Consequences of Late Filing of Income Tax Return !!!

Season of filing income tax return has just started. 31st July is the due date for filing tax return for individuals and others who are not required to get his accounts audited u/s 44AB of the I T Act. So, here is a quick update on four penal provisions related to late filing of return of income.

1. Pay interest u/s 234A

If you file return after due date , and after processing u/s 143(1) or after assessment u/s 143(3) or 144 of the I T Act, the tax arises, interest u/s 234A shall be charged for late filing of return which is imposed for period starting from the month after the due date (in case of individual 1st August  as the due date generally falls on 1st July)

2. No carry forward of business or capital loss

Section 80 of the I T Act provides that following loss cannot be carried forward if the return is not filed within due date

a. Business Loss ( including speculative loss)

b. Capital loss (short term or long term loss)

c. Loss in race horse maintenance

3. No revised return facility

Income tax Act, u/s 139(5) provides facility to revise the return within one year from the end of the month in which the return was filed or assessment order passed , which ever happened earlier. This facility of revising return is available to tax payer only if

a. Return is filed u/s 139(1) i.e. within due date. or

b. Return is filed in pursuance of notice u/s 142(1) of the I T Act.

4. Eight kinds of exemption /deduction not allowed

Exemption u/s 10A or 10B or deduction u/s 80IA,80IB,80IC,80ID & 80IE are not allowed if the tax return is not filed within due dates.

Trusts may have to park funds with EPFO

More than 2,000 establishments that manage their employees provident fund accounts may soon have to handover the entire corpus to the Employees' Provident Fund Organisation, or EPFO. The top policy-making body of EPFO, the Central Board of Trustees, has endorsed a proposal, which seeks to take away the trusts' right to manage the funds. The move is aimed at securing the retirement savings of nearly five million subscribers who have contributed an estimated Rs 1 lakh crore to the corpus of these trusts. Hundreds of organisations turn sick every year and fail to pay the provident fund dues to their workers, Labour Secretary PC Chaturvedi said. "The new provision would ensure that workers' money is safe in such cases," he said. The EPFO has submitted its proposal to the labour ministry, which is now preparing a Cabinet note to amend the Employees Provident Fund and Miscellaneous Provisions Act of 1952.

source:economictimes.com

Tax gifts to spiritual gurus as income

The common view is that gifts received in individual capacities – not as trustees of public trusts – should be liable to tax. Issues have arisen before courts regarding the taxability of gifts received by the heads of religious and spiritual bodies under the Income-Tax Act, 1961 (Act). The majority view seems to be that such gifts received in individual capacities – not as trustees of public trusts for them – should be liable to tax. However, the Madras High Court in its recent decision in the case of CIT v. Gopala Naicker Bangaru, (2010 236 CTR (Mad) 82, has held that such receipts are not taxable. The assessee in the case before the High Court (HC) is the head of a religious cult. Devotees ‘make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted for as capital receipts'. During the previous year relevant to A.Y. 2004-05, he received Rs1.75 crore as gifts on his birthday. The A.O. ‘treated the gifts as having nexus to his profession as a religious head' and taxed the same. The CIT(A) allowed the appeal of the assessee on the ground that the ‘gifts are not consideration for profession/vocation' following the decision in CIT v. Vanamamalai Ramanuja Jeer Swamigal, (1998) 231 ITR 632 (Mad). The Tribunal upheld the CIT(A)'s decision on the ground that the gifts received have no direct nexus with any of his activities.

source:thehindubusinessline.com

Salaried Individuals with Total Income up to Rs 5 Lakh Exempted from Filing IT Return

Salaried individuals with total income up to Rs 5 lakh will be exempted from filing income tax return for the assessment year 2011-12.

The finance ministry notified the scheme on Thursday, which will allow only those individuals not to file an income tax return who are getting salary from a single employer with total income of Rs 5 lakh after allowable deductions, and interest income from deposits in a saving bank account up to Rs 10,000.

In his budget speech for 2011-12, Finance Minister Pranab Mukherjee had proposed to exempt salaried employees from filing tax returns in order to reduce the compliance burden on small taxpayers. According to the Memorandum to the Finance Bill 2011, the government was to be issue a notification exempting 'classes of persons' from the requirement of furnishing income tax returns.

The Central Board of Direct Taxes has notified the scheme, under which such individuals (with income up to Rs 5 lakh) must report their Permanent Account Number (PAN) and the entire income from bank interest to their employer, pay the entire tax by way of deduction of tax at source, and obtain a certificate of tax deduction in Form No 16.

Individuals receiving salary from more than one employer, having income from sources other than salary and interest income from a savings bank account, or having refund claims shall not be covered under the scheme.

The finance ministry also stated that the scheme shall also not be applicable in cases wherein notices are issued for filing the income tax return under section 142(1) or section 148 or section 153A or section 153C of the Income Tax Act 1961.

How to operate a Joint Bank Account

Banks have several deposit schemes that can be customized for people with varying needs. Deposit accounts can be opened by an individual in his own name (single account) or by two or more individuals jointly (joint account).

Banks offer different types of joint account relationships. Here are a few.

EITHER OR SURVIVOR

This is the most common type of joint account and is applicable between any two individuals. For example, if a husband and wife have a joint account with ‘either or survivor’ clause, either of them can operate the account and in the case of the death of one of the depositors, the other can continue or the final balance in the account along with all interests (as applicable at the time of closure) will be paid to the survivor.

If there is a nominee for the account, the conditions will be the same and the nominee gets access to the funds on the death of both the account holders.

ANYONE OR SURVIVOR

This type of account is normally held when more than two individuals start an account jointly. Here, any of the depositors can operate the account at a time and in case if any of the depositors expire, the others can continue the account and if required, the final balance along with interest will be paid to any of the survivor/s as requested.

FORMER OR SURVIVOR

In this type of joint account, only the first account holder can operate the account. The second depositor gets the right only on the death of the first after undergoing some basic formalities like submission of proof of death etc.

LATTER OR SURVIVOR

This is similar to the former or survivor, but the difference is that, in this type of account, only the second account holder (latter) can operate the account. The survivor or the former account holder gets access to the fund only on death of the latter and on producing the proof for the same.

MINOR’S ACCOUNT

A savings bank account can also be opened in the name of a minor jointly with a guardian. Here, only the guardian is supposed to operate the account on behalf of the minor. The guardian should be parents or in special cases, a legal guardian, as appointed by court. Some banks allow minors above the age of 12 to open and operate accounts independently.

THINGS TO REMEMBER

• Any mandate / power of attorney for operating a joint account or authorizing another person on behalf of the depositors, is to be given by all account holders or with the consent of all account holders.

• All operational instructions and information in connection with the relationships formed is to be given by all the joint account holders irrespective of the mode of operation.

• If there is a nominee to a joint account, the nominee gets access to the account only when all the account holders cease to exist. In case if both the account holder and nominee is no more, the legal heirs of depositor/s will get the funds.

• Individuals jointly running a business can open only a current account for business transactions. In case of current accounts, only the person authorized by the company / management will have the authority to operate the account.

• In case of a joint account, all the depositors are singly and jointly liable for overdraft if any, even if the application / demand promissory note is signed by one of them.

• Financial transactions through net banking, will be available if the mode of operation is indicated as 'either or survivor' or 'anyone or survivor'. The user of net banking in that case should either be the sole signatory or the authorised to act independently. User-ID and password for net banking will be issued to all account holders on request.

• Those who enter a joint account should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint accounts should be opened only with someone you can trust.

Individual accounts may meet court restrictions and delays on the death of the account holder, in the absence of a nominee. This is not the case in a joint account where the survivor of the account is entitled to the balance, without any legal restrictions.

source:in.reuters.com

Changes in Schedule VI – Old vs New (Revised)

Ministry of Corporate Affairs (MCA) had revised Schedule VI of Companies Act, 1956 and notified the same on 1^st March 2011.  The refreshed Schedule VI shall apply to all companies from 1^st April 2011 onwards.

The revised Schedule VI introduces many new concepts and disclosure requirements and does away with several statutory disclosure requirements of the existing Schedule VI. The New Schedule VI is as per the currently in use non-converged accounting standards as under Companies (Accounting Standards) Rules, 2006.

Changes in Revised Sch VI

The changes brought in revised format have been segregated in the following manner: -

1. Balance Sheet
2. Profit & Loss A/c

General Changes

1. While both Vertical and horizontal forms of presentation were allowed under old schedule VI, only vertical form is allowed under revised Schedule VI.

2. Once a unit measurement is used, it should be used uniformly in the Financial Statements.

Changes in Balance Sheet

Liabilities

1. Change in nomenclature – “Sources of Funds” has been replaced with “Equity & Liabilities”

2. Share Capital – Company would need to show in sub-head à Shares held more than 5% in company along with number of shares

3. Debit Balance of P&L A/c shall now be shown as negative figure under head Surplus

4. Liabilities will now broadly be classified as

• Current Liabilities &
• Non Current Liabilities

5. Deferred payment liabilities and loans & advances from related parties to be shown separately under head “Long term Borrowings”.

6. Provisions to be classified as Short Term Provisions & Long Term Provisions

Assets

1. Change in nomenclature – “Application Of Funds” has been replaced with “Assets”

2. Fixed Assets to be further classified as

• Tangible
• Non-Tangible

4. Current Assets are to be shown under separate head.

5. “Sundry Debtors” have now been named “Trade Receivables”

6. “Cash and Bank Balances” have now been termed as “Cash and Cash Equivalents”. Classification under this head has been completely revamped.

7. Inventories – Goods in transit shall be disclosed under the relevant sub-head of inventories

8. Misc expenditure (to the extent not written off or adjusted) shall now not be shown separately under head “Other Current Assets”

9. The amount of dividend proposed to be distributed to shareholders (equity and preference) for the period and amount per share to be disclosed separately

Changes in Profit & Loss A/c

1. Under head “Other Income” - Net gain/loss on foreign currency translation and transaction (other than finance cost) shall be disclosed separately.

2. Employee benefit expense shall disclose additionally expense on account of Employee stock option scheme (ESOP)

3. Following shall now be disclosed separately –

• Provision for loss of Subsidiary companies

• Net loss on sale of Investments

• Details of exceptional and extraordinary items

• Prior Period items

• Adjustment to carrying amount of investments

4. A new format has been issued for face reporting of Profit & Loss A/c.

Impact of Revision in Schedule VI

1. The revised schedule VI intends to familiarize companies with Ind-AS/IFRS by using certain concepts such as current/non-current classification.

2. The revised Schedule VI has eliminated the concept of schedules and such information will now be provided in the notes to accounts. This is as done when applying IFRS.

3. From now on, the compliance requirements of Act and/or Accounting standards will prevail over schedule VI.

4. Better presentation, disclosure is intended to facilitate better organised data for users of financial statement.

Post Office Deposits to attract Income Tax from this year

In an attempt to monitor all deposits made under post office schemes and bring them at par with bank interest earnings, the Central Board of Direct Taxes (CBDT) has notified that income from post office savings schemes will be taxed from the current financial year.

By making it mandatory for individuals to declare investments in their tax returns, Income Tax Department has brought all such deposits under its scanner.

A CBDT notification said a declaration to this effect has to be made in the income tax returns filed by an individual. Any income earned beyond Rs 3,500 annually in case of individuals and Rs 7,000 in case of joint accounts will be taxable, the notification said.

By setting a minimum limit of Rs 3,500 on interest earnings, the Income Tax Department has exempted small depositors who get 3.5% interest. Thus, a small depositor with a maximum saving of Rs 1 lakh, and Rs 2 lakh in case of joint account holders, won’t have to pay any tax.

Small and marginal farmers who generally invest in post office schemes would thus be exempt from the new levy. Tax will be applicable for only those who invest in post office instruments more than the prescribed limit.

“This is done to minimize and phase out tax deductions and exemptions,” CBDT spokesperson Shishir Jha said. The government is slowly moving towards the Direct Tax Code which seeks to phase out tax deductions.

Interest earnings from bank savings account are taxed by the government. This will also bring post office earnings at par with earnings from banks. Post office deposits had swelled over the years both from small and large investors. All such deposits were going under the radar of the tax investigators. There was no mechanism to keep a check.

Basic Money Tips Your Father Must Have Taught You

Lately I have been thinking about the basic financial education that your father must have taught you. I interacted with a number of young people and discussed the same and was surprised to note that many of them didn’t have any basic understanding of how finances work.

So I thought of sharing basic financial education tips with everyone. The tips that I’m about to share with you are the result of my past mistakes and hard-earned experience.

1. Limit your Debt

A debt today will narrow your capacity to make choices in the future. If you do, you’re essentially spending tomorrow’s wages today. It will make you indentured servant to your lenders. Limiting your debt will help you more control over your life as you get older.

2. Needs vs. Wants

It is very important that you understand the difference between needs and wants. You will have to make many hard choices in life. Just have patience, a time will come when your salary will rise and with it, so will your purchasing power. Moreover, by saving and investing your hard earned funds, you would also be able to get a handsome return on your money.

3. Love your Job

Luck helps many to be successful but the real source of success is found through lots of hard work tied with a serious interest for whatever you do. If you want to end up making your own luck, just make sure that you find a job that you really love.

4. Importance of Savings

Financial freedom could only be attained if you spend less than you earn. Start saving, it will enable you to roll through emergencies, retirement and will pay you a great future for your golden years.

5. Non-Monetary Happiness

Never think that you have to be “rich” to attain financial freedom. There are lots of examples showing that people earning millions per year aren’t financially free and people earning much less are financially free. Financial freedom is more about a state of mind, always remember a rich life is defined by the things money can’t buy.

6. Be Responsible

Be courageous and take responsibility for all of the troubles that are direct or indirect result of your own judgment. Always keep in mind that you alone control your own destiny. Moving on an easy route and ignoring all important signs can result in as the biggest mistake of your life.

These tips will definitely help you achieve financial freedom and will help you tackle financial problems.