Test of Control (TOC) vs Test of Details (TOD) –

Test of Control
Test of Details

In a process of Statutory Audit, the Test of Control and Test of Details are two important stages and it also makes an important question from the interview pov.

I have discussed a comparison of both gathered from my experience.

TOC is a type of audit procedure we perform to evaluate whether a client’s internal control works effectively. Thus, we perform the test to obtain evidence of effectiveness before we can rely on controls. In case controls are weak, we will need to increase our substantive tests.

So, we take out the samples from SCOT (Significant class of Transactions), test various assertions, capture the details of the given sample, and match them with supporting documents. The sample size depends on the population and frequency of control.

Based on the TOC, we determine the extent of TOD. Test of Details is a substantive procedure used to collect evidence to verify individual transactions or balances.

So, after a combined assessment of risk and control (CRA), we define the tolerable error (TE) for deviations and obtain the samples for transactions to do the testing. The goal here is to confirm that supporting docs match with each other and the source.

I have only explained the surface of it and there are a lot of other things done throughout this.

I hope it was worth a read! Do add your learnings in the comments.

Windfall tax: Will India impose it too?

Windfall tax: Will India impose it too?

This question has been a buzz in Indian media for the past few weeks. But what is this windfall tax that Indian media is going on about?

What is the windfall Tax?

When a company benefits from something that they are not responsible for and, as a result of that, enjoys the financial gain, that gain is referred to as windfall profits.

Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.

Why Now?

So what’s happening is global oil and gas prices are at a peak level due to the Russia-Ukraine conflict. If we take the example of any Indian upstream oil companies, say ONGC, or Oil India. They declared an all-time high net profit in the fiscal year 2021-22.

ONGC declared that its net profit grew by 258% to reach ₹40,306 crores. While the Oil India announced a net profit of ₹3,887.31 crore, which is 123% higher than in the preceding year.

As the Indian government has recently gone for the cut in Central Excise Duty and considering that it is spending more on food and fertilizer there is the requirement of any alternate levy to full fill this gap and one of the solutions could be levying a windfall tax on oil companies.

Countries like Italy and the UK have already imposed a windfall tax over the past couple of weeks.

Will such tax increase the Price of the Fuel?

Very unlikely, as this tax is not part of the input or output cost, but levied only on profit.

Is India really considering such a levy of tax?

While there is no formal denial by the government, upstream oil companies have said they have heard nothing about this.

Let me know your thoughts on whether you believe that such a tax should be levied or not?

#oilcompanies#tax#fintaxfirst#indianeconomy

Chartered Accountant in Pimpri Chinchwad

Form 10BD, return of donation – Income Tax update for Trusts

Dear Trustees,

Re: New Provision of Income Tax to be followed by you.
As informed donation received by you to be filled in the form, you should electronically upload & sign no 10BD and should be uploaded before 15th May 2022 and every year.

The following details are to be filled up:

1. Name of the donor.
2. Address of donor.
3. Nature of donation.
4. Mode of receipt.
5. Amount of donation.
6. Section code under which donation was received.
7. PAN no. /Aadhar no./Tax Identification no. of the donor.

After uploading Form 10BD, Form 10BE is to be downloaded and this Certificate of Donation is to be issued to the Donor before 31st May of every year and contains the following details.

1) Name of Charitable Organization.
2) PAN
3) Aadhar
4) Approval number u/s 80G

There is a heavy penalty for not filling the form, Rs. 200 per day for Delay in uploading FORM 10BD. The Assessing Officer may also impose a penalty of a minimum of Rs. 10,000 to a maximum of Rs. 1 Lakh.

Department has made live form 10BD, return of donation. 31st May is the last date. Reporting template, instruction, and notification are there for quick reference.
#cbdt #tax #incometaxupdate #directtax #ca #incometax #incometaxreturn #taxplanning

Income Tax Return – Changes in ITR Form – FY 2021-2022 –

Changes in ITR Form

Income Tax Return – Changes in ITR Form – FY 2021-2022

The CBDT has well in advance notified the Income-tax Return (ITR) Forms for the AY 2022-23 vide Notification No. 21/2022 dated 30-03-2022 & Notification No. 23/2022 dated 01-04-2022. There are various changes in the disclosure requirements in the new ITR Forms. Let us have a look at some of the key changes in the ITR that may be relevant to most taxpayers.

1. Applicability of ITR Forms:

The new ITR forms do not tinker with the applicability of ITR forms. The criteria for selecting the ITR forms for the AY 2022-23 shall be the same as that of the AY 2021-22.

2. Schedule of Capital Gain:

New ITR forms require the following additional disclosures in the Schedule of Capital Gain:

(a) Date of purchase & sale of Land/Building (b) Country and Zip Code if the property is situated in a foreign country (c) Disclosure of FMV & consideration received in slump sale transaction (d) Year-wise details of the cost of improvement to land/building (e) Separate disclosure of cost & indexed cost of acquisition
Further, new ITR 5 has been suitably amended for disclosure of deduction allowable u/s 48(iii) in respect of the capital gains of firm u/s 45(4).

3. Disclosure of the taxable EPF interest:

FA-2021 has amended Sections 10(11) and 10(12) to provide that no exemption shall be allowed in respect of interest income from the recognized and statutory provident fund to the extent it relates to the amount of the contribution made by the employee exceeding Rs. 2,50,000 in any year on or after 01-04-2021. The new ITR forms have amended “Schedule OS” (Other Sources) to incorporate specific reporting of such interest income.

4. Change in “Schedule FA” (i.e., Foreign Assets):
Schedule FA requires the reporting of foreign assets. The new ITR Forms have replaced the expression “Accounting Period” with “Calendar Year ending as on 31st December 2021”. As a result, the taxpayers shall be required to furnish the details of all foreign assets held between 01-01-2021 and 31-12-2021 in return to be filed for AY 2022-23.

5. Taxation of ESOP:

New Schedule has been inserted for reporting of tax-deferred on ESOP whereby an employee can defer the payment or deduction of tax in respect of shares allotted under ESOP (Specified Securities) by an eligible start-up referred U/s 80-IAC. The New ITR Forms have inserted a “Schedule: Tax-Deferred on ESOP” to keep a proper track of such transactions.

6. Nature of employment of pensioner:

In earlier ITR forms, an individual receiving a pension was just required to choose the option of ‘Pensioners’ in the dropdown menu ‘Nature of Employment. Now, the following options have been further incorporated for pensioners (i) Pensioners–CG (ii) Pensioners–SC (iii)Pensioners–PSU, and (iv) Pensioners–Others.

7. Taxpayers who have opted for alternative tax regime U/s 115BAC:

Now, taxpayers have an option of a new tax regime of lower tax without any deduction or exemption. The following disclosures are required in ITR 3 and ITR 4:

(a) Whether the assessee has opted for an alternative tax regime, u/s 115BAC & filed Form 10-IE in AY 2021-22;

(b) For the AY 2022-23, the assessee has to choose from the following options:
· Opting in now
· Not opting
· Continue to opt
· Opt-out

8. Taxpayers who have opted for alternative tax regime U/s 115BA/115BAA/ 115BAB/ 115BAD:


All taxpayers who have opted for an alternative lower tax regime are now required to give the details of the year wherein the option was first exercised as well as the details of having filed the prescribed form (like Form No. 10IB, 10 IC etc). Similarly, if the taxpayer is continuing the option, then the details of filing such a prescribed form in an earlier year are also required to be given.

9. Disclosure for a person not opting for audit u/s 44AB:

Audit u/s 44AB is not mandatory for taxpayers with turnover between Rs. 1 crore to 10 Cr if the cash receipt and cash payment do not exceed 5%. Now, for the purpose of computing the limit of 5%, payment or receipt by cheque drawn on a bank or by a bank draft, which is not an account payee, shall be deemed to be the payment or receipt in cash only [FA-2021]. The old ITR Forms required the assessee to furnish the response regarding cash receipts and payments only. Now, the following additional disclosures are required regarding Audit Information:

(a) Whether total sales, turnover or gross receipt is between Rs. 1 Cr & Rs. 10 Cr? If not, is it below Rs. 1 Cr or exceeds Rs. 10 Cr?

(b) The new ITR forms require aggregation of receipts and payment in cash and non-account payee cheque or DD while computing the limit of 5% as mentioned above.

10. Residential Status:

In the new ITR, it is now mandatory to choose the suitable option in support of residential status in India. Few more options have been added to the ITR forms so as to ascertain the exact nature of the residential status of the taxpayers.

11. Disclosure of Deemed Dividend Separately:

Until last year, there was no separate disclosure of dividend income taxable u/s 2(22)(e) i.e., Deemed Dividend. Now, in the new ITR forms, dividend income taxable u/s 2(22)(e) has to be reported separately.

12. Capping the surcharge on dividend income:

In the case of individuals, HUF, AOP, BOI, or AJP, the surcharge on tax on dividend income is attracted @ 10% if it exceeds Rs. 50 lakh but does not exceed Rs. 1 Cr and @ 15% if it exceeds Rs. 1 crore. The consequential change has been done in Schedule Part B–TTI (Computation of tax liability on total income).

13. Exempt Income Disclosure:

The New ITR Form now requires disclosure of exempt income u/s 10(23FB), 10(23FBA), 10(23FC)/10(23FCA), etc. Earlier there was no need to make specific disclosure of the applicable section.

14. Disclosures in respect of Significant Economic Presence:

In the new ITR forms, the non-resident has to confirm if there is a Significant Economic Presence (SEP) in India or not. If there is a SEP in India, the details of the transactions & users are to be incorporated into the ITR Form.

Conclusion:

The information in the database of the income tax department has increased drastically and so are the reporting requirements of the reporting in the ITR forms. Artificial intelligence is going to play a vital role in tax administration. Taxpayers need to be all the more careful and cautious while filing their income tax returns.

Contact us for filing Income Tax Return, Tax Returns, Tax Planning, Tax Refund, Capital Gain Returns, and Tax Audits.

Chartered Accountant in Pimpri Chinchwad

Chartered Accountant in Wakad

Specified Person u/s 206AB (TDS) & 206CCA (TCS)

CBDT has notified Section 206AB (TDS) & 206CCA (TCS) on 1st July 2021 for deducting a higher rate of TDS & TCS for persons not filed their Income Tax Returns for the last 2 assessment years to which the due date for filing ITR has been expired, provided that this provision will apply only when the TDS & TCS credit of that person during those assessment years are more than Rs. 50,000 each.

The rate of TDS will be: (Higher Rate of the following) – TDS

  1. 1. 5% (or)
  2. 2. Twice the original rate specified in the respective sections.

The above provisions are not applicable to:

  • ⦁ 192 – TDS on Salary Payments
  • ⦁ 192A – TDS on Provident Fund Withdrawals
  • ⦁ 194B – TDS on Lottery (or) Crossword Puzzle Payments
  • ⦁ 194BB – TDS on Horse Races Winnings
  • ⦁ 194LBC – TDS on Income of Investment Securitization Trust
  • ⦁ 194N – TDS on Cash Withdrawal

Amendment in Finance Act, 2022 (From 1st April 2022):

CBDT has bought down the conditions to last one assessment year instead of 2, i.e., TDS & TCS has to be deducted at a higher rate as specified above if a person has TDS & TCS credit of more than Rs. 50,000 and doesn’t file his ITR for the last assessment year to which the due date for filing ITR has expired. The higher rate of TDS mentioned above remains the same as before.

List of Sections to which S. 206AB & 206CCA are not applicable:

  • ⦁ 192 – TDS on Salary Payments
  • ⦁ 192A – TDS on Provident Fund Withdrawals
  • ⦁ 194B – TDS on Lottery (or) Crossword Puzzle Payments
  • ⦁ 194BB – TDS on Horse Races Winnings
  • 194-IA – TDS on transfer of Immovable Property other than Agricultural Land
  • 194-IB – TDS on rent by certain individuals (or) Hindu Undivided Family
  • ⦁ 194LBC – TDS on Income of Investment Securitization Trust
  • 194M – TDS on Payment of Contract, Commission, Professional Charges, or Fees for Technical Services by certain individuals (or) Hindu Undivided Family
  • ⦁ 194N – TDS on Cash Withdrawal

Source:

  1. 1. Provisions of 206AB – up to 31st March 2022 & After 1st April 2022
  2. 2. Provisions of 206CCA – up to 31st March 2022 & After 1st April 2022
  3. 3. Other Notifications & Circulars for 206AB & 206CCA – Circular No. 11 of 2021 dated 21st June 2021 & Notification No. 1 of 2021 dated 22nd June 2021 (Directorate of Income Tax – Systems).

Thanks for reading! Have a Good Day!

Chartered Accountant in Pimpri Chinchwad

What will happen if you don’t file your ITR (Income Tax Return) within the due date?

The taxpayers for whom the tax audit is not required have to file the income tax return of their income earned during the period of 1st April 2020 to 31st March 2021 on or before 31st July 2022 unless extended.

Let’s discuss the implications of the late filing of Income Tax Return:

Unable to set off Losses – Income Tax Return

Losses incurred (other than house property loss) are not allowed to be carried forward in subsequent years. You cannot set off these losses against future gains if the return has not been filed within the due date. However, if there are losses under house property, carry forward of losses is permitted.

Interest on the delay of filing a return

If the taxpayer fails to file the ITR by the due date, then under section 234A penalty interest at the rate of 1% per month or part thereof is levied on the outstanding tax until the payment of tax.

Late filing fees u/s 234F

A late filing fee is applicable for filing your returns after the due date under Section 234F. The maximum penalty of Rs 5,000 will be levied if you file your ITR after the due date. However, there is a relief given to small taxpayers–if their total income does not exceed Rs 5 lakh, the maximum penalty levied for delay will be Rs 1000.

Delayed Refunds

If one is entitled to receive a refund from the government for excess taxes paid, he/she must file the returns before the due date to receive the refund at the earliest.

Prosecution–As per Section 276 CC

As per Section 276 CC, the income tax officer can initiate proceedings for prosecution if the person willfully fails to file a return, even after issuing notices. The imprisonment can be for a term of three months to two years with a fine. If the tax you owe to the income tax department is higher, the prosecution period may extend to seven years.

#Incometax #incometaxindia #incometaxreturn #incometaxindia #incometaxreturnfiling #itrfiling

Chartered Accountant in Pimpri Chinchwad

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

Filing of Income Tax Return – Section 139(1) of the Income Tax Act, 1961 prescribes the categories of the person who is required to file their return on or before the due date of filing return. Such a person includes:

  • 1. A company or a firm
  • 2. Any person other than a company or firm, if his total income during the previous year exceeds the maximum amount chargeable to the Income Tax.

In addition to the above, the following persons are also required to file income tax returns compulsorily as per clauses (i) to (iv) of the seventh proviso to section 139(1):

ClauseCompulsory filers category
Clause (i)The person depositing Rs. 1 crore or more in one or more current accounts with a bank or co-operative bank
Clause (ii)The person who has incurred expenditure on foreign travel for self or any other person exceeding Rs. 2 Lakhs
Clause (iii)The person who has incurred expenditure exceeding Rs. 1 Lakh towards electricity consumption
Clause (iv)The person who fulfills such other conditions as may be prescribed

The CBDT issued Notification No. 37/2022 dated 21st April 2022 by which a new Rule 12AB has been inserted referring to clause (iv) as above by which following persons have also been notified who shall be required to file their income tax return compulsorily:

RuleConditions for compulsory filing of ITR
12AB(i)If the total sales, turnover or gross receipts in the business exceeds Rs. 60 Lakhs during the previous year
12AB (ii)If the gross receipts from profession exceed Rs. 10 Lakhs during the previous year
12AB (iii)If the aggregate of TDS/TCS during the previous year is Rs. 25,000 or more (Rs. 50,000 or more in the case of senior citizens),
12AB (iv)If the deposits in one or more saving accounts in the aggregate are Rs. 50 Lakhs or more during the previous year.

If you fall under any of these categories, you should prepare all the necessary documents and file your ITR on or before the due date of filing the return i.e. 31st July.

Chartered Accountant in Pimpri Chinchwad

Can an exemption granted to buildings used principally for religious or educational purposes be extended to residential accommodation for nuns and hostels for students?

This issue was answered by the Hon’ble Supreme Court in the case of the GOVERNMENT OF KERALA & ANR. VS MOTHER SUPERIOR ADORATION CONVENT –  2021-VIL-43-SC by holding that residential accommodation for nuns and hostels for students would be eligible for exemption when Section 3(1)(b) of the Kerala Building Tax Act, 1975 exempted buildings that are used principally for religious, charitable or educational purposes or as factories or workshops from building tax under the Act.

It was held that first and foremost, the subject matter is “buildings” which as defined, would include a house or other structure. Secondly, the exemption is based upon user and not ownership. Third, what is important is the expression “principally”, showing thereby that the legislature decided to grant this exemption to buildings that are “principally” and not exclusively used for the purposes mentioned therein. The dominant object, therefore, is the test to be applied to see whether such a building is or is not exempt. Fourthly, religious, charitable, or educational purposes are earmarked by the legislature as qualifying for the exemption as they do not pertain to the business or commercial activity. Fifthly, what is important is that even factories or workshops which produce goods and provide services are also exempt, despite profit motive, as the legislature obviously wishes to boost production in factories and services in workshops. What is important to note is that the expression “used principally for” is wider than the expression “as” which precedes the words “factories or workshops”.

A reading of the provision would show that the object for exempting buildings that are used principally for religious, charitable, or educational purposes would be for core religious, charitable, or educational activity, as well as purposes directly connected with religious activity. 

It is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect. We must first ask ourselves what is the object sought to be achieved by the provision and construe the statute in accord with such an object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favor of that which is exempted.

Chartered Accountant in Pimpri Chinchwad

How can a subtle amendment create a huge Havoc? – Section 115A

Section 115A of the Income-tax Act, 1961, deals with special rates for specified income of non-residents. Clause (b) in the subsection (5) of that section has been subtly amended vide FA 2020.

The position before:
Such section exempted non-residents from filing return of income
1. if their total income comprised of income as referred to in Section 115A (Only royalty, FTS, interest, and divided) and
2. tax was deducted under the provisions of TDS.

The aftermath of the amendment:
Such section exempted non-residents from filing return of income
1. if their total income comprising income as referred to in Section 115A (Only royalty, FTS, Interest, and dividend),
2. tax was deducted under the provisions of TDS and
3. such tax deduction is not a rate lower than that, as said in Section 115A

This subtle amendment could be explained through an example:
Mr. A, a resident of Germany, earns dividend income from a listed company in India worth Rs. 1 lakh. Section 115A prescribes a 20% tax on such dividends.

By applying Section 90(2), DTAA or Income-tax Act, 1961, whichever is beneficial shall be adopted for taxation.

Suppose the DTAA between India and Germany prescribes a tax of 5% on such dividends. The listed company would deduct tax at 5% being beneficial to such dividends.

Mr. A though he’s a non-resident and doesn’t have any other source of income in India, has to MANDATORILY file his return of income in India for the dividend earned as conditions of Section 115A are not satisfied (tax rate being lower than 115A rate)

This might have far-reaching impacts on the cases of conflicts between the Income-tax Act and DTAA, especially in royalty and FTS.

So, it is high time that non-residents earning income in India are aware of these amendments and file their return of income although no income has escaped taxation, as non-filing of return when the person is liable to file them, might attract penal consequences.

Chartered Accountant in Pimpri Chinchwad, Income Tax Return Filing

Quoting/Obtaining PAN made mandatory for various transactions –

PAN made mandatory

PAN made mandatory for various transactions –

CBDT vide Notification No. 53/2022 dated 10 May 2022) notified transactions where PAN is to be obtained by the person entering such transactions.
After rule 114B, a new rule has been inserted as Rule 114BA in the income-tax – Rules, 1962 (IT Rules) to provide that where the taxpayer intends to enter the following transactions, such taxpayer shall be mandatorily required to obtain PAN:

  • -Cash deposit aggregating to INR 20 lakhs or more in a fiscal year, in one or more accounts of a person with a Bank or a Co-operative Bank or a Post Office.
  • -Cash withdrawal aggregates to INR 20 lakhs or more in a fiscal year, in one or more accounts of a person’s Bank or a Cooperative bank, or a Post Office.
  • -Opening a current account or cash credit account by a person with a Bank or a Co-operative Bank or a Post Office.

Such taxpayers shall be required to make an application at least 7 days before such transactions are to be undertaken.

Save as otherwise provided in these rules, the above requirement shall come into force after the expiry of fifteen days from the date of their publication in the Official Gazette. (i.e., from 25th May 2022)

Further, after rule 114BA, as so inserted by the Income-tax (Fifteenth Amendment) Rules, 2022, the following rule shall be inserted after the expiry of sixty days from the date on which this notification is published in the Official Gazette, namely Rule 114BB in the IT Rules, stating that the respective banks or co-operative banks or Postmaster General receiving such documents, shall verify that the PAN or Aadhar number is duly quoted and authenticated.

Contact us for Income Tax Filing, Tax Audit, Filing of litigation & Resolution of Notices