Posted in Common Man, Government, Hindustan, India, Tax

Goods and Service Tax (GST) – Analysis from a layman’s viewpoint

Nowadays, whenever we come across the word GST, it gives us a feeling of a Ghost Seeing Through. The major reasons behind this unfriendly feeling towards GST might be the complicated jargons, ignorance or confusion about the new taxation rules and regulations, lengthy and time-consuming procedural requirements, etcetera. However, there is nothing new in this, because situations like this are bound to occur whenever a new system is introduced anywhere in the world.

As the proposed date for implementation of GST is nearing up i.e. 01st July 2017, a sense of uncertainty and a chaotic situation is building up in our economy. Hence, I have tried to lessen up the burden by throwing some light on the topic of GST from a layman’s viewpoint. Hope it turns out to be useful especially to all those who are a bit scared from this Ghost Seeing Through.

What is Goods and Service Tax (GST)? – Goods and Service Tax, most commonly known as GST is a fusion of Tax on Goods + Tax on Service. The very purpose of introducing GST is to harmonise the tax structure and eliminate a large number of indirect taxes prevailing in the economy. Thus, GST is a “Single Indirect Tax” levied on the manufacture, sale, and consumption of goods or availing of service. Ideally, with the introduction of GST, all other indirect taxes levied on goods and services should be eliminated (except for the tax on goods and services on which GST is not levied).

How is tax calculated under GST? – The methodology adopted to calculate tax under GST is alike to Value Added Tax (VAT) i.e. tax is levied at each stage of “value addition”. It simply means that GST shall be levied only when some value addition has been done on the goods being procured or services being availed. Hence, if someone just procures goods and sell it as-it-is then no GST shall be levied on the same (likewise for services too).

Let us understand this with an example – If you procure a raw material used for manufacturing of the final good in your factory then you might end up paying GST on the purchase of the raw material, which is the input good for you. Further, you will also collect GST at the time of sale of final good manufactured at your end. Herewith, you will be allowed to take “input tax credit” of GST paid on the respective raw material used in the manufacture of the final good. This, in turn, will ensure that there is no double taxation on the cost of the same good.

What does Value Addition mean? – In the present context, value addition means adding some value to the goods or services that are being used as “input” in the resultant “output” goods or service. Value addition implies enhancing the value of input goods or services by applying some means.

What is Input Tax Credit (ITC)? – As mentioned above, GST is levied at each stage of “value addition”. This means that at each stage, the tax shall be calculated on the price of that product/service in that very stage. Since the tax on the same product/service has already been levied in the earlier stages also so this will obviously result in double taxation. Hence, in order to avoid double taxation under GST, the concept of Input Tax Credit was being introduced. The “registered” seller/service provider is allowed to take input tax credit of GST already paid in the earlier stages of the same product/service.

Blogger’s views on some of the hot topics of discussion with regard to GST

Whether prices of commodities/services will go down or rise as a result of GST? – If I talk in bookish terms then by simply comparing the rates of existing tax on goods or service tax against the proposed GST rate, I could very well conclude that prices of some commodities/services will go down, while those of others will rise. However, the hard-core reality is that prices in the practical world never go down in the long run. So, my personal view is that GST should not be looked upon as a measure to reduce prices of goods/services. It is simply one of those “Jumlas” which until now we all should be used to. However, if you still think that the business world is going to share their savings in cost with the consumers “in the long run” then you are free to stay hopeful (*fingers crossed*).

Will the life of business person ease up post implementation of GST? – Ah! On one hand, if you are a registered business person under GST, then you will have to file as many as 37 tax returns per year. And mind it your income tax and other returns are not part of these 37 returns. So either you should be ready to invest your next quarter or half-year in understanding the GST requirements and getting well versed with it or else concentrate on your business and hire a GST professional for taking care of all these issues. While, on the other hand, if you are not a registered business person under GST, then you are not eligible to claim the Input Tax Credit on the goods and services you sell/serve. So you are smart enough to forecast whether your life is going to ease up or not in the GST regime.

Concluding remarks – No doubt GST is a good step in harmonising the tax structure of any economy. And sooner or later, our country has to go for One Nation, One Tax. However, the Government should necessarily look into easing up the procedural requirement under GST. In absence of which, it is surely going to be a difficult task to implement GST in the right spirit. Hope the responsible persons do take note of the same, as well as, take necessary steps in the matter concerned.

Let’s be positive and hope for the best.

God Bless you all! Stay in touch.

Peyush Jain

Posted in Advance Salary, Arrears, Provident Fund, Section 89(1) of the Income Tax Act, Slogging, Tax

Relief under Section 89(1) of the Income Tax Act, 1961-2015 – The ‘logical’ treatment of amount received as a part of arrears/advance salary which is directly credited to the Provident Fund (PF) account

Disclaimer – The views expressed in this blog are solely of the blogger and these views might be contradictory to the views/stand of the majority of the learned people, as well as, the Institutes governing the professional bodies. Hence, it is my earnest request to all the readers that please consult the professionals before taking any step, based on the views expressed in this blog.


In this write-up, let us try to comprehend, in a sequential manner, what does section 89(1) of the Income Tax Act, 1961-2015 (hereinafter, referred to as the Act), talks about, along with the procedure to compute relief, as defined in rule 21A of the Act. Further, let us also understand the meaning of the word ‘relief’ in context of section 89(1) of the Act and eventually make an attempt to figure out the ‘logical’ treatment of amount received as a part of arrears/advance salary which is directly credited to the Provident Fund (PF) account. So, wear your thinking caps on, to opine on a debatable issue.

Relief under Section 89(1) when salary, etcetera, is paid in arrears or in advance – As per the section 89(1) of the Act, where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance, or is in receipt, in any one of the financial year salaries for more than twelve months, or a payment which under the provisions of section 17(3) of the Act is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57 of the Act, being paid in arrears, due to which his/her total income is assessed at a rate higher than that at which it would otherwise have been assessed, then the assessee is eligible to claim relief as defined under section 89(1), read along with rule 21A of the Act. (Source: Website of Income Tax Department, Government of India: www.incometaxindia.gov.in)

Methodology for computing relief, as defined in rule 21A of the Act– The procedure for computing the relief as per section 89(1) is specified in rule 21A of the Act. As per the said rule, relief shall be computed in the manner described below –

Step 1: Calculate the tax payable “of the previous year” in which the arrears/advance salary is received –

  1. On the total income, including the entire additional salary received.
  2. On the total income, excluding the entire additional salary received.

The difference between a) and b) is the tax on the entire additional salary received.

Step 2: Calculate the tax payable “of each of the previous year” to which the additional salary relates –

  1. On the total income, including the additional salary pertaining to that particular previous year.
  2. On the total income of that particular previous year, excluding the additional salary.

Compute the difference between a) and b) for each of the previous years to which the additional salary relates and aggregate the same. This aggregate amount is the tax arrived on, after the additional salary received is spread over in each of the previous years to which it relates.

Step 3: If the difference in tax calculated “of the previous year” in Step 1 is more than the aggregate difference in tax calculated “of each of the previous years” in Step 2 then the excess amount is admissible as relief under section 89(1) of the Act.

However, if the difference in tax calculated “of the previous year” in Step 1 is less than the aggregate difference in tax calculated “of each of the previous years” in Step 2, then no relief is admissible under section 89(1) of the Act.

The meaning of the word ‘relief’– As per the dictionary meaning, the word relief means “The feeling that comes when something burdensome is removed or reduced” (Source: WordWeb). Now, in context of section 89(1) of the Act, the word relief means reducing the tax liability/burden on the assessee, on account of lump sum salary being received in arrears/advance, due to which the assessee’s total income in the previous year of receipt of the arrear/advance is assessed at a tax rate higher than what it would otherwise have been assessed, if the amount was received in the year to which it actually pertains.Thus, in simple words, it’s a relief to reduce the tax liability.

Total Income – The tax payable is calculated on the ‘Total Income’. So, let us understand what does total income means. The aggregate amount of the income computed under the five heads of the income i.e. Income from Salaries, House Property, Business or Profession, Capital Gains and Other Sources is termed as Gross Total Income. From the Gross Total Income so computed, the amount spent/invested as eligible under section 80C to 80U (Chapter VI-A) is deducted to arrive at the balance amount which is known as Total Income.

Thus, from the aforementioned explanation, it is clear that the tax payable calculated on the total income under rule 21A of the Act has to be computed after deducting the amount eligible under section 80C to 80U.

Provision of Section 80C of the Act – Contribution to Provident Funds is covered under section 80C of the Act. As per the provisions of the said section, the deduction is allowed only when the specified amount has been actually paid during the previous year.

Thus, by plain reading of this section, it would be construed that the amount received “as a part of arrears” which is directly credited to the PF account could not be spread over to the earlier years to which this PF contribution actually relates because it has not been ‘actually paid’ in those years.

Provision of Section 192 of the Act – Section 192, deals with the deduction of tax from salary. As per section 192, the liability to deduct tax arises only “at the time of payment”, unlike most of the other sections dealing with deduction of tax at source, wherein it is specifically mentioned that tax should be deducted at source at the time of credit or payment of the amount, whichever is earlier.

Thus, by plain reading of this section, it would be construed that the total amount received as a part of arrears/advance salary has to be taxed in the year of receipt of additional salary and it could not be taxed by spreading the amount received as a part of arrears over to the earlier years to which it actually relates because liability to deduct tax in case of salary arises only “at the time of payment”.

‘Logical’ treatment of amount received as a part of arrears/advance which is directly credited to the PF account – As mentioned in the above paragraphs, by plain reading of the provisions of Section 80C and Section 192 of the Act, it could be concluded that tax has to be paid in the previous year in which the entire amount of arrears/advance salary is received. This is actually very much correct in the normal circumstances. However, the relief under section 89(1) has been introduced by the legislature to override the relevant provisions of the Act, which would otherwise have been followed in normal circumstances.

It is a well-settled position of law that any enactment/rule/section etcetera should not be read and understood in a narrow sense, but rather should be interpreted keeping in mind the intention of the legislature behind framing the law. Hence, the relief under section 89(1) has to be interpreted in a broader sense in view of the intention of the legislature to provide relief to the assessee from tax liability.

Similarly, it is a well-settled position of law that whenever any amount is added to the total income of the assessee, the corresponding investments pertaining to that period has to be allowed as an eligible deduction, while computing the taxable income of the assessee. As far as, investment under section 80C is concerned, in normal circumstances, the deduction is allowed only when the amount is paid in that particular previous year, which is absolutely in line with the provisions of the said section. However, when the income itself is not received in that previous year, how someone could make an investment out of that income in that respective year itself is a logical question to be answered before one reach on to the conclusion that whether the PF amount could be spread over to the earlier years or not, for claiming relief under section 89(1) of the Act.

Hence, from the above-mentioned explanations, it is clear that when income is spread over the relevant previous year, the investments pertaining to that particular year has to be spread over to that previous year, as well. Else, the very purpose of the relief is defeated if only income is added to the previous year, keeping aside the corresponding investments pertaining to that particular year. Thus, the spreading effect has to be provided on both, the income, as well as, the amount directly credited to the PF account in order to give relief under section 89(1) of the Act.This will be the ‘Logical’ treatment of amount received as a part of arrears/advance which is directly credited to the PF account.

Judicial Pronouncement – The Tribunal in R. J. Basu v Second ITO (1991) 37 ITD 49 (Mad) (SMC) had pointed out that the fiction enabling spread over, under Sec. 89(1) will have to be carried to its logical extent, so that if income could be spread over, there is no reason at all why the deposits in provident fund account should also not be taken as spread over on the same basis, so as to qualify for rebate in the years in which it could be deemed to have been deposited.(Source: Website of The Hindu newspaper: www.thehindu.com)

While, interpreting the provisions of section 89(1) of the Act, a lot of the learned people have taken the stand that although, for tax calculation the additional salary received shall be spread over to the particular years to which it actually relates, but the investment portion i.e. the amount contributed directly to the provident funds could not be spread over to the earlier years. The reason for such stand is as mentioned in the above paragraphs i.e. deduction under section 80C is allowed only when the specified amount has been actually paid during the previous year. Isn’t it equivalent to applying different logic on the income and investment portion while interpreting the same section 89(1) of the Act? Just because the section is silent on one point it could not be construed that the intention behind relief under section 89(1) was not to allow the relief on the investment portion.

Conclusion – Herewith, I would like to conclude the issue, backed by logical reasoning and the judgement of the Tribunal, by stating that the spreading effect has to be provided on both the income, as well as, the amount directly credited to the PF account while computing the relief under section 89(1) of the Act. If only the additional salary received is spread over the relevant previous years and the investment portion is not spread over to the previous years then the relief will not reach to its logical end and it will not be a relief in totality as intended by the legislature.

At last, I would also like to request the legislature to clarify the issue with regard to spreading or not of the amount received as a part of arrears/advance salary which is directly credited to the Provident Fund (PF) account, while claiming relief under section 89(1) of the Act. In absence of which, it will always be open for interpretation and arguments thereof.

 

Peyush Jain

Posted in Common Man, Consumer, Democracy, Government, Hindustan, India, Injustice, Justice, Media, Politics, Slogging, System, Tax, Urban Development Tax, Victim

Factual mistake in the formula adopted for calculation of Urban Development (U.D.) Tax by Rajasthan State Government – Is it a blunder or a well thought out strategy to rob our pockets?

Is it believable that a state government is levying Urban Development Tax on the basis of a formula, which has a flaw in following the basic principle of mathematics? Indeed, one can counter by saying that manual and system errors are bound to occur at every place. However, what would be the justification for continuing this error for, as long as, 9 to 10 years, and still going, on and on, with the same mistake?

It is interesting to note here that although the government changed during this period, still, the formula is intact i.e. the present government intends to continue the “revenue generating mistake”. Herewith, please be noted that the Rajasthan government is fully aware of this mistake, but I guess, they simply don’t want to rectify it, solely because it will lead to a lesser collection of tax. This certainly compels us to think, whether it is a blunder or a well thought out strategy to rob our pockets?

Before we discuss any further, let us check the formula adopted for calculating U.D. Tax in Rajasthan state. Formula for calculating the Urban Development (U.D.) Tax in Rajasthan

Total U.D. Tax Payable =

(Total Plot size in square yard) X (Effective D.L.C. rate in square meter)

2000

As it is evident from above, that the formula adopted for calculating the Urban Development (U.D.) Tax by the Rajasthan Government is factually incorrect. This mistake is apparent from the Urban Development Tax bills issued by the concerned department of Rajasthan Government. The factual mistake in the formula for calculation of U.D. Tax is that the plot size is taken in the square yard, while the D.L.C. rate is taken in the square meter. It is a basic principle of mathematics that two different measures cannot be multiplied to arrive at the desired figure. How can square yard be multiplied with the square meter? I mean, even a school going kid can point out such a mathematical mistake. However, the learned and respected Rajasthan Government leaders/officials are least bothered about this basic principle of mathematics. But, on the contrary, who cares for the basic principles, when keeping them aside, gives one the licence to rob the hard earned money of common men?

For the correct calculation of U.D. Tax, the total plot size first needs to be converted into square meter from the square yard and, thereafter, multiplied by the available D.L.C. rate in square meter, in order to obtain the correct Tax Payable per square meter.

“No wonder Logic’s are only for the common man to follow, the powerful and privileged ones are respectfully exempted”. I am not making a loose statement when I say that the Rajasthan Government doesn’t intend to rectify this mistake. My statement is very well backed by the fact that the Rajasthan Department of Local Self Government (RAJDLSG) had issued an order, by way of a departmental circular, dated 19th December 2012, instructing the concerned officials and departments, that while calculating the Urban Development Tax, square yard should be converted into square meter for arriving at the correct Urban Development Tax Payable (thereby accepting their mistake). However, surprisingly on dated 07th February 2013, RAJDLSG stayed the above-mentioned order with immediate effect i.e. switched back onto the wrong formula for calculation of U.D. Tax. (Reference: An article published, on dated 20th May 2014, in Dainik Bhaskar, the Daily Hindi Newspaper).

I hope the staying of the above-mentioned order in itself shows whether the government intends to rectify the mistake or not. What was the logic behind staying the order? The only reason is a reduction in tax collection on account of correct formula. Wow what a logical reason, right? If the government intends to earn more revenue than can’t they increase the tax rates? Or are the leaders scared of losing their government on account of increased taxes, so they rather choose to rob our pockets by misleading the innocent citizens? As per an article published, on dated 19th May 2014, in Dainik Bhaskar, the Daily Hindi Newspaper, Rajasthan Government is charging almost 20% excess Urban Development Tax on account of incorrect formula being adopted while calculating the U.D. Tax.

If the Rajasthan Government doesn’t intend to rectify the mistakes apparent on record then how come they expect us to deposit misleading taxes on time? When intentionally the government doesn’t want to rectify their mistakes, then who gave them the authority to levy penalties on incorrect taxes that are not being paid by the awaken citizens, till the time they rectify the mistakes at their end? Although, the concerned officials have been requested, time and again, for rectifying the mistake and issuing a revised demand notice, still no action has been taken till date, even after a lot of follow ups and meetings with the concerned officials. In such a case, why would any law abiding citizen pay the “intentionally incorrect taxes” to the government?

Finally, I would like to end this blog with the hope that the leaders and officials of Rajasthan Government get good sense, as well as, get awakened on the issue raised in this blog to rectify the mistake in the formula for calculating the U.D. Tax and they don’t take shelter of such illegal methods to collect revenue in future.

Peyush Jain

Posted in Budget, Common Man, Government, Hindustan, India, Indian Railway, Tax

Indian Rail Budget 2016-17 – Analysis from a layman’s viewpoint

It’s always simple and convenient to analyse budgets of a nation (or for that reason any budget) from a layman’s point of view, be it the rail budget, the finance budget, etcetera. There are two valid reasons to back my above-mentioned statement. Firstly, the views of political parties are biased i.e. those in power will always support their government’s budget by referring it as futuristic, good, common men favouring, blah blah blah, while those in opposition without any doubts, will every time oppose the budget by quoting that the budget is disappointing, unrealistic, etcetera. Secondly, the views of most of the experts in light of the technical jargons are not only difficult to understand but also, harder to digest. As such, if a common man tries to understand a budget from the politician’s viewpoints than s/he will be lost forever, and, if s/he tries to break the complicated jargons of the experts than s/he may end up with some fused brain cells. So, what’s the remedy then? Well, let’s see if in this blog we can highlight the Rail Budget 2016-17 in layman’s terminology and understand what this budget brings in with it.

First of all, let us understand what does budget means. In simple words, a budget is a proposal of projected income and expenditure during a specified period. A budget is a presentation of –

  • Projected income in monetary terms.
  • The means to generate the projected income.
  • Anticipated Expenses in monetary terms.
  • The areas where the anticipated expenses shall be allocated.

Now, coming on to the Rail Budget 2016-17, let us start with the positive side. At the outset, thanks to the Railway Minister and his team for saving a lot of trees from getting axed by eliminating the printing of around 1.2 million A4 size papers, which would otherwise have been used in the budget presentation. Also, this is the second budget presented by the Honourable Railway Minister, Mr. Suresh Prabhu, and in both the budgets he has come out with flying colours, at least in one field, i.e. rising above the disease of regional politics, contrary to the custom followed by the Former Railway Ministers of starting new trains in the region of their elected constituency or in the region from where they originally belong. However, it seems that Mr. Suresh Prabhu could not restrain himself from giving preference to the areas where elections are going to take place in the coming months like announcing projects worth Rs. 5,000 Crore against 26 proposed plans for the state of Uttar Pradesh, etcetera.

As far as, Rail Budget 2016-17 is concerned it could be termed as a “dream budget”, in the sense that it shows us many dreams that may become a reality in the next 4 years or so. However, how far the dreams will come true is the question, the answer of which lies only in the womb of future. Let’s be optimistic and hope that this budget will drastically change the picture of the most preferred and economical mode of conveyance in India, as well as, it will bring the railway department back on the profitable and competitive track.

Following are the salient features of the Rail Budget 2016-17 –

  1. Projected Income – An amount of Rs. 1,84,820 Crores is the projected income to be achieved in the next financial year.
  2. Anticipated Expenses – An amount of Rs. 92,714 Crores is the anticipated expenses to be incurred in the 44 new proposed plans to be implemented during the next financial year.
  3. Fare – No increase in the passenger or goods fare.
  4. Innovative measure for Income generation – Since no increase have been made in the passengers or goods fares, so the budget talks about innovative measures for income generation like the sale of advertisement space etcetera.
  5. New Trains – 4 kind of new trains named as Humsafar (All coaches will be AC-3 tier), Tejas (Having world class facilities and running at a speed of 130km/hour or more), Uday (Late night double-decker AC train, with 40% more passenger seating capacity) and Antyodaya (Unreserved superfast train for long destination) shall be started. However, how many such trains are proposed to be started has not been made clear in the budget. Note: For the details about the new trains to be started, the pink book of budget available on the website of rail department should be referred to.
  6. Tonnage Capacity – The existing 80 Ton load carrying capacity of goods wagon shall be increased to 100 Ton. This initiative is worth appreciating and a good example of best usage of technology to enhance the productivity of existing resources.
  7. Infrastructure & Modernisation – 2 Rail Engine factories to be established in India.
  8. Divyaang – Online facility for booking of a wheelchair for Divyaang shall be made available. Specially designed toilets for Divyaang to be constructed on every railway platform.
  9. Senior Citizen – The reservation quota for lower birth seats for Senior Citizens has been increased to 120 i.e. 50% increase in the Senior Citizen quota for lower birth reservation.
  10. Woman – 30% quota for the woman in all the reservation categories and 24 hours Women Helpline Number 182 to be launched (It should be noted here that this helpline number 182 is already functioning and was part of the last year Rail budget too).
  11. Kids – Baby food, hot water, and changing board facilities shall be made available.
  12. Train Attendants – Coolie to be addressed as train attendants.
  13. Problems/Complaints – 2 mobile based applications (Apps) shall be launched for resolution of problems and complaints.
  14. General Compartment – 3 to 4 extra coaches to be called as “Deendayalu General Coach” shall be attached to long destination trains, with free water and additional mobile charging points. Also, facility to purchase bedding by the passengers shall be extended to the general compartments as well.
  15. E-Ticket Booking – Enhancing the E-Ticket booking facility from the existing level of booking of 2000Tickets/minute to a booking of 7200 Tickets/minute.
  16. Ticket Cancellations – Facility for cancellation of booked tickets through Short Message Service (SMS) to be introduced. Also, cancellation of booked tickets by calling on the number 139 to be started, authentication of the cancellation transaction shall be made by sending a One Time Password (OTP) on the registered mobile number.
  17. Internet Connectivity – Wi-Fi facility to be introduced on railway stations.
  18. Online Parcel Booking – Facility of online parcel booking to be started.
  19. Catering – E-Catering facility to be started at 408 railway stations.
  20. Toilets – 17000 Bio Toilets to be constructed.
  21. Closed Circuit Television (CCTV) Cameras – CCTV to be installed on railway stations and Tatkal ticket booking counters.
  22. Jobs – Reservation to SC/ST/OBC/Divyaang/Woman in Food related field/departments. Railways will give an opportunity of internship to 100 students for 6 months.
  23. Entertainment – Services like Frequency Modulation (FM) radio, availability of local cuisine in the trains, etcetera shall be started.
  24. Cleanliness – Facility wherein the passengers could request for cleaning of the coach through Short Message Service (SMS) shall be introduced.

 

Railway Mission 2020 – Below mentioned are some of the dream projects which are part of the Railway Mission 2020, which are envisioned to be completed by the year 2020.

  1. Train Speed – Average train speed to be increased to 80km/hour.
  2. Train Schedule – 95% of trains to run on the schedule by the year 2020.
  3. Train Tickets – Availability of tickets to everyone by the year 2020.

One thing that this budget does not speak much about is the means to generate the projected income. As mentioned in the definition of the budget in aforementioned paragraph “means to generate the projected income” is the prerequisite and essential element of every budget. Hence, this is one area where this budget scores fewer numbers. Although, the budget gives a broad guideline about some of the steps that would be taken to generate the projected income like Public Private Partnership (PPP), revenue generation from the sale of advertising space etcetera. However, it should have been more focused and clear about the means. The experts also foresee that one of the biggest challenges for the Railway Ministry in the next financial year is to implement the Seventh Pay Commission.

Nevertheless, we do hope that the learned minister and his team must have surely kept the above-mentioned points in mind and we expect that the picture would be clear in the days to come. We the citizens of India should extend our full support and lay confidence in the Railway Ministry and Team Railways to excel the expectations of its countrymen. Hope the dreams shown in this budget shall come true by the year 2020.

Best wishes and keep up the good work.

Peyush Jain

Posted in Banks, Financial Institutions, Form 15G/H, RBI, Section 197A of the Income Tax Act, Slogging, Tax

Submission of Form 15G/H under Section 197A of the Income Tax Act, 1961-2015 – Are the provisions of the said section followed in the right spirit?

In this blog, let us try to understand the provisions of section 197A of the Income Tax Act, 1961-2015 (hereinafter referred to as the Act), and thereafter evaluate whether the assessee, as well as, the payer (especially banks) are following the provisions of the said section in the right spirit or not. It’s been a long time since this section was first introduced, but till date, a lot of the assessee’s are not aware that whether they are eligible to submit the prescribed form i.e. Form 15G/H or not. At the same time, a lot of the assessee’s ‘knowingly’ that they are not eligible, still submit the declaration in the Form 15G/H. As far as, payers are concerned let us find out whether, as per the provisions of the Act, Form 15G/H is required to be submitted ‘once in a year’ or else is it required to be submitted ‘every time’ a new Deposit is opened by the same account holder (which is the current practice followed by a lot of banks). I hope this blog will bring more clarity on the section 197A of the Act, as well as, answer all the questions raised above.

Section 197A – Section 197A of the Act, deals with the provision concerning the non-deduction of tax at source in certain cases, if a written declaration in duplicate, in the prescribed format, is furnished by the individual/person, as the case may be, to the person responsible for paying any income under section 193 (Interest on securities), 194 (Dividend Income), 194A (Interest other than interest on securities), 194EE (Payment under National Saving Scheme, etcetera) and 194K (Income from units), as specified in the relevant sub-sections.

Section 197A (1) – As per section 197A (1), no tax shall be deducted at source, in case of an individual, who is resident in India, on the income received under section 194, 194EE, if such individual furnishes to the payer a declaration in writing in duplicate in the prescribed form to the effect that tax on his/her estimated total income of the previous year (including the income under the above-mentioned sections) in computing his/her total income will be nil. (Source: Website of Income Tax Department, Government of India: www.incometaxindia.gov.in)

Section 197A (1A) – As per section 197A (1A), no tax shall be deducted at source, in case of a person, (not being a company or firm), on the income received under section 193, 194A and 194K, if such person furnishes to the payer a declaration in writing in duplicate in the prescribed form to the effect that tax on his/her estimated total income of the previous year (including the income under the above-mentioned sections) in computing his/her total income will be nil. (Source: Website of Income Tax Department, Government of India: www.incometaxindia.gov.in)

Section 197A (1B) – As per section 197A (1B), the assessee cannot furnish the above mentioned declaration if the aggregate amount of the income under section 193, 194, 194A, 194EE and 194K, during the previous year in which such income is to be included, exceeds the maximum amount which is not chargeable to income tax.

Form 15G/H – The prescribed form that is required to be furnished to the payer in writing in duplicate are commonly known as Form 15G/H, wherein, Form 15H is to be submitted by a senior citizen who is of the age of sixty years or more at any time during the previous year, while 15G form is to be submitted by any other individual/person (other than a senior citizen), who is eligible as per the provisions of section 197A of the Act.

Assessee’s who are eligible to submit a declaration in Form 15G/H – In order to be an eligible assessee for submitting the declaration in Form 15G/H as per the section 197A of the Act, two things need to be satisfied. Firstly, as per section 197A (1) and 197A (1A), the tax on the estimated total income of the previous year (including the income specified under the said sections) in computing the total income should be nil. Secondly, as per section 197A (1B), the aggregate amount of the income under section 193, 194, 194A, 194EE and 194K, during the previous year, should not exceed the maximum amount which is not chargeable to income tax.

Hence, from the above-mentioned explanation, it is it is very much clear that even if the tax on the estimated total income of the previous year is nil, but if the aggregate income under section 193, 194, 194A, 194EE and 194K exceeds the maximum amount chargeable to income tax then the assessee is not eligible to submit the declaration under section 15G/H as per section 197A of the Act. Please note that any person, who is found making a false statement in the declaration, is liable to be prosecuted and punished under section 277 of the Act.

What should be the frequency to submit Form 15G/H – In the Form 15G/H, the assessee makes a declaration, as per section 197A (1) and 197A (1A), to the effect that tax on his/her estimated total income of the previous year (including the income specified under the said sections) in computing his/her total income will be nil, as well as, also declares, as per section 197A (1B), that the aggregate amount of his/her income under section 193, 194, 194A, 194EE and 194K, during the previous year, will not exceed the maximum amount which is not chargeable to income tax. Thus, the plain reading of the content of Form 15G/H in itself clarifies that it’s a yearly declaration that is made by the assessee to the respective payer.

However, the current practice adopted by a lot of banks is that they demand submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder, even if the account holder has already submitted the respective Form 15G/H earlier (mostly at the start of the respective financial year). In absence of that, they deduct tax at source on the new deposit account, so created post submission of the Form 15G/H.

Although, the Form 15G/H requires the declarant to submit the complete details of shares, securities, sums given on interest, a withdrawal made from National Saving Scheme, etcetera, as held or withdrawn on or up to the date of the submission of the form. But could this be the reason of demanding the submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder? None of the provision of section 197A of the Act specifies that ‘every time’ the assessee invests/withdraws an amount he/she is required to submit the declaration in Form 15G/H to the respective payer. Then on what basis the banks are following this practice of demanding submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder, who has already submitted the respective form for that particular previous year, is the question that the learned and respected officers of the banks should answer in order to clarify this issue, once for all.

Also, many banks don’t give the receipt/copy of Form 15G/H submitted by the account holder. This act not only tantamount to infringement of the right of the customer to get a receipt of every transaction made by them, but at the same time, it also depicts that the officer concerned wants to merely shed away their responsibility of being answerable in case necessary actions are not taken by them in the matter concerned. Is this a professional behaviour on the part of the financial institutions, which boasts about stringent policies and procedures?

I would like to end this blog with the hope that every individual/person concerned; Banks, Reserve Bank of India (RBI) takes note of the serious issues highlighted in this blog, as well as, takes necessary actions as required at their end, so that the section 197A of the Act is ultimately followed in the right spirit.

 

Peyush Jain