Maroon and Beige Minimalist Special Gift & Flower Presentation

TAXATION OF GIFTS

by with No Comment News

.

TAXATION OF GIFTS

1.What is gift Tax in India?

The Indian Government introduced the tax on gifts in April 1958, and the Gift Tax Act regulates it. The said Act was introduced to impose taxation on the exchange of gifts under requisite circumstances.

.

Essentially, gifts here represent anything in the form of cash, bank cheques, demand drafts, and other valuables. According to 2017’s amended law, any gift received by an individual or individuals is now taxed at the hands of receiver as ‘Income from other sources. Notably such gifts are taxed at regular rates (Slab Rates).

.

2.Taxation of Gift?

Taxation of Gift in India is as Follows: –

S.NO

EXPLANATION

1.     

Any gift received by employee from employer due to employee – employer relationship it is always taxable (even if received on marriage) under income from salary.

2.     

Any gift/ benefit/ perquisite/ arising from Business or Profession is always taxable under the head PGBP.

.

.

Other Gifts u/s 56(2)(x)

Any gift received or asset acquired for low consideration by any person: –

S.NO

EXPLANATION
1.

Money (without consideration):

If the aggregate amount received by any person during the P.Y exceeds Rs. 50,000 then the whole amount of gift is taxable.

.

Example: Mr. Karan receives cash gift of Rs. 20,000 each from his 3 friends on the occasion of his Birthday, is the money received taxable?

.

Since the total amount of cash gift received exceeds Rs. 50,000 (20,000*3 = 60,000), the entire amount i.e. Rs. 60,000 is taxable.
1.

Moveable Property (without consideration):

If any moveable property received by any person without any consideration during the P.Y and the Fair Market Value (FMV) of such property exceeds Rs. 50,000 then the entire Fair Market Value shall be taxable.

.

Example: Mr. Mohan receives gold chain worth Rs. 80,000 from his girlfriend, is this gift taxable?

.

Yes, since the moveable property’s Fair Market Value exceeds Rs. 50,000, the entire amount i.e. Rs. 80,000 will be taxable in hands of Mr. Mohan.
1.

Moveable Property (Inadequate consideration):

If any moveable property received by any person during the P.Y for inadequate consideration and the Fair Market Value (FMV) of such property less consideration paid exceeds Rs. 50,000 then the difference between Fair Market Value & consideration paid shall be taxable.

.

Example: Mr. Kunal received a painting worth Rs. 1.2 lakhs from his friend for Rs. 30,000 only, is the difference taxable?

.

Yes, since the FMV less consideration paid is greater than Rs. 50,000, the difference is taxable in hands of Mr. Kunal (Rs. 1,20,000 – Rs. 30,000 = 90,000).
1.

Immoveable Property (without consideration):

If any immoveable property received by any person without any consideration during the P.Y and the Stamp Duty Value (SDV) of such property exceeds Rs. 50,000 then the entire Stamp Duty Value shall be taxable.

.

Example: Mr. Nayan receives Land worth Rs. 2,50,000 (SDV) from his girlfriend, is this gift taxable?

.

Yes, since the immoveable property’s Stamp Duty Value exceeds Rs. 50,000, the entire amount i.e. Rs. 2,50,000 will be taxable in hands of Mr. Nayan.
1.

Immoveable Property (Inadequate consideration):

If any immoveable property received by any person during the P.Y for inadequate consideration and the Stamp Duty Value (SDV) of such property less consideration paid exceeds Rs. 50,000 plus Stamp Duty Value (SDV) is more than 110% of the consideration then the difference between Stamp Duty Value & consideration paid shall be taxable.

.

Example: Mr. Kunal received a Bungalow worth Rs. 1.2 crores (SDV) from his friend for Rs. 20 lakhs only, is the difference taxable?

.

Yes, Since the SDV of the more than 110% of the consideration paid (110% * 20 lakhs < 1.2 crores) & the difference between Stamp Duty Value and consideration paid is more than Rs. 50,000 the entire difference i.e. Rs. 1.2 crores – 20 lakhs = Rs. 1 crore is taxable in hands of Mr. Kunal.

.

.

Any property received as gift or acquired for low consideration other than above, Section 56(2)(x) will not be applicable so it will not be taxable.

.

NOTE 1: What do you mean by Immoveable Property?

S.NO

IMMOVEABLE PROPERTY MEANS:
1.

Shares & Securities.
1.

Jewellery.
1.

Painting.
1.

Archaeological collection.
1.

Sculptures.
1.

Bullion.
1.

Drawing.
1.

Virtual Digital Assets (VDA).
1.

Any other work of art.

.

.

NOTE 2: What do you mean by Moveable Property?

.

S.NO

MOVEABLE PROPERTY MEANS:
1.

Land.
1.

Buildings.
1.

Land or building both.

NOTE 3: If Assessee is not satisfied with the Stamp Duty Value of the Property, then his case may be transferred to Valuation Officer.

.

NOTE 4: Section 56(2)(x) applicable only if it is in the nature of capital asset of the recipient, it is stock in trade then Section 56(2)(x) will not be applicable.

.

NOTE 5: If any person receiving any asset as gift or acquires for inadequate consideration & he is already assessed u/s 56(2)(x) on FMV/ SDV the cost of acquisition of such asset shall be FMV/ SDV which was considered under IFOS u/s 56(2)(x). When Cost of acquisition is computed as per Section 49(4), the period of holding of the previous owner shall not be included in the period of holding.

.

If the gifts are received from certain people or on special occasions as mentioned below, then tax will on gift will not be levied: –

.

S.NO

EXPLANATION (Money/ Property not taxable if it is received)
1.

On the occasion of Marriage.
1.

From any Relatives.
1.

Under will or by way of Inheritance.
1.

In contemplation of Death.
1.

From any Hospital or medical institution.
1.

From any University or education institute.
1.

From or by any Trust registered u/s 12AA/12AB.
1.

From any Local Authority u/s 10(20).
1.

From an Individual by a trust created solely for the benefit of the relative of the individual.
1.

By any Fund, Trust, Hospital, Medical Institute, University, Education Institute referred u/s 10(23C).
1.

Certain exempt transfers as per Section 47 Clause (i), (iv), (v), (vi), (via), (viaa), (vib), (vie), (vica), (vicb), (vid), (vii), (viiac), (viiad), (viiae), (viiaf).

.

NOTE 6: Definition of Relative as per Income Tax Act?

.

S.NO

Relative as per Income Tax means (in case of Individual):
1.

Spouse of the Individual.
1.

Brother or Sister of the Individual.
1.

Brother or Sister of the spouse of the Individual.
1.

Brother or Sister of either of the parents of the individual.
1.

Any lineal ascendant or descendant of the Individual.
1.

Any lineal ascendant or descendant of spouse of the Individual.
1.

Spouse of the person referred in point 2-6 above.

.

In case of HUF any member of the HUF is a relative of HUF.

.

NOTE 7: CBDT Notification No. 40/2020 – Section 56(2)(x) not applicable in following cases:

.

S.NO

EXPLANATION
1.

Immoveable Property received by resident of unauthorized colony in National Capital Territory of Delhi, where Central Government has regularized transactions of such property for conferring or recognizing right of ownership/ transfer/ mortgage in favour of such resident based on latest Power of Attorney, Sale Agreement, Will, Possession etc. including evidencing payment of consideration.
1.

Receipt of unquoted shares of company and its subsidiary and subsidiary of such subsidiary by a shareholder where NCLT on application by Central Government has suspended the Board of Directors and appointed newly directors nominated by the Central Government and the shares so received are pursuant to resolution plan approved by NCLT after providing the PCIT/ CIT an opportunity of being heard.
1.

Equity shares of Yes Bank received by an investor as per Yes Bank Ltd. Reconstruction scheme, 2020
1.

Equity shares, of the public sector company, received by a person from the Central Government under strategic disinvestment.

.

NOTE 8: Amendment by Finance Act 2022 w.e.f. A.Y 20-21

.

S.NO

Amendment (Section 56(2)(x) not taxable in following cases, Money received: –)
1.

By Individual, from any person, for expenses actually incurred on treatment of Covid-19 related illness of him or any family member.
1.

By Family member of deceased person, within 12 months of death (death due to Covid -19 illness): –

i.From the employer of the deceased person (without any limit); or
ii.From any other person or persons upto Rs. 10 Lakhs.

NOTES:

i.Family means spouse, children and dependent relative (parent, brother, sister).
ii.Death should be within 6 months from the date of testing covid positive.
White and Turquoise Gradient Stock Market Presentation

TAXATION IN CASE OF BUY BACK

by with No Comment News

TAXATION IN CASE OF BUY BACK

1.What do you mean by Buy-back of shares?

Share or stock buyback is the price where companies decide to purchase their own shares from their existing shareholders either through a tender-offer or through an open market. In such a situation, the price of concerning shares is higher than the prevailing market price.

.

2.Taxation in case of shares or other specified securities (other than shares of domestic company)?

In the hands of company: There is NO TAXtreatment in hands of company.

.

In the hands of shareholder:As per Section 46A, Capital Gain is applicable in hands of shareholder.

.

Computation of capital gain

Particulars

Rs.

Full value of consideration (Buy Back Price)

xxx

Less: Cost of acquisition/ indexed cost of acquisition

xxx

Short term capital gain/ Long term capital gain

xxx

.

Period of Holding: Date of acquisition till date of Buy Back.

.

NOTE (amendment w.e.f. 01/10/2024):

Where Shareholders received consideration and it is treated as deemed dividend u/s 2(22)(f) then, full value of consideration shall be treated as NIL while calculating Capital Gain.

.

3.Taxability in case of shares of domestic company (Buyback till 30th Sep. 2024)?

In hands of Company:

As per Section 115QA, Domestic company shall pay tax @ 23.296% (20%+12%+4%) on distributed income which shall be calculated as below:

.

Distributed Income = Buyback price – Issue Price (including premium).

.

NOTE:

Company is required to pay tax within 14 days from the date of distribution. Interest @ 1% p.m. or part of the month applicable form 15th day. Assessee will be treated as assessee in default if tax not paid.

.

Rule 40BB- Buy Back Rules for calculation of Issue Price

S.NO

Case

Issue Price
1.

Shares issued by a company on its subscription

Amount actually received by the company (including Premium)

E.g.

Tata ltd issued 10,000 shares on 10/07/2006 for Rs. 70 per share. Face value of the share was Rs. 10: In this case Issue Price will be Rs. 70.
1.

Where prior to buy back, the company has returned any sum out of amount received.

Amount received by the company as reduced by the sum so returned.

If company paid DDT u/s 115-O on returned amount, then it shall not be reduced

E.g.

Suppose in above example company paid Rs. 5 on 15/08/2015 then the issue price will be Rs. 65 and if DDT was paid on those Rs. 5 then the issue price will be Rs. 70.
1.

Shares issued under ESOP or as a part of sweat equity
• FMV OF SHARES; or
• Amount credited to share capital & premium.

whichever is lower.

.

E.g.

Kamal Ltd. issued 10,000 ESOPS at Rs. 40 per share (FV 10). FMV of shares is Rs. 70 per share. In this case issue price will be Rs. 70 lower of FMV or amount credited to share capital & premium account.
1.

Shares are issued under a scheme of amalgamation, in lieu of share or share of an amalgamating company

Amount received by the amalgamating company in respect of such shares

E.g.

CCL ltd. issued 10,000 shares at Rs. 70 per share. CCL ltd amalgamated with DCL ltd and DCL ltd issued 20,000 shares to shareholders of CCL ltd.

In this case Issue Price will be = 7,00,000/20,000 = Rs. 35 per share
1.

In case of Demerger, shares issued by resulting company

Amount received by demerged company in respect of original shares to be divided in ratio of net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.
1.

In case of demerger, in hands of demerged company

Amount received shall be reduced by the amount determined in point 5 above.

E.g.

Burger ltd have 2 divisions Burger & Beverages. Burger Ltd. issued 10,000 shares at Rs. 70 per share in P.Y 01-02. Burger Ltd demerged and transfer beverage division to Beverages Ltd. in P.Y 19-20. At time of demerger net worth of Burger Ltd was Rs. 500 crores. Net assets transferred to Beverages Ltd. is Rs. 200 crores. Beverages ltd issued 20,000 shares of F.V Rs. 10 to shares of Burger Ltd.

.

Shares of Beverages Ltd.: Rs. (7,00,000*200cr/500cr)/20,000 = Rs. 140 per share.

Shares of Burger ltd.: (Rs. 7,00,000- Rs. 2,80,000)/ 10,000 = Rs. 42 per share.
1.

Shares allotted or issued as a part of consideration for acquisition of any assets or settlement of liability

Amount received = A/B.

A: a) FMV of asset/ liab.

b) Amount credited to share capital & security premium account

Whichever is lower.

B: No. of shares issued as a part of consideration.

.

NOTE:

Where both shares and money is given the FMV of assets shall be considered only to the portion of consideration paid by shares.

E.g.

Karun Ltd. acquired assets in lieu of issue of 10,000 shares. FMV of assets is Rs. 5,00,000. In this case issue price will be Rs. 50.
1.

Shares issued or allotted on succession or conversion of firm into a company or succession of sole proprietary concern by the company

Amoun received = (A-B)/C

A= Book value of assets in B/S as reduced by TDS, TCS, Adv. Tax (except refund) & unamortized amount of deferred expenditure.

.

B= Book value of liabilities in the B/S as reduced by capital, reserves and surpluses, provisions for unascertained liabilities and contingent liabilities

.

C= Number of shares issued on conversion.
1.

Bonus shares issued without consideration

.

Nil
1.

Shares issued on conversion of preference shares, bond or debentures, debenture stock or deposit certificate.

Amount received by the company in respect of the instrument so converted.

.

.

.

E.g.

KB ltd. issued 10,000 bonds for Rs. 1000 per bond in F.Y 14-15. On 18/04/23 bonds convertible into shares and company allotted 2,00,000 shares in lieu of bonds.

In this case Issue Price= 1crore/ 2 lakhs = Rs. 50.
1.

Shares held in D-MAT Form, and which cannot be distinctly identified

Amount received for issue of shares on the basis FIFO method.
1.

In any other case

Face value of the shares.

.

Example for point 8 above.

Business of Mr. Rahul is transfer of Rahul Pvt. Ltd. and the company allotted 1,00,000 shares to Mr. Rahul (F.V Rs.10). Statement of Liabilities and assets as on date of succession is as follows:

LIABILITES

ASSETS

Particulars

Rs.

Particulars

Rs.

Capital

25,30,000

Building

17,00,000

Provision for tax

(Excess by Rs. 20,000)

 

 

 

2,30,000

Goodwill

 

 

 

 

 10,00,000

Loan

4,70,000

Furniture

4,00,000

Other liab.

1,20,000

TDS/ TCS

2,00,000

 

 

Advance tax

50,000

TOTAL

33,50,000

TOTAL

33,50,000

.

.

Building transferred at Rs. 24,00,000. Calculate issue price of shares allotted to Mr. Rahul.

.

Issue Price of shares = (A-B)/C; 25,50,000/1,00,000= 25.50/share.

A= Book value of assets

Building

17,00,000

Goodwill

10,00,000

Furniture

4,00,000

IT Refund (2,50,000- 2,10,000)

40,000

B= Book value of Liabilities

Loan

(4,70,000)

Other Liabilities

(1,20,000)

Net Assets

(25,50,000)

.

 

.

In hands of Shareholders:

The amount received by shareholders on Buyback of shares shall be exempt u/s 10(34A) i.e. no tax treatment in hands of shareholders.

.

4.Taxability in case of shares of domestic company (Buyback w.e.f. 01st Oct. 2024)?

In the hands of Company:

There is No Tax treatment in hands of company.

.

In the hands of shareholders:

Section 2(22)(f): Any payment by company on buy back of shares shall be treated as deemed dividend in hands of shareholders and it is taxable under Income from other sources as per normal tax rate.

.

Buy back is treated as extinguishment of rights so Capital gain is applicable as per Section 46A in the hands of shareholder.

.

Computation of Capital Gain

Particulars

Rs.

Full value of consideration (buy back price)

Always Nil

Less: Cost of acquisition of shares

(xxx)

STCL/ LTCL

(xxx)

.

.

Example: Mr. Kunal acquired 1,000 shares of Ril Ltd. @ Rs. 50 per share during P.Y 2020-21. Ril ltd buy back shares 300 shares @ 120 per share on 10/12/2024. Mr. Kunal sold 700 shares on 15/07/2025 @ Rs. 200 per share, Discuss tax treatment in hands of Mr. Kunal

.

During the P.Y 24-25. Rs. 36,000 (300 Shares * 120) is treated as deemed dividend in hands of Mr. Kunal as per Section 2(22)(f) & it is taxable under IFOS.

.

Computation of capital gain on buy back.

Particulars

Rs.

Full value of consideration

Always Nil

Less: cost of acquisition (300 shares *50)

(15,000)

LTCL (it can be set off against any other ltcg of c/f for next 8 years)

 

 

(15,000)

.

.

Computation of Capital gain on sale of 700 shares

Particulars

Rs.

Full value of consideration

1,40,000

Less: Cost of acquisitions (700 shares * 50 shares)

 

(35,000)

LTCG

1,05,000

LTCL B/F

(15,000)

LTCG

90,000

 

.

Blank Company Profile Business Presentation in Blue Navy Modular Style (1)

TAXATION ON DIVIDEND & DEEMED DIVIDEND

by with No Comment News

.

TAXATION ON DIVIDEND & DEEMED DIVIDEND

1.What do you mean by Dividend?

A shareholder’s reward for investing in a company, dividends represent a portion of company’s profits distributed back to its owners. It’s essentially a financial return on your investment.

.

2.What are the different types of Companies?

The different types of Companies is as follows:

TYPE

DEFINITION

·      Indian Company

A Company formed and registered under the Companies Act, 2013 or any law of the state.

·      Domestic Company

Indian Company or any other company (foreign company) who made prescribed arrangement for the declaration and a payment of dividend within India. Thus, all Indian Co. are treated as domestic company, but all domestic company are not treated as Indian Company.

 

If a foreign company makes prescribed arrangements for payment of dividends in India, it shall be treated as Domestic Company.

·      Foreign Company

Company which is not a domestic company.

.

.

3.Taxability of Dividend

Dividend Income from Domestic Company or Foreign Company taxable in the hands of Shareholder at Normal Tax Rate.

TYPE OF DIVIDEND

TAXABILITY

·      Final Dividend

It is Taxable in the year in which it is declared at the AGM by company

·      Deemed Dividend

It is Taxable in the year in which it is distributed/ paid by the company.

·      Interim Dividend

It is Taxable in the year in which it is received by shareholder.

.

.

4.What do you mean by Deemed Dividend?

In reality these payments are not Dividend but for the purpose of Income Tax they are treated as dividends. The objective is to plug the loopholes in tax provisions & to check avoidance.

Following transaction are deemed to dividends as per Income Tax.

.

Section 2(22)(a): Any distribution of assets

Section 2(22)(b): Any distribution of Debentures, Deposit Certificate etc.

Section 2(22)(c): Distribution of assets on Liquidation.

Section 2(22)(d): Reduction of share capital.

Section 2(22)(e): Loans or advances by closely held companies.

.

5.What is Section 2(22)(a)?

Section 2(22)(a) states that any distribution of Assets by a company to its shareholders to the extent the company possesses accumulated profits whether capitalized or not is to be treated as deemed dividen.

.

NOTES:

In case of Bonus shares, there is no release of assets hence, issue of bonus shares is not deemed as dividend.

.

When assets are distributed u/s 2(22)(a), the FMV of the asset on the date of distribution has to be taken for computing the dividend.

.

6.What is Section 2(22)(b)?

Section 2(22)(b) states that the following are to be treated as deemed dividend.

S.NO

DEEMED DIVIDEND

1.     

Any distribution to its shareholders by the company of debentures, debentures stock or deposit certificates to the extent which company possesses accumulated profit whether capitalized or not and

2.     

Any distribution to its preference shareholders of shares by way of bonus to the extent which company possesses accumulated profit whether capitalized or not.

.

.

7.What is Section 2(22)(c)?

Section 2(22)(c) mandates that any distribution of assets by the company on liquidation to the extent to which company possesses accumulated profit whether capitalized or not.

.

8.What is Section 2(22)(d)?

Section 2(22)(d) mandates that any distribution to its shareholders by the company on reduction of its capital to the extent to which company possesses accumulated profit whether capitalized or not.

.

9.What is Section 2(22)(e)?

Section 2(22)(e) mandates that any payment by the company, not being a company in which the public are substantially interested of any sum/ payment:

a)By way of advance or loan to a shareholder, who is the beneficial owner of shares holding not less than 10% of the voting power, to the extent to which the company possesses accumulated profits.
b)To any concern in which such shareholder is a member or a partner and in which he has substantial interest, to the extent to which the company possesses accumulated profits.
c)By such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company possesses accumulated profits.

.

.

NOTES:

1.Concern means HUF, Firm, Company, AOP/ BOI.
2.Substantial interest means 20% or more voting power/ Profit sharing ratio at any time during the P.Y.
3.If loan is repaid or Company charges market rate of interest, then also loan is treated as deemed dividend.
4.Accumulated profit means profit as per Companies Act (means accounting profit).
5.Section 2(22)(e) is not applicable in case of trade advances means advance which is in the nature of commercial transactions.
6.If loan and advances given to concern then it is treated as deemed dividend in the hands of the concern but as per some court judgments its taxable in the hands of the shareholders.

.

DIVIDEND SHALL NOT INCLUDES:

Dividend shall not include: –

1.Any advance or loans given by Company in the Ordinary course of its business of money lending, where money lending is “substantial part” of the business. Substantial part of the business has to be understood on case-to-case basis. The relevant factors can be turnover, profits, manpower, capital employed etc.
2.Any dividend paid by a company, which is set off against the loan which has been deemed as dividend u/s 2(22)(e).
3.Shares allotted to shareholder of demerged Company by resulting company under Demerger.
4.Any distribution made u/s 2(22)(c)/2(22)(d) in respect of preference shares.

Difference between 2(22)(a)/(b)/(c)/(d) & 2(22)(e)

S.NO

2(22)(a)(b)(c)(d)

2(22)(e)
1.

Treated as deemed dividend to the extent accumulated profits whether capitalized or not

Treated as deemed dividend to the extent of accumulated profit.
1.

Applicable to all the companies whether closely held or not.

Applicable to only closely held companies.

NOTES

Distributed treated as deemed dividend to the extent of accumulated profits. In case of accumulated losses, the above provision shall not apply. Accumulated profit means profit/ reserves created through P&L A/c.

.

Capitalized means issue of bonus shares, transfers to capital reserves etc. shall also be included in accumulated profits.

Green and White Modern Investment Presentation

TAXATION OF INVESTMENT FUND & SECURITISATION TRUST

by with No Comment News

.

TAXATION OF INVESTMENT FUND & SECURITISATION TRUST

1.What do you mean by Investment Fund?

Investment Fund means Category I or Category II Alternative Investment Fund and is regulated under the SEBI (Alternative Investment Fund) Regulations, 2012 or under the IFSC Authority Act, 2019.

.

2.What is Category I & Category II Alternative Investment Fund?

ALTERNATIVE INVESTMENT FUND

CATEGORY I

Investment in Start-ups, SME, social and economically viable projects.

 

Example:

Venture Capital Fund, SME Funds, Social Venture Funds, Infrastructure Funds, Angel Investment Funds.

CATEGORY II

Investment in Equity & Debt Securities

 

Example:

Private Equity, Funds, Debt Fund, Fund of Funds.

.

.

3.Taxation of Investment Fund?

The tax rate and the taxability of income of Investment Fund is as follows:

S.NO

EXPLANATION

1.     

All incomes of investment fund (except PGBP) are Exempt u/s 10(23FBA).

2.     

All income received by unit holders from investment fund are taxable in hands of unit holders (except PGBP) u/s 115UB.

3.     

Tax rates for investment fund (PGBP).

Assessee

Tax Rate

Company/ Firm

25%/ 30%

Others

Maximum Marginal Rate

4.     

If the income accruing/ arising/ received by fund during the Previous Year and has not been paid/ credited to unit holders, then the same shall be deemed to have been credited to the account of Investor on the last day of P.Y. & taxable in hands of unit holder.

 

NOTE:

If income already taxed in the year of accrual, then it is not taxable in the year of receipt.

5.     

Any income accruing or received by a person being unit holder of an investment fund, out of investment made in the investment fund, shall be chargeable to income tax in the same manner as if it were the income accruing/ received by Unit Holder.

6.     

Income, nature & proportion will be same in the hands of Unit Holder.

7.     

Investment fund is compulsory required to file return u/s 139(4F).

.

.

Since, the income distributed (except PGBP) is chargeable in the hand of Unit Holders, the Investment Fund is required to deduct TDS u/s 194LBB on income distributed at the rate mentioned below:

ASSESSEE

TDS RATE

Non-Resident/ Foreign Company

Rate in force

Resident

10%.

.

 

4.Losses incurred by Investment Fund (w.e.f. 01.04.2019)?

If in any Year there is a loss under any head of Income at the Fund level then first fund will be set-off such losses and if such loss cannot be or is not wholly set-off against income under any other head of income, then such losses:

Losses Head

Set-off

PGBP Losses

It can be carried forward and set off by Fund only.

Other Losses

It will be passed on to the Unit Holders (who hold the units for atleast for 12 months or more) to be carried forward and set-off in their individual hands.

.

.

NOTE 1: If the unit holders did not hold the units for 12 months, then such losses will not be allowed to unit holders as well as the Investment Fund.

.

NOTE 2: Before 01.04.2019 all losses were carried forward by Fund only but from 01.04.2019 losses other than PGBP allowed to be carried forward to unit holders so any accumulated losses (other than PGBP) at fund level on 31.03.2019 shall be distributed to unit holders holding units on 31.03.2019 and allowed to be carried forward and set off by unit holders for remaining period.

.

5.What do you mean by Securitization Trust?

Securitization is a financial process that involves pooling and packaging various types of assets, which are then sold to investors with cash flow from underlying assets to make interest and principal payments to the investors. The Securitization Trust is the financial vehicle used in the process of securitization and plays a crucial role in converting various types of liquid financial assets into marketable securities.

.

6.Taxation of Securitization Trust?

The tax rate and the taxability of income of Securitization Trust is as follows:

S.NO

EXPLANATION

1.     

All incomes of Securitization Trust from the activity of Securitization are Exempt in hands of trust u/s 10(23DA).

2.     

Income accruing or received by investor from securitization trust (out of investment made in the trust), shall be taxable in the hands of Investors in the same manner & to the same extent as if investor had made investment directly in the underlying asset & not through the trust (Section 115TCA).

3.     

If the income accruing/ arising/ received by trust during the Previous Year and has not been paid/ credited to investors, then the same shall be deemed to have been credited to the account of Investor on the last day of P.Y. & taxable in hands of investors.

 

NOTE:

If income already taxed in the year of accrual, then it is not taxable in the year of receipt.

4.     

Income, nature & proportion will be same in the hands of Unit Holder.

5.     

Investment fund is compulsory required to file return u/s 139(4CEB).

6.     

Securitization Trust means a SPV or a trust set up by Reconstruction Company or Securtization Company under the regulation of SARFAESI Act, 2002 or SEBI (public offer & listing of Securitized Debt Instrument) Regulation 2008 or RBI direction/ Guidelines.

.

Since, the income distributed by trust is chargeable to tax in the hand of Investors, the Securitization Trust is required to deduct TDS u/s 194LBC on income distributed at the rate mentioned below:

ASSESSEE

TDS RATE

Non-Resident/ Foreign Company

Rate in force

Resident Individual/ HUF

25%.

Other resident Payee

30%

.

NOTE:

The Securitization Trust & Investment Fund shall provide break up regarding nature and proportion of its income and other details to unit holder/ investor upto 30th June of the F.Y. following the P.Y. and Income Tax Authority (CIT/PCIT) upto 30th November (15th June in case of investment fund) of the Financial Year following the Previous Year.

.

Teal and Orange Playful Illustration Family Member Presentation

CLUBBING OF INCOME

by with No Comment News

CLUBBING OF INCOME

1.Income of a Minor Child Section 64(1A)

Income of Minor child is taxable in hands of the parent whose income is more before clubbing minor’s income.

.

Exception: In the following 3 cases minor’s income is taxable in the hands of minor only: –

a)Income is due to manual work.
b)Income is due to Skill and Talent.
c)Minor child suffering from disability.

NOTES:

S.NO

DESCRIPTION

A.   

If minor child’s income is clubbed in the hands of parent, then exemption u/s 10(32) of Rs. 1,500 p.a. per child is allowed for a maximum two children.

B.   

Once minor’s income is clubbed with one parent, it will continue to be clubbed with that parent only, in subsequent years. AO, may, club the minor’s income with other parent after giving an opportunity to be heard.

C.   

Where the marriage of the parents does not subsist, income of the minor will be includible in the income of that parent who maintains the minor child in the relevant P.Y.

D.   

Clubbing provisions are attracted even in respect of income of minor married daughter.

E.   

Child in relation to an Individual includes a stepchild and an adopted child of that individual.

.

2.Asset transferred to spouse u/s 64(1)(iv).

If any Individual transfers any assets to his or her spouse without consideration on for inadequate consideration the income from such asset is received by spouse but tax on such income is paid by transferor (Assessee).

.

NOTES:


S.NO

DESCRIPTION

A.   

The above provision is applicable only if relationship of husband & wife should exist at the time transfer of asset as well as at the time of generating the income.

B.   

This provision is not applicable if asset is transferred in connection with agreement to live apart.

C.   

If a house property is transferred by an individual to his spouse or minor child (not being a minor daughter) for without/ inadequate consideration, then such individual is treated as deemed owner as per Section 27 & Section 64 shall not apply.

.

.

3.Asset transferred to Son’s wife u/s 64(1)(vi).

If any individual transfers any asset to his/ her son’s wife without consideration or for inadequate consideration, then income from such asset is received by son’s wife but tax on such asset is paid by transferor.

.

The provision of this section is applicable only if the relationship of mother/ father-in-law & daughter-in-law exists at the time of transfer of asset as well as at the time of generating the income.

.

4.Asset transferred to any other person for the benefit of spouse/ son’s wife u/s 64(1)(vii/viii)

If an individual transfers any asset to any person without consideration or for inadequate consideration for the benefit of son’s wife/ spouse, then income from such asset is received by any other person (transferee) but tax on such income is paid by transferor.

.

5.Income of spouse from a concern where assessee has substantial interest u/s 64(1)(ii).

Income of spouse is taxable in hands of assessee if the following conditions are satisfied.

.

a)Income is in the nature of Salary, Commission, Bonus (remuneration) &
b)Such remuneration should be received from a concern where assessee has substantial interest.

.

(Assessee+   substantial int.  remuneration

Relative)  Concern   spouse  

.

Substantial interest means 20% or more shareholding or profit-sharing ratio in a company/ firm.

.

Exceptions:

.

a)If remuneration is received by spouse due to technical & professional qualification & such remuneration is attributed to such qualifications, then the above provision is not applicable.
b)Where both husband and wife have substantial interest in a concern and both are in receipt of income by way of remuneration from concern, such income will be includible in the hands of that spouse, whose total income, excluding such income is higher. Where any such income is once included in the total income of either spouse, income arising in the succeeding year shall not be included in the total income of the other spouse unless the AO is satisfied, after giving that spouse an opportunity of being heard, that it is necessary to do so.
6.Income transfer without transfer of asset u/s 60.

If an individual transfers any income without transfer of asset, then such income is taxable in the hand of the transferor.

.

7.Revocable transfer of asset u/s 61.

In case of revocable transfer, income is received by transferee, but tax is paid by the transferor.

However, if the transfer is revoked after the death of beneficiary or transferee then the above provision is not applicable.

.

8.Asset transferred to HUF u/s 64(2).

If any individual transfer any asset to his HUF without/ for inadequate consideration, the income from such asset is received by HUF but taxable in hands of transferor (member).

.

After Partition of HUF, Income from such asset received by spouse shall be clubbed in hands of transferor.

.

NOTES:

S.NO

NOTES

1.     

Income includes loss also, so, if there is any loss then also clubbing provision are applicable.

2.     

Where an asset transferred into any other form, income derived from such converted asset shall also be clubbed.

3.     

Natural love & affection may be a good consideration but it’s not adequate consideration.

4.     

If the asset transferred is sold by the transferee the capital gain is also treated as income and shall also be clubbed.

5.     

If there are two transactions and they are inter-related and part of same transaction, it shall be considered to be a device for evasion of tax and therefore clubbing provision shall apply.

 

Example:

Mr. X gifted Rs. 12 lakhs to his brother’s wife (Mr’s Y) & his brother gifted Rs. 8 lakhs to Mrs. X (Mr. X’s wife). Gifted amount deposited in Banks @9% on 01/08/2024.

Clubbing provision will be applicable only to the extent of income on the matching amount of cross gifts, in above example Rs. 8 lakhs is matching amount proportionately Rs. 48,000 will be clubbed.

6.     

Where any asset is transferred by Individual to his spouse/ son’s wife & such amount is invested in business by the transferee the proportionate profit of such business will be clubbed as per the following formula:

 

Income from business * gifted by assessee/ Capial of     business on first day of P.Y

 

Clubbing provision shall be applicable only if gifted money is included in opening capital.

7.     

All the clubbing provisions are not applicable to second generation income i.e. income from accretion of transferred assets.

.


.

     

Black and Blue Modern Financial Report Presentation

SET-OFF & CARRY FORWARD OF LOSSES IN CASE OF AMALGAMATION & DEMERGER

by with No Comment News

CARRY FORWARD & SET-OFF OF LOSSES IN CASE OF AMALGAMATION & DEMERGER

1.Setoff and carry forward of loss in Amalgamation u/s 72A.

This section applies where there has been an Amalgamation of: –

a)Company owning an Industrial undertaking or a ship or a hotel with another company; or
b)Amalgamation of banking company with a specifies bank; or
c)One or more Public Sector company or companies with one or more Public Sector company or companies; or
d)An erstwhile Public Sector company with one or more company or companies, if the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation of the said Public Sector company and the amalgamation is carried out within 5 Years from the end of P.Y in which the restriction on amalgamation in the share purchase agreement ends.

.

NOTES: –

S.NO

NOTES
I.

The loss of the amalgamating company, in case of amalgamation referred to in (iv), which is deemed to be the loss or unabsorbed depreciation of the Amalgamated company, shall not be more than the loss and unabsorbed depreciation of the Public Sector Company as on the date on which the Public Sector Company ceases to be a Public Sector Company as a result of strategic disinvestment.
I.

“Strategic Disinvestment” means sale of shareholding by the Central Government or any State Government in a Public Sector Company which results in reduction of its shareholding to below 51% along with transfer of control to the buyer.

.

Example: –

Suppose shares of Air India Ltd. purchased by Tata Pvt. Ltd. in P.Y 22-23 under share purchase agreement (SPA). As per share purchase agreement its mentioned that Public Sector Company cannot amalgamate till 31/03/2025. Amalgamation took place in P.Y 2027-28.

.

In the above case whatever losses and unabsorbed depreciation of Air India as on 31/03/2025 shall be treated as losses and unabsorbed depreciation of Tata Pvt. Ltd. for P.Y 2027-28.

.

2.Conditions to be satisfied by Amalgamating & Amalgamated Company?

.

CONDITIONS TO BE SATISFIED BY AMALGAMATING CO.

S.NO

CONDITIONS

a)    

Amalgamating company should have been engaged in the business for 3 Years or more prior to the date of amalgamation.

Example: –

Amalgamation takes place on 01.07.2025, then Amalgamating company should have started the business on or before 01.07.2022.

b)   

The amalgamating company should hold at least 75% of the Book Value of Fixed Assets which it held two years prior to date of Amalgamation.

CONDITIONS TO BE SATISFIED BY AMALGAMTED CO.

S.NO

CONDITIONS

a)    

Amalgamated company should continue the business of amalgamating company for the period of at least 5 Years from the date of amalgamation.

b)   

Amalgamated Company should fulfil the prescribed conditions in case in case there is an Amalgamation of Industrial undertaking.

 

The prescribed condition is as follows: –

 

The Amalgamated company shall achieve the level of at least 50% of the installed capacity before the end of 4 Years from the date of amalgamation and continue to maintain such minimum level of production till the end of 5 Years from the date of Amalgamation. However, Central Government on an application made by the amalgamated company max relax the condition of achieving the level of production or period during which same is to be achieved or both in suitable cases.

c)    

Amalgamated Company holds continuously for a minimum period of 5 years from the date of Amalgamation at least 75% of Book Value of Fixed Assets of Amalgamating Company acquired in the scheme of Amalgamation.

.

.

NOTE: –

If all the above conditions are satisfied, then the accumulated losses and unabsorbed depreciation shall be deemed to be of the amalgamated company for the P.Y in which amalgamation was effected i.e. accumulated losses can be carry forward for fresh 8 Years.

.

DEEMED INCOME: –

If any of the above conditions are not complied with, set off loss or depreciation made in any P.Y in the hands of Amalgamated Company shall be deemed to be the income of the Amalgamated Company chargeable to tax in the year in which such conditions are not complied with.

.

3.Set of Carry forward of losses in case of Demerger?

Allowability of carry forward and set-off of accumulated loss and unabsorbed depreciation by resulting company: Where there has been a demerger of an undertaking,

.

a)Accumulated loss and the unabsorbed depreciation is directly relatable to the undertaking transferred by the demerged company to the resulting company shall be allowed to carry forward and set off in the hands of the resulting company.
b)Accumulated loss or unabsorbed depreciation is not directly attributable to the undertaking, the same will be apportioned between the demerged company and the resulting company in the same proportion in which the value of assets have been transferred.

.

.

.

4.What do you mean by Industrial Undertaking?

It means any undertaking which is engaged in: –

a)Manufacture or processing of goods.
b)Manufacture of computer software.
c)Generation or distribution of electricity or any other form of power.
d)Mining.
e)The construction of ships, aircraft, or rail systems.
f)Providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trucking, broadband network, and internet services.

.

5.Conclusion


.

Carry Forward & setoff losses in case of Amalgamation, Demerger & Succession

Case

Accumulated Business Loss

Can be carry forward by

Time Limit

Amalgamation

Amalgamating Company

Amalgamated Company

Fresh 8 Years

Demerger

Demerged Company

Resulting Company

Remaining period of 8 Years

Conversion of Firm/ proprietary into company

Firm/ Proprietary concern

Successor Company

Fresh period of 8 Years.

Unlisted Company into LLP

Unlisted Company

LLP

Fresh period of 8 Years.

NOTES:

1.Unabsorbed depreciation can be forwarded by Amalgamating Company/ Resulting Company/ Successor company/ LLP for unlimited years.
2.Only business losses (except speculative business loss) can be carry forward by successor.
Green and Yellow Illustrative Financial Management Presentation (2)

SECTION 79 & 79A : SET OF CARRY FORWARD OF LOSSES – SPECIAL CASES

by with No Comment News

SET OF CARRY FORWARD OF LOSSES- SPECIAL CASES (SECTION 79 & 79A)

.

1.Carry Forward and set-off of losses in case of certain companies (Section 79)?

Where a change in shareholding has taken place during the P.Y in the case of a closely held company, no loss incurred in any year prior to the P.Y shall be carried forward and set-off against the income of the P.Y, unless on the last day of the P.Y, at least 51% of equity shares were held by persons who held at least 51% of the equity shares on the last day of the year or years in which the loss was incurred.

.

Provided that even if the above condition is not satisfied in case of eligible start-up (80-IAC), loss incurred in any year prior to the P.Y shall be allowed to be carried forward and set off against the income of the P.Y if all the equity shareholders of such company who held shares on the last day of the year or years in which the loss was incurred, continued to hold those shares on the last day of such P.Y and such loss has been incurred during the period of 10 years from the year in which such company is incorporated.

.

Following changes in shareholding shall not be considered as a change in shareholding:

S.NO

Description

1.     

Where the change takes place consequent upon the death of the shareholder.

2.     

Where the change takes place by way of gift of shares to any relative of the shareholder.

3.     

Any changes in shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of the foreign company subject to the conditions that 51% of the shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or resulting foreign company.

4.     

Where a change takes place in P.Y as a result to a resolution plan approved under IBC, 2016, or due to resolution plan approved by NCLT Section 241 & 242 of the Companies Act, 2013.

5.     

To an erstwhile public sector company may subject to the condition that the ultimate holding company of such company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the voting power of such company in aggregate.

 

If this condition is not complied with in any P.Y after the completion of strategic disinvestment, the provision of Section 79 shall apply for such P.Y and subsequent P.Y’s.

.

Example 1:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

.

NAME

SHAREHOLDING ON 31.03.2024

SHAREHOLDING ON 31.03.2025

 

Mr. A

34%

35%

Mr. B

33%

33%

Mr. C

33%

–

Mr. D

–

32%

Losses of P.Y 2023-24 can be set off against income of P.Y 2024-25 because 51% or more equity shares held by the same person on 31/03/2024 and 31/03/2025.

.

Example 2:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

NAME

SHAREHOLDING ON 31.03.2024

SHAREHOLDING ON 31.03.2025

 

Mr. A

34%

10%

Mr. B

33%

10%

Mr. C

33%

5%

Mr. D

–

75%

.

Losses of P.Y 2023-24 cannot be set off against income of P.Y 2024-25 because 51% or more equity shares are not held by the same person as on 31/03/2024 and 31/03/2025. However, if Nayan Pvt. Ltd. is an eligible start-up as per section 80-IAC the losses of P.Y 2023-24 can be set off because all the shareholders on 31/03/2024 continue as shareholders on 31/03/2025. (Assume loss incurred in the first 10 Years of incorporation).

.

Example 3:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

NAME

SHAREHOLDING ON 31.03.2024

SHAREHOLDING ON 31.03.2025

 

Mr. A

34%

10%

Mr. B

33%

15%

Mr. C

33%

–

Mr. D

–

75%

.

Losses of P.Y 2023-24 cannot be set off against income of P.Y 2024-25 because 51% or more equity shares are not held by the same person as on 31/03/2024 and 31/03/2025. However, if Nayan Pvt. Ltd. is an eligible start-up as per section 80-IAC the losses of P.Y 2023-24 still cannot be set off against the income of P.Y 2024-25 because all the shareholders as on 31/03/2024 are not shareholders as on 31/03/2025.

.

2.Carry forward and set-off of losses consequent to search, requisition and survey?

Where consequent to a search u/s 132 or a requisition us/ 132A or a survey u/s 133A (other than TDS/ TCS survey), the total income of any P.Y of an assessee includes any undisclosed income, set-off of any losses or unabsorbed depreciation not allowed against such undisclosed income.

.

Undisclosed income means: –

i.Income of the P.Y represented by money, bullion or other valuable article or any entry in the Books of Accounts or other documents or transactions found during search or requisition or survey which has: –

.

a.Not been recorded on or before the date of search or requisition or survey, in the books of accounts or no other documents maintained in the normal course relating to such P.Y or

.

b.Not been disclosed to the Principal Chief Commissioner of Income Tax (PCCIT) or Chief Commissioner of Income Tax (CCIT) or Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) before the date of search or requisition or survey; or

.

ii.Income of the P.Y represented by any entity in respect of an expense recorder in Books of Accounts or other documents maintained in the normal course relating to the P.Y which is found to be False and which would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.

Green and Yellow Illustrative Financial Management Presentation

SET OFF AND CARRY FORWARD OF LOSSES

by with No Comment News

SET OFF AND CARRY FORWARD OF LOSSES

The profit and losses are the two side of a coin. Losses, of course are hard to digest. However, the Income Tax Act in India does provide taxpayers with some benefits of incurring losses too. The law contains provisions for set-off and carry forward of losses which are discussed in detail in this article.

.

1.What do you mean by set off of losses?

Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be intra-head set-off or an inter head set off.

.

2.Wha is Intra head set off?

It means loss of one source of income can be set off against income from another source of income but in the same head of income.

.

Exceptions:

A.Speculative business loss can be set off against speculative business income.
B.Specifies business loss (Section 35AD) can be set off against speculative business income.
C.Long term capital loss can be set off against long term capital gain.
D.Loss from owning & maintaining race horses can be set off against income from owning & maintaining race horses.

.

3.What is Inter head set off?

It means loss under one head of income can be set off against income from another head of income but in the same previous year.

.

NOTE:

For carry forward losses inter head adjustment not allowed.

.

Exceptions:

A.Speculative business loss can be set off against speculative business income.
B.Specifies business loss (Section 35AD) can be set off against speculative business income.
C.Long term capital loss can be set off against long term capital gain.
D.Loss from owning & maintaining racehorses can be set off against income from owning & maintaining racehorses.
E.Short term capital losses (STCL) can be set off only against STCG & LTCG.
F.Loss from business cannot be set off against salary.

.

4.What do you mean by carry forward of losses?

After making the appropriate and permissible intra head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rule as regards carry forward differs slightly for different heads of income.

First rule to carry forward of loss is to file the return on income on or before the due date.

.

These have discussed here:

CARRY FORWARD & SET-OFF OF LOSSES

Section

Losses to be c/f

B/F losses set off against

Time Limit

ROI on Time

71B

Loss from HP

Income from HP

8 Years

No

72

Normal business loss

Any business Income

 

8 Years

 

Yes

73

Speculative business loss

Speculative business Income

 

4 Years

 

Yes

73A

Specified business loss

Specified business Income

 

Unlimited

 

Yes

74

Short Term Capital Loss

Short Term Capital Gain & Long-Term Capital Gain

 

 

8 Years

 

 

Yes

Long Term Capital Loss

Long Term Capital Gain

 

8 Years

 

Yes

74A

Owning & maintaining racehorses

Income from owning & maintaining racehorses

 

 

4 Years

 

 

Yes

32

Unabsorbed Depreciation

Any head of income except salary

 

Unlimited

 

No

.

.

Steps for Carry forward.

LOSS HEAD

Set off / Carry forward Steps

1.    Loss from Salary

Loss not possible

2.    Loss from House property

Step 1: Intra head adjustment.

Step 2: Inter head adjustment (Max Rs. 2,00,000)

Step 3: Carry Forward for next 8 Assessment Years.

3.    Loss from Speculative Business

Step 1: Set off against speculative business income.

Step 2: Carry Forward for next 4 Assessment Years.

4.    Loss from Specified Business

Step 1: Set off against specified business income.

Step 2: Carry Forward for unlimited years.

5.    Any other business loss

Step 1: Intra head adjustment.

Step 2: Inter head adjustment (except salary).

Step 3: Carry Forward for next 8 Assessment years.

6.    Short Term Capital Loss

Step 1: Set off against short term capital gain or long-term capital gain.

Step 2: Carry forward for next 8 Assessment years.

7.    Long term Capital Loss

Step 1: Set off against long term capital gain.

Step 2: Carry forward for next 8 Assessment years.

8.    Loss from Owning & Maintaining racehorses

Step 1: Set off against Owning & maintaining race-horses income.

Step 2: Carry forward for next 4 Assessment years.

9.    Other losses from Income from other sources

Step 1: Intra head adjustment.

Step 2: Inter head adjustment.

Step 3: Carry forward not allowed.

.

NOTES:

.

i.Loss from House Property which can be set off against income from other heads is maximum Rs. 2,00,000.
ii.It is to be remembered that once the loss is carried forward, it can only be set off only against the income from the same head in the forthcoming Assessment Years.
iii.Wherever the income is exempt then losses does not have any tax treatment it means it should be ignored.
iv.Loss from any lottery, card games, races etc. are not eligible for set off & C/F & Losses cannot be set off against the income referred u/s 115BB i.e. lottery income, crossword puzzles, income in TV shows etc.
v.B/f losses from a business can be set off even if such business is not continued.
vi.If there is income under any head & eligible loss other any other head, such loss shall be first set off against the income before c/f of such losses.
vii.Set off of losses not permissible against unexplained income, Investment, money etc. chargeable u/s 68 to 69D.
viii.Order for set off losses.
a)Current year depreciation.
b)Brought forward losses from business or profession.
c)Unabsorbed Depreciation

.

Black and Orange Modern Law Firm Presentation

TAXATION OF AOP/BOI

by with No Comment News

.

TAXATION OF AOP/BOI

1.What do you mean by AOP & BOI?

Association of person: The Indian Income Tax Act, 1961, defines AOP (Association of person) as an integration of person for a mutual benefit or a common purpose. They may be individual or artificial person such as LLP or a Company. For example, two companies may join together and form an AOP for the achievement of a common objective.

.

Body of individual: BOI (Body of Individuals) is similar to an AOP and is also an accumulation of individuals who have come together with an objective of earning some income. For example, two individuals may get together and do something together to earn some income.

.

2.Difference between AOP & BOI?

An Association of Persons (AOP) and a Body of Individuals (BOI) convey two different arrangements of people. The fact that both of these expressions at time are used interchangeably doesn’t justify the respective interpretation. We need to stop interchanging the usage of these words as they represent two different compositions.

.

There are certain differences between an Association of Persons and Body of Individuals. A person in AOP could be a company or an individual person. The term person could include any association, body of individuals or company, irrespective of whether it is incorporated or not.

.

However, in a BOI, only individuals can join with the intention of earning some income. Hence, we can say, BOI only comprises of individuals, whereas an AOP could include legal entities.

.

3.Tax rates of AOP/ BOI?

The tax rates of AOP/ BOI are as follows:

.

Shares of Member (known/ unknown)

Criteria

Tax rates

 

Shares of Members are Known

Part A:

All members having net taxable income is up to basic exemption limit

Tax at slab rate like individual.

Part B:

One or more members having net taxable income greater than basic exemption limit

Tax on Entire Income @ Maximum Marginal Rate i.e. 39% or 42.744%.

Shares of Members are unknown

Shares of Members are unknown

Tax on Entire Income @ Maximum Marginal Rate i.e. 39% or 42.744%.

NOTES:

              i.          In computing Net Taxable Income of member his share from this AOP/ BOI shall be excluded.

            ii.          If AOP/ BOI pay tax as per default tax regime u/s 115BAC then MMR is 39% (30%+ 25% + 4%) otherwise it is 42.744% (30% + 37% + 4%).

          iii.          Loss of AOP/ BOI shall be c/f by such AOP/ BOI.

          iv.          If AOP/ BOI pay tax as per normal tax rate (slab rate) then special rates of income tax (like LTCG/ STCG 111A/ LTCG 112A) shall be taxable at special rates of tax only. If AOP/ BOI pay tax as per MMR then special rate of tax income shall be taxable as per MMR only.

.

Example:

KJ Associates is an Association of Person (AOP) consisting of two members, J and K, Shares of the members are: 60%(K) and 40%(J). Income of the AOP for the previous year 2024-25 is Rs. 10 lakhs.

Compute the tax liability of AOP and the members in the following situations, assuming K & J do not opt to pay tax as per Section 115BAC:

i.K & J have their income, other than income from AOP, amounting to Rs. 1 lakh and Rs. 2.7 lakhs.
ii.K & J have their income, other than income from AOP, amounting to Rs. 1 lakh and Rs. 1.2 lakhs.

.

Solution:

Taxability of KJ Associates

i.As J’s income, other than that from AOP, exceeds the basic exemption limit, the AOP shall pay tax at maximum marginal rate of 42.744% (i.e. 30% + 37%(surcharge) + 4% (Health & Education cess)). Thus, the tax payable by AOP = Rs. 10,00,000 * 42.744% = Rs. 4,27,440
ii.Since none of the members have income, other than income from AOP, exceeding the basic exemption limit, the AOP would be taxed at rates applicable to an individual. Therefore, the AOP’s tax liability will be = Rs. 1,12,500 + Rs. 4,500= Rs. 1,17,000.

.

Taxability of K & J

 

Particulars

K (Rs.)

J (Rs.)

(i)                       

Share of Profit from AOP

Exempt

Exempt

 

Income from other sources

1,00,000

2,70,000

 

Total Income

1,00,000

2,70,000

 

Tax Liability

Nil

1,000

 

Rebate u/s 87A

–

1,000

 

Total Tax Payable

Nil

Nil

 

 

 

 

(ii)                    

Share of Profit from AOP

6,00,000

4,00,000

 

Income from other sources

1,00,000

1,20,000

 

(A)

7,00,000

5,20,000

 

Tax Liability

52,500

16,500

 

Add: HEC @4%

2,100

660

 

Total Tax Payable (B)

54,600

17,160

 

Average Rate of tax (B/A * 100)

7.8%

3.3%

 

Total Tax Liability

54,600

17,160

 

Less: Rebate u/s 86 in respect of profit from AOP (share in AOP * average rate of tax)

 

 

46,800

 

 

13,200

 

Tax Liability of Members

7,800

3,960

.

.

.

4.Interest & Remuneration to Member by AOP/ BOI?

Interest, salary, bonus, commission paid by AOP/ BOI to its members it shall be disallowed while computing PGBP.

.

NOTE:

If any interest is received from the member to whom any interest is paid, then only the Net Interest shall be disallowed.

.

5.Method of computing members share in income of AOP/ BOI?

Member share in AOP/ BOI can be computed as below:

Step No

Explanation

 

 

Step 1

Compute Net Taxable income of AOP/ BOI, this shall be computed after disallowing salary & interest paid to members as per Section 40(ba).

Step 2

Net taxable income of AOP/ BOI

 

xxx

Less: interest & remuneration paid to members

 

 

(xxx)

Amount allocation in ratio of PSR

 

(xxx)

Step 3

To the amount allocated in step 2, add the interest, remuneration to the respective members. The total shall be the members shares in income of AOP/ BOI.

.

.

Why we need to compute member share?

AOP/ BOI is already chargeable to tax so members share should be exempt in their individual hands but if AOP/ BOI paid taxes as per slab rates then members share in income of AOP/ BOI shall be included in total income of members & members will claim rebate u/s 86. If AOP/ BOI has paid taxes @ MMR then members share shall not be included in the total income of members.

.

6.Rebate in respect of Member’s share u/s 86?

Computation of total income & tax of member

Share of AOP/ BOI

xxx

Add: Income from AOP/ BOI

xxx

Total Income

xxx

Tax liability on total income (including surcharge & cess)

 

xxx

Less: Rebate u/s 86

(Tax liability * share from AOP/ BOI)/ Total Income

 

(xxx)

Net Tax Payable by Member

xxx

NOTES:

              i.          No rebate if the tax payable by AOP/ BOI is Nil.

            ii.          The rebate shall be reduced after adding surcharge & education cess.

.

.

7.Treatment of interest to Members?

Summary: –

Partner on

Interest Received on

Treatment

Individual Capacity

Individual Capacity

Interest disallowed as per Section 40(ba) .

Representative Capacity

Representative Capacity

Interest disallowed as per Section 40(ba).

Individual Capacity

Representative Capacity

Section 40(ba) not applicable so full interest is allowed.

Representative Capacity

Individual Capacity

Section 40(ba) not applicable so full interest is allowed.

..

Language Arts Analyzing Authors’ Perspectives Presentation in Blue, Red and Cream Illustrative Style

TAXATION OF POLITICAL PARTIES

by with No Comment News

TAXATION OF POLITICAL PARTIES

1.What do you mean by Political Party as per Income Tax Act, 1961?

A political party means a political party registered under Section 29A of the Representation of the People Act, 1951.

.

A political party is a group of people who come together to contest elections and hold power in the government. They agree on some policies and programs for the society with a view to promote the collective good.

.

2.Taxation of Political Party?

Political parties are barred from taking any activity of commercial nature and thereby earning profits. Political parties are allowed to accept voluntary contributions under Representation of the People Act, 1951. Further they may also own immovable properties or deposit from which they can earn income like interest, rent etc. Political parties may also have income from sale of coupons, membership fees collected, and more.

.

However, Section 13A has given 100% exemption to political parties on their income from House property, income from other sources, capital gains and voluntary contribution received from any person subject to certain conditions which have been discussed below:

.

Conditions for applicability of Section 13A

Political parties are exempted from paying tax under Section 13A if they fulfil the following conditions.

S.NO

CONDITION

1.     

To be registered under Section 29A of the Representation of the People Act, 1951.

2.     

To get its account audited by a Chartered Accountant.

3.     

Maintain books of accounts and other documents to enable the Assessing Officer to deduce its income.

 

NOTE:

It may be noted that the Political party need not maintain all the books of accounts as mentioned under Section 44AA. It is sufficient if a political party maintains only such books for Assessing Officer to arrive at its income.

4.     

To maintain record of each contribution of more than Rs. 20,000, including the name and address of the person making such contribution unless such contribution is made by way of electoral trust.

5.     

Has not received any donation of more than Rs. 2,000 otherwise than by way of account payee cheque/ demand draft or ECS or through bank account or Electoral Bonds.

6.     

Treasurer of political party/ any person authorized by the political party on this behalf has furnished a report of donations received in excess of Rs. 20,000 to the Election Commission of India for the Financial Year on or before the due date for filing the return of income tax for such financial year under Section 29C of Representation of the People Act, 1951.

7.     

Political party must file return of income on or before the due date u/s 139(4B).

.

.

Example:

The books of accounts maintained by a National Political Party registered with Election Commission for the year ended 31.03.2024 is as follows:

S.no

Particular

Amount (in Rs.)

1.     

Rent of property let out

6,00,000

2.     

Interest on deposits

5,00,000

3.     

Contribution of Rs. 21,000 each from 100 persons (who have secreted their name)

 

 

21,00,000

4.     

Contributions from 10 persons by way of electoral bonds of Rs. 25,000 each

 

 

2,50,000

5.     

Cash donations @ Rs. 2,100 each from 1,000 members (recorded in books of accounts)

 

 

21,00,000

.

The income of the Political Party is fully exempt as per Section 13A if they fulfil the conditions mentioned therein. Since, in the given question the political party has violated the conditions like accepting cash donations of more than Rs. 2,000 and not maintaining records of persons giving donations more than Rs. 20,000 they are liable to pay tax on its total income which is computed as below:

S.no

Particulars

Amount (In Rs.)

1.     

Rent of the property (6 lakhs less 30% deduction u/s 24)

 

4,20,000

2.     

Interest received on deposits

5,00,000

3.     

Contribution from 100 persons (who have secreted their name) of Rs. 21,000 each

 

 

21,00,000

4.     

Contributions from 10 persons by way of electoral bonds of Rs. 25,000 each

 

 

2,50,000

5.     

Cash donations @ Rs. 2,100 each from 1,000 members (recorded in books of accounts)

 

 

21,00,000

 

TOTAL INCOME

53,70,000

.

.

.

3.Is it mandatory for Political Party to File Income Tax Return?

Yes, even though the specified income of Political Party is fully exempt as per Section 13A, it is not given any relief from furnishing of income. All Political parties are mandatorily required to file return of income on or before the due date of filing of return, if the income exceeds maximum amount not chargeable to tax (limit is considered before taking into consideration Section 13A exemption). Tax slab applicable to political parties is as Follows:

Slab rate under old scheme for Political Parties: –

Annual Taxable Income

Tax Rate

Upto Rs. 2,50,000

Nil

Rs. 2,50,000 to Rs. 5,00,000

5%

Rs. 5,00,000 to Rs. 10,00,000

10%

Above Rs. 10,00,000

30%

.

.

Slab rate for Political Parties under new scheme is as follows: –

Annual Taxable Income

Tax Rate

Upto Rs. 3,00,000

Nil

Rs. 3,00,000 – Rs. 7,00,000

5%

Rs. 7,00,000 – Rs. 10,00,000

10%

Rs. 10,00,000 – Rs. 12,00,000

15%

Rs. 12,00,000 – Rs. 15,00,000

20%

Above Rs. 15,00,000

30%

.

Surcharge

Annual Taxable Income

Surcharge under new scheme

Surcharge under old scheme

Less than Rs. 50,00,000

Nil

Nil

More than Rs. 50,00,000 less than Rs. 1,00,00,000

 

10%

 

10%

More than Rs 1 crore less than Rs. 2 crores

 

15%

 

15%

More than Rs. 2 crores less than Rs. 5 crores

 

25%

 

25%

More than Rs. 5 crores.

25%

37%

In addition to tax and surcharges CESS of 4% is applied.

NOTE:

It is the responsibility of the Chief Executive Officer of the Political party to file the return of income and also to sign and verify the same.

4.Income Tax Return to be filed by Political Parties?

Political Parties are required to furnish their return of income in form ITR-7. ITR contains following major information to be filed by the political parties:

S.NO

Some Major Information in ITR

a.     

Balance Sheet: broad information regarding main source of funds (corpus/ general funds, loans etc.) and application of funds (assets, investment, advances etc.)

b.    

Income and Expenditure Account: Income from fee/ grants, donation, sale of coupons etc. and expenses.

c.     

Contribution Report: Details regarding donors who made contribution in excess of Rs. 20,000.

d.    

Whether political party is registered under Section 13A.

e.     

Whether report under Section 29C of the Representation of the People Act, 1951 is filed and date of submission of such report.

.

.

5.Is there any Tax Exemption for donors?

Corporate donors are eligible to claim deductions on its donations to political parties under Section 80GGB and any other person (except local authority and every artificial juridical person wholly or partly funded by the government) can claim exemptions under Section 80GGC, unless such contributions are made in cash.

.