Feb 23, 2018

All About LTA and How to Save Tax

5:12 PM 0
The current financial year is going to end soon and it is time to make investment declarations in a bid to save tax. One of the ways to save tax is Leave Travel Allowance (LTA) which not only gives an employee some quality time to spend with his/her family, but also reduces the burden of tax liability up to certain limits and conditions as explained below in detail:

What is LTA/LTC?
LTC, i.e Leave Travel Concession, or LTA, i.e Leave Travel Allowance, is basically your employer’s reward for working hard and putting up long hours at work. Your employer grants you leave to spend quality time with or without family while bearing all your and your family’s travel expenses. And the best part of it is that LTA helps you save tax.

“LTA tax exemption, in fact, is covered under section 10(5) of the Income Tax Act. Under this exemption, an employer reimburses the travel expenses of an employee and his family to any place in India twice in a block of four calendar years. The current block for you is 2018-21. However, any other expense such as food, shopping, lodging etc. is not included under this,” says CA Abhishek Soni, Founder, tax2win.in.

Who is considered as family for claiming LTA/LTC?
In India, we consider and treat everyone as a part of our family. So, in order to avoid a person from taking undue advantage of the word ‘family’ for the purpose of tax saving, the Income Tax Department has described the word ‘family’. For the purpose of claiming LTA, family means:
# Your Spouse & children (2 children)
# Dependent Parents
# Dependent brothers and sisters

What is the amount of exemption available under LTA?
You can’t just go and buy the most expensive ticket. Travel fares are exempt as per the following conditions subject to the amount actually incurred by you. However, the amount incurred should not exceed the one specified in your CTC:

Journey Mode
Amount of Tax Exemption
Air
Price of economy class ticket for the shortest route or the amount actually spent on airfare, whichever is lower in amount.
In case the places are connected by rail, then 1st Class ACrail fare by the shortest route.
Train
First class ticket for the shortest route or the amount actually spent on train fare, whichever is lower.
Any Other Mode
If the places are not connected by rail and
1.    Recognised transport system exist: Deluxe 1st class fare on such transport by the shortest route or the actual amount spent, whichever is lower.
2.    Recognised transport system does not exist: 1st Class AC fair of the shortest route, as if the journey had been performed by rail or actual amount spent whichever is lower.
How to claim LTA for the purpose of tax saving?
It’s simple, all you need to do is fill in the details at the time of income tax proof declaration (in Form 12BB) and submit the proof of your travel like the boarding pass, rail tickets, travel agent’s invoice, etc to your employer. Your employer will consider it while deducting TDS of the subsequent months.
However, “it is to be noted that many employers do not provide for LTA/LTC in the salary structure of the employee. So don’t forget to check with your employer before you plan to claim LTA/LTC,” says Soni.

Things to be noted when claiming LTA:
# Exemption is allowed only on actual travel cost.
# Mode of travel should be air, rail or any other public mode of transport.
# It is allowed for domestic travels and not for international travels.
# The tax exemption can be claimed twice in a block of 4 years. The current block is 1st Jan 2018 to 31st Dec 2021.
# Block year is the calendar year not financial year.
# The restriction for claiming LTA is applicable on two children.

What will happen for those who have 4 children?
The applicability of restriction of two children, in such cases, is different. When after having one child, you have more than 1 child (twins, triplets, quadruplets, etc.) on the second occasion, then they are considered as one child for the purpose of LTA. Thus, you can claim the travel expenses for them.
What to do when you forget to claim LTA in the previous block of 2014-2017?

The government allows you carry forward your unclaimed LTA to the first year of the next block. This means, if you have claimed only 1 LTA or didn’t claim any LTA in the previous block of 4 years, you can carry forward and utilise the LTA for only 1 journey (i.e., only 1 LTA can be carry forward) and claim it in the first year of the next block.

For instance, “the 4-year block for your LTA is 2014-2017. During that period, if you did not claim LTA or claimed it only once, then you will be allowed to carry forward one LTA to 2018 (first year of next block, i.e. 2018-21). Thus, from 1st Jan 2018 to 31st Dec 2021, you will be able to claim LTA three times. However, if you do not claim the LTA (brought forward from the previous block of 2014-17) in the first year of the current block (1st Jan 2018 to 31st Dec 2018), it will lapse,” says Soni.

Feb 21, 2018

Income Tax Limitation of Interest Deduction in Certain Cases

5:19 PM 0
A company is typically financed or capitalized through a mixture of debt and equity. The way a company is capitalized often has a significant impact on the amount of profit it reports for tax purposes as the tax legislations of countries typically allow a deduction for interest paid or payable in arriving at the profit for tax purposes while the dividend paid on equity contribution is not deductible. Therefore, the higher the level of debt in a company, and thus higher the amount of interest it pays, the lower will be its taxable profit. For this reason, debt is often a more tax efficient method of finance than equity. Multinational Enterprises (MNEs) are often able to structure their financing arrangements to maximize these benefits. For this reason, tax administrations of several countries have introduced rules that place a limit on the amount of interest that can be deducted in computing a  company's profit for tax purposes. Such rules are designed to counter cross-border shifting of profit through excessive interest payments, and thus aim to protect a country's tax base.

46.2 Under the initiative of the G-20 countries, OECD in its Base Erosion and Profit Shifting (BEPS) project had taken up the issue of base erosion and profit shifting by way of excess interest deductions by the MNEs in Action plan 4 and has recommended several measures in its final report to address this issue.

46.3 In view of the above, a new section 94B has been inserted in the Income-tax Act so as to provide that interest expenses claimed by an entity to its associated enterprises shall be restricted to 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to associated enterprise, whichever is less.

46.4 The provisions of the section 94B of the Income-tax Act shall be applicable to an Indian company, or a permanent establishment of a foreign company being the borrower who pays interest in respect of any form of debt issued to a non-resident or to a permanent establishment of a non-resident and who is an 'associated enterprise' of the borrower. Further, the debt shall be deemed to be treated as issued by an associated enterprise where it provides an implicit or explicit guarantee to the lender or deposits a corresponding and matching amount of funds with the lender.

46.5 The provisions of the said section allow for carry forward of disallowed interest expense to eight assessment years immediately succeeding the assessment year for which the disallowance was first made and also allow deduction against the income computed under the head ‚Profits and gains of business or profession‛ to the extent of maximum allowable interest expenditure.

46.6 In order to target only large interest payments, the said section also provides for a threshold limit of interest expenditure of one crore rupees exceeding which the provision would be applicable.

46.7 Further, banks and insurance business have also been excluded from the ambit of the said provisions keeping in view of special nature of these businesses.

46.8 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.
Tags-income tax, income tax interest deduction, interest deduction in income tax, interest deduction u/s 24b, interest deduction u/s 24, interest deduction under section 24, interest deduction on home loan,interest deduction on commercial property,interest deduction on second home,interest deduction income tax,hba interest deduction income tax,mortgage interest deduction income tax,student loan interest deduction income tax,education loan interest deduction income tax,income tax, income tax interest deduction, interest deduction in income tax, interest deduction u/s 24b, interest deduction u/s 24, interest deduction under section 24, interest deduction on home loan,interest deduction on commercial property,interest deduction on second home,interest deduction income tax,hba interest deduction income tax,mortgage interest deduction income tax,student loan interest deduction income tax,education loan interest deduction income tax

Feb 20, 2018

New Bill to Ban Unregulated Deposit Scheme and Chit Funds

6:43 PM
In a major policy initiative to protect the savings of the investors, the Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to introduce the following bills in the Parliament:-

(a) Banning of Unregulated Deposit Schemes Bill, 2018 in parliament &
(b) Chit Funds (Amendment) Bill, 2018
The Banning of Unregulated Deposit Schemes Bill, 2018
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given approval to introduce the banning of Unregulated Deposit Schemes Bill, 2018 in Parliament. The bill is aimed at tackling the menace of illicit deposit taking activities in the country. Companies/ institutions running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings.

Details:
The Banning of Unregulated Deposit Schemes Bill, 2018 will provide a comprehensive legislation to deal with the menace of illicit deposit schemes in the country through,

a. complete prohibition of unregulated deposit taking activity;
b. deterrent punishment for promoting or operating an unregulated deposit taking scheme;
c. stringent punishment for fraudulent default in repayment to depositors;
d. designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit taking establishment;
e. powers and functions of the competent authority including the power to attach assets of a defaulting establishment;
f. designation of Courts to oversee repayment of depositors and to try offences under the Act; and
g. listing of Regulated Deposit Schemes in the Bill, with a clause enabling the Central Government to
expand or prune the list.

Salient Features:
The salient features of the Bill are as follows:
The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante, rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.

The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes,
fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.

The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.

The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

The Bill provides for attachment of properties/ assets by the Competent Authority, and subsequent realization of assets for repayment to depositors.

Clear-cut time lines have been provided for attachment of property and restitution to depositors.
The Bill enables creation of an online central database, for collection and sharing of information on deposit taking activities in the country.

The Bill defines "Deposit Taker" and "Deposit" comprehensively.

"Deposit Takers" include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation.

"Deposit" is defined in such a manner that deposit takers are restricted from camouflaging public deposits as receipts, and at the same time not to curb or hinder acceptance of money by an establishment in the ordinary course of its business.

Being a comprehensive Union law, the Bill adopts best practices from State laws, while entrusting the
primary responsibility of implementing the provisions of the legislation to the State Governments.

Background:
The Finance Minister in the Budget Speech 2016-17 had announced that a comprehensive central legislation wouldbe brought in to deal with the menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country beingdefrauded by illicit deposit taking schemes. The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are oftenspread over many States. Subsequently, Finance Minister in the Budget Speech 2017- 18 had announced that the draft bill to curtail the menace of illicit deposit schemes had been placed in the public domain and would be introduced shortly after its finalization.

The Chit Funds (Amendment) Bill, 2018
The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval to introduce the Chit Funds (Amendment) Bill, 2018 in Parliament. In order to facilitate orderly growth of the Chit Funds sector and remove bottlenecks being faced by the Chit Funds industry, thereby enabling greater financial access of people to other financial products, the following amendments to the Chit Funds Act, 1982 have been proposed:

Use of the words "Fraternity Fund" for chit business under Sections 2(b) and 11(1) of the Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from "Prize Chits" which are banned under a separate legislation;

While retaining the requirement of a minimum of two subscribers for the conduct of the draw of the Chit and for the preparation of the minutes of the proceedings, the Chit Funds (Amendment) Bill, 2018 proposes to allow the two minimum required subscribers to join through video conferencing duly recorded by the foreman, as physical presence of the subscribers towards the final stages of a Chit may not be forthcoming easily. The foreman shall have the minutes of the proceedings signed by such subscribers within a period of two days following the proceedings;

Increasing the ceiling of foreman's commission from a maximum of 5% to 7%, as the rate has remained static since the commencement of the Act while overheads and other costs have increased manifold;

Allowing the foreman a right to lien for the dues from subscribers, so that set-off is allowed by the Chit company for subscribers who have already drawn funds, so as to discourage default by them; and

Amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance. The State Governments are proposed to be allowed to prescribe the ceiling and to increase it from time to time.
Tags-chit fund fraud, chit fund validity, committee validity, committe is void, how to report of committee fraud, chit fund fraud report, chit fund scam,chit fund regulated by,chit fund india

GST Taxability on Transfer of Development Right

6:43 PM 0
Transfer of development rights by landowner to developer for development of project is a very common practice prevalent in real estate industry which may entail GST implications. Let us understand the nature of such development rights which is transferred by landowner to developer.

It may be noted that the rights conferred by land owner to developer under a Collaboration Agreement or Joint Development Agreement whereby land owner gives a limited right over the land such as right to construct, own and sell the superstructure to developer are commonly known as development rights.

Such rights are granted by the landowner to developer in return of a consideration which may be a portion of constructed area or revenue or profit derived from the sale of units constructed over the land.

Taxability of transfer of such development rights had been a subject matter of dispute under the erstwhile regime of service tax wherein department used to contend that transfer of development right shall qualify as service leviable to service tax, unless such rights are transferred through registered document.

Under GST Regime, the taxable event "supply" as defined under Section 7 of the Central Goods and Services Tax Act, 2017 ("CGST Act") inter-alia includes all forms of supply of goods or services or both which is made or agreed to be made by a person in the course or furtherance of business for a consideration.

The activities or transactions specified in Schedule III of the CGST Act shall be treated neither as supply of goods nor as supply of services. Schedule III of the CGST Act amongst others includes sale of land. Therefore, sale of land shall not be subject to levy of GST.

In this background, this article discusses whether transfer of development right shall be subject to levy of GST.

The rights over the land such as right to construct, own and sell the superstructure constructed over the land is transferred to developer. Such rights can be considered as immoveable property being benefit arising out of land.

In this regard, we may refer to the judgement of Bombay High Court in the case of Sadoday Builders Private Limited v. Joint Charity Commissioner (2011 SCC Online Bombay 760), and Chheda Housing Development Corporation v. Bibijan Shaikh Farid (2007 SCC Online Bombay 130), wherein the Hon'ble High Court observed that Transferable Development Rights (TDR) being a benefit arising from the land must be held to be an immovable property.

In view of the above judicial precedents, it appears that development rights are benefit arising out of land, and cannot be equated with land itself. Therefore, transfer of such development right would not be outside the ambit of levy of GST pursuant to Schedule III of the CGST Act for the reason the same cannot be said to be sale of land. Accordingly, transfer of such development rights by landowner to developer for a consideration shall qualify as supply leviable to GST.

At this juncture, it may be noted that the Government vide Notification No. 4/2018-Central Tax (Rate) dated 25th January 2018 has specified that under area sharing model, the liability to pay tax shall arise at the time when the developer transfers possession or the right in the constructed complex, building or civil structure, to the landowner by entering into a conveyance deed or similar instrument.

By above Notification, Government intends to treat transfer of development rights as taxable supply leviable to GST. However, the above Notification has not considered other models such as revenue sharing/profit sharing model etc. which is usually adopted by developers and landowners for development of the project. Further, the above Notification has not provided any mechanism for the valuation of such development rights which is the need of the hour. Accordingly, the valuation of such development rights would continue to be an open issue.

In my view, the transaction of transfer of development rights by landowner to developer for a consideration shall qualify as "supply" leviable to GST. The manner of providing consideration for transfer of such rights in the form of developed area or revenue share would not alter the nature of transaction. Hence, such transaction shall be subject to levy of GST.

As the valuation of such supply has not been provided under the GST Laws, let us examine the value which can be taken for payment of GST.

Generally, landowner charges consideration from the developer towards the development right as well as for transfer of undivided interest in land to the buyers of units.

Hence, a question which may arise is whether it can be said that the consideration received by landowner from the developer is not only towards transfer of development right in favor of developer but a portion thereof can be said for transfer of undivided interest in the land in favor of buyers of units.

The said contention that a part of the amount received by land owner is on account of transfer of undivided proportionate rights in the project land in favor of the buyer of units and therefore would not be taxable needs to be tested before the Court of Law.

Feb 19, 2018

Income from Other Sources New and Widening Scope in Income Tax

6:46 PM 0
The provisions of section 56(2)(vii) of the Income-tax Act provided that any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of Rs. 50,000) by an individual or Hindu undivided family is chargeable to income-tax in the hands of the resident under the head "Income from other sources" subject to certain exceptions.

33.2 Further, receipt of certain shares by a firm or a company in which the public are not substantially interested is also chargeable to income-tax in case such receipt is in excess of Rs. 50,000 and is received without consideration or for inadequate consideration.

33.3 The definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These provisions were applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration did not attract these provisions in cases of other assessees.

33.4 In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, a new clause (x) has been inserted in sub-section (2) of section 56 of the Income-tax Act so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources". The scope of exceptions has also been widened by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47 of the Income-tax Act.

33.5 Consequential amendments have also been made section 49 of the Income-tax Act for determination of cost of acquisition and section 2(24) of the Income-tax Act to include sum of money or value of property referred to in section 56(2)(x) of the Income-tax Act in the definition of income.

33.6 Applicability: These amendments take effect from 1st April, 2017 and the said receipt of sum of money or property on or after 1st April, 2017 shall be chargeable to tax in accordance with the provisions of clause (x) of sub-section (2) of section 56 of the Income-tax Act.
Tags-income from other sources, income from other sources list, income from other sources pdf, income from other sources meaning, income from other sources in income tax, income tax, income from other sources tax rate,tax rate on income from other sources,income from other sources, income from other sources list, income from other sources pdf, income from other sources meaning, income from other sources in income tax, income tax, income from other sources tax rate

Feb 18, 2018

Amendment in Section 40A(3) of Income Tax Cash Transaction of 20000 Per day

12:42 PM 0
Sub-section (3) of Section 40A of the Income-tax Act, before amendment by the Act, specified that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, shall not be allowed as a deduction. Further, sub-section (3A) of section 40A of the Income-tax Act also provided for deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year of a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft.

19.2 In order to disincentivise cash transactions, section 40A of the Income-tax Act has been amended to provide for the following:
(i) To reduce the threshold of cash payment to a person from twenty thousand rupees to ten thousand rupees in a single day; i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from "Profits and gains of business or profession";

(ii) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding ten thousand rupees to a person in a single day; and

(iii) To expand the specified mode of payment under respective sub-section of section 40A of the Income-tax Act from an account payee cheque drawn on a bank or account payee bank draft to by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account.

19.3 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.

Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment.
20.1 Sub-section (3) of section 40A of the Income-tax Act provides that revenue expenditure incurred in cash exceeding certain monetary threshold is not allowable except in such circumstances as specified under Rule 6DD of the Income-tax Rules, 1962. However, there was no provision to disallow the capital expenditure incurred in cash. Further, section 35AD of the Income-tax Act provides inter alia for investment-linked deduction on the amount capital expenditure incurred, wholly or exclusively for the purposes of business, during the previous year for a specified 
business except capital expenditure incurred for acquisition of any land or goodwill or financial instrument.

20.2 In order to discourage cash transactions even for capital expenditure, section 43 of the Income-tax Act has been amended to provide that where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be
ignored for the purposes of determination of actual cost of such asset.

20.3 Section 35AD of the Income-tax Act has also been amended to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.

20.4 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.

Direct Tax Collection Upto January 2018 Increases by 19.3% for FY 2017-18

11:30 AM 0
Direct Tax Collection Upto January 2018 Increases by 19.3% for FY 2017-18
The provisional figures of Direct Tax collections up to January, 2018 show that net collections are at Rs.6.95 lakh crore which is 19.3% higher than the net collections for the corresponding period of last year. The net Direct Tax collections represent 69.2% of the Revised Estimates of Direct Taxes for F.Y. 2017-18 (Rs. 10.05 lakh crore). Gross collections (before adjusting for refunds) have increased by 13.3% to Rs.8.21 lakh crore during April 2017 to January 2018. Refunds amounting to Rs.1.26 lakh crore have been issued during April 2017 to January 2018.

The growth rate for net collections for Corporate Income Tax(CIT) is 19.2% and for Personal Income Tax(PIT) is 18.6%