No interest U/ S 234A is chargeable on Self Asst Tax Paid before due date

The CBDT vide  CircularNo. 2/2015 dated 10/02/2015 has clarified that No interest U/ S 234A  is chargeable on Self-Asst. Tax paid before due date of filing of return. Interest U/S 234A of the Income-tax Act, is charged in case of default in furnishing return of income by the assessee.

The interest is levied on the amount of tax payable on the total income, as reduced by the amount of advance tax, TDS/TCS at the specified rate. The interest is being charged on the amount of Self-Asst Tax paid by the assessee even before the due date of filing of return as self-assessment tax is not mentioned as a component of tax to be reduced from the amount on which interest under section 234A of the Act is chargeable, The CBDT  has decided that no interest under section 234A of the Act is chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of return of income.

Monthly Obligations for February, 2015

Date	Statutory Act	Applicable Form	Obligation
06/02/2015	Service Tax	Challan No.GAR-7	Payment of Service Tax for month ending Jan,15 for the month ending Jan,15 by companies & partnership firms liable for payment of Service tax on monthly basis
07/02/2015	Income Tax	Challan 281	Due date for deposit of Tax deducted/collected for the month of January, 2015​
10/02/2015	Excise	ER-1	Return for Non SSI assessees for Jan,2015.
10/02/2015	Excise	ER-6	Return by units paying duty >1 crore (CENVAT +PLA) for Jan,2015
10/02/2015	Excise	ER-2	Return for EOUs for Jan,2015.
15/02/2015	DVAT	DVAT 20	Deposit of DVAT TDS for Jan,2015
15/02/2015	Provident Fund	E Challan Cum Return	E-Payment of PF for Jan,2015
21/02/2015	ESI	ESI Challan	Payment of ESI for Jan,2015.
21/02/2015	DVAT	DVAT 20 & Central	Deposit of VAT and CST for December (tax period being a month),
22/02/2015	Income Tax	Form 16	Due date for issue of TDS Certificate for tax deducted under Section 194-IA in the month of January, 2015​
22/02/2015	DVAT	DVAT 43	Issue of DVAT Certificate for deduction made in Jan,2015.
25/02/2015	DVAT	Form 16 and CST 1	E Return of VAT for month ended Jan,2015.
28/02/2015	DVAT	Form 16 & 1/Form 17 & Ack.	Physical Return of VAT and CST for Jan,2015 month( for assesses tax period being a month)

TDS DEFAULTS MAY LEAD TO PROSECUTION

As per the Income Tax Act, all cases where TDS/TCS is deducted but not deposited within the due date, as prescribed, are punishable u/s 276B/276BB or 278A.

CBDT has issued Standard Operating procedure for prosecution in case of TDS or TCS defaults. The assesees / deductors are advised to remove all TDS Defaults shown on TRACES Website otherwise show cause notice for prosecution may be issued by TDS CPC. It is the time to rectify TDS statements filed in earlier years and avoid consequent harsh action by TDS CPC.

 CBDT has issued earlier two circulars for processing and recovery of interest but now has issued standard operating procedure for prosecution in cases of TDS and TCS defaults. The monetary limits to be considered for prosecution as given by the CBDT are: 

  

Where amount of tax deducted is Rs.1,00,000 or more and the same is not deposited by the due date	Mandatorily be processed for prosecution in addition to the recovery
Where the tax deducted is between Rs.25,000 and Rs.1,00,000 and the same is not deposited by the due date	May be processed for prosecution depending upon the facts and circumstances of the case e.g -Repeated defaults and - Tax not been deposited till detection.

 Identification of cases:

·          CPC-TDS/TRACES will generate a list of prosecutable cases for mandatory processing for prosecution (List-A)

·          Such identification shall be done within one month of the filing of the quarterly TDS statement.

·          There will be two parameters for identifying prosecutable case for mandatory processing.

Ø  Late Payment Interest had not been paid completely/not paid at all till that date,

Ø  Deduction had been made but no challan available in the account of the deductor.

(Limit Rs.1,00,000/- for the cases of Late Payment Interest and for Short Payment)

·         CPC-TDS will generate another list of cases (List-B) for defaults of delay in payment of Rs. 25,000 to Rs. 1,00,000/- along with default sheets for the year as well as preceding year and subsequent year within one month of the filing of the quarterly TDS statement.

·         TDS cases dealt by the International Taxation Division, with respect to payments made to non-residents also required to be dealt with in the same manner.

·         CPC-TDS shall generate the list of such non-filers within one month from due date and communicate to the AO(TDS) for issue of notice and further pursuit.

Procedure for launching prosecution

1)      CPC TDS will identify and enter into prosecution register

In case of mandatory processing or otherwise, CPC- TDS will identify the cases for prosecution and will enter in the ‘Prosecution register’ and will report to the CIT (TDS) who shall also maintain the prosecution register in Form–D. Till a specific module in CPC-TDS is made functional for having control on prosecution proceedings, the entries may be made in manual register.

2)      AO ( TDS) will gather further information & issue show cause

AO(TDS) once the case is identified for processing will collect the following information:

(a) Details of the company/ firm/ individual, Address, PAN Number and TAN number

(b) Name of Directors/ partners/ Responsible person, their addresses, PAN and other particulars

(c) Accounts of the deductor for the relevant year showing late payments.

(d) Copies of the TDS statement filed by assessee deductor.

(e) Copies of challans of late deposit of TDS by the assessee deductor.

(f) Copies of the intimations showing late payment interest for all the quarters of the relevant assessment year, if it is available.

(g) Copies of Audit report, if they show default.

(h) While collecting above information, AO(TDS) may also collect other details to check whether :

     (i) the default was only in one year

     (ii) the deductor has himself rectified the mistake and deposited the tax

     (iii) the same offence has been compounded earlier and if yes, how many time etc.

The AO(TDS) shall issue show cause notices to the person responsible for deduction, within 45 days of receipt of the list of prosecutable cases from CPC-TDS end will ensure that the reply is furnished within 30 days of the issue of the show cause notice.

In case no reply is furnished within 30 days, it shall be presumed that the person responsible for deduction has no cause to state and the matter may be pursued further.

The AO(TDS) shall examine the reasons/reply for non-compliance and will enter Form ‘F’and send to the CIT(TDS) The Form ‘F’ will indicate :

·         The facts of commissioning of offence.

·         Events, primary & secondary evidences to establish the offence with present stage of the proceedings and list of documentary evidences including depositions, submissions to prove the offence.  

·         The offence is second or subsequent offence in terms of Section 278A.

AO(TDS) will mandatorily refer all the cases of TDS default exceeding Rs.1 lakh to CIT(TDS), cases of defaults between Rs.25000-Rs.1lakh shall be referred to the CIT(TDS) only if he is satisfied that it is a case fit for prosecution. The report to CIT(TDS) shall be submitted within 60 days of the issue of show cause notice. Time granted to furnish the reply may be excluded from this time limit.

Sanction by CIT TDS

The CIT(TDS) will accord sanction u/s 279(1). He shall:

·         If considers the case fit for prosecution will generate online a show cause notice(s) to all proposed accused(s) u/s 276B/276BB/ 278B of the I.T. Act

·         After hearing the assessee and after proper application of mind clearly enunciate a fair and judicious view has been taken in view of the provisions of Section 278AA before filing the complaint(s).

Compounding Application by the deductor

·         The assessee deductor can file a compounding application under S.276B/276BB before the Chief Commissioner of Income-tax.

·         The application should be processed on priority basis and mandatorily be disposed off within the time frame as prescribed by the Central Action Plan guidelines.

·         During the pendency of the compounding application, the CIT(TDS) shall keep the prosecution proposal pending. As soon as an application for compounding is moved, an entry should be made in the prosecution register & Entries of subsequent action on compounding application shall also be made in such register.

Time frame from identification to passing of order u/s 279(1)/279(2):

S.No.	Section	Time limit for submitting proposal for sanction u/s 279(1)	Time limit for according sanction u/s 279(1)	Time limit for launching Prosecution	Authority to submit proposal & launch prosecution
1	276B	Within 90 days of generation of list on CPC-TDS detection of offence or receipt of information from any other source/ income tax authority	Within 60 days of receipt of information from the AO(TDS)	Within 30 days of receiving approval u/s 279(1)	AO(TDS) having jurisdiction.
2	276BB	( Same as above)	( Same as above)	( Same as above)	( Same as above)

For Asst Year 2015-16 Explanatory notes to the Finance Act, 2014 by CBDT

CBDT has issued Circular 01/2015 on 21^st January 2015 as explanatory notes to the Provisions of Finance Act , 2014 Applicable for Asst Year 2015-16. Important Changes are here under:

Rates of Income Tax as per Finance Act, 2014

Income-tax is required to be deducted for the financial year 2014-15 (i.e. Assessment Year 2015-16) at the following rates

1.    In the case of every individual, Hindu undivided Family, AOP, Body of individuals or artificial juridical person ( other than a co-operative society, firm, local authority and company):-  

A. Normal Rates of Tax:

S.no.	Total Income	For Individual, HUF and AOP	For Senior Citizen Age Above 60but less than 80 years	For Super Senior above the Age of 80 Years
1	Up to Rs.2.5 Lakhs	Nil	Nil	Nil
2	More than Rs.2.5 lakhs & Upto Rs. 3 Lakhs	10%
3	More than Rs 3 lakhs & Upto Rs 5 lakhs		10%
4	More than Rs 5 lakhs & Upto Rs 10 lakhs	20%	20%	20%
5	More than Rs 10 lakhs	30%	30%	30%

2.    Co-operative Societies:-

The rates of Income Tax are as follows:-

Income Chargeable to Tax	Rate
Up to Rs 10000	10%
Rs 10000-Rs 20000	20%
Exceeding Rs 20000	30%

3.  Firms and Local Authorities  : Income Tax is @ 30%

Surcharge of Income Tax

The amount of income-tax shall be increased by a surcharge @10% of the income-tax on payments to an individual taxpayer, if the total income exceeds Rs 1 crore during FY 2014-15 (AY 2015-16).

However the amount of Surcharge shall not exceed the amount by which the total income exceeds Rs 1 crore and if surcharge so arrived at, exceeds such amount (assessee‘s total income minus one crore) then it will be restricted to the amount of total income minus Rupees one crore.

Eg. In case of a resident individual age below 60 years, calculation of Tax liability:-

                Total Income                     Income Tax and Surcharge

ü  Rs 10000000                        Rs 28,25,000

ü  Rs 10100000                        Rs 28,55,000 + Rs 285500=Rs 3140500 Restricted to Rs 2925000

ü  Rs 10200000                        Rs 28,85,000 + Rs 288500=Rs 3173500 Restricted to Rs 3025000

ü  Rs 10400000                        Rs 29,45,000 + Rs 294500=Rs 3239500 Restricted to Rs 3225000

ü  Rs 10500000                        Rs 29,75,000 + Rs 297500=Rs 3272500 No Restriction

E. Cess & SHE Cess on Income tax:  2% and 1% of the income-tax respectively. No marginal relief shall be available in respect of E. Cess and SHE Cess.

4.    Companies:-                                           Domestic      Other Than Domestic

Income Tax                                                         30%              40%

Surcharge           

Taxable income

Exceeding Rs 1 crore but > Rs 10 crores                  5%               2%

Exceeding Rs 10 crores                                          10%               5%                                                        

Surcharge on Additional Income-tax :-

Where additional income-tax has to be paid u/s 115-O or 115-QA or 115R (2) or 115TA of the Act, that is to say, on distribution of dividend by domestic companies or distribution of income by a

·        -  company on buy-back of shares from shareholders or

·        - mutual fund to its unit holders or

·        - securitization trust to its investors

 the additional tax so payable shall be increased by a surcharge of 10% of such tax.

Certain Amendments with their explanations:-

Raising the limit of deduction under section 80C of the Income-tax Act

The limit of deduction U/s 80C has been raised from  Rs.1 lakh to Rs.1.5 lakh. So, consequential amendment made in section 80CCE (the payments / contributions made u/s 80C, 80CCC and 80CCD) of the Act. The limit of employer’s contribution to a pension scheme is retained at Rs. 1 lakh u/s 80CCD.

Deduction from income from house property

There has been appreciation in the value of house property and cost of finance has also gone up so, section 24(b)  has provided  to increase the limit of deduction on account of interest in respect of property referred to  section 23(2) of the Income-tax Act from Rs.1.50 Lac to Rs 2.00 Lac  .

Roll back provision in Advance Pricing Agreement Scheme

For solving the issues relating to the calculation of ALP Roll back mechanism is made. Sec. 92CC of the I.Tax Act has been amended to provide for roll back mechanism in the Advance Pricing Agreement scheme. The “roll back” provisions refer to the applicability of the methodology of determination of Arm's Length Price, or the ALP, to be applied to the international transactions which had already been entered into in a period prior to the period covered under an APA.

Extension of tax benefits under section 80CCD of the I.Tax Act to private sector employees

For employees in the private sector, the date of joining the service is not relevant for joining the New Pension Scheme, So Now amended Sec. 80CCD provide that the condition of the date of joining the service on or after 1.1.2004 is not applicable to them for the purposes of deduction under the said section.

Capital gains arising from transfer of an asset by way of compulsory acquisition

There was uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court orders.

Sec. 45(5) of the Income-tax Act, has been amended to provide that the amount of compensation received in pursuance of an interim order of the court/ Tribunal/other authority shall be deemed to be the income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such court, Tribunal or other authority is made.

Transfer of Government Security by one non-resident to another nonresident

Explanation: - To facilitate listing and trading of Government securities outside India. A new clause(viib) has been inserted in Sec 47 of the I.Tax Act so as to provide that any transfer of a capital asset,  by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

Disallowance of expenditure for non- deduction of tax at source

Explanation:-Only up to the amount of TDS the expenditure should be disallowed when tax is not deducted, before amendment full amount is disallowed which is not fair on the part of Tax payer.

So, Section 40(a)(ia) amended to provide that the disallowance shall be restricted to 30% of the amount of expenditure claimed in case of non-deduction of TDS  or non-payment of TDS on payments made to residents liable for TDS.

Corporate Social Responsibility (CSR)

Sec.  37(1) : Any expenditure by an assessee on the activities relating to CSR shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction . However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions specified.

Explanation:- CSR expenditure include

All expenditure including contribution to corpus projects or programs relating to CSR activities.

·         CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. So,CSR expenditure are not allowed as deduction for the purposes of computing taxable income of a company.

·         By CSR Companies are helping the Government to share the burden of social services. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.

Taxability of advance for transfer of a capital asset

Prior to the amendment any advance retained or received was reduced from Cost of acquisition of the asset / the written down value / the fair market value of the asset.

New Section 56(2)(ix) : Any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall be taxable under the head ‘income from other sources’ if such sum is forfeited and the negotiations do not result in transfer of such capital asset.

Capital gains exemption on investment in Specified Bonds

Explanation: -

A proviso in section 54EC (1) of the Income-tax Act has been inserted to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lacs rupees.

Contributed by Ms Tanya Gagneja  

Introductory Guide for Foreign Companies to do Business in India

Entry Strategies

Once your business has decided to invest in India, the next decision is determining the appropriate mode of entering the country. Some important entry strategies are:

• Exporting
• Licensing and Franchising
• Management Contracting
• Turnkey Contracts 
• Fully Owned Manufacturing Facilities
• Assembly Operations
• Joint ventures
• Mergers & Acquisitions
• Strategic Alliance

To test the Indian market without investing large amounts from the beginning itself, it is advisable to open a Liaison Office or a Branch Office.

Liaison Office (LO)

Liaison office acts as a channel of communication between the head office and entities in India. It cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to:

·       Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.

·         Promote export/import from/to India

·         Facilitate technical/financial collaboration between parent company and companies in India.

·         Approval for establishing a Liaison Office in India is granted by Reserve Bank of India (RBI).

It is not permitted to: 

·         Earn any income; 

·         Undertake any industrial, trading or commercial activity; 

·         Enter into any agreement on behalf of the head office; 

·         Borrow or lend money for any commercial activity; 

·    Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India.

As the liaison office does not earn any income, the expenses at liaison office are met out of the funds received by Head Office from time to time through authorized banking channels.

Branch Office (BO)

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

·         Export/Import of goods

·         Rendering professional or consultancy services

·         Carrying out research work, in which the parent company is engaged.

·    Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

·         Representing the parent company in India and acting as buying/selling agents in India.

·         Rendering technical support to the products supplied by the parent/ group companies.

·       It is not allowed to engage in retail activities or carry out manufacturing or processing activities, directly or indirectly.

Branch Offices established with the approval of RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.

Reserve Bank has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to some specific conditions.

Important Considerations for Setting Up of Liaison or Branch Office

Foreign entities desirous of setting up a Liaison Office or Branch Office are required to submit their application in Form FNC along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai through an Authorised Dealer bank. The applications from such entities in Form FNC will be considered by the Reserve Bank under two routes viz. Reserve Bank Route and Government Route.

Reserve Bank of India considers the track record of the applicant company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinizing the application.

Permission to set up Liaison Offices is initially granted for a period of 3 years and may be extended from time to time. The Branch/Liaison Offices established will be allotted a Unique Identification Number (UIN) and shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

The lead time in general for processing approval by RBI, Ministries of Finance, Corporate Affairs and Tax Department, etc. typically ranges from two to three months, depending on the inflow of information. 

Project Office (PO) 

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. The central bank of the country, Reserve Bank of India (RBI), has now granted general permission to foreign entities to establish Project Offices subject to the following conditions.

         i.            the project is funded directly by inward remittance from abroad; or

       ii.            the project is funded by a bilateral or multilateral International Financing Agency; or

      iii.            the project has been cleared by an appropriate authority; or

     iv.            a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.

Project Offices may remit outside India the surplus of the Project on its completion, general permission for which has been granted by the RBI.

Local Associate

Instead of opening a Liaison or Branch Office in India, you can also enter India by building a good relationship with a local associate, who can carry out all the functions of BO/LO like conducting market research, acting as a purchasing agent or providing technical support at a much lower cost. A formal agreement or Memorandum of Understanding with the Local Associate may be sufficient.

Company under the Companies Act, 2013

A company registered under the Companies Act, 2013 has a separate legal entity from the members who constitute it. The company is owned by its members or shareholders, who also appoint the Board of Directors. At the time of incorporation, names of the initial shareholders, first directors, registered office and the objectives for which the company is being formed are communicated to the Registrar of Companies.

You can choose from the different forms of companies viz. Private Limited, Public or One Person Company depending on the number of shareholders and restriction on transferability of shares.

The capital contribution for the company must be brought into India by transfer from a foreign bank account through normal banking channel.

A foreign business entity can act as the founder of the Indian company which will be fully owned (100% shareholding) by foreign citizens or companies. A foreign citizen can act as Director of such company. It is also possible to have a company with only foreign citizens as Directors. However, the Companies Act, 2013 requires every company to have at least one Director who has stayed in India for a total period of at least 182 days in the previous calendar year. Such a resident Director need not be a citizen of India and can be a citizen of any other country. However, for the sake of convenience, many foreign owned companies have an Indian shareholder and Director. Such Indian shareholder and Director is normally a professional with no investment in the company and holding only one token share of Rs. 10.

Sandeep Ahuja & Co. helps in setting up Companies, Branch Offices, Project Offices and Liaison Offices. It also has a team of Professionals who understand the Indian compliances in-depth and are competent to act as Professional Directors.

Sources of Financing

Local and Foreign Funding

An Indian company owned by foreign entities can borrow funds from banks and financial institutions in India or abroad by complying with the Reserve Bank of India (RBI) guidelines for the same.

The maximum amount of External Commercial Borrowing (ECB) which can be raised by a company other than those in the hotel, hospital and software sectors is US $ 750 million during a financial year. The limit for hotels, hospitals and software sector is US $ 200 million. ECB up to US $ 20 million in a financial year should be with minimum average maturity of three years. Borrowings beyond US $ 20 million should have minimum average maturity of five years. External Borrowings within these limits do not require any permission from any government authority.

ECB funds should be used mainly for import of capital goods, new projects and modernization/expansion of existing production units. These funds should not be used for the acquiring land.

Bank Accounts 

Ordinary Non-Resident Rupee (NRO) Account: NRO account does not require RBI approval. Funds kept in this account should be used for incurring expenses in Indian Rupees. They may be in the form of current, savings, recurring or fixed deposit accounts. Balances in these accounts are eligible for remittance abroad subject to some limits.

Non-Resident External Rupee (NRE) Account: Balance in NRE account can be freely repatriated outside India along with interest accrued without RBI approval. These are strictly for the use of Non-Resident Indians and companies or entities owned by them.

Exchange Earners’ Foreign Currency (EEFC) Account: Businesses that earn foreign exchange are allowed t maintain such accounts.

Taxation

Income Tax

All incomes earned or received in India by any entity are subject to Income Tax. The rates and manner of computing Income Tax vary according to the nature of entity viz. individual, partnership firm, Indian company, Foreign company, etc.

A PAN (Permanent Account Number) has to be applied for with the Income Tax Department for registration in their records. Having a PAN is a mandatory requirement to carry out business as opening of bank accounts as well as registration with various other government authorities requires quoting of the Permanent Account Number in the applications.

Further, your business may also be required to obtain a TAN (Tax Deductor’s Account Number) from the Income Tax Department for compliance with laws relating to certain business payments. 

Service Tax, Excise & Customs

Service Tax is collected by the Service Provider from the Service Receiver and paid periodically to the government. If your business provides services over Rs. 1 million in a financial year, it is mandatory to get a Service Tax registration. Certain Service Receivers may also be required to obtain such registration irrespective of the amount of service turnover in a financial year.

Excise is a tax liable to be paid by manufacturing businesses on removal of goods from their factory or warehouse. Excise Registration is obtained from the Central Board of Excise & Customs.

Customs Duty is a tax levied on import and export of goods. 

Sales Tax

Sales Tax is levied on sale of goods. The rates at which the goods are taxed vary from state to state and depend on the type of product being sold.

Registration under Sales Tax is mandatory if your business plans to sell goods from one state in India to another.

Other Taxes & Legal Compliances

Other taxes applicable to your business may be Wealth Tax, Stamp Duty, Professional Tax, Property Tax, Octroi, etc.

Your business may also attract requirement of compliances relating to various other laws in the ambit of Labor Laws, etc.

Sandeep Ahuja & Co. provides services to take care of all tax related registrations and compliances that your business may require in India. You may contact any of our Partners or Offices at any time for any help in this regard.

For more details, refer to our Publication "How to Do Business in India?"