“Direct tax – Important due dates for November 2022, Income Tax updates – September and October 2022”

1.Due Date for Income tax Compliance (November 2022)

This Tax Alert summarizes a recent Notification No. 111/2022 dated 28 September 2022 issued by the Central Board of Direct Taxes (CBDT) prescribing rule and forms for taxpayers to make voluntary application with the tax authority for re-computation of total income to avoid deeming penal consequences for under-reported income on account of disallowance, on retrospective basis, of surcharge or cess as business deduction which was claimed and allowed in the past.

Finance Act, 2022 (FA 2022) has made an amendment under the Income Tax Laws (ITL) to disallow surcharge and cess as business expenditure with retrospective effect from tax year 2004-2005. FA 2022 also empowered the tax authority to pass an order recomputing total income by such disallowance where taxpayer had claimed and was allowed deduction in the past and, in any such case, disallowance is considered as under-reported income of the taxpayer under the provisions of the ITL. However, it also provided that where a taxpayer applies to the tax authority in the prescribed form and within the prescribed time, requesting for re-computation of the total income of the tax year without allowing the claim for deduction of surcharge or cess and pays the amount due thereon within the specified time, the adverse consequences of penalty for under-reported income will not apply.

The CBDT, in deference to the powers conferred under the ITL, has notified (a) the rule containing the form for re-computation of income for disallowing surcharge and cess claimed and allowed as deduction in past tax years and (b) the form for intimating to the tax authority of payment of tax on income so recomputed.

3. Delay in Filing of Form 10A (Revalidation of exemption/notification to Trust) is condoned
E​ducational and charitable institutions who were already registered / have approval ​U/s 10(23C), 12A, 35(1) and 80G were supposed to ​revalidate registration by August 2020​ by filing Form 10A electronically​.
Due to Covid and several other difficulties, extension was given several times. Last extension was valid till 31.03.2022. ​
Vide ​Circular No. 22/2022 dt. Nov 1, 2022​, ​delay in F​iling of Form 10A ​is condoned and now it can be filed ​upto Nov 25, 2022 which were to be filed upto Mar 31, 2022 electronically.

4. Specified person will be exempted from quoting PAN/Aadhar on depositing/withdrawing money above specified limit

Vide Income Tax Rules,2022; new rule 114BB was inserted to provides that when any person deposit/withdraw 20 lakhs or more in a financial year in one or more
bank accounts/post office accounts; bank/post office should make sure that his PAN/Aadhar is quoted and authenticated (Applicable from 10.05.2022)

Vide notification No. 105/2022 dated 1st Sep 2022; it is provided that Central Government, the State Government or the Consular Office will be exempted from above rule.

5. Guidance for TDS ​u/s 194R ​on benefit/perquisite given in the course of business  – Circular dated​ 16.06.2022 and ​13.09.2022 

As per a new section 194R in the Income-tax Act, 1961, with effect from 1st July 2022, a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 1O%. The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession, by such resident. This deduction is not required to be made, if the value or aggregate of value of the benefit or perquisite provided or likely to be provided to the resident during the year does benefiisite Rs.20,000.

The responsibility of tax deduction also does not apply to a person, being an Individual/HUF whose turnover from business does not exceed 1 crore, or from profession does not exceed 50 lakh in previous year.

Highlights of Guidelines provided in circular dated 16.06.2022 are as follows:

1. The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient

2. TDS is required to be deducted where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.

3. TDS is required to be deducted when the benefit or perquisite is in the form of capital asset .

4 . No tax is required to be deducted on sales discount, cash discount and rebates allowed to customers . However, above relaxation would not apply to a situation of free samples. Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale. (like When a person gives incentives in the form of cash or kind, When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets , When a person provides a free ticket for an event , When a person gives medicine samples free to medical practitioners). It is further clarified that these benefits/perquisites may be used by the owner/director/employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession. However, the tax is required to be deducted by the person in the name of the recipient entity since the usage by owner / director employee / relative is by virtue of their relation with the recipient entity .

The provision shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.

5. Valuation would be based on fair market value of the benefit or perquisite except in following cases :-

(i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient [In that case the purchase price shall be the value for such benefit/perquisite].

(ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite. It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.

6 . Many times, a social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media. If the product is returned to the manufacturing company after using it for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 194R of the Act. However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted.

7 . Expense paid by the service provider (for which reimbursement is made) is incurred wholly and exclusively for the purposes of rendering services and the invoice is in the name of service receiver, then the reimbursement made by service recipient will not be subject to TDS.

8 . If there is a dealer conference to educate the dealers about the products of the company and such conference is in the nature of incentives/benefits to select dealers/customers who have achieved particular targets then it will be considered as a prerequisite . Further, in following cases the expenditure would be considered as benefit or perquisite (i) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference. (ii) Expenditure incurred for family members accompanying the person attending dealer business conference (iii) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

9 . The requirement of law is that if a person is providing benefit in kind to a recipient and tax is required to be deducted and the person is required to ensure that tax required to be deducted has been paid by the recipient. Such recipients would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. In the alternative, as an option to remove difficulty if any, the benefit provider may deduct the tax and pay to the Government.

10. If the value or aggregate value of the benefit or perquisite provided likely to be provided to a resident exceeds Rs.20,000 in FY 2022-23 (including the period up to 30th June 2022), the provision of section 194R shall apply on any benefit or perquisite provided on or after 1st July 2022.

Highlights of Guidelines provided in circular dated 13.09.2022 are as follows:

1 . One-time loan settlement, with borrowers or waiver of loan granted by specified entities (Like bank), on reaching settlement with the borrowers would not be subjected to TDS .

2. Amount incurred by “pure agent” for which he is reimbursed by the recipient would not be treated as benefit/perquisite

3. If out of pocket expenses (reimbursement) are already part of the consideration in the bill on which TDS deducted (other than section 194R), it is clarified that there will not be further liability for tax deduction under section 194R of the Act.

4. If benefit/perquisite is provided in a group activity in a manner that it is difficult to match such benefit/perquisite to each participant using a reasonable allocation key, the benefit/perquisite provider may at his option not claim the expense, representing such benefit/perquisite, as deductible expenditure for calculating his total income. If he decides to opt so, he will not be required to deduct TDS.

5. Once a person providing benefit has deducted TDS on gifting of an asset and dealer has included this benefit as income in his income tax return, it would be deemed that the “actual cost” of the car for the purpose of depreciation.

6. TDS is not required to be deducted on issuance of bonus or right shares by a company in which the public are substantially interested, where bonus shares are issued to all shareholders by such a company or right shares are offered to all shareholders by such a company, as the case may be.