The Indian tax year is from 1 April to 31 March.
Each individual is required to file a separate return of income. Joint filing is not permitted. Husband and wife are treated as separate and independent individuals for the purposes of Indian income tax.
An individual engaged in a business or profession is required to have the books of account audited under the tax laws if the turnover/ total sales/ gross receipts exceeds INR 10 million in the case of a business or where the gross receipts exceed INR 5 million in the case of a profession.
The due date for individuals to file their tax returns is 31 July of the year immediately following the relevant tax year. In cases where the individual is required to have his/ her books of account audited under the tax laws, the due date is 30 September of the immediately following year. However, a belated/ revised return can be filed before the expiry of relevant assessment year.
In cases where tax returns are filed after the due date but before 31 December, a penalty of INR 5,000 will be levied and a penalty of INR 10,000 will be levied where tax returns are filed after 31 December.
Individuals who are 80 years old or more and qualify as RORs of India have an option to file their tax returns manually in ITR 1 or ITR 4. It is mandatory to file the return electronically, if:
- there is a claim of refund;
- the total income exceeds INR 0.5 million; or
- where the individual qualifies as a ROR and possesses foreign assets, or has the signing authority for any of his/ her accounts located outside India.
To e-file the return, the taxpayers have been using digital signature for paperless filing, or could opt to forward the details of the e-filed return to the Central Processing Centre. Now, the government has announced a paperless way of e-filing of tax returns via Electronic Verification Code (EVC). The EVC is a 10-digit alpha-numeric code which is unique for each permanent account number, and is generated for the purpose of electronic verification of the person in the e-filing website.
Mandatory furnishing of return of income
It is mandatory to file return of income in the following cases:
- An individual qualifying as ROR and is owning foreign assets (as a beneficial owner or otherwise), or is having signing authority in any account located outside India. Further, in case of taxpayers having assets outside India (including financial interest in any entity), the extant time limits of four and six years for reopening tax assessment (where income has escaped assessment) have been raised to 16 years. In case of a person who is treated as an agent of a NR, the time limit for issuing reassessment notice is six years.
- A person deposits amounts more than INR 10 million in one or more current accounts maintained with banks or co-operative banks.
- A person incurs expenditure exceeding INR 0.2 million for self/ any other person for travel to a foreign country.
- A person incurs expenditure exceeding INR 0.1 million towards consumption of electricity.
- A person who fulfills such other conditions as may be prescribed.
Payment of tax
Further, if the taxpayer’s estimated tax liability (for the current tax year) after reducing withholding tax/ foreign tax credit is likely to exceed INR 10,000, then the taxpayer must pay advance tax during the tax year on the basis of estimated income in four installments - by 15 June (15% of the estimated annual tax liability), by 15 September (45% of the estimated annual tax liability), by 15 December (75% of the estimated annual tax liability), and by 15 March of the tax year (100% of the estimated annual tax liability). Senior citizens are exempted from the requirement of advance tax payments.
An individual may not be required to withhold tax from payments he/ she makes. However, in certain cases, an individual (engaged in business or profession) is required to withhold tax if he/ she is liable for audit under the tax law in the tax year immediately preceding the tax year in which the payment is made. In case of many other payments, the tax laws require a payer to withhold tax from the payment and deposit the same into the Indian Government Treasury within specified timelines. Such payers are also obliged to obtain a Tax Deduction Account Number (TAN) once, and file periodic returns of tax withheld. In case a non-resident does not have a permanent account number but furnishes an alternative document, no higher withholding tax shall be levied.
Similarly, where the individual is making payment of rent to a resident in excess of INR 50,000 per month. He/ she is liable to withhold tax on such payment at the rate of 5% in the last month of tax year or last month of tenancy whichever is earlier.
Any transfer of immovable property (any land, building or part of a building) to a resident would attract a withholding tax of 1% of the agreed consideration, if the consideration value for a transfer is INR 5 million or more. This consideration includes all charges of the nature of club membership fee, car parking fee, electricity and water facility fee, maintenance fee, advance fee or any charge of similar nature that are incidental to transfer of the immovable property. The withholding tax provisions would not apply in cases of transfer of agricultural land.
An employer is required to withhold tax from salaries at the time of payment of salary and deposit the same into the Government Treasury by the seventh day of the month following the month in which tax is withheld, except for the month of March, when the tax can be deposited on or before 30 April. An employer shall obtain evidence from the employees in the prescribed form and manner. This is aimed to curb the practices followed by companies by allowing deductions/ exemptions on the basis of mere declaration by the employees.
Advance tax payments
If the taxpayer’s estimated tax liability (for the current tax year) after reducing withholding tax/foreign tax credit is likely to exceed INR 10,000, then the taxpayer must pay advance tax during the tax year on the basis of estimated income in four instalments, by 15 June (15% of the estimated annual tax liability), by 15 September (45% of the estimated annual tax liability), by 15 December (75% of the estimated annual tax liability), and by 15 March of the tax year (100% of the estimated annual tax liability). Senior citizens are exempted from the requirement of advance tax payments.
Black Money Taxation Act
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Black Money Taxation Act) covers all persons who were ROR in India, in accordance with provision of the Act, either in the tax year to which the income relates or in the tax year in which the undisclosed asset located outside India was acquired. Any undisclosed foreign income or assets detected are to be taxed at the rate of 30% under the Black Money Taxation Act. Non-disclosure or inaccurate disclosure will attract a penalty of INR 1 million and may attract imprisonment of up to seven years. In addition there is a provision for penalty of 300% of tax and imprisonment of up to 10 years in case of willful attempt to evade taxes on foreign income/ assets.
Restriction on cash transactions
No person shall receive an amount of INR 0.2 million or more in – (a) aggregate from a person in a day; (b) respect of a single transaction; or (c) respect of transactions relating to one event or occasion from a person. A person will have to transact for amounts above the prescribed limit by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. The provision shall not apply in case of –
- Any receipt by Government, any banking company, post office savings bank or cooperative bank.
- Any other persons or class of persons or receipts, which may be notified by the Central Government.
A penalty shall be levied on a person who receives a sum in contravention of provisions and the penalty shall be equal to the amount of such receipt. However, the penalty shall not be levied if the person proves that there were good and sufficient reasons for such contravention.
In order to further discourage cash transactions and move towards less cash economy, a new provision has been inserted to provide for levy of tax to be deducted at source @ 2% on cash payments in excess of INR 10 million in aggregate made during the year by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.
Tax audit process
Audit for income tax purposes
Persons carrying on business are required to get their books of account audited for income tax purposes if the business turnover exceeds INR 10 million. For individuals opting for the presumptive taxation scheme, one shall not be required to get one’s accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed INR 20 million. This has been effective from tax year 2017/18 onwards. For persons carrying on a profession, crossing the turnover threshold of INR 5 million would attract the requirement to have its books of accounts audited from 1 April 2017. The penalty for non-compliance with this audit requirement is INR 0.15 million, subject to 1% of total turnover/gross receipts.
Tax authorities, at any stage of proceedings, having regard to nature, complexity, and volume of accounts or doubts on correctness of accounts or other reasons, may, after taking necessary approval of the Chief Commissioner, direct a taxpayer to get its accounts audited and to furnish the report.
Statute of limitations
The statute of limitations under the Act in the case of submission of returns is one year from the end of the relevant tax year, and for assessment of returns filed is 12 months (24 months in case transfer pricing provisions are applicable) from the end of the relevant tax year for which the return is filed. The statute of limitations for reassessment ranges from five years to 17 years from the end of the relevant tax year.
Topics of focus for tax authorities
With a view to roll out e-assessment across the country so as to impart greater transparency and accountability, the Central Government has been empowered to notify a new scheme for scrutiny assessments to achieve the desired purpose. This would enable the assessment to be carried out without any personal interface between the taxpayer and the Revenue Authorities.
General Anti Avoidance Rule (GAAR)
GAAR provisions were introduced by the Finance Act, 2017 and have been applicable since 1 April 2017. These provisions empower the tax department to declare an ‘arrangement’, or any part or step thereof, entered into by a taxpayer with the main purpose of obtaining tax benefit to be an 'Impermissible Avoidance Agreement' (IAA), the consequence of which would be denial of tax benefit under the Act or under the applicable tax treaty.
For GAAR provisions, an IAA means the main purpose of which is to obtain a tax benefit, and it:
- creates rights and obligations not at arm’s length;
- results in abuse/misuse of provisions of this Act (directly/indirectly);
- lacks/is deemed to lack commercial substance; or
- is carried out in a manner that is not ordinarily employed for bona fide purposes.
The following are consequences if an arrangement is regarded as an IAA:
- Disregard/re-characterise the arrangement.
- Disregard corporate structure.
- Deny treaty benefit.
- Reassign place of residence/situs of assets or transactions.
- Reallocate income, expenses, relief etc.
- Re-characterise equity-debt, income-expense, relief, etc.