Residential status of an Individual

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident. Step 1 given below will ascertain whether the individual is resident or non-resident and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident. Step 1: Determining whether resident or non-resident Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions): (1) He is in India for a period of 182 days or more in that year; or (2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year. If an individual does not satisfy any of the above conditions he will be treated as non-resident in India. Note : Condition given in (2) above will not apply to an Indian citizen leaving India for the purpose of employment or to an Indian citizen leaving India as a member of crew of Indian ship or to an Indian citizen/person of Indian origin coming on a visit to India. A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India. Note: With effect from Assessment Year 2015-16, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or peri​ods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed. Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies following conditions: (1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year. (2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year. A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident. In short, following test will determine the residential status of an individual: If the individual satisfy any one or both the conditions specified at step 1 and satisfies both the conditions specified at step 2, then he will become resident and ordinarily resident in India. If the individual satisfy any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he will become resident but not ordinarily resident in India. If the individual satisfy no conditions satisfied at step one, then he will become non-resident.

Section 80TTA: Deduction of interest income

Who can claim deduction under Section 80TTA? 
 Only Individual and HUF can claim this tax deduction. It is not available to firms, companies, etc. Even if a joint account is opened between individuals, this deduction is available.
 Deduction under Section 80TTA is available for which account? 
 Deduction is available only on savings bank account interest. So, if you have a fixed deposit or a recurring deposit from which you get interest, you CANNOT claim deduction on that. Even interest from sweep-in FD is not allowed to be deducted.
 From whom you should receive interest?

 You can avail deduction only if it is received from:

•  Bank 
• Co-operative 
• society
•  Post office 

How can I claim this deduction under Section 80TTA in my tax return? Download statement for all your bank statements for entire financial year (April 1 – March 31) In the credit section, total the amount of interest received during the year for all accounts. Show the total interest income under the head “Income from Other sources” In the deductions section, in Section 80TTA, claim a deduction of an amount equal to interest received or Rs. 10,000 whichever is less.
If I have multiple savings accounts, how can I claim interest as a deduction under Section 80TTA?
Just combine interest income from all the accounts and show under “Income from other sources”
 I maintain a joint account with my wife. In this regard, how can I claim the interest as deduction under Section 80TTA?
 In that regard, first question is in whose account the amount will be taxed. Some people are of the opinion that income will be taxed in account of first holder, but I think it is not a correct approach. In my view, taxability will depend on the proportion of funds invested by each of the joint holders. Accordingly, they individually can claim Section TTA deduction in their income tax return. So, suppose Mr. A and Mrs. A open a joint account and contribute Rs. 5 lac (full amount contributed by Mr. A), and interest is received as Rs. 20,000. In this case, Mr. A will have to show entire amount of Rs.20,000 in his tax returns (Even if first holder of account is Mrs. A) and he can claim a deduction upto Rs. 10000 u/s TTA in his return, so the next taxable income will be Rs. 10000. In this case, there will no implication in Mrs. A’s return. However, suppose Rs. 1 lac was contributed by Mr. A and Mrs. A in ratio of 50:50. Here, both can show Rs. 10000 as income in their respective returns and accordingly claim Rs. 10000 deduction u/s Section TTA.
I am a salaried employee. Do I need to mention the estimated interest in my investment declaration as a deduction under Section 80TTA?
 No. Since you are not clear on how much amount of interest you will get, you can skip in the investment declaration. When you file returns, you can check up from bank statement and then incorporate in “Income from Other Sources” Alternatively, you can also mention an estimated figure depending upon the balance you keep in your account. But at the same time, also put the same amount (upto Rs. 10K) into Section TTA, so that your employer does not deduct extra TDS.
  If I get tax deduction under Section 80TTA on interest upto Rs. 10K, does it make sense to keep large fund in savings account?
Though the tax deduction makes the income tax free, still the effective yield is 5%, which is very less. Unless you allocate money in your savings account as part of your contingency fund, which is a must have reserve in case of emergencies, you should try to allocate it to a proper financial goal and depending upon the time horizon, explore other better and profitable options. If you ask my view, I don’t prefer keeping large amounts in bank account for contingency purpose, because of the risks associated with misuse of lost ATM card, net banking fraud etc. Better to put the surplus money in good FD or liquid fund, than savings account. 

Rules regarding quoting of PAN for specified transactions amended

The changes to the Rules will take effect from 1^st January, 2016.

The above changes in the rules are expected to be useful in widening the tax net by non-intrusive methods. They are also expected to help in curbing black money and move towards a cashless economy.

A chart highlighting the key changes to Rule 114B of the Income-tax Act is attached.

Sl.	NATURE OF TRANSACTION	MANDATORY QUOTING OF PAN (RULE 114B)
		Existing requirement	New requirement
1.	Immovable property	Sale/ purchase valued at Rs.5  lakh or more	i.       Sale/ purchase exceeding Rs.10 lakh; ii.     Properties valued by Stamp Valuation authority at amount exceeding Rs.10 lakh will also need PAN.
2	Motor vehicle (other than two wheeler)	All sales/purchases	No change
3.	Time deposit	Time deposit exceeding Rs.50,000/- with a banking company	i.      Deposits with Co-op banks, Post Office, Nidhi, NBFC companies will also need PAN; ii.    Deposits aggregating to more than Rs.5 lakh   during the year will also need PAN
4.	Deposit with Post Office Savings Bank	Exceeding Rs.50,000/-	Discontinued
5.	Sale or purchase of securities	Contract for sale/purchase of a value exceeding Rs.1 lakh	No change
6.	Opening an account (other than time deposit) with a banking company.	All new accounts.	i. Basic Savings Bank Deposit Account excluded (no PAN requirement for opening these accounts); ii. Co-operative banks also to comply
7.	Installation of telephone/ cellphone connections	All instances	Discontinued
8.	Hotel/restaurant bill(s)	Exceeding Rs.25,000/- at any one time (by any mode of payment)	Cash payment exceeding Rs.50,000/-.
9.	Cash purchase of bank drafts/ pay orders/ banker's cheques	Amount aggregating to Rs.50,000/- or more during any one day	Exceeding Rs.50,000/- on any one day.
10.	Cash deposit with banking company	Cash aggregating to Rs.50,000/- or more during any one day	Cash deposit exceeding Rs.50,000/- in a day.
11.	Foreign travel	Cash payment in connection with foreign travel  of an amount exceeding Rs.25,000/- at any one time (including fare, payment to travel agent, purchase of forex)	Cash payment in connection with foreign travel or purchase of foreign currency of an amount exceeding Rs.50,000/- at any one time (including fare, payment to travel agent)
12.	Credit card	Application to banking company/ any other company/institution for credit card	No change. Co-operative banks also to comply.
13.	Mutual fund units	Payment of Rs.50,000/- or more for purchase	Payment exceeding Rs.50,000/- for purchase.
14.	Shares of company	Payment of Rs.50,000/-  or more to a company for acquiring its shares	i.      Opening a demat account; ii.    Purchase or sale of shares of an unlisted company for an amount exceeding Rs.1 lakh per transaction.
15.	Debentures/ bonds	Payment of Rs.50,000/- or more to a company/ institution for acquiring its debentures/ bonds	Payment exceeding Rs.50,000/-.
16.	RBI bonds	Payment of Rs.50,000/-or more to RBI for acquiring its bonds	Payment exceeding Rs.50,000/-.
17.	Life insurance premium	Payment of Rs.50,000/- or more in a year as premium  to an insurer	Payment exceeding Rs.50,000/- in a year.
18.	Purchase of jewellery/bullion	Payment of Rs.5 lakh or more at any one time or against a bill	Deleted and merged with next item in this table
19.	Purchases or sales of goods or services	No requirement	Purchase/ sale of any goods or services exceeding Rs.2 lakh per transaction.
20.	Cash cards/ prepaid instruments issued under Payment & Settlement Act	No requirement	Cash payment aggregating to more than Rs.50,000 in a year.

Tax benefis available to senior citizens

A person becomes senior citizen under Income Tax Act in any year after attaining the age of 60 even for one day. Once he attains 60 years, his status as senior citizen in that financial year, gives him some relief. There are not many income tax exemptions available for senior citizens. These are listed below:

1. Higher Exemption Limit

From F.Y. 2011-12  Qualifying age for Senior Citizens has been reduced from 65 years to 60 years and from A.Y. 2015-16 exemption limit for Senior Citizens has been enhanced from Rs. 2,50,000 to Rs. 3,00,000.  A new category of Very Senior Citizens, 80 years and above, has been created who will be eligible for a higher exemption limit of Rs. 5,00,000. Senior citizen above the age of 80 years are entitled to higher exemption Limit of Rs. 5,00,000 from A.Y. 2012-13.

The exemption limit granted to senior citizen and very senior citizen for the financial year 2015-16 is as follows :

Senior citizen

Very senior citizen

A senior citizen is granted a higher exemption limitcompared to non-senior citizens. The exemption limit for the financial year 2015-16 available to a resident senior citizen is Rs. 3,00,000. In other words, a resident senior citizen is not liable to pay any tax up to income of Rs. 3,00,000. The exemption limit for non-senior citizen is Rs. 2,50,000. Thus, it can be observed that an additional benefit of Rs. 50,000 in the form of higher exemption limit is available to a resident senior citizen as compared to normal tax payers.

A very senior citizen is granted a higher exemption limit compared to others. The exemption limit for the financial year 2015-16 available to a resident very senior citizen is Rs. 5,00,000. In other words, a resident very senior citizen is not liable to pay any tax up to income of Rs. 5,00,000. The exemption limit for non-senior citizen is Rs. 2,50,000. Thus, it can be observed that an additional benefit of Rs. 2,50,000 in the form of higher exemption limit is available to a resident very senior citizen as compared to normal tax payers.

2.Reverse mortgage for senior citizens

Reverse mortgage’ – a concept introduced by Finance 2007 -provides that a senior citizen will be able to avail of monthly income streams by mortgaging a house owned by him. Reverse mortgage created under a scheme made and notified by the Central Government shall not be regarded as a transfer U/s. 2(47)

3. Tax benefits on medical insurance hiked

A senior citizen can avail of higher of higher deduction of Rs 20,000 u/s Section 80D and the same limit is been further increased to Rs. 30,000/- from A.Y. 2016-17.

4.  Tax benefit in respect of Expense on medical expenditure in respect of a very senior citizen

With effect from A.Y. 2016-17 Any payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force an insurance on the health of such person, as does not exceed thirty thousand rupees shall be allowed as deduction under section 80D. Section 80D- Hike in Deduction Limit for Mediclaim

5. Higher Deduction u/s 80DDB for Senior Citizens and Super Senior Citizens

Section 80DDB provides deduction to an assessee in case of expense on medical treatment of specified ailments. Generally this deduction is available upto Rs 40,000 . However , if the patient is a senior citizen, then deduction of Rs 60,000 is allowable.

From A.Y. 2016-17 higher limit of deduction of upto eighty thousand rupees is allowable, for the expenditure incurred in respect of the medical treatment of a “very senior citizen”. A “very senior citizen” is proposed to be defined as an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.   Section 80DDB– Limit raised & waived condition of certificate

6. No Routine Income Tax Scrutiny of Senior Citizens  -Appreciating the concern of these taxpayers and with a view to mitigate their hardships, Central Board of Direct Taxes has reviewed its scrutiny selection procedure. In order to redress the grievance, it has been decided that during the financial year 2011-12, cases of senior citizens and small taxpayers, filing income-tax returns in ITR-1 and ITR-2 will be subjected to scrutiny only where the Income Tax department is in possession of credible information. Senior citizens for this purpose would be individual taxpayers who are 60 years of age or more.

7. Senior Citizens not having Business Income Exempt From Advance tax payment :- ​​As per section 208 From Financial year 2012-13  resident senior citizen, not having any income chargeable under the head “Profits and gains of business or profession”, shall not be liable to pay advance tax and such senior citizen shall be allowed to discharge his tax liability (other than TDS) by payment of self assessment tax.

8.  Senior citizens receive a higher interest (up to 50 bps) on a 5-year fixed deposit, which is eligible for deduction from the total income under Section 80C.

9.  Senior citizens can claim exemption on the tax deducted at source (TDS) on interest income earned on deposits. It can be done by submitting Form 15H under Section 197 of the IT Act.

10. ​ Exemption from e-filing of income tax return to very senior citizen

​ ​From the assessment year 2015-16 onwards any taxpayer filing return of income in Form ITR 1/2/2A and having a refund claim in the return or having total income of more than Rs. 5,00,000 is required to furnish the return of income electronically with or without digital signature or by using electronic verification code. However, Income-tax Law grants relaxation from e-filing in above case to very senior citizen.

In other words, a very senior citizen filing his return of income in Form ITR 1/2/2A and having total income of more than Rs. 5,00,000 or having a refund claim can file his return of income in paper mode, i.e., for him e filing of ITR 1/2/2A (as the case may be) is not mandatory. 

TDS Scheme is erroneous as it doesn't allow more than 4 changes in character of PAN in revised return

System of processing TDS statements gives an option to deductor to correct invalid/no PAN entries in TDS statement through a correction statement without any restriction of correcting particular PAN with regard to number of characters

Facts

a)     The assessee was regularly filing TDS returns mentioning therein details of hundreds of deductee’s.

b)    Due to some clerical unintentional mistake it mentioned invalid PAN of a deductee in the quarterly TDS return.

c)     The CPC-TDS treated wrong PAN as no PAN and, accordingly, created demand by imposing a burden of 18 % as difference of low TDS deducted as per the provisions of section 206AA.

d)    The assessee tried to rectify the mistake by filing correction statement/revise return but it was rejected for reason that system allowed change of only 4 characters whereas there were more than 4 changes in wrong PAN quoted by assessee.

e)     The CIT(A) rejected assessee's appeal. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)     Centralized Processing of statement of TDS Scheme was introduced in year 2013 to tackle the genuine problems arising in detailed process of TDS deduction/collection, deposit of taxes, filing of returns, and to rectify clerical mistake made unintentionally by the deductee as well as to get relief from harsh impact of provisions of section 206AA arising due to quoting of wrong/no PAN.

2)     Further, the aforesaid scheme gives an option to the deductor to rectify any kind of mistake which has been inadvertently made by it at time of filing quarterly TDS return and this correction statement can be filed for multiple times

3)     Even from the perusal of the intimation under section 200A issued by TDS Centralized Processing Cell and Traces (TDS reconciliation analysis and correction enabling system), it was crystal clear that the system itself mentioned to correct the invalid/No PAN entries through a correction statement and there was no reference of a particular type of restriction on correction of particular PAN with regard to number of characters.

4)     Hence, system was erroneous to the extent it restricted deductor to revise its TDS return/statement within some corners which in this case was correction of PAN details subject to change of two alpha and two numerical characters.

5)     Therefore, correction statement filed by assessee needed to be accepted after ascertaining correctness of PAN furnished by deductor - Oil & Natural Gas Corporation Ltd. v. Dy. CIT [2016] 65 taxmann.com 2 (Ahmedabad - Trib.)

Now AOs to issue scrutiny notice along with questionnaire to convey compliance requirement

It was noticed that while issuing the initial/first notice for cases selected under scrutiny, Assessing Officers (‘AO’) do not convey the specific compliance requirements like production of accounts, furnishing of documents, information, evidences, etc.

Taxpayers or their authorised representatives needs to appear before the AO as they are required to comply with the statutory notice issued by the AO. Thus, their appearance before the AO does not serve any fruitful purpose except recording of their presence. This causes undue hardship to the taxpayers and unnecessary wastage of their time.

Thus, CBDT directs AO to send the scrutiny notice under section 143(2) along with notice under section 142(1) and questionnaire containing details of specific documents or information or evidences, etc., that are required to be furnished by taxpayer in connection with scrutiny. - CBDT Instruction No. 19/2015, Dated:29-12-2015

Rules Regarding 15CA -15CB changed wef 01.04.2016

The CBDT has amended Rule 37 BB of the Income-tax Rules and made notable changes which are as under:

1.       No Form 15CA and 15CB will be required to be furnished by an individual for remittance which do not requiring RBI    approval under its LRS.
2.        Further the list of payments of specified nature mentioned in Rule 37 BB which do not require submission of Forms     15CA and 15CB has been expanded from 28 to 33 including payments for imports.
3.     A CA certificate in Form No. 15CB will be required to be furnished only in respect of such payments made to non-residents which are chargeable to tax and the amount of payment during the year exceeds Rs. 5 lakh.

The furnishing of information for payment to a non-resident, not being a company, or to a foreign company in Form 15CA has been classified into 4 parts- Part A, Part B, Part C and Part D, wherein:

Part A

Where the remittance is chargeable to tax under the provisions of the Income-tax Act,1961 and the remittance or the aggregate of such remittances does not exceed five lakh rupees during the financial year. 

Part B

Where the remittance is chargeable to tax under the provisions of the Income-tax Act,1961 and the remittance or the aggregate of such remittances does not exceed five lakh rupees during the financial year and an order/ certificate u/s 195(2)/ 195(3)/ 197 of Income-tax Act has been obtained from the Assessing Officer.

Part C

Where remittance is chargeable to tax under the provisions of Income-tax Act, 1961 and the remittance or the aggregate of such remittances exceeds five lakh rupees during the financial year and a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288 has been obtained.

Part D

Where the remittance is not chargeable to tax under the provisions of the Income-tax Act,1961 {other than payments referred to in rule 37BB(3)} by the person referred to in rule 37BB(2).

Please find attached the copy of the Press Release dated December 17, 2015 for your kind perusal.

Section 195 of the Income-tax Act empowers the Central Board of Direct Taxes to capture information in respect of payments made to non-residents, whether chargeable to tax or not. Rule 37 BB of the Income-tax Rules has been amended to strike a balance between reducing the burden of compliance and collection of information under section 195 of the Act.

The significant changes under the amended Rules are:  

·      No Form 15CA and 15CB will be required to be furnished by an individual for remittance which do not requiring RBI approval under its Liberalised Remittance Scheme (LRS)

·      Further the list of payments of specified nature mentioned in Rule 37 BB which do not require submission of Forms 15CA and 15CB has been expanded from 28 to 33 including payments for imports.

·         A CA certificate in Form No. 15CB will be required to be furnished only in respect of such payments made to non-residents which are chargeable to tax and the amount of payment during the year exceeds Rs. 5 lakh. 

The amended Rules will become applicable from 01.04.2016.

Notification No. G.S.R. 978(E) dated 16^th December, 2015