Direct taxes are those that people or other entities pay to the government directly. In India, two types of direct taxes are income tax and wealth tax. These taxes are non transferable and are determined by the taxpayer's wealth or income. The two main categories of direct taxes are income tax and corporation tax. Individuals, Hindu Undivided Families, and other taxpayers (apart from corporations) are subject to income tax on their earnings. Corporate taxation is imposed on the earnings that businesses generate from their operations.
Income tax is calculated using the total income of an individual for a particular fiscal year. Income tax is imposed on the following sources of income:
A person who is not an individual or a HUF, such as a partnership firm, company, etc., may have any one of the following residence statuses, according to the Income-tax Law:
Resident
Non-resident
The Income-tax Law's criteria must be applied annually to ascertain the taxpayer's residence status, which is not set. As a result, the taxpayer might qualify as a resident for one year and a non-resident for another, or the other way around.
A company would be resident in India in any previous year, if-
1. it is an Indian company; or
2. its place of effective management, in that year, is in India.
“Place of effective management" refers to a location where important business and management decisions that are essential for an entity's overall business operations are, for the most part, made [Explanation to section 6(3)].
The process of determination of POEM would be primarily based on the fact as to whether or not the company is engaged in active business outside India(ABOI Test).
A company shall be said to be engaged in 'active business outside India’.
if passive income is not more than 50% of its total income (≤50% Passive Income),
and less than 50% of its total assets are situated in India (<50% Assets in india ); and
less than 50% of total number of employees are situated in India or are resident in India (<50% Employee in india); and
the payroll expenses incurred on such employees is less than 50% of its total payroll expenditure. (<50% Payroll Expenses in india).
To determine the residential status of a HUF, one must check two conditions: first, if the HUF is a resident or non-resident in India, and second, if the HUF is ordinarily resident or not ordinarily resident in India.
Condition 1: Determining whether resident or non-resident
A HUF is a resident in India if it has some or all of its control and management in India.
Condition 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident
A resident HUF is ordinarily resident in India if its manager (i.e., karta or manager) meets both of these conditions:
A resident HUF is not ordinarily resident in India if its manager (i.e., karta or manager) does not meet or meet only one of these conditions.
For the purposes of income tax law, a HUF may have any one of the following distinct residential statuses:
A HUF's residential status is determined by the guidelines laid out for each class in the Income-tax Law. That is to say, a HUF's residential status could vary from year to year. A HUF could, for example, be a Resident and ordinarily resident in one year, a non-resident or resident but not Ordinary Resident in another year, and so on.
According to a new section 6(1A) of the Income-tax Act, 1961 introduced by the Finance Act 2020, an Indian citizen's residential status for tax purposes is determined by two factors:
1) his foreign income
2) whether he is subject to taxation abroad.
Income from foreign sources is defined as income earned across the Indian border, with the exception of income from a business or profession controlled or established in India. That is, an Indian citizen will be deemed a resident of India for tax purposes beginning with the assessment year 2021–2022 if their total income surpasses Rs. 15 lakh (excluding income from foreign sources) and they are not subject to tax in any other country.
One of the primary determinants of a Individual’s taxable income under income tax law is the Individual’s residency status. A Individual’s citizenship is distinct from their residential status. For taxation purposes, a person may be an Indian citizen but not a resident, or the other way around. The number and nature of stays a person makes in India over the course of a given fiscal year determines his status as a resident.
Individuals can be classified as belonging to one of three residential status classes under the Income-tax Act 1962:
1) Residents and Ordinary residents (ROR)
2) Resident but not ordinarily resident (RNOR)
3) Non-resident (NR)
A person's tax liability is determined by their residential status at the time of income earning.
1. The individual's residence status as defined by the Income-tax Law;
2. The nature of his income.
As a result, a key determinant of whether the income is taxable is its residential status.
The Foreign Exchange Management Act, 1999 permits a resident individual to open a foreign currency account with an authorized dealer in India (FEMA). This type of account, which can be either a current or savings account, is known as a Resident Foreign Currency (Domestic) Account. The following methods of obtaining foreign exchange for opening an account include:
• Receiving payment for services rendered outside india while visiting outside of India that are not related to any business or activity conducted in india.
• By accepting a gift, honorarium, or payment from a non-resident visitor to India for services rendered.
• When visiting outside of India, by receiving a gift or honorarium;
• When possessing unspent foreign exchange obtained from an authorized source for overseas travel;
• When receiving a gift from a relative.
The account may be maintained individually or jointly with another resident. There is no interest on the account, and you can use the balance for any current or capital account transaction that is allowed.
Like many Indian residents, foreign nationals are allowed to open a regular savings account. Actually, opening an account is possible even for foreign visitors to India on a brief stay. A foreign national who is visiting may only open an NRO account, While a foreign national resident in India can open a resident account as well Thus, it will function in the same manner as any other domestic account. On the other hand, one must exercise caution regarding the likely process that would be used for repatriation. While funds in an NRE account are freely repatriable, funds in an NRO account may require certain conditions to be met. Therefore, even though they might be permitted to open a resident account, foreign nationals must be aware of the consequences and whether they can freely return to their home country from a resident account or if special authorization is required.
A current account is a type of deposit account that is frequently used for high-value transactions. Businessmen who need to use cheques to pay their creditors are the ones who open it most frequently. Customers can deposit and withdraw money from a current account at any time without notice, and there is no interest paid on the deposits. A savings account, which pays interest, is not the same as a current account, which is also referred to as a financial account. A current account is a good option for companies looking to conduct their financial transactions with ease.
Every economic exchange that takes place between a nation and the rest of the world is documented in the capital account. Capital account manifests how much a country's assets have changed due to transactions with foreign entities. These transactions include capital transfers, remittances, and the import and export of goods and services as well as receiving foreign aid. The balance of payments, which shows how much a nation's income and assets have changed as a result of these transactions, combines a current and capital account. A financial account and a capital account are the two categories into which the capital account is divided according to certain definitions; transactions involving non-financial assets and liabilities are included in the capital account, while transactions involving financial assets and liabilities are included in the financial account.
The Indian Parliament established jurisprudence in 1999 with the Foreign Exchange Management Act (FEMA) to modernize and regulate foreign exchange markets and transactions in the nation. The act intends to support the orderly growth and stability of the foreign exchange market as well as India's external trade and payments. The act applies to anyone who resides in India and who owns or has control over any branch, office, or agency that is located outside of India's borders. It also covers the entirety of India. The act also gives the authorities the right to prosecute anyone who disobeys its provisions outside of India.
Other arrangements permissible to a non-resident under the Income-tax Act include the following:
• Income that is deemed to accrue or arise in India, such as pay from a business connection, property, asset, or source of salary in India, is subject to taxation for non-residents.
• If an individual is a "resident but not-ordinarily resident," they are required to pay taxes on both their taxable income in India and their foreign income that originates from a business controlled in or profession that is established in India.
• Income that is received or deemed to have been obtained in India, such as a non-resident's pay for services rendered in india, dividends from Indian businesses, and interest from Indian bank accounts, is also subject to taxation.
• Under the terms of the Double Taxation Avoidance Agreement (DTAA) between India and his home country, a non-resident may be eligible for relief from double taxation.
A non-resident entity's relationship with an activity in India that either directly or indirectly contributes the non-resident entity's income is referred to as a business connection. Any of the following scenarios could be part of a business relationship:
• The non-resident entity has an agent in India who can dissolve contracts on its behalf (with the exception of contracts for the purchase of goods or merchandise).
• The agent typically keeps a stock of goods or merchandise from which he obediently delivers goods or merchandise on the non-resident entity's behalf.
• The non-resident entity regularly obtains orders for itself, another non-resident entity managed by the same people, or for both in India.
Only income attributable to the business connection in India is considered to accrue or arise in India and is therefore taxable in India. the non-resident entity's total income is not subject to taxation.
In order to control foreign exchange transactions in India, the Indian Parliament passed the Foreign Exchange Management Act (FEMA) in 1999. The primary goals of FEMA are to:
• Facilitate India's external trade and payments.
• Promote the orderly development and upkeep of India's foreign exchange market; and
• Simplify and amend the foreign exchange laws
• control and direct the investments and activities of non-residents in India
• Effectively utilize foreign exchange resources for the nation
• Eliminate the imbalance of payments.
Every region of India, every Indian citizen living abroad, and all agencies operating there are covered by FEMA. Reserve Bank of India (RBI) and Enforcement Directorate (ED) are in charge of FEMA administration.
Income is deemed to have accrued or arisen in India if it satisfies any of the following criteria, as stated in Section 9 of the Income Tax Act 1961 (ITA 1961):
• It is earned in India, directly or indirectly, through any business connection, property, asset, or source of income;
• It is received in India, either by the earner or by any other person acting on their behalf;
• It is received, accrues, or arises outside of India but is attributable to any business activity conducted in India.
Fill out the Form for changes or corrections in TAN data for the TAN allotted and pay the necessary fees at any TIN facilitation center or on the NSDL-TIN website to notify the Income Tax Department that you are about to make changes or corrections to the data associated with the TAN. This includes modifying your address or any other information that was needed to get your TAN.
The Tax Collection and Deduction Account Number, or TAN, is a 10-digit alphanumeric code that is required for all individuals who collect or deduct taxes. TAN is essential to quote in TDS/TCS return (including any e-TCS/TDS return), any TDS/TCS payment challan, and TDS/TCS certificates.
No matter if they are submitted electronically or on paper, TAN must be mentioned on all TCS/TDS/Annual Information returns. If the correct TAN is not quoted on the return, it will be refused in both paper and electronic format.
To find out the status of your TAN application, you have 2 options:
1) By means of the application number:
• Visit the https://www.protean-tinpan.com/services/tan/tan-introduction.html website of TIN-NSDL.
• In the 'Acknowledgment Number' bar, type your acknowledgment number.
• Press the 'Submit' button.
2) By means of the transaction number:
• Visit https://tin.tin.nsdl.com/tan/changemode.html, the NSDL website.
• In the 'Transaction Number' bar, type your transaction number.
• Press the 'Show Status' menu item.
• The number that appears on the 'Payment through Credit Card' screen is the transaction number.
No, if a deductor needs to deduct tax from special kinds of payments, they do not need to apply for a separate TAN. You can use one TAN for all kinds of deductions. This is so because the TAN is associated with the deductor directly, rather than the type of deduction.
For instance, an organization can use the same TAN for all tax deductions if it must deduct taxes from commissions, interest, salaries, and dividends. A deductor would only be required to apply for a separate TAN if they were conducting business out of distinct branches or divisions.
It is illegal to use or possess more than one TAN.
A deductor can find out his TAN in three ways:
• Get information from the TIN Facilitation Centers (TFCs). The authorized TFCs are in charge of processing TAN applications and allocating TANs. Deductors can go to any TFC and give the staff there their information. The deductor can get his TAN from the officials by having them check the TAN database.
• Check the website of the Income Tax Department. Deductors can check their TAN status in a specific section of the Income Tax Department's website. To verify their TAN status, deductors can visit the website and input their PAN or TAN numbers.
• Utilize the 'Know Your TAN' tool. On its website, the Income Tax Department provides a 'Know Your TAN' tool. Deductors can use this facility to check their TAN by entering their PAN, TAN, or name.
NSDL (National Securities Depository Limited) will notify the deductor of the new TAN number in the following ways:
• By post: The new TAN number will be posted to the deductor if they have provided their address on Form 49B.
• By email: The new TAN number will be sent to the deductor via email if they have included their email address on Form 49B.
•Against the acknowledgment: The new TAN number will be shown in online TAN applications next to the acknowledgment number
For the processing of a TAN application, the applicant must pay Rs 65 (Rs 55 for the application fee plus 18.00% Goods & Services Tax). Even in the event that the application is denied, this cost is non-refundable. The demand draft or cheque should be made payable to NSDL-TIN by the applicant.
The information provided in Form 49B will be reviewed by the department. If the application is accurate, NSDL will email the TAN details for online applications or mail the TAN details to the applicant's address on Form 49B.
To apply for a new TAN, utilize Form 49B. You can download Form 49B from the income tax department's website or NSDL. Additionally, it is accessible via the TIN facilitation centers. The TIN Facilitation Center helps candidates complete Form 49B. However, the TIN facilitation center will reject the application if the applicant submits an inaccurate or incomplete Form. It is advisable to complete Form 49B accurately and according to the instructions.
Your application for TAN Allotment does not require any attachments.
However, if you submit your application online, you must print the acknowledgment that appears
after completing the form, sign it, and mail it to NSDL.
Address:
Mantri Sterling, Fifth Floor, Plot No. 341, Survey No.997/8,
Model Colony,
Near Deep Bungalow Chowk,
Pune-411016; NSDL e-governance Infrastructure Limited
The cover letter must read 'APPLICATION FOR TAN-Acknowledgment Number.' (for example, 'APPLICATION TAN - 88301020000392').
To apply for a new TAN, utilize Form 49B. You can download Form 49B from the income tax department's website or NSDL. Additionally, it is accessible via the TIN facilitation centers. Form 49B can not be made on a plain piece of paper but can be filled on a typewriter in capital letters and with a good impression.
No, plain paper applications cannot be submitted for TANs. It must be made on Form 49B, which is a standard form that can be downloaded from the Income Tax Department website or the NSDL website. The form is also available at TIN facilitation centers.
The applicant must sign and complete the application in capital letters. You must print and sign the acknowledgment form if you are applying online. The acknowledgment form needs to be signed and mailed to the address listed on Form 49B for the NSDL office.
Absolutely, since the names, addresses, and designated individuals vary from branch to branch and division to division, each branch or division of the company may have its own unique TAN. The applicant must include all relevant information when filing the TAN allotment application, including the name of the company, branch, or division, its location, and the identity of the person in charge of deducting the tax.
Yes, each DDO (drawing disbursing officer) should apply for TAN separately, even in cases where there are several of them. This is because the TAN application asks you to provide information about your division, branch name and address, and the name and title of the person in charge of deducting TDS/TCS. Each DDO should submit a separate application for TAN allotment, including accurate and pertinent information.
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