Categories
Technical

New Tax Regime Vs. Old Tax Regime – A Comparative Study

The hardest thing in the world is to understand Income Tax.

Albert Einstein

When it comes to income tax there is a whole lot of fuss among individual tax payers. They more often understand a very little and get confused. Let me tell you what made me write this article before you think why I am I late to the Budget 2020 party. I was talking to a friend of mine last day. His tax liability under new regime will be Rs. 1,25,000 for AY 21-22 and he was asking me very genuinely if he can reduce his tax burden to Rs. 50,000 by investing Rs. 75,000 in LIC. He not only mixed up the benefit of old regime with the new regime but also got the calculation completely wrong by deducting the allowable deductions from total tax liability instead of deducting from Gross Total Income.  

Budget 2020 introduced a new personal income tax regime for individual tax payers with more tax slabs and lower tax rates but it came with a catch of removal of all available deductions and exemptions. To add to the confusion, the Finance Minister gave tax payers a choice to choose between new regime and old regime. This in fact made the whole process more complex instead of making it simpler. We will try to understand the current tax system first and then compare it with the new regime.

Current tax system – High tax rates with lot of scope for tax planning

Though tax rates are high here there is a lot of scope to pay reduced tax with proper tax planning. The existing rates are as below:

The income tax law allows the individuals to claim various exemptions and deductions. HRA exemption, Leave travel allowance, standard deduction of Rs. 50,000, Health insurance premium, Interest portion of housing loan, Savings account interest, various deductions under 80C like LIC, PF, ELSS, Principal portion of housing loan etc. being few among them. The tax is calculated on the income after claiming all the available exemptions and deductions.

The taxable income can be reduced in lakhs if he is willing to invest. This scheme encourages the tax payers to make investments and save tax to a great extent.

New Regime – Lower Tax Rates with no deductions

Under new regime, the government has introduced more slabs and low tax rates up to Rs. 15,00,000. This is very simple and plain to calculate as the tax payer can’t claim any deduction from his total income. The tax rates under this regime is as below:

As most of the exemptions and deductions are not applicable, this will benefit the sect who don’t usually claim any deduction or very little deduction. People who opt this model don’t save money and end up spending a lot. This is in fact a bad phenomenon in the long run both for the individual and the investment companies.

New Regime vs Old Regime – A comparative case study

Let’s deep dive into the topic and try to understand this from a practical point of view.

Mr. Smart earns Rs.7,50,000 per annum including HRA of 60,000. He invests Rs. 1,00,000 in LIC (80C). He pays medical insurance premium of Rs. 10,000 per year.

Tax liability of Mr. Smart under new regime will be:

Now, let’s calculate the tax liability under Old regime:

Since Mr. Smart has some allowable deductions. The first step is to calculate his taxable income.

Now it’s the time to calculate the tax liability of Mr. Smart under old regime.

Note: It’s assumed that whole HRA received by the tax payer is allowable under income tax laws.

*Cess is not taken into account while calculating the final tax liability

Now, there is one very interesting point. Say if Mr. Smart is willing to invest 30,000 more in LIC, then his tax liability will be ZERO. This is on account of relief under section 87A. This section gives a tax relief of up to Rs. 12,500 for small tax payers.

It’s crystal clear that Mr. Smart should opt for old regime from the above study.

What if Mr. Smart doesn’t invest in LIC and pay medical insurance?

The tax computation under new regime will remain same as there is no change in his income.

However, the tax computation under old regime will change drastically.

Calculation of Taxable Income

Calculation of Tax Liability:

In this scenario, Mr. Smart should act smart and opt for new regime as its beneficial by Rs. 13,000.

One can save up to Rs. 75,000 (excluding surcharge & cess) opting new regime. A comparative study is as below:

Notes:

-Its assumed that the individual has no applicable deductions/exemptions as per old regime including loss on self-occupied house property.

-Tax liability is calculated excluding cess and surcharge (if any).

-87A relief is applicable for individuals earning up to Rs.5,00,000 and hence no tax.

-Basic exemption income slab in case of a senior citizen and super senior citizen remain at the same 3 lakhs and 5 lakhs respectively.

Conclusion

It’s very clear that the changes introduced doesn’t make things easier for tax payers. One shall choose the regime which is most beneficial for him. New regime will do good to someone who is not intending to invest any money in any tax savings plan.

If you are looking to fulfill your financial obligation, namely- wealth creation through investments in tax saving instruments, paying premium to address your life/health insurance needs, EMI on educational loan, buying a house with home loan etc. the older regime still works in the interest of your financial wellbeing.

Talk to our experts today and plan your tax. Download our Income Tax Planner for FY 2020-21 to plan your taxes yourself

Categories
Technical

Income Tax On Revenue From YouTube

YouTube video blogging, popularly known as vlogging has reached at the peak of its popularity by now. The trend of googling for a content has shifted to you tube search. Many budding vloggers are making money from YouTube. However most of them are not aware of the tax implications. Let’s try to explore this in detail.

Note: The same treatment is applicable for Adsense Revenue from blogging as well.

Why Income from YouTube is Taxed in India?

As per the Income tax laws, if the income is received in India, it’s taxable in India. I am obvious that now you will be thinking why then TDS for the same was not deducted. If you read through the AdSense contract entered between Google and Content creator in India, you will notice that the contracting google entity is Google Asia Pacific Pte. Ltd i.e. Singapore entity. The snippet of the contract is here: 

Now lets see what does the contract specifically say about withholding tax or TDS:

It’s very important to understand that when payment is made by a foreign company, the taxation rules of that particular country along with DTAA provisions will hold good. Double Taxation Avoidance Agreement(DTAA) is signed between countries to avoid taxing the same income in both the countries.  As per Article 7 of DTAA Agreement between India and Singapore, this income shall be taxed in the country in which enterprise is present. I.e. India.

How is AdSense Income treated under Income tax law?

The income from YouTube can be treated as:

  • Income from Business or Profession
  • Income from Other Sources

 Let’s now try to understand the above scenarios:

Income from Business or Profession

If vlogging is your full time activity or main source of income you may offer your income under Income from Business and Profession for taxation. You may run your business as sole proprietor, Partnership Firm, LLP or Private Limited Company.

You will be taxed as sole proprietor unless you register your business as a company, LLP or Partnership. Here, you are effectively running a business and you are eligible to deduct all the expense you incurred to make this income.

Let’s now try to understand this with an example. Mr A earns Rs. 20 lacs during the FY 2019-20 by doing travel vlogs. He incurred following expenditure to earn the income.

1.Marketing Expense – Rs . 1,00,000

2.Advertisement Expense – Rs. 50,000

3.Travelling expenses- Rs. 5,00,000

4.Internet expenses- Rs. 12,000

5.Camera (Capital expenditure) – Rs. 3,00,000

6.Car (Capital expenditure) – Rs.6,00,000

Here , Mr. A need to pay tax only on the Net Profit made during the year. Since assets like camera and car can be used over a period of time, only depreciation (40 % on camera and 15% on car) can be claimed as expenditure as per income tax laws. However, the balance amount can be claimed as expenditure in the coming years.

The total expenses Mr. A can claim is as below:

1.Marketing Expense – Rs .1,00,000

2.Advertisement Expense – Rs. 50,000

3.Travelling expenses- Rs. 5,00,000

4.Internet expenses- Rs. 12,000

5.Camera (Capital expenditure) – Rs.1,20,000 (40%*3,00,000)

6.Car (Capital expenditure) – Rs. 90,000(15%*6,00,000)

The Net Profit made by Mr. A after setting of the above expenditure of 8,72,000 is Rs.11,28,000. Tax should be computed at applicable rates.

If you are making loss, you can carry forward this loss and set off against future profits.

Note: To claim the expenditure, the business should maintain proper documents relating to the same.

Alternatively, individuals/HUF/Resident Firms can make use of Presumptive taxation under section 44AD of income tax act and declare 6% of gross receipts (as receipt is through electronic medium) as Net Profit. Books of accounts need not be maintained if presumptive taxation is opted. This is in fact the best option to save tax if your business makes consistent profit.

Notes:

a. The benefit of this provision can’t be utilized if your gross receipt exceeds Rs.2 crores.

b. If you make loss in any year and opt to file returns under normal provisions, then you can’t use this option for a period of 5 years.

Not to forget, if your gross total income exceeds Rs 1 crore, you must follow all bookkeeping requirements under Rule 6A and get your accounts audited by a Chartered Accountant(CA) under section 44AB of Income Tax Act,1961. However, if you are opting for 44 AD presumptive taxation you are exempted from Audit under section 44AB.

Income from Other Source

If vlogging is your hobby and you are earnings are not huge, you may opt to offer your income under Income from Other Source for taxation. It’s very common these days that people start vlog to earn an additional source of income.

Let’s try to understand this with an example. Mr. B is employed in XYZ Ltd and earns Rs. 40,000 Per month. He is interested in bikes and started a vlog. He started uploading bike review videos on weekends and made 1,00,000 during the FY 19-20.Mr. B incurred an expenses of Rs.30,000 attributable directly for making the videos (excluding capital expenditure). Here, he can show Rs.4,80,000 under Income from salary and Rs. 70,000 from Income from Other Source while filing the Income Tax Return(ITR). Tax shall be computed at applicable rates after considering allowable deductions.

Note: Capital expenditure can’t be claimed as expenditure under section 57 of income tax act. Hence it’s always advisable to offer the income under Income from Business and Profession if there is a capital expenditure like purchase of Camera, Computer etc. exclusively for this purpose.

Is Advance Tax applicable for AdSense Income?

Advance tax shall be paid if the total tab liability is Rs. 10,000 or more in a financial year. Nonpayment of advance tax will attract Interest under section 234B and 234C.

Consequences of non-payment of Tax and non-filing of ITR? 

a. If you don’t pay tax, the income earned will be considered as illegal. This is in fact concealing income to evade tax. A penalty ranging from 100% to 300% of the tax evaded will be charged as per section 271(C)

b. A penalty of minimum 10% and maximum of 90% of undisclosed amount can be charged under section 271AAB based on circumstances.

c. If you don’t file the return on or before the due date, the rate of 1% will be charged every month, or part of the month, on the amount of tax remaining unpaid as per section 234A.

To sum up if your total income from Adsense is less than Rs. 2.5 lac, then you are not required to file ITR. You may read our article Things to keep in mind while filing income tax return to know more about ITR filing.

 

Categories
Technical

Benefits Of Forming Private Limited Company & CFSS

Private Limited Company is a very old concept for a privately held SSI & MSME business entities, almost 95 percent of the companies incorporated in India are registered as Private Limited Companies. As taxation for companies are lucrative, MSME & SSI sector is turning towards structured way of doing business by converting themselves into Private Companies.

Let’s now deep dive into the topic and try to understand the advantages private limited companies enjoy:

Members / Directors / Shareholders:

At least 2 members are required to form a company. Don’t you think it’s always best to have someone to support you. This person may be able to help you to add more perspectives to the business, help the idea expand – probably in the right direction, may offer you exactly what you lack – place, people, money, smartness or the much needed business network. The contacts brought by this person will certainly help you to reach more than your Contact List – be it for ideas or for FUNDS – you never know!

Separate Legal Entity :

A private limited company separates Management and Ownership and thus, Management is responsible for the company’s success as well as failure. 

Limited Liability:

Since a company is a separate legal entity, member or shareholder won’t be personally liable for any debt or loan incurred by the company. The liability of each member or shareholders is limited to the contribution made by them.

Perpetual succession :

Since a company is a separate legal entity, in the eyes of law the company keeps on existing even after death, insolvency or bankruptcy of any of its member. Means, If you have a proprietary business or a partnership business, you and your business are one and the same. There’s no difference. You will be liable for all the acts of your business. Registering your business as a company gives the business a different legal status. Hence the life of the Company is not dependent on the life of its founders or its members. Even if the members, for that matter even all members, become bankrupt/insolvent, the company remains unaffected.

Share Capital:

Share capital simply means the amount brought in by the promoter to start the business. It can be in the form of kind as well. There is no minimum capital required to incorporate a private limited company as per Companies Act 2013. If you think, your business doesn’t need much capital or if you are getting funded from an outside source then you can even choose to keep a capital as low as Rs. 1000. To remember, this is as good as the amount you are investing in your sole proprietorship business from your own savings. 

Name:

The name you select for your business entity is not just a business name but an identity of your company, for which you get a company identification number (CIN). However, you can hold several trademarks for different products/services under your company name.

Investment :

A company being a legal person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim on the property of the company as long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Taxation:

Companies are taxed at a lower rate compared to the other forms of business and hence its lucrative. The current income tax rates for domestic companies is as below:

Note: Education cess and surcharge will be extra, considering the nature and turnover of company.

Companies Fresh Start Scheme,2020:

Recently Ministry of Corporate Affairs has announced a scheme to enable the companies registered in India to make a fresh start on a clean slate , by incorporating certain alleviative measures for the benefit of all the companies.

MCA has introduced a scheme namely “Companies Fresh Start Scheme, 2020 ( CFSS-2020) vide General Circular No.12/2020 dated 30.03.2020 which is applicable to all defaulting companies, :-

  1. All necessary documents including annual documents of the company can be filed with normal fees only, as additional fees are waived off.
  2. Inactive company can also take status of “Dormant Company u/s 455” by filing simple application in form MSC-1 or can also apply for striking off the name by filing e-form STK-2 with normal fees.
  3. The Scheme grants immunity to the companies in relation to proceeding for imposing an additional penalty. This is only against delayed filings in MCA registry and it doesn’t provide immunity to any proceedings involving interests of shareholders or any other person qua the company or its Directors or KMP. It further clarifies that where penalties were imposed by an adjudicating officer due to delayed filing, and no appeal has been made before the Regional Director then-
    1. If last date for filing the appeal falls between March 01 to May 31, 2020, additional 120 days shall be allowed for filing the appeal, and
    1. During this additional period no prosecution shall be initiated against the company or its officers, insofar as it relates to delay in filing.

CFSS 2020 will not apply in the following cases:

  • Where action for striking-off has already been initiated by the Designated Authority or STK-2 for strike off of Company with ROC has been filed by the companies;
  • Companies which have amalgamated;
  • Companies which has already filed application for obtaining dormant status;
  • To Vanishing Companies;
  • Where any increase in authorized capital (Form SH-7) and all charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9);
  • In the matter of any appeal pending before the court of law and in case of management disputes of the company pending before any court of law or tribunal;
  • In case any court has ordered conviction in any matter or an order imposing penalty has been passed by an adjudicating authority under the Act and no appeal has been preferred.

All the recent changes in taxation and other alleviative measures given by Government will definitely boost the corporate sector and businessmen should take the advantage of this scheme as this is valid only till 30.09.2020.

Categories
Technical

GST For Professionals In A Nutshell

GST law has covered all the professional services under its tax umbrella, irrespective of the nature of the service whether it is provided by Chartered Accountants, Company Secretaries, Cost Accountants, Engineers, Lawyers, Technical Consultants, Architects, Interior Decorators, Film Directors, Cameramen, Artists, Singers, Authors, IT Professionals or Doctor.

Who is required to register?

GST Registration is mandatory for any professional whose turnover in a financial year exceeds Rs.20 lakhs (Rs.10 lakhs for North Eastern and hill states). This brings us to a very pertinent question – Who is a professional?

The term “professional” is not defined in the GST Act. But, in general parlance it means “an occupation, practiced by someone who has undergone training and/or a formal qualification

Time limit for GST Registration

Section 25(1) of the act states that every person who is liable to be registered shall apply for registration in every such State, where he is liable, within 30 days from the date he becomes liable for registration.

Valuation of taxable services

Once your GST registration is done, the next step is to understand the valuation under GST. Valuation plays a very important role under GST because valuation helps in determining the correct value on which GST can be applied.

When you should pay GST

The time of supply is the point in time when goods/services are considered supplied. CGST/SGST or IGST must be paid at the time of supply.

Time of supply of services is earliest of:

1. Date of issue of invoice

2. Date of receipt of advance/ payment.

3. Date of provision of services (if invoice is not issued within prescribed period)

The GST payment shall be made with in 20th of next month.

Invoicing under GST

In general scenario invoice should be raised within 30 days of supply of service.

It is very important to bill the customer with GST amount in prescribed invoice format, else the supplier will have to bear the GST liability and other penal consequences for the services provided.

Filing of Returns Under GST

Once the registration is done, monthly, quarterly and annual filings are required depending upon the facts of the particular case. Major relevant GST forms are GSTR 3B, GSTR 1 etc.

Small tax payers with turnover less than Rs.5 crores can opt quarterly filing. The facility for opting into Quarterly return filing must be made at the beginning of the year.

In this option tax payers pay GST monthly and file return quarterly. This option helps the tax payer to reduce compliance cost and procedures.

Types of Return and the due date

Let’s try to understand this with an example. Mr. Lal, an artist performed in a concert on 15th Sep 2019.The invoice for the same was issued on 1st Oct 2019 by him. However, the payment was received in advance on 1st Aug 2019. Here Mr. Lal issues the invoice with in the prescribed time limit of 30 days and hence the time of supply is the earliest of invoice date and receipt date i.e. 1st Aug 2019. The due date for making the GST payment and filing GST Return is 20th Sep 2019.

Rate of GST

The current rate of tax under GST is 18% for all categories of professionals in India except some specific exemptions provided for healthcare services. These professionals need to get themselves registered under GST laws, collect GST @ 18% on their invoices and deposit the same to the Government treasury, after adjusting allowed set offs, if any.

Documents Required For GST Registration 

The following documents are required to register under GST .

  • PAN
  • Photo
  • Address Proof
  • Address Proof of Office
  • NOC if Office is on rent
  • Mobile No. and Email ID

Other important points to keep in mind

Compliance: A professional registered under GST, will have to upload all invoices to the GSTN. This means every transaction will also have to be invoiced.

Format of Invoice under GST: Taxpayers will have to raise invoices and bills in the correct format laid down by the GSTN. Debit and credit notes will also have to be maintained along with books of accounts in the approved format.

No Composition scheme for professionals: Professionals cannot apply for composition scheme as it is not available to any service providers except restaurant services. Composition scheme is the benefit extended to all small businesses/service providers who have a turnover of less than Rs.1 crore.

Maintenance of Proper Books: Under the GST Act, professionals providing services are required to maintain records and particulars of supplies where input tax availed and output tax paid invoices should be retained for a minimum period of 6 years from the due date of furnishing of annual return for the relevant year.

Offences and Penalties Under GST at a glimpse

Talk to our Tax experts today to ensure that you are compliant with the GST regulations and avoid penalty.

Categories
Technical

What Is Copyright And Its Benefits

Copyright in simple words is the right to copy. This means the original creators of the products and anyone they give authorisation to are the only ones with the exclusive right to reproduce the work. Copyrights in India are protected by COPYRIGHTS ACT,1957

Lets discuss the basics of copyright in a nutshell:

1) What is Copyright: Copyright is a form of intellectual property protection granted under Indian law to the creator of literature, drama, music, art, film, music etc. Copyright is a negative right and the owner of a copyright gets the right to prevent others from copying his work without his consent. A term of copyright in India is 60 years.

2) Why Copyright: If a work is protected by copyright, no one can imitate, copy or reproduce the original work in any other way. This helps the copyright owner to encash his work in the right market. It is not mandatory to get copyright protection but it is always advisable as to do so as it gives a protection that no one will be able to copy this work for a minimum guaranteed period. This in turn motivates and encourages the copyright owner to push himself and create more items.

3) How to Apply for Copyright:

File an application along with the requisite fee, needs to be submitted either in DD/IPO. One can submit an online form or mail a paper form.

Tip: Online applications have lower filing fees and faster processing times than paper applications.

Once this application is filed, it goes through the below steps:

How it works: Let’s try to understand this with an example. Mr Brilliant is a very talented artist. He poured in lot of mental effort and created a Graphic Design which is independent and void of duplication. Now to monetize his effort by selling the design, Mr Brilliant should safeguard his work legally by taking a copyright for his original creation of work (Graphic design) under COPYRIGHT ACT 1957 to protect.

Some Interesting Facts :

  • Ideas per se cannot be protected; it is the expression of ideas in a material medium that is the subject matter of copyright protection.
  • Usually copyright is possessed by a creator of the work, but sometimes even the employer of its creator or the person who has authorised the work can also own the copyright.

Even Businesses and start-ups get copyright registration related to instruction manuals, product literature and user guides.