Sunday, August 30, 2009

DIRECT TAXES CODE 2009 : AT A GALANCE

DIRECT TAXES CODE 2009 : AT A GALANCECA - CA. Naresh Jakhotia

- Tax law in simple and easy to understand language.
- The new Income Taxes Code to be applicable from 1st April, 2011.
- Personal Income tax rates slashed substantially. o Upto 10 lacs (less existing basic exemption limit) : 10% o Next 15 lacs : 20% o Over 25 lacs : 30%
- All Companies to pay tax @ 25%.
- MAT @ 2% of gross assets. Even loss making companies to pay MAT.
- No provision for MAT credit.
- Dividend distribution tax to continue @ 15% of divided.
- Foreign companies also to pay 15% of branch profit tax.
- Firms to continue to pay tax @ 30%.
- No cess or surcharge in any case.
- Agricultural income continues to be included in taxable income only for rate purposes.
- Wealth tax exemption limit raised to 50 crores. To include financial assets like shares.
- Limit of savings increased from 1 lac to 3 lacs.
- Savings to be taxed at the time of maturity under the EET system. Savings before 1-4-2011 not taxable.
- Law made stricter for defaulters and non-filers.
- The new law to apply in place of existing direct tax avoidance agreements with other countries.
- Losses allowed to be carried forward indefinitely.
- TDS to be deposited in the year of deduction. For last quarter, TDS can be deposited till due date of filing ITR. If TDS not deposited within 2 years from end of year of deduction, Expenditure shall be disallowed.
- TDS rates reduced in some cases like payment to contractors and rent of machinery to 1%.
- Due dates of filing income tax returns :o Companies and other audit cases : Aug. 31o Others : June 30
- Revised return or belated return can be filed within 21 months from the end of the financial year.
- Valuation of perquisites like rent free accommodation to be same in case of all employees whether in government or private sector.
- Gratuity to be exempt only if invested in a retirement fund.
- No deduction of interest upto Rs. 1.50 lacs for self occupied properties.
- Standard deduction from Gross Income from house property reduced from 30% to 20%.
- No distinction between short term and long term capital gains. All capital gains to be taxed at normal rates.
- 2000 to be base year for indexation in case of capital gains.
- Security Transaction Tax to be abolished.
- Exemptions u/s 54 etc. from capital gains abolished.
- For business, profit linked incentives removed. Only revenue and capital expenditure shall be allowed to be amortised. The remaining profit shall be taxable.
- Area based incentives also removed. Existing business concerns not affected.
- Limit of turnover for presumptive taxation raised to 1 cr.
- Sources of income will have folowing names. A. Income from employmentB.Income from house propertyC. Income from businessD. Capital gainsE. Income from residuary sources.
- Key proposals for businesses:- Taxation of all non profit organisations rationalized- Profits of non-life insurance biz to be disclosed annually- Govt. may enter overseas agreements for double taxation avoidance- No tax deduction on interest payable to banking cos, insurers

TAX TALK- 31.08.2009-THE HITAVADA

TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)


“DEDUCTION TOWARDS REIMBURSEMENT OF MEDICAL EXPENDTIURE …..”

Query 1]
Sir, We are a private limited company. We are paying salary to employees in the break up of Basic, HRA, Conveyance & Medical allowance.I want to ask is any deduction available in respect of medical allowances (paid as salary)or entire amount of medical allowance is taxable? What about the taxability of other items like HRA, Conveyance, and Basic? [dineshsinghgaharwar@rediffmail.com]
Opinion:
1. Medical Allowance: a) Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable as “Income From Salary”. b) Fixed Medical allowance is taxable in the hand of employee. It is not plainly exempt from income tax even if it is actually expended for medical treatment by the employee.
2. House Rent Allowance (HRA): In respect of HRA, the least of the following is exempt from tax u/s 10(13A):(a) 40% of salary (50% for Mumbai, Kolkata, Delhi and Chennai).(b) HRA for the period the house is occupied by the employee.(c) The excess of rent paid over 10% of salary. However, an employee living in his own house or where he does not pay any rent is not eligible for this exemption.
3. Conveyance Allowance: Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit is fully exempt from tax u/s. 10(14) read with Rule 2BB (1)(c). However, transport allowance for commuting between residence and place of duty is exempt up to Rs 800/- per month.
4. Basic:
It is taxable.
Query 2]
I shall be thankful if I am enlightened on the following points:
1. I have learned through bank sources that interest earned on recurring deposit with bank and on saving deposit are not taxable. Quarterly or Monthly interest on bank FDR if put in recurring deposit which will also earn interest further is also not taxable. If this is true, please quote the relevant clause of exemption.
2. How long do we need to keep our investment records after filling IT returns? Please reply [ ideepakarora@gmail.com ]
Opinion:
1. Interest income from bank FDR, Interest on R.D. A/c with banks, Interest on saving bank deposit is taxable. Also, interest on bank FDR invested in bank RD A/c is taxable. The further income by way of interest on R.D A/c is also taxable.
2. In normal course, the record for investment/ income should be kept for a minimum period of six years.


Query 3]
I am working for State Government PSU. I have received medical reimbursement of Rs. 2,00,000/- for my angioplasty from my office. As per exiting rules of our office, medical reimbursement above Rs 15,000/- is taxable. I have learnt that there is exemption in Income tax for complete amount in case of special diseases u/s 80DDB. Please clarify and give details. [Sachin Date]
Opinion:
1. Only reimbursement of medical expenses up to Rs. 15,000/- is exempt from income tax. Amount received over and above Rs. 15,000/- is taxable as “Income From Salary”.
2. Deduction u/s 80DDB :The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under: 11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or ailments : (i) Neurological Diseases where the disability level has been certified to be of 40% and above,— (a) Dementia ; (b) Dystonia Musculorum Deformans ; (c) Motor Neuron Disease ; (d) Ataxia ; (e) Chorea ; (f) Hemiballismus ; (g) Aphasia ; (h) Parkinsons Disease ; (ii) Malignant Cancers; (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ; (iv) Chronic Renal failure ; (v) Hematological disorders : (i) Hemophilia ; (ii) Thalassaemia.
The angioplasty treatment undergone by you does not appear to fit into the diseases and ailments mentioned in the said Rule. You will, therefore, not be able to claim deduction in respect of the expenditure on medicines incurred. Query 4]
A gift (Immoveable Property) is given by Mother in law to her daughter jointly with Son in law. In such case whether Son in law can be treated as "Relative" under IT Act ? And hence 50% value of the property attributable to him will not be treated as income. Please clarify. [AVR]
Opinion:
Son-in-law is a “Relative” for the purpose of section 56(2) (vi) of the Income Tax Act-1961. Hence gift to son-in-law is law is not treated as income of the receiver.
Further, presently gift in kind (like property, jewellery etc) is outside the purview of section 56(2)(vi). However, the provision is amended by the recent union budget to treat gift in kind as income u/s 56 with effect from 01.10.2009.

Saturday, August 29, 2009

DO THE THANKLESS JOB & GET PROSECUTION AS A REWARD- T.D.S.

DO THE THANKLESS JOB & GET PROSECUTION AS A REWARD

Call it a T.D.S or a TEDIOUS. It’s tantamount to one and the same thing. Perhaps, no one can breathe comfortably (Exclude I.T. department) if one goes through the recent ruling of the Honorable Apex court. What a thankless job an assessee is doing for the Government? What is the reward an assessee is getting when it is working as an agent of the Government? All the more, what is the consequence that follows if a minor failure is committed by the assessee? A judgment with a far reaching effect was very recently delivered by the Honorable Supreme court in Madhumilan Syntex limited case wherein it is held that prosecution can be done for delay in depositing the T.D.S

BRIEF HISTORY OF THE CASE:
The amount involved in this case was a little more than Rs 1 lacs & relates to the year 1989. The company had deposited the T.D.S along with interest into the Government treasury after a delay of two-day, yet the AO (Assessing Officer) issued a show cause notice to the company alleging that there was failure to credit TDS to the Central Government as required by the Income-Tax Act. This was an offence punishable under Section 276B & 278B of the Act, he said.
Though the assessee had reasonable cause for not remitting the taxes within the stipulated period, the Commissioner of Income tax (CIT) granted sanction to prosecute the assessee and its directors.
It was pleaded by the assessee that there was delay in receiving loan from the bank, due to which TDS could not be paid in time. Also, that because of construction of a unit by the company, there was shortage of liquid funds and hence the payment could not be made by the due date.

SUPREME COURT VERDICT:
On reference to the Supreme Court, it was held that once a statute requires payment of tax and stipulates the period within which such payment is to be made, the payment must be made within that period. If the payment is not made within the specified period, it amounts to default and appropriate action can be taken under the Act. Failure on part of the company in depositing the taxes is an offence, which is punishable under the Income Tax Act.
The further ruling said that the imposition of a penalty for non-deduction of tax does not take away the power to prosecute accused persons if an offence has been committed by them. If a civil suit is pending against the assessee, an appropriate order will be passed by the competent Court in such an event. That, however, does not mean that if the accused have committed any offence, the jurisdiction of criminal court would not be applicable to the situation. Both the proceedings are separate and independent and one cannot abate or defeat the other in such a scenario.
Although the company is merely a “legal” or “juristic” person and not a natural person, prosecution under the Act would still apply as “corporate criminal liability” is not unknown to law. Further, the Supreme Court observed that to hold a person responsible under the Act, it must be shown that he/she is a “principal officer” or is “in charge of” and “responsible for” the business of the company or firm.
Also, no separate notice and/or communication is required to be served on the directors treated as the principal officers, if the notice served on the company indicated that the directors are the principal officers of the company. Therefore, the sanction to prosecute granted by the CIT cannot be held to be illegal or unlawful.

CONCLUSION:
It’s not only an absolute failure to deposit T.D.S that attracts prosecution penalty. A mere delay in deposit of T.D.S would equally attract prosecution. No matter how much is the delay in payment of T.D.S. Forget the quantum of amount involved. Ignore the good intention & past track record. Leave apart the reasonableness for non-payment of T.D.S. Mobilize the fund by whatsoever way but Pay T.D.S WITHIN TIME. Now one needs to be extra careful and comply with the provisions relating to T.D.S.

Thursday, August 20, 2009

TAX TALK- 10.08.2009-THE HITAVADA

TAX TALK- 10.08.2009-THE HITAVADA
TAX TALKBY CA. NARESH JAKHOTIA
(Chartered Accountant)


“NON RECEIPT OF T.D.S CERTIFICATE …………..”


Query 1]Sir, we are working with a PSU. Kindly clarify whether group insurance compensation received from insurance company by staff is exempt from income tax or not?
[N. Subramanian]
Opinion:
1. Insurance compensation received under a group insurance scheme is not taxable in the hands of employee since it is a capital receipt.2. Further, if a person receives ex-gratia payment from the Central Government/ State Government/ Local Authorities/ or a Public Sector unit, consequent upon the injury to the person while on duty, such ex- gratia payment will not be liable to income tax. [Circular No. 776 dated 08.06.1999]

Query 2]
Sir, Kindly let me know whether deductee can claim credit when deductor did not issue or refused to issue Certificate for the Tax Deducted at Source. Is it not binding on the part of deductor to issue TDS Certificate? What steps can deductee take in such case?
[Vilas M. Chandorkar]
Opinion:
Firstly it may be noted that as per the provision of sub-section (1) of section 203 of the Income Tax Act, 1961 deductor of tax at source (T.D.S) is duty bound to issue a TDS certificate within the prescribed time period to the person whose tax has been deducted. The time limit for issue of T.D.S in most of the cases is one month from the end of the month in which the T.D.S is done by the payer of income [Rule 31(3) of the Income Tax Rules, 1962].Furthermore, Circular : No. 785, dated 24-11-1999 issued by the Central Board of Direct Taxes (C.B.D.T) makes it mandatory to issue of certificate for tax deduction at source (T.D.S.) under section 203 in all cases where tax is deducted at source, including cases where payments are made ‘net of tax’ in terms of section 195A.Section 272A(2g) provides for levy of penalty @ Rs 100 per day for the period of delay if any persons fails to comply with the provision of section 203. So, a person who has deducted tax at source should ensure the issue of T.D.S certificate within the prescribed time period to avoid the penalty leviable u/s 272A(2g).In your case, we are of the opinion that you can undertake following measures to ensure legal compliance from your side: -Make a written communication clearly mentioning the above provisions of law and delays in number of days.If still payer do not respond and do not issue the T.D.S. certificate, communicate it to the respective C.I.T. (T.D.S. section) stating the facts of the case and praying for issue of direction to the payer for issuance of certificate.Even if you don’t get the T.D.S Certificate, claim T.D.S. in your income tax return by attaching the copies of letter written to the payer of income and C.I.T. (T.D.S. section).



Query 3]
My queries are:
1. Can a house or Flat be registered in joint names i.e., husband & wife name?
2. Can a loan be applied in joint names & interest rebate can be claimed?
3. Suppose we book for new flat/ house today in joint names by taking loan from bank , then at a later date can the sale proceeds of already owned plot/flat (in either of us name) be re-invested in the new property for claiming capital gain tax? If so, how to go about it?Kindly explain in detail more about joint acquisition of house property
[R. Srinivasan, Bhilai]
Opinion:
1. House / Flat can be purchased in joint names.2. If a house/ flat is purchased in joint name, both husband and wife can have the income tax benefit in respect of interest / principal repayment of housing loan. The deduction shall be available in the ratio in which the loan is availed. Also, the deduction u/s 80C towards registration expenses etc shall also be available in the ratio of property ownership.3. If you sell already owned plot with a holding period of more than 3 years, then you can claim an exemption from long term capital gain U/s 54F. For Flat with holding period of more than 3 years, exemption from LTCG is available u/s 54.4. There are various other stipulations that need to be complied with for valid claim of exemption from LTCG U/s 54 or u/s 54F.

Exemption u/s 54:

The main stipulations incorporated in section 54 are as under: -a) The capital gain should arise from the transfer of long-term capital assets being buildings or lands appurtenant thereto, being a residential house.b) The income from such residential house should have been assessable under the head ‘Income from House Property’.c) Benefit of exemption u/s 54 is available only to an Individual or HUF.d) The transferor must purchase a residential house within a period of one year before or two years after the date of transfer; or, in the alternative, the assessee must constructed a residential house within a period of three years from the date of the transfer of the original house.e) The amount invested in the purchase or construction of new residential house should either be equal to or more than the gain, or where it is less than the amount of capital gain, the shortfall shall be taxable under section 45 of the Act.


Exemption u/s 54F

The main stipulations incorporated in section 54F are as under: -1. Benefit of exemption u/s 54F is available only to an Individual or HUF.2. Exemption is available only if the long term capital gain arises from the transfer of any capital asset other than a residential house property. If the asset transferred is a residential house property then an assessee can claim an exemption u/s 54 (and not u/s 54F).3. The assessee does not within a period of 2 years purchase or 3 years construct any residential house other than the new house.4. The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.5. The quantum of exemption amount will be worked out on the following basis:a] If the amount invested is more than or equal to the net consideration then the entire capital gain. b] If the amount invested is less than the net consideration, then the amount invested x capital gain/net consideration.