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Everything you need to know about Form 15CA and 15CB

by InCorp Advisory

Reading Time: 3 minutes

Remittance to Non-Resident

Any payment made to a non-resident or a foreign company is subject to various rules and regulations. As per provisions of Section 195 of Income tax Act,1961 any person responsible for paying money to a non-resident including foreign company shall deduct income tax for payment made to non-resident.

The remitter making payment to non-resident should furnish an undertaking in Form 15CA containing the information relating to payment of such sum along with certificate attested by Chartered Accountant in Form 15CB. Various aspects of the above compliance are covered as under-:

Part 1: Applicability

Form 15CA is a declaration by any person intending to make remittance:

  • to non-resident or to foreign company (irrespective of whether remittance is subject to tax)
  • by remitter who can be resident /non-resident/ domestic company/foreign company
  • when income accrues/ arises/ received or deemed to accrue/ arise/ received in India (Section 5 of Income Tax Act).

Form 15CB is a certificate required to be filed by the Chartered Accountant when remittance is made

  • to non-resident or foreign company is taxable and
  • the payment exceeds Rs. 5,00,000/-; and
  • when order/ certificate has not been received from Assessing Officer (AO).

Part 2: Non-Applicability

  1. 1. When is Form 15CA not required?

  • When the remitter makes remittance as per the specified list of payments in Rule 37BB of Income Tax Rules.
    (Refer: Income Tax Rules)
  • Not applicable to an individual who does not require RBI approval as per Section 5 of the Foreign Exchange Management Act, 1999.
    Example: Mr. A remitted USD 1,25,000 to his son who went to Germany for higher educations. The amount remitted does not exceed the threshold limit of USD 2,50,000 therefore no RBI approval is required for such remittance and Mr. A is not required to file Form 15CA.

  1. 2. When is Form 15CB not required?

  • When the remittance is not taxable.
  • If the income is taxable in the country of residence of the remittee.
  • When the aggregate of remittances during the financial year does not exceed Rs. 5,00,000.

  1. 3. Which are the specified payments where Form 15CA/15CB is not required?

    The following are the specified payments where Form 15CA/15CB is not required:

    » Indian investment abroad » Loans extended to Non-Residents
    » Advance payment against imports» Imports by diplomatic missions» Intermediary trade » Imports below Rs.5,00,000
    » Payment for operating expenses of Indian shipping companies operating abroad » Construction of projects by Indian companies including import of goods at project site
    » Freight insurance » Operating expenses of Indian Airlines companies
    » Travel under basic travel quota (BTQ)/ business travel/ pilgrimage/ medical treatment/ education » Payments for maintenance of offices abroad
    » Remittances by foreign embassies in India » Remittance by non-residents towards family maintenance and savings
    » Remittance towards personal gifts and donations » Remittance towards donations to religious and charitable institutions abroad
    » Remittance towards grants and donations to other Governments and charitable institutions established by the Governments » Contributions or donations by the Government to international institutions
    » Remittance towards payment or refund of taxes » Refunds or rebates or reduction in invoice value on account of exports
    » Payments by residents for international bidding  

    Part 3: Taxability

    1. 1. What is the tax treatment of the remittances?

    taxibility of remittance

    *In case if no PAN is furnished then TDS will be deducted at 20% (if details of remittee is not furnished as per Rule 37BC of Income Tax Rules) or relevant TDS rate whichever is higher.
    # Person can opt for Exemption method or Tax credit method whichever is beneficial.

    1. 2. What are TDS rates applicable?

    Nature of Payment Foreign Company Other than Foreign Company
    Long Term Capital Gains u/s 115E, 112, 112A 10% 10%
    Other Long-Term Capital Gains

    (excluding u/s 10(33) & 10(36))

    		 20% 20%
    Short Term Capital Gains u/s. 111A 15% 15%
    Interest payable on moneys borrowed or debt incurred in Foreign Currency 20% 20%
    Royalty & Fees for technical services u/s. 115A 10% 10%
    Winnings from Lotteries, Crossword Puzzles and Horse Races 30% 30%
    Income by way of dividend 20% 20%
    Any Other Income 40% 30%

    1. 3. What are the rates of surcharge and education cess?

    Type of Payment Income/Payment Surcharge Health and Education Cess
    Payments to Foreign Co. Up to 1 crore Nil 4%
    1 crore > 10 crores 2%
    > 10 crore 5%
    Payments to Non-Residents

    (Other than Foreign Company)

    		 Up to 50 lakh 10% 4%
    1 crore > 2 crores 15%
    2 crore > 5 crores 25%
    > 5 crores 37%

    Part 4: Compliance

    1. 1. What are the various parts of Form 15CA?

    various parts of form 15CA

    1. 2. What is the procedure for filing Form 15CA and 15CB?

    Procedure of Filling Form 15CA

    1. 3. What are the details required to file the forms?

    Deatils Required

    Part 5: Frequently Asked Questions (FAQs)

     

    At InCorp, our Team provides seamless support with advisory services and assist you in complying with all the applicable laws and framework thereafter. Explore all our tax services and feel free to get in touch with our experts today.

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Income Tax Rates FY 2020-21

by InCorp Advisory

Reading Time: 8 minutes

Income tax is levied on the annual income of an individual or an entity. The period under Income Tax Act starts from 1st April and ending on 31st March of the next calendar year. The Income-tax Law classifies the year as (i) Previous year, and (ii) Assessment year.

Income tax on companies is called a corporate tax which is normally levied at a fixed rate. Whilst, a non-corporate assessee other than the firm has to pay income tax based on the slab rate.

Taxes are collected by the Government through three means:

  • Voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self-Assessment Tax paid by the taxpayers,
  • Taxes deducted at source [TDS] from the income of the receiver,
  • Taxes collected at source [TCS].

Every year, Finance Act prescribes the income tax rates and TDS/TCS rates effective for the relevant assessment year to the previous year. Further, CBDT is empowered to issue notification and circulars to clarify and notify the rates and their changes.

According to the current income tax laws in India, we have summarized and tabularized all the income tax rates for FY 2020-21 (AY 2021-22) for your easy reference.

Part 1: Income Tax for FY 2020-21

  1. 1. What is to be included for computing total income?

As per Section 5 of the Income Tax Act, 1961 the following income is included in total income:

    • Income received or is deemed to be received in India by or on behalf of such person; or
    • Income accrued or arise or is deemed to accrued or arise in India; or
    • Income accrued or arise outside India during such year.

  1. 2. What are the Income-tax rates applicable for FY 2020-21?

As per Finance Act, 2020, following are the income tax rates incomes for FY 2020-21 (AY 2021-22):

I. In case of an Individual or HUF or Association of Person or Body of Individual or any other Artificial Juridical Person (other than senior and super senior citizen): 

Net Income Range Tax Rate
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

II. In case of an individual who is a senior citizen (60 years or more at any time during the previous year):

Net Income Range Tax Rate
Upto Rs. 3,00,000 Nil
Rs. 3,00,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

III. In case of an Individual who is super senior citizen (80 years or more at any time during the previous year):

Net Income Range Tax Rate
Upto Rs. 5,00,000 Nil
Rs. 5,00,001 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

IV. In case of an Individual or HUF under new regime (only if the total income is computed without claiming specified exemptions or deductions other than mentioned in sub-clauses (a) to (c) of sub-rule (1) and serial no.11 to sub-rule 2 of Rule 2BB*): 

Net Income Range Tax Rate
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 7,50,000 10%
Rs. 7,50,001 to Rs. 10,00,000 15%
Rs. 10,00,001 to Rs. 12,50,000 20%
Rs. 12,50,001 to Rs. 15,00,000 25%
Above Rs. 15,00,000 30%

Rebate u/s 87A is available up to 100 percent of income-tax or Rs. 12,500, whichever is less for a resident individuals whose net income does not exceed Rs. 5,00,000.
In the case of (1) to (4), Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge. 

Surcharge:

Total Income Range Tax Rate
Upto Rs. 50 lakhs to 1 crore 10%
Rs. 1 crore to Rs. 2 crores 15%
Rs. 2 crores to Rs. 5 crores 25%
Above Rs. 5 crores 37%

V. Partnership Firm or LLP or Local Authority:

                    Particulars Tax Rate
Income Tax 30%
Surcharge where total income > Rs. 1 crore 12%
Health and Education Cess 4%

VI. Co-operative Society:

Particulars Tax Rate
Upto Rs. 10,000 10%
Rs. 10,001 to Rs. 20,000 20%
Above Rs. 20,000 30%
Surcharge where total income > Rs. 1 crore 12%
Health and Education Cess 4%
Income shall be computed without providing for specified exemption, deduction or incentive available, set-off, or carry forward.

Surcharge

Health and Education Cess

 22%

10%

4% 

VII. Domestic Company: 

Particulars Tax Rate
Income Tax on total turnover / gross receipts during PY 2018-19 does not exceed Rs. 400 crores 25%
Income Tax on any other domestic company 30%
Company opting for section 115BA 25%
Minimum Alternate Tax (MAT) 15%
MAT on the company is a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange 9%
Surcharge where total income is Rs. 1 crore <  Rs. 10 crores 7%
Surcharge where total income > Rs. 10 crores 12%
Company opting for section 115BAA

Surcharge

 22%

10%
Company opting for section 115BAB

Surcharge

 15%

10%
Health and Education Cess 4%

VIII. Foreign Company: 

Particulars Tax Rate
Income Tax on royalty received from Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approved by the Central Government 50%
Income Tax on any other income 40%
Surcharge where total income is Rs. 1 crore <  Rs. 10 crores 2%
Surcharge where total income > Rs. 10 crores 5%
Health and Education Cess 4%

Part 2: Tax Deducted at Source (TDS):

  1. 1. What is TDS?

  • Tax Deducted at Source concept was introduced in 2004 on the principle of ‘pay as you earn’.
  • A person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
  • The onus of deducting tax is on payer (who makes the expenditure) instead of actual taxpayer, that is, assessee under Section 192 to 194 of Income Tax Act, 1961.
  • Deductor who deducts tax at source is required to furnish a certificate to the respective deductee specifying the amount deducted as tax along with all the other particulars.

  1. 2. What are the TDS rates applicable?

Section Nature of Payment Threshold limit per annum (INR) TDS rate

(01/04/2020-13/05/2020)

 Reduced Rate

(14/05/2020- 31/03/2021)
192 Payment of Salary slab rate slab rate slab rate
192A Payment of the accumulated balance of Provident Fund 50,000 10% 10%
193 Interest on securities 10,000 10% 7.5%
194 Dividend

(Applicable only to Company)

 5,000

[earlier 2,500]

 10%

[earlier rates in force]

 7.5%
194A Income by way of interest other than interest on securities

(modified)

[Large co-operative societies are required to deduct tax only when total sales, gross receipts or turnover of Co-operative society exceeds INR 50,00,00,000 and interest credited or paid is above the threshold limit]

 40,000

(Non-senior citizen)

50,000

(Senior citizen)

 10% 7.5%
194B Income from winnings from lotteries, crossword puzzles, card games and other games of any sort 10,000 30% 30%
194BB Income by way of winnings from horse races 10,000 30% 30%
194C Payment to contractor/sub-contractor being:

a)  Individual/ HUF

b)  Other than Individual/HUF

 30,000

(Single payment)

1,00,000

(aggregate payment)

 1%

2%

 0.75%

1.5%
194D Insurance commission

a)  Individual/ HUF

b)  Other than Individual/ HUF

 15,000 5%

10%

 3.75%

10%
194DA Payment in respect of life insurance policy 1,00,000 5% 3.75%
194EE Payment in respect of deposit under National Savings Scheme 2,500 10% 7.5%
194F Payment of repurchase of unit by Mutual Fund or Unit Trust of India – 20% 15%
194G Commission on sale of lottery tickets 15,000 5% 3.75%
194H Commission or brokerage 15,000 5% 3.75%
194I Rent on:

a)  Plant & Machinery

b)  Land or building or furniture or fitting

 2,40,000

2,40,000

 2%

10%

 1.5%

7.5%
194IA Payment on transfer of any immovable property (other than agricultural land) 50,00,000

 

 1% 0.75%
194IB Payment of rent by individual/ HUF not liable to tax audit 50,000 per month 5% 3.75%
194IC Payment of monetary consideration under Joint Development Agreements – 10% 7.5%
194J Fees for technical or professional services:

a)  Fees paid towards technical services or royalty paid for consideration of sale, distribution or exhibition of cinematographic films

b)  Any other sum

 30,000 10%

2%

 7.5%

1.5%
194K Payment to a resident any income other than capital gains in respect of units (newly inserted section) 5,000 10% 7.5%

 
194LA Payment of compensation on compulsory acquisition of immovable property 2,50,000 10% 7.5%

 
194LB Interest income from infrastructure debt fund by non-resident – 5% 5%
194LBA Any income received or receivable from unit holder by business trust to resident – 10% 7.5%

 
194LBB Income in respect of units of investment fund to a unit holder (other than exempt under section 10(23FBB)) – 10% 7.5%

 
194LBC Income in respect of investment made in a securitization trust to:

a)  Individual/HUF

b)  Other than Individual /HUF

 – 25%

30%

 18.75%

22.5%
194LC Payment of interest by an Indian Company or a business trust in respect of:

a)  money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds

b)  by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014

 – 5%

4%

 5%

4%
194LD Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor – 5% 5%
194M Payment of commission (not being insurance commission), or brokerage or professional fees to individual/ HUF 50,00,000 5% 3.75%
194N Cash withdrawal from one or more account:

a)  In excess of INR 1,00,00,000

If persons have not filed an Income tax return for three previous years, the cash withdrawal from one or more account

i.   In excess of INR exceeding INR 20,00,000

ii.   In excess of INR exceeding INR 1,00,00,000

(newly inserted section w.e.f. 1st July 2020)

 1,00,00,000

 

 

 

20,00,000

 

1,00,00,000

 2%

 

 

 

N.A.

 

N.A.

 

 2%

 

 

 

2%

 

5%
194O Payment of certain sums by the e-commerce operator to the e-commerce participant; or

in case of individual/ HUF where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees

(newly inserted section w.e.f. 1st October 2020)

 – N.A. 0.75%

Determine your Income tax liability using our Income tax calculator!

Part 3: Tax Collected at Source (TCS):

1. What is TCS?

  • The tax collected at source (TCS) is one of the methods of collection of tax by the government. This method follows the principle ‘Collect as it is being earned’.
  • TCS is the tax payable by a seller which he collects from the buyer at the time of sale.
  • Section 206C of the Income-tax Act governs the goods on which specific sellers have to collect tax from specific buyers.
  • Tax collection at source is implemented to curb tax evasion and also to facilitate proper tax collection in India.

who are buyers and sellers?

2. What are the TCS rates applicable?

Section Type of Goods Threshold Limit (INR) Rate

(01/04/2020-13/05/2020)

 Reduced Rate

(14/05/2020 – 31/03/2021)
206C(1) Alcoholic Liquor for human consumption – 1% 1%
206C(1) Timber obtained under a forest lease – 2.5% 1.875%
206C(1) Tendu leaves – 5% 3.75%
206C(1) Timber wood by any other mode than forest lease – 2.5% 1.875%
206C(1) A forest produce other than Tendu leaves and timber – 2.5% 1.875%
206C(1) Scrap – 1% 0.75%
206C(1) Minerals like lignite, coal and iron ore – 1% 0.75%
206C(1C) Grant of the lease to the Parking lot, Toll Plaza and Mining and Quarrying – 2% 1.5%
206C(1D) Bullion that exceeds over INR 2,00,000; or

Jewellery that exceeds over INR 5,00,000

 – 1% 1%
206C(1F) Sale of the motor vehicle of the value exceeding INR 10,00,000 – 1% 0.75%
206C(1G)(a) a)      Amount remitted outside India through Liberalised Remittance Scheme

b)      For non-PAN or Aadhar card cases

c)      The amount is remitted for pursuing education through a loan obtained from any financial institute

(newly inserted section w.e.f 1st October 2020)

 7,00,000 –

 

 

–

–

 

 5%

 

 

10%

0.5%
206C(1G)(b) a)     Selling of overseas tour package

b)    For non-PAN or Aadhar card cases

(newly inserted section w.e.f 1st October 2020)

 – –

–

 

 5%

10%
206C(1H) a)     Seller whose turnover in immediately preceding financial year exceed INR 10,00,00,000

[except seller of goods on which TCS applicable as per Section 206C (1), 206C (1F) and 206C (1G)]

b)    For non-PAN or Aadhar card cases

(newly inserted section w.e.f 1st October 2020)

 50,00,000 –

 

 

 

 

 

–

 

 0.075%

 

 

 

 

 

1%

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Legal Structure For Carrying Out Charitable Activities

by InCorp Advisory

Reading Time: 6 minutes

Charity begins at home, and home for some people is not just the family, but their society, their state, their country and the world in which they live. It is said that, the person should not be judged by, what he achieves for himself, but by what he achieves for society at large. In the words of Mr. Azim Premji, who is one of the world’s top philanthropists, “You cannot mandate philanthropy. It has to come from within, and when it does, it is deeply satisfying”. Even though Mr. Azim Premji was not in favor of mandating philanthropy by way of law, we never the less have one under, The Companies Act, 2013. So, we can do philanthropic activities either when we feel like doing it or when we are mandated by law to do it. In this brief note we shall guide you as to how one can move forward for carrying out charitable activities, in the best possible structure.

FAQs

1. Which are the major types of charity?

Charity can be done, either when it is mandated by the law or when one feels like doing it i.e. Suo-moto. Each of the types can be understood as under:

  • Charity – Suo Moto – We get a lot of things from society and there comes a time, when we feel that we should take a step forward and do something for the society, i.e. people at large. People with similar interest can come together and be a part of organization and achieve the objective that it sets for oneself.
  • Charity – Mandated by Law (Corporate Social Responsibility CSR) – As per provisions of Section 135 of the Companies Act, it prescribes 3 conditions and on satisfying any one of the criteria, company is bound to carry out CSR activities:
    • Company having net worth of rupees five hundred crore or more, or
    • turnover of rupees one thousand crore or more or
    • a net profit of rupees five crore or more during any financial year

    The Board of every company that satisfies any of the above conditions shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

2. What structure can be used for carrying out Charitable Activities?

Whether one decides Suo-moto or is mandated by law to do some charity, he can do so by one of the two ways:

What structure can be used for carrying out Charitable Activities

Each of the two options mentioned herein can be understood as under:

CSR ACTIVITIES CONDUCTED THROUGH SECTION 8 COMPANY
Section 8 of the Companies Act 2013, permits a company to register itself as a not- for- profit company with limited liability to its members. Following are the conditions that it must satisfy —

  • has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
  • intends to apply its profits, if any, or other income in promoting its objects;
  • intends to prohibit the payment of any dividend to its members

CSR ACTIVITIES THROUGH CHARITABLE TRUST
A trust can be formed by a founder along with other trustees. A trust deed is to be drafted and duly registered with the registrar of trusts. Since, power to regulate trusts are covered in List – III of Seventh Schedule of the constitution of India, state and centre can both enact laws. In the state of Maharashtra, Maharashtra Public Trust Act, 1950 (Formerly known as Bombay Public Trust Act) applies to public trusts.

To form a charitable trust, it is very important that the objects of the trust must be for greater good of public at large. Charitable purpose includes:

  • Education
  • Medical relief
  • Relief of power by or distress
  • the advancement of any other object of general public utility

Governance of a trust is the responsibility of the trustees. Legal ownership of trust property vests in the trustees.

3. What is the process of formation of above entities?

INCORPORATION OF SECTION 8 COMPANY

  • The Company has to first decide the Charitable Object that it intends to achieve; it can either be one or more.
  • The Company has to decide on the Share Capital with which it will start the Company and the subscribers to such share capital.
  • The no. of Directors that will be appointed in the said Company.
  • Application is required to be filed to Central Government for grant of License.
  • Other formalities with respect to incorporation are similar to that of any other company which would be incorporated under Companies Act, 2013.

INCORPORATION OF CHARITABLE TRUST

  • Trust Deed is the charter document, through which Trust communicates its objects.
  • Identifying the author of the Trust and Trustees who shall run the Trust along with their consent letter.
  • Registration with the Charity Commissioner.

4. What are the advantages with respect to the structure mentioned above?

ADVANTAGES OF SECTION 8 COMPANY ARE AS UNDER

  • No requirement of minimum paid-up share capital.
  • Section 149(1) relates to minimum and maximum number of directors. A minimum of three directors in case of public company and two directors in case of private company. This section shall not apply to section 8 Company.
  • No Specific compliance with respect to appointment of Independent Directors.
  • It shall hold at least one meeting within every six calendar months.
  • The bar on taking up directorship in more than twenty companies has been relaxed in the case of section 8 companies. Therefore, an individual, if he is eligible, can be a director in more than 20 section 8 companies. This restriction however continues to stay for other categories of companies.
  • There is also relaxation with respect to Quorum required for conduct of meeting. Wherein minimum of two members are required.

ADVANTAGES OF CHARITABLE TRUST

  • Registration of trust as compared to section 8 company requires less time for incorporation and is easier as regards to compliance.
  • Trustees has complete control over the trust.
  • There is no statutory requirement to hold specified number of meetings.
  • Documentation, filing of returns and other statutory compliances in comparison to that of section 8 company are less.

5. How Income Tax Law applies to Structure chosen for carrying out Charitable Activities?

Under Income Tax Act, 1961 there is no difference how trust and section 8 Company is taxed. The taxation of the charitable entity is governed by the chapter III of the income tax which includes section 11, 12, 12A, 12AA/12AB and 13. The Government of India has given various exemptions to charitable and religious trust keeping in view the services they render to the nation. Section 11 deals with taxation of the income from the property held for charitable purposes. As per the said section, if the charitable entity spends more than or equal to 85% of its total receipts towards its object in India, then there is no tax on balance 15%. It is worthwhile to note that, the amount spend even for the fixed asset of the trust is also eligible to include in 85%.

For registering the Trust or Company first time as Charitable Organization under Income Tax Act, application has to be before Commissioner of Income Tax (Exemptions) under Form 10A. Commissioner of Income Tax (Exemption), should be satisfied that objects of the trust are charitable in nature, they are not for personal benefits of trustees or directors, an entity has the vision and the same should be coming out from the report reflecting activities which entity will carry out. It can also apply for Certificate under 80-G, wherein donations made to such entity will be Tax deductible.

The exemption is now granted under the Income Tax Act for a period of 5 Years and the certificate has to be renewed every 5 years, by making an application before Commissioner of Income Tax – (Exemption).

COMPARATIVE ANALYSIS BETWEEN SECTION 8 COMPANY AND CHARITABLE TRUST

HEAD SECTION 8 COMPANY CHARITABLE TRUST
1. Applicable Law Companies Act 2013 Maharashtra Public Trust, Act 1950
2. Time Required for Incorporation 15-20 days 8-15 days
3. Registering Authority Registrar of Company Sub-registrar of Registration/Charity Commissioner
4. Name Approval Application has to be made to ROC No such requirement of approval
5. Minimum members/directors At least 2 Members At least 2 Trustees
5. Minimum members/directors At least 2 Members At least 2 Trustees
6. Governing Structure General Body of Directors/ Board of Directors General Body/ Board of Trustees
7. Voting Rights Voting Rights vary on the basis of the shareholding. All trustees have equal voting rights.
8. Filing Company has to submit Annual Audited Accounts and Returns filed by it to the ROC. No documents are required to be submitted to any Registering Authority. Except submission of Accounts.
9. Meetings 4 Board meetings and 1 Annual General Meeting have to be carried out in a year. There is no such provision.
10. Transfer of directorship/membership Directorship or membership can be transferred. Trusteeship cannot be transferred.
11. Payment to directors/trustees General Body of company can approve to get payment. Trustees cannot receive payment. But if the provision is there in the trust deed than trustees can receive professional fees.
12. Investment by promoters/trustees No requirement of minimum capital. No requirement of minimum capital.
13. Liabilities of Directors/trustees Directors can be held liable for the acts done by them or for their negligence and the onus is on directors to prove that they are innocent. Trustees can be held liable for the acts done by them or for their negligence and the onus is on charity commissioner to prove that the trustees are guilty.

How can InCorp help you?

Our team at InCorp can not only help you choose the correct legal structure for carrying out charitable activities, but also assist you in complying with all the applicable laws and framework thereafter. We further ensure that while doing charity, organizations are not stuck in the clutches of various legal hurdles and we make it our responsibility to keep charitable organizations compliant of all laws at all points in time.

Get reliable and easy business legal access.

Contact us today!

Current Scenario of the Real Estate Sector: A Perspective

by InCorp Advisory

Reading Time: 7 minutes

The real estate sector in India has been facing a tough time from quite a few years. The situation has become tougher due to the current Covid-19 situation across the globe. The uncertainty holds the world to a standstill and India is not an exception to it

The global economic slowdown is likely to negatively impact real estate demand in the country this year. Almost all sectors have started the first month of their financial year 20-21 with minimal or negligible sales.

It is currently too early to provide a detailed, quantitative assessment of the COVID-19 impact on economic activity, industries, and the real estate market. The effects of the outbreak will inevitably vary from market-to-market, and the true impact and recovery will manifest in forthcoming quarters.

We at Incorp received a lot of queries coming in the past few weeks from our contact sphere to help them understand the impact on Real Estate; thereby our team has tried to address some of the top points impacting the Industry and the ways to mitigate it.

  • We have often heard of the statement – “Communication is the key to success”. In this pandemic situation, the word communication gets replaced with Compromise. “Compromise is the key to success” – Developers will have to follow only one strategy “Compromise”. Compromise in their lifestyle, spending, sales price expectations, holding unsold inventories, and all those things coming their way. The interest meter keeps running even when one is sleeping. Line of credit sanctioned by banks, financial institutions, NBFC’s, etc. before lockdown will no longer stay in the same state of condition. Every loan sanctioned will be reviewed and valuation will be challenged post lockdown. Mr. Deepak Parekh, HDFC warned developers against high leverage and said it is going to work as a double-edged sword. “In good times, it amplifies your profit. In bad times, it destroys you. Be careful of the perils of leverage,” he further added.
  • Holding on readily available inventory by the developers will no longer be in the interest of the developer. Developers may have to take a haircut on their sale price expectation up to 20%. This will help to generate liquidity and to sustain in this market in the long run. Also, the launching of new real estate projects is not feasible. Smaller the house, easier to sell. Demand for affordable housing and homes with the ticket size of up to Rs. 2 Crores will still exist, but the high-end segment already has saturation. Maintaining liquidity in the current situation will be a challenge due to the ongoing outflows and commitments but once life comes to normalcy, one should start maintaining liquidity. 
  • Equity partners shall be welcomed with open arms. This includes working in Joint Venture Model, Development Manager Model, strategic partnerships and financial partnerships. Instead of further borrowing, the developer shall explore PE funds, HNIs, strategic partner who has a strong face value in the market. Being partnered with the strong face or goodwill may, in turn, help the developer to sail through from this situation. Even partnering in with well-esteemed contractors will be equally useful. 
  • Our Debt syndication experience tells us that developer has a tendency to switch the banks quite often. This is mainly because of two reasons;
    a. An existing bank may not extend the support in the aggressive expansion of the developer/borrower &
    b. Competency in the commercials offered compared to existing banks.

Though the former reason is explicitly the call of the bank depending on their appetite and risks involved but later are in hands of the developer. In either case, the developer shall stick to its existing bankers and encash their long-lasting relationships with the banks. Banks are to be treated as co-owners in the project. A borrower should not switch the banks for 50 to 100 bps point difference.

  • Major projects in the real estate market fail due to the wrong estimation of the project life cycle. Life of the project must be estimated from the first rupee infused and till the last rupee recovered. Also, the borrowing estimation (tenure) must be calculated accordingly. Tenure of the loan should be equal to the life cycle of the project; any shorter tenure loan will not work. If the tenure projected is less than project’s life, the project will face a cash crunch and if the tenure projected is more than project’s life, it may lead to a diversion of excess funds generated during its life. 
  • In any real estate project in India currently, the cost of premiums payable to government is equivalent to the cost of construction. It means there is no longer a story of doubling your money in 3 years in real estate. In fact, developers are finding it difficult to achieve even single-digit margins if the project is not executed as scheduled. Developers may have to joint their hands and contest with authorities to stagger the premium payments. In Maharashtra, for the acquisition of the project, huge premiums are to be paid to CIDCO, MHADA even before the inception of the construction of the project. If these premiums are not staggered under the measures channelized by the government to revive the industry post lockdown, developers may not be able to sustain. No bank will fund at this stage and even if funding is available, no developer will be in a position to borrow such a huge sum of money.

Few questions in the mind of developers?

How long would be the impact of Covid-19 situation on our industry?

Real Estate in India will pass through tough times for a minimum of 6 months from now. This is mainly due to their monthly fixed overheads backed by zero sales and tiny recovery from the sold inventory. People, in general, will start holding money and keep it for securing themselves from any uncertainty coming their way in the near future.

How to generate liquidity & commence ongoing projects immediately post lockdown?

Each industry will face the problem of generating liquidity. Real Estate being the second most job-generating industry, will be at the peak of its liquidity issues. One should try to generate liquidity by selling “Lock and Key” unsold stock which will help to commence ongoing projects and keep them running post lockdown.

Should we approach banks to restructure our existing loans?

Yes. RBI is already discouraging banks to keep money in RBI accounts and thereby encouraging banks to infuse more money into the system. Hence you should apply for restructuring your existing loans before they turn NPA. Even a one-time restructuring of NPA accounts may be allowed in the near future.

I have got an opportunity to merge with another developer and this will help me to complete my project in time. What should be my response?

Completing the project on time and delivering the units to the customers will enhance your goodwill in the market. “Alone we can do little; together we can do so much”. Focus on partnerships, you may partially lose control, but it is a need of the hour.

In our industry, there are always long due payments to be made to suppliers and contractors. Will the supplier continue its support after the lockdown?

The relation between developers, suppliers and contractors goes hand in hand. All are dependent on each other in some or the other form. Be in touch with your suppliers, contractors, maintain long-lasting relations, and leverage them at the right time. Relook at your existing dues and schedule a payment plan for suppliers/contracts so that required support from them stands uninterrupted

What is the strategy to be adopted to reduce the impact of the Covid-19 situation?

Relook at the project estimation right from its configuration, life cycle, funding requirements, feasibility, etc. Remember, smaller the house, easier to sell. Other than various points suggested above, “Compromise” is the only key to success to overcome the situation.

What can be demanded from the government by the developers?

Being the second-largest job-generating industry after agriculture, the government should help the real estate industry by incentivizing migrant laborers to return to their jobs as it is difficult for them to even understand the situation of lockdown. This incentive can be in the form of travel cost for coming back to the workplace and insurance, employer’s contribution towards provident fund can be exempted and the same to be provided by the government.

Ready Reckoner value to be relooked by the state government as Land revenues come under the state government. At many places in Tier 1 cities, the ready reckoner value is higher than the actual deal value which makes the project unviable for even lenders to support the developers. Though the government has reduced the stamp duty in some states like Maharashtra with effect from 01st April 2020, there should be thought for a complete waiver of stamp duty for a smaller period post lockdown to boost the Real estate industry. The state government may not be able to do this for a longer period as huge revenue comes from this segment.

Staggered payment schedule for all premiums can play a vital role in managing cash flows for any developer and thereby the industry as a whole.

What’s the say of Developers on the above?

When we gave a thought of writing something on Real Estate, we thought taking their views is also most important in the current situation. Here goes their say:-

“Compromise is not about losing. It is about deciding that the other person had just as much right to be happy with the end result as you do,” said author Donna Martini. A known developer said Compromise has to be from all sides i.e. from government, banks, RBI, and a developer. What has and will hit us badly is the demand. Unless the Rate of Interest (ROI), Fixed Obligation to Income Ratio (FOIR), and Loan to Value (LTV) are not revisited by banks, the demand will continue to be price-sensitive and we will be continued to be advised by Bankers to reduce prices by 20%.

“Reducing sale prices of flats while prices for Raw material, cost of production and other incidental costs keep increasing will not be a solution. This will lead to an even more negative outlook towards Real Estate and will spark the sentiment of distress sale on lowering prices. Such events will dishearten buyers and existing investors too”, said another developer from Tier 1 city.

One of the top builders in Mumbai also quoted “The business of real estate is very different from money lending and another commodity trading. To remain in business and to keep moving if we are paying high interest on our borrowings doesn’t mean we are making profits of more than the interest paid by us. The lenders feel that because a developer pays much higher interest, a developer may also have an appetite to reduce the sale price by 20%. The lenders should reduce the rate of interest which will certainly improve profitability and the need for the developer is for better cash flow to complete ongoing projects”.

How can InCorp India help you?

At InCorp India, we are committed to delivering quality in Transaction and Risk advisory services. Our dedicated team of transaction advisors can assist you in any real estate related issues and provide the ease for operations.

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New GST Return System

by InCorp Advisory

Reading Time: 4 minutes

New GST Return System

In the 31st GST council meeting in December 2018, it was decided that a new return system under GST will be introduced. This system is applicable from 1st April 2020. However, in the 39th GST council meeting held on 14th March 2020, the new return system was deferred from 1st April 2020 to 1st October 2020. The flow of events under new returns system will be as under:

Focus area for Monthly Return Filers-

Focus area for Monthly Return Filers-

Focus area for Quarterly Return Filers-

Focus area for Quarterly Return Filers-
$(can file daily, weekly, fortnightly, monthly)
*amendment to Form GST ANX-1 can be filed before the due date for furnishing of return for the month of September following the end of financial year or the actual date of furnishing relevant annual return.

Important points to be noted in above flow of events:

  • The credit in respect of documents edited or uploaded shall be made available through the next open Form GST ANX-2 for the recipient.
  • The liability for such edited documents will be accounted for the tax period in which the documents have been uploaded by the supplier.

 

Applying for GST return got simpler-

Annexures forming part of New GST Return System (Form RET-1/2/3):

Form ANX-1 Form ANX-2
1. Contains details of supply + other income liable to be taxed under GST
2. To be filed by supplier
3. To be filed any time before 10th of month (can       file daily, weekly, fortnightly, monthly)
4. Details to be filed
a. GSTIN of buyer
b. Document type, number, date, value
c. Total taxable value, head wise tax amount
d. Six-digit level of HSN code mandatory
e. Place of supply		 1. Contains details of purchases
2. Auto-populated on filing Form ANX-1 by supplier on real-time basis
3. 3 options for buyer:
accept, reject, pending (If not selected, it will be deemed to be      accepted)
4. If Form ANX-1 is not filed by the supplier, ITC can be claimed only in Form GST RET-1 on provisional basis
ITC on provisional basis can be allowed only till:
a. Monthly return filer: T+2 months
b. Quarterly return filer: T+5 months
(‘T’ – period for which tax return is being filed)

Applicability of new return system is as follows:

applicability of new GST return system

**ITC will be allowed till T+2 months for monthly returns and T+5 months for quarterly returns on provisional basis.
#quarterly return for turnover below 5 crores.

Switching type of returns:

One can switch from the form under which they are filing returns:

  • are allowed to switch against one another any number of times in a year: GST RET-2 to GST RET- 3, GST RET-3 to GST RET- 1, GST RET-2 to GST RET- 1.
  • are allowed to switch against each other only once a year: GST RET- 3 to GST RET- 2, GST RET- 1 to GST RET- 2, GST RET 1 to GST RET- 3

 

FAQs  for different business type-

Particulars Retailer
(all transactions are B2C) up to turnover 3 crores		 Wholesaler
(all transactions are B2B) up to turnover 3 crores.		 Any supplier with turnover greater than 5 crores Exporter
with turnover less than 5 crores
1.  Which return is applicable? Form GST RET-2 Form GST RET-3 Taxpayer needs to compulsorily file return under Form GST RET-1 on monthly basis Taxpayer can file return under Form GST RET-1 on quarterly basis
2.  Can the return form type selected earlier be changed during FY 2020-21? Any number of times in a year to GST RET-3 or GST RET-1 Can switch to GST RET-2 only once a year or taxpayer can switch to form GST RET-1 without any restrictions on number of times No No
3.  When should taxpayer file Form ANX-1? 10th day of the next month 10th day of the next month 10th day of the next month 10th day of the next month
4.  Till when can taxpayer accept/ reject/ unlock Form ANX-2? Before 25 days from the end of the quarter. Before 25 days from the end of the quarter. Before 20th of the next month. Before 25 days from the end of the quarter.
5.  How can taxpayer make the payment? Form GST PMT-08 Form GST PMT-08 Not applicable Form GST PMT-08
6.  By when can taxpayer make payment? By 20th of next month By 20th of the next month Not applicable By 20th of the next month
7.  By when will taxpayer file in GST return? 25 days from the end of the quarter 25 days from the end of the quarter 20th of the next month 25 days from the end of the quarter
8.  Can taxpayer claim ITC if supplier has not filed ANX-1? No No Yes, taxpayer can claim credit on provisional basis for T+2 months Yes, taxpayer can claim credit on provisional basis for T+5 months

Comparison of return system under GST-

Old Return System under GST New Return System under GST
1. Taxpayers considered small if turnover is up to Rs. 1.5 crores in the preceding financial year 1. Taxpayers considered small if turnover is up to Rs. 5 crores in the preceding financial year
2. ITC to be availed but which are not uploaded by the suppliers in GSTR-1 shall not exceed 10% of “eligible credit” available. 2. ITC available is restricted to the amount reflected in portal
3. Relief was provided for mentioning HSN code on the invoice based on certain turnover limits. 3. Six-digit level HSN code is mandatory for:
a. If turnover is greater than 5 crores
b. Export /Deemed export /Import / SEZ supplies
4. ITC bifurcation not required in returns 4. Bifurcation of ITC is compulsory in returns:
a. ITC on services
b. ITC on capital assets
c. ITC on inputs
5. Interest was to be computed on suo moto and were liable to be paid in the returns filed. 5. Interest will be calculated by system (auto-calculation on portal).

Please note that new GST return forms for Composition taxpayers, Unique Identification Number (UIN) holder, Input Service Distributor (ISD) are yet to be notified.

At InCorp, our GST Team provides seamless support with GST registration, filing GST online and GST refund. Explore all our GST services and feel free to get in touch with our experts today.

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Indian Budget 2020 – Shifting Tax Paradigm for NRIs

by InCorp Advisory

Reading Time: 5 minutes

The Union Budget 2020 has proposed to introduce a stringent ‘Anti-abuse’ provision that every Indian citizen who is not liable to tax in any other country, by virtue of his domicile or residence, shall be deemed as a resident of India for tax purpose.

Consequently, his global income would be taxable in India. Further, tightening the residency provisions, the Budget 2020 also proposed to reduce the cap on period of stay in India to 120 days from the present 182 days for Indian Citizens/Persons of Indian Origin (PIOs) to be categorized as NRI.

Let’s evaluate these proposals in detail.

The rationale behind the proposal’s tax on NRIs:

Rationale behind the proposals tax on NRIs

As per the memorandum to the Budget 2020, “Tax laws should not encourage a situation where a person is not liable to tax in any country particularly in the light of current development in the global tax environment where avenues for double non-taxation are being systematically closed.” However, the Government later clarified that the proposed tax on NRIs will not apply to bonfire Indians working in tax-free foreign countries and is intended to tax only those seeking to escape tax by exploiting their non-resident status. In one of the interviews with PTI, Revenue Secretary Ajay Bhushan Pandey said the new rule was “an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working overseas. Somebody who is a citizen of India and sitting in a tax haven and not paying taxes, then he has to pay tax”.

As regards residency rule for Non-Resident status in India, the Memorandum states “…Individuals, who are carrying out substantial economic activities from India, manage their period of stay in India, to remain a non-resident in perpetuity and not be required to declare their global income in India,”  In the current scenario, if an Indian or a person of Indian origin managed his stay in India such that he remained a non-resident in perpetuity, he was not liable to pay tax on his global income in India. Reproducing quote of Revenue Secretary Ajay Bhushan Pandey in one of the interviews “…In many cases we have found that some people are residents of no country in the world, they may be staying a certain number of days in different parts of the world. So, any Indian citizen – if he is not a resident of any country in the world – would be deemed to be resident in India, and then his worldwide income will be taxed in India.”

Check Residential Status

HERE

Impact of the Proposal:

Budget 2020 proposed to tax NRIs who do not pay taxes in any foreign country

Budget 2020 has proposed to tax NRIs who do not pay taxes in any foreign country and tightened the screws on those seeking to escape tax by exploiting their non-resident status. Indian citizen shall be deemed to be resident in India if he is not liable to be taxed in any country or jurisdiction. This is an anti-abuse provision since it is noticed that some Indian citizens shift their stay in low or no tax jurisdictions to avoid payment of tax in India. However, it is worth noting here that non-resident Indians living in the US, Canada, Singapore, and Hong Kong already have worldwide tax in place or have taxation treaties in place with India.

However, to avoid confusion and fear amongst genuine NRIs earning abroad in no tax jurisdiction, the Government has later issued clarification relaxing genuine NRIs stating “No tax implication proposed for those Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries on the income that they have earned there.” This means the tax incidence in a foreign country coupled with the circumstances of the person living there needs more focus than the tax rate in such a country.

Regarding Residency provisions, while as of today, it is possible to be classified as a non-resident by staying out of the country for at least 183 days, this has now been, in effect, proposed to be enhanced to 245 days. Therefore, with the proposed amendment in reducing the cap on stay in India, the Non-Resident must remain substantially out of India during a financial year for considering him for Non-resident status under Income Tax Act, 1961.

However, to avoid hardship to genuine Non-Resident visitors, the Government has later clarified that “In case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession. Necessary clarification, if required, shall be incorporated in the relevant provision of the law.” This would benefit NRI visiting India for some emergency such as medical treatment or legal clearance about succession on account of the death of any parent or guardian if his stay in India exceeds 120 days in a particular year. The idea of curbing the cap on the stay in India is to discourage NRI to play with the loophole of 181 days stay in India (substantial stay of appx. 6 months), managing all his global affairs from India for substantial time and still not being liable to the Tax jurisdiction of India.

Tax implication from Budget 2020 proposals:

  • NRIs however, saw a welcome announcement in terms of interest payment made to them on investments in bonds including Municipal Bonds, which would be offered at a concessional withholding rate of 5 percent until June 30, 2023.
  • Non-resident Indians were even exempted from filing income tax returns in India if their total income consisted of dividend or interest income, royalty or fees for technical service and certain TDS income.
  • Deeming some NRIs who aren’t liable to tax in any other country and considering them as a deemed resident in India based on Indian Citizenship would mean that they would have to pay a tax ranging from 5.20% to 42.74% percent on their global income in excess of INR 2,50,000/- on a slab rate basis, even though they do not enjoy any benefits in the country nor earn any income from India.
  • The anti-abuse measure of taxing citizens who are not residents of any country may affect genuine cases like seafarers who are on International waters for the most part of the year but now will be subject to tax in India.

InCorp Advisory view on Shifting Tax Paradigm for NRIs

InCorp Advisory view on Shifting Tax Paradigm for NRIs

As of now, the taxation of resident Indians and NRIs goes something like this. If one’s status is ‘resident Indian,’ then his global income is taxable in India, wherever earned or received. However, one needs to pay tax only on his Indian income if he is an NRI. The Indian income can be salary received in India, payment for services provided in India, rent from a house property situated in India, capital gains on transfer of asset situated in India, dividend from shares, interest earned from fixed deposits, bonds with Financial Institutions or savings bank account in India, etc.

With more and more Indians trying to hide their taxable income by diverting their money abroad in no tax jurisdiction, the Finance Minister has taken several steps in this Budget 2020 to put an end to this mode of tax evasion.
With this proposal, tax incidence on some non-resident Indians (NRI) would shift to taxation based on “Citizenship of India”. The measures are bound to impact NRIs negatively.  It is expected that such changes in the definition may deter NRIs from coming to India and some can even think of giving up Indian citizenship. However, relaxing provisions make the Government’s intention clear not to harass genuine NRIs, and considering the speed at which clarifications were given on the next day of the budget being Sunday, it also shows their determination to respond to public sentiments in a positive manner.

Determining the applicability of the proposed NRI tax law to your specific situation? 
Determining whether you are required to file your income tax return in India as an NRI and how?

At In.Corp, we are committed to delivering quality in assurance, advisory and tax services. Our dedicated team of tax experts can help you solve problems on the following matters:

  • Determination of residential status for the upcoming year.
  • Tax implication on foreign income.
  • Disclosure and other necessary compliance of foreign income.
  • Tax implication on foreign assets.
  • Disclosure & other necessary compliance of foreign assets.

For any additional information, please reach out to us at info@incorpadvisory.in.

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