Tuesday, July 18, 2023

Clarifications for NRIs and OCIs Regarding Inoperative PANs

 Residential Status Mapping for NRIs

The Income Tax Department understands the concerns raised by Non-resident Indians (NRIs) regarding their PANs becoming inoperative, despite being exempted from linking PAN with Aadhaar. To address this, the department has implemented a process to map the residential status of NRIs.

If you are an NRI and your PAN has become inoperative, it may be because you have not filed income tax returns (ITR) in the last three assessment years or failed to inform your Jurisdictional Assessing Officer (JAO) about your residential status. However, there is a simple solution. You can inform your respective JAO about your residential status and provide supporting documents for an update in the PAN database. For details on your JAO, visit JAO Details.

Rectifying PAN Status for OCIs and Foreign Citizens

Overseas Citizenship of India (OCIs) and foreign citizens who have applied for PAN under resident status may also have faced the issue of inoperative PANs. If you fall into this category, it is crucial to ensure that you have corrected or updated your residential status with your JAO or filed ITR in the last three assessment years.

To rectify the status of your PAN, simply inform your respective JAO about your current residential status and provide the necessary supporting documents. By doing so, you can request an update in the PAN database.

Understanding the Difference: Inoperative PAN vs. Inactive PAN

It is important to note the distinction between an inoperative PAN and an inactive PAN. Even if your PAN becomes inoperative, you can still file your Income Tax Returns (ITR) without any hindrance. It does not affect your ability to fulfill your tax obligations.

Consequences of an Inoperative PAN

While an inoperative PAN does not impede your ability to file ITR, there are a few consequences to be aware of:

  1. Pending Refunds: Unfortunately, if your PAN is inoperative, any pending refunds and associated interest will not be issued. To ensure a smooth refund process, it is crucial to keep your PAN active and up to date.

  2. Tax Deductions and Collections: For transactions involving individuals with inoperative PANs, tax deductions or collections may be required at a higher rate, as per section 206AA/206CC. To avoid any complications, it is advisable to maintain an active PAN and keep your tax matters in order.

These clarifications have been provided by the Income Tax Department to address the concerns raised by NRIs, OCIs, and PAN holders whose PANs have become inoperative. By following the necessary steps and keeping your residential status and PAN information up to date, you can ensure a smooth tax compliance process.

Thursday, July 6, 2023

Income Tax and Related Party Transactions: An In-depth Guide


Understanding income tax laws and their implications is essential for individuals, businesses, and charitable trusts. One aspect that attracts the attention of tax authorities is related party transactions. In this comprehensive guide, we will explore key sections of the income tax law that pertain to related party transactions. We will break down these sections and their implications in simple terms, ensuring a clear understanding of the subject. By delving into Section 13(2), Section 40A(2)(b), Section 56, and Section 64, we will shed light on the provisions governing related party transactions and their impact on tax obligations. So, let's dive in and demystify the intricacies of income tax and related party transactions.

Section 13(2): Related Party Transactions and Charitable Trusts

ü       If a charitable trust's income benefits specific individuals directly or indirectly, the entire income of the trust may not qualify for tax exemption under sections 11 or 12.

ü     Interested persons can include the trust's creator, founder, substantial contributor, member, trustee, or manager.

ü     Examples of benefiting individuals include interest-free loans, inadequate rent charges, overpriced property purchases, or selling at below-market prices.

ü      In such cases, the tax exemption for the entire trust can be denied.

Section 40A(2)(b): Treatment of Expenditures and Allowances

ü      This section determines how certain expenditures or allowances involving related parties should be treated.

ü     Examples of related party transactions under this section:

Ø  Payment of office rent by a lawyer to his wife.

Ø  Payment of office rent by a company to one of its directors.

Ø  Purchase of goods by a company from an individual holding a significant stake or being a relative of a director.

Ø  Payment of office rent by a company to another company with a substantial shareholding and a common director.

Section 56: Gifts and Tax Exemptions

ü       Certain gifts are exempt from tax for the recipient under Section 56.

ü      Examples of tax-exempt gifts:

Ø  Cars, mobile phones, watches, laptops, and similar items.

Ø  Gifts of money or property exceeding certain thresholds.

ü      Gifts received from relatives, on the occasion of marriage, or through inheritance are generally exempt from tax.

Section 64: Clubbing of Income

ü    Section 64 deals with the concept of "clubbing" of income.

ü    It means that the income earned by certain individuals, such as spouses or minor children, is combined with the income of the person who transferred the asset.

ü     Exceptions to clubbing:

Ø  If a professional, like a model, earns income in her own right, it should not be combined with her spouse's income.

Ø  However, the income tax department sometimes applies clubbing provisions even to the income of relatives, including wives and minor children.

Understanding these provisions related to income tax and related party transactions is crucial for individuals, businesses, and charitable trusts. By complying with these rules, you can ensure that your transactions align with the law and avoid potential issues with the tax authorities. Consulting a tax professional can provide personalized guidance based on your specific circumstances. Staying informed and proactive in income tax matters will help you navigate the financial landscape smoothly and avoid unnecessary complications.

Saturday, July 1, 2023

Income Taxable in the Hands of Other Person - ITR Made Easy Asst Year 2023-24


Income Taxable in the Hands of Other Person

Income of Minor Child from Skill-based Competition

·         If your minor daughter has earned an income of Rs. 10,00,000 from participating in a skill-based competition, she is not required to file an Income Tax Return (ITR) for the concerned year.

          Generally, any income earned by a minor child is added to the income of the parents and subject to clubbing provisions.

          However, if a minor child earns income by utilizing their skill, talent, or specialized knowledge and experience, such income is exempted from clubbing provisions.

          In this case, the income earned by your minor daughter will be assessed separately through her guardian.

          To comply with the requirements, you need to apply for a PAN (Permanent Account Number) on behalf of your daughter using Form 49A.

          After obtaining the PAN, you should register yourself as her representative assessee on the e-filing portal and file the ITR on her behalf for the relevant Assessment Year.

          The PAN application for a minor child should be filed and signed by a representative assessee, and details of both the minor and the representative assessee should be furnished.

 Income Received on Behalf of Deceased Father

·         If you have received income on behalf of your deceased father in your account during the year, the taxation of such income depends on the circumstances.

          In case your father passed away without leaving behind a will (intestate), his estate immediately devolves to his legal heirs as per the applicable personal law.

          Therefore, any income accrued or received by your deceased father from the date of his death until the last day of the financial year will be considered as income of the legal heir.

          As the legal heir, you are required to disclose this income in your Income Tax Return.

 Filing ITR for Income of Deceased Person

·         In the case of Mr. X, who passed away on 13-10-2022, filing an ITR is necessary for the relevant year based on the following obligations:

 Income accruing before the death of Mr. X: The legal representative of Mr. X is required to file the ITR in his name under his PAN. This includes filing the ITR for the salary income of Rs. 12 lakhs received by Mr. X before his death.

b.     Income accruing after his death: Since Mr. X did not prepare a will, the legal representatives (i.e., the legal heirs) are required to file the ITR in their personal capacity. The interest income accrued after Mr. X's death will be added to the income of the legal representatives or legal heirs and disclosed in their respective ITRs.

 Filing Return as a Legal Heir with Mandatory DSC


·         A legal heir has the authority to file the Income Tax Return (ITR) on behalf of the deceased assessee, even if a Digital Signature Certificate (DSC) is mandatory.

·            To file the return as a legal heir, the person needs to obtain a DSC in their own capacity.

Procedure for Filing Return as a Legal Heir

·         Register as a Legal Heir: The first step is to register as a legal heir on the income-tax India e-filing website.

·         Provide Information: During the registration process, you need to enter the name, PAN (Permanent Account Number), and date of death of the deceased person.

·         Upload Required Documents: Upload scanned copies of the following documents in a zip file:

a.       Copy of the PAN card of the deceased person

b.       Copy of the death certificate

c.       Copy of legal heir proof as per the norms

d.       Copy of the Letter of Indemnity (optional)

 Verification and Approval: The Income-tax department will verify the request and, upon approval, grant access to the legal heir for carrying out all e-filing-related services on behalf of the deceased assessee.

Income Tax Return E Filing for Asst Year 2023-24 Made Easy –Part 6

 Filing Form 10E Online

·         To file Form 10E online, follow these steps:

a.     Log in to www.incometax.gov.in.

b.    After logging in, click on the tab "e-File" and then select "Income Tax Forms" followed by "File Income Tax Forms."

c.     On the landing page, choose the relevant options.

Claiming Refund for Excess Tax Paid due to Unconsidered Deductions

·         If you failed to submit rent receipts and proof of tax-saving investments to your employer, resulting in non-consideration of House Rent Allowance (HRA) exemption and certain deductions, you can still claim a refund for the excess tax paid.

·         Even if these exemptions and deductions were not considered by your employer in Form 16, you can claim them in your income tax return. The excess tax deducted by your employer can be claimed as a refund.

 Ineligibility for Section 80GG Deduction with HRA Component

·         If you are a salaried individual living in a rented premise and your CTC includes a House Rent Allowance (HRA) component that is less than the actual rent paid, you cannot claim a deduction under Section 80GG.

·         Section 80GG explicitly denies the deduction to individuals receiving any income falling under Section 10(13A) (House Rent Allowance). Since your salary structure already contains an HRA component, you are not eligible for claiming a deduction under Section 80GG.

Claiming Deduction for Donations under Section 80G

·         To claim a deduction for donations made to organizations approved under Section 80G, provide the donation details in "Schedule 80G" in the applicable Income Tax Return (ITR) form.


·         "Schedule 80G" consists of four tables (Table A, B, C, and D) corresponding to different categories of NGOs/charitable institutions.


·         While filling the tables, provide the name and address of the done, PAN of the done, total donation amount (breakup of cash and other modes), and eligible amount of the donation (amount eligible for deduction).

·         In the ITR forms for Assessment Year 2023-24, a new column in 'Table D' requires the disclosure of the ARN (Donation Reference Number) for donations made to entities where a 50% deduction is allowed. Obtain the ARN from the donation certificate issued in Form 10BE by the done institution and mention it in the ITR.

·            Additionally, mention the total deduction claimed under Section 80G separately in Schedule VI-A if you are filing ITR-2 or ITR-3.

 Furnishing PAN of Landlord for HRA Exemption

·         If the annual rent paid by an employee exceeds Rs. 100,000, it is mandatory to report the PAN of the landlord to the employer.

·       If the landlord does not have a PAN, the employee should file a declaration with the employee, including the landlord's name and address, stating the absence of a PAN.

 Set-Off of Losses

Set-Off of Loss from House Property against Salary Income

·         If you have earned a salary income of Rs. 800,000 and incurred a loss of Rs. 300,000 from a house property, you can set off such a loss against your salary income.

   According to Section 71 of the Income Tax Act, losses from house property can be set off against any other income.

·         However, there is a limit to the set-off of losses from house property. You can only set off a maximum loss of Rs. 200,000 against your salary income in any assessment year.

  In this case, you can adjust a loss of Rs. 200,000 against your salary income, and the remaining loss of Rs. 100,000 can be carried forward for set-off in subsequent years.

Set-Off of Long-Term Capital Loss from Sale of Listed Equity Shares

·         If you have incurred a long-term capital loss of Rs. 70,000 from the sale of listed equity shares, you can set off and carry forward this loss.

   The tax on long-term capital gains from the transfer of listed equity shares is levied at a concessional rate of 10% under Section 112A if the gain exceeds Rs. 1 lakh.

 The new Section 112A specifies the taxability of long-term capital gains above Rs. 1 lakh. Since gains up to Rs. 1 lakh are not taxable they are not considered exempt income.

 Therefore, any long-term capital loss arising from the sale of listed equity shares can be set off against taxable gains and carried forward for future set-off.

Income Tax Return E Filing for Asst Year 2023-24 Made Easy –Part 5

 Capital Gains

Treatment of Profit from Sale of Listed Shares

·         The CBDT has provided guidelines through Circular No. 6/2016 regarding the taxation of surplus generated from the sale of listed shares or securities.

·         If the taxpayer treats the shares as stock-in-trade, the income from their transfer will be considered as business income, regardless of the holding period.

·         If the taxpayer wants to treat the income as capital gains for listed shares held for more than 12 months, the Assessing Officer should not dispute it. However, this treatment should remain consistent in subsequent assessment years.

·         These guidelines aim to reduce litigation and maintain consistency in the treatment of income from share and securities transfers.

      Treatment of Profit from Intra-Day Trading

·         Intra-day trading is considered speculative business, and the resulting gain or loss is treated as speculative gain or loss.

·         Speculative gains are taxed at normal rates, and speculative losses can only be set off against speculative profits.

Tax Calculation for Long-Term Capital Gains with Section 112A and Section 80C Deduction

·         If you have long-term capital gains taxable at 10% under Section 112A and have made an eligible investment of Rs. 1 lakh for Section 80C deductions, the tax calculation is as follows:

a.       Total income (long-term capital gains in excess of Rs. 1,00,000): Rs. 9,00,000

b.       Less: maximum amount not chargeable to tax: Rs. 2,50,000

c.       Gross total income: Rs. 6,50,000

d.       Tax rate under Section 112A: 10%

e.       Tax payable (after cess): Rs. 67,600


Details of Capital Gains in ITR for Transferred Shares

·         For Assessment Year 2020-21, the CBDT clarified that scrip-wise details are required for shares or units eligible for grandfathering.

·         Grandfathering allows exemption for gains made on listed shares/specified units up to 31-01-2018.

·         For AY 2023-24, it is inferred that scrip-wise details are not required for gains not eligible for grandfathering.

        Reporting Property and Buyer Information for Capital Gains on Foreign Property

·         Schedule CG of ITR requires the taxpayer to provide details of transferred immovable properties, regardless of whether they are in India or abroad.

·         The schedule asks for the buyer's information, such as their name, PAN/Aadhar No., address of the property, date of purchase and sale, country, and zip code.

·         Quoting the PAN of the buyer is mandatory only if tax is deducted under section 194-IA or mentioned in the sale documents.

Tax Payment, TDS, TCS, and Refund

Claiming Tax Deducted in Advance on Subsequent Year's Income

·         Certain TDS provisions require tax deduction at source when making payments or crediting income, including advance payments.

·         The ITR forms have columns to fill in information about tax deducted in previous years, but the credit for such tax can only be claimed in the future year.

·         You cannot claim the credit of TDS for income that is taxable in the subsequent year.

·         The TDS credit can be carried forward to the subsequent year and claimed when the income is offered for taxation.

Correcting Bank Account Number for Tax Refund

·         If your income tax refund failed due to an incorrect bank account number, you can submit the correct bank account details for refund re-issue.

·         Follow these steps to apply for refund re-issue:

a.       Log in to www.incometax.gov.in.

b.       Go to 'Services' and select 'Refund Re-issue'.

c.       Choose 'Create Refund Re-Issue Request'.

d.       Select the record for which you want to submit the request.

e.       Provide the bank account where you want to receive the refund.

f.        Click on the 'Proceed to Verification' button.

Dealing with TDS Mismatch

·         There are cases where the credit for TDS claimed in the return matches the balance in Form 26AS, but the Assessing Officer still raises a demand for the differential TDS amount.

·         The CBDT has identified common mistakes leading to tax credit mismatches, such as incorrect TAN of the deductor, filing information in wrong TDS schedules, or including tax deducted by one deductor in the amount deducted by another.

·         Taxpayers are advised to verify if the demand is due to such tax credit mismatches and submit rectification requests with correct TDS/tax claims to correct these demands.

·         Rectification requests should be submitted to the jurisdictional Assessing Officer or through the e-filing portal based on the processing authority.

·         If the TDS mismatch is due to an error in the TDS return filed by the deductor, the deductor should rectify the TDS return.

Claiming TDS Credit in ITR when Deductor Didn't Deposit TDS

·         If a deductor fails to deposit TDS, the taxpayer should request the deductor to deposit the TDS with the government and file a TDS statement. However, the taxpayer cannot legally enforce the deductor to do so.

·         In such cases, the taxpayer can submit TDS proof to the tax department.

·         The ITR forms do not allow attachment of supporting documents for the TDS claim. It is advisable to file the ITR, claim TDS credit, and wait for the processing.

·         If a notice of TDS mismatch is received, the taxpayer can file a reply and submit supporting documents, such as salary slips and bank statements showing net salary/other income after TDS deduction.

·         The Assessing Officer may allow TDS credit and cancel the demand raised by the CPC if the documents are correct. If not, the taxpayer can approach the court.

·         Section 205 of the Income Tax Act prevents direct demand against the taxpayer if tax has been deducted at source, providing relief to the taxpayer in case of a tax credit mismatch.

Avoiding Deduction of Tax on Interest Income (Form 15H and Form 15G)

·         If you are a senior citizen and have a bank fixed deposit, you can file a self-declaration to the bank in Form 15H to avoid the deduction of tax on interest income.


·         If you are not a senior citizen, you can file a self-declaration in Form 15G for the same purpose.

Avoiding Tax Deduction on Interest Income from Saving Deposits

·         If you earn interest income of Rs. 40,000 or more from saving deposits, tax will be deducted from the interest payable on time deposits exceeding this threshold.


·         However, any interest payable in respect of saving deposits will not attract any TDS.

Dealing with Outstanding Tax Demand

·         If your income tax return has been processed, and it shows an "Outstanding Tax Demand," you can respond to it online through the e-filing website.


·         Here are the steps to follow:

a.       Log in to the e-filing portal.

b.       Click on "Pending Actions" and then select "Response to Outstanding Demand" to see the list of outstanding demands.

c.       If you want to pay the demand, click "Pay Now" to make the payment.

d.       On the "Response to Outstanding Amount" page, click "Submit Response" to provide a response to the outstanding demand.

e.       Depending on the scenario, you can choose the relevant section:

                                             I.            If the demand is correct, but you haven't paid the tax, you can confirm that the demand is correct and proceed to make the tax payment.

                                           II.            If the demand is correct, and you have already paid the tax, you can add the details of the challan to provide proof of payment.

                                         III.            If you disagree with the demand (in full or part), you can add reasons for disagreement and submit the response.

a.       After submission, you will receive a Transaction ID for future reference.

Adjusting Tax Refund against Pending Tax Demand

·         The Central Board of Direct Taxes (CBDT) has empowered the Centralized Processing Centre (CPC) to adjust tax refunds against pending tax demands.


·         If there is a tax demand against an individual for a particular assessment year, the refund claimed by that individual for the next assessment year can be adjusted against the pending tax demand.

Late Filing Fee for Income Tax Return

·         A late filing fee under Section 234F is levied if the taxpayer does not file the income tax return by the due dates specified in Section 139(1).


·         The late filing fee is Rs. 5,000 if the return is furnished after the due date specified under Section 139(1). However, if the total income of the person does not exceed Rs. 5 lakhs, the late filing fee is Rs. 1,000.


·         The late filing fee does not apply to taxpayers where return filing is not mandatory, and the taxpayer voluntarily files the return of income.

Getting Tax Refund in Foreign Bank Account for Non-Residents

·         Non-resident taxpayers filing an income tax return in India can receive their tax refunds in their foreign bank accounts.


·         Non-residents need to provide the SWIFT code of their foreign bank account, the name of the bank, and the International Bank Account Number (IBAN) in the ITR form.

Claiming Relief under Section 89 (Form 10E)

·         If you are a government employee and have received arrears of salary based on the recommendations of the 7th Pay Commission, you need to file Form 10E online on the e-filing website to claim relief under Section 89.


·         Filing Form 10E is mandatory. If you claim relief under Section 89 without filing Form 10E, you will receive a notice from the Income-tax Department stating that the relief has not been allowed because the online form was not filed.

   Make sure to file Form 10E online before filing your income tax return. If your employer fails to provide relief under Section 89 and deducts excess tax, you can claim that relief in your return of income and seek a refund of the excess tax deducted. Again, filing Form 10E online is mandatory in this case as well.