Sensys Blog.

The CBDT has amended Rule 2B to provide an exemption in respect of cash allowance received in lieu of leave travel concession (LTC).

Due to the COVID-19 pandemic and the nationwide lockdown, employees who had not been able to avail of LTC in the block of 2018-21 were allowed to claim the exemption in respect of cash allowance subject to fulfillment of certain conditions.

Amendment effective from – from the 1st day of April 2021, i. e., and amendment will be applicable for the incomes earned in the financial year 2020-2021.

Amendment:

For the assessment year beginning on the 1st day of April 2021, where the individual referred to in sub-rule (1) avails any cash allowance from his employer in lieu of any travel concession or assistance,

The amount exempted under the second proviso to clause (5) of section 10 shall be the amount,

• not exceeding thirty-six thousand rupees per person, for the individual and the member of his family, or
• one-third of the specified expenditure,

whichever is less,

subject to fulfillment of the following conditions, namely:-

Conditions:

• the individual has exercised an option to avail exemption under the second proviso of clause (5) of section 10, in lieu of the exemption under clause (5) of section 10 in respect of one unutilized journey
  • during the block of four calendar years commencing from the calendar year 2018; (i.e. 1^st January 2018 to 31^st Dec 2021)

• the payment in respect of the specified expenditure is made by the individual or any member of his family to a registered person during the specified period; i. e., from the 12thday of  October 2020  and ending on the 31stday of March 2021.

• the payment in respect of the specified expenditure is made by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA; and

• the individual obtains a tax invoice in respect of specified expenditure from the registered person referred to in clause (ii).

Expenditure for which exemption is allowed u/s 10(5):

specified expenditure: means  expenditure  incurred  by  an  individual  or  a  member  of  his  family:

1. during a specified period, i. e., from the 12^th day of  October 2020  and ending on the 31^st day of March 2021.
2. on goods or services, which are liable to tax at an aggregate rate of twelve percent. or above under various Goods and Services Tax (GST) laws and
3. goods are purchased or services procured from GST registered vendors or service providers

Impact of above amendment: Now the employees availing LTC have to exercise two options as below:

• Whether individual employee opts to avail benefit under alternative tax regime. If an individual opts for the alternative tax regime under section 115BAC, exemption pertaining to LTC is not available to him at all. This option shall be chosen at the time of filing of the return.
• Now employees have to choose between, to claim LTC in section 10(5) or under 2^nd proviso to section 10(5). Under section 10(5) expenditure shall be exempted based on expenses incurred by the shortest distance method or under the 2^nd proviso, the expenditure shall be exempted based on actual expenditure incurred multiply by a member in family traveled. This option must be selected up to 31^st Dec 2021 for the expenditure incurred up to 31^st Mar 2021. 

Thus, the net impact of this amendment is an individual employee for assessing income for FY 2020-21 can take benefit of travel made up to 31^st March 2021 instead of expenditure incurred up to 31^st Dec 2020.

Most of the new ITR form changes are consequential to the amendments made by the Finance Act, 2020 to the Income-tax Act. Further, the ITR-1 shall not be available to a taxpayer in whose case the tax has been deducted on cash withdrawal under Section 194N. Further, return filing is also not allowed in ITR-1 or ITR-4 if the tax has been deferred in respect of ESOPs allotted by an eligible start-up.

We have scrutinized the new ITR Forms and have identified the key changes in new ITR forms viz-a-viz last year’s ITR Forms. These changes have been explained below.

1. ITR – 1 and ITR – 4 cannot be filed in case of deferment of tax on ESOPs [ITR 1 & 4]

Rule 12 has been amended to provide that an assessee in whose case payment or deduction of tax in respect of such ESOPs has been deferred shall not be eligible to furnish his return of income in ITR-1 and ITR-4. Corresponding changes have been made to ITR-1 and ITR-4.

2. ITR – 1 cannot be filed in case tax has been deducted under Section 194N [ITR 1]

Tax under this provision is required to be deducted if the amount of cash withdrawn during the year exceeds Rs. 20 lakhs in case of certain non-filers of return and Rs. 1 crore in other cases.

Rule 12 of the Income-tax Rules have been amended to restrict an assessee, in whose case tax has been deducted under this provision, from furnishing return of income in ITR–1. Consequential changes have been made to ITR-1.

3. Consequential changes due to change in taxability of dividend Income [ITRs 1 to 7]

The Finance Act, 2020 reverts to taxation of dividends in the hands of the recipient shareholders instead of payment of dividend distribution tax (DDT) on the declaration, distribution, or payment of dividend by the domestic company. The new ITR forms notified for the Assessment Year 2021-22 have been amended to incorporate these changes.

3.1. Schedule OS (other sources)

Dividend income earned by a person is taxable as ‘income from other sources’ under section 56(2)(i). Up to the Assessment Year 2020-21, Schedule OS required disclosure of that dividend income only which is not exempt in hands of the taxpayer. In the new ITR forms, Schedule OS has been amended to include disclosure of all dividend income earned by the taxpayers.

A new row has been inserted under the column ‘any other income chargeable at special rate’ of Schedule OS to seek details of dividend income taxable in the hands of the unitholders of the Business trust.

3.2. Schedule SI (Special Income)

Schedule SI contains a list of incomes that are chargeable to tax at a special rate (long-term capital gains, winning from lotteries, games, etc.). Since Section 115BBDA has become redundant, corresponding changes have been made to Schedule SI.

3.3. Schedule EI (Exempt Income)

Now the entire dividend income is taxable in the hands of the shareholders, hence the reference of ‘Dividend income from the domestic company (amount not exceeding Rs. 10 lakh)’ has been removed from Schedule EI.

3.4. Schedule PTI (Pass-through Income)

‘Schedule PTI’ seeks details of Pass-through Income from business trust or investment fund as per Section 115UA and Section 115UB.

3.5. Quarterly breakup of dividend income under ITR-1

All ITR forms (except ITR-1) sought a quarter-wise breakup of dividend income earned by the taxpayer during the previous year. This break-up helps in computing interest leviable under section 234C for default in payment of advance tax liability. To provide similar relief to the taxpayer filing return in ITR-1, this form has been amended to allow taxpayers to provide a quarterly break-up of dividend income earned during the year.

3.6. Schedule DDT removed from ITR-6

Schedule DDT seeks details of distributed profits of domestic companies and payment of DDT. Since the payment of DDT has been abolished on any distributed profit on or after April 1, 2020, Schedule DDT has been removed from the new ITR-6 Form.

4. Deletion of Schedule DI [ITR 1 to 6]

Since the benefit of Schedule DI extension was available for the Assessment Year 2020-2021 only, ITR forms for the Assessment Year 2021-2022 have removed from the Schedule DI. Another consequential amendment has also been made to remove reference to Schedule DI.

5. Exercise of option prescribed under section 115BAC [ITR 1 to 4]

The Finance Act, 2020, has inserted a new Section 115BAC to provide a special tax regime (also known as ‘alternate tax regime’) for Individuals or HUF wherein they have an option to pay taxes at concessional rates subject to fulfillment of certain conditions.

In Part-A (General Information) the assessee is required to choose whether he is opting for the alternative tax regime of Sections 115BAC or not.

Further, an assessee having income from business or profession is required to exercise such option on or before the due date for furnishing the returns of income by filing Form 10-IE. Thus, such assessee is required to mention the date of filing of Form 10-IE and Acknowledgement the number in case he has chosen the alternate regime of Section 115BAC.

Based on PRESS RELEASE, DATED 1-5-2021

In view of the adverse circumstances arising due to the severe Covid-19 pandemic and also in view of the several requests received from taxpayers, tax consultants & other stakeholders from across the country, requesting that various compliance dates may be relaxed, the Government has extended certain timelines on 1^st May 2021:

Most of the new ITR form changes are consequential to the amendments made by the Finance Act, 2020 to the Income-tax Act. We have scrutinized the new ITR Forms and have identified the key changes in new ITR forms viz-a-viz last year’s ITR Forms. These changes have been explained below.

1. No option to carry forward TDS deducted under Section 194N [ITRs 2 to 7]

In case of tax deducted under Section 194N, credit for tax deducted shall be allowed in the assessment year relevant to the previous year in which such tax has been deducted. The corresponding amendment has been made in ITR-2 to ITR-7 to restrict the carry forward of TDS deducted under Section 194N.

2. Consequential changes due to change in taxability of dividend Income [ITRs 1 to 7]

The Finance Act, 2020 reverts to taxation of dividends in the hands of the recipient shareholders instead of payment of dividend distribution tax (DDT) on the declaration, distribution, or payment of dividend by the domestic company. The new ITR forms notified for the Assessment Year 2021-22 have been amended to incorporate these changes.

2.1. Schedule OS (other sources)

Dividend income earned by a person is taxable as ‘income from other sources’ under section 56(2)(i). Up to the Assessment Year 2020-21, Schedule OS required disclosure of that dividend income only which is not exempt in hands of the taxpayer. In the new ITR forms, Schedule OS has been amended to include disclosure of all dividend income earned by the taxpayers.

A new row has been inserted under the column ‘any other income chargeable at special rate’ of Schedule OS to seek details of dividend income taxable in the hands of the unitholders of the Business trust.

2.2. Schedule SI (Special Income)

Schedule SI contains a list of incomes that are chargeable to tax at a special rate (long-term capital gains, winning from lotteries, games, etc.). Since Section 115BBDA has become redundant, corresponding changes have been made to Schedule SI.

2.3. Schedule EI (Exempt Income)

Now the entire dividend income is taxable in the hands of the shareholders, hence the reference of ‘Dividend income from the domestic company (amount not exceeding Rs. 10 lakh)’ has been removed from Schedule EI.

2.4. Schedule PTI (Pass-through Income)

‘Schedule PTI’ seeks details of Pass-through Income from business trust or investment fund as per Section 115UA and Section 115UB.

3. Clause-wise disclosure in respect of interest taxable under Section 115A read with Section 194LC [ITR 2, 3, 5, 6 & 7]

The Finance Act, 2020 has amended Section 194LC to provide for deduction of tax shall be done at 5% except in case the interest is payable in respect of monies borrowed from a source outside India by way of issue of any long-term bond or rupee-denominated bond, TDS is required to be deducted at the rate of 4%, subject to fulfillment of certain conditions.

Since two different rates have been prescribed under Section 194LC (4% and 5%), ITR forms have been amended to require separate disclosure in respect of the income taxable at the rate of 4% and 5%.

4. Reference of Form 16D has been inserted in Schedule of Tax payments [ITR 3 to 7]

ITR forms require details of tax deducted at source as per the certificate issued by the Deductor. The ITR Forms for Assessment Year 2021-2022 have included a reference to Form 16D.

Form 16D is a TDS Certificate issued by a Payer for payment of a commission, brokerage, contractual fee, the professional fee under section 194M. It contains details of the nature of payment and TDS deducted from it. Section 194M has been applicable from the 1st of September 2019. Thus, Form 16D can be downloaded from FY 2019-20 onwards. The taxpayer can download Form 16 from the TRACES portal.

Who is minor?

Section 3 of the majority act provides that – “

Every person domiciled in India shall attain the age of majority on his completing the age of eighteen years and not before.”

In computing the age of any person, the day on which he was born is to be included as a whole day and he shall be deemed to have attained majority at the beginning of the eighteenth anniversary. (w.e.f. 16-12-1999).

Role of minor in business:

1. Section 11 of Indian contract act – who are competent to contract – Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject. Thus, a minor is not capable of entering into a contract. This principle is based on –
   1. Law must protect minor against their own inexperience – thus, agreement with minors are void and unoperational.
   2. Law should not cause hardship to an adult who deals fairly with minors.

Effect of a contract done with minor:

• A minor can not make an agreement operational after attaining majority.
• However, a minor can be a beneficiary under the contract.
• A minor can not be held liable under the contract even when the minor has misrepresented his age to induce other parties to enter into the contract.
• There can not be specific performance of the contract against the minor.
• A contract entered into by guardian or manager on the minor’s behalf can be specifically enforced if – the contract is within his authority and the same for the benefit of a minor.

2. Section – 184 of Indian Contract Act – minor as an agent – As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become agent, so as to be responsible to his principal according to the provisions in that behalf therein contained.

Thus, An agent merely a connecting link, a minor can be appointed as an agent. But he can not personally liable for any acts done as an agent. However, the principle will be liable to the third persons for the acts of the minor’s agent which he does in the ordinary course of dealings.

3. Section – 30 of Indian Partnership Act – minor as a partner – A person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners, for the time being, he may be admitted to the benefits of a partnership.

Thus, a minor can be admitted only for the benefits of the firm with the consent of all others partners.

4. Section – 21 of Trade Unions Act – Any person who has attained the age of fifteen years may be a member of a registered Trade Union subject to any rules of the Trade Union to the contrary, and may, subject as aforesaid, enjoy all the rights of a member and execute all instruments and give all acquittances necessary to be executed or given under the rules.

5. Minor as director of a company – For being appointed as a director in any company that person should possess a valid DIN (Director Identification Number) and for obtaining DIN, he/she shall have obtained majority. Therefore a minor can neither hold DIN nor can be a director in an Indian Company.

6. Minor as a shareholder of a company – The company act 2013 however permits for holding the shares by the minor subject to the consent of his/ her guardian. Also, the shares in a company can be held by the minor if such shares are gifted to him by other persons.

Thus, minors may be admitted as partners/Shareholders with the parent acting as the guardian. However they may not be admitted as Directors/designated partners as for becoming Director/Designated partner, DIN is required and DIN is not given to Minors.