Income Tax

Self Assessment Tax, Pay Tax Using Challan 280, Updating ITR: Taxpayers should ensure that no tax payment is pending before filing the income tax return. If anyone realises that they had paid less than due after all calculations, then they should pay the balance tax. It refers to Self Assessment Tax (SAT) that individuals have to pay for income from others. There is no specification for the payment date, and one can pay it online or offline. After deducting the TDS amount from the income source and Advance Tax payable for the financial year, individuals have to compute the liability of income tax.

Which Tax Refers to Self Assessment Tax and Who Pays It?

While filing income tax returns, taxpayers have to do an entire computation of income and taxes to get filed in the returns. Sometimes the tax paid is less than the actual amount payable. This shortfall of tax refers to Self Assessment Tax or simply SAT, which must get paid before filing ITR. Any individual having income from other sources has to pay SAT.

For instance, while making the final payment in the form of an advance tax installment, if the taxpayer missed out on an income, they have to pay SAT. A salaried person ends up paying less than due in cases like Interest from Saving Bank, Interest from FD, and short-term capital gains can also be reasons. It can also be possible that TDS is not deducted or done at a slighter rate against the tax related to income tax filing.

Is There Any Difference Between Self Assessment Tax and Advance Tax?

Both Advance Tax and SAT are tax liabilities to be payable to the Income Tax Department; however, they are different. Advance Tax refers to the yearly tax liability paid in advance, and SAT is the tax paid by the taxpayer after deducting Advance Tax and TDS. In case, if tax due is more than Rs. 10000 in the financial year, then one has to pay Advance Tax. If not paid Advance Tax, then the taxpayer has to pay penalty cost under section 234B and 234C while filing an income tax return.

Less Tax Paid on Fixed Deposit

Anyone who has invested in a fixed deposit has to pay tax as per the income slab. In a financial year, if the interest on FD is less than Rs. 10000, then there is no deduction on TDS. However, if it is more than Rs. 10000, then TDS is deducted at 10%. Taxpayers have to pay tax on the interest even if they get interested at FD tenure end.

Saving Account Interest More than 10,000

Interest earned on Saving Bank Account refers to as income from other sources declared in income tax returns. There is no TDS deduction from the interest on Saving Account.

How to Compute Self Assessment Tax (SAT)?

If the taxpayer has made payments for tax preceding the assessment date, he/she should follow the below-mentioned processes to calculate interest:

• Advanced Tax amount that has not been paid will be the amount considered for calculating the interest until SAT payment.
• After subtracting the Self Assessment Tax from the Advance Tax will be considered for computation from the SAT paid to date.

To calculate self-assessment tax, one can follow the procedure as provided:

• With the help of the income tax slabs that are available online, calculate the taxable amount to be payable on the total income of the individual.
• Add the payable interest as per Section 234A, 234B, and 234C.
• Deduct the relief amount from the total calculated amount under Section 90 and 90A.
• As per Section 115JAA, subtract the MAT Credit amount from that amount.
• After subtracting the Advance Tax amount, one can get SAT to be payable on the income tax.

What If Taxpayer Does Not Pay Self Assessment Tax?

One should pay Self Assessment Tax before submitting an income tax return. There is no particular date of paying this tax. Procedure for Paying SAT if one fails to pay it before the fixed date:

ITNS 280 Challan is used to pay income tax due charges in case if one fails to pay tax, Self Assessment or Regular Assessment Tax, and Advance Tax.

Offline Payment: The taxpayer can pay this tax by going to the nominated branch and paying through cash or cheque.

Online Payment: One can pay Advance Tax online through net banking.

• To pay online, one should visit the NSDL official website.
• Select ITNS 280 Challan Number
• Select Tax Applicable like (0020) Corporate Tax (Companies)
• Choose Tax Assessment Year. (One should be careful while selecting the Assessment year. For instance, FY is 2019-20 for filing income tax return before December 31, 2020, and income earned between April 1, 2019, to March 31st, 2020. However, Assessment Year for this period is 2020-21.)
• Fill in the payment type like (400) Tax on Regular Assessment, and other details.
• Select the correct AY. If chosen wrong Assessment Year then it will result in demand for the tax amount to get paid for that respective year.
• Fill in the form and then hit on the ‘Proceed’ option
• Fill in the details related to tax, enter the tax amount to be payable, and then confirm

One should break up the tax payable into components like Education Cess, Income Tax, and more. If anyone feels confused about the breakup amount, then they can pay Basic Tax.

Terminology used for Paying Self Assessment Tax

The terminology used for paying Self Assessment Tax is as mentioned below:

• Basic Tax: The tax payable without any income tax interest, cess, and more.
• Education Cess: It is 3% of the Basic Tax.
• Income Tax Interest: It is for those taxpayers who have to fill interest for late payment of Self Assessment Tax or Advance Tax under section 234B and 234C.
• Surcharge: If total income is Rs. 50 lakhs up to Rs. 1 crore then surcharge 10% of income tax. However, if it exceeds Rs. 1 crore, then surcharge 15% of income tax.
• Penalty: It is not applicable for Advance Tax or Self Assessment Tax. If the assessment order is passed and one gets a notice from Income Tax Department, then the penalty is applicable.
• Others: If the taxpayer does not fit into any of the above categories then mark 0 in all sections.

The taxpayer will get a receipt or acknowledgment for the paid taxes when paid through 280 Challan. The receipt involves the details regarding the taxpayer, type of payment done, amount, and Challan Identification Number.

CIN contains information as:

• Date of tax deposit in the format (DD/MM/YY)
• 7-digit BSR code of the bank branch where taxpayer deposited the tax
• Challan Serial Number

What To Do After Paying Self Assessment Tax Through Challan 280?

The taxpayers who paid Self Assessment Tax through 280 Challan should fill in the details in Tax paid. They should ensure that their tax liability is zero before filing for income tax returns. If an individual makes an inaccurate payment for SAT, then the return is considered defective. Taxpayers can sort out their returns within 15 days of filing the return as per the Income Tax Act, 1961. However, if an individual is not able to rectify the error, then the return filed will be stated as defective.

Verification of Self Assessment Tax in 26AS Form

Details related to tax paid are mentioned in Form 26AS Part C. Any of the taxpayers who paid Self Assessment Tax or Advance Tax can find the details in the mentioned section. It is necessary to verify if details are showing up in the form as provided. If any of the details do not match, then contact the bank. Generally, it takes 4-5 days from the day tax is paid.

Conclusion on Self Assessment Tax

The amount an individual is liable to pay on the assessed income from others is self-assessment tax or SAT. The ideal time to pay SAT is as early as possible without waiting for the filing date of tax returns to avoid interest payment.

9

Methods Of Accounting Accrual Cash: The post attempts to explain the two methods of accounting – cash and mercantile (accrual).

• Under the cash method of accounting, the incomes and expenses are taken under consideration on the actual receipt of payment.
• Under the mercantile or accrual method of accounting, incomes and expenses are taken into consideration as and when there arises a “right to receive” or “right to pay”.
• Accrual accounting implies the revenue and expenses are recognized and recorded when they occur, while cash basis accounting indicates these line items aren’t documented until cash exchanges hands.
• Cash-based accounting is more straightforward. However, accrual accounting portrays a more accurate view of a company’s health by including the accounts payable and accounts receivable.
• The accrual or mercantile method is the most commonly used, especially by publicly traded companies, as it smooths out earnings over time.

But why are we talking about the methods of accounting? Let’s discuss.

Why are We Discussing The Methods Of Accounting?

Suppose one makes a Fixed Deposit of Rs 1,00,000 for three years at the rate of 10% p.a on 1st April 2011 (the financial year 2011-2012 or the Assessment year 2012-13) in the cumulative option.

This implies that the interest rates are going to be calculated each quarter, and the interest is then reinvested into the fixed deposit. Interest from the Fixed Deposits are considered as Income from Other different Sources and is taxable.

The bank deducts tax or TDS if the interest income is more significant than Rs 10,000 in a financial year. The interest in various quarters is given below using Rupee times.

Calculator on Fixed Deposit

Quarter	Interest after every quarter (in Rs)	Balance (in Rs)
1.	2500.00	102500.00
2.	2562.50	105062.50
3.	2626.56	107689.06
4.	2692.23	110381.29
5.	2759.53	113140.82
6.	2828.52	115969.34
7.	2899.23	118868.58
8.	2971.71	121840.29
9.	3046.01	124886.30
10.	3122.16	128008.45
11.	3200.21	131208.67
90.5625 days.	3253.27	134461.94
Total:	Total Interest:  Rs 34461.94	Maturity Amount:  Rs 134461.94

So, the interest in a year is more than Rs. 10,000. So, the question arises do we account for the interest each year or on maturity at the end of the three years? To answer this question, a proper understanding of the methods of accounting is required.

This is because the scope of Income and its taxability always depending upon a system of accounting that is followed by the assessee.

Various Methods of Accounting

There are two different methods of accounting, Cash and Mercantile or Accrual method.

Cash Basis Of Accounting

Under the cash basis of accounting, transactions are recorded when the actual cash is received or paid. It implies that the Income is recognised when the cash is accepted, and the expenses are recognised when the money is spent.

It does not really matter whether the money paid or received belongs to the current, past, or future year. Hence, there is no scope for recording the credit transactions. This basis of accounting is also referred to as the Receipts basis of accounting.

Accrual Basis Of Accounting

The accrual basis of accounting is also known as the Mercantile basis of accounting. It is the system where the transactions are recorded when they arise. It does not really matter whether the cash is received or paid or not. It implies that the incomes are recorded in the books of the accounts when earned, irrespective of whether it is received or accrued.

The cash method of accounting productively postpones (but does not permanently reduce) your tax liability to the year of actual receipt of Income. In contrast, under the mercantile method, the tax on the income has to be paid even if the Income has not been received.

EXAMPLE: Rent accrued is Rs. 1,000. (earned but not received)

Similarly, expenses are recorded in books of accounts when they are incurred; it does not matter whether the cash is paid or outstanding.

This system is most widely used and followed by each business organisation.

Hybrid or Mixed Basis of Accounting

This can be considered as a third method.  Not the typical kind. Accountants have tried to merge the advantages of the two systems (cash and accrual) and have come up with the mixed or hybrid basis of accounting.

In this method, both cash basis and accrual basis are followed. Incomes are recorded on a cash basis, whereas expenses are taken on an accrual basis. The net income is discovered by matching the costs on an accrual basis with income on a cash basis.

This is the most conservative basis of accounting because all possible expenses relating to the period, whether paid or not, are considered. In contrast, payment only received in cash is taken into consideration. This method is followed by professionals like Doctors, Lawyers, and CAs but not commonly used.

Difference Between The Cash And Mercantile System Of Accounting

Basis of Differentiation	Cash System of Accounting	Mercantile (Accrual) System of Accounting
Record of Transactions	It records only the cash transactions.	It records cash along with credit transactions.
Record of Incomes	Only those incomes are recorded that are made in cash.	All the incomes are recorded whether the money is accepted for the same or not.
Record of Expenses	Only those expenses are recorded, which are paid in cash.	All the costs are recorded whether money has been paid for the same or not.
No adjustments in regards to Outstanding expenses, Accrued Income, Income received in advance, and prepaid expenses are passed.	All adjustments regarding Outstanding expenses, Accrued Income, Income received in advance, and prepaid expenses are passed.
Capital and Revenue items	This system doesn’t differentiate between capital and revenue items.	This system differentiates between capital and revenue items.
Legal Recognition	This system is not recognised by the Companies Act, 2013 and Income Tax Authorities.	This system is recognised by the Companies Act, 2013 and the Income Tax Authorities.
Ascertainment of the Accurate Profit or Loss	This basis doesn’t provide a correct view of profit or loss as this does not make a complete record of cash or credit transactions.	This basis offers an accurate view of profit or loss because this produces an entire record of cash or credit transactions.
Non-cash Items	It doesn’t record the non-cash items like depreciation etc.	It makes the record of the non-cash things like depreciation etc.
Suitability	This method is suitable for professional people such as lawyers, doctors etc.	This method has been adopted by the business houses which are involved in the Trading as well as Manufacturing business.
Period	It records all the incomes which are received and expenses paid in cash related to current, past, or future year.	It records the incomes and expenses associated with the current year only.
Simple and Easy	This method of accounting is simple and easy to adopt and apply.	This basis of accounting includes all the technicalities of accounts and hence is challenging to use.
Evidence in Court	The records maintained as per this system cannot be accepted as a piece of evidence in the court of law.	The records maintained as per this system are accepted as evidence in the court of law.

Income Tax and Method of Accounting

Under the Income Tax Act, there have been five heads of Income stated

• Salaries,
• Income from business or profession,
• Income from house property,
• Income from other sources and
• Capital gains

As far as the three of these heads of Income–salaries, capital gains and Income from house property–are concerned, a taxpayer has no option but to follow the mercantile (accrual) method of accounting. For instance

• Salary relating to a specific year is taxable in that year itself irrespective of whether it has been received or not
• Rent receivable for a house property that has been let out is taxable regardless of whether it is received.
• Capital gains are chargeable to the tax in the year in which the asset is transferred, regardless of whether the sales consideration is received.

When talking about Income under the heads of ‘Profits and Gains of business or profession’ and ‘Income from other sources (like business profits, professional Income and investment income other than capital gains), we have the option to choose to account for them on either the basis of – cash or mercantile.

This has been specified in Section 145 of the Income-tax Act, 1961. The assessments followed yet another accounting system before enacting section 145 in the assessment year 1997-98, called the hybrid system.

With respect to Fixed Deposits Clause, 14 of The Bank Term Deposit Scheme, 2006, which became effective from 28-07-2006, clearly stipulates a choice for the subscriber to pay tax on interest on an accrual or receipt basis, which states

Interest on these term deposits must be liable to tax under the Act based on annual accrual or receipt, depending upon the method of accounting, which is followed by the assessee.

The tax payable on such interest shall be deducted following section 194A or Section 195 of the Act.

Different Accounting Methods can be Used

The method of accounting differs for each source of income, but within a particular source of income, the process must be the same for all items.

While a one-time change in accounting is usually allowed, changes in the process of accounting from year to year for income from the same source to save taxes are not.

How Can One Choose The Accounting Method?

One must also examine the nature of income and the deductions that are available before deciding whether to account for the income on the basis of cash or mercantile.

Income not guaranteed: In case there is a risk for companies defaulting on their own interest payment obligations in respect of the company fixed deposits (FD) and the debentures, it is well-advised to account such income on the basis of cash so that one doesn’t end up paying tax on the income that they do not eventually receive.

Amount of interest: If one decides on using the cash accounting method for interest on cumulative deposits, i.e. they pay tax only on receipt of the interest, then the interest paid on maturity will be higher as it is a lump sum. For example: if 50,000 Rs are invested in a span of 3 years, then the interest breaks up after every quarter using Rupee times: Calculator on Fixed Deposit is given below.

Quarter	Interest (in Rs.)	Balance (in Rs.)
1.	1250.00	51250.00
2.	1281.25	52531.25
3.	1313.28	53844.53
4.	1346.11	55190.64
5.	1379.77	56570.41
6.	1414.26	57984.67
7.	1449.62	59434.29
8.	1485.86	60920.14
9.	1523.00	62443.15
10.	1561.08	64004.23
11.	1600.11	65604.33
90.5625 days.	1626.64	67230.97
Total	Total Interest Earned Rs 17230.97	Final Balance Rs 67230.97

Assuming That They Started Fixed Deposit on 1st April

• Interest for the first year is 5190.64
• Interest for the second year is 5729.50
• Interest for the third year is 6310.83

Cumulative interest is 17230.97. So on a mercantile basis, one will be paying interest on smaller amounts every year(5190.64,5729.50,6310.83), while on a cash basis, one will be paying in one go for Rs 17230.97.

Interest eligible for deduction under section 80C: However, where the interest on such deposits is suitable for a deduction under section 80C, such as the National Saving certificates(NSC), it may be helpful to follow the mercantile method and claim for the deduction every year, rather than allowing the interest to accumulate and be taxed on maturity by following the cash method.

Tax Deducted at Source or TDS: If one follows the cash method of accounting, one crucial aspect to keep in mind is that the tax credit for the tax deducted at source on such income will be available only in the year in which such payment is offered to tax, though, the tax will generally be removed by the payer on an accrual basis every year.

Thus, one needs to ensure that the tax deduction certificates (irrespective of the year they were issued) are matched with income offered to the tax during the relevant year. Now with TDS information available in Form 26AS, it’s easier to find the TDS. One might get a letter from the Income-tax office for TDS.

For instance, one had opened a Fixed Deposit in a bank for five years. They will get Form 16A from the bank in which the TDS will be deducted for their Fixed Deposit, but this will not be reflected in Form 26AS.

Now, if they filed the return, including the TDS from the bank deposit. They will get the letter from Income Tax saying their TDS claim does not match the Form 26AS and they need to pay the balance amount. To avoid a hassle in one must pay the amount. Then the Form 26AS will get updated with the TDS from the bank account.

Premature Closure or Withdrawal: Investment like fixed deposit can be closed or withdrawn before the original term of the FD.

Income Declaration Scheme: The Income Declaration Scheme presents an opportunity to people who have not paid total taxes in the past to come forth and declare the undisclosed income and pay a surtax, tax, and penalty calculating in all to 45% of such undisclosed income announced. The benefit of the scheme is that once an assessed states income under this, she will receive immunity from fine or prosecution procedures under the Income-tax Act, 1961, and the Wealth-tax Act, 1957, correlated to such income.

Finance minister Arun Jaitley had proclaimed the Income Disclosure Scheme 2016 in the Union Budget in February 2016 to empower people to publish their unaccounted income and wealth. This is the first scheme of its kind after the voluntary disclosure of the income scheme of 1997 by the government of India. This scheme’s first initiation was on the 1st of June, and it culminated on 30th September in the year 2016. This article demonstrates Income Declaration Scheme in detail, what is Income Declaration Scheme, its features and How to Declare undisclosed income.

Eligibility for Making A Declaration

All ‘people’, such as individuals, HUFs, companies, firms, the association of persons (AOP) etc., are eligible to make a disclosure under the scheme. A taxpayer committed in prosecution or procedure under the income-tax Act or any other Act cannot adopt for disclosure under this scheme. The scheme allows taxing evaders to reveal their unaccounted income or assets and come out clean by paying the relevant tax and penalty, adding 45% of the undisclosed income. This will assist them in regularising their wealth. The Income declaration form is also for those unknowingly paying tax on specific earnings or assets bought from the income. For example, one could have missed paying capital gains tax on the money received from the sale of inherited property.

Scope of Income Declaration Scheme

The Income Declaration Scheme can be made regarding any undisclosed income or investment in any asset representing undisclosed income linking to any Financial Year up to 2015-16. The declaration scheme does not complete if the notice has been issued under section 142(1)1143(2)1148/ 153A/153C of I-T Act, 1961. The COFEPOSA detainees, persons, are apprised under the Special Courts Act (1992), prosecution cases under the NDPS Act, the prevention of corruption, and certain offences under the Indian Penal Code. To use the IDS, ensure that the undisclosed income is appropriately valued and taxes are calculated correctly because once paid, these taxes and penalties won’t be refunded.

Non-declaration Effect under Income Declaration Scheme

The value of any income and undisclosed assets obtained out of such payment in any year upto FY 2015-16, which is not disclosed under the scheme, will be brought to tax in the year in which the Department issues notice and all
consequences, including, interest, penalty & prosecution under I-T Act will follow accordingly.

Dates of Income Declaration Scheme

The scheme was effective from 1st June 2016, and the declarations were registered up to 30th September 2016. Around 25 per cent tax payment was required to be performed by 30th November, then by 31st March, and the prevailing 50 per cent by 30th September next year, adjusting earlier rule of surcharge, tax, and penalty to be paid 30th November 2016.

Benefits of Income Disclosure

• Under the Income-tax Act and Wealth-tax Act, in respect of declaration, there is immunity from prosecution.
• No Wealth Tax on assets if disclosed.
• In respect of declaration, there is no investigation or query under Income-tax Act and Wealth-tax Act.
• Reprieve from the Benami transaction act if the benamidar transfers the assets to the actual owner by the cutoff date.
• Immunity is executed only for the undisclosed income disclosed under the scheme and not for the payment that persists to be disclosed.

IDS Application Forms

The online disclosure of undisclosed income through the Income-tax website has a series of forms that need to be filled. The following steps illustrate the form procedure. Form-1 is the declaration form and can be submitted online by employing the digital signature of the declarant or using an electronic verification code. The application form can be obtained on the Income Tax online portal and can be downloaded in XML format, filled up, then scanned and uploaded on the portal. Once the form is uploaded, the IT department will issue Form 2 as a confirmation receipt of Form 1. The Form 2, when received, can be used by the declarant to pay income tax at a rate of 45% for the undisclosed income. For doing so, the declarant needs to use Challan No. 286. Form 2 is followed by Form 3 for the inference of tax payment, penalty and surcharge payment. After payment, the proof of payment must be provided by uploading Form 3. One needs to attach the tax payment confirmation further. Finally, Form 4 serves as the certification of declaration that is granted by Pr. CIT/CIT, 15 days after the payment intimation.

Income Details under Income Declaration Scheme.

The declarant is expected to present necessary details about the year(s) for which the statement was made. One can easily put the amount where the undisclosed income is quickly obtainable. The tax paid is based on the declared value of the assets. Rule 3 of IDS which prescribed the method of determining Fair Market Value (FMV) of assets, includes shares & securities, bullion, jewellery or precious stone, paintings, drawings, sculptures or any work of art, archaeological collections, Immovable property, interest in a partnership firm or any other assets. Therefore, if the income earned is Rs.10 lakh in 2010, where no tax was paid, and invested in a piece of art or in a plot of land whose market value has now valued to Rs.1 crore, the tax should be paid on the current fair market value of Rs.1 crore. Such tax, charged at 45%, would amount to Rs.45 lakh, far higher than the income that you actually earned.

Outcomes of Income Declaration Scheme

It is an excellent opportunity for those who have intentionally or unintentionally not disclosed or have under-disclosed their income; one would assume many to use it. The income declaration scheme has not yet taken off significantly. In the past, many projects have been far more engaging to tax evaders, who could get away by simply taking in foreign remittances, or investing in precisely defined bonds at a nominal interest rate, or refunding a nominal rate of tax on the undisclosed income. Declaration without a certified valuer’s assistance is effectively not permitted under the scheme. Many tax evaders are also not entirely persuaded that they would not welcome greater scrutiny of their tax returns in the future.

Conclusion on Income Declaration Scheme

There are numerous situations where people do not disclose their income accurately or under-report their income in order to avoid income tax. With a view of having these people report their payments and remit taxes, the income tax department conducts raids and inspects if a person’s accounts are suspicious. To make it easier for people to report their income, the government of India brought the Income declaration scheme, 2016, as an alternative for people who have undisclosed income. The scheme allows the citizen to reveal the undeclared income and pay the applicable taxes. This article has tried to give a succinct understanding of the whole income disclosure process.

 

After e-filing ITR, ITR-V, Receipt Status, Intimation u/s 143(1): Income Tax Refund refers to the amount refunded when income tax paid by the taxpayer is more than liability for a given year. It is necessary to file an income tax return (ITR) to claim the refund. Many people think that once the tax return has been filed, there is no work until the next tax return filing deadline. However, it’s not true as one has to verify the ITR or has to send ITR-V if returns are filed online without any digital signature. It is vital to get acknowledgment of ITR-V Receipt from Central Processing Centre and then wait for the intimation from Income Tax Department (IDT) as per section 143(1). Readout below to know what to do after e-filing ITR and what is intimation u/s 143(1).

Checklist After Filing ITR Electronically

After filing ITR, one has to verify the return by sending ITR-V by signing it with blue ink to Central Processing Centre, Bangalore. IDT starts the process further only when the return has been verified successfully. The taxpayer can also verify the return electronically instead of sending it physically to the department.

What After e-filing of Income Tax Return E Verification?

The income tax return can be verified electronically after uploading the return. Taxpayers using this facility have not to submit a signed paper copy of the ITR verification form to CPC Bangalore. Income Tax Return E Verification consists of two parts:

• Generation of EVC- E Verification Code or EVC is a 10-digit code used only with the PAN of the taxpayer providing the income tax return. It can be used to verify any ITR such as ITR 1, ITR 2, ITR 3, ITR 4, ITR 2A, and ITR 4S. Whether ITR is an original or revised return, one EVC can be used to validate only one income tax return and is valid for 72 hours.
• E Verification of ITR can be done while uploading income tax returns. It can also be done for an already uploaded ITR which are not e-verified.

How to Generate EVC for Income Tax Return?

• At first, the taxpayer has to link their Aadhaar card to the PAN number and then verify it with OTP sent to the registered mobile number. The PAN card and Aadhaar number can be linked only if the name, gender, and date of birth are identical on both of them.
• Click on the ‘Generate EVC’ tab at the website of income tax return filing. One can use this process only if the total income is less than Rs. 5 lakhs as per ITR, and there is no refund claim.
• Bank ATMs and Net Banking of all major banks can also be used to generate e-verification code.

Send Income Tax Return Verification After E-Filing

Online filing can be done with or without using a digital signature. It is essential for people who file it without using the digital signature to submit the ITR-V form to the officials at Bangalore. The process is as follows:

• When an individual files Income Tax Return online, ITR-V gets generated. It is a one-page pdf file, which contains the date and number of the electronic transmission as evidence of filing.
• After the taxpayer files their return electronically, they will receive ITR-V as an acknowledgment email from the Income Tax Department.
• By login into the income tax return filing website, one can download the ITR-V from the My Return section.
• The password of ITR-V is a PAN number along with the date of birth in DDMMYYYY format.
• In case, if a Tax Return Preparer prepares the return, then its particulars should also get filled and the verification form must get attested by the TRP.
• There is no need to send any other document in support of ITR-V. Enclose the verification page in an A-4 size white envelope and send it to the CPC within 120 days from the filing date.
• In case, if anyone misses submitting their ITR-V within 120 days, then their e-filing will get considered invalid. The taxpayer has to file a revised return and get a new ITR-V and then again submit it within 120 days.

Receipt from Central Processing Centre

CPC Bangalore sends an email acknowledgment upon receipt of ITR Verification. The email can reach within a month of sending ITR-V to the Central Processing Centre. One can check whether ITR-V is received or not through the following procedures:

• Call the CPC call center number, which is available from 9 AM to 8 PM to check the status of e-filing.
• Login on the income tax website and click on the My Account section. Check Views and Forms whether ITR-V acknowledgment is available.
• Check the SPAM folder if the email from CPC is sent but one did not get any acknowledgment.

Income Tax Return Processing Under Section 143(1)

After ITR e-verification, one has to wait for about one month to get intimation under section u/s 143(1) from Income Tax Department (ITD). It tells the taxpayer about any refund, interest or tax payable. One will get these intimations through the email address mentioned in income tax return filings or through the post. The document requires a password to open it. To open it, an individual has to enter their PAN number in small letters and DOB. The taxpayers should understand three possible scenarios to decode the ITR intimation:

• No Refund No Demand: If there is no difference between the details provided by the taxpayer and those verified by ITD, then an intimation letter will serve as a final assessment of the return. It means that the return filed is accurate and the department accepts the information provided. ITD will give a green card in this case and the status of the process turns to ‘No Refund No Demand’.
• Demand Determined: If the tax paid is less compared to the computed amount, then this intimation document becomes Notice of Demand u/s 156. The demand must get paid within a stipulated time as stated in the intimation.
• Refund Determined: If the tax paid by the taxpayer is more than the department computed, then such intimation will have a refund and will get granted to the taxpayer. The refund amount will get credited to the bank account within 20 to 40 days from the date of e-verification. In case, if the acknowledgment has been physically sent to the Central Processing Centre, then it can take a longer time.

How to Get Intimation Document Under Section 143(1) Again?

If the taxpayer did not receive an intimation on the registered email ID, they can follow the below-mentioned steps to get their intimation again:

• Open the official website of Income Tax India and download it- Taxpayers can download the intimation for the latest years by simply login into the e-filing account. After login, select the View Returns and Forms section and then click on the income tax returns option there. Hit on the acknowledgment number for which the taxpayer wants to get the information. After clicking on the intimation, the pdf attachment will get downloaded.
• Request Reissue of intimation under section 143(1)- One has to make an online request for reissue of the intimation to get its copy. Taxpayers should use the user ID, password, and enter the Captcha to log in to the Income Tax Department e-filing website. Click on the Service Request tab under the My Account section. A new screen would appear, ‘Select as New’. Select the Request category and hit on submit tab. Fill in the required fields as PAN, Return Type, Category, Assessment Year, and Sub-Category, and then click on submit. The intimation would be resent to the mentioned email in some days.

Conclusion on After e-filing ITR: ITR-V, Receipt Status, Intimation u/s 143(1)

The taxpayers should file their income tax returns on time for the early processing and avoid late fees. Intimation under section 143(1) is a kind of notice containing information about the refunds granted or the total amount of the tax payable. The return filer should act according to the conclusion of the intimation.

Compliance Income Tax Return Filing Notice: Income Tax is a vital tax that the central government levies on the income of individuals and businesses earned in a financial year. Income tax acts as an essential source of revenue for the government to carry out different public welfare activities. The income tax proceeds are used to provide better infrastructure, healthcare facilities, and education to the public. Income tax is a direct tax levied by the central government on the income of the citizens.

Every citizen should adhere to the income tax regulations and file income tax timely. If a person fails to comply with the income tax department and does not file a return, then he/she receives a notification from the department intimating the same.

In the notice sent by the income tax department, the person can be asked for explaining the reason for the non-filing of the tax return. The income tax department can also ask the person to furnish records of his incomes and expenditure for a particular financial year. Once you receive such notice from the income tax department, you have to explain the reason for not e-filing the return, or you can be asked to explains some facts regarding your income.

Here, in this article, we will discuss the compliance to the income tax return notice, how to reply to such notice, and how the income tax department gets information regarding your non-compliance.

Reasons To Get An Compliance – Income Tax Return Filing Notice

There can be numerous reasons why the income tax department can send a person the non-compliance Income tax return notice. Some of the primary reasons can be not filing the tax return or disclosing some facts about certain incomes. The Income-tax department gets information because it adheres to strict know your customer norms and online filing of return. The online filing of returns and easy access to data has made the system of the income tax department more efficient. Now, let us discuss the reasons for which a person can receive non-compliance income tax return notice:

• Late Filing or Non-Filing of Income Tax Return: One of the most common reasons for receiving a non-compliance letter is a delay in filing or non-filing of ITR. According to the income tax act, a person needs to file a return if his/her taxable income exceeds the exemption amount in a financial year. When a person does not file a return in any of the previous six assessment years, he/she is sent a notice by the income tax department intimating the same. Most of the employees think that they are not liable to pay income tax, as their employer has deducted TDS. Here, it is important to note that, even if TDS is deducted, an employee has to file ITR for his other source of income. If a person does not file ITR, he or she may be fined ₹5,000 every year. A person also has to pay 1% interest per month on the tax amount due, starting from the due date.
• Difference In Tax Credit: The income tax of an employee is deducted by his/her employer and is known as TDS. Form 26AS is an income tax document of a person that reveals the actual tax received, actual tax deducted, advance taxes, and refunds. On the other hand, the TDS certificate shows the tax deducted from one’s salary. If there is any mismatch or discrepancy between both the documents of a person, then he/she can receive a non-compliance notice from the income tax department.
• Non-Disclosure or Concealment of Income: A person can receive the non-compliance income tax return filing notice if he/she has concealed facts about his incomes. Most of the times, persons do not disclose all their sources of incomes to evade tax. If a person has unused lands, property, vehicles, jewellery, etc. He/she needs to disclose all the facts for wealth tax computation. If a person hides his sources of income and conceals facts, he or she may get a notice from the income tax department and be subjected to pay a fine.
• High-Value Transactions: If a person makes a transaction in large amounts, he/she is bound to declare such a transaction to the government for tax computation. The income tax department keeps an eye on the transactions of every individual. If there is any mismatch in the documents provided by the person, then he/she might get a non-compliance notice.

How Does The Income Tax Department Find Non-Compliance

The Income-Tax Department has set up a major data centre called the Centralised Processing Cell- Compliance Management or CPC-CM. The data centre was established in February 2013 to enable the Income-Tax department to check the cases of non-compliance and non-filing of tax returns. The data centres make it easier to access the data of individuals without even going through the hassle of a physical check.

The CPC-CM has the entire PAN data available to their benefit. They identify and send notifications to users that haven’t filed ITR or have concealed certain information. They do this with the help of information available in the different database including, Annual Information Return or AIR, Central Information Branch or CIB, and TDS/TCS return. Here, we have provided the details of data collected from different databases:

Annual Information Return

According to the tax laws, every institution is bound to furnish records of the financial transactions carried out by then in a particular financial year. They are required to summarise the details and submit the Annual Information Return or AIR. Following are the details of different financial data that is to be submitted in the AIR:

• AIR-001: Cash deposits of ₹10,00,000 or more in a year in saving accounts.
• AIR-002: Payment of ₹2,00,000 or more against credit card dues.
• AIR-003: Investment amounts of ₹2,00,000 or more in mutual funds.
• AIR-004: Bonds or Debentures investments amounting to ₹5,00,000 or more.
• AIR-005: Investment of ₹1,00,000 or more in shares.
• AIR-006: Purchase of immovable assets valued at ₹30,00,000 or more.
• AIR-007: RBI bond investment of ₹5,00,000 or more.

Central Information Branch

Central Information Branch or CIB is that part of the Income-Tax department that gathers all the transaction information related to Permanent Account Number or PAN. It records the following transactions regarding sales and purchase of property and monetary deposits:

• CIB-94: Sale of Automobile or Motor vehicle.
• CIB-151: Transfer of Immovable assets such as land or building.
• CIB-154: Transfer of Capital Assets where value declared is more than the sale value.
• CIB-157: Purchase or acquiring immovable property valued at ₹5,00,000 or more.
• CIB-183: Deposits of ₹1,00,000.
• CIB-185: Purchase of bank draft of ₹50,000 or more in cash.
• CIB-321: Share transactions of ₹20,000 or more.
• CIB-403: Investments in fixed deposits amounting to more than ₹2,00,000.
• CIB-406: Credit card dues payments amounting to ₹2,00,000 or more.
• CIB-410: Cash deposits amounting to 2,00,000 in a day.
• CIB-502: Contract amounting to ₹10,00,000 or more in the commodities exchange.
• CIB-514: Interest payments by the co-operative credit societies.

Tax Deducted At Source Returns

Under the TDS returns, the income tax department records two transactions, and they are:

• TDS-94A: TDS return of interest other than interest on security deposits.
• TDS-92B: TDS return of Salary to Employees.

Replying To Non-Compliance Income Tax Notice

In case you receive a notice from the income tax department for non-filing or non-compliance with ITR, do not panic. Given below is the step-by-step procedure to reply to such notices.

Step 1: The first thing one should do is log in to the e-filing portal at https://incometaxindiaefiling.gov.in.

Step 2: After the successful login, click on the “compliance tab”, one can see two options, “View and Submit my compliance” and “View my submissions”. The “View and Submit my compliance” tab will show the details of the years in which return has not been filed or “any third party information required” message.

Step 3: In this step, the taxpayer can choose either “return has been filed option” or “return has not been filed option”.

Step 4: A taxpayer can choose the “return has been filed” option only if he/she has filed the return and has to produce a proof for the same. The proof can be the acknowledgement number or time of e-filing.

Step 5: In case if your return has not been filed, you must choose the “return has not been filed” option. After which, you will be asked to choose a reason for not filing the return from the following options:

• “Return under preparation”.
• “Business has been closed”.
• “No taxable income”.
• “Others”. (if you select others option, you have to fill the remarks for the same.)

Step 6: Once you have provided all the relevant information, click on the “Submit” button.

Replying To Notice For Related Information

The income tax department sends related information notice when it requires a person to furnish details of third-party payments of receipts. Now, let us discuss the procedure of replying to related information notice:

Step 1: Go to https://incometaxindiaefiling.gov.in and log in to your account using your ID and password.

Step 2: After the successful login, click on the “compliance tab”, one can see two options, “View and Submit my compliance” and “View my submissions”. If the “view and submit my compliance” option shows “Thrid party information required”, then follow the next step.

Step 3: Now, you can choose the following options from the dropdown menu:

• “Self-Investment or expenditure is out of exempt income” for income spent out is exempt from tax.
• “Self-Investment or expenditure is out of accumulated savings” for investment or expenditure made out of your accumulated savings.
• “Self-investment or expenditure is out of gifts/loans from others” for investment or expenditure made out of money gifted by others or borrowed from others.
• “Self-investment or expenditure out of foreign income” for investment or expenditure made out of foreign income.
• “Self income from the transaction is exempt” for income from a transaction that is exempt under the tax.
• “Self income from the transaction is below taxable limit” for income from a transaction that is below taxable limit.
• “Self income from transaction-related to different assessment year” for income for transactions that belong to a different assessment year.
• “Self not known” for other explanations.
• “Not known” for no information available for such transactions.
• “I need more information” if one needs more information to submit a response.

Step 4: After having selected the option that best suits you, click on the “Submit” button.

The response that a taxpayer submits for the non-compliance of the tax return will be verified by the Income-Tax department. If the department finds the response to be satisfactory, the case will be closed, and the taxpayer will be intimated for the same.

In The End…

Income tax is an essential source of revenue for the government to provide better infrastructure and carry out public welfare activities. Being a responsible citizen, everyone should file the income tax return on time to avoid the hassle of going to a non-compliance response.

Importance Of Income Tax: Income tax is the tax imposed by the government on the income of individuals or businesses. Income tax is the main source of government funding. The Income Tax Act was introduced to the public in 1961. Income tax is collected by the government to raise funds for the defence department and development of the country.

There are two types of taxes:

1. Direct Tax
2. Indirect Tax

Direct Tax 

Direct tax is the tax paid by a person directly to the government on their income and profit. Wealth tax, income tax, personal property tax, corporate tax, transfer tax, etc are examples of direct tax.

Indirect Tax 

Indirect tax is the tax imposed on goods and services by the government. Value-added tax(VAT), excise duty, sales tax, etc are examples of indirect tax.

Income Tax Calculation

Income Tax Slab Rates: Income tax slab rates are the rates based on the annual income of an individual or business and are progressive.

Income Tax Slab Rates for Individuals

Income slab	General category	Senior citizens(age 60yrs-80yrs)	Very senior citizens(above 80yrs)
Up to 2,50,000	Nil	Nil	Nil
2,50,001- 3,00,000	5%	Nil	Nil
3,00,001- 5,00,000	5%	5%	Nil
5,00,001- 10,00,000	20%	20%	20%
Above 10,00,000	30%	30%	30%

Income Tax Slab Rates for Businesses

For Cooperative Societies

Income tax slabs	Income tax rates
When income is within Rs.10,000	10% of the income
When income lies between Rs.10,000- 20,000	20% of the amount which exceeds 10,000
Above Rs. 20,000	30% of the amount which exceeds 20,000

For Firms And Domestic Companies

• The slabs rates are not applied in the case of firms and domestic companies.
• 30% tax is collected on the total income.
• If the total income of domestic companies exceeds Rs. 1 crore, a surcharge of 7% is imposed.
• If the total income of domestic companies exceeds Rs. 10 crores, a surcharge of 12% is imposed.
• For such entities, a 3% education Cess of tax plus surcharge is also charged.

How is Income Tax Collected?

Income tax is collected in three ways by the government:

1. Tax Deducted at Source(TDS) – It is the tax that is to be deducted on some expenses and payments made like the sale of a property.
2. Tax Collected at Source (TCS) – It is the tax payable by the seller which is to be collected by the buyer at the time of sale.
3. Voluntary payments by individuals into banks.

Calculation of Income Tax

Income tax can be calculated by two methods either computation of income tax format or by using an income tax calculator.

Computation of Income Tax Format

Computation of income tax format for the year ending

Particulars	Rs.	Rs.
Income from salary
Salary	xxxx
Allowances Received(taxable allowances)	xxxx
Taxable Value for perquisite	xxxx
	====
Gross salary	xxxxx
Less: Deduction under Section16
Professional tax	xxxxx
Entertainment allowance	Xxxxx
	====
Income from Salary (1)		XXXXX
Income from House Property
Adjusted net added value	xxxxx
Less: Deduction under Section24	xxxxx
	====
Income from House Property (2)		XXXXX
Profit and gains of Business and Profession

Net profit as per profit and loss account	xxxxx
Add: income which are debited to profit and loss account but not allowable as deductions	xxxxx
Less: expenditure which are not debited to profit and loss account but allowable as deductions	xxxxx
Less: income which are credited to profit and loss account but are exempted under section 10	xxxxx
Add: income which are not credited to profit and loss account but are taxable	xxxxx
	====
Profit and gains of Business and Profession (3)		XXXXX
Capital Gains
Amount of Capital gain	xxxxx
Less: amount exempt under section 54 and 54H	xxxxx
	====
Income from Capital Gain (4)		XXXXX
Income from other sources
Gross income	xxxxx
Less: deduction under section 57	xxxxx
	====
Income from other sources (5)		XXXXX
		======

Total income (1+2+3+4+5)		XXXXX
Less: adjustment on account of setoff and carried forwarder of losses		XXXXX
		=====
GROSS TOTAL INCOME		XXXXX
Less: deduction under 80C and 80U		XXXXX
		=====
Net income rounded-off nearest Rupee ten		XXXXX
Computation of Tax Liability
Tax on net income		XXXXX
Less: Rebate		XXXXX
		=====
Balance		XXXXX
Add: Surcharge		XXXXX
Tax and Surcharge		=====
Add: Education Cess		XXXXX
Less: Prepaid taxes
Tax Deducted at Source	xxxxx
Advance tax	xxxxx
Self Assessment tax	Xxxxx	XXXXX

		=====
Tax Liability / Refund		XXXXX

Steps for Computation of Income-tax

1. The first step for computation of income tax format is to ascertain the adjusted gross income.
2. The second step is to compute federal taxable income and the consequent tax. This establishes itemized deductions, calculating the deductions and finally subtracting them.
3. The last step is to carry out the computation of final tax and exemptions. In this final step, first, compute the exemptions which are not allowed, then ascertain gross income tax for the present financial year, and finally, exclude the credits according to the eligibility.

How to Select Tax Methods?

New tax regime; tax rates are lower than the old tax regime. For those who do not have tax-saving plans/investments, this is a better option for them by not paying rent or having any house loans or other tax-savings payments.

Old tax regime; can be used by those who have tax-saving plans/investments, pay rent, have housing loans, and so on.

Note: you can shift from an old regime to a new regime at any time during a financial year but shifting from the old regime to a new regime is not allowed by many employers.

Conclusion on Importance Of Income Tax

Income tax is important for the government for funding to carry out its necessary functions and duties. The computation of income tax format is lengthy but easier to use. For people who do not want to use the format or save time, the virtual income tax calculator is provided on many websites on the internet. Although the government needs to collect taxes, they also make various provisions to help citizens save income tax like providing term insurance plans.

 

 

GST Input Tax Credit?: A tax credit implies that a manufacturer was able to compensate against a tax liability. In other words, the taxpayer is given an opportunity to skip a particular portion of the amount of tax he owes to the concerned authority.

What exactly is the Input Tax Credit or the ITC?

An input tax credit is a phenomenon that permits the taxpayer to reduce a certain amount of tax payable on the inputs with respect to the tax paid on output.

The taxpayer will be eligible to deduct and claim Credit for the amount of the input tax in the course of settling the output tax. To put it in simple words, if any supply of services or goods is offered to an individual who is considered for taxation, the GST imposed is termed as the Input Tax.

What are the SGST, UTGST, CGST and IGST

The State Goods and Services Tax commonly referred to as the SGST, is the taxation system that is categorized under the individual state governments. Therefore, sales or purchases carried out within the jurisdiction of a state are liable to implementing the SGST.

The rate of SGST is the same as that of the CGST and applied simultaneously with it.

The Central Goods and Services Tax, commonly referred to as the CGST, is a tax issued by the government regarding indirect tax.

It is an intrastate tax, i.e., it is liable for transactions within the boundaries of a particular state.

The central government depository is responsible for the collection of the tax amount under CGST.

The CGST is levied in place of other previously implemented taxation systems under the government, which include the-

1. Central Excise Duty,
2. Service Tax,
3. Duties of CustomS

The UTGST or the Union Territory Goods and Services Tax (UTGST) is almost synonymous with the State Goods and Services Tax.

However, there is one difference- the tax collected is delivered to the depository of the government of the union territories, which is the location of the use of the service or the goods which have been assessed under the tax.

UGST is charged under equal rates as that of CGST. It is assessed together with the CGST. However, one should note that only the UGST or the SGST are issued one at a time along with the CGST.

The Integrated Goods and Service Tax or the IGST is a taxation system applicable for interstate transactions.

The main difference it has with the other tax systems is that contrary to IGST, all the other taxes are intrastate.

The IGST rate is roughly an estimated equal to the sum of the CGST and the SGST rates.

Which Category Of Individuals Fall Under Input Tax Credit Scheme?

Adhering to the rules as specified in Section 18(1) of the CGST Act, 2017, the following group of individuals are considered under the Input Tax Credit scheme-

• The clause under Section 18(1)(a)) mentions that any person or company who had an existing business before the implementation of the GST and who are required to enrol for GST
• The clause under Section 18(1)(b) mentions that an individual who willingly opts for registration choice
• As per Section 18(1)(c), any person who stops paying tax under the composition scheme and opts for the standard system of taxation
• Under Section 18(1)(d), any transactions which were previously categorized under exempt supply converts to a taxable supply

Any licensed individual shall be entitled to take credit for input tax charged on any supply of products or services used or intended to be used in their company centred on some of the tax-paying records mentioned below:

• A tax invoice has been released.
• Notice of debit
• Bill of entry
• Invoice produced on a reverse charge basis.
• Input Service Distributor issues a document for credit delivery.

Therefore, ITC charged in one state should not be identified with an available individual’s organization in another state, despite the fact that the individual in question is the same person considered for taxation.

Persons That Are Not Eligible for the Input Tax Credit

• Individuals who have not been registered under the GST scheme
• Those who have enrolled themselves for the composition scheme

The Time Deadline To OPT for Input Tax Credit

• Suppose a person has applied for registration or is liable to register or is granted registration. In that case, the concerned person can claim the Input Tax credit from the immediate day when he is liable to pay taxes.
• When a person takes voluntary registration, his claim for ITC starts from the registration day itself.

The input tax credit will be inquired for the previously mentioned circumstances only if it doesn’t surpass one year from the tax invoice date of issue relating to supply.

In all other instances, ITC must be asserted prior to the earliest of the following-

1. Furnishing of yearly return or
2. Deadline of documenting the month-to-month return (GSTR-3) for the following monetary year’s September month

Prerequisites for Claiming the Input Tax Credit

• The consumer must have paid the invoice’s sum, as well as the taxes, to the provider of goods or services, or both, as the situation demands, within 180 days of the invoice’s issue date.
• The tax collected via tax invoice must be deposited into the government’s record by the concerned taxpayer.
• The tax invoice information must mandatorily file the GST return.
• In case the tax payable or taxable value listed in the invoice is less than the tax payable or taxable value on those goods, the seller must essentially give a debit notice to the receiver.
• Bill of entry.
• A credit note or invoice needs to be issued by the ISD (Input Service Distributor) as indicated by the GST invoice guidelines.
• An invoice must be given similar to a bill of supply alternatively to a tax invoice in some circumstances. If the sum is less than INR 200, or if the reverse charges are valid under GST legislation, this is applicable.
• According to the GST invoice law, a supplier submitted a bill of supply for goods and services or both.

The Following Situations Do Not Qualify for an Input Tax Credit under section 17 (5).

• The application of motor vehicles and other modes of transportation is prohibited under GST: The ITC on motor vehicles paid will not be compensated against the output tax duty under the GST Law. As such, you will not have the option to claim the Credit for your vehicle or other means of transportation.
• Membership in a club, fitness club, or wellness center: If you have prepaid for an exercise pass, yoga classes, or association in a club for a sport or other practice, you will not stand for the ITC credit.
• Travel opportunities offered to employees in the form of Leave or home travel concessions: In the event that you have booked any travel package, you won’t guarantee ITC the payment of the travel package. Be that as it may, suppose you booked the travel package for business purposes, claim of ITC would be permitted.
• Goods, services, or a combination of the pair that are accepted for private purposes: The ITC isn’t qualified whether the items or offices are utilized for individual use. ITC is just accessible where taxation is charged or charged on the outside conveyance of merchandise or administrations, as per the law’s essential guidelines.
• Circumstances when contract services are granted for constructing a mobile house: This is possibly the most controversial aspect of ITC. Taxpayers and the IRS have long had a dispute over job contract suppliers. Regardless, the works contract issue has relatively brought under control after the implementation of the GST norms.
• ITC with respect to the Composition Levy: The ITC isn’t material on items or regimes on which the composition distributor has already paid tax.
• ITC on lost, stolen, burnt, written about things or given away as presents or free specimens: ITC would be useless to claim ITC if the objects were lost, broken, or destroyed, or in case they were distributed as free samples.
• ITC with respect to real estate developer-supplied goods or facilities: Goods or services except the required machines obtained by an available individual for the construction of a fixed property on their own, even where those products or services (or both) are utilized in the course or assistance of activity, do not qualify for ITC.
• In the case of a nonresident person who is considered for taxation, an ITC is available: ITC will not be qualified if the nonresident taxing person acquires any goods or services. On the off chance that an NRTP obtains any goods or services, nonetheless, they will be liable for the ITC. Furthermore, the IGST rate applies to all imports and exports.
• ITC claim for food and beverages, outdoor catering, health care: Food and beverages, outside cooking, magnificence medicines, dental consideration, and corrective and plastic medical procedures would not qualify for the ITC. Be that as it may, the ITC is appropriate whether an authorized resident requires an interior supply of items, services, or both to make an available outer stock of similar sort of merchandise, services, or both, or as a feature of a taxable scheme.
• In the event of deliberate theft: The input tax credit will be ineligible in the case of fraud.

What is the qualification for the claim of the input tax credit on inputs in funds for a taxpayer in case they opt for voluntary registration?

The individual who obtains voluntary registration is allowed an input tax credit for input tax on stock, semi-finished goods, and finished goods in stock.

The primary condition that needs to be followed is that the goods need to be stored precisely on the day preceding the registration request.

In what Way can one Utilize the Input Tax Credit?

An eligible taxpayer should only practise input Tax Credit obtained from the CGST, SGST, and IGST taxation system to pay separate taxes in a particular way.

• When ITC is obtained from CGST
• The principal inclination is to pay CGST.
• The taxpayer can utilize the excess sum to pay IGST.
• The taxpayer cannot use CGST ITC to pay SGST.
• When ITC is obtained from SGST
• The principal inclination is to pay SGST.
• The taxpayer can utilize the excess sum to pay IGST.
• The taxpayer cannot use CGST ITC to pay CGST.
• When ITC is obtained from IGST
• The principal inclination is for the payment of IGST.
• The next choice is to pay CGST.
• If there is some extra amount, the taxpayer can apply it to pay the SGST.

The ITC has the assumption that only worth additions at various points can be assessed. This essentially excludes the taxation’s cost cascading consequence. Therefore, the input tax credit (ITC) is the very basic building block of the GST management and one of the GST framework’s primary sources.

Explain the phrase the Reversal of Input Tax Credit

The object of credit reversal under GST is the same as it is under the current tax system. In plain English words, credit reversal pertains to the Reversal of an earlier conferred credit.

Reversal of Credit refers to Credit taken out and used when the final product is taxable but is only reversed as the final product becomes excluded.

The Reversal of Input Tax Credit can be claimed as per the following-

• Inability to pay provider within 180 days from the date of invoice.
• Goods and services, whether inputs or capital goods applied for individual purpose.
• Goods and facilities used in the production or provision of exempted goods or services.
• An input tax credit that one earned on the selling of goods or plant and machinery.
• Section 17(5) of the Act also makes a particular group of supplies ineligible.
• Change from a licensed regular dealer to a composite dealer.

Demand for ITC when GST is Calculated on Reverse Charge

The service consumer can claim Input Tax Credit on the tax balance paid under reverse charge on goods and services. The only GST ITC law is that the products and services must be used or benefited by the company or organization which is taking part in the transactions.

In the event that the composite distributor is dependent upon the reverse charge system, the person would be ineligible to get any ITC.

The concerned authorities would collect the tax at the ordinary rates, not the composition rates.

ITC as it relates to Capital Goods and the Reversal of sale

It is feasible to make it beneficial; tax credit for capital products can be adjusted with one installment.

On the off chance that the individual has declared depreciation under the Income Tax cat pertaining to the GST section, an input tax credit for the part included for taxation of capital products isn’t allowed.

An individual may request deterioration on the expense bit or take a GST input tax credit on the capital products in different terms.

In the event that an available individual purchases capital products on which an ITC was asserted, the concerned taxpayer is fitted to meet GST needs at a higher rate from the accompanying sources:

• ITC acquired those capital goods at a 5% discount from the invoice cycle per quarter or half-year.
• GST average compounded by selling price of the capital goods

When refractory bricks, moulds and dies, jigs and fixtures are sold as waste, the taxable individual may be required to pay tax on the transaction value of the product.

Refund of Input Tax Credit under GST Taxation System

Refund of Input Tax Credit under GST comes in three patterns, i.e., there are three possible scenarios in which a taxpayer has deemed fit to demand the ITC refund in their electronic credit/cash ledger.

The three circumstances in which taxpayers will seek an ITC-refund are as follows.

• Refund of unspent Input Tax Credit (ITC) on record of Exports without the adjustment of integrated tax.
• Refund of unspent Input Tax Credit (ITC) in case of goods or services provided to SEZ Unit/ SEZ Developers without advancing integrated taxes.
• Refund of unutilized ITC on account of accumulation due to the reversal tax structure, where the input tax exceeds the outward tax liabilities.

Procedure to claim Credit when the Tax Has Been Paid Under Reverse Charge Mechanism or the RCM

When tax is charged on a reverse charge basis, the taxpayer may claim an input tax credit in the same month as the bill, providing the following requirements are met:

• (1) Liability has been settled through modes of cash
• (2) Goods or service has been essentially utilized for business transactions and purposes
• (3) Self-invoicing has been implemented on such transactions since an unregistered supplier can issue no tax invoice under this scenario

What is the course of action or the recovery mechanism for wrongly claimed Credit by a taxpayer?

The concerned authorities would recover the wrongly availed Credit from the registered taxable person as per the guidelines mentioned in section 73 and 74 of the CGST Act.

Filing of return

To claim or refund the Credit of ITC, a registered person has to mandatorily file the return under section 39 of the Income Tax Act.

In a situation where the depreciation is asserted on the tax portion, claiming ITC would be ineligible.

In case a particular registered taxpayer has asked for depreciation to be implemented on the price of capital goods under the guideline’s ad mentioned in the Income Tax Act of 1961, the ITC claim on the part that is considered for taxation would be denied.

Consequently, we may conclude that the government would not permit any taxpayer with a double profit on the tax elements.

According to the rules laid down by the government, a taxpayer cannot demand both depreciation and ITC under GST law to be calculated on a segment included for taxation.

This implies that the registered taxpayer has two options from which they can opt for only one

• Demand depreciation on the tax part
• ITC on the tax levied

No taxpayer can avail both the options as mentioned earlier simultaneously.

ITR 4: What is ITR 4? ITR 4 is basically a form for Income Tax Return and is made for the taxpayers who have selected for the tentative scheme of income as per the Income Tax Act’s Section 44AD, Section 44ADA and Section 44AE. However, if the business’s annual turnover exceeds Rs.2Crore, then also the taxpayer has to file ITR – 3.

Who Should File ITR 4?

ITR – 4 forms must be filed by any partnership/individual/HUF firm whose total salary or turnover for Assessment Year 2019 – 20 comprises:

• Income through an individual professional that is calculated u/s 44ADA.
• Income from individual business u/s 44AE or 44AD.
• Salary/Pension up to Rs.50Lakh.
• Income through a single individual house property that is worth up to Rs.50Lakh (this excludes the loss that is carried forwarded or brought forward loss in this head).
• Income through any other sources that are up to Rs.50Lakh (this excludes winning from horse race and from the lottery).

Who Should Not File ITR 4 for The Assessment Year?

Anyone whose source of income is salary, house property, or some other source and if the annual income of an individual is more than Rs.50Lakhs is not eligible to use this form.

Any individual who is either a director in a company or invested in unlisted equity shares is also not eligible to use the ITR 4 form.

Structure of ITR 4 Form

The basic structure of the ITR 4 form can be divided into four parts:

Part A: General Information about the form.

Part B: Gross total income calculation through the five income heads

Part C: Gross total taxable Deduction and Income.

Part D: Tax computation and status.

• Schedule BP: Details of income from an individual Business (For Assessment Year 2018 – 19, this form is modified to include details of GST along with detailed information of finances which is furnished in Schedule BP)
• Schedule 80G: Donations’ details that are entitled to deduction as per 80G
• Schedule IT: Payment’s statement of tax on advance tax and self-assessment.
• Schedule – TCS: Statement’s tax collected at the source.
• Schedule TDS1: Tax deducted statement at the source over the income that is other than salary.
• Schedule TDS2: Tax deducted statement at the source over the income that is other than salary.

The Process to File ITR 4

One can submit his/her ITR 4 form either online or offline:

Offline Mode:

One can file the ITR 4 form offline only in the below-mentioned cases:

• If any individual is of 80 years or more.
• The individual’s income is not more than Rs.5 Lakhs, and those who do not need to claim the refund in ITR.
• The following is the process of filing Income Tax Return offline:
• By furnishing Income Tax Return in the form of physical paper.
• By furnishing the bar-coded return.

The income tax department issues an acknowledgment during the submission of the physical paper return.

Electronically / Online:

• This can be done by furnishing the Income Tax Return electronically under the digital signature.
• By electronically transmitting the data and after that submitting the return’s verification in the Return Form, i.e. ITR – V.

If one submits his/her ITR 4 form electronically with a digital signature, then an acknowledgement is sent to that person on his/her registered email id. One can also select to download this form manually from the website of the Income Tax Department. Then he/she is needed to sign this form and send it to the Department of Income Tax’s CPC Office that is situated in Bangalore within three months (approximately 120 days) of e-filing.

Note: ITR 4 is one of those forms that are annexure-less, which means; one does not have to attach any document while sending it.

Major Changes Made in ITR 4 for AY 2020-21

1. Individual taxpayers need to meet the criteria of (a)incurring expense above Rs 2 lakh on foreign travel or (b) making cash deposits above Rs 1 crore with a bank, or (c) if the total expenditure is above Rs 1 lakh on electricity, then the individual should also file for ITR-1. The taxpayer should specify the amount of the expenditure or deposit.
2. Under Part A, the ‘Govt’ checkbox stands changed to ‘State Govt’ and ‘Central Govt’, and a checkbox for ‘Not applicable’ (e.g. family pension etc.) has been introduced under the section of ‘Nature of employment.
3. Return filed under section has been separate between normal filed and filing in response to notices.
4. The ‘Schedule VI-A’ for tax deductions is revised to include reduction under section 80EEA and also section 80EEB. A drop down is given to enter a description of donations under section 80G
5. In ‘Schedule BP’, gross receipts or gross turnover to include revenues from authorizing electronic modes received before the mentioned specified date.
6. The details of tax deduction claims for payments or expenditure or investments made between 1 April 2020 until 30 June 2020.

Major Changes Made in ITR 4 for AY 2019-20

1. ITR 4 form for the year 2018-19 does not apply to a person who is either a director of a company or has already invested in unlisted equity shares.
2. Under Part A, the ‘Pensioners’ checkbox has been introduced under the section of ‘Nature of employment’.
3. Return filed under section has been separated between normal filing and already filed in response to official notices.
4. Deductions under salary will be separated into standard deduction, professional tax and entertainment allowance.
5. 80G Deduction: The amount of Donation is bifurcated into cash and other modes.
6. Separate Business details like Business code, name of business, description for section 44AD, 44AE and 44ADA.
7. New fields under section 44AE have been introduced like Registration No. of goods carriage, whether hired/owned/leased, Capacity of goods carriage in Tonnage (in MT), No. of months for which goods carriage was hired/owned/leased by assessee etc.
8. Under GST details, the turnover rate text has been replaced by “Annual value of outward or exported supplies as per the GST returns filed”.
9. ‘Deemed to be let out property’ option is made available now under ‘Income from house property.
10. The taxpayers will be required to provide income-wise detailed information and description under the ‘Income from other sources.
11. For deduction u/s 57(iia), a separate column is introduced under ‘Income from other sources – in case of family income through a pension.
12. Section 80TTB column is now included for senior citizens.

Presumptive Taxation Under Section 44AD

What is Section 44AD of the Income Tax Act?

To provide relief and reduce the tax burden to the taxpayers from tax compliances, the government of India incorporated and introduced a simplified scheme. The scheme of tentative taxation under section 44AD of the Income Tax Act of India. Businesses are not required to maintain regular books of accounts anymore if they are adopting the presumptive taxation scheme.

A presumptive income scheme allows the assessee at a prescribed rate under the income tax act to declare their income. Section 44AD is one of the newly introduced sections of such a scheme. This saves a lot of compliance-related costs and time.

The pertinence of section 44AD of the Income Tax Act

There are special allocations accommodated in section 44AD of the income tax act, which applies to the individual. Below are the types of an individual who can choose for the provisions of the given scheme:

Partnership firms(excluding limited liability partnership),

Individual resident taxpayers,

Hindu Undivided Family,

To benefit from the provisions of the scheme, the individual should not have claimed deduction under chapter VI-A which states “deductions in respect of certain incomes” or section 10AA. It applies to businesses whose gross receipts or total turnover in the previous year is less than Rs. 2 crore.

A few assessees who cannot opt the section 44AD scheme

An individual assessee or a firm who is involved in providing professional services and earning the income, which is in the nature of commission or brokerage, cannot adopt the presumptive income scheme. However, a separate has been introduced for such professionals, which is section 44ADA that allows them to opt for this presumptive scheme.

A person who is having any business of agency or an individual assessee who is claiming deduction under chapter VI A under part C or section 10AA – deductions in respect of a certain amount of income.

Features Provided by section 44AD of Income Tax Act

Section 44AD bestows an option to the individual assessee to choose between opting for the presumptive scheme or the normal provisions. Mentioned below are few key features of the presumptive income scheme of Section 44AD:

As per the scheme provisions, a sum equal to 8% of the gross receipts or total turnover of the assessee or a percentage higher than 8% shall be considered to be the profits of such business.

In order to encourage businesses to accept digital payments and to promote digital transactions, the rate of 8% has been revised and been brought down to 6%. Thus, in effect, individual accepting digital payments can consider their deemed 6% of total income. This would be only applicable in a case where the amount of such gross receipts or turnover is received by:

Account Payee Bank Draft or Cheque

1. IMPS
2. UPI
3. Credit Card
4. Debit Card
5. Net Banking
6. NEFT
7. RTGS

However, the individual assessee has the option to declare an amount higher than the presumptive income so calculated, or in his return of income, claimed to have been actually earned by the individual.

The eligible assessee, to the extent of the whole amount on or before 15th March, needs to pay the advance tax.

The assessee will get exemption from maintaining books of accounts by opting for the scheme.

In a case where an assessee declares profits in accordance with the scheme by opting for the presumptive scheme and does not declare the profits for any five consecutive assessment years, not in accordance with the scheme, in accordance with the scheme, the individual shall not be eligible to claim any benefit of the provisions for further five assessment years starting from the year in which profits were not declared.

Allowances and Deductions of Section 44AD Presumptive Income

Any deductions shall be deemed to have already been provided if permitted under the provisions of sections 30 to 38. In such a case, the taxpayer cannot claim any further deduction.

A deduction on account of salary paid and interest to the partners can not be claimed under the provisions of section 44AD as it does not allow the firm.

As per sections 40, 40A, and 43B, there shall be no disallowances.

Applicability of Advance Tax in Section 44AD

In straightforward terms, income tax should be paid in advance instead of the year-end is what advance tax means. It has to be made in installments as per the due dates provided in the income tax act and falls in the category of ‘pay as you earn’.

An individual assessee opting for the scheme of presumptive tax, to the extent of the whole amount before or on 15th March of the financial year, must pay the advance tax.

The Pertinence of Written Down Value for Presumptive Income Section 44AD

An eligible business shall be deemed by the written down value of any asset to have been calculated as if the individual assessee had been already claimed and, in respect of depreciation for each of the relevant assessment years, allows the deduction.

The Pertinence of Section 44ADA for Professionals

In case the individual assessee is carrying on any business, the provisions of section 44AD are only applicable. The provisions of section 44ADA will actually come into force in a case where the assessee is carrying on a profession.

Section 44ADA is also another presumptive tax scheme that was introduced from the financial year 2016-17. For small professionals, it provides a simple method of taxation.

The scheme is applicable to the following individuals:

Individual who engages in any profession referred to in section 44AA(1). Professions such as engineering, the architectural, legal, and medical profession. Additionally, the technical consultancy or profession of accountancy or interior decoration or any other profession is notified by the Official Gazette Board.

Individuals who do not exceed 50 lakhs of gross receipts or turnover in the previous year.

In the case of such individuals, the presumptive income would be a sum is a higher amount or equal to 50% of the total gross receipts as may be provided for by the assessee under section 44ADA. Any further deductions which are allowed under section 30 to 38 shall be deemed to have already been provided for them.

Like section 44AD, the individual must pay the advance tax if opting for section 44ADA. The assessee must make the payment by 15th March of that financial year. Under section 44AA(1), the taxpayer is getting exemption from the maintenance of books of accounts in respect of such income.

An individual may claim that his gains and profits from the above profession are lower than the gains and profits deemed to be his income under section 44ADA. If such total income of the individual exceeds the basic exemption limit, then under section 44AA, the individual has to maintain books of account. The books of accounts of the individual must also undergo an audit. Additionally, the individual needs to furnish a report of such audit.

Which Individual can file a return under section 44AD?

Under section 44AD, the following assessee’s can file a return:

• A resident partnership, HUF, and an individual firm (excluding LLP). The individual assessee must engage in eligible businesses. Under section chapter VIA or 10A/10AA/10B/10BA – deductions in respect of certain income(80IA to 80RRB), he must not claim any deduction.
• The firm or individual’s gross receipts or profit in the previous year does not exceed a gross amount of Rs. 2 crores.
• Other than a business of leasing goods carriage, plying, or hiring, will be imposed on individuals or firms engaged in any business.
• Further, the individual assessee must declare a minimum of 6% or 8% of the gross receipts or total turnover.

What Is The Turnover Under Section 44AD of the Income Tax Act?

For the purpose of section 44AD, gross receipts or total turnover is the amount that is receivable or received from the client in respect of the sales made in the foregoing year. An option to the individual assessee to choose either the mercantile or cash method of accounting is provided under Section 145 of the income tax.

Gross receipts shall not consider or include the value of material supplied by the client or business.

Below are some receipts that do not form part of the gross receipts:

• Retention money
• Value of inventory
• Interest income
• Sale of property, plant, and equipment
• Advances received from customers

Under Presumptive Income, Is The Maintenance Of Books Of Account Mandatory?

The assessee can claim relaxation in the maintenance of books of accounts if the assessee is opting for the presumptive income scheme.

Compulsorily maintain his accounts books if a person declares his income below 6%/8% of gross receipts or total turnover, total taxable income is above the exemption limit.

Presumptive Taxation Under Section 44AE

Who can opt for the tentative taxation scheme of Section 44AE:

The provisions of section 44AE are pertinent to every person (i.e., an individual, company, HUF, firm, etc). A person who is engaged in the hiring or leasing of goods carriages, the business of plying and who at any time does not own more than ten goods vehicles during the year can adopt the presumptive scheme of section 44AE for taxation.

Business/Persons Not Covered Under This Section 44AE

A person who is engaged in the hiring or leasing of goods carriages, the business of plying and who at any time does own more than ten goods vehicles during the year can not adopt the presumptive scheme of section 44AE for taxation.

Under The Presumptive Taxation, Computation Of Taxable Business Income Scheme Of Section 44AE

For an individual who is willing to opt for the presumptive taxation scheme of section 44AE, the individual’s income will be computed on an estimated basis.

For Heavy Goods Vehicle, at the rate of Rs. 1,000 per ton of gross or total vehicle weight, income will be computed for part of a month or every month during which the heavy goods vehicle is owned by an individual taxpayer.

In the case of vehicles other than the heavy goods vehicle, at the rate of Rs. 7,300 per ton of gross or total vehicle weight, income will be computed for part of a month or every month during which the heavy goods vehicle is owned by an individual taxpayer. In this case, part of the month would be considered as a full month.

Payment Of Advance Tax Under Section 44AE

In the case of an individual who adopts the tentative taxation scheme of section 44AE, there is no adjustment as regards payment of advance tax, and, hence, the individual will be liable to pay advance tax even if the person adopts the presumptive taxation scheme of section 44AE.

Presumptive Taxation Under Section 44ADA

Who can opt for the tentative taxation scheme of Section 44ADA

To give reassurance to small taxpayers engaged in specified professions, the presumptive taxation scheme of section 44ADA is designed.

A person or individual resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

1. Accountancy
2. Technical consultancy
3. Legal
4. Medical
5. Engineering or architectural
6. Any other profession as notified by CBDT
7. Business/Persons not covered under this section 44ADA
8. Interior decoration

Certain professionals or individuals whose total gross receipts or income from profession surpass Rs. 50,00,000 in a financial year of India are considered to be not eligible to choose this section.

DTA Vs DTL: What is the Deferred Tax? The word “deferred” means “delayed” or “postponed,” so deferred tax is a tax that has been projected for the present time that is due for that term but has not yet been paid.

The lag or postponement happens when there is a time delay between when the tax is accumulated and paid.

In a company’s financial records, there are both deferred tax assets and deferred tax liabilities. Because of the time differences between the two, there is a variation in the company’s accounting.

The two most basic forms of deferred tax are Deferred Tax Asset and Deferred Tax Liability.

What is the Deferred Tax Asset (DTA)

Deferred tax asset shows a firm’s situation of paid additional taxes or taxes in advance, which the organization then claims as a tax relief amount.

One may compare a deferred tax asset to rent charged in advance or refundable insurance premiums. Around the same time, the company no longer has capital on hand, but it does have equal value, expressed in the financial statements.

This asset contributes to the company’s potential tax burden being reduced. A deferred tax benefit is only known because the asset’s loss-value or depreciation gap is assumed to cover potential gains.

Deferred Tax Liability (DTL)

A deferred tax liability (DTL) is an income tax commitment resulting from a temporary disparity in book costs and tax deductions reported on the balance sheet that one will charge in a hypothetical accounting period.

The duty arises when a corporation or employee postpones an incident that would otherwise result in tax costs being recognized in the current year.

The disparity in time between when the tax is accrued and when it is paid causes the deferral.

The corporation receives its book profits from financial accounts compiled in accordance with the Companies Act’s laws, and the net benefit is calculated using the provisions of the Income Tax Act. Since such things are expressly permitted or disallowed for tax purposes each year, there is a distinction between book profit and taxable profit.

Difference Between Book and Taxable Revenue

The timing discrepancy is the difference between the book and taxable revenue or cost, and it may be any of the following:

1. Temporary Difference – The company can resolve differences between book income and taxable income in the following year.
2. Permanent Difference – The company cannot change the difference between book and tax revenue in the following cycle.

It is worth noting that DTA and DTL are only taken into account where a temporary difference exists.

In the guise of dta vs dtl, deferred tax assets are classified as non-current assets, while deferred tax liabilities are classified as non-current liabilities.

Both DTA and DTL will be adjusted for each other because they are constitutionally enforceable, and there is no intention to resolve liabilities and properties on a net basis.

Example

Let us consider that company A has the following details:

Income as Shown in a Company’s Books of Accounts

Revenue	INR 600
Expenses as per books	INR 100
Taxable income	INR 500

Tax rate= 30%

Hence, tax= INR 150

Income as determined by the Tax Authorities

Revenue	INR 620
Expenses allowable as per IT authorities	INR 150
Taxable income	INR 470

Tax rate= 30%

Hence, tax= INR 141

Today’s excess tax is attributable to the discrepancy between the taxes computed on the company’s books, and the income tax authorities’ income is 150-141=9.

This number, 9, is referred to as a deferred tax asset (DTA). During one or two future years, one will adjust it in the books of accounts.

References to Common Conditions in Which DTA, DTL Arises

• The disparity between how tax laws and accounting principles handle depreciation costs is a common cause of deferred tax liability. Depreciation cost on long-lived properties is customarily measured using a straight-line formula for financial reporting purposes, but tax laws enable businesses to employ an accelerated depreciation method. A company’s financial revenue is temporarily higher than the net income because the straight-line approach yields lower depreciation than the under-accelerated method.
• An instalment selling is another common source of deferred tax liability. When a corporation buys its goods on credit, the revenue is accepted and paid off in equivalent installments in the future. The corporation can realize net profits from the installment selling of general goods under accounting principles, but tax laws mandate the income to be recognized when installment purchases are made. This results in a temporary positive discrepancy between financial earnings and taxable revenue, as well as a deferred tax liability.
• If there is a discrepancy in accounting and tax laws, deferred tax assets may occur. Deferred taxes arise, for example, when payments are recognized in the income statement before the tax authorities expect them to be identified or when money is taxed before it is payable in the income statement.
• Essentially, it is an incentive to build a deferred tax benefit if the tax base or tax laws regarding assets and/or liabilities vary.
• Companies will frequently carry on their earnings from one year to the next, potentially lowering their tax liability. The deferred tax burden is established in this situation when the corporation will be obligated to pay taxes on the carry-forward earnings in the next year.

Presentation in the Balance Sheet And Other Noteworthy Features

• There are a few main features to remember when looking at deferred tax properties. For starters, they can be carried forward forever for most businesses beginning with the tax year, but they can no longer be carried out.
• The valuation of deferred tax assets is affected by tax rates, which is the second factor to remember. When the tax rate rises, it benefits the corporation because its valuation increases and offers a larger cushion for more significant revenue. However, as the tax rate decreases, the valuation of the tax asset decreases as well. This means that the organization will not take advantage of the total profit until it expires.
• The remainder of the deferred tax benefit and liabilities should be netted out, resulting in either DTA or DTL being disclosed in the balance sheet. Both cannot be announced at the same time for the same amount of time.
• DTL can be reported separately from current liabilities in the balance sheet under Non-current liabilities after the subhead ‘Long term borrowing’.
• Similarly, DTA can be reported separately from current assets in the balance sheet under Non-current assets after the subhead ‘Non-current investment’.
• The cumulative tax rate is used to establish the Deferred Tax. DTL’s book entries are as follows:

Profit & Loss A/c Dr.

To Deferred Tax Liability A/c

• There is a legitimate right to do so by the same tax body will existing tax assets and liabilities be reversed.

DTA and DTL Calculations

The disparity between net income and accounting profits before taxes is multiplied by the company’s expected tax rate to get the DTL.

Assume the business A uses INR 2000 in straight-line depreciation and INR 2500 in MACRS depreciation. The amortization for revenue and accounting purposes remains the same for the remaining years. The INR 500 difference is now just temporary.

If the tax rate is 30%, the corporation will report INR 150 as DTL in its accounts, i.e. 500*30%.

Also, the formula is:

Deferred Tax Liability Formula = Income Tax Expense – Taxes Payable + Deferred Tax Assets

Year 1: DTL = INR 50– INR 20+ 0 = INR 30

Year 2: DTL = INR 50 – INR 20 + 0 = INR 30

Year 3: DTL = INR 50 – INR 110 + 0 = -INR60

Cumulative Deferred Tax Liability on the Balance Sheet is as follows

Year 1 cumulative DTL = INR 30

Year 2 cumulative DTL = INR 30 + INR 30 = INR 60

Year 3 cumulative DTL =INR 60- INR 60= INR 0 (note the effect reverses in year 3)

DTL is supposed to reverse, i.e., they are the product of temporary disparities that will result in future cash balances after the taxes are collected. When an accelerated depreciation approach is used on the tax return, but straight-line depreciation is used on the income statement, it is more often produced.

To put it more simply, when you bill total depreciation on all books of account as per the IT Act and the Corporations Act at the end of the year, you’ll see that the deferred tax asset and liabilities have been cleared out, and the balance for a single asset is NIL.

Cost of Inflation Index for FY 2020-21: Cost Inflation Index, or CII, for the financial year 2020-21 has been informed to be 301 by the Indian Ministry of Finance. The notification dates to 12th June 2020. This value of CII for the previous financial year was 289.

CII is essential as it helps arrive at the inflation-adjusted purchase price of any asset and thereby on the assets’ long-term capital gains when they are sold. This index is further helpful in computing the long term capital gains (LTCG) or long term capital losses (LTCL) on the assets, like gold, property, debt mutual fund units, and others held for more than three years and are sold in the financial year 2020-21.

According to the notification released by the Finance Ministry, CII for the financial year 2020-21 must be effective from 1st April 2021 and then it must accordingly apply to the assessment year 2021-22, i.e. the financial year 2020-21 and the subsequent years.

This article contains more details about the Cost of Inflation index, its use, calculation of LTCG and LTCL, and other details about the previous CII.

What is CII?

The Cost of Inflation Index stands for the index for the country’s inflation rate. The Central Board of Direct Taxes issues this index every year for the country. This index is also used for calculating the notional increase in an asset’s value due to inflation. Regarding the Cost Inflation Index, every individual must keep two main things in mind, which are as follows:

1. CII value is used for calculating the inflation-adjusted cost only for the assets where the indexation benefit or the inflation adjustment is allowed. Therefore, you cannot use the CII value for arriving at LTCG or LTCL on the equity mutual funds when the amount exceeding 1 lakh INR per fiscal gets taxed at a flat rate of 10% without any indexation benefit.
2. This CII number is required for calculating LTCG for the financial year 2020-21 for the assets where indexation is allowed before levying the LTCG tax. You will then have to pay taxes on these gains while filing the income tax returns for the financial year 2020-21.

How is CII Useful?

CII is very useful while calculating long-term capital gains. For this calculation, you have to consider CII for the year when you purchased the assets and the year when the assets are to be sold. Then the cost coming after the indexing is to be deducted from the selling price to calculate capital gains. This is why the capital gain tax is reduced.

However, the cost indexing benefits are only available in the case of long-term capital gains. If you have purchased the assets before 1st April 2981, then the cost of inflation index for the year 1981-81 must be taken as CII for then. If you have made any improvements in that asset, then you must adjust the CII by multiplying the previous one with the CII of the year when the improvements were made.

Therefore, the formula comes as:

• Cost after indexing = Cost before indexing * CII for selling year/CII for the purchase year
• Capital gain = selling price – cost after indexing

In 2017’s budget, the base year for CII got shifted from the financial year 1981-81 to 2001-02. Therefore, the new CII is applicable for the assessment year 2018-19 and subsequent years. Thus, for the financial year 2016-17, the older CII is to be used.

Computing Long Term Capital Gains Or Loss

Long-term capital gains refer to the capital gains arising from transferring the long-term capital assets. There is the availability of indexation benefits for the LTCG. Here is the computation for long term capital gains:

Long Term Capital Gain/Loss	Amount
The complete value of the consideration Less: Expenses incurred entirely and exclusively related to such transfer Net Consideration Less: Indexed acquisition cost Less: Indexed improvement cost Long Term Capital Gains Less: Exemption under the sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB	xx xx xxxxx xxxxx xx
Taxable Long Term Capital Gain (Loss if in negative)	XXX

Securities Transaction tax is not allowed as the expenses’ deduction when you calculate the capital gains, either for short term or long term.

Indexed acquisition cost = (Acquisition Cost * CII of the transfer year) / CII of the acquisition year of the asset or CII for the year 1981, whichever is later.

Indexed improvement cost = (Improvement cost * CII of the transfer year) / CII of the year when the improvement was made.

CII Applicable From The Financial Year 2017-18

Financial Year	Cost Inflation Index
2020-21	301
2019-20	289
2018-19	280
2017-18	272
2016-17	264
2015-16	254
2014-15	240
2013-14	220
2012-13	200
2011-12	184
2010-11	167
2009-10	148
2008-09	137
2007-08	129
2006-07	122
2005-06	117
2004-05	113
2003-04	109
2002-03	105
2001-02	100
Any instance before 1st April 2001	100

CII Applicable for The Financial Year 2016-17 And The Previous Years

Financial Year	Cost Inflation Index
2016-17	1125
2015-16	1081
2014-15	1024
2013-14	939
2012-13	852
2011-12	785
2010-11	711
2009-10	632
2008-09	582
2007-08	551
2006-07	519
2005-06	497
2004-05	480
2003-04	463
2002-03	447
2001-02	426
2000-01	406
1999-00	389
1998-99	351
1997-98	331
1996-97	305
1995-96	281
1994-95	259
1993-94	244
1992-93	223
1991-92	199
1990-91	182
1989-90	172
1988-89	161
1987-88	150
1986-87	140
1985-86	133
1984-85	125
1983-84	116
1982-83	109
1981-82	100
Any instance before 1st April 1981	100

Maximum Tax Deduction Under 80C: The Income Tax Act of India has Section 80c, which is a clause that points to the various investments and expenditures that are exempted under Income Tax. This means that there is a maximum deduction of about ₹1.5 lakh per annum, and this from the total taxable income of the investor.

Section 80C, however, is only applicable for Hindu Undived Families and individual taxpayers. Other businesses, partnership firms, and corporate bodies do not qualify for a tax exemption under Section 80C of the Income Tax Act of India.

Subsections of Section 80C

Section 80 is divided into specific subsections as is given below:

Tax saving sections	Investments Eligible for Tax Exemptions
Section 80C	This includes investments in Provident Funds like PPF, EPF, and such, along with payments made towards the principal sum of a home loan, life insurance premiums, SCSS, NSC, SSY, Equity Linked Saving Schemes. etc.
Section 80CCC	This includes payments made towards mutual funds and pension plans.
Section 80CCD(1)	This includes payments made towards Government-backed schemes like Atal Pension Yojana,  National Pension System, etc.
Section 80CCD(1B)	The exemption under this category is ₹50,000 in NPS.
Section 80CCD(2)	The exemption under this category is of the contributions of the employers towards NPS, i.e., about 10%, and this comprises of dearness allowance if any and basic salary.

Latest: The NPS Returns Rates for Tier-1 accounts under corporate bonds are 13.59% and for government bonds, it’s 20.28% for the 1st year.

Investments Eligible for Deduction

In this section, we will take a look at all the investments that are eligible for a tax deduction under 80C, noting that the maximum is about ₹1.5 lakh per annum.

Life Insurance Premiums

Premiums that are paid for life insurance policies are eligible to receiving tax benefits according to the 80C limit. The exemptions are available against the policies held by self, dependent children, spouses, etc. Members of the Hindu Undivided Family may also benefit from these exemptions.

At the moment, the annual premium of up to 10%, i.e., of the total sum assured from the insurance policy, is the exempted tax under 80C. This particular clause was revised in 2012, on the 1st of April, before which the premiums liable for tax exemption deduction was up to 20% of the assured sum.

Public Provident Fund 

Contributions for the Public Provident Fund can be filed for a tax deduction under this specific clause. The Public Provident Funds come with a ₹1.5 lakh maximum deposit limit that allows the investor to claim the entire amount deposited as an exemption under Section 80C.

All voluntary contributions made by an employee for the provident fund are also eligible for a tax deduction under this clause.

NABARD Rural Bonds 

National Bank for Agriculture and Rural Development or NABARD offers Rural Bonds, and these are eligible for tax exemption under Section 80C. Here too, the maximum amount deductible is  ₹1.5 lakh.

Unit Linked Insurance Plans (ULIPs) 

Unit Linked Insurance Plans offer more returns when compared to the conventional insurance policies when considered in the long run. Due to the benefits offered by Section 80C of the Income Tax Act, they have become increasingly popular in the last few years. Tax exemptions can be availed on the invested amount up to ₹1.5 lakh.

National Savings Certificate

National Savings Certificate or the NSC is one of the most popular instruments for tax-savings for reis-avert individuals. The interest that is earned on the NSC is semi-annually compounded, and the maximum period of maturity ranges from about five to ten years.

There is no limit that the investors have to follow on the total sum that is invested towards the NSC in the period of a financial year. But ₹1.5 lakh is the maximum that can be subjected to exemption annually under Section 80C.

Tax Saving FD 

Tax Saving FDs are fixed deposit schemes that allow tax deduction under Section 80C of the Income Tax Act and are offered by post offices as well as banks. These fixed deposits have a lock-in time period of about five years, and the maximum tax exemption offered on the principal amount is ₹1.5 lakh. But the returns of these instruments are definitely liable to be taxed.

EPF

The returns that come from the EPF that is the Employee Provident Fund, with the interests, are eligible for a tax exemption under this clause. The eligibility extends only to employees that have continued their services for five years minimum. The voluntary contributions made by individuals to their EPF accounts are also eligible for a tax exemption.

Infrastructure Bonds 

Infrastructure bonds also have the option for tax exemptions under Section 80C, but only if the investment is equal to or more than ₹20,000. Here too, the limit is ₹1.5 lakh for the long-term secured bonds.

Equity-Linked Saving Scheme

Equity Linked Saving Schemes, or ELSS, comes under Section 80 of the Income Tac for a tax exemption, with the maximum limit being ₹1.5 lakh. These particular investment schemes have a three-year lock-in period that is mandatory.

Senior Citizens Savings Scheme

Investments that are made towards the SCSS, that is, the Senior Citizens Saving Scheme, are also eligible for tax exemptions under 80C, with the maximum allocated limit being ₹1.5 lakh. Those above the age of 60 or others above the age of 55 option for voluntary retirement scheme are eligible to get the benefits from SCSS. The minimum lock-in tenure here is of five years.

Principal Repayment Made Towards Home Loan 

The repayments that are made towards the principal component of the home loan EMIs alone are eligible for the tax deduction under this section. However, the borrower has to fulfil some clauses to be able to avail of the deduction benefits.

1. Any amount that is claimed as a tax deduction has to be taxable in the transfer year in the case that the handover is made five years after possession of the property. Failure to do this will exclude it from Section 80C’s deduction.
2. If a property is transferred within five years of possessing it, it will be excluded from tax exemptions under Section 80C.
3. The exemption can be claimed only if the construction of the property is finished.

Stamp Duty And Registration Charges 

Stamp duty along with registration charges may be considered the two largest expenses made when taking ownership of a particular property. The Indian Government allows for a deduction of tax liability up to the limit under Section 80C on these charges that are paid for the procurement of the house. But these exemptions can be claimed only in the year the duties are paid, or they will not be eligible for consideration under this deduction.

Sukanya Samriddhi Yojana 

The Sukanya Samriddhi Yojana is a savings scheme that is specifically for the financial requirements for the education and marriage of a girl. The legal guardians or the parents of the child (who should not be older than ten years) can open this particular account, and parents of two or more children, only in the case of twins, can also invest in the plan. The interest that is earned from this scheme is eligible for tax exemption.

Section 80C of the Income Tax Act has various instruments, and the comprehensive idea of this clause is necessary for every investor. The benefits of this clause can save a good amount from tax liability.