NRI Income Tax – How to go about it?

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Income tax filing is a tedious task for every working person in the country and if the person is Non Resident Indian (NRI), then things become more tedious, as he has to follow the Income Tax rules of two countries simultaneously. Even the tax treatment for an NRI compared to a domestic resident is different. The basic benefits that are given to the person living in India are not given to NRI’s in most of the instances.  Let us go through a few of the rules to clear the cloud around:

Source of Income Generation:

NRI’s have to file income tax return if he has any taxable income in India. Income Tax Department considers even the future income, i.e income which is received or still to be received in India is perceived for tax. Similarly, any income that is accrued or still to be accrued within India is treated for taxes.

The disadvantage being an NRI is that the tax treatment is same whether you are male or female.  The IT department treats a person as NRI and even the age factor is not taken into account. For Example: If you are a Senior Citizen in India, the Income up to 2.5 lakhs is Nil, while this is ignored if the Senior Citizen is an NRI.

When an NRI is taxed?

The liability of filing a tax return occurs only when some predetermined conditions are met by the company. The rule book of Income Tax of India, 1961, says that any NRI whose income in the financial year exceeds the amount which is not chargeable under the act comes in the category of taxable income. This means that the Income for NRIs who are wondering whether they will have to file tax for Financial Year 2012-13; their income should be more than Rs 2 lakhs.

He will also be liable to file taxes, if the total income was due to Long Term Capital Gains (LTCG) from assets or investments. It should be noted that in case the only income is LTCG from the foreign exchange asset, it will not be liable for taxes as TDS would have been already deducted from that income.

However, there are obvious demerits being an investor in Equities or Mutual funds in India. These investments are taxed in India even in cases where the only income is investment income and it is less than Rs 2 lakh.

Take into account the changes made by Income Tax Department

If you are an NRI with income of more than Rs 5 lakhs, then you will have to file the return in electronic form. The details of Form 26AS should also be matched correctly with the tax return filed by the Non Resident Indian.  FORM 26 AS is a system of matching the tax details, like TDS paid by the NRI with the Income Tax Return. The income tax return and FORM 26AS mismatch can be due to variety of reasons. One case can be the wrong filing of tax details by the individual, in other cases it can be due to wrong tax calculation and deduction on the part of the IT official. Delay in TDS deposits also results in mismatch.

Income Tax provisions can be made more comforting in order to bring more persons in the tax net. Especially, for NRI’s, who are a good source for foreign inflows in the country, an impartial tax treatment is uncalled for. Till the time provisions are revised, keep in mind 31st July as the date of filing of your return with existing provisions, how so ever stringent they might be.

QUERIES ON IT ACT 1962 & COMPANIES ACT 1956

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QUERY: The new act has done away with the clause of interested director in case of Private limited company This means that at the time of voting the interested director cannot attend the meeting and he cannot vote on the resolution. In a Pvt ltd company, where Mr X holds 40% share and wants to pass a resolution on his remuneration, commsission and other payments, Mr X will have to depend on other members holding balance share of 60%. In case Mr Y holds 33% and not a director, then how can Mr X pass this resolution?
REPLY:
The answer for the query is given below: As per the new Companies Act, 2013 also interested director cannot participate in the discussion.  The shareholding of the director is immaterial. The quorum should be disinterested quorum. (Clause 174) Naturally when the remuneration of director is decided a director cannot participate in the discussions and he has to depend upon the remaining directors’ vote for passing the resolution.   Hence if Y is a shareholder and not a director it will not affect the situation as remaining directors has to vote for the resolution. It may be possible that a private limited company may have only two directors i.e.  husband and wife and these two directors are interested in the resolution. In such a case as there is no quorum the resolution cannot be passed in the Board meeting and in the shareholders meeting the resolution has to be passed. I hope your query is answered.
QUERY: Plant & machinery purchased in the Financial year 2011-12 & put to use on 15/04/2012. Whether additional depreciation will be allowed or not pl. clarify.
 
REPLY:

Additional depreciation is charged on the block of asset in the first financial year in which the asset is put to use. Since the asset was first put to use in the year 2011-12, the assessee is entitled to get additional depreciation.

QUERY:
 Whether Service receiptant paying service tax under partial reverse charge needs to amend his service tax certificate ( Form ST 2) to register service receiving under partial reverse charge. Example – If an assesse is providing engineering consultancy services and receiving man power supply services. whether both the services should be registered and mentioned on  form ST 2 or only the Engineering consultancy services (Output Service) should be registered.
REPLY: 

You should amend the certificate to include services under partial reverse mechanism also.

In order to avoid compliance of service tax in multiple body corporate due to applicability of reverse charge, can we apply the following
Take service in one company which is already registered with the ST and transfer the same service to another body corporate entity from the former company to the later company without adding any value in the service ?

QUERY:
I have conducted an audit for a educational institutions having gross receipts of less than 1 crore, hence exempted u/s 10(23C)(iiiad) Please advise me which form under IT Act needs to be uploaded as audit report. (3CD/10B/10BB/ or any other form)

REPLY:

As the gross receipts of the institution, falling under section 10(23C) (iiiad), does not exceed Rs. 1 Crore, whole of the income is exempt from tax. Further, as the receipts is not regarded as turnover, no tax audit in form 3CD is required. However, the assessee need not file any income-tax return; but kepping in view the amount involved; the assessee should get its accounts audited so that whenever any question is raised; the answer can be given instantly. Generally; it is practice to use Form 10BB for such institutions as well.Incase you have any questions / require any clarifications, let us know, we shall be glad to assist you.

QUERY: 

One of the assessee have commercial as well as residential building. On commercial building he charged service tax by giving month service tax Invoice & depositing the same to the department but on the other hand he didn’t charges service tax on let out of residential building. What can we do charge s. tax on residential building or not?? Your early response will be highly appreciated.

REPLY:

One of the assessee have commercial as well as residential building. On commercial building he charged service tax by giving month service tax Invoice & depositing the same to the department but on the other hand he didn’t charges service tax on let out of residential building. What can we do charge s. tax on residential building or not?? Your early response will be highly appreciated.

 

Commodity Transactions-Whether speculative?

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Query relating to transactions in commodity trading

 Transactions in commodity Trading is being carried out through the brokers at National Spot Exchange as well as National Multi Commodity Exchange.
Kindly advice whether the transactions done  in FY 2012-13 at the any of the above exchanges will be Speculative transactions?
 
Whether, any of the above Exchange is a recognised Exchange since one of the criteria for non-speculation is that transaction to be done through recognised Exchange.
 
We welcome the view of the members on the above issue.
Reply:

Transactions in commodity trading carried out through the brokers of National Stock Exchange and / or National Multi Commodity Exchange during the F.Y.: 2012-13 will be in the nature of speculative transactions, if the transactions are settled otherwise than through delivery in general cases. However, exceptions have been provided in the proviso to section 43(5), clauses (a) and (c) in the specific cases and clause (e) in general cases.
Accordingly, as per clause (a) and (c) of section 43(5) in the following cases, the profits/ losses shall be treated as normal business profit / loss  and not speculative ,even if settled otherwise than on actual delivery-
      (a)  a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
 
    (c)    a contract entered into by a member of a forward market in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;
It is pertinent to note that clause (e) of section 43(5), which provides the benefit of business profit / loss in respect of trading in commodity in any situation is effective from the F.Y.: 2013-2014 (A.Y.: 2014-15) provided the transactions are carried out in a “recognised association” (which is yet to be notified).

 

Query on Tax Audit Assignments to be Signed by CA

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Question: If there are 10 partners in a firm of Chartered
Accountants, then how many tax audits reports can each partner sign in
a financial year?

Answer: As per Chapter VI of Council General Guidelines, 2008
(Tax Audit Assignments under Section 44AB of the Income Tax Act,
1961), a member of the Institute in practice shall not accept, in a
financial year, more than the specified number of tax audit
assignments as prescribed under Section 44AB of the Income Tax Act,
1961. The specified number of tax audit assignments under Section 44AB
of the Income Tax Act, 1961 is 45.

It is further provided in Chapter VI of Council General Guidelines,
2008 that in case of firm of Chartered Accountants in practice,
specified number of tax audit assignments means 45 tax audit
assignments per partner of the firm, in a financial year.

Therefore, if there are 10 partners in a firm of Chartered Accountants
in practice, then all the partners of the firm can collectively sign
450 tax audit reports. This maximum limit of 450 tax audit assignments
may be distributed between the partners in any manner whatsoever. For
instance, 1 partner can individually sign 450 tax audit reports in
case remaining 9 partners are not signing any tax audit report.
It is needless to say that the tax audit assignment should be in
accordance with the Standard on Quality Control (SQC) 1: Quality
Control for Firms that Perform Audits and Reviews of Historical
Financial Information, and Other Assurance and Related Services
Engagements.

 

Income Tax Scrutiny Guidelines-FY 2013-14

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The CBDT has issued Instruction No. 10 of 2013 dated 05.08.2013 announcing the procedure and criteria for selection of scrutiny cases under the compulsory manual for FY 2013-14. The guidelines appear to have been issued pursuant to the direction of the Delhi High Court in Joginder Pal Gulati vs. OSD – CPIO

 

Cost Inflation Index for Financial Year 2012-13

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Cost Inflation Index for Financial Year 2012-2013 is 852 and for Year 2011-2012 is 785.

In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, number S.O. 709 (E), dated the 20th August, 1998,

In the said notification, in the Table, after serial number 31 and the entries relating thereto, the following serial number and entries shall be inserted,

Sl. No. Financial Year Cost Inflation Index
(1) (2) (3)
“32 2012-13 852″

 

Cost of Inflation Index for FY 2013-2014 .i.e AY 2014-15

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Cost of Inflation Index for FY 2013-2014 .i.e AY 2014-15 for calculating capital gain is 939. Each Central Board of Direct taxes announces cost of Inflation index for the purpose of calculating inflation adjusted cost of asset for calculating capital gain tax on sale of capital assets.For Financial Year 2013-14 COI Index was declared through income tax Notification No.40/2013/F.No.142/7/2013-TPL.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NOTIFICATION
INCOME-TAX
New Delhi, the 6th day of June, 2013

Notification No.40/2013/F.No.142/7/2013-TPL

S.O. 1464(E) – In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes published in the Gazette of India, Extraordinary, vide number S.O. 709(E), dated the 20th August, 1998, namely:-
2. In the said notification, in the Table, after serial number 32 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-

Sl. No.  Financial Year Cost Inflation Index
(1) (2) (3)
“33  2013-14  939”

 

Capital Gain Exemption by making Investment in certain bonds of REC and NHAI

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As per the Section 54EC of the Income Tax Act, 1961 any capital gain arises from the transfer of long term capital assets and the assessee has, at anytime within a period of six months after the date of such transfer, invested the whole or any part of capital gains in specified bonds.

  • Conditions
    • LTCA is transferred by individual, HUF, FIRM, Company, or another person during previous year.
    • Maximum Amount of Investment in specified Bonds is limited to Rs.50 lacs for Financial Year.
    • Within a period of 6 months, the capital gain arises should be invested in bonds redeemable after 3 years issued by-
  1. National highway Authority of India
  2. The rural Electricity Corporation Ltd.
  • Exemption amount will lower of below amount:
  1. Capital gain arises on transfer of capital asset
  2. The amount invested in specified asset as mentioned above
  • If new asset is transferred within 3 years

    If the specified asset are transfer before the specified time period

    Then the amount previously exempted from tax will be charable to tax in the previous year it occurs.

TAX HELP: So Assessee can always Invest Rs.50 before 31stmarch and another Rs.50 lacs in next financial year and take the maximum benefit of Rs.100 lakhs if the asset was sold between 1stOctober to 31st March as assessee has the window of 6 months for investment and this can be divided between two financial years.

 

CBDT Criteria For Selection Of Scrutiny Cases In FY 2013-14

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CBDT Criteria For Selection Of Scrutiny Cases In FY 2013-14

The CBDT has issued Instruction No. 10 of 2013 dated 05.08.2013 announcing the procedure and criteria for selection of scrutiny cases under the compulsory manual for FY 2013-14. The guidelines appear to have been issued pursuant to the direction of the Delhi High Court in Joginder Pal Gulati vs. OSD – CPIO