Category: Taxation

Taxation of Virtual Assets
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INTRODUCTION A virtual asset is a digitalized representation of an item that has a proper value in a particular environment, for example, Bitcoin, Litecoin, or Dogecoin. In virtual assets, the medium of exchange or the property can be traded, transferred, or invested digitally. Over a decade virtual currencies are also considered virtual assets, virtual currencies are a digital representation of value that has a unit of account, store of value, and medium of exchange, it has also proliferated and has the potential for abuse, corruption, and illicit activity. Virtual assets have potential benefits like they could make payment easier, faster, and cheaper. The Financial Action Task Force (FATF) is an inter-governmental body that aims at preventing the laundering of money and terrorist financing. All virtual assets are considered to be digital assets, but not all digital assets are virtual assets. Digital assets like bank records, which represent ownership are not considered to be virtual assets. The virtual asset must-have features like whether it can be traded or transferred and used for payment. If the asset is merely just ownership it is not considered a virtual asset. NFT (Non-Fungible Token) is a digital asset that is unique and interchangeable; it is considered to be a digital asset unless used for payment or investment purposes. Worldwide NFT is classified as a non-taxable asset and in the future, it should be considered that the Crypto token is different from digital NFT. Cryptocurrency is a kind of virtual currency that is distributed across an oversized number of computers which makes it impossible to counterfeit or double spend. It is a new paradigm of money. Bitcoin is the most popular cryptocurrency. Other cryptocurrencies are Binance Coin, Solana, and Cardano. BACKGROUND The first virtual digital asset, the digital coin Bitcoin was introduced in the year 2009 and now there are nearly 10,000 different types of different assets. In recent years the prices of virtual assets are growing rapidly. Since 2017 the government monitors the development of the virtual asset sector and it also aims to develop the market, prevent unlawful activities and improve transparency in financial transactions. The government also promotes blockchain technology so that innovation can be brought in several areas. The government helps to improve transparency in virtual asset transactions. VIRTUAL ASSET SERVICE PROVIDER (VASP) Virtual Asset Service Providers means organizations or persons who conduct activities related to the transfer, exchange, or administration of virtual assets. Regulating the Virtual Asset Service Provider can play an important role in preventing terrorist funding and money laundering. The Virtual Asset Service Provider is an entity that conducts – Exchange between virtual assets and fiat currencies Transfer of virtual asset Exchange between one or more forms of virtual asset Administration of virtual asset Participation in the provision of financial services FATF closely monitors the development in the crypto-sphere mostly in the virtual asset sector. With the help of G20, FATF has some standards to prevent the misuse of money, laundering, and terrorist financing. FATF standards ensure that virtual assets are treated fairly and the rules apply when they can be exchanged for fiat currencies. VASP includes virtual asset trading service providers, virtual asset safekeeping and administrative service providers and virtual asset digital wallet service providers, and virtual asset digital wallet services that are engaged in purchase and sale, safekeeping and administration, and virtual asset transactions. VASP is engaged to report their transactions to KoFIU. KoFIU set up guidelines in 2018 for anti-money laundering regulations. While dealing with VASP, details are provided about types of suspicious transaction activities while using virtual assets so the bank rejects the opening of the new account for VASP when user information is not provided.  KoFIU has oversight and supervisory function over the virtual asset sector. The government will continue to upgrade the regulatory framework to enhance supervision and risk management. UNION BUDGET 2022 The Finance Minister announced a scheme for the taxation of virtual digital assets like Cryptocurrencies, Non-Fungible Tokens at the rate of 30%. As there is an increase in the magnitude and frequency of these transactions there is a need to provide a specific tax regime. The income which is proposed under this regime is to be computed without reducing the effect of deduction. Any loss arising out of this would not be allowed to be set off income in any other head. The Budget proposed to introduce TDS at a 1% rate on the transfer of virtual assets. Virtual Digital Asset gifts are also taxed at an applicable rate. The provisions are effective only from April 1, 2022, if a cryptocurrency is transferred before April 1, 2022, these provisions are not applicable. It was also clearly stated that mere recognition of the digital asset under the income tax is not amounting to granting legal status. This tax is similar to a tax on gambling as it mainly focuses on the interest of an investor. By this budget of 2022, it is clear that if you hold the cryptocurrencies then income derived from these will be taxed to 30 percent and any profit generated by the cryptocurrency trade will be taxed 30 % including the gifts and transfer of these assets. The government has kept a fixed rate of 30% so that all investors pay an equal percentage to the government in the form of tax. The cryptocurrency tax method includes the HIFO method. HIFO inventory helps to decrease taxable income in the company where the highest cost of goods is sold. HIFO method is very beneficial for investors those who often use the highest cost basis coin and apply it to coin sold. TAXATION The tax imposed by the central government is quite harsh. The 30% tax rate and restriction to set off losses is a significant deviation from the existing tax principles. It is tough to accept that gifts with respect to digital assets are also taxed. The taxation is clearly defined. Taxation of virtual digital currency means the crypto asset will not be banned. The Cryptocurrency andRead More

Income Tax Deduction from salaries: Government & Private Employees
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INTRODUCTION Since before the arrival of the first colonists, income taxes have been a common idea. It is regarded as a tax that a citizen pays to the state, based on their income and the profits of their businesses. The state uses the money it receives from taxes for a variety of things, such as providing public services, building infrastructure, paying for the military and other forms of defense, and providing subsidies. The Income Tax Act of 1961 is a sophisticated and extensive statute that covers all of the different laws and rules that govern how the country administers its tax system. Income tax is levied, handled by, collected from, and collected by the Indian government. According to Section 4 of the Indian Income Tax Act, income tax will be assessed for the corresponding assessment year based on each person’s total previous-year income at the rates set out by the Finance Act. As the name suggests, tax deducted at source (TDS) aims to collect money right from the source of income. It combines the ideas of “pay as you earn” and “collect as it is being earned,” and is essentially an indirect method of “collecting tax.” It is important to the government because it gets ready for tax collection, guarantees a steady stream of income, and gives taxes a wider base and greater reach. In addition, it offers the taxpayer a straightforward and practical method of payment while also distributing the tax’s incidence. The person receiving the income is typically responsible for paying income tax. However, the government makes sure that income tax is taken out of your payments in advance using provisions known as ‘Tax Deducted at Source.’ The net sum is given to the income recipient (after reducing TDS). The recipient will include the gross amount in his income and subtract the TDS amount from his overall tax obligation. The sum already withheld and paid on the recipient’s behalf is accepted as payment in full. The mentioned provisions are used to fulfill the recipient’s tax obligations. As a taxpayer, it is our responsibility to declare the amount of income we have earned and paid taxes on in our income tax return. According to Section 192 of the Income Tax Act of 1961, anyone responsible for paying any income that is chargeable under the head ‘salary’ must deduct income tax from the assessee’s anticipated income under the head salary. The tax must be computed at the average income tax rate based on the rates currently in effect. The deduction must be made at the time of the actual payment. However, unless the estimated salary income exceeds the maximum amount exempt from the tax that applies to an individual during the relevant financial year, no tax is required to be withheld at the source. Once the tax has been deducted, it must be deposited in a government account, and the employee must be given a certificate of tax deducted at the source (also known as Form No. 16). The employee must include this certificate with his income tax return to receive the TDS credit on their income tax assessment. Lastly, the employer/deductor must complete Form No. 24Q, Quarterly Statements, and submit it to the Income-tax Department. Salary is said to be the remuneration received by or accruing to an individual for service rendered as a result of an express or implied contract. The statute gives an inclusive but not exhaustive definition of salary. As per Sec. 17(1), salary includes therein- Wages Annuity or pension Gratuity fees, commission, perquisites, or profits in lieu of salary Advance salary Receipt from provident fund Contribution of the employer to a recognized provident fund in excess of the prescribed limit Leave encashment compensation as a result of variation of service contract etc. Government contribution to a pension scheme. The law mandates that tax be withheld at source from earnings covered by the head salary. As a result, the existence of an employer-employee relationship is a requirement before a specific receipt can be taxed as a head salary. When an employee is subject to the employer’s right to direct how he carries out instructions in addition to working under his direct control and supervision, this type of relationship is said to exist. Therefore, the law essentially mandates the deduction of tax in the following situations: (a) When the employer pays the employee. The income under the head salaries is above the maximum amount not subject to tax, (b) the payment is in the nature of a salary, and (c) the payment has been made. Both payment and deduction of tax are in the hands of the employer. Even if an individual or HUF is not subject to a tax audit, payments made by them that total more than Rs 50,000 per month must be TDS-deducted at a rate of 5%. Furthermore, individuals and HUF required to deduct TDS at 5% are exempt from applying for TAN. Your employer deducts TDS at the corresponding income tax slab rates. Banks deduct TDS at a rate of 10%. If they don’t have your PAN information, they may also deduct 20%. The income tax Act specifies the TDS rates for the majority of payments, and the payer deducts TDS based on these rates. If your total taxable income is less than the taxable limit and you provide your employer with investment proof (to claim deductions), you are not required to pay any tax. There should be no TDS deducted from your income as a result. TDS on payment of pension– It has been clarified by CBDT vide circular No. 761 dt. 13/01/98 that in the case of pensioners receiving pension through nationalized banks, provisions of TDS are applicable in the same manner as they apply to the salary income. TDS on Retirement Benefits: According to section 17, retirement benefits that an employee receives are taxable under the heading salaries as ‘profits in lieu of salaries’. As a result, they are subject to the TDS provisions outlined in Section 192Read More

The Taxation Laws (Amendment) Bill, 2021
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Introduction The Taxation Laws (Amendment) Bill 2021 was presented after India lost retrospective tax demand proceedings against Cairn Energy Plc. and Vodafone. The Taxation Laws (Amendment) Bill, 2021, was introduced in the Lok Sabha on August 5, 2021, by Nirmala Sitharaman, the Minister of Finance. Both the Income Tax Act of 1961 and the Finance Act of 2012 are amended by this bill.  The IT Act was revised in 2012 to impose a retrospective tax liability on income derived from the sale of shares of a foreign company. Effective 2021, this retrospective basis for taxation will be eliminated through the Taxation Amendment Bill. As part of the bill, any demand for “indirect transfer of Indian assets” made before May 28, 2012, are to be withdrawn or provide an undertaking to withdraw pending litigation, as well as an undertaking that no claim for cost, damages, interest or other compensation is to be made with the enactment of the bill. The proposed Taxation Laws (Amendment) Bill 2021 would also allow companies exposed to retrospective tax demands to be refunded the amount paid without interest thereon. Background What is retrospective taxation? An enactment of retrospective taxation is government-enacted legislation that taxes specific products, items, or services, as well as deals, and collects money from businesses even before the legislation is enacted. Governments frequently amend tax laws retrospectively to clarify existing legislation, which can hurt businesses that misinterpreted the rules. Businesses that have taken advantage of loopholes in past laws have been taxed retrospectively in many countries, including the United States, the United Kingdom, the Netherlands, Canada, Belgium, Australia, and Italy. The Vodafone – Hutchison Case Vodafone paid $11 billion for a 67 percent share in Hutchison Whampoa in May 2007. This comprised Hutchison’s mobile telecommunications business as well as other Indian businesses. A demand was made by the Indian government initially of Rs 7,990 crore in capital gains and withholding tax from Vodafone in September of that year, claiming it should have deducted the TDS (Tax at Source) before making the payment to Hutchison. The demand notice was contested at the Bombay High Court, but the judges favored the Income Tax Department. Later, Vodafone Group challenged the judgment of the High Court in the Supreme Court, which ruled in 2012 that Vodafone’s interpretation of the Income Tax Act of 1961 was correct, thus preventing the company from paying taxes. Therefore, the question of taxation of gains arising from the transfer of shares of foreign companies, also known as “indirect transfers of Indian assets”, was the subject of protracted litigation. In 2012, the Supreme Court further stated and observed that the gains deriving from the indirect transfer of Indian assets are not taxed under the Income Tax Act’s current provisions. Amendment to Finance Act, 2012 A retrospective amendment to Section 9 was enacted by the Finance Act of 2012. Explanations 4 and 5 were added to Section 9 (1) (i) of the Finance Act, with retrospective effect from the date of January 1, 1962. Gains deriving from the transfer or sale of shares or interest in a foreign firm are taxable in India if such shares, directly or indirectly, derive their value substantially from assets positioned in India, as per the amendment. The Supreme Court pointed out in Vodafone’s case that the word “through” in section 9 does not indicate “as a result of.” Explanation 4 was added to address these concerns by clarifying that the term “through” in section 9 (1) (i) should mean and include “utilizing,” “in consequence of,” or “because of,” and shall be regarded to have always meant the above contentions. A capital asset or asset situated in India is considered to have been disposed of in India, while income arising from such a transfer is deemed to be accrued or derived in India following explanation 5 to section 9 (1) (i) if; If the capital asset or asset is a share or of interest to the company incorporated outside India; The shares derive their value from the assets located within India; and The values may be derived from the assets situated within India both indirectly and directly Analysis Of The Taxation Laws (Amendment) Act, 2021 CONSEQUENCES ON PENDING ASSESSMENT The fourth proviso to Explanation 5 (also known as indirect transfer of assets) of Section 9 (1) (i) states that the provisions of Explanation 5 (indirect transfer of Indian assets) do not apply to income accruing or derived from indirect transfers of Indian assets made before May 28, 2012. When assets seated in India are indirectly transferred before the 28th of May 2012, Explanation 5 of Section 9 (1) (i) would not apply retrospectively. As a result, income derived from or originating from such an indirect transfer of Indian assets or capital assets is not taxable in India with effect to the Amendment. Thus, all the pending litigations concerning assessment or rectification relating to computation of income derived from indirect transfer of assets would be concluded despite any specific additions. CONSEQUENCES ON CULMINATED ASSESSMENT When assets situated in India are transferred indirectly before 28 May 2012, the retrospective effect of Explanation 5 to Section 9 (1) (i) is excluded. As a result, income derived from or originating from such an indirect transfer of assets or capital assets which are Indian is not taxable in India with effect to the Amendment. In the Sixth Proviso, if any amount becomes refundable to such a person, the person will be refunded, but no interest will be paid under section 244A. Only those assessees’ who meet the following criteria will be granted relief in scenarios of completed assessments: In the event, the assessee has filed an appeal or writ petition before an appellate authority or the High Court or the Supreme Court against any order in reference to such income, he shall make a withdrawal or submit an undertaking for  withdrawal such appeal or writ petition; As per any law currently in force or under any agreement India has entered into with any other country or territory out of India, where the said participant has initiated an arbitration, conciliation, or mediation proceeding, or has given any notice thereof he must withdrawRead More

Determining Residential status of an Assessee
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This article is written by Kalyani Gupta, a Master’s in Law student from Amity University, Noida. This article discusses meaning and rules for determining the residential status of an assessee. INTRODUCTION An ‘Assessee’ implies to an individual on whom tax, or any additional sum of cash is imposed under the Income tax and he is legally responsible to reimburse the same. According to section 2(7) of the Income tax Act, 1961, “assessee” implies an individual by whom any tax or any additional sum of money is outstanding under this Act, includes – “Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person” “Every person who is deemed to be an assessee under any provision of this Act” “Every person who is deemed to be an assessee in default under any provision of this Act” Hence, any individual who is responsible to pay tax through his personal income or income of any other individual is said to be called an assessee. Need to Determine the Residential Status The aggregate income is separate in case of an individual resident in India and a person who is a non-resident in India. Additionally, in case of a single person and HUF being “not ordinarily resident in India”, the implication of the total income shall be slightly distinct. Subsequently the total income of an assessee differs in accordance with his residential status in India, the occurrence of tax will also fluctuate keeping in mind such residential status in India. Tax is imposed on the total income of assessee. According to the provision of Income-tax Act, 1961 the entire income of each individual is created upon his residential status. Section 6 of the Act separates the assessable individuals into three groups: Ordinary Resident Resident but Not Ordinarily Resident Non-Resident Residential status is a name devised under Income Tax Act and does not have nothing to do with nationality of an individual or his domicile. A person who is an Indian and a citizen of India can be non-resident for purposes of Income-tax, but an American who is a citizen of America can be an Indian resident for purposes of Income-tax. The residential status of an individual varies upon the territorial links of the individual with this country, which means that, the number of days he has actually and physically stayed in India. The residential status of various kinds of persons is decided in a different way. Likewise, the residential status of the assessee is decided each and every year while referring to the “previous year”. This may change from year to year. What is important here is that the status throughout the previous year and not in the current assessment year. An individual may be a resident in the preceding year and a non-resident in India in another preceding year, for example: Mr. X is a resident in India in the preceding year which is 2018-19 and in the next year he becomes a “non-resident in India”. Duty of Assessee: It is duty of the assessee’ to put relevant statistics, evidence and information before the Authorities of Income Tax backing the determination of “Residential status”. Dual residential status: A dual residential status is permissible. An individual may be resident of more than one country in a relevant preceding year for example, Mr. A may be an Indian resident during the preceding year 2018-19 and may also be a “resident/non-resident” in US in the same preceding year. The advent of such a condition varies upon the following: the presence of the Residential status in countries under such considerations the distinct set of rules getting put down for purpose of determining residential status. Determination of Residential Status of Different Person’s The Income tax is indicted on every person. The term ‘Person’ has been well-defined under section 2(31), which includes: An individual Hindu Undivided Family (HUF) Firm Company Local authority AOP/BOI Every other artificial juridical person not included in the above categories Therefore, it is necessary to ascertain the residential status of the above-mentioned different categories of persons. Types of Residential Status The following fundamental rules must be adhered to while ascertaining the residential status of an Assessee: Residential status is ascertained for each type of persons individually and separately for example, there are distinct set of rules for deciding the residential status of a person and different rules for companies, etc. Residential status is constantly ascertained for the preceding year because we must determine the aggregate income of only the preceding year. Residential status of an individual is to be ascertained for every preceding year because it may vary every year. For example, X, who is an Indian resident in the year 2017- 18 which is considered the preceding year, could become a “non-resident” in the previous year 2018-19. If an individual is an Indian resident in a preceding year related to an assessment year in regard of any basis of income, he shall be considered to be a resident in India in that preceding year which is pertinent to the current assessment year in reverence of each of his sources of income.  An individual can be a resident of one or more countries for any preceding year. For example, If A is an Indian resident for the previous year i.e., 2017-18, it will not imply that he cannot be a resident of any other country for that same preceding year. It is the responsibility of the assessee to put all relevant facts before the assessing officer to allow him to ascertain his appropriate and accurate residential status. An assessee can be classified into the subsequent residential status during the preceding year:   Resident in India Non-Resident in India  A resident personRead More

Issues Involved with Taxpayer Rights
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This is authored by Janaki Nair a 3rd year B. A. LLB student in Symbiosis Law School Pune. The following article deals with the system of taxation in India and how the taxpayers navigate around the same topic. It also deals with the problems that taxpayers may face while filing tax returns to the Government.  INTRODUCTION The taxation system of a country is the system where the Government of a particular country levies a financial charge or some other sort of levy on the citizens of the country. These citizens are known as the taxpayers and can range from individuals to established organizations and businesses. Tax is levied so that the Government can fund its spending and other public–oriented expenditures for the benefit of the public. It is compulsory by almost every citizen and a failure, resistance, or evasion to payment of taxes by any individual or group would result in punishment by law.  Broadly speaking there are two categories of taxes: Direct Tax: This type is also known as Progressive Tax as the amount to pay increases by an increase in the income of the taxpayer. Direct Tax is the one that is levied directly onto the income earned by individuals as well as corporations. Regarding direct tax, the taxpayer cannot shift it towards any other person or group and therefore has to pay it by themselves. It is said to help reduce inflation and inequalities in society. Payment of Income Tax is the most well–known direct tax in the world. Indirect Tax: This type is also known as Regressive Tax as everyone, regardless of their economic status, is expected to pay the same amount of tax to the Government. It widens the gap of social inequality that is already big in India. The rich get richer whereas the poor get poorer. Indirect Tax is imposed by the Government on the sale and business of goods and services. The seller of these commodities and services can shift the burden of paying the tax to another individual or group who becomes the buyers in the transaction. An example would be the recently introduced Goods and Services Tax (GST) of India. General Rights of Taxpayers Tax payment is an extremely vulnerable and crucial thing to inculcate into the minds of the citizens because there are so many ways in which it could go wrong. The authority would need to develop incredible amounts of trust for the citizens to be completely okay with paying their income to the Government for a better life.  Taxpayers therefore also have some general basic rights under the numerous rules and regulations of the country. They are as below: Right to Legal Certainty: According to this, tax authorities would be restrained from arbitrariness by protecting taxpayers from them. Furthermore, this right helps an individual taxpayer to predict the obligations and liabilities that he may have while also ensuring him by making him aware that the rights cannot be changed arbitrarily. This right, therefore, protects a taxpayer against forceful and coercive methods and also gives him the right to appeal in case of any violations. Right to non-retroactivity: If tax payment were retrospective in nature, it would violently violate the rights of the taxpayer. Therefore, the country denies the freedom for retroactive changes in tax law in many Indian states. This stems from the fact the rights of these taxpayers consist of the effect that the tax consequences would have on the economic decisions of the taxpayer.  Other than the national laws and regulations that provide some sort of rights to the taxpayers, there are also international conventions of which India is a signatory to that talk about providing taxpayers with rights. These conventions ensure that the people get some form of protection from International law when the domestic law proves to either not provide them with any or sufficient form of protection.  The most important international convention with regards to tax payment is the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR), 1950. Under this, Article 1 of the first protocol on ‘protection of property’ basically states that tax must be imposed only according to the law of the land, the system must serve a valid purpose that is in the public or general interest of the country and that the laws adopted must be reasonable and not further violative of any fundamental rights of the people.  Charter of Taxpayers Rights and Problems India has time and again produced several charters on the rights of taxpayers of India. However, almost all of them were purely theoretical and had almost no practical implementation. The first Income Tax Charter was drawn up by the Government in the year 1998. Under it, the Income Tax department ensured that they would be dedicated to the commitment provided by the taxpayers by being – fair, helpful as well as efficient in their dealings with any form of grievances. They had also stated that the Charter would acknowledge any communication from the taxpayer at the time of complaint–making (the latest being within 7 days of complaint) and furnish replies the latest within 30 days. Further, they ensured that it would redress and resolve all complaints within 30 days of complaint and all of them will be kept confidential.  However, these promises were later held to be empty as a review of all the taxpayer Charter programs by the Central Government through the first 15 years of the 2000s showed that the Charters were extremely poorly drawn up and implemented in the states.  It was realized that the major issue regarding this failure in implementation is because – the absence of any statutory backing of the Charters and lack of awareness of the Charter by the taxpayers. Due to the above two reasons, the Charter of Taxpayers’ rights did not have any impact on the tax-paying community.  Therefore, an important step had been taken by the Indian Government in August 2020 to rebuild the lost trust of the taxpayersRead More

Consequences and Evidence of Tax Evasion
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This article is written by Aanchal Rawat, a 2nd year student of R N Patel Ipcowala School of Law and Justice. INTRODUCTION “Only 5.78 Crore individual taxpayers filed income tax return for the financial year 2018-19 till Feb 2020 and even in that only 1.46 Crore, individual taxpayers filed returns declaring income above ₹5, 00,000.” This was said by Anurag Singh Thakur, MoS, and Ministry of Finance in a reply to a question asked in Lok Sabha. Tax Evasion Tax Evasion is the illegal non-payment of tax or underpayment of tax. The taxation system in India Art. 256 of Indian Constitution,                        “No tax can be imposed unless it is passed as a law.” The Tax structure of India consists of 3 parts: 1. Central Government 2. State Governments 3. Local Municipal bodies  Taxes are imposed and determined by the Central Government and State Government along with local authorities like municipal corporations.  Salient Features of Tax System of India                       Role of  Central and State Government The entire system is demarcated with specific roles for the central and state government.  The Central Government of India takes following taxes: customs duty, income tax service tax, and central excise duty. The state governments take the following taxes: income tax on agricultural income, professional tax, value-added tax (VAT), state excise duty, land revenue and stamp duty. The local bodies take the following taxes: octroi, property tax, and other taxes on various services like drainage and water supply. Types of taxes Taxes are of two types:  Direct tax   Indirect tax. Direct Tax Direct Tax is directly paid by the taxpayer to the government. Examples: Income Tax and Wealth Tax. Indirect Tax Indirect taxes are consumption-based taxes which are applied on goods or services when they are bought and sold.  The government receives indirect tax from the seller of the good/service and the seller receives it from the buyer of that good/service.   Examples: sales tax, Goods and Services Tax (GST), Value Added Tax (VAT), etc. Revenue Authorities Central Board of Direct Taxes Central Board of Excise and Customs Central Board of Indirect Taxes & Customs Impact of Tax evasion on Indian Economy Tax evasion has many negative effects on the entire economic system of India. Some of the important impacts are: Less Tax for the Government  Due to tax evasion, the Indian Government fails to collect the estimated amount of tax from the people. As a result, credit has to go to the black money-driven underground economy showing the impact of illicit wealth on GDP. Creation/Growth of Mass Poverty The misdistribution of wealth and income in India has seriously affected the growth of the underground economy. If all black money can be recovered in the tax havens the amount which will be recovered will be approximately by which the Indian Government can pay off all the outstanding liabilities of the it and even then there will still be money left for spending. Uncontrollable Inflation Due to tax evasion there is loss of revenue because of which the prices of commodities increases beyond normal level. And people who have money offer more money on specific items.  Investment on Gold, Stones and Jewellers People convert black money into white money to evade tax by largely investing in precious metals like gold and other jewellers. Gold can be bought and converted back to money any time with least efforts. Thus, the flow of underground money has caused the Indian economy to stall on its growth. Estimation says that if all the money in the underground economy could be diverted to our main economy, the Indian economy would grow more. Transfer of Black Money from India to Abroad Black money generated in India is kept in foreign tax havens through secret channels with the help of two important methods,  under-invoicing of exports  Over-invoicing of imports. Corruption  Corruption creates tax evasion and it creates black money in the economy. Black money holders then bribe different people to reach their desired goals and can get what they want. Effect on GDP of the country As income is not shown properly, tax collection decreases and thus the GDP cannot be calculated properly. The GDP is underestimated.  The higher tax rate on existing taxpayers The Government is forced to enhance the tax rates every assessment year for increasing its revenue resulting in the high tax burden of those paying taxes promptly. Consequences Tax evasion is a criminal offence. Chapter ⅩⅫ of Income Tax Act, 1961 deals with the punishment for evading tax.  In following scenario punishment is given: On not filing income tax returns If income tax return is not submitted as per s.139 (1) of Income Tax then assessing officer can penalise penalty of ₹500 Providing Wrong PAN or Not Providing PAN If PAN is not provided to the employer at the time of employment then instead of 10% TDS (regular) 20% TDS will be deducted. If PAN number is wrong then penalty of ₹10,000 may be penalised. Not checking form 26AS before filing income tax return The details of Form 26AS should be checked multiple times as if any mismatch is found in details it could lead to severe punishment. Non payment of Tax as per Self Assessment The taxpayer will be treated as defaulter if he fails to pay either wholly or partly self assessment tax or interest. Being a defaulter he may be penalized by the assessing officer if justified reasons are not provided for the delay of payment. Concealing Income to evade Tax If correct income details are not provided or concealed then the taxpayer will be penalized 100 % to 300% of the tax evaded. Section 271AAB penalises penalty for the following scenario: Tax payer admits the undisclosed income Penalty: 10% of the previous year’s undisclosed amount along with interest. Taxpayer does not disclose the undisclosed income but does so in return of income furnished in previous yearRead More

Importance of Taxation
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This article has been written by Khan Mahenoor pursuing law from Rizvi Law college. The pictorial image has been taken from Forbes What is Tax?  A Tax is a compulsory financial charge or some other type of levy Imposed  upon  a person by a state in order to fund government spending and various public expenditures.  A failure to pay the tax is forsooth Punishable by law.  In simple words, The tax is the compulsory pecuniary payment made by the citizens to the state Without any quid pro quo. The government collects  taxes to meet its development and administrative needs. It is through Tax a citizen is connected to Government. A citizen paying tax automatically Acquires a right to enjoy the facilities provided by the government and that he is filled with national pride. It can be paid either in money or  in labor In modern terms, taxation transfers wealth from households or businesses to the government. This has effects which can both increase and reduce economic growth and economic welfare. If we trace back to  time the first known taxation took place in Ancient Egypt around 3000–2800 BC. How do Taxes contribute in economic growth of a nation? Taxation Pay and Fund public  is a vital element in the social agreement and bond between the economy and the citizens. It promotes growth and progress in a nation’s economy and social programs. These taxes are  usually levy  on income, sales, property, estates, imports, capital gains, dividends, goods and services, as well as other various fees. As citizens of the country It is a Responsibility of people to pay taxes which would help in the growth and progress of the economy and the World.  The Governments wouldn’t be competent  enough to meet the societies’ demands and needs without imposing taxes. Taxes are essential for  finance, social programs and projects. It can  however  affect a country’s condition and status of economic growth. Generally, taxes add to a country’s GDP or Gross Domestic Product. As a result of this contribution, taxes aid in the growth of the economy, which depends on  Economy of the country, for instance an increase in the creation of jobs for citizens, a rise in the standard of living, and much more. Tax is more than just a source of revenue and growth. It also plays a key role in building up institutions, markets and democracy through making the state accountable to its taxpayers. In developing economies a lack of tax structures is a major cause of weak, unresponsive governance. It often enough leads to an overreliance on aid. With tax, the public can hold governments to account for their decisions, and not feel tied to the will of people . And because tax revenues are relatively predictable, governments can plan ahead with greater certainty. Types of Taxes Mainly, there are two kinds of taxes defined under the Indian tax system, which get further Sub -divided into other categories:  1. Direct taxes 2. Indirect taxes  A direct tax is a tax an individual or organization pays directly to the imposing entity. In Simple words,It is a tax levied directly on a person who pays it to the Government and cannot pass it on to someone else. It cannot be passed onto a different person or entity; the individual upon whom or which the tax is levied is responsible for the fulfillment of the full tax payment.  For example  Real property tax, personal property tax, income tax, Wealth Tax, Gift Tax, Expenditure Tax, Fringe Benefit Tax or taxes on assets etc. They are  usually based on the ability-to-pay principle. The principle states that those who have more Affluence or earn a higher income should pay more taxes. The Central Board of Direct Taxes (CBDT) overlook the direct taxes in India, and they cannot get transferred to any other individual or legal entity Example of Direct Tax If a person’s income tax is an example of a direct tax. If a person makes $100,000 in a year and owes $33,000 in taxes, that $33,000 would be a direct tax An indirect tax  is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax (such as the consumer). In Simple terms, Taxes that get imposed on products and services when they are bought and sold are called indirect taxes, Term indirect tax is Contrasted with a direct tax, which is collected directly by the government from the Persons ( on whom it is imposed).It is supposed to be refunded to the parties that are involved in the production process (and not the final consumer) however   This is a consumption tax which is imposed on the supply of services and goods  Every step of the production process of any goods or value-added services is subject to imposition of GST.  Example of Indirect Tax It could be any fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately, the manufacturer transfers the burden of this duty to the buyer of the car in the form of a higher price. Thus, an indirect tax is one that can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. Conclusion On a larger perspective, we can agree that both direct and indirect taxes are important for the betterment of our economic growth and development  Latest Posts

Exemption from Income Tax: Agriculture
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This article has been written by Navneet Chandra and gives basic information about whether to pay the taxes for there agricultural income or not. Agricultural Income under Income Tax Agriculture as we know is the basic yet the most beneficial practice in India. Here farming is considered as the most common occupation, especially in the rural area. And apart from producing the basic needs of a human being, some manage make profit out of it. This is where the question of Income tax comes in. Basically, the taxation is exempted from agriculture income according to Section 10(1) of Income tax Act, 1961. However, there are a few conditions that leads to payment of taxes, which will be discussed later. What is Agriculture and Agricultural Income? The meaning of Agriculture is nowhere covered in the Income tax Act 1961, but was interpreted by Supreme Court in the case of CIT vs Raja Benoy Kumar Sahas Roy, where the agriculture was classified into two processes. Basic operations (cultivation, sowing of seeds, planting etc) Subsequent operations (weeding, cutting, harvesting etc) The term agricultural income can basically be understood as the revenue or profits gained from an agricultural piece of land by doing the following activities: Profits earned from a land which is being used for agricultural activities in the form of rent or lease. Profits earned by selling the productions of an agricultural land. Profits earned in the form of rent or lease from the buildings built on or near the agricultural land. However, there are a few conditions- The agriculturalist must have engaged the building. The building is being occupied as a place of residence or a storage. Agricultural financial gain is totally exempt from tax by central government given that the individual’s i) total agricultural financial gain is a smaller amount than Rs. 5,000 and ii) the full financial gain, excluding agricultural financial gain, is a smaller amount than basic exemption limit. However State may indirectly collect taxes out of it. Why and how is income tax generated out of agriculture land? Income tax on the other hand is an important mechanism through which the government collect funds from its citizens for collective good as it is not possible for individuals to work separately for public welfare. The payment of tax helps the government in development of nation, improvement of infrastructure, upliftment of the society and also the welfare practices for the country, Public health, law enforcement, Public transportation, public education, Scientific research and defence expenditure. And there are multiple forms for taxation through which the collection is done, such as- Direct taxes (eg- Income tax), Indirect taxes (eg- GST), Property taxes, Entertainment taxes, Transfer taxes, Road taxes and toll taxes. Income tax is imposed on all the people making any type of income except the incomes mentioned under Section 10 of above-mentioned Act. Agricultural land under Income tax is primarily exempted of taxation according to the Income tax Act,1961 as we discussed earlier. However, there are other condition we can say mechanism from which income tax can be collected in this situation. This mechanism can be known as the partial integration of agricultural income with non-agricultural income. It heads at taxing the non-agricultural income at higher rates of tax Partial Integration Method If someone earns each agricultural and non-agricultural financial gain, then the rateable financial gain is calculated as per the partial integration methodology. The steps for computing rateable financial gain as per partial integration methodology is as follows: Compute taxation on the idea of the entire of agricultural financial gain + non-agricultural financial gain with no education cess. Compute taxation on the idea total of agricultural financial gain additionally to exemption limit (Rs.2.5 lakhs currently) while not education cess. Deduct tax at step (2) from tax at step (1) and apply education cess of three. The above-mentioned mechanism is applicable only when a below-mentioned conditions are met: Individuals, HUFs, AOPs, BOIs and artificial juridical persons have to compulsorily calculate their taxable income using this method. Thus Company, firm/LLP, co-operative society and local authority are excluded from using this method. Net agricultural income is greater than Rs. 5,000 during the year; and Non-agricultural income is: Greater than Rs. 2,50,000 for individuals below 60 years of age and all other applicable persons. Greater than Rs. 3,00,000 for individuals between 60 – 80 years of age. Greater than Rs. 5,00,000 for individuals above 80 years of age. Conclusion Agriculture income is outlined under Section 2 (1A) and is exempt beneath the Indian tax Act. this suggests that income earned from agricultural operations isn’t taxed. the explanation for the exemption of agriculture financial gain from Central Taxation is that the Constitution offers exclusive power to form laws with relation to taxes on agricultural financial gain to the State assembly. While computing tax on non-agricultural income, agricultural income is additionally taken into thought. Although agricultural income is totally exempt from tax, the Finance Act, 1973, introduced a theme whereby agricultural financial gain is enclosed with non-agricultural financial gain within the case of non-corporate assesses who are entitled to pay tax at specific block rates. A method has been listed below to levy tax on agricultural financial gain in associate indirect way. this idea is understood as partial integration of taxes. it’s applicable to people, HUF, unregistered corporations, AOP, BOI and artificial persons. 2 conditions which require to glad for partial integration are: The net agricultural financial gain must exceed Rs. 5,000 per annum, and Non-agricultural income must exceed the maximum quantity not indictable to tax. It is true that it’s untaxed however the liberty arises neither by virtue of a rise within the tax threshold, that remains place at Rs 50,000, nor by exemptions offered by Sec. 10. It attracts rebate beneath the freshly inserted Sec. 88D. Clearly, despite agricultural financial gain being untaxed, assesses ought to be further careful whereas coping with such financial gain. they have to ensure that they mixture agricultural financial gain with their total financial gain to avoidRead More

Taxation for NGO’s
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This article is written by Bhavna Arul, a fourth-year law student from Symbiosis Law School. INTRODUCTION Non-Government Organizations are formed with the intention of solving socio-economic issues in a country.  They can be in the form of a Trust, Company (Section 8 company) or a Society. These organizations often get a tax exemption as the finances of these organizations are directed towards benefitting the public in the same manner the government utilizes taxes. An NGO to be recognized by the tax authorities as an NGO must register itself under S.12A of the Income Tax Act.  Even charitable works by individuals and companies are eligible for tax exemption. For individuals and companies, there is a prescribed set of funds that when donated to, exempts the individual from paying tax. Fundamental Taxing for NGO’s All voluntary or charitable organizations as defined U/S.2(15) of the Act have the liability to pay service tax on the income received by them, except for that donation which has been specified to be ‘corpus’ by the donor in writing. However, the interest or dividend accrued on such funds can also be utilized for taxing. As provided by the Act only 85% of the total income received by an NGO is to be utilized and the remaining 15% is accumulated for later use and corpus fund forms a part of such remaining income. And this accumulated income can be used within the next five years and if not used then shall be considered as the income of the eleventh year. A public trust with an income of 50,000 rupees or more needs to file an annual income. Further, if the voluntary organization in question has not been registered U/S.12A of the Act and earns an income that exceeds the minimum taxable limit then its total income and the corpus fund will be taxable on the amount excess. Any organization not registered under S.12A is not considered as an NGO by the Income Tax Act and hence no relaxation in tax is given to such organizations. In addition to all these, what has been made taxable are the kind of anonymous donations made by any organization or institutions or individual to a charitable organization at a rate of 30%. However, the Constitution of India has made such donations to religious institutions non-taxable. Rules Applied During Profit When the revenue of the NGO exceeds its expenses, then such organization is deemed to earn a profit. Generally, NGOs work with the plan of utilizing most of their funds. It is rare for an NGO to be making profits as it fundamentally clouds the idea of an institute working towards socio-economic development. Profits earned by NGOs can be channelized in the most effective way if such an idea is desired for. The surplus income can be utilized to carry on activities towards the fulfilment of the objective of the NGO. The surplus can either be carried forward to the succeeding years without any kind of limitation or accumulated for a specific purpose. However, the DTC proposes for the utilization of the 15% of the surplus or 10% of the receipts within three years in order to restrain the accumulation for a longer period and in such case where the surplus is not utilized it shall become taxable at a rate of 15%. Profits earned by any charitable trust from a construction project cannot be subjected to exemption under S.11, however, it is entitled to deduction under S.80B(10). However, an exception for this rule is if an NGO working for women empowerment earns profit by selling off the handicrafts made by the women employed by them shall not be made taxable. List of Exceptions and Conditions Category of income Income subject to tax Taxability Donations/voluntary contributions Voluntary contributions with a specific direction to form part of corpus of trust or institution Exempt*  Voluntary contribution without such specific direction Forms part of income from property held under trust Anonymous donations i.e., donations where donee does not maintain record of identity/any particulars of the donor Donation exceeding higher of:i) 5% of total donations received by trust orii) Rs 1,00,000 Taxed at 30% Anonymous donation received by trust established wholly for religious and charitable purpose on Taxable in the same manner as voluntary contributions (without specific direction) as above Income from property held under trust for charitable or religious purpose Income applied for charitable or religious purpose in India Exempt* Income accumulated or set aside for the application towards charitable or religious purpose in India Exempt* to the extent of 15% of such income. This means at-least 85% of income from property to be applied for charitable and religious purposes in India as above and a balance 15% can be accumulated or set aside. [See below comment on 85%] Income from property held under trust created for charitable purpose which tends to promote international welfare in which India is interested CBDT either by general or special order has directed that such income shall not be included in the total income of trust Exempt* Capital gain from asset held under trust in whole Net consideration is utilised fully for acquiring another capital asset Entire capital gain is deemed to have been applied for charitable and religious purpose and hence is exempt* Net consideration is utilised partially for acquiring another capital asset Capital gain utilised in excess of cost of old asset transferred is considered to have been applied for charitable and religious purpose and is exempt* *Only Charitable/ religious trust or institution registered under Section 12AA enjoys the exemption CONCLUSION When discussing the development of a country, we are referring to a very inclusive definition that includes development in all hemispheres i.e., social, economic, environmental and political growth. It generally is the duty of the government to look into all these aspects of development within a country. However, it often so happens that the government is unable to address certain issues and need help from external agencies.  When a country faces the problem of corruption, NGO’s areRead More

Structural Reform in Taxation Regime in India on the Cross Border Taxation Issues
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This article is written by Shreya Shanu, a student of Sardar Patel Subharti Institute of Law, Meerut. INTRODUCTION In this era of world a “global village,” even small firms must master cross-border tax issues to serve their clients well.  Companies face a number of domestic tax challenges throughout all stages of their business cycle (i.e. entry, operation and exit). It is important that companies are also aware of the various international tax and cross-border impacts of their activities. India is considered to be the fastest growing economy in the world, India is now the third largest economy globally and the recent mega initiatives of Make in India and Digital India certainly make India an exciting market for global business community.India has the world largest democracy which has seen smooth shift of power 15 times over the past 6 decades and independent judiciary. Cross Border Taxation  Companies with employees who visit or reside in the US and multinational groups have tax authorities from both sides of the border playing a tug-of-war to tax the same dollars of corporate profit. One of the challenges and greatest areas of opportunity for a multinational company today is effectively managing local and foreign taxes in a way that aligns with its overall business objectives and operations.While business considerations primarily drive overseas investment decisions, tax and regulatory aspects also play an important role in the decision-making process. Optimising overall tax burden and aligning tax functions to the business strategy has become more crucial than ever for businesses. We, at Block Development Office in India, strongly believe that entrepreneurs should focus on their businesses, without having to worry about the repercussions under the tax and regulatory framework in the chosen investment destination. At Block Development Office India, our approach is to first understand the business rationale behind an investment decision and provide solutions that are tailored to the needs of the business, sector and time sensitive requirements. It helps multinationals reduce taxes on earnings, enhance margins, and grow their business. We provide customised cross border tax services under the following broad categories: Cross Border Structuring Inbound / outbound investment Transaction & Income Structuring Tax Risk Management Here the latest income tax slabs and rates The Finance Minister introduced a new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF to pay taxes at lower rates without claiming deduction under various sections. This new tax system has been made optional and continues to co-exist with the old one that comprises three tax rates and various tax exemptions and deductions available to a taxpayer. New tax regimes slab rates are not differentiated based on the age group. The new income tax slabs and rates HAVE come into effect from April 1, 2020. Structure of tax rates under new tax regime for FY 2020-21(Rs) If the income of the people is upto 25 lakh per year, then it will have to pay nil income tax. If the income of the people is from 2,50,000 to 5,00,000,then it will have to pay 5% tax. If the income of the people is from  5,00,000 to 7,50,000,then it will have to pay 10% tax. If the income of the people is from 7,50,000 to 10,00,000 ,then it will have to pay 15% tax. If the income of the people is from 10,00,000 to 12,50,000,then it will have to pay 20% tax. If the income of the people is from 12,50,000 to 15,00,000,then it will have to pay 20% tax. Above 15,00,000 then it will have to pay 30% tax. Individuals with a net taxable income of up to Rs 5 lakh in a financial year will be able to avail tax rebate of Rs 12,500 under section 87A in both the existing and new tax regimes. Effectively, this means that individual taxpayers with net taxable income of up to Rs 5 lakh will continue to pay zero tax in both the tax regimes. Inbound / Outbound Investment The permission granted by the Indian Regulations to permit inbound and outbound investments from India into overseas companies, Government Bonds, Branch Offices, joint ventures, etc. The overseas business entities to settle in India and overseas need to understand the concept of cross-border taxes and Regulatory challenges. The Government in almost all sectors provides tax benefits to attract foreign investors for the development of our economy. The business and legal environment in India differs from the environment overseas. The reform process has deregulated the economy and encouraged domestic and foreign investment destinations. Under the existing tax regime, the basic tax exemption limit for an individual depends on their age and residential status. According to their age, resident individual taxpayers are divided into three categories: 1.Resident individuals below the age of 60 years2. Resident senior citizens above 60 years but below 80 years3. Resident super senior citizens above the age of 80 years EU Taxpayers and Cross-border Tax Issues It is likely that EU citizens buying or investing or working or moving frequently across borders will have to pay taxes and make tax declarations in two or more countries. This is often the case for: People living in one country and working in another (cross-border commuters or frontier workers) Workers posted abroad Retired persons abroad  Latest Posts Archives