Section 206AB and 206CCA of Income Tax Act

Section 206AB and 206CCA are the latest addition to the Income Tax Act. The introduction of the new section is for the deduction and collection of tax at source at higher rates if an amount is paid or payable to the specified person who did not file the income tax return. The new section will be applicable from 1st day of July 2021.

What is Section 206AB and 206CCA?

Section 206AB deals with the deduction of TDS at the higher rate to those who have not filed their income tax return. Whereas, Section 206CCA deals with the collection of tax at source at a higher rate received from the buyers.

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Rates for Deduction or Collection of Tax under section 206AB and 206CCA

TDS

Tax will be deducted at the higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • at twice the rate or rates in force; or
  • at the rate of 5%

TCS

Tax will be collected at the higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • at the rate of 5%
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Applicability of Section 206AB and 206CCA

The section 206AB and 206CCA are not applicable to a non-resident who does not have a permanent establishment in India. Furthermore, provisions of section 206AB do not apply to any sum or income or amount paid or payable or credited on which tax is otherwise deducted at source under below-mentioned provision of Chapter XVIIB:

  • Section 192 – Salary
  • Section 192A – Premature withdrawal of EPF
  • Winnings from any lottery or card games or crosswords or puzzles – Section 194B
  • Winnings from any horse race – Section 194BB
  • Section 194LBC – Income in respect of investment in securitisation trust
  • Section 194N – Payments of certain amount/amounts in cash

The section 206AB and 206CCA are applicable to specified persons:

  • Person has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected
  • The time limit for filing such return of income u/s 139(1) has expired
  • Aggregate of tax deducted/collected at source in each of these two financial years is INR 50,000/- or more

FAQs

Does section 206AA override DTAA?

The DTAA provides for a rate of 10% whereas as per the provisions of Section 206AA of the Act, the rate of tax deduction at source is 20%. The plea of the revenue was that section 206AA starts with a non-obstante clause and therefore it overrides all other provisions of the Act including 90(2), 115A and 139A.

What is Section 206AA?

Section 206AA requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both the resident as well as non-resident recipients.

Details to be considered while Preparing Projected Financial Statements

Projected financial statements are mainly used to analyze the financial performance of the business. It is widely used in the field of finance where businesses wish to avail loans from the banks or NBFCs. From projected financial statements, lenders can analyse the creditworthiness, future performance and growth of the business. The meaning of “Projected” here is different from provisional or estimated. Let us understand this in detail.

Line Items to be considered while preparing projected Profit & Loss Accounts and Balance Sheet

Projected P&L Statement

The following are the main accounts:

  1. Sales Revenue
  2. Cost of goods sold
  3. Gross Profit
  4. Sales, General and Administrative expenses
  5. Depreciation 
  6. Interest cost
  7. Tax expenses 

By including all the above main factors, one can derive the Net Profit in Projected Profit & Loss statement.

Projected Balance Sheet

The following are the main accounts:

  • Assets
    • Account receivable
    • Inventory
    • PPE (Property, Plant & Equipment
    • Other current assets 
    • Long term assets such as investments, deposits etc.
  • Liability
    • Trade Payables
    • Other current liability 
    • Long term debt (Loans, Debentures etc.)
  • Equity
    • Share capital
    • Retained earnings 

Difference between Projected, Estimated & Provision Financial Statement

Projected Financial Statements

Projected P&L and Balance sheet is prepared on the basis of projection i.e. for which period is not started. 

Estimated Financial Statements

Estimated Balance Sheet is prepared for future Data (for which the period is started but not completed) on the basis of projection i.e. for the period which already started but not completed.

Example

Suppose, for CC limit extension or taking fresh loans,  Bank demands financial statements of current year i.e. still not completed. In such a case, on projection (on the basis of past performance) we provide to bank an estimated financial statements.

Provisional Financial Statements

Provisional financial statements are unaudited in nature. It is prepared on the basis of actual or past data i.e. for the period which is already completed.

Example

Suppose the balance sheet is prepared for FY 2020-21 as on 31st March 2021, which is not yet finalized, but banks or financial institutions demand for the balance sheet, then we provide them with a provisional balance sheet.

FAQs

What is financial statement projection?

Projected financial statements incorporate current trends and expectations to arrive at a financial picture that management believes it can attain as of a future date. At a minimum, projected financial statements will show a summary-level income statement and balance sheet.

What is the goal in projecting balance sheet?

Unlike a past balance sheet that shows a business’s actual, historical financial positions, a projected balance sheet communicates expected changes in future asset investments, outstanding liabilities and equity financing.

Section 269ST – Clarification on the repayment of Loan Instalments in Cash

What is Section 269ST?

Section 269ST is considered as one of the important sections which were introduced by the Government with the intention of restricting Cash Transactions to curb Black Money and Tax Theft in the industry. Though this section simple in the front end but has various different angles which people faced in their practical life at the time of implementing this section.

Applicability of Section 269ST

The section 269ST states that, no person shall receive an amount of INR 2L or more:

  • In aggregate from a person in a day or,
  • In respect of a single transaction or,
  • respect of transactions relating to one event or occasion from a person

otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

Exclusions in Section 269ST

This section will not apply to-

  • Government
  • any banking company
  • post office savings bank
  • co-operative bank
  • other persons/receipts as may be notified

Transactions referred to in section 269SS (attracted when we accept a loan from any person) will be excluded from the scope of the new section 269ST.

Penalty

  • If any person does not comply with section 269ST then they have to bear the penalty specified U/s 271DA.
  • They shall be liable to pay any amount as a penalty equal to such amount receipt
  • However, there is an exception to section 271DA; According to section 271DA if a person proves that there were good and sufficient reasons for contravention of section 269ST then no person shall be liable

FAQs

What is difference between 269SS and 269ST?

Except for the transactions referred to in Section 269SS and other receipts as exempted by Central Government by notification, Section 269ST of the Act shall apply to every receipt whether taxable or tax free, whether capital or revenue.

What is the limit for cash receipt?

Income Tax Act restricts any person to receive an amount of INR 2L or more in cash, from a person in a day, in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, under Section 269ST.

Are cash payments illegal?

Paying wages in cash is legal and maybe more convenient. Some businesses deliberately use cash transactions to avoid meeting their tax and employee responsibilities. If you receive cash for work you do, you need to: be paid (at least) the correct award wages.

Section 269SS & Section 269T – Repayment of Loan

Section 269SS & Section 269T deal with cash payment and repayment of loans and deposits. Both the sections were introduced to curb the black money. Tax evasion is one of the serious problems in India causing economic disparities. In other words, these sections were introduced to curb the increasing cash transactions which are leading to the accumulation of black money as these sections restrict such cash payments.

What is Section 269SS

An individual cannot accept loan or deposit or any other specified sum from another person via an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account if:

  • Amount of loan or deposit or specified sum is INR 20,000 or more, or
  • Sum total amount of loan, deposit, and the specified sum is INR 20,000 or more. For example, an individual wants to take a loan of INR 6,000, a deposit of INR 9,000, and an advance of INR 7,000 from his friend, he cannot accept it in cash because of the total sum is INR 22,000
  • In a case where a person had already received a loan, deposit, or specified sum from the depositor but the loan or deposit or specified sum hasn’t been paid back in such case, if the unpaid loan or deposit or-specified sum is INR 20,000 or more, or
  • Sum total amount of (1), (2), and (3) is INR 20,000 or more. Therefore, a person cannot accept a cash loan or deposit of INR 20,000 or more from another person

Exceptions to Section 269SS

  • Any loan taken or accepted from or taken or accepted by the following entities:
    • Government
    • Any banking company, post office savings bank, or cooperative bank
    • Corporations established by a Central, State, or Provincial Act
    • Any government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
    • Any institution or body or class of institutions notified in the Official Gazette

Thus, if any person accepts any loan or deposit or specified sum from the above-mentioned entities, or the entities accept any loan or deposit or specified sum from any person, provisions of Section 269SS will not apply.

  • A person earning only agriculture income accepts a loan or deposit from  another person also earning only agriculture income
  • Receiving cash from relatives during emergencies. In such cases, the intention should not be to evade the taxes
  • Partners contributing cash capital into a partnership firm

Penalty for Violation of Section 269SS

100% of the loan or deposit amount will be the quantum of penalty that can be levied by the assessing officer.

What is Section 269T

Section 269T prohibits any person to repay the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, if:

  • The amount of loan or deposit, including interest amount, is INR 20,000 or more, or
  • The aggregate amount of loans or deposits, including the interest amount, held by such person in his own name, or jointly with any person, is INR 20,000 or more

In other words, a person cannot repay the loan or deposit in cash, if the amount is above INR 20,000.

Exceptions to Section 269T

An individual paying INR 20,000 or more towards repayment of loan or deposit does not have to comply with Section 269T if he/she pays to the following parties:

  • The government
  • Any banking company, post office savings bank, or co-operative bank
  • Other notified institutions
  • Any Government company as defined in section 617 of the Companies Act, 1956
  • Any corporation established by a Central, State or Provincial Act

Penalty for Violation of Section 269T

100% of the loan or deposit amount will be the penalty leviable by the assessing officer.

FAQs

Can I repay a loan amounting to more than INR 20,000 in cash? Can I repay a loan amounting to more than INR 20,000 in cash?

No, this will be a violation of section 269T i.e. a person cannot repay a loan amounting to more than INR 20,000 in cash.

What is difference between 269SS and 269ST?

Except for the transactions referred to in Section 269SS and other receipts as exempted by Central Government by notification, Section 269ST of the Act shall apply to every receipt whether taxable or tax free, whether capital or revenue.

Can property be purchased in cash?

The income tax act restricts accepting cash in excess of INR 20,000 in a real estate transaction. So, you cannot accept cash consideration on sale of the property. The property is to be registered at actual sales consideration.

Partition of HUF

Hindu Undivided Family, commonly known as HUF is a separate entity from its members for the purpose of Income Tax. It is is treated as a ‘person’ under section 2(31)​ of the Income-tax Act, 1961 . The term is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. So basically a Hindu Undivided Family is not created by any Act but by status. Partition means ending the status of Joint Hindu family. Partition of HUF can be of two types under Hindu Law i.e. total and Partial.

Meaning of Partition

Partition means division of property. Under Hindu Law the Joint Family status comes to an end when there is division of property among the members and joint ownership of property comes to an end. The division will be such as that the share of each member will be determined physically. Further, a division of income from any property, without physical division of such property does not amount to partition.

Types of Partition

Partition under Hindu Law, can be total or partial.

  • Total or Complete Partition: Assets of HUF are physically divided. Further, all the members cease to be members of the HUF. And all the properties cease to be properties belonging to the said HUF.
  • Partial Partition: Partition could be partial also with regards to the persons constituting the HUF, or the properties belonging to the HUF, or both. It may be partial vis-à-vis members, where some of the members go out on partition and other members continue to be the members of the family. Partial partition can be specific too where the property is divided between members and the rest of the property continues to be the HUFs property.
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Right to claim Partition of HUF

Under the Hindu law, the partition of a joint Hindu family may take place at the instance of the following persons:

  • A coparcener*
    • Co-parceners refers to two or more persons sharing an inheritance or joint heirs of a property. These coheirs are called “Co-parceners”.
    • HUF consists of co-parceners (who are family members) and the distant relatives, called members of HUF (e.g. brother-in-law, sister-in-law, etc.,).
    • Co-parceners are the family members and it consists of four levels of lineal descendants including the first male ancestor.
  • A son in the womb of his mother at the time of partition of the property
    • A son in his mother’s womb is treated in law in existence and is entitled to re-open the partition to receive a share equal to that of his brothers.
  • Female sharers cannot demand a partition. However, are entitled to get their share when the joint family property is actually divided on partition.
    • Mother gets equal share if there is partition among sons after death of father,
    • Wife gets a share equal to that of a son at the time of partition between father and sons.
  • Daughters have the same rights as sons to reside in and to claim for partition of the parental dwelling house.
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Procedure and Assessment after Partition of HUF

Partition of HUF takes place on the date the properties are physically divided. There must be physical division of the properties. Physical division of income without physical division of properties does not amount to Partition. The following procedure is prescribed under section 171 of Income Tax Act for partition and assessment of HUF:

  • HUF shall be considered as undivided unless where a finding of partition has been given under this section in respect of HUF.
  • Where it is claimed by the members that a partition has taken place to AO at the time of making assessment u/s 143 or 144. Then, the AO shall make an inquiry after giving notice of inquiry to all the members of the family.
  • On the completion of the inquiry, the AO shall record a finding mentioning the total or partial partition of the joint family property. And the date on which it has taken place

Responsibility to pay Tax

  • Where a finding of total or partial partition has been recorded by the AO. And the partition took place during the previous year than:
    • The total income of HUF for the period up to the date of partition shall be assessed as if no partition had taken place; and
    • Each member or group of members shall be jointly and severally liable for the tax on the income so assessed in addition to any tax for which he/she may be separately liable
  • The partition took place after the end of the previous year, the total income of the previous year of the joint family shall be calculated as if no partition had taken place. Each member of group of members shall be jointly and severally liable for the tax on the income so assessed.
  • The several liability of any member or group of members shall be according to the portion of the joint family property allotted to him/her at the partition, whether total or partial.
  • The above provisions shall, also apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to date of the partition, whether total or partial.

Notwithstanding anything contained in this section, if the AO finds after completion of the assessment of a HUF that the family has already effected a partition, whether total or partial. The AO shall proceed to recover the tax from every person who was a member of the family before the partition. Further, every such person shall be jointly and severally liable for the tax on the income so assessed.

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Partition of assets of the HUF property

As per the Hindu Law, part distribution of some of the assets of the HUF, i.e. partial partition of the HUF, either in respect of certain assets or in respect of some of the members is fully valid. However, income tax law does not recognize such partial partition of the HUFs’ assets. The income tax laws require that partition of HUF should be full. So in case of partial partition of some assets, the income in respect of such assets, shall be clubbed and included in the income of the HUF. Even if such assets are received by the member/members.

Nature of the property received on partition

The nature of the joint family property on partition shall be of joint family property when the recipient person is married. Hence the character of the property shall remain that of the joint family property. Such property shall be considered as individual property, until the recipient is unmarried or is reduced to a single person. Thus individual property shall continue to be individual property on inheritance. Further, HUF property on partition shall be that of the joint Hindu family subject to the existence of family during the relevant assessment year

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FAQ

Whether the sum received by a member as and towards his share as coparcener of HUF, on its partition is taxable as income?

The sum received by a member as and towards his share as coparcener of HUF, on its partition cannot be brought to tax as income. As partition is not considered as a transfer.

What will be the treatment of assets after partition, as per Income Tax Act?

Treatment of capital gains on distribution of assets on partition of HUF shall be as under:
– Section 47: No capital gains shall arise to HUF on distribution of assets on partition of HUF.
– Section 49(1): Cost of acquisition of such assets to the member shall be the cost of acquisition of such asset in the hands of HUF.
– Period of holding of assets of transferor shall also be considered for computing the period of holding of assets in the hands of transferee.

Can HUF receive gift from its members?

Earlier HUF could not give or receive gift to or from its members beyond a sum of INR 50,000/-without making the donor liable to tax u/s 56(2). However Finance Act, 2012 extended the definition of a relative to include gift from any member of an HUF to HUF. Thus an HUF can now receive a gift from its member exceeding INR 50,000/- without any liability to pay tax u/s 56(2) of Income Tax Act.

Which ITR to file for Proprietorship Firm?

Just like individuals, HUFs and companies are required to file income tax, proprietorship firms are also obligated to file income tax. In India, a sole proprietorship is not taxed as a different entity, the owner of the business files the taxes for the business just like an individual return. This article will help you understand various aspects related to filing ITR for a Proprietorship Firm

What are the Tax Rates for Proprietorship Firm?

Income Tax rates for proprietor’s who are less than 60 years old

Income Range  Current Income Tax Rates New Income Tax Rates
Up to INR 2,50,000 NIL NIL
INR 2,50,001 to INR 5,00,000 5% 5%
INR 5,00,001 to INR 7,50,000 20% 10%
INR 7,50,001 to INR 10,00,000 20% 15%
INR 10,00,001 to INR 12,50,000 30% 20%
INR 12,50,001 to INR 15,00,000 30% 25%
Above INR 15,00,000 30% 30%

Income Tax Rates for proprietor’s between the age of 60 and 80 years

Income Tax Slab Old Tax Rate Health and Education Cess
Income up to INR 3 lakh Nil Nil 
Income between INR 3 lakh and INR 5 lakh 5% 4% of Income Tax
Income between INR 5 lakh and INR 10 lakh 20% 4% of Income Tax
Income that exceeds INR 10 lakh* 30% 4% of Income Tax

Income Range New Income Tax Rates
Up to INR 2,50,000 NIL
INR 2,50,001 to INR 5,00,000  5%
INR 5,00,001 to INR 7,50,000 10%
INR 7,50,001 to INR 10,00,000 15%
INR 10,00,001 to INR 12,50,000 20%
INR 12,50,001 to INR 15,00,000 25%
Above INR 15,00,000 30%

Income Tax Rates for proprietor’s more than 80 years

Income Tax Slab Old Tax Rate Health and Education Cess
Income up to INR 5 lakh Nil Nil 
Income between INR 5 lakh and INR 10 lakh 20% 4% of Income Tax
Income that exceeds INR 10 lakh* 30% 4% of Income Tax

Income Range New Income Tax Rates
Up to INR 2,50,000 NIL
INR 2,50,001 to INR 5,00,000  5%
INR 5,00,001 to INR 7,50,000 10%
INR 7,50,001 to INR 10,00,000 15%
INR 10,00,001 to INR 12,50,000 20%
INR 12,50,001 to INR 15,00,000 25%
Above INR 15,00,000 30%
  • Surcharge applicable if total income is more than INR 50 lakh and up to INR 1 crore: 10% of income tax
  • Surcharge if total income exceeds INR 1 crore: 15% of income tax

Tax Audit for Proprietorship Firm

Tax Audit will be mandatory for a proprietorship firm if they fall under the following category:

  • If the turnover of the proprietorship firm is more than INR 1 crore in an assessment year
  • In the case of a professional, if the total receipts of the proprietorship exceed INR 50 lakh
  • If the proprietorship is under any presumptive tax scheme irrespective of the annual turnover, a tax audit is mandatory.
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Which ITR form to File for Proprietorship Firm?

Depending on the nature of the business, a proprietorship firm can file:

  • ITR 4: If the proprietorship firm falls under the presumptive taxation scheme

What are the Due Dates to File ITR for Proprietorship Firm?

The due dates for filing return for a proprietorship firm depend on tax audit applicability:

  • 31St July: For proprietorship firm where tax audit is not necessary
  • 30th September: For proprietorship firm where tax audit is necessary
  • 30th November: For proprietorship firm who have international transactions for business purpose
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How to file ITR for Proprietorship Firm?

Proprietors have to file their income tax returns online via the e-filing portal. One needs to register on the e-filing portal to file ITR online, if this is already done then log in by entering the PAN number to file the return. After filling in all the necessary information, make sure to e-verify the return before submitting it to make sure there are no errors.

Which ITR to file for Partnership Firm?

As per the Income Tax Act, a partnership firm is ‘’Persons who have entered into a partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the firm name.’’ Just like individuals, HUFs and companies, partnership firms are also liable to pay income tax. This article will help you understand various aspects related to filing ITR for a Partnership Firm

Tax Rates for Partnership Firm

Partnership firms are liable to pay income tax at the rate of 30% on the total annual income. Apart from this, if the total income exceeds INR 1 crore, then the firm is also liable to pay a surcharge at the rate of 12%. The partnership firm must also pay education and secondary education cess in addition to income tax and surcharge.  The education and secondary education cess is 2% and 1% respectively.

A partnership firm, registered or unregistered is also suppose to pay alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Audit Requirement for Partnership Firm

A partnership firm will require an audit if they fall under the following category:

  • Carrying out a business and if total sales exceed INR 1 crore in the previous year.
  • Carrying on a profession and gross receipts in the profession exceed INR 50 lakhs in any previous year.

Income Tax Calculation for Partnership Firm

When calculating the total taxable income, the firm must also take into account certain deductions that they can claim while filing their return:

  • Remuneration or interest paid to the partners which are not in accordance with the terms of the partnership deed
  • If remuneration paid to partners is in accordance with the terms of the partnership deed but such transactions were made or were in relation to anything that pre-dates the partnership deed.
  • Salary, bonus, commission, or remuneration paid to non-working partners.

ITR Form for a Partnership Firm

Partnership firms for filing income tax returns have to file form ITR 5. Firms can file the return via Income Tax Department’s e-filing portal. One does not need to attach any supporting documents while filing ITR but if requested by the ITD, then they have to be submitted. It is not compulsory for a partnership firm to file an income tax return online if it does not require a tax audit. Moreover while filing the return, the partners must have a class 2 digital signature for the verification process.

It is important to not that ITR 5 is for filing the return for the partnership firm only and not for the partners, they have to file ITR 3.

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Tax Due Dates for Partnership Firm

The due dates for filing return for a proprietorship firm depend on tax audit applicability:

  • 31St July: For proprietorship firm where tax audit is not necessary
  • 30th September: For proprietorship firm where tax audit is necessary
  • 30th November: For proprietorship firm who have international transactions for business purpose

FAQs

Is a digital signature mandatory for ITR filing of partnership?

Yes, in case of online filing of ITR, the digital signature of the partners is mandatory.

Is it compulsory for a partnership firm to file ITR online?

If a tax audit is not necessary then it is not compulsory to file ITR online.

Section 115BAA – Tax Rates for Domestic Companies

What is Section 115BAA?

Section 115BAA was introduced by the Government of India through the Taxation Ordinance 2019 on the 20th of September 2019 with the objective of offering reduced rates of taxes to domestic companies. Additionally, the MAT – Minimum Alternate Tax rate has been reduced from the current 18.5% to 15%.

The new section 115BAA states that domestic companies have the option to pay tax at a rate of 22% from the FY 2019-20 onwards if such domestic companies adhere to certain conditions.

When can the Companies Opt for Section 115BAA?

Companies can exercise the option for Section 115BAA with effect from AY 2020-21, or in any subsequent assessment year. Furthermore, it being an optional scheme, the decision of exercising the option is only available to the assessee company. Moreover, the company can decide the assessment year it wishes to opt in for the reduced tax rate. Importantly, exercising this option for a particular assesssment year would mean that it cannot be withdrawn and must be applied in the subsequent assessment years.

If in any previous year the assessee company fails to satisfy any of the conditions, the scheme under section 115BAA would become invalid, i.e, the assessee company will not be eligible to exercise this option in the future.

Process for Exercising Option for Section 115BAA

As per Rule 21AE, the option u/s 115BAA shall be exercised by electronically furnishing details in Form 10-IC to the principal officer, either under digital signature or electronic verification code. Hence, companies that wish to exercise the option shall do so in the manner prescribed in rule 21AE of the IT rules, 1962.

This form has to be furnished on or before the due date of furnishing return of income provided u/s 139(1) of the IT act, 1962 that is 30th November in case of domestic companies attracting transfer pricing provisions and 31st October in case of other domesetic companies.

Conditions to Satisfy for Section 115BAA

Section 10AA Special provisions in respect of newly established Units in Special Economic Zones
Section 32(1)(iia) Additional Depreciation

 

(it is pertinent to note that this restriction is only on additional depreciation and regular depreciation is permitted to be reduced from the total income of the assessee so long as it does not pertain to other deductions enumerated in this table

Section 32AD Investment Linked Deduction
Section 33AB Tea development account, coffee development account and rubber development account
Section 33ABA Site Restoration Fund
Section 35 Expenditure on Scientific Research
Section 35 AD Deduction in respect of expenditure on specified business
Section 35CCC Expenditure on agricultural extension project
Section 35CCD Expenditure on skill development project
Chapter VI A No deductions under Chapter VI A can be made while computing the total income for the purpose of Section 115BAA, subject to the following exceptions:

 

a. Section – 80JJAA: Deduction in respect of employment of new employees. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for the purpose of section 115BAA, there is no such restriction on section 80JJAA deduction.

b. Section 80LA: Persons having eligible unit in the International Financial Services Centre referred to in section 80LA(1A) shall be allowed to claim deduction u/s. 80LA while computing total income for the purpose of section 115BAA.

c. Section 80M: Deductions in respect of inter-corporate
dividends. Inserted vide Finance Bill, 2020, this deduction can be availed w.e.f. AY 2021-2022 while computing total income for the purpose of section 115BAA.

New Rates Applicable to Domestic Companies

Base tax rate

Surcharge applicable 

Cess

Effective tax rate

22%

10%

4%

22*1.1*1.04 = 25.168%

Such companies will not have to pay Minimum Alternate Tax under section 115JB. Additionally, the companies would not be able to reduce their tax liabilities u/s 115BAA by claiming MAT credits. The domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation for the assessment year in which the option has been exercised and future assessments.

FAQs

Can a company opt out of section 115BAA?

Domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions or incentives. However, once such a company opts for the company opts for the concessional tax rate under section 115BAA of the income tax act, 1961, it cannot be subsequently withdrawn.

Who shall exercise the option?

The option of reduced rate of tax shall be exercised only for a domestic company that satisfies certain conditions. Hence, individuals, LLPs, partnership firms, AOP, BOI, foreign companies and societies are not eligible to avail this option.

What is the option provided u/s 115BAA?

Section 115BAA provides an option to all domestic companies to pay tax at an effective rate of 25.17% including 22% basic tax plus 10% surcharge and 4% cess subject to satisfaction of certain conditions.

Section 194P- Exemption for ITR filing for senior citizen

Union Finance Bill 2021 came up with the introduction of a new section 194P. It provides conditions for exempting from filing Income Tax returns to senior citizens aged 75 years and above. New Section 194P is applicable from 1st April 2021.

Explanation to Section 194P

Section 139 of the Income Tax Act provides that every person being an individual shall furnish a return of his income if his total income during the previous year exceeded the basic exemption limit.

Section 194P was introduced in order to provide relief to senior citizens who are of the age of 75 years or more and to reduce compliance for them.

Moreover, Benefits under section 194P are subject to fulfillment of certain conditions.

Conditions to Section 194P

Section 194 exempted senior citizens of 75 years of age or more from filing the income tax return, subject to the following conditions:

  • Senior citizens should be of age 75 years or above. 
  • Senior citizens should be ‘Resident of India’ in the previous year. 
  • He has no other income except pension income and interest income.
  • Interest income accrued/ earned from the same specified bank in which he is receiving his pension.
  • The senior citizen will declare to its bank containing details of Chapter VI-A deductions and rebate allowable under 87A.
  • Also, They need to declare that they have not earned any other income except pension and interest income.
  • The bank is a ‘specified bank’ as notified by the Central Government. Such banks will be responsible for the TDS deduction of senior citizens after considering the deductions under Chapter VI-A and rebate under 87A. 

If all conditions are satisfied, there will not be any requirement of furnishing return of income by such senior citizens.

FAQs

What is Section 87 A in income tax?

A rebate under section 87A is one of the income tax provisions that help taxpayers reduce their income tax liability. One can claim an income tax rebate of a maximum of INR 12500 if total income does not exceed INR 5 lakh in a financial year.

Who is senior citizen as per Income Tax Act?

As per Income Tax Act 1961, an individual is treated as senior citizen once he attains the age of 60 years or more and he will be treated as super senior citizen once he attains the age of 80 years or more.

When is tax filing not mandatory?

As per the tax provisions, filing income tax returns is mandatory where the gross total income of an individual is more than the basic exemption. Here, Gross total income would mean the income before any deductions under chapter VI-A.