Breif Highlights of Finance Act on Residential Status & Capital Gain

 RESIDENTIAL STATUS

Changes in conditions relating to residence status in finance Act, 2020

Currently, an individual is resident in India in a previous year if (i) he is in India for a period or periods amounting to 182 days or more in that year; or (ii) he is in India for 365 days or more in the 4 years preceding that year and he is in India for a period of 60 days or more in that year.

Moreover, in case of a citizen of India or a person of Indian origin who is outside India and comes on a visit to India in a previous year, the threshold of 60 days (referred to in earlier paragraph) is relaxed to 182 days. This limit of 182 days is now reduced to 120 days.

Similar relaxation in respect of a citizen of India who leaves India in a previous year as a member of the crew of an Indian ship or for the purposes of employment outside India remains unchanged.

An individual is a resident but not ordinarily resident if he has been non-resident in 9 out of the 10 previous years preceding that year or has during the seven previous years preceding that year been in India for an overall period of 729 days or less.

Similar provisions exist for a manager of an HUF for determining the not ordinarily resident status of such an HUF.

Another related amendment for determining not ordinary resident is in respect of Indian citizens who are non-residents in India but are not liable to tax in any other country or territory by reason of their domicile, residence or any other criteria of similar nature and earning total income from India exceeding Rs. 15 Lakhs in previous year excluding the foreign sources then such citizens are deemed to be residents in India and consequently they become not ordinary resident provided their stay in India for period amounting in all to 120 days or more but less than 182 days. However, if his stay in India is more than 182 days then the OR/NOR shall be determined as per to old provision.

Hence, it is anti-abusive provision for Indian citizens who shift their stay in low or no tax jurisdiction to avoid payment of income tax in India and hence it is clarified vide Press release dated 02.02.2020 that new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries.

CAPITAL GAIN

Increase in tolerance limit – Sections 43CA, 50C and 56(2)(x)

Presently, if the amount of consideration received or accruing as a result of transfer of land or building or both, held as a capital asset, is less than its stamp duty value then section 50C provides that stamp duty value shall be taken to be full value of consideration.

Similarly, if the amount of consideration received or accruing as a result of transfer of land or building or both, held as stock-in- trade, is less than its stamp duty value then section 43CA provides that stamp duty value shall be taken to be full value of consideration.

Upon receipt of land or building or both, for a consideration which is less than its stamp duty value, the difference between the stamp duty value and the amount of consideration is chargeable to tax under section 56(2)(x).

Presently, section 43CA, section 50C as well as section 56(2)(x) provide for a tolerance limit of 5% of the consideration i.e. if the difference between the stamp duty value and the amount of consideration received or accruing as a result of transfer is up to 5% of the amount of consideration then stamp duty value is not to be taken as full value of consideration / the difference between the stamp duty value and the amount of consideration is not to be charged. The tolerance limit of 5% provided for has been increased to 10%.

Capital Gains provisions on Segregation of Portfolios of Mutual Fund Schemes – Sections 49 and 2(42A)

Section 49 provides for cost of acquisition for capital assets which became the property of the assessee under specified circumstances. Further, section 2(42A) provides for period of holding of a capital asset by an assessee for it to be a short-term capital asset.

In the event of downgrade in credit rating of debt and money market instruments in portfolio of mutual fund schemes (referred to as a ‘credit event’), the Securities and Exchange Board of India (vide its Circular SEBI/HO/IMD/DF2/CIR/P/2018/160 dated 28th December 2018) has permitted the Asset Management Companies (AMC) an option to segregate the portfolio of such schemes. The objective of creating a segregated portfolio of debt and money market instruments by mutual funds schemes is to ensure fair treatment to all investors in case of such a credit event and to deal with liquidity risk. Where an AMC decides to segregate a portfolio on the occurring of a credit event, all existing investors in the scheme on segregation are allotted equal number of units in the segregated portfolio as held in the main portfolio.

The said SEBI Circular defines the term ‘main portfolio’ to mean the scheme portfolio excluding the segregated portfolio. The term ‘total portfolio’ means the scheme portfolio including the securities affected by the credit event, which in effect is the sum total of the segregate and main portfolio.

It is now provided that in determining whether units in a segregated portfolio are short-term capital assets, the period for which the original units in the main portfolio were held by the assessee will be included.

Further, the cost of acquisition of such units in a segregated portfolio shall be the cost of acquisition of the units held by the assessee in the total portfolio in proportion to the net asset value of the asset transferred to the segregate portfolio out of the net asset value of the total portfolio immediately before the segregation of portfolios. The cost of acquisition of the original units in the main portfolio shall also be suitably reduced by the amount derived as cost of the units of the segregated portfolio.

These provisions are similar to those applicable to allocation of cost of acquisition of shares on demerger of a company.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the Assessment Year 2020-21 and subsequent assessment years.

Cost of acquisition in case of land or building as on 1.4.2001 – Section 55

Presently, section 55 provides that where capital asset became property of the assessee before 1.4.2001, the assessee has an option to adopt fair market value of the asset transferred as on 1.4.2001 to be its cost of acquisition. Similarly, where the capital asset has been received by the assessee in a mode mentioned in section 49(1) i.e. by way of gift, inheritance, will, etc., and the capital asset became property of the previous owner before 1.4.2001 then the assessee has an option to adopt fair market value of the asset as on 1.4.2001 to be its cost of acquisition.

Section 55 has now been amended to provide that if the capital asset transferred is land or building or both then its fair market value on 1.4.2001 cannot be greater than its stamp duty value on that date, wherever available.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the Assessment Year 2020-21 and subsequent assessment years.

How to Calculate Net Working Capital (NWC)

How to Calculate Net Working Capital (NWC)

Welcome to Taxmaninfo friends, today we are going to learn a concept that is net working capital formula now let's understand what exactly this is the net working capital formula is the total current assets divided by the total current liabilities. 

Now this is just the formula again this is a very important formula for not only for the Board of Directors order to be stakeholders but investors have a really a great pinpoint on this particular form on this particular ratio so why it is important let's evaluate let's start with the basics. 

Let's understand the formula first and then move to the next thing in simple terms the net working capital denotes the short term you can say the short term liquidity of the company we can do the net capital calculation simply by adding the current assets by and deducting the current liability let's have a look at the formula and try and understand the networking Capital is equal to your total current assets less your total current liabilities.

Let's understand an example on this and we'll try and evaluate the things let's say there's a company called Reliance or let's say there's a company called HUL they have some Details like sundry creditors as let's say Rs.45,000 and they have Sundry Debtors has Rs.55,000 we have another item in this that is Inventories which will be close enough to Rs. 40,000 and prepaid salaries which is let's say Rs.15,000 be final then the most final thing that is the outstanding advertisements which is let's say Rs.5,000.

So find out the networking capital of HUL see in the above example we have been given the both the current assets and the current liability. First we need to separate the current asset from the current liabilities then we need the total up the or need to sum up the current assets and also the current liability and we'll get we need to find the difference between the current assets and current liabilities. So what does the current assets include your current asset includes your Sundry Debtors, your inventories, any prepaid salaries and in case of current liabilities it includes your sundry creditors and any outstanding advertisement or salary expenses.

So let's sum up and find the net working capital or let's first find out the total current assets the total current assets is going to be your debtors, your inventories and your prepaid salaries and your current liabilities is going to be your Sundry Creditors plus any outstanding advertisement expense so your net working capital is going to be your current assets less your current liabilities which is Rs.60,000 (55000+40000+15000-45000-5000).

GST Return Due Date for December 2020

 

GST Return Filing Due Dates for December 2020

The government announces GST return filing due dates from time to time in order to maintain taxation in line with respective clearance. Also, the main effort is to alert the taxpayers regarding the GST return filing due dates is to make them neglect any penalty or interest.

As GSTR 1 & GSTR 3B is to be filed every month, there is a greater need of getting latest updates/notification based on the GST due dates calendar for avoiding any interest and penalty. 

Form Name	Filling Period	Due Date
GSTR 07	November 20 (Monthly)	10th December 2020
GSTR 08	November 20 (Monthly)	10th December 2020
GSTR 01(T/O > 1.5 Cr)	November 20 (Monthly)	11th December 2020
GSTR 01(T/O < 1.5 Cr)	Octo to Dec. 20 (Quarterly)	13th January 2021
GSTR 06	November 20 (Monthly)	13th December 2020
GSTR 3B	November 20 (Monthly) T.O. > 5 Cr.	20th December 2020
GSTR 3B	November 20 (Monthly) Annual Turnover of upto Rs.5cr in Pr. FY (Group A: Chhattisgarh, Karnataka, Goa, Kerala, Tamil Nadu, Madhya Pradesh, Gujarat, Maharashtra, Telangana, Andaman and Nicobar Islands, Lakshadweep, Andhra Pradesh, Daman & Diu and Dadra & Nagar Haveli, Puducherry)	22nd December 2020
GSTR 3B	November 20 ( Monthly) Annual Turnover of upto Rs. 5 Cr in Pr.FY (Group B: Himachal Pradesh, Manipur,  Haryana, Rajasthan, Uttar Pradesh, Punjab, Uttarakhand, Nagaland, Bihar, Sikkim, Arunachal Pradesh, Mizoram, Tripura, West Bengal, Jharkhand, Odisha, Jammu and Kashmir, Meghalaya, Assam,  Ladakh, Chandigarh, Delhi)	24th December 2020
GSTR CMP 08	Octo to Dec. 20 (Quarterly)	18th January 2021
GSTR 9, 9A & 9C (T.O > 2 Cr.)	FY 2018-19	31st December 2020

Remarks :

Extension of due dates for FORM GSTR-3B and GSTR 1 for the month of July 2019 to January 2020 till 24th March 2020 for registered persons having principal place of business in the Union territory of Ladakh.

 

TCS ON SALE OF GOODS U/s 206C(1H)

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation.-For the purposes of this sub-section,-

(A) "buyer" means a person who purchases any goods, but does not include,—

(1) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(2) a local authority as defined in the Explanation to clause (20) of section 10; or

(3) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(B) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

Also read : FAQ on TCS on sale of Goods u/s 206C(1H) 

Guidelines under section 206C(1H) of the Income-tax Act, 1961

Finance Act, 2020 inserted sub-section (1H) in section 206C of the Act which mandates that with effect from 1st day of October, 2020 a seller receiving an amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year to collect tax from the buyer a sum equal to 0.1 per cent (subject to the provisions of proposed sub-section (10A) of the section 206C of the Act) of the sale consideration exceeding fifty lakh rupees as income-tax. The collection is required to be made at the time of receipt of amount of sales consideration.

It was requested to clarify how the various thresholds specified under these sections shall be computed and whether the tax is required to be deducted/collected in respect of amounts received before 1st October, 2020.

sub-section (1H) of section 206C of the Act applies on receipt of sale consideration, the provision of this sub-section shall not apply on any sale consideration received before 1st October 2020. Consequently it would apply on all sale consideration (including advance received for sale) received on or after 1st October 2020 even if the sale was carried out before 1st October 2020.

Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1H) of section 206C shall be computed from 1st April, 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.

Selecting Your Income Tax Return form for AY 2020-21 / FY 2019-20

CBDT has issued Income Tax Return filing Form-Sahaj (ITR-1), Form ITR-2, Form ITR-3, Form Sugam (ITR-4), Form ITR-5, Form ITR-6, Form ITR-7 and Form ITR-V for A.Y.2020-21 i.e. F.Y. 2019-20.

Sahaj (ITR-1)

Individuals person being a resident having total income upto Rs.50 lacs, having Income under the head of one house property, other sources (Interest etc.), Salaries, and agricultural income upto Rs. 5 thousand.

[Not for an individual person who is either Director in a company or has invested in unlisted equity shares of the comapnies]

Form ITR-2

Individuals person and HUFs not having income under head of profits and gains of business or profession.

Form ITR-3

Individuals Person and HUFs having income under head of profits and gains of business or profession.

Form Sugam (ITR-4)

For Individuals person, HUFs and Partnership Firms (other than Limited liabilities Person - LLP) being a resident person having total income upto Rs.50 lacs and having income under head of business and profession which is computed U/s 44AD, 44ADA or 44AE of the Income Tax Act .

[Not for an individual person who is either Director in a company or has invested in unlisted equity shares]

Form ITR-5

For persons other than- (i) Individuals, (ii) HUF, (iii) companies and (iv) person filing income tax Form ITR-7.

Form ITR-6

For Companies other than companies whose claiming exemption U/s 11.

Form ITR-7

For persons including companies mandatory to furnish income tax return u/s 139(4A) or 139(4B) or 139(4C) or 139(4D) only.

Form ITR-V

INDIAN INCOME TAX RETURN FROM FOR VERIFICATION

Where the Return of Income data in Form ITR form -1 (SAHAJ), ITR form-2, ITR form 3, ITR form-4(SUGAM), ITR form-5, ITR form-7 filed but NOT verified electronically.

Government has decided, "The due date for FY 2019-20 of the income tax return filing will be extended from 31st July 2020 & 31st October 2020 to 30th November 2020 and Tax audit report from 30th September 2020 to 31st October 2020". 

Download Notification for Income Tax Form