Legal Position of Directors

Directors are the individuals who are appointed to manage the business affairs of the company.

Legal Position of Directors

 

Introduction

 

Directors are the individuals who are appointed to manage the business affairs of the company. A company is a separate legal entity who has legal existence of its own, but it cannot manage its activities on its own physically. So, it needs to be managed by someone who can take care of all the business activities.

Now you might be thinking that why do we need a director for all this as every company has its shareholders who are physically available to manage the company.

The answer to your question is here, that as the number of shareholders grow, all of them together may not be able to manage the affairs, and if do so it shall lead to mismanagement and nothing else. That’s why the concept of directors has emerged to handle all the activities of the business. The director of the company may be elected from among the shareholders or from outside.

 

Legal Position of Directors

 

Directors can be considered as both, Agents and Trustees.

As Agents, they bind the company as their principal with proper rules and regulations. Also, where directors are empowered to take decisions, the company means the shareholders cannot issue directions directing them to go and take a particular decision.

As Trustees, the directors are required to take care of the properties, money etc. belonging to the company. In fact, as trustee the directors are in fiduciary relationship (it is when a person has a duty to act for the benefit of the other) with the company and if it gets broken and the company suffers losses because of the illegal acts of the directors, they shall be required to compensate for the losses suffered by the company.

 

Collective Body of Directors

 

The collective Body of Directors simply means the “Board of Directors”.

It is the ‘Board of Directors’ who takes decisions at any Board Meeting and not any individual director. This is the reason why the presence of minimum number of directors at the Board meetings is prescribed so that decisions can be taken collectively.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

 

Nil Return

Nil return is generally filed to declare that the income earned during the financial year is less than the exemption limit.

NIL RETURN

 

What do we mean by NIL Income Tax Return?

A person is required to file the Income Tax Return (ITR) with the income tax department for the income earned and tax paid on the earned income. But when the total income is less than the exemption limit (i.e., less than Rs. 2.5Lakhs), then it is optional to file the nil return or zero return. The procedure to file a nil return is same as the procedure to file a normal return. Nil return is generally filed to declare that the income earned during the financial year is less than the exemption limit.

 

Benefits of Nil Return

The filing of nil return is beneficial in the following ways:

  • Nil return is a proof of income.
  • If a person wants to claim a refund from the income tax department then, it is compulsory to file an ITR.
  • A zero return can act as a legal document for the approval of loans.
  • If any person wants to carry forward the losses of previous year then also it is mandatory to file a return.

 

It is mandatory to file a return if the total income is more than the exemption limit, but it is not compulsory to file a nil return except in some cases like in case of refund or carry forward of losses, etc., it is recommended to file a return even if your income is less than the exemption limit.

 

Procedure to file a Nil Return

You need to follow the below mentioned procedure to file your Nil Return but before that you need to check some documents such as PAN, Bank account details, Aadhaar, investment details etc.:

  • Visit the income tax department website and login by using your ID and password.
  • Click on ‘e-filing’ option.
  • Enter your details and deduction and your tax liability will be automatically calculated as nil.
  • Submit your return and e-verify your return by using your registered DSC or by using electronic verification code method to complete the process.
  • Keep the acknowledgement and copy of ITR safe for your records or you can download it from the Income tax portal for last 7 years.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

 

Section 194 P – A relief to Senior Citizen from filing ITR

Section 194P is recently introduced in Budget 2021 to provide a relief to senior citizens above the age of 75 years from filing the income tax return. It helps an individual to provide relief in terms of burden compliances from filing income tax returns.

SECTION 194 P

 

Description

Section 194P is recently introduced in Budget 2021 to provide a relief to senior citizens above the age of 75 years from filing the income tax return. It helps an individual to provide relief in terms of burden compliances from filing income tax returns.

Conditions for exemption under section 194 P

An individual is required to fulfil the following conditions to claim for the exemption under section 194P:

  • Person should be above the age of 75 years or above;
  • Individual should be resident individual in the previous year;
  • The source of income should be in the form of pension and interest only;
  • The senior citizen is required to file a declaration containing some details to the specified bank;

‘Specified bank’ here means the bank notified by the Central Government. Such banks will be responsible for TDS deduction of senior citizen. After the deduction of the TDS by the bank the senior citizens are not required to file an income tax return.

Content of Declaration

The bank shall deduct TDS on the basis of declaration submitted by the senior citizen to the bank, the declaration shall contain the following information:

  • Total income of the senior citizen;
  • Deductions availed under section 80C to 80U;
  • Rebate available under section 87A;
  • Confirmation from the senior citizen of having only pension and interest income.

 

Benefit of section 194P

When the specified bank deduct tax on the basis of declaration submitted by the senior citizen, the provision of section 139 (filing of Income tax return) shall not be applicable, i.e. the senior citizen above the age of 75 years or above shall not be required to file Income Tax Return.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

 

Process to Pay TDS Online

TDS is deducted from the specified types of payments like rent, commission, salary, etc. at the specifies rates. The person who is deducting tax at source has to submit tax amount to the government on or before the specified due dates.

Process to Pay TDS Online

 

Description

TDS is deducted from the specified types of payments like rent, commission, salary, etc. at the specifies rates. The person who is deducting tax at source has to submit tax amount to the government on or before the specified due dates.

Steps to make TDS payment online

 

The following steps will help you to submit your TDS amount on or before due dates:

STEP – 1

To pay your tax online, go to NSDL’s website

https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

STEP – 2 

Select ‘CHALLAN NO./ITNS 281’under TDS/TCS section.

 

 

STEP – 3

After completing the 2nd step, you have to enter the following details on the page:

  • Under ‘Tax Applicable’ select ‘Company Deductees’ if the TDS deducted by you is while making payment to a company. In any other case select ‘Non-Company Deductees’.
  • Enter the TAN and Assessment Year for which the payment is made.
  • Enter the ‘Pin Code’ and select ‘State’ from the drop down.
  • Select whether the payment is made for TDS deducted and payable by you or TDS on regular assessment.
  • Select the ‘Nature of Payment’ and ‘Mode of Payment’ from the drop-down.
  • Click on ‘Submit’ button.

 

STEP – 4

After entering the details, a confirmation screen will appear which includes the full name of the taxpayer.

 

 STEP – 5

After confirming the entered information, you will be directed to the net banking site of your bank. You can log in to the net banking and make payment.

STEP – 6 

After making the payment successfully, a receipt will be generated containing the bank name, payment details, this will act as a proof of your payment.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

How to Register your PAN on new Income Tax Portal?

Income tax department launched a new website ‘www.incometax.gov.in’ for the easy access to the e-filing portal. The following steps is the procedure of registering your PAN on the new website of the income tax department.

Procedure To Register PAN with New Income Tax Website

 

Description

Income tax department launched a new website ‘www.incometax.gov.in’ for the easy access to the e-filing portal. The following steps is the procedure of registering your PAN on the new website of the income tax department.

 

Steps to register PAN

 

STEP – 1

Go to the new income tax portal by following the link, ‘www.incometax.gov.in’.

STEP – 2

After entering the portal click on ‘Register’.

STEP – 3

In this step you have to enter your PAN. Enter the PAN under the ‘Taxpayer’ tab, and click on ‘Validate’, select ‘Yes’, and click on ‘Continue’.

STEP – 4  

Now, you are required to enter your basic details, like first name, middle name, last name, residential status, and then click ‘Continue’.

5th character of your PAN represents the initial of your last name, if this combination does not match then an error message is shown like this ‘Name entered is not entered as per PAN records. Please retry’. After correcting this issue click on ‘continue’.

STEP – 5  

In this step you have to enter your contact details for the purpose of OTP. Enter the following details:

  • Mobile number;
  • Email ID;
  • Postal address.

STEP – 6

Enter OTP, to complete the process of registration enter the OTP received on your contact details. After entering the OTP, you must verify the details entered by you.

STEP – 7

After completion of verification you have to set a password for your account. The password needs to be a combination of lowercase letters, uppercase letters, and special characters.

STEP – 8

After setting the password the next step is to click on ‘Register’. After registering the you can log in to your account and make tax compliances by using your PAN and password.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

INCOME TAX SLAB RATES FOR FY 2020-21

Individuals have to pay taxes according to their income, the rates at which an individual pay taxes are called income tax slab rates. The article explains the slab rates for different income slabs.

INCOME TAX SLAB RATES FOR FY 2020-21

 

Description

Every person has to pay tax on the income earned by them in a particular financial period. Some of the rates are fixed by the income tax department but individuals have to pay taxes according to their income, the rates at which an individual pay taxes are called income tax slab rates. These rates are fixed according to the amount of income earned by an individual. Tax rates may increase as the income of the person increases.

 

Slab Rates

The following table shows the slab rate at which a person pays taxes according to the income earned by them. The following tax rates are issued under new tax regime, (F.Y. 2020-21):

 

INCOME TAX SLAB INCOME TAX SLAB RATES (Applicable for all individuals and HUF)
Up to Rs. 2.5Lakhs NIL
Rs. 2.5 Lakhs to Rs. 3 Lakhs 5% (tax rebate under section 87A is available)
Rs. 3 Lakhs to Rs. 5 Lakhs 5% (tax rebate under section 87A is available)
Rs. 5 Lakhs to Rs. 7.5 Lakhs 10%
Rs. 7.5 Lakhs to Rs. 10 Lakhs 15%
Rs. 10 Lakhs to Rs. 12.5 Lakhs 20%
Rs. 12.5 Lakhs to Rs. 15 Lakhs 25%
Income above Rs. 15 Lakhs 30%

 

  • These rates under new tax regimes are same for all age groups of individuals.
  • Individual whose total income is up to Rs. 2.5 Lakhs, is exempt from income tax, and individuals with total income less than or equal to Rs. 5 Lakhs are eligible for tax rebate under section 87A and the tax liability will be nil for them.
  • Health and education cess shall be applicable at the rate of 4% on the amount of income tax.
  • Surcharge is an extra tax payable on the amount of income tax, for having a higher earning of income. Surcharge is also applicable as per the following rates:

 

INCOME RATE OF SURCHARGE
Total income greater than Rs. 50 Lakhs 10% of income tax
Total income greater than Rs. 1 Crore 15% of income tax
Total income greater than Rs. 2 Crore 25% of income tax
Total income greater than Rs. 5 Crore 37% of income tax

 

Tax Rates as per Old Regime

The tax rates as per the old regime are different for different age groups of individuals. This is the main difference between new and old tax slab rates. The old slab rates are as follows:

  • Rates for individuals aged below the age of 60 years

 

INCOME SLAB RATE
Up to Rs. 2.5 Lakhs NIL
Rs. 2.5 Lakhs to Rs. 5 Lakhs  5%
Rs. 5 Lakhs to Rs. 10 Lakhs 20%
Income above Rs. 10 Lakhs 30%

 

  • Rates for individuals aged above 60 years but below 80 years (Senior Citizens)

 

INCOME SLAB RATE
Up to Rs. 3 Lakhs NIL
Rs. 3 Lakhs to Rs. 5 Lakhs  5%
Rs. 5 Lakhs to Rs. 10 Lakhs 20%
Income above Rs. 10 Lakhs 30%

 

  • Rates for individuals aged above 80 years (Super Senior Citizens)

 

INCOME SLAB RATE
Up to Rs. 5 Lakhs NIL
Rs. 5 Lakhs to Rs. 10 Lakhs 20%
Income above Rs. 10 Lakhs 30%

 

Difference between Old tax regime and New tax regime

New tax regime is an optional scheme an individual can choose to pay taxes as per the new rates but there are certain exemptions and deductions that are not allowed under new tax regime. So, when a person pays taxes as per the new rates the following are some deduction or exemptions which are not allowed:

  • Leave travel allowances
  • House rent allowances
  • Conveyance allowances
  • Relocation allowances
  • Helper allowances
  • Standard deduction on salary
  • Professional tax and etc.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

Section 194Q & Section 206C (1H)

Section 194Q Deduction of TDS on payment of certain sum for purchase of goods

 

The Government of India has come up with a new section which is going to be effective from 1st July 2021 in relation to deduction of tax at source on transactions involving purchase of goods. The tax to be deducted at source at the rate of 0.1% on purchase of goods, if the transaction fulfills the following conditions:

 

  • The purchase value exceeds the aggregate of Rs. 50 lakhs in the previous year from the said vendor
  • Payment is made to a resident
  • The turnover or gross receipts of the buyer exceeds Rs. 10 crores in the previous year in which such purchase is made.

 

Further, there will be no deduction in the following cases:

 

  • When payment is made to a non-resident
  • Where TDS is deductible under any other provision of the Income Tax Act, 1961
  • Where TCS is collectible under any other provision of the Income Tax Act, 1961 other than Section 206C (1H)

 

Now, let us have a look on what Section 206C (1H) says:

 

Section 206C (1H) deals with collection of TCS on receipt of payment of certain sum for sales of goods

 

The tax to be collected at source at the rate of 0.1% on sales of goods, if the transactions fulfill the following conditions:

 

  • The sales value exceeds the aggregate of Rs. 50 lakhs in the previous year
  • Goods should not be exported
  • The turnover or gross receipts of the seller exceeds Rs. 10 crores in the previous year in which such sales are made.

 

No TCS will be collected in the following cases:

  • When goods are being exported outside India
  • Where TDS is deductible under any other provision of the Income Tax Act, 1961
  • Where TCS is collectible under any other provision of the Income Tax Act, 1961
  • When goods are sold to Central government, state government, embassy, high commission, local authority, etc.
  • The goods are imported by the buyer

 

Note: Wherever both 194Q and 206C (1H) are applicable in that case only one section can be applied. The priority should be given to Section 194Q and if the same is not complied with, the section 206C (1H) can be looked to comply with the requirements.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

 

 

 

Section 112 – Rate of Tax on Long-Term Capital Gain

 Section 112 – Rate of Tax on Long-Term Capital Gain

 

  • Section 112 – Tax on long-term capital gains

The general rule says, when a capital asset which qualifies to be a long-term capital asset is sold, it is taxed @20% on the capital gains arising on such sale.

 

The treatment of long-term capital gains (LTCG) in the hands of different types of assessee are as follows:

A. Resident Individual of Hindu undivided Family

  • Benefit of slab rate is available when a person’s total income contains LTCG, then LTCG is reduced from the total income and then taxed on normal rate.

[Total Income- LTCG] * Normal (slab) rate.

  • Plus 20% tax rate is applied on LTCG.

ADJUSTMENT: If a person’s normal income (without LTCG) is less than the basic exemption limit, then the difference between the two is known as DEFICIENCY and it will be first adjusted from your long-term capital gain. The left out LTCG will be taxed @20%.

 

B. Domestic company

Long-term capital gain will be charged @20%.

 

C. Foreign Company

  • Long-term capital gains arising from the transfer of unlisted securities, shares of a private company will be charged @10% without giving any benefit of indexation.
  • For other long term capital gains except the one mentioned above will be charged @20%

 

D. Residents (other than those included above)

Long-term capital gain will be charged @20%.

 

E. Lower rate of tax for transfer of listed securities and zero-coupon bonds

  • In this case, capital gain arising from the transfer of:
  • listed securities, shares, zero-coupon bonds,
  • the assessee has the option to pay a lower tax:
    • at the rate of 20% with indexation benefit or
    • 10% without indexation benefit.

 

F. No chapter VI-A (Section 80C- 80U) deductions available against LTCG

It says no deductions will be allowed under chapter VI-A in respect of long-term capital gains included in total income of the assessee.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

Section 92D

Maintenance, keeping and furnishing of information and document by certain persons.

 

The Section 92D of the Income Tax Act, 1961, requires that every person who has entered into an international transaction or specified domestic transaction shall keep and maintain such information and document in respect of such transactions which are prescribed by the department of income tax. Refer Rule 10D below.

 

Threshold limit for maintenance of prescribed information and documents

 

However, this requirement is not applicable where the aggregate value of international transactions in a financial year does not exceed Rs. 1 crore as per the books of account of the assessee.

 

Time for which the records are to be kept

All the information in relation to such international transactions shall be kept for a period of 8 years from the end of the relevant assessment year, i.e., for Financial Year 2020-21 the relevant assessment year is AY 2021-22, the records to be kept for 8 years i.e., up to FY 2029-30.

 

Power of Assessing Office or Commissioner Income Tax (Appeals) to ask for the information and documents 

The Assessing Office or Commissioner Income Tax (Appeals) may require any assessee to furnish information and documents maintained by the assessee within a period of 30 days from the date of receipt of the notice in this regard. However, a further extension of 30 days can be provided on application of the assessee.

 

Rule 10D – Information and documents to be kept and maintained under section 92D

Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the following information and documents, namely:

  • a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises
  • a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions or specified domestic transactions, as the case may be, have been entered into by the assessee, and ownership linkages among them
    • a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted

 

  • the nature and terms (including prices) of international transactions or specified domestic transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction
  • a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction or the specified domestic transaction
  • a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions or the specified domestic transactions entered into by the assessee
    • a record of uncontrolled transactions considered for analyzing their comparability with the international transactions or the specified domestic transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions or specified domestic transactions, as the case may be
    • a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction or specified domestic transaction

 

  • a description of the methods considered for determining the arm’s length price in relation to each international transaction or specified domestic transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case
  • a record of the actual working carried out for determining the arm’s length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions
  • the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm’s length price
    • details of the adjustments, if any, made to transfer prices to align them with arm’s length prices determined under these rules and consequent adjustment made to the total income for tax purposes
    • any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm’s length price

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

Concept of Indexation

Concept of Indexation

 

Changes in the value of asset according to your living cost is called indexation.

The benefit of indexation is available only to long-term capital assets. For computation of indexed cost of acquisition following factors are to be considered:

  • Cost and Year of acquisition &/or improvement
  • Year of transfer
  • Cost inflation index of the year of acquisition &/or improvement
  • Cost inflation index of the year of transfer

 

Indexation Benefits

  • Helps to bring purchase price equivalent to market inflation (This process increases the cost of purchase which comes at par with the sale consideration, a higher cost price means lesser profits, which effectively means a lower tax).
  • Align asset with current market value
  • Provides higher purchase price

 

Calculation of indexed cost of acquisition

 

Indexed Cost of Acquisition =

Cost of Acquisition   X   CII for the year in which the asset is transferred

                                       CII for the year in which the asset was first held by

                                            assessee or P.Y. 2001-02, whichever is later.

 

Calculation of indexed cost of improvement

 

Indexed Cost of Improvement =

Cost of Improvement     X   CII of the year in which the asset is transferred

                                                       CII for the financial year in which the

                                                                 improvement took place

 

Meaning of Cost Inflation Index (CII):

It is used for estimating the prices of goods which has been increased year by year due to inflation.

Let’s say a price of an item was Rs. 100 in 2001, what will be the price of the same item today?

 

Meaning of inflation: It means decrease in purchasing power. A person who used to purchase 2 chocolates for Rs. 10, now can only purchase 1 chocolate only for the said amount.

 

 

COST INFLATION INDEX TABLE FROM FY 2001-02
FINANCIAL YEAR COST OF INFLATION INDEX (CII)
2001-02 (Base Year) 100
2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289
2020-21 301
2021-22 317

 

 

Let us take an example to calculate indexation:

Mr. Modi purchased Land in May 2012 for Rs. 1,00,000 with unit value Rs. 10 per unit and sold in January 2019 for Rs. 1,80,000.

Solution

Cost of Acquisition = Rs. 1,00,000

Financial Year of Acquisition = FY 2012-13

Calculation of Indexed Cost of Acquisition =

Cost of Acquisition   X   CII for the year in which the asset is transferred

                                       CII for the year in which the asset was first held by

                                            assessee or P.Y. 2001-02, whichever is later.

i.e.

= 1,00,000*(280/200))

= Rs. 1,40,000

Long Term Capital Gain = 1,80,000 – 1,40,000 = Rs. 40,000

Tax on Long term capital gains = Rs. 40,000*20% = Rs. 8,000

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.