Income Tax In India
The history of Income Tax in modern India dates back to 1860 when the first Income Tax Act was introduced and which remained in force for a period of 5 years. This Act lapsed in 1865. Thereafter Act-II of 1886 was the next landmark. This Act of 1886 was a great improvement on its predecessor. It introduced the definition of agricultural income in the form in which it stands today and the exemption it granted in respect of agricultural income has continued to be a feature of all subsequent legislations. The year 1918 saw the introduction of Act VII of 1918 which recasted the entire tax laws. This Act was designed inter-alia to remedy certain inequalities in the assessment of individual tax payers under the 1886 Act. The Act introduced, for the first time, the scheme of aggregating income from all sources for the purpose of determining the rate of tax.
The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in our country. Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the Provincial Governments came to be vested in the Central Government. The Act of 1922, like the Act of 1918, applied to all incomes ''accruing or arising'', or received in British India, or deemed to be accrued, arisen or received. It marked an important change from the Act of 1918 by establishing the charge in the year of assessment on the income of the previous year instead of merely adopting the previous year's income as a measure of income of the year of assessment. The Act of 1922 made a departure by abandoning the system of specifying the rates of taxation in its own Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this day. It also enabled loss under one head of income to be set-off against profits under any other head, so that the tax was chargeable only on net income.
The Act of 1922 remained in force till 1961. Meanwhile, in 1956 the Government had referred the Act to the Law Commission in order to recast it on logical lines and to make it simple without changing the basic tax structure. Based on the Law Commission's report, the Income Tax Bill giving effect to its recommendations was submitted in the Lok Sabha in April, 1961. The Bill received the assent of the President on 13th Sept., 1961. The present Income Tax Act is this Act of Sept., 1961.
Taxable Income In India.
Income Tax Rates.
Duduction And Rebate In Income Tax.
Tax Free Incomes In India.
Double Taxation Avoidance Agreements (DTAA).
Appeals In Income Tax India.
Penalties under Income Tax Act.
PAN In Income Tax India.
Non-resident under Income Tax Act.
1. Taxable Income In India :
Besides remuneration for work, individuals may be taxed on the following Income:
Income from house property.
Income From Salary.
Income from business or professions.
Income from capital gains.
Income from other sources.
Spouses are treated separately for tax purposes and their income is not normally clubbed. However, income of all minors, except handicapped minors, is clubbed with the income of their parents unless the income is derived from manual work or an activity involving skill, specialised knowledge and experience.
Personal Taxable Incomes:It is obligatory for any person residing in specific cities to file Tax Return under the existing law. It was compulsory to furnish his return of income, if he fulfilled any two of the given criteria:
Occupation of an immovable property of specified dimensions:
Ownership of a car.
Subscription of a telephone.
Foreign Travel during the year.Two more economic indicators were added to these
Holding of a credit card not being an add-on card.
Membership of a Club where entrance fee charged is Rs. 25000 or more.
There were amendments made in the laws and initially when there were 12 cities now there are 35 cities which are included under the obligatory laws. Also, now a person has to file his returns of income if he satisfies any one of the six criteria.
But blanket obligatory rules is going to cause very severe hardship to small traders and salary earners. These days owning a telephone or 'occupying' a property are the things that everyone, irrespective of his social status or income level, does. Combining two criteria had logic behind it, but this proposed amendment seems to have been drafted in haste, and might result in severe hardship to many. Moreover, the energy of the Income Tax Department would be wasted in handling petty cases
Income From Housing Property In India
Income form House Property which is exempt ie Though there is income from house property, such income will not be taxable under the Indian Income Tax Law. The following are such situations:-
Income from a farmhouse used for agricultural purposes.
Income from property earned by trade union or association of trade union.
Property income earned by a local authority.
Income from house property earned by a political party.
Income from property held for charitable purposes.
Property used for own business or profession. If such property yields any income, such income will be treated as business income and not house property income.
One property which is used by an individual assessee or an HUF assessee for purpose of self occupation only and not for renting out to any person will be treated as exempt property and income from that property will not be treated as taxable income.
For the purposes of understanding the provisions of this chapter, let us divide the house properties into different categories:-
Self Occupied Properties (SOP).
Let Out Properties.
If an individual or HUF assessee has only one property, that property will be treated as self occupied. Accordingly, there will not be any taxable income in respect of such property. However, if the assessee owns more than one property all of which are not rented out but are self occupied, then the assessee, at his option, may choose any one property as self occupied by him and the remaining properties though not actually let out, will be deemed to be let out ie they will be assumed to have been let out and a notional rental value will be treated as taxable income in the hands of the owner of such property. Such properties are known as properties deemed to have been let out. In respect of properties deemed to have been let out, a notional rental value will be treated as taxable income even if no rent has actually been received by the assessee. In order to determine the notional rental value, the highest of the following will be treated as taxable income:-
Municipal Rental Value.
Fair Rental Value of a similar property in a similar locality.
However if the higher of the above two exceeds the standard rent of the property determined in accordance with the Rent Control Act applicable at the concerned locality, then the standard rent will be treated as taxable rental value of such property.
Therefore in respect of self-occupied property, one property will be treated as an exempt property and in respect of other properties, a notional rental value will be treated as taxable income in the hands of the owner of the property.
Income From Salary
Money which you earn from different sources is taxed differently. So if you are a salary earner, your salary income to be taxed will be calculated in a different way from gains.The term ''Salaries'' includes remuneration in any form for personal service, under an expressed or implied contract of employment or service. Section 17 of Income Tax Act defines salary to include:-
Wages
Pensions or Annuities
Gratuities
Advance of Salary
Any cess, commission, perquisites or profits in lieu of or in addition to salary or wages.
Any encashment of leave salary.
Any amount of credit to provident fund of employee to the extent it is taxable.
Therefore ''salary'' includes basic salary, encashment of leave salary, advance of salary, arrears of salary, various allowances such as dearness allowance, entertainment allowance, house rent allowance, conveyance allowance and also includes perquisites by way of free housing, free car, free schooling for children of employees, etc.
The following are the essential conditions for income to be treated as salary income:-
There must be relation of employer and employee between the payer of income and receiver of income.
Salary may be from more than one employer.
Salary may be received from not just the present employer but also a prospective employer and in some cases even from a former employer for example pension received from a former employer.
Salary income must be real and not fictitious there must an intention to pay and receive salary.
Forgoing of salary ie if an employee surrenders his salary to the central government, then the salary so surrendered will not be treated as taxable income of the employee.
Salary paid tax free - Tax free salary means the salary on which income tax is borne not by the employee but by the employer. Tax free salary is also taxable in the hands of the employee.
Salary is taxable in the year of receipt or in the year of earning of the salary income, whichever is earlier. i.e. if the salary has been received first, then it will be taxable in the year of receipt. If it has been earned first but not yet received then it will be taxable in the year of earning. Salary income is taxable in the hands of individuals only. No other type of person such as a firm or HUF, companies can earn salary income.
Income From Business And Profession In India
For charging the income under the head ''Profits and Gains of business,'' the following conditions should be satisfied:
There should be a business or profession.
The business or profession should be carried on by the assessee.
The business or profession should have been carried on by the assessee at any time during the previous year.
Income wich is chargeable to income tax under the head Profits and gains of business or profession.The following income would be chargeable under the head "Profits and gains of business or profession":
The profits and gains of any business or profession, which was carried on by the assessee at any time during the previous year;
Any compensation or other payment, due or received by the following:-
Any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto.
Any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto.
Any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of any agency or the modification of the terms and conditions relating thereto.
Any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business.
Income, derived by a trade, professional or similar association from specific services performed for its members.
Profits on sale of a license granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947.
Cash assistance (by whatever name called), received or receivable by any person against exports under any scheme of the Government of India.
Any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.
The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.
Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm.
However, it is provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under Clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted.
Interest Income is either assessed as ''Business Income'' or as ''Income from other sources'' depending upon the activities carried on by the assessee. If the investment yielding interest were part of the business of the assessee, the same would be assessable as ''business income'' but where the earning of the interest income is incidental to and not the direct outcome of the business carried on by the assessee, the same is assessable as ''Income from other sources''. Business implies some real, substantial and systematic or organized course of activity with a profit motive. Interest generated from such an activity is considered Business Income. Otherwise, it would be interest from other sources.
Where an owner lets out premises along with other assets or provides amenities, the income in respect of premises would be taxable as income from house property and, the balance would be taxed as income from other sources. The contract, letting out the premises along with other assets and providing amenities, is severable.
If an assessee is employed in a company where he is called Managing Agent but is in fact, the Chief Manager of the company, under what head would the remuneration that he is paid be charged Even though he may be called a Managing Agent, the remuneration earned by him will be charged under the head of Salaries and not as Business Income. The fact that he is actually the Chief Manager of the company will make the remuneration earned by him chargeable to tax under the head Salaries. It is the true nature of the contract that will determine the relationship between the assessee and the company. Once it is established that the managing director functions subject to the control and supervision of the Board of Directors, the inevitable corollary is that an employer -- employee relationship exists and that being so, his remuneration is assessable under the head "salary".
Deductions which are allowed in computing income from profits and gains of business or profession.
Deductions which are allowable in respect of rent, rates, taxes, repairs and insurance for premises, which are used for the purpose of business or profession.
Deductions which will be allowed in respect of repairs and insurance of machinery, plant and furnitureDeduction From Profit Or Gain
Deductions which are allowed in computing income from profits and gains of business or profession
A number of other deductions under Section 36 of the Income-Tax Act are allowed while computing income from profits and gains of business or profession:
S36 (i): The amount of any premium, paid in respect of insurance against risk of damage or destruction of stocks or stores, used for the purposes of the business or profession;
(ia) The amount of any premium, paid by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk, raised by the members of such federal milk co-operative society;
(ib) The amount of any premium, paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme, framed in this behalf by the General Insurance Corporation of India, formed under section 9 of the General Insurance Business (Nationalization) Act, 1972 (57 of 1972) and approved by the Central Government;
(ii) Any sum, paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;
(iii) The amount of the interest paid in respect of capital borrowed for acquisition of the asset from the date it is put to use for the purposes of the business or profession;
(iv) Any sum, paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved Superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the Superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions, fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund;
(v) Any sum, paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust;
(va) Any sum, received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
(vi) In respect of animals which have been used for the purposes of the business or profession, otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realized in respect of the carcasses or animals;
(vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year;
(viia) in respect of any provision for bad and doubtful debts made by the following:
A scheduled bank or non -- scheduled bank, an amount not exceeding five per cent of the total income and an amount not exceeding ten per cent of the aggregate average advance made by the rural branches of such bank computed in the prescribed manner;
A bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income;
public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income.
(viii) In respect of any special reserve created by a financial corporation which is engaged in providing long term finance for industrial or agricultural development in India or, by a public company formed and registered in India with the main object of carrying on the business or providing long - term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income can be carried to the reserve account;
(ix) Any bona fide expenditure incurred by a company for the purpose of promoting family planning amongst its employees;
(x) Any sum, paid by a public financial institution by way of contribution towards any Exchange Risk Administration Fund, set up by public financial institutions, either jointly or separately.
(xi) Any expenditure, incurred by the assessee on or after the 1st day of April 1999 but before the 1st day of April 2000, wholly and exclusively in respect of a non-Y2K compliant computer system, owned by the assessee and used for the purposes of his business or profession, so as to make such computer system Y2K compliant.
(xii) Any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act for the objects and purposes authorized by the Act, under which such corporation or body corporate was constituted or established.
It is important to note that deductions are subject to certain conditions being satisfied.
Deduction In Income Tax Of Business Or Profession
Deductions which are allowable in respect of rent, rates, taxes, repairs and insurance for premises, which are used for the purpose of business or profession
S 30: The deductions that are allowed while computing income from 'profits and gains from business or profession' in respect of rent, rates, taxes, repairs and insurance for premises, which are used for the purpose of business or profession while computing income from 'profits and gains from business or profession' are as follows:
Where the premises are occupied by the assessee:
As a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; excluding expenditure in the nature of capital expenditure.
Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; excluding expenditure in the nature of capital expenditure.
Any sums, paid on account of land revenue, local rates or municipal taxes;
The amount of any premium, paid in respect of insurance against risk of damage or destruction of the premises.
Deductions which are allowed in respect of repairs and insurance of machinery, plant and furniture
S 31: The following deductions shall be allowed in respect of repairs and insurance of machinery, plant and furniture:
The amount paid on account of current repairs thereto; excluding expenditure in the nature of capital expenditure.
The amount of any premium, paid in respect of insurance against damage or destruction thereof
Deduction In Income Tax Of Business Or Profession
Income From Capital Gain
Section 2(47) of the Income Tax Act, defines transfer in relation to a capital asset, and it includes
The sale, exchange or relinquishment of the asset.
The extinguishment of any rights therein.
In a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment.
Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882(4 of 1882).
Any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation - For the purposes of sub-clauses (v) and (vi), ''immovable property'' shall have the same meaning as in clause (d) of section 269UA]
Transactions which are not deemed to be transfer for the purposes of capital gainsThe Income Tax Act also exempts certain transactions from being covered under the definition of transfer. These are more specifically contained in section 46 & 47 of the Income Tax Act. In brief the transactions not regarded as transfer are as under :-
Where the assets of a company are distributed to its share holders upon its liquidation, the distribution is not regarded as transfer. However where a share holder receives any money or other assets on the date of distribution which exceeds the amount of dividend within the meaning of section 2(22)(c), the excess is chargeable under the head capital gains.
Any distribution of capital assets on the total or partial partition of a huf is not regarded as transfer
Where a capital asset is transferred under the gift or will or an irrevocable trust, the transaction is not of the nature of transfer as per the Income Tax Act.
The transfer of a capital asset to an Indian subsidiary company by a parent company or its nominees who hold the entire share capital of the Indian subsidiary company is not regarded as transfer.
Any transfer of a capital asset by a wholly owned subsidiary company to its Indian holding company is also not regarded as transfer for the purposes of capital gains. TopHowever in respect of (d) & (e) above the transfer of a capital asset as stock in trade is covered by the provisions of capital gains.
Any transfer in a scheme of amalgamation of a capital asset by the amalgamating company to an Indian amalgamated company is also not a transfer for the purposes of capital gains.
In the case where the amalgamating and the amalgamated companies are both foreign companies, the transfer of shares held in the Indian company by the foreign amalgamating company to the foreign amalgamated company is not regarded as a transfer for the purposes of capital gains if at least 25% of the share holders of the amalgamating foreign company continue to remain share holders of the amalgamated foreign company and if such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated..
Any transfer by a share holder, in a scheme of amalgamation, of share or shares held by him in the amalgamating company in consideration of the allotment of any share or shares in the amalgamated Indian company is not regarded as a transfer for the purposes of capital gains.
Where a non resident transfers any bond or shares of an Indian company which were issued in accordance with any scheme notified by the Central Government for the purposes of section 115AC or where the non resident transfer any bonds or shares of a public sector company sold by the government and purchased by the non resident in foreign currency is not regarded as a transfer for the purposes of capital gains . However this is so only when the transfer of the capital asset is made outside India by the non resident to another non resident.
Where any assessee transfers any work of art, archaeological or art collection, book, manuscript, drawing , painting, photograph or print to a University, the National Museum, the National Art Gallery, the National Archives, to the Government or any other notified institution of national importance is not considered as transfer for the purposes of capital gains.
Any transfer by way of conversion of a company's bonds or debentures, debenture-stock or deposit certificates in any form into shares and debentures of that company is not regarded as transfer for the purpose of capital gains.
Where a non corporate person transfers its membership of a recognised stock exchangeTop in India to a company in exchange of shares allotted by that company is not regarded as a transfer for the purposes of capital gains provided that such transfer was made on or before 31st day of December, 1998.
Any transfer of a land of a sick industrial company which is being managed by it s Worker's Cooperative is not regarded as transfer for the purposes of capital gain if the transfer is made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. This exemption is operative only in the period commencing from the previous year in which the said company became a sick industrial company under section 17(1) of that act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. The net worth is defined in the Sick Industrial Companies Act.
With effect from 1-4-99 the process of sale or transfer of any capital or intangible asset of a firm is not regarded as a transfer for the purposes of capital gains where it is on account of the succession of the firm by a company in the business carried on by it. This exemption is dependent on the following conditions :-
all the assets and liabilities of the firm before the succession and relating to the business should become the assets and liabilities of the company.
All the partners of the firm before the succession should become share holders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession.
The partners of the firm should not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by allotment of shares in the company.
The aggregate share holding in the company by the partners should be more than 50% of the total voting power for a period of 5 years from the date of succession.
With effect from 1-4-99 where a sole proprietary concern is succeeded by a company in the business carried on by it and as a result of which the sole proprietary concern sells or transfers any capital asset or intangible asset to the company, such transfer shall not be regarded as transfer for the purposes of capital gains. This exemption is available only if the following conditions are fulfilled:-
All the assets and liabilities of the business of the sole proprietary concern should become the assets and liabilities of the company.
The share holding of the sole proprietor should be more than 50% of the total voting power in the company for a period of 5 years from the date of succession.
The sole proprietor should not receive any consideration or benefit, directly or Topindirectly, in any form or manner, other than by way of allotment of shares in the company.
With effect from 1-4-99 any transfer in a scheme for lending of any securities under an agreement or arrangement which the assessee enters into with the borrower of such securities subject to the guidelines issued by the Securities and Exchange Board of India is not regarded as a transfer for the purposes of capital gains.
where in the transaction of lending shares of some distinctive numbers and receiving back shares of some other numbers is the result, the same would not be considered as exchange of asset within the definition of capital asset since the meaning of the word exchange necessarily involves exchange of two different assets. Thus where the asset received back is not different from what was lent in the above scheme of lending, no transfer is there for the purposes of capital gain as long as the assets received back represent the same fraction of the ownership of the company.
Income From Other Sources
This is income that is not chargeable to tax under any other head of income. Such income covers...
Dividend:Under Section 10(33), any amount declared or paid by a Indian company by way of dividend is tax-exempt in the hands of shareholders. Therefore, any dividend income received from a company that is not an Indian company will be taxable in the hands of the recipient.
Winnings from lotteries, crossword puzzles, horse races and game shows.
In the case of winnings from lotteries, crossword puzzles, races (including horse races), card games, game shows and other games of any sort, or from gambling or betting of any form or nature whatsoever, Rs 5,000 is exempt from tax. Tax will be deducted at source on the rest of the winnings at the rate of 30 per cent (plus surcharge). This means that if you hit a jackpot of, say, Rs 50,000, TDS will be calculated as under:
Total earnings
Rs 50,000
Less: amount exempt
Rs 5,000
Taxable amount
Rs 45,000
Tax on Rs 45,000 @ 30%
Rs 10,500
Add: Surcharge @ 2%
Rs 210
Total TDS applicable
Rs 10,710
Winnings from game shows like Kaun Banega Crorepati will be covered by this clause from 1 June 2001. Winnings before this date will not be subject to TDS; you will have to pay tax yourself.
Interest on securities:The income from interest on securities is chargeable to tax if the securities are held as an investment, and not as stock-in-trade. If the securities are held as stock-in-trade, the interest income is taxable under the head profits and gains from business or profession. Although interest income is taxed under the head income from other sources, a deduction is available in some cases under section 80L.
Others:
The interest on bank deposits and loans (except in the case of assessees in the money-lending business).
Income from letting-out machinery, plant, furniture or buildings on hire if they are not chargeable to tax under the head profits and gains from business or profession.
Interest received on a tax refund.
Ground rent.
Royalty.
Directors fees from a company.
2. Income Tax Rates :
Assessment Year 2005-2006 i.e. Financial Year 1-4-2004 to 31-3-2005
Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) whether incorporated or not, or every artificial juridical person referred to in Section 2(31) (vii) of the Income-tax Act.
Income Slab
Rates
Where the income does not exceed Rs. 50,000
Nil
Where the total income exceeds Rs. 50,000 but does not exceed Rs. 60,000
10% of the amount by which the total income exceeds Rs. 50,000
Where the total income exceeds Rs. 60,000 but does not exceed Rs. 1,50,000
Rs. 1000 + 20% of the amount by which the total income exceeds Rs. 60,000
Where the total income exceeds Rs. 1,50,000
Rs. 19000 + 30% of the amount by which the total income exceeds Rs. 1,50,000.
II. Surcharge:There will be no surcharge for AY: 2005-06 on income upto Rs 8.5 lacs. Where the income exceeds Rs 8.5 lacs there will surcharge at 10%.
III. Education Cess:There will be additional surcharge payable @ 2% on the aggregate of income-tax and surcharge.
IV. Rebate:
In case of individual, where the total income does not exceed Rs. 1,00,000/-, the assessee shall not be liable, in view of s. 88-D of the Act, to pay any income-tax payable on such income arrived at after claiming the rebate u/s. 88, 88B and 88C of the Act.
Marginal relief is provided in the case of individual whose total income exceeds Rs. 1,00,000/- and the income-tax payable on such total income exceeds the amount by which such total income is in excess of Rs. 1,00,000/-.
Co-operative Society
Income Slab
Rates
Where the income does not exceed Rs. 10,000
10% of the total income
Where the total income exceeds Rs. 10,000 but does not exceed Rs. 20,000
Rs. 1,000 + 20% of the amount by which the total income exceeds Rs. 10,000.
Where the total income exceeds Rs, 20,000
Rs. 3,000 + 30% of the amount by which the total income exceeds Rs, 20,000.
VI. Surcharge:is payable @ 2.5% of the income-tax on every rupee of income.
VII. Education Cess:There will be additional surcharge payable @ 2% on the aggregate of income-tax and surcharge.
FirmOn the whole of the total income 35%.
Surcharge:is payable @ 2.5% of the income-tax on every rupee of income.
Education Cess:There will be additional surcharge payable @ 2% on the aggregate of income-tax and surcharge.
Local Authority On the whole of the total income 30%
Surcharge:is payable @ 2.5% of the income-tax on every rupee of income.
Education Cess:There will be additional surcharge payable @ 2% on the aggregate of income-tax and surcharge.
Company:
Income Slab
Rates
In the case of a domestic company
35% of the total income
In the case of a company other than a domestic company, on so much of the total income as consists of,--
a. royalties received from Government or an Indian concern in pursuance of an agreement made by it with the Government of the Indian concern after the 31st day of March, 1961 but before the 1st day of April, 1976, or
b. fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 29th day of February, 1964 but before the 1st day of April, 1976,
and where such agreement has, in either case, been approved by the Central Government.
50% of the total income
on balance if any, of the total income:
40% of the total income
XI. Surcharge:is payable @ 2.5% of the income-tax on every rupee of income in the case of every domestic company.
XII. Education Cess:There will be additional surcharge payable @ 2% on the aggregate of income-tax and surcharge.
XIII. Note:
All Companies, including foreign companies, would be subject to surcharge.
Surcharge would be payable on the net income-tax payable after granting rebate under section 88, 88B and 88C of Act.
3. Deductions And Rebate In Income Tax India :
After the income is computed as per the provisions of the Income-tax Act, a further deduction is allowed of certain amount from the tax computed on the income earned by the assessee.
This deduction is termed as Rebate. Rebate is a reduction from income tax liability and not a deduction from income.
Certain Investments and Deposits (U/s 88):
Rebate is available to individual and HUFs only.
The rebate is allowed only in respect of investment made in certain securities some which are mentioned as follows:
Life Insurance Premium paid on the policy for self, spouse children but not parents.
Contribution to statutory or recognized provident Fund in his own account.
Contribution to Public Provident Fund
Contribution of ULIP, Dhanraksha plan or LIC Mutual Fund equity linked saving scheme of mutual fund.
Deposit in 10 year Account under post office saving bank cumulative time deposit rules 1959 [CTD]
Repayment of loan taken from a public financial institution in respect of a residential accommodation or cost of construction subject to maximum of Rs. 20,000 during a year.
Deposit in National Saving Certificate
Deposit in National Saving Scheme
Investment in notified infrastructure bonds, debentures, mutual fund and shares
Tuition fees excluding payment towards any development fees or donation or payment of similar nature either at the time of admission or thereafter to any university, college, school or other educational institution situated within India for the purpose of full-time education.
And other investments as specified.
Amount of deduction: Rebate is allowed @ 20 % of the eligible investment / payment / deposit made subject to maximum investment of Rs. 60,000. However in respect of individuals whose salary income is less than Rs.1 lakh before claiming deduction u/s 16 and whose salary comprises at least than 90 % of his gross total income, rebate will be allowed @ 30 % of the investments, etc. made.
If the investments are made in the eligible infrastructure bonds, the rebate of Rs. 4,000 is additionally allowed to the assessee. In other words, the investment up to Rs. 20,000 is allowed in addition to maximum limit of Rs. 60,000.
The benefit for rebate shall be available only to so much of the amount of premium as is not in excess of 20% of actual capital sum assured.
No deduction shall be allowed in respect of the deposit in eligible investments in excess of the total income chargeable to tax.
Rebate To Senior Citizens (U/s 88B):
The rebate under this section is available to resident Individuals who are more than 65 years of age
The rebate of income-tax liability up to Rs. 15,000 is allowed irrespective of the income.
Rebate To Women Assessee (U/s 88C):
The rebate under this section is available to women assessee resident in India who are below the age of 65 years
Under this section, a rebate of Rs. 5,000 is adhocly allowed to any tax liability of women.
Deductions From Gross Total Income Gross total Income is the total of income under all heads for a particular previous year. Out of the said Gross total Income, deductions are allowed under various sections comprised in chapter VI-A. To claim the said deductions, certain conditions have to be fulfilled.
80CCC - Contribution to Pension Fund of LIC
80D - Medical Insurance premia
80DD - Maintenance including medical treatment of handicapped dependent
80DDB - Medical treatment, etc.
80-E - Repayment of loan taken for higher education
80G - Certain Donations to Charitable trusts of institutions for charitable purpose.
80GG - Rent Paid by an Assessee
80GGA - Donations for scientific research or rural or urban development
80-HH - Deduction in respect of profits and gains from newly established industrial undertakings or hotel in backward areas.
80-HHA - Deduction in respect of profits and gains from newly established small scale industrial undertakings in certain areas.
80-HHB - Deduction in respect of profits and gains from projects outside India.
80-HHBA - Deduction in respect of profits and gains from housing projects in certain areas.
80-HHC - Deduction in respect of profits and gains from export of goods outside India.
80-HHD - Deduction in respect of earning in foreign exchange
80-HHE - Deduction in respect of profit from export of computer software, etc.
80-HHF - Deduction in respect of profit from export or transfer of film software, etc.
80-IA - Deduction in respect of profit and gains of certain industrial undertakings or enterprises, etc.
80-IB - Deduction in respect of profit and gains of certain industrial undertakings other than infrastructure development undertakings, etc.
80-JJA - Profits and gains from business of collecting and processing biodegradable waste.
80-JJAA - Deduction in respect of employment of new workmen.
80-L - Interest on securities, dividends, etc.
80 O - Royalties, commissions, fees for professional services etc, earned in convertible foreign exchange
80-P - Certain income of Co-operative Societies
80-R, 80-RR and 80-RRA - Income from foreign sources.
80-U - Income of handicapped Assessee.
4. Tax Free Income In India :
Section
Eligible Assessees
Type of income exempt
10(1)
All assessees
Agricultural income
10(2)
A member of HUF being individual
Amount received out of family income, or in case of impartible estate, amount received out of income of family estate
10(2A)
Partner of a firm
Share of profit in total income of the firm
10(4)
Non-resident
Person resident outside India (as defined in FEMA) and person who has been permitted to maintain said account by RBI
Interest on securities or bonds notified by the Central Government including premium on redemption of such bonds
Interest received on Non-resident (External) Account
(C.G. will not specify any bonds after 1-6-2002)
10(5)
Salaried employee (See Salary)
Leave travel concession or assistance
10(7)
Citizens of India
Foreign allowances or perquisites paid or allowed by Government to its employees posted abroad
10(8)
Individual
Foreign income and remuneration received from foreign Government for services rendered in connection with any co-operative technical assistance programmes and projects in accordance with agreement entered into by Central Government and foreign Government
10(10)
Salaried employee (See Salary)
Death-cum-retirement gratuity received by employees
10(10A)
Salaried employee (See Salary)
Payment in commutation of pension received from Government/Private employer/ LIC Fund u/s 10(23AAB)
10(10AA)
Salaried employee (See Salary)
Amounts by way of encashment of unutilised earned leave on retirement.
10(10B)
Workman (See Salary)
Retrenchment compensation upto maximum of Rs. 5,00,000
10(10BB)
Any Assessee
Payments made under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985
10(10C)
Salaried Employee (See Salary)
Payment received on voluntary retirement in accordance with approved.
10(10CC)
Salaried employee
In case of perquisite not provided for by way of monetary payment, tax on such income actually paid by the employer.
10(10D)
All assessee
Any sum received under a life insurance policy other than amounts received under a Keyman insurance policy
10(11)
Individual/ Hindu undivided family
Payment from public provident fund/statutory provident fund
10(12)
Salaried employee
Accumulated balance payable to employee participating in recognised provident fund (subject to certain conditions)
10(13)
Salaried employee
Payment from approved superannuation fund in specified circumstances and subject to certain limits
10(13A)
Salaried employee (See Salary)
House rent allowance (subject to certain limits)
10(14)
Salaried employee (See Salary)
Prescribed allowances or benefits
10(15)
Individual/HUF
Income from notified securities(C.G. will not specify any bonds after 1-6-2002)
10(16)
Individual
Scholarship granted to meet cost of education
10(17A)
Any assessee
Amount received in cash or in kind as award instituted by Central/ State Government or reward instituted by C.G. approved body
10(18)
Individual - Central/ State Government employee or his family member
Pension received by individuals as stated above.
10(20)
Local authority
Specified incomes of a local authority
10(21)
Scientific Research Association
Income of approved scientific research associations approved u/s. 35
10(22B)
News agencies
Income of notified news agency set up in India.
10(23)
Sports and games associations and institutions(upto A.Y. 2002-03)
Income of notified sports or games associations or institutions.
10(23A)
Professional associations
Income of approved professional bodies other than income from house property, income received for rendering specific services and income by way of interest or dividends.
10(23AAA)
Any person on behalf of employees welfare fund
Any Income
10(23AAB)
Fund set up by LIC
Income of fund set up by LIC under an approved pension Scheme
10(23B)
Public charitable trust/registered society
Income of institution existing solely for development of khadi or village industries
10(23BB)
Khadi and Village Industries Board
Any Income
10(23BBA)
Body/Authority established, constituted or appointed under Central, State or Provincial Act
Income of a body or authority established for administration of public religious or charitable trusts or endowments.
10(23C)
University/ other educational institution Hospitals/nursing home
Charitable/Religious trusts and institutions
Certain Incomes of the said institutions subject to certain conditions.
10(23D)
Mutual Fund registered under SEBI Act, 1992, and Notified Mutual Fund set up by public sector bank or financial institution or authorised by RBI
Income of Mutual Fund subject to notified conditions
10(23F)
Approved venture capital fund/ venture capital company
Dividends or long-term capital gains of approved venture capital fund/venture capital company from investments made before 1-4-1999
10(23FA)
Approved venture capital funds/ venture capital companies
Any income by way of dividends(Other than referred to in s. 115-O), or long-term capital gains of approved venture capital funds and venture capital companies from investments made before 31.3.2000 by way of equity shares in a venture capital undertaking
10(23FB)
Venture capital company/fund
Income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking
10(23G)
Infrastructure capital fund or infrastructure capital company
Dividends(Other than referred to in s. 115-O), interest or LTCG from investment in shares or L.T. finance
10(32)
Any individual
Income of minor child clubbed u/s 64(1A) to the extent of Rs. 1,500 per child
10(33)
All Assessee(upto A.Y. 2002-03)
Dividends declared/ paid by domestic companies excluding dividend u/s. 2(22)(e)
Any income from units of UTI
Any income from units of mutual fund specified under section 10(23D).
10A
Industrial undertaking in
Free Trade Zone (FTZ)
Electronic Hardware Technology Park (EHTP) or Software Technology Park (STP) w.e.f. A.Y. 1994-95 or Special Economic Zone (SEZ) w.e.f. A.Y.2001-2002.
Income for any 5 consecutive years out of first 8 years from the year of commercial production.
W.e.f A.Y. 2000-2001 income for 10 years from the year of Commercial Production.
W.e.f. A.Y. 2001-2002, income from exports eligible for deduction for 10 year of commercial production or up to A.Y.2009-2010, whichever is earlier.
For A.Y. 2003-04, the deduction would be 90% of the profits derived by an undertaking.
10B
Undertaking as a 100% Export-oriented Undertaking (100% EOU).
As Above in s. 10A
10C
Industrial undertaking in any Integrated Infrastructure Development Center or Industrial Growth Centre in North Eastern region.
Income of ten consecutive A.Y.s from the year of production.
11
Charitable/religious trust / institution
Income from property held for charitable or religious purposes
5. Double Taxation Avoidance Agreement In India (DTAA) :
Double taxation can be defined as the levy of taxes on income / capital in the hands of the same tax payer in more than one country, in respect of the same income or capital for the same period. Double taxation may arise when the jurisdictional connections, used by different countries, overlap or the taxpayer may have connections with more than one country.
The different jurisdictional connections used by countriesBroadly, there are three groups of countries:
Status Jurisdiction- Anglo-Saxon System: Status of the taxpayer is the jurisdictional test. E.g. Citizenship in USA. An American citizen pays US tax on his global income. In the case of India, residence in the country is the jurisdictional test. I.e., if a taxpayer is a resident of India, he will pay tax in India on his world income. In the case of estate duty, the jurisdictional test is domicile. Features of Status jurisdiction:
Jurisdictional connection is the personal status of the taxpayer--rather than the source of his income;
In the case of companies, fiscal domicile (location of the seat of management) and not legal domicile (place of incorporation) is the jurisdictional test;
Tax is paid on global income, i.e., income from domestic and foreign sources are taxed (global in character);
Tax rates are applied on the total global income (canon of equity);
Economically advanced countries like US, UK, Germany, Sweden, and Netherlands follow this system.
Source Jurisdiction: European countries follow source jurisdiction. Income, arising or accruing from a source within the country, is subject to taxation. Features of Source Jurisdiction:
The jurisdictional connection is the source of income;
Only income from domestic sources is taxed (territorial rule of jurisdiction);
A schedular system is followed i.e., income from each source in the country is computed and taxed, separately;
France, Latin American countries and some Middle East countries follow this system.
Both Status and Source Jurisdiction: India follows both the methods. However, unlike source jurisdiction countries, income from each source is not taxed separately, though it is computed under each source. The aggregate income from all sources is taxed, applying the principle of progressive taxation, thus satisfying the canon of equity. However, it results in double taxation in many ways. E.g. �A�, an American citizen gets income from his investment in India and pays tax in India since his source of income is in India. He also has to pay tax on this income in the US, since he is an American citizen and, thus, is liable to pay tax on his global income.
TopThe need for Double Taxation Avoidance Agreements.
DTA Agreement between India and another country.
Different Models For DTA agreement.
Term 'Resident' In DTA Agreement.
Term 'Permanent Establishment' In DTA agreement.
Term 'Business Income' In DTA Agreement.
Income From Air And Shipping Transport, Taxed Under a DTA Agreement.
Associated Enterprises Taxed Under DTA Agreements.
Dividend Income Taxed Under A DTA Agreement.
Interest Income Taxed Under A DTA Agreement.
Term Royalties In DTA Agreement.
Income From Royalties Taxed Under A DTA Agreement.
Income From Capital Gains Taxed Under A DTA Agreement.
Income From Professional Services Taxed Under A DTA Agreement.
Disputes, Regarding The Interpretation Of A DTA Agreement, Resolved.
The Term 'Other Income' In DTA Agreement.
Withholding Rate Of Tax In DTA Agreement.
'Treaty Shopping' In DTA Agreement.
Tax Haven In DTA Agreement.
Harmful Preferential Tax RegimeThe need for Double Taxation Avoidance Agreements
Due to the phenomenal growth in international trade and commerce and increasing interaction among nations, citizens, residents and businesses of one country extend their sphere of activity and business operations to other countries, where income is earned. It is in the interest of all countries to ensure that an undue tax burden is not cast on persons who earn an income, by taxing them twice; once in the country of residence and again, in the country where the income is derived. At the same time, sufficient precautions are also needed to guard against tax evasion and to facilitate tax recoveries.
To avoid hardship to individuals and also with a view to seeing that national economic growth does not suffer, the Central Government, under Section 90 of the Income Tax Act, has entered into double tax avoidance agreements with other countries.
These Tax Treaties serve the following purposes:
Provide protection to tax-payers against double taxation and thus, prevent any discouragement which the double taxation may otherwise create in the free flow of international trade, international investment and international transfer of technology;
Prevent discrimination between the tax-payers in the international field;.
Provide a reasonable element of legal and fiscal certainty within a legal framework;
They also contain provisions for mutual exchange of information and for reducing litigation by providing for mutual assistance procedure.
The Government of India has entered into Double Tax Avoidance Agreement agreements with several countries, including Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, China, Cyprus, (erstwhile) Czechoslovakia, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Indonesia, Israel, Italy, Japan, Kenya, Korea (South), New Zealand, Norway, Philippines, Poland, Romania, Singapore, Sri Lanka, Sweden, Switzerland, Syria, Tanzania, Thailand, Turkey, U.A.E., United Kingdom, United States of America, U.S.S.R. (Russian Federation) Vietnam and Zambia.
TopDTA Agreement between India and another country
A typical DTA Agreement between India and another country usually covers persons who are residents of India or the other contracting country, which has entered into the agreement with India. A person, who is not resident either of India or of the other contracting country, would not be entitled to benefits under DTA Agreements.
TopThe different models for DTA Agreements
These are essentially the UN (United Nations) and the OECD (Organisation of Economic Co-operation and Development) Models for DTA Agreements. The UN Model for a DTA Agreement takes into consideration the requirements of and the prevailing conditions in the developing countries and safeguards their interests, while the OECD Model is biased in favour of the developed countries. India�s DTA Agreements are mostly based on the UN Model. The US has its own model which issued for DTAs with United States.
Term Resident In DTA Agreemnet
A resident: The definition of the term, �resident,� is central to the application of a treaty because treaties often assign the taxing authority to the state of residence. Each contracting state defines �residence� for individuals and companies under its domestic law. However, the definition of residence under a DTAA may be the same as that under the regular tax laws of a contracting state, i.e. based on the number of days� stay in that country or other such criterion, or on the basis of whether he has a permanent home in both states, or where his personal and economic relations (center of vital interest are greater.
If the center of the vital interests cannot be determined, then the �habitual abode� test is applied. In the absence of habitual abode, citizenship may be the determining factor. If the person is a citizen of both/ states or neither, some DTAAs specify that it will be the phase of effective management which is determinative.
TopTerm Permanent Establishment
One important term that occurs in all the Double Taxation Avoidance Agreements is the term 'Permanent Establishment' (PE), which has not been defined in the Income- tax Act.
There is a consensus that the host country can tax income of foreign companies only if it maintains a PE. Normally, a PE includes the following:
a place of management.
a branch.
an office.
a factory.
Thus, a PE takes the form of a facility, a construction site or an agency relationship, all of which require a measure of permanence.
India�s approach has been to enlarge the definition of PE, so as to get maximum tax revenue. In general terms, a business connection is deemed to exist if there is any continuous relationship between a business carried on in India and, a non-resident person who derives income through this connection. There must be a continuity of transactions so as to establish a business connection. Normally, the time period to constitute a PE in the host country is six months. Another issue is the scope of income earned by a PE in a country, i.e., what is the portion of the income of PE earned in India that can be taxed. Under the 'Attribution Rule', only those profits are taxable which are attributable to the PE, computed on the basis of a hypothesis that the establishment in a country is completely independent of the head office in another country. The profits, which such an independent enterprise might be expected to derive on the amount so ascertained, are taken into account in the computation of the business income of the PE. Under the force of an attraction rule, the income, arising from all sources in a country, where a foreign enterprise maintains a PE is subject to tax in that country. This means that in addition to the profits attribution to the PE, those attributable to the sale of goods or merchandise and activities, similar to those carried on through the PE in another country are also taxable in the source country. Thus, in keeping with India's stand that the country of source has a greater right to tax the profits of all enterprises of the country as compared to what it had in the treaties, based on the OECD model. As an alternative, all income in the source country which is not covered by the PE may be subject to the withholding tax if under the domestic law of the country, the income in question is taxable.
TopTerm Busines Income In DTA Agreement
As a general rule, each country will tax a non-resident enterprise, engaged in the active pursuit of business in its territory, with a certain degree of intensity and regularity. Historically, the treatment of business income of a taxpayer is governed by a tax convention, which is tied to the 'permanent establishment' concept. A business enterprise or undertaking is subject to income tax on its industrial and commercial profits on parity with local enterprises in a treaty country, but only when it is engaged in trade or business in the country through a permanent establishment.
TopIncome From Air And Shipping Transport, Taxed Under A DTA Agreement
Income, derived from the operation of Air transport in international traffic by an enterprise of one contracting state, will not normally be taxed in the other contracting state. An air transport company will be liable to tax only in the treaty country in which it is incorporated. However, this does not apply to aircraft companies, engaged in domestic traffic. In respect of an enterprise of one contracting state, income earned in the other contracting state from the operation of ships in international traffic, will be taxed in that contracting state, wherein the place of effective management of enterprise is situated. However, some DTA agreements contains provisions to tax the income in the other contracting state also, although, at a reduced rate. These provisions do not apply to coastal traffic.
Associated Enterprises Taxed Under DTA Agreements
In order to plug loop holes for tax evasion, there is generally a separate article in DTA agreement, which provides for taxing the notional income, deemed to arise on account of an enterprise of one contracting state, participating directly/indirectly in the management of another enterprise in the other contracting state or, where some persons participate directly or indirectly in both the enterprises, under conditions different from those existing between the independent enterprises.
TopDividend Income Taxed Under A DTA Agreement
Dividend paid out by a company in country A to a resident of country B could e taxed in both countries. Prior to 1st June 1997, a dividend, received by a shareholder from an Indian company was taxable in India. However, the DTAAs provide for a concessional rate of tax, e.g. 5% or 10%, as against the normal rate of tax of 25% under section 115A of the Income-tax Act. A resident of another contracting State, entitled to the receipts of a DTAA, was therefore entitled to opt for the lower rate of tax to be applied to him in the paying country. In India, with effect from 1st June 1997 to 31st March 2002 a tax on distribution of dividends is to be paid by the Company on distributing the dividends. No tax is levied by India on the recipient of the dividend. However, by virtue of the Finance Act 2002, dividend is again taxable in the hands of the recipient with effect from AY: 2003-2004 and therefore the taxability of dividend under the DTAA assumes significance.
TopInterest Income Taxed Under A DTA Agreement
Taxation of Interest Income under DTA agreement: Interest, paid in a Contracting State to a resident of the other Contracting State is chargeable in both the States. Usually, the following are the common features in all DTA Agreements, regarding the taxation of income from interest:
If the payee is the Government or the Central Bank of the Government or a Government agency, the interest would usually be exempt from tax in the country in which the payment is made.
Penalty charges for late payment e.g. for defaults in clearance of dues for purchases will not constitute interest nor will any item be treated as dividend, though styled as dividend by the taxpayer or the person with whom he has the relevant transaction.
There will be no deduction of tax at source if the payee has a permanent establishment in the country from which the payment is made, or if he is engaged in professional services there. In this case, the income will be covered by his assessment to tax in that country in the ordinary course.
Interest will be deemed to arise in that State in which the payer resides.
TopTerm Royalties In DTA Agreement
Royalties are defined as a share of the proceeds from a patent, book, song, etc. paid to the owner, author, composer, etc. Royalty is defined in the majority of the agreements to cover payments of any kind, received as consideration for the use of or the right to use any copyright of literary, artistic or scientific work, including motion pictures, films, tele-video tapes for use in connection with radio or television, any patent, trademark, design or model plan or secret formula or process for the use of or, the right to use industrial, commercial or scientific experience.
Income From Royalties Taxed Under A DTA Agreement
Regarding Royalties, arising in a Contracting State, that are paid to a resident of the other Contracting State:-
Some DTA agreements provide for taxation in the other Contracting State.
Some agreements provide for taxation in the contracting State.
Some agreements provide for taxation in both the States.
TopIncome From Capital Gains Taxed Under A DTA Agreement
Capital Gains will usually be taxed in the state where the capital asset is situated at the time of sale. However, some DTAAs-- e.g. India’s agreements with Mauritius and with Cyprus provide that there will be no Capital gains tax on the sale of shares in one contracting state by a resident of the other Contracting State.
TopIncome From Professional Services Taxed Under A DTA Agreement
Income will be taxed in the state where the person is resident and practicing his profession. However, if he has a fixed base in the other Contracting State, the income, attributable to the fixed base, will be taxed in the other contracting state. Some treaties also specify that a professional will be liable to tax if he stays in another country for more than a specified number of days, (183 days for most treaties but 90 for the US) and derives income in that country, even if he does not have a ‘fixed base’ there.
TopDisputes, Regarding The Interpretation Of A DTA Agreement, Resolved
If there are any disputes in the interpretation or implementation of the terms of DTA Agreements, normal remedies of appeal, provided in the Income-tax Act, are available to the aggrieved party. The DTA Agreements also contain mutual agreement procedures. The aggrieved party may approach the Competent Authority of the Contracting State wherein he is a resident, who, if he is unable to resolve the dispute by himself, will approach the competent Authority of the other Contracting State to arrive at a solution after mutual discussion.
The (Indian) Income-Tax Act also contains a special provision, which is offered to those Non- residents who would like to have advance ruling on a matter of law or fact, in relation to a transaction undertaken or proposed to be undertaken by them. The facilities, available in such provision, can be availed of by Non-residents in the matters regarding Double Taxation of income, also.
TopThe Term 'Other Income' In DTA Agreement
Any income, not specifically covered in the treaties, is usually subject to tax in the State in which the income arises.
Withholding Rate Of Tax In DTA Agreement
Usually, taxation of income of an enterprise in any State is on net basis, i.e., after allowing all relatable expenses. However, in case of non-resident recipients, who have no organisation of funds in the country of source, it becomes difficult for the source country to arrive at the taxable income using normal methods. Such income usually relates to dividends, interest, royalties and fees for technical services, shipping profits and aircraft profits. In order to remove uncertainties for both sides, the usual practice now is to specify in domestic laws, the rates of tax on gross basis. This tax is to be charged on dividends, interest and royalties or fees for services, which would be deducted at source from the payments, before they are remitted out of the country. Such retention of tax is termed as 'withholding tax'.
Top'Treaty Shopping' In DTA Agreement
In the present age of economic globalization, both individuals and corporates are ever anxious to find ways and means of minimizing their tax burden. One way to do so is by moving to a tax haven, i.e., a tax jurisdiction, where the tax incidence is very small, sometimes even nil. Another way of doing this is to take the benefit of the double taxation avoidance agreements, entered into by one country with one or more other countries. This amounts to treaty shopping, which is a method of using or misusing the tax treaties by taking advantage by investing in low tax countries. In effect, there may be a situation where a person, resident in a third State, seeks to obtain the benefit of a double tax treaty between two other countries. MNCs shop for DTA Agreements, signed by countries to obtain fiscal advantages. It is used by investors for the following purposes:
To reduce the source country taxation.
To pay a low or zero effective rate of tax in the payee treaty country.
To pay a low or zero tax rate on payments from the payee treaty country to the tax-payer.
TopTax Haven in DTA Agreement
The Organization for Economic Co-operation & Development (OECD) has laid down four determinants for a tax haven. These include the following:
Lack of effective exchange of information;
Lack of transparency;
Attracting business with no substantial activities.
TopHarmful Preferential Tax Regime
The OECD defines a harmful preferential tax regime as one that:
Imposes a low or zero effective tax rate on the relevant income.
The regime is ring-fenced (that is, it does not offer its domestic tax-payers the same incentives for the same activity as are offered to foreigners).
Operation of the regime is non-transparent and there is no effective exchange of information with other countries.
6. Appeals In Income Tax India :
According to the provisions of Section 246 any assessee who is aggrieved by an order, passed by the Assessing Officer may prefer an appeal to the Commissioner of Income-tax (Appeals).
The Commissioner of Income-tax (Appeals) or the Appellate Tribunal may admit an appeal, beyond the period of limitation, if it is satisfied that there was sufficient cause for not presenting the appeal, within time.
An appeal can be filed against the order of the Commissioner of Income-tax (Appeals).
Under Section 253 of the Income-tax Act, an assessee, who is aggrieved by an order, passed by a Commissioner of Income-tax (Appeals), can prefer an appeal to the Income-tax Appellate Tribunal. Similarly, the Commissioner (Administration) can object to any order of the Commissioner of Income-tax (Appeals) and, file an appeal to the Appellate Tribunal.
Time limit for preferring an appeal.
The period of limitation for preferring an appeal to the Commissioner of Income-tax (Appeals) is thirty days from the receipt of the order of the assessing officer and, for preferring an appeal to the Appellate Tribunal, the limitation is sixty days from the date on which the Commissioner’s, order is communicated.
An appeal can be presented by registered post or, must it always be sent by hand delivery.
The appeal can be presented by hand delivery or, can be sent by registered post. However, the appeal, if it is sent by registered post, the same should reach the authorised officer, within the period of limitation, as mentioned above.
Fees, payable to file an appeal.
For filing an appeal to the Commissioner of Income-tax (Appeals), the prescribed fees are as follows:-
Rs. 250/-, where the Assessed income is Rs.1 lakh or less;
Rs.500/-, where the Assessed income is over Rs.1 lakh but less than Rs.2 lakhs;
Rs.1, 000/-, where the Assessed income is over Rs. 2 lakh.
For preferring an appeal to the Appellate Tribunal, the prescribed fee is as under:-
Rs.500/-, where the Assessed income is Rs.1 lakh or less;
Rs.1500/-; where the assessed income is more than Rs.1 lakh, but less than Rs.2 lakhs;
1% of the assessed income, subject to a maximum of Rs.10,000/-, where the assessed income is more than Rs.2 lakhs.
Prescribed forms for presenting an appeal
For presenting an Income-tax appeal before the Commissioner, the prescribed form is Form No.35, while for an appeal to the Appellate Tribunal; the prescribed form is Form No.36.
How to draft the appeal?
Every memorandum of appeal, whether in Form No.35 or 36, shall be written in English. The grounds of appeal should be concise, without any argument or narration and, should be numbered, serially, under distinctive heads. With the memorandum, it is necessary to prepare a statement of facts in such a manner so as to bring out clearly the issue, raised in the order of the Assessing Officer, under challenge. There is, however, no requirement for filing a separate statement of facts before the Appellate Tribunal as the statement of facts, filed before the Commissioner of Income-tax (Appeals), would be annexed with the Memorandum of Appeal to the Appellate Tribunal.
If I forget to raise an issue before the Commissioner of the Appellate Tribunal, can I raise the issue at a later stage?
While drafting the appeal, a lot of care should be taken, so as to include all the grounds, therein. Though the Commissioner of Income-tax (Appeals) or, the Appellate Tribunal has the powers to entertain additional grounds, the same can be raised, only, before the disposal of the appeal and, with the permission of the appellate authority. For admission of the additional grounds, the person must have adequate reasons for not raising the ground at the time of filing the appeal.
Can the Memorandum of appeal be signed by my Advocate or Chartered Accountant?
The form of appeal shall be signed and verified by the assessee or, by a person, who is authorised to sign the return of income, or, by a Constituted Attorney of the Power of Attorney, specifically, mentioning the same. This power has been given to the Advocate or Chartered Accountant, specifically and the appeal may be signed only by such person. However, a letter of authority to appear may not include the power to sign an appeal.
Will I be informed about the hearing of the appeal or, will it be disposed of on the basis of my Memorandum that I have filed?
The Commissioner of Income-tax (Appeals) or the Appellate Tribunal would issue a notice of hearing to the assessee, at the address shown in the Memorandum of Appeal. After giving an opportunity of hearing the assessee, in person or, through his representative, he will pass orders, agreeing or disagreeing with the grievance of the assessee. The Appellate Authority would pass specific and clear orders on the issues, raised by the assessee and, give reasons for passing the same, and may, also, set aside the assessment, if further investigation or, a re-consideration is required.
7. Penalties under Income Tax Act :
Section
Nature of Default
Basis of Charge
Quantum of penalty
221(1)
Failure to pay tax; i.e., non-payment of tax required by notice u/s. 156.
--
Amount of tax in arrears
271(1)(b)
Non-compliance with notice u/s. 142(1) to file returns or to produce documents required by assessing officer or u/s. 143(2) to produce evidence on which assessee relies or u/s. 142(2A) to get accounts audited.
--
Rs. 10,000
271(1)(c)
Concealment of the particulars of income, or furnishing inaccurate particulars thereof.
Tax sought to be evaded
100 % to 300 % of tax sought to be evaded
271A
Failure to maintain books or documents u/s. 44AA.
--
Rs. 25,000
271AA
Failure to keep and maintain information and documents u/s. 92D.
International transaction
2% of International transaction
271B
Failure to get accounts audited and furnish Tax Audit Report as required u/s. 44AB.
Total Sales, Turnover, or Gross Receipts
0.5% of total sales, turnover or gross receipts, or Rs. 1,00,000 whichever is less
271BA
Failure to furnish a report as required u/s. 92E.
--
Rs. 1,00,000
271C
Failure to deduct the whole or part of the tax as required by or under Chapter XVII-B (Ss. 192 to 196D) or failure to pay the whole or part of tax u/s. 115-O.
Tax failed to be deducted
Equal to the amount failed to be deducted
271D
Contravention of the provisions of S. 269SS; i.e., by taking or accepting any loan or deposit otherwise than by ways specified therein.
Amount of loan or deposit so taken or accepted
Equal to the amount of loan or deposit so taken or accepted
271E
Contravention of S. 269T; i.e. repayment of any deposit otherwise than by modes specified therein.
Amount of deposit so repaid
Equal to the amount of deposit so repaid
271F
Failure to furnish Return of Income under sub-section (1) of S. 139 before the end of the relevant Assessment Year.
--
Rs. 5,000
Failure to furnish Return of Income under proviso to sub-section (1) of S. 139 by the due date.
--
Rs. 5,000
271G
Failure to furnish information or document u/s. 92D (3).
International transaction
2 % of such default.
272A(1)
Failure to answer questions, sign statements, attend summons u/s. 131(1), apply for permanent account number u/s. 139A.
--
Rs. 10,000
272A(2)
Failure to:
Rs. 100 for every day during which the failure continues.
Comply with notice u/s. 94(6) furnishing information regarding securities
Give notice of discontinuance of business - S. 176(3)
Furnish in due time returns, statements, or particulars u/s. 133, 206 or 285B
Allow inspection of any register(s) - S. 134
Furnish returns u/s. 139(4A)
Deliver in due time a declaration mentioned in S. 197A
Furnish a certificate u/s. 203.
Deduct and pay tax u/s. 226(2)
Furnish returns/ statements/ certificate u/s. 206C
Furnish a statement of particulars of perquisites and profits in lieu of salary u/s. 192(2C)
272AA(1)
Failure to furnish the prescribed information required u/s. 133B (Refer to Form No. 45D).
--
Rs. 1,000
272B
Failure to apply for Permanent Account Number (PAN)
--
Rs. 10,000
272BB(1)
Failure to apply for Tax Deduction Account No. (TAN) (S. 203A)
--
Rs. 10,000
272BBB
Failure to apply for Tax Collection Account No. (TCN)
--
Rs. 10,000
Note:No penalty is imposable for any failure u/ss. 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271D, 271E, 271F, 271G, 272A(1)(c) or (d), 272(2), 272AA(1), 272B, 272BB(1) and 272BBB(1), if the person or assessee proves that there was a reasonable cause for such failure (S. 273B).
8. Permanent Account Number (PAN) :
A Permanent Account Number is required to be obtained by every person mentioned below:
A person whose total income under the Act exceeds the maximum amount not chargeable to tax
A person whose Total sales, turnover or gross receipts is likely to exceed Rs. 5,00,000/-
A person who is required to furnish return of income on account of receipt of income under trust or other legal obligation for charitable or religious trust.
PAN under the new series
It is an all India, UNIQUE Number of 10 CHARACTERS, allotted by the Income Tax Deptt.
It is PERMANENT for your life and will not change even with a change of address or station or change of your Assessing Officer, etc.
PAN under the new series is being issued to replace old PAN or GIR No.
Who must apply for PAN?
Individuals
Hindu Undivided Families
Companies
Partnership Firms
Association of Persons
Body of individuals
Trusts
Artificial Juridical Persons (is this a word?)
Representative Assessees
You need a PAN if you are:
an Income Tax Payer.
carrying on a business or profession whose total sales or turnover or gross receipt exceeds Rs.5 lakhs.
a trust.
an exporter or importer under the Customs Act ,1962.
an assessee under Central Excise Act.
a person who issue invoices and requires registration under the Central Excise Rules or an assessee under the service tax.
How will the PAN under the new series be communicated?
A letter, intimating your PAN under the new series, will be sent either by the Officer-in-charge of the Computer Centre or your Assessing Officer.
If your application is incomplete or deficient, you will receive a DEFICIENCY LETTER or an INTIMATION CUM DEFICIENCY LETTER, stating the shortcomings or defects in your application. PLEASE RESPOND IMMEDIATELY to enable us to follow up.
YOU WILL BE GIVEN A LAMINATED PAN CARD, WHICH WILL CONTAIN the following:
For Individuals: PANNameDate of BirthFather's NamePhotograph andSignature of PAN Holder
For other Tax payers:PANName andDate of Incorporation or Formation
Apply For PANRights, duties and obligations of PAN Holder.
How To Apply For PAN?
A PAN can be applied for in Form No. 49A by every person who is liable to obtain the said Number. The details to be furnished are given below:
Name of the assesseeResidential address in case of individualOffice address along with the address of branches, if anyNature of Business: It is advisable to file the copy of agreement of partnership deed or memorandum of association in case of Company along with the Application form Name and address of all partners/directors/members of AOP, etc.Name of the person whose income is included in the income of the assesseeOld GIR/PAN., already allotted.
Mandatory quoting of PAN:
Every person to whom a PAN is allotted is required to quote the same in
all his returns to, and/or correspondence with, any Income Tax Authority;
all challans for payment of direct taxes;
application for opening an account with a bank;
application for installation of a telephone connection (including a cellular telephone);
documents pertaining to sale or purchase of a motor vehicle;
documents pertaining to sale or purchase of immovable property valued at Rs.5 lakhs or more;
documents pertaining to a time deposit exceeding Rs.50,000 with a Bank;
documents pertaining to deposits exceeding Rs.50,000/- in any account with a Post Office Savings Bank;
documents pertaining to a contract of a value exceeding Rs.10 lakhs for sale or purchase of securities (shares, debentures etc.);
payment to hotel & restaurants against their bills for an amount exceeding Rs.25.000/- at anyone time;
Every person receiving any sum or income or amount from which tax has been deducted under the provisions of chapter XVII-B (relating to TDS -Section 192 to 197), shall intimate his PA. to the person responsible for deducting such tax
Every buyer referred to in section 206C ( for tax collected at source) shall intimate his PAN to the seller referred to in that seller.
If tax is being deducted at source on payment of salary, rent, interest etc., it will be in your interest to give your PAN under the new series to the tax deductor so that the same could be mentioned in the TDS Certificate and Annual Return of TDS. This will help you in getting credit for taxes deducted at source.
Rights, duties and obligations of PAN Holder
If PAN under new series has not been allotted:A person can quote his General Index Register Number (GIR No.) till the PAN under the new series is allotted to him.
In case of opening a Bank Account in the name of a minor who does not have any taxable income, the Permanent Account Number under the new series or GIR No. of his father or mother or guardian may be quoted.
Any person, who has not been allotted a Permanent Account Number or who does not have GIR No. and who makes payment in cash or otherwise than by crossed cheque drawn on a Bank or through a credit card issued by a Bank, is required to file a declaration in form No.60.
The following persons are not required to obtain a PAN:Persons, who have agricultural income and not any other taxable income. They should, however, file a declaration in Form No.61 in respect of transactions referred to at (3) to (10) above.
Non-residents.
Central Govt., State Govts. and Consular Officers in transactions in which they are the payers.
You must intimate your Assessing Officer about any change in:NAME on the basis of which the Permanent Account Number (PAN) was allotted ADDRESS NATURE OF THE BUSINESS
The Assessing Officer must be informed of the following:DEATH of a PAN holder DISCONTINUATION OF BUSINESS DISSOLUTION of a firm PARTITION of a Hindu Undivided Family (HUF) LIQUIDATION or WINDING UP of a company MERGER or AMALGAMATION or ACQUISITION etc. of companies.
A fresh Pan must be applied for in the following cases:PARTITION of a bigger Hindu Undivided Family (HUF) into one or more new Hindu Undivided Families (HUF's) Coming into being of a new HINDU UNDIVIDED FAMILY (HUF) CHANGE IN CONSTITUTION of a firm (entailing change of partners) SPLITTING UP or DEMERGER of an existing company into two or more companies WHEN YOU MOVE FROM ONE CITY OR STATE TO ANOTHER:- (You need not apply for a fresh PAN under the new series. You must, however, intimate your Assessing Officer for transfer of your PAN and other records to your new Assessing Officer.)
9. Non-resident under Income Tax Act :
Non-resident - definition:
There has been confusion and consequent litigation regarding the status of 'Not Ordinarily Resident'. This has now been clarified to mean the following:
A person, who has been non-resident in India in 9 out of the 10 preceding previous years.
a person, who has been in India for less than 730 days in the 7 years, preceding the year in question.
In the past, if a person was non-resident for 2 years, he could stay in India for as many as 9 years and be treated as 'Resident' but 'Not Ordinarily Resident' for those 9 years. Now, this has been reversed. Only a person, who has been non-resident for 9 years, will be entitled to the facility of 'Resident'. He will be granted the status of Not 'Ordinarily Resident' only after 2 years
Similarly, a resident Hindu Undivided Family is treated as 'not ordinarily resident' in India, if the manager of the family satisfies either of the above two conditions. To further clarify the issue, a resident individual will be 'ordinarily resident' in India if he satisfies the following two additional conditions:
As on March 31, 2003- i.e. for the assessment year 2003-04:
He has been resident in India for at least 9 out of the 10 previous years, immediately preceding the relevant previous years.
He has been in India for a period of 730 days or more during the 7 years, immediately preceding the relevant previous year.
From April 01, 2003- i.e. for the assessment year 2004-05 onwards:
He has been resident in India for at least 2 out of the 10 previous years, immediately preceding the relevant previous year.
He has been in India for a period of 730 days or more during the 7 years, immediately preceding the relevant previous year.
The tax laws that affect NRIs and their investments, business and income in India.
Income Which Is Exempt From Tax For The NRIs.
Tax Deduction At Source For NRIs.
Capital Gain Tax For NRIs.
Wealth Tax For NRIs.
Gift Tax For NRIs.
The tax laws that affect NRIs and their investments, business and income in India are given below
The Income Tax Act, 1961: It deals with the levy, assessment, collection of tax, appeal etc. It is supplemented by the Income tax rule, 1962.
The Wealth Tax Act, 1957: It regulates the levy and collection of wealth-tax of individuals, HUF and companies. It is also supplemented by the Wealth Tax Rules, 1957.
Finance Act: Every year, the Parliament passes a Finance Act, which lays down the rates of Income-tax and Wealth-tax for a particular financial year or the assessment year. Amendments to the various direct tax laws are also passed through the Finance Act and sometimes, through a Direct Tax Law Amendment Act.
Circulars: The Central Board of Direct Taxes, New Delhi is the apex administrative body for the different tax laws. It often issues circulars, interpreting the provisions of the law, which give relief and grant tax concessions. These circulars are binding on the different tax authorities.
Notifications: The Government of India issues notifications, which are published in the Official Gazette e.g. granting special exemption etc.
Relevant Points for NRIs
Income tax is payable by any tax payer on the total income as computed and approved by the assessing officer under the provision of the Income-tax Act.
Only Indian income is liable to Income-tax in India in the case of Non-resident Person.
There is no Income-tax in India on a foreign income merely because it is remitted to India during that year.
In the case of a person who is resident but not ordinarily resident in India, no income-tax is payable by him in the income which accrues or arises to him outside India, unless it is derived from a business controlled or a profession set up, in India.
Income Which Is Exempt From Tax For The NRI
Interest on specified securities or bonds, including income by way of premium on the redemption of such bonds.
Interest on NRE Account and FCNR accounts.
Interest on Notified savings Certificates, subscribed in convertible foreign exchange, National Savings Certificates VI and VII issues have been notified for this purpose. (Notification No 50 653 (E), dated 8th September, 1982). However, sale of these Certificates have been discontinued from 1st April, 1989.
Tax on salary income of a foreign technician, paid by the employer, such tax paid is not a perquisite in the hands of such technician.
Remuneration, received by non-Indian citizen as employee of a foreign enterprise for service rendered in India.
Salary, received by a non-resident, who is not a citizen of India, for services rendered in connection with his employment on a foreign ship provided that his total stay in India does not exceed 90 days in the previous year.
Remuneration, received by an individual who is not a citizen of India as an employee of the Government of foreign state during his stay in India in connection with his training in any establishment / office/ undertaking, owned by the Government.
Allowances or perquisites, paid or allowed as such outside India by the Government to its employee, who is a citizen of India, for rendering services outside India.
Foreign income and remuneration, received by an individual who is assigned duties in India from Government of a foreign State for services, rendered in connection with co-operative technical assistance programmes and projects in accordance with an agreement, entered into by the Central Government and the Government of a foreign State.
Foreign income and remuneration or fee, received by a consultant, being an individual, who is either not a citizen of India or being a citizen of India, is not ordinarily resident in India, or any other person, being a non-resident.
Foreign income and remuneration, received by an individual who is an employee of the consultant, referred to in section 10(8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India.
Foreign income of any member of family of person, referred to in section 10(8), 10(8A) and 10(8b).
Interest on Non-resident (Non-repatriable) rupee deposit account (NRNR) (Notified by Central Government). The notification states that interest on NRNR deposits accruing to non-residents only would be exempt under section 10(15) of the Income Tax Act. Therefore, interest on NRNR account is not exempt from income tax when a person acquires the status of resident but not ordinary resident.
Interest earned on Foreign Currency (Ordinary Non-repatriable Deposit account) FCNR. Under this section, any interest on deposits in foreign currency with a scheduled bank, if a scheme approved by the Reserve Bank of India is exempt. This exemption is also available to a person who is not ordinarily resident. Interest on Resident Foreign Currency (RFC) account is exempt till such time as NRI maintains the status of Not Ordinarily Resident.
Interest on bonds, issued under the Gold Deposit Scheme, 1999.
Income of European Economic Community derived in India by way of interest, dividends or capital gains from investment made out of its funds under notified scheme.
Income of SAARC fund for Regional Projects, set up under the Colombo Declaration, issued on 21st December 1991.
Any income from the following:
Dividends, referred to in section 115-0; or
Income, received in respect of unit from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); or
Income, received in respect of the units of mutual funds specified under clause (23D).
Note:This is exempt from tax from the assessment years 1998-99 to 2002-03 and the current assessment year 2004-05."
Tax Deduction At Source For NRIs
Section 194I of the Income-tax Act provides for deduction of tax at source on rental income. This states that the rate for deduction on payments to individuals will be 15% (plus surcharge). Section 194 - I will now be amended to provide that in t case a non-resident receives rental income, TDS will not be @ 15% but the rate would be 30% plus surcharge.
Here is the table that provides with all the details:
Persons who are liable to deduct:- Any person responsible for paying to a non-corporate, non-resident assessee or to a Company other than a domestic company.
Persons from whom deduction is to take place:- Non-corporate, non-resident assessee or a Company other than a domestic company.
Nature of Income from which deduction is to be made:- Any interest or any other sum (not being income chargeable under the head ''Salaries'').
Amount on which tax has to be deducted:- Any sum chargeable under the provisions of the Act other than interest on Securities and Salaries.
Time when tax is to be deducted:- At the time of Credit of the income to the account of the Payee or even a Suspense account or at the time of payment in cash or by issue or a Cheque or a draft, or by any other mode, whichever earlier.
Rates at which tax is to be deducted:-
Investment Income 20%
Long Term Capital Gain (U/S 115E) 10%
Long Term capital Gain in respect of Assets other than those specified in clauses 33 and 36 of section 10. 20%
Interest payable in Foreign Currency 20%
Any other income chargeable to tax 30%
Surcharge is payable at 10% on the tax in case of Non-resident for the financial year 2003-2004 i.e. assessment year 2004-2005 of income exceeds Rs 8.5 lacs.
Time within which the tax deducted is to be paid:- When payment is credited on the last day of the accounting year, the tax deducted has to be paid within 2 months from the end of the month in which the credit is made.In any other case: Within one-week from the last day of the month in which the deduction is made.
Returns & Form No.:- Form No. 27
Due date for filing of the Return:- Within 14 days from the end of the quarter.
Time limit to issue TDS Certificate in Form No.16A:- Within one month from the end of the month in which credit is given or the amount is paid.
Form for application of lower rate of tax:- Application has to be made in Form Nos. 13, 15C/D to the ITO for NIL deduction or deduction of tax at a rate lower than the prescribed rate.
Capital Gain Tax For The NRIs
A Long Term Capital Gain arising on sale of listed securities acquired after 1st March 2003 and before 1st March 2004 will be completely exempt from income-tax. This will then be reviewed next year and the concession may be extended.
Section 285BA: Filing of information in respect of certain transactions:
Rule 114 -B of the Income Tax Rules specifies certain kinds of transactions. These are:
Sale or purchase of any immovable property valued at Rs.5 lakhs or more;
Sale or purchase of a motor vehicle (but not a two-wheeler);
A time deposit exceeding Rs.50,000/- with the Bank;
A deposit exceeding Rs.50,000/- with the Post Office Savings Bank;
Sale or purchase of securities of more than Rs.10 lakhs;
Opening an account with the Bank;
Making an application for a telephone connection or a cellular telephone connection;
Payments to hotels and restaurants of more than Rs.25,000/- at one time;
Purchase of an international airline ticket for more than Rs.25,000/- at one time.
Now, under the new Section, 285BA, a list of such transactions will have to be furnished to the Income Tax department.
Section 115G provides that if the total income of non-resident Indian consists of investment income or long term capital gains and the tax has already been deducted under the provisions of Chapter XVIIB, then he need not furnish an income tax return under Section 139(1)
However, if the payer has defaulted in deducting tax at source; the non-resident Indian is liable to file his income tax return and pay tax on his own.
Wealth Tax For The NRIs
From the assessment years 1993-94 onwards, wealth tax is levied on the net non-productive wealth of individuals, including NRIs, and its rate is 1 % of the amount by which such net wealth exceeds Rs. 15 lakhs.
From the assessment year 1993-94, wealth-tax is levied on the net non productive wealth of individuals (including NRIs), HUFs and companies only, and the rate of wealth tax is 1% of the amount by which such net wealth exceed Rs 15 lacs.
Wealth tax is levied on the following types of non-productive assets:
Any guest house, excluding the house for residential or commercial purposes which forms part of the stock-in-trade or for any business or profession.
Motor cars, other than those used in the business for hire or as stock-in-trade.
Jewllery, furniture, utensils or articles made by any use of gold, silver, platinum or any previous metal or its alloy, excluding such items used as stock-in-trade.
Yachts, boats, aircrafts except those used for commercial purposes.
Urban land –
Cash in excess of Rs 50,000 for individual and HUFs and for others any amount not recorded in the books of account.
Exempt wealth of NRIs under Wealth Tax Act:
Wealth tax shall not be payable in the case of an assessee, being a person of India origin or a citizen of India who was ordinarily residing in foreign country and who, on leaving such country, has returned to India with the intention of permanently residing therein, moneys and the value of assets brought by him into India and the value of the assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter.
This exemption shall apply only for a period of seven successive assessment years commencing with the assessment year next following the date on which such person returned to India.
For the purpose of this section, a person shall be deemed to be of India origin if he, or either of his parents or any of his grandparents, was born in undivided India.
Gift Tax For The NRIs
Gift tax has been abolished on gifts made on or after 1-10-1998.
No investigation about an NRIs capacity to make gifts: The government would not enquire about an NRI capacity to make gifts. However the gifts must be genuine and the donor/donee should also be genuine person. It is immaterial whether the NRI has paid income tax on his gift to a resident in India to the country where he is residing. Use by a regular banking channels under fema/fera can determine the genuinely of the gift.
