Mandatory Annual Compliance for a Private Limited Company

Appointment of Auditor

Appointing an auditor within 30 days of registration is one of the first stages for a newly established private limited business.

Annual General Meeting (AGM)

Hold the first AGM within 9 months after the fiscal year’s end.

Annual Financial Statements

Prepare and file financial statements with the Registrar of Companies (ROC) within 30 days of the AGM, including the Balance Sheet and Profit and Loss Account.

Income Tax Return (ITR)

Returns on income must be filed by the due date. The deadline is determined by the company’s turnover and other variables.

ROC Annual Return

Within 60 days of the AGM, file an annual return with ROC. This includes information about the company’s shareholders, directors, and other important details.

Statutory Registers and Records

Maintain statutory registers and records in accordance with the Companies Act of 2013. These include the registration of members, the register of directors, and meeting minutes.

Types of Audits of a Private Limited Company

Statutory Audit

This is the primary and mandatory audit performed by a company-appointed external auditor. The goal is to ensure that the financial statements provide a true and fair picture of the company’s financial situation.

Internal Audit

While internal audits are not required for private limited corporations unless their turnover and borrowings exceeds 200 CR and 100 CR respectively, they can be used to analyze internal controls, policy compliance, and risk management.

Tax Audit

If the company’s turnover surpasses a specific threshold (as defined by the Income Tax Act), a tax audit may be required to guarantee that tax regulations are followed.

Procedure for Auditor Appointment

First Auditor

The Board of Directors normally appoints the first auditor of a newly registered private limited company within 30 days after establishment. The auditor appointed will serve until the first AGM.

Subsequent Auditor Appointments

Shareholders elect auditors at the annual meeting. If the shareholders fail to nominate an auditor, the Board has the authority to do so.

Rights and Duties of an Auditor

Rights of an Auditor

• Access to the books, records, and documents of the company.
• The right to request information and explanations from company officers.
• The right to report any fraud, misappropriation, or irregularities to the members.

Duties of an Auditor

• Examine and report on the financial statements of the company.
• Check for conformity with accounting and auditing standards, as well as legal requirements.
• Any material misstatements or fraud discovered during the audit should be reported.

ROC Forms for Audit Requirements

The following are the primary ROC forms relating to audit requirements:

Form ADT-1

This is used to file the auditor’s appointment within 15 days of being appointed.

Form AOC-4

This is used to submit the financial statements, which include the Balance Sheet and Profit and Loss Account.

Form MGT-7

This is the annual return filed with ROC, which includes information on shareholders and directors.

Conclusion

Finally, meeting auditor appointment requirements is critical for a newly incorporated private limited business in India. It ensures openness, financial accuracy, and compliance with legal requirements. It is critical to be updated about audit compliance dates and procedures in order to prevent penalties and legal concerns. It is best to get professional assistance to traverse these requirements easily and quickly.

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LUT Registration

The procedure through which freelancers who export services receive a Letter of Undertaking from the tax authorities is referred to as LUT registration. This agreement allows them to export services without first paying the Integrated Goods and Services Tax (IGST).

LUT (Letter of Undertaking)

A Letter of Undertaking (LUT) is a legal document granted by the GST authorities that allows freelancers to export services without having to pay IGST. The LUT serves as the freelancer’s commitment to follow GST legislation and satisfy all required duties.

LUT’s Purpose and Benefits

The goal of LUT registration is to make it easier for freelancers who export services to do business. The following are the primary advantages of obtaining an LUT:

Avoiding the Payment of IGST on Exported Services

With an LUT, freelancers can export services without having to pay IGST beforehand, removing the need for funds to be blocked and minimizing the financial strain.

Simplifying Export Procedures

For freelancers, LUT registration simplifies the export procedure, allowing them to focus on their primary business activities without the bother of upfront tax payments or refunds.

Enhanced International Competitiveness

LUT registration gives freelancers a competitive advantage in international markets by making their services more cost-effective since they may offer them without the additional tax burden.

Documents Required for LUT Registration

• Copy of PAN (Permanent Account Number) card.
• Copy of GST registration certificate.
• Copy of canceled cheque or bank statement.

LUT Registration Procedure in Steps

To register for an LUT, freelancers must follow the steps below:

LUT Registration Prerequisites

• Valid GST Registration
• As a freelancer, be sure you have a valid GST registration.
• Active Bank Account
• Keep your GSTIN (GST Identification Number) linked to an active bank account.

Procedure for Submitting an Online Application

• Enter your login information into the GST portal.
• Select “User Services” from the “Services” tab.
• Select “Furnish Letter of Undertaking (LUT).”
• Fill up the LUT application form completely and submit it electronically.

Considerations for Freelancers

When applying for LUT registration, freelancers should consider the following factors:

LUT Expiry and Renewal

• The LUT is valid for one fiscal year, from April to March.
• To avoid any interruptions in the export process, ensure that the LUT is renewed before it expires.

LUT Revocation or Cancellation:

In the event of noncompliance or a change in circumstances, the GST authorities have the authority to revoke or cancel the LUT. To avoid penalties, notify the authorities of any changes as soon as possible.

Noncompliance’s Consequences

Non – compliance with LUT requirements can result in a number of consequences, including:

IGST payment

Failure to get or renew the LUT may result in the freelancer being required to pay IGST upfront, generating financial consequences.

Penalties and Legal Proceedings

Non – compliance with GST requirements can result in penalties, fines, and even legal action, affecting freelancers’ reputation and financial stability.

Common Problems and Solutions

During the LUT registration process, freelancers may face some difficulties. Here are a few examples of potential problems and their solutions:

Potential Problems with LUT Registration

• Incorrect or missing data in the LUT application.
• Technical problems or server-related issues on the GST interface.

Resolving Rejections and Errors

• Before submitting the LUT application, double-check all of the details.
• To address any issues or rejections encountered throughout the registration procedure, contact the GST helpline or a tax professional.

LUT Registration Best Practices

• Keep detailed records of export invoices and supporting documents.
• To maintain compliance, keep up to current on GST legislation and developments.

Expert Advice for Maximizing the Benefits

• To guarantee correct compliance and to maximize the benefits of LUT registration, seek professional guidance from tax specialists or consultants.
• Examine your export procedures and financial arrangements on a regular basis to find areas for improvement and cost savings.

Conclusion

LUT registration is a key component for freelancers who export services since it allows them to streamline their export procedures, decrease financial obligations, and increase competitiveness in international markets. By following GST requirements and acquiring an LUT, freelancers can concentrate on their primary business activities while benefiting from simplified taxation.

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TDS (Tax Deducted at Source)

TDS is a mechanism in which the payer deducts a percentage of the payment as tax before distributing it to the receiver. This tax is subsequently deposited with the government by the payer. It is a method of collecting taxes in advance in order to ensure tax compliance.

The Importance of TDS on Property Sales

TDS on property sales is critical since it prevents tax avoidance and ensures the government collects its rightful taxes. It also makes tax collection easier by dividing responsibilities between the buyer and seller.

TDS Applicability and Scope

TDS on property sales applies to both residential and commercial assets. It is governed by Section 194-IA of the Income Tax Act of 1961 and applies when the transaction value exceeds a defined level (50 Lacs). TDS (at the rate 1%) must be deducted and remitted to the government by the buyer. If the property is being sold jointly, the threshold restriction applies independently to each co-owner.

Understanding TDS on Property Sale

What is TDS on Property Sale?

The duty to deduct a specified percentage of the transaction value as tax at the time of property transfer is known as TDS. TDS must be deducted and deposited with the government by the buyer.

Legal Provisions and Applicable Sections

Section 194-IA of the Income Tax Act of 1961 outlines the legal provisions for TDS on property sales. This provision requires the buyer to deduct TDS when paying the vendor and deposit it with the government within the time frame indicated.

Responsibilities of the Seller

Acquiring a PAN (Permanent Account Number)

The vendor must obtain a Permanent Account Number (PAN) and submit it to the buyer. PAN is a unique identity issued by the Income Tax Department that is required for TDS compliance.

Capital Gains Calculation

The seller is responsible for determining the capital gains on the sale of the property. Capital gains are calculated using the sale price, the indexed cost of purchase, and any applicable deductions.

Income Tax Return Filing

To report the capital gains and pay any additional tax liability resulting from the property sale, the seller must submit an income tax return.

Seller’s Payment of TDS

Unlike the usual TDS principle, the seller of the property is not compelled to deduct TDS. Instead, the buyer deducts and deposits the TDS amount. However, the seller must verify that the buyer meets their TDS responsibilities.

TDS Certificate Issuance

The seller should guarantee that they receive the TDS certificate (Form 16B) as proof of tax deduction after receiving the TDS payment from the buyer. This certificate must be issued by the buyer.

Responsibilities of the Buyer

Property Sale TDS Deduction

TDS at the applicable rate (currently 1%) must be deducted by the buyer from the total payment provided to the vendor. The deduction should be done when the credit or payment is made, whichever comes first. If the value of property is more than 50 lacs then tds should be deducted from the first installment or partial payment whatever it is, one should not wait for the amount to reach 50 lacs to deduct the TDS under this section.

TDS Rates for Different Buyer Categories

The appropriate TDS rate for property sales in 2023 is 1% for individual and HUF buyers. TDS is 2% for all other categories of buyers, including corporations.

TDS Return Filing

The buyer must file TDS returns and submit Form 26QB to the Income Tax Department by the deadlines stated. Form 26QB contains information about the property transaction, TDS deduction, and other pertinent matters. You can do it yourself if you are sure about the provisions of TDS otherwise it is wise to take help of a professional since it is not a costly compliance. 

TDS Certificate Issuance to the Seller

Within 15 days of the TDS return’s due date, the buyer must furnish the seller with a TDS certificate (Form 16B). The TDS certificate acts as documentation of tax deduction and allows the seller to claim credit for the TDS amount.

Deductions and Exemptions

Exemptions under Section 54 of the Income Tax Act

Section 54 exempts the seller from capital gains tax if the profits of the property sale are reinvested in another residential property within a defined time frame and other circumstances stipulated in the Act.

Long-Term Capital Gains Deductions

The seller can deduct long-term capital gains by investing in certain bonds (Section 54EC) or using the capital gains amount to start a new firm (Section 54GB).

TDS Procedures

TDS Payment and Return Deadlines

The buyer’s TDS must be deposited with the government within seven days after the end of the month in which it was deducted. Form 26QB should be used to file TDS returns quarterly.

Correct TDS Amount Calculation

The TDS should be computed based on the total consideration paid for the property, including all transaction charges but excluding taxes such as GST. The TDS should be deducted from the seller’s payment.

Forms 26QB and 16B

The buyer files TDS returns using Form 26QB, while the seller receives Form 16B as confirmation of tax deduction. Both forms are electronically submitted to the Income Tax Department.

Noncompliance Penalties

Noncompliance with TDS requirements may result in penalties and interest. TDS penalties and legal ramifications might result from late filing or non-payment. 

Interest for TDS not deducted

1% per month or part thereof from the date on which tds was to be deducted to the date when tds actually got deducted

Interest for TDS deducted but not paid

1.5% per month or part thereof from the date on which TDS was to be deposited to the date when it actually got deposited.

Even for a delay of one day, you end up paying interest for the whole month. For example: you deducted TDS in May month and deposit by 8th of June, you would have to pay interest for both June or July. That is why it is mentioned “month or part thereof”.

Penalty for late filing of 26QB

 Penalty is Rs.200 per day till default continues. However the total penalty cannot exceed the amount of tds. For loan period default such as more than a year , your penalty calculation would be done by your income tax assessing officer.

Therefore, it is critical to follow the schedules and processes that have been established.

Non-Resident Sellers and TDS

NRI Sellers’ TDS Obligations

If the seller is a Non-Resident Indian (NRI), the buyer must deduct TDS and complete the duties outlined in Section 195 of the Income Tax Act. TDS rates and other provisions for NRIs may differ.

Acquiring a Tax Clearance Certificate (TCC)

Before selling a property, NRIs may need to get a Tax Clearance Certificate (TCC) from the Income Tax Department. This certificate guarantees that all tax responsibilities have been satisfied prior to the transaction’s completion.

The Impact of Double Taxation Agreements (DTAA)

The DTAA is a treaty signed by India and other nations to prevent double taxation. NRIs can take use of DTAA provisions to lower their tax burden and claim relief if they have already paid taxes in another nation.

Read more: TDS on Property Sale for NRI

TDS and Joint Ownership

TDS Requirements for Shared Properties

If the property is owned jointly, the TDS maximum of ₹ 50 lakh applies to each co-owner separately. The buyer must deduct TDS in proportion to each co-owner’s ownership share.

Determining TDS Liability in a Joint Venture

The TDS liability should be computed using the amount paid to each co-owner. The buyer must deduct TDS separately for each co-owner and produce separate TDS certificates (Form 16B) as a result.

TDS Adjustments and Refunds

TDS Refund Claiming Procedure

If the TDS deducted exceeds the actual tax liability, the seller may be entitled to a refund by filing an income tax return. The excess TDS amount can be offset against other tax liabilities or refunded.

TDS Adjustments Against Tax Liabilities

The seller can offset the buyer’s TDS deduction against their overall tax liability for the fiscal year. When determining the final tax liability, the TDS amount should be considered.

Common Problems and Solutions

Common TDS difficulties include inaccurate TDS deduction, non-issuance of TDS certificates, and anomalies in TDS returns. These concerns can be resolved with proper communication and collaboration between the customer and supplier.

Conclusion

TDS on property sales is an important tax compliance requirement aimed at streamlining the tax collection process and preventing tax evasion. Buyers and sellers must be aware of their respective obligations and follow the TDS regulations established in the Income Tax Laws in India. Stay up to date on the newest developments and, if necessary, get professional help to efficiently negotiate the complexity of TDS on property sales.

Need professional assistance, contact us: info@taxvic.com

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Is the receipt of monetary gifts by an individual or Hindu Undivided Family (HUF) taxable?

Yes, under the Income Tax Act of 1961, monetary gifts received by an individual or HUF are taxable.

Is there a limit to the amount of gifts that an individual or HUF can receive without being taxed?

Yes, gifts worth up to Rs. 50,000 are tax-free in a fiscal year. Gifts in excess of this amount are taxed.

Is there any circumstance in which a sum of money received without consideration, namely, a monetary gift received by an individual or HUF, is not taxed?

Yes, there are some circumstances in which monetary gifts received without consideration are not taxed. Gifts obtained on the occasion of marriage, gifts received under a will or by form of inheritance, gifts received in anticipation of the donor’s death, or gifts received from any municipal authority or charitable institution are examples of these.

Gifts provided by family members are tax-free. Who will be regarded relatives for the purposes of this exemption?

For the purposes of claiming exemption, the term “relative” covers the spouse, siblings, siblings of the spouse, lineal ascendants or descendants, and their spouses.

Are there any additional circumstances where monetary donations received by an individual are not subject to taxation?

Yes, monetary presents received on events such as birthdays, anniversaries, or other ceremonial occasions are not taxed if the total amount of gifts received does not exceed Rs. 50,000 in a fiscal year.

Are monetary gifts from friend’s tax deductible?

Yes, monetary gifts from friends are taxed if the total amount of gifts received during the year exceeds Rs. 50,000.

Are monetary gifts received from overseas taxed?

Yes, monetary gifts from overseas are taxed in India if the total amount of the presents received during the year exceeds Rs. 50,000. However, particular provisions based on tax treaties between India and the relevant foreign country may apply.

An individual received various cash gifts from friends, none of which above Rs. 50,000, but the total of the gifts received during the year topped Rs. 50,000. In such a circumstance, how would the taxation be handled?

In this situation, the total amount of gifts received will be taxed if it exceeds Rs. 50,000. To evaluate taxability, the individual must consider the entire value of gifts received during the year.

If an individual or HUF’s total value of gifts received during the year exceeds Rs. 50,000, will the complete amount of presents be subject to tax or simply the amount in excess of Rs. 50,000?

If the total value of gifts received during the year exceeds Rs. 50,000, only the excess amount will be subject to tax. Gifts of up to Rs. 50,000 are tax-free.

Is it possible that the value of immovable property obtained by an individual or HUF without consideration (as a gift) is not taxed?

Yes, in some situations, the value of immovable property obtained by an individual or HUF without consideration is not taxed. Gifts obtained on the occasion of marriage, gifts received under a will or by way of inheritance, gifts received in anticipation of the donor’s death, or gifts received from any municipal authority or charitable institution are examples of these.

A person received three properties as a present from a friend. The value of none of the properties topped Rs. 50,000, but the combined worth of these three assets did. In this instance, how will the gift be taxed?

In this condition, the gift will be taxed because the value of each individual property is less than Rs. 50,000 and the total value of all three properties exceeds Rs. 50,000. To determine taxability, the individual must examine the total aggregate value of gifts received during the year.

Are immovable properties given as a gift from friends taxed?

Yes, if the total value of presents received during the year exceeds Rs. 50,000, immovable properties acquired as a gift from friends are taxable. The value of the gift is determined by taking the stamp duty value or the fair market value (whichever is greater).

A friend gave an individual a flat as a gift. The flat’s stamp duty value is Rs. 88,000. In this instance, will the complete value of the gifted property be taxed, or will only the value in excess of Rs. 50,000 be taxed?

In this scenario, because the stamp duty value of the flat exceeds Rs. 50,000, the full value of the gifted property will be taxed. In the case of immovable property, the stamp duty value is used to determine the value of the gift.

Is there any taxability if an immovable property is purchased for less than its stamp duty value?

Yes, if an immovable property is purchased for less than its stamp duty value, the difference (if there is any) may be considered as income from other sources and taxed.

Is there any occurrence in which an immovable property acquired by an individual or HUF for less than its stamp duty value is not taxed?

No, if an individual or HUF receives an immovable property for less than the stamp duty value, the difference between the stamp duty value and the real consideration (if any) is normally taxed as income from other sources.

Are moveable property gifts received by an individual or HUF taxed?

Yes, moveable property gifts received by an individual or HUF are taxed if the total value of gifts received throughout the year exceeds Rs. 50,000. The fair market value of the moveable property is used to calculate the value of the gift.

A person received jewellery as a gift from his friends. The entire worth of jewellery received as a gift from all of my friends over the year was Rs. 88,000. In this instance, how will the gift be taxed?

Because the total amount of jewellery received during the year exceeds Rs. 50,000 in this scenario, the entire value of the gift (Rs. 88,000) would be taxed. In the case of movable property, the fair market value of the jewellery is used to determine the value of the present.

Please refer to the table below for a summary of taxation:

Is a minor child’s gift taxable?

Yes, the gifts received by a minor child are taxable.

Can gifts received by an individual or HUF be deducted when calculating taxable income?

Gifts received by a person or HUF are not deductible when calculating taxable income. They are recognized as taxable income in the recipient’s hands.

Are gifts from non-relatives tax-free if the value is less than Rs. 50,000?

No, gifts from non-relatives are taxable regardless of their monetary worth. The Rs. 50,000 exemption limit applies solely to presents received on special occasions or from specific relatives.

Are gifts made to charitable organizations or trusts taxable?

Yes, unless specifically exempted under the provisions of the Income Tax Act, gifts received by charitable institutions or trusts are normally taxable.

Is it necessary to record gifts received?

Yes, if the total value of gifts received during the year exceeds Rs. 50,000, such presents must be disclosed while filing the income tax return. The specifics of the presents should be provided in the format specified.

Disclaimer: The content in this blog is given for general information purposes only and should not be construed as professional tax or legal advice. It is best to consult a certified tax professional or refer to the Income Tax Act and relevant guidelines for particular advice regarding your circumstances.

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A Tax Residency Certificate (TRC) is a document provided by a country’s tax authorities to a taxpayer who is a resident of that country for the purpose of claiming advantages under the countries’ Double Taxation Avoidance Agreement (DTAA). It confirms that the individual named in the document is a tax resident of that country.

Tax Residency Certificate Importance

The significance of a Tax Residency Certificate resides in its ability to prevent income from being taxed twice. The certificate enables the taxpayer to claim benefits under the two-country DTAA. The DTAA is a bilateral agreement between two countries to avoid double taxation of income, and the TRC assists in assessing the taxpayer’s tax due in both countries.

Income Types Covered

The following types of income are covered by the TRC:

• Immovable property income
• Profits from business
• Earned salary in a foreign nation
• Dividends received from Shares and other Funds
• Fixed deposit and savings bank account interest
• Royalties
• Capital gains

Income Tax Act of 1961 TRC Certificate

A Tax Residency Certificate is required by the Income Tax Act 1961 for a taxpayer to claim benefits under the DTAA. The TRC validates the taxpayer’s residential status and must be given to the tax authorities together with the tax returns.

Form10FA – Obtaining a TRC Certificate

A taxpayer in India must fill out and submit Form 10FA to the tax authorities in order to obtain a TRC Certificate. The form requests personal information from the taxpayer, such as name, address, and PAN card information. The form also requests information on the TRC’s aim, such as the type of income and the countries involved.

TRC for Indian Resident Taxpayer

An Indian resident taxpayer must complete and submit Form 10FA to the Indian tax authorities in order to acquire a TRC. The form requests personal information from the taxpayer, such as name, address, and Permanent Account Number (PAN) card information. The form also requests information on the TRC’s aim, such as the type of income and the countries involved.

TRC for Non-Resident Taxpayer

To get a TRC, a non-resident taxpayer must follow the procedure outlined by the tax authorities of the nation in which they reside. The procedure varies by country, but it usually includes the following steps:

• Contact the tax authorities in the nation where you live to learn about the TRC application process.
• Submit the appropriate documentation in accordance with the process outlined by the tax authorities. Proof of residency, such as a tax return or a certificate of residency, is frequently included with the paperwork.
• Wait for the tax authorities to issue the TRC. The time it takes to issue a TRC differs based on the jurisdiction and the tax authorities’ workload.
• Once the TRC is issued, submit it to the Indian tax authorities along with the tax returns in order to obtain DTAA benefits.

[Contact us if you have queries or want to get TRC: info@taxvic.com ]

Tax Residency Certificate Format

The tax authorities in India regulate the structure of the Tax Residency Certificate, which includes the taxpayer’s name, address, and PAN card information. It also includes information on the countries’ tax treaties and the type of income for which the TRC is being issued.

Form 10F

Form 10F is the form that must be completed in order to receive a TRC in India. It asks the taxpayer to supply information such as their name, residence, and PAN card number. It also necessitates information on the nations covered by the tax treaty, the type of the income, and the length of stay in India.

Form 10F information requirements

The following information is required on Form 10F:

• The taxpayer’s name, residence, and PAN card number
• Details about the nations that have signed the tax treaty
• The type of income for which the TRC is issued
• The duration of stay in India

Benefits of a Tax Residency Certificate

The following are the benefits of obtaining a Tax Residency Certificate:

• It assists in avoiding income taxation multiple times.
• It clarifies the taxpayer’s tax liability in both nations.
• It helps in obtaining benefits under the DTAA between the countries.
• It offers a clear picture of the taxpayer’s residential status for tax purposes.

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Under the Liberalised Remittance Scheme (LRS), the bank is obligated to collect TCS at a rate of 5% on total remittances exceeding 7 lacs for the fiscal year preceding Budget 2023.In the case of an international tour package transaction, the seller must collect TCS on the whole amount received from the buyer, regardless of any limit.

Taxes paid under the new TCS regulations can be deducted from your total tax liability. It can be claimed as an income tax refund or a credit after filing the Tax Return for the relevant period.

TCS on Foreign Remittances in Budget 2023

Except for medical and educational purposes, the 5% rate has been raised to 20%. The new TCS will go into effect on July 1, 2023.

TCS for International Credit Card Transactions

The Finance Ministry recently issued the new FEMA guidelines, which stated that credit card spending outside of India, along with debit cards, forex cards, and bank transfers, will be covered under LRS.

TCS of 20% is applied to foreign credit card transactions made outside of India. The maximum is 7lacs, hence if transactions surpass 7lacs, TCS is attracted at a 20% rate.

FAQs

What precisely is LRS?

The Liberalised Remittance Scheme (LRS) is governed by the Foreign Exchange Management Act (FEMA) of 1999, which establishes the rules for outward remittances from India. All resident individuals, including children, are permitted to freely remit up to USD 250,000 per fiscal year (April to March) under LRS.
The LRS contains a thorough list of reasons for which funds can be remitted outside of India. Some of these are as follows:

a)       Foreign travel and tourism (except in Nepal and Bhutan)
b)      Traveling abroad for employment
c)       Immigration
d)      Support for close relatives residing outside of India
e)      Expenses incurred as a result of medical care received outside of India
f)        Payment provided for the sake of international education
g)       Creating a foreign currency account with a bank in another country
h)      Purchasing property outside of India
i)        Making international investments in stocks, bonds, mutual funds, venture capital firms, and so on.

Is the LRS plan subject to any restrictions?

Some of the constraints are listed below.

a)       In a fiscal year, the maximum amount that can be remitted is USD 2,50,000. Any sum in excess of this limit requires RBI approval.
b)      Certain activities, including as real estate, lottery ticket purchases, margin trading, and foreign exchange market speculation, are not permitted under this program.
c)       The beneficiary of the cash must be a person residing outside of India and must be eligible to receive funds from India in accordance with the country’s foreign exchange regulations.

What is the new rule for foreign credit card transactions that was just implemented?

Credit card expenditure in foreign currency via international credit card will now be included in LRS’s yearly limit of USD 2,50,000. Furthermore, it will be subject to tax collected at source (TCS). Previously, only debit cards, forex cards, and bank transfers were accepted.

TCS on foreign transfers under the LRS has been increased from 5% to 20% in Budget 2023 (save for education and medical needs). This rule will go into effect on July 1, 2023.

The bank will now collect an additional TCS of 20% from the credit card customer to deposit the same as TCS. The TCS collected would be placed in the credit card holder’s PAN and might be offset against the credit card holder’s income tax bill for that fiscal year.

The finance ministry noted in a statement posted on May 19, 2023, “Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalized Remittance Scheme (LRS) beginning July 1, 2023.” To avoid any procedural uncertainty, it has been determined that any payments made by an individual using their overseas Debit or Credit card up to Rs 7 lakh per fiscal year will be exempt from the LRS restrictions and thus will not incur any TCS.

What is the NRI Liberalised Remittance Scheme?

NRIs are not permitted to open resident Indian savings bank accounts. The LRS plan strictly pertains to Indian residents who can only have NRE, NRO, or FCNR accounts and can only remit funds outside of India from NRE, NRO, or FCNR accounts, subject to laws and the relevant documentation.

They can transfer up to USD 1 million per year from an NRO account.

Remittances from an NRE or FCNR account are not subject to any restrictions.

TaxVic assists individuals and businesses with international remittance compliance. Contact us at info@taxvic.com if you wish to speak with an expert or require any services related to international remittance and tax compliance.

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Currently, the following services are covered under the Equalisation Levy in India:

• Online advertising services
• Provision for digital advertising space
• Any other service as may be notified by the government

The Government of India has the power to notify additional services that would be subject to the Equalisation Levy in the future. The definition of the services covered by the Equalisation Levy is broad and aims to cover all forms of digital services that are provided to Indian residents or businesses by non-resident companies. However, it is important to note that not all digital services are subject to the Equalisation Levy, only the specified ones as notified by the government.

The Equalisation Levy is a tax imposed by the Indian government on specified digital services, it is tax withheld at the time of payment by the service recipient. If below two conditions are met then it becomes mandatory for the service recipient in India to withhold the tax prescribed under equalisation levy. 

• The payment made to a non-resident service provider.
• The annual payment made to one service provider is more than Rs. 1,00,000 in one financial year.

Rate of Tax under Equalisation levy

Under this rule, the rate of tax is 6% of the gross consideration to be paid.

Example: ABC an Indian entity has availed digital advertisement services on a platform which is located in Singapore to promote his business. It has to pay Rs. 5,00,000 in FY 2023-24 to the Singapore entity for the advertising services availed.

ABC will have to now deduct tax under Equalisation Levy at the rate of 6% of Rs. 5,00,000 = Rs.30,000 and pay the balance of Rs. 4,70,000 to the Singapore entity.

When is it Not applicable, The 6% EV?

If that non-resident service provider has a permanent establishment in India. or if, the requested service is related to that permanent establishment.

The total amount of the consideration to be paid for the specific service received or payable is less than Rs. 1,00,000.

The service described is not intended to be used for the business purpose.

Equalisation Levy Expansion

In 2020 Government of India expanded the scope of this levy by covering other digital and e-commerce space, the objective was to cover a larger number of transactions. It brought a rule to cover all non-residents whose owners operate or manage an e-commerce platform for online sale of goods or services or both or facilitation of such sale. This new levy system is not applicable for the already existing levy system of 6% that is applicable to online advertising or the provision of digital space.

Under this new levy, tax rate will be 2% on consideration receivable by a non-resident “e-commerce operator” for “e-commerce supply or services” provided or facilitated by it on or after 1st of April 2020.

What does e-commerce operator mean?

Anyone who owns, operates, or manages a digital facility for the online sale of goods or services or both.

What does E-commerce supply or services mean?

It means online sale of goods or services (including facilitation of the sale of such goods or services) by an e-commerce operator.

The equalisation levy is applicable when a sale is made, or service is provided to either an Indian resident, or to any person who buys goods or services using an internet protocol (IP) address located in India, or to a non-resident in ‘specified circumstances.’

These ‘specified circumstances’ include firstly, the sale of advertisement targeting an Indian resident customer or a customer accessing the advertisement through an Indian IP address, and secondly, the sale of data collected from Indian residents or from persons who use an Indian IP address.

When is it Not applicable, The 2% EV?

An “e-commerce operator” will be excluded from the 2% tax if that operator has permanent establishment in India and the e-commerce supply or service is effectively connected with this permanent establishment; or if the turnover of the e-commerce operator (on which the 2% equalisation levy is otherwise leviable) is less than Rs. 2 Crores during the financial year.

Due Dates for Compliance 

The responsibility to comply with the law of 2% levy is that of non-resident e-commerce operators. and for 6%, it is the responsibility of the resident service recipient to deduct tax and to file the tax forms of EV.

The tax deducted under 6% EV has to be deposited by 7th of the following month by recipient of services

The tax deducted under 2% EV has to be deposited quarterly, 7th of month following the end of quarter by non-resident e-commerce operator.

Along with the payment of tax or say deposit of tax with the government, a form has to be filed with the Government. Equalisation levy statement has to be filed by 30th June after the financial year ends.

Consequences of Delayed Payments of EV

• Failure to deduct the equalisation levy: The penalty amount will be equivalent to the Equalisation Levy that the assessor failed to deduct.
• The levy has been deducted from the payment being made but has not been deposited. The fine amount in this case will be Rs. 1,000 per day till the default continues, but the amount of a penalty must be less than the sum of the Equalisation Levy.
• On failing to file the Equalisation Levy statement within the prescribed due date, there is a penalty of Rs.100 per day if the default persists.
• There is imprisonment of a term of up to 3 years and a fine on submission of false statements.

For more information, please contact us: info@taxvic.com
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Every taxpayer in India, including individuals and businesses, is required to have a PAN card. It is needed for financial transactions such as opening a bank account, investing, purchasing or selling real estate, or applying for loans.

A PAN card allows the Income Tax Department to trace an individual’s or entity’s financial transactions, decreasing the possibility of tax evasion. PAN card users are also obliged to file annual income tax returns, which assists the government in tracking tax compliance.

As a result, anyone who intends to conduct financial operations in India must obtain a PAN card.

Eligible for PAN Card Application

The Indian Income Tax Department provides PANs (Permanent Account Numbers), which are 10-digit unique identifying numbers. The following are the eligibility requirements for obtaining a PAN card:

Individual

Anyone, whether a resident or non-resident of India, can apply for a PAN card.

Hindu Undivided Families (HUF)

HUFs can apply for a PAN card independently of its members.

Minors

Minors are also eligible to apply for a PAN card, and their parents or guardians may do so on their behalf.

Mentally handicapped Individuals

Individuals with mental disabilities can also apply for a PAN card, and their guardians can do that on their behalf.

Partnership Firm

Partnership firms can apply for a PAN card in their own name.

Limited Liability Partnership (LLP)

LLPs can apply for a PAN card with their own name. [Read more about LLP Here.]

Trusts

PAN cards can be obtained by trusts, whether public or private.

Companies

A PAN card can be obtained by any company, public or private.

Local Authorities

Municipalities, Panchayats, and other similar bodies are eligible to apply for a PAN card.

Association of Persons (AOP)

PAN cards can be obtained by AOPs such as clubs, societies, and other similar organizations.

Artificial Judicial Person

A PAN card can be obtained by any artificial judicial person, such as a court or tribunal.

Documents Required for Indian Citizens to get PAN

For an Indian citizen to register for a Permanent Account Number, the following documents are required:

Proof of Identity

As proof of identity, any of the following documents may be submitted.

• Aadhaar Card issued by the Unique Identification Authority of India.
• Voter ID card issued by the Election Commission of India.
• Passport.
• Driving License.
• Ration card with applicant photograph.
• Arm’s license.
• Pensioner card with applicant photograph.

Proof of Address

As proof of address, any of the following documents may be submitted.

• Aadhaar Card issued by the Unique Identification Authority of India.
• Voter ID card issued by the Election Commission of India.
• Passport.
• Driving License.
• Property Tax Assessment Order.
• Electricity Bill (Not older than three months).
• Landline telephone or broadband connection bill (Not older than three months).
• Water bill (Not older than three months).
• Consumer gas connection card or book or piped gas bill (Not older than three months).
• Bank account statement (Not older than three months).
• Depository account statement (Not older than three months).
• Credit card statement (Not older than three months).
• Domicile certificate issued by the Government.
• Employer’s certificate in original.

Proof of Date of Birth

Any of the following papers can be used to prove applicant date of birth.

• Birth certificate issued by the Municipal Authority, or any office authorized by the Registrar of Births and Deaths or the Indian Consulate to issue birth and death certificates.
• SSLC Book/Certificate.
• Passport.
• Certificate of identity signed by a Gazetted Officer.
• Driving License.

Note: The above documents must be self-attested and accompanied by two current passport-sized photos.

Eligibility Criteria and Documents Required for Foreign Citizens / Entities

Foreign Citizens/Individuals

Foreign citizens and persons with a source of income in India may apply for a PAN card. The following documents must be included with your application:

Proof of Identity

Passport, OCI (Overseas Citizen of India) Card, or any other national ID proof.

Proof of Address

Utility bills, bank statements, or rental agreements are all acceptable forms of address proof.

Foreign Entities

If a foreign entity, such as a company, firm, or trust, has a commercial or financial transaction in India, they can apply for a PAN card. The following documents must be included with your application:

Certificate of Registration

Foreign entity registration certificate issued by the competent authorities in the nation where the entity is registered.

Proof of Address

Any address proof such as utility bills, bank statements, or rental agreements.

Proof of Identity

Passport of the authorized signatory.

Having issues with PAN and want a Professional help, kindly connect with us for more information and support. Contact: info@taxvic.com

Why is a PAN Card required?

A PAN card is required for multitude of reasons:

• It is required for financial transactions such as opening a bank account, making investments, purchasing or selling real estate, or applying for loans.
• It assists the Income Tax Department in tracking an individual’s or entity’s financial transactions, minimizing the possibility of tax evasion.
• PAN card users are obliged to file annual income tax returns, which assists the government in tracking tax compliance.
• It can be used as a valid ID proof for a variety of purposes, including applying for a passport, a loan, or a credit card.

To summarize, a PAN card is a required document for anyone wishing to do financial activities in India, and it supports in tracking financial transactions and guaranteeing tax compliance.

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A FIRC (Foreign Inward Remittance Certificate) is a document that acts as proof of a foreign exchange inflow transaction. In India, approved banks provide FIRC to Indian residents who receive foreign funds in their accounts. The FIRC is a critical document for firms and people who receive foreign currency payments. It acts as proof of money receipt and that can be used for a wide range of purposes, which would include tax returns, regulatory compliance, and providing documentation of foreign exchange earnings for export-related transactions.

Categories of FIRC

Foreign Inward Remittance Certificates are classified into two types:

Physical FIRC

Physical FIRCs are paper-based certificates issued by acknowledged banks.

E-FIRC

The E-FIRC is an online-accessible digital certificate. It would be a more convenient choice since it does not require physical copies and can be retrieved from everywhere all the time.

How to apply for a Foreign Inward Remittance Certificate?

The following procedures are involved in the request for a Foreign Inward Remittance Certificate (FIRC):

• Following RBI requirements and the bank from which the remittance has been issued in India.
• The recipient must make a request to their bank for the FIRC with the following information.
  • Account number
  • Transfer Amount
  • Date of transfer
  • Purpose of transfer
  • UTR Number details
  • Receiver Details
• The FIRC is issued when the bank checks the transaction data.
• The recipient can obtain a physical FIRC from the bank or access the E-FIRC online.

What information does the Foreign Inward Remittance Certificate Format contain?

The FIRC has the following information:

• The name and address of the remitter.
• The purpose of the remittance.
• The amount received in foreign currency.
• The exchange rate applied for converting the foreign currency into the local currency.

How to obtain an E-FIRC online?

To obtain an E-FIRC online, the receiver must complete the following steps:

• Access the authorized bank’s website.
• Navigate to the FIRC section and choose the appropriate transaction.
• Enter the required information and submit the request.

The bank inspects the details and issues the E-FIRC.

The FIRC is issued by recognized banks in accordance with the Reserve Bank of India’s (RBI) standards. The FIRC is required for GST compliance considerations when exporting services.

If you need any guidance on compliance aspects of Foreign inward remittance, Book appointment with our compliance expert CA Reetu. Visit Tax Vic website and book an appointment.

Procedure for Issuing FIRCs Notifications

The RBI has issued notifications outlining the procedure for issuing FIRCs, and authorized banks must abide this guidance. The guidance are as follows:

• Details on the FIRC’s format.
• The data to be included in the FIRC.
• The timeline by which the FIRC must be provided.

What is the distinction between a FIRC (Foreign Inward Remittance Certificate) and a BRC (Bank Realization Certificate)?

There are distinctions between the FIRC and the Bank Realization Certificate (BRC). The BRC is issued to exporters and acts as proof of payment for items exported. In contrast, the FIRC is granted to residents who receive foreign funds in their accounts.

For more detail, please contact us info@taxvic.com

Finally, the Foreign Inward Remittance Certificate (FIRC) is a critical document for firms and people receiving foreign exchange payments in India. The FIRC serves as proof of funds receipt and can be utilized for number of purposes, such as including tax returns, regulatory compliance, and verification of foreign exchange earnings for export-related transactions. The issuance of the FIRC is subject to RBI guidelines, and authorized institutions must follow these guidelines. Because it eliminates the necessity for physical copies and therefore can be accessed online, the E-FIRC is a more sensible option for recipients.

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