who is responsible for paying to a resident any income by way of rent, shall deduct income tax thereon @ of :-
(a) 2% on rent for the use of plant or machinery or equipment.
(b) 10% on rent for the use any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings).
at the time of credit of such income to the account of the payeeor at the time of payment, whichever is earlier in cash or by cheque or draft or by any other mode.
[ There shall be no deduction if the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 2,40,000/-].
Important Notes:-
Note 1:- This section is also applicable on individual or HUF whose total sales, gross receipts or turnover from the business or profession carried on by him [exceed one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid.
Note 2:- No Deduction if income by way of rent is credited or paid to a business trust [REIT].
Meaning of Rent
Rent means:-any payment which falls under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of :-
any land; or
building (including factory building); or
land appurtenant to a building (including factory building); or
machinery; or
plant; or
equipment; or
furniture; or
fittings,
As a matter of fact-
whether or not any or all of the above are owned by the payee.
additionally, where any income is credited to any account [Suspense account or by any other name] in the books of account of the person liable to pay such income such credit shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
GSTIN is a fifteen-digit number and certificate of registration.
3
Format
First5 characters are alphabet, next 4 characters are numbers and last character is alphabet.
First4 characters are alphabets, next 5 characters are numbers and last character is alphabet.
First2 characters are numbers, next 5 characters are alphabets, next 4 characters are numbers, twelve character is alphabet, thirteen character is number, fourteenth character is alphabet and last character may be alphabet or number.
4
Characters
First three characters represent the alphabeticseries, Fourth characters represents the status of the PAN holder, fifth character represents the firstcharacter of the PAN holder’s last name/surname in case of an individual. In case of non–individualfifth character represents the first character of PAN holder’s name, next characters are sequential numbers and last character is an alphabetic check digit.
firstthree characters represent the code of jurisdiction, fourth character represents the name with initial letter of the name of TAN holder, next 5 characters are numbers and last character is random.
First two characters represent State code, next ten characters represent PAN of GSTIN holder, thirteenth character represents the Entity code (depends on number of registration), fourteenth character is (alphabet) by default and last character is check digit.
TDS Provisions on Commission under Income-tax Act, 1961
Insurance Commission:- Under section 194D of Income-tax Act, 1961, any person responsible for paying to a resident, any income by way of remuneration or reward, commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall deductincome-tax at the rate of 5% at the time of payment or at the time of credit of income to the account of the payee whichever is earlier.
Note:- Provided that there shall be nodeduction under section 194D, if the aggregate amount of such income credited or paid during the financialyear does not exceed Rs. 15000.
Note:- Mode of payment- Cash/Cheque/Draft or any other mode.
2. Commission on Sale of Lottery Tickets:- Under section 194G of Income-tax Act, 1961, any person responsible for paying to any person any income, by way of commission, remuneration or prize on lottery tickets, for stocking, distributing, purchasing or sellinglotterytickets shall deduct income-tax at the rate of 5% at the time of payment or at the time of credit of income to the account of the payee whichever is earlier.
Note: Provided that there shall be nodeduction under section 194G, if the amount of such income credited or paid does not exceed Rs. 15000.
Note:- Mode of payment- Cash/Cheque/Draft or any other mode.
Commission or Brokerage:-
Under section 194H of Income-tax Act, 1961, any person (other than an individual or HUF) who is responsible for paying to a resident, any income by way of commission (other than insurance commission of section 194D) or brokerage, shall deductincome-tax at the rate of 5% at the time of payment or at the time of credit of income to the account of the payee whichever is earlier.
Note:- Provided that there shall be nodeduction under section 194H, if the aggregate amount of such income credited or paid during the financialyear does not exceed Rs. 15000.
Note:- Provided further that an individual or HUF whose total sales, gross receipts or turnover from the business or profession exceed [Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession] during the financial year immediatelypreceding the financial year in which such commission or brokerage is credited or paid, shall deduct income-tax at the rate of 5% at the time of payment or at the time of credit of income to the account of the payee whichever is earlier.
Note:- Provided that there shall be nodeduction under section 194H, if any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Commission or brokerage” includes any payment received or receivable, by a personacting on behalf of another person for servicesrendered (other than professional services).
Professional services includes legal, medical, engineering or architectural or accountancy or technical consultancy or interior decoration or such other profession [notified for the purposes of section 44AA.
Account includes Suspense account as well.
Note:- Mode of payment- Cash/Cheque/Draft or any other mode.
Deduction from Rental Income| Deduction from Annual Value of House Property.
Rental Income
Rental income from a property is chargeable to tax under the head Income from house property.
Meaning of property
Property should consist of any building or land appurtenant (means landconnected with the building like garden, garage etc.) thereto.
Note:- Building includes residential building, factory buildings, offices, shops, godowns and commercial premises.
Deduction from Annual Value of House Property
Deduction under section 24:-
Under section 24(a) – Flatdeduction i.e., 30% of Net Asset Value (NAV).
Note:- The above deduction (30% of NAV) will not be available if annualvalue of house property is Nil.
Note:- in case of self-occupied property and property held as stock in trade and property is not let-out, upto 2 years from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority, the annual value of house property is Nil.
Under section 24(b) – Interest on borrowed capital.
Deduction can be claimed of Interest on loans borrowed for the purpose of acquisition, construction, renovation, repair or reconstruction.
Note:-Interest on freshloan taken for repayment of previous loan is also allowed as deduction.
Note1:- It also includes interest for pre-construction period. Pre-construction period is the periodprior to the previous year in which property has been acquired or constructed. Interest for pre-construction period can be claimed as deduction over a period of 5 years in equalinstallments from the year in which construction is completed or property is acquired.
Note 2:- Full interest of the year in which construction is completed or property is acquired can be claimed.
Special Note:-There is limit on deduction of interest in case of self–occupiedproperty where the annualvalue of property is Nil.
Sr. No
Conditions
Deduction
1
1. If loan was taken on or after 01.04.1999 for construction or acquisition of property and construction of property is completed within 5 years from the end of the financial year in which loan was taken. 2. furnish Certificate of payment of interest received from borrower.
Maximum Rs. 200000/-
2
If loan was taken on or after 01.04.1999 for repair, renovation or reconstruction of property.
Maximum Rs. 30000/-
3.
If loan was taken before 01.04.1999 for acquisition, construction, repair, renovation or reconstruction.
Maximum Rs. 30000/-
Imp. Note:- This is for maximum 2 self-occupied property and deduction of interest under point 1 and 3 as mentioned above cannot exceed Rs. 200000/-
Key Points:-
Rental income is charged to tax in the hands of owner of the property.
Rent received by tenant from sub–letting is taxable under the head Income from othersources or profits and gains from business or profession.
Composite rent includes rent of building and other assets/services/facilities.
GAV is higher of expectedrent and actualrent [expected rent is the higher of fairrent and municipalvalue, but restricted to standard rent.
If municipal taxes due but notpaid by owner then it cannot be deducted.
If interest is paid on loan taken from relatives and friends for acquisition, construction, renewal, repair or reconstruction then can be claimed as deduction.
Limit is Rs. 200000/- or Rs. 30000/- is applicable in case of self-occupied property.
Self-occupied property means property which is occupied throughout the year for ownresidence.
Person can claim twoproperties as self-occupied property.
Unrealized rent is charged to tax after deduction of sec. 24(a).
As per section 14 of Income Tax Act, 1961, there are five heads of income.
Salaries
Income from house property
Profits and gains of business or profession
Capital gains
Income from other sources
While computing income under the head Salary, the following deductions are available from Gross Salary under section 16.
Standard deduction [Section 16(ia)]
Rs. 50000/- OR the amount of salary whichever is less.
[Standard deduction had been introduced in place of transport allowance Rs. 19200/- (1600 per month) and medicalreimbursement of Rs. 15,000 per annum].
example- Mr. Vinod gets from his employer basic salary Rs. 20000 per month, D.A Rs. 5000 per month, Transport allowance Rs. 1800 per month and HRA Rs. 1000 per month. Calculate deduction from gross salary.
basic salary =20000*12 =240000/-
DA = 5000*12 =60000
T.A = 1800*12 = 21600/-
HRA = 1000*12 =12000/-
Total Gross Salary =240000+60000+21600+12000 = 333600/-
Deduction will be 50000 OR 333600 whichever is less i.e., 50000/-
Note:-HRA is partly exempt u/s 10(13A) but in this example HRA has been included fully.
Entertainment allowance [Section 16(ii)]
Entertainment allowance received by employee from employer is fullytaxable. Firstly, it is to be included in the salary. Only Government employees shall be eligible to get deduction.
The least of the following amount shall be deductible:-
One-fifth of his basic salary or
Entertainment allowance received.
Rs. 5000/-
Note-actual amount spent by the employee towards entertainment is not relevant.
Professional tax [Section 16(iii)]
Professional tax [(tax on employment- (maximum Rs. 2500/-)] is levied by a State under Article 276 of the Constitution of India and if employer pays this tax on behalf of the employee, the amount paid is firstincluded in salary then deduction is available on paidbasis.
Difference between Foregoing Salary and Surrender of Salary
Foregoing of Salary:-
Once salary accrues , its subsequentwaiver does not make it exempt from taxliability. Such waiver is treated as only an application of income and hence, it is chargeable to tax.
Example- Mr. Raj is an employee in XYZ Pvt. Ltd. In the month of March 2021, he says to his employer that he is not interested in getting salary for April 2021 and it might be donated to a charitable institution.
Here, the salary for the month of April 2021 will be taxable in the hands of Mr. Raj. However, he is entitled to get deduction under chapter VIA (section 80G of the Income Tax Act, 1961).
Surrender of Salary:-
If an employee surrenders his salary to the CentralGovernment u/s 2 of the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961,the salary so surrendered would be exempt.
Difference between advance salary and advance against salary
Advance Salary:- advance salary is taxable on receipt basis.
Advance against Salary:-
it is treated as loan. Loan is different from salary. Advance is generally adjusted with salary over a specified time period. Hence, it is not taxable.
For the purpose of Income Tax Act, 1961 the term salary defined under Section 17. Generally, it includes monetary as well as non-monetary items.
Whatever is received whether in cash, kind or as a facility [i.e. perquisite] by an employee from employer is considered as salary.
What are allowances?
Allowances are fixed periodic amount which are paid by employer to employee to meet some particular requirements (for official or personal expenses). Example, house rent allowance, tiffin/lunch/dinner allowance, uniform allowance , conveyance allowance etc.
Generally, there are threetypes of allowances under the Income Tax Act, 1961 and allowances are taxable on due or receipt basis, whichever is earlier.
Taxable Allowances- E.g., Dearness Allowance, Entertainment Allowance, Overtime Allowance, Fixed Medical Allowance etc.
Exempt Allowances– E.g., Allowances to High Court Judges, Compensatory Allowance received by a judge.
Partial Exempt ( partial taxable)– E.g., House Rent Allowance, Special Allowances [u/s 10(14)].
What deductions are applicable to salaried person in computing salary income?
Standard deduction [Section 16(ia)]- 50000/- OR the amount of salary, whichever is lower.
Entertainment allowance [Section 16(ii)]- allowed to Government Employee. Least of the following:-
20% of basic salary or
Rs.5000 or
Actual Entertainment allowance received
3. Professional tax [Section 16(iii)]- tax on employment levied by a State under article 276 (max. 2500/- per annum) of the Constitution of India . Deduction is allowed only if it is actually paid by the employee during the previous year.
What is the taxability of conveyance allowance?
As per Section 10(14) read with Rule 2BB conveyance allowance is exempt to the extent of amount spentor amount received whichever is less.
Note: This is given by employer to employee in order to meet the expenditure incurred on conveyance for official purpose.
What is form 12BB?
It is a form in which employee furnishes evidence or particulars of the claims. Such as House Rent Allowance, Leave Travel concession, Deduction of Interest, and deductions under Chapter-VIA.
Can standard deduction be taken from family pension?
No, family pension is taxable under the head income from other sources.
What is Form-16?
It is a certificate of TDS, if notaxes have been deducted by employer from salary then employer can issue salary statement only.
Is Transport Allowance can be claimed as exemption?
Generally , it is fully taxable ,exemption upto Rs. 3200/- p.m. is allowed in case of blind/deaf and dumb/orthopedically handicapped employees.
TDS Deduction at Source under Goods and Services Tax:-
Special Note:- TDS under GST is different from TDS under Income Tax.
Basic Intro.- Section 51 of CGST Act, 2017 deals with the provisions of TDS under GST. In 28th meeting of GST Council, introduction of TDS has been recommended from 01.10.2018
What is TDS under GST?
Mechanism to collect tax from suppliers/vendors through buyers where the total value of taxable supply under a singlecontract (excluding GST) exceeds Rs. 2.5 Lakh.
Here, the deductor is to deduct tax at source from payment made to the suppliers of taxable goods or services or both.
Example– Mr. Raj, a DDO of XYZ office of the Government buys stationeries for his office from supplier Mr. Vinod for Rs. 3.5 Lakh under a contract.
When Mr. Raj pays to Mr. Vinod , he is require to deduct tax.
Which Persons are liable to deduct tax under GST?
A department or establishment of the Central Government or State Government; or
Governmental agencies; or
local authority; or
An authority or a board or any otherbody (1) set up by an Act of Parliament, or a State Legislature; or (ii) established by any Government having 51% or more participation by way of equity or control.
Public Sector Undertakings;
Society established by the Central/ State Government or a Local Authority under the Societies Registration Act,1860;
Rate of TDS Under GST:–
There are 4 types of taxes–
Integrated Tax (IGST), Central Tax (CGST) and State Tax (SGST) / Union territory Tax (UTGST).
Rate of TDS is @ 2% [i.e. 1% each on CGST &SGST/UTGST] in case of Intra-State supply and @ 2% on IGST in case of Inter-State supply on the amount paid/credited.
No TDS:-When the location of the supplier and the place of supply is in a State/ Union territory which is different from the State/ UT of registration of the recipient.
Situation
Location of Supplier
Place of Supply
Registration of Recipient
Applicability of TDS under Sec.51
Rate of TDS
1
Haryana
Haryana
Haryana
Yes
1% +1% = 2%
2
Haryana
Haryana
U.P
No
–
3
Haryana
U.P
U.P
Yes
2%
4
Ladakh
Ladakh
Ladakh
Yes
1% +1% = 2%
5
Ladakh
Ladakh
Lakshadweep
No
–
6
Ladakh
Lakshadweep
Lakshadweep
Yes
1% +1% = 2%
Is Registration is required for TDS Deductor ?
Yes, TDS deductor has to get registration and get GSTIN [Goods & Services Tax Identification Number].
What is the Time limit for filing the TDS Returns under GST?
FORM GSTR-7 for a particular month has to be filed online and due date is the 10th of the month succeeding to the month in which such deductions is made.
When TDS under GST is applicable ?
Tax is required to be deducted from payment made/credited to supplier if the total value of taxablesupply under a contract exceeds Rs. 2,50,000/- (Rupees two lakh and fifty thousand).
Note:-Value of supply exclude the taxes leviable under GST (i.e. Central tax, State tax, UT tax, Integrated tax and Cess).
Example– If Mr. Raj a DDO of XYZ office of the Government wants to buy stationeries for his office from supplier Mr. Vinod. So, here, Mr. Raj is required to deducttax at the time of making payment or crediting payment to Mr. Vinod.
Note:-Here, Value of taxablesupply under a contractexceeds Rs 2.5 lakh (threshold limit).
Special Note:-tax is required to be deducted when payment is madeafter the effective date i.e. 01.10.2018 and date of contract does not matter.
Situation 1. Mr. Raj and Mr. Vinod enter into a contract of Rs. 2.4 Lakh (taxablesupply) and payment of Rs. 1.4 Lakh has been made by Mr. Raj on 18.11.2021. Now, on 25.11.2021, contract value is revised from Rs. 2.4 Lakh to 5.4 Lakh. On which amount, tax should be deducted?
TDS shallhave to be deducted on 5.4 Lakh (full value) while making remainingpayment of Rs. 4 Lakh. Here, Rs. 10800/- would be deducted at the time of remaining payment of Rs. 4 Lakh.
Late fees, Interest and penalty:-
if fails to furnish the GSTR-7 by due date, late fees of Rs. 100/- per day under CGST & SGST/UTGST Act, separately subject to maximum Rs. 5000/- each under under CGST Act & SGST/UTGST Act.
Advice for readers- for detailed study please refer any book of Indirect Tax Laws.
Before starting a new business, business organization should think about tax provisions and tax incentives from income tax point of view.
Form of Organization:-
The first step to set up a new business is to decide the form of organization, selection of form of organization depends not only financial requirement and resources but also on tax considerations. A new business can be in any of the following forms:-
Sole proprietorship:- Under sole proprietorship, the person who do the business is liable to pay tax, if any, entire income along with other income assesses in the hands of same person. Noallowance and relief would be available in computing income from business and doesnot get deduction of remuneration for rendering of services by him. The cost of doing such type of business is small and all the profit from business goes to proprietor. As far as deduction in concerned, sole proprietor is entitled to get deductions under chapter VIA.
Hindu Undivided Family:- Hindu undivided family’s income is firstly taxable in the hands of family at the rates applicable. After division of income of family among the members, the members of the family would not become liable to tax when they receive any portion of the family’s income as specific exemption granted under section 10(2) of the Income-tax Act, 1961.
Note:-As per section 115BAC, individuals and HUF have an option to pay tax in respect of their total income (other than income chargeable to tax at specialrates).
3. Partnership/LLP:- 30% flat rate is applicable on Firm/LLP, in addition to tax, surcharge would be applicable if the totalincome exceeds the threshold limit and health and educationcess as well. Income of partners received from firm is exempt under section 10(2A).
4. Company:- Company organizes as widely held or closely held company on the basis of ownership and control.
Deemed dividend under section 2(22)(e) and the provisions of section 79 (restriction on carry forward of losses) do not apply to a widely held company. MAT provisions are applicable to companies. As far as tax is concerned, tax incentives available to domestic companies not available to foreign companies.
Advice for readers: for detailed study please refer any Direct Tax Laws’ book
Key Features of Budget 2023-24 from Direct Tax Point of View
Present
Proposal in Budget 2023-24
As per Sec. 115BAC -Tax Regime Rate of Tax : Upto Rs. 2,50,000——————–Nil From Rs. 2,50,001 to Rs. 5,00,000—————- 5% From Rs. 5,00,001 to Rs. 7,50,000—————-10% From Rs. 7,50,001 to Rs. 10,00,000—————15% From Rs. 10,00,001 to Rs. 12,50,000————-20% From Rs. 12,50,001 to Rs. 15,00,000————-25% Above Rs. 15,00,000——————————30%
Rate of Tax:- Upto Rs. 3,00,000———————————-Nil From Rs. 3,00,001 to Rs. 6,00,000—————–5% From Rs. 6,00,001 to Rs. 9,00,000—————-10% From Rs. 9,00,000 to Rs. 12,00,000————–15% From Rs. 12,00,000 to Rs.15,00,000————–20% Above Rs. 15,00,000——————————30%
As per Sec. 87A Rebate of income-tax in case of certain individuals– Resident individual having total income upto Rs. 5 lakh shall be entitled to get a deduction from the amount of income tax of Rs. 12,500 or amount of income tax whichever is lower.
Total Income for rebate of income tax increased from 5 lakh to Rs. 7 lakh (assessees opting for the new tax regime).
Highest surcharge rate on income above Rs. 5 crore to be reduced from 37% to 25% under new tax regime.
As per Sec. 10(10AA), in case of non-government employee received leave encashment at the time of retirement is exempt from tax (max. 3 lakh).
Increasing tax exemption limit to Rs. 25 Lakh on leave encashment. ( This is as per budget not finance bill)
If opt new tax regime (sec. 115BAC) , no deduction of sec 16
Extending standard deduction to new tax regime
The tax regime of Section 115BAC is proposed to be applicable to Association of Persons (AOP)[(other than a co-operative society], Body of Individuals (BOI), and Artificial Juridical Persons (AJP).
Section 80CCH is proposed, deduction shall be equal to the amount of contributions made to the Agniveer Corpus Fund for Agniveers.
Advice-this is subject to change until finance Act 2023