Section 194Q of Income Tax Act and its impact on TDS

The Finance Act, 2021 brought in several important amendments in the Income Tax Act, 1961. One such amendment was the inclusion of Section 194Q in the Act which governs Tax Deducted at Source (TDS) on purchase of goods. The Section came into effect on July 1, 2021. It has a few significant implications especially when coupled with Section 206C(1H) which governs Tax Collected at Source (TCS) on the sale of goods.

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Step by Step Guide on e-filing Income Tax Return AY 2021-22

Income tax filing is one of the most common financial activities that all businesses & individuals practice every year. Traditionally, businesses consult a Chartered Accountant(CA), but over the years the existing process has changed. The rise of technology in governance has made such procedural tasks easier and more cost-effective. This article aims to provide you with the knowledge of a step-by-step guide to filing an Income Tax Return.

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Problems Being Faced In Relation To The New Income Tax Portal

The Income Tax Department of India launched a new electronic tax filing portal developed by Infosys in June this year. The new portal is said to be more user-friendly and will make it easier to file income taxes. The portal is said to reduce the processing time for tax returns and make refunds faster. The portal started glitching just a couple of hours after its launch. Let us look into the problems being faced in operating the new portal.

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GST Login Guide – How to Login to the Government GST Portal India

The Goods and Services Tax, or GST, as it is more popularly known, was introduced in India in 2017. It is an indirect tax that amalgamates a number of Central and State taxes, such as VAT, service tax, central excise duty, et cetera. The government has launched its official GST website, www.gst.gov.in, also known as the GST Portal, as the mother database for everything related to GST.

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Issues in the New GST Return System

From 2017, GST came into play, changing the traditional model of VAT, Excise Duty and Service. Taxpayers, in general, have become befuddled since then. Some of the provisions of the GST are ambiguous, and others are difficult to become acquainted with. Taxpayers are still trying to figure out how the GST system will impact their businesses and what their duties are under this system.

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Section 194Q of Income Tax Act and its impact on TDS

The Finance Act, 2021 brought in several important amendments in the Income Tax, 1961. One such amendment was the inclusion of Section 194Q in the Act which governs Tax Deducted at Source (TDS) on purchase of goods. The Section came into effect on July 1, 2021. It has a few significant implications especially when coupled with Section 206C(1H) which governs Tax Collected at Source (TCS) on the sale of goods.

The new section is an interesting addition due to the fact that it is a move to address the shortcomings of the aforementioned Section 206C(1H) which was brought in the previous year. Due to some transactions being excluded from coming under TCS provisions, Section 194Q on TDS has been added this year.

When will TDS be deductible under Section 194Q?

According to Section 194Q, TDS will be deductible when a buyer makes a payment to a seller who is also a resident and the said payment is for the purchase of goods that are of value exceeding Rs. 50 lakhs. The said ‘purchase of goods’ refers to both capital and revenue goods. The rate of TDS is 0.1% of the said value which will increase to 5% when the seller does not have a Permanent Account Number (PAN). Another thing to note is that TDS is deductible under the section even when payment is credited to a suspense account (a section in a ledger that records entries which are uncertain leading to a need for further classification).

Who is a buyer?

The section defines who a buyer is in the explanation stating that a person who has total sales or gross receipts or turnover exceeding Rs. 10 crores in the preceding financial year will qualify as a buyer. Further, if the Central Government has expressly notified that a person cannot be a buyer or that TDS provisions would not apply, the aforesaid provisions will not apply.

When can TDS be deducted?

Now, the TDS can be deducted either at the time when the sum of money is credited to the seller or when the sum is directly paid. If the buyer does not comply with the provisions of this section, Section 40a(ia) will come into being through which expenditure up to a maximum of 30% of the value of goods will be disallowed.

Exceptions to Section 194Q

One important exception to note with regard to Section 194Q is that it won’t apply if other provisions of the Income Tax Act mandate deduction of TDS in the concerned transaction. Yet another exception is when TCS is collectable on the transaction according to the provisions of Section 206C(1H) of the Act. 

When can TCS be collected under Section 206C(1H)?

As mentioned previously, Section 206C(1H) governs TCS on sale of goods. This provision will apply on a seller who receives a consideration for sale of goods with value more than Rs. 50 lakhs during a financial year. Further, the Section defines ‘seller’ as a person who has total sale or gross receipts or turnover exceeding Rs. 10 crore during the preceding financial year (similar to the definition of a ‘buyer’ under Section 194Q).

Now, when only Section 206C(1H) existed, there was the possibility of TCS provisions not being applicable even when consideration exceeded Rs. 50 lakhs due to the fact sales or gross receipts or turnover were not over Rs. 10 crore in the preceding financial year. Such transactions did not come under the purview of either tax collection or deduction and hence, the government sought to bring them under the same. This was why Section 194Q was introduced through the Finance Act, 2021. 

Mutual exclusivity of Section 194Q and Section 206C(1H)

Therefore, now both Sections co-exist to ensure that transactions are not exempt from tax collection or deduction due to the conditions not being met. But, it is important to note that the two sections are mutually exclusive, in the sense that if one starts to apply, the other will not apply. So if TDS can be deducted under Section 194Q, TCS can not be collected under Section 206C(1H) and vice versa.

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Income Tax Law in India in 2021

The interim budget got announced in January by Finance Minister Piyush Goyal had seem to have bought series of changes in Tax Rules. The changes can be seen from a full rebate on personal income up to ₹ 5 lakh in a year to a 25% hike in standard deduction threshold.

He was quoted saying, “This is not just an interim budget, this is a vehicle for the developmental transformation of the nation.”

Making a bold move, the government proposed a full tax rebate to individual upto ₹5 lakh income/year. The move made to benefit “the great Indian middle class” in words of Arun Jaitley will cost Government ₹18, 500 crore.

Income Tax Act: The provisions of income tax are contained in the Income Tax Act, 1961 which extends uniformly to the whole of India and has been effective since 1962. The act contains provisions for determining taxable income, tax liability, procedure for assessment of penalties, etc.

1. Annual Amendments – Since the Income Tax Act is a revenue law, it requires amendments whenever the government wants to make changes in it. Under the annual amendment of existing revenue generation requirements, the Government proposes its finance bill, which directly decides the threshold limits for various tax rates which are commonly referred to as Income Tax.

2. Income – Income in broad terminology is defined as any receipt in the form of money or money’s worth which occurs with a certain regularity or expected regularity from a definite source.

key takeaways from the income tax changes proposed in budget 2020-20:

1. “Straight” income tax rebate of Rs. 12,500

The most breaking announcement has been the Government’s decision to full rebate to individuals with annual income up to ₹5 lakhs/ annumn.

Though the income-tax slab applicable to other individuals remain same.

Government has clarified its stance as to the move was made to strengthen the purchasing power of the middle-class who holds the key to India’s future.

According to existing income tax rules, applicable till Assessment Year 2020-20, personal annualincome up to ₹2.5 lakh is exempt from Income Tax. Section 87A of the Income Tax Act provides option for a rebate to individuals on income up to a certain limit.

The Income Tax Department will give a ‘straight rebate’ of ₹12,500 to those having an annual income of ₹5 lakh from the beginning of next fiscal year. It will nullify their tax-liability.

CBDT clarifies that for those earning more than ₹5 lakh annually, the oldtax rates will continue.

Here is an example to explain what the income tax proposals mean for assesses below 60 years of age:

Budget 2020 tax calculation examples

Taxable annual income in rupees (after adjusting deductions) 3,50,000 4,00,000 5,00,000 10,00,000
Tax 5,000 (@ 5% on 1,00,000) 7,500 (@ 5% on 1,50,000) 12,500 (@ 5% on 2,50,000) 1,12,500 (@5% on 2,50,000, 20% on 5,00,000)
Rebate under Section 87A of I-T Act 5,000 7,500 12,500 NA
Tax liability 0 0 0 1,12,500
Cess @ 4% 0 0 0 4,500
Tax payable (after cess) 0 0 0 1,17,000
         

 

2. Standard deduction hike

The second change that was talked about is that standard deduction limit in which employees & pensioners are given a straight relief from taxable income – from ₹40,000 to ₹50,000in a year.

As per the new rules prevailing in assessment year 2020-20, persons having gross income up to ₹6.5 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance etc.

Taxable income will be derived by adjusting all exemptions & deductions applicable under the income tax laws against the gross income.

Besides deduction available under Section 80C of the Income Tax Act, which provides for tax relief against a variety of investments – such as life insurance and savings scheme Sukanya Samriddhi , Section 80D (medical insurance), Section 80E (education loan) and Section 80TTA (savings account interest) provide for a range of deductions to the assesses.

3. TDS (tax deducted at source) relief

The interim Budget 2020-20 also proposed a four-fold increase in the limit for TDS applicable on interest income (from post office/bank deposits) to ₹40,000 per annum. The move is calculated to benefit Senior Citizens and small depositors who depend on interest income from deposits in banks and post offices.This will benefit small depositors and non-working spouses.

4. Hike in TDS threshold on rent

The Government proposed to increase the TDS limit applicable to rental income by 1/3rd to ₹2.4 lakh, compared to the existing threshold which means households earning income in form of rent are likely to benefit, say financial advisors.

According to current rules applicable in assessment year 2020-20, the lessee – or tenant – is required to deduct TDS on annual rent above ₹1.8 lakh. This tax is applicable to lessees other than individuals or Hindu Undivided Families (HUF), unless the entity is subject to tax audit.

5. Relief on notional rent

Government proposed to allow house owners to claim relief on a second property as self-occupied. This means the assesses will not have to pay tax on the second property on the basis of notional rent. As per current rules applicable in assessment year 2020-20, assesses having more than one house have to pay income tax on the basis of notional rent.

6. Long-term capital gains relief

The Government proposed to allow a profit of up to ₹2 crore from sale of residential property to be invested in not one but two properties to avoid paying tax on capital gains, subject to certain conditions.

The benefit of rollover of capital gains under Section 54 will be increased from investment in one residential house to two residential houses for a taxpayer having capital profits up to ₹2 crore.

According to the current rules applicable in assessment year 2020-20, individuals are allowed to utilize the gains from sale of property on purchase or construction of one new property to avoid tax.

7. Easy processing of income tax refunds

Making the conclusion out of the budget speech it is very clear that Income tax refunds will be processed within 24 hours and released immediately.

New portal for e-filing income tax returns: Benefits, improvements, and implications

By ​ Nevin Clinton, Flywork.io TeamFlywork.io. 

    The Income Tax Department announced through a statement a few days back that a new e-filing portal (www.incometax.gov.in) will be launched on June 7. The new portal replaces the existing one (www.incometaxindiaefiling.gov.in) and the IT department has promised taxpayer-friendliness, better software, interactive questions, and an overall seamless experience. As the authority that frames policy for the department, the Central Board of Direct Taxes (CBDT) will govern this e-filing process. "We are as excited about the new portal as our users! We are at the final stages in the roll-out of the new portal and it will be available shortly. We appreciate your patience as we work towards making it operational soon," the IT department tweeted.

Apart from the new portal, a new tax payment system is also set to be launched on the 18th of June 2021 and a mobile app subsequently. The new system has certain changes in the Income Tax Return (ITR) Forms for the Assessment Year 2020-21 as well as in the dividend regime. Till the 18th of June 2021, taxpayers can get themselves familiarised with the new system on the portal amid this ‘huge transition’ in e-filing. 

What are the changes brought in by the new portal?

The new portal has multiple payment options such as net banking, UPI, credit card, and RTGS/NEFT to ensure ease of payment. Along with a more modern experience and immediate processing of Income Tax Returns to issue quick refunds, the new system is set to be a positive change with various promising improvements. For example, free-of-cost ITR software has been brought in for Forms 1, 2, and 4. For the rest of the forms as well, the facility is expected to be extended very soon. 

While the procedure for filing returns remains more or less the same as before, there is an important feature that has been included in the form of pre-filling of data. Details can be updated concerning salary, property, business, and the like in the portal which would then be used to pre-fill the ITRs. Necessary changes, if any, can then be made manually. This pre-filling option will be made available only after Tax Deducted at Source (TDS) statement and Statement of Financial Transaction (SFT) are uploaded with the due date having been fixed already at June 30, 2021. 

Certain other changes have been brought in for user-friendliness

    There have also been changes brought in to increase logistical ease. All interactions, uploads, and actions can be accessed by the user in a single dashboard. For ‘prompt response to queries’, taxpayers can make use of the new call center. Other features such as FAQs, user manuals, video explanations, and a chatbot can also be made use of. Also, tax professionals can be added through functionalities and responses can be submitted to notices in faceless scrutiny or appeals. Secure and multiple login options have also been introduced to make the app and the site completely user-friendly.

The new portal – a step in the right direction?

    As far as the statements of the Income Tax Department are concerned, the new e-filing portal seems like a step in the right direction. In today’s digital world, making things as simple to understand as possible is the need of the hour and that is exactly what this move seeks to achieve. It now depends on how swiftly and effectively all the changes are implemented. Certain features will be made available only later and considering the time delay in rolling out the portal, it remains to be seen if the new changes will be brought in quickly to ensure taxpayers get accustomed to them. 

Having said that, the new portal is a beneficial move irrespective of how the implementation will be since there are a plethora of inclusions of features to make things taxpayer-friendly while there is no notable exclusion as such from the procedure that was in place previously.

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Audits- What are they and their importance in a business

By Simran KaurFlywork.io TeamFlywork.io. 

When one thinks of the word Audit, they imagine agents or officials arriving unannounced with calculators in hand ready to go through boxes of invoices, receipts, and notes, well that's certainly is one type of audit but it's not the only kind. Most of the audits that the big firms do have nothing to do with tax day and none of them are unannounced. Companies which trade publicly are required to validate financial positions with an audit, on the other hand privately held companies even though they are not legally required often performs audit at the request of banks, investors and other stakeholders to ensure that their cash flows, balance sheets, profit, and loss statements aren't misstated. But what exactly are Audits? How are they important? What are its types? Read on to know all about it.

WHAT IS AN AUDIT?
International Organization of Supreme Audit Institutions define Audit as :
"Evaluation or examination of systems, operations, and activities of a specific entity, to ascertain they are executed or they function within the framework of a certain budget, objectives, rules, and requirements."

In simpler terms, we can say that the word "AUDIT" means to evaluate. They are often executed by Auditors.  An Auditor is a person or a firm appointed by a company to execute an Audit, that is to examine the accuracy of recorded business transactions. However, Employees or the head of a particular department in a Company can also execute an audit internally. The whole idea of an Audit is to check that no fraud or misrepresentation is conducted financially in the books of accounts.

In India, Chartered Accountants from ICAI or THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA  does independent audits of any organization.

IMPORTANCE OF AUDITS 
Audits have become an important term used in Accounting. It examines and verifies a Company's Financial records.

Ways how Audits are important:

  1. It helps in preventing as well as detecting frauds and mistakes.
  2. It helps in maintaining the books of accounts
  3. It satisfies owners of how their business operates and also how its various departments function.
  4. It creates confidence among stakeholders, creditors, banks, etc.
  5. It allows verifying potential risks and helps improve a company's internal controls and systems.

TYPES OF AUDITS

There are three main types of Audits.

  • Internal Audits

These types of Audits are performed internally by employees of the company or organization. They are usually done for the use of stakeholders and management.
They help improve decision makings and the functioning of various departments of the company. Also, they help ensure that compliance with laws and regulations are maintained timely and fair and no mistake or fraud is done in financial statements.

  • External Audits

These types of Audits are performed by external organisation or firms. It gives a Company an unbiased opinion which an internal audit might not be able to. They determine and check if any error or mistake is done with the financial records of the Company. They help stakeholders, investors, banks make decisions with Externally audited firms confidently as they are made sure that their money is in safe hands and away from frauds.

  • Government Audit

These types of Audits are done to ensure that the financial statements of a company are prepared accurately and the amount of taxable income is not misrepresented. Misrepresenting a taxable income, whether intentionally or unintentionally amounts to tax fraud. These audits keep companies safe from frauds which might have become a huge liability for the company in the future both legally and financially.

CONCLUSION 
Today almost every company considers Audits and executes them eventually after a fixed time either internally or externally to ensure and evaluate where money is coming from, where it's going, and what's it doing each step of the way. There are many channels in a company where money can flow through. The bigger the organization, the more accounts there are to follow.
Audits have come a long way from saving Companies from frauds to providing risks taking potential in companies. They not only save a company but also helps them grow.

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What do the terms “liable to tax” and “deemed residency” mean to NRIs?

By: Adil Zawahir, Flywork.io Team, Flywork.io.

India has a huge number of NRIs or Non-Resident Indians living outside of India- what could the recent set of amendments in income tax law mean to them. Read on to know more.

From the 1st of April, more than 100 amendments to the Finance Bill, 2021, came into effect. The 29th amendment laid down the definition of the term "liable to tax", which is described to mean “that there is an income-tax liability on such person under the law of that country for the time being in force”. This change in law effectively makes Indians residing outside the country and making an income of Rs 15 lakh or more from domestic sources liable to pay tax. This tax liability will extend to what they earn outside as well if that global income is not taxed under any jurisdiction.

The interesting part of this amendment is that there is no statutory exception to countries that do not impose any income tax, such as the UAE. The earlier practice had provided leniency in case of deemed residency and their foreign income was exempt from being taxed in India. Post-amendment, however, income from a business controlled from/set up in India may become liable to tax in India.

Earlier, a person was only considered a resident if he spent 180 days or more in the country, or spends 120 days or more whilst having a domestic income upwards of Rs 15 lakh. The new "deemed residency" rule negates the requirement of days spent, as specified under Section 6(1) of the Income Tax Act, and any NRI having such income will automatically be deemed to be a resident of India.

This amendment to taxation laws in India had led to confusion and misdirected outrage from the public, as well as from Members of Parliament such as Mahua Moitra and Shashi Tharoor among others, on social media. This led Finance Minister Nirmala Sitharaman to clarify that the salary income of NRIs living in such countries would be exempt from taxation and the new amendment merely brought a general definition to the term "liable to tax" in the Income Tax Act. The amendment also does not seek to impact income sourced in tax-neutral countries, so long as such income does not arise from a business set up in India. This clarification will certainly provide some relief to the 85 lakh NRIs residing in the gulf region and the Middle East which does not tax income.

This amendment has definitely made individuals revisit their business models and operating structures and has compelled them to take tax into consideration for choosing their country of residence. The amendment may also give rise to more innovative methods of evasion as businessmen will look to employ the services of tax consultants and Chartered Accountants and also classifying the income generated as alternative sources of income. It has also inadvertently reduced the appeal of tax havens as many rich businessmen and businesswomen are also re-routing a part of their income through UK, Singapore and Hong Kong where direct onshore income is taxed at low rates. There is still ambiguity about the new "deemed residency" concept and this move to redirect their income could be subject to scrutiny by the Income Tax department.
 

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