FAQ's under Income Tax Act, 1961 for IT and ITES Sector
All the books of account and related documents should be kept at the principal place of business, i.e., where the business or profession is generally carried on. These documents should be preserved for a minimum of six years from the end of relevant Assessment year i.e. for a total of 7 financial year from the end of relevant year.
A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before 30th September of the relevant assessment year, e.g., Tax audit report for the financial year 2019-20 corresponding to the assessment year 2020-21 should be obtained on or before 30th September, 2020.
As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department. TDS is deducted on below:
• Interest payments by banks
• Commission payments
• Rent payments
• Consultation fees
• Professional fees
A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.
If there exists an employer-employee relationship between the company and the person and if salary is being paid to that person, then company is liable to deduct TDS under section 192 of Income Tax Act.
When Company has received any professional services, technical services or paid remuneration to the Director of the company, in that case company will require to deduct TDS under section 194J while making the payment.
Fees for technical services include consideration for managerial, technical, consultancy and provision of service of technical or other personnel. TDS on technical services will be deducted at 2% under 194J.
Examples: Software Development, information security, IT management consultants, web application.
Tax Resident Certificate is required to confirm which country you are a tax resident of. This may be essential when you have incomes from more than one country.
TRC helps establish which country you are a tax resident of so that the relevant DTAA may be applied to you and you can avail of the benefits stated therein and avoid paying tax twice on same income.
Section 195 of the Income Tax Act, 1961 (‘the Act’) deals with deduction of tax at source while making payments to a non-resident. As per the said section, every person liable for making a payment to non-residents shall deduct tax (at applicable rates) from the payments made to non-residents, if such sum is chargeable to tax under the provisions of the Act. If so, the appropriate taxes must be withheld and a CA certificate in Form 15CB together with a self-declaration in Form 15CA must be submitted online by the person making remittance.
Under section 80-IAC companies registered as Startups get 100% tax rebate on the profit of 3 years out of a block of 10 years. Companies needs to meet the following criteria to claim the exemption:
a) It should be incorporated after 01.04.2016 but before 01.04.2021.
b) The turnover of the entity should be less than Rs 100 crores.
Startups are exempt from tax under Section 56(2)(viib) of the Income Tax Act when such a Startup receives any consideration for issue of shares which exceeds the Fair Market Value of such shares with effect from 1/4/2020.
Software Technology Parks of India (STPI), an autonomous organization under the aegis of Ministry of Communication and Information Technology, government of India offers a number of concessions to STPI registered IT units like 100% import duty exemption on capital goods imported, purchase from Domestic Tariff Area (DTA).
Any Private Limited Companies / Public Limited Companies / Proprietorship / Partnerships / One Person Company /LLP's, which is into the development of Export-oriented Computer Software/IT Enabled Services, can register itself as NON-STP unit under STPI to avail Softex certification.
Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise.
For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.
Transfer Pricing will be applicable when there is an International Transaction with associated enterprise.
As per Rule 10TC, 'Eligible international transaction' means an international transaction between the eligible assessee and its associated enterprise, either or both of whom are non-resident, and which comprises of:
(I) provision of software development services.
(ii) provision of information technology enabled services.
(iii) provision of knowledge process outsourcing services.
(iv) provision of contract research and development services wholly or partly relating to software development.
Yes, TP guidelines will be applicable since parent company is considered as Associated Enterprise and it has a direct control over your company. Failure to report any International transaction or deemed International transaction will lead to 200% of the tax payable on under-reported income. If the company fails to furnish the report from an accountant as required under 92E will be penalized with 1,00,000.
Accrued revenue refers to revenue that has been incurred but not yet received. It is a temporary debt to the business that has provided the product or service.
Transfer pricing rules relate to transactions. It is therefore reasonable to presume that the transaction covered in the last quarter of the previous year alone could be covered. There is possible view, that since it is an associate concern at any time during the year, all the transactions for the year are covered. The definition of “associated enterprise” in section 92A (2) would indicate, that an enterprise becomes an associate enterprise, if it becomes so “at any time during the previous year”. It would, therefore, mean that the associate enterprise is an associate enterprise for the whole year, so that the transaction for the period for which it was not associate enterprise may also be covered.
The main objective of FEMA is to facilitate external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA deals with provisions relating to procedures, formalities, dealings, etc. of foreign exchange transactions in India.
A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India, (other than an entity incorporated in Pakistan or Bangladesh) can invest in India, subject to the FDI Policy of the Government of India.
Erstwhile OCBs, who have converted themselves into companies incorporated outside India can make fresh investments in India under the FDI Scheme provided they are not under the adverse notice of RBI / SEBI.
having capital goods like computers and software can claim depreciation up to 40% under Income Tax Act,1961 when compared to 10% depreciation of Plant and Machinery.
Generally, the person incurring the loss is only entitled to carry forward the loss to be adjusted in subsequent year(s). However, in certain cases of reconstitution of the business like amalgamation, demerger, conversion of proprietary firm into company or conversion of partnership firm into company, etc., the reconstituted entity is entitled to carry forward the unadjusted loss of predecessor entity (provided that conditions specified in this regard are satisfied)
The gain or loss resulting out of slump sale is treated as capital gain or loss under Income Tax Act,1961. It will either be long term or short term depending upon the period for which the undertaking is held.
Intellectual property (IP) often represents one of the largest asset classes that a company holds, company can sell this IP without selling other business assets. The gain or loss resulting out of an IP Sale shall be a Capital Gain/Loss under the Income Tax Act.
Section 80JJAA of Income Tax Act,1961 provides for deduction with respect to additional cost incurred towards employees by the companies.
Companies can claim deduction up to 30% of additional employee cost incurred in the previous year and can be claimed for 3 AY's. Below conditions needs to be satisfied to claim the deduction:
a) There should be increase in the number of employees and employed for a period of more than 240 days.
b) Employees emolument should not be more than 25,000.
c) Business should not be formed due to splitting up, reconstruction of existing business or acquisition through transfer from any other persons.
Company needs to deduct Equalization levy while paying to Google/LinkedIn because it is promoting products through online advertisement. The two conditions to be met to be liable to equalization levy:
• The payment should be made to a non-resident service provider.
• The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
Equalization levy should be deducted at the rate of 6% of the gross consideration to be paid.
According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB , the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
(b) Rs. 1,50,000.