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Thursday 29 June 2017

Quick look at Common Deductions to maximize IT Refund

PPF might have the most consistent returns as compared to the other options but they are lesser than the rest. Being said that, the most important factor about PPF is that it is backed by the central government so it carries zero risk. We might find this very common amongst the senior salaried individuals.

NPS (New Pension Scheme):
NPS is a contribution pension system introduced by the government, aimed at providing steady income after retirement. NPS is ideal for those individuals who come from unorganised sector and the ones who are not provided the benefit of pension from the employers. Unlike PPF, there is no ceiling on the amount one can invest in the NPS. The NPS works on simple mechanism. Investors contribute a monthly amount towards their NPS account. This monthly contribution is invested as per investor’s choice and risk profile. So one gets to pick where he/she wants to invest. And now you can open your NPS account in just 30 minutes if your bank account is linked to your PAN. The bank will verify the KYC document and clear your application if everything is in order. The NPS will be especially useful for taxpayers who had stayed away from it till now but want to join after the exemption announced in this year’s budget. They can avail the additional benefit of up to Rs. 50,000 under section 80CCD(1b) of the Income Tax Act by investing in it.

Today, there is no shortage of investment option for a person to choose from. Modern day investment includes gold, property, fixed income instrument, mutual funds and of course life insurance. Life insurance is a unique investment that helps you to meet dual needs- saving for life’s important goals and protecting your assets as well. One needs to think about the insurance cover. Your cover should be enough to ensure that it gives your family enough funds to meet the future goals. Life Insurance premium is eligible for tax deduction under section 80C. And the payment proceeds of a life insurance policy are exempt under section 10(10D) which includes maturity amount as well as death claims.

Home Loan Repayment:
Buying a home is one of the biggest financial investments you may make in your lifetime. With improved housing finance facilities and tax deduction benefits, today’s young generation looks at investing in their dream home at the early stage of their carriers. In case of the home loan, the component of your EMI which goes towards principal is eligible to be claimed under section 80C. Besides the deduction allowed on principal repayment, you can also claim payment made towards stamp duty and registration charges under section 80C in the year in which they were paid. At the same time, the interest component in the EMI can be claimed as deduction. The only condition is that you must be both an owner and co-borrower in the loan to claim tax benefits. The deduction can be claimed from the year of completion of the construction. Every year a maximum of Rs.2 Lakh can be claimed for a house that is used as own residence. In case, the house is rented the entire interest amount is can be claimed as deduction.

Again, the best investment opportunity is none other than ELSS (Equity Linked Savings Scheme). These are diversified equity funds with a lock in period of 3 years. You may wonder what’s the fuss about ELSS that everyone in the town seems to be talking about it. Be it a young energetic entrepreneur or a senior salaried person, be it a housewife or a corporate executive, ELSS suits the needs of about everyone. Of course, it carries a bit more risk due to the equity markets as compared to the good old PPF and NCS. But being said that, the lock in period of 3 years ensures that the short-term market volatilities do not affect the investments.
Anyone having a valid PAN is eligible to invest into an ELSS. Different financial institutions offer different schemes to suit your risk-taking appetite. You can also invest online and save yourself some time and agent commission. Investment in ELSS is eligible for deduction under section 80C. You can invest upto a maximum of Rs.1,50,000.

Monday 26 June 2017


PPF vs. ELSS: Which tax saving investment is more suitable?
PPF and ELSS are two of the most popular tax saving investments. Financial advisers always recommend ELSS and PPF. You must be wondering which one is for you? Here, we have tried to list down the comparison between them to help you choose your option wisely.
What is PPF (Public Provident Fund)?
The Public Provident Fund(PPF) is a saving cum tax saving instrument. It was introduced by the National Saving Institute of the Ministry of Finance in 1968. PPF is a Long Term investment option. And it would suit all type of investors(Individuals). This option comes with tax benefits, loan options and a low maintenance cost. The amount you invest in PPF is eligible for deduction under section 80C of the Income Tax Act, 1961. The interest earned is tax free.  And the entire amount on maturity (Principal + Interest Accumulated) is also tax free.
What is ELSS (Equity Linked Saving Scheme)?
The Equity Linked Saving Scheme(ELSS) is an open-ended, diversified equity Mutual Fund Scheme. It is equity fund where more than 65% of fund is invested into equity. It is suitable for all type of investors(Individuals/HUF). The amount you invest in ELSS is also eligible for deduction under section 80C. Capital gain arising on sale of ELSS funds at the end of 3 years lock in period is Exempt from tax. With regards to dividend earned, you can opt for dividend pay-out option or dividend reinvestment option.

Comparison and Conclusion:

Minimum Investment Amount
Rs. 500
Investment Limit
Upto Rs.1,50,000
No limit.
Lock in Period
15 years
3 years
Return on your Investment
8.8% (Compounded annually)
Not assured. It completely dependent on equity market’s performance.
Highest Safety (Guaranteed by Government)
High Risk
Near to retirement
Retirement is several years far
Premature Withdrawal
Only once a year, from 7th year subject to certain conditions
Cannot withdraw before maturity date i.e; 3 years.
Online transaction
Some banks have started giving online facility. However, first-time investor has to visit the bank and do the initial registration by submitting documents.
ELSS can be done Online. An investor can invest or sell ELSS fund any time

ELSS actively invests in the equity markets, with a potential to earn higher returns than traditional savings options like PPF. There is better liquidity with ELSS with lowest lock-in period of 3 years and moreover, ELSS will effectively be a tax-free investment (EEE model). Investing in a fixed income product like PPF will restrict your returns, with inflation hovering around 6%, your real rate of return is only 2-3% with PPF. Such low returns will prevent any major gains accruing over a long period of time. You need to weigh the pros and cons and aim for more with ELSS, instead of getting stuck with fixed income-oriented investments like PPF. To top it all, with a monthly SIP, you can invest on monthly basis, instead of bunching everything up at the year end. Further risk of loss in equity tends to reduce over the long term and tax-saving investments under Section 80C are usually for the long term.

Sunday 25 June 2017

Taxing Freelancing Income

Who is a freelancer?
Freelancer is a person who is self-employed, and have the freedom to choose their projects and companies they would like to be associated with. Some of the common profession for freelancing are: a writer who has the ability to submit their work to many different places, without being tied to any one company, a software developer, a photographer, an interior decorator, fashion designer, a blogger, a gym instructors etc. Freelancers don’t earn salary but run a business. The benefit that a freelancer gets while preparing tax details is that expenses of a freelancer are allowed to be deducted from freelancer’s income.
Income of Freelancer includes:
The sum of all the money one received against the work done is called gross receipt. If your receipts are received in a bank account, then sum them up from your bank account statement. If you have received some money as loan from relatives or friends than it does not count as your income. Payment received towards freelancing work is considered as income from freelancing. Income received from other sources such as interest on FD, rent from property are not included in the freelancing income. Such incomes are part of other heads of income in your return.

How is Freelancing Income calculated?
There are two methods to calculate the Income of the freelancer.
1.    Accrual Basis of Accounting- Here, the income is accounted when it’s due.
2.    Cash Basis of Accounting- Here, the Income is accounted only after it’s actually received.

How’s the Tax calculated on Freelance Income?
When it comes to the taxable Income in Freelance Income, here’s how it’s calculated:
[Net Taxable Income = Gross Taxable Income – Deductions]
You’re liable to pay tax if your age is less than 60 years and your total taxable income is more than 2,50,000.
Now, if the total Tax Liability exceeds Rs.10,000, the taxes are supposed to be paid every quarter.

Freelancing Expenses allowed as a deduction:
Freelancers can deduct expenses incurred exclusively towards the freelancing work. This could be anything from office rent, furniture or expense on visit to client. Personal expenditure of freelancer is not allowed as deduction. For example: If you are an app developer, you can deduct expenses on testing app and software purchase. If you have certain expenses like a cost of high speed internet connection that you use both for personal and professional purpose you can allocate a reasonable per cent to your freelancing work and deduct them.
Following are the Expenses allowed as a deduction:
·         Rent Expenses
·         Electricity Expenses/ Telephone Expenses/ Internet Expenses
·         Petrol/ Diesel Expenses
·         Travel Expenses relating to freelancing work
·         Local taxes and insurance of your business property
·         Meal, entertainment or hospitality expenses incurred on client
·         Depreciation on capital asset purchased for work (laptop, printers, car)
·         Office Expenses
·         Any other expenses incurred for the purpose of earning revenue
All payments in excess of Rs.20,000 must be made either by an account payee cheque or a demand draft. Keep a record of all your expenses and store all your expense receipts.

Deductions allowed under section 80C to 80U
Just like any salaried person, a freelancer can claim all the deductions listed under section 80, by fulfilling the conditions listed therein. For example if you have made an investments to PPF, NSCs or paid life insurance premium, you can avail deduction under section 80C.  In case of any medical premium paid by you, you can claim deduction under section 80D.
TDS for Freelancers
Government of India has made regulation by which an individual/company paying an individual or another company for services offered needs to deduct TDS. TDS in case of freelance should be deducted @ 10%. Individual/company from India having valid Tax Deduction Account Number(TAN) can only deduct TDS from your earnings. Unless your client has a TAN they are not eligible to deduct any TDS from your earnings. In many cases companies/individuals from outside India won’t have TAN, no TDS is applicable. In that case, depositing Advance Tax becomes freelancers’ liability. If any of your client have deducted TDS on payments made to you, you can take credit of this tax deducted from your final tax dues. If in a given financial year, your income does not exceed the basic exemption limit then deducted TDS from earnings can be claimed as refund from Income Tax Department. Since TDS was deducted at source without knowing how much your total income from the year would be, you can become eligible for refund in case the total TDS exceeds the amount of your tax liability.

What are the penalties for non-payment of advance tax?
Interest under Section 234B and Section 234C is applicable when you don’t pay your advance tax.
To avoid Interest Penalty under Section 234B and 234C –
Pay advance tax when your tax liability in a year is Rs. 10,000 or more
Advance tax payments done uptil 31st March of the year should be 100% or more of your total tax payable. Section 234B applies when Advance Tax has not been paid and since Advance Tax is payable as per dates set out by the IT Department, 234C is applicable when interest is not paid according to these due dates.
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Wednesday 21 June 2017

Registration under GST

Casual Registration
A person who occasionally supplies goods and/or services in a territory where GST is applicable but he does not have a fixed place of business. Such a person will be treated as a casual taxable person as per GST.
Example: A person who has a place of business in Bangalore supplies taxable consulting services in Pune where he has no place of business would be treated as a casual taxable person in Pune.
Composition Dealer
This is an option available to small businesses and taxpayers having a turnover less than Rs. 50 lakhs. They can opt for Composition scheme where they will tax at a nominal rate of 1% or 2.50% (for manufacturers) CGST and SGST each (rates will be notified later).
They will be required to maintain much less detailed records and file only 1 quarterly return instead of three monthly returns. However, they cannot issue taxable invoices, i.e., collect tax from customers, but are required to pay the tax out of their own pocket. They cannot also claim any input tax credit.
Composition levy is available to only small businesses. It is not available to interstate sellers, e-commerce traders, and operators.
GST will apply when turnover of the business exceeds Rs 20 lakhs (Limit is Rs 10 lakhs for the North Eastern States). [Earlier the limit was Rs 10 lakhs and Rs 5 lakhs for NE states.]
Migration to GST
All existing Central Excise and Service Tax assessees and VAT dealers will be migrated to GST. To migrate to GST, assessees would be provided a Provisional ID and Password by CBEC/State Commercial Tax Departments.
Provisional IDs would be issued to only those assessees who have a valid PAN associated with their registration. An assessee may not be provided a Provisional ID in the following cases:
The PAN associated with the registration is not valid
The PAN is registered with a State Tax authority and Provisional ID has been supplied by the said State Tax authority.
There are multiple CE/ST registrations on the same PAN in a State. In this case, only 1 Provisional ID would be issued for the 1st registration in the alphabetical order provided any of the above 2 conditions are not met.
The assessees need to use this Provisional ID and Password to login to the GST Common Portal ( where they would be required to fill and submit the Form 20 along with necessary supporting documents.
Penalties for Not Registering Under GST
An offender not paying tax or making short payments has to pay a penalty of 10% of the tax amount due subject to a minimum of Rs.10,000. The penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud.
However, for other genuine errors, the penalty is 10% of the tax due.
Multiple Registrations Under GST
A person with multiple business verticals in a state may obtain a separate registration for each business vertical.
PAN is mandatory to apply for GST registration (except for a non-resident person who can get GST registration on the basis of other documents).
A registration which has been rejected under CGST Act/SGST Act shall also stand rejected for the purpose of SGST/CGST act.

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Monday 19 June 2017

Reverse Charge Mechanism in GST

The aim of reverse charge is to bring unorganised sector into the tax umbrella. It also removes the burden of tax compliance from individuals with limited resources to large companies with enough resources.

Reverse Charge Meaning- Section 2(98) of CGST Act, 2017

“Reverse Charge” has been defined u/s 2(98) of CGST Act, 2017 which means the liability to pay tax by the recipient of the supply of goods or services or both instead of the supplier of such goods or services or both under sub section (3) or sub section (4) of section 9.
Reverse charge, where the recipient is liable to pay tax, is common to many countries like Canada where it is applicable on imports of services and intangible properties. Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge. In India, this is a partly new concept introduced under GST. The purpose of this charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods transport. Compliances and tax collections will therefore be increased through reverse charge mechanism.

Current Scenario:

The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge may be applicable for both services as well as goods. Reverse Charge concept for goods would certainly be a new concept (except Purchase Tax in few goods in few states).
At present, similar provisions of Reverse Charge are available in Service Tax for the services like-
·         Insurance agent
·         Services of a director to a company
·         Manpower supply
·         Goods Transport Agencies
·         Non-resident service providers
·         Any service involving aggregators
Under GST:
Under GST regime, the Government may on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
**All provisions of GST will apply on the recipient (i.e., the buyer).

1.    Situations where reverse charge will apply

i. Unregistered dealer selling to a registered dealer
In such a case, the registered dealer has to pay GST on the supply.
ii. Services through an e-commerce operator
If an e-commerce operator supplies services, then reverse charge will apply on the e-commerce operator. He will be liable to pay GST.
For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.
If the e-commerce operator does not have does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.
2.    Registration
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold [Threshold: Turnover in a financial year exceeds Rs.20 lakhs (Rs.10 lakhs for North eastern and hill states)]
3.    Time of supply for GOODS under reverse charge
In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60 days for services)
If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient.
For clause (b)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books OR
2. The date on which the payment is debited from his bank account

4.    Time of supply for SERVICES under Reverse Charge

In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) The date of payment OR
(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)
If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.
For clause (a)- the date of payment shall be earlier of-
1.    The date on which the recipient entered the payment in his books OR 
2.    The date on which the payment is debited from his bank account

5.    When supplier is located outside India

In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be-
the date of entry in the books of account of the receiver OR
the date of payment
-whichever is earlier

6.    Input tax credit on Reverse Charge

Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The service recipient (i.e., who pays reverse tax) can avail input tax credit.

7.    Tax Invoice

The supplier must mention in his tax invoice whether the tax is payable on reverse charge

8.    GST Compensation Cess

GST Compensation Cess will also be applicable on reverse charge.
GST Compensation Cess will be levied and collected at a rate which will be notified later. This will apply on all supplies of goods and services, including imports and reverse charge supplies. The purpose is to compensate States for loss of revenue on implementation of GST. This will be applicable for 5 years from the date GST gets implemented.

For GST related compliances do contact us, we currently are assisting in 4 areas1) Migration, 2) GST Compliance, 3) Training and 4) Transition & Implementation. Click here for assistance.

Monday 12 June 2017

Council Revises GST Rates on 66 Items

India’s most comprehensive indirect tax reform — the goods and services tax (GST) — is inching towards a July 1 rollout with the GST Council cutting the rate on household goods and other essential items, raising the threshold for the scheme that requires lesser compliance and approving another key set of rules relating to audit and accounts.

At its meeting on Sunday in the Capital, the council revised rates on 66 items such as pickles, sauces, fruit preserves, insulin cashew nuts, insulin, school bags, colouring books, notebooks, printers, cutlery, agarbattis and cinema tickets, following representations from industry.
Restaurants, manufacturers and traders having a turnover of up to Rs 75 lakh can avail of the composition scheme with lower rates of 5%, 2% and 1%, respectively, with lower compliance, against Rs 50 lakh previously. A GST rate of 5% will be applicable on outsourcing of manufacturing or job work in textiles and the gems and jewellery sector. Bleaching and cleaning of human hair, a big industry in Midnapore, will not face any tax.
“After considering recommendations of fitment committee, rates are being reduced in the case of 66 items,” FM Arun Jaitley, who is also the chairman of the GST Council, told reporters.
“There were 133 representations… These were considered at length,” Jaitley said.

“The weighted average of all the rates that we have decided is significantly lower than what we are paying today,” he said, adding that therefore there would be an adverse revenue impact if other things remained equal. “But, we are also hoping on revenue buoyancy and a check on inflation that GST will ensure so as to make up for that loss.”

A number of household items in the packaged food category that had been placed in the 18% bracket such as pickles, mustard sauce, ketchups, f fruit preserves and sandwich toppings will now attract 12% GST.
The rate on agarbattis has been lowered to 5% from 12% proposed earlier. School bags will face a rate of 18% instead of 28%, exercise books will attract 12% instead of 18% and colouring books will be exempt instead of 12% proposed earlier. Steel cutlery will attract 12% instead of 18% and computer printers 18% instead of 28%. Fly ash bricks and blocks will attract 12%

Movie tickets costing below Rs 100 will now attract 18% GST while 28% will continue for those over Rs 100. “Consumers will benefit from the reduction in rates,” Jaitley said, adding that states can refund state GST on regional cinema but there cannot be a centralized exemption.
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