“convention center” means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed; 

  • The company should not be engaged in any business other than: 
  • The business of manufacture or production of any article or thing  
  • Research in relation to the manufacturing or production of article or thing 
  • Distribution of such article or thing 

UNDER THIS NEWLY INSERTED SECTION 115BAB BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING DOES NOT INCLUDE THE FOLLOWING BUSINESS: 

  • development of computer software in any form or in any media
  • mining
  • conversion of marble blocks or similar items into slabs
  • bottling of gas into the cylinder
  • printing of books or production of a cinematograph film; or 
  • any other business as may be notified by the Central Government in this behalf; 

Analysis: By inserting this condition it is clarified that the section is only meant to benefit the manufacturing and production industry and activities carried on for facilitating the research and distribution of the same.

It has also listed out businesses that may create confusion regarding their status as to whether they would qualify and be eligible for this section.  

THE INCOME TAX OF THE COMPANY SHOULD BE COMPUTED WITHOUT CLAIMING FOLLOWING TAX EXEMPTIONS AND DEDUCTIONS:

  • Section 10AA: Deduction for units in Special Economic Zone 
  • Section 32: Deduction for additional depreciation under and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal 
  • Section 33AB: Deduction for tea, coffee and rubber manufacturing companies 
  • Section 33ABA: Deduction towards deposits made towards site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both in India 
  • Section 35:Deduction for expenditure made for scientific research  
  • Section 35AD: Deduction for the capital expenditure incurred by any specified business  
  • Section 35CCC: Deduction for the expenditure incurred on an agriculture extension project   
  • Section 35CCD: Deduction on a skill development project  
  • Deduction under Chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA and 80M (amendment brought in by Finance Bill 2020) 

Analysis: A few deductions and exemptions have been retracted by the government as the company is already benefitting from the concessional tax rate and to avoid double benefits to the company the necessary condition has been inserted.

NOTE-Set-off of loss and Unabsorbed Depreciation cannot be claimed where such loss or depreciation is attributable to the deductions enlisted above while computing Total Income of the company.
NOTE- While computing Total Income of the company, Depreciation under the provision of section 32 can be claimed but Additional Depreciation under clause (iia) of sub-section (1) of the said section cannot be claimed  

WHEN CAN THE COMPANY AVAIL THE BENEFIT OF SECTION 115BAB? 

The company has to exercise the option on or before the due date of filing income tax returns i.e usually 30th September of the assessment year.

Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently. 

WHAT DOES THE SECTION SAY REGARDING TRANSFER PRICING AND RELATED PARTY TRANSACTIONS? 

If there appears to the Assessing Officer that there is a close connection between the Company and any other person, and the course of business between them is so arranged that the business transacted between them produces to the person more than the ordinary profits which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and gains of such business for the purposes of this section, take the number of profits as may be reasonably deemed to have been derived therefrom. 

In case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the number of profits from such transaction shall be determined having regard to arm’s length price.  

Conclusion:

It’s a great incentive for the new manufacturing companies provided by the government.

However, one should make an in-depth study in the light of the deductions and exemptions the company would have to forego in order to avail the benefit of the concessional tax rate. 

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article

Understanding the Complex Section 14A of the Income Tax Act, 1961.

Sneha Kejriwal
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Understanding the Complex Section 14A of the Income Tax Act, 1961.

Introduction

Section 14A was inserted by Finance Act, 2001 having a retrospective effect from 01.04.1962. To understand the reason behind the insertion of section 14A, the relevant part of memorandum of Finance Act, 2001 is reproduced herewith:

“Certain incomes are not includible while computing the total income as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income.”

Section 14A reads as under:

(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act

Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.

Scope of section 14A

  1. Agricultural income

One of the common source of exempt income is income earned from agricultural activities which is exempted from taxation u/s. 10(1). According to the section 14A the assessee shall not be allowed to deduct any expenditure incurred to earn agricultural income as it is free from tax in the hands of assessee.

  • Income from partnership firm.

An individual earns income from partnership firm in the form of interest, remuneration and profits. All the components, except the profit earned from partnership firm, is taxable in the hands of the assessee. Therefore, section 14A shall apply only to expenditure incurred in order to earn profit.

There might be a circumstance where the assessee, a partner in a firm, may borrow funds and advance it to the firm. Therefore, the interest expense incurred on the said borrowed fund shall fall within the scope of Section 14A and will not be allowed as expense since the profit earned from the partnership firm, to which funds are advanced, is exempt u/s. 10(2A) in the hands of assessee.

However, according to the judgment of High Court of Bombay in the case of CIT vs. Delite Enterprises [I.T.A. No.: 110 of 2009], it is to be noted that if during the assessment year if partnership firm incurs loss then no disallowance of interest expense can be made u/s. 14A as there is no (tax free) profit for the relevant year.

  • Income from investments

A taxable person may earn dividend income, income from mutual funds, long term capital gain, which are exempt under relevant sections of Income Tax Act, 1961 and which shall attract section 14A disallowance.

In relation to the dividend income earned by the assessee, it is held that section 14A shall apply only to those dividends on which tax in the form of DDT is payable by the dividend paying company u/s. 115-O. As the dividend in the hands of the recipient is exempt, it will attract section 14A.

  • Exceptions

There are various other sources from which an assessee earns exempt income and expenditure on which will be disallowed u/s. 14A. However following are the various circumstances which doesn’t attract section 14A:

  • Expenditure incurred for earning of export income which is exempt u/s 80HHC, cannot be held to be income which does not form part of total income. Such expenses cannot be disallowed u/s14A – CIT v. Kings exports 318 ITR 100 (2009) (Punj. & Har.)
  • Section 14A could not be applied to provisions of Chapter VI-A where deductions are to be made in computing the total income and in no way that can be compared with the exempted income which does not form part of the total income- ACIT v. Tamil Nadu Silk Producers Federation Ltd. [2006] 103 TTJ (Chennai) 716]; ACIT vs. Bank of Madura [2011] 007 ITR (Trib) 139 ITAT [Chennai]
  • Deduction of income derived by a co-operative society u/s 80P is not a case of “exempt income” but of “deduction from income”. Therefore provisions of sec.14A are not applicable in this case ‐ACIT Vs. Kribhco 6 ITR 686 (2010) (ITAT‐Del)
  • Section 14A cannot be applied if the interest free funds available are more than the investments made from which the assessee earns exempt income. As held by Honourable ITAT in case of ACIT vs. Torrent Power Ltd.[I.T.A. No.1668/Ahd/2012,
    “The appellant has shown that it has aggregate interest free funds by way of share capital and reserves amounting to Rs.195.10 crores which is more than the investment in shares and mutual funds amounting to Rs.129.8 crores. Thus, the appellant is having enough interest free funds and, therefore, also the disallowance out of interest expenditure could not be made ..”.
    This is also covered in the judgement of High Court of Gujarat in case of CIT vs. Raghuvir Synthetics Ltd [(2013) 354 ITR 222 (Gujarat)] wherein the AO made disallowance of interest expense claimed u/s. 36(1)(iii) on account of interest free advances made to sister concern. It was held that
    “Factually, it found huge funds were available without any interest liability with the assessee and that there was no evidence to hold that the borrowed money was utilized for the purpose of advance to the sister concerns. All these aspects cumulatively led the Tribunal to hold that the disallowance made only on the ground that advances were given out of the borrowed funds, holding the assessee ineligible for allowance of interest by the Assessing Officer of the sum of Rs. 18.66 lakhs was not sustainable”.

Once the provisions of Section 14A are triggered, w.e.f A.Y 2008-09, the working of disallowance is to be made as per the provisions of Rule 8D. The same is covered in a separate article which can be found at itatorders.in/blog.

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