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Understanding the Basics of Tax Planning: A Comprehensive Guide for Individuals and Businesses

Leave a Comment / Updates / / June 14, 2023

Tax planning plays a pivotal role in financial management for individuals and businesses in India. By strategically managing finances and leveraging various tax provisions, taxpayers can minimize their tax liabilities while ensuring compliance with the country’s tax laws. This article aims to provide an in-depth guide to understanding the basics of tax planning, encompassing key concepts, strategies, and important considerations.

Familiarize Yourself with the Indian Tax System:

To embark on effective tax planning, it is essential to have a comprehensive understanding of the tax system. Salaried Individuals are primarily subject to income tax, while Individual and Companies who are into businesses, Providing Services are liable for taxes such as corporate tax, Income Tax and goods and services tax (GST). Understanding the nuances of these taxes, their respective provisions, and the applicable rates will form the foundation of your tax planning efforts.

Read More: Familiarize Yourself with the Indian Tax System

Assess Your Income and Categorize It:

The first step in tax planning is to assess your income from various sources and categorize it appropriately. Individuals may have income from salaries, investments, capital gains, rental properties, or other sources. Understanding the different sources of income and the relevant tax treatment will help you devise appropriate strategies to optimize your tax planning.

Read More: Assess Your Income

Identify Eligible Deductions and Exemptions:

One of the key aspects of tax planning is identifying deductions and exemptions that can reduce your taxable income. In India, there are several deductions available under different sections of the Income Tax Act. Examples include deductions for investments in instruments like Employee Provident Fund (EPF), Public Provident Fund (PPF), National Pension System (NPS), and life insurance premiums. Additionally, exemptions are available for categories such as house rent allowance (HRA), medical expenses, and education loans. Understanding and utilizing these deductions and exemptions can significantly reduce your tax burden.

Read More: Identify Eligible Deductions and Exemptions

Leverage Tax-Saving Investments:

Investing in tax-saving instruments is an effective strategy for minimizing tax liabilities while simultaneously building wealth. The Indian government offers tax incentives for investments in instruments such as Equity-Linked Saving Schemes (ELSS), Tax-Saver Fixed Deposits, and National Savings Certificates (NSC). These investments not only provide tax benefits but also offer opportunities for long-term wealth creation. By strategically allocating funds to tax-saving investments, individuals can optimize their tax planning and financial growth.

Read More: Leverage Tax-Saving Investments:

Plan for Retirement:

Retirement planning is an integral part of tax planning. In India, retirement-oriented schemes such as the National Pension System (NPS) and the Employees’ Provident Fund (EPF) offer tax benefits. By contributing to these schemes, individuals can secure their future while simultaneously reducing their tax liabilities. Understanding the retirement planning options available and their associated tax advantages is crucial for effective tax planning.

Read More: Tax Plan for Retirement

Comply with Goods and Services Tax (GST) Regulations:

For businesses in India, compliance with the Goods and Services Tax (GST) is of utmost importance. Effective tax planning for businesses involves understanding the GST framework, ensuring proper classification of goods and services, maintaining accurate records, and timely filing of GST returns. Compliance with GST regulations not only minimizes the risk of penalties but also optimizes tax positions for businesses.

Read More: Goods and Services Tax (GST)

Seek Professional Assistance:

Tax planning can become intricate, especially for individuals and businesses with complex financial situations. Engaging the services of a qualified tax professional or chartered accountant can provide invaluable guidance. They can help you navigate the complexities of tax planning, interpret tax laws, and identify the most effective strategies based on your specific circumstances. Professional assistance ensures that you optimize your tax planning while remaining compliant with the ever-evolving tax regulations.

Stay Updated with Changing Tax Regulations: Tax laws and regulations in India undergo regular changes. It is crucial to stay updated with the latest amendments and revisions to effectively plan.

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Simplifying Angel Tax: Proposed Changes and Excluded Entities

Leave a Comment / Income Tax, Updates / / June 14, 2023

Angel Tax has been a subject of concern for startups and investors in India. To address these concerns and promote ease of doing business, the Central Board of Direct Taxes (CBDT) has proposed changes to Rule 11UA and announced the notification of excluded entities. This blog aims to provide a user-friendly explanation of these proposed changes and their potential impact on startups and investors.

Angel Tax refers to the income tax levied on the consideration received by a company for issuing shares if the consideration exceeds the Fair Market Value (FMV) of the shares. It was introduced to curb money laundering and prevent the inflow of black money into startups. However, its implementation has raised concerns due to its impact on genuine startups and investors.

Proposed Changes to Rule 11UA:

  1. Additional Valuation Methods: Currently, Rule 11UA prescribes the Discounted Cash Flow (DCF) and Net Asset Value (NAV) methods for valuing shares for resident investors. The proposed changes seek to expand the valuation methods to include five additional methods specifically for non-resident investors. This expansion aims to provide more flexibility and options for determining the FMV of shares during investments.
  2. Price Matching for Resident and Non-Resident Investors: Under the proposed changes, if a company receives consideration from a non-resident entity specified by the Central Government, the FMV of the equity shares for both resident and non-resident investors can be determined based on the price of the equity shares corresponding to such consideration. This provision is subject to two conditions: the consideration should not exceed the aggregate consideration received from the specified entity, and the consideration should be received within 90 days of the share issuance.
  3. Acceptable Valuation Report: To streamline the valuation process, the proposed changes suggest that the valuation report by a Merchant Banker will be acceptable if it is not more than ninety days old from the date of share issuance. This provision aims to ensure the accuracy and relevance of valuation reports, considering the dynamic nature of the market.
  4. Safe Harbor Provision: Recognizing the impact of forex fluctuations and other economic indicators on the valuation of unquoted equity shares during multiple rounds of investment, the proposed changes provide a safe harbor of a 10% variation in value. This provision aims to accommodate reasonable variations in valuation, thereby reducing unnecessary tax burdens on startups and investors.

Notification of Excluded Entities: The CBDT has also proposed to notify certain classes of non-resident investors to whom section 56(2)(viib) of the Income-tax Act shall not be applicable. These include:

  • Government and government-related investors such as central banks, sovereign wealth funds, and international organizations controlled by the government.
  • Banks or entities involved in the insurance business subject to applicable regulations in their respective countries.
  • Entities registered as Category-I Foreign Portfolio Investors with the Securities and Exchange Board of India.
  • Endowment funds associated with universities, hospitals, or charities.
  • Pension funds established under the law of foreign countries.
  • Broad-based pooled investment vehicles or funds with more than 50 investors, excluding hedge funds or funds employing complex trading strategies.

The proposed changes to Rule 11UA and the notification of excluded entities represent a significant step towards simplifying Angel Tax and supporting the growth of startups in India. These changes aim to provide more valuation options, align the treatment of resident and non-resident investors, and exempt certain entities from the purview of Angel Tax. If implemented, these changes will likely boost investor confidence and encourage investments in the Indian startup ecosystem, contributing to the country’s economic growth and innovation.

Disclaimer: This blog post has been written based on the information provided by the Ministry of Finance through the Press Information Bureau (PIB). The content of this blog is intended for informational purposes only and should not be considered as professional or legal advice. Readers are encouraged to refer to the official sources and consult with relevant authorities or professionals for accurate and up-to-date information regarding Angel Tax and related regulations. The author and the platform do not assume any responsibility or liability for any actions taken based on the information provided in this blog.

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Understanding Small Debit/Credit Transactions under LRS and TCS in India

Leave a Comment / Income Tax, Updates / / May 20, 2023

The Liberalized Remittance Scheme (LRS) in India has opened up avenues for individuals to remit money abroad for various purposes, including small debit/credit transactions. However, it is essential to be aware of the provisions regarding Tax Collected at Source (TCS) associated with such transactions. In this blog, we will delve into the details of small debit/credit transactions under LRS and the implications of TCS.

What is the Liberalized Remittance Scheme (LRS)?

The Liberalized Remittance Scheme is a framework established by the Reserve Bank of India (RBI) that permits Indian residents to remit a certain amount of money abroad for specified purposes. These purposes include travel, education, medical treatment, investment in foreign stocks, purchase of property abroad, and more. The LRS enables individuals to diversify their financial assets, gain international exposure, and fulfil personal and financial goals.

Tax Collected at Source (TCS) is a mechanism implemented by the Indian government to collect tax at the source of certain transactions. Under the provisions of the Income Tax Act, individuals remitting money abroad for specified purposes under the LRS may be liable to pay TCS if the total amount exceeds a prescribed threshold.

Small Debit/Credit Transactions and TCS: Regarding small debit/credit transactions under LRS, the applicability of TCS depends on the total amount remitted in a financial year. As of the information available, if the cumulative amount remitted exceeds INR 7 lakh in a financial year, TCS is levied at the rate of 20%. This means that if an individual remits a total of INR 7 lakh or more for specified purposes within a financial year, 20% of the amount above the threshold will be collected as TCS by the authorized dealer (typically a bank) and deposited with the government.

Implications and Considerations:

  1. TCS Credit: The TCS amount collected by the authorized dealer is reflected in the individual’s Form 26AS, which acts as a tax credit statement. It can be claimed while filing the income tax return, reducing the overall tax liability.
  2. Threshold Limit: It is crucial to monitor the cumulative amount remitted throughout the financial year to assess the applicability of TCS. Transactions below the threshold of INR 7 lakh will not attract TCS.
  3. Tax Implications: TCS is collected at the time of remittance, and it is important to factor in this additional tax liability while planning finances and ensuring compliance with tax laws.
  4. Updates and Changes: The threshold limits and TCS rates may be subject to revision based on updates in the tax laws and regulations. It is advisable to refer to the latest guidelines issued by the RBI and consult with a tax professional or authorized dealer for accurate and up-to-date information.

Conclusion: The Liberalized Remittance Scheme (LRS) has provided Indian residents with the opportunity to engage in small debit/credit transactions abroad for various purposes. However, it is essential to understand the provisions regarding Tax Collected at Source (TCS) associated with these transactions. Monitoring the cumulative remittances and being aware of the threshold limit and TCS rates can help individuals comply with tax regulations while enjoying the benefits of international transactions under LRS. It is advisable to stay updated with the latest guidelines from regulatory authorities and seek professional advice for personalized financial planning and tax compliance.

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Income Tax Department Unveils Major Tax Evasion Case in West Bengal

Leave a Comment / Income Tax, Updates / / May 17, 2023

In a significant development, the Income Tax Department recently conducted search and seizure operations on a prominent business group operating primarily in the North Bengal region of the State of West Bengal, uncovering instances of tax evasion and unaccounted cash transactions. The group, which is predominantly controlled by an individual with an active political background, is involved in various business ventures, including the production and sale of edible oils, real estate, and chemicals. The operation covered a total of 23 premises spread across West Bengal and Guwahati, Assam.

The search action conducted by the Income Tax Department revealed startling findings regarding the business group’s attempts to suppress its yield and engage in unaccounted cash sales of edible oils and De-Oiled Rice Bran (DORB). Evidence of numerous cash transactions, deliberately omitted from regular books of account, was discovered during the operation. Handwritten notes, documents, and digital evidence containing extracts of these cash transactions were seized, along with parallel cash books and fraudulent expense claims. Preliminary investigations indicate unaccounted income of over Rs. 40 crores.

Unearthing Additional Financial Irregularities

During the search operation on a close business associate of the main business group, who is a prominent exporter of agro-products in Malda district, incriminating documents relating to cash payments in land acquisition worth approximately Rs. 17 crores were found. Furthermore, details regarding unaccounted cash receipts amounting to about Rs. 100 crores were also discovered.

As a result of the search action, the Income Tax Department successfully seized unaccounted cash totalling Rs. 1.73 crore. Additionally, unaccounted jewellery with an estimated value of Rs. 1 crore was also confiscated.

Ongoing Investigations: The search and seizure operations conducted by the Income Tax Department have shed light on a substantial tax evasion case with far-reaching implications. The revelations have triggered further investigations into the intricate financial web of the business group and its associates. The department is committed to thoroughly examining the evidence, verifying financial records, and identifying any other irregularities that may exist.

The recent search and seizure operations conducted by the Income Tax Department in North Bengal have uncovered a significant tax evasion case involving a business group with a strong presence in the region. The revelations of unaccounted cash sales, parallel cash books, and fraudulent expense claims point towards a deliberate attempt to evade taxes and manipulate financial records. The ongoing investigations will provide a clearer understanding of the extent of the tax evasion and the parties involved. Such actions by the Income Tax Department serve as a stern reminder to individuals and businesses alike that attempts to evade taxes will not go unnoticed, emphasizing the importance of complying with tax laws and maintaining transparent financial practices.

Disclaimer: The information provided in this article is based on the press release by the Income Tax Department.

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A Comprehensive Guide to E-Invoicing under GST for Businesses with Turnover above 5 Crores in any of Preceding Financial Year (From 1st August 2023)

Leave a Comment / GST, Updates / / May 16, 2023

The implementation of e-invoicing under the Goods and Services Tax (GST) regime has brought significant changes to the way businesses generate, report, and manage their invoices. From 01 August 2023, businesses with a turnover exceeding 5 crores in any preceding financial year will be required to comply with e-invoicing provisions. In this article, we will explore the essentials of e-invoicing for such businesses and the impact of this mandate.

What is E-Invoicing?

E-invoicing is a digital process of generating and validating invoices in a standardized format and transmitting them to the GST portal for authentication. The e-invoicing system aims to minimize manual intervention, reduce errors, and promote seamless integration between businesses and the GST system. It will enable businesses to generate invoices using their accounting or billing software, which is compatible with the e-invoicing schema.

Applicability of E-Invoicing

From 01 August 2023, e-invoicing provisions will apply to businesses with a turnover exceeding 5 crores in any preceding financial year. This threshold applies to the aggregate turnover across all registered GSTINs (Goods and Services Tax Identification Numbers) held by a business entity.

Benefits of E-Invoicing

E-invoicing offers several advantages for businesses, including:

a. Automation and accuracy: It minimizes errors, eliminates manual data entry, and reduces the risk of mismatches between invoices and GST returns.

b. Faster processing: E-invoices get authenticated in real-time, enabling faster invoice validation, credit matching, and processing of returns.

c. Improved compliance: E-invoicing ensures compliance with the latest GST regulations, reducing the chances of penalties and fines.

d. Enhanced transparency: The digital trail of e-invoices promotes transparency, making it easier for authorities to track and verify transactions.

Process of E-Invoicing

Under the e-invoicing system, businesses need to generate invoices using their accounting or billing software, which is compatible with the e-invoicing schema. The software then sends the invoice details to the Invoice Registration Portal (IRP), where it gets authenticated and assigned a unique Invoice Reference Number (IRN) and a QR code. Once the invoice is registered, it can be used for further processing, such as filing GST returns.

Exemptions to E-Invoicing

Certain transactions and entities are exempt from e-invoicing requirements. They include:

a. Export invoices: E-invoicing is not mandatory for invoices issued in cases of export transactions.

b. Special Economic Zones (SEZs): Invoices issued by businesses located in SEZs are currently exempt from e-invoicing provisions.

c. Insurance and banking sectors: Insurers, banking companies, and financial institutions are not required to comply with e-invoicing for the time being.

Penalties for Non-Compliance

Non-compliance with e-invoicing provisions can lead to penalties under the GST law. The penalties vary based on the nature and severity of the non-compliance. It is crucial for businesses to ensure timely and accurate adherence to e-invoicing requirements to avoid such penalties.

The e-invoicing mandate for businesses with a turnover exceeding 5 crores from 01 August 2023 is a significant step towards digitizing the GST ecosystem and enhancing compliance. By understanding the fundamentals and complying with the e-invoicing provisions, businesses can streamline their invoicing processes, enhance accuracy, and contribute to a robust and digitized GST ecosystem. It is advisable for businesses to prepare in advance and ensure that their accounting or billing.

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Advisory on functionality to view Aadhaar authentication status

Leave a Comment / GST, Updates / / May 16, 2023

In a recent development, the Indian government has introduced a new functionality to view the Aadhaar authentication status. The following advisory aims to provide an overview of this new feature and its implications for individuals and organizations. Understanding the Aadhaar authentication status can play a crucial role in various scenarios, such as availing government services, verifying identity, and preventing fraudulent activities. Let’s delve into the details and explore the significance of this new functionality.

The Office of the Principal Additional Director General of Systems & Data Management recently issued Registration Advisory no. 23/2023 on May 15, 2023. This advisory highlight the introduction of a new functionality that allows individuals and organizations to view the Aadhaar authentication status. It also provides the ability to view and download e-KYC (Electronic Know Your Customer) documents for new registration applications. Additionally, the functionality enables the uploading of e-KYC documents in the PV (Physical Verification) report. This article aims to shed light on the key aspects of this new functionality and its implications for applicants and tax officers.

According to section 25 of the CGST Act, 2017, the Goods and Services Tax Network (GSTN) has mandated Aadhaar authentication for all Constitutions of Business (COB), such as proprietorships, partnerships, and limited companies, during the new registration process. Exceptions to this requirement include Government Departments, Public Sector Undertakings, Local Authorities, and Statutory Bodies. Applicants for new registration must complete Aadhaar authentication for at least one key person among the proprietors, partners, or promoters, as well as the primary authorized signatory. If these roles are held by different individuals, both need to successfully authenticate their Aadhaar details on the GST portal. However, if a proprietor/partner/promoter is also the primary authorized signatory, the Aadhaar authentication of a single person is sufficient. Additionally, applicants can upload e-KYC documents as an alternative means of identification when Aadhaar authentication is unsuccessful or not feasible.

These recent changes have been integrated into the CBIC-ACES-GST application and are now deployed to production. As a result, CPC officers and tax officers involved in initiating or submitting the PV report can access the Aadhaar authentication status of applicants. This information is available in the ‘Partners Details’ and ‘Signatory’ tabs of the new registration application. Furthermore, tax officers can view and download the e-KYC documents submitted by the applicants in the REG-01 form after the application has been approved and jurisdiction has been assigned. CPC officers can raise e-KYC related queries under the new ‘E-KYC Documents’ section in the ‘Authorised Signatory’ and ‘Promoters/Partners’ tabs.

In addition to the aforementioned features, a new optional functionality has been introduced in the ‘Document’ tab of form REG-30 (PV report). This functionality allows PV officers to upload multiple e-KYC documents of proprietors, partners, promoters, and the primary authorized signatory in jpeg, .jpg, and .pdf formats. Each document can be up to 1 MB in size. PV officers can select the relevant individual under the ‘Partner/Signatory’ column and the specific type of e-KYC document to be uploaded under the ‘E-KYC Document’ column. If there are multiple partners/promoters, PV officers can select the person’s name from the drop-down menu and upload the corresponding e-KYC document by clicking ‘Choose file’ in the ‘Document’ column. Once all four columns are completed, the officer must click the ‘Add’ button to include the record in the PV report. It’s important to note that no changes can be made once the PV report has been submitted.

Conclusion: The new functionality for viewing Aadhaar authentication status and managing e-KYC documents brings greater transparency and efficiency to the new registration process. By ensuring the authentication of Aadhaar details and providing an alternative means of identification, the government aims to enhance security and streamline access to government services. The integration of these features

View the PDF: https://ascendtax.in/wp-content/uploads/2023/05/GST-Registration-Advisory-15_05_2023.pdf

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