Author - Anurag Jain

ADVANTAGES OF STARTING BUSINESS IN INDIA BY FOREIGNER:

INDIA Today is the consider to be one of the main forces in the global economic markets the majority of the world’s leading developed nations keep to have expand their business in India. If you are thinking to where to starts the business then look no further than India. If for nothing else, do so because of its large populations. According to IMF, India is one of the emerging economics leading the worlds output by the 5.9% which is double of the US at 2.5%.

Why starts business in India?

1. INDIA IS THE EMERGING ECONOMY:

In terms of GDP, India is seventh in the world and third in PPP. It also has the largest growing economy, which has attracted several global enterprises. India’s growing economy affords investors not only a large young population but also a strong export sector. India’s potential consumer base is more than that of most developed and developing nations. The median age in India is 25.10% which is better when compared to that of the United States that is 36.9%

2. ORGANISED EMPLOYABILITY: 

Employability is undoubtedly the deciding factor for any business starting operations in a new market. India boasts of a labour force of nearly 530 million, of which the majority is under 30 years of age. The proportion of the Indian population in the working age group (18-59 years) is likely to reach more than 64 per cent by 2021. In fact, the median age in India is 27.6 years, compared to the U.S.’s 37.9, which means that more years of service are available in the Indian market. Further, the aspirations of the Indian youth have changed.

3. AVALABILITY OF PROPER STARTUP ECOSYSTEM:

For any new organisation, the business culture of the economy is very important. Introducing a differentiating aspect in the business idea can be tough, but it differs globally. India is a hub for certain kinds of start-ups, including technology, e-commerce, and financial services. The fact that the Indian market is open to accepting new business ideas makes it easier for new businesses to enter it. Of course, you need to ensure that you have the right strategy as that can guide you through the tough times, as well.

4. BUSINESS-FRIENDLY LAWS:

Additionally, the Indian government’s Make in India initiative focuses on 25 industrial sectors and aims at building best-in-class manufacturing infrastructure by enabling foreign investments, promoting innovation through skill development, and focusing on intellectual property protection. These business-friendly laws make it easy for international players to actualise their plans of entering India. On implementation, these Bills will increase the efficiency in the movement of products across India. But, the most important law is the Land Acquisition Bill that promotes the twin objectives of social justice and industrial development in the country.

5.GOVERNMENT’S ROLE IN INDIA:

The government of India has taken several initiatives to attract foreign investments in India’s diverse sectors. It has announced a number of attractive schemes and policies from time to time to lure investments. The individual ministries of different industries have made special attempts to ease the rules and regulations related to foreign investment in the industry.

LIST OF GOVERNMENT AGENCIES FOR STARTING BUSINESS IN INDIA:

  • Ministry of Corporate Affairs-: They are in charge of regulating corporate affairs in India through the Companies Act and other allied Acts, Bills and Rules Registrar of Companies-: The Registrar of Companies in India is the official agency that carries out the administration of Companies Act. It is through them you can check if a company name is registered already.
  • Income Tax Department-: It ensures that tax is collected on income and checked via PAN card.
  • Professional Tax Office-: This is a tax levy by the state government.
  • Employees Provident Fund organization-: This is created and managed by the Central Government Trust, and oversees the contributions of both employers and employees towards a purse for the well-being of the employee throughout his tenure with the business.

TOP 5 BEST CITIES TO STARTS BUSINESS IN INDIA

India has one of the fastest growing economies in the world with cutting edge technology as well as disruptive innovation. If your aim is to start a business in India, then you should be guided on the best cities in which will give your business the success it deserves. Here is a list of top 5 best cities to do business in India:

  • Bengaluru
  • Gurgaon, National Capital Region near New Delhi
  • Hyderabad
  • Delhi
  • Mumbai.

CONCLUSION: Starting business operations in new markets is not a decision to take lightly. You need to give a lot of consideration to this move because it can easily go wrong and businesses can be compelled to incur grave losses. Because of its several advantages, foreign businesses can clearly take advantage of what the Indian economy has to offer, in order to execute growth and expansion strategies.

PROCEDURE AND REGULATIONS FOR THE APPOINTMENT OF ADDITIONAL DIRECTORS (UNDER COMPANIES ACT 2013)

Under the Companies Act 2013, every director is appointed by the members of the company, but appointment of Additional Directors is the exceptions to this:

Under Section 161(1) board of directors have the power to appoint any person other than a person who fails to get appointed as director in a general meeting, as an additional director at any time .such director shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.

PROCCEDURE OF THE APPOINTMENT OF ADDITIONAL DIRECTORS:

  1. Make the application for the DIN U/S 153 by filling e-form DIR -3 with the following documents:

      Form DIR-2 section 152(5) consent to act as the director.

      Form MBP1 SEC 184(1) -discloser of the interest.

      Form DIR 8 SEC 152(4)-Qualified to become a director.

2. Hold Board meeting and pass board resolutions for the appointment of the additional director u/s 161(1)

3. Filling of E-form DIR-12 by the company with the registrar within 30 days of passing of board resolutions.

PROCEDURE TO MAKE THE ADDITIONAL DIRECTORE AS A NORMAL DIRECTOR:

1. Hold board meeting for calling AGM and dispatch detailed statement with notice of AGM to the members .

2.  Pass the ordinary resolutions for the appointment as director in the general meeting .

3. After filling the E FORM DIR 12 with the registrar for the intimation of change in designation from, Additional Director to the Director of the company.

4. maximum number of the additional  directors and  Power to appoint shall be fixed in the AOA .      

5. Power of the additional director is same of normal director

REQUIRMENT OF THE FORMS:

1. E-form DIR 3 application for allotment of din

2. DIR 2 consent to act as director

3. DIR-8 not disqualified to appoint as director

4. MBP 1 discloser of interest .

5.  e-form dir 12 :particulars of appointment of directors.

RELATED SECTIONS [161(1) ,152,153,Schedule I, Table F, Under The Companies Act 2019

Distinction Between Private Limited Company and LLP

Understand the Difference Between Pvt. Ltd. Company and LLP before taking decision to start Business.

When we plan to start business than so many form of business form are available and private limited company and Limited liability partnership (LLP) are the most popular form of business structure among others.

Before selecting the proper structure, first we should understand our requirement, scalability of business, control over business, funding and finance etc. because there are some benefit and limitation in both form of business structure which has been differentiate in below table.   

The Concept of Corporate Structure is years old but LLP is relatively a new concept.

The Present structure of LLP’s and Companies in India are governed by the LLP Act, 2008 and Companies Act, 2013 respectively. One the other side the traditional form of Partnerships and Company Structure is not suitable for everyone because they have their own limitations. The Companies Act, 2013 repealed the erstwhile Companies Act, 1956 to remove the inefficiencies of the later up to certain extent.

The company business structure is old and traditional and used extensively on the other side LLP id new concept and introduce in India first time in 2008 to provide flexibility to entrepreneurs to operate as a traditional partnership at the same time providing the benefits of a Corporate form which is already tried and tested by some advanced countries like UK, USA, etc.

The Table below shows the difference Between the two forms of Business Structure:

S. No Points of Distinction Pvt Ltd Company LLP
1 Regulating Act Companies Act, 2013 Limited Liability Partnership Act, 2008
2 Name Style Pvt Ltd/ Private Limited LLP/Limited Liability Partnership
3 Structure Type Plain Hybrid (Partnership + Company)
4 Liability of Owners Limited Liability Limited Liability
5 Entity Separate Legal Entity Separate Legal Entity
6 Type of Ownership Equity Share Holders Partners
7 Form of Owners Funding Share Capital Partners Contribution
8 Management Structure Directors Collectively referred as Board of Directors Partners and Designated Partners manages the LLP and Designated Partners are additionally responsible for regulatory compliances.
9 Charter Documents Articles and Memorandum of Association (MOA & AOA) LLP Agreement
10 Bank Funding More possibility to raise funds from Banks and others compare to LLP. Possible due to Separate Legal Status
11 Minimum  Members 2 2
12 Maximum Members 200 No Limit
13 Minimum Directors 2 Not Applicable
14 Maximum Directors 15 unless increased. Not Applicable
15 ROC Compliances More Compliances over LLP Lesser as Compared to Pvt Company
16 Statutory Audit Mandatory, even if no turnover Only if Partners Contribution exceeds INR 25 lacs or Turnover Exceeds INR 40 Lacs in any Financial Year
17 Tax Compliances More Complex as far as procedural requirement is concerned for tax rates kindly refer Income Tax. Simple Procedure as Compared to Company and for tax rates refer Income Tax.
18 Goodwill Enjoys more goodwill over LLP because a Company has more powers. Less as Compared to Pvt Company but overall good image over traditional partnership. Rather many MNCs are operating as LLP.
19 Registration Compliance More registration requirement Simple as compared to Pvt Company
20 Conversion Can be Converted to LLP Can be Converted to Company
21 Liquidation Only though Legal Process the death of Shareholders doesn’t impact the existence. Same and the death of partners doesn’t impact the existence.
22 Recommended for Comparatively more Capital Intensive Businesses. Less Capital Intensive preferably for Service Sector or small entrepreneurs.

Above text surely give better understanding for distinction between a traditional Corporate Pvt Ltd Company and a Modern LLP form of Business.

We are team of make my filing help you to choose best business structure to fit your future requirement and to fulfill your business goal so fell free to contact us.

GST E-INVOICING CONCEPT AND PROCEDURE

E-INVOICING: INTRODUCTION AND NEED TOWARDS E-GOVERNANCE & TRANPERANCY FOR EASE OF DOING BUSINESS

Since the inception of GST, cases of fake invoicing and tax evasions are reportedly increased year on year. As per the records, there has been sharp increase in cases of fake invoicing where thousands of Crore fraudulent claim of ITC unearthed.

In order to control fake invoicing, tax evasion and to promote the tax payer services (pre-population of ANX-1 & II and reducing reconciliation problems) in better way, a much needed E-Invoicing finally going to be implemented in the phased manner over the period of time.

This blog discusses about the concept of E-Invoicing under following heading.

Contents

1. What is E-Invoicing under GST?

2. Are all taxpayers required to generate E-Invoice under GST?

3. What is the procedure for generating an E-Invoice under GST?

4. Is E-Invoicing applicable for all types of transactions?

5. What is Invoice Reference Number (IRN)?

6. What is Quick Response code (IRN)?

7. What if e-invoice is not prepared by the taxpayer to whom E-Invoicing is applicable?

8. Is there any requirement to issue e-invoice in triplicate and duplicate?

9. What are the timings of issuing an E-invoice?

1. WHAT IS E-INVOICING UNDER GST?

E-invoicing is a mechanism which has been developed with the objective to authenticate the B2B transactions automatically by GSTN for further use on common GST portal. It doesn’t mean the generation of invoice by any computer system or tax portal. E-invoicing standards approved by GST council in its 37th meeting held on Sept,2019 Generation of E-Invoice will be the responsibility of taxpayers.

2. ARE ALL TAXPAYERS REQUIRED TO GENERATE E-INVOICE UNDER GST ?

  • No, E-invoice is to be prepared by following class of persons-
Aggregate Turnover of Supplier in a F.Y. Applicability status Date of applicability
>500 crores Voluntary 1st January ,2020
>100 crores Voluntary 1st February,2020
>100 crores Mandatory 1st April,2020
>500 crores (for B2C transactions) (note) Mandatory 1st April,2020

Note- QR code is required to be generated for B2C transactions by those taxpayers.

3. WHAT IS THE PROCEDURE FOR GENERATING AN E-INVOICE UNDER GST?

    Following step to be followed in sequence to generate E Invoice–

  1. Generation of invoice by taxpayer in its accounting or billing software
  2. Creation of JSON file of the same to upload it on Invoice Registration Portal (IRP)
  3. Generation of Invoice Reference Number (IRN) by the supplier (Optional Step)
  4. Uploading the JSON file & IRN(if generated) of the invoice to IRP
  5. Generation of IRN by IRP(if not generated by the supplier) and its validation by IRP by digitally signing and attaching QR code after performing duplication checks
  6. Once the invoice (JSON) is digitally signed by IRP & QR code is attached to it, it becomes an E- invoice and same will be sent to supplier & recipient by IRP on mail
  7. The so called E-invoice can now be downloaded by both supplier and recipient
  8. IRP transfer the details of E-invoice to invoice registry of GST and E-way Bill system

4. IS E-INVOICING APPLICABLE FOR ALL TYPES OF TRANSACTIONS?

  • At present, E-invoicing is applicable for B2B, Exports & SEZ sales related to tax invoices, Dr/Cr notes, and RCM invoices except proforma invoices.

5. WHAT IS INVOICE REFERENCE NUMBER (IRN)?

  • A unique number based on hash (logarithm of Supplier GSTIN, Invoice No., Type & FY)
  • Generated by IRP ,can also be generated by supplier but valid only once registered on portal
  • A Unique identity for each invoice for entire FY for a taxpayer
  • It is not an invoice number (invoice no. remain same as mentioned on the invoice)

6. WHAT IS QUICK RESPONSE CODE (IRN)?

  • A code generated by IRP after validation of invoice (digital signing of invoice by IRP).
  • Consist of following E-invoice parameters-
    • GSTIN of Supplier& Recipient
    • Invoice Number, date and value (taxable & gross value)
    • No of line items, HSN code of main item ( highest taxable value), Unique IRN
  • Checking invoice by tax officer on roadside by offline app if internet not available.

7. WHAT IS THE PROVISION IF E-INVOICE IS NOT PREPARED BY THE TAXPAYER TO WHOM E-INVOICING IS APPLICABLE?

  • If the E Invoice is mandatory not generated as per procedure than such Invoice shall not be treated as invoice under CGST Act.

8. IS THERE ANY REQUIREMENT TO ISSUE E-INVOICE IN TRIPLICATE AND DUPLICATE ?

  • No, taxpayers who are required to prepare e-invoice are not required to do so.

9. WHAT ARE THE TIMINGS OF ISSUING AN E-INVOICE?

  • Invoice shall be issued as per invoicing provisions laid in section-31 of CGST Act,2017-
    • For Goods-On or before removal of goods
    • For Services-before or after provisioning of service but within 30/45 days

Concept of Dormant Company

Dormant Company Concept

As per the companies act 2013, if the company files an application Form MSC-4 under section 455(5) seeking active status of the company along with prescribed fees and form MSC-3 with respect to the financial year in which the application seeking active status is being filed .The Registrar will issue a certificate of recognizing active status of the company in form MSC- 5

In case company has not filed application in form MSC -1 , the directors are entitled to file application under Rule 8(1) for obtaining active status of the company within 7 days of such an act or omission.

Further the Registrar on suo moto, if he is satisfied that the dormant company has been functioning, can order an enquiry under section 206 of companies Act ,2013 and after providing reasonable opportunity of being heard and after hearing in  enquiry, if  it is observed  that the company has been functioning, then he can remove the name of the company from the dormant list and treat the company as active company

The idea of a dormant company is new concept under companies act 2013 and was not there in the companies Act 1956.

Contents

  • What is Dormant Company
  • Why Dormant companies?
  • Who can apply for a dormant status?
  • Procedure for obtaining dormant status
  • Maximum period allowed the company to retain the dormant status
  • Conditions necessary to be fulfilled for acquiring the status of dormant
  • The Registrar on suo-moto apply for dormant status for the company
  • Dormant company can be made active?

WHAT IS DORMANT COMPANY

Section 455 of companies Act explain about the dormant company. The meaning of Dormant Company means inactive or inoperative. The basic idea of dormant company is for the benefit of a company to start a future project or hold an asset/intellectual property without having significant accounting transactions. On the other hand if a company has not filed its annual returns for two consecutive years then such a company will also be called as a dormant company. Companies may apply for a dormant status if the company is incorporated for a future project, incorporated for holding an asset or intellectual property, company which has not filed Financial Statement and Annual Returns during the last two financial years and the company which is not carrying out any business or has made any significant accounting transactions

*Significant accounting transactions would mean transactions other than the basic procedural transactions i.e the payment of fees by a company to the Registrar and also payments to fulfil the requirements of this Act or any other law, allotment of shares to fulfil the requirements of this Act and payments for maintenance of its office and books

WHY DORMANT COMPANY?

The object of dormant company is invest now and enjoy the fruits later is the concept under which the idea of dormant company emerges. If the company wants to hold assets or intellectual properties and use it later when the formation of company has been completed .Suppose Company wants to start the operations after three years but the land prices today are very cheap and the same would be very costly after three years. Hence company will buy the land and hold it for three years and thereafter start the company, until that time, company apply for dormant status.

Similarly the company will complete all formalities at present and actual commencement of operations will take some more time. To avoid procedural delays, the company will complete all formalities and apply for dormant status until commencement of operations After formation of company, the company will apply for dormant status until commencement of operations.

The immediate question that arises why would anyone create a company and register it only to get it declared as dormant? The main object of obtaining or retaining the dormant status of a company is so that the company retains its corporate status despite not carrying out any business.

So restarting dormant company is easier than fresh start of company. So Company with dormant status can always have an option to start operations whenever it wants without following further procedures and subject to certain conditions need to ful fill. Well, the restart is always better than a fresh start and dormant companies offer this advantage. So if a company chooses to take a backseat for a good reason then they can always restart when they want to, without further procedures subject to certain conditions. So as a dormant company, the company may not be active but it still has a status of a company in the eyes of law.

There are some benefits that can be derived from the concept of dormant company. Some of such benefits are

1. The company can reserve the name and hold it for certain time i.e. until commencement of operations

2. Retaining intellectual property rights until commencement of operations

Who can apply for a dormant status ?

As per the section 455 of the companies Act 2013,a company which has not been carrying any business or not having any significant accounting transactions for last two years , the company can apply for dormant status.

The Registrar on suo-moto apply for Dormant status if the company is not filing annual or financial statements for the last two years and not submitted reasonable explanation to the ROC , then the Registrar can declare the company as dormant company

Inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns filing during the last two financial years;

“Significant Accounting Transaction” means any transaction other than–

  • Payment of fees by a company to the Registrar;
  • Payments made by it to fulfil the requirements of this Act or any other law;
  • Allotment of shares to fulfil the requirements of this Act; and
  • Payments for maintenance of its office and records.”

So if company carrying any transaction other than listed above, will get a chance of losing its dormant status

Procedure for obtaining dormant status

The following are the procedure to be adopted for obtaining dormant status

Step 1 Company should call for shareholders meet and ensure passing of special resolution with ¾ majority.

Step 2 After Passing special resolutions; file form miscellaneous form -1 with MCA along with prescribed fees

Step 3 Registrar if satisfied and if the terms and conditions of section 455 are satisfied, issue certificate of Dormant Company

Step. 4 Registrar will maintain the list of dormant companies

Maximum period allowed the company to retain the dormant status

The company applies for dormant status only for five years. The Companies Act 2013 empowers the Registrar of companies to strike off the name of the company from the Register if it remains dormant for more than five years.

Conditions necessary to be fulfilled for acquiring the status of dormant

As per rule 3 of Companies (Miscellaneous) Rules 2014 lays down several conditions that a company must fulfil before it can acquire the status of a dormant company.

  • No prosecution should have been initiated and pending against the company under any law.
  • No inspection, inquiry or investigation should have been ordered or taken up or carried out against the company.
  • The company should neither have any public deposits which are outstanding nor should it be in default in payment thereof or interest thereon.
  • The company should not have any outstanding loan, whether secured or unsecured.
  • The company should not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.
  • The company should not have defaulted in the payment of workmen’s dues
  • There should be no dispute in the management or ownership of the company and a certificate in this regard should be enclosed with Form MSC-1.
  • The securities of the company should not be listed on any stock exchange within or outside India.

The Registrar on suomoto apply for dormant status for the company

The Registrar on suomoto apply for dormant status to the company if the company fails to submit annual /financial statements for the last two years. Immediately after declaring the status of dormant to the company, the Registrar will enter the details of the company in the Register of dormant companies and  Registrar will strike off the name of the company, if the company has not submitted a reasonable explanation and fails to comply with section 455.of the companies Act 2013.  The dormant company is not exempted from the statutory compliance of submission of annual returns and also holding annual meetings etc.

Dormant company can be made active ?

As per the companies act 2013, if the company files an application Form MSC-4 under section 455(5) seeking active status of the company along with prescribed fees and form MSC-3 with respect to the financial year in which the application seeking active status is being filed .The Registrar will issue a certificate of recognizing active status of the company in form MSC- 5

In case company has not filed application in form MSC -1 , the directors are entitled to file application under Rule 8(1) for obtaining active status of the company within 7 days of such an act or omission.

Further the Registrar on suo moto, if he is satisfied that the dormant company has been functioning, can order an enquiry under section 206 of companies Act ,2013 and after providing reasonable opportunity of being heard and after hearing in  enquiry, if  it is observed  that the company has been functioning, then he can remove the name of the company from the dormant list and treat the company as active company.

Procedure of Conversion From OPC Company to Private Limited Company

Conversion of  OPC Company to Private Limited Company

Complete Procedure, Benefits & Cost

One person company have certain limitation and one limitation is capital investment in business because if business need additional capital, in that case need more person who can invest money in business so that business can head in next stage so in order to grow bigger and expand its business, One Person Company usually shifts to Private limited company.

We cover the article in following heading.

  1. Advantage of conversion from OPC to Pvt. Ltd. Company.
  2.  Type of Conversion
  3.  Procedure of conversion from OPC to Private Limited Company
  1. ADVANTAGE OF CONVERSION FROM OPC TO PVT. LTD. COMPANY.
  • Easy Fund raising
  • Taxation Benefit
  • Business credibility improve
  • Cross border expansion

2. TYPES OF CONVERSION

Following given below the types of conversion and condition applicable.

1. Mandatory Conversion:

Mandatory Conversion of OPC takes place when a One Person Company (OPC) has a paid-up share capital of more than or equal to Rs. 50 lakhs or the Annual turnover during the relevant period exceeds Rs. 2 crore, then in that cases, the company has to mandatory convert itself into Private Limited Company or Public Limited Company.

2. Voluntary Conversion:

Initial 2 year of after incorporation of OPC company, cannot covert into private limited company. If the time period gets elapsed, it can convert as per the Companies act 2013. It is much more advantageous to convert it into Private Limited Company voluntarily after two year because most of the companies which opt for One Person Company generally tend to exceed the threshold limit within these two years.

3.    PROCEDURE OF CONVERSION FROM OPC TO PRIVATE LIMITED COMPANY

STEP I- Intimation of Conversion to Registrar of Companies

The first step of conversion involves intimation to the concerned ROC regarding conversion. The Registrar of Companies must first be informed through the prescribed procedure that the One Person Company is now transforming itself into a private limited company or a limited company.

STEP II- Passing of Resolutions

The next steps is to passing of resolutions by the members of the Company in a General Meeting to effect that:

  • Conversion of OPC to Private Limited Company.
  • Alteration of MOA and AOA of the Company.
  • Appointment of additional directors of the Company.
  • Approval for increase in capital of the Company, if required.

STEP III-  Filing of form MGT-14

The third step towards the process of conversion is Filing of Form MGT-14 with Registrar of Companies within 30 days of passing the special resolution, along with certified copies of minutes and resolution passed.

STEP IV- Filing of Form INC-6

The next step requires to file Form INC-6 which has to be filled properly with all the details of particulars and thereafter it has to be submitted along with the fees and the documents that are required with the concerned ROC within 30 Days from Passing the resolution. Within fifteen days an application shall be filed to the Registrar along with the copy of the resolution regarding the conversion of the company into a Private company.

Documents and Attachments to be attached along with the form:

1. Notice to board of directors

2. Copy of board resolution authorizing giving of notice

3. Copy of Altered Memorandum of Association (MOA)

4. Copy of Altered Articles of Association (AOA)

5. Declaration from directors

6. List of Members

7. Copy of  NOC from Secured Creditors if any

8. Copy of NOC from directors and shareholders

9. Last Audited Financial Statements

10. It is mandatory to attach a certificate from CA if the conversion is because of exceeding average annual turnover

STEP-V Certificate

Registrar of Companies (ROC) after filing all the required documents on being satisfied that Company has complied with prescribed requirements the Registrar will issue the Certificate certifying the conversion of One Person Company (OPC) to a Private Limited Company.

Income Tax E-Assessment Scheme 2019

Finance Minister proposed the introduction of a scheme of faceless e-assessment in Union Budget 2019. The object of the scheme to eliminate the human interface between the assessee taxpayer and the income tax department. The procedure of the scheme will be carried out a faceless assessment and through electronic mode only.

We divide the topic in following part to better understanding.

  1. e-assessment Structure
  2. e-assessment Procedure
  3. Procedure for penalty
  4. Procedure for appeal
  5. electronic record and Communication
  6. Appearance of taxpayer before the centre and unit
  7. Power to specify process and procedure

The e-assessment would be made in respect to such territorial area, or persons or class of persons, or income or class of income, or cases or class of cases, as may be specified by the (CBDT) Central Board of Direct Taxes time to time.

1. E-assessment Structure

For the purpose of e-assessment, the Central Board of Direct Taxes  (CBDT) would set up the below ‘centres’ and ‘units’ and specify their respective jurisdiction:

  A National e-Assessment Centre to facilitate and centrally control the e-assessment.

  Regional e-Assessment Centres under the jurisdiction of the regional Principal Chief Commissioner for making assessment.

  Assessment units for identifying points or issues, material for the determination of any liability (including refund), analysing information, and such other functions.

  Verification units for enquiry, cross verification, examination of books of accounts, witness and recording of statements, and such other functions.

  Technical units for technical assistance including any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter.

  Review units  for reviewing the draft assessment order to check whether the facts, relevant evidence and law and judicial decisions have been considered in the draft order.

All the communications between all the units mentioned above, for the purpose of making an assessment under this scheme would be through the National e-Assessment Centre.

2.  e-assessment Procedure

The e-assessment procedure is as below:

  A notice under section 143(2) would be served by the National e-Assessment Centre to assessee, specifying the issues for selection of taxpayer’s case for assessment.

  The taxpayer has a period of fifteen days for filing a response with the National e-Assessment Centre.

  The National e-Assessment Centre will assign the case selected for the purposes of e-assessment to a specific ‘assessment unit’ in any one ‘Regional e-Assessment Centre’ through an automated allocation system.

  Once a case is assigned to an assessment unit, it may make a request to the National e-Assessment Centre for:

a) Obtaining such further information, documents or evidence from the taxpayer or any other person, as it may specify

b) Conducting of certain enquiry or verification by verification unit; and

c) Seeking technical assistance from the technical unit

  After request being made by the assessment unit for any documents or evidence, the National e-Assessment Centre shall issue appropriate notice or requisition to the taxpayer or any other person for obtaining the information, documents or evidence requisitioned by the assessment unit

  After  request being made for certain enquiry or verification as above, the request shall be assigned by the National e-Assessment Centre to a verification unit through an automated allocation system

 Upon a request being made seeking technical assistance as above, the request shall be assigned by the National e-Assessment Centre to a technical unit in any one Regional e-Assessment Centres through an automated allocation system

  The ‘assessment unit’ shall, after taking into account all the relevant material gathered as above, pass a draft assessment order either accepting the returned income of the taxpayer or modifying the returned income of the taxpayer, as the case may be, and send a copy of such order to the National e-Assessment Centre

  The ‘assessment unit’ shall, while making draft assessment order, provide details of the penalty proceedings to be initiated therein, if any

  The National e-Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the CBDT, including by way of an automated examination tool, whereupon it may decide to:

a) Finalize the assessment as per the draft assessment order made and serve a copy of such order and notice for initiating penalty proceedings, if any, on the taxpayer, along with the demand notice, specifying the sum payable by, or refund of any amount due to the taxpayer on the basis of such assessment made; or

b) Provide an opportunity to the taxpayer, in case a modification is proposed, by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the draft assessment order; or

c) Assign the draft assessment order to a review unit in any one regional e-assessment centre, through an automated allocation system, for conducting review of such order

  The review unit shall conduct review of the draft assessment order, referred to it by the National e-Assessment Centre, whereupon it may decide to:

a) Concur with the draft assessment order and intimate the National e-Assessment Centre about such concurrence; or

b) Suggest such modification, as it may deem fit, to the draft assessment order and send its suggestions to the National e-Assessment Centre.

  The National e-Assessment Centre shall, upon receiving concurrence of the review unit finalise the draft assessment order or provide an opportunity to the taxpayer in case a modification is proposed

  The National e-Assessment Centre shall, upon receiving suggestions for modifications from the review unit, communicate the same to the assessment unit

  The assessment unit shall, after considering the modifications suggested by the review unit, send the final draft assessment order to the National e-Assessment Centre

  The National e-assessment Centre shall, upon receiving final draft assessment order, finalise the draft assessment order, or provide an opportunity to the taxpayer in case a modification is proposed, as the case may be

  The taxpayer may, in a case where notice is issued for making submissions against the draft assessment order, furnish his response to the National e-Assessment Centre on or before the date and time specified in the notice given.

  The National e-Assessment Centre shall:

a) In a case where no response to the show-cause notice is received, finalise the assessment as per the draft assessment order; or

b) In any other case, send the response received from the taxpayer to the assessment unit

  The assessment unit shall, after taking into account the response furnished by the taxpayer, make a revised draft assessment order and send it to the National e-Assessment Centre

  The National e-Assessment Centre shall, upon receiving the revised draft assessment order:

a) In case no modification against the interest of the taxpayer is proposed with reference to the draft assessment order, finalise the draft assessment; or

b) In case a modification against the interest of the assessee is proposed with reference to the draft assessment order, provide an opportunity to the taxpayer for hearing and making submissions

  The response furnished by the taxpayer shall be dealt with by the National e-Assessment centre and the draft assessment order finalised

  The National e-Assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such case for:

a) Imposition of penalty;
b) Collection and recovery of demand;
c) Rectification of mistake;
d) Giving effect to appellate orders;
e) Submission of remand report, or any other report to be furnished, or any representation to be made, or any record to be produced before the Commissioner (Appeals), Appellate Tribunal or Courts, as the case may be;
f) proposal seeking sanction for launch of prosecution and filing of complaint before the Court

  The National e-Assessment Centre may at any stage of the assessment, if it considers necessary, transfer the case to the Assessing Officer having jurisdiction over such case

3. Procedure for penalty

  Any unit may, in the course of assessment proceedings, for non-compliance of any notice, direction or order issued under this scheme on the part of the taxpayer or any other person, send recommendation for initiation of any penalty proceedings under the income tax law, against such taxpayer or any other person, as the case may be, to the National e-Assessment Centre, if it considers necessary or expedient to do so

  The National e-Assessment Centre shall, on receipt of such recommendation, serve a notice on the taxpayer or any other person, as the case may be, calling upon him to show cause as to why penalty should not be imposed on him under the income tax law

  The response to show – cause notice furnished by the taxpayer or any other person, if any, shall be sent by the National e-Assessment Centre to the concerned unit which has made the recommendation for penalty

  The said unit shall, after taking into consideration the response furnished by the taxpayer or any other person, as the case may be:

a) Make a draft order of penalty and send a copy of such draft to National e-Assessment Centre; or

b) Drop the penalty after recording reasons, under intimation to the National e-Assessment Centre

  The National e-Assessment Centre shall levy the penalty as per the said draft order of penalty and serve a copy of the same on the taxpayer or any other person, as the case may be

4. Procedure for appeal

An appeal against an assessment order made by the National e-Assessment Centre under this scheme can be filed before the Commissioner Appeals (CIT Appeals) having jurisdiction over the jurisdictional Assessing Officer.

5. Electronic record maintenance and Communication

a) All communications between the National e-Assessment Centre and the taxpayer, or his authorised representative, shall be exchanged exclusively by electronic mode only; and

b) All internal communications between the National e-Assessment Centre, Regional e-Assessment Centres and various units shall be exchanged exclusively by electronic mode only.

All the electronic records issued under the scheme shall be authenticated by the originator by affixing his digital signature.

Every notice or order or any other electronic communication under this scheme shall be delivered to the taxpayer, by way of:

i) Placing an authenticated copy of the communication in the taxpayer’s registered account; or

ii) Sending an authenticated copy thereof to the registered email address of the taxpayer or his authorised representative; and

iii) Uploading an authenticated copy on the assessee’s Mobile App; and followed by a real-time alert to the taxpayer.

The taxpayer shall file his response to any notice or order or any other electronic communication, under this scheme, through his registered account, and once an acknowledgement is sent by the National e-Assessment Centre containing the hash result generated upon successful submission of response, the response shall be deemed to be authenticated.

6. Appearance of taxpayer before the centre and units

A person do not required to appear either personally or through authorised representative in connection with any assessment proceedings under this scheme before the income tax authority at the National e-Assessment Centre or Regional e-Assessment Centre or any unit set up under this scheme.

In a case where a modification is proposed in the draft assessment order, the taxpayer will be given an opportunity to make submissions against such modifications. The taxpayer or his authorised representative is also entitled to a personal hearing before income tax authority in any unit under this scheme. Such hearing would be conducted exclusively through video conferencing, including through video telephony, in accordance with the procedure laid down by the CBDT.

LOWER INCOME TAX FOR DOMESTIC COMPANIES UNDER SECTION 115BAA

LOWER INCOME TAX FOR DOMESTIC COMPANIES UNDER SECTION 115BAA

Government of India has introduced the Taxation (Amendment) Ordinance 2019 on the 20th of September 2019 where Several amendments are made to the Income Tax Act,1961. Most important changes such as corporate tax rate cut for domestic companies and as well as for manufacturing companies was announced.  MAT rate also been reduced from the current 18.5% to 15%.

This new section for lower taxation will definitely provide benefit for newly registered companies and existing companies to pay lower tax and use money to grow their business..

We discuss the latest provision as below heading.

  1. New section inserted under which government reduced tax for domestic companies.
  2. Eligibility criteria of section 115BAA to avail lower tax rate.
  3. New effective rate applicable to domestic companies.
  4. Option for the company to opt out the section 115BAA.

1. SECTION INSERTED UNDER WHICH GOVERNMENT REDUCED TAX FOR DOMESTIC COMPANIES

New section 115BAA has been inserted in the Income Tax Act,1961 where domestic company have option to pay tax @ 22% subject to fulfil certain condition mentioned in the section and the same is applicable from the FY 2019-20 (AY 2020-21) onwards.

2. ELIGIBILITY CRITERIA OF SECTION 115BAA TO AVAIL LOWER TAX RATE UNDER SECTION 115BAA.

All domestic companies shall have an option u/s 15BAA to pay corporate income tax @ 22% (plus applicable surcharge and cess), subject to following conditions as below.

  1. Such companies should not avail any exemptions/incentives under different provisions of income tax. so the total income of such company shall be computed without:
    • Claiming any deduction especially available for units established in SEZ under section 10AA
    • Claiming additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal.
    • Claiming deduction under section 33AB for tea, coffee and rubber manufacturing companies.
    • Claiming deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India.
    • Claiming a deduction for expenditure made for scientific research under section 35.
    • Claiming a deduction for the capital expenditure incurred by any specified business under section 35AD.
    • Claiming a deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD.
    • Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA.
    • Claiming a set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions.
  2. Such domestic companies will have to exercise this option to be lower taxed under the section 115BAA on or before the due date of filing income tax returns i.e normally 30th September of the assessment year and once the company opts for section 115BAA in a particular financial year, it cannot be withdrawn subsequently.

3. NEW EFFECTIVE RATE APPLICABLE TO DOMESTIC COMPANIES

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 25.168%. The calculation of effective tax rate is as below.

Base Tax Rate                        –   22%

Surcharge Applicable           –   2.20%

@10% on Base rate

Cess @ 4% on total tax   –        0.968%

Total Tax                                – 25.168%

Most importantly such companies will not be required to pay minimum alternate tax (MAT) under section 115JB of the act.

Domestic companies who opting for section 115BAA will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period so companies would not be able to reduce their tax liabilities under section 115BAA by claiming MAT credits which they have paid earlier years. CBDT can issue a clarification on MAT credits in case of companies opting for tax under section 115BAA.

Further the domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation (additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

We should keep in mind that there is no timeline for the domestic companies to choose a lower tax rate under section 115BAA. So such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and also utilising the MAT credit against the regular tax payable if any.

4. OPTION FOR THE COMPANY TO OPT OUT THE SECTION 115BAA

Option u/s 115BAA for lower taxation if company OPT cannot be withdrawn subsequently so it is advisable for domestic companies to before avail lower tax rate mentioned in section, such companies should avail all their tax holiday period or exemptions/incentives as mentioned above because no time has been defined ij the section to OPT the option so in nay financial year companies can avail this option.

Contribution or Donation to Political Parties

We Discussed Here.

1. What is the Political Party?

2. What is the Electoral Trust?

3. Eligible Person, Who can donate to Political Party?

4. Eligibility Criteria for Individual u/s 80GGC

5. Eligibility Criteria for Corporate and Enterprises u/s 80GGB

What is the Political Party?

Political party means a group of persons organized to acquire and exercise political power. In our country, there are several political parties that stand for the election. The presence of the political party is actually a healthy situation for the nation. It gives people a choice to make a more evolved and effective decision.

What is the Electoral Trust?

Electoral Trust is a non-profit organization formed in India for orderly receiving contributions from any person. Electoral Trusts part of the ever-growing electoral restructurings in the country. Electoral Trusts are designed to bring in more transparency in the funds provided by corporate entities to the political parties for their election-related expenses. However, the objective of an electoral trust is not to receive any profit or pass any direct or indirect advantage to its members or contributors. 

Who eligible to contribute or donate the Electoral Trust or Political Parties?

Electoral Trust can receive contributions from various sectors. Like

  • Indian citizens.
  • Domestic companies which are registered in India.
  • Firm or Hindu Undivided Family.
  • Group of persons or individuals, who reside in India.

An electoral trust can’t accept contributions And Donations from

  • Any person who is not an Indian Citizen.
  • Foreign Entity.
  • Any other electoral trust.

What is the Donation to Political Parties?

Political Parties receive huge sums of money in the form of donations and contributions from corporate, trusts and individuals. Section 29C of the Representation of People Act, 1951 says that political parties are required to submit contribution details received in excess of Rs.20,000/- from any person or a company.

Which Sections deals in Donation or Contribution to Political Parties for exemption of tax purpose?

Section 80GGC for individuals and 80GGB for company’s deals in Donation or Contribution to Political Parties for taxation purposes.

What is Section 80GGC of Income Tax Act, 1961?

Section 80GGC under the Income Tax Act, 1961 provides income tax deduction benefits on donations made by any individual to political parties subject to certain conditions. It should be noted that there is no upper limit specified under section 80GGC, which means any amount contributed to a political party can be claimed as a tax deduction.

What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGC?

  • Under section 80GGC, only individual taxpayers are allowed to claim tax benefits.
  • To claim tax benefits, donations should not be made in cash. All other modes of donations are eligible for claiming an income tax deduction.
  • Donations must be made to a registered political party under section 29A of Representation of People Act (RPA), 1951. Donations made to electoral trust also will be eligible for claiming tax deduction under section 80GGC.

Deduction Limit under Section 80GGC

The Donation made u/s 80GGC are 100% tax-deductible.

What is Section 80GGB of Income Tax Act, 1961?

Section 80GGB of the Income Tax Act, 1961, deals in any Indian company or enterprise that donates to a political party or an electoral trust registered in India can claim a deduction for the amount contributed.

What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGB?

  • Cash contributions are not allowed under Section 80GGB. Therefore, the respective contributions to political parties must be made through other modes of payments such as Cheque, Demand Draft or Electronic Transfer.
  • There is no maximum applicable limit on the contributions made to political parties, under Section 80 GGB of the Income Tax Act. But as per the Companies Act 2013, companies can contribute up to 7.5% of their annual net profit (three years average). It is necessary for the companies to disclose the amount contributed and the name of the political party in its Profit and Loss account for the said financial year.

Hence, you are free to make donations to political parties as per your preference and claim deductions in your income tax for the same and you can concern the income tax consultant for this. It is essential that you keep a proper record of the amount being paid and comply with all the regulations specified in the Income Tax Act 1961 and Companies Act, 2013. If you do not follow the set procedure, your claim for deduction might be rejected by the competent authorities.

LTCG on sale of residential property and other than residential property

LTCG on sale of residential property and other than residential property

Here we discuss….

Short term capital gain

Long term capital gain

Tax aspects of the sale to residential house property U/S 54

Tax aspects of sale to other than residential house property U/S 54F

Introduction

Now, we explain which part of the income is taxable on the sale of the residential property or other than residential property. Is it the entire amount received on the sale of the property? The answer is NO. In simple words, it is only the profit earned by the individual on sale of the property that is taxable.

As per the income tax act, for the purpose of capital gains, assets are classified as follows,

1. Short-term capital asset

2. Long-term capital asset

What is short -term capital asset?

An asset held for a period of 36 months or less is a short-term capital asset. The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property.

What is Long–term capital asset?

An asset that is held for more than 36 months is a long-term capital asset. The reduced period of the aforementioned 24 months is not applicable to the movable property such as jewelry, debt-oriented mutual funds, etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier.

Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of the date of purchase).

The assets are:

  1. Equity or preference shares in a company listed on a recognized stock exchange in India.
  2. Securities (like debentures, bonds, govt securities, etc.) listed on a recognized stock exchange in India.
  3. Units of UTI
  4. Units of equity-oriented mutual fund
  5. Zero Coupon Bond

When the above-listed assets are held for a period of more than 12 months, they are considered as a long-term capital asset.

Capital Gain on sale of Residential House Property u/s 54 of Income Tax Act, 1961

As per section 54 of the Income Tax Act, 1961 the owner of a residential property with relaxation from the capital gains tax, if the gain from the sale is used to acquire another residential property. Owners of residential property in many cases sell their property only to purchase another property due to different reasons like moving from jobs, retirement, etc.

In such a case, a property is sold by a taxpayer not for gains from the earning, but for other reasons. Hence, when a taxpayer sales a residential property and purchases another property, he or she is exempt from capital gains under Section 54 of the Income Tax Act.

While claiming benefit under Section 54 has to concern with the income tax consultant. The home purchased or constructed must be in India only means a property cannot purchase abroad.

Eligibility under Section 54 of the Income Tax Act

The following conditions satisfied by the taxpayer to claim benefits under Section 54 of the Income Tax Act:

  1. The taxpayer is an individual or HUF. Exemption under Section 54 is not available for companies or LLP register companies.
  2. The asset transferred should be a long-term capital asset, being a residential house property as defined under the act.
  3. Within a period of 1 year before or 2 years after the date of transfer of the old house, the taxpayer should acquire another residential house or should construct a residential house within a period of 3 years from the date of transfer of the old house. In the case of compulsory acquisition, the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

A taxpayer can claim benefit under Section 54 of the Income Tax Act for one residential house property purchased or constructed in India only. If a taxpayer is involved in more than 1 such transaction during his/her purchased or constructed must be in India only.

Budget 2019 announcement!

Amendments to Section 54 – Capital Gains Exemption

Assessees can get an exemption by investing long term capital gains from the sale of house property in up to two house properties against the earlier provision of investment in one house property with the same conditions. However, the capital gains on the sale of house property must not exceed Rs.2 crores.

Transfer of Property after claiming benefit under section 54

If a taxpayer claims benefit under Section 54 of the Income Tax Act and purchases or constructs a new house, he/she must hold that property for a minimum period of three years. If the taxpayer sells the property before the end of 3 years, then the benefit granted under Section 54 will be withdrawn and the taxpayer would have to pay the capital gains due to the previous transaction.

Amount of Exemption

The amount of capital gains exemption under Section 54 of the Income Tax Act will be the least of the following…

  1. Amount of capital gains on transfer of residential house property.
  2. Investments made in the purchase or construction of a new residential house property.

Home Loan for Purchase of House Property.

The tribunal has ruled that the tax deduction cannot be denied on the basis that the taxpayer has taken a home loan to make the purchase.

Capital Gains Deposit Account Scheme

Under Section 54 of the Income Tax Act, a taxpayer having long-term capital gains from the sale of a residential property can avoid the same by purchasing or constructing a residential property 1 year before or 2 years after (in case of purchase of property) or after 3 years (in case of construction of property).

In some cases, the proceeds from the sale of the residential property would not have been invested by the taxpayer at the time of filing of income tax return (Due date of Income-tax filing as per section 139(1). In such cases, the capital gains benefit under Section 54 can be availed by depositing the unutilized amount in Capital Gains Deposit Account Scheme in any branch of public sector bank. The new house can later be purchased or constructed by withdrawing the deposits from the account within a time frame of 2-3 years. If the deposits are not utilized within the stipulated period for the purpose of purchase or construction, the amount deposited will be taxable in the hands of the assessee.

Section 54F of Income Tax Act

The CA in Mumbai explains this As per provisions of section 54F of the Income Tax Act, 1961, exemption of capital gain is available in case of transfer of long term capital assets against investment in residential houses. The features for availing exemption under section 54F are detailed hereunder –

  1. The exemption under section 54F is available only to individual and HUF;
  • Capital gain has arisen on account of transfer of any long term capital assets other than a residential house;
  • Net consideration arisen on account of transfer of long term capital assets has been invested as follows –

Net consideration has been re-invested in purchase of one residential house within a period of 1 year before the date of transfer or within a period of 2 years after the date of transfer; or Net consideration has been re-invested in construction of one residential house in India within a period of 3 years from the date of transfer.

Meaning Of ‘Net Consideration’

Net consideration of the transfer of capital assets means the full value of consideration received on account of transfer of the capital assets as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

Net consideration = Full value of consideration (-) expenditure

Section 54F also applicable to on sale of Land or Commercial Property

The following conditions need to be satisfied in case of sale land and are planning to buy a residential home.

  • Use the entire sale proceeds (received by selling a plot/land) to buy a new house or to build a new residential house.
  • If using a part of the money, the deduction will be the proportion of the invested amount to the sale price.
  • The time-frame for investment is the same as that for capital gains from residential property.
  • You should not own more than one residential house prior to this investment.
  • The deducted capital gain (from the sale of land) becomes taxable if you buy another house within two years of the transfer of the original asset or construct a new one within three years.
  • If the new house is sold within three years, the deduction claimed will become taxable as a long-term gain.
  • This new house purchased or constructed must be situated in India.
  • The proceeds should not be invested in a commercial property or in another vacant plot.

Circumstances Under Which Exemption under Section 54F Not Available

Following are the circumstances under which exemption is not available under section 54F of the Income Tax Act, 1961 –

  1. The assessee owns more than 1 residential house property as on the date of transfer of the original assets. However, the residential house property bought for claiming an exemption under section 54F is exempted from the same.
  2. The assessee purchases additional residential house within a period of 1 year from the date of transfer of original asset. The new asset purchased for claiming an exemption under section 54F is exempted from the same.
  3. The assessee constructs additional residential houses within a period of 3 years from the date of transfer of original asset. The new asset constructed for claiming an exemption under section 54F is exempted from the same.

Where Part of the Amount of Net Consideration Is Invested

  1. In the case where only part of the net consideration is invested in the purchase / construction of a residential house, then, an only proportionate amount of long term capital gain would be exempted under section 54F. A proportionate amount of exemption can be calculated on the basis of the following formula.
  2. Exemption under section 54F = Long term capital gain x Amount re-invested / Net consideration.
  3. In case the full amount of net consideration is invested in the purchase / construction of the residential houses, then, the full amount of long term capital gain would be exempted under section 54F.

Capital Gain Deposit Account Scheme

In case the net consideration is not re-invested within the last date of filing a return of income tax under section 139, then, the amount should be deposited in the capital gain deposit account scheme. The amount so deposited in the capital gain deposit account scheme should be used for the purchase / construction of the residential house within the specified period.

In case the amount as deposited in capital gain deposit account scheme is not utilized for wholly or partly within the specified period for purchase or construction, as the case may be, then, in such case on expiry of the period, the unutilized amount shall be treated as a capital gain

Consequence on Transfer of New Asset

In case there is a transfer of new purchased residential house or constructed residential house before expiry of a period of 3 years of its purchase or construction, as the case may be, then, the capital gain exempted under section 54F shall be taxable as long term capital gain of the previous year in which the new asset is transferred.