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Identifying Instances Leading to Income Tax Notices in Real Estate Deals and Credit Card Transactions

editor — Sat, 13 Apr 2024 13:21:14 +0000

Tracking Financial Activities:

The Income Tax Department meticulously monitors all financial transactions carried out by individuals, utilizing various data sources to ensure adherence to tax regulations. Certain transactions may trigger heightened scrutiny from tax authorities.

High-Value Cash Transactions:

The tax department pays particular attention to high-value cash transactions. For instance, if an individual receives a cash deposit exceeding Rs 10 lakh in a savings account within a fiscal year, this could prompt the department to issue a notice seeking clarification regarding the source of funds.

Mandatory Reporting by Banks:

As per the Central Board of Direct Taxes (CBDT) directives, banks are mandated to report instances where an individual deposits Rs 10 lakh or more across one or more time deposit accounts during a financial year, excluding deposits made through the renewal of another time deposit. Additionally, all banks, including cooperative banks, must report cash deposits of Rs 10 lakh or more across one or multiple accounts of an individual, excluding current accounts and time deposits.

Scrutiny of Securities Transactions:

Financial institutions and companies issuing bonds or debentures are obligated to report receiving Rs 10 lakh or more from any individual in a financial year for acquiring such securities. This measure is aimed at detecting potential instances of tax evasion or undisclosed income associated with significant cash movements.

Credit Card Transactions:

Several instances of credit card transactions may trigger Income Tax notices:

Cash deposits exceeding Rs 10 lakh for savings accounts and Rs 50 lakh for current accounts, along with substantial withdrawals, may prompt inquiries into the origin and intended use of the funds.
Real estate transactions exceeding Rs 30 lakh may come under the scrutiny of the tax department, which seeks detailed information about the transaction and involved parties.
Investments surpassing Rs 10 lakh in stocks, mutual funds, or bonds may attract scrutiny if the origin of funds appears inconsistent with reported income.
Although the Income Tax department does not actively monitor individual credit card transactions, cash payments exceeding Rs 1 lakh towards credit cards or substantial debt settlements exceeding Rs 10 lakh made in cash may undergo scrutiny and investigation. Ensuring transparency in significant transactions with verifiable fund sources is imperative, as unaccounted cash inflows may trigger investigations.

Mismatch of Declared Income:

Discrepancies between declared income and bank data may prompt notifications from the tax department, highlighting the importance of maintaining accurate financial records.

Foreign Exchange Transactions:

Any purchase of foreign exchange totaling Rs 10 lakh, including travelers’ checks, forex cards, or debit/credit card transactions, must be reported to ensure compliance with tax regulations.

Source: https://www.businesstoday.in/personal-finance/tax/story/real-estate-deals-credit-card-transactions-6-times-one-can-get-income-tax-notice-425280-2024-04-12

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Tax Liability cannot be imposed merely because the financial statement did not provide State-wise turnover

editor — Thu, 04 Apr 2024 10:14:35 +0000

The imposition of tax liability solely based on the absence of state-wise turnover information in financial statements has been contested in the legal realm. This matter was addressed by the Hon’ble Madras High Court in a recent case involving Tvl. Future General India Insurance Co. Ltd. versus Assistant Commissioner (State Tax) [WP No. 3534 OF 2024, dated February 16, 2024].

Facts:

Tvl. Future General India Insurance Co. Ltd. (“the Petitioner”) operated as a private general insurance firm, specializing in insurance services. On August 16, 2021, the Petitioner was served with an audit notice by the Assistant Commissioner (State Tax) (FAC) (“the Respondent”). In response, the Petitioner diligently furnished the necessary documents and addressed the discrepancies highlighted in the audit reports. Subsequently, after issuing both an intimation and a show cause notice (“the SCN”), the Competent Authority issued the assessment order on December 30, 2023 (“the Impugned Order”).

Within the Impugned Order, the issue of defect No. 10 arose, relating to variations in turnover between the Profit & Loss account and balance sheet, as opposed to the figures in GSTR-9. The Petitioner explained that these disparities stemmed from the inclusion of Pan-India operations in the financial statements, whereas GSTR-9 solely focused on turnover within Tamil Nadu. The Petitioner even provided a certificate from a Chartered Accountant, specifically outlining the turnover within Tamil Nadu, amounting to Rs. 80,89,05,068/-. However, despite this clarification and despite the Petitioner having already paid taxes on the stated turnover, the Respondent imposed State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST) at 18% each (36% combined) on the aforementioned turnover.

Dissatisfied with the assessment order, the Petitioner sought recourse by filing a writ petition before the Hon’ble High Court of Madras.

Top of Form

Issue:

The central question revolves around whether tax liability can be established solely due to the absence of state-wise turnover information in financial statements.

Held:

In its ruling on Writ Petition No. 3534 OF 2024, the Hon’ble Madras High Court made the following determinations:

The Court acknowledged the variation in turnover for entities operating across multiple states, emphasizing the importance of distinguishing total turnover from state-wise turnover.
It criticized the Competent Authority's decision to impose GST at a higher rate of 36% instead of the appropriate 18%, despite the Petitioner having already paid tax on the turnover in question.
The Impugned Order was deemed invalid and the case was remanded to the Respondent for reconsideration.
Furthermore, the Court directed the Respondent to afford the Petitioner a fair opportunity, including a personal hearing, and instructed issuance of a fresh assessment order within a maximum period of two months, in compliance with legal provisions.

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CBDT notifies changes in ITR Form V and Acknowledgement for AY 2024-25

editor — Thu, 28 Mar 2024 10:28:31 +0000

The CBDT, through Notification No. 37/2024 dated March 27, 2024, has introduced revisions to the ITR form V and Acknowledgement for Assessment Year 2024-25. These changes align with amendments made in the Income Tax Act, 1961, and the Income Tax Rules, 1962, following the Finance Act, 2023.

For further details, the full notification can be viewed at: https://www.nyca.in/wp-content/uploads/2024/03/CBDT_37-2024-27.3.2024.pdf

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CBDT issues corrigendum to include sec. 43B(h) disallowance under clause 22 of Form 3CD

editor — Thu, 21 Mar 2024 07:32:17 +0000

The Central Board of Direct Taxes (CBDT) introduced amendments to Form 3CD through Notification No. 27/2024 /F. No. 370142/3/2024-TPL, dated 05-03-2024. These amendments primarily focused on enhancing disclosures related to certain provisions of the Income Tax Act.

Disclosure of Section 43B(h) Disallowance (Clause 26): The notification included a requirement for disclosure of disallowances under section 43B(h) within Clause 26 of Form 3CD. This amendment aimed to ensure transparency and comprehensive reporting of such disallowances in accordance with the Income Tax Act.
Amendment of Clause 22: Notably, Clause 22 of Form 3CD, which pertains to interest restrictions under the MSME (Micro, Small, and Medium Enterprises) Development Act, was not initially amended in the notification. However, subsequent revisions have now been made to Clause 22 to incorporate the disclosure of amounts disallowed under section 43B(h).

Source: https://www.nyca.in/wp-content/uploads/2024/03/notification-27-2024.pdf

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Understanding the Contrast: Income Tax vs Tax Deducted at Source (TDS)

editor — Wed, 20 Mar 2024 09:27:10 +0000

Distinguishing Income Tax:

Income tax and Tax Deducted at Source (TDS) represent distinct facets of taxation, each with its own operational framework.

Income tax constitutes a levy imposed on an individual’s or company’s yearly earnings within a specific financial period. Governed by the Income-Tax Act (ITA) of 1961, it delineates the procedures for tax computation, evaluation, and collection.

This tax is applicable to various income streams such as salaries, rental income, professional profits, and capital gains. Individuals surpassing the threshold of Rs 2.5 lakh under the old tax system or Rs 3 lakh under the new regime are liable to pay income tax. Attempting to evade income tax constitutes a punishable offense under the law.

Decoding TDS:

On the other hand, Tax Deducted at Source (TDS) pertains to tax deductions made from the source of income and promptly remitted to the government. In TDS, entities disbursing specified payments like salaries, interest, rents, or professional fees are mandated to withhold a designated tax percentage before disbursing the amount. This measure aids in curbing tax evasion and streamlines the tax collection process.

Comparison: Income Tax Return (ITR) vs TDS:

Income Tax Return (ITR):

Tax Deducted at Source (TDS):

Key Differences between Income Tax and TDS:

Timing of Payment: While income tax is settled at the culmination of the financial year, TDS is deducted periodically throughout the year at the income source.
Taxation Responsibility: TDS is deducted by the payer, whether an employer or financial institution, and remitted to the government, whereas income tax is directly paid by the taxpayer after determining their tax liability.
Tax Rate Determination: TDS rates are predetermined by the government based on the nature of payments, whereas income tax rates are structured according to income slabs as stipulated by tax laws.
Scope of Application: TDS applies to specific payments such as salaries, interest, rents, and professional fees, while income tax is levied on the total annual income, including salaries and capital gains.

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CBDT Issues Guidelines on Income Tax Appeal Filing to Reduce Litigation

editor — Tue, 19 Mar 2024 06:24:06 +0000

The Central Board of Direct Taxes (CBDT) has issued Circular No. 5/2024 dated March 15, 2024, under Section 268A of the Income-tax Act, 1961, providing guidelines for the Department’s appeal filings before the Income Tax Appellate Tribunal (ITAT), High Courts (HCs), and for Special Leave Petitions (SLPs)/appeals before the Supreme Court (SC) with the aim of reducing litigation. This circular supersedes Circular No. 3/2018 from July 11, 2018, Circular No. 17/2019 from August 8, 2019, and a board letter dated August 20, 2018.

In line with the guidelines, monetary limits and other conditions for filing departmental appeals under the Income-tax Act, 1961 have been specified for ITATs, HCs, and SC. However, exceptions have been provided where the decision to appeal or file an SLP shall be based on merits without regard to the tax effect and the monetary limits.

These exceptions include cases where:

It contained Any provision of the Act or the Rules or notification issued thereunder has been held to be constitutionally invalid.on both external and internal assets generated or acquired during the relevant financial year under various tax categories such as CGST, SGST & IGST, and HSN codes.
Any order, notification, instruction, or circular of the Board or the Government has been held to be illegal or ultra vires the Act.
The assessment is based on information related to any offence received from law enforcement or intelligence agencies.
Prosecution has been filed by the Department in the relevant case and the trial is pending.
Strictures/adverse comments have been passed against the Department.
The tax effect is not quantifiable or not involved, such as in the case of registration of trusts or institutions.
Addition relates to undisclosed foreign income/undisclosed foreign assets.
Cases involving organized tax evasion or accommodation entries.
Mandated by a Court’s directions.
Writ matters.
Matters related to wealth tax, fringe benefit tax, equalization levy, and other matters outside the Income Tax Act.
Litigation arising out of disputes related to TDS/TCS matters.

The Circular further clarifies that appeals or SLPs shall not be filed in cases where the tax effect does not exceed specified monetary limits for ITAT, HCs, and SC. The tax effect is defined as the difference between the tax on the total income assessed and the tax that would have been chargeable had the total income been reduced by the amount of income in respect of the disputed issues.

Additionally, procedures for calculating the tax effect in cases involving TDS/TCS are outlined, and reporting mechanisms are established to ensure compliance with the Circular’s provisions.

The Circular aims to streamline the appeals process, reduce unnecessary litigation, and provide clarity to taxpayers on their Income-tax assessments. It emphasizes the importance of deciding on appeal filings based on the merits of each case and encourages the resolution of disputes in a fair and efficient manner.

Source: https://www.nyca.in/wp-content/uploads/2024/03/Circular-No.-5-2024-Filing-of-appeals-by-Dept.pdf

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Key JSON Schemas for ITR-1 and ITR-4 Issued by Income Tax Department for Assessment Year 2024-25

editor — Tue, 19 Mar 2024 05:43:06 +0000

ITR-1 Schema:

The Income Tax Department has recently unveiled the JSON Schema for ITR-1 for the Assessment Year 2024-25, corresponding to the Financial Year 2023-24.

This schema caters to individuals who are residents (excluding not ordinarily residents) with a total income of up to Rs. 50 lakh. It applies to individuals with income from salaries, one house property, other sources (such as interest), and agricultural income up to Rs. 5 thousand.

ITR-4 Schema:

The Income Tax Department has also released the JSON Schema for ITR-4 for the Assessment Year 2024-25, corresponding to the Financial Year 2023-24.

Designed for individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships) who are residents and have a total income of up to Rs. 50 lakh. This schema is applicable to those with income from business and profession computed under sections 44AD, 44ADA, or 44AE, along with agricultural income up to Rs. 5 thousand.

ITR-1 Schema:

Document: https://www.nyca.in/wp-content/uploads/2024/03/ITR-1_2024_Main_V1.0.zip

Date of Initial JSON Schema Release: 18th March 2024

ITR-4 Schema:

Document: https://www.nyca.in/wp-content/uploads/2024/03/ITR-4_2024_Main_V1.0.zip

Date of Initial JSON Schema Release: 18th March 2024

Source: IncomeTaxPortal

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CBDT Orders Income Tax Offices to Operate on March 29-31, 2024

editor — Tue, 19 Mar 2024 04:39:58 +0000

The Central Board of Direct Taxes (CBDT) has issued an Order dated March 18, 2024, announcing the extension of working days for all Income Tax Offices in India. This extension applies to March 29, 30, and 31, 2024, with the aim of facilitating the completion of pending work.

Given that the Financial Year 2023-24 concludes on March 31, 2024, which falls on a Sunday, and March 30, 2024, is a Saturday, and March 29, 2024, is a closed holiday, this decision has been made to ensure that pending departmental tasks can be effectively addressed.

This directive, issued under section 119 of the Income-tax Act, 1961, by the Central Board of Direct Taxes, is aimed at providing administrative convenience and ensuring that necessary tasks are completed within the stipulated time frame.

For further details, the complete Order can be accessed at: https://www.nyca.in/wp-content/uploads/2024/03/CBDT-Order-18.3.2024.pdf

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Section 194G of the Income Tax Act

editor — Sat, 16 Mar 2024 13:09:34 +0000

Lottery tickets are often seen as gateways to instant wealth, but few realize the tax implications that accompany such windfalls. Section 194G of the Income Tax Act delineates the provisions for Tax Deducted at Source (TDS) on various activities related to lottery tickets, including their sale, distribution, and associated transactions. Let’s delve into the intricacies of Section 194G:

Scope of Section 194G:

Section 194G pertains to any income accrued by individuals in the form of commission, remuneration, or prize from lottery ticket transactions. This applies to individuals engaged in selling, stocking, distributing, or purchasing lottery tickets. If the income exceeds Rs 15,000, the entity responsible for payment must deduct TDS before disbursing the amount.

Rate of TDS under Section 194G:

The TDS rate applicable under Section 194G is 5% of the income earned. This deduction is made at the source, and no additional charges such as surcharge, education cess, or SHEC are levied at this specified rate. However, if the deductee fails to furnish their PAN, the TDS rate increases to 20%. Notably, if the payment amount does not exceed Rs 15,000, no tax deduction is applicable.

Timing of TDS Deduction:

Tax on income from lottery tickets is deducted either at the time of crediting the income to the deductee’s account or at the time of payment, whichever occurs earlier. Even if the income is credited to a “suspense account” or any other account per the deductor’s books, it is considered a payment to the deductee’s account, subject to the provisions of Section 194G.

Certificate of No or Lower TDS:

Recipients of lottery ticket income can apply to the Assessing Officer (AO) using Form No. 13 to obtain a certificate authorizing nil tax deduction or deduction at a reduced rate. However, to avail of this facility, it is imperative to quote the PAN in accordance with Section 206AA(4).

Responsibilities of the Deductor:

The entity responsible for deducting TDS, or the deductor, has two primary responsibilities:

In essence, Section 194G aims to ensure tax compliance and transparency in lottery ticket transactions, safeguarding the interests of both parties involved.

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Guide to Tax Collected at Source (TCS) – Rates, Payment, and Exemption

editor — Sat, 16 Mar 2024 12:55:45 +0000

The Indian Income Tax Act incorporates provisions for Tax Collected at Source (TCS), where specific individuals are mandated to collect a predetermined percentage of tax from their buyers during certain transactions. These regulations primarily affect business transactions and have minimal impact on the general public.

Recent Updates:

In Budget 2023, the TCS rate for foreign remittances under the Liberalized Remittance Scheme (LRS) was increased from 5% to 20%, effective from July 1, 2023. This adjustment extends to various international transactions such as travel expenses and remittances, excluding education and medical purposes.

Understanding Tax Collected at Source (TCS):

TCS refers to the tax collected by a seller from the buyer during a sale, which is then remitted to the tax authorities. Section 206C of the Income Tax Act governs the goods subject to TCS, with sellers required to possess a Tax Collection Account Number (TAN) for TCS collection.

Goods Covered and Applicable Rates:

Goods covered under TCS provisions encompass various categories, each with its specified rate:

Instances of Higher TCS Rates:

Under Section 206CCA, higher TCS rates apply to buyers who haven’t filed Income Tax Returns (ITR) for the last two financial years, exceeded a certain TCS and TDS threshold, or failed to meet specified criteria.

Seller and Buyer Classifications:

Specific entities such as governments, corporations, and partnerships are categorized as sellers for TCS. Buyers exempt from TCS collection include public sector companies, government entities, and diplomatic missions.

TCS Collection Timing and Calculation:

TCS should be collected either upon debiting the buyer’s account or upon receiving payment. For motor vehicle sales, TCS is collected upon receipt of payment from the buyer. The TCS amount is calculated as a percentage of the transaction value.

TCS Payments, Returns, and Certificates:

Sellers must deposit TCS amounts within seven days from the end of the month in which the tax was collected and file quarterly TCS returns.
A TCS certificate (Form 27D) detailing the transaction specifics must be issued to the buyer within 15 days of filing quarterly returns.
Deadlines for TCS returns and certificates are outlined for each quarter.

TCS Exemptions and GST Provisions:

Submission of Form 24G:

In cases where TDS or TCS is deposited without a challan, relevant entities must submit Form 24G electronically within specified timelines.

Conclusion:

Tax Collected at Source (TCS) plays a vital role in India’s tax collection framework, ensuring revenue compliance and facilitating seamless transactions. Understanding TCS provisions and adhering to associated regulations is essential for sellers and buyers alike to navigate tax obligations effectively.

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