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Category: Income Tax

  • Key Changes in the Income Tax Return Forms for Assessment Year 2024-2025

    Key Changes in the Income Tax Return Forms for Assessment Year 2024-2025

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    Introduction

    With the tax return filing season for financial year 2023-24 all set to begin, it is good to understand the various changes made in the tax return forms. The Assessment Year 2024-2025 brings with it several significant changes in the Income Tax Return (ITR) forms.

    These modifications are aimed at simplifying the tax filing process and ensuring better compliance.

    In this blog post, we will explore the crucial updates introduced in the ITR forms for the upcoming assessment year.

    Changes in Income tax return forms for AY 2024-25

    1. The new tax regime is the default tax regime; taxpayers must opt out to use the old regime

    [ITR 1, 2, 3, 4, and 5]

    The Finance Act 2023 has made the new tax regime under Section 115BAC the default for individuals, HUFs, AOPs, BOIs, and AJPs. Taxpayers who prefer the old regime must explicitly opt out of the new one in their tax return. Those with business income need to file Form 10-IEA by the due date if they wish to switch to the old regime.

    2. Disclosure of the sum payable to MSME beyond the prescribed time limit

    [ITR 3, 5, and 6]

    The Finance Act 2023 added a new clause (h) in Section 43B, stating that any sum payable to a micro or small enterprise beyond the time limit specified in the MSME Act will not be allowed as a deduction. New ITR forms require the disclosure of such sums.

    3. Assessee recognized as MSME and Disclosure of the sum payable to MSME beyond the prescribed time limit

    [ITR 5 and 6]

    The new ITR-5 mandates that an assessee should furnish information regarding its recognition status as a Micro, Small, and Medium Enterprise (MSME). It is also required to provide the registration number allotted as per the Micro, Small and Medium Enterprises Development Act, 2006. Additionally, the Finance Act 2023 added a new clause (h) in Section 43B, stating that any sum payable to a micro or small enterprise beyond the time limit specified in the MSME Act will not be allowed as a deduction. New ITR forms require the disclosure of such sums.

    4. Reporting of all banks held at any time

    [ITR 2, 3, and 5]

    Taxpayers must now disclose all bank accounts held at any time, except dormant accounts, in the new ITR forms.

    5. Details of Legal Entity Identifier (LEI)

    [ITR 2, 3, 5, and 6]

    The LEI is a 20-character code used to uniquely identify parties in financial transactions globally. The RBI mandates that any single payment transaction of INR 50 crores and above must include LEI information for both the sender and receiver. The new ITR forms now require taxpayers to provide their LEI details if they seek a refund of INR 50 crores or more.

    6. Furnishing of due date for filing of return

    [ITR 3, 5, and 6]

    A new column in ITR forms now asks taxpayers to select the applicable due date for filing their return. The options available are July 31st, October 31st, or November 30th.

    7. Individuals/HUFs liable for audit can verify ITR using EVC

    [ITR 3]

    Rule 12 has been updated to allow individuals and HUFs required to undergo tax audits under Section 44AB to verify their income tax returns using an electronic verification code (EVC), instead of only through a digital signature.

    8. Furnishing of the reason for tax audit under Section 44AB

    [ITR 3, 5, and 6]

    New ITR-3 forms ask for additional details from taxpayers subject to audit under Section 44AB. These include the reasons for the audit, such as exceeding sales/turnover limits or not opting for presumptive taxation under Sections 44AD/44ADA/44AE.

    9. Furnishing of acknowledgment number of the Audit Report and UDIN

    [ITR 3, 5, and 6]

    Taxpayers must provide the acknowledgment number and Unique Document Identification Number (UDIN) when reporting audits conducted under Section 44AB, including those under Section 92E.

    10. “Receipts in Cash” column added to claim enhanced turnover limit

    [ITR 3, 4, and 5]

    The Finance Act 2023 increased the turnover limit for presumptive taxation under Section 44AD from INR 2 crores to INR 3 crores, provided cash receipts do not exceed 5% of total turnover. Similarly, Section 44ADA’s limit was raised to INR 75 lakhs from INR 50 lakhs under the same condition. The new ITR forms include a column for “receipts in cash” to reflect these changes.

    11. Disclosure of information pertaining to the Capital Gains Accounts Scheme

    [ITR 2, 3, 5, and 6]

    Schedule-CG in ITR forms now requires more detailed information about sums deposited in the Capital Gains Accounts Scheme (CGAS), including the date of deposit, account number, and IFS code.

    12. New Schedule 80GGC seeks details of contributions made to political parties

    [ITR 2, 3, 5, and 6]

    The new ITR forms now include Schedule 80GGC, which requires detailed information on contributions to political parties or electoral trusts, including the date of contribution, amount, transaction reference number, and bank details.

    13. Schedule 80U inserted for claiming deduction if the assessee is a person with a disability

    [ITR 3]

    A new Schedule 80U has been added for claiming deductions under Section 80U for individuals with disabilities. It requires details such as the nature of the disability, date of filing Form 10-IA, and UDID number if available.

    14. New Schedule 80DD seeks details towards maintenance & medical treatment of a person with a disability

    [ITR 2 and 3]

    The new ITR forms include Schedule 80DD for claiming deductions under Section 80DD for medical expenses or insurance premiums for family members with disabilities. It asks for information such as the nature of the disability, the type of dependent, and their PAN or Aadhaar number.

    15. Reporting of dividend income derived from a unit located in IFSC

    [ITR 2, 3, 5, and 6]

    Section 115A has been amended to tax dividend income received from units in an IFSC at a reduced rate of 10%. The new ITR forms include this change in Schedule OS.

    16. Schedule-OS includes an additional column for the declaration of bonus payments received under life insurance policies

    [ITR 2 and 3]

    Amendments in the Finance Act 2023 require the reporting of income from high-premium life insurance policies under Section 56(2). The ITR forms have been updated to include this in Schedule OS.

    17. Reporting of sums received by a unitholder from the business trust

    [ITR 2, 3, and 5]

    Section 56(2)(xii) now includes the requirement for reporting sums received from business trusts by unitholders to avoid dual non-taxation. This change is reflected in the new ITR forms under Schedule OS.

    18. Adjustment of unabsorbed depreciation from WDV of the block of assets as on 01-04-2023

    [ITR 3 and 5]

    Taxpayers opting for the Section 115BAC regime must adjust unabsorbed additional depreciation into the written down value (WDV) of assets as of April 1, 2023. Schedule DPM in the new ITR forms has been amended to reflect this change.

    19. New Schedule 80-IAC seeks details in respect of eligible startup

    [ITR 5 and 6]

    The new ITR-5 includes Schedule 80-IAC, requiring startups to provide details such as the date of incorporation, nature of business, certificate number, first assessment year claiming the deduction, and the amount claimed.

    20. New Schedule 80LA seeking details towards offshore banking unit or IFSC

    [ITR 5 and 6]

    A new Schedule 80LA in ITR-5 seeks details about deductions for offshore banking units or IFSCs, including the type of entity, type of income, registration details, and amount of deduction claimed.

    21. New ‘Schedule 115TD’ inserted for reporting tax payable on accreted income

    [ITR 5 and 6]

    The new ITR forms include Schedule 115TD for reporting tax on accreted income for entities losing charitable status. This schedule requires details on the computation of accreted income and tax payable.

    22. New field for opting concessional regime under Section 115BAE

    [ITR 5]

    A new field in ITR-5 allows resident cooperative societies engaged in manufacturing to opt for the concessional tax regime under Section 115BAE. The form requires the date of filing Form 10-IFA and its acknowledgment number.

    Conclusion

    The modifications in the income tax return forms for assessment year 2024-2025 reflect the Government’s commitment to simplifying tax compliance and enhancing transparency.

    By understanding these changes and preparing accordingly, taxpayers can ensure a smooth and hassle-free filing experience. It is advisable to consult with a tax professional to navigate these updates effectively and make the most of the new provisions.

    We hope you liked the post as much as we enjoyed researching and drafting it. Should you require any information/ clarification, please feel free to reach out to us at contact@vprpca.com.

  • OECD BEPS 2.0 – Pillar One and two status report

    OECD BEPS 2.0 – Pillar One and two status report

    A major discussion in the tax world concerns the timing of the introduction of Pillar One and Pillar Two of the second phase of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting program (BEPS 2.0).

    Pillar One

    What is Pillar One?

    Pillar One involves the reallocation to market jurisdictions of 25% of profit above 10% of very large multinationals with revenue exceeding 20 billion euros ($20.8 billion). There are exclusions for extractives and regulated financial services. It also involves changing existing tax treaties, which is proposed to be achieved through a multilateral Instrument of many countries signing up to the new rules through a streamlined mechanism.

    Status Report

    The timetable for the introduction of Pillar One in the agreements made by the Inclusive Framework of more than 130 countries on July 1 and October 8, 2021 proposed that the changes would take place from 2023.

    Given the complexity of Pillar One, this was always going to be an ambitious timetable.

    At Davos, the Secretary-General of the OECD, Mathias Cormann, indicated that the implementation of Pillar One would be delayed until 2024.

    Questions have been raised as to the nature and prospects of the Pillar One rules passing the US Congress. Recently, US Treasury Secretary Janet Yellen indicated that the ratification process clearly requires the approval of Congress, but the form this needs to take is yet to be determined.

    An essential feature of the agreement in relation to Pillar One is that countries agree to withdraw, or not to introduce, digital services taxes. This is the Damocles Sword. If agreement is not reached, then the world is likely to see the proliferation of these taxes, and potentially counter-measures on tariffs.

    The OECD has estimated that this world—of no Pillar One, and with digital services taxes—could result in a significant reduction of global GDP. This is an important incentive to get Pillar One done.

    India impact

    India has agreed to withdraw the much controversial Google tax (a.k.a Equalisation levy) as part of its commitment to Pillar One initiatives. With the delay in implementation of Pillar One worldwide, the withdrawal will not be happening any time soon.

    We can fully expect the controversies surrounding Equalisation levy to continue to grow for the time being.

    Pillar Two

    What is Pillar Two?

    Pillar Two involves the introduction of a global minimum tax for multinationals with revenue greater than 750 million euros. The proposed rules seek to ensure that multinationals pay a minimum of 15% tax determined on a jurisdiction-by-jurisdiction basis by charging “top-up tax” if the Effective Tax Rate falls below 15%.

    There are two important elements to note. The first is that the more than 130 countries that signed up to Pillar Two in the agreements of July 1 and October 8, 2021, did not agree to introduce the rules in their own jurisdiction (although many will) but not to introduce inconsistent rules.

    Thus, Pillar Two does not rely on all countries agreeing to a minimum tax, but simply a sufficient number of countries agreeing to do so.

    This raises the second important element. The top-up tax to ensure that a 15% rate is achieved on a jurisdictional basis can be levied at three levels. The first level is where a jurisdiction in which a multinational’s Constituent Entities are located introduces a domestic minimum top-up tax of 15%. Technically this is referred to as a Qualifying Domestic Minimum Top-up Tax, or QDMTT. This concept was introduced only in December 2021 and after the earlier Inclusive Framework agreements.

    Jurisdictions will have a significant incentive to introduce a QDMTT because in the absence of such a tax, profits of multinationals from that jurisdiction could be taxed elsewhere under the other two levels.

    The second level is the Income Inclusion Rule, or IIR. This rule is akin to a controlled foreign corporation rule and provides for top-up tax up the chain where a parent, including the ultimate parent or an intermediate parent, is located in a jurisdiction that has implemented the rule.

    The third level is UTPR. This started off as an Undertaxed Payments Rule, but as it evolved such that the concept applies beyond payments, what used to be an acronym has become its actual name. It is the back-up policeman rule and can apply where a Constituent Entity of a multinational is located in a jurisdiction with such a rule, and there is unpaid top-up tax at the other two levels.

    Status Report

    On Pillar Two the agreements of July 1 and October 8, 2021 provided for the introduction of the IIR rule in 2023 and the UTPR rule in 2024.

    However, discussions in the EU focused on converting the Inclusive Framework proposals into an EU directive reflected that this timing was too tight. At an Economic and Financial Affairs Council (Ecofin) meeting of April 5, 2022 it was agreed by 27 EU countries, except Poland, to implement the IIR from 2024 and not 2023, and the UTPR from 2025 and not 2024.

    There were further potential deferrals for EU countries with 12 or fewer in-scope multinationals—basically multinationals with revenue more than 750 million euros—whose ultimate parent entity was located in that jurisdiction.

    To date, Poland has taken the position that it will not sign up for Pillar Two unless Pillar One is fully agreed. Advice from the EU has suggested that such a linkage would be contrary to EU rules.

    Going Forward—How Will Countries Proceed?

    While the EU is broadly on a path of deferral for 12 months, it does not mean that other countries will follow suit. The position of the UK is not clear and the UK may well introduce an IIR in 2023 and the UTPR in 2024.

    While many UK businesses would prefer to see a deferral to 2024 and 2025 in line with the EU path, there is a Brexit narrative that the UK can do things faster outside the EU, and potentially a revenue-raising incentive to go in 2023 for the IIR rule.

    There are other countries, such as Indonesia and Australia, and potentially Japan, that suggest that they will introduce an IIR rule with a 2023 commencement date.

    These countries may benefit from a first mover advantage, particularly if they have a UTPR rule in place in 2024 while others only introduce such a rule from 2025.

    There is no reason why a country could not introduce an IIR and a UTPR in 2024. That is, the earliest a UTPR rule could be introduced is 2024, but it does not need to be introduced 12 months after the IIR rule.

    The US position is different. They have rules in place currently, referred to as Global Intangible Low-Taxed Income (GILTI) rules, which require certain changes to ensure that they conform with the Pillar Two rules. In particular, GILTI is based on global blending rather than jurisdictional blending. If the EU and other countries have agreed to introduce global minimum tax rules, then this will assist in arguments for the US Congress to change their GILTI rules.

    What do businesses need to know?

    For businesses, the potential complexity of different countries introducing QDMTT, IIR, and UTPR rules at different times is considerable. Such complexity feeds into accounting issues on recognition of top-up tax generally once rules are substantively enacted. This is further complicated where laws are passed with retrospective effect; for example, a law passed on October 1, 2023 with effect from January 1, 2023.

    Additional complexity arises where countries have straddle years, such as India, UK, Japan, which are likely to commence Pillar Two rules from April 1.

    As far as India is concerned, the most significant impact would be on delay of withdrawal of Equalisation levy due to delay in implementing Pillar One.

    We can expect volatile and dynamic times ahead in the fight against BEPS!

    —–

    We would love to hear from you.

    For any clarifications or queries, please reach out to us at contact@vprpca.com

  • Income Tax Planning for salaried employees

    Income Tax Planning for salaried employees

    80% of the returns for salaried individuals filed by us end up with a refund.

    A refund arises due to excess deduction of taxes by the employer.

    No, it is not the employer’s fault. It is usually inadequate tax planning by the employee.

    Either the investments or deductions are not declared or the wrong tax regime is chosen for TDS, but lack of proper tax planning means withholding of excess TDS.

    Which also means a lower in-hand salary every month!

    Let’s be real – employees are taxed on their gross income i.e. they do not get any significant deductions for their expenses.

    So every tax saving becomes precious.

    Here a few practical tips and tricks to ensure proper tax planning to avoid needless refunds:

    1. Declare all income and investments to the employer

    – Nothing invites trouble more than not declaring expected incomes to the employer. This can result in a payable situation as well and you end up shelling taxes at 1% p.m.

    – While investments like employees contribution to PF and NPS contributions are considered by the employer upfront, there are other investments like LIC premium, medical premium which should not be considered for the purpose of working.

    – It is important to declare everything to the employer such that it gets considered at the time of TDS itself.

    2. Choose the new or old tax regime during the financial year itself and intimate the employer

    – This has become common recently that employees get their tax deducted under old regime while after coming to us, they realise that the new regime suits their case better.

    – This can be easily avoided by doing a draft calculation at the beginning of the FY and asking the employer to deduct tax in the respective tax regime.

    – Suppose, you are an employee who does not claim much tax deductions under section 80C or 80D, then it is likely that the new regime will result in significant tax savings.

    – It is vital to do a calculation to ensure that there are no surprises at the time of filing refunds!

    3. Make full use of available tax deductions for housing (owned/ rented)

    – While everyone knows about the HRA deductions, there are various lesser-known deductions like under section 80C, interest on home loan etc. which are not declared to the employer upfront.

    It is always advisable to have this factored into the monthly in-hand.

    Why?

    If there is any deduction which has not been declared to the employer (i.e. appearing in Form 16) and the same is claimed only during the return of income, then it increases the chances of inquiries by the Income Tax Department.

    Caution points to remember in tax planning:

    – Make sure your immediate and mid-term financial needs are covered as most of these investments have a minimum lock-in period of 3/ 5 years.

    – It’s important to consider several investment opportunities before making a final decision. Ensure that your need of tax saving is not getting fulfilled at the cost of poor returns from that investment.

    – Be fully aware of the objective of an investment, it’s gestation period and maturity terms and conditions.

    Thank you for reading. Should you require any clarification or information, please write to us at contact@vprpca.com

  • All about section 194R – TDS on benefits or perquisites

    All about section 194R – TDS on benefits or perquisites

    Here is a crisp executive summary of the new TDS provisions which are applicable from 1 July 2022.

    Should you require any further information/ clarification, we would love to hear from you. Please write to us at contact@vprpca.com

  • Who is required to file tax returns?

    Who is required to file tax returns?

    This year it is different. The return filing requirements are a bit more complicated.

    It is mandatory for an individual to file their Income Tax Return (ITR) if the gross total income exceeds the basic exemption limit. (Rs 2.5 lakhs for persons below 60, Rs 3 lakhs for persons in 60-80 years, Rs 5 lakhs for persons above 80 years).

    But on April 21, 2022, the Central Board of Direct Taxes (CBDT) issued a notification — the Income-tax (Ninth Amendment) Rules, 2022 — which provides additional conditions where it is compulsory to file ITR even when the individual’s income is less than basic exemption limit.

    Further, back in 2019 as well, certain conditions were prescribed.

    The exhuastive list of all conditions are as follows:

    1) An individual has to file income tax return if his total sales, turnover, or gross receipts in the business exceeds Rs 60 lakh during the previous year

    2) If total gross receipts in profession exceed Rs 10 lakh during the previous year, the person needs to file ITR.

    3) If TDS or TCS during the year is Rs 25,000 or more, it is mandatory to file a return of income tax. For senior citizens, this rule will be applicable if the individuals aggregate TDS or TCS is Rs 50,000 or more a financial year.

    4) The deposit in one or more savings bank accounts of the person, in aggregate, is Rs 50 lakh or more during the previous year, it is a must to furnish income tax return.

    5) If the person deposits Rs 1 crore or more in the current account;

    6) Spent Rs 2 lakh or more on foreign travels during the year,

    7) Paid Rs 1 lakh or more on electricity bills in aggregate during the year.

    Non-filing of tax returns leads to interest and penalty from the Income Tax Authorities.

    Should you require any further clarification or information, please write to us at contact@vprpca.com

  • TDS on benefit or perquisite under section 194R in Income Tax Act

    TDS on benefit or perquisite under section 194R in Income Tax Act

    Budget 2022 has introduced a new section for tax deduction at source (TDS) – section 194R of the Income-tax Act, 1961.

    This section is applicable with effect from 1 July 2022.

    To further clarify the scope of the section, the Circular 12 of 2022 was issued by the Central Board of Direct Taxes. Guidelines in QnA format have been released in this Circular. However, it is important to note that as per law, a Circular is not binding on the taxpayers and is only binding on the Income tax department officials.

    With that said, let us discuss what the section says:

    Section 194R states that TDS is to be withheld at 10% if specified person (deductor) provides any “benefit or perquisite” to an Indian resident exceeding Rs 20,000 in a financial year.

    The limit of Rs 20,000 is to be calculated for each recipient in a financial year.

    Specified persons mean:

    1. Individual/ HUF having turnover exceeding Rs 1 crore or professional receipts exceeding Rs 50 lakhs in the immediately preceding year (i.e. FY 2021-22)

    2. Partnership firms, companies and all other assessees (irrespective of turnover)

    What is “benefit or perquisite”?

    The terms have wide connotation. The intent of introduction of this section was to tax free samples given by businesses (especially pharma companies and hospitals giving free samples to doctors).

    However, based on the language of the law and the Circular issued by the Income Tax Department, any type of benefit or perquisite given to an Indian resident will get covered.

    Common examples include:

    1. Free samples given to medical practitioners

    2. Sponsoring trip for any client/ vendors and their relatives

    3. Providing free tickets to client/ vendors for movies, sports, other events etc

    4. Any incentives given in form of cash, gold, mobile phone, TV, computers, etc.

    5. Free samples of products given to social media influencers on a non-returnable basis

    6. Expenditure incurred on travel of consultants/ auditors where the invoice is not in the name of the company.

    Dealer conferences are not in the scope of this section where the prime object of the conference is to educate the dealers about new products, address queries, sales discussions or reconcile accounts. However, two conditions are required to be fulfilled:

    1. Conference must not be for selected dealers or customers who have achieved specified targets

    2. Expenditure incurred for dealer’s family members or any leisure trip incidental to the conference will be considered as benefit or perquisite for section 194R.

    If it is given in kind, then the valuation will be the market value of the benefit or perquisite (excluding GST).

    If benefit given to a person in his capacity as employee of a company, TDS is to be withheld in the name of the employer company. If the benefit is given to a consultant of a company (i.e. not on payroll), TDS is to be withheld in the name of the recipient (i.e. consultant).

    Conclusion

    To conclude, the new provisions are going to come into force from 1 July 2022. Every benefit given to a third party should be monitored and extensive documentation is to be maintained for the same.

    Should you require any further clarifications or have any queries, please do reach out to us at contact@vprpca.com

  • Form 10BD Statement of donations under Income-tax Act, 1961

    Form 10BD Statement of donations under Income-tax Act, 1961

    Background

    Sections 80G(5) and section 35(1A) of the Income-tax Act, 1961 (hereinafter referred to as the Act) requires furnishing of statement of donation received and the issue of donation certificates to the donors for claiming deduction from the gross total income.

    This notification has framed the rules for furnishing such statements and certificates of donation to donors. For this purpose, Rule 18AB was inserted vide Finance Act, 2021.

    Notified form

    These statements in Form 10BD are required to be e-filed by a registered Charitable Trust with Income Tax before 31st May 2022 giving the following information about the donations received by it whether general or corpus:

    Name of the donor

    PAN/Aadhar/Voting Card/Election ID of the donor

    Amount of Donation in Rupees

    Type of donation

    All donations need to be reported.

    There is no threshold available.

    In case of no such donations received by the trust, Income Tax Portal has not allowed to file a NIL Form 10BD.

    The trust is required to upload a CSV file on its Income Tax login page. There the system will take 24 hours to accept/reject this form and Form 10BE (Certificate of Donations) can be downloaded. These certificates must be downloaded before 31st May 2022.

    Verification

    Form 10BD can be signed by the authorized signatory/trustee by using Digital Signature Certificate or electronic verification code.

    Late Fees

    Any delay in e filing Form 10BD attracts late filing fees of Rs. 200 per day (Section 234G). Section 271K attracts a penalty of Rs. 10,000 to Rs. 1,00,000 for failure to file a statement of donation in Form 10BD.

    In case of any clarification or information, please feel free to write to us at contact@vprpca.com

  • The HUF Magic – Legally save lakhs of rupees in taxes

    The HUF Magic – Legally save lakhs of rupees in taxes

    Going old school works.

    Clients approach their Chartered Accountants (like us) to save taxes. And CAs like us advise clients to form an HUF and save lakhs in taxes over the years.

    This form of tax planning is completely unique to India!

    So what is the hype all about?

    HUF stands for Hindu Undivided Family. There are three conditions to fulfill:

    1. You are either a Hindu, Sikh or Jain

    2. You must be married (not necessary to have kids)

    3. The family must be undivided i.e. husband, wife and children (if any) must live together

    If you fulfill all the three conditions above, congratulations! You are eligible to save a lot of taxes legally!

    How does HUF help in saving taxes?

    Let’s get down to the details. Here is all you need to know.

    Features of HUF

    1. HUF is treated as a separate person for the purpose of tax law. It has its own Permanent Account Number, bank account and files its own tax returns.

    2. For income taxes, it is taxed at slab rates similar to an individual. Thus, first Rs 2.5 lakhs are exempt.

    3. HUF is awarded almost all the same deductions as an individual. Example, if HUF takes out a life insurance for its members, a deduction under section 80C of the Income-tax Act, 1961 is available.

    4. HUF has a separate bank account, PAN and own balance sheet.

    5. HUF is created in many ways like through wills, gifts, inheritance. However, creation of HUF through gifts from the members is the most common way.

    6. The head of the HUF is called as ‘Karta’ and the other members are called co-parceners.

    7. HUF can make investments in its own name. It can be a shareholder of companies too. Thus, a separate demat account can be opened in the name of the HUF.

    Who is ‘Karta’?

    The ‘Karta’ is the senior-most male member of the family who is responsible for management of the affairs of the family.

    In simple terms, ‘Karta’ is the head of the family.

    Only a family member with coparcenary rights can become ‘Karta’. However, after Hindu Succession (Amendment) Act, 2005, a daughter has also been given coparcenary rights in the HUF property.

    Tax planning must be done properly so as to avoid the income of HUF getting clubbed with the income of the Karta.

    How does HUF help in saving taxes – an illustration.

    Let us take family of Mr. Chandumal who earns a salary Rs 25 lakhs. He gets married this year to Mrs. Chandumal who earns a similar salary too. They pay taxes of roughly Rs 5,85,000 each.

    The parents now want to gift ancestral property to their son and newly wed daughter-in-law.

    Scenario 1: Mr Chandumal does not create an HUF

    Mr. and Mrs. Chandumal receive ancestral property from his parents giving income of Rs 10 lakhs per year.

    The income would get split evenly between the husband and wife i.e. Rs 5 lakhs is added to each of their total incomes.

    The tax outgo for both Mr and Mrs Chandumal will rise to Rs 7,41,000 each for the entire year in their individual names.

    To put it in perspective, an additional income of Rs 5,00,000 has increased their tax outgo by Rs 1,56,000. This is because of the higher tax slab of 30%.

    Total tax outgo = Rs 14,82,000 (7,41,000 + 7,41,000)

    Scenario 2: Mr Chandumal creates an HUF

    The ancestral property is in the name of the HUF. The income of Rs 10 lakhs is taxed in the hands of the HUF and the return is filed separately too.

    The HUF has to pay a tax of Rs 1,17,000 only.

    Total tax outgo = Rs 12,87,000 (5,85,000 + 5,85,000 + 1,17,000)

    Difference between Scenario 1 and 2 = Saving of Rs 1,95,000 every single year!

    Using HUF for tax planning makes a lot of difference in creating the family wealth of Mr and Mrs Chandumal. It will help them achieve their financial goals faster.

    Steps for creating an HUF

    Step 1: Prepare a HUF deed

    Though it is not mandatory, it is highly advisable (based on our practical experience) to have a deed. It helps the HUF sail smoothly in documentation requirements, especially while liaising with regulators and authorities.

    The deed must create the name of the HUF. If Mr. Raj Mehra is creating an HUF, the name should be ‘Raj Mehra HUF’. Using any other iterations is not advisable.

    It is advisable to seek professional assistance (e.g. CAs, lawyers) for creating the HUF deed to ensure it is bullet-proof and in compliance with laws.

    Step 2: Create a rubber stamp

    The Karta is the person who runs the HUF. A rubber stamp must be created (available at local stationery shops and online as well) in the name of the HUF. It is required for PAN and bank accounts.

    It should read as under:

    For Raj Mehra HUF

    Karta

    Step 3: Application for PAN

    An Income Tax identification number is to be obtained for the HUF. A separate PAN application must be filed along with the HUF deed as proof of creation of HUF.

    It takes nearly a week for the PAN to be allotted.

    Step 4: Opening of bank account

    After PAN has been allotted by the Income tax department, the Karta can proceed to open a regular bank account. The HUF deed, PAN card along with other details of the Karta should suffice as proof required by banks.

    Step 5: Deposit money into bank account

    Based on how the HUF is created (e.g. wills, gifts), the money can be transferred into the bank account of the HUF.

    Remember, HUF is a separate entity in the eyes of the law.

    Separate accounts are required to be maintained for an HUF. The tax return would be filed separately too.

    It is always advisable to seek professional assistance in the creation and administering of HUF.

    Thank you for reading.

    In case of any clarification or information, please reach out to us at contact@vprpca.com. We shall be happy to assist you.

  • E-Dispute Resolution Scheme – Income Tax – All you need to know

    E-Dispute Resolution Scheme – Income Tax – All you need to know

    On 5 April 2022, the Central Board Of Direct Taxes (CBDT) issued the e-Dispute Resolution Scheme, 2022 by the Dispute Resolution Committee on applications made for dispute resolution under Chapter XIX-AA of the Act in respect of dispute arising from any variation in the specified order by such persons or class of persons, as may be specified by the Board.

    Key features

    • Assessee who fulfils the specified conditions may, in respect of any specified order, file an application electronically for dispute resolution to the Dispute Resolution Committee designated for the region of Principal Chief Commissioner of Income-tax having jurisdiction over the assessee.
    • Application shall be filed in the Form No. 34BC referred to in rule 44DAB within such time from the date of constitution of the Dispute Resolution Committee, as may be specified by the Board, for cases where appeal has already been filed and is pending before the Commissioner (Appeals); or within one month from the date of receipt of specified order, in any other case;
    • Application shall be submitted by email to the official email of the Dispute Resolution Committee alongwith proof of payment of tax on the returned income, if available and accompany a fee of one thousand rupees.
    • The Dispute Resolution Committee shall examine the application with respect to the specified conditions and criteria for specified order;
    • Upon such examination the Dispute Resolution Committee, where it considers that the application for dispute resolution should be rejected, shall serve a notice calling upon the assessee to show cause as to why his application should not be rejected, specifying a date and time for filing a response;
    • The decision of the Dispute Resolution Committee that the application for dispute resolution should be allowed to be proceeded with or rejected, shall be communicated to the assessee on his registered e-mail address;
    • the assessee shall, within thirty days of receipt of the communication that the application is admitted be required to submit a proof of withdrawal of appeal filed under section 246A of the Act or withdrawal of application before the Dispute Resolution panel, if any, to the Dispute Resolution Committee or convey that there is no aforesaid proceeding pending in his case, failing which the Dispute Resolution Committee may reject the application.

    Conclusion

    A good move aligned with the intention to create ease of doing business for taxpayers. The challenge lies in the implementation. Communicating with tax department over email has proven to be a constant challenge under the faceless assessment regime. It remains to be seen how well this E-dispute resolution scheme can be implemented.

    We would love to hear from you. Please get in touch at contact@vprpca.com

  • Personal finances tasks for March

    Personal finances tasks for March

    Because the month of March 2022 has already begun, Indian citizens must complete a number of financial responsibilities by the conclusion of the month. Several deadlines, such as the final day for submitting a belated or updated income tax return (ITR), the PAN-Aadhaar link, and others, are approaching in March. As a consequence, here are the six most crucial financial tasks to consider and do, if any are applicable to you.

    Calculate your advance taxes

    Missed the due date instalment of 15 March? You can still save some interest component by calculating the income for FY22 and paying taxes on or before 31 March 2022.

    Section 234C interest is levied on each advance tax instalment. So if you have not paid your advance tax instalments on time, you will have to pay interest at 1% per month.

    Section 234B interest is levied from 1 April till the date the tax is paid.

    If you directly calculate your tax liability at the time of filing of filing your return (which happens in July), you will have to pay interest under both section 234B and section 234C.

    So, it is advisable to compute your income and pay taxes on or before 31 March 2022.

    Filing belated or revised Income Tax Return (ITR)

    The deadline for filing a revised income tax return (ITR) is 31st March 2022. Following the epidemic of Covid-19, the government has extended the deadline for reporting updated ITRs for FY 2020-21 from December 31, 2021 to March 31, 2022. Also because the deadline for filing a belated or revised return for AY 2021-22 is March 31, 2022, you must submit your updated or belated ITR on or before that date to avoid a penalty under Section 234F of the Income-tax Act of 1961.

    Aadhaar-PAN link

    Following the government extended deadline from September 30, 2021 to March 31, 2022, Aadhaar linking with PAN is now possible till March 31, 2022. To avoid PAN becoming inactive, these two most important documents should be linked on or before the deadline. As a result of possessing an invalid PAN, you may be subject to a Rs 10,000 penalty under section 272B.

    KYC compliance of bank accounts

    The Reserve Bank of India (RBI) has set a deadline of March 31, 2022, for periodic updation of KYC in order to prevent restrictions on account operations for non-compliance. The account holder can avoid having his or her bank account suspended by satisfying KYC compliance.

    Making contributions towards your tax saving instruments

    As a tax saver, keep in mind that beginning in FY 2021-22, an individual can choose between the old and new tax regimes, making use of tax exemptions. As a result, it’s critical to make sure you’ve made the needed minimum contribution before the end of the fiscal year to keep your tax-saving instrument operational. As a result, you must ensure that you have successfully deposited the required contribution in your tax-saving instrument on or by March 31, 2022, or your tax-saving funds would become invalid and your tax liability for the fiscal year 2021-22 will be increased.

    For any queries, feel free to reach out to us at contact@vprpca.com