Due date of Filing of Income Tax Return for Asst. Year 2019-20 has been extended from 31 July 2019 to 31 August 2019 in respect of certain categories of tax payers who were liable to file their returns by 31st July 2019.
Point to be consider while assessing tax of partnership firm
1) Some expenses in the hands are firm are taxable in the assessment of their partner. Such expenses are interest on capital of the partners, remuneration etc paid to partners etc. Hence it is important to note and cross verify such expenses before filing return of income of partners.
2) Cross check the expenses claimed by firm with its partnership deed. It is important to note that under income tax act remuneration to non – working partner and remuneration before the date of partnership deed are not allowed under income tax act.
3) In case of allowance of interest on capital in firm’s assessment also maximum rate of interest is 12% pa. One should refer to partnership deed before filing return to verify if interest rate is lesser in deed that that lesser rate will be taken in assessment.
4) Further, methodology of calculating interest should clearly mention in deed and period after the date of partnership deed shall be taken.
5) Method of calculating remuneration to partners should clearly mention in the partnership deed.
6) While calculating book profit for ascertaining maximum amount of remuneration payable of partners one should not consider the income chargeable under the head capital gain, other sources and house property etc.
7) Compliance of section 184 of income tax is of absolute necessary. 8) Cross check whether remuneration, interest, salary etc is deducted before claiming amount deductible under section 80IA.
8) While claiming carry forward and set off of losses it is important to consider the provision of section 78 of income tax act as to change in constitution of the firm. Firm can not claim carry forward and set off losses if there is complete change in constitution of the firm.
Important point of partnership deed of the firm:
The existence of partnership firm is evident by partnership deed (in writing) only. If there is no partnership deed there could not be assessment as firm but same can be assessed as AOP and / or BOI. The prominent clauses of deed is given below:
- Name of the firm
- Place of business
- Nature of business
- Date of commencement of business
- Duration of partnership firm
- Capital subscribed by firm
- Profit sharing ratio
- Remuneration payable to partners
- Interest payable to partners, arbitrator
- Operation of bank account
- Method of maintaining books of account
- Other provision
Clarification as to remuneration clause in partnership deed:
Section 40(b) uses the term authorize and not quantify. Thus, only requirement as to deductibility of remuneration to partners is same is authorize from partnership deed with exact method of computation of remuneration.
Neither the amount has been qualified not even the limit of total remuneration has been specified – Payment of remuneration can not be allowed
Partnership deed provided that remuneration payable to partners as per the method of quantification given by section 40(b). – payment of remuneration is allowed
Quantum of remuneration or the manner of its computation should be stated in the partnership deed and should not be left undetermined, undecided or to be determined or decided on a future date.
Key changes in ITRS’ form disclosure requirement
With invent of GST tax regime and other regulatory requirements various changes have been made in ITR forms. It is recommended that these changes should be properly understood before start filing ITR forms. Any wrong and incomplete information would have adverse impact on the assessee. Hence, a list of such changes is enumerated below:
For individual filing ITR 1:
For Assessment Year 2018-19, a one page simplified ITR 1 (Sahaj) has been notified. In ITR 1 of A.Y.2018-19, certain details relating to salary and income from house property have to be mandatorily filled in the form itself.
- In case of salary, the details relating to salary (excluding all allowances, perquisites and profits in lieu of salary), allowances not exempt, value of perquisites, profits in lieu of salary and deductions under section 16 have to be filled up to arrive at the income chargeable under the head “Salaries”.
- In case of income from house property, the details relating to gross rent received/receivable and taxes paid to local authorities have to be filled up to arrive at the annual value.
- Hence, deduction @ 30% of annual value and interest payable on borrowed capital has to be filled up to arrive at the income chargeable under the head “Income from house property”.
Only an Individual, who is an ordinarily resident in India, can file income-tax return in Form ITR-1.
For individuals / HUFs filing ITR 2:
Income from Business or Profession is no more reportable in this return and further the assessees’ opting for presumptive tax regime also cannot use this return.
Last year (i.e. A.Y.2017-18), individuals and HUFs in receipt of salary, bonus, commission or remuneration from a firm in which they are partners, or in receipt of interest on capital from the firm, could also file ITR 2. This year, such persons have to file ITR 3.
For individuals / HUFs filing ITR 3:
Income from Business or Profession (either from presumptive or normal) earned by an Individual or HUF can be reported in this return. For presumptive income though there is a separate return prescribed but the Assessee has the option to use this form also.
For individuals / HUFs filing ITR 4:
ITR 4 (SUGAM) can be used by eligible assessees having presumptive income from business or profession under section 44AD, 44ADA or 44AE, under the head “Profits and gains of business or profession” have to file return in ITR 4. In addition, they may have salary income, income from one house property and income from other sources. (Except winning from lotteries etc).
Additional information in ITR 4:
- Information relating to the GST Number and the Turnover/Gross Receipt as per GST return
- The details provided are verified correspondingly with GST Returns, if applicable and also with Form 26AS.
- In addition to sundry creditors, ITR 4 seeks details of partners/ members own capital, secured and unsecured loans, advances and other liabilities. The total capital and liabilities would be the sum of the figures of the above assets.
- In addition to the three items of assets which are required to be disclosed in ITR 4 for A.Y.2017-18, ITR 4 for A.Y.2018-19 seeks details of balance with banks, loans and advances and other assets. The total assets would be the sum of the figures of the above assets.
Thus, before start filing income tax return for assessment year 2018-19 (relevant previous year 2017-18) once should collect correct and true information about the above additions and cross tallied the figures with GST return to avoid future problems.
Reduction of corporate income tax rate to 25%
- Tax Rate for Companies
E.1 Domestic Company
The rates of income-tax in the case of companies have been specified in Paragraph E of Part III of the First Schedule to the Bill. In case of domestic company, the rate of income-tax shall be twenty five per cent. of the total income if the total turnover or gross receipts of the previous year 2016-17 does not exceed two hundred and fifty crore rupees.
Surcharge at the rate of seven per cent. shall continue to be levied in case of a domestic company if the total income of the domestic company exceeds one crore rupees but does not exceed ten crore rupees. Surcharge at the rate of twelve per cent. shall continue to be levied if the total income of the domestic company exceeds ten crore rupees.
E.2 Other than domestic company:
In all other cases the rate of Income-tax shall be thirty per cent. of the total income. In the case of company other than domestic company, the rates of tax are the same as those specified for the financial year 2017-18.
In case of companies other than domestic companies, the existing surcharge of two per cent. shall continue to be levied if the total income exceeds one crore rupees but does not exceed ten crore rupees. Surcharge at the rate of five per cent. shall continue to be levied if the total income of the company other than domestic company exceeds ten crore rupees.
However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees but not exceeding ten crore rupees, shall not exceed the total amount payable as income-tax on a total income of one crore rupees, by more than the amount of income that exceeds one crore rupees.
The total amount payable as income-tax and surcharge on total income exceeding ten crore rupees, shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees.
In other cases (including sections 115-O, 115QA, 115R, 115TA or 115TD), the surcharge shall be levied at the rate of twelve per cent.
For financial year 2018-19, additional surcharge called the “Health and Education Cess on income-tax” shall be levied at the rate of four per cent. on the amount of tax computed, inclusive of surcharge (wherever applicable), in all cases. No marginal relief shall be available in respect of such cess.
Thus, there have been given a great relief to domestic company by reducing tax rate to 25% based on their turnover for previous year 2016-17. The provisions are briefly explained as below:
|Gross receipts / Turnover||Tax rate for previous year 2018-19||Tax rate for previous year 2017-18|
|249 crore||25% of total income of any limit of turnover||30% of total income|
|250 crore||25% of total income of any limit of turnover||30% of total income|
|251 crore||30% of total income||30% of total income|
Thus, turnover of 31st March 2017 needs to be observed to decide the tax rates for financial year 2018-19 which anyway going to be assessed in assessment year 2019-20.
However, there is not change in tax rates for the assessment of income for year 2017-18 and which is going to be assessed in 2018-19. This is a welcome move as this will benefit lot of small turnover company.
No more sending ITR-V by post after income tax filing – Verification with Aadhar card introduced
CBDT vide its circular no 41/2015 dated 15.04.2015 recently announced that taxpayers who filed their income tax returns online will no longer have to send the paper acknowledgement by post to CPC Bangalore, if they have aadhar card which can be used for verification purpose.
Instead of manual verification, a new Electronic Verification Code has been introduced to verify the e-returns. For that one will have to mention their aadhar card number in ITR form, and tax-payer will get an OTP number on their mobile for verification, which needs to be completed on the website of tax filing. Below is a snapshot of the new ITR form where aadhar card number is asked in case you have it.
Issues with the legacy system
Earlier the process was like this. Once you e-filed your tax returns, you then had to send the acknowledgement copy within 120 days to CPC Bangalore. Only those who had signatures could do verification online, but it was very rare, hence millions of tax-payers had to take the pain of manually sending the form. However, the old system was not robust and a big number of people used to get messages that their acknowledgement has not reached tax department and other manual errors used to happen.
With the introduction of this new system, things will be simplified and even faster. Now the process will be as simple as filing the tax returns online and they will get a one time password for verification purpose on the registered mobile number, which has to be used for verification on the website of tax department. That would complete the process of verification.
But I don’t have Aadhar Card?
Don’t worry. You can always send the physical documents to CPC, Bangalore like you did earlier. You can do that even if you have aadhar card. This new system of verification is just an alternative way for those who have aadhar card.
Income Tax Return Forms ITR 1, 2 and 4S Simplified for Convenience of the Tax Payers
Simplified Income Tax Return Forms
A New Form ITR 2A is proposed which can be Filed by an Individual or HUF who does not have Capital Gains, Income from Business/Profession or Foreign Asset/Foreign Income.
In Form ITR 2 and the New Form ITR 2A, the Main Form will not Contain more than 3 Pages, and other Information will be Captured in the Schedules which will be Required to be filled only if applicable.
As the software for these forms is under preparation, they are likely to be available for e-filing by 3rd week of June 2015. Accordingly, the time limit for filing these returns is also proposed to be extended up to 31st August, 2015 (31.08.2015). A separate notification will be issued in this regard.
Only Passport Number, if available, would be required to be given in forms ITR-2 and ITR-2A. Details of Foreign Trips or Expenditure thereon are not required to be Furnished
Having considered the responses received from various stakeholders, ITR forms are proposed to be simplified in the following manner for the convenience of the taxpayers:-
1) Individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can now file Form ITR 1 (SAHAJ). Similar simplification is also proposed for individuals/HUF in respect of Form ITR 4S (SUGAM).
2) At present individuals/HUFs having income from more than one house property and capital gains are required to file Form ITR-2. It is, however, noticed that majority of individuals/HUFs who file Form ITR-2 do not have capital gains. With a view to provide for a simplified form for these individuals/HUFs, a new Form ITR 2A is proposed which can be filed by an individual or HUF who does not have capital gains, income from business/profession or foreign asset/foreign income.
3) In lieu of foreign travel details, it is now proposed that only Passport Number, if available, would be required to be given in Forms ITR-2 and ITR-2A. Details of foreign trips or expenditure thereon are not required to be furnished.
4) As regards bank account details in all these forms, only the IFS code, account number of all the current/savings account which were held at any time during the previous year will be required to be filled-up. The balance in accounts will not be required to be furnished. Details of dormant accounts which are not operational during the last three years are not required to be furnished.
5) An individual who is not an Indian citizen and is in India on a business, employment or student visa (expatriate), would not mandatory be required to report the foreign assets acquired by him during the previous years in which he was non-resident if no income is derived from such assets during the relevant previous year.
6) As a measure of simplification, it has been endeavored to ensure that in Form ITR 2 and the new Form ITR 2A, the main form will not contain more than 3 pages, and other information will be captured in the Schedules which will be required to be filled only if applicable.
Holding Period of flat shall be calculated back from date of allotment and payment of first installment
This paper is written to high light the impact of recent High Court decision in Ms Madhu Kaul & CIT w.r.t. point of time when an assessee starts holding a real estate property.
The decision will beneficially impact those assessee who are entering into real estate transactions as it may lead to Long Term Capital Gain which previously claimed as short terms capital gain and thereby lower their income tax burden and availability of more avenues of tax exemption.
The whole case may be understood with the help of illustration:-
A flat was allotted to the assessee on 7-6-1986 vide letter conveyed on 30-6-1986. Assessee paid the first installment on 4-7-1986. The possession of flat was delivered on 30-11-1988. Thereafter assessee sold the flat on 5-7-1989.
The question here is, whether flat shall be deemed to hold wef 4-7-1986 treating it as long terms capital gain or from the date of actual possession and taxed normally as short term capital gain.
Rules of determination:
Section 2(14) defines capital asset.
Under Section 2(29A) long term capital asset is one which is not a short term capital asset.
Section 2(42A) short term capital asset at the relevant time meant, a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer.
Conclusion: A capital asset which is held by the assessee for 36 months would be termed as a long term capital asset and any gain arising on account of sale thereof would constitute long term capital gain.
The analysis of case is as under:
|Points of consideration||Situation before HC decision||Tax impact as per HC decision|
|Effect of allotment and payment of first installment, i.e. 04-07-1986||The mere allotment and or payment of the first installment without identification of the flat or delivery of possession has been rightly held not to confer any right.Further, allotment letter could be cancelled at any time.It does not confer any right in any specific unit but merely confers a right to be allotted a unit.||Conferred a right upon the assessee to hold a flat.The allotment of flat may be cancelled only in exceptional circumstances and hence can safely be said to have right over property.|
|Payment of balance installments, identification of a particular flat and delivery of possession, i.e., 30-11-1988||It confers a right of assessee in specific unit and can be claimed as holder of property.||These are consequential acts and relate back to and arise from the rights conferred by the allotment letter.|
Since the High Court decisions are mandatory for AO falling under their respective jurisdictions, hence all assessee of Panjab and Haryana can claim benefit of above decision. However, other assessee may take guidance from the above case and claim property to be hold back from date payment of first installment. Benefits of treating flat as long term capital gain are:
- Concessional rate of taxation
- Under few circumstances sale of house property will not be included in his total income
- Benefit of indexation – Here cost of acquisition and construction is enhance to some extent at par with inflation.
- Exemption benefit u/s 54. 54B etc.
By: Sensys Technologies
For any further information or query you can be reached to experts of our panel at firstname.lastname@example.org
1. In exercise of power conferred by section 119 of the Income-tax Act (‘the Act’), the Central Board of Direct Taxes (CBDT) hereby extends the due date for obtaining and furnishing of the report of audit under section 44AB of the Act for Assessment Year 2014-15 in case of Assessees who are not required to furnish report under section 92E of the Act from 30th day of September, 2014 to 30th November, 2014.
Rebate u/s 87A of the Income Tax Act 1961
|Finance Act 2013, has introduced new section, namely Section 87A. This newly inserted section gives rebate up to maximum of Rs. 2000/- to the assesses having Net Total Income Less than Rs. 5,00,000/-(Rs. Five lacs only). The rebate under this section is available to the resident Individuals w.e.f. A.Y. 2014-15.|
Conditions required to be fulfilled:
Quantum of Rebate:
The rebate will be the lower of
Impact on Tax liability:
As a result of the above mentioned insertion in the Income tax Act by Finance Act 2013, resident individual both male and female having total income upto Rs. 2,70,000/- shall not be required to pay any tax.
The impact of Section 87A on tax liability can be illustrated through the below examples:
Rebate is based on Total income as highlighted in above table in bold and italics.
*In example III no rebate is allowed as income exceeds Rs. 5 lacs.
Above working are done on the basis of the Finance Bill 2014 applicable from the Assessment year 2015-16.
Notice from Income Tax Department
One of the biggest worries of income tax payers is getting notice from Income Tax Department. The Department issues notices under various provisions of Income Tax Act. The purpose of the same is to ensure greater tax compliance.
In recent times, the Department has access to wide range of financial information of taxpayers and the same is utilized for identifying potential cases of tax evasion. Department also takes help from computer-aided scrutiny system (CASS), which generate cases where there is discrepancy in income tax return data.
REASONS FOR NOTICE FROM INCOME TAX DEPARTMENT
Some common reasons leading to notice from Income Tax Department may include;
1. Escaped Income
If the taxpayer has knowingly or unknowingly left some part of income from the income tax return, he or she may get a notice from the department,
2. Not filing returns if income is above exemption limit
As per income tax provisions, it is mandatory to file income tax return if the income is above the exemption limit for the relevant year.
3. Not declaring income from all sources
Tax payer is required to pay taxes on total taxable income during the year. Therefore it is necessary to include salaries etc. from all employers and other taxable income from all relevant sources in the income tax return. For example, there may be income from interest earned on bonds, fixed deposits, recurring deposits etc. which should be included in the total income.
4. Mismatch in TDS details as per Form 26AS and details filed in income tax return
There may be difference between TDS details as per Form 26AS and details filed in income tax return. Both should be reconciled and differences should be rectified before filing the income tax return.
5. Mismatch in income, expenses and investments
Generally, investments and expenditure of the tax payer should match with his or her income. Otherwise, it may create suspicion of escaped income which may lead to notice from the department.
VARIOUS SECTIONS UNDER WHICH NOTICE CAN BE SENT
There are various sections under which Income Tax Department may send notice. These sections include;
NOTICE UNDER SECTION 131
Income Tax Department has got power under this section related to discovery of escaped income and production of evidence etc. The department under this section may ask a tax payer to submit further documents to verify income source and investment details.
NOTICE UNDER SECTION 139(9)
Under this section, the tax payer receives intimation of probable defect in the income tax return and he or she is given an opportunity to rectify the same within 15days from the date of such intimation or within such extended period as may be allowed. If the defect is not rectified within the aforesaid period, the return may be considered as an invalid return and accordingly the assessee may be deemed to have furnished no return.
NOTICE UNDER SECTION 142 (1)
This section provides that the department may make necessary enquiries before completing assessment.
INTIMATION UNDER SECTION 143 (1)
Under this section department may intimate the tax payer to pay excess tax amounts due to reasons such as calculation errors etc.
NOTICE UNDER SECTION 143 (2)
This is a service of notice for regular assessment. Detailed scrutiny assessments are done under this section. It can be served only if a return has been filed. All relevant documents related to investments, claim for tax deductions, allowance and source of income in the relevant financial year are generally called for.
It has to be served within the time limit of 6 months from the end of the Financial Year in which return of income is filed.
NOTICE UNDER SECTION 148
Under this section notice is issued in those cases where income tax department has reason to believe that some income has escaped assessment.
NOTICE UNDER SECTION 156
Where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed, the department may serve upon the assessee a notice of demand under this section, specifying the sum so payable.
WHAT TO DO WHEN NOTICE IS RECEIVED
Taxpayers need not worry if they get notice from the Income Tax Department. Instead, they should try to understand the reason for the notice and act accordingly. The taxpayer should collect all documents related to the assessment proceedings including Form 16 (in case of salaried employees), Form 16A, details of income and expenses, bank statements along with narration of entries therein, credit card statements, details of loans, gifts and investments etc.
On the basis of the above documents and queries asked in the notice, a proper reply should be prepared for submitting to the income tax officer on the hearing date. It should be kept in mind that the case may go for some months before a final decision or order.
Although the assessee himself may pursue the matter, he or she may take the professional help of a Chartered Accountant, as providing less or more information than necessary, may go against him/her.
Courtesy: CA. Brijesh Baranwal