CBDT Order U/s 119 Extending Due Date For Paying Advance-tax

This is December with cold days and chilled nights this month also has few important dates like “X-mas” i.e. 25^th December it also ends with 31^st and next morning we all are welcoming the 1^st January aka  “New Year” these all put us in happy and joyous mood but this particular month is also have an important date “this is the due date of advance payment of Income tax which is 15^th of December”

But 15^th December 2013 is on Sunday and considering this fact and practical problems of assessee the CBDT has issued an order under sec.119 (ia) of the Income Tax Act, 1961 dated 13.12.2013 .

The CBDT has issued an Order dated 13.12.2013 under section 119(2)(ia) of the Income-tax Act, 1961 extending the last date of payment of the December Quarter Installment of Advance Tax for the financial year 2013-14 from 15th December 2013 to 17th December 2013 for all the assessees, Corporate and other than Corporates.

Extened due date-Advance Tax

Tax Audit-Consequences of Late filling of ROI

CBDT has vide its order dated 26.09.2013 has extended the due date for e-filing of Tax Audit Report to 31.10.2013. The order has nowhere mentioned about the due date for e-filing of Income tax Return. It seems due date for filing of ITR are been kept same i.e.30^th September 2013.

If Assessee does not file the ITR on or before 30^th September 2013 he may have the following implications:-

1.      Levy of Penal Interest U/s. 234A on outstanding taxes.

2.      Losses if any may not be allowed to be carried forward.

3.      Assessee also has to Pay Statutory dues U/s. 43B on or before the filing of ITR or Due Date i.e. 30.09.2013 whichever is earlier.

4.      Assessee may be penalizing @0.5% of GT or Maximum of Rs.1, 50,000/- assuming he fails to get accounts audited.

The above discussion indicated that any how we have to file ITR on or before 30^th September 2013 without any delay otherwise ready to face consequence.

E-fiiling of Audit Report Date-Extended!!!!!!

CBDT has vide its order dated 26.09.2013 has extended the due date for e-filing of Tax Audit Report to 31.10.2013. The order has nowhere mentioned about the due date for e-filing of Income tax Return. It seems due date for filing of ITR are been kept same. In Real sense there is no extension. 

Notification/ Order Dated 26.09.2013 is as follows:-

F.No. 225/117/2013/ITA.II

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

Dated- 26th September, 2013

Order under Section 119 of the Income-tax Act. 1961.

CBDT in exercise of power under sec 119(2)(a) of the IT Act, 1961 read with Sec 139 and Rule 12, has decided to relax the requirement of furnishing the Report of Audit electronically as prescribed under the proviso to sub-rule (2) of Rule 12 of the IT Rules for the Assessment Year 2013-14 as under

(a) The assesses, who are presently finding it difficult to upload the prescribed Reports of Audit (as referred to above) in the system electronically may also furnish the same manually before the jurisdictional Assessing Officer within the prescribed due date.

(b) The said Report of Audit should however be furnished electronically on or before 31.10.2013.

Rohit Garg

Deputy-Secretary to Government of India

Link: http://www.incometaxindia.gov.in/archive/BreakingNews_Order119_ITAct_26092013.pdf

Notification for Extension of date for recqipt of ITR-Vs

Income Tax Department has given one more chance to all those assessee’s who filed ITR electronically but had not send the ITR-V to CPC Bangalore by issuing a notification dated 12^th September 2013 for the receipt of ITR-V.

Notification for Extension of date for receipt of ITR-Vs in CPC.

Bengaluru, for the cases of AY 2012-13 and 2O11-12 received in e-filed

in FY 2O12-13.

There are many taxpayers who have uploaded their Income Tax Returns electronically (without digital signature Certificate) for A.Y. 2O11-12 [filed during F.Y. 2O12-13 and for ITRs of A.Y. 2O12-13 [filed on or after 1.4.2012], but have either not filed the corresponding ITR-V or have filed it with the local Income-tax office. ITR-V is accepted only at the Centralized Processing Center (CPC) of the Income-tax Department at Bengaluru by ordinary or speed post. Therefore, a final opportunity is being given to such

tax payers to regularize their Income-tax returns.

All such taxpayers may mail the ITR-V, by 31st October, 2O13, by ordinary post or speed post at Post Bag No. 1, Electronic City Post Office, Bengaluru -560100 (Karnataka).

Taxpayers who have filed their ITR-V with the local Income-tax office may again mail their ITR-V to the CPC by 31st October, 2013. Those taxpayers who have earlier mailed their ITR-V, but have not received the acknowledgement e-mail from the CPC, may mail their ITR-V to the CPC again.

The ITR-V form should be mailed to the CPC only at the above address by ordinary post or speed post. Taxpayers may note that no other place or form of delivery will be accepted.

Taxpayers may also note that without acknowledgement of the ITR-V from the CPC it would not be possible for the Income-tax Department to process the Income-tax returns or issue any refunds there from, as these would be treated as not having been filed with the Department.

Notification for Extension of date for recqipt of ITR-Vs in CPC.

Fiscal Deficit

What is the Fiscal Deficit?

The fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowing).  Or we can say that if Total Expenditure >Total receipt i.e.

Fiscal Deficit = Total Expenditure- Total Receipt

It indicates government’s borrowing requirements from all sources to finance its expenditure. Fiscal deficit is expressed as a percent of GDP which indicates capacity of a country to borrow in relation to what it produces. High % to GDP means government is borrowing beyond its capacity in relation to what its producing which is its income.

The elements of the fiscal deficit are

·        The revenue deficit, which is the difference between the government’s current (or revenue) expenditure and total current receipts (that is, excluding borrowing) and

·        Capital expenditure.

The fiscal deficit can be financed by borrowing from the Reserve Bank of India (which is also called deficit financing or money creation) and market borrowing (from the money market that is mainly from banks).The money borrowed by a nations government is called public debt. As on any other debt, the Government promises to pay a certain rate of Interest. To pay this interest in the future, the Government has following options:

·        Increase the amount of taxes collected by increasing the tax rates:

·        Help stimulate economic growth so that tax collection automatically increases with it; or

·        Print new currency notes to pay back the debt also called debt monetization

But we can say that first option is not advisable as it will create extra burden on the public & business segments as well. 2^nd option is best out of three where as third option is dangerous as it will cause and lead towards inflation.

Reasons of Fiscal Deficit

In an ideal financial system, which has a balanced fiscal deficit, the cost of expenditure is low while production and growth is advancing. But when there is an increase in fiscal deficit it means that the government is spending too much while it is earning less. Hence, it is important that the government keeps its expenses under control.

·        Government is spending money on unproductive program’s which do not increase economic Productivity. So if govt. is providing amenities to any section of people without creating conditions for them to be more economically productive these kinds of facilities it is spending on unproductive program.

·        It can also mean that the tax collection machinery is not effective so that a significant proportion of people get away without paying their due taxes.

Fiscal deficit does not come about only in case of creating less revenue and spending more money. Another major reason for a growing fiscal deficit can be slow economic growth or sluggish economic activities.

How fiscal deficit can be bad for India?

A large fiscal deficit is an indication that the economy is in trouble and will have reasons to worry. A high fiscal deficit could pose an inflation risk, minimize the growth of the economy, doubt the government’s abilities; it could affect the country’s sovereign rating, which in turn will limit foreign investors from looking at India as one of the investment hubs.

Measure’s to Decrease Fiscal deficit!

Permanent

The government if spends in infrastructure sector like building Roads, Dams, Power Projects, then the money spend by government comes back as earnings of the business entities and their workforce.

In above case, the increased expenditure has further multiplier effects because of the subsequent spending of those whose incomes go up because of the initial expenditure. The overall rise in economic activity in turn means that the government’s tax revenues also increase. Therefore there is no increase in the fiscal deficit in such cases.

Temporary

Curbing import on gold is one of the measures taken by the government to correct the country’s fiscal deficit. But with a weakening rupee and increase in global oil prices, the finance minister might put a cap on the country’s expenditure to avoid pressure on fiscal deficit.

Difference between fiscal deficit and budget deficit

Budget Deficit

·        Budget deficit is commonly known as the national debt.

·        Budget deficit means that a country has more money going out when compared to the money its earning.

·        Budget deficits can usually be resolved by raising taxes, cutting spending or a combination of both.

·        Unlike fiscal deficit, while calculating budget deficit, the country’s borrowings are taken into consideration.

·        India’s budget deficit for the year 2012-13 is 5.2 % of GDP instead of expected 5.3% of GDP. Which will later on worked out on 4.89% of GDP

Fiscal Deficit

·        In case of fiscal deficit, it can be measured without taking into account the interest it pays on its debt.

·        Fiscal deficit is basically the difference between the money it spends and the money it makes.

·        India’s fiscal deficit for year 2012-13 is 4.9% of GDP and estimated fiscal deficit for year 2013-14 is 5.1% of GDP as per budget documents.

Chart below gives snap shot break up of government receipts and % contribution to its sub heads.(% contribution as per data given in FY13 Budget Estimates (BE).

Chart below gives snap shot break up of government expenditure and % contribution to its sub heads.(% contribution as per data given in FY13 BE).

Difference between fiscal deficit and current account deficit

Fiscal Deficit

·        Fiscal deficit is a percentage of the nation’s GDP and can be considered as an economic event in which the government expenditure exceeds its revenue.

Current Account Deficit

·        Current account deficit occurs when the country’s imports are greater than the country’s exports of goods, services and transfers.

Why is India’s fiscal deficit continually high?
While the government fights to manage money, here are a few reasons why India has a soaring fiscal deficit. It is high because in the corporate sector, bailouts are becoming common and subsidies are being high. The money that the government earns through non-tax revenue is not big and the money it earns from taxes is not enough.

Stamp Duty and other expense Paid on Property: a Double Treat to Taxpayers

Ek ghar ho sapno ka, Ghar ek mandir, we have seen these sort of connotations used by various builders while promoting their ventures. As an ordinary man buying a property requires huge initial outlay and that will be bifurcated as actual amount paid, stamp duty, registration fee etc.

Assessee always want to get maximum tax benefit, so in this article we will discuss the expenses paid on property, where are the areas they can be claimed and in what manner.

Chapter VIA- Deductions in respect of certain payments states u/s 80c (1) “In computing the total income of assess being an individual or a HUF, there shall be deducted, in accordance with deposited in the previous year, being the aggregate of the sums referred to in subsection (2) as does not exceed one lakh rupees

(2)The sum referred to in sub section (1) shall be any sum paid or deposited in the previous year by assessee-“

(i)-(xvii)…………….

(xviii) for the purposes of purchase or construction of residential house property from the income which is chargeable to tax under the head “ Income from house property, where such payment are made towards or by way of-

(a)-(c)……..

(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee

In simple words, it states that under section 80c you can claim expense relating to purchase of residential house property, which has used as rented property. However, the maximum cap of 1 lakh remain intact. This clause does not apply on self-occupied property.

For example, Mr A has two flats, one is used as his own residence and he bought another flat. Now his income under house property will be assessed for both flats as one under self-occupied and other as rented. Mr. A can claim can claim the stamp duty, registration fee and other expenses paid on rented property u/s 80c (maximum 1 lakh).

Another taxation aspect of property is capital gain. It is a well known by everyone that on sale of assets capital gain arises. Income tax act give indexation of cost of asset sold, if it is sold after 36 months of purchase.

Section 48 deals with the mode of computation of capital gains. It states that “ The income chargeable under the head capital gain shall be computed be deducting the full value of consideration received or accruing as a result of transfer of capital assets of the following amount namely-

i)              Expenditure incurred wholly and exclusively in connection with such transfer

ii)             The cost of acquisition of asset and the cost of improvement thereto”

This definition clearly states that cost of acquisition encompass all cost related to purchase. It includes stamp duty, registration fee etc. so it is part and parcel of cost and hence eligible to be admitted as cost of acquisition.

Summarizing the above discussion, we can say that for expenditure incurred on property being used as other then self-residence can be claimed u/s 80c and while computing capital gains giving ladoo in both hands of taxpayer.    

  

   

  

N.No. 64/2013-Sec.10(48)

On 19th of August 2013 CBDT issued a circular stating that certain income of a specified assessee is exempt u/s 10(48) of Income Tax Act, 1961. So to understand this notification first we should have knowledge that “what is the Sec. 10(48)” and what it exactly speaks.

As we, all are aware that sec 10 of the income tax is specifically devoted for exemptions and furthermore clause 48 too is the part of the same pool.

Section 10(48) states that any income received by a foreign company from sale of crude oil in India is exempt provided that such company is not engaged in any other activity in India.

Under this notification, the receipt of Income of the National Iranian Oil Company is exempt u/s 10(48) from the sale of Crude Oil to India.  This Notification comes into effect from January 20^th  2013 i.e. retrospectively.

Text of Sec 10(48) of Income Tax Act, 1961

 In computing the total income of a previous year of any person, any income falling under this clause shall not be included-

Any income received in India in Indian currency by a foreign company because of [sale of crude oil to any person] in India:

Provided that—

(i)  Receipt of such income in India by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government;

(ii)  Having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf; and

(iii)  The foreign company is not engaged in any activity, other than receipt of such income, in India;]

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

[CENTRAL BOARD OF DIRECT TAXES]

[Notification No. 64/2013/ F.No.142/22/2013-TPL]

New Delhi, the 19th day of August 2013

INCOME TAX

S.O. 2493(E).– In exercise of the powers conferred by clause (48) of Section 10 read with Section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard to the national interest, hereby notifies for the purposes of the said clause, the National Iranian Oil Company, as the foreign company and the Memorandum of Understanding entered between the Government of India in the Ministry of Petroleum and Natural Gas and the Central Bank of Iran on the 20th day of January, 2013, as the agreement subject to the condition that the said foreign company shall not engage in any activity in India , other than the receipt of income under the agreement aforesaid.

2. This notification shall be deemed to have come into effect from the 20th day of January 2013.

Procedure and criteria for selection of scrutiny cases under compulsory manual during the financial year 2013-2014

The CBDT has issued Instruction No. 10 of 2013 dated 05.08.2013 announcing the procedure and criteria for selection of scrutiny cases under the compulsory manual for FY 2013-14

INSTRUCTION NO 10/2013,

F.No.225/107/2013/ITA.II

Dated: August 5, 2013

Procedure and criteria for selection of scrutiny cases under compulsory manual during the financial-year 2013-2014-regd.In supersession of earlier instructions on the above subject, the Board hereby lays down the following procedure and criteria for manual selection of returns/cases for scrutiny during the financial-year 2013-2014

2. The targets for completion of scrutiny assessments and strategy of framing quality assessments as contained in Central Action plan document for Financial Year 2013-2014 has to be complied with. It is being reiterated that all scrutiny assessments including the cases selected under manual criteria will be completed through AST system software only.

3. The following categories of cases / returns shall be compulsorily scrutinized:-

a)      Cases where value of international transaction as defined u/s 92B of IT Act exceeds Rs. 15 crores.

b)      Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs. 10 Crores or more which is confirmed in appeal or is pending before an appellate authority.

c)      Cases involving addition in an earlier assessment year in excess of Rs. 10 lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority.

d)      all assessments pertaining to Survey under section 133A of the IT Act excluding the cases where there are no impounded books of accounts/documents and returned income excluding any disclosure made during the Survey is not less than returned income of preceding assessment year. However, where assessee retracts the disclosure made during the Survey will not be covered by this exclusion.

e)       Assessment in search and seizure cases to be made under sections 158B, 158BC, 158BD, 153A & 153C read with 143(3) of the IT Act.

f)       All returns filed in response to notice u/s 147/148 of the IT Act.

g)       Cases claiming exemption of income u/s 11 or u/s 10(23C) which are hit by proviso(s) to Section 2(15) of IT Act.

h)      Entities which received Donations from countries abroad in excess of Rs. One crore during the Financial Year 2011-2012 (relevant for the A.Yr. 2012-2013) under the provisions of Foreign Contribution Regulation Act (FCRA). Such Information is maintained by Ministry of Home Affairs and is available on its Website (http://mha.nic.in/fcra.htm). Respective Cadre-Controlling chief Commissioners / Directors – General of Income-tax may identify the cases pertaining to their respective jurisdiction after downloading from the website and disseminate the information to various field offices.

i)        Cases in respect of which information is received from other Government Department(s) or other authorities pointing out tax-evasion. The Assessing Officer shall record reasons in such cases and take approval from jurisdictional CCIT/DGIT before selecting such case for scrutiny.

4. In order to ensure the quality of assessment orders, CCsIT/DGsIT would evolve suitable monitoring mechanism. They shall analyse at least 50 quality assessments of their respective charges and send the report to respective Zonal Member with copy to Member (IT) with suggestions for improvement by 30th April, 2014. CCsIT/DGsIT would further ensure that cases selected for publication in ‘let us share’ are picked up from quality assessments as reported.

5. These Instructions may be brought to the notice of all concerned.

Download the official Notification from the Link given below.
Link:http://www.incometaxindia.gov.in/archive/BreakingNews_Scrutiny_Cases_06082013.pdf

GST-Constitutional amendment process should be started

In the month of august 2013, the parliamentary standing committee on finance released its report on the 115th Constitutional Amendment Bill, which had been referred to it by the government in 2011. This Bill lays out the framework and the implementation plan for a national goods and services tax (GST), which many observers have said will be a fiscal game-changer. It will, on the one hand, streamline the entire indirect tax system by eliminating interstate differentials in tax rates, subsuming a large number of local taxes into an aggregate levy, which, once paid, can be claimed as credit against subsequent tax payments anywhere in the country. On the other, it will incentive countless producers to enroll themselves into the tax system, because not to do so would now reduce their competitive edge. This will significantly raise the tax-to-GDP ratio. With both production efficiency and tax revenue benefits, one might wonder why the system is taking so long to introduce the new mechanism. The answer, as always, lies in the political economy: while the country as a whole might gain, it is not certain that every state will also do so, leading to skepticism about, and resistance to, the proposal.



By and large, the committee endorsed the concept of the GST and recognized the benefits it will bring relative to the extremely fragmented system that now exists. The overall experience of states with the implementation of the value added tax (VAT) does validate the strong incentive effects for enrolment in this self-enforcing framework. However, it also accepts the argument that a fully harmonized and centrally administered system can be seen as an erosion of states' fiscal autonomy. Its recommendations are essentially an attempt to find a middle ground between the efficiency and political economy dimensions of the issue.
There are two broad categories of suggested improvements. On the financial side, the committee proposes moving away from a single, fixed rate of taxation to a range, within which each state could choose to tax goods and services produced within it. This is the practice within the European Union and appears to be an acceptable compromise. Of course, every state may choose to tax at the ceiling, so it has to be carefully set. Keeping in mind the fears of some states about lower revenues, it suggests a formal and funded compensation mechanism to offset any losses. On the administrative side, it proposes greater powers for the GST Council, essentially insulating it from the central government's discretion, but also keeping it within the boundaries of legislative powers. The states' right to opt out of the system is also sought to be protected. There is little question that the current indirect tax system, in its federal manifestation, is grossly inefficient and an alternative - even after taking these recommendations into account - will almost certainly generate enormous benefits to both commerce and government finances. The government should now quickly move to close the issue and get the amendment process under way.

Source: ET ,BS

TAN Series-2( all about TAN)

1.      TAN or Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons who are responsible for deducting or collecting tax.

2.      All those persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN. It is compulsory to quote TAN in TDS/TCS return (including any e-TDS/TCS return), any TDS/TCS payment challan and TDS/TCS certificates.

3.      The provisions of section 203A of the Income-tax Act require all persons who deduct or collect tax at source to apply for the allotment of a TAN. It is mandatory to quote TAN in all TDS/TCS return as well as TDS/TCS certificates and payments challan.

4.      TDS/TCS returns will not be received if TAN is not quoted and challans for TDS/TCS payments will not be accepted by banks.

5.      Failure to apply for TAN or not quoting the same in the specified documents attracts a penalty of Rs. 10,000/-

Type of Leases Exist in Financial Markets

Type of Lease  

How many types of lease are you aware?

Did you know that how many types of leases are exist in financial world, you will say that Operating and finance lease. Here I will discuss few of them. But first of all we have to understand what is Lease

What is Lease

Lease is a legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid. Or in other words Leases are the contracts that lay out the details of rental agreements b/w the lessor and lessee for the use of specified asset for the specified time.

For example, if you want to rent an apartment, the lease will describe how much the monthly rent is, when it is due, what will happen if you don't pay, how much of a security deposit is required, the duration of the lease, whether you are allowed to have pets, how many occupants may live in the unit and any other essential information. The landlord will require you to sign the lease before you can occupy the property as a tenant.

Accounting standard recognizes two types of lease which are as under :-

Majorly Lease are defined in two Variants

1.      Operating

2.      Finance

Operating Lease

An operating lease is particularly attractive to companies that continually update or replace equipment and want to use equipment without ownership, but also want to return equipment at lease-end and avoid technological obsolescence.

a)      An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints.

b)      It typically qualifies for off-balance sheet treatment and can result in improved Return on Asset (ROA) due to a lower asset base.

c)      It can also result in higher reported earnings in the early years of the lease.

Finance Lease

A finance lease is a full-payout, non cancellable agreement, in which the lessee is responsible for maintenance, taxes and insurance.

a)      Finance leases are most attractive in cases where the lessee wants the tax benefits of ownership or expects the equipment's residual value to be high.

b)      These leases are structured as equipment financing agreements with residuals up to 10 percent.

c)      The lessee purchases the equipment upon lease termination at a pre-agreed amount.

d)      The term of a finance lease tends to be longer, nearly covering the useful life of the equipment.

 

Other Type of leases also exists in financial world which are as follows:

Walk-Away Lease or Closed-End Lease

A rental agreement that puts no obligation on the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Also called a "walk-away lease", "true lease"  or "net lease" “Closed-End Lease”.

Since the lessee has no obligation to purchase the leased asset upon lease expiration, that person does not have to worry about whether the asset will depreciate more than expected throughout the course of the lease. Thus, it is argued that the closed-end leases are better for the average person.
On a walk-away lease, the lender assumes the risk of predicting what the residual value of the asset will be at the end of the lease period. The predicted residual value is not only an important consideration in establishing an appropriate amount to charge for lease payments, it ultimately determines how much profit the lender earns on the lease of a asset. Ideally, the total value of all lease payments in conjunction with the asset's residual value should be greater than the cost paid for the asset.

For example, suppose your lease payments are based on the assumption that the new car that you are leasing cost Rs 12,00,000  will be worth only Rs.3,00,000 at the end of your lease agreement. If the car turns out to be worth only Rs.2,40,000, you must compensate the lessor (the company who leased the car to you) for the lost Rs.60,000 since your lease payment was calculated on the basis of the car having a salvage value of Rs.3,00,000. Basically, since you are buying the car, you must bear the loss of that extra depreciation. But, if you have a closed-end lease, you don't buy the car so you don't bear the risk of depreciation.

Open-end Lease

A conditional sale lease in which the lessee guarantees that the lessor will realize a minimum value from the sale of the asset at the end of the lease.

Capital Lease

Type of lease classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing, if it meets any one of the following criteria:

a)       the lessor transfers ownership to the lessee at the end of the lease term;

b)      the lease contains an option to purchase the asset at a bargain price;

c)      the lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life); or

d)      the present value of minimum lease rental payments is equal to 90 percent or more of the fair market value of the leased asset less related investment tax credits retained by the lessor.

 

Direct Financing Lease (Direct Lease)

A non-leveraged lease by a lessor (not a manufacturer or dealer) in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.

Lease to Own

An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time. More often than not, a portion of the total rental payment goes toward paying down the value of the item leased in the event that the renter wishes to exercise the option.

For housing properties, the cost involved in lease-to-own agreements tend to be more expensive compared to standard rental agreements. In addition to paying rent, lease-to-own contract users need to pay an option fee, similar to an amount paid to buy a traditional stock option, and usually, a rent premium as well, which is not returned to the renter in the event that he or she does not exercise the option to buy the leased item.

First Amendment Lease

The first amendment lease gives the lessee a purchase option at one or more defined points with a requirement that the lessee renew or continue the lease if the purchase option is not exercised. The option price is usually either a fixed price intended to approximate fair market value or is defined as fair market value determined by lessee appraisal and subject to a floor to insure that the lessor's residual position will be covered if the purchase option is exercised.

If the purchase option is not exercised, then the lease is automatically renewed for a fixed term (typically 12 or 24 months) at a fixed rental intended to approximate fair rental value, which will further reduce the lessor's end-of-term residual position. The lessee is not permitted to return the equipment on the option exercise date. If the lease is automatically renewed, then at the expiration of that initial renewal term, the lessee typically has the right either to return the equipment without penalty or to renew or purchase at fair market value.

Full Payout Lease

A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

Guideline Lease

A lease written under criteria established by the IRS to determine the availability of tax benefits to the lessor.

Leveraged Lease

In this type of lease, the lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a nonrecourse debt basis. The lessor receives the tax benefits of ownership.

Net Lease

A lease wherein payments to the lessor do not include insurance and maintenance, which are paid separately by the lessee.

Sales-type Lease

A lease by a lessor who is the manufacturer or dealer, in which the lease meets the definitional criteria of a capital lease or direct financing lease.

Synthetic Lease

A synthetic lease is basically a financing structured to be treated as a lease for accounting purposes, but as a loan for tax purposes. The structure is used by corporations that are seeking off-balance sheet reporting of their asset based financing, and that can efficiently use the tax benefits of owning the financed asset.

 

Tax Lease

A lease wherein the lessor recognizes the tax incentives provided by the tax laws for investment and ownership of equipment. Generally, the lease rate factor on tax leases is reduced to reflect the lessor's recognition of this tax incentive.

Trac Lease

A tax-oriented lease of motor vehicles or trailers that contains a terminal rental adjustment clause and otherwise complies with the requirements of the tax laws.

True Lease

A type of transaction that qualifies as a lease under the Internal Revenue Code. It allows the lessor to claim ownership and the lessee to claim rental payments as tax deductions.

 

TAN Series-1(Difference b/w TAN & PAN)

TAN is a allotted to persons who are deducting or collecting tax at source on behalf of the Income Tax Department where as PAN is allotted to assessees like individuals, companies etc for filling their Income Tax Returns and to Pay own taxes.

TRANSFER PRICING SAFE HARBOUR RULES – CREATING BARBED WIRES SINCE 2009

It is human nature to jump at and exploit to the fullest extent, everything that is new to our world. It happened with petroleum; it happened with Sachin Tendulkar; it also started happening with the Transfer Pricing provisions. After the introduction of the Transfer Pricing Regulations vide the Finance Act, 2001, the number of audits started increasing, along with the number of the pending cases. To curb the same, section 92CB was introduced vide Finance Act, 2009, which provided that the determination of arm’s length price under section 92A/92C shall be subject to certain “Safe Harbour Rules”. The intent was clear – do NOT scrutinize every single assessee who enters into a transaction with its international associate. “Safe Harbour” was defined to mean those transactions for which the Revenue would accept the transfer price declared by the assessee.

Vide the aforesaid amendment in 2009, the Government also empowered the CBDT to make the said “Safe Harbour Rules”. However, after many discussions, consultations and debates, no conclusion could be reached as to the issuance of these Rules. So, on 30th July, 2012, The Rangachary Committee was formed to review taxation of Development Centres and IT Sector, which submitted its reports from time to time.

On 13th October, 2012, the said committee submitted its report on the following term of reference:

“Engage in sector-wise consultations and finalize the safe harbour provisions announced in Budget 2010, sector-by-sector. The Committee will also suggest any necessary circulars that may need to be issued.”

The sectors, in respect of which the Rules were finalized by the Committee, are as follows:

1. IT Sector
2. ITES Sector
3. Contract R&D in the IT and Pharmaceutical Sector
4. Financial transactions-Outbound loans
5. Financial Transactions-Corporate Guarantees
6. Auto Ancillaries-Original Equipment Manufacturers

Taking into consideration, the above report of the Committee, the CBDT issued a press release on 14th August, 2013 inviting suggestions from the stakeholders on the draft Safe Harbour Rules, proposed to be inserted vide Rules 10TA to 10TG in the Income Tax Rules, 1962.

The Rules are discussed hereunder, in brief:

Rule 10TA – Definitions:
This rule provides the definitions of the services, sectors and other terms, for the purpose of the Safe Harbour Rules.

Rule 10TB – Eligible Assessee:
Eligible assessee has been defined to mean a person who has opted for the application of Safe Harbour Rules, and enters into specific transactions listed in sub-rule (1) of the said Rule. Certain transactions mandate the eligible assessee to have ‘insignificant risk’, which has been defined in sub-rules (2) and (3).

Rule 10TC – Eligible International Transaction:
‘Eligible International Transaction’ has been defined to mean an international transaction between the ‘eligible assessee’ and its ‘associated enterprise’, at least one of whom is a non-resident. The broad composition of such international transactions, eligible for the Safe Harbour Rules, has also been enlisted.

Rule 10TD – Safe Harbour:
Various circumstances in respect of the ‘eligible international transactions’, for which the transfer price declared by the assessee shall be accepted, have been specified. It is also clarified that the said circumstances would be applicable for the assessment years 2013-14 and 2014-15 only.

Further, it has been clarified that section 92C(2) will not be applicable on such transactions, i.e. the arm’s length price will not be computed as per the methods laid down by the Act. However, sections 92D and 92E would continue to apply on the eligible assessee as well. Hence, the eligible assessee would be required to keep and maintain such information and documents, as prescribed; the eligible assessee would also be required to furnish the report from Chartered Accountant as per section 92E.

Rule 10TE – Procedure:
This rule lays down the procedure for exercising the option for Safe Harbour. According to the said Rule, the eligible assessee must furnish Form 3CEG to the Assessing Officer by the due date specified in section 139(1), i.e. 30th November of the assessment year. The format of the said Form has also been provided, proposed to be inserted in Appendix II, Rule 10T.

On receipt of the said Form, the Assessing Officer shall verify whether the assessee is an ‘eligible assessee’, and whether the transactions are ‘eligible international transactions’.

On confirmation of the above, the Assessing Officer shall verify whether the transfer price declared by the assessee is acceptable or not, as per the circumstances laid down in Rule 10TD. For the above purposes, the Assessing Officer may call upon the assessee to submit such documents and information, as required. The Assessing Officer may also refer the same to the Transfer Pricing Officer for verification, as per section 92CA.

If any of the above conditions are not satisfied, the Assessing Officer shall declare the transfer price declared by the assessee to be invalid, and the arm’s length price would be computed by him as per section 92C, after giving a reasonable opportunity of being heard to the assessee.

It has been clarified that if the eligible assessee does not exercise his option for Safe Harbour by submitting the Form 3CEG and following the procedure laid down, then the arm’s length price would be computed as per section 92C and 92C. Hence, the Safe Harbour Rules do not apply automatically on the eligible assessee.

Rule 10TF – Safe Harbour Rules not to apply in certain cases:
The Safe Harbour Rules will not apply if the associate enterprise is located in:
Country or territory notified under section 94A (i.e. Notified Jurisdictional Areas); or
No tax or low tax country or territory (as defined in Rule 10TA – minimum marginal rate of income tax is zero or less than 15%, in respect of the associated enterprise).

Rule 10TG – Not eligible for MAP:
If the transfer price declared is accepted by the Revenue, the assessee will not be allowed to invoke Mutual Agreement Procedure under DTAA, as referred in sections 90 or 90A.

Under MAP, the Revenue Authorities of two countries come together to settle a dispute in respect of double taxation. The eligible assessee, exercising the option of Safe Harbour, thus, cannot opt for the option of MAP.

The above is a broad overview of the Rules proposed to be inserted by the CBDT. They have been released for suggestions from the stakeholders.