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Domestic and Direct Tax Updates

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CBDT issues multiple instructions for selection of cases u/s 148 for income escaping assessment

The Central Board of Direct Taxes (‘CBDT’) issued multiple instructions directing the tax authorities about categories of cases to be considered as ‘potential cases’ for taking action u/s. 148 of the income Tax Act, 1961 (ITA). Some of the categories include (i) cases where there are audit objections (Revenue/Internal), (ii) cases of information from any other Govt. agency/ Law enforcement agency, (iii) Potential cases including – (a) Reports of Directorate of Income Tax (Investigation), (b) Reports of Directorate of Intelligence & Criminal Investigation, (c) Case from Non-filer Management System & other cases as flagged by the Directorate of Income-Tax (Systems) as per risk profiling, (iv) cases where information is arising out of field survey action and (v) cases of information received from any Income-tax authority.

 

 

 

 

 

 

Enhancement of scope of transactions to be reported under Statement of Financial Transaction (‘SFT’)

Scope for transactions to be reported by the Specified entity has been enhanced to include a) Capital gains on transfer of listed securities or units of Mutual Funds, b) Dividend income, and c) Interest income which needs to be reported now while filing the SFT.

 

 

  • The term ‘liable to tax’ used in DTAAs was proposed to be defined under Income Tax Act by the FB 2021. The definition which referred to “a liability of tax under any law for the time being in force in any country”, raised an ambiguity on the nature of taxes to be considered i.e. whether liability in respect of indirect taxes or any other taxes (other than income tax) would also result in the satisfaction of the “liable to tax” definition as proposed by FB 2021. It also raised an ambiguity on the country to be referred for the purposes of application of the definition.
  • Definition of “liable to tax” thus was modified to specifically provide that persons having an “income-tax liability” under the laws in force in a country shall be considered as liable to tax in such country. Thus, liability in respect of indirect taxes or other taxes (other than income tax) will not be considered as satisfying the definition of “liable to tax”.
  • FB 2021, proposed that goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation. FB 2021 also proposed to amend capital gains provisions to provide that cost of acquisition of self-generated goodwill acquired in tax neutral transfer will be NIL.
  • FA 2021 has brought an amendment to adjust closing WDV of intangible asset as on 31 March 2020 by reducing the standalone tax WDV of goodwill computed as difference between actual cost of goodwill and depreciation allowable on such goodwill till 31 March 2020. The reduction shall, however, not exceed the closing WDV of intangible assets as on 31 March 2020.
  • FB 2021 proposed to withdraw exemption available to interest accruing on employees’ contribution to specified provident fund schemes, on the contributions in excess of INR 0.25 million per annum made on or after 1 April 2021.
  • FA 2021 increases the threshold of employees’ contribution, beyond which interest on such excess contribution will be taxable, to INR 0.5 million per annum, where there is no contribution made by employer to such fund.
  • Finance Act, 2020 expanded the scope of Equalisation Levy (EL) introduced by Finance Act, 2016. Equalisation Levy at the rate of 2 per cent was levied on the amount of consideration received or receivable by an e-commerce operator from ecommerce supply or services.
  • FA 2021 clarifies that, for the purposes of EL, consideration shall not include consideration for sale of goods owned by, or provision of services rendered by a resident in India or Permanent Establishment (PE) of NR in India where such sale/ service is effectively connected to PE in India.
  • FB 2021 proposed to increase the time limit for issuance of notice for reassessment to ten years, where income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to INR 0.5M or more..
  • For this purpose, FA 2021 has defined the term “asset” to include immovable property, shares and securities, loans and advances, and deposits in bank account.
  • Presently, the ITA provides for levy of fee on a taxpayer for belated filing of tax return at INR 5,000, if return is furnished by 31 December following the tax year and INR 10,000, if return is furnished beyond 31 December. But, if the total income of taxpayer does not exceed INR 0.5M, the fee is reduced to INR 1,000.
  • From FY 2020-21 onwards, belated return or revised return are to be filed three months before the end of the relevant assessment year (up to December 31) or before the completion of the assessment, whichever is earlier. Accordingly, FA 2021 puts a cap to the fee for delayed furnishing of tax return to INR 5,000. The cap of INR 1,000 for taxpayer whose total income does not exceed INR 0.5M continues as it is.
  • The due date for linking Aadhaar and Income Tax PAN has been extended to 30 June 2021. In case of non-linking, your PAN Card would become in­operative and FA 2021 proposes to levy fees as may be prescribed by the CBDT but not exceeding INR 1,000 at the time of intimation of Aadhaar number to tax authority
  • FB 2021 proposed to increase the limit for exemption from Tax Audit from erstwhile INR 50 million to INR 100 million, if cash receipt and payment does not exceed 5 per cent of total receipts and total payments respectively
  • FA 2021 prescribes payment or receipt by the way of cheque or bank draft other than by account payee to be treated as payment or receipt in cash for computing 5 per cent threshold to claim benefit of the increased monetary limit of INR 100 million to trigger requirement of tax audit.

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