Important Keyword: Income Tax, Income Tax Filing, Section 194P.
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Section 194P- Exemption from ITR filing for senior citizen
The Union Finance Bill 2021 introduced a novel provision, Section 194P, aimed at simplifying income tax filing for senior citizens aged 75 years and above. Effective from April 1, 2021, this section exempts eligible senior citizens from the requirement of filing income tax returns.
What is section 194P?
Section 139 of the Income Tax Act mandates individuals to file income tax returns if their gross total income exceeds the basic exemption limit in the previous year.
Introduced to alleviate the compliance burden on senior citizens, Section 194P of the Income Tax Act delegates the responsibility of Tax Deducted at Source (TDS) deduction for specified senior citizens to their respective banks. Under this section, specified banks are tasked with deducting TDS for senior citizens after accounting for deductions under Chapter VI-A and rebates under Section 87A.
Meaning of the term specified senior citizen
Under Section 194P, a specified senior citizen is defined as an individual who meets the following criteria:
Age: The individual should have attained the age of 75 years or above at any time during the previous year.
Residency: They must be a resident of India in the previous year.
Income Sources: The individual should have no other income apart from pension income and interest income.
Source of Interest Income: The interest income should be accrued or earned from the same specified bank from which they are receiving their pension income.
Declarations required by specified senior citizens
Specified senior citizens are required to make the following declarations to enable the specified bank to deduct TDS on their total income:
Deductions under Chapter VI-A: They need to declare any deductions they are eligible for under Chapter VI-A of the Income Tax Act, which includes deductions for investments such as LIC premiums, PPF contributions, and others.
Rebate under Section 87A: They should declare if they are eligible for any rebate under Section 87A, which provides relief to taxpayers with income below a certain threshold.
Other Income: They must confirm that they have not earned any other income apart from pension and interest income during the relevant financial year.
Total Income: They need to declare their total income, which includes both pension income and interest income from the specified bank.
Meaning of the term specified bank
If all the conditions specified under Section 194P are met, there will be no requirement for the specified senior citizens to furnish a return of income. It’s important to note that the bank must be a “specified bank” as notified by the Central Government through an official gazette.
However, it’s crucial to highlight that as per the seventh proviso to section 139(1) of the Income Tax Act, a person who is otherwise not required to furnish the Income Tax Return (ITR) is mandated to file the return if any of the following conditions are met:
Deposited amount exceeding INR 1 crore in the current account (one or more) in the previous year.
Incurred foreign expenditure exceeding INR 2 lakhs in the previous year.
Incurred expenditure on electricity exceeding INR 1 lakh in the previous year
Important Keyword: Income Tax, Income Tax Filing, Section 115BAA.
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What is Section 115BAA?
In a significant move aimed at stimulating the domestic business landscape, the Government of India ushered in Section 115BAA via the Taxation Ordinance 2019 on September 20, 2019. This strategic initiative sought to extend reduced tax rates to domestic companies, signaling a pivotal shift in the taxation paradigm.
Under the provisions of the newly introduced Section 115BAA, domestic companies were granted the option to avail themselves of a favorable tax rate of 22%, effective from the financial year 2019-20. However, this preferential rate is contingent upon compliance with specific conditions delineated by the legislation.
A notable aspect of this reform is the revision in the Minimum Alternate Tax (MAT) rate, which saw a reduction from the prevailing 18.5% to a more competitive 15%. This adjustment in the MAT rate further bolstered the appeal of the revamped tax framework, providing a more conducive environment for domestic enterprises to thrive and contribute to economic growth.
When can the Companies Opt for Section 115BAA?
Companies are empowered to opt for the benefits of Section 115BAA from the assessment year 2020-21 onwards or in any subsequent assessment year. However, it’s crucial to note that this option is exclusively available to the assessee company, rendering it a discretionary decision. Additionally, the company holds the authority to choose the assessment year for which it intends to avail the reduced tax rate.
Once the option for Section 115BAA is exercised for a specific assessment year, it becomes irrevocable and must be adhered to in subsequent assessment years. However, failure to meet any of the stipulated conditions in a previous year renders the scheme invalid for the assessee company. In such a scenario, the company loses eligibility to exercise this option in the future.
Process for Exercising Option for Section 115BAA
According to Rule 21AE, companies opting for Section 115BAA must electronically submit details using Form 10-IC to the principal officer. This submission can be made via digital signature or electronic verification code. It’s important for companies desiring to exercise this option to adhere to the procedures outlined in Rule 21AE of the IT Rules, 1962.
Form 10-IC must be furnished by the due date for filing the return of income as specified under Section 139(1) of the IT Act, 1962. For domestic companies subject to transfer pricing provisions, the due date is 30th November. For other domestic companies, the due date is 31st October.
Conditions to Satisfy for Section 115BAA
Section 10AA
Special provisions in respect of newly established Units in Special Economic Zones
Section 32(1)(iia)
Additional Depreciation it is pertinent to note that this restriction is only on additional depreciation and regular depreciation is permitted to be reduced from the total income of the assessee so long as it does not pertain to other deductions enumerated in this table
Section 32AD
Investment Linked Deduction
Section 33AB
Tea development account, coffee development account and rubber development account
Section 33ABA
Site Restoration Fund
Section 35
Expenditure on Scientific Research
Section 35 AD
Deduction in respect of expenditure on specified business
Section 35CCC
Expenditure on agricultural extension project
Section 35CCD
Expenditure on skill development project
Chapter VI A
No deductions under Chapter VI A can be made while computing the total income for the purpose of Section 115BAA, subject to the following exceptions: a. Section – 80JJAA: Deduction in respect of employment of new employees. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for the purpose of section 115BAA, there is no such restriction on section 80JJAA deduction. b. Section 80LA: Persons having eligible unit in the International Financial Services Centre referred to in section 80LA(1A) shall be allowed to claim deduction u/s. 80LA while computing total income for the purpose of section 115BAA. c. Section 80M: Deductions in respect of inter-corporate dividends. Inserted vide Finance Bill, 2020, this deduction can be availed w.e.f. AY 2021-2022 while computing total income for the purpose of section 115BAA.
New Rates Applicable to Domestic Companies
Base tax rate
Surcharge applicable
Cess
Effective tax rate
22%
10%
4%
22*1.1*1.04 = 25.168%
Under Section 115BAA, companies are exempt from paying Minimum Alternate Tax (MAT) as per Section 115JB. Furthermore, they cannot offset their tax liabilities by utilizing MAT credits. Additionally, any domestic company opting for Section 115BAA cannot avail the set-off of any brought forward depreciation for the assessment year in which the option has been exercised and for future assessments.
Important Keyword: HUF, Income Tax, Income Tax Filing, Partition of HUF.
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Partition of HUF
An HUF, or Hindu Undivided Family, is a distinct legal entity recognized under income tax laws in India. According to Section 2(31) of the Income-tax Act, 1961, an HUF is considered a ‘person’ for taxation purposes. This entity is formed based on Hindu Law and comprises all members who are lineally descended from a common ancestor, along with their spouses and unmarried daughters. Unlike other entities created by specific legislation, an HUF is established by the status of its members.
Partition refers to the dissolution of the joint status of an HUF. Under Hindu Law, there are two types of partitions: total and partial. Total partition involves the complete separation of the family’s assets and liabilities among its members, effectively ending the joint family status. Partial partition, on the other hand, entails the division of certain assets or rights among the family members while maintaining the joint status for other aspects.
Meaning of Partition
Partition under Hindu Law refers to the division of property within a Hindu Undivided Family (HUF), signifying the conclusion of its joint family status. This division involves a physical separation of assets among the members, determining the individual shares of each member. It’s important to note that the division must include the actual distribution of property to constitute a valid partition. Simply dividing the income generated by a property without physically dividing the property itself does not qualify as a partition under Hindu Law.
There are two main types of partitions recognized under Hindu Law:
Total or Complete Partition: In this scenario, all assets of the Hindu Undivided Family are physically divided among its members. Consequently, every member ceases to be part of the Hindu Undivided Family, and all properties cease to be considered Hindu Undivided Family property.
Partial Partition: A partial partition can occur in various ways. Firstly, it can be partial concerning the members of the HUF, where some members opt to separate while others remain part of the family. Secondly, it may be partial regarding the properties owned by the HUF, where only specific assets are divided among the members, while the rest remain undivided HUF property.
Right to claim Partition of Hindu Undivided Family
Under Hindu law, the partition of a joint Hindu family may occur at the behest of various individuals, including:
Coparceners: These are family members who share joint ownership of inherited property. They can initiate a partition to divide the family’s assets among themselves. Coparceners typically include male descendants up to four generations, starting from the eldest male ancestor.
Unborn Sons: Even a son in the womb of his mother at the time of partition is considered legally existent and entitled to a share equal to that of his brothers upon birth.
Female Family Members: While female members cannot demand a partition themselves, they are entitled to receive their share when the family property is divided. For example, a mother is entitled to an equal share if there is a partition among sons after the death of the father. Similarly, a wife is entitled to a share equal to that of a son during a partition between the father and sons.
Daughters: Daughters have rights equivalent to sons in certain aspects. For instance, they can claim a share in the parental dwelling house and have the right to reside there. Additionally, they have the same rights as sons to demand partition of the family property.
Procedure and Assessment after Partition of HUF
The partition of a Hindu Undivided Family (HUF) is recognized under Section 171 of the Income Tax Act. Here’s an overview of the procedure and tax implications:
Recognition of Partition:
HUF is considered undivided unless a finding of partition is given under Section 171.
If members claim partition to the Assessing Officer (AO) during assessment under Section 143 or 144, an inquiry is conducted.
The AO records a finding of total or partial partition and specifies the date of partition.
Tax Liability:
If partition occurs during the previous year:
The total income of the HUF until the partition date is assessed as if no partition occurred.
Each member or group of members is jointly and severally liable for the tax on this income.
If partition occurs after the end of the previous year:
The total income of the previous year is assessed as if no partition occurred.
Each member is jointly and severally liable for the tax on this income.
The liability is based on the portion of joint family property allotted to each member at the partition.
Recovery of Tax:
The AO can recover tax from every person who was a member of the family before partition.
Each person is jointly and severally liable for the tax on the assessed income.
This liability extends to penalties, interest, fines, or other sums related to the period up to the partition date.
Partition of assets of the HUF property
Under Hindu Law, partial partition of Hindu Undivided Family assets is recognized, allowing distribution of certain assets or among specific members. However, income tax regulations do not acknowledge partial partition. According to tax laws, Hindu Undivided Family partition must be total. In the case of partial partition, income from those assets remains clubbed and included in Hindu Undivided Family income, even if distributed among members.
Nature of the property received on partition
On partition, joint family property retains its character as such, especially when the recipient is married. Until the recipient becomes unmarried or reduces to a single person, the property maintains its joint family property status. Similarly, individual property remains as such upon inheritance. Hindu Undivided Family property, upon partition, retains its joint Hindu family status, provided the family exists during the relevant assessment year.
Important Keyword: Foreign Asset, Foreign tax credit, Income Tax Filing
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Schedule FSI and TR in Income Tax Return
Investors are increasingly diversifying their investment portfolios globally, taking advantage of simplified regulations aimed at facilitating investment in assets tailored to individual preferences. However, when investors sell these foreign holdings, they are subject to tax liabilities in both their country of residence and the country where the assets are located. As a result, it’s essential for investors to understand the disclosure requirements associated with foreign incomes to ensure compliance with tax laws.
What is Schedule FSI and TR?
Schedule FSI (Foreign Source Income)
For resident Indians, the scope of taxation extends to global incomes, meaning any earnings acquired from sources outside India are subject to taxation within the country. To ensure compliance with tax laws, resident Indians earning income from foreign sources must report such earnings under Schedule FSI when filing their Indian income tax returns. However, losses incurred outside India do not need to be reported under this schedule.
Schedule TR (Tax Relief)
When a resident Indian earns income from a foreign country, they become subject to taxation in both their resident country and the foreign country, resulting in potential double taxation. To mitigate this issue, India has established double taxation avoidance agreements (DTAA) with various nations. Under these agreements, taxpayers have two options to seek relief from double taxation:
Exemption Method: This approach entails taxing the income in only one of the two countries.
Tax Credit: Under this method, the income is taxed in both countries, and the taxpayer can claim a credit for the taxes paid in the foreign country against their tax liability in their resident country.
India typically follows the tax credit method, allowing residents to claim credit for taxes paid abroad when filing their Indian tax returns. Such foreign tax credits claimed must be disclosed under Schedule TR.
Note: Taxpayers are required to report foreign income and taxes paid outside India in Indian Rupees. According to Section 115, for currency conversion, taxpayers should use the Telegraphic Transfer Buying Rate (TTBR) of the State Bank of India on the last day of the month preceding the month in which the income becomes due.
Who is liable to file Schedule FSI and TR?
If a resident individual earns income from a foreign source, it is mandatory to disclose the details in Schedule FSI, irrespective of whether they intend to claim any credit for taxes paid outside India. Additionally, if a resident individual seeks to claim a credit for taxes paid outside India, they must provide the particulars of the relief claimed in Schedule TR.
Let’s illustrate this with an example:
Ms. Diya, a resident of India, has received dividend income from her foreign shareholdings in the USA. Additionally, she has paid taxes on the dividends received in the USA. However, being an Indian resident, she is obligated to report her global income in her Indian income tax return. Consequently, she can claim a credit for the tax paid in the USA by submitting Form 67 and must pay taxes on this income in India.
When filing her return, Ms. Diya must first complete Schedule FSI. In this schedule, she should enter the dividend received in Indian Rupees under the head “Income from Other Sources” and also disclose any taxes paid outside India, if applicable.
After completing the reporting in Schedule FSI, if Ms. Diya has paid taxes outside India and claimed the credit for such taxes, the relevant details will automatically appear in Schedule TR.
Relevant period for Reporting
It’s crucial for taxpayers to report their foreign incomes for the applicable financial year, which spans from April 1st to March 31st.
For instance, if a taxpayer is filing their return for the Financial Year 2022-23, they should report any foreign incomes earned during the period from April 1st, 2022, to March 31st, 2023. This ensures accurate and comprehensive reporting of all income earned globally within the specified financial year.
Key points to keep in mind while filing these schedules
When filing their taxes, taxpayers must adhere to several important guidelines regarding their foreign incomes:
Accuracy of Income and Taxes: The reported income and taxes should align accurately with the details provided in Form 67 submitted by the taxpayer. This ensures consistency and reliability in the reported figures.
Disclosure of Foreign Assets: Taxpayers are required to disclose any foreign assets held in Schedule FA, from which the income is derived. This disclosure is mandatory and helps ensure transparency in reporting foreign income sources.
Accurate Categorization of Incomes: Taxpayers must categorize their earned incomes correctly, distinguishing between various sources such as salaries, dividends (other source income), capital gains, and more. Proper categorization ensures clarity and compliance with tax regulations.
Correct Entry of DTAA Article Number: If taxpayers are claiming tax credit under the Double Taxation Avoidance Agreement (DTAA), they need to correctly enter the relevant article number in their tax filings. This ensures that the tax credit is claimed in accordance with the provisions of the DTAA, facilitating smoother tax compliance.
Important Keyword: E-Verify, Income Tax Compliance, Income Tax Filing, Income Tax Returns.
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Responding to Filing of Income Tax Returns
The Income Tax Department (ITD) employs a notice system via the compliance portal to address non-filing of Income Tax Returns (ITRs) by identified individuals. Through an e-verification facility, the department identifies individuals who are obligated to file their ITR but have yet to do so. This proactive approach by the Compliance Portal assists both taxpayers and the department in identifying instances of non-filing of returns.
Taxpayers are required to respond on the compliance portal regarding the status of their Income Tax Returns filing. They must indicate whether the return has been filed or if it is currently in the process of being filed. This interaction between taxpayers and the Compliance Portal is crucial for ensuring compliance with tax regulations and facilitating the efficient functioning of the tax system.
By promptly responding to notices and providing accurate information on the compliance portal, taxpayers contribute to a transparent and effective tax administration process. This collaborative effort between taxpayers and tax authorities promotes accountability and strengthens the integrity of the tax system.
Steps of submitting the Income Tax Return non-filing response on compliance portal
To access the compliance portal, use your valid login credentials. Once logged in, navigate to the e-Verification tab.
In the e-Verification section, you’ll find a list of identified cases. Choose the relevant case and click on “View” to proceed.
Under the Response section, you’ll need to select one of the options from the drop-down menu.
If you choose “ITR has been filed,” provide the following details:
Mode of Filing (paper or e-Filed).
Ward and City (if filed by paper).
Date of Filing.
Acknowledgment number. Feel free to enter any remarks if necessary, then click on Submit.
Alternatively, if you select “ITR has not been filed,” you’ll need to provide a reason under the Reason section. Choose either of the following responses:
Return under preparation.
Not liable to file the return of Income. Once you’ve provided the appropriate response, click on Submit to complete the process.
