Digital Payment Effects on Turnover - IT Notification

Government of India 
Ministry of Finance 
Department of Revenue (CBDT) 
Circular No. 40/2016 
North Block, New Delhi, the 9th of December, 2016 

Subject: - Directions under section 119 of the Income-tax Act, 1961-regd.

Recent initiatives of the Government to curb the black economy in the country has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts. Under the circumstances, an apprehension has been raised that increased turnover in the current year may lead to reopening of earlier years' cases involving lower turnover u/s 147 of the Income-tax Act, 1961 ('Act') by the Assessing Officer causing undue harassment to tax payers. 

2. It is hereby clarified that reopening of cases u/s 147 of the Act is feasible only when the Assessing Officer "has reason to believe that any income chargeable to tax has escaped assessment for any assessment year" and not merely on the basis of any reason to suspect. Mere increase in turnover, because of use of digital means of payment or otherwise, in a particular year cannot be a sole reason to believe that income has escaped assessment in earlier years. Hence, Assessing Officers are advised not to reopen past assessments in cases merely on the ground that the current year's turnover has increased. 

3. The above may be brought to the notice of all for necessary and strict compliance. 

4. Hindi version to follow. 

Sd/-
(Rohit Garg) 
Director-ITA.II, CSDT 
(F. No. 225/326/2016/ITA.II) 

Copy to:
i.   Chairman, CBDT and all Members, CBDT
ii.  PS to Revenue Secretary
iii. All Pr.Chief-Commissioners/Pr. Directors-General ofIncome-tax
iv.  All JS/CsIT, CBDT
v.   ADG(PR,PP & OL) with request for placing on official handle of the department
vi.  Add!. CIT, Data base Cell for uploading on Departmental Website
vii. Web manager for uploading on incometaxindia.gov.in & placing in public domain
viii.ITCC, Central Board of Direct Taxes (3 copies)
xi.  Pro DGIT(Vigilance), N.Delhi
x.   C&AG, N.Delhi
xi.  Guard file

SD/- 
(Rohit Garg) 
Director-ITA.II, CSDT 

Government Promotes 11 Incentives on Digital Payment and Cashless Economy.

In the aftermath of the cancellation of the legal tender character of old Rs.500 and Rs.1,000 notes, there has been a surge in the digital transactions through use of credit/debit cards and mobile phone applications / e-wallets etc. To further accelerate this process, the Central Government has decided on a package of incentives and measures for promotion of digital and cashless economy in the country.

These incentives/measures are following:

1. The Central Government Petroleum PSUs shall give incentive by offering a discount at the rate of 0.75% of the sale price to consumers on purchase of petrol/diesel if payment is made through digital means.

Nearly 4.5 crore customers buy petrol or diesel at such petrol pumps per day who can take benefit of this incentive scheme. It is estimated that petrol/diesel worth Rs.1800 crore is sold per day to the customers out of which nearly 20% was being paid through digital means. In the month of November 2016 it has increased to 40% and the cash transaction of Rs.360 crore per day have got shifted to cashless transaction methods. The incentive scheme has the potential of shifting at least 30% more customer to digital means which will further reduce the cash requirement of nearly Rs. 2 lakh crore per year at the petrol pumps.

2. To expand digital payment infrastructure in rural areas, the Central Government through NABARD will extend financial support to eligible banks for deployment of 2 POS devices each in 1 Lakh villages with population of less than 10,000. These POS machines are intended to be deployed at primary cooperative societies/milk societies/agricultural input dealers to facilitate agri-related transactions through digital means.

This will benefit farmers of one lakh village covering a total population of nearly 75 crore who will have facility to transact cashlessly in their villages for their agri needs.

3. The Central Government through NABARD will also support Rural Regional Banks and Cooperative Banks to issue “Rupay Kisan Cards” to 4.32 crore Kisan Credit Card holders to enable them to make digital transactions at POS machines/Micro ATMs/ATMs.

4. Railway through its sub urban railway network shall provide incentive by way of discount upto 0.5% to customers for monthly or seasonal tickets from January 1, 2017, if payment is made through digital means.

Nearly 80 lakh passengers use seasonal or monthly ticket on suburban railways, largely in cash, spending worth nearly Rs.2,000 crore per year. As more and more passengers will shift to digital means the cash requirement may get reduced by Rs.1,000 crore per year in near future.

5. All railway passengers buying online ticket shall be given free accidental insurance cover of upto Rs. 10 lakh. Nearly 14 lakh railway passengers are buying tickets everyday out of which 58% tickets are bought online through digital means. It is expected that another 20% passengers may shift to digital payment methods of buying railway tickets. Hence nearly 11 lakh passengers per day will be covered under the accidental insurance scheme.

6. For paid services e.g. catering, accommodation, retiring rooms etc. being offered by railways through its affiliated entities/corporations to the passengers, it will provide a discount of 5% for payment of these services through digital means.

All the passengers travelling on railways availing these services may avail the benefit.

7. Public sector insurance companies will provide incentive, by way of discount or credit, upto 10% of the premium in general insurance policies and 8% in new life policies of Life Insurance Corporation sold through the customer portals, in case payment is made through digital means.

8. The Central Government Departments and Central Public Sector Undertakings will ensure that transactions fee/MDR charges associated with payment through digital means shall not be passed on to the consumers and all such expenses shall be borne by them. State Governments are being advised that the State Governments and its organizations should also consider to  absorb the transaction fee/MDR charges related to digital payment to them and consumer should not be asked to bear it.

9. Public sector banks are advised that merchant should not be required to pay more than Rs. 100 per month as monthly rental for PoS terminals/Micro ATMs/mobile POS from the merchants to bring small merchant on board the digital payment eco system.

Nearly 6.5 lakh machines by Public Sector Banks have been issued to merchants who will be benefitted by the lower rentals and promote digital transactions. With lower rentals, more merchants will install such machines and promote digital transactions.

10. No service tax will be charged on digital transaction charges/MDR for transactions upto Rs.2000 per transaction.

11. For the payment of toll at Toll Plazas on National Highways using RFID card/Fast Tags, a discount of 10% will be available to users in the year 2016-17.

Source: CA Club India

Extra Benefits for digital Payments at Petrol Pumps, Insurance, Railway Tickets, Tolls Etc.

More incentives for digital transactions

The government on Thursday announced a slew of discounts to persuade people to switch to digital modes of payment as shortage of cash continued with banks. It also waived service tax, now at 15%, on credit and debit card transactions of up to Rs 2,000. Petrol and diesel paid digitally will enjoy a rebate of 0.75%.

Finance Minister Arun Jaitley announced the discounts on Thursday, exactly a month after the government banned Rs 500 and Rs 1,000 notes. He said those who buy seasonal tickets on suburban railway networks will get a 0.5% discount, and those buying railway tickets online will get free accident insurance coverage for Rs 10 lakh. A 10% discount will be offered on new general insurance policies paid for through PSU websites. An 8% discount applies to life insurance. Railway catering, accommodation, and retiring room bookings online will get a 5% discount, Jaitley said.

“There is no end date for these offers. These are only some of the efforts the government is making to promote payment by credit, debit cards and e-wallets,” he said. Jaitley also said all transactions with government departments and PSUs will be free of transaction and merchant discount rate charges.

On national highways, which have witnessed commotion, digital payments will fetch you a 10% discount. Each village with a population of up to 10,000 will get two point-of-sale machines free of cost.

Source: www.deccanherald.com

Service Tax Benefits upto Rs. 2000 on payment by Debit and Credit Cards - Govt.

Govt. to waive off service tax on debit and credit card transactions up to Rs 2000

Government will waive service tax on debit and credit card transactions of up to Rs 2,000 in a bid to promote digital transactions amid cash crunch following withdrawal of old Rs 500 and 1,000 banknotes.

The government has decided to "exempt services by an acquiring bank to any person in relation to settlement of an amount up to Rs 2,000 in a single transaction through credit, debit card or other payment card service", sources said.

A notification to this effect will be tabled by Finance Minister Arun Jaitley in Parliament.

Following demonetisation of old high value notes, there has been a cash crunch in the country as people have been making a beeline for banks and ATMs to withdraw new currency.

The government has been taking steps to promote cashless or digital transactions to take India towards a less-cash economy.

Recently, the government asked banks to install additional 10 lakh PoS terminals by March 31 in different parts of the country.

The service tax notification of June 2012 will be amended to include exemption on credit and debit cards, the sources added.

As of now, services provided by organisations such as United Nations and other international bodies are exempt from tax.

A range of other services provided by arbitral tribunals, testing of newly developed drugs, educational institutions, trade unions, general insurance business and sports bodies, among others, too are exempt from the levy. 

Source - www.deccanherald.com

What are the Penalties under Income Tax Act ?

A complete list of Penalties under Income Tax Act, 1961

1. Penalty under Section 270A (Penalty for under reporting and misreporting of income):
If during the assessment proceedings, it is found that an assessee have under reported or misreported his income, then penalty u/s. 270A will be imposed on the Assessee. This is the harshest penalty that can be imposed by the department. The amount of penalty will be 50% of the tax payable on under reported income. However, under reported income is a result of misreporting, then the penalty amount is increased to 200% of the tax payable on under reported income.

2. Penalty under Section 271A - Default in maintaining or retaining books of account:
If during the assessment proceedings, it is found that an assessee have not maintained any books of accounts or other documents as required under Section 44AA, or the Assessing Officer finds that an assessee have not retained the books of accounts and other necessary documents for the minimum time period (say 6 years), then a penalty of Rs. 25,000 will be imposed.

3. Penalty under Section 271B - Default in Tax Audit:
If during the assessment proceedings, it is found that an assessee were supposed to get his accounts audited under section 44AB, but fails to do so, then penalty under section 271B of the Act will be imposed.

The amount of penalty will be a sum equal to 0.5% of gross sales, gross turn over or gross receipts, as the case may  be, but in any case this penalty cannot exceed Rs. 50,000.

4. Penalty under Section 271C - Default in deducting tax at source:
If during the assessment proceedings, it is found that an assessee has failed to deduct whole or any part of TDS as required by income tax laws, then the penalty will be a sum equivalent to the amount of tax not deducted.

5. Penalty under section 271CA - Default in collecting tax at source:
If during the assessment proceedings, it is found that an assessee has failed to collect whole or any part of TCS as required by income tax laws, then a penalty of a sum equivalent to the amount of tax not collected will be imposed. 

6. Penalty under Section 271D - Accepting loans in cash:
If during the assessment proceedings, it is found that an assessee has accepted a loan or deposit from any other person in cash for a sum exceeding Rs. 20,000 in a financial year, then a sum equal to the amount of loan accepted will be demanded from the assessee by way of penalty.

7. Penalty under Section 271E - Repayment of loans in cash:
If during the assessment proceedings, it is found that an assessee has repaid any loan or deposit to any other person in cash for a sum exceeding Rs. 20,000 in a financial year, then a sum equal to the amount of loan repaid will be demanded from the assessee by way of penalty.

8. Penalty under Section 271F - Non-filing of Income Tax Return:
If during the assessment proceedings, it is found that an assessee has filed his or her Return for a financial year by the end of the following financial year for which the Return has to be furnished, then a penalty of Rs. 5,000 will be imposed.

9. Penalty under section 271H - Non filing of TDS Return   
If during the assessment proceedings, it is found that an assessee has no furnished the TDS Returns even after expiry of 1 year from the due date of filing such returns or has furnished any incorrect information in the TDS Returns filed by him, then a penalty of a minimum of Rs. 10,000 and maximum of Rs. 1,00,000 will be imposed.

10. Penalty under Section 272B - Not having PAN or providing incorrect PAN:
If during the assessment proceedings, it is found that an assessee has not applied for a PAN even though it was required as per section 139A or where after obtaining a PAN, an assessee not intimated the same or provided incorrect PAN to any person under the provisions of the Income Tax Act, then a penalty of Rs. 10,000 will be imposed.

11. Penalty under Section 272BBB - Not having TAN or providing incorrect TAN:
If during the assessment proceedings, it is found that an assessee has not applied for a Tax deduction account number or a Tax collection account number as required by section 203A and Section 206CA respectively, or where after obtaining a TAN, an assessee provided incorrect TAN on the challans and certificates by him, then a penalty of Rs.10,000 will be imposed.

Reference :
1. Taxmann’s Income Tax Act, as amended by Finance Act, 2016, 60th Edition
2. A N Aiyar’s Indian Tax Laws - 2016, as amended by Finance Act, 2016, 53rd Edition 
3. Direct Taxes - Laws & Practice by Dr. Girish Ahuja & Dr. Ravi Gupta, as amended by Finance Act, 2016, 7th Edition
4. Kanga & Palkhivala’s - The Law and Practice of Income Tax - Volume II, Tenth Edition

Source: CA Club India

Small Scale Business Owners, How to Maintain Books of Accounts in Fin. Year 2016-17 ?

MAINTAINING BOOKS OF ACCOUNTS

REQUIREMENT OF MAINTENANCE OF BOOKS OF ACCOUNTS

While you set up your business with grand fanfare, reaching your dream turnover was just the first milestone, you have already begun to bother about the profitability. Maintenance of financial records is actually a way to know the true and fair position of your business. In reality, it is much more. It is also a legal requirement.

Let us understand the requirement and the necessity for compulsory maintenance of accounts and audit as per Indian Income Tax Act in a simplified manner.

There are basically two categories
  1. Specified Professionals
  2. Non Specified Professionals
A. Specified Professionals include persons rendering services and having technical degrees in legal, medical, engineering, architectural/interior, accountancy, technical consultancy, information technology, film artists or any other person as notified by government. E.g.: lawyers, doctors, architects, interior designers, engineers, chartered accountants, film artists, consultants etc. Specified Professionals are non traders.

REQUIREMENT TO MAINTAIN BOOKS AND AUDIT
  • As per Income Tax Act, a person carrying on any profession as mentioned above is compulsorily required to maintain complete record of books of accounts if his gross receipts from profession exceed Rs 1,50,000 per annum in all the three preceding years. 
  • In case it is the first year of set up, you have to compulsorily maintain records if gross receipts are likely to exceed Rs150,000/-.
  • In case the gross receipts of specified professionals is more than Rs 25 lakhs in the previous financial year, audit of financial records is compulsory as per Income Tax Act.
The Implication of these provisions is that if in any one year your income goes below the threshold limit of Rs 150,000/-, you are not required to maintain books of accounts.

B.  Non Specified Professionals include persons who render services to others but does not have a technical degree and are not covered in the above notified professionals and all the retailers and traders. In other words every business other than ones in specified category.
  • As per Income Tax Act, a person carrying on any profession as mentioned above is compulsorily required to maintain complete record of books of accounts if his Income(profit) from business or profession exceed Rs 1,20,000 per annum or his sales/gross receipts exceed Rs 10 lakhs in any of the three preceding years. 
  • In case it is the first year of set up, you have to compulsorily maintain records if income is likely to exceed Rs120,000 /- or his total sales/gross receipts likely to exceed Rs 10 lakhs
  • In case the gross receipts/turnover/total sale of non-specified professionals is more than Rs 100 lakhs in the previous financial year, audit of financial records is compulsory as per Income Tax Act.
The Implication of these provisions is that if in any one year your sales/income goes below the threshold limit, you are still required to maintain books of accounts unless sales/income falls continuously for three years in a row in which case in the fourth year the provision shall not be applicable.

ANALYSIS BASED ON TURNOVER AND INCOME
  1. Turnover below Rs 10 lakhs and Income below 120,000– Maintenance of Books not Compulsory
  2. Turnover Exceeding Rs 10 lakhs but below Rs 100 lakhs and Income above 8% of Turnover: Maintenance of Books Compulsory/ Audit Not Required
  3. Turnover Exceeding Rs 10 lakhs but below Rs 100 lakhs and Income below 8% of Turnover: Maintenance of Books Compulsory/ Audit Required
  4. Turnover exceeding 100 Lakhs : Maintenance of Books Compulsory/ Audit Compulsory
Further:
  • Company under Companies Act: Maintenance of Books Compulsory
  • Charitable Institute/NOT FOR PROFIT ORG: Maintenance of Books Compulsory. Maintenance of Books Compulsory for charitable/ not for profit companies, for the simple reason that they claim they are making no profit.
What books of accounts are required to be maintained by “persons?”

For Specified Professionals: As per Rule 6F (2) of the Income Tax Rules, the following books of accounts and documents are required to be maintained:
  1. Cash Book,
  2. Journal, if the accounts are maintained as per mercantile system of accounting,
  3. Ledger
  4. Carbon Copies of bills, serially numbered and carbon copies or counterfoils of receipts
  5. Original Bills for expenses exceeding Rs. 50 and payment vouchers for petty expenses 
Books or books of accounts can be maintained both manually as well as in electronic form also in accounting software’s. (Print out is not compulsory)

Persons engaged in medical profession are, in addition, required to maintain daily case register in the prescribed Performa (Form No. 3C) and inventory, as at the beginning and end of the year, of stock of drugs, medicines and other consumables accessories used for the purpose of profession.

For Non Specified Professionals:

No List is provided by the Govt department which means you are required to maintain every possible document in relation to business.
  1. Cash book/ Ledger/ Journal
  2. Inventory Records
  3. Bank statements
  4. Original Bills
  5. Receipts/Counterfoils of sales
  6. Vouchers for payments
Where the books of accounts should be kept: 

The current year’s books of accounts should be maintained and kept at the principal place of business or profession as per Rule 6F (3). There is no specific rule as to where the books of accounts of earlier years should be kept. In case you have branches, books of accounts can be either maintained at respective branches or at one place i.e. the registered office.

For how many years’ books of accounts are required to be preserved: 

Every year the record of books of accounts grows up and the cupboards filled up more and more. Every assessee wants to know for how many years he should keep the records of his books of accounts.

Rule 6F (5) provides that the books of accounts and other documents are to be kept for at least 6 years from the end of relevant assessment year. In simple words, record for one financial year will be kept for 7 years and after that you are not required to keep it as per law. However, if assessment proceedings for a previous year are re-opened by the Income Tax department, its books have to be maintained till that is not completed and closed.

Consequences for failure to maintain books of accounts: 

Failure to maintain books or documents invites a penalty of Rs 25,000/- and failure to get the accounts audited and furnish the tax audit report  invites a penalty of 0.5% of total sales, turnover or gross receipts, or Rs. 1,00,000 whichever is less.