Requirement of Tax Audit under Income Tax Act

Section 44AB of the Income Tax Act gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. This audit aims to ascertain the compliance of various provisions of the Income Tax law and​ is called a Tax Audit.

The auditor is required to give his observations in an audit report, which may be in Form Nos. 3CA/3CB and ​3CD.

The following business will have to get themselves audited under the Income Tax Act.

1. Gross Receipts of Business > Rs. 1 Crore or Rs. 5 Crore

a) Tax Audit will be applicable for any business entity whose total sales turnover or gross receipts in a previous year exceeds Rs. 1 crore (except if they are declaring income under section 44AD/44AE and other such sections for presumptive income)

b) However, for the person defined in "a" above, if the aggregate cash receipts from sales in a year, and the aggregate cash payments for expenses in a financial year do not exceed 5% of the total sales or total expenses, respectively, then the turnover threshold for tax audit is Rs. 5 crore.

2. Gross Receipts of Profession > Rs. 50 lakhs

Tax Audit will be applicable for a professional whose gross receipts from profession in a previous year exceed Rs. 50 lakh.

Professions include those lines of business as specifically covered under section 44AA(1):

- legal

- medical

- engineering

- architectural

- accountancy

- technical consultancy

- interior decoration

- any other as may be notified under such section

3. Less than 6% or 8% of Gross Receipts shown as Taxable Profits for Business u/s 44AD (when Turnover exceeding Rs. 1 crore but not exceeding Rs. 2 crore)

In case an eligible assessee engaged in an eligible business has a turnover above Rs. 1 crore in a previous year, and has taken the option of showing his taxable business profits on presumptive basis u/s 44AD, then:

(i) The presumptive taxable income is minimum 6% of the gross receipts of the year, for receipts through the banking channel only such as through bank transfer, account payee cheque or account payee bank draft. For receipts through cash and bearer cheque, etc., the presumptive taxable income is minimum 8% of gross receipt - in this case, tax audit is not applicable.

(ii) However, if such business as covered u/s 44AD declares a taxable profit less than 8% or 6% of the total turnover or gross receipts of any previous year on account of such business, then the same shall be covered under tax audit.

Section 44AD does not apply to persons earning commission incomes or brokerage or engaged in agency business. Further, it does not apply to person in the business of plying, hiring goods carriages as covered separately in Section 44AE.

​If an eligible assessee opts out of the presumptive taxation scheme, he cannot choose to revert to the presumptive taxation scheme for a period of five assessment years thereafter.

4. Presumptive Tax for Professional under Section 44ADA

In case of a resident assessee who is engaged in a profession referred to in Section 44AA(1), such as that of legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration and whose total gross receipts do not exceed Rs. 50 lakhs in a previous year, then he has the option to declare minimum taxable profit from such profession as 50% of the total gross receipts of the year.

However, if he declares lower than 50% of such receipts as income and his income exceeds the amount which is not chargeable to tax, then tax audit would be mandatory.

5. Presumptive Tax for Plying, Hiring, Leasing Goods Carriages (44AE)

If a person who is in the business of plying, hiring, leasing goods carriages and does not own more than 10 goods carriages at any time during the previous year, he has the option of presumptive taxable income as follows.

(i) For Heavy Goods Vehicle (HGV), taxable income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the HGV is owned by taxpayer.

(ii) For vehicles other than HGV, income is computed at the rate of Rs. 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer.

However, if the person shows taxable income lower than as computed using these presumptive rates, then tax audit will be applicable.

Similarly, if the income declared is less than the presumptive rates as given under Section 44BB for Business of Exploration of Mineral Oils or under Section 44BBB, which applies to Business of Civil Construction by Foreign Companies in Turnkey Power Projects, then tax audit shall apply.

TDS on E-Commerce Operators

Sec 194-O: 1% TDS on Payment to Vendor by E-Commerce Website

The Finance Act 2020 introduced Section 194-O in the Income Tax Act, 1961, as per which E-Commerce Operators (ECO) should deduct TDS @1% at the time of credit of the gross amount of sale of goods/services to the account of an E-Commerce Participant (ECP) or at the time of making payment to an ECP, whichever is earlier.

An ECP is a person is a resident of India who sells goods, services, or both through an electronic facility provided by an ECO.

Threshold Limit & PAN/Adhaar

The ECO is not required to deduct TDS if the gross amount of sale of goods or services during the financial year by and Individual or HUF vendor ECP does not exceed Rs 5 lakh, and if the vendor ECP has furnished his PAN or Aadhaar.

If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.

Payment & Return Filing

All other provisions with respect to due date for payment of TDS and return filing remain the same as defined under the Income Tax Act for other payments requiring TDS deduction and deposit.

TCS under GST on E-Commerce

What is TCS under GST?

TCS (Tax Collected at Source) refers to tax which is collected by the e-commerce operator (ECO) when a vendor supplies some goods or services through the online marketplace and the payment for such supply is collected by the e-commerce operator.

Through section 52 of the CGST Act, 2017, it is the responsibility of the ECO to collect the tax @1% from the supplier. This amount is computed on the net value of the goods and services supplied through the portal of the operator.

Thus, for Rs. 100 payable by the ECO to the vendor, Re. 1 will be deducted and deposited as TCS under GST in the account of such online vendor and Rs. 99 will be transferred to him in the bank as consideration after deduction of charges, commission, etc. due to the ECO.

Thus, the 1% is to be collected on the net value of taxable supplies, which means the supplies during a month net of sales returns. This value is also exclusive of the GST element and is net taxable value of supplies.

Please note that this requirement under GST laws is independent of TDS provisions under section 194-O of the Income Tax Act, as applicable on ECOs. The both should not be confused to be the same and both must be independently complied with.

TCS provisions do not apply though on the following vendors or service providers through ECO:

- hotel accommodation or clubs

- transportation of passengers, radio taxis

- housekeeping services such as plumbing, carpentry.

How is the TCS distributed among CGST/SGST or IGST?

Similar to other GST provisions, intra-state supply would require TCS deposition as 0.5% CGST and 0.5% SGST. However, for inter-state supplies, it is 1% IGST.

What is the Registration Required by ECO?

From 01-Apr-2020, ECOs have been allowed to apply for TCS registration based on their registered head office address. Earlier, physical presence was necessary in that state to obtain a GST Registration for TCS and the law provided that an e-commerce company must register itself in GST in every state it supplies goods or services to.

Form REG-07 is to be filed online for registration as Tax Deductor or Collector in GST. This is an online application from the GST Portal. The pdf draft is linked here for reference only.

The ECO should mandatorily get all of its own warehouses and store locations registered under GST as additional places of business (if in the same state as the office) or as other independent GST registration. 

What if a Vendor does not have a GST Number?

The threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states) does not apply to vendors selling on ECOs. Thus, it is mandatory for all such vendors to have a GSTIN.

How is such TCS to be deposited with the Government?

The tax collected is to be deposited by the 10th of the following month, during which such tax is collected.

What are the GST Returns to be filed?

The ECO is to furnish a monthly TCS Return in Form GSTR-8 by the 10th of the following month, in which such liability is discharged.

Any errors in one GSTR-8 may be corrected in the subsequent GSTR-8, but no later than the due date of GSTR-8 for September following the end of the relevant financial year.

Further, the ECO is also required to file an Annual Return of the same by 31-Dec immediately after the end of the relevant financial year.

All the vendors listed on the ECO will be able to see the credit of such TCS credit deposited to their account in Part C of the Form GSTR-2A on their GST Portal. 

The tax collected shall be credited to the cash ledger of the supplier who has supplied the goods or services through the Operator. The supplier can claim credit of such TCS from his electronic cash ledger.

What reconciliations would be necessary for such records?

The details filed by the ECO in GSTR-8 will be matched by the details filed by each such vendor in their respective GST returns. In case of any mismatch or discrepancy, both ECO and the vendor may get a notice from the department.

A Deputy Commissioner of GST can issue a notice to an ECO at any time seeking him to furnish details relating to volume of goods or services supplied, stock of goods lying in the warehouses, etc. 

The ECO will have to respond within 15 days of such notice providing all these details, failing which a penalty up to Rs. 25000 may be imposed u/s 122.

Further Reading: FAQs on E-Commerce by CBIC

Duties of E-Commerce Entities - Consumer Protection Rules 2020

The Consumer Protection (E-Commerce Rules) 2020 have been announced on 23-Jul-2020 by the Ministry of Consumer Affairs, Food and Public Distribution.

What is the Purpose of these Rules?

To curb all forms of unfair trade practices across all models of e-commerce.

Which Entities do these Rules apply to?

(i) all goods and services incl. digital products bought or sold over an electronic network;

(ii) marketplace model of e-commerce;

(iii) inventory model of e-commerce;

(iv) e-commerce retail - multi-channel single brand retailers and single brand retailers in single or multiple formats; and

(v) e-commerce entities not established in India, but which systematically offer goods or services to Indian consumers.

An “e-commerce entity” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity.

An “inventory e-commerce entity" means an e-commerce entity which owns the inventory of goods or services and sells such goods or services directly to the consumers and shall include single brand retailers and multi-channel single brand retailers.

A “marketplace e-commerce entity” means an e-commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers.

Which Information has to be Mandatorily Specified on the E-commerce Website?

Information about the E-Commerce Platform

(i) Legal name of the e-commerce entity

(ii) Principal address of its headquarters and branches

(iii) Name and details of its website

(iv) Contact details such as email ID, phone numbers, and contact details of a Grievance Officer

Information about the Seller

(i) Name of their business

(ii) Whether registered or not

(iii) Geographic address

(iv) Customer care number

(v) Any rating or other aggregated feedback

(vi) Other information necessary for enabling consumers to make informed decisions

Information About Payment Methods

(i) Available payment methods

(ii) Security of those payment methods

(iii) Fees or charges payable by users

(iv) Procedure to cancel regular payments under those methods

(v) Charge-back options, if any

(vi) Contact information of the relevant payment service provider

Information by the Seller

(i) Total price in single figure of any good or service

(ii) Breakup price showing all the compulsory and voluntary charges such as delivery charges, postage and handling charges, conveyance charges and the applicable taxes

(iii) Mandatory information under applicable laws, such as and including the expiry date of the goods

(iv) Country of Origin

(v) Name and details of Grievance Officer

(vi) Name and details of importer and guarantee details

(vii) Terms of exchange, refund, etc.

Other Information

(i) Explanation of the parameters which are most significant in determining the ranking of goods or sellers on its platform and the relative importance of those main parameters through an easily and publicly available description drafted in plain language.

(ii) Ticket number for each complaint lodged for compliant status tracking

(iii) Information relating to return, refund, exchange, warranty and guarantee

(iv) Information regarding delivery and shipment, and modes of payment

(v) Grievance Redressal Mechanism

What are the New Compliance Steps to be taken by E-Commerce Entities?

1. Grievance Officer (GO): Establish an adequate grievance redressal mechanism having regard to the number of grievances ordinarily received by such entity from India, and shall appoint a Grievance Officer for consumer grievance redressal, and shall display the name, contact details, and designation of such officer on its platform. 

2. Grievance Redressal Timeline:  The GO must acknowledge the receipt of any consumer complaint within 48 hours and redresses the complaint within 1 month from the date of receipt of the complaint.

3. Imported Goods/Services: For imported goods or services for sale, mention the name and details of the importer from whom it has been purchased, or who may be a seller on the platform.

4. Cancellation Charges: No e-commerce entity shall impose cancellation charges on consumers cancelling after confirming purchase unless similar charges are also borne by the e-commerce entity if they cancel the purchase order unilaterally for any reason.

5. Confirmation from Customer: Record the consent of a consumer for the purchase where such consent is expressed through an explicit and affirmative action, and not automatically, including in the form of pre-ticked checkboxes.

6. Refund Timelines: Effect all payments towards accepted refund requests of the consumers as prescribed by the RBI or any other competent authority under any law within a reasonable period of time or as prescribed under applicable laws.

7. No Manipulation of Prices or Consumers: Shall not manipulate the price of the goods or services in such a manner as to gain unreasonable profit by imposing on consumers any unjustified price having regard to the prevailing market conditions, the essential nature of the good or service, any extraordinary circumstances under which the good or service is offered, and any other relevant consideration in determining whether the price charged is justified; nor discriminate between consumers of the same class or make any arbitrary classification of consumers affecting their rights under the Consumer Protection Act.

8. Undertaking from Sellers: Shall require an undertaking from all sellers to ensure that descriptions, images, and other content pertaining to goods or services on their platform is accurate and corresponds directly with the appearance, nature, quality, purpose and other general features of such good or service.

9. Terms & Conditions with Sellers: Include terms generally governing its relationship with sellers on its platform, a description of any differentiated treatment which it gives or might give between goods or services or sellers of the same category.

10. Record of Sellers: Maintain a record of relevant information allowing for the identification of all sellers who have repeatedly offered goods or services that have previously been removed or access to which has previously been disabled under the Copyright Act, 1957, the Trade Marks Act, 1999 or the Information Technology Act, 2000.

What are the Duties of the Sellers on E-Commerce Platforms?

1. No Malpractices: The seller shall not -

(i) influence the price of the goods or services

(ii) adopt any unfair methods or unfair or deceptive practice that may influence transactional decisions of consumers in relation to products and services

(iii) falsely represent themselves as consumers to promote their goods and services

2. No Refusal to Return/Refund: Shall not refuse to take back goods, or withdraw or discontinue services purchased or agreed to be purchased, or refuse to refund consideration, if paid, if such goods or services are defective, deficient or spurious, or if the goods or services are not of the characteristics or features as advertised or as agreed to, or if such goods or services are delivered late from the stated delivery schedule. However, in the case of late delivery, this sub-rule shall not be applied if such late delivery was due to force majeure. 

3. Grievance Officer (GO): Appoint a GO for consumer grievance redressal and ensure that he acknowledges the receipt of any consumer complaint within 48 hours and redresses the complaint within 1 month from the date of receipt of the complaint.

4. Written Contract: Have a prior written contract with the respective e-commerce entity

5. Advertisements: Should be consistent with the actual characteristics, access and usage conditions of such goods or services.

6. Basic Details: Provide to the e-commerce entity its legal name, principal geographic address of its headquarters and all branches, the name and details of its website, its e-mail address, customer care contact details such as fax, landline, and mobile numbers and where applicable, its GSTIN and PAN details.

Source: Notification No. G.S.R. 462 (E)

Types of Non Resident Bank Accounts

Normally, non-residents are not allowed to have bank accounts in India. However, Non Resident Indians (NRIs) and Persons of Indian Origin (PIO) can hold accounts in India subject to certain conditions.

There are primarily six types of bank accounts in India for non-residents.

1. NRE - Non Resident External Account
2. NRO - Non Resident Ordinary Account
3. FCNR - Foreign Currency Non Resident Account
4. RFC - Resident Foreign Currency Account
5. SNRR - Special Non Resident Rupee Account
6. Escrow Account

NRE Account

- primary use it to make deposits from abroad
- freely repatriable funds - can be transferred to NRO account or an account outside India
- interest earned on this account is not chargeable to tax
- can be savings, current, fixed deposit or recurring deposit in nature
- the amount transferred is converted to Indian Rupees at the forex buying rate by the bank
- money can be withdrawn in the form of forex after conversion at the prevailing rate
- has to be converted to a regular account when the foreign resident becomes a resident of India
- it cannot be held jointly with a resident

NRO Account

- used to make deposits from India or abroad
- current bank account held by a resident Indian is designated as NRO as soon as the person becomes non-resident
- funds held in NRO account are repatriable on fulfillment of certain conditions
- maximum limit of funds transferable from an NRO to NRE account is USD 1 Million in a financial year
- interest earned on this account is chargeable to tax
- can be savings, current, fixed deposit or recurring deposit in nature

- amount is maintained in Indian Rupees

- can be held jointly with a resident

- citizens of Bangladesh or Pakistan and of religious minority communities in those countries residing in India and having Long Term Visa (LTV) can open only one NRO account with an AD bank only

FCNR Account

- held only in the form of term deposits with maturity from 1 to 3 years

- held in any permitted foreign currency (usually USD, GBP, EUR, JPY)

- deposit of INR is not allowed

- interest earned is exempt from tax

- can be opened jointly with a resident close relative or survivor

- on changing of the holder's status to resident, funds may be held as is till maturity of the term

- loan can be availed against deposits

RFC Account

- held in foreign currency

- mostly opened by returning NRIs wanting to deposit their foreign currency in India

- can transfer funds from NRE or FCNR account on becoming resident

- can be held as a savings account or term deposit

- Indian Rupees cannot be deposited

- interest earned is taxable in India. However, returning NRIs having RNOR status can get tax exemption

- interest earned is fully repatriable

- loan cannot be availed against deposits

SNRR Account

- a non-resident having a business interest in India can open a SNRR Account with an authorised dealer (AD) for the purpose of putting through bona fide transactions in Rupees

- it is a non interest bearing account

- permissible transactions are debits/credits specific to the business proposed to be done by the account holder

- the funds in the account are repatriable

- the term of the account is specified based on bonafide business interest in India and may be renewed after 7 years with RBI approval

- business interests include:

-- investment in equity and debt instruments

-- import/export of goods or services

-- trade credit transactions and ECB lending

Escrow Account

- can be opened with an AD only

- non-residents may use this for acquisition/transfer of capital instruments, convertible notes through open offers, delisting, exit offers, etc.

Other Important Notes & Definitions

1. A ‘Non-Resident Indian (NRI)' is a person resident outside India who is a citizen of India.

2. A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

(a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or

(b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or

(c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); [up to 4th generation] or

(d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

A PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955. Such an OCI Card holder should also be a person resident outside India.

3. 'Deposit' includes deposit of money with bank, company, proprietary concern, partnership firm, body corporate, trust or any other person. Bank accounts are considered as deposits.

For more info, you can also refer to the RBI's website here:

Master Direction, FAQs

FLA Return (Foreign Liabilities & Assets)

What is an FLA Return and Who needs to file it?

An annual return on Foreign Liabilities & Assets more commonly called the FLA Return is a compliance under the FEMA laws, which is required to be submitted by companies/LLPs resident in India, which have received FDI and/or have made overseas investment in any of the previous years, including current year.

To summarize, it has to be filed by companies/LLPs in India that have foreign assets or liabilities in their balance sheet. This means that even when a company has not received any fresh FDI or ODI in the previous year, even then it is required to file the FLA Return.

It is also to be filed by entities holding foreign assets/liabilities such as by SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP), etc.

The FEMA regulations also require partnership firms to file FLA annual return if they have received FDI or made ODI. In the case of partnership firms, the RBI will issue a dummy CIN upon its request which will be used only for the filing of FLA annual return.

A company is not required to file the FLA Return if it has received only share application money and it does not have any FDI or ODI outstanding as on 31-March of the reporting year.

What is the Due Date for filing FLA Return?

The return is due to be filed by 15th July of each year. The company can file the FLA return after due date by taking approval from RBI.

A company can file the previous year FLA form (through online FLA portal only) by taking approval from RBI by sending a mail to surveyfla@rbi.org.in.

For FY 2019-20, the due date is extended to 31-Jul-2020. Further extended to 14-Aug-2020.

How is the FLA Return filed?

The return used to be in the Form of an Excel Utility which had to be emailed from the company's email ID of the Company Secretary, CFO or an authorized Director to the RBI at fla@rbi.org.in.

The return form can be viewed in PDF here

https://rbidocs.rbi.org.in/rdocs/Forms/PDFs/FLR180614FL_A.PDF

However, since June 2019, the return is now filed on the RBI's FLAIR Portal at

https://flair.rbi.org.in/.

How to Register on the FLAIR Portal?

A user guide for registering on the portal is available here

https://rbidocs.rbi.org.in/rdocs/Forms/PDFs/FLAFORM19052020.PDF.

Formats required to be signed at the time of registering are also available on the home page of the portal, and should be kept ready for uploading at the time of registration.

Follow the steps below:

1. Go to the FLAIR portal

2. Download the forms given at the bottom for authorization and verification

3. Fill user registration form

4. Submit online user registration form by uploading the following documents

    - Authority Letter

    - Verification Letter

5. Receive email with User ID and Password, which has to be reset at the time of login

6. Login with OTP received on registered email ID

7. Start filling in the 'FLA Online Form' from the Menu

What if the Accounts are not audited till 15th July?

If the accounts are not audited before the due date, the return should be submitted based on unaudited provisional accounts. A revised FLA return will have to be filed when the accounts are audited i.e. by September end.

There is no need to attach any scanned balance sheet or profit & loss statement with the return.

What if the FLA Return is delayed or not filed?

The non filing company may be liable to pay a penalty of three times the sum involved in the contravention, which if cannot be calculated, then a penalty of Rs. 2 lakh may have to be paid. For continuing contraventions, a penalty of Rs 5,000 per day may have to be paid.

Notes to Refer while Filling up the Form

1. In Section 5. for Sales and Purchase (in Section II), you are required to provide the information relating to all purchases [including capital (from balance sheet) and revenue of goods and services] / sales made domestically as well as foreign during the reference period (April – March).

The detailed information to be furnished in 5. Sales and Purchase are as follows:

a. All expenses (excluding depreciation) /sales shown in profit and loss account to be taken as total purchases/total sale.

b. Both goods and services are to be included.

c. All foreign purchases/ sales i.e. imports and exports, should be captured fro P& L Account.

2. Premium on issue of Equity Share Capital is a part of Reserve, which should be reported under the item 4.1 of 1C- Reserves and Surplus, (in Section II).

3. In the Section II Block 2, take fully diluted preference share for convertible preference share.

4. In Section III Block 1, take settlement date/allotment date as the date of first receipt of FDI received.

5. Any disinvestments made by non-resident direct investor of the reporting Indian company during the year should be reported in section III item 3.0 (all blocks). Likewise, any disinvestment made by the reporting Indian company in its DIE abroad during the year should be reported in section IV item 3.0 (all blocks).

6. Participating preference shares are those shares which have one or more of the following rights:

(a) To receive dividend, out of surplus profit after paying the dividend to equity shareholders.

(b) To have share in surplus assets remaining after the entire capital is paid in case of winding up of the company.

On the other hand Non-participating Preference Shares are those shares which do not have one or more of the above said rights.

7. If the share application money is received from the existing non-resident shareholder, then the outstanding share application money should be reported at item 2.1 of 1.b FDI and 2.b DI in Section III, depending upon per cent of equity plus participating preference share holding by non-resident investor.

8. Compulsorily convertible debentures (CCD) issued by the company should not be included in the paid up capital while furnishing the information in Block 1A (in Section II) of the FLA Return. However, if the CCDs / Debentures are held by the non-resident direct investor who is holding the equity shares of Indian reporting company, then CCD / Debentures holding should be reported in ‘other capital’ component of either Block 2A or 2B (in Section III), depending upon the per cent equity held by the non-resident direct investor.

9. Since Non-Participating share capital is a type of debt investment and is part of Item 1.0, Non-Resident Equity and participating Preference Shares Capital holding (%) is calculated with respect to item 1.1 of Block 1A (in Scion II).

10. Premium on issue of Equity Share Capital is a part of Reserve, which should be reported under the item 4.1 of Block 1C- Reserves and Surplus, (in Section II).

11. To calculate the market value of equity capital for unlisted companies use the OFBV method as follows:

Market value of equity capital held by Non- resident at OFBV

= (Net worth of the company) * (% non-resident equity holding)

Where, Net worth of the company

= (Paid up Equity & Participating Preference share capital of company + Reserves & Surplus - Accumulated losses)

12. A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the ‘reporting entity’).

A person or a close member of that person’s family is related to a reporting entity if that person:

(i) has control or joint control over the reporting entity;

(ii) has significant influence over the reporting entity; or

(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.

13. Any domestic liabilities or assets (even if they are in foreign currency) should not be reported in the FLA return.

Income Tax Compliance Calendar FY 2020-21

Month	Income Tax Compliance	Due Date
Jul, 2020	Tax saving investments for FY 2019-20 (AY 2020-21)	31-07-20
	Filing of Belated/Revised ITR for FY 2018-19 (AY 2019-20)	31-07-20
	TDS/TCS Return filing for Q4 FY 2019-20 (AY 2020-21)	31-07-20
Aug, 2020	Issue Form 16 for TDS on Salary of FY 2019-20 (AY 2020-21)	15-08-20
	Issue Form 16A for TDS for Q4 FY 2019-20 (AY 2020-21)	15-08-20
	Issue TCS Certificate for Q4 FY 2019-20 (AY 2020-21)	15-08-20
Sep, 2020	2nd Advance Tax Installment for FY 2020-21 (AY 2021-22)	15-09-20
	Making investment for capital gain exemption for AY 2020-21	30-09-20
	Filing of Belated/Revised ITR for FY 2018-19 (AY 2019-20) [Edit: 29-Jul-20]	30-09-20
Oct, 2020	Furnishing of Tax Audit Report for FY 2019-20 (AY 2020-21)	31-10-20
Nov, 2020	Income Tax Return filing for FY 2019-20 (AY 2020-21)	30-11-20
	Self Assessment Tax for AY 2020-21 upto Rs. 1 lakh without interest u/s 234A	30-11-20
Dec, 2020	3rd Advance Tax Installment for FY 2020-21 (AY 2021-22)	15-12-20
	Application under Vivad se Vishwas Scheme	31-12-20
Mar, 2021	4th Advance Tax Installment for FY 2020-21 (AY 2021-22)	15-03-21
	Linking of Aadhaar with PAN	31-03-21
	TDS Returns 24Q, 26Q, 27Q & 27EQ - Q1 & Q2 FY 2020-21 (AY 2021-22)	31-03-21
	TDS Returns 26QB, 26QC & 26QD - Apr to Nov 2020	31-03-21

TDS on Cash Withdrawals (Sec 194N): Letter to Bank

Section 194N - TDS on Cash Withdrawals

Section 194N was inserted under the Income Tax Act in 2019 to provide for TDS deduction by the bank or post office (as the case may be) on cash withdrawals made by any person from his account.

Threshold Limits

1) The tax would be deducted only when the aggregate amount of cash withdrawal during the financial year by a person from one or more of his accounts exceeds Rs. 1 crore on the amount exceeding such threshold.

2) However, the Finance Budget 2020 had reduced the threshold limit for TDS to Rs. 20 lakh for taxpayers who have not filed their income tax returns for the past three years.

Rate of TDS

TDS shall be deducted @ 2% on the amount of cash withdrawal exceeding Rs. 20 lakh or 1 crore, as the case may be.

Immediate Steps to be Taken

Since a number of businesses regularly require withdrawal of cash for making petty expenses that add up to an amount exceeding Rs. 20 lakh during the year, we recommend that you send the following letter to your bankers with whom you hold your business current account, informing them that you have been filing your tax returns for the past three years, so that they do not erroneously start deducting tax on your cash withdrawals exceeding Rs. 20 lakh in the year.

******

Date:

The Manager

___________ Bank

___________ Branch

Sub: Deduction of TDS on aggregate cash withdrawal exceeding Rs. 20 lakh as per Section 194N of the Income Tax Act for PAN ___________  for FY 2020-21

We _________________________ (name of account holder) bearing PAN _____________ hereby confirm that we have linked our PAN with Adhaar, or will link our PAN with Adhaar by the due date prescribed in Section 139AA of the Income Tax Act, 1961 (“Act”).

We intend to withdraw cash exceeding Rs 20 lakh during the financial year 2020-21 and confirm that:

a) Income Tax Returns have been filed for the past 3 years by us.

or

a) Income Tax Returns were not required to be filed for the past 3 years by us.

b) Whatever I have stated above is true and correct, and in case any of the above information is found

to be false, the Bank shall deduct tax at a higher rate as may be applicable and recover the differential TDS amount along with any interest and penalty according to the relevant provisions of the Act.

c) We hereby agree to indemnify and keep indemnified the Bank against any loss or damages that

may be caused to the Bank by reason of incorrect/false information provided by me/us to the Bank

and the Bank having acted upon the same.

Thanking you

Yours faithfully

Signature: __________________________

Customer ID : ______________________

Acct Number :_______________________

Nodal & Escrow Bank Accounts for Intermediary Online Businesses

These days, online business models such as those of aggregators and e-commerce players require collection of funds on behalf of others and then passing them on to the accounts of actual suppliers after deduction of a commission, which is the revenue of the online e-commerce operator or aggregator.

To deal with such bank transactions, there are two types of bank accounts which can be used, viz. Nodal Account and Escrow Account. Here's explaining them both.

Nodal Account

It is a special bank account required to be opened by intermediary businesses holding money on behalf of vendors and customers. Such an account ensures that money does not legally belong to the intermediary, and is only held on behalf of others. 

It is essentially like a temporary vault to store and distribute the money to relevant parties, viz. vendors, logistics partners, payment gateways, etc. Intermediaries are not entitled to any type of amount from the nodal account except for the pre-determined commission.

Businesses that facilitate delivery of services immediately need not comply with these guidelines. For example, sellers of air and rail tickets.

The RBI has issued guidelines on operating such accounts by e-commerce players which can be accessed here. Certain guidelines on regulation of payment gateways and payment aggregators are also available here.

The RBI guidelines direct settlement of funds within T+3 days.

All nodal accounts are internal accounts of the bank. The RBI mandates a quarterly audit for every such account under the Payments & Settlements Systems Act 2007, which includes checking of records such as:

- Payee-wise detail of amount transferred out of the account

- Payee-wise classification of closing account balance

- Losses due to fraud, chargebacks, pending disputes and refunds.

You can open a nodal bank account with any large authorized bank if you meet the bank's criteria of transaction volume for opening such an account.

These are opened by traditional banks such as ICICI and Kotak, as well as by new age online banks and gateways such as Paytm and Razorpay.

Escrow Account

While there is a fixed settlement cycle for Nodal Accounts, Escrow accounts may be maintained for a longer duration and for specific high value transactions where the two transacting parties do not know each other and they wish to open an account with a banker, who is a trusted intermediary.

The release of funds from an escrow account are on fulfillment of pre-defined and agreed on terms between the parties.

These accounts have been in existence for many years and are traditionally used between transacting parties in high value deals such as those of real estate transfer or business transfer.

FX-Retail Portal by RBI

The Reserve Bank of India (RBI) has been operating a foreign exchange retail platform for small business owners by the name of FX-Retail for almost a year now. It is being managed by Clearing Corporation of India Ltd (CCIL).

It works as an exchange where several banks offer and bid on currency prices. Customers can buy and sell currency through the platform. On confirmation of the trade, the settlement occurs outside the platform, in-person at the bank.

The portal has helped bring down the premium rates charged by banks on forex by ~2% as the rates are competitive and market determined due to transparency.

The lower rates, which may otherwise be available only to big corporate houses, are also on offer to the smallest of businesses. This ensures low volume customers are not disproportionately penalized.

The portal can be accessed at https://fxretail.co.in

The portal will soon also have the feature of currency forwards, and businesses may be able to hedge their forex risks through this platform.

As for the charges of the platform, trades up to USD 50,000 a day are free. Above this, a fee is charged @0.0004% of the traded amount.

Equalization Levy

In the Finance Act 2016, the government had introduced Equalization Levy as a type of direct tax which is withheld and paid to the government at the time of making payment to an online vendor registered outside India.

Types of Payments Attracting Equalization Levy

1) Nature of Payer

- person resident in India and carrying on business or profession; or

- non-resident having permanent establishment in India

2) Types of Services

- online advertisement, sale of digital advertisement space; or

- e-commerce operator for e-commerce supply or services in the form of service charges, including sale of advertisement or sale of data collected from persons resident in India

3) Provided by Vendors that satisfy the following criteria 

- Non Resident Service Provider; and

- Annual payment to one service provider exceeds Rs. 1,00,000/- in a financial year for advertising services

Rates of Equalization Levy

1) On Online Advertisement Services: 6% of gross consideration payable. Thus, an amount of 6% is to be deducted from the gross amount payable to the foreign vendor, and then deposited in India as equalization levy.

2) On E-Commerce Transactions (w.e.f. 01-Apr-2020): 2% of the gross amount paid to non-resident e-commerce platform provider, which provides services of Rs. 2 crore or more in a financial year in India  

Compliance Forms & Dates

1) For Payment on Advertising Services: Pay through Challan No. ITNS 285 by the 7th of the subsequent month (month immediately succeeding the one in which payment is made or amount is recorded in the books of accounts as payable)

2) For Payment on E-Commerce Services: Pay through Challan No. ITNS 285 on quarterly basis as per the following schedule.

Apr - Jun: by 7th Jul

Jul - Sep: by 7th Oct

Oct - Dec: by 7th Jan

Jan - Mar: by 31st Mar

3) Annual Return Filing: To be done on the Income Tax e-filing portal through Form-1. This has to be completed by 30th June immediately after the financial year ended on 31st March.

Interest & Penalties for Default

1) Interest on Late Payment: Interest @ 1% of the outstanding levy for every month or part thereof that it is delayed.

2) Penalty for Non Deduction: Penalty equal to the amount of levy failed to be deducted, in addition to the levy and interest thereon.

3) Penalty for Deducted but Not Deposited: Penalty equal to Rs. 1,000 per day subject to maximum amount of the levy failed to be deposited, in addition to the levy and interest thereon.

4) Disallowance of Expenditure under Income Tax unless deposited.

5) Penalty for Non Filing of Return: Rs. 100 per day of non filing

6) Prosecution: If false statement is filed, a person may be punished with 3 years of imprisonment and fine.

Legal Provisions

Sections 163 to 180 of the Income Tax Act, 1961

Lower Tax Rate for New Manufacturing Company - Section 115BAB

A manufacturing domestic company can claim the benefit of section 115BAB from FY 2019-20 (AY 2020-21), which offers the option of a lower corporate tax rate of 15%

Effective Rate of Tax: 15% + 10% Surcharge + 4% Cess = 15*1.1*1.04 = 17.16%

Eligibility Criteria

a) Registration Date: The company has been registered on or after 01-Oct-2019 and has commenced manufacturing on or before 31-Mar-2023.

b) New Business: Not formed by the splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B.

c) New Plant & Machinery: Does not use any plant or machinery previously used for any purpose. However, the company can use plant and machinery used outside India and used in India for the first time. Also, the company can use old plant and machinery, the value of which does not exceed 20% of the total value of the plant and machinery used by the company.

d) Building: Does not use a building previously used as a hotel or a convention centre.

e) Manufacturing Business: The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing.

f) Exclusions from Manufacturing: Business of manufacture or production of any article or thing does not include development of computer software in any form or in any media, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film, and any other business as may be notified by the Central Government in this behalf.

No Additional Depreciation: Additional Depreciation [Sec 32(1)(iia)] would not be allowable if a company chooses for the lower tax rate. Further, they shall not be allowed to claim set-off of any brought forward depreciation (due to additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

No MAT Applicability: Such companies will not be required to pay minimum alternate tax (MAT) under section 115JB. Further, such companies will not be able to claim MAT credits for taxes paid under MAT during this period.

Other Exemptions/Deductions Not Allowed: The total income of such company shall be computed without exemption/incentives provided in the following sections:

- Scientific Research expense related deduction [Sec 35]

- Deduction especially available for units established in SEZ [Sec 10AA]

- Deduction for the Capital Expenditure incurred by any Specified Business [Sec 35AD]

- Deduction for expenditure incurred on an Agriculture Extension Project or on Skill Development Project [Sec 35CCC or 35CCD]

- Deduction for tea, coffee and rubber manufacturing companies [Sec 33AB]

- Deduction towards deposits made towards site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both in India [Sec 33ABA]

- Investment Allowance towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal [Sec 32AD]

- Deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA

- Set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions

Opt-in Due Date: Such companies will have to exercise this option to be taxed under the section 115BAB on or before the due date of filing income tax returns i.e usually 30th September of the assessment year, which would be the extended due date for AY 2020-21 due to the Corona-virus pandemic. Once the company opts for such rate in a particular financial year, it cannot be withdrawn subsequently.

Form 10-ID:  The companies that are filing tax u/s 115BAB of the Income Tax Act are eligible to file Form 10-ID for adopting the new corporate tax rate.

The Form requires submission of information such as name, PAN, registered address, date of incorporation, nature of business, and date of commencement of manufacturing activity. A declaration is also given stating that the option once exercised shall not be withdrawn. The form is submitted using a digital signature or EVC validation.

Companies willing to adopt the new tax rates must file the forms with accurate information electronically before the due date for filing the ITR arrives (i.e. 30 September 2020 or extended date for the year).

Lower Corporate Tax Rate - Section 115BAA

Section 115BAA has been introduced in the Income Tax Act, 1961 to give the benefit of a reduced corporate tax rate for the domestic companies. With effect from Financial Year 2019-20, i.e. AY 2020-21, domestic companies would have the option to pay tax at a rate of 22% (plus surcharge plus cess) if they satisfy the following conditions.

Effective Rate of Tax: 22% + 10% Surcharge + 4% Cess = 22*1.1*1.04 = 25.168%

No Additional Depreciation: Additional Depreciation [Sec 32(1)(iia)] would not be allowable if a company chooses for the lower tax rate. Further, they shall not be allowed to claim set-off of any brought forward depreciation (due to additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

No MAT Applicability: Such companies will not be required to pay minimum alternate tax (MAT) under section 115JB. Further, such companies will not be able to claim MAT credits for taxes paid under MAT during this period.

Domestic companies opting to pay tax under Section 115BAA cannot set off their loss incurred on account of Additional Depreciation and MAT credits specified under Section 115JAA. Therefore, it is advisable for these companies to first exhaust the loss and credit available. The option for lower tax rate can be availed from the following assessment year.

Other Exemptions/Deductions Not Allowed: The total income of such company shall be computed without exemption/incentives provided in the following sections:

- Scientific Research expense related deduction [Sec 35]

- Deduction especially available for units established in SEZ [Sec 10AA]

- Deduction for the Capital Expenditure incurred by any Specified Business [Sec 35AD]

- Deduction for expenditure incurred on an Agriculture Extension Project or on Skill Development Project [Sec 35CCC or 35CCD]

- Deduction for tea, coffee and rubber manufacturing companies [Sec 33AB]

- Deduction towards deposits made towards site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both in India [Sec 33ABA]

- Investment Allowance towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal [Sec 32AD]

- Deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA

- Set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions

Opt-in Due Date: Such companies will have to exercise this option to be taxed under the section 115BAA on or before the due date of filing income tax returns i.e usually 30th September of the assessment year, which would be the extended due date for AY 2020-21 due to the Corona-virus pandemic. Once the company opts for such rate in a particular financial year, it cannot be withdrawn subsequently.

Form 10-IC:  The companies that are filing tax u/s 115BAA of the Income Tax Act are eligible to file Form 10-IC for adopting the new corporate tax rate.

The Form 10-IC requires submission of information such as name, PAN, registered address, date of incorporation and nature of business. A declaration is also given stating that the option once exercised shall not be withdrawn. The form is submitted using a digital signature or EVC validation.

Companies willing to adopt the new tax rates must file the forms with accurate information electronically before the due date for filing the ITR arrives (i.e. 30 September 2020 or extended date for the year).

Deductions Allowed in New Tax Regime (Announced 26-Jun)

Section 115BAC was introduced in the Finance Act 2020, giving an option to individual and HUF assessees to opt for the lower tax rates as per the New Income Tax Regime.

Tax Rates as per New Tax Regime

Total Income	Rate of Tax
Upto Rs. 2,50,000	Nil
From Rs. 2,50,000 to Rs. 5,00,000	5 per cent
From 5,00,000 to Rs. 7,50,000	10 per cent
From 7,50,000 to Rs. 10,00,000	15 per cent
Rs. 10,00,000 to Rs. 12,50,000	20 percent
Rs. 12,50,000 to R. 15,00,000	25 per cent
Above Rs. 15,00,000	30 per cent

Exemptions/Deductions Not Allowed

Under this regime, to compute the Total Income, the following exemptions and allowances as available in the old tax regime were not to be deducted.

a) Standard Deduction of Rs. 50,000/-

b) Deduction eligible up to Rs. 1,50,000 under section 80C for life insurance, PPF, ELSS, etc. 

c) NPS contribution as eligible up to Rs. 50,000 under section 80CCD(2)

d) House Rent Allowance (HRA)

e) Children Education Allowance

f) Conveyance Allowance

g) Leave Travel Allowance (LTA)

f) Professional Tax

g) Interest deduction in respect of income from house property

h) Any exemption or deduction for allowance or perquisite by whatever name called

Exemptions/Deductions Allowed

The government has issued Notification G.S.R. 415(E) dated 26-Jun-2020 by which the CBDT has allowed deduction with respect to the following:

a) Travelling Allowance: any allowance granted to meet the cost of travel on tour or on transfer;

b) Daily Allowance: any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit: Provided that free conveyance is not provided by the employer;

d) Transport allowance granted to an employee, who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.

Notes:

- This exemption is applicable to the whole of India and is restricted to Rs. 3,200 p.m.

- Free food and non-alcoholic beverages provided by the employer even during working hours at office or business premises shall be fully taxable in the hands of those employees who have opted for the new tax regime. Hence this benefit is only available to assessees opting for the old regime.