If you receive a gift from any of your relatives or friends for Christmas or New Year or Pongal or any festival, worth more than Rs. 50000, as per income tax laws, it may be taxable income on your hands in certain situations.
Not only the income, if a person receives a gift, if the value of the gift is exceeding the certain limit then he/she must add it in his income and pay the income tax. There are certain exceptions on declaring the gifts as income.
Gifts received From Relatives
As per the Income tax act, the Gifts received from any of your relatives are fully exempt from tax. Whether you are received the gifts as Cash, Cheque or any goods. You are not liable to pay the tax for these gifts. Here the "relatives" term defines by the Income Tax act as follows :
- Spouse of the individual
- Brother or sister of the individual
- Brother or sister of the spouse of the individual
- Brother or sister of either of the parents of the individual
- Any lineal ascendant or descendant of the individual
- Any lineal ascendant or descendant of the spouse of the individual, Spouse of the person referred to in clauses (ii) to (vi).
For example if you are receiving gift of Rs.100000 from your uncle (your mother's brother), it is fully exempt from the Tax. Whenever you get the gifts please apply the relations in the above list to ascertain whether you are liable to pay any tax for the received gift.
Gifts received From Non-Relatives
Here non-relatives means anyone who doesn't come under the above mentioned relation for you. In this case you are tax exempt up to maximum of Rs.50000 for a financial year. If you receive the gift worth more than Rs.50000, you are liable to pay the tax whatever you received excess of the limit. This rule applies when the gift is a sum of money, whether in cash, by way of cheque, bank draft or any articles which is value more than the Rs.50000.
For example you are receiving a gift of Company Shares from one of your team mate in your company or when you are receiving a gift of Rs.100000 (cheque) for the best performing in your company (not a bonus), Rs.50000 is liable to pay tax
My mother gifted me Rs. X amount. Is this taxable?
The simple answer is "NO". Any gift in the form of articles, shares or cash are not taxable on your hand. If you want to understand the gift related income tax laws, Under section 56 of the Income-tax Act, any money received without consideration which is exceeding Rs. 50000 is taxable on your hand. But, there is exception on certain situations.
The money is received from a relative, which includes, among others, any lineal ascendant or descendant of the individual is fully tax exempt on your hand. So, it is very clear that money received from your mother or father would be not taxable on your hand.
Another important point, if you want to claim the tax exemption on the gifts, please make sure that you have the gift deed executed and who is gifting signed on the papers. Without that the gift laws are not valid for claiming the exemptions. You may consult a lawyer for the documentation with respect to the gift transaction.
Marriage Gifts
One very happy feature of the provision of taxation of gifts is that any gift received from any person on the occasion of the marriage of the gift's recipient would not be liable to income tax. There is no monetary limit attached to this exemption. Note that, if you receive any gifts at the time of engagement or the marriage anniversary if liable to pay the tax.
Special Tax Exempt gifts
The following list of gifts are fully exempted from Tax whether the it is received as Cash, or any other form of the material doesn't affect the exemption.
- Gift received under a Will or by way of inheritance
- Gift in contemplation of death of the donor; Gift from any local authority
- Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C)
- Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA
IT : I. Once conditions in second proviso to section 194C(3) are satisfied, liability to deduct tax at source ceases; requirement of furnishing Form No. 15J is not related to liability to deduct tax at source
IT : II. Disallowance under section 40(a)(ia) cannot be made on ground that assessee had not furnished Form No. 15J before 30-6-2006 as required under rule 29D
■■■
[2012] 28 taxmann.com 119 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-I
v.
Valibhai Khanbhai Mankad*
AKIL KURESHI AND MS. HARSHA DEVANI, JJ.
TAX APPEAL NO. 1182 OF 2011
OCTOBER 1, 2012
Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payment to - Transporters - Assessment year 2006-07 - Whether once conditions of second proviso of section 194C(3) are satisfied, liability of payer to deduct tax at source would cease - Held, yes - Whether requirement of such payee to furnish details to income tax authority in prescribed form within prescribed time would arise later and any infraction in such a requirement would not make requirement of deduction at source applicable under sub-section (2) of section 194C - Held, yes [Paras 6-10] [In favour of assessee]
Section 40(a)(ia), read with section 194C, of the Income-tax Act, 1961 - Business disallowance - Interest, etc, paid to resident without deduction of tax at source - Assessment year 2006-07 - Whether where assessee has fulfilled requirement of second proviso to section 194C(3) disallowance of payment for sub-contractor cannot be made on ground that assessee had not furnished form No. 15J before 30-6-2006 as required under rule 29D - Held, yes [Paras 8 & 10] [In favour of assessee]
FACTS
Facts
• The assessee was engaged in the transport business.
• During the year under consideration, the assessee made payments to sub-contractor-transporters.
• The assessee had not deducted tax at source on the ground that from the transporters, receiving such payments, Form No. 15-I was obtained and, therefore, no TDS was required to be deducted.
• The Assessing Officer disallowed such expenditure under section 40(a)(ia) on the ground that the assessee had not furnished Form 15J before 30-6-2006 as required under rule 29D of the Income-tax Rules, 1962.
• On appeal, the assessee produced the requisite Form 15J. The Commissioner (Appeals), however, did not accept the assessee's claim.
• The Tribunal reversed the view of lower authorities and held that the requirement of furnishing Form 15J was not related to the liability to deduct tax at source. Any infraction of such requirement would not result into disallowance under section 40(a)(ia).
• On revenue's appeal to the High Court.
HELD
Statutory provisions
• From the statutory provisions of section 40(a)(ia) it can be seen that under section 40(a)(ia), payments made towards interest, commission or brokerage etc. would be excluded for deduction in computing the income chargeable under the head 'profits and gains of business or profession', where though tax was required to be deducted at source, is not deducted or where after such deduction, the same has not been paid on or before the due date. Thus, for application of section 40(a)(ia), the foremost requirement would be of tax deduction at source. [Para 5]
The moment requirements of exclusion provisions in section 194C are fulfilled liability to deduct tax would cease
• Section 194C makes provision where for certain payments, liability to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. The further proviso to sub-section (3) provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year. [Para 6]
• The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. The moment such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction. [Para 7]
Payee's duty to furnish details to income-tax authority will arise later
• The later portion of sub-section (3) which follow the further proviso is a requirement which would arise at a much later point of time. Such requirement is that the person responsible for paying such sum to the sub-contractor has to furnish such particulars as prescribed. Under rule 29D of the Rules, such declaration has to be made by the end of June of the next accounting year in question. [Para 8]
• Therefore, once the conditions of further proviso of section 194C(3) are satisfied, the liability to deduct tax at source would cease. The requirement of such payee to furnish details to the income-tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under sub-section (2) of section 194C. Therefore, the Tribunal was perfectly justified in taking the view. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfilment of such requirement cannot be linked to the declaration of tax at source. Any such failure, therefore, cannot be visualized by adverse consequences provided under section 40(a)(ia). [Para 9]
When assessee was not required to deduct tax at source, application of section 40(a)(ia) would not arise
• When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be the conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 40(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time. [Para 10]
CASE REVIEW
Valibhai Khanbhai Mankad v. Dy. CIT(OSD) [2011] 46 SOT 469/12 taxmann.com 160 (Ahd.) (para 9) affirmed.
CASES REFERRED TO
ACIT v. Shree Pramukh Transport Co. Ltd. [IT Appeal No. 1717 (Ahd.) of 2010, dated 31-8-2010] (para 2.3)
Mrs. Mauna M. Bhatt for the Appellant. Manish J. Shah for the Respondent.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (hereinafter to be referred to as "the Tribunal") dated 29th April 2011. Following question has been presented for our consideration:-
"Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs . 7,91,02,011/- made under section 40(a) (ia)?"
2. For the assessment year 2006-07, above question arises in the following factual background:-
2.1 The respondent-assessee is engaged in the transport business. He also had other source of income, with which, we are not concerned. During the year under consideration, the assessee made payments of Rs. 11,21,09,788/- to sub contractors-transporters. On such payments, the assessee had not deducted tax at source (hereinafter to be referred to as "TDS") for a sum of Rs. 3,27,75,595/- on the ground that such payments were made to individual transporters, which did not exceed Rs. 20,000/- at a time and Rs. 50,000/- in the aggregate during the year. He had also not deducted tax at source for payment of Rs. 7,91,02,011/- on the ground that from the transporters, receiving such payments, form No. 15I was obtained and, therefore, no TDS was required to be deducted.
2.2 We are concerned with the payment of Rs. 7,91,02,011/-. The Assessing Officer disallowed such expenditure under section 40(a)(ia) of the Income Tax Act, 1961 (hereinafter to be referred to as "the Act") on the ground that the assessee had not furnished form No. 15J before 30th June 2006 as required under Rule 29D of the Income Tax Rules, 1962 (hereinafter to be referred to as "the Rules").
2.3 The assessee carried the matter in appeal. Before CIT (Appeals), he did produce the requisite form No. 15J. The Appellate Authority, however, did not accept the assessee's appeal, upon which, the assessee approached the Tribunal. The Tribunal, by the impugned judgment, reversed the view of the Revenue authorities and held that disallowance under section 40(a)(ia) of the Act was not justified. The Tribunal relied on its earlier decision in the case of ACIT v. Shree Pramukh Transport Co. Ltd. [IT Appeal No. 1717 (Ahd.) of 2010, dated 31-8-2010]. The Tribunal also gave its own independent findings and conclusions. The Tribunal was of the view that the requirement of furnishing form No. 15J was not related to the liability to deduct tax at source. Any infraction of such requirement would not result into disallowance under section 40(a)(ia) of the Act. It is this view of the Tribunal, which the Revenue has challenged before us in the present tax appeal.
3. We have heard the learned counsel for the Revenue as well as for the assessee. Section 194C of the Act, as is well known, pertains to payments to contractors. Sub-section (1) of section 194C, as it stood at the relevant time, required that any person responsible for paying any sum to any resident, contractor for carrying out any work in pursuance of a contract between the contractor and the specified entities, shall credit specified sum as income tax on income comprised therein. Likewise, sub-section (2) of section 194C required a person responsible for paying any sum to resident-sub-contractor to deduct tax at source under given circumstances. It is not in dispute that ordinarily the assessee was required to make such deduction on the payments made to the sub-contractors, unless he was covered under the exclusion clause contained in sub-section (3) of section 194C of the Act. Such provision, as it stood at the relevant time, read as under:-
"Section 194C(3):- No deduction shall be made under sub-section (1) or sub-section (2) from -
(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees:
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section:
Provided further that no deduction shall be made under sub-section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year:
Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or
(ii) any sum credited or paid before the 1st day of June, 1972; or
(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.
Explanation - For the purpose of clause (i), "goods carriage" shall have the same meaning as in the Explanation to sub-section (7) of section 44AE."
4. Section 40(a)(ia) of the Act, in turn, provides that certain amounts shall not be deducted in computing the income chargeable to tax under the head 'profits and gains of business or profession', namely, payments made towards interest, commission or brokerage etc., on which tax is deductible at source and such tax has not been deducted or, after deduction, the same has not been paid on or before the due date specified in sub-section (1) of section 139 of the Act. Section 40(a)(ia) of the Act, insofar as it is relevant for our purpose, reads as under:-
"Section 40(a)(ia):- Any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labor for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139 :]"
5. From the above statutory provisions, it can be seen that under section 40(a)(ia) of the Act, payments made towards interest, commission or brokerage etc. would be excluded for deduction in computing the income chargeable under the head 'profits and gains of business or profession', where though tax was required to be deducted at source, is not deducted or where after such deduction, the same has not been paid on or before the due date. Thus for application of section 40(a)(ia) of the Act, the foremost requirement would be of tax deduction at source.
6. Section 194C, as already noticed, makes provision where for certain payments, liability of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section (3), which provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year.
7. The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction.
8. The later portion of sub-section (3) which follow the further proviso is a requirement which would arise at a much later point of time. Such requirement is that the person responsible for paying such sum to the sub-contractor has to furnish such particulars as prescribed. We may notice that under Rule 29D of the Rules, such declaration has to be made by the end of June of the next accounting year in question.
9. In our view, therefore, once the conditions of further proviso of section 194C(3) are satisfied, the liability of the payee to deduct tax at source would cease. The requirement of such payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under sub-section (2) of section 194C of the Act. In our view, therefore, the Tribunal was perfectly justified in taking the view in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfilment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act.
10. When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be our conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 40(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time.
11. With respect to the Tribunal's earlier judgment in case of Shree Pramukh Transport Co. Ltd. (supra), neither side could throw any light whether the Revenue had carried the same in appeal or not. However, we have examined the question independently and come to our own conclusion recorded herein above.
12. In the result, tax appeal is dismissed.
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Dear Madam/Sir The Court took the view that the transportation/Rent-a-Cab service is provided by the assessee to their employees in order to reach their factory premises in time which has a direct bearing on manufacturing activity. Therefore, by no stretch of imagination it can be construed as a welfare measure by denying the availment of Cenvat credit to the assessee for providing transportation facilities as a basic necessity which has a direct bearing on the manufacturing activity. While so holding the Court held that if the credit is availed by manufacturer then the question is what are the ingredients that are to be satisfied for availing such a credit. That · the said service should have been utilised by the manufacturer directly or indirectly in or in relation to the manufacturer · directly or indirectly in or in relation to the manufacturer of final products or · used in relation to activities relating to business If any of the tests is satisfied then the service falls under input service and the manufacturer is eligible to avail Cenvat credit and the Service tax paid on such credit. Commissioner of Central Excise, Bangalore-III v. Tata Auto Comp Systems Ltd. The above judgment in not in line with the revisions made in CENVAT credit rules in the recent budget. However the stands taken for exclusion in eligible inputs in budget are logically negated by above judgment. | ||
With Regards  Delivering Excellence Since 1964 Delhi * Bangalore * Lucknow * Mathura www.kishoreandkishore.com If you have any questions, comments, suggestions, please don't hesitate to contact us at any time. We look forward to hearing from you. If there are other people you know who would like to subscribe to this newsletter, they can sign up by visiting our website by clicking here. Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of Kishore & Kishore. Unsubscribe from this newsletter. |
----- Forwarded Message -----
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Thursday, 27 December 2012 6:37 AM
Subject: FAQ on QFIs
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Thursday, 27 December 2012 6:37 AM
Subject: FAQ on QFIs
FREQUENTLY ASKED TAX QUESTIONS BY QUALIFIED FOREIGN INVESTORS (QFIs)1
PRESS RELEASE, DATED 26-12-2012
Q.1. What is Permanent Account Number (PAN) Card?
Ans: Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued by the Income Tax Department of India to any "person" to facilitate him in making tax payments filing, returns and claiming refunds. The number, along with other relevant details, is printed on a card called PAN card.
Q.2. Are QFIs required to obtain PAN Card to comply with tax norms in India?
Ans: Yes. Under the current provisions, QFIs would be required to obtain PAN card. The process of obtaining a PAN card is simple, and user friendly. An application can be filed by a foreign investor online and the process can be completed within 2 to 3 weeks.
Q.3. What are the benefits to QFIs of having a PAN Card?
Ans: QFIs who have a PAN card would be eligible for tax deduction at source (TDS) as per the rates applicable in the Double Taxation Avoidance Treaty (DTAA) of the country of which the QFI is a resident, if it is more beneficial than the rate prescribed under the domestic law. If a QFI has not obtained a PAN card it would be subject to a higher rate of tax deduction under Section 206 AA of Income Tax Act, 1961.
Q.4. How QFIs can apply for a PAN Card?
Ans: In order to facilitate QFIs in applying for a PAN as well as to comply with Know your Customer (KYC) norms of the Securities Exchange Board of India (SEBI), a combined form (FORM 49 AA) has been notified by the Central Board of Direct Tax (CBDT). Form 49 AA and detailed instructions regarding how it is to be filled up are available at :
Q.5. Can QFIs make an On-line application for PAN Card?
Ans: Yes, application for allotment of PAN can be made online through the Internet. Further, requests for changes or correction in PAN data or request for reprint of PAN card (for an existing PAN) may also be made through the Internet. Online application can be made either through the portal of National Securities Depository Limited (NSDL) (https://tin.tin.nsdl.com/pan/index.html)
or portal of UTI Infrastructure Technology and Services Limited (UTITSL) (http://www.utitsl.co.in/utitsl/uti/newapp/new-pan-application.jsp). Supporting documents required to be submitted by QFIs to obtain PAN card are listed at the following link:
Q.6. What are the attestation requirements for a QFI for obtaining PAN card?
Ans: For a QFI who is an individual, Rule 114 of the Income Tax Rules, 1961 read with Form No. 49AA, requires a copy of the passport to be filed (without any attestation), this will be taken as both proof of identity and proof of residence. For QFIs other than individuals, the process requires filing of copy of certificate of registration duly attested by an "apostille" or at the Indian Embassy in that country.
In order to meet the know you client (KYC) requirements as prescribed by Securities Exchange Board of India (SEBI), the list of documents to be submitted by a QFI for KYC are available at:
Q.7. What are the tax related responsibilities of Qualified Depository Participants (QDPs)?
Ans: In order to facilitate investments by QFIs, the QDPs have been assigned the responsibility to act as a single point of contact for QFIs for all purposes including tax. For tax purposes, a QDP will facilitate the QFI to obtain a PAN card. QDPs will be responsible for any withholding tax in India before making remittance to QFIs. QDPs will also be treated as a representative assessee/agent of the QFI. For this purpose QDPs would be required to submit a declaration that they have no objection to being treated as a representative assessee/agent of QFI. A QDP may ensure that the broker engaged by it for undertaking QFI transactions deducts and deposits tax at source failing which the QDP should deduct and deposit the tax on such transactions.
Q.8. Can QFIs claim refund from Income Tax Department in India?
Ans: Yes. QFIs can claim refund from Income Tax Department for which the QFI would have to file its return of Income in India for that year.
Q.9. Can a QFI carry forward losses over the years?
Ans: Yes. QFIs are allowed to carry forward losses over years provided the QFI files its return of income declaring the loss for the relevant year within the stipulated time limits.
Q.10. Whether profits earned by QFI from their investments in Indian securities market would be treated as Capital Gain or business income?
Ans: As per the Income-Tax Act, 1961, whether the profits earned from transaction in securities would be capital gains or business income will depend on facts and circumstances of each case like the number and frequency of transactions etc. Please refer to circular No.4/2007 dated 15/6/2007 issued by the Central Board of Direct Taxes.
Q.11. Whether QDPs should compute tax deduction at source (withholding tax) on QFI income for one settlement period on settlement basis or on transaction basis?
Ans: Currently, settlement on Indian stock exchanges is done at the end of every trading day. Tax deducted at source under the Income-tax Act, 1961 is to be deposited by the seventh day succeeding the end of each month. The withholding tax on QFI income will be computed on settlement basis and not on transaction basis since the stock broker would credit the net proceeds of all transactions to QFIs on settlement basis for one settlement period.
Q.12. For determining the tax deducted at source (withholding tax) liability, can QDPs set off losses of QFIs against profits earned on monthly basis in a given year?
Ans: As per TDS provisions, the deductor has to deduct tax either at time of payment of the amount or at time of credit of such amount (whichever is earlier). Therefore, any loss of current year available at such time of deducting tax would be eligible to be set off against the sum payable and the TDS shall be effected on net basis. However, TDS once effected cannot reduced by the deductor even if there is loss in subsequent transaction.
Example, in a given year, a QFI makes three settlements, it earns profit of Rs. 200 on day one settlement, incurs a loss of Rs. 250 on day two settlement and earns profit of Rs. 100 on day three settlement. The TDS would be deducted on credit of net profit of Rs 200 whereas, no TDS shall be effected against profit of Rs. 100 as at time of credit of Rs. 100 a loss of Rs. 250 is available for set off and net basis there is no amount chargeable to tax.
Q.13. For the purpose of computing tax deducted at source (withholding tax) Can QDPs set off in the case of QFIs, the profits earned in one security against losses earned in another security during a given year?
Ans: Yes. For computing tax deducted at source (withholding tax) QDPs can set off profits earned by the QFI in one security against losses earned in another security as long as these securities are subject to Securities Transaction Tax (STT). Therefore, this would not be applicable in case of QFI investments in bonds as bond transaction are not subject to Securities Transaction Tax Such setting off for computing tax deduction at source would therefore be permissible only in the case of listed securities and mutual fund Units and redemption by mutual funds as these are subject to STT. The set off would again be subject to the general principle that an earlier loss of current year can be set off against subsequent profit which is credited or paid to the QFI. However, if tax deduction at source (TDS) has already been effected for a particular credit or payment, it cannot be reduced by subsequent loss. A QFI is, however, eligible to claim refund of excess amount of tax deducted at source (withholding) by filing a return of income for the relevant year.
Q.14. For the purpose of computing tax deducted at source (TDS), can QFIs Set off of profits earned by a QFI in the current year against losses incurred in previous years?
Ans: No, A QDP cannot set off losses of a previous year of a QFI against profits earned in the current year by the QFI while computing the tax liability for deduction at source, which would therefore be based only on the profits of the year. However, QFIs can themselves set off their profits earned in the current year against losses incurred in previous years. For the purpose, the QFI would need to file its return of income within the time limits stipulated in the Income-tax Act, 1961. For this purpose, QFIs need to file return for the relevant year within the time limits stipulated in the Income-tax Act, 1961.
Q.15. What would be the applicable rates of taxation if a QFI comes from a jurisdiction with which India has a Double Taxation Avoidance Agreement (DTAA) as against one which comes from a non-DTAA Jurisdiction?
Ans: The applicable rates of taxation in the case of investment from a country will be at the rate provided in the Income-tax Act or the rate provided in the Double Taxation Avoidance Agreement, whichever is more beneficial to the investors.
Q.16. Whether the capital gains arising on sale of shares are computed in Indian currency or in other currency?
Ans: The capital gains arising on sale of shares shall be computed by converting the cost of acquisition, expenditure incurred and full value of consideration in the same currency, as was initially utilized for purchase of shares and the gains so computed shall be reconverted in India currency.
Q.17. Whether DTAA provisions will apply while deducting tax at source?
Ans: Yes. Also see answer to question No. 15.
Q.18. Will the QDPs be held responsible for withholding taxes against profits on mutual fund investments by QFI's?
Ans: Income from investment from mutual fund may arise by way of distribution of profits by the fund or by way of redemption by the fund or by way of sale of units of the fund. In case of distribution of profits by the mutual fund, the mutual fund itself pays tax on distribution of profits. In case of sale of units of the fund, the QDP would be required to withhold tax if the buyer of the mutual fund units has not deducted tax. In case of redemption of units by the fund or sale of units of the fund, the QDP would be required to withhold the tax.
Q.19. If the QFI is no longer the client of the QDP, then can the QDP be called upon to make good the shortfall in tax and liable to interest and penalty having acted in bonafide and good faith?
Ans: QDP, being a deductor, shall be liable for any short deduction or non-deduction of tax even after the QFI ceases to be the client of QDP.
Q.20. What are the deductible expenses that may be incurred by QFI for purchase & sale of shares and Mutual Funds?
Ans: The deductibility of expenses would depend on the fact that whether the income on the sale of shares is treated as business income or capital gains. In general if the income is treated as capital gains expenses like brokerage fees would be allowed.
Q.21. Whether QDP should treat residence certificate as a sufficient proof of residence and beneficial ownership of the shares in India by the QFI?
Ans: Prima facie, the Tax Residency Certificate is evidence of residence in a particular country and the QDP may rely on such a certificate. However, as per Explanatory Memorandum to the Finance Bill, 2012, the amended section 90 and 90A of the Income-tax Act makes submission of Tax Residency Certificate containing prescribed particular, as a necessary but not sufficient condition for availing benefits of the tax treaties.
Q.22. Whether the QDP is required to obtain an Income Tax Order under Section 195(2) of the Act for determining the income component (capital gains) on the sale of shares?
Ans: Central Board of Direct Taxes (CBDT) Circular No. 4/2009 dated 29/06/2009, clarifies that the term 'payer' also means a remitter. As the QDP is making the payment of the income to the QFI, the QDP could be considered as a 'payer' Under Section 195(2) of the Act, if any person responsible for paying any sum chargeable under the Act to a non-resident, considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer(AO) to determine the appropriate proportion to such sum on which tax is to be deducted (TDS).
The requirement of obtaining CA Certificate is only in the context of remittance of money outside India. It is not in the context of TDS liability. The QDP is custodian of all data in respect of transactions on which income has arisen to a QFI. It will also maintain the QFI account, wherein the QFIs' income is determined. Therefore, the QDP is supposed to deduct tax on the basis of sum chargeable to tax. In normal situations such as working out the capital gains on a transaction, there would not be any difficulty and QDP can itself determine the amount chargeable to tax and deduct tax thereon or take help of Chartered Accountant in this behalf. However, in case there is complexity in determining such income the QDP should approach the Assessing Officer for determination u/s 195(2). Even for other deductees, it is not mandatory that in each and every case, they should obtain 195(2) order before deducting TDS. However, in case a complex issue, it is advisable to do so. This is because the liability to deduct proper taxes remains on the deductor (i.e. QDP).
Q.23. For the purpose of computing tax deduction at source (withholding tax), what is the proof and declaration that the QDP can rely upon for allowing the full time benefit of a DTAA to a QFI?
Ans: There is no standard set of documents on the basis of which the DTAA treaty benefit can be said to have been rightly allowed. It depends on the facts of each case. The treaty benefit is to be claimed by the person concerned before it can be allowed. For this purpose, the QDP should obtain the Tax Residency Certificate from the QFI.
Q.24. Having relied on the documentations and given the treaty benefits, if later the same is held not allowable by the tax officer, can the QDP be held responsible and called upon to pay for any shortfall in tax, interest and penalties?
Ans: The liability to deduct and pay proper taxes remains that of the QDP as a deductor. Therefore, for any shortfall in tax QDP can be held responsible. The responsibility remains both for non-deduction or short deduction of tax if it is found that the treaty benefit have been incorrectly claimed or considered.
Q.25. What is the maximum number of years in which an assessment can be done or reopened in case of TDS returns filed by the QDP?
Ans: As the payment would be made to QFIs, who are non-residents, the Act does not prescribe any time limit for scrutiny of transaction for TDS purposes under section 201 of the Act.
Q.26. Can the QDP be held responsible for withholding of tax at source in case of a QFI on sale considerations received under an open offer or buy back of shares where the purchaser of the shares is responsible for withholding tax and complying with the TDS filings under the Act?
Ans: Under the Income-tax Act, any person responsible for paying to a non-resident (not being a company) or to a foreign company, any sum chargeable under the provisions of the Act, has to deduct tax at the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier. The responsibility of tax deducted at source by the QDP in the case of sale consideration received by a QFI on account of an open offer or a buyback of shares would depend upon the facts of the case. In case the purchaser of shares is crediting the sum to the account of the QFIs or making payment to QFIs, the purchaser would be required to deduct the tax. However, if the QDP is crediting the sum to the account of the QFIs or making payment to the QFIs, the QDP would be required to deduct the tax. Please also refer to question no. 7.
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1. Disclaimer: These FAQs are prepared with a view to help QFI applicants to get generic understanding of the tax framework. These FAQs cannot be used in a court of law to interpret any circular, rules, regulations, statutes etc., one way or the other.
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx
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