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Not filed ITR? ITR Due date is 15th Feb 2021 in case of Tax Audit

Do you know 15th February is the last day to file your Income Tax Return for FY 2019-20? File your ITR before the due date to save yourself from the late fee of INR 10,000 u/s 234F. The tax audit due date was extended due to Covid-19. Let us take a look at the extended due dates for ITR filing.

Due Dates for FY 2019-20 (AY 2020-21)

It is very important to file the Income Tax Return within the due date defined as per the Income Tax Act.

The due date to file Income Tax Return for non-audit cases was 10th January 2021 (extended from 31st December 2020).

The due date to file Income Tax Return for audit cases is:
15th January 2021 – Due Date to file Tax Audit Report
15th February 2021 – Due Date to file Income Tax Return (when tax audit is applicable)

Traders subject to Tax Audit under Section 44AB should file ITR for FY 2019-20 before 15th Feb 2021. If you file your ITR in time,

ITR Type Due Date
Audit not applicable 10th Jan 2021
Audit applicable 15th Feb 2021

Filed ITR but not reported trading transactions? – File a Revised Return

As per the Income Tax Act, if you have filed your original return under Section 139(1) for FY 2019-20, you can file a Revised Return under Section 139(5) up to 31st March 2021 without paying late fees or penalty.

You may have filed an original ITR in time but not reported trading income and claimed losses. In such a case, you can file a Revised ITR to claim trading expenses and carry forward the trading loss. The last date to file Revised Return for FY 2019-20 is 31st March 2021.

Consequences for not filing ITR in time

Late Fee under Section 234F

FY 2017-18 onwards, if a taxpayer files a Belated Return (ITR after due date) u/s 139(4), they must pay a late fee under Section 234F as below:

Total Income Late Fees
Up to INR 2.5 lacs Nil
INR 2.5 lacs to INR 5 lacs INR 1,000
More than INR 5 lacs (ITR filed on or before 31st Dec) INR 5,000
More than INR 5 lacs (ITR filed after 31st Dec) INR 10,000

Traders who are subject to Tax Audit under Section 44AB should file the Income Tax Return before 15th February to avoid a late fee of INR 10,000 under Section 234F.

Tax Notice

The Income Tax Department is working to build a database of information of taxpayers by sourcing data from third parties. From its partnership with SEBI, the IT Department would be able to fetch details of trading transactions. The Income Tax Department has also asked various organizations such as Banks, NBFC, Brokers, Mutual Fund Houses, etc to file SFT Forms to submit data of taxpayers.

Such information is reflected on the e-compliance portal of Income Tax. If such data is not reflected in the Income Tax Return filed by the taxpayer, the IT Department may issue scrutiny notices for non-disclosure of income. Thus, it is advisable for taxpayers to report correct information and all the incomes in the ITR.

Interest under Section 234A on Tax Dues

If you miss the deadline to file the Income Tax Return and there are tax dues, you are liable to pay interest at 1% per month or part of the month under Section 234A of the Income Tax Act.

To conclude, it is our moral duty to report all the incomes and file the ITR within the prescribed time limit. You must avoid chances of tax notice, paying late fees and penalties by filing ITR before 15th February 2021.

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Relief in Dividend Income as per Budget 2021

Under Budget 2020, the Union Finance Minister Nirmala Sitharaman had announced that the Dividend Distribution Tax, commonly known as DDT, will be abolished. Since DDT was abolished, Dividend Income which was earlier an exempt income, now became taxable. As a result, the FM also introduced a new TDS Section 194K (TDS on Dividend from Equity Mutual Funds) and amended the existing Section 194 (TDS on Dividend from Equity Shares) for deduction of TDS if such dividend income exceeds INR 5,000 during the financial year.

Changes in Budget 2021 for Dividend Income

No Advance Tax on Dividend Income (Applicable from 01/04/2021 i.e. AY 2021-22)

Payment of advance tax has now become easier and would save late payment interest for the taxpayers. Under Budget 2021, the Finance Minister proposed that the advance tax liability on dividend income shall arise only after the dividend is declared or paid.

As per Section 234C of the Income Tax Act, if a taxpayer fails to pay advance tax, interest is applicable at the rate of 1% per month. Earlier, it was very difficult for the taxpayer to estimate the dividend income which thus resulted in unnecessary interest liability under Section 234C (the penalty for delay in advance tax payment). 

Under Budget 2021, this section has been amended by introducing a provision that interest under Section 234C should not be calculated if it is not possible to accurately determine the advance tax due to intrinsic nature of income. As per the new provision, the liability to pay advance tax would arise only when the dividend is declared or paid. This makes the payment of advance tax easier for the taxpayers.

No TDS on Dividend to REIT / InvIT – Applicable retrospectively from 01/04/2020 i.e. AY 2020-21)

TDS under Section 194 of the Income Tax Act is required to be deducted on payment of dividend to a resident. This section has been amended by introducing a provision that TDS should not be deducted for the dividend paid to a business trust by a special purpose vehicle or any other notified person.

Therefore, to provide an ease of compliance, the dividend paid to REIT (Real Estate Investment Trusts) and InvIT (Infrastructure Investment Trusts (InvIT) is exempt from TDS. Thus, even if the dividend on equity shares or equity mutual funds exceeds INR 5,000 during the financial year, TDS is not required to be deducted on such payment. The idea behind removing this provision is to rationalise the taxation of dividends and attract more investment.

In addition to the above changes, the Finance Minister also proposed to enable deduction of TDS on dividend paid to Foreign Portfolio Investors at lower treaty rate instead of the normal TDS rates.

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Increase in Tax Audit Limit as per Budget 2021

In Budget 2020 Finance Minister Nirmala Sitaraman announced a change in the turnover limit for tax audit from 1 Cr. to 5 Cr. In Budget 2021, the turnover limit for Tax Audit changes again. This time FM announced to increase the turnover limit for tax audit from 5 Cr. to 10 Cr. (where 95% transactions are done digitally) to reduce the compliance burden on taxpayers.

Applicability of Tax Audit Changes

The increased limit for tax audit is applicable to:

  1. Retailers, traders, shopkeepers, etc. who earn Business Income and,
  2. Digital transaction of 95% or more during the year.

Factors to Keep in Mind for Tax Audit

The following factors play a vital role:

  1. Turnover from Business/ Trading.
  2. Profit/Loss incurred during the year.
  3. The conditions of section 44AB read with the conditions of section 44AD.

Tax Audit Applicability as per New Changes

Turnover upto INR. 1 Cr.

In case of losses = Tax Audit Applicable (Due to conditions of sec 44AD)
If the profit is less than 6% of turnover = Tax Audit Applicable (Due to conditions of sec 44AD)
If the profit is more than or equal to 6% of turnover = Tax Audit not Applicable and a taxpayer can file ITR-4.

Turnover between INR. 1 Cr. to INR. 2 Cr.

In case of losses = Tax Audit Applicable
If the profit is less than 6% of turnover = Tax Audit Applicable
If the profit is more than or equal to 6% of turnover = Taxpayer has two options

  • A taxpayer opts for the Presumptive Taxation Scheme = Tax Audit not applicable and can file ITR-4.
  • A taxpayer doesn’t opt for the Presumptive Taxation Scheme = Tax Audit is applicable, need to maintain books of accounts and file ITR-3.

Turnover between INR. 2 Cr. to INR. 10 Cr.

Tax Audit is not applicable irrespective of profits/losses. The turnover limit in Sec 44AD is INR. 2 Cr. or less and the turnover limit of Sec 44AB has been increased to INR. 10 Cr.

Note: This is an anomaly, where neither Sec 44AB nor Sec 44AD gets hit. Hence, under this turnover limit, a tax audit is not applicable to taxpayer/trader irrespective of profits/losses. Here a taxpayer will not be able to file ITR-4 but will have to file ITR-3 without audit. Clarification form CBDT is awaited.

Turnover more than INR. 10 Cr.

Tax Audit is applicable irrespective of profits/losses. A taxpayer needs to maintain books of accounts and file ITR-3.

The compliances when tax audit is applicable make tax filing a cumbersome process. Hence, the update in the tax audit limit announced in Budget 2021 was a relief, welcomed by capital market participants.

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Budget 2021: Income Tax Changes and Other Key Highlights

The wait is finally over! The Union Budget 2021 was presented by the Finance Minister Nirmala Sitharaman on February 1, 2021. Needless to say, everybody was hooked to the budget updates while the country still recovers from the pandemic-induced recession. In her speech, the FM spoke about the 6 pillars on which the proposals for this year’s budget rests upon. The 6 pillars holding Budget 2021 are –

  1. Health & Well-being
  2. Physical and Financial Capital and Infrastructure
  3. Inclusive Development for Aspirational India
  4. Reinvigorating Human Capital
  5. Innovation and R&D
  6. Minimum Government, Maximum Governance

Since the Finance Minister had promised a “never before” kinda budget, let’s take a deeper look on what were the changes introduced in the first-ever paperless Budget 2021.

Key Highlights from Budget 2021

While changes introduced in Budget 2020 are still in talks, let’s see what new changes are introduced in Budget 2021. 

Budget 2021 : Income Tax Updates

Relief to Senior Citizens

Senior Citizens aged 75 years and above, having income from pension/interest or both are exempt from filing Income Tax Return under Budget 2021. The paying bank will deduct TDS on the income.

Exemption from Tax Audit

According to Budget 2021, the taxpayers who carry out at least 95% digital transactions, the limit for Tax Audit has been increased from INR 5 Cr to INR 10 Cr. This limit was initially increased from INR 1 Cr to INR 5 Cr in Budget 2020.

Relief for Dividend Income

After the abolishment of DDT i.e. Dividend Distribution Tax under Budget 2020, dividend which was earlier exempt now became a taxable income. Under Budget 2020, TDS under Section 194 and Section 194K was introduced for deduction of TDS on dividend paid on equity shares and equity mutual funds. Under Budget 2021, the dividend paid to REIT / InvIT is now exempt from TDS.

Advance Tax liability would arise on dividend income only once the dividend is declared or paid since it is difficult for the shareholders to estimate the dividend income accurately.

Chapter VI-A Deductions

The eligibility of deduction u/s 80EEA for interest on home loan for affordable housing has been extended to 31st March 2022 from 31st March 2020. Thus, an individual taxpayer can claim deduction u/s 80EEA of up to INR 1.5 lacs for a home loan sanctioned between 1.4.2019 to 31.3.2022.

Pre-fill ITR

Under Budget 2021, the compliance of filing ITR for taxpayers has now become easier with the pre-filled XML. Details of Capital gains on listed securities, dividend income and interest income from banks, post office, etc would now be prefilled in ITR in addition to the details of salary income, tax payments, TDS, etc which were already getting pre-filled earlier.

Relaxation for NRI (Non-Resident Individuals)

The FM, in Budget 2021 proposed to introduce new rules to remove the hardship of double taxation for NRI Indians having accrued incomes in foreign countries. The new rules would focus on provisions of foreign income, DTAA, relief and tax credits under Section 90, 90A & 91.

e-Assessments and Easier Litigations

  • At present, the AO can re-open the assessment up to 6 years which has now been reduced to 3 years to reduce the uncertainty for taxpayers.
  • The government would set up a Dispute Resolution Committee where taxpayers with taxable income up to INR 50 lacs and disputed income up to INR 10 lacs can reach out thus reducing the litigations for small taxpayers.
  • Introduction of faceless assessment and appeals by establishing the National Faceless Income Tax Appellate Tribunal Centre i.e. Faceless ITAT.

Corporate Changes

  • Definition of small companies as per Companies Act 2013 has been revised to ease out compliances.
    1. Paid-up Capital increased from up to INR 50 lacs to INR 2 Crore
    2. Turnover increased from up to INR 2 Crore to INR 20 Crore
  • The residency limit was reduced from 182 days to 120 days thus encouraging NRIs to incorporate OPCs in India. Earlier, only resident citizens were able to incorporate OPC in India.
  • Earlier, an OPC was mandatorily required to convert into a private company or public company if their paid-up share capital exceeds INR 50 lacs or turnover exceeds INR 2 Crore in the previous three years. The OPCs are now allowed to grow with no paid-up capital and turnover restrictions.

Other Key Takeaways

  • If the employer has deducted employee’s contribution towards provident funds, superannuation funds, and other social security funds but not deposited these amounts within specified time limits, it will not be allowed as a deduction for the employer.
  • The eligibility for claiming tax holiday for startups increased by a year up to 31st March 2022. The exemption for capital gains for investment in startups increased by a year up to 31st March 2022.

These were the key highlights from Budget 2021 delivered on February 1st by the FM. Budget 2021 was much awaited by the country and it did not disappoint. Before the announcement of the budget, there were a lot of expectations from the country, keeping in mind the year we just had.

Budget 2021 Expectations

Let’s briefly look at expectations that had surfaced before the official announcement of Budget 2021.

Income Tax Changes

Work-from-Home Deductions

We expect the FM to provide deductions for various allowances employees received such as compensation for ergonomic workstations, internet, and mobile allowances, etc.
If the work-from-home norm is here to stay, it will be interesting to see Budget 2021 take on it. 

#Budget2021 Update: No specific WFH deductions allowed

Exemptions under New Tax Regime

The most talked-about change from the last year’s budget was the introduction of the New Tax Regime. However, the old tax regime continues to be favoured for its ability to claim deductions.

Considering this, the government may offer some more benefits under the new regime.

#Budget2021 Update: No new exemptions introduced under the New Tax Regime.

Chapter VIA Deductions

For those continuing with the old tax regime, there are chatters about an increase in the limit for Chapter VIA deductions the current limits u/s 80C – INR 1.5 Lakh and u/s 80D up to INR 50,000. The scope of section 80D could be broadened to include medical and insurance expenditure in wake of Covid-19.

#Budget2021 Update: Taxpayers can claim deduction u/s 80EEA of up to INR 1.5 lacs for a home loan sanctioned between 1.4.2019 to 31.3.2022.

Healthcare 

The country was unprepared for the pandemic and the healthcare workers were overwhelmed. The finance minister had allocated 1.28% of the country’s GDP for health in the last fiscal year. However, the pandemic-induced emergency exposed the shortcomings of the sector. 

Representatives from healthcare had urged the ministry to increase allocation to 2.5% in Budget 2021 to make healthcare accessible to all. Rational taxation on medicine and health expenses was expected. 

#Budget2021 Update: Rs. 35,000 Cr for COVID-19 vaccine allocated. A total of Rs. 64,180 Cr will be allocated towards the ‘PM Atmanirbhar Swasth Bharat Yojna’ over a period of the next 6 years.

Covid Cess 

With the Covid-19 vaccinations rolling out, the cost of getting the entire country vaccinated will be huge. Vaccinations are the need of the hour as eliminating Covid-19 will eventually lift the entire economy of the country. The government might introduce covid cess in Budget 2021 on higher income brackets to cope up with the cost of providing vaccinations to the whole country. 

Cess is a form of tax levied by the government for a specified amount of time in order to raise money for a specific purpose. It is imposed as an additional tax on top of the existing tax. 

#Budget2021 Update: No Covid cess levied.

Job Opportunities 

While the economy is gaining momentum, unemployment is still one aspect that Budget 2021 is expected to address. Globally, India occupies third place in startup generated-economy. To boost startups, the government must consider introducing more tax benefits. Subsequently, this will lead to more job opportunities. 

#Budget2021 Update: Capital gains exemptions for investors and tax holidays for startups extended by a year.

These are a few areas of focus that were expected to be included in Budget 2021. Some did make the cut and others were lost among more important matters. With the amendments introduced in Budget 2021, we can only hope that the economic trajectory goes up.

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GST on Notice Pay Recovery

If you are thinking about switching jobs and ditching the notice period – this article is just for you! The Gujarat Authority of Advance Ruling has come up with the decision to charge 18% GST on notice pay recovery. This essentially means that if an employee fails to oblige to the notice period duration or even doesn’t comply for the whole period, they will have to pay 18% GST on notice pay recovery. Let’s break this down and understand the significance of GST when it comes to serving the notice period.

What is Notice Pay Recovery? 

When an employee leaves the company without serving the required notice period as per their terms of employment, the employee has to pay the employer an amount equal to the unserved notice period.  This is called notice pay recovery. 

When an employee decides to leave an organisation, the company needs to look for its replacement or offload work so that there is no impact on production. Now if the employee decides to leave without serving the notice period, the company suffers a loss. In order to recover from this, the employee is required to pay the amount for whatever duration they did not oblige to the notice period. 

Applicability of GST on Employment Terms 

You might find yourself wondering, where does GST come in the picture between an employee and employer’s terms of employment. There was a lot of debate around the applicability of GST on notice pay recovery until now. So let’s break it down and understand how is GST applicable to employment services. 

Under the CGST Act, all supply of goods and services are subject to GST. Schedule I of the CGST Act includes transactions that are treated as supplies if they are made without consideration between two related parties but contributes to the business. Further, Section 15 of the CGST act includes employer and employee as related parties. That makes it pretty simple, right? Supplies made from an employer to an employee will attract GST. (excluding gifts up to Rs 50,000)

But wait, we did not mention Schedule III of the CGST Act which includes activities that can neither be treated as supply of services nor supply of goods. And yes, the act states that services by an employee to an employer do not fall under either supply of services or supply of goods. 

So from this, we understand that employee compensation is not subject to the goods and services tax. 

How Does GST Apply on Notice Pay Recovery?

So far, we have looked at different aspects of GST applicability when it comes to the employee-employer relationship. From the above-discussed points, we have established that employee remuneration does not attract GST. So how was the rule of 18% GST on notice pay recovery passed? 

Coming to Schedule II of the CGST Act, this act includes all the activities that will be treated as a supply of goods or services. One of these activities includes ‘Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation’.

So, when an employee joins or leaves an organisation, they are bound to certain terms of employment which also include serving the notice period which can be from 15 days to 3 months, depending on the role and the organisation. The act of refraining from serving the notice period can be concluded as tolerating an act by the employer which attracts GST according to Section II of the CGST Act. 

According to the Gujarat Authority of Advance Ruling, if an employee refrains to serve the notice period, they have to pay 18% GST along with paying the salary amounting to unserved notice period to the company.

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