Have you forgotten to double-check your tax return? Carry it out.

Have you forgotten to double-check your tax return? Carry it out

While ITRs can be validated electronically in five different methods, a physical copy can also be sent to Bengaluru’s Centralized Processing Centre (CPC).

One of the most significant financial tasks of the year is the filing of income tax returns. It’s critical that you file your income tax return on or before the deadline, with complete and correct information about your earnings and any other information requested on the ITR form. The deadline for reporting ITRs for FY2020-21 is December 31, 2021.

ITR verification is the final step in the income tax return filing process. The ITR must be confirmed within 120 days of the filing date, according to income tax legislation. A taxpayer has six options for verifying their return. While ITRs can be validated electronically in five different methods, a physical copy can also be sent to the Centralized Processing Centre for verification (CPC), Bengaluru.

Note that if an ITR is not confirmed within 120 days of filing, the income tax authorities will not consider it a genuine return. Furthermore, if the ITR is not confirmed, it will not be accepted for processing by the tax department. Furthermore, taxpayers will not receive any tax refund unless they have filed a validated ITR that has been confirmed by the income tax department after processing.

What to do if the ITR isn’t confirmed within the allotted time:

An individual can file a condonation delay request on the e-filing income tax site if an ITR was not verified within the statutory time limit owing to a legitimate reason. They will be asked to explain why the ITR was not confirmed earlier when filing such a request. If specific circumstances are met, the income tax department will grant a request for a deferral in payment. The following are some of the criteria:

  • A claim is true and accurate;
  • In the hands of another individual, income for which a tax return has been submitted is not assessable;
  • The taxpayer is experiencing genuine hardship as a result of the ITR not being confirmed in a timely manner.

If you have failed to verify your tax return, here’s how you can file condonation delay request:

Step 1: Login to your account on the income tax portal.
Step 2: Under the ‘Services’ tab on your Dashboard, select ‘Condonation Request’.
Step 3: On the ‘Condonation Request page’, select the type of condonation request you want to proceed with. (Currently income tax department shows only one option: Delay in submission of ITR-V). Select it and click on ‘Continue’.
Step 4: On the ‘Delay in submission of ITR-V’ page, click on ‘Create Condonation Request’.
Step 5: On the ‘Select ITR page’, select the record for which you want to raise a condonation request for delay in ITR-V submission and click on ‘Continue’.
Step 6: On the ‘Provide reason for delay page’, select the reason of your delay and click on Submit.

Step 5: On the ‘Select ITR page,’ select the record for which you want to submit an ITR-V delay condonation request and click ‘Continue.’
Step 6: Select the cause for your delay on the ‘Provide explanation for delay page’ and click Submit.

A success notification will appear, along with a Transaction ID. Make a mental note of the Transaction ID for future use. A confirmation message will be sent to the email address and mobile number you provided when you registered with the e-Filing portal.

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Keep in mind that there is no explicit provision in the Income Tax Act that specifies a time restriction for filing a condonation delay request. However, the CBDT has stated in Circular No. 9/2015 dated June 9, 2015 that no condonation application for a refund/loss claim will be considered after six years from the end of the assessment year for which the application/claim is lodged.

How to keep track of a delay condonation application’s progress:

Through the new income tax site, you can quickly check the status of your condonation request. The ‘Condonation Request’ option under the ‘Services’ tab can be used to track the status. You will not be able to file an ITR until your delay condonation request is approved. While there is no set timeframe for acceptance or denial of a condonation request, the tax department typically processes such requests in 3 to 4 months.

What if your request for a condonation delay is denied?

If the application is denied, the return will remain unverified, and a non-verified return is viewed as an invalid return under income tax regulations, meaning the individual will be responsible for all of the repercussions of failing to file a tax return. If the assessee’s request for a condonation is denied, they will be liable to criminal sanctions under the IT law.

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Consequences of failing to file an ITR:

  • Section 234F imposes late filing fines of Rs 5,000. However, if the taxpayer’s total income is less than Rs 5 lakh, late costs are limited to Rs 1,000.
  • In addition, any amount of tax that remains unpaid would be subject to interest at 1% per month or part of a month under section 234A.
  • Due to non-filing of the tax return within the statutory due dates, the opportunity to claim certain deductions and/or set off and carry forward of losses other than losses from house property loss is lost.
  • The Internal Revenue Service (IRS) can charge a penalty under 270A for under-reporting income, which is equal to 50% of the tax saved by the taxpayer due to non-filing of a return.
  • The taxman can also bring a case against the defaulting taxpayer under section 276CC, which can result in a sentence of rigorous imprisonment for a period ranging from three months to two years, as well as a fine, based on the amount of tax avoided.

What is ‘e-invoicing’?

What is ‘e-invoicing’?

‘e-invoicing’ doesn’t mean generation of invoice by a Government portal.

Notified class of registered persons have to prepare invoice by uploading specified particulars of invoice (in FORM GST INV-01) on Invoice Registration Portal (IRP) and obtain an Invoice Reference Number (IRN).


e-Invoicing was introduced aiming at machine-readability and uniform interpretation. To ensure this complete ‘inter-operability’ of e-invoices across the entire GST eco-system, an invoice standard is a must. By this, e-invoices generated by one software can be read by any other software, thereby eliminating the need of fresh/manual data entry.

Applicability

1st Oct 2020 – Aggregate T/o > INR 500 Crores in any preceding financial year from 2017-18 onwards

1st Jan 2021 – Aggregate T/o > INR 100 Crores in any preceding financial year from 2017-18 onwards

1st Apr 2021 – Aggregate T/o > INR 50 Crores in any preceding financial year from 2017-18 onwards

e-invoicing doesn’t apply in B2C transactions (i.e. supply of goods or services or both to an unregistered person)

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Non-Applicability

e-invoice doesn’t apply to the following category of persons irrespective of their turnover-

1. Special Economic Zone units (not SEZ Developers),

2. An insurer,

3. An NBFC,

4. A Goods Transport Agency,

5. A banking company,

6. A financial institution,

7. A person supplying passenger transportation services,

8. A person supplying services of admission to the exhibition of the cinematographic films in multiplex services.

e-invoicing is also not applicable on Import of goods/ services, ISD invoices, Nil-rated/ wholly exempt supplies.

Note:- e-invoicing apply to RCM transactions as well

What documents are presently covered under e -invoicing?

i. Invoices
ii. Credit Notes
iii. Debit Notes

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What supplies are presently covered under e -invoice?

• B2Bsupplies (includes supplies under same PAN),
• Supplies to SEZs (with/without payment)
• Exports (with/without payment)
• Deemed Exports
by notified class of taxpayers are currently covered under e-invoicing.

What are the benefits of e-invoicing?

1. One-time reporting of B2B invoices while generation, which reduces reporting in multiple formats.
2. Most of the data in form GSTR-1 can be kept ready for filing while using e-invoicing system.
3. E-way bills can also be generated easily using e-Invoice data.

4. There is minimal need for data reconciliation between the books and GST returns filed.
5. Real-time tracking of invoices prepared by a supplier can be enabled, along with the faster availability of input tax credit. It will also reduce input tax credit verification issues.
6. Better management and automation of the tax-filing process.
7. Reduction in the number of frauds as the tax authorities will also have access to data in real-time.
8. Elimination of fake GST invoices getting generated.

Foreign Tax Credit in Case of Income from United States (US)

Foreign Tax Credit in Case of Income from United States (US)

We frequently come across examples of double taxation on the same income in both the source and resident countries. This scenario is extremely typical from an Indian tax perspective in the case of ‘resident and ordinarily resident (ROR) individuals with investments abroad. Section 90 of the Income Tax Act gives relief in the case of nations with which India has a Double Taxation Avoidance Agreement in order to reduce the effects of double taxation (treaty).

In addition, Section 91 of the Act provides for relief if the other country does not have a treaty with the United States. In most cases, treaties provide relief in the form of an exemption or a credit. Only one country would be granted taxing rights under the exemption mechanism (generally, to the source country). However, in the case of the credit approach, the resident nation considers income taxed in the source country for determining the tax base, but the taxes paid in the source country are allowed as a deduction from its own taxes. Let’s take a closer look at how to calculate the foreign tax credit in the case of US source income, as well as some of the complexities involved.

Enabling provisions

India and the United States have a comprehensive tax treaty that addresses taxability and double taxation relief for numerous kinds of income. The treaty’s article 25 expressly addresses the overseas tax credit (FTC). Because there is a tax treaty in place, the provisions of Section 90 and Rule 128 would apply. The credit would be based on the lower of taxes paid in the United States or taxes calculated under the Income Tax Act of India.

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US Investment income

In the case of an Indian ROR with investments in the United States, the revenue generated by these investments could be multifarious. Interest, dividends, and capital gains are all examples of accretions. Some of these may be subject to special taxation in the United States. Because the special rates are often lower than the normal slab rates, computing FTC by using the average rate of tax may not be the best strategy for such incomes.

In the case of dividend income, the United States has a notion of qualifying dividends, which are taxed at rates ranging from 0% to 20%, depending on the slab rates applicable to the taxpayer’s usual income.
The same is true for long-term capital gains. These rates are frequently lower than the tax rates in India, therefore estimating FTC by using the average tax rate from a US return may result in inaccurate claims.

So, how do you figure out the tax rates that apply to these earnings in your US tax return?

In US tax returns, look for the ‘Qualified dividends and capital gain tax worksheet,’ which lists the tax rates that apply to such incomes.

Another example of such income is Capital gain distributions. These distributions are basically dividends from US mutual funds. For US tax purposes, if the fund meets certain criteria, the distributions are taxed as long term capital gains. For the purpose of FTC, you may apply the special rate of tax as discussed above. However, bigger challenge with such income is determining the right head of income from India stand point. Whether to be taxed as capital gain which is in line with US tax laws or go by the nature of that income i.e., dividend and tax it under the head income from other sources? One should take a conscious call and then decide.

Retirals and pensions

The taxability of government and private pensions is governed by Articles 19 and 20 of the India-US tax treaty, respectively. Aside from this, the United States offers other retirement options such as IRAs and 401(k)s. Both of these are defined contribution plans that allow the taxpayer to take money when they reach a specific retirement age. In the United States, periodic contributions to these funds are not taxable. With specific exclusions and penalties, early withdrawals are permitted.

What happens to these periodic accretions in terms of Indian taxation? Is it taxable or not?

According to the FAQ on the Black Money Act (Circular No. 15 of 2015 dated 03 Sep 2015), such accretions should be taxable in India.So, how would you claim foreign tax credit for such accretions? Since the periodical accretions are not taxable in the US, there are no taxes paid on the same in US.
However, these may be taxable in US at the time of withdrawal. There is a huge timing difference with respect to taxability and could result in double taxation. How to mitigate the double taxation in these cases?

Till 2020, there was no mechanism in place to mitigate this hardship. However, the budget 2021 proposed to prescribe the manner in which such income should be taxed from the specified retirement funds in India. The specific rules are still awaited in this regard. Hope, this will provide more clarity on the taxability and helps in mitigating the double taxation.

State/city income taxes in the US

State and local taxes are another distinctive features of US taxation. In the United States, income tax is imposed by the majority of states and certain localities.

Is it possible to claim FTC for these taxes on an Indian tax return?

If India and the other country have a tax treaty, the treaty will usually define the extent of taxes for FTC purposes. The term “taxes covered” does not include state and local taxes, according to the India-US DTTA standard. As a result, the FTC is not available for state and local taxes under the tax treaty. So there’s double taxation once more?

We have an interesting ruling by the Karnataka High Court (HC) in this regard (Wipro Ltd Vs. Deputy Commissioner Of Income Tax [382 ITR 179]). The HC ruled in favour of the assessee and held that credit for taxes paid at the state level is also available for credit u/s 91 i.e., where no tax treaty is in place. Since this is an HC ruling the applicability is limited to the state jurisdiction. Again a conscious call is to be taken if credit is availed based on this ruling.

The deadline for filing tax returns extended to December 31.

Net Investment Income Taxes (NIIT)

In the United States, a special charge known as NIIT is imposed on some investment income in addition to regular income tax. If your gross income exceeds a specific threshold, you will be subject to a 3.8 per cent tax. This is essentially a new income tax on investment income that should be available to FTC. The NIIT paid by a taxpayer is detailed on Form 8960 of a US tax return.

This will be included like other taxes on your US tax return, so keep that in mind when claiming FTC. This will almost always result in a larger tax credit on your India tax return.

I hope the following provides some insight into the problems of claiming FTC on US source income on an Indian tax return, as well as some guidance on how to avoid the negative consequences of such challenges.