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Amendments

Section 44ADA Presumptive Tax Scheme for Professionals  August 31, 2017


Section 44ADA Presumptive Tax Scheme for Professionals

 

Meaning of presumptive taxation scheme

To give relief to small professionals from lot of hassle of maintenance of BOOKS of ACCOUNT and from getting the account audit, Income tax introduced the presumptive taxation scheme us 44AD for SMALL professionals.

Various presumptive taxation schemes under Income Tax Act

There are three types of taxation schemes in Income Tax Act:

1) Section 44AD – Presumptive taxation scheme for BUSINESS.

For detailed provision please refer earlier article “Section 44AD PROFIT AND GAIN OF BUSINESS ON PRESUMPTIVE BASIS“.

2) Section 44ADA – The presumptive taxation scheme for Professionals

3) Section 44AE – The presumptive taxation scheme

For detailed provision please refer earlier article “Section 44ADE Presumptive Tax Scheme for Small Business of Goods Carriage

Why this section is proposed

This section is proposed in line with the recommendation of Justice Easwar Committee to achive following objective:

  • Simplification of taxation for professionals
  • Bring parity between SMALL BUSINESSMAN (who enjoy section 44AD) and SMALL PROFESSIONALS
  • Reduce compliance burden of small professionals

Who is the eligible assessee

The presumptive taxation scheme of section 44AD can be adopted by following persons:

1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident.

Eligible Profession u/s 44ADA

Professionals referred to in section 44AA (1) of the Income Tax Act whose gross receipts in total from profession does not exceed Rs. 50 Lakhs in the relevant financial year.

1) Legal
2) Medical
3) Engineering or architectural
4) Accountancy
5) Technical consultancy
6) Interior decoration
7) Any other profession as notified by CBDT

  • Authorized representatives
  • Film Artists
  • Certain sports related persons
  • Company Secretaries and
  • Information technology

Payment of Advance Tax

A person opting for the presumptive taxation scheme of section 44ADA is also liable to pay advance tax.

Scheme of Computation of Income:

The rate of computation of income on an estimated basis is 50% of turnover or gross receipts of the eligible business for the previous year.

In case of a person adopting the provisions of section 44ADA, income will be computed on presumptive basis, i.e. @ 50% of the total gross receipts of the profession.
However such person can declare income higher than 50%.

Provisions Relating to Maintenance of Books of Account and Audit Requirement:

An assessee adopting these provisions is not required to maintain the regular books of account and he is also exempt from getting the books of account audited.

  • The provision of section 44AA relating to MAINTENANCE OF BOOKS OF ACCOUNT will not apply.
  • Assessee need not get the accounts audited u/s 44AB

Provisions Relating to Various Allowances / Dis-allowances:

Income computed as per section 44ADA will be net income for the business covered under this scheme.
All deductions from sections 30 to 38 including depreciation and un-absorbed depreciation / allowances shall be deemed as allowed year to year basis.
No dis-allowance can be made under sections 40, 40A and 43B.

Manner of Computation of WDV of Depreciable assets:

The WDV of any asset used in the business covered under section 44ADA shall be calculated as if depreciation as per section 32 is claimed and allowed.

Declaration of Higher Income:

Declaring income above the prescribed rate of 50%, the scheme permits the assessee to declare at his option higher income.

Declaration of Lower Income:

If the assessee wants to declares lower income then prescribed rate 50% and his actual income exceeds the maximum amount which is not chargeable to tax, then the relief from maintenance of books of account is not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB.


 


Section 269ST ( Restriction on Cash Transaction )  August 31, 2017


Section 269ST – Cash Transactions with Examples


In this article we elaborate section 269ST of IT Act, in respect of Cash Transaction provisions applicable from 01-Apr-2017 on wards with examples.

Point No. 1. From which date this section is applicable?

This section applies from 01/04/2017 (F.Y.2017-18 onwards)


Point No. 2. What are the provisions of Section 269ST?

Finance Bill 2017 proposed to insert section 269ST in the Income Tax Act to provide that no person shall receive an amount of Two lakh rupees or more,—

(a) in aggregate from a person in a day;

E.g. if a person receives Rs.2.25 lakhs in cash for 2 different bills of Rs.1 lakh and 1.25 lakh, then also penalty is levied.

(b) in respect of a single transaction; or

E.g. if there is single bill of Rs.3.10 Lakh and cash is received on different days of Rs.1.6 lakh and Rs.1.5 lakh, then also penalty is levied.

(c) in respect of transactions relating to one event or occasion from a person,

E.g. if marriage is one occasion and a person receives amount of Rs.3,00,000/-. Thus penalty is levied of 100% of amount received.

other-wise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

(d) withdrawal of amount from own bank account 

E.g. if a person withdraws in a day amount of Rs.2 lakhs or above, then penalty is levied.


Point No. 3. To whom does Section 269 ST applies?

To any person receiving cash above Rs.2 lakh.


Point No. 4. For which transactions is Section 269ST not applicable?

Restriction on cash receipt of Rs.2 Lakh or more w.e.f 01.04.2017 shall not apply to
– Government, any banking company, post office savings bank or co-operative bank.
– Transactions of the nature referred to in section 269SS;
– Such other persons or class of persons or receipts, as may be specified by the Central Government by   notification in the Official Gazette.


Point No. 5. Whether penalty is applicable for regular receipts only?

Any type of amount of Rs.2 Lakh or above received in cash whether capital or revenue in nature.


Point No. 6.  Whether exempt income is covered under Section 269ST?

Both taxable and exempt incomes are covered in Section 269ST.


Point No. 7. If the amount is received for personal purpose, whether 269ST is applicable?

Irrespective of purpose of accepting amount i.e., whether business purpose or personal purpose or as a trustee, custodian etc. section 269ST is applicable.


Point No. 8. What is the Penalty for Contravention of Section 269ST?

100% penalty on receiver of amount.

 


NOW CLAIM TRANSITIONAL CREDIT IN GSTR 3B BY AUGUST 28, 2017  August 17, 2017


Highlights of the Press Release

  • TRAN-1 will be available on GSTN portal from 21-08-2017
  • Tax Payers who do not want to claim transitional ITC will have to pay tax and file GSTR-3B by Aug 20, 2017

  • Tax Payers who want to claim transitional ITC

    • Can calculate tax liability after considering transitional ITC
    • Must make full settlement of tax liability by Aug 20, 2017
    • Can file TRAN-1 and GSTR-3B by Aug 28, 2017

It must be noted that since TRAN-1 was not online, tax payers were not able to submit details of transitional input credit. At the same time, GSTR-3B did not have any column to claim set off against such credit.

The relevant Press Release is reproduced

As per the rules, the Goods and Services Tax (GST) for the month of July 2017 has to be paid by 20th August, 2017. Only after the payment of full GST, return in summary Form 3B can be filed. Concerns have been raised about the form for claiming transitional input tax credit not being available on the GSTN website. This form will be available on the GSTN website from 21st August, 2017.

_ In view of this, a small window of opportunity is being given to all the taxpayers. _

For those taxpayers who do not want to claim any transitional input tax credit have to necessarily pay the tax and file return in Form 3B before the due date of 20th August, 2017.

_The taxpayers who want to avail the transitional input tax credit should also calculate their tax liability after estimating the amount of transitional credit as per Form TRANS I. _

_They have to make full settlement of the liability after adjusting the transitional input tax credit before 20th August, 2017. _

However, in such cases, they will get time upto 28th August, 2017 to submit Form TRANS I and Form 3B.

In case of shortfall in the amount already paid vis-à-vis the amount payable on submission of Form 3B, the same will have to be paid with interest @ 18% for the period between 21st August, 2017 till the payment of such differential amount.


CHECKLIST FOR ICDS IN TAX AUDIT ICDS  August 15, 2017


INCOME COMPUTATION AND DISCLOSURE STANDARDS

CHECKLIST FOR ICDS IN TAX AUDIT

ICDS are applicable for all Assessee following Mercantile system of accounting for computing the Income from Business & Profession and Other Sources except those individual and HUF who are not liable for audit u/s 44AB. Since Form 3CD for tax audit and return forms have been amended to incorporate impact and disclosure stipulated in the ICDS, therefore a checklist is provided here for the benefit of members as

follows:

ICDS –I ACCOUNTING POLICIES

1. Verify if the Assessee is a Going Concern?

2. Verify whether there is any change in Accounting Policies from earlier year? If yes, then verify the cause for change is reasonable or not?

3. Verify all income and expenditure have been recorded on accrual basis and there is no deviation from Accrual system?

4. Verify if any prior period expenses have been debited during the year?

5. Verify small and immaterial capital items like calculator, etc have been charged off to Profit and loss account?

6. Ensure Substance over Form has prevailed for treatment and presentation of transactions and events.

7. Verify if any marks to market loss of derivatives or expected losses of contract have been recognized during the year as per principle of Prudence?

8. The same is not allowable and has to be disallowed in Return of Income.

9. Ensure disclosure is made properly in Tax Audit report.


ICDS – II VALUATION OF INVENTORIES

1. Verify if in case of Service providers following Mercantile system, inventory of Work in progress has been recognized and effect of such WIP has been given in Income.

2. Verify if the inventory is valued at lower of Cost or Net Realisable Value.

3. Please do not write that “ Inventory Valuation is taken as certified by Management” The same is violation of Standards on Auditing and is serious matter.

4. Interest and other borrowing cost not to be considered for inventory valuation except for the case provided in ICDS on Borrowing costs.

5. Verify if cost of inventory is not valued by method other than FIFO or Weighted Average.

6. Verify if there is change in constitution of firm or profit sharing ratio.

7. Please verify the Partnership deed contains the clause that on retirement or death of Partner the remaining partners shall continue the business of firm. If such clause is not mentioned than Whether the inventory has been valued at NRV on the date of dissolution of partnership due to retirement, death, etc. of a partner (irrespective of continuation of business).


ICDS – III CONSTRUCTION CONTRACTS

(Applicable on determination of income for a construction contract of a contractor)

1. Only Percentage of Completion method is allowed under ICDS therefore if Project completion method is used then the impact of deviation be considered as income. (If Project completion method followed then make adjustment as per POCM to income).

2. If the life of service or contract is upto 90 days the same can be recognized using Project completion method.


3. Verify whether retention money has been recognized as income on the basis of actual receipt and not on accrual basis? Check running/progress bills have been accounted for and offered to income.

4. Whether any expected losses in the project have been claimed in the year under consideration based on prudence? If yes specify

5. Verify whether early stage of contract is considered even after 25% of project has been completed and no revenue is recorded? (If not recognized, then revenue should be recorded and adjustment to be made to income. Till early stage the contract revenue should be equal to contract cost incurred).


ICDS – IV REVENUE RECOGNITION

1. Sale of Goods – Revenue to be recorded after transfer of significant risks and rewards and when there is reasonable certainty of its ultimate collection

2. Sale of Services – Revenue to be recorded by Percentage of Completion method.

3. Reasonable certainty of ultimate collection is not a condition precedent for recognition of revenue in case of sale of services

4. Interest - Interest shall accrue on the time basis.

5. No condition of reasonable certainty of ultimate collection therefore strictly as per ICDS Interest has to be recorded on Bad and doubtful loans on one hand and the same have to written off as bad debts on other hand.

6. In case of export incentives whether revenue has been recorded when the claim is lodged

7. If any refund has been assessed, recognize interest on refund only on actual receipt and not on time basis.

8. Verify that incidental income has been offered as income from other sources and has not been reduced from project cost or cost of asset.



ICDS – V TANGIBLE FIXED ASSETS

At the outset the provisions of Act with regard to Actual cost shall continue to be governed by Section 43(1) and explanations thereto. ICDS is not applicable on transfer of fixed assets being dealt under capital gains and depreciation shall be allowed as per Section 32 of the Act therefore the standard may not have any impact on income. Therefore the ICDS may be purely academic.


ICDS – VI EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

1. Exchange difference on conversion of Integral and Non integral foreign operations has to be charged to Profit and Loss account.

2. All the monetary items i.e. Creditors for import, Debtors for export, etc. have to be marked to market on the date of Balance Sheet. The exchange gain / loss on monetary items has to be recorded and is allowed as per ICDS.

3. All non monetary items the forex gain loss has to be calculated based on date of transaction. For eg. Date of transaction and actual settlement of payment is allowable and not difference between date of transaction and Balance Sheet date.


ICDS – VII GOVERNMENT GRANTS

1. Verify whether all the subsidies received for any purpose have been offered to tax as income? If No, then add to income

2. Verify whether all grants received in respect of non depreciable assets have been credit to profit and loss account and offered as income.

3. Verify whether grant received specifically towards depreciable assets has been reduced from the cost of such assets?

4. Verify whether grants received not specifically but generally towards depreciable assets has been reduced from cost of all the depreciable assets.

5. Verify whether there is any grant which has already been received but not offered to income? Recognition cannot be postponed after the actual receipt. Such grant has to be offered as income?


ICDS – VIII SECURITIES

(Applies only to securities held as stock in trade and not as investments)

1. Verify whether Securities held as stock in trade have been valued at actual cost

2. However if the Net realizable value of category of securities Eg. Equity shares, is less than actual cost of category of securities then the valuation has to be done at NRV

3. If the valuation is done based on lower of cost of NRV of individual script, the same has to be recomputed based on category wise total cost and NRV and the difference has to be adjusted to income.

4. In respect of unlisted securities or listed but not regularly quoted the inventory of securities has to be valued at cost


ICDS – IX BORROWING COSTS

1. Acquisition of Foreign Asset - Exchange difference is excluded from the definition of borrowing cost under ICDS and the exchange difference on borrowings made for acquisition of fixed assets from abroad should be capitalized.

2. Acquisition of Indian Asset – Exchange difference on borrowing cost of foreign loan for asset acquired/ constructed/produced in India is not required to be capitalized and can be charged to Profit and loss account.

3. Qualifying asset would be only those assets which take more than one year in getting ready

4. Verify if Borrowing costs has been computed based on formula provided in ICDS


5. Verify whether borrowing costs have been computed on inventories which have taken substantial time i.e. more than one year.

6. Verify that the capitalization of borrowing costs has not been suspended during the interruption of active development of asset (AS 16 provides for suspension of borrowing cost in such situation)

7. Verify that income from temporary investments has not been reduced from borrowing costs eligible for capitalization under ICDS.


ICDS – X PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

1. Whether any provision is made without any proper basis and without reasonable certainty? If yes then qualify the same as contingent and disallow in return and report in TAR Cl.21(g)

2. Whether there are any escalation claims which have been accepted during the year and not recognized?

3. If any refund or claim has been accepted either under any law, the same has to be recognized as income and corresponding contingent asset has to be created if there is reasonable certainty of receipt. (Note that no contingent asset is allowed to be recognized as per accounting standard and the recognition shall only be for the purposes of ICDS)

4. Only disclose provisions in this clause and not liabilities for eg. Telephone Bill, Electricity bill which are recorded as outstanding based on actual bills received subsequently.


INCOME COMPUTATION AND DISCLOSURE STANDARDS I to X                                                                                       (http://myfinconsultants.com/Downloads/35_downloadfile.pdf)

INCOME COMPUTATION AND DISCLOSURE STANDARDS (ILLUSTRATIVE DISCLOSURES IN TAX AUDIT REPORT)      (http://myfinconsultants.com/Downloads/34_downloadfile.pdf)






AMENDMENTS IN INCOME TAX APPLICABLE FROM 01-04-2017  March 25, 2017


With the passage of the Finance Bill on Wednesday, the Lok Sabha has completed the budgetary exercise for 201718.

The tax proposals in the Budget 2017 have now become law. these are the most important incometax changes that will affect you from 01-04-2017:


1. With a decrease in tax rate from 10 per cent to 5 per cent for total income between Rs 2.5 lakh and Rs 5 lakh, there is tax saving

    of up to Rs 12,500 per year.

2. Tax rebate is reduced to Rs 2,500 from Rs 5,000 per year for taxpayers with income up to Rs 3.5 lakh (earlier Rs 5 lakh). Due to the

   combined effect of change in tax rate and rebate, an individual with taxable income of Rs 3.5 lakh will now pay tax of 2,575 instead of

    5,150 earlier.

3. Surcharge at 10 per cent of tax levied on rich taxpayers, with income between Rs 50 lakh and Rs 1 crore.

   The rate of surcharge for the super rich, with incomeabove Rs 1 crore, will remain 15 per cent.

4. Holding period for immovable property to be considered "long term" reduced to 2 years from 3. This will ensure immovable

   property held beyond 2 years is taxed at reduced rate of 20 per cent and eligible for various exemptions on reinvestment.

5. Long term capital gains tax will result in a lower payout owing to beneficial amendments. The base year for indexation

    of cost (adjustment of inflation) has been shifted to April 1, 2001 from April 1, 1981. This means lower profits on sale.

6. Further, tax exemption will be available on reinvestment of capital gains in notified redeemable bonds (in addition

    to investment in NHAI and REC bonds).

7. A simple onepage tax return form is to be introduced for individuals with taxable income up to Rs 5 lakh

   (excluding business income). Those filing returns for the first time in this category will generally not be subject to scrutiny.

8. Delay in filing tax return for 2017-18 will attract penalty of Rs 5,000 if filed by Dec 31, 2018 and Rs 10,000 if filed later.

   Such fee will be restricted to Rs 1,000 for small taxpayers with income up to Rs 5 lakh.

9. Deduction for first time investors in listed equity shares or listed units of equity oriented fund under the

   Rajiv Gandhi Equity Savings Scheme is withdrawn from 2017-18.
   If an individual has already claimed deduction under this scheme before April 1, 2017,

   he/she shall be allowed to avail a deduction for the next two years.

10. Time period for revision of income tax return cut to one year (from 2 years) from the end of the relevant FY or

     before completion of assessment, whichever is earlier.


TDS Sec.194IA Payment on transfer of immovable property  December 14, 2016


TDS Sec.194IA Payment on transfer of immovable property


HRA EXEMPTION LIMIT U/S 10(13A)  December 14, 2016


HRA EXEMPTION LIMIT U/S 10(13A)


TCS AMENDMENTS CLARIFICATION  December 14, 2016


TCS AMENDMENTS CLARIFICATION


DONATION EXEMPT U/S 80G  December 14, 2016


DONATION EXEMPT U/S 80G


The facility to upload online quarterly TDS/TCS statements in the e-Filing portal shall be available with effect from 1st May, 2016  December 14, 2016


The facility to upload online quarterly TDS/TCS statements in the e-Filing portal shall be available with effect from 1st May, 2016