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News Direct Tax-Income Tax

  • Jul 13, 2024
  • Budget 2024 : Need to re-think the profit margin under presumptive tax scheme for Professionals

    The presumptive tax scheme enables a wide variety of professionals to offer 50% of their gross receipts to Income-tax (I-T) and be absolved of a range of compliance obligations, like maintenance of books of accounts.
    Only those whose gross receipts from profession is Rs. 50 lakh or less in a financial year, can opt for the provisions of section 44ADA.

    This limit of Rs. 50 lakh is increased to Rs. 75 lakh, provided 95% of the receipts are through recognised banking channels.
    Need to reduce the profit percentage:
    There is a dire need for amendment of this section. As The Chamber of Tax Consultants (CTC) in its pre-budget memorandum has pointed out: The net income of any professional cannot be as high as 50% considering the present-day overheads which are necessary to earn the income. Rent cost, staff cost and various other costs are increasing year after year and normally a professional will be able to earn net income of about 25 to 30% of the gross receipts. Prescribing a higher percentage for the purpose of presumptive tax scheme is a discouraging factor for any taxpayer to avail the benefit of the presumptive tax scheme. CTC has recommended that the profit percentage be reduced to 25%.

  • Jul 13, 2024
  • Budget 2024 needs to decide if faceless assessment is revolutionising tax landscape or creating hurdles?

    Budget Expectations: As India eagerly anticipates the Union Budget 2024, one area of keen interest for taxpayers, especially corporates, is the refinement of the faceless assessment scheme. Despite its noble intentions and innovative approach, the implementation of the faceless assessment scheme has encountered several significant challenges, which, if appropriately addressed, can pave the way for meeting the underlying intended objectives and play a pivotal role for ‘Ease of Doing Business’ in India.

    Typically, in case of large corporate taxpayers, before concluding the assessments, the Faceless Officer calls for copious amounts of data, justification etc. from the taxpayer such, as reconciliation of revenue with the GST returns, reconciliation of information reported on the Insight Portal, details of expenses in pre-defined formats etc. These information requests are often issued close to the statutory deadline for concluding such proceedings, leaving taxpayers with very limited time to provide the reconciliation and the necessary supporting documents, ultimately leading to unwarranted additions.

  • Jul 10, 2024
  • Strict compliance, reporting rules making tax function difficult: PwC India

    Advanced technologies and international data-sharing mechanisms have improved transparency and efficiency in taxation in India, but strict compliance and complexities have made it more challenging, according to a new study by PwC India.
    "Be it in India or other global economies, tax authorities are leveraging advanced technologies to streamline tax administration and combat tax evasion effectively," it said, adding that international data-sharing mechanisms, including bilateral tax treaties and multilateral initiatives, are facilitating cross-border information exchange.

    "While these developments have resulted in transparency, efficiency and speed, on the flip side, stringent compliance and reporting requirements and incremental operational intricacies have made the tax function for businesses all the more challenging," the study titled "The three T's of tax – technology, transparency and trust" added.

  • Jul 09, 2024
  • Reporting foreign income in income tax return: How to report foreign income, equity share in ITR form

    Income-tax Return (ITR) Forms 2 and 3 contain Schedule FA for reporting foreign assets, income and beneficial ownership. This Schedule is often considered one of the most challenging sections to fill out in the ITR form.
    Schedule FA was introduced to address tax evasion and money laundering and has been essential to the ITR forms since FY 2011-12 (AY 2012-13). In this schedule, individuals (ordinarily resident in India) must provide information about their foreign assets and income, regardless of whether the income is taxable in India. Non-resident individuals (NRIs) or Not-ordinarily resident individuals (NOR) do not need to make any disclosures in this Schedule.

    Individuals with foreign assets and income are required to use either ITR 2 or ITR 3 forms to file their tax returns, as Schedule FA is available in these forms.

  • Jul 06, 2024
  • Attention Taxpayers! Income Tax Department warns against false claims in income tax returns

    The Income Tax Department has issued a strong advisory to taxpayers, advising them against submitting income tax returns with inaccurate claims for exemptions and deductions. Authorities emphasized the serious repercussions of such behavior, which may result in significant fines and the possibility of imprisonment, according to CAclubindia.

    The I-T Department, in partnership with the South Central Railway (SCR), hosted an ‘Outreach Awareness Programme’ in Vijayawada recently. The purpose of the event was to educate employees on the significance of precise tax filings, aiming to equip them with the necessary knowledge on tax compliance and to deter them from depending on intermediaries who could potentially file false claims on their behalf.

  • Jul 01, 2024
  • Ravi Agrawal appointed CBDT chairman

    Ravi Agrawal, a 1988-batch IRS officer, has been appointed as the new chairman of the Central Board of Direct Taxes (CBDT), the administrative body for the Income Tax Department. He takes over from Nitin Gupta, a 1986-batch Indian Revenue Service officer, whose extended tenure as the chairman ends on June 30.
    The new CBDT chief is currently working as Member (Administration) in the Board at present.

    An official order said Agarwal will head the CBDT till June, 2025.
    His scheduled retirement is in September this year but his appointment order said he will be on "reappointment on contract basis" till June 30 next year.
    The CBDT is the apex policy making body for the Income-tax department.
    The CBDT is headed by a chairman and can have six members who are in the rank of special secretary.

  • Jun 28, 2024
  • Global agreement on taxing ultra-rich is technically feasible, states G20-commissioned report

    In a landmark report unveiled recently Professor Gabriel Zucman has called for the adoption of a coordinated global minimum tax standard targeting the ultra-rich. This initiative aims to impose a 2% annual tax on the wealth of the world's 3,000 billionaires, potentially generating an additional $250 billion in global tax revenues. Extending this tax to individuals with a net worth of over $100 million could add between $100 billion and $140 billion annually.
    The report, titled ‘A Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net-Worth Individuals’, was commissioned by the Brazilian presidency of the G20 in preparation for the G20 Finance Ministers meeting in Rio de Janeiro which is currently ongoing.

    "The structural failure of contemporary tax systems has resulted in the wealthiest 0.0001% paying proportionally less in taxes than other socio-economic groups," Zucman stated. "Progressive taxation is essential for democratic societies, promoting social cohesion and public trust in government efforts for the common good. Ensuring that the ultra-rich pay their fair share is not just fair—it’s essential for protecting our democracies and funding critical public services."

  • Jun 26, 2024
  • Makeover likely to give faceless I-T assessment a friendlier face

    India is reviewing the 'faceless' income tax (I-T) assessment mechanism to make it more taxpayer-friendly, following suggestions that the programme can be made more effective.

    A hybrid formula is being examined that could allow taxpayers to pick either the faceless scheme or in-person resolution, people familiar with the development told ET.

    "It is being reviewed to assess effectiveness," said an official, adding that there is a line of thinking that it should be made optional for taxpayers. Another official said the idea is to address challenges in its implementation to ease compliance further for taxpayers. A final call will be taken shortly, the official said.

    The scheme was introduced on April 1, 2021, to reduce the human interface in tax disputes and assessments. Under the system, the income tax department processes returns, issues refunds, conducts tax assessments and scrutiny, and manages appeals. The assessing officer is assigned cases at random, without following geographical jurisdiction.

  • Jun 12, 2024
  • I-T department set to complete 170,000 reassessments by next March

    The income tax (I-T) department could complete by March 2025 reassessments of 170 thousand notices issued between March 2021 and March 2024 for undisclosed income in past assessment years.
    The Central Board of Direct Taxes (CBDT) had reopened cases of about 600 thousand individuals during the said three-year period for a mismatch in income disclosed in tax returns versus information available with the department. Of this, assessments have been completed in about 430 thousand notices and orders have also been passed on them, a senior official with direct knowledge of the matter told Business Standard.

    The amount involved could not be ascertained though rough estimates indicate that it could be over a thousand crores of rupees.
    “These notices are for different assessment years, from 2014-15 to 2022-23. Some of these were getting time-barred also,” the official said on condition of anonymity.
    The aforementioned notices were issued under Section 148 of the Income Tax Act that deals with reopening of past assessment. Majority of the total reassessment notices were issued to individuals with income above Rs 50 lakh, he added.
    Under Section 148, an I-T officer could review cases of income evasion going back six years. Under Section 148A (added by the Finance Act, 2021), cases that have been over a decade old can be reopened, provided that the income that has escaped assessment exceeds Rs 50 lakh.

  • Jun 11, 2024
  • Tax tribunals allow deductions for donations part of CSR spend

    Delhi and Mumbai benches of ITAT recently allowed a deduction under section 80-G of the I-T Act to two corporate entities for donations made by them, even though such donations were part of their CSR expenses.
    During assessment, I-T officials had denied the deduction on the ground that donations, which are part of CSR expenses, are not voluntary in nature but are a compliance to be made under the Companies Act.Donations can only be voluntary in nature, was the stand taken by I-T officials.

    Under section 135 of the Companies Act read with the rules, companies having a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more have to comply with the CSR provisions. These companies have to spend at least 2% of their average net profit for the immediately preceding three fiscals on CSR activities. In the case of Alubound Dacs, which was heard by the Mumbai ITAT, a deduction of Rs 15 lakh made under 80-G for donations to educational and charitable trusts during the financial year 2019-20, was denied during assessment. The Delhi ITAT heard the case of Interglobe Technology Quotient, where during the financial year 2019-20, Rs 78 lakh was denied on the ground that the underlying expenditure was not in the nature of donation, but a mandatory CSR expense. Both companies succeeded in litigation at the ITAT level.

  • Jun 10, 2024
  • Tax incidence of non-compete fee is not retrospective, rules ITAT

    Non-compete fees received by a taxpayer will be a non-taxable capital receipts up to the financial year 2002-03. The amendment to treat non-compete fees as taxable revenue receipts came into effect only from April 1, 2003 – this was upheld by the Income-tax Appellate Tribunal (ITAT), Mumbai bench in its recent order.
    The amendment does not have a retrospective effect, held the ITAT bench and declined to set aside the order of the Commissioner (Appeals), who had treated the non-compete fees of Rs.10 crore received by Lyka Labs (a company engaged in manufacture and sale of bulk formulation of pharmaceutical products) as a capital receipt.
    Lyka Labs had as per an agreement dated March 12, 2002 entered into a non-compete agreement with its joint venture company Lyka Hetro Health Care Limited (LHHCL) for not competing with LHHCL in the marketing, distribution and selling activities of certain formulations for the trade mark which has been registered or used by it.
    Both Lyka Labs and the Commissioner (Appeals) relied on an earlier order given by the Supreme Court in the case of Guffic Chem. The apex had categorically held that the amendment is only with effect from April 1, 2003 (Assessment year 2004-05 onwards) and does not have a retrospective effect for taxing the non-compete fee received prior to the said period.
    The Supreme Court in this order had also distinguished the compensation received for termination/loss of agency and a loss of source of business as per a negative covenant where the former would be a ‘revenue receipt’ and the latter a ‘capital receipt’. There is no doubt that the agreement entered into by Lyka Labs and LHHCL was a negative covenant. Accordingly, the ITAT bench dismissed the appeal filed by the I-T department.

  • Jun 06, 2024
  • No HC relief for co over delayed I-T return

    The Delhi high court dismissed a writ petition filed by a technology company, seeking condonation of delay in filing its income-tax return for FY20. The Central Board of Direct Taxes had refused to invoke its powers accorded to it under section 119 of the I-T Act to condone this delay — the HC found no justification to interfere with this view.
    This order is being widely discussed among tax circles, including I-T officials.A major fallout of not filing a timely return is that carry-forward of losses, which is typi cally available over the subsequent eight-year period is denied, as are several tax benefits. A govt official said, this order will mitigate instances of taxpayers adopting a lax attitude in complying with statutory provisions.

    Sunil Agarwal, senior standing counsel for the I-T department and one of the advocates representing the matter, said, “Genuine hardship is the cornerstone for exercise of this discretion by the CBDT. The taxpayer’s contentions such as the delay arose owing to the fall-out of Covid, that the delay was a one-time aberration or even of financial crisis were proved to be factually incorrect and found non-sustainable by the high court.”
    Several taxpayers, who were impacted by the fall out of the pandemic, had found it difficult to file their I-T returns and pay their dues. For FY20, the CBDT had extended the timeline for filing the I-T returns to Feb 15, 2021 (for large taxpayers who are obligated to carry out a tax audit) and to Jan 10, 2021, for others. Yet, some taxpayers continued to seek condonation for delays in filing of the I-T return beyond the extended due date.

  • Jun 04, 2024
  • TDS on property is 20% if you have not linked PAN with Aadhaar by May 31

    Taxpayers had until May 31, 2024, to link their PAN with Aadhaar. Failure to do so will result in a higher Tax Deducted at Source (TDS) being levied on their income. This applies to transactions entered into before March 31st, 2024, with the TDS rate doubling for those with unlinked PANs.
    "The IT department has given a final deadline for 31st May 2024 for linking PAN with Aadhaar. In case assessee still fail to do so, this will tantamount to PAN being inoperative and will attract section 206AA whereby deduction shall be @ 20%," said Ritika Nayyar, Partner, Singhania & Co.
    The situation was particularly frustrating for homebuyers who unknowingly purchased property from sellers with unlinked PANs. These buyers faced notices demanding additional tax due to the higher TDS rate. However, a recent CBDT circular provides relief. If the seller links their PAN with Aadhaar by May 31st, the homebuyer will be off the hook for the additional tax.
    The income tax department in April 2024 provided relief to many homebuyers who were issued tax deduction at source (TDS) notices because the Permanent Account Numbers (PAN) of the property sellers were inoperative. The circular gave the homebuyers a chance to avoid the tax notices as long as the property sellers link their PAN with Aadhaar by May 31.

  • May 30, 2024
  • FM Sitharaman: Will go back to original rule if MSMEs okay with delay in payments beyond 45 days

    Finance Minister Nirmala Sitharaman said on Tuesday that the government will repeal the changes made to Section 43B of the Income Tax Act if MSMEs want to continue operating with uncertainty on payment timelines from their buyers.

    Interacting with MSMEs and local industries in Ludhiana, Sitharaman said the government added the 45-day payment rule effective since 2008 to the Income Tax Act on the request of MSMEs facing delays in payment from their buyers beyond 45 days.

    “If MSMEs want relaxation in payment made by their buyers without the 45-day limit, whether over 45 days, 150 days or a year and further, then it is easy to make the changes. We will change it and go back to the original rule,” Sitharaman said.

    The government in last year’s budget had proposed to add a new clause h under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country, hindering the flow of working capital and overall business growth.

    The clause (h), which came into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), allows expenses to buyers on invoices from micro and small enterprises only if paid within 45 days (where agreement exists) and within 15 days if there is no agreement in the year of actual payment instead of the year when it was incurred as an expense.

  • May 29, 2024
  • FM hints at reconsidering 45-day payment rule for MSMEs

    Finance Minister Nirmala Sitharaman on May 28 hinted at the possibility of the government reconsidering changes made to the income tax rules mandating payments to micro, small and medium enterprises (MSMEs) within 45 days, failing which companies will have to pay tax on the amount due.

    This mandate came into effect on April 1, 2024.

    She urged MSMEs to send representations on the same, adding that the government will "surely do something about it in the July Budget."

    Speaking at an event in Ludhiana, Punjab, Sitharaman said the changes mandating the 45-day payment window was introduced as per requests from MSMEs themselves.

  • May 29, 2024
  • I-T department asks taxpayers to link PAN with Aadhaar by May 31 to avoid higher TDS deduction

    The income tax department on Tuesday asked taxpayers to link PAN with Aadhaar by May 31 to avoid tax deduction at a higher rate.

    As per income tax rules, if a Permanent Account Number (PAN) is not linked with biometric Aadhaar, TDS is required to be deducted at double the applicable rate.

    Last month, the income tax department issued a circular stating that no action will be taken for short deduction of TDS in case the assessee links his/her PAN with Aadhaar by May 31.

    "Please link your PAN with Aadhaar before May 31, 2024, if you haven't already, in order to avoid tax deduction at a higher rate," the department posted on X.

    In a separate post, the I-T department asked reporting entities, including banks, forex dealers, to file SFT by May 31 to avoid penalties.

  • May 29, 2024
  • CBDT exempts RBI from special norms on TDS, tax collected at source. Check details

    The Union Finance Minister has noted that the Central Board of Direct Taxes (CBDT) has exempted the Reserve Bank of India from the special provisions of the Income Tax Act, 1961, regarding the tax deducted at source, and the tax collected at source for non-filers of an income-tax return.

    In a notification, the Finance Ministry said: "In exercise of the powers conferred by clause (ii) of the provison to sub-section (3) of section 206CCA of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Reserve Bank of India to be a person referred to in the said clause."

    The ministry also issued a notification along the same lines under section 206AB of the Income Tax Act.

    Section 206CCA of the Income Tax Act, 1961, provides tax collection at source (TCS) on amounts received by a specified person at rates higher than specified in the act. Under this, the tax is collected at twice the rate specified in the relevant provision of the Act, or at the rate of 5%, whichever is higher.

    The tax shall be collected at source (TCS) on higher of the following:

    > 2 times the rate given in the Income Tax Act or Finance Act or.
    > 5%

    If the person provides the PAN but has not filed the return for the last assessment year and the due date for filing has been expired and the aggregate of TDS or TCS in his case is Rs. 50,000 or more then the above rate shall apply. Just to save from this, if he doesn’t provide the PAN then tax shall be collected at 20% or a much higher rate as per section 206CC.

  • May 27, 2024
  • Cost inflation index for FY25 higher than last fiscal’s

    The income tax department has notified the cost inflation index (CII) for FY25, relevant to assessment year 2025-26, at 363, which is higher than 348 for FY24, and 331 for FY23. The CII is a tool used to measure inflation for computing long-term capital gains on the sale of assets, including immovable property, securities and jewellery.

    The CII adjusts the purchase price of assets to reflect current inflation, ensuring that taxpayers are taxed on real gains rather than nominal gains inflated by general price increases. This adjustment is essential for maintaining a fair and reflective tax system. Without it, taxpayers could face disproportionate tax liabilities on gains that are primarily due to inflation rather than actual economic growth, experts say.

    When selling assets such as immovable property, securities, or jewellery, the profit or gain from these assets tends to be high due to their increased sale price compared to the purchase price. As a result, assessees have to pay higher income tax on these gains. “Taxpayers can use this (CII) to calculate gains for the long term capital assets sold during FY25 and reduce the tax liability accordingly,” said Sandeep Sehgal, partner-tax, AKM Global.

  • May 27, 2024
  • 99.9% would pay no inheritance tax if bar set at Rs 10 crore: Study

    By imposing wealth and inheritance tax on the ultra-rich, India can boost its tax revenues while impacting less than one per cent of the population, a new study has suggested.
    Inheritance tax was at the centre of a raging debate recently when Sam Pitroda suggested a discussion around it while citing the US example.

  • May 24, 2024
  • Date of house possession key for tax benefit: ITAT

    Income-tax Appellate Tribunal (ITAT), Mumbai bench, has recently held that in case of an under-construction property, it is the date of possession that must be considered to determine the eligibility of a tax benefit under section 54 of the Income-tax (I-T) Act.
    This ruling is important, as for availing tax benefits, investment in a new house must be made within a specific period of time.To the extent of investment in the new house, the taxable component of long-term capital gains (which has arisen on sale of the old house) is reduced. This, in turn, results in a lower tax outgo.
    According to this provision, the new house must be purchased within 'one-year prior' or 'two-years after' from date of sale of the old house. Or the new residential property can be constructed within three years from the date of sale of the original property.

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