The concept of Twin Balance Sheet Problem

This term has recently got attention as it was used by the Finance Minister during her recent speech at Punjab and Sind Bank.

This term originated during the year 2000 when the economy was in uptrend and industry at large borrowed huge funds to expand their business at lower rates of interest. However, when the industry was faced with Global economic slowdown in the year 2008 , The businesses were unable to serve loan due to decrease in profitability and increase in EMIs due to increase in rates of interest of loans availed. As a result, NPAs of banks shoot up and it adversely affected profitability of banks too.
This resulted into the twin balance sheet problem, due to deterioration of Profitability , cash flows and margins in books of both Industry and Banks. That is, Balance sheets of both the industry and banks were affected badly.

This brings our attention to the fact that if Businesses undertake liability during good times (boon) , they should try to restrict borrowings to the extent that they can repay even when the time is not right and the same fact should be taken into consideration at credit appraisal stage in banks too.

During her recent speech at PSB, Finance Minister acknowledged that the economy at present is benefitting from the Twin Balance Sheet Advantage (a situation opposite to twin balance sheet problem) due to increasing Financial Health of both banks and the Industry at large.

#business #economy #finance #banks

TAX ON VIRTUAL DIGITAL ASSETS

 Virtual Digital Assets or Crypto-currency or NFTs are the center of attraction in today’s finance world. One gets very eager to learn and trade in these avenues considering their nature of quick and big profits. As we all know, these assets have grown tremendously in value in the last decade.

Among these, the oldest one is Bitcoin founded in 2009 by group of developers using the name of Satoshi Nakamoto. One Bitcoin is worth Rs. 15.50 lakhs as on today having touched an all time high of approx. Rs 55 lakhs last year. This brings into attention the very volatile nature of Virtual Digital Assets.

Considering the fact that these Virtual Digital Assets (VDA) are highly volatile by nature and are not governed by Central Bank of any country in this world but backed only by blockchain technology, Indian Government has very conservative stance for it. Due to this, Tax on transfer of Virtual Digital Asset was introduced in Union Budget of 2022-23 to discourage in some way the use of Virtual Digital Assets in India.

Let us understand taxation of Virtual Digital Asset in detail.

Definition of Virtual Digital Asset(VDA) :-

Virtual Digital Asset (VDA) loosely referred to as Crypto-currency of NFT is defined under section 2(47A) of The Income Tax Act,1961 as:-

 

1. Any information, code, number or token generated through cryptographic means
2. A non-fungible token(NFT) or any other token of similar nature, by whatever name called.
3. any other digital asset, as the Central Government may, by notification in the Official Gazette specify

Most Common VDAs available in current market:-

1.  Bitcoin

2.  Ethereum

3.  Doge coin

4.  Binance Coin

5.  Tether

6.  NFTs etc

 

Renowned Companies accepting Bitcoin in World

a)Microsoft          b)Paypal

c)Starbucks         d)Home Depot

e)CheapAir          f)AT&T

 

Section 115BBH governing taxation of VDA

As per Section 115BBH of The Income Tax Act, 1961 , Income from transfer of Virtual Digital Assets is taxable at flat rate of 30%. This high rate of flat tax also brings our attention to the intention of the government to restrict usage of Virtual Digital Asset in India.  Let us understand, how exactly Income from VDA and respective tax will be calculated.

Calculation of Income from VDA:-

Proceeds from transfer of VDA

Less:-Cost of Acquisition of VDA

 

Calculation of Income Tax:-

If individual has traded in VDA during the year, then his income tax will be total of these:-

a.   Total Taxable Income Less Income from VDA—to be taxable as per Normal Slab rates plus 

b.  Income from VDA—taxable at 30%

 

Important points to note here are:-

-- Set off of loss incurred under any other head of income shall not be allowed from Income from transfer of VDA

-- Any expenditure other than Cost of Acquisition shall not be allowed as deduction while computing Income from transfer of VDA

-- Loss arising from trading in VDA shall not be allowed to carry forward for set off in next year

 

Head of Income under which Income from transfer of VDA is taxable

It can be made taxable under any of the below heads based on case to case basis

Profits and Gains from Business or Profession

It can be taxable as Business income if assesse is treating VDAs as his stock in trade.

Capital Gain

If the VDAs are treated as investments by assesse, income from it can be assessed as capital Gains. However, in such a case, if VDA is held for more than 36 months, it shall be treated as Long term capital gain and if held for less than 36 months, then as Short term capital gain.

In both the above heads of Income, method of computation of Income from transfer of VDA and Flat tax rate of 30% will remain same, however surcharge may differ as per particular case.

TDS on Transfer of VDA –Section 194S

Government has also introduced section 194S of The Income Tax Act, 1961  to trace transactions relating of transfer of Virtual Digital Assets. This section states that 1% TDS is to be deducted by buyer of Virtual Digital Asset . Payer of Consideration on transfer of VDA can be resident or non resident but payee is to be resident only , otherwise this section is not applicable.

However, in following cases this section is not applicable, if the consideration is paid by:-

a.   *Specified Person and consideration does not exceed Rs. 50000 for the financial year

b.  Any person other than Specified Person and consideration does not exceed Rs. 10000 for the financial year

*Specified person in this section means:-

a.   Individual or HUF not having any business income or

b.  Individual or HUF having business income but Turnover/Gross receipts does not exceeding Rs 1 cr in case of business and Rs 50 lakhs in case of profession

Section 194S is made applicable from 01.07.2022. Therefore, an important point to note here is that for F.Y. 2022-23, the consideration of transfer of virtual digital assets in the Period from 1.4.2022 to 30.6.2022 will be counted and considered for determining the threshold limit of Rs. 50,000 or 10,000 (as case may be) in a year, but TDS u/s 194S will not be deducted on such transaction. TDS u/s 194S will be deducted only on consideration for transfer of VDA credited or paid on or after 01.07.2022.

Implications of gifting of VDA:-

Gifting of Virtual Digital Asset is taxable in the hands of recipient of the gift under Section 56(2)(x) of The Income Tax Act, 1961 and shall be treated similar to any property other than immoveable property.

 

In case of any inputs , please reach me at gandotra.himanshu@gmail.com

 

Interim stay on Section 194N by Calcutta High Court

Calcutta High Court passes landmark interim order in petition challenging constitutional validity of section 194N of the Income Tax Act, 1961 which mandates the deduction of tax at source at the rate of 2% on cash withdrawals from banking company .  Petitioner submits that Section 194N of the said Act is beyond the legislative competence of the Parliament and Entry 82 of List I of Schedule VII to the Constitution allows the Parliament to enact laws for and levy of tax on “income” and the Parliament cannot legislate a provision stipulating the deduction of tax at source from an amount which is admittedly not income and such legislation would be beyond the legislative competence of the Parliament under Entry 82 of List I of Schedule VII of the Constitution imposition, collection . Petitioner has also relied on several unreported decisions of the Hon’ble Kerala High Court involving the same issue and one of which is order dated 13th August, 2020 passed in Kanan Devan Hills Plantations Company Pvt. Ltd Versus Union of India in WP (C ) No. 1658 of 2020 where Hon’ble Court has admitted the writ petition on this issue and has granted interim stay of deduction of tax on source under Section 194N of the Income Tax Act, 1961 . Considering these facts the Court said that "I am inclined to grant an interim order restraining the respondents authorities concerned from deducting tax on source on the basis of the aforesaid provisions of Section 194N till 30th September, 2021".

TDS ON SALE OF IMMOVEABLE PROPERTY-SECTION 194IA

 

Introduction

This section is introduced to cover high value property transactions under Tax net.This section intends to cover the Gross receipts/Sale consideration received by Seller on sale of an immoveable property. In this case, TDS is to be deduced by the person paying the above consideration i.e. buyer.

Let’s understand Where, When and How much TDS is to deducted in this section.

 

Where is TDS required to be deducted under Section 194IA?

TDS is to be deducted if all of the following conditions are met:-

1.    Amount of *Sale Consideration is Rs. 50 lakhs or more 

2.    Property being sold is Immoveable property other than RURAL agricultural land. 

3.    Seller of property is Resident of India

4.    If property is not being compulsorily acquired under any law (which is governed by Section 194LA separately)

*Sale Consideration in context of this section includes charges of all nature of club membership fees, car parking fees, electricity or water fees, maintenance fees, advance fees or any other charges of similar nature which are incidental to transfer of immovable property.

 

When is TDS to be deducted?

TDS under Section 194IA is to be deducted at earliest of the following:-

·         Credit of such sum in account of transferor  or

·         Payment of such sum in cash or by cheque or by draft or by any other mode

 

How much TDS is to be deducted?

TDS is to be deducted @ 1% of Sale consideration received

The above rate of 1% was amended to 0.75% for the period 14.05.2020 to 31.03.2021 due to COVID-19(section 197B)

 

 

Non Applicability of Section 203A

Unlike other sections of TDS, under this section, The buyer (doing deduction of TDS) is not required to obtain TAN to deduct and deposit TDS under this section. Under this section, he can deposit TDS to Government’s Account without using TAN number following few simple steps explained below.

 

Steps to deposit tax deducted under Section 194IA

The buyer of property needs to file Form 26QB which is used to deposit tax deducted under this section. The buyer of the property needs to follow below mentioned steps in order to deposit tax deducted from sale consideration to be paid to seller.

Step 1 :- The buyer has to go to:-

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

Step 2:- Click on Form 26QB and select 0020 in case one is corporate payer and 0021 in case one is non-corporate payer and then necessary details need to be filled out.

Step 3:- Selecting mode of payment-Here buyer can either choose e-tax payment immediately option and thus can pay using Netbanking facility or he can choose e-tax payment on the subsequent date option and thus can generate challan and then pay manually through visiting a bank.  

Step 4:- Go to Traces Website:-

·         Visit https://www.tdscpc.gov.in/app/tapreg1.xhtml in case of First time user to register and then register by filling out necessary details.

·         Visit https://www.tdscpc.gov.in/app/login.xhtml in case already registered and Login using credentials

Step 5:- Once registered/Logged in, One can download Form 16B which is a TDS certificate to be issued by Buyer to Seller as proof of deduction and deposit of TDS so that seller can claim it in his Income tax return. Form 16B is available around 7 days after the tax has been duly deposited.

Taxation of Interest on PPF

#Incometax #Budget
Union Budget 2021 has introduced provision that makes interest on employee contributions exceeding Rs.2.5 lakhs a year to the Employees’ Provident Fund as taxable w.e.f. April 2021. This also covers contribution by Government employees towards GPF.
However, the provision is going to impact only High net worth individuals since Interest above 2.5 lakhs can be earned P.A. only when you are having corpus of 28 lakhs+.
Exact Provision along with clarification will be rolled out soon.

Due date to file ITR for AY 2019-20

The due date to file ITR for AY 2019-20 under section 134(4) --Belated Return 

and section 139(5) -- Revised return

has been extended to 30.11.2020 due to COVID.

Earlier it was 31.03.2020 which was extended to 30.09.2020 and now further extended to 30.11.2020

Do file your pending ITR for AY 2019-20 before time passes out.

No section 194N TDS if cash withdrawn isn’t income of account holder: Madras HC

Sharing case law posted by Taxmann.

Tirunelveli District Central Co-operative Bank Ltd. v. JCIT - [2020] 119 taxmann.com 21 (Madras)

Assessee was a society licensed by the RBI to carry on banking business. The main account holders of assessee-society were various Primary Co-operative societies which provide loans and advances. Assessee granted loan to the member societies. The member-Societies withdraw cash from their accounts for making cash disbursements of loans granted to farmers as most of the farmers did not have bank accounts.

Income-tax Officer (ITO) conducted survey proceedings at the business premises of assessee and found that assessee was not deducting TDS under section 194N. Based on data gathered during the survey, show cause notices were issued to assessee. He called assessee to explain why an order should not be passed under section 201(1) and 201(1A) to recover the default amount with interest from them.

Assessee contended that by reading section 194N along with section 201, one can safely conclude that if sum received by assessee will not be an income at his hands, question of deduction under section 194N will not arise. The Bombay HC in case of Rashmikant Shah v. Union of India [2019] 108 taxmann.com 181 (Bombay) has held that the provision of TDS is not a charging provision. It only makes deduction of tax at source on payment which is income in hands of payee. If the payee has no liability to pay tax on such income. Liability to deduct TDS in the hands of the payer cannot be fastened.

On writ, Madras HC held that AO failed to take into account the entire scheme of the Act and proceeded at breakneck speed. Thus, the matter was remitted back to AO for issuing fresh notice to assessee. Assessee was, at liberty, to bring on record the returns filed by member societies who had withdrawn cash beyond the ceiling limit of Rs. 1 crore.

It was open to assessee to establish before AO that the sums withdrawn by the member societies do not represent income at their hands. If AO was satisfied that the amount withdrawn did not represent income at their hands, he will drop further action. If he is not so satisfied, it was open to him to pass further orders in accordance with the law.