Income Declaration Scheme, 2016 - Disclose your Income and pay 45% tax - No Scrutiny

The Income Declaration Scheme, 2016 introduced by Finance Act 2016 is a one-time disclosure scheme which provides an opportunity to all persons who have not declared income correctly in earlier years to come forward and declare such undisclosed incomes.

1. The scheme opens only for a period of 4 months from 1^st June, 2016 to 30^th September, 2016 for filing of declarations and payments towards taxes, surcharge & penalty must be made latest by 30^th November, 2016. 
2. Individuals , HUFs, companies, firms or any other associations can avail the opportunity
3. Declarations can be filed online or with the jurisdictional Pr. Commissioners of Income-tax across the country.
4. Assets specified in the declaration shall be exempt from Wealth tax.
5.  No Scrutiny and enquiry under the Income-tax Act or the Wealth tax Act shall be undertaken in respect of such declarations.
6. Tax totalling Rs. 45% of undisclosed income shall be payable under this scheme (Tax 30% +  Krishi Kalyan Cess 25% of Taxes+ penalty 25% of the taxes)       
7. The scheme shall apply to undisclosed income and any other income form any investment in assets, pertaining to Financial Year 2015-16 or earlier.
8. Where the declaration is related to investment in assets, the Fair Market Value of such asset as on 1^st June 2016 shall be deemed to be the undisclosed income under the Scheme. However, foreign assets or income to which the Black Money Act 2015 applies are not eligible for declaration under this scheme.
9. Immunity from prosecution under the Income-tax Act and Wealth Tax Act is also provided along with immunity from the Benami Transactions (Prohibition) Act, 1988 subject to transfer of asset to actual owner within the period specified in the Rules.
10.  The Declaration will be Void in case of non-payment of total taxes, surcharge & penalty in time or declaration by misrepresentation or suppression of facts.
11. In case of non-declaration of any undisclosed income under the Scheme, the undisclosed income liable to tax in the previous year in which it is detected by the Income tax Department and other penal consequences will also follow accordingly.
12. One would not be eligible for declaration under the scheme if the undisclosed income relates to an assessment year, where a income tax has served a notice (on or before 31 May 2016) to the assessee under section 142, 143(2), 148, 153A or 153C.

Circular No 16/2016, Dated: May 20, 2016

TCS shall be collected on sales only if cash received exceeds Rs. 2 Lakh u/s 206C (1D) of Income Tax Act, 1961

1.     Amendment in Section 206C(1D) of Income-tax Act, 1961

      Section 206C(1D) of Income Tax Act, 2016 has been Amendment by Finance Act, 2016 and also CBDT has issued clarification regarding amendment in Section 206C(1D) of Income Tax Act, 1961 vide Circular no 22/2016 dated 8th June 2016

Every seller, who receives any amount in cash on sale of:

i)                   Bullion, exceeds Rs. 2,00,000; or

ii)                 Jewellery, exceeds exceeds Rs. 5,00,000;  or

iii)               Any goods, other Bullion and Jewellery exceeds Rs. 2,00,000, or

iv)               Any service, exceeds Rs. 2,00,000

Shall collect from the buyer, a sum equal to one per cent (1%) of sale consideration as income-tax

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.

2.     Clarification by CBDT on TCS on Cash Sale exceeds Rs. 2,00,000/-

CBDT has issued clarification on TCS on Cash Sale exceeding Rs. 2 lakhs vide Circular No. 23/2016 dated 24th June, 2016

a)     In order to curb the cash economy, Finance Act 2016 has amended section 206C of the Income-tax Act to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of certain goods or provision of services exceeding two lakh rupees.

b)     Subsequent to the amendment, a number of representations were received from various stakeholders with regard to the scope of the provisions and the procedure to be followed in case of the amended provisions of Section 206C of the Act. The Board, after examining the representations of the stakeholders, issued FAQs vide Circular no 22/2016 dated 8th June 2016. The Board has further decided to clarify the issue as regards applicability of the provisions relating to levy of TCS where the sale consideration received is partly in cash and partly in cheque by issue of an addendum to the above circular in the form of question and answer as under:

Question 1: Whether tax collection at source under section 206C(1D) at the rate of 1% will apply in cases where the sale consideration received is partly in cash and partly in cheque and the cash receipt is less than two lakh rupees.

Answer: No. Tax collection at source will not be levied if the cash receipt does not exceed two lakh rupees even if the sale consideration exceeds two lakh rupees.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.4 lakhs has been received in cheque and Rs.1 lakh has been received in cash. As the cash receipt does not exceed Rs.2 lakh, no tax is required to be collected at source as per section 206C (1D).

Question 2: Whether tax collection at source under section 206C (1D) will apply only to cash component or in respect of whole of sales consideration.

Answer: Under section 206C (1D), the tax is required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.2 lakhs has been received in cheque and Rs.3 lakh has been received in cash. Tax is required to be collected under section 206C (1D) only on cash receipt of Rs.3 lakhs and not on the whole of sales consideration of Rs.5 lakh.

Conclusion: TCS shall be collected only on the amount received in cash, if cash received exceeds Rs. 2,00,000 on sale in cash of certain goods or provision of services exceeding two lakh rupees.   

Circular no 22/2016 dated 8th June 2016
Circular No. 23/2016 dated 24th June, 2016

Private Limited Company formation and advantages

Operating a Private Limited Company is the most popular and easy business process in the corporate world. The private limited company is a successful business model in India. The business owners hold all shares of the company privately. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Forming a private limited company results in protection of personal assets, access to more resources, financial assistance and greater tax cuts.

Following are the merits/advantages of Forming Private Limited Company

1.     Continuity of Existence: The Business of the company will not affected by the status of owner

2.   Only Two Persons are required: For formation of Private Limited Company only two persons are required to become first directors as well as shareholders of the Company. The two persons who has stayed in India for a total period not less than 182 days in previous calendar period can appoint as directors.

3.   Minimum Share Capital only Rs. 100000/-: There is no requirement to invest huge amount for formation of a Company, with a capital of Rs. 1,00,000/- a Private Limited Company can be formed. The company can raised capital from Maximum 200 members.

4.   Limited Liability: The liability of the member are limited, transfer of shares is limited and restricted to invite general public. This is the biggest benefit any private company can enjoy. In future, if the company goes through financial turmoil, the assets of shareholders and business are protected.

5.  Tax Advantages: Forming a company instead of continuing as a sole trader or sole proprietor opens the door to more tax-deductible costs and allowances redeemable against profits. Private limited companies enjoy tax advantages in addition to limited liability. These companies pay corporation tax on their taxable profits and tend to be exempt from higher personal income tax rates.

6.   Separate Legal Entity: The private company is legal entity which is established under companies act. It has wide legal capacity and can own properties without any limitation.

7.    Finance and Resources: With adequate funding, your company can produce goods at a lower cost, thus increasing profits and customer satisfaction. The future of the business becomes more secure.

8.  Business Continuity: Private limited companies enjoy permanent succession because the company is its own legal entity. In the event of a death or resignation, the company’s Articles of Association allocate the shares to remaining members. Shareholders and employees act “as agents of the company,” therefore, do not effect the company if they leave. Discontinuation of the company only occurs through liquidation or similar means.

9.    Boosting of Professional Status: As a private limited company, it enjoys a good value in the market. These companies are established and hold credibility in the market. More and more national and international companies show keen interest on doing business.

10.Continues to Exist: The company continues to run, even if the members die or dissolve it due to loss or certain reasons. In other words, it has perpetual succession and run until it is legally dissolved by the members. This is considered as important characteristics of forming a company.

11.Scope of Expansion: Private companies can raise capital from individuals or investment companies for further expansion.

No TDS on Specified Payments made to INDIAN BANKs

The Central Government hereby notifies that no deduction of tax shall be made on the following payments made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934, excluding a foreign bank, or to any payment systems company authorised by the Reserve Bank of India under Sub-section (2) of Section 4 of the Payment and Settlement Systems Act, 2007.

1.     Bank guarantee commission

2.     Cash management service charges

3.     Depository charges on maintenance of DEMAT accounts

4.     Charges for warehousing services for commodities

5.     Underwriting service charges

6.  Clearing charges (MICR charges) including interchange fee or any other similar charges by whatever name called charged at the time of settlement or for clearing activities under the Payment and Settlement Systems Act, 2007

7. Credit card or debit card commission for transaction between merchant establishment and acquirer bank.

This notification shall come into force from the date of its publication in the Official Gazette

Notification No. 47/2016 dated 17th June, 2016

Startup India - Eligibility Criteria for Entity and Product/Services

On 16^th January, 2016, The Prime Minister of India, Shri Narendra Modi announced the “Start-up India” initiative. This initiative aims at fostering entrepreneurship and promoting innovation by creating an ecosystem that is conducive for growth of Start-ups. The objective is that India must become a nation of job creators instead of being a nation of job seekers.

The Entrepreneurs were excited by the announcements made by Prime Minister Narendra Modi about “Startup India Action Plan”. 

The following is the analysis of eligible criteria under “Startup India”

The following conditions should be fulfilled for getting registration under “Startup India”

A. Conditions for Eligible Entities

1.      The following entities are eligible

-                     - Private Limited Company under the Companies Act, 2013

-                    - Registered Partnership firm under the Indian Partnership Act, 1932

-                    - Limited Liability Partnership under the Limited Liability Partnership Act, 2008.

2.      Five years must not have elapsed from the date of incorporation/registration.

3.      Annual turnover as defined in the Companies Act, 2013 in any preceding financial year must not exceed Rs. 25 crore.

4.      The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.

B. Certification from the Inter-Ministerial Board, setup by DIPP shall be required to validate the innovative nature of the business, and should meet any of the following conditions:-

1.  be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator established in a post-graduate college in India; or

2.  be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or

3.   be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator recognized by GoI; or

4.  be funded by an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or

5.   be funded by the Government of India as part of any specified scheme to promote innovation; or

6.      have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

C.      Eligible products and services:-

1. Startup must be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and the Startup must aim to develop and commercialise a significantly improved existing product or service or process that will create or add value for customers or workflow.

2.      The Startup must not merely be engaged in:

a) developing products or services or processes which do not have potential for commercialisation; or 

b)     undifferentiated products or services or processes; or

c)  products or services or processes with no or limited incremental value for customers or workflow

For Example: if you are engaged in creating and developing online marketplaces like Flipkart and Amazon then a new startup engaged in the same field may not be eligible unless its product is significantly improved than what existing players provide and the startup should get a recommendation letter from the recognized incubator cell or be recognized by the GoI or should be funded by recognized funds.

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http://startupindia.gov.in/

HUF cannot be a partner in Limited Liability Partnership

Vide General Circular no. 2/2016 dated 15th January, 2016, MCA clarifies that a HUF cannot be a Pertner in a Limited Liability Partnership 

As per section 5 of LLP Act, 2008 only an individual or body corporate may be a partner in a Limited Liability Partnership. A HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008.

Therefore, a HUF or its karta can not become designated partner in LLP.

Circular attached: General Circular no. 2/2016 dated 15th January, 2016

Service Tax Levy on Senior Advocates

The Central Government has amended the position of Senior Advocates under Service Tax through  Notification no. 32/2016-ST, 33/2016-ST and 34/2016-ST dated 6^th June, 2016

The impact of these amendments is summarized as below:

            a)     Any legal service provided by a senior advocate to a non-business entity will be exempt.

b)    Any legal service provided by a senior advocate to a business entity having a turnover of up to Rs. 10 lakhs in the preceding financial year will be exempt.

c)   In respect of any representational service provided by senior advocate before any court, tribunal or any other authority to any business entity within the taxable territory, the person liable to pay tax will be the business entity i.e. the litigant or petitioner under reverse charge mechanism even though the contract for such service has been entered through an advocate or firm of advocates.

d)   If any other legal service apart from a representational service is provided by a senior advocate to a business entity in the taxable territory, the person liable to pay service tax will be the recipient of the service i.e. the business entity under reverse charge mechanism.

e)     The business entity will also include an advocate or a firm of advocates. So, if any legal service apart from a representational service (e.g. consultancy) is provided by a senior advocate to an advocate or a firm of advocates, the person liable to pay tax will be the advocate or the firm of advocates as the case may be.

ANALYSIS OF SERVICE TAX ON SENIOR ADVOCATES BEFORE AND AFTER FINANCE BILL, 2016

BEFORE FINANCE BILL, 2016

 Exemption:  Notification No. 25/2012-ST dated 20th June, 2012

Before the Finance Bill, 2016, as per Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012, the following services was notified as exempt.

6(b) Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to-

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

Service under reverse charge:  Notification no. 30/2012-ST dated 20th June, 2012

As per Notification no. 30/2012-ST dated 20th June, 2012, the following services covered under reverse charge mechanism:-

“The taxable services,-

(A)(iv) provided or agreed to be provided by,

(B) an individual advocate or a firm of advocates by way of legal services,”

And as per Sl no. 5, the service recipient is liable to pay 100% service tax in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services

Person liable to pay tax: Rule 2(1)(d)(i) of the Service Tax Rules, 1994

Also, as per item no. D of Rule 2(1)(d)(i) of the Service Tax Rules, 1994, the person liable for paying service tax:

“in relation to service provided or agreed to be provided by,-

(II) an individual advocate or a firm of advocates by way of legal services,

to any business entity located in the taxable territory, will be the recipient of such service;”

Conclusion: Before Finance Bill, 2016, all taxable legal services provided by an individual advocate or a firm of advocates including senior advocates, the person liable for paying tax was the service receiver i.e. the business entity located within the taxable territory.

AFTER THE FINANCE BILL, 2016

Exemption:   Notification No. 25/2012-ST dated 20th June, 2012

Through Notification No. 9/2016-ST dated 1^st March, 2016, Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012 was amended. In effect, the following services were notified as exempt w.e.f 01^st April, 2016:

“Services provided by

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

(i) an advocate or partnership firm of advocates providing legal services;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;”

Service under reverse charge:  Notification no. 30/2012-ST dated 20th June, 2012

As per the Notification No. 18/2016-ST dated 1st March, 2016, the entries in 30/2012-ST dated 20th June, 2012 have been amended. the following services covered under reverse charge mechanism:-

 “The taxable services,-

(A)(iv) provided or agreed to be provided by,-

“(B) a firm of advocates or an individual advocate other than senior advocate, by way of legal services,”

 As per Sl no. 5, the service recipient is liable to pay 100% service tax in respect of services provided or agreed to be provided by a firm of advocates or an individual advocate other than a senior advocate by way of legal services

Person liable to pay tax: Rule 2(1)(d)(i) of the Service Tax Rules, 1994

As per notification no. 19/2016 dated 1st March, 2016 , in the Service Tax Rules, 1994, Item (D) was modified.

 The person liable to pay service tax:

“in relation to service provided or agreed to be provided by,-

(II) a firm of advocates or an individual advocate other than a senior advocate by way of legal services to any business entity located in the taxable territory, will be the recipient of such service;”

Conclusion: After Finance bill, 2016, all the legal services provided by senior advocates except services provided to non-business entities was taxable. Further, the senior advocates had now become chargeable to service tax under forward charge from 1^st April, 2016.

The Honourable High Court of Delhi, Gujarat and Kolkata granted an interim stay on the applicability of service tax on the senior advocates under forward charge. So, for the time being, the service tax was continued to be paid by the business entity under reverse charge mechanism.

AFTER THE AMENDMENT ON 6^TH JUNE, 2016

Exemption: Notification No. 25/2012-ST dated 20th June, 2012

Notification no. 32/2016-ST dated 6th June, 2016 has further amended the Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012. Hence, the following services were considered as exempt after the amendment:

 “Services provided by

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

(i) an advocate or partnership firm of advocates providing legal services;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to-

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;”

Service under reverse charge: Notification no. 30/2012-ST dated 20th June, 2012

The Notification No. 34/2016 dated 6th June, 2016, amended Notification no. 30/2012-ST dated 20th June, 2012. After the amendment, the following services covered under reverse charge mechanism:

 “The taxable services,-

(A)(iv) provided or agreed to be provided by,-

(B) an individual advocate or a firm of advocates by way of legal services other than representational services by senior advocates, or

(iva) provided or agreed to be provided by a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, and the senior advocate is providing such services, to such business entity who is litigant, applicant, or petitioner, as the case may be”

As per Sl no. 5, the service recipient is liable to pay 100% service tax “in respect of services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly”;

Explanation III has also been inserted below the table to clarify the meaning of litigant, applicant or petitioner. As per explanation III – “The business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be, shall be treated as the person who receives the legal services for the purpose of this notification.”

Person liable to pay tax: Rule 2(1)(d)(i) of the Service Tax Rules, 1994

Item (D) of Rule 2(1)(d)(i) of Service Tax Rules, 1994 was modified and a new item (DD) has been inserted  vide notification no. 33/2016-ST dated 6th June, 2016 

 The person liable to pay service tax:

“in relation to service provided or agreed to be provided by,-

(II) an individual advocate or a firm of advocates by way of legal services other than representational services by senior advocates to any business entity located in the taxable territory, will be the recipient of such service;”

“in relation to service provided or agreed to be provided by a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, and the senior advocate is providing such services, the recipient of such services, which is the business entity who is litigant, applicant, or petitioner, as the case may be”.

Conclusion: Now, all the legal services provided by a senior advocate to a business entity having a turnover of Rs. 10 lakhs in the preceding financial year will only be taxable and the Legal services provided by senior advocates to non-business entity or business entity with a turnover of upto Rs. 10 lakhs in the preceding financial year will be exempt. The legal position of services provided by senior advocates under reverse charge now stands as follows:

1) In respect of any representational service provided by senior advocate before any court, tribunal or any other authority to any business entity within the taxable territory, the person liable to pay tax will be the business entity i.e. the litigant or petitioner or applicant under reverse charge mechanism even though the contract for such service has been entered through an advocate or firm of advocates.

2) If any other legal service apart from a representational service is provided by a senior advocate to a business entity in the taxable territory, the person liable to pay service tax will be the recipient of the service i.e. the business entity under reverse charge mechanism. It is to be noted here that if the service recipient is an advocate or a firm of advocates in respect of services provided by senior advocate, then such advocate or firm of advocates will be liable under reverse charge even though the service is ultimately used for the benefit of the clients.

Other Important Points

A) What is the meaning of Senior Advocate?

“Senior Advocate” has the meaning assigned to it in section 16 of the Advocates Act, 1961 (25 of 1961) i.e. ‘An advocate may, with his consent, be designated as senior advocate if the Supreme Court or a High Court is of opinion that by virtue of his ability or standing at the Bar or special knowledge or experience in law he is deserving of such distinction.”

B) What is a business entity?

As per Section 65B(17) of the Finance Act, 1994, ‘Business entity’ means “any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession”

C) Summarized Table after Notification no. 32/2016-ST, 33/2016-ST and 34/2016-ST dated 6^th June, 2016:-

S. No.	Nature of Service Provided	Service Provider	Service Tax Payable
1	Legal services provided by a senior advocate	Any person other than a business entity	Exempt.
2		A business entity with a turnover up to rupees ten lakh in the preceding financial year	Exempt
3		A business entity with a turnover exceeding rupees ten lakh in the preceding financial year	Service tax shall be paid by recipient of Service i.e. a business entity
4	Representational services (before any court, tribunal or authority) provided by a senior advocate	A business entity	Service Tax payable by Business entity (who is litigant, applicant or petitioner, as the case may be)

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