TAXATION- Concept Book

 Conceptual framework for financial reporting  First-time adoption of international financial reporting standards  Business combinations  Insurance contracts  Financial instruments: Disclosures  Operating segments  Consolidated financial statements  Fair value measurement  Leases Resources for Research Additional coverage of this, and related, information is beyond the scope of this chapter. However, there is value in you, as a financial planner, knowing how and where to find more information. To help with that, this section provides a selected list of research resources:  International Accounting Standards Board (IASB – see IFRS)  Financial Accounting Standards Board (FASB -http://www.fasb.org/home)  International Accounting Standards (IAS; replaced by IFRS)  International Financial Reporting Standards (IFRS -http://www.ifrs.org) Organizational Ownership Structures Private sector organizations may be structured in one of several ways. The structure often has a direct relationship to the way in which taxes are levied. For example, an individual may own and operate a business. Individual ownership is one of the oldest business forms, and in many ways, the simplest. Profits and losses from the business are passed directly to the owner and added to his or her overall income. The business owner has a lot of flexibility in making decisions, but not as much flexibility in managing income taxation as may be the case with other organizational structures. Many individuals decide to move beyond sole ownership and join together in a partnership arrangement. Partnerships allow businesses to increase capitalization, because more than one individual can contribute money. Simple partnership arrangements are not too dissimilar to sole ownership structures. Profits and losses are passed directly to each partner, usually in equal shares. CFP Level 2 - Module 2 – Taxation - Global Page 45

When a business wants to raise additional funds and limit individual liability, it may be organized as a joint stock company. The organization will sell shares of stock of different values and have a board of directors that manages the organization. There are two primary types of joint stock companies: 1. Private limited and 2. Public limited. Private limited companies usually are formed by two or more people. Shares are held by members and sales are not open to the general public. Public limited companies extend ownership opportunities to the general public. CFP Level 2 - Module 2 – Taxation - Global Page 46

GLOASSARY OF TERMS RELATED TO TAXATION TAX TERMS A Ability to Pay The concept that taxpayers should have a tax liability consistent with their income level. Abusive Tax Scheme An illegal series of transactions designed to hide taxable income from the IRS. Adjusted Basis The original value of a piece of property plus the value of improvements and minus depreciation. The adjusted basis is used to figure your gain or loss on a sale. Adjusted Gross Income (AGI) Your gross income reduced by adjustments to income, before exemptions and deductions are applied. Adjustment to Income Also called an above-the-line deduction. A type of deduction that you may take without having to itemize. Alimony Regular payments made to an ex-spouse or to a legally separated spouse. Alimony is considered income for the payee and is tax deductible for the payer. Allowances A number on your Form W-4 used by your employer to calculate how much income tax to withhold from your pay. The greater the number of allowances, the less income tax will be withheld. Alternative Minimum Tax (AMT) A special tax system which was originally intended to prevent wealthy taxpayers from taking advantage of so many tax breaks that they end up paying little or no taxes. The AMT affects more and more middle class taxpayers every year. Amendment / Amended Return A corrected tax return filed to revise a previous year's tax return. Amount Due Your total tax bill. The amount of money you owe in taxes. Annuity An annual payment, such as from a retirement plan. Appeal To request the review of an IRS decision or adjustment. CFP Level 2 - Module 2 – Taxation - Global Page 47

Audit An IRS review, or examination, of a tax return. Many audits are random, but returns may also be deliberately chosen for audit based on a number of red flags. B The amount a piece of property is worth when you first acquire it. Basis For tax purposes, a person is considered blind if they cannot see better than 20/200 with their best eye using contacts or glasses, or if they have a field of vision which is 20 degrees or less. Blind C Canceled Debt Forgiven debt on a mortgage or other loan. Canceled debt is generally considered taxable income. Capital Gain Profit from the sale or trade of an investment property such as stock or real estate. Casualty Loss A deduction taken for property damage suffered during a disaster or other such event. Child Support Payments made to an ex-spouse or legally separated spouse for the care of a child. Child support payments are generally neither taxable nor deductible. Credit A dollar-for-dollar reduction of your taxes owed. Some credits are refundable. D Decedent An IRS term for a person who has died. Deduction An amount subtracted from your taxable income for certain expenses. Deficiency The amount of taxes owed after paying too little, assessed during an audit. Dependency Exemption An exemption claimed for a dependent. Dependent A child or relative whom you support and who qualifies you to take an exemption. CFP Level 2 - Module 2 – Taxation - Global Page 48

Depreciation A deduction taken for the business use of certain items which lose value over time, such as office furniture. Direct Deposit When a tax refund or other payment is sent electronically to your bank account. Direct Tax A tax paid directly to the federal government, or to state or local governments, such as income tax and property tax. Direct Transfer Moving funds from one Individual Retirement Account to another. Dividend A stock distribution given to stockholders in the form of cash, property, services, stock rights, or more stock. E Earned Income Money or other compensation given to you for working, whether you receive a paycheck or you are self-employed and pay yourself. Earned Income Credit (EIC) E-file To electronically file a tax return. To file your taxes online. EIN Employer Identification Number, used by employees to identify their employers to the IRS. Entity A person or group of people that pays taxes. Types of tax entities include individuals, businesses, estates, trusts, and charitable organizations. Estate A tax entity that receives and reports a person's income and pays taxes after that person's death. Estate Tax A tax, targeted at the wealthy, on the total value of an estate if it exceeds a certain amount. Estimated Tax Quarterly down-payments toward your annual tax bill, required if you expect to make more than a certain amount of income for the year CFP Level 2 - Module 2 – Taxation - Global Page 49

Excise Tax A special tax on using or selling certain products or services. One example of excise taxes is luxury taxes . Exemption A type of deduction claimed for yourself, your spouse (if filing jointly), and each your dependents. Extension A tax extension, obtained by filing or efiling Form which delays your filing deadline by 3 months. Note that this extends your time to file, but not your time to pay, and interest and penalties may apply to any late tax payments. F Fair Market Value The price for which you could sell a piece of property on the open market under current economic conditions. Filing Status A category of taxpayer. Each taxpayer must select a filing status on their tax return: Single, Head of Household, Married Filing Jointly, Married Filing Separately, or Qualifying Widow(er). Filing status determines things such as your overall tax rate and your eligibility and income limits for various credits and deductions. Flat Tax A tax based on the same percentage of income for all taxpayers, regardless of income level. Foreclosure The legal process by which a lender takes possession of a home when the homeowner has defaulted on the mortgage. Fringe Benefit A fringe benefit is compensation given to you by your employer in addition to your regular pay. The value of any fringe benefit is generally taxable. Examples of fringe benefits include: employee discounts, stock options, services, transportation, access to facilities, group term life insurance, expense reimbursement, etc. G GST Goods & Services Tax Gift Tax A special tax paid by the giver of a gift (of money or property) worth more than a certain amount Some transfers of money are exempted from the gift tax, such a gift to a spouse or a gift used to pay medical or educational expenses. CFP Level 2 - Module 2 – Taxation - Global Page 50

Gross Income The total amount of income you must report on your tax return. Your income before applying adjustments, exemptions, credits, and deductions. H Head of Household A filing status claimed by taxpayers who are single but have qualifying dependents. I Income Taxes Taxes paid by individuals and businesses based on earned and unearned income. Indirect Tax A tax which is not paid directly, but which is paid through a cost increase, such as sales tax. Inflation A decrease in the value of money and credit as consumer prices increase. Interest Money gained from investments, such as bank accounts, bonds, or trusts. Interest is unearned income. Investment Income Money or other compensation received from profitable investments, generally in the form of interest or dividends. Itemized Deduction A deduction for a specific expense that may be claimed if the total amount of all itemized deductions is greater than the standard deduction. J \"Jock Tax\" A state or local tax targeted at traveling professionals who work in multiple states, such as athletes. K \"Kiddie Tax\" The tax paid by parents, at their tax rate, on the unearned income of a child which is in excess of a certain amount. L Levy To impose a tax. To tax someone, or to put a tax on something. CFP Level 2 - Module 2 – Taxation - Global Page 51

Local Tax A tax charged by a local government, such as a city or county. Luxury Tax An indirect tax, targeted at the wealthy, attached to certain expensive, nonessential goods or services such as sports cars or jewelry. M Marginal Tax Rate The tax rate that applies to the last dollar of income earned. Mortgage A loan made to purchase property, generally real estate. The borrower pledges the property to the lender as collateral to guarantee repayment of the loan. N Nonresident A person who did not live in a particular state but worked or did business there and so must file a state income tax return. Nontaxable This describes income which is not subject to taxation. P Part-Year Resident A person who lived in a particular state for only part of the year but must file a state income tax return there. Penalty Charges added to your tax bill for late filing and late payment. The IRS may also charge interest for late tax payments. Pension A retirement plan that pays an annuity. Also see Individual Retirement Arrangement. Personal Exemption An exemption claimed for yourself and, if married filing jointly, for your spouse. PIN Personal Identification Number. In India its PAN (Permanent Account Number) A 10 chartacter alphanumeric number used to file tax return. Principal Residence Also called a Primary Residence. The place where a taxpayer lives for the greater part of the year. CFP Level 2 - Module 2 – Taxation - Global Page 52

Progressive Tax A tax based on a percentage of income. The higher your income, the larger a percentage you pay. Our current federal income tax system. Property Tax A tax paid for valuable property such as real estate and vehicles. Proportional Tax Another term for Flat Tax. R Refund The amount of money you receive back from the IRS when you have paid more taxes (usually through paycheck withholding) than you owe. Refundable A credit which will paid to you as a refund if you owe no tax. S Sales Tax A tax on retail products, goods, and services. It is based on a certain percentage (generally set by the state) of the price. Short Sale (Real Estate) When a home is sold for an amount that falls short of the amount still owed on the home's mortgage. Short Sale (Stocks) When someone borrows shares of stock and sells them in the hopes that the stock's price will fall before the original loan must be repaid. \"Sin Tax\" An excise tax attached to certain goods, collected at the point of sale, intended to discourage their use (such as cigarettes and alcohol). Single A filing status claimed by those who are unmarried, divorced, or legally separated and who do not qualify for Head of Household status. Standard Deduction A specific amount that differs by filing status. You may deduct this amount from your taxable income if you do not itemize deductions. T Tariff A tax on imports. CFP Level 2 - Module 2 – Taxation - Global Page 53

Tax Avoidance Using legal tax planning strategies to reduce your tax bill. Tax Base All resources available to the government for taxation. All of the nation's taxable income added together. Tax Bracket A range of incomes that is taxed at a specified tax rate. Also, the bracket into which the last dollar of one's income falls. Tax Break A general term for exemptions, credits, deductions, or any legal way to reduce your taxes. Tax Burden The total amount of taxes owed by the American people, or by a particular segment of the population. Tax Code The entire body of tax laws, regulations, and procedures. Tax Cut A reduction of tax rates. Tax-Deferred When taxes levied now are owed at a later time, such as interest Tax Evasion Illegally hiding income from the IRS. Deliberately underpaying taxes or using an abusive tax scheme. Tax Liability The total amount of taxes you owe. Tax Rate The percentage of income that is owed as tax. Tax Shelter An investment, business, or other activity designed primarily to avoid or evade taxes. Tax Shift When a tax is levied on one group of people but is in practice paid by another group. Tax shift can also refer to the process of lowering some taxes and making up the revenue by raising or implementing other taxes. Tax Year The 12-month period covered by a tax return. Returns for a specific Tax Year are usually filed in the subsequent year. These are Financial Years and Assessment Years. Taxable Income Your Adjusted Gross Income reduced by all applicable exemptions, credits, and deductions. The amount of income that is taxed. CFP Level 2 - Module 2 – Taxation - Global Page 54

Trust A type of tax entity that manages a person's assets during their life or after their death. A trust is a separate entity from an individual and is managed by an appointed trustee. U Unearned Income Income which was not earned by working, such as investment income or gifts. V Value-Added Tax (VAT) A tax, levied on a product at each stage of production, depending on the overall value added to the product at each stage. The consumer pays the accumulated taxes at the point of sale. For example, taxes may be attached to a car when the body is assembled, when the engine is added, and when the car is painted--and the buyer will pay all of these taxes to the car dealer, who passes them on to the government. W \"Wealth Tax\" Another name for the Alternative Minimum Tax. CFP Level 2 - Module 2 – Taxation - Global Page 55

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TAXATION – INDIA CFP Level 2 - Module 2 – Taxation - India Page 57

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SECTION–I FEATURES OF INDIAN TAX SYSTEM AND DIRECT TAXES SUB-SECTIONS Page 59 1.1 Features of Indian Tax System 1.2 Indian Direct Tax Structure 1.3 Tax Compliance Matters 1.4 Residency Rules CFP Level 2 - Module 2 – Taxation - India

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Sub-Section–1.1: Features of Indian Tax System 1.1.1. Three-tier Federal Structure of Taxation - Union Government, State Governments and Urban/Rural Local Bodies India has a well-developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments, and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are Income-tax (except tax on agricultural income, which State Governments can levy), Securities Transaction Tax (STT), commodities transaction tax (CTT), Customs Duties, Central Excise on Tobacco products, petroleum products. After the imposition of Goods and service tax w.e.f. 1 July 2017central government can impose CGST (Central Goods and Service Tax) on supply of goods or services within a state/union territory. It can also impose integrated goods and services tax (IGST) on supply of goods or services from one state to another (Inter State) Principal taxes of state government are state excise duty on manufacture of alcohol, tax on professions/employment, land revenue, stamp duty. After the imposition of GST w.e.f. 1 July 2017 state government can impose SGST (state goods and service tax) on Intra state supply of goods or services. Also it shall share 50%of IGST collected by central government by way of IGST provided goods or services are consumed within that state. There is no VAT on sales except in case of petroleum products and alcoholic liquor. to levy tax on properties (buildings), Entertainment tax, tax on markets and tax and user charge for utilities like water supply, drainage etc. 1.1.2 Direct and Indirect Taxes Tax is a compulsory contribution from a person to the expenses incurred by government in common interest of all without specific reference to specific benefits conferred on any Individual. Taxes are classified into two types: Direct Taxes Those taxes where incidence and burden falls on the same person. It can’t be transferred to anyone else. For Example: income tax and wealth tax. CFP Level 2 - Module 2 – Taxation - India Page 61

Income tax, corporate tax, inheritance tax are some instances of direct taxation. Income tax is the tax levied on individual income from various sources like salaries, investments, interest etc. Corporate tax is the tax paid by companies or firms on the incomes they earn. Indirect Taxes Those taxes where burden can be shifted to another person through a Change in price. For Example: sales tax (VAT), excise duty, custom duty and Goods and Service tax (GST). Indirect taxes are those paid by consumers when they buy goods and services. These include excise and customs duties. Customs duty is the charge levied when goods are imported into the country, and is paid by the importer or exporter. Excise duty is a levy paid by the manufacturer on items manufactured within the country. Usually, these charges are passed on to the consumer. 1.1.3 Predominance of Indirect Taxes There is Predominance of Indirect Taxes in Indian Taxation System. The importance of excise duty is the highest among indirect taxes. There are certain administrative and some special reasons which call for Predominance of Indirect Taxes. Because of wide spread poverty in underdeveloped countries it is difficult for government to impose direct taxes on income and wealth. Direct taxes may not yield sufficient revenue and Indirect taxes being concealed in prices are convenient to pay. In 1950-1951, of the total tax proceeds, 36.8% was contributed by direct taxes and 63.2% by indirect taxes. In 20007-2008, the share of direct taxes was 49% and that of indirect taxes was 51%. The share of direct taxes in England is 55% while in Japan and Australia it is about 70%. 1.1.4 Tax-induced Distortions on Investment and Financing Decisions Indian tax system is characterized by: (1) a high dependence on indirect taxes, (2) low average effective tax rates and tax productivity, and (3) high marginal effective tax rates and large tax- induced distortions on investment and financing decisions. The paper finds that the most recently proposed package of reforms would improve tax productivity and lower the marginal tax burden and tax-induced distortions. But firms that rely on internal sources of funds or face problems borrowing would continue to face high marginal tax rates. To improve the tax intake and savings and Investment rates, which h are low by regional standards, a series of tax reforms have been considered in India. Their main thrust is to combine lower statutory rates with base CFP Level 2 - Module 2 – Taxation - India Page 62

broadening, to realize more revenues while lowering the marginal tax burden and removing distortions. This in turn should foster growth, leading to an “expansionary” fiscal adjustment. Consumption taxes should not in theory affect savings and investment decisions since future and current consumption are treated equally, and they remain neutral with respect to various sources of income. Empirical evidence is mixed, however. Some studies find that such taxes indeed have no impact on employment and growth, but others find that-like income taxes, although to a lesser extent—they have a negative impact on growth by distorting the choice between labour and leisure, and also could depress savings. Corporate taxes raise the required rate of return on investment and thereby depress investment. In addition, corporate taxes tend to favour debt over equity financing or retained earnings, potentially leading to an inefficient allocation of resources, higher insolvency risks, and discrimination against smaller companies that face more difficulties borrowing. Corporate taxes are also non-neutral given the widespread use of rebates, exemptions, and special regimes for specific sectors or regions. This also benefits large companies which can bear a lower tax burden through tax planning and fiscal engineering. Cross-country studies confirm a negative link between the tax burden (measured by tax revenue to GDP) and growth for high-income countries. However, the result does not hold for lowand middle-income countries, perhaps reflecting measurement problems. Firm-level empirical results, as well as simulation results using computable general equilibrium models, in contrast support the view that higher taxes negatively affect growth. CFP Level 2 - Module 2 – Taxation - India Page 63

Sub-Section–1.2: Indian Direct Tax Structure 1.2.1. Central Board of Direct Taxes (CBDT) The Central Board of Direct Taxes is a statutory body constituted under the Central Board of Revenue Act, 1963. It consists of a number of members appointed by the Central Government for the performance of such duties, as may be entrusted to the Board from time to time. It is functioning under the jurisdiction of the Ministry of Finance. The Central Board of Direct Taxes, besides being the highest executive authority, exercises control and supervision over all officers of the Income-tax Department and is authorised to exercise certain powers conferred upon it by the Income-tax Act, 1961. In particular, it has the powers, subject to the control and approval of the Central Government to make any rules, from time to time for the proper administration of the provisions of the Income-tax Act, 1961. All the rules under the Act are framed by the Board under section 295 and placed before the Parliament. In addition to the general power of making rules and of superintendence, the Board has been given specific powers on several matters. The Board has been empowered under section 119 to issue instructions and circulars to its subordinates for the proper administration of the Act. It is obligatory for the various authorities and all other persons employed in the execution of the Act to observe and follow such orders, instructions and directions of the Board. However, the Board is not empowered to issue orders, instructions or directions in such a way as to (i) require any income-tax authority to make the assessment of a particular case in a particular manner or (ii) interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. Further, the Board may, if it considers necessary or expedient to do so, for the purpose of proper and effective management of the work of assessment and collection of revenue, issue general or special orders from time to time in respect of any class of incomes or class of cases setting forth directions and instructions not being prejudicial to the assessee. In appropriate cases, the Board may relax the provisions of sections 115P, 115S, 139,143,144, 147, 148, 154, 155, 234A, 234B, 234E, 271 and 273. The Board can exercise its powers to remove difficulties in the matter of sections 201(1A), 210, 211 and 234C. The Central Government may appoint such persons as it thinks fit to be income-tax authorities. It may also authorise the Board or a Principal Director General or Director General, a Principal Chief Commissioner or Chief Commissioner or a Principal Director or Director or a Principal CFP Level 2 - Module 2 – Taxation - India Page 64

Commissioner or Commissioner to appoint income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner. An income-tax authority authorised by the Board may appoint such executive or ministerial staff as may be necessary to assist it in the execution of its functions. The Board may also direct, by way of notification, that any Income- tax authority or authorities shall be subordinate to such other income-tax authority as may be specified. Organisational Structure of the Central Board of Direct Taxes: The CBDT is headed by Chairman and also comprises of six members, all of whom are ex-officio Special Secretary to Government of India.  Member (Income Tax)  Member (Legislation and Computerisation)  Member (Revenue)  Member (Personnel & Vigilance)  Member (Investigation)  Member (Audit & Judicial) 1.2.2. Income-tax (IT) Act,1961 and Income Tax Rules (ITR),1962 Income-tax is a tax levied on the total income of the previous year of every person. A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc. Income-tax is the most significant direct tax. The income-tax law in India consists of the following components. Income-tax Act, 1961: The levy of income-tax in India is governed by the Income-tax Act, 1961. In this book we shall briefly refer to this as the Act. This Act came into force on 1st April, 1962. The Act contains 298 sections and XIV schedules. These undergo change every year with additions and deletions brought about by the annual Finance Act passed by Parliament. In pursuance of the power given by the Income-tax Act, 1961 rules have been framed to facilitate proper administration of the Income-tax Act, 1961. The Finance Act: Every year, the Finance Minister of the Government of India introduces the Finance Bill in the Parliament’s Budget Session. When the Finance Bill is passed by both the houses of the CFP Level 2 - Module 2 – Taxation - India Page 65

Parliament and gets the assent of the President, it becomes the Finance Act. Amendments are made every year to the Income-tax Act, 1961 and other tax laws by the Finance Act. The First Schedule to the Finance Act contains four parts which specify the rates of tax-  Part I of the First Schedule to the Finance Act specifies the rates of tax applicable for the current Assessment Year.  Part II specifies the rates at which tax is deductible at source for the current Financial Year.  Part III gives the rates for calculating income-tax for deducting tax from income chargeable under the head “Salaries” and computation of advance tax.  Part IV gives the rules for computing net agricultural income. Income-tax Rules: The administration of direct taxes is looked after by the Central Board of Direct Taxes (CBDT). The CBDT is empowered to make rules for carrying out the purposes of the Act. For the proper administration of the Income-tax Act, 1961, the CBDT frames rules from time to time. These rules are collectively called Income-tax Rules, 1962. It is important to keep in mind that along with the Income-tax Act, 1961, these rules should also be studied. Circulars and Notifications: Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts regarding the scope and meaning of the provisions. These circulars are issued for the guidance of the officers and/or assesses. The department is bound by the circulars. While such circulars are not binding on the assesses, they can take advantage of beneficial circulars. Notifications are issued by the Central Government to give effect to the provisions of the Act. For example, under section 10(15)(iv)(h), interest payable by any public sector company in respect of such bonds or debentures and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf would be exempt. Therefore, the bonds and debentures, interest on which would qualify for exemption under this section are specified by the Central Government through Notifications. The CBDT is also empowered to make and amend rules for the purposes of the Act by issue of notifications. For example, under section 35CCD, the CBDT is empowered to prescribe guidelines for notification of skill development project. Accordingly, the CBDT has, vide Notification No.54/2013 dated 15.7.2013, prescribed Rule 6AAF laying down the guidelines and conditions for approval of skill development project under section 35CCD. CFP Level 2 - Module 2 – Taxation - India Page 66

Case Laws: The study of case laws is an important and unavoidable part of the study of income-tax law. It is not possible for Parliament to conceive and provide for all possible issues that may arise in the implementation of any Act. Hence the judiciary will hear the disputes between the assessees and the department and give decisions on various issues. The Supreme Court is the Apex Court of the country and the law laid down by the Supreme Courts the law of the land. The decisions given by various High Courts will apply in the respective states in which such High Courts have jurisdiction. 1.2.3. Wealth Tax Act, 1957 Abolished w.e.f. FY2015-16 (AY 2016-17) 1.2.4. Finance Act The Finance Act is an important Act in India and the Central Government, through this Act, gives effect to financial proposals at the beginning of every Financial Year. The Act applies to all the State and Union Territories of India unless specified otherwise. Every Financial Year therefore sees a new Finance Act thus making this Act one that renews itself each year. All the Governmental financial policies are included in this Act. The existing policies, new policies, as well as changes made to existing policies are all included here. Every Finance Act is assented by the President of India. Important Elements of Finance Act All the elements included in the Finance Act associated with a particular Financial Year are of course important. Even so, there are particular elements that take precedence over the others. The most important element is the rules laid down in the Act with respect to Income Tax Rates. Every year, the Act lays down in detail all the associated provisions related to Income Tax in the country. Since this applies to a large number of taxpayers, it is considered one of the most important elements. The Finance Act, is responsible for laying down the tax slabs that applies to taxpayers. These are a few important elements included and elaborated upon in detail in the Finance Act for a particular year. CFP Level 2 - Module 2 – Taxation - India Page 67

Direct Taxes The Finance Act for a particular financial year also includes the amendments that have been made with respect to Direct Taxes. The Amendments made under various sections are noted down in this section of the Finance Act and each amendment of every section is noted down separately. Also included in the Finance Act is the detail of the insertion of new sections, if any. The Schedule The Schedule in any Finance Act is a systematic depiction of all the rules and regulations laid down by the Act for that Financial Year. The Schedule gives details on  Rates of Income Tax  Surcharge on Income Tax  Rates for Deduction of Tax at Source  Details of Advance Tax  Details for computation of Net Agricultural Income among other details. Central Board of Indirect Taxes and Customs Central Board of Indirect Taxes and Customs (erstwhile Central Board of Excise & Customs) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs, Central Excise duties, Central Goods & Services Tax and IGST, prevention of smuggling and administration of matters relating to Customs, Central Excise, Central Goods & Services Tax, IGST and Narcotics to the extent under CBIC's purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise and Central GST Commission rates and the Central Revenues Control Laboratory. GST- Goods and Service Tax Unlike earlier when there were multiple taxes such as Central Excise, Service Tax and State VAT etc., under GST, there is just one tax. GST is categorized into CGST, SGST or IGST depending on whether the transaction is Intra-State or Inter-State. CFP Level 2 - Module 2 – Taxation - India Page 68

Ministry of Finance Department of Expenditure Department of Economic Affairs Department of Revenue Department of Financial Services Department of Investment and Public Asset Management Central Board of indirect Taxes and Customs CGST, SGST or IGST To determine whether Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST) or Integrated Goods & Services Tax (IGST) will be applicable in a taxable transaction, it is important to first know if the transaction is an Intra State or an Inter-State supply. • Intra-State supply of goods or services is when the location of the supplier and the place of supply i.e., location of the buyer are in the same state. In Intra-State transactions, a seller has to collect both CGST and SGST from the buyer. The CGST gets deposited with Central Government and SGST gets deposited with State Government. • Inter-State supply of goods or services is when the location of the supplier and the place of supply are in different states. Also, in cases of export or import of goods or services or when the supply of goods or services is made to or by a SEZ unit, the transaction is assumed to be Inter-State. In an Inter-State transaction, a seller has to collect IGST from the buyer. Central Goods and Service Tax –CGST The full form of CGST under GST law is Central Goods and Service Tax. It is called as CGST Act 2017. The CGST act has been enacted to make a provision for levy and collection of tax on intra- state supply of goods or services or both by the Central Government and the matters connected therewith or incidental thereto. CFP Level 2 - Module 2 – Taxation - India Page 69

Origin and Commencement of CGST Act  CGST Act extends to whole of India excluding the states of Jammu and Kashmir.  Jammu and Kashmir will need to approve levy of GST in its State assembly, on account of its special powers on taxation under the Constitution. Once this is done, GST shall be introduced in the State.  The CGST Act shall come into force from a date which will be notified by the Central Government in Official Gazette, i.e. from the appointed date.  Different provisions may be made applicable from different dates as may be notified. Objective of CGST Act 2017 Under erstwhile taxation laws, Central Government levied taxes on, manufacture of certain goods in the form of Central Excise duty, provision of certain services in the form of service tax, inter-State sale of goods in the form of Central Sales tax. Similarly, the State Governments levied taxes on retail sales in the form of value added tax, entry of goods in the State in the form of entry tax, luxury tax and purchase tax, etc. Accordingly, there is multiplicity of taxes which are being levied on the same supply chain. Difficulties faced under erstwhile taxation laws shall be listed as below :  cascading of taxes as taxes levied by the Central Government are not available as set off against the taxes being levied by the State Governments;  certain taxes levied by State Governments are not allowed as set off for payment of other taxes being levied by them ;  the variety of Value Added Tax Laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres; and  the creation of tariff and non-tariff barriers such as octroi, entry tax, check posts, etc., hinder the free flow of trade throughout the country. Besides that, the large number of taxes results in high cost of compliance for the taxpayers in the form of number of returns, payments, etc. In view of the aforesaid difficulties, all the above mentioned taxes are subsumed in a single tax called the goods and services tax which will be levied on supplies which includes goods and services at each stage of supply chain starting from manufacture or import and till the last retail level. CFP Level 2 - Module 2 – Taxation - India Page 70

So any tax which were levied by the Central Government or the State Governments on the supply of goods or services has now been converged in goods and services tax, which is a dual levy where the Central Government will levy and collect tax in the form of central goods and services tax (CGST Act 2017) and the State Government will levy and collect tax in the form of state goods and services tax (SGST Act 2017) on intra-State supply of goods or services or both. Salient Features of CGST Act 2017 Below are the features of Central Goods and Services Tax Act, 2017:  CGST is levied on all goods and services which are supplied intra-state supplies  This tax broadens the base of the input tax credit by making it available in respect of taxes paid on supply of goods or services or both used or intended to be used in the course or furtherance of business  It imposes an obligation on electronic commerce operators to collect tax at source, at such rate not exceeding one per cent of the value of taxable supplies(net), out of payments to suppliers supplying goods or services through their portals  CGST is also used to conduct an audit of registered persons to verify compliance with the provisions of the Act  It provides a way to recover arrears of tax, using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person  It provides powers of inspection, search, seize and arrest of the officers  It establishes the Goods and Services Tax Appellate Tribunal by the Central Government for hearing appeals against the orders passed by the Appellate Authority or the Revisional Authority  It allows penalisation for contravention of the provisions of the proposed Legislation  It provides an anti-profiteering clause, to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers  It provides elaborate transitional provisions for smooth transition of existing taxpayers to goods and services tax regime Need of GST VAT rates and regulations differ from state to state. And it has been observed that states often resort to slashing these rates for attracting investors. This results in loss of revenue for both the Central as well as State government. CFP Level 2 - Module 2 – Taxation - India Page 71

On the other hand, GST brings in uniform tax laws across all the states spanning across diverse industries. Here, the taxes would be divided between the Central and State government based on a predefined and pre-approved formula. In addition, it would become much easier to offer services and goods uniformly across the nation, since there won’t be any additional state-levied tax. CFP Level 2 - Module 2 – Taxation - India Page 72

Sub-Section–1.3: Tax Compliance Matters 1.3.1. Tax Returns and Procedure of Assessment Return of Income – Section 139(1) Assessee Conditions under which filing of Return of Income is mandatory Company, Firm, LLP Any other assessee Always, whether there is profit or loss If GTI before exemption u/s 10(38)> maximum amount which is not chargeable to tax Notes: 1. Return of Income shall be filed by the assessee on or before due date. 2. Return of Income shall be filed in the prescribed form, verified in the prescribed manner and setting forth such other particulars as may be prescribed. 3. Any assessee who is not required mandatorily to file his Return of Income, may file voluntarily, but shall be on or before due date. Amendment made by Finance Act(no-2) 2019, [W.e.f A.y 2020-21] The sixth proviso to section 139(1) has been amended to provide that a person who is clamming rollover benefits under section 54,54B 54D,54EC, 54F,54G ,54GA, 54GB is necessarily to file return if before claiming of the rollover return , his GTI is higher than maximum exemption limit. Further, seventh proviso to section 139(1) has been inserted so as to provide that a person shall be mandatorily required to file his returns, if during the PY , he- (a) has deposited an amount or aggregate of the amounts exceeding Rs.1 crore in one or more current accounts maintained with a banking company of a co-operative bank; or (b) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs.2,00,000 for himself or any other person for travel to a foreign country; or (c) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs.1 lakh towards consumption of electricity ; or (d) fulfils such others prescribed conditions as may be prescribed. CFP Level 2 - Module 2 – Taxation - India Page 73

Due Dates for Filing of Return of Income: Assessee Due date 1. Company September 30th of 2. Any person whose accounts of the RPY are required to the relevant AY be audited under any law (including audit u/s 44AB) 3. Working partner of a firm whose accounts of the RPYare required to be audited under any law (including audit u/s 44AB) 4. Any other assessee July 31st of the relevant AY 5. in case of an assessee who is required to furnish a report Nov 30th of the referred to in section 92E( i.e where a person has entered relevant AY into an international transaction or specified domestic transaction aggregating to an amount exceeding Rs.5 crore/20 crore as the case may be) Return Mandatory for Resident (Other than RNOR) In case of a Resident assessee (other than RNOR), filing of Return of Income is mandatory (whether he has any income chargeable to tax or not) in the case of following situations: 1. Assessee has any asset o/s India (e.g. land, house property, etc.) or 2. Assessee has financial interest in any entity located o/s India (e.g. right to share in profit in a firm, shares in foreign company) or 3. Assessee has signing authority in any account o/s India (it does not matter whether bank account is in the name of assessee or not) Return of Loss – Section 139(3) & Section 80 Losses u/s Section Nature 72 Normal business or profession loss 73 Speculative business loss 74 Capital gains head loss 74A Loss from activity of owning & maintaining race horses can be carried forward only if RoI has been filed on or before due date specified u/s 139(1). Such return shall be deemed to be filed u/s 139(1) only. CFP Level 2 - Module 2 – Taxation - India Page 74

1. It means that following losses can be carried forward even if ROI is not filed on time: Notes: Section Nature 71B Loss u/h Income from House Property 32(2) Unabsorbed depreciation 2. Restriction is in respect of carried forward only. i.e. current year losses can be set-off with current year incomes even if ROI is not filed on time. 3. Restriction is in respect of carried forward of losses only and not for brought forward losses. i.e. if ROI of year in which loss is incurred is filed on time but ROI of year in which loss is required to be adjusted is not filed on time, still such losses can be adjusted. 4. ROI filed in pursuance of section 139(3) shall be deemed to be filed u/s 139(1). i.e. for every section where reference to section 139(1) is provided, reference to section 139(3) shall also be considered. 5. Section 139(3) nowhere says ROI filing is mandatory in case assessee has incurred the losses. Again, its choice of assessee to file ROI or not. It just says, if assessee wants to carried forward the losses, then he needs to file ROI on or before due date. Belated Return – Section 139(4) If the return of income is not filed within time allowed u/s 139(1), then assessee may file the same  on or before one year from the end of the relevant previous year, or  before completion of assessment whichever is earlier. Consequences of Not Filing the Return of Income on or Before Due Date 1. Interest u/s 234A @1% p.m simple interest 2. Mandatory fee of 5000(before 31st Dec)/10000(in any other case)under section 234F 3. Selected losses cannot be carried forward – section 139(3) read section 80 4. Deductions u/s 80-IA, 80-IB, etc. cannot be claimed CFP Level 2 - Module 2 – Taxation - India Page 75

Revised Return – Section 139(5) In case assessee discovers any omission or any wrong statement in the return filed u/s 139(1), then he may file revised RoI  within one year from the end of the relevant previous year, or  before completion of assessmentwhichever is earlier. Notes: 1. Revised return substitutes the original return from the date on which original return was filed. 2. Return filed u/s 139(3) can be revised as ROI filed u/s 139(3) is deemed to be filed u/s 139(1). 3. A return can be revised ‘n’ number of times provided revised return is filed within time limits u/s 139(5). 4. Loss declared through revised return can be carried forward because revised return substitutes the original return from the date of filing of original return. Defective Return – Section 139(9)  Where the Assessing Officer  considers that the return of income furnished by the assessee is defective,  he shall intimate the defect to the assessee and give him an opportunity to rectify the defect  within a period of 15 days from the date of such intimation (AO may extend the time on application)  and if the defect is not rectified within the said period of 15 days,  then the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return 1.3.2. ITR Forms, Filing Dates and Documentation Return of Income – Forms– Rule 12 Assessee Conditions ITR (a) Individual Total income consists of income under heads ITR-1 CFP Level 2 - Module 2 – Taxation - India Page 76

(i) “Salaries” &/or family pension SAHAJ (ii) “Income from house property”, where assessee does not own more than one house property and does not have any brought forward loss under the head (iii) “Income from other sources”, except winnings from lottery, etc. &does not have any loss under this head But ITR-1 shall not be applicable for following: (i) Total Income > 50 lakh (ii) is a resident (except RNOR) and has, -  assets (including financial interest in any entity) located outside India; or  signing authority in any account located outside India; or  income from any source outside India (iii) has claimed relief u/s 90/90A/91; or (iv) has agricultural income >Rs.5,000. (b) Individual / HUF (i) Not covered by (a) above ITR-2 (ii) Total income does not include income derived (c) Individual / HUF (d) Individual/ HUF/ from a proprietary business or profession. But if business income is derived as partner of Firm (not LLP) the firm, ITR-2 can be used (iii) for NRE Total income does include income u/h PGBP from ITR-3 proprietary business ITR-4 Income u/h PGBP computed u/s 44AD/44AE/44AOA SUGAM But ITR-4S shall not be applicable for following: (i) is a resident (except RNOR) and has, -  assets (including financial interest in any entity) located outside India; or  signing authority in any account located outside India; or  income from any source outside India (ii) has claimed relief u/s 90/90A/91; or CFP Level 2 - Module 2 – Taxation - India Page 77

(e) Any person (iii) has agricultural income >Rs.5,000. ITR-5 e.g Firm AOPS/ Other than BOIS LLP (i) Individual ITR-6 (ii) HUF ITR-7 (f) Company (iii) Company (g) Any person (iv) Person to which (g) applies Other than company to which (g) applies Required to file return u/s 139(4A)/(4B)/(4C)/(4D)/(4E) Documentation: Supporting Documents There are some documents that you should keep ready while filing the IT Returns. These documents help in preparation of the tax return while calculating the tax liability:  Form No. 16 (received from the employer): Form 16 is the Annual Salary Statement issued by your employer and provides details about the income earned during the year.  Form No. 16A (a form that is received from all the payers who have got their tax deducted). This form needs to be collected from the parties who have deducted the tax while making payment to you during the year. This includes banks and companies (with whom you have kept fixed deposits and so on).  Summary of account: It is important to have a summary of all bank accounts that you operated in the last fiscal year. The bank statements have details of the interest income earned and the expenditures incurred during the year.  Details of property owned: If you own some property or bought a new one during the last fiscal year, keep receipts of property tax paid during the year and rent received (if any).  Details of sale & purchase with respect to investments or assets sold during the year.  Details of any other tax payments made during the year. 1.3.3. E-filing of Income Tax Returns Electronic filing is a method of filing tax returns where the taxpayer information is transmitted to the revenue agencies electronically over the Internet, a modem, or a phone line. Electronic filing offers you many benefits that you cannot get through paper filing, such as:  Faster refunds using direct deposit  Accuracy -- tax preparation software does calculations for you  Receipt so you know your tax returns have been filed  Speeds up processing of your tax returns CFP Level 2 - Module 2 – Taxation - India Page 78

 Reduces costs for the Department of Revenue which saves you tax dollars  Secure transfer of your personal information Sl. Person Condition Manner of Furnishing Return of Income (i) (ii) 1 Individual (iii) (iv) or Hindu (a) Accounts are required to be Electronically under digital undivided audited under section 44AB of signature family the Act; (b) Where (a) is not applicable (A) Electronically under digital and,- signature; or (I) the return is furnished in Form (B) Transmitting the data in the No. ITR-2 or Form No. ITR-3; or return electronically under (II) the person, being a resident, electronic verification code; other than not ordinarily or resident within the meaning of (C) Transmitting the data in the sub- section (6) of section 6, return electronically and has, (A) assets (including thereafter submitting the financial interest in any entity) verification of the return in located outside India; or (B) Form ITR-V. signing authority in any account located outside India; or (C) income from any source outside India; (III) any relief, in respect of tax paid outside India, under section 90 or 90A or deduction of tax under section 91 is claimed; or (IV) any report of audit referred to in proviso to sub-rule (2) is required to be furnished electronically; or (V) total income assessable under the Act during the previous year of the person (other than CFP Level 2 - Module 2 – Taxation - India Page 79

the person, being an individual of the age of 80 years or more at any time during the previous year and furnishing the return in Form ITR-1 or ITR-2),- (i) exceeds five lakh rupees; or (ii) any refund is claimed in the return of income; (c) In any other case. (A) Electronically under digital e.g signature; or (i) Individual is 80 years of age (B) Transmitting the data in the Or return electronically under (ii) Total Income ≤ 5 Lakh electronic verification code; or (C) Transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V; or (D) Paper form; 2 Company In all cases. Electronically under digital signature. 3 A person (a) In case of a political party; Electronically under digital signature; required to (A) Electronically under digital furnish the (b) In any other case signature; or return in (B) Transmitting the data in the Form ITR-7 return electronically under electronic verification code; or (C) Transmitting the data in the return electronically and thereafter submitting the verification of the return in CFP Level 2 - Module 2 – Taxation - India Page 80

Form ITR-V. 4 Firm or (a) Accounts are required to be Electronically under digital limited audited under section 44AB of signature; liability the Act; partnership (b) In any other case. (A) Electronically under digital or any signature; or person (other than (B) Transmitting the data in the a person return electronically under mentioned electronic verification code; in Sl. 1 to 3 or above) who is required (C) Transmitting the data in the to file return electronically and return in thereafter submitting the Form ITR-5 verification of the return in Form ITR-V. Explanation For the purposes of this sub-rule \"electronic verification code\" means a code generated for the purpose of electronic verification of the person furnishing the return of income as per the data structure and standards specified by Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems). Filing Tax Return using the I-T Department Website: 1. Select appropriate tax return form here: https://incometaxindiaefiling.gov.in 2. Download the relevant Excel spreadsheet or JAVA utility. 3. Fill your tax return form offline and save the XML file generated by the software. 4. Register with http://incometaxindiaefiling.gov.in 5. Log in and click the relevant form on the left panel and select \"Submit Return\" 6. Now upload the XML file and verify by using Electronic Verification Code, or print the acknowledgement/ ITR-V Form. (Don't have a printer at home? Save the document in the PDF format and get a printout.) 7. If the return includes digital signature, the process is over. Else, you get a verification form (ITR-V). Sign it and mail it to 'Income Tax Department - CPC, Post Bag No - 1, CFP Level 2 - Module 2 – Taxation - India Page 81

Electronic City Post Office, Bengaluru - 560100, Karnataka' by 'Speed Post' or ordinary post within 120 days of submitting the return. 8. Once the tax department receives the physical copy of the ITR-V form, you will get an acknowledgement over email. 1.3.4. Advance Tax and Interest Liability for Payment of Advance Tax – Section 207 & Section 208 1. Every assessee is required to pay advance tax, if his advance tax liability is Rs.10,000 or more. 2. A senior citizen having no income u/h PGBP is not required to pay advance tax. 3. Advance tax liability shall be computed as under: a) Income under five heads except income of business for which section 44AD has been opted. b) Adjustments for brought forward losses and clubbing c) GTI = a±b d) Less: Deductions u/c VI-A& u/s 10AA e) TI = c – d f) Tax on TI including net agricultural income, if any g) Less: Rebate of Rs.12,500 u/s 87A or Add: Surcharge on ‘f’, if any h) H&EC @ 4% on f ± g i) Total tax liability = f ± g + h j) Less: Relief u/s 89/90/90A/91 k) Less: MAT Credit u/s 115JAA l) Less: AMT Credit u/s 115JD m) Less: TDS/TCS n) Advance tax liability = i - (j+k+l+m) 4. Advance tax is payable only if amount calculated in point ‘n’ is Rs.10,000 or more. 5. Due dates & amount payable of advance tax liability Due date Advance tax payable June 15th of the RPY 15% of advance tax liability September 15th of the RPY 45% of advance tax liability December 15th of the RPY 75% of advance tax liability March 15th of the RPY 100% of advance tax liability *If tax payer adopts presumptive scheme u/s 44AD 100% of advance tax is payable by 15th March of RPS. CFP Level 2 - Module 2 – Taxation - India Page 82

Interest for shortfall in instalments of advance tax liability – Section 234C  In case there is shortfall in any instalment of advance tax liability, then interest shall be levied @ 3% for every instalment separately. In case of shortfall in last instalment, interest shall be levied @ 1% only.  In case capital gains and/or winnings from lotteries, etc. arises after due date(s) of payment of advance tax liability, then there shall be no interest if advance tax payable on such incomes is paid in the remaining instalments. (and in case income arises after March 15th but on or before March 31st, then advance tax payable on such incomes is paid by March 31st of the RPY)  For the purposes of calculating interest u/s 234A, 234B & 234C, amount on which interest is being calculated shall be rounded off to lower side of multiple of Rs.100. Due Date Condition for Interest Amount on which Period Rate Interest shall be Levied 3 months 1%pm 15/6 Advance tax deposited by 15/6 3 months 1%pm 15/9 < 12% of x 15% of x – advance tax 3 months 1%pm 15/12 deposited by 15/6 1 month 1%pm 15/3 Advance tax deposited by 15/9 < 36% of x 45% of x – advance tax deposited by 15/9 Advance tax deposited by 15/12 < 75% of x 75% of x – advance tax deposited by 15/12 Advance tax deposited by 15/3 <x x – advance tax deposited by 15/3 Interest for Shortfall in Payment of Advance Tax as on April 1st of the Relevant Assessment Year – Section 234B If, on April 1st of the relevant Assessment Year, advance tax paid till March 31st of the relevant Previous Year is less than 90% of advance tax liability of the assessee, then on whole shortfall interest shall be levied @ 1%pm from April 1st till the date shortfall is paid by the assessee (part of the month shall be treated as full). Interest for Late Filing of Return – Section 234A Interest shall be charged @ 1%pm (part of the month shall be treated as full). Interest shall be charged on amount of shortfall in payment of tax (i.e. tax on total income less TDS less advance tax less self-assessment tax deposited till due date of return) CFP Level 2 - Module 2 – Taxation - India Page 83

Period of Interest:  If return is filed after due date: From the date following the due date till the date of furnishing of Return of Income  If return is not filed: From the date following the due date till the date of completion of assessment. 234 F Mandatory fee for delayed filing of return. Tax payer shall be liable to pay a fee, in addition to interest u/s 234A for delay in filling of return beyond due date. The amount of fee u/s 234F shall be 5000if return is filed on or before 31st December of Assessment year and 10000 if return is filed thereafter. However it total income of assesse is up to 5,00,000 the amount of fee shall be 1000. It is to be noted this fee is compulsory for delayed filing of return consequently penalty u/s 271F has been removed. 1.3.5. Tax Deducted at Source (TDS) Salary – Section 192 Income Salary Deductor Deductee Employer (Every person) Rate of TDS Exemption Employee Average rate of Income-tax No TDS is required to be deducted in case total income of employee does not exceed maximum amount which is not chargeable to tax. Note: On non-monetary perquisites, employer may tax out of his own pocket. In such a case, such tax shall be exempt in the hands of employee, but perquisite amount shall be taxable. Such employee can claim credit of such tax paid by employer as TDS credit. For employer, perquisite amount shall be business expense, but tax paid by him out of his own pocket shall not be allowed as a business expense. CFP Level 2 - Module 2 – Taxation - India Page 84

Taxable premature withdrawal from provident Fund – 192 A If the amount of withdrawal is 50000 or more, TDS shall be done at the rate of 10 percent. If PAN number is not provided the TDS shall at maximum marginal rate. Interest on Securities – Section 193 Income Interest on securities Deductor Deductee Every person Rate of TDS Exemption Resident person 10%  Securities issued by CG/SG  Interest payable to resident individual/HUF on debentures issued by widely held company paid by account payee cheque and it does not exceed Rs.5,000 for the whole year  Interest on securities maintained in demat form Interest Other than “Interest on securities” – Section 194A Income Interest other than Interest on Securities Deductor  Every person except Individual/HUF Deductee  Individual/HUF shall be required to deduct TDS in case his accounts Rate of TDS Exemption were required to be audited u/s 44AB for the preceding financial year. Resident person 10%  Interest payable by banks, co-operative society doing business of banking or post office and it does not exceed Rs.40,000 (Rs. 50,000 in case of senior citizen) for the whole year. Every branch to be seen separately.  In any other case, interest does not exceed Rs.5,000 for the whole year.  Interest payable:  to banks, insurance companies, UTI  by firm to its partner  on Post Office (Time Deposits), Post Office (Recurring Deposits), Post Office Monthly Income Account, KisanVikasPatra, NSC VIII CFP Level 2 - Module 2 – Taxation - India Page 85

Issue, Indira VikasPatra  on deposits with banks (except FD/Time Deposits – TDS deductible)  by CG under Income-tax Act or Wealth-tax Act Winnings from Lottery or Crossword Puzzle – Section 194B Income Winnings from lottery, crossword puzzles, card game, other games Deductor Deductee Every person Rate of TDS Any person Exemption  30%  If winnings are in kind, then deduct or shall ensure that tax has been paid on such winnings. Winnings do not exceed Rs.10,000. Every winning to be seen separately. Winnings from Horse Race – Section 194BB Income Winnings from horse race Deductor Every person Deductee Any person Rate of TDS 30% Exemption Winnings do not exceed Rs.10,000. Every winning to be seen separately. Payments to Contractors – Section 194C Income  Payment to contractor for carrying out any work.  Contract shall include sub-contract also.  Work includes:  supply of labour;  advertising;  broadcasting and telecasting including production of programmes for such broadcasting or telecasting;  carriage of goods or passengers by any mode of transport other than by railways;  catering; CFP Level 2 - Module 2 – Taxation - India Page 86

Deductor  manufacturing a product according to the requirement of a customer by using material purchased from such customer, but Deductee does not include manufacturing a product according to the Rate of TDS requirement of a customer by using material purchased from any Exemption other person.  Every person except Individual/HUF  Individual/HUF shall be required to deduct TDS in case his accounts were required to be audited u/s 44AB for the preceding financial year. Resident person i.e. contractor  If payment made to individual/HUF – 1%  In any other case – 2%  If payment made by Individual/HUF for services of contractor used exclusively for personal purposes.  If single payment does not exceed Rs.30,000. But if sum total of whole year exceeds Rs.1,00,000, then TDS is required to be deducted.  Payment to transporter, if he quotes his PAN to deductor& does not own more than 10 vehicles. Insurance Commission – Section 194D Income Insurance commission Deductor Every person Deductee Resident person Rate of TDS 10% recipient company; 5% it others. Exemption Commission does not exceed Rs.15,000 for the whole year. Non exempt portion of life in insurance pay-out on net basis – Section 194DA Income Life insurance pay out Deductor Every person Deductee Resident person Rate of TDS 5% on income component of the sum paid by the person. Exemption Income component under section 10(10D) CFP Level 2 - Module 2 – Taxation - India Page 87

Payments to Non-resident Sportsmen or Sports Associations – Section 194E Deductor Every person Deductee Income Sportsman – non-resident & non-citizen  Participation in games in India  Advertisement  Contribution of articles on game Sports association – non-resident  Game played in India Entertainer – non-resident & non-citizen  Performance in India Rate of TDS 20% + surcharge + EC + SHEC Commission, etc., on the Sale of Lottery Tickets – Section 194G Income Commission, etc., on the sale of lottery tickets Deductor Every person Deductee Any person Rate of TDS 10% Exemption Commission, etc. does not exceed Rs.15,000 for the whole year. Commission or Brokerage – Section 194H Income Commission or brokerage Deductor  Every person except Individual/HUF Deductee  Individual/HUF shall be required to deduct TDS in case his accounts Rate of TDS Exemption were required to be audited u/s 44AB for the preceding financial year. Resident person 10%  Commission payable by MTNL/BSNL to their public call office franchisees  Commission, etc. does not exceed Rs.15,000 for the whole year.  Commission, etc. in relation to securities CFP Level 2 - Module 2 – Taxation - India Page 88

Rent – Section 194-I Income Rent (whether deductee is owner or not) Deductor  Every person except Individual/HUF Deductee  Individual/HUF shall be required to deduct TDS in case his accounts were required to be audited u/s 44AB for the preceding financial year. Resident person Rate of TDS  Rent for plant & machinery – 2%  Land, buildings, furniture & fittings – 10% Rent does not exceed Rs.2,40,000 for the whole year. Exemption  Payment for Purchase of Immovable Property – Section 194-IA Income Payment for purchase of immovable property (whether stock-in-trade or capital asset) Deductor Every person including individual Deductee Resident person Rate of TDS 1% Exemption  Purchase price is less than Rs.50 lacs  Rural agricultural land Amendment made The Finance (No.2) Act, 2019 has amended the explanation to section 194-1A to provide that the term “consideration for transfer of any immovable property” shall include all charges of the nature of: (i) club membership fee, (ii) car parking fee, (iii) electricity and water facility fees, (iv) maintenance fee, (v) advance fee, or (vi) any other charges of similar nature which are incidental to transfer of the immovable property. CFP Level 2 - Module 2 – Taxation - India Page 89

Rent payable by individual/ HUF more than 50000 pm – 194 IB With effect from 1 June 2017 any individual or HUF responsible for paying rent for land or building is liable to deduct tax at source @ 5% provided the quantum of rent is more than 50000 pm (or part of month) Tax will be deducted in the last month of previous years or last month of tenancy whichever is earlier. Rate of TDS shall be 5% Tenant is not required to obtain TAN for this purpose but can use his PAN for the purpose of deposit of TDS. Fees for Professional or Technical Services – Section 194J Income  Fees for professional services – specified profession referred u/s 44AA (Sports Persons, Umpires and Referees, Coaches and Trainers, Team Deductor Physicians and Physiotherapists, Event Managers, Commentators, Deductee Anchors and Sports Columnists)  Fees for technical services  Royalty  Remuneration/fees/commission to non-employee director  Every person except Individual/HUF  Individual/HUF shall be required to deduct TDS in case his accounts were required to be audited u/s 44AB for the preceding financial year. Resident person Rate of TDS 10% Exemption  If payment made by Individual/HUF for services used exclusively for personal purposes.  If payment does not exceed Rs.30,000 for the whole year. Every nature of income to be seen separately.  No such limit for payments to non-employee director.  No TDS on acquisition of software if seller has already deducted TDS on such software and selling the same without any further modification. Payment of Compensation on Acquisition of Immovable Property – Section 194LA Income Compensation/enhanced compensation for compulsory acquisition of immovable property CFP Level 2 - Module 2 – Taxation - India Page 90

Deductor Every person Deductee Resident person Rate of TDS 10% Exemption  Payment does not exceed Rs.2,00,000 for the whole year.  Compulsory acquisition of agricultural land whether urban or rural Payment by Individual/HUF to contractors and professionals– Section 194M Income Payment received by contractors and professional on personal use Deductor Any person being Individual or HUF Deductee Resident person Rate of TDS 5% Exemption  Payment does not exceed Rs.50, 00,000 for the whole year. TDS on Cash withdrawal to discourage cash transaction [Section194N] Other Sums – Section 195 Income Any payment which is chargeable under Income-tax Act, 1961 Deductor Every person (whether resident or non-resident) Deductee Non-resident person or foreign company Rate of TDS Rates in force + surcharge + EC + SHEC Other Provisions 1. TDS at Lower Rate or at NIL Rate – Section 197 In this regard, application may be made to jurisdictional AO. If AO is satisfied that total income of the assessee justifies TDS at lower rate or at NIL rate, he may issue certificate to that effect to the assessee. 2. Self-declaration for TDS at NIL Rate – Section 197A U/s 193 & 194A, assessee (other than company or firm) may submit a declaration to the deductor that tax liability on his total income shall be nil, and in that case deductor shall not CFP Level 2 - Module 2 – Taxation - India Page 91

deduct TDS, provided interest for the whole year does not exceed maximum amount which is not chargeable to tax. 3. TDS shall be deducted at the time of payment or credit in books of accounts whichever is earlier. This provision shall not be applicable in case of payment in the nature of salaries and winnings from lotteries, etc. In these cases, TDS shall be deducted at the time of actual payment only. 4. Where any asset is held jointly by two or more persons, credit of TDS on income arising out of such asset shall be shared by co-owners in the same proportion in which they have shared income. 5. Deposit of TDS Deducted with CG – Section 200(1) TDS deducted by the deductor shall be deposited with the CG by 7th of next month. In case of TDS related to month of March, same shall be deposited by April 30th . 6. Consequences if TDS is not Deducted or Deposited – Section 201 (a) Interest @1%pm shall be levied from the date on which TDS was deductible till the date on which TDS is actually deducted. Interest @ 1.5%pm shall be levied from the date on which TDS was deducted till the date on which TDS is deposited by the deductor. Such interest shall be deposited with CG before furnishing quarterly statements. (b) If TDS is not deposited after deduction, same (alongwith interest) shall be charge upon assets of the deductor. (c) In case deductor fails to deduct tax, he shall not be deemed to be an assessee in default if deductee himself pays such tax and deductor furnishes certificate to that effect from a CA. In this case, interest shall be levied till the date on which deductee has furnished his ROI. Further, it shall be deemed that deductor has deducted & deposited TDS on the date on which deductee has furnished his ROI. Consequential impacts of the same shall be u/h PGBP. 7. Submission of Quarterly Statements – Section 200(3) Every deductor shall submit quarterly statements of TDS deducted & deposited with CG by 15th of month following the quarter. In case of quarter ending March, statement shall be submitted by 15th May. 8. Fee for Default in Submission of Quarterly Statements – Section 234E 200/day, maximum limit – amount of TDS CFP Level 2 - Module 2 – Taxation - India Page 92

9. Certificate for TDS to Deductee – Section 203 Deductor shall issue certificate for TDS in Form No. 16 (for TDS on salaries), 16B (for TDS u/s 194-IA) & Form No. 16A (for TDS on any other income). 10. TAN – Section 203A Every deductor shall apply for TAN (Tax Deduction & Collection Account Number) within 1 month from the end of the month in which TDS was deducted. 11. Statement by Income-tax Authority of Tax Deducted – Section 203AA Income-tax authority shall furnish a statement (annually) to the deductee in Form No. 26AS of the tax deducted & received by the CG. 12. Requirement to Furnish PAN – Section 206AA If deductee does not furnishes his PAN or quotes wrong PAN to the deductor, then deductor shall deduct TDS @ 20% or rates prescribed in relevant sections, whichever is higher. Further, application u/s 197 & self-declaration u/s 197A shall not be accepted in such circumstances. 13. No TDS Deductible – Section 196 No TDS required to be deducted in case payments made to Govt., RBI, corporation established by CG whose income is exempt & Mutual Fund. 14. TDS on Service Tax Portion If service tax charged by the service provider is separately indicated in the invoice, then TDS shall not be deducted on service tax portion, but only on fees charged for services provided. 1.3.6. Interest and Penalties S. Section Default Penalty Amount 1. 271(1)(b) Failure to comply with notice u/s Rs.10,000 for each failure 142(1)/143(2) or direction u/s 142(2A) Note:- However, the above penalty shall not be levied to and in relation to any assessment for the A.Y commencing on or after the 1st day of April, 2017 2. 271A Failure to keep/maintain books u/s Rs.25,000 44AA or retain for period specified u/s CFP Level 2 - Module 2 – Taxation - India Page 93

44AA 3. 271AA(1) - Fails to keep & maintain any 2% of the value of each international information and document transaction or specified domestic required by section 92D(1)/(2) transaction entered into by such - Fails to report such transaction person - Maintains or furnishes an incorrect information or document 4. 271G Failure to furnish information/ 2% of the value of the international document u/s 92D(3) – power with transaction or specified domestic AO/TPO/CIT(A) (w.e.f. 01/10/2014) transaction for each such failure 5. 271B Failure to get accounts audited or ½% of sales / turnover / receipts or furnish a report u/s 44AB Rs.1,50,000, whichever is less 6. 271BA Failure to furnish report u/s 92E Rs.1,00,000 7. 271C - Fails to deduct TDS whole or in Amount equal to TDS not deducted part or deposited - Fails to pay CDT - Fails to deposit tax in case of winnings are in kind 8. 271CA Fails to collect TCS whole or in part Amount equal to TCS not collected 9. 271D Takes/accepts loan/deposit in Amount equal to such loan/deposit contravention of section 269SS 10. 271E Pays loan/deposit in contravention of Amount equal to such repayment section 269T 11. 271H - Fails to deliver TDS/TCS quarterly Min – 10,000 return Max – 1,00,000 - Furnishes incorrect information in such return 12. 272AA Failure to comply with provisions of Rs.1,000 section 133B (power to collect certain information) 13. 272B - Failure to comply with provisions Rs.10,000 for each default relating to PAN or Aadhar as referred to in section CFP Level 2 - Module 2 – Taxation - India Page 94