EVC for electronically verifying Income-tax return

Notification No. 2/2015  

EVC to verify Income-tax return

As per the above referred notification, Electronic Verification Code (EVC) is a 10 digit alpha numeric code generated for the purpose of electronic verification of the person furnishing the return of income.The same is not applicable to assesse’s where digital signature is mandatory i.e. a company assessee, person required to get accounts audited as per section 44AB of the Income-tax Act and a political party.

With the help of the EVC, return can be verified and there is no need to send ITR-V Acknowledgement to Bangalore.

The procedure and standards of EVC are as under:

a) EVC would be generated on the E-filing website –www.incometaxindiaefiling.gov.in
b) Individual can verify his return or of an HUF of which he is a Karta throughEVC
c) EVC will be unique for an Assessee PAN
d) One EVC can be used to validate one return of an assessee
e) The verifier can use more than one mode to obtain EVC and can generateEVC multiple times

Validation of EVC

The EVC used to verify Income-tax return will be validated against the EVC stored against the Assessee’s PAN at the time of generation. Only a valid and matchedEVC will be accepted. Invalid, already used and unmatched EVC shall be rejected.

4 Modes of Generation of EVC

1. Net Banking  

a) Where the total income as per Income-tax return is greater than Rs. 5 lakhs and there is refund claim, verifier has to generate EVC through net banking
b) Specified Banks provide direct access to the e-filing website for account holders having validated PAN
c) When user logs in via net banking and seeks redirection to e-filing, he/she will be redirected to e-filing website where he can generate EVC

2. Aadhaar Authentication 

a) A verifier can provide his Aadhaar number for linking with his PAN on the e-filing website – www.incometaxindiaefiling.gov.in, verified on the basis of his name, date of birth and gender
b) If the Aadhaar authentication is successful, the verifier’s Aadhaar will be linked to his PAN
c) An OTP will be generated and sent to the registered user’s mobile number as per Aadhaar records
d) The OTP is the EVC and can be used to verify Assessee’s Income-tax return
e) The Aaadhar OTP as EVC will be valid for 10 minutes

3. ATM of a Bank

a) Verifier whose ATM card is linked to PAN validated registered Bank Account can generate EVC through this mode
b) A verifier can access the ATM of the bank in which he / she has an account using ATM (debit / credit) card
c) After due authentication by using ATM Pin at the Bank ATM, the verifier can select the ‘Generate EVC for Income-tax return filing’
d) EVC will be sent to the assessee’s registered mobile number with e-filing  and can be used to verify assessee’s Income-tax return

4. E-Filing Website

a) Where the total income as per Income-tax return is Rs. 5 lakhs or below and there is no refund claim, verifier can generate an EVC on E-filing website
b) EVC will be sent to Registered E-mail Id and Mobile Number of the assessee with E-filing website and can be used to verify assessee’s Income-tax return

Click here for User Manual

Please connect to us if you seek any further information / clarification.
K. T. Hemani & Co. 
Chartered Accountants
t:  0281-2444037
w: kthemani.com
a: Ruchini M46, GHB, Street No. 1, Kalavad Road, Rajkot  – 360 001

Relevant TDS Amendments in Union Budget 2015

Sr.

Sec

Main Heading

Amendment

Action Points

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1 192 Tax deduction from Salary Employer shall obtain from employee, the proofs of claims (incl. set-off of house property loss) made by him in the prescribed form and manner from 01/06/2015. Prescribed Form has not yet been notified. A simple declaration from the employee may be obtained
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2 192A TDS on Employees provident fund scheme With effect from 01/06/2015, tax is to be deducted by trustee / person authorised to make payment under Employees’ Provident Fund Scheme, 1952 as under:
a) On  premature withdrawal / lumpsum payment to employees provident fund amount when the employee has not rendered continuous service of 5 years;
b) Tax is deductible under section 194A at the rate of 10% of “taxable premature withdrawl” plus applicable surcharge and cess where the PF amount is Rs.30,000 or more. If PAN of the recipint is not available, tax is deductible at the maximum marginal rate of tax (i.e., at 34.608% for the financial year 2015-16).
A declaration in Form 15G / 15H maybe filed by the employee that his total income does not exceed maximum amount not chargeable to tax.
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3 194A TDS on Interest by co-operative bank to its members on time and recurring deposits With effect from 01/06/2015, tax will be deductible by co-operative banks on payment/credit of interest on time deposits exceeding Rs.10,000/-  to its members except where the depositor is a co-operative society. A declaration in Form 15G / 15H maybe filed with the Co-operative bank for non-deduction of tax
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4 194C TDS on payments made to resident transporters With effect from 01/06/2015, exemption from non-deduction of TDS on transport charges payments to a contractor shall apply only if the following conditions are fulfilled:
1. Recipient is engaged in the business of transport;                                                                                                                 2. Recipient owns 10 or less goods carriages at any time during the financial year;
3. Recipient furnishers a declaration to this effect along with PAN.
Declaration to be obtained from transported owning 10 or less than 10 goods carriages
 
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5 195 Non-Resident Payments With effect from 01/06/2015, person responsible for paying to a non-resident / foreign company, any sum (whether or not chargeable to Income-tax in the hands of recipient) shall furnish the information relating to payment of such sum, in Form 15CA and 15CB File remittance details in Form 15CA and CA Certificate in Form 15CB in respect of all non-resident payments
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6 206C Tax Collected at Source A correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement may be filed in such form and verified in such manner, as may be specified Prescribed Form has not yet been notified.

 

Union Budget 2014-15

17/07/2014 – Article on Union Budget 2014-15

Acche Din Aayenge !?

The maiden budget from the NaMo led government placed before the parliament on 10 July 2014 was most sought after by the people of India to DISCOVER the CHANGE and EMBARK on RAYS OF ACHHE DIN. Hopes and expectations were attached f rom the HIGHLY MANDATED and DEVELOPMENT ORIENTED NaMo led government. However, considering high fiscal deficits, GDP of less than 5% in past two years, rising inflation, uncertainties of the global economy and with only 45 days on hand, less could be mana ged in the realm of fiscal manoeuvrability.

Yet clearly skill development, e-governance, leveraging technology for social infrastr ucture (education and healthcare), reviving traditional industries and encouraging entrepreneurship were the MANTRAS for the NEW GROWTH MODEL. Investment plans for ports, airports, roads, agri-infra, railways, energy, defense, urbanisation and smart cities, water transport etc. were talked about.

In this article, I have tried to analyze the impact of some of the provisions of the union budget 2014 keeping in mind the investor community so as to say the AAM ADAMI

A. Tax Savings

• Personal income tax basic exemption limit raised to Rs.2.5 lacs from Rs.2 lacs for general category of individuals. For senior citizens basic exemption limit raised to Rs.3 lacs from Rs. 2.5 lacs. • Sec 80 C deduction limit increased to Rs.1.5 lacs from Rs.1 lacs. • Interest on housing loan deduction increased from Rs. 1.5 lacs to Rs. 2 lacs in case of self-occupied property

B. Investment Savings

• Reintroduction of Kisan Vikas Patra, a bond like instrument in which the invested money doubles in a given period. It shal l channelise unbanked money.

• A small saving scheme named after the girl child to cater to the requirements of education and marriage of girls.

• Relaunching of Varishta Pension Bima Yojana for senior citizens of over 60 years starting August 15.

• Employee Provident Fund and Pension scheme – The mandatory wage ceiling for PF contribution increased from monthly pay of Rs.6,500/- to Rs.15,000/. Also, employees covered under Employees Pension scheme will receive a minimum monthly pension of Rs.1,000/-.

• The investment limit for PPF has also been raised from Rs. 1 lac to Rs. 1.5 lacs allowing investors to claim tax free interest and claim benefit under section 80C as above.

• In the light of the long term capital gains tenure now extended to 3 years, investors could find favour with long duration bond and guilt funds. Preferences could be more for accrual funds as they have higher portfolio yield to maturity.

• While FIIs continue to pour money and that domestic economic revival is underway and the valuations are also reasonable, Equity market is likely to pick up.

Savings

I n c r e a s e  i n  Pe r s o n a l  Ta x Exemption Limit, Tax Saving Investment Exemption Limit, Deduction of Interest on housing loan of a self occupied property shall all result in incremental cash flows in the hands of investor and is positive for the financial sector.

Sectoral Impact

Power and Infra are clearly two focus areas since the sunset clause for power units are extended as also support is provided to Infrastructure lending along with infrastructure d e v e l o p m e n t . Po s i t i v e f o r Banking sector with measures like capitalisation of PSU Banks. Insurance sector shall get a boost as FDI limit in the same has been relaxed. Entrepreneurs and manufacturing industry are e n c o u r a g e d b y p r o v i d i n g d e d u c t i o n o f i n v e s t m e n t allowance.

FII

Measures like relaxation on FDI limits, tax incentives including lower withholding tax for all types of bond investments by foreign investors, pass-through status on REITs, Infrastructure investment trust, clarity on sale of securities by FII to be treated as capital gains have augured well the confidence of FII in the Indian market.

Taxation

Duration and Taxability of Long Term Capital Asset – Unlisted securities and mutual funds, other than equity oriented mutual funds shall qualify as ‘long term capital asset’, if held for more than 36 months (earlier limit: 12 months). This move is to bring parity with bank and other debt instruments. Further, tax rate on sale of long term listed mutual funds (other than equity-oriented mutual funds) is proposed to be taxed at a flat rate of 20%. Earlier, such unlisted securities were taxable at t h e r a t e o f 1 0 % w i t h o u t indexation or at 20% with indexation whichever is lower.

Proposed to calculate Dividend Distribution Tax on ‘gross’ basis instead of ‘net’ basis.

DDT under section 115-O – Increased from @16.995% to 19.9941% of dividend amount distributed

DDT under section 115-R – Income distribution on equity oriented funds: Nil Income distributed by Mutual Fund to an Individual/ HUF: Increased from 28.325% to 37.7667% and that of any other person: Increased from 33.99% to 48.557%

 

Sr.   Market Impact

1      MFs fear outflows, AMFI has asked regulator SEBI to defer long term capital gains tax on debt oriented MFs to next financial year.

2      AMFI has also taken up the matter with the Ministry of Finance, “To have the long-term capital gain tax on closed ended debt schemes and not on open ended debt schemes, gold exchange traded funds and funds of funds etc, as this would render this asset class unattractive for investment.This in turn could impact the liquidity and development of corporate bonds.”

3     Big corporates are now leaning on the finance ministry to make the changes effective from a prospective date and provide grandfathering element for the existing investors

4     Fixed Maturity Plans (FMP) and short-term bond funds are expected to be hit due to change. Switch of funds from debt funds to bank deposits is likely as the latter will have similar tax treatment.

5     A report by The Economic Times states that at least four fund houses have deferred their FMPs and two have even returned cash collected from investors for issues that closed last week.

  • MFs exposure to bank stocks hits record-high of Rs 55k cr. This was also the fifth consecutive monthly rise. After banking, software is the second most preferred sector with MFs having exposure followed by pharmaceuticals and Finance. Market valuation at this point in time looks fairly valued.
  • RBI and the government are trying to tackle to get the long-term funding market better for the infrastructure projects. However, given the weak monsoon and its impact on inflation, it is unlikely for the RBI to give support in form of interest rate easing soon.
  • Real estate experts have given the budget a big thumbs-up as it focuses evenly on housing and development with both domestic and foreign investments in the sector. The development of smart cities can bring opportunities for real estate developers, investors, end users and the housing loan sector. Introduction of real REITS is a welcome move as it is likely to increase liquidity in the cash strapped sector. With Slum development being made a part of CSR activities, the government seems to have its heart in the right place.
  • Infrastructure bottlenecks continue to remain critical for the farm sector. Efforts for 2nd green revolution, setting aside funds for climate change and irrigation, introducing Kisan TV for effective dissemination of knowledge – all these would ensure a long term positive impact on farm productivity for farmers.

C. Certain Direct Tax Burdens

• Deduction of tax at source from payment in respect of life insurance policy

With effect from 1 October 2014, tax to be withheld at the rate of 2 per cent at the time of payment on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt. It has also been proposed that no deduction of tax under this provision shall be made if the aggregate sum paid in a financial year to an assessee is less than INR 1,00,000.

• Capital gain on transfer of certain capital assets not to be charged in case of investment in only one residential house

This amendment clarifies that ‘a’residential house has now to be restricted to ‘only one residential house situated in India’.

• Capital gain not to be charged on investment in certain bonds made in the financial year

The existing provision states that the investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees. The amendment clarifies that the tax exemption will be limited to Rs. 50 lakhs even where re-investment in certain bonds is split between two different financial years.

• Transfer Pricing – Definition of deemed international transaction expanded

Amendment seeks to broaden the scope of a deemed international transaction. The deeming fiction would continue to apply irrespective of whether the non-associated enterprise is a resident or not. Hence the deeming fiction would now also extend to transactions between two resident enterprises.

• Non-Deductibility of the CSR Expenditure

As the CSR expenditure, being an application of income, is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-taxAct shall be allowed as deduction under those sections subject to fulfilment of conditions, if any, specified therein.

D. Towards Direct Tax Certainty

• Speculative Transaction

It is proposed that eligible transaction in respect of trading in commodity derivatives carried out in a recognised association which is chargeable to commodities transaction tax shall not be considered to be a speculative transaction.

Disallowance on account of non-withholding of tax

In the case of non-deduction / non-payment of tax at source made to residents, the disallowance of the expenditure will be confined only to 30% of such expenditure and not the full amount.

• Investment Allowance

Additional investment allowance at 15% to manufacturing companies that invests Rs. 25 crore in any year for next 3 years.

• Taxability of Dividends from a Foreign Company

The current provisions relating to taxation of gross dividends received by an Indian company from a specified foreign company at the concessional rate of 15% have now been proposed to be extended to AY 2015-16 and subsequent years.

• Characterisation of Income in case of Foreign Institutional Investors (FIIs)

It is proposed to amend the definition of “capital asset” to provide that any security held by FII which has invested in such security in accordance with the regulations made under SEBI would be treated as capital asset and income arising from transfer of such security would be taxable as capital gains.

• Transfer Pricing

APA rollback provisions introduced. Proposes “range concept” for ALP computation instead of arithmetical mean, except where adequate number of comparable are not available. Use of multiple year data to be allowed for transfer pricing benchmarking.

• Retrospective Amendments

All cases of indirect transfers arising out of retrospective amendments will be scrutinised by a high level committee of CBDT, before initiating any action.

• Scope of AAR

AAR scope to be expanded to resident private limited companies. This is a good indication for errorfree and litigation free working.

E. Conclusion

The NaMo led government did try to ensure that no section of society or any part of the country is missed out in getting a mention in the Budget. However, the budget didn’t provide clarity on GAAR, issue of bank recapitalisation, plan towards introducing the unified Goods and Services Tax (GST) and a concrete plan of rationalisation of subsidies (Food, fuel, fertiliser). The uncertainty created by retrospective taxation measures need to be permanently put behind.

The most awaited event of 2014 is behind us ….. equity market’s attention would now move to global events, corporate earnings and real ‘action’ on the ground.Seems for now that the ACHHE DIN KEY lies in EFFECTIVE EXECUTION and IMPLEMENTATION.

This article is contributed by CA Niyati Hemani, Associate of K. T. Hemani & Co. For any clarifications, kindly e-mail on niyati.ca@gmail.com

Select Issues in Capital Gain

 

26/02/2014 – Article on Select Issues in Capital Gain

Select Issues in Capital Gains

As is generally understood, revenue receipts constitute income whereas a capital receipt is not an income. But, under the provisions of the Indian tax law, a capital receipt can be charged to tax, if the following three conditions are satisfied:

1) There is a capital asset;

2) There is a transfer of a capital asset;

3) The capital gain is computed in accordance with the provisions of the Indian tax law

Let us briefly understand the above three conditions.

A capital asset means property of any kind held by an assessee. However, certain properties are excluded viz., stock-in-trade, rural agricultural land, personal effects, such as wearing apparel, furniture etc. held for personal use and certain bonds.

Transfer in relation to a capital asset includes inter alia, the sale, exchange or relinquishment of the asset, extinguishment of any right therein, conversion of a capital asset into stock-in-trade etc. Further, the Indian tax law also specifies certain transactions that are not to be treated as transfer for the purpose of capital gain. The date / year of transfer is material for levy of capital gain tax.

Capital Gain is computed by deducting following from the full value of consideration:

1) Cost of Acquisition;

2) Cost of Improvement; and

3) Expenditure incidental to transfer

Prior to AY 2012-13, as per judicial pronouncements, where the full value of consideration could not be determined, the above machinery provision would fail and therefore there would be no capital gain. However with effect from AY 2012-13, the fair market value on the date of transfer shall be deemed to be the full value of consideration where the actual consideration cannot be determined or is not ascertainable.

In this article, I shall cover some relevant updates / issues on the below:

1) Revised distance limits for Urban Agricultural Land

2) Shares and Securities Test – Held as Stock in trade vs. Investment

3) Depreciable Assets – Claim of Depreciation, Exemption benefits and set-off of losses

4) Family Arrangement – Asset acquired by Succession, Inheritance, Gift, Will etc.

5) Business Restructuring – Succession of a Sole Proprietary concern / Firm by a company

1. Revised distance limits for Urban Agricultural Land

An urban agricultural land is not excluded from the definition of a capital asset and as a result, profit and gain on sale of urban agricultural land is liable to capital gains tax. An Urban land is a land situated within the jurisdiction of municipality or cantonment board having population of more than ten thousand. Urban land also includes a land outside the urban area and situated within the specified distance from local limits of such urban area.

Upto AY 2013-14, such specified distance was eight kilometres.

From AY 2014-15, such specified distance is divided into three parts:

 

Urban Area Population                    Specified Distance

Between 10,000 and 1,00,000                                     2 Kms

Between 1,00,000 and 10,00,000                                 6 Kms

More than 10,00,000                                                 8 Kms

 

Further, upto AY 2013-14, the above distance was measured by road. However, from AY 2014-15, the distance has to be measured aerially.

2. Shares and Securities Test

Held as Stock in trade vs. Investment The Indian tax law makes a distinction between a capital asset and a trading asset. Gain / Loss on sale of capital asset is taxable as capital gain and gain / loss arising of a trading asset is taxable as a business income.

The issue of whether shares and securities were held as investment or as stock-intrade is often questioned by the income tax department and there are various judicial pronouncements laying down the factors for determining the same. A CBDT circular has provided guidance in determining the nature of shares and securities as investment or stock-in-trade.

Though the issue is a mixed question of law and fact, yet the below tests help in establishing the nature of the share and securities:

i. Claim accepted in earlier year accepted by department – principles of consistency

Under the same facts and circumstances, where the department has accepted holding the shares as investment, as per principle of consistency, the position cannot be allowed to change, merely because a different view is possible.

ii. Holding Period of Shares

Holding period is not conclusive but it does indicate whether the transaction is for investment or for earning motive. The length of time, nature of dealings, how proceeds of sale are dealt with etc. would determine the question whether a particular transaction is in realization of investment or a sale in ordinary course of business.

iii. Two separate portfolios

To establish the nature of investment vis-a-vis business activity, assessee may maintain two separate portfolios i.e. one for investment and another for stockin-trade.

iv. Intention of the assessee

Intention at the start of the activity, which is reflected in the conduct of the assessee and the way he treats the transaction is the most important factor to be considered keeping in view the adjoining circumstances.

v. Volume and number of transactions, quantum of investments

The frequency, volume and value of transaction though critical cannot be the only criteria for determining the nature of activities carried on by the assessee.

vi. Use of borrowed funds

The use of borrowed funds for the purpose of buying shares has often been considered by Courts as an indication as to the share transaction activity being in the nature of investment or business.

3. Depreciable Assets – Claim of Depreciation, Exemption benefits and set-off of losses

Where the capital asset is an asset forming part of a block of asset in respect of which depreciation has been claimed, in computing capital gain, the cost of acquisition of such a depreciate asset shall be computed as under:

i. Written down value of such block of assets at beginning of the previous year;

ii. Actual cost of any asset acquired during the previous year and falling in block;

iii.Expenditure incurred wholly and exclusively for such transfer(s).

The difference between the full value of consideration and cost of acquisition as computed below shall be deemed to be short term capital gain.

The intention behind this provision is that assessee should not enjoy double benefits i.e. depreciation as well as indexation.Accordingly, judicial pronouncements have held that where depreciation has neither been claimed nor been allowed on a particular asset, the above computation provision is not applicable.

Further, the above provision is only to deem the transaction of capital gain on depreciable asset as short term capital gain and not to deem an otherwise long-term capital asset as short-term capital asset. Accordingly, when an assessee transfers an asset for which depreciation has been allowed but the asset is a ‘long term’, as per various judicial pronoun cements, the assessee is eligible for relevant exemptions under the Income tax law. Also, brought forward loss out of long term capital asset can be set off against gains computed above.

4. Family Arrangement

Asset acquired by succession, inheritance, gift, will etc. A family arrangement does not amount to transfer and hence not exigible to capital gain.

Further, where the capital asset has become the property of the assessee by way of gift, will, succession, inheritance or the asset is acquired at the time of partition of family or under a revocable or irrevocable trust or under amalgamation, etc., the period of holding shall include the period for which the asset was held by the previous owner. And the cost of acquisition shall be deemed to be the cost for which the previous owner of the property acquired it.

5. Business Restructuring – Succession of a Sole Proprietary concern / Firm by a company

As per provisions of the Indian tax law, where a sole proprietary concern / partnership firm is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern / partnership firm sells or otherwise transfers any capital asset or intangible asset to the company, the same shall not be liable to capital gains tax provided that certain conditions are fulfilled.

The cost of acquisition of the capital asset in such a case shall be deemed to be the cost for which the previous owner acquired it plus the cost of any improvements of the assets incurred or borne by the previous owner or the assessee.

If the conditions specified are violated, the profits and gains from the transfer of capital asset not charged to tax earlier shall be deemed to be income chargeable under the head capital gain of the successor company for the previous year in which the conditions are not complied with.

This article is contributed by CA Niyati Hemani, Associate of K. T. Hemani & Co., Chartered Accountants. For any clarifications, kindly e-mail on niyati.ca@gmail.com.