TDS on salary and New Income Tax rates: Highlights

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• An employee can change the option of tax structure at the time of filing the ITR
• TDS will get adjusted accordingly

The Central Board of Direct Tax (CBDT) recently came out with a circular, offering clarifications for tax-paying employees on how they can migrate to the new concessional tax regime, which was announced in this year’s Union Budget.

The lower income tax rates under the new regime came to effect from April 1, 2020. However, there were many concerns raised on how employees can choose to opt between the old and regime.

In an April 13 release, the CBDT said employees, who do not have any income from a business, can opt for the new concessional tax slabs or the old regime by intimating the deductor (employer) through a declaration form.

The declaration will also help employers determine whether to deduct TDS as per the old regime or the new concessional rates.

Employees have an option to choose between the new tax regime and the old one. Experts have already said that each employee/taxpayer may opt for any of the two, based on investments.

Coming to the new slabs under the concessional tax regime, those earning Rs 2.5 lakh will have to pay no tax while people earning Rs 2.5-5 lakh will have to pay 5 per cent tax.

Individuals in the income bracket of Rs 7.5-10 lakh will pay 15 per cent tax. People earning over Rs 10-12.5 lakh will be taxed at 20 per cent and those earning Rs 12.5-15 lakh will pay 25 per cent taxes. Finally, people earning above Rs 15 lakh will pay 30 per cent tax under the concessional tax regime.

To sum up the clarifications: 1) Employees,  who do not have any income from a business, can choose to inform their employer through a declaration if they want to opt for the new tax regime for deducting tax at source on TDS from salaries.

However, employees who do not submit any declaration to the employer will continue to be charged under the old regime as earlier.

2) The IT department also clarified that an employee can change the tax structure at the time of filing income tax and that the amount of TDS will be adjusted accordingly.

“The deductor shall compute his total income, and make TDS thereon in accordance with the provisions of section IISBAC of the Act. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 11SBAC of the Act,” the CBDT notification said.

3) Another important clarification by the tax department was related to TDS. Once employees make their intention clear to opt for the concessional rates, it will remain the same for TDS purpose for the year without any scope of modification.

“It is also clarified that the intimation so made to the deductor (employee) shall be only for the purposes of TDS during the previous year and cannot be modified during that year,” it said.

“However, the intimation would not amount to exercising an option in terms of sub-section (5) of section 115BAC of the Act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for that previous year. Thus, option at the time of filing of return of income under sub-section (1) of Section 139 of the Act could be different from the intimation made by such employee to the employer for that previous year.”

ITR Form for AY 2020-21: new disclosures that taxpayers need to make in new ITR forms

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The changes in this year’s ITR forms are significant because it is seeking more disclosures.
  • More disclosures are aimed at improving income tax compliances & e-assessments.
  • In AY 2018-19, 58.7 million returns were filed, out of which about 23.7 million people filed returns with no tax liability

While it may be commonplace in Uncle Sam’s country, India is slowly getting used to the idea of disclosing more information to the taxman. In the last five years, income tax return (ITR) forms have started asking for more details to ensure that your spending patterns match your tax return profile.

However, the department seeking details of a valid passport or foreign travel with spends of over ₹2 lakh has left many with a feeling of discomfort as it further complicates the filing process. Many experts also worry about the privacy and security issues. “Data protection law for individuals in our country is not like that in developed countries such as the US. Also, given that the Personal Data Protection Bill 2019 is under consideration, many people are worried and skeptical when it comes to divulging so much information,” said Divya Baweja, partner, Deloitte Haskins and Sells LLP, an accounting firm.

Whether asking for more information will bear fruit and result in better tax compliance continues to be a question mark. The fact remains that you need to provide additional details, for which you have to be on top of many things, including your spending patterns. Now, if you have spent more than ₹2 lakh on foreign travel or ₹1 lakh on electric bills in the current financial year (FY), you will need to furnish these details. The new ITR forms notified by Central Board of Direct Taxes (CBDT), for the upcoming assessment year (AY) 2020-21, require you to disclose such information. If your spending patterns don’t line up with your tax declarations, it may land you in hot water.

The objective is to gather more and more information and make the process of selecting cases for scrutiny easier.

New ITR Forms: ITR-1 &  ITR4

ITR-1 which is also known as “Sahaj” can be used by an individual whose incomes primarily include salary income and whose total income does not exceed Rs.50 lakh during the FY. On the other hand ITR-4 can be used to file returns by resident individuals, Hindu Undivided Family (HUFs) and firms (other than LLP) having a total income of up to Rs.50 lakh from business and profession and filing return under presumptive taxation scheme.

There are two major changes in the ITR Forms – first, an individual taxpayer cannot file return either in ITR-1 or ITR4 if he is a joint-owner in house property, second, ITR-1 form is not valid for those individuals who have deposited more than Rs.1 crore in bank account or has incurred Rs2 lakh or Rs1 lakh on foreign travel or electricity respectively.

Additional info

So far, the government has notified ITR-1 and ITR-4 forms for tax filing for FY 2019-20 or AY 2020-21. However, you will have to wait to file returns as online utilities are not yet updated. The new ITR forms ask you to provide a valid passport number, if you have one; and details of your employer like name, nature of business, address and TAN.

The objective is to gather more and more information about an individual, which will help the tax department carry out specific enquries and make the process of selecting cases for scrutiny easier. “These alterations may be happening because the government is slowly moving towards e-assessments and is thus seeking greater clarification from taxpayers in the return itself to save time and costs,” said Shailesh Kumar, director, Nangia Andersen Consulting Pvt. Ltd, a business tax advisory firm.

Other experts echo the thought. “The changes reflects the continuing journey of the government towards simplification and automation. It has already started providing pre-filled return forms. These disclosures will help capture the complete details of taxpayers and the validation of their financial information, wherever such information is available from more than one source,” said Kuldip Kumar, partner and leader, personal tax, PwC, an accountancy firm.

Data is the new oil

In a computerised environment, tax returns are now filed online and data is something that the government wants to be best friends with to tackle the problem of tax evasion. At the front-end, it is seen as asking for more information from you, the tax payer. However, this isn’t the first time the ITR forms have been amended. Every year, CBDT notifies the forms carrying amendments in accordance with the Finance Act. The aim is to increase the tax base as only a tiny percentage of the population files returns. Also, among the people who file returns, about 40% show that they have no tax liability.

At the back-end, the government is taking steps to strengthen the compliance ecosystem. For instance, in 2004, as a measure to widen the tax base, the concept of Annual Information Return (AIR) filing was introduced. AIR is a statutory requirement where mutual funds, institutions issuing bonds and registrars or sub-registrars, and so on are required to record and report high-value financial transactions of individuals to the tax department.

In 2006, a project for enabling e-filing of ITR was launched. Further, in 2007, the government launched integrated taxpayer data management system (ITDMS). Under this system, data from multiple sources is collected in a complex process for drawing a complete profile of the taxpayer. A non-filers monitoring system (NMS), focusing mainly on non-filers with potential tax liabilities, was also initiated by the department. The system assimilates and analyses in-house information as well as transactional data received from various sources like ITR and AIR filed by third parties and other departments to identify people who had undertaken high value financial transactions but did not file their returns.

Taking it further, in the year 2017, the tax department initiated “project insight” to strengthen the non-intrusive information-driven approach for improving tax compliance and effectively utilizing information in tax administration. Under this project, an integrated data warehousing and business intelligence platform, which includes Income Tax Transaction Analysis Centre (INTRAC) and Compliance Management Centralized Processing Centre (CMCPC), has been set up. According to the department’s website, INTRAC leverages data analytics in tax administration and performs tasks related to data integration, compliance management, enterprise reporting and research support. CMCPC uses campaign management approach (consisting of emails, SMS, reminders, outbound calls and letters) to support voluntary compliance.

Will disclosures help?

The government wants you to divulge more information for better scrutiny. However, some experts feel that this will only increase the burden on the tax payers, who are already struggling with a very complicated system of tax filing. “This is overreach and intrusion, and it’s a wasteful exercise. For instance, many people from India go to gulf countries for labour work; if such people get notices, they won’t know how to respond. There is a lot of duplication. The department has already acquired most of this information through AIR filed by different entities,” said Himanshu Sinha, partner, Trilegal, a law firm.

While giving out more information makes things more difficult, such information will be able to trace non-filers and is intended to bring more compliances.

CBDT extends till Jan 31 deadline for compounding of I-T offences

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Taxpayers get one more chance to clear their tax dues.

The CBDT has extended till January 31 the last date for taxpayers to avail a “one-time” facility to apply for compounding of income tax offences, an order issued on Friday said.

The earlier deadline was December 31, 2019.

In I-T parlance, compounding means that the taxman does not file a prosecution case against the offender or tax evader in court in lieu of payment of due taxes and surcharges.

The decision to extend the last date was taken “in view of references received from field formations, including requests made by ICAI (Institute of Chartered Accountants of India) chapters wherein it has been brought to the notice of the CBDT that the taxpayers could not avail the benefit of the one-time relaxation window due to genuine hardships,” the order issued by the Central Board of Direct Taxation (CBDT) said.

The order was accessed by PTI.

Final opportunity
Hence, the order stated, the date has been extended to give a final opportunity to such taxpayers and reduce the pendency of existing prosecution cases before the courts.

Applications, as per the procedure of the scheme, are to be filed before the appropriate competent authority that is either a principal chief commissioner or a chief commissioner or a principal director general or director general of the Income-Tax Department “on or before” January 31, 2020.

The CBDT, while launching the scheme in September last year, had said that this “one-time measure” is being undertaken to mitigate unintended hardship to taxpayers in deserving cases and to reduce the pendency of existing prosecution cases before the courts.

“Cases have been brought to the notice of CBDT where the taxpayers could not apply for compounding of the offence as the compounding application was filed beyond 12 months,” it had said.

The riders
The relaxation, however, shall not be available in respect of an offence which is generally or normally not compoundable, indicating instances of serious tax evasion, financial crime, terror financing, money laundering, possession of illegal foreign assets, benami properties or conviction by a court in the past.

The CBDT circular added that application for compounding of an income tax offence can be filed in cases where: Prosecution proceedings are pending before any court of law for more than 12 months or any compounding application for an offence filed previously was withdrawn by the applicant solely for the reason that such application was filed beyond 12 months or any compounding application for an offence had been rejected previously solely for technical reasons.

The CBDT, which frames policy for the tax department, had earlier said that compounding of offences is “not a matter of right” and the department can extend such a relief only in certain cases.

This will be done keeping in view factors like “conduct of the person, the nature and magnitude of the offence on the context of the facts and circumstances of each case,” it had said.

Faceless scrutiny of income tax return.. Here is all you need to know

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Individual will be required to respond to the notice or order received through the registered account only.

The E-assessment Scheme 2019 aims to eliminate human interface, reduce corruption and bring in transparency.

The idea of faceless E-assessment was mooted in the Budget 2018 by the late Finance Minister, Arun Jaitley, who announced the proposal to introduce the new assessment scheme to replace the old assessment system of manual scrutiny and face-to-face interaction with tax authorities.

The new scheme, called the ‘E-assessment Scheme, 2019 (Scheme), was notified by CBDT on 12 September, 2019. It will be an online system, which will use artificial intelligence, machine learning and technology tools to randomly and automatically allocate cases for assessment within the Income Tax Department. It aims to eliminate human interface, reduce corruption and bring in transparency.

 

Salient features of the Scheme:

The Scheme will have dedicated E-assessment centres such as the National E-assessment Centre, Regional E-assessment Centre, assessment units, verification units, technical units and reviewer units with each centre and unit having a clearly defined role and process to follow.

# National E-assessment Centre (NEC): NEC will be a single point of contact for the taxpayer as well as for all units conducting assessment. NEC will interact with the taxpayer to obtain evidence, issue notices, receive information, issue draft assessment order, raise demand, etc, and also interact with all units for smooth conduct and completion of assessment proceedings. All communication between the NEC, the taxpayer and various units would be done online and would be digitally signed.

# Regional e-assessment Centre (REC): REC will ensure smooth conduct of E-assessment under the region of a Principal Chief Commissioner.

# Assessment units (AU): AU will perform the function of scrutinising tax returns, analysing submissions made and evidence submitted by the assessee and make requests, if any verification or technical assistance is required.

# Verification units (VU): VU will perform the function of making enquiry, cross verification, examination of records or witnesses and recording statements, as may be required for verification.

# Technical units (TU): TU will give advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or other technical matter required for conducting assessments.

# Review units (RU): RU will review draft assessment order (DAO) to check if all material evidence, relevant points of fact and law, relevant tax case laws have been included in the DAO. It will also ensure the arithmetical accuracy of modifications proposed and perform other functions as may be required for review.

Procedure for assessment:

NEC will issue notice under section 143(2) online by uploading the digitally signed copy on the registered income tax account or by sending notice to the assessee’s registered email address or uploading the copy on a mobile app. A real time alert will be sent through SMS or the mobile app informing the same to the assessee

The assessee is required to respond within 15 days of receipt of notice.

On the issue of a notice, NEC will allocate the case to any AU through an automated allocation system. The AU will then identify issues, seek clarifications from the assessee and may request for verification or enquiry through VU or seek technical assistance through TU. Accordingly, NEC will initiate request to the respective units through an automated allocation system.

On receipt of all information, AU will prepare a DAO accepting the returned income or modifying the returned income or send the DAO to NEC for review. NEC will accordingly finalise the order or modify it or send the DAO to RU for review. Accordingly, it may send the DOA along with demand notice and penalty notice, where applicable, to the assessee or issue a showcause notice to the assessee.

In case of a showcause notice, the assessee will submit the response within the timeline specified in the notice. Considering the response, the NEC may either finalise the DAO or ask the AU to prepare a revised DAO.

On receipt of the revised DAO, the NEC will verify if any modification prejudicial to the taxpayer’s interest is proposed. Accordingly, the NEC will give an opportunity to the assessee to show cause as to why assessment should not be finalised as per the revised DAO; otherwise, NEC will finalise the assessment.

On completion of assessment, all records will be electronically transferred to the jurisdictional assessing officer (AO) only for imposition of penalty, recovery of demand, rectification of mistake, giving effect to appellate orders, submission of remand report or representation or for placing of any record before Commissioner (Appeals), Appellate Tribunal or Courts and for initiating prosecution or filing of complaint before the courts.

During the course of assessment proceedings, any unit may initiate penalty proceedings for non-compliance of any notice, direction or order and may recommend to the NEC to serve notice to the assessee.

Any appeal from the order of the NEC will be filed before the Commissioner (Appeals) having jurisdiction over the jurisdictional Assessing Officer.

During the assessment proceedings, no personal appearance will be allowed before the income-tax authority at NEC or any other units. In case personal hearing is required, to make oral submission or present the case, it shall be done only through video conferencing.

The E-assessment Scheme, 2019 is a welcome step towards standardisation and easing of assessment procedure. However, its success and ensuring that ease of doing business is achieved will depend on its careful implementation

CBDT extends the due date for filing ITRs & Tax Audit Reports from 30 th September to 31, October 2019

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The Central Board of Direct Taxes (CBDT) has decided to extend the deadline for filing of ITRs and Tax Audits Reports by a month. Given the relentless demands by Chartered Accountants (CAs) and tax consultants, the CBDT has given a breather till October 31. It will also provide some respite to smaller companies too, who are struggling with GST filings.

Last night, the CBDT tweeted: “On consideration of representations recd from across the country, CBDT has decided to extend the due date for filing of ITRs & Tax Audit Reports from 30th Sep, 2019 to 31st of Oct, 2019 in respect of persons whose accounts are required to be audited. Formal notification will follow”.

This category of ITR is to be filed by those entities that are assessed under section 44AB of the Income Tax Act such as companies, partnership firms, proprietorship among others and their accounts are to be audited before filing.

The new deadline is also required because the CBDT has been intermittently changing the background software required for filing the ITRs.

There was a change in the ITR 6 software utility. Since all tax-filing is now software-driven, the CBDT will require some time to rework the filing process due to the changes in the software.

The old belief that there would be loss in revenue of the Government, if there is a delay in filing ITRs and Tax Audit Reports is wrong as a considerable share of revenue has already got collected due to Tax Deducted at Source and Advance Tax payments.

Filing ITRs and Tax Audit Reports is primarily an administrative exercise to inform the Income Tax Department about the payable tax. By extending the deadline, there would be no revenue loss to the Government. It will give some relief to the CAs fraternity and smaller companies who are struggling with various tax compliances, he said.

 

Read the Original CBDT Notification

Deadline to file income tax return for FY2018-19 extended to August 31

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Highlights
1. The finance ministry has extended the deadline for filing income tax return
2. New deadline for ITR submission for FY 2018-19 extended to August 31
3. This year CBDT had extended the deadline for employers to file their TDS returns
4. If the ITR is filed between January 1 and March 31, then late filing fees of Rs 10,000 will be levied

The finance ministry has extended the deadline for filing income tax return (ITR) for FY2018-19 by individuals to August 31, 2019 from July 31, 2019. The extension is a much needed relief as there were multiple problems being faced by individuals in filing returns by July 31. July 31 was the deadline to file income tax returns for most individuals and HUFs. This is that category of individuals and HUFs who are not mandatorily required to get their accounts audited for tax purposes.

Many chartered accountant/tax practioner societies had appealed to the government to extend the ITR filing deadline to provide sufficient time to individuals to file ITR properly. There are many reasons for this.

This year CBDT had extended the deadline for employers to file their TDS returns, i.e., Form 24Q, from May 31, 2019 to June 30, 2019 and consequently deadline of issuing Form 16 by the employer was also extended from June 15, 2019 to July 31, 2019. Consequently, employees wait employees waiting to get their Form 16s to file their ITRs were left with only 21 days to file their tax return by the earlier deadline of July 31.

If the ITR is not filed by an individual before the expiry of the deadline, which is usually July 31, then the individual would have to pay a late filing fee of Rs 5,000, if filed by December 31. If the ITR is filed between January 1 and March 31, then late filing fees of Rs 10,000 will be levied.

With extension of the deadline, individuals will have more time to file their ITRs without worrying about late filing fees.

Even though it is easier to fill salary details in ITR-1 this year as individuals are required to just copy-paste the same from Form 16, sources of interest income are required to be provided in greater detail. This could be a tedious process.

Further, while the tax department has started providing pre-filled XML for ITR forms 1 to 4, the pre-filled XML file for ITR-2 does not contain salary details which individuals have to fill-in by themselves. ITR-2 asks individuals to provide detailed break-up of salary such as basic, HRA and so on received by choosing the options from the drop-down menu.

The calculation of long-term capital gains (LTCG) tax on equity shares and equity mutual funds is also a complicated process due to the grandfathering clause which came into effect from FY2018-19 onwards. In addition to that, individuals were also required to provide details such as ISIN code/Folio number, name of shares/units and so on for sale of equity shares and equity mutual funds. However, later on this was made optional.

Read Original Circular

Source: Economic Times

Income tax department eyes over Rs 100 bn from ‘struck off’ firms

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The income-tax (I-T) department is estimating tax recovery of over Rs 100 billion from companies that have been struck off from records of the Registrar of Companies (RoC) last year.

The tax department is in the process of filing a petition before the National Company Law Tribunal (NCLT) for restoration of registration in as many as 50,000 such companies.

The RoCs had struck off 300,000 companies after it was found they had not filed their statutory returns. Directors of these companies have been prohibited from holding directorships in any other company.
The move follows Central Board of Direct Taxes’ (CBDT) directive to identify, process and file petition to restore these companies by August 31. The board also asked the Ministry of Corporate Affairs (MCA) not to oppose the restoration application in the tribunal, as such a move would refrain them from launching tax recovery proceedings against these firms.
“Several of these companies are restricted to operate their bank accounts and movable and immovable properties until they are restored. The restoration will compel these firms to make relevant disclosures of credentials under Companies Act, and then accordingly tax proceeding will be initiated for tax recovery,” said an I-T official.

Tax industry experts, too, believe that restoration is essential to recover taxes due from these firms.

“The tax department is contesting the strike off of so-called companies as in several cases there would be pending tax demands that cannot be recovered if the company is not active. Also, even in cases where genuine companies have been struck off, with the best intentions, the companies would not be able to pay the tax dues as all their assets including bank accounts would be non-operational,” said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.

The I-T department is of the view that these companies abused their corporate structure by creating multi-layering during  demonetisation for cash deposits. I-T probe also reveals that many individuals have used these firms for siphoning money or converting undisclosed cash to legitimate money post the note ban.

Official data say that 35,000 companies deposited and withdrew cash worth over Rs 170 billion after the note ban, through about 60,000 bank accounts.

It was noticed that the accounts that had negligible balance on November 8, 2016, have seen significant cash deposits and withdrawal during this period.

According to people with knowledge of the matter, along with restoration, the I-T department will also start issuing notices to these firms under Section 179 of the I-T Act, which makes the company’s directors/promoters liable to pay dues on behalf of the firm, without adjudication by the court.

Further, tax recovery officers have been asked to conduct survey operations on select firms where the tax demand is high. In cases where assets or bank accounts are lying abroad, the department will seek the foreign tax authority’s assistance to recover tax claims with the provisions in the relevant treaty, said another senior official.

Sources said that in a meeting of a task force on shell companies set up by the Prime Minister’s Office, on November 30 last year, the director general of corporate affairs (DGCoA) had suggested that the tax department approach RoCs for taking up the matter of reviving these companies. It was also suggested that revenue considerations should weigh in favour of restoring them.

Apart from these companies, another set of above 200,000 firms have been sent notices and action will soon be taken against them. However, the tax department wants MCA to keep them posted before striking off any company, since there could be tax dues.

 Taxing Affair
  • I-T pursuing restoration of 50,000 struck-off companies
  • RoCs had struck off 300,000 companies, prohibited their directors from holding directorship in other firms
  • Tax industry experts believe that restoration is essential for recovery of taxes from these firms
  • Restoration will allow companies to operate bank account, assets
  • After restoration, I-T to issue notices under Section 179 of I-T Act
  • Directors/promoters would be liable to pay tax dues
  • These firms abused corporate structure to facilitate significant cash transactions post note ban

Source: Business Standard