In this document we have discussed the amendment relating to Tax on Interest earned on PF/RPF, Late Fee on delay filing of Income Tax Return, Liable to Tax viz-a-viz Residential Status, Amendment in Equalization Levy.

Under Part 1 we had provided amendment relating to Goodwill, Slump Sale, ULIP and Taxability on assets/stock/money received by Partner/member under Reconstitution/Dissolution of Firm/AOP/BOI

We believe that you will find this document useful.

> Tax on Interest earned on Provident Fund or Recognised Provident Fund:

Section Covered – 10(11), 10(12)

  • As per the provision of Section 10(11) and 10(12), the amount payable under Provident Fund (PF) or accumulated balance payable to employee under a Recognised Provident Fund (RPF) is exempt from tax.
  • Finance Act, 2021 introduces the threshold above which the interest earned on such PF/RPF will be taxable.
  • Following interest component is taxable:
    • Interest earned on the amount of Contribution exceeding INR 250,000 in a year
    • If there is no employer’s contribution in such fund then, Interest earned on the amount of contribution exceeding INR 500,000 in a year
  • We can take the following example to understand this provision
Assessee contribution during a year Employer also Contributes Taxability
INR 250,000 Yes No
INR 350,000 Yes Interest on contribution of INR 100,000 is taxable (i.e. exceeding INR 250,000)
INR 450,000 No No
INR 550,000 No Interest on contribution of INR 50,000 is taxable (i.e. exceeding INR 500,000)

> Late Fee on delay / default in filing Income Tax Return

Section Covered – 234F, 139

  • There is no change in the due date of filing income tax return u/s 139(1).
  • The belated return can be filed only till December 31st of assessment year u/s 139(4).
  • Late fee on belated returns or default in filing return can be summarized as under:
Sr No Late Fee Circumstances
1 NIL If return is not to be filed u/s 139 but person still files belated return
2 Rs 1000 If income does not exceed INR 500,000
3 Rs 5000 Any other case

> Defined “liable to Tax”

Section Covered – 2(29A), 6(1) and 6(1A)

  • “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country
  • The term liable to tax is being used in Section 6 of the Income Tax Act i.e. Section 6(1A) is introduced vide Finance Act, 2020.
  • As per section 6(1A), an individual being citizen of India having total income exceeding INR 15,00,000 (excluding foreign sourced income) then he shall be deemed to be resident in India only if he is not “liable to tax” in any other country. Section 6(1A) triggers only if the individual is not a resident as per section 6(1).
  • The word liable to tax is open for interpretations and vide Finance Act 2021, this phrase is defined in section 2(29A).
  • It is interesting thing to note in the definition of ‘liable to tax’ that, it shall include a person who has subsequently been exempted from such liability in that country.
  • Indian tax authority does not want to leave any Indian Citizens to enjoy the double non-taxation. However, Indian Government cannot tax all their citizen irrespective of their economic presence in India and hence, the Indian Revenue authority has come of with the threshold limit of Indian Sourced income exceeding INR 15,00,000 of such Indian Citizens.
  • Accordingly, such Indian citizens who are not becoming resident under section 6(1) may be still considered as ‘deemed resident’ if his income in India is more than INR 15,00,000 and such person is not liable to tax in other country.
  • Please note that the term ‘liable to tax’ is with respect to a person and not with respect to a particular income. It will be interesting to analyse the position where the Indian Citizen is not taxable in other country for some part of the income and taxable for other part of income.
  • Amendment in Equalisation Levy:

Section Covered – 165A of Finance Act, 2016

  • Finance Act, 2021 provided a definition of ‘consideration” and excluded from its scope the following:
    • Consideration for sale of goods owned by or services provided by person resident in India
    • Consideration for sale of goods owned by or services provided by Non-Resident person wherein such sale or provision of services are effectively connected with the PE in India
  • It is important to note here the that the above transactions excluded from the Equalisation Levy is being covered under provision of tax withholding u/s 194O as introduced in Finance Act, 2020.

Source:

Finance Act, 2021 (No. 13 of 2021) received the assent of the President on the
28th March, 2021

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Disclaimer:

The information contained herein is of a general nature and does not contain any expert view or opinion. Please refer source documents for detailed information. Although we try to provide accurate information, there can be no guarantee that such information is accurate as of the time it is received or in the future.  We request readers to seek professional advice before arriving at any decision / conclusion after reading of this document. We are not responsible for any loss arising to anyone after referring and relying on this document.

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