Taxation – Page 4 – Cogent Prof

Category: Taxation

Filing Taxes as an NRI: A Guide to Relevant Returns and Forms

Navigating the Indian income tax filing process as a non-resident Indian (NRI) can be intricate due to specific regulations and forms. This comprehensive guide aims to condense crucial information, highlighting the essential returns and forms that NRIs must be familiar with to ensure a seamless tax compliance experience.

Income Tax Returns for NRIs

The main income tax return forms relevant for NRIs are:

ITR-1 – This is for resident and non-resident individuals having total income up to Rs.50 lakhs from salaries, one house property, interest, family pension, etc. This simplest ITR form cannot be used by NRIs having income from business/profession or capital gains.

ITR-2 – This return form is for individuals and HUFs not having income from business or profession. All types of incomes applicable for NRIs can be reported in this form like rental income, capital gains, foreign assets/incomes, etc. It is applicable for non-resident individuals with income over Rs.50 lakhs.

ITR-3 – This is applicable for NRIs having income under the head “Profits and Gains from Business or Profession”. So any NRI with turnover above the threshold limit (Rs.10 lakhs or Rs.25 lakhs depending on business type) has to file ITR-3 regardless of overall income levels.

The major challenge is to identify which ITR form correctly matches the NRI’s income profile. So they should carefully assess their various income sources before selecting the applicable ITR.

Key Forms to be Furnished by NRIs

Apart from income tax returns, NRIs may also be required to furnish other forms and declarations such as:

Form 12BB – For providing investment/exemption details to employers for TDS calculations
Form 16/16A – Tax deduction certificate from employer/clients to track TDS credits
Form 26AS – Consolidated annual tax statement from IT Department
Form 10E – For income tax relief on salary arrears/advance
AIS – Annual Information Statement received via email from IT Dept
Form 3CB-3CD: Tax audit report from chartered accountant
Form 3CEB: CA certificate for international transactions
Form 3CE: CA certificate regarding royalty/FTS income

The deadline for submitting audit forms (No.6, 7 & 8 mentioned above) is one month prior to the due date for filing ITR. Failure to comply with this requirement may result in penalties ranging from Rs.1-2 lakhs, depending on the duration of the default.

Navigating the complexities of NRI tax filing can be daunting. Therefore, staying informed about the latest regulations and seeking professional expertise can prove beneficial in optimizing tax liability.

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Understanding Residential Status Under Indian Income Tax Law

The determination of an individual’s residential status under Indian income tax law is a crucial factor influencing their tax liability, whether they are categorized as a resident or non-resident. Section 6 of the Income Tax Act, 1961, outlines essential rules for establishing residential status:

1. Resident An individual satisfies the basic conditions to be considered a resident if:

They are in India for at least 182 days in the relevant financial year.

They are in India for at least 60 days (120 days for NRIs with income over Rs 15 lakhs) in the relevant financial year AND at least 365 days in the preceding 4 years. For NRIs/PIOs visiting India with income under Rs 15 lakhs, this 60 day rule is relaxed to 182 days.

2. Non-Resident
An individual who does not meet the above residential status tests would be considered a non-resident. They are subject to different tax treatment than residents.

3. Deemed Resident There is also a concept of “deemed resident” under Section 6(1A) for Indian citizens with income over Rs 15 lakhs who do not meet the basic resident conditions but are not liable to tax in any other country.

To illustrate these rules, the document provides some examples. An Indian citizen staying for 54 days in India with income over Rs 15 lakhs would be deemed a resident since they do not pay tax anywhere else. However, a PIO visiting India for 181 days with income below Rs 15 lakhs would be a non-resident since they fail the 182 day test applicable to them instead of the regular 60 day rule.

Establishing residential status can become intricate due to numerous exceptions and special circumstances. Generally, being a resident for tax purposes in India is determined by substantial time spent in the country or maintaining strong connections, as demonstrated by previous visits. Individuals with limited presence, primarily for temporary reasons, are categorized as non-residents.

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Liberalised Remittance Scheme (LRS)

The Liberalized Remittance Scheme (LRS) is a scheme introduced by the Reserve Bank of India (RBI) that allows resident individuals in India to remit a certain amount of money abroad for various purposes without seeking prior approval from the RBI. The LRS aims to facilitate resident individuals to diversify their investment portfolio and engage in international financial transactions.

The LRS can be used for a variety of purposes, including travel, education, medical treatment, gifts, maintenance of relatives abroad, and investment in stocks and real estate outside India.

Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 /- per financial year (April – March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, dated May 26, 2015, within the limit of USD 2,50,000 only.

Purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility:

Individuals can avail of foreign exchange facility for the following purposes within the LRS limit of USD 2,50,000 on financial year basis:

Private visits to any country (except Nepal and Bhutan)
Gift or donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
Expenses in connection with medical treatment abroad
Studies abroad
Any other current account transaction which is not covered under the definition of current account in FEMA 1999.

The AD bank may undertake the remittance transaction without RBI’s permission for all residual current account transactions which are not prohibited/ restricted transactions under Schedule I, II or III of FEM (CAT) Rules, 2000, as amended or are defined in FEMA 1999. It is for the AD to satisfy themselves about the genuineness of the transaction, as hitherto.

However, for the purposes i.e., Emigration, Expenses in connection with medical treatment abroad & Studies abroad, the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme as provided in regulation 4 to FEMA Notification 1/2000-RB, dated the 3rd May, 2000 (here in after referred to as the said Liberalised Remittance Scheme) if it is so required by a country of emigration, medical institute offering treatment or the university, respectively:

LRS scheme for NRIs

The LRS scheme applies to the residents of India, and thus, the remittance takes place through a savings account. Non-Residential Indians are not supposed to have any savings accounts in Indian banks. Thus, they cannot remit funds from India, but they are permitted to transfer funds from NRO, NRE, and FCNR accounts abroad as per the regulations and requisite documentation:

They are permitted to transfer up to USD 10,000 from an NRO account.
No limitations apply to payments made from an NRE or FCNR account.
The Liberalised Remittance Scheme has made it simpler for Indian citizens to manage financial transactions abroad.
You can use the funds for debt repayment, education, and other needs. You can also invest outside of India, which is a great method of diversifying your investment portfolio.

Tax on Liberalised Remittance Scheme (LRS)

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# 1/3rd reduced for Land value.

Form 15CA and Form 15CB

Conditions under New GST Rate for the Builders:

Form 15CA and 15CB which does not require RBI approval will NOT be required to be furnished by an individual for remittance.
List of payments of specified nature mentioned in Rule 37BB, which do not require submission of Forms 15CA and 15CB, has been expanded from 28 to 33 including payments for imports.
Form No.15CB will only be required for payments made to non-residents, which are taxable and if the payment exceeds Rs.5 lakh.

A person responsible for making a payment to a non-resident or to a foreign company has to provide the following details:

When payment made is below Rs 5 lakh: For such payments information is required to
be submitted in Part A of Form 15CA

When payment made exceeds Rs 5 lakh:

Following documents is required to be submitted:

Part B of Form 15CA has to be provided
Certificate in Form 15CB from an accountant
Part C of Form 15CA

When the payment made is not chargeable to tax under IT Act: Part D of Form 15CA is required to be submitted.

In the following cases, no submission of information is required:

The remittance is made by an individual and it does not require prior approval of Reserve Bank of India [as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 (42 of 1999) read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000] T
The remittance is of the nature specified in the list below:

Overall list of payments where no forms 15CA and 15CB are required are as follows (Rule 37BB):

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Parts of Form 15CA

The form is divided into four parts, to be filled based on the scenario that is prevalent at the time. The four parts are:

Part A

To be filled irrespective of whether taxable or not and the remittance or its aggregate does not exceed Rs. 5 lakh in a financial year.

Part B

To be filled when the Certificate under Section 195(2)/195 (3)/197 of the Income Tax Act has been obtained from the Assessing Officer.

Part C

To be filled when the remittance or its aggregate exceeds Rs. 5 lakh in a financial year and that remittance is chargeable to tax.

Part D

Is filled when as per the domestic laws, the remittance is not chargeable to tax.

Illustrations:

1. Arjun wants to get his heart surgery done at United Kingdom. Up to what limit Foreign Exchange can be drawn by him and what are the approvals required?

2. Mr. Rana, an Indian Resident individual desires to obtain Foreign Exchange for the following purposes:

(A) US$ 120,000 for studies abroad on the basis of estimates given by the foreign university.

(B) Gift Remittance amounting US$ 10,000.

Whether he can get Foreign Exchange and if so, under what condition(s)?

Remittance of Foreign Exchange for studies abroad: Foreign exchange may be released for studies abroad up to a limit of US $ 250,000 for the studies abroad without any permission from the RBI. Above this limit, RBI’s prior approval is required. Further proviso to Para I of Schedule III states that individual may be allowed remittances exceeding USD 250,000 based on the estimate received from the institution abroad. In this case since US $ 120,000 is the drawal of foreign exchange, so permission of the RBI is not required.

Gift remittance exceeding US $ 10,000: Under the provisions of Section 5 of FEMA 1999, certain Rules have been made for drawal of foreign exchange for current account transactions. Gift remittance is a current account transaction. Gift remittance exceeding US $ 250,000 can be made after obtaining prior approval of the RBI. In the present case, since the amount to be gifted by an individual, Mr. Rana is USD 10,000, there is no need for any permission from the RBI.

Declared for residential use to Regulatory Authority Part of a Residential Real Estate Project (RREP) where commercial apartment carpet area is <=15% of total

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08 FebAllTaxation

GST Implications for Real Estate

The Indian real estate sector has complex Goods and Services Tax (GST) implications based on project and apartment type. This article summarizes GST rates and definitions for key real estate terms.

Residential Apartments face 5% GST (without input tax credit) if the following conditions are met:

Declared for residential use to Regulatory Authority
Part of a Residential Real Estate Project (RREP) where commercial apartment carpet area is <=15% of total

Commercial Apartments face 18% GST (with input tax credit)

Affordable Housing Units up to 60 sq.mts (645 sq.ft) in metro cities or 90 sq.mts (969 sq.ft) in other cities, with value <= 45 Lakhs face 1% GST (without input tax credit).

Real Estate Projects (REPs) refer to development of apartments for sale. Gross value of an apartment includes construction cost, land cost, preferential location charges, development charges, parking charges, etc.

When can resolution be sought under DRP?

The entry of international businesses into the Indian market not only expands the avenues for tax collection in the country but also underscores the need for a robust Revenue department capable of effectively addressing growing disputes. The Finance Bill of 2009 introduced an extra avenue to aid in the resolution of transfer pricing matters through the establishment of the Dispute Resolution Panel (DRP).

The DRP serves as an Alternative Dispute Resolution (ADR) mechanism specifically designed for addressing disputes pertaining to Transfer Pricing in International Transactions. Its establishment aims to ensure the prompt and equitable resolution of cases in a fair and just manner.

GST Rate for Builders for the supply of Residential or commercial projects:

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# 1/3rd reduced for Land value.

GST Rate for Builders for the supply of Residential and commercial projects:

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Conditions under New GST Rate for the Builders:

Do not avail of Input tax credit and the same report is ineligible in GSTR 3B
 GST has to be paid on the transfer of Development Rights under RCM by the
Builder
 At least 80% of Procurement should be bought from registered vendors other than
TDR, long-term lease premium, salami, FSI, electricity, high-speed diesel, motor
spirit, and natural gas.
 GST has to be paid @18% on purchases from an unregistered person when the
purchases fall less than 80% rule other than cement. For cement GST rate @ is 28%.

GST on Joint Development Agreement(JDA):

JDA for Builder Perspective:

Area Sharing Agreement

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JDA for Landowner Perspective:

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Safe harbour rules

SAFE HARBOUR RULES

To curb the rising frequency of transfer pricing audits and protracted disputes, the Finance (No.2) Act of 2009, effective from April 1, 2009, introduced a new provision, Section 92CB. This section stipulated that the determination of the arm’s length price under Section 92C or Section 92CA would be subject to safe harbor rules.

Through this amendment, the Indian government granted the Central Board of Direct Taxes (CBDT) the authority to formulate safe harbor rules. The term “safe harbor” was defined to encompass situations in which the income-tax authorities would acknowledge the transfer price declared by the assessee.

Benefits Of Safe Harbor Rules in India- To The Taxpayers And Revenue Authorities:

Advance information or knowledge about the range of profits or prices to qualify for SHR. This brings certainty in transactions.
Elimination of the possibility of litigation between the taxpayers and the revenue authorities.
Automatic approvals and self-assessment procedures.
Ease in compliance.
Reduction in compliance cost.

The Eligible Assessees under Safe Harbor Rules:

The eligible assessee under Safe Harbour Rules in India has been defined in Rule 10TB. The Board has now amended Rule 10TD(3B) to further extend the applicability of Safe Harbour Rules until Assessment Year 2023- 24.
The eligible assessee is as under:

An assessee who is engaged in providing software development services or information technology-enabled services or knowledge process outsourcing services, with insignificant risk, to a non-resident associated enterprises.
Who has made any intra-group loan
Who has provided a corporate guarantee
Who is engaged in providing contract research and development services wholly or partly relating to software development, with insignificant risk, to a foreign principal.
Who is engaged in manufacture and Export of core or Non-core Auto Components
Who is engaged in Low value-adding Intra-group Services

Eligible International Transaction Currently Subject To Safe Harbour Rules:

The salient features of the new Safe Harbour Regime are:

It has come into effect from 1st of April, 2017, i.e. A.Y. 2017-18 and Assessees eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them.

The new safe harbour regime is available for transactions limited to Rs. 200 crore in provision of software development services, provision of information technologyenabled services, provision of knowledge process outsourcing services, provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs.
In respect of transactions involving provision of software development services and provision of information technology-enabled services, safe harbour margins have been reduced to peak rate of 18% from 22% in the previous regime.
In respect of transactions involving provision of knowledge process outsourcing services, a graded structure of 3 different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% in the previous regime.
In respect of transactions involving provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs, safe harbour margins have been reduced to 24% from 30% and 29% respectively in the previous regime.
Risk spreads on intra-group loans denominated in foreign currency will be benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th September of the relevant year and on loans denominated in Indian Rupees to the 1- year SBI MCLR as on 1st April of the relevant year.
The safe harbour regime is optional to taxpayers.

29 DecAllTaxation

ADVANCE PRICING AGREEMENT (APA)

An APA, or Advance Pricing Agreement, is a pact between a taxpayer and a tax authority that establishes the transfer pricing methodology for the international transactions of the taxpayer in upcoming years. The chosen methodology is intended to be implemented over a specific timeframe, contingent upon the satisfaction of predefined terms and conditions referred to as critical assumptions.

Benefits of Advance Pricing Agreement:

The benefits Advance Pricing Agreement is explained in detail below:
a) APA is designed to help taxpayers by resolving actual or potential transfer pricing disputes cooperatively, as an alternative to the traditional examination process.
b) Advance Pricing Agreement programme strengthens the Government’s resolve to fostering a non-adversarial tax regime.
c) An Advance Pricing Agreement provides certainty concerning the tax outcome of the taxpayer’s international transactions
d) The Indian Advance Pricing Agreement scheme has been appreciated nationally and internationally for being able to address complex transfer pricing issues fairly and transparently.

Terms of Advance Pricing Agreement:

The Advance Pricing Agreement includes the following things:
a) The international transactions covered by the APA
b) The agreed transfer pricing methodology
c) Determination of Arm’s length price
d) Definition of any relevant terms
e) Critical assumption

Different types of APAs

An APA can be unilateral, bilateral, or multilateral

Unilateral APA: an APA that involves only the taxpayer and the tax authority (CBDT) of the country where the taxpayer is located.
Bilateral APA (BAPA): an APA that involves the taxpayer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located, and the foreign tax authority.
Multilateral APA (MAPA): an APA that involves the taxpayer, two or more AEs of the taxpayer in different foreign countries, tax authority of the country where the taxpayer is located, and the tax authorities of AEs.

Eligibility for Advance Pricing Agreement

The following persons are eligible to apply for the Advance Pricing Agreement:

The person who has entered into an international transaction (rollback)
The person proposing to undertake an international transaction

The Advance Pricing Agreement (APA) is valid for a period specified in APA, but not exceeding 5 consecutive financial years. APA can be extended or renewed for a further period of up to 5 years

Fee for filing an Advance Pricing Agreement

Document

S.No	Amount Of International Transaction	Fee Details
1	Amount	Rs.10 Lakh
2	Amount	Rs.15 Lakh
3	Amount	Rs.20 Lakh

Pre-Filing Consultation for APA

The person proposing to enter into an APA have to make an application in writing for a prefiling consultation to the Director-General of Income Tax (DGIT). On receipt of the request, the team will hold pre-filling consultation with the person. The component authority in India or his representative will be associated in pre-filling consultation involving bilateral or multilateral agreement The pre-filing consultation includes the following things:

Determine the scope of the agreement
Identify the transfer pricing issues
Determine the suitability of international transaction for the agreement
Discuss broad terms of the agreement

The taxpayer who desires to enter into an Advance Pricing Agreement has to furnish an application in a prescribed format along with the requisite fee. The request for renewal of Advance Pricing Agreement can be made by the taxpayer using the same procedure as outlined above

Cancellation of the APA

An Advance Pricing Agreement can be cancelled on account of the following:

Failure to comply with terms of APA
Failure to file an annual compliance report
Material errors in an annual compliance report
No consensus on the terms of the revised Advance Pricing Agreement
The effect cannot be given to rollback provision of an APA due to failure on the part of the applicant

Important points to be considered:

Each year Annual Compliance Report in Form No. 3CEF needs to be filed before DGIT (IT)

The APA can be cancelled/revised if critical assumptions are violated or conditions are not met
If the Compliance Audit results in a finding that the assessee has failed to comply with the terms of the agreement, the agreement can be cancelled
Non filing of Compliance Report or the report contains material errors, it may result in cancellation of the agreement

15 DecAllTaxation

NRI Income Tax: A Comprehensive Guide for Non-Resident Indians

The classification of residential status plays a crucial role in determining the income tax liabilities of Non-Resident Indians (NRIs) in India. The tax implications vary depending on whether an individual is categorized as a ‘resident’ or an ‘NRI.’ Residents are subject to taxation on their global income in India, whereas NRIs are only taxed on income earned or accrued within the country.

However, significant changes were introduced by the Finance Act of 2020 to the residency provisions, particularly impacting Indian Citizens/Persons of Indian Origin visiting India. This amendment introduced the concept of ‘Resident but Not Ordinarily Resident’ (RNOR), contingent upon specific conditions:

Income Threshold: Total income, excluding foreign income, must be Rs 15 lakh or more.
Stay Duration: The individual should have stayed in India for more than 120 days but less than 182 days in the previous year.
Four-Year Criterion: The person must have stayed in India for 365 days or more in the four years preceding the previous year.

Prior to this amendment, such individuals were categorized as non-residents. The change to RNOR status may result in the loss of benefits under Double Taxation Avoidance Agreements (DTAA), an expanded scope of total income for taxability, and the forfeiture of various exemptions.

It’s crucial to note that under this amendment, an individual staying for more than 182 days is deemed a resident, irrespective of the income level in the previous year. This modification has far-reaching implications, requiring careful consideration of the potential loss of DTAA benefits, increased taxable income scope, and the elimination of previously granted exemptions.

Deemed Residency Status Introduced in Finance Act 2020

The Finance Act of 2020 ushered in a significant paradigm shift with the introduction of the ‘Deemed Residency’ status. Under this provision, individuals who are citizens of India and earn more than Rs 15 lakh from sources within the country will be considered residents of India. This classification applies specifically to those individuals who are not obligated to pay taxes in any other nation.

Effective from the financial year 2020-21, individuals falling under the category of deemed residents will be designated as “Resident but Not Ordinarily Resident” (RNOR). This legislative amendment was implemented to address the tax implications of Indian citizens whose income is not subject to taxation in any foreign jurisdiction.

Example 1:

Napoleon, an American tourist, embarks on his first journey to India on June 17, 2023, creating a scenario for assessing his residential status during the subsequent assessment year.

Residential Status Overview:

To ascertain Napoleon’s residential status for the assessment year 2024-25, we delve into his presence in India during the preceding years, a crucial determinant according to tax regulations.

Previous Years Analysis:

2023-24: Napoleon’s stay in India during this period spans 105 days, failing to meet the basic conditions for residency.
2022-23: Nil presence in India.
2021-22, 2020-21, 2019-20: Absence in India during these years.

Residential Status Determination:

Given his limited stay in India in the previous year 2023-24, Napoleon falls under the non-resident category for the assessment year 2024-25. The foundational residency conditions remain unmet.

Consideration for Indian Origin and Income:

Even if Napoleon is a person of Indian origin and earns INR 16 lakhs from Indian sources, the non-resident status persists. To transition to a resident but not ordinarily resident, a minimum stay of 120 days in the previous year and 365 days in the four immediately preceding years is required. As Napoleon’s stay in India during the P.Y. 2023-24 falls short of the 120-day threshold, his non-resident status for A.Y. 2024-25 remains unchanged.

Conclusion:

In conclusion, Napoleon’s residential status for the assessment year 2024-25 remains non-resident, as the criteria for residency, including the requisite stay duration, are not met.

Example 2:

Miss Vaishnavi made a payment of 6000 USD to Mr. Kailesh, a seasoned management consultant practicing in Texas, specializing in project financing. Notably, Mr. Kailesh is a nonresident, and the consultancy services pertain to a project in India.

Taxability of Non-Resident's Income:

According to taxation norms, a non-resident individual is liable for taxation in India only if the income is received outside India and accrues, arises, or is deemed to accrue or arise within the Indian territory.

Deemed Accrual of Income in India:

Under section 9, income deemed to accrue or arise in India encompasses various categories, including fees for technical services. This category broadly includes compensation for providing managerial, technical, or consultancy services. Consequently, the payment made to a management consultant for project financing falls under the umbrella of “fees for technical services.”

Applicability to the Case:

In the present scenario, given that the consultancy services were utilized for a project situated in India, the payment received by Mr. Kailesh, despite being a non-resident located in Texas, is subject to taxation in India. This is because the income is deemed to accrue or arise within the Indian jurisdiction.

Conclusion:

In conclusion, the payment made to Mr. Kailesh is chargeable to tax in India as per the provisions outlined in section 9. The geographical location of the recipient does not exempt the income from taxation when the services are utilized within the Indian territory. The taxation framework ensures that income generated from services contributing to Indian projects is appropriately subject to taxation in India, even if the recipient is a non-resident.

Special Provisions for Investment Income

Taxation for NRIs on Certain Indian Assets

When Non-Resident Indians (NRIs) choose to invest in specific Indian assets, they are subject to a tax rate of 20% on the income generated from these investments.
Exemption for NRIs with Only Special Investment Income
In cases where an NRI has earned income exclusively from special investments during the financial year and Tax Deducted at Source (TDS) has already been deducted, filing an Income Tax Return (ITR) is not mandatory for such individuals.
Qualified Investments for Special Treatment
The special treatment applies to income originating from Indian assets acquired in foreign currency. This encompasses a range of investments that are eligible for the unique taxation rate of 20% on the generated income.

NOTE:

Please note that no deductions under Section 80 are applicable when calculating investment income.
A special provision concerning Long-Term Capital Gains (LTCG) stipulates that, in the case of gains arising from the sale or transfer of foreign assets, the benefits of indexation and deductions under Section 80 are not applicable.
However, there exists an opportunity for exemption under Section 115F if the profit generated is reinvested into specific categories of assets referred to as “Special Assets.” These include:

Shares of an Indian company
Debentures of an Indian public company
Deposits with banks and Indian public companies
Central Government securities
National Savings Certificate (NSC) VI and VII issues

By reinvesting the profit into any of these designated Special Assets, one can qualify for an exemption, offering a strategic approach to managing Long-Term Capital Gains in the context of foreign asset transactions.

16 NovAllTaxation

Navigating the Tax Maze: Smart Strategies for Small Businesses in India

Introduction:

Managing a small business in India is a thrilling adventure, yet it brings along its own set of obstacles, with navigating the intricate realm of taxes being a significant challenge. Although paying taxes is an unavoidable aspect of entrepreneurship, there exist strategic methods that small businesses can employ to reduce their tax obligations and optimize savings. In this article, we will explore various tax strategies and deductions specifically designed for the Indian business environment.

Choose the Right Business Structure:

The structure of your business significantly influences your tax obligations. In India, businesses can opt for various structures such as sole proprietorship, partnership, limited liability partnership (LLP), or private limited company. Each structure has its own tax implications. For instance, private limited companies enjoy certain tax benefits, including a lower corporate tax rate. Consulting with a tax professional to determine the most tax-efficient structure for your business is a crucial first step.

Leverage Startup India Initiatives:

The Indian government has introduced several initiatives to support startups, offering tax incentives and benefits. Small businesses that qualify as startups under the Startup India program may be eligible for a tax holiday for the first three consecutive years. This allows startups to plow back their profits into business expansion without worrying about immediate tax liabilities.

Take Advantage of Section 80C Deductions:

Section 80C of the Income Tax Act provides deductions for certain investments and expenses. Small businesses can explore deductions related to employee provident fund (EPF) contributions, life insurance premiums, and investments in specified financial instruments. Utilizing these deductions not only reduces taxable income but also encourages responsible financial planning.

Claiming Depreciation on Assets:

Small businesses often invest in assets like machinery, equipment, and vehicles. Claiming depreciation on these assets allows businesses to recover the cost over time, reducing taxable income. Understanding the depreciation rates and methods prescribed under the Income Tax Act is essential to make the most of this deduction.

Utilize Input Tax Credit (ITC) Under GST:

For businesses registered under the Goods and Services Tax (GST), claiming Input Tax Credit is a crucial strategy. By documenting and claiming credit for the GST paid on input goods and services, businesses can offset their tax liability. Ensuring compliance with GST regulations is essential to avoid penalties and maximize ITC benefits.

Employee-related Deductions:

Small businesses can benefit from various deductions related to their employees. For instance, contributions to employee provident fund (EPF) and employee state insurance (ESI) are not only statutory requirements but also offer tax benefits. Additionally, businesses can claim deductions for employee bonuses, gratuities, and other benefits.

Regularly Review and Update Financial Records:

Accurate and up-to-date financial records are the backbone of any successful tax strategy. Regularly reviewing your financial records helps identify potential deductions, ensures compliance with tax regulations, and allows for strategic planning to minimize tax liabilities.

Conclusion:

In the intricate landscape of Indian taxation, small businesses have the opportunity to optimize their financial health by implementing smart tax strategies. From choosing the right business structure to leveraging government initiatives and claiming eligible deductions, proactive tax planning can significantly impact a small business’s bottom line. Seeking professional advice and staying abreast of evolving tax regulations are essential steps for entrepreneurs looking to navigate the tax maze successfully. Remember, a well-thought-out tax strategy not only minimizes liabilities but also lays the foundation for sustainable business growth.

31 OctAllTaxation

Transfer Pricing Compliance Guidelines for Fiscal Year 2022-23

Transfer Pricing Compliance Guidelines for Fiscal Year 2022-23 (Assessment Year 2023-24)

Transfer pricing involves establishing prices for transactions between entities within the same multinational conglomerate. The Income Tax Act of India, dating back to 1961, incorporates regulations concerning transfer pricing to ensure equitable and transparent pricing. Businesses operating in India are obligated to adhere to these rules, necessitating the completion of specific activities within specified deadlines in accordance with the regulations.

Transfer Pricing

Transfer pricing is the practice of establishing the prices for goods, services, or intangible assets exchanged between affiliated entities within a multinational corporation. In India, these transfer pricing guidelines are outlined in Section 92 of the Income Tax Act and the Income Tax Rules of 1962. The primary aim is to ascertain fair market prices for these transactions, ensuring the equitable allocation of profits and the accurate payment of taxes in India.

Why Transfer Pricing Compliance is important in India?

Adhering to transfer pricing regulations in India is of paramount significance for multinational enterprises conducting business in the nation. Such compliance aids in the avoidance of penalties, tax-related disputes, and potential damage to their reputation while simultaneously cultivating a positive rapport with tax authorities. Through strict adherence to the stipulated regulations and the meticulous upkeep of precise documentation, businesses can showcase their dedication to transparent and equitable pricing practices.

Transfer Pricing Compliance Roadmap for the Financial Year 2022-23 (Assessment Year 2023-24)

For the purpose of aiding businesses in adhering to the Transfer Pricing regulations stipulated within the Indian Income Tax Act of 1961 for the fiscal year 2022-23 (Assessment Year, AY 2023-24), an extensive Transfer Pricing Compliance Guide has been formulated. This guide encompasses the following key components:

- Detailed instructions on the necessary actions to be carried out.
- Pertinent legal sections for reference.
- Essential form numbers for documentation.
- Specified deadlines that entities are required to meet to ensure compliance.
The subsequent table provides precise information pertaining to each activity The following table presents the specific information for each activity:

Activity	Section	Form No.	Deadline
Transfer Pricing Audit	92E	3CEB	31-Oct-2023
Transfer Pricing Documentation	92D	–	31-Oct-2023
Return of Income (with Transfer Pricing Provisions)	139	–	30-Nov-2023
Master File	92D (4)	3CEAA	30-Nov-2023
Intimation by Designated Constituent Entity (DCE)	92D (4)	3CEAB	31-Oct-2023
Intimation by DCE	286 (1)	3CEAC	Two months before the due date for furnishing of CbCR-Form
Country-by-Country Reporting (CbCR)	286 (2)	3CEAD	One year from the end of reporting Accounting year (i.e., 30-Dec-2023)
Audit Report (with Transfer Pricing Provisions)	44AB	–	31-Oct-2023
Safe Harbour Application for International Transactions	92CB	3CEFA	30-Nov-2023
Safe Harbour Application for Specified Domestic Transactions	92CB	3CEFB	30-Nov-2023

Companies can evade penalties and showcase their dedication to ethical business conduct by adhering to the specified deadlines.

Key Activities and Deadlines

The main activities and due dates are explained below:

Transfer Pricing Audit:

Under Section 92E of the Income Tax Act, companies must undergo a transfer pricing audit. This involves reviewing and documenting their transfer pricing policies and transactions with related parties. The deadline to file Form 3CEB, which gives details of the audit, is October 31, 2023.

Transfer Pricing Documents:

Section 92D requires companies to maintain documents that prove their transactions were done at fair market prices. These documents must be ready by October 31, 2023.

Income Tax Return (with Transfer Pricing):

Companies that follow transfer pricing rules must file income tax returns under Section 139. The deadline is November 30, 2023.

Master File:

Companies meeting the criteria in Section 92D(4) and Rule 10DA must prepare and submit a Master File using Form 3CEAA. The deadline is November 30, 2023.

Intimation by Designated Constituent Entity (DCE):

Section 92D(4) and Rule 10DA say that designated companies must file Form 3CEAB by October 31, 2023.

Intimation by DCE:

Under Section 286(1) and Rule 10DB, companies must give information about the corporate group structure by filing Form 3CEAC two months before submitting the Country-by-Country Report.

Country-by-Country Report(CbCR):

Section 286(2) and (4), and Rule 10DB require companies to file Form 3CEAD for country-by-country reporting. The deadline is 12 months from the end of the accounting year, which is December 30, 2023.

Note:

Accounting Year refers to:

The previous year for companies with parent entities in India.
The annual accounting period for companies whose parent entities follow accounting standards or laws of their resident country.
Reporting Accounting Year is the accounting year for which financial and operational results must be included in the report under sub-section (2) and (4).

Companies doing international transactions must follow these deadlines to fully comply with the transfer pricing rules under the Income Tax Act. Missing these deadlines can lead to penalties under the Act. So companies should carefully plan activities as per the schedule to ensure compliance.

Penalties for Non-Compliance

Not following India’s transfer pricing rules can lead to fines and problems for companies. The Income Tax Department can impose penalties from 100% to 300% of the under-reported income due to transfer pricing adjustments. Therefore, companies must comply with the regulations to avoid penalties and risks.

11 OctAllTaxation

Say No To Cash Transaction

1. Taking or Accepting Certain Loans, Deposits

No person is permitted to accept Rs. 20,000 or more in cash
a) for any loan or deposit or
b) any amount in relation to transfer of any immovable property (even if transfer does not take place).
If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs. 20,000/- will apply to the outstanding amount plus any subsequent receipt in cash.

The exceptions to this provision include the following:-
Sums of this nature accepted from

(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(c) any corporation established by a central, state or provincial Act;
(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify.
(f) from a person having agriculture income, and the recipient is also having agriculture income and neither of them is chargeable to income tax.

Consequences of violation:
Penalty of an amount equal to the amount taken in cash will be levied

2. Repayment of Certain Loans or Deposits

Any branch of a banking company or a cooperative society, firm or other person is not allowed to repay any loan or deposit in cash if
(a) The amount of the loan or deposit or specified advance* together with the interest, if any, is Rs.20,000/- or more, or
(b) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with other person on the date of such repayment together with the interest, if any, is Rs.20,000/-or more.
(c) w.e.f 2019-20. TDS @ 2% to be deducted on cash withdrawals of Rs. 1 Crore in a year from bank account for business purpose.

To any person who has made
a) the loan or deposit or
b) paid the specified advance* .

This provision does not apply to- Repayment of any loan or deposit or specified sum* taken or accepted from –
(a) Government;
(b) any banking company,
post office savings bank or co-operative bank; (c) any corporation established by a central, state or provincial Act;
(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify. (Refer Sec.269T)

*Specified advance means any sum of money in the nature of advance, by whatever name called in relation to transfer of an immovable property, whether or not transfer takes place.

Consequences of violation:
Penalty for an amount equal to the amount of such loan or deposit repaid will be levied.

3. Other Cash Transaction

No person is allowed to receive in cash an amount of Rs. 2,00,000 or more-
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,

This provision does not apply to-
(1) any receipt by-
(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(2) transactions of the nature referred to in section 269SS;
(3) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify. (Refer Section 269ST)
(d) w.e.f 2019-20, Digital payments (Mode of electronic payments) is permissible in addition to account payee cheque, account payee bank draft or electronic clearing system through a bank account. Persons having business income and turnover/ receipt exceeding 50 crores in a financial year are mandatorily required to accept payment though prescribed electronic mode or other electronic mode only. In case of failure to do so, it would attract a penalty of Rs. 5000/- for every day during which such failure continues.

Consequences of violation of this provision:
Penalty u/s. 271DA is levied for a sum equal to the amount of such receipt

4. Disallowance of expenses incurred in Cash

If an individual makes expenditures for their business or profession, and the payment or cumulative payments in cash within a day exceed Rs. 10,000, 100% of such payments will be disallowed when calculating taxable income from business or profession (refer to Section 40A(3)). Nevertheless, there are exceptions outlined in Rule 6DD of the Income Tax Rules.

5. Deemed Income of Subsequent year in which payment is made

In case an allowance has been made in respect of any liability incurred by a person for any expenditure, and then during any subsequent year the person makes payment in respect thereof in cash, the payment is chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day exceeds Rs.10,000/-.

In case payment is being made for plying, hiring or leasing goods carriages, then limit is Rs.35000/-, instead of Rs. 10000/-.

6. Disallowance in respect of Fixed Assets i.e. Capital Expenditure

In case a person incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in cash in a day exceeds Rs.10,000/-, such expenditure is not included for the purposes of determination of actual cost of such asset. This means that no depreciation benefit will be available on such capital expenditure incurred in cash.

7. Cash Donations

Donation made in cash to a registered trust or political party, if exceeds Rs. 2000, are not allowable as deduction u/s 80G.

8. Premium on Health Insurance

Any payment made in cash on account of premium on health insurance facilities is not allowable as deduction u/s 80D of IT Act.

This blog should not be construed as an exhaustive statement of the law. For details-reference should always be made to the relevant provisions in the Acts and the Rules.

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Category: Taxation

Filing Taxes as an NRI: A Guide to Relevant Returns and Forms

Income Tax Returns for NRIs

Key Forms to be Furnished by NRIs

Categories

Understanding Residential Status Under Indian Income Tax Law

Categories

Liberalised Remittance Scheme (LRS)

Purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility:

LRS scheme for NRIs

Tax on Liberalised Remittance Scheme (LRS)

Form 15CA and Form 15CB

Conditions under New GST Rate for the Builders:

Overall list of payments where no forms 15CA and 15CB are required are as follows (Rule 37BB):

Parts of Form 15CA

Illustrations:

GST Implications for Real Estate

Residential Apartments face 5% GST (without input tax credit) if the following conditions are met:

Affordable Housing Units up to 60 sq.mts (645 sq.ft) in metro cities or 90 sq.mts (969 sq.ft) in other cities, with value <= 45 Lakhs face 1% GST (without input tax credit).

When can resolution be sought under DRP?

GST Rate for Builders for the supply of Residential or commercial projects:

GST Rate for Builders for the supply of Residential and commercial projects:

Conditions under New GST Rate for the Builders:

GST on Joint Development Agreement(JDA):

JDA for Builder Perspective:

JDA for Landowner Perspective:

Categories

SAFE HARBOUR RULES

Benefits Of Safe Harbor Rules in India- To The Taxpayers And Revenue Authorities:

The Eligible Assessees under Safe Harbor Rules:

Eligible International Transaction Currently Subject To Safe Harbour Rules:

The salient features of the new Safe Harbour Regime are:

ADVANCE PRICING AGREEMENT (APA)

Benefits of Advance Pricing Agreement:

Terms of Advance Pricing Agreement:

Different types of APAs

Eligibility for Advance Pricing Agreement

Fee for filing an Advance Pricing Agreement

Pre-Filing Consultation for APA

Cancellation of the APA

Important points to be considered:

NRI Income Tax: A Comprehensive Guide for Non-Resident Indians

Deemed Residency Status Introduced in Finance Act 2020

Example 1:

Residential Status Overview:

Previous Years Analysis:

Residential Status Determination:

Consideration for Indian Origin and Income:

Conclusion:

Example 2:

Taxability of Non-Resident's Income:

Deemed Accrual of Income in India:

Applicability to the Case:

Conclusion:

Special Provisions for Investment Income

Taxation for NRIs on Certain Indian Assets

NOTE:

Navigating the Tax Maze: Smart Strategies for Small Businesses in India

Introduction:

Choose the Right Business Structure:

Leverage Startup India Initiatives:

Take Advantage of Section 80C Deductions:

Claiming Depreciation on Assets:

Utilize Input Tax Credit (ITC) Under GST:

Employee-related Deductions:

Regularly Review and Update Financial Records:

Conclusion:

Transfer Pricing Compliance Guidelines for Fiscal Year 2022-23 (Assessment Year 2023-24)

Transfer Pricing

Why Transfer Pricing Compliance is important in India?

Transfer Pricing Compliance Roadmap for the Financial Year 2022-23 (Assessment Year 2023-24)

Key Activities and Deadlines

Transfer Pricing Audit:

Transfer Pricing Documents:

Income Tax Return (with Transfer Pricing):

Master File:

Intimation by Designated Constituent Entity (DCE):