Tag: income tax

When interest u/s 234 A, B, C can be levied by the taxman

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A coffee time conversation between two colleagues leads to an interesting explainer on tax jargons.

Vina: Thank God, the due date to file our tax returns has been extended up to December 31, 2021. I can now shift my focus on other things, instead of racing to finish this annual obligation.

Tina: True that. But I hope your tax dues for 2020-21 which you have left unpaid, are less than ₹1 lakh?

Vina: That calculation I am yet to do. What’s so special about this ₹1 lakh limit?

Tina: The extension in return filing date does not apply to those who have an unpaid tax liability of more than ₹1 lakh.

Unpaid tax liability here implies one’s tax liability in a year, reduced by advance tax instalments paid, any tax collected or deducted at source, any relief of tax allowed under sections 89, 90, 90 A or 91, or any alternate minimum tax credit allowed to be set off under the IT Act.

Thus, the due date of filing returns for whom the unpaid tax liability exceeds ₹1 lakh, is still July 31, 2021.

Interest at the rate of one per cent per month is levied on your unpaid tax amount, under section 234 A of the Act if tax returns are not filed by the due dates.

Vina: What? So, by not furnishing returns by July 31, 2021, I am liable to pay interest at the rate of one per cent on my tax liability for every month since July 31?

Tina : Yes. But if you have outstanding tax of less than ₹1 lakh, this provision will not be applicable.

Vina: Let me hurry up and check where I stand.

Tina : But wait… Whether your return filing date is July 31 or December 31 this year, you also need to check if interest under sections 234 B and 234 C are applicable.

Vina: Oh, what do these ask for ? More tax, am sure!

Tina : You are partly right. If your tax liability after TDS in any financial year amounts to ₹10,000 or more, then you need to pay advance tax in four instalments during the course of the financial year itself.

Vina: And, if I’ve completely missed this…what happens?

Tina: You will be required to pay interest on any shortfall in advance tax payments under section 234 B and 234C of the Income Tax Act, at the rate of one per cent per month (under each section), for every month of delay.

So, if you file your returns anytime until December 31 due to extension of the deadline (even if your dues are within ₹1 lakh) and decide to pay all the taxes due when filing the return only, the charges under 234 B and C will go up.

While interest is levied under section 234 C for defaults or delays in quarterly payments of advance tax, section 234 B applies when the tax payer has not paid at least 90 per cent of the tax for any financial year as advance tax by April 1 of the following year.

Vina: That’s a lot of insight Tina. Thank you very much for enlightening me. Will go and file my returns ASAP!

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How does grandfathering of capital gains apply in case of corporate actions

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My question pertains to the applicability of grandfathering of capital gains in the case of corporate actions such as demergers and amalgamations. Let me illustrate with an example: I bought 100 shares of Company A in September 2016. In February of 2019, a scheme of demerger was approved by shareholders that entitled them to an equal number of shares in Company B (100 in this instant case; shares listed on the exchange in November 2019). I sell shares of both companies in October 2020. What should I reckon to be grandfathered price as on Jan 31, 2018, for both Company A and B to crystallise my capital gains liability? Please also confirm that the holding duration for both companies will be reckoned from the date of the original purchase, which is September 2016, and hence tax rate applicable in the case of Company B will also be LTCG.

Girish Balakrishnan

The following comments are based on assumption that the shares of company A are equity shares & listed in a recognised stock exchange in India.

As per the provisions of Section 112A of the Act, Long term capital gain (LTCG) on sale of STT paid equity shares exceeding ₹1 lakh shall be taxable at the rate of 10 per cent. Further, surcharge (if any) and health & education cess at 4 per cent shall apply. For the purpose of computing LTCG/LTCL, in cases where the asset is acquired before the 1st day of February, 2018, the cost of acquisition, shall be the higher of the following, as defined in Section 55(2)(ac) of the Act:

· actual cost of acquisition; or

· lower of (i) fair market value (FMV) of such share on 31 January 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

The term FMV, in the context of equity shares, has been defined in section 55(2)(ac) of the Act, as follows:

· In case the equity share is listed on any recognized stock exchange, the highest price quoted on such stock exchange as on January 31, 2018;

· Where the equity share, is not listed as on January 31, 2018 but is subsequently listed on the date of the transfer, an amount which bears to the cost of acquisition the same proportion as the CII for the financial year 2017-18 bears to the CII in which the asset was held by the tax payer or for the financial year 2001-02, whichever is later.

On a literal interpretation of the wordings in section 55(2)(ac) of the Act, one may find it difficult to contend that the equity shares in B Ltd have been acquired prior to February 1, 2018. Hence, technically, the grandfathering benefits may not be available in case of the equity shares in B Ltd.

Given the above, one could argue that the FMV of the equity shares in A Ltd as on January 31, 2018 should be adopted for determining the proportionate FMV of the shares in A Ltd and B Ltd. However, adopting the grandfathering benefits for shares in B Ltd is not free from litigation.

The writer is Partner, Deloitte India

Send your queries to taxtalk@thehindu.co.in

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Finance Minister Nirmala Sitharaman lays foundation for Income Tax office building, BFSI News, ET BFSI

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Union Finance Minister Nirmala Sitharaman on Sunday laid the foundation for the office building of the Income Tax Department in Bengaluru, which officials said, would be one of its kind, oriented to harness maximum natural lighting and GRIHA rating IV compliant. The building has provision for solar panels for power generation and a Rain Water Harvesting system, they said.

Recycled water will be used for gardening and dual plumbing. The Central Air Cleaning system will be equipped with magnetic filter and UV-Ray Sterilization, officials said, adding the building will be constructed by the Bengaluru Project Circle of the Central Public Works Department.

The officials said the state-of-the art building will comprise an exclusive public relations office to address grievances on priority and a waiting lounge for tax payers.

It also houses Aaykar Seva Kendra for providing hassle free taxpayer services. This centrally located office building is taxpayer friendly. Design and space allocation of the building provides congenial working environment for officers and staff of Income Tax Department, they said.

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Is it mandatory to file income tax returns, by only referring to Form 26AS?

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What head of income is the compensation received on compulsory acquisition of a house with plot taxable under? Or is it exempt?

Rajan NA

Section 45(5) of the Income Tax Act, 1961 (the Act) deals with taxability of capital gains pursuant to compulsory acquisition of capital asset under any law. A house with plot is a capital asset and gains arising due to compulsory acquisition shall be taxed under the head ‘Capital Gain’. Depending on the period of holding the capital gains may have to be categorized as long-term or short-term .

The query is related to tax deducted at source. Is it mandatory to file income tax returns, by only referring to Form 26AS? I am yet to receive Form 16/16a from the deductor. In another case Form 26AS doesn’t reflect amounts appropriately, partly they have allowed partly they have not given credit. I request you to please clarify what can be claimed as tax paid now, in ITR?

Sivalingam

Income earned during the financial year needs to be offered to tax while filing the tax return in India. An individual is required to collate details of all income earned during the financial year, like salary income, rental income, interest income, etc. and consider the same for tax filing, regardless of whether there has been tax deduction on such income. It may be noted that the details reflected in the Form 26AS are based on the withholding tax returns filed by tax deductor. It is important to reconcile the income and taxes reported in Form 26AS before filing the tax return. The central processing unit (CPC) checks the accuracy of the amounts offered in the tax return by comparing it with 26AS and raises queries in case of discrepancies. Therefore, in case of any difference in the amount, you are required to connect with the deductor so that necessary corrective action can be undertaken which should then reflect in Form 26AS.

The writer is Partner, Deloitte India

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Hold crypto assets? Here’s how you are going to pay income-tax on it, BFSI News, ET BFSI

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A cryptocurrency is a decentralised digital asset and a medium of exchange. Bitcoin was the world’s first crypto currency launched in 2009. It was created by a software developer under the pseudonym Satoshi Nakamoto. Based on blockchain technology, over 1,500 virtual currencies such as Litecoin, Ripple, Ethereum and Dogecoin are being actively used and traded globally today.

The cryptocurrency space in India has been subject to significant regulatory challenges. It started with a circular issued by the Reserve Bank of India on 6th April 2018, which restricted banking facilities from being offered to participants involved in cryptocurrency transactions. In March 2020, the Supreme Court set aside the RBI circular, on constitutional grounds and affirmed the virtual currency exchanges’ fundamental right to trade. It is estimated that around 5 million traders in India traded across 24 exchanges, with trading volumes in the range of 1,500 Bitcoins a day translating to a volume of Rs 1 billion. According to moneycontrol.com, the trading volume of cryptocurrency in India increased by 400 percent during the nationwide lockdown.

On 24th March, 2021, in what could possibly mark the first move by the government to regulate cryptocurrencies and related transactions in India, the Ministry of Corporate Affairs has made it mandatory for companies dealing with virtual currencies to disclose profit or loss incurred on crypto transactions and the amount of crypto currency they hold in their balance sheets at the reporting date. These amendments were made in schedule III of the Companies Act with effect from April 1, 2021.

The Indian income tax law is still unclear regarding the tax impact on the gains earned from cryptocurrencies. It is worthwhile to note that India’s tax authorities have not yet categorized returns from cryptocurrencies under any specific bracket and there have been no judicial precedents in this regard.

To understand the taxability of the cryptocurrencies, one should examine the classification of cryptocurrency i.e. is it currency or goods/property?

How are tax cryptocurrency transactions in other countries?
USA: The Internal Revenue Service in 2014 decided cryptocurrencies should be treated as “property”, meaning they should be taxed as capital assets other than in situations when cryptos are earned from mining activities.

Singapore: Businesses that trade virtual currencies in the course of their business are taxed on profits as business income. Entities holding cryptocurrencies for long-term investment purposes are not taxed as there is no capital gains tax in Singapore.

UK: If a person buys and sells crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade, then it will be taxed as trading profit/losses, else it will be subject to capital gains tax.

Taxation of cryptocurrency transactions in India
If cryptocurrency is to be classified as currency, then the said transaction will not be exigible to taxation under the Income Tax Act, 1961 (“ITA”). Cryptocurrencies are not recognized as currency by the RBI and the word ‘income’ as defined under section 2(24) of the ITA provides an inclusive list not covering ‘money’ or ‘currency’. On the other hand, if cryptocurrency is considered as property/goods, then it would fall under the heads of either ‘Capital Gains’ or ‘Profit and Gains from Business or Profession’.

The fact that crypto currency gains will be taxed is now certain with the Minister of State for Finance, Mr. Anurag Singh Thakur clarifying on 28th March 2021 that “the gains resulting from the transfer of cryptocurrencies / assets are subject to tax under a head of income, depending upon the nature of holding of the same”.

Thus, it is settled that cryptocurrencies will not be treated as currency by India and will be exigible to tax. The key issue is whether income from virtual currency is treated as capital gains or business income. If a seller is a trader by occupation, the income should be taxed as business income. If it is not business income, such income would be taxed in the nature of capital gains.

Taxability under ‘Capital Gains’
Crypto currency can be deemed to be a capital asset if it is purchased for the purpose of investment by a taxpayer. As per Section 2(14) of the ITA, a capital asset means a property of any kind held by a person, whether or not connected with his business or profession. The term ‘property’, though has no statutory meaning, yet it signifies every possible interest which a person can acquire, hold or enjoy. Therefore, any gain arising out of the transfer of cryptocurrency may be considered as capital gains, if it is held for investment.

Infrequent crypto transactions could be treated as long or short-term capital gains, depending on the holding period. If investors hold cryptocurrencies for 36 months or more, the gains would be taxable as long-term capital gains, and if less than 36 months, it would be short-term capital gains. Short-term capital gains are taxable as per the slab rates applicable to a taxpayer. And long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation.

Taxability under ‘Profit and Gains from Business or Profession’:
However, if the transactions are substantial and frequent, it could be held that the taxpayer is trading in cryptocurrencies and any profits thereon would be taxable as business income. Similarly, if cryptocurrencies are held as ‘stock in trade’, then income arising therefrom will attract tax under business income. Therefore, the continuous activity of trading in cryptocurrencies and profits realized will be taxable as business income. Although a position can be taken by the revenue authorities that such trading is treated as speculation income which would adversely impact taxpayers.

In conclusion, virtual currencies can boost India’s digital infrastructure and reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance. We still need clarity from the government on cryptocurrency taxation, particularly on issues such as treatment of capital gains or business income, classification as speculative income, allowability of set-off, and carry-forward of losses, and applicability of deemed gift tax provisions.

(The author, Harsh Bhuta, is a Partner at Bhuta Shah and Co LLP. The views are his own)



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IndusInd Bank empanelled as agency bank to RBI

Banking & Finance

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Private sector lender IndusInd Bank has been empanelled by the Reserve Bank of India (RBI) as an ‘Agency Bank’ to facilitate transactions related to government businesses.

It can now be authorised to handle transactions related to government businesses such as income tax, indirect taxes and goods and services tax payments, pension payments, work related to small savings schemes, collection of stamp duty charges, collection of stamp duty from citizens for franking of documents and also collection of State taxes such as professional tax, value-added tax and State excise duties.

“Given IndusInd Bank’s exclusive suite of services comprising innovative and cost-effective solutions, coupled with our state-of-the-art technology platforms, we are confident of being a ‘partner of choice’ for the government, its enterprises, as well as stakeholders in fulfilling their financial aspirations in a seamless manner,” said Soumitra Sen, Head – Consumer Bank, IndusInd Bank.

Also read: IndusInd Bank net profit surges 111.7% in Q1

Finance Minister Nirmala Sitharaman had on February 24 this year announced that the embargo on grant of government business to private banks has been lifted.

The RBI had then notified guidelines for the appointment of scheduled private sector banks as agency banks.

This was seen as a significant benefit for mid and small-sized private sector lenders as earlier only the three large private sector banks apart from public sector banks were permitted to do government business such as deposits, public provident fund and Sukanya Samriddhi accounts, tax payments and pension payments, amongst other initiatives.

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Tax Query: Setting off capital losses in delisted shares

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Kindly guide whether there is any method by which capital loss under Income Tax provisions can be set off against the shares which get delisted and are not traded, or have become unmarketable? Please also guide about the tax treatment on equity shares where capital reduction has been effected.

E Madhavan NairAs per the provisions of Section 71 of the Income-tax Act, 1961 (‘the Act’), losses under the head of capital gains can be set-off against income under the head of capital gains only. Further, as per the provisions of Section 70 of Act, Short-Term Capital Loss can be set-off against Long-Term or Short-Term Capital Gain. However, Long-Term Capital Loss can be set-off only against Long-Term Capital Gains. Holding period of capital asset determines the nature of Capital Assets viz. a Long-Term Capital Asset or a Short-Term Capital Asset. As per the provisions of the Act, assets in the nature of unlisted equity share would qualify as Long-Term Capital Asset, if at the time of selling, the same has been held for a period of 24 months or more. Otherwise, the same would qualify as Short-Term Capital Asset. In order to answer the query, additional facts and clarity would be required. However, in the instant case, if the subject Capital Loss is Short-Term in nature (to be ascertained based on the period of holding and nature of the asset), such loss can be set off against Short-Term / Long- Term Capital Gain arising from any other capital asset. However, if such loss is Long-Term in nature, the same can be set off against Long-Term Capital Gain arising from any other capital asset. In case of a Capital Reduction, if the shareholders receive any payout the tax treatment as per the provisions of the Act would be twofold as mentioned below:

Taxability as Dividend: As per the provisions of section 2(22)(d), distribution by company on capital reduction (to the extent attributable to its accumulated profits), shall be considered as deemed dividend. It is also important to note that as per the amendments made by Finance Act 2020, companies are no longer required to pay dividend distribution tax. Dividend income is taxable in the hands of the shareholder at applicable slab rates. The payor company would be required to deduct Taxes at Source (TDS) on such dividend under section 194 of the Act at 10 per cent, for dividends paid in cash. For dividends paid via any mode other than cash, TDS shall be required, if aggregate payment exceeds ₹5,000. Taxability as Capital Gain / Loss: Taxation for distribution of profits (over and above accumulated profits) has been a matter of debate. There are judicial precedents which suggest that such distributions shall be regarded as transfer and would result in Capital Gain / Loss in the hands of the shareholder.

The writer is a practising chartered accountant

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Simply Put: New tax regime

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A phone call between two friends leads to a conversation on the new tax regime that one can choose while filing income tax returns starting from assessment year 21-22.

Akhila: Hi. How are you placed this weekend?

Karthik: Planning to do some online reading on income tax return filing.

Akhila: Good. Do you know that you can choose to go with either the old or the new tax regime?

Karthik: Yeah. When I glanced at the ITR form, I found a question saying ‘are you opting for new tax regime u/s 115BAC?’ Do you have any idea on what to opt for?

Akhila: If you choose to continue with the existing tax regime, your income – after the benefit of deductions and exemptions – will be taxed at the applicable existing tax rate. While under the new tax regime, your income will be taxed at lower tax rates but without the benefit of most deductions and exemptions.

Karthik: Lower tax rates! Tell me how much lower compared to the old tax regime?

Akhila: Under the old regime, there were only four income slabs. But under the new regime, there are seven. Earlier, income between ₹5 lakh and ₹10 lakh attracted 20 per cent tax. Under the new tax regime, income slabs of ₹5 lakh to ₹7.5 lakh and more than ₹7.5 lakh to ₹10 lakh attract 10 per cent and 15 per cent tax respectively.

Similarly, earlier, income of more than ten lakh was taxed at 30 per cent. You can choose the new tax regime under which an income of ₹10 lakh to ₹12.5 lakh is taxed at 20 per cent, ₹12.5 lakh to ₹15 lakh at 25 per cent and only above ₹15 lakh at 30 per cent.

Karthik: I think I will go for the new tax regime.

Akhila: Don’t get too excited. You have to do some number crunching to decide what suits you best.

Karthik: Ok, tell me what benefits will I forego if I go for the new tax regime?

Akhila: A lot. The popular Section 80C deductions such as investments in provident fund, national pension scheme, expenses towards life insurance premium and home loan principal repayment; section 80D deductions for medical insurance premium; Section 24 deduction for interest paid on housing loan; and exemption of House Rent Allowance or HRA are some of them. Standard deduction and professional tax deduction available for salaried employees along with tax benefits on leave travel allowance (LTA) are others.

Karthik: Whoa!

Akhila: What is more beneficial – old or new tax regime – depends on a case-to-case basis. So, do your homework.

Karthik: I think I have a bigger task this year. Thanks.

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Tax Query: Treatment of ‘bullock rent’ income

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I got retired from a PSU in May 2020. My earnings for FY2020-21 comprise regular salary for April 2020 and May 2020, retirement benefits (including leave encashment), regular pension from June 2020, interest income on fixed deposits, dividend income from shares and income from house property (two houses; availed housing loans and paying EMIs). Can you please advise which income tax form should I submit for AY 2021-22?

Bhaskaran S

Based on the details provided, your income includes salary, house property (2 houses with housing loan), and income from other sources. Hence, you need to file your return for FY 2020-21 using form ITR 2.

We rent our bullock for tilling the land. Although there is no service tax for the activity, could the income from be treated as business income / non agricultural income? What could be the form to be submitted before June?

Chandrasekaran

If the principal source of income is renting of bullock used for tilling the land, the same qualifies to be business income and accordingly, ‘ITR-3’ is the tax return form that needs to be used for filing the return of income.

The writer is Partner, Deloitte India

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Tax Query: How much money can father send to son working abroad?

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I am working with The Ramco Cements Limited. I am also an employee of a firm and I pay/ file my annual tax returns. My son is working in the US. How much amount can I send to him every year out of my annual savings? How does it affect him in terms of tax returns there?

Ravi Shankar

As per the provisions of Foreign Exchange Management Act, 1999 (‘FEMA’), under the Liberalised Remittance Scheme (LRS), all resident individuals are allowed to freely remit up to USD 250,000 per financial year (April-March) for permissible transactions under LRS.

Remittances outside India in the nature of gifts or for maintenance of close relatives abroad are permitted transactions under the LRS.

Hence, you may remit up to USD 250,000 under LRS for such purpose to your son who is living outside India. As per provisions of section 56 (2)(x) of the Income-tax Act, 1961 (‘the Act’) income tax is payable on any sum of money (if aggregate value exceeds ₹50,000) received by an individual without consideration.

However, any receipts from specified relatives (includes lineal ascendant or descendant of the individual) or on specified occasions such as marriage and inheritance would not be considered as taxable. Hence, a gift of money to your son will not be subject to tax in the hands of your son in India.

In relation to your US tax query, I am not a subject matter expert of US tax laws and therefore would not comment on the same.

Axis Direct has a reporting system for dividends paid. In that, dividend amounts are shown in March 2021 based on declaration date whereas the actual credit is made to savings bank account in April 2021. Please clarify for income tax purpose what should be considered. Is the dividend amount to be shown in the financial year of month in which declared or in the financial year based on the credit in bank account? Also, which is the document considered by the Income Tax department?

S R Subramani

As per the provisions of section 8 of the of the Income-tax Act, 1961 (‘the Act’) along with related clarifications provided by Income-tax Department (via tutorial uploaded in Income-tax website), final dividend, which is chargeable under the head Income from Other Sources, should be considered as taxable in the year in which it is declared, distributed or paid, whichever is earlier.

In the instant case, I understand that the subject dividend was declared in March 2021 (i.e. FY 2020-21) and was subsequently paid in April 2021 (i.e. FY 2021-22). As such, the dividend would be required to be offered to tax in the year in which it is declared i.e. FY 2020-21.

Further, it may be noted that at the time of filing of your income tax return, you are not required to submit any proofs / documents. However, the same should be kept on records for the purpose of assessment / revenue audit, if any. In that case, the dividend report can be submitted with the authorities.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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