Articles

Section 194R of the Income Tax Act has been inserted in the Finance Act 2022 which is applicable from 1^st July 2022. Government has introduced section 194R keep a check on tax leakage. This section requires for deducting tax at source (TDS) in respect of business or profession on Benefits or Perquisites. Benefit/Perquisite can be either in kind or in combination of cash and kind.

Section 28(iv) of the Income Tax Act, 1961 provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as Business Income in the hands of the recipient of such benefit or perquisite.

APPLICABILITY

Section 194R of the Income Tax Act is applicable to

• All assessee (other than Individuals and HUF)
• Individuals and HUF whose Turnover exceeds Rs.1 Crore or Professional Receipts exceeds Rs.50 Lakhs.
• Any person providing benefit or perquisite to a Resident.

NON-APPLICABILITY

• Provision of Section 194R is not applicable if the benefit or perquisite is provided to any Government entity.
• Section194R is not applicable on the benefits given on occasions like festivals, marriage, etc. It is applicable only on benefits and perquisites arising out of business or profession of any resident.
• As gift/ perks/ benefits, i.e., any benefit/perquisite provided to Resident employee will be added in salary and TDS will be deducted U/s 192 So provisions of Sec 194R is Not applicable in given case.

TAX RATE & THRESHOLD LIMIT

Any benefit or perquisite arising from business or profession whose aggregate value exceeds Rs.20,000 in the financial year will fall under Section194R and shall have to pay TDS @ 10%. TDS should be deducted before providing such benefit or perquisite.

To calculate the threshold limit, benefits or perquisites for the whole year shall be taken into consideration. In other words, we can say that benefits or perquisites shall be calculated from 1st April, 2022.

However, the benefit or perquisite which has been provided before 30st June, 2022 would not be subject to tax deduction under section 194R. Only the value of benefits or perquisites which are provided after 1st July, 2022 shall be liable for deducting tax at source at the rate of 10%.

CASE STUDIES

M/s PQR Limited/ PQR (Partnership Firm/AOP/BOI/Trust/Co-operative society), or Mr. PQR (Individual/HUF) having Turnover above Rs.1,00,00,000 or Professional Receipts above Rs. 50,00,000 in FY 2021-22 AY 2022-23 provides Gold Coins/ Holiday Package/ Coupons/Laptops/etc. to its dealers who is:

Case 1: Resident Person, provided with a holiday package amounting to Rs.40,000 +GST on 15/05/2022.

APPLICABILITY	REASON
Not Applicable	Since the benefit/gift/perquisite is provided before 1st July,2022, this section will not be applicable.

Case 2: Resident Person, provided with a holiday package amounting to Rs.40,000 +GST on 15/07/2022.

APPLICABILITY	REASON
Applicable	Since the benefit/gift/perquisite is provided after 1st July,2022, this section will be applicable and TDS will be payable @10%.

Case 3: Resident Person, provided with a holiday package amounting to Rs.10,000 +GST on 15/05/2022 and Gold Chain worth Rs.16000 on 31/07/2022.

APPLICABILITY	REASON
Applicable	Since the Gold chain is provided after 1st July,2022 and the aggregate value exceeds the threshold limit of Rs.20,000, i.e., 10,000 before 01/07/2022 and 16,000 after 01/07/2022, this section will be applicable but TDS will be payable only on the value of Gold chain which is Rs.16,000 @10%.

Case 4: Resident Person, provided with a holiday package amounting to Rs.10,000 +GST on 15/05/2022 and Gold Chain worth Rs.25000 on 31/07/2022 on the occasion of marriage

APPLICABILITY	REASON
Not Applicable	As the Gold chain provided after 1st July,2022 is on the occasion of marriage and not from business/profession, it would not be included in the aggregate value. And therefore, aggregate value does not exceed the threshold limit of Rs.20,000, so Section 194R will not be applicable.

Case 5: M/s ABC Limited (Resident Dealer) was provided with Gold Coin Worth Rs.15000 on 31/07/2022 on achieving target for FY 2021-22 and being impressed with Mr. B (employee of M/s ABC) performance it provided Silver Coins amounting to Rs.10,000 + GST to Mr. B on 31/07/2022 as gift.

APPLICABILITY

REASON

Not Applicable

As the Gold coin provided after 1st July,2022 does not exceed the aggregate value of Rs.20,000, section 194R will not be applicable on M/s ABC Ltd.   Silver coins worth Rs.10,000 is not in relation with business and is provided under his personal capacity. Hence it shall not be included in the calculation of aggregate value. Therefore, Section 194R is not applicable to either Mr. B or M/s ABA Ltd.

VALUATION

It has been clarified that the valuation of benefit/perquisite shall be made at the fair market value of that benefit or perquisite.

However, if the deductor has purchased that benefit from an outside party, the value of benefit/perk will be equal to the purchase price to the deductor. And in case the deductor manufactures the same, value of benefit/perk would be equal to the market price of such item.

FAQs

Q1. Whether sales discount will attract TDS under this section?

Since sales discount are ordinary selling expenditure and are incurred as incentives to distributors for meeting sales targets, so it does not constitute as benefit or perquisite. Therefore, Section 194R will not be applicable.

Q2. Does Section194R applies to Capital Assets?

Capital Assets like car, land, etc. are taxable as benefit or perquisite and thus capital assets are covered under the ambit of section 194R.

Q3. Does Section 194R attracts taxability for free samples of medicines given to doctors?

Section 194R will be applicable to doctors or hospitals if they are receiving free samples of medicines.     

Q4. Does the valuation of benefit or perquisite include GST?

The CBDT has clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R.

Q5. Under which head would it be taxable in the hands of the Receiver?

It would be taxable as business income under the head Business and Profession.

Q6. Many a times, a social media influencer is given a product of a manufacturing company
so that he can use that product and make audio/video to speak about that product in social media.
Is this product given to such influencer a benefit or perquisite?
In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 194R of the Act. However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act.

Q7. Whether reimbursement of out of pocket expense incurred by service provider in the
course of rendering service is benefit/perquisite?
Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite provided by the second person to the first person in the course of business/profession.

Let us assume that a consultant is rendering service to a person “X” for which he is receiving consultancy fee. [n the course of rendering that service, he has to travel to different city from the place where is regularly carrying on business or profession. For this purpose, he pays for boarding and lodging expense incurred exclusively for the purposes of rendering the service to “X”. Ordinarily, the expenditure incurred by the consultant is part of his business expenditure which is deductible from the fee that he receives from company “X”. In such a case, the fee received by the consultant is his income and the expenditure incurred on travel is his expenditure deductible from such income in computing his total income. Now if this travel expenditure is met by the company “X”, it is benefit or perquisite provided by “X” to the consultant.

However, sometimes the invoice is obtained in the name of “X” and accordingly, if paid by the consultant, is reimbursed by “X”. In this case, since the expense paid by the consultant (for which reimbursement is made) is incurred wholly and exclusively for the purposes of rendering services to “X” and the invoice is in the name of “X”, then the reimbursement made by “X” being the service recipient will not be considered as benefit/perquisite for the purposes of section 194R of the Act.
If the invoice is not in the name of “X” and the payment is made by “X” directly or reimbursed, it is the benefit/perquisite provided by “X” to the consultant for which deduction is required to be made under section 194R of the Act.

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WHAT IS BUYBACK OF SHARES?

Buyback of Shares is also known as Share Repurchase. The name itself suggests that buyback refers to the buying back of shares by the company from the shareholders in the open market at a premium. The repurchased shares are cancelled by the company and hence, reduce the outstanding shares in the market. Tax on Buyback of shares is now regulated by Section 115QA of the Income Tax Act,1961.

WHY DO COMPANIES BUYBACK SHARES?

• Correction of Share Price: Buyback of Shares generally results in increase in the market price. So, if the market price of the shares is highly undervalued, the company can correct it by buying back of shares.
• Promoter’s Shareholding: One of the main reasons behind buyback of shares is to increase the shareholding of the promoters by purchasing from the open market.
• Attractive Financials: With the reduced number of shares from buyback, Earnings per share of the company would increase. It also helps in improving the key financial ratios.
• Utilization of Excess Cash: By buyback of shares, company can use their excess cash balance by paying premium to the shareholders over and above the market price.

INCOME TAX ON BUYBACK ON SHARES AS PER SECTION 115QA

Initially, Section 115QA was applicable only to Unlisted companies but in the Union Budget 2019, it was announced that this section is now applicable to Listed companies also. The effect of this was applicable from 1^st July, 2019.

As per Section115QA, all the companies (both listed and unlisted) have to pay tax at the rate of 20% (plus Surcharge @ 12% and HEC @4%).

• Companies have to pay tax on the amount of distributed income on the buyback of shares.
• The tax shall be paid within 14 days from the date of payment to the shareholders.
• The amount of tax paid is not available for any credit.
• Every company shall pay tax on the distributed income in case of buyback of shares even if that company is not liable to pay income tax.

As per Section 115QA read along with Section 10(34A), shareholders are exempt from any kind of tax on buyback of shares. It would have been considered as double taxation if both shareholders and companies have to pay tax on buyback of shares. Therefore, only companies are liable to pay tax on buyback of shares.

TAX LIABILITY	BEFORE AMENDMENT	POST AMENDMENT (2019)
COMPANY (Both Listed and Unlisted)	No Tax Liability	The company is now liable for a buyback tax of 20% on the Distributed Income*
INDIVIDUAL SHAREHOLDER	Individual shareholders must pay Capital Gains Tax (Long term or Short term) depending on the holding period of shares	No Tax Liability

 

WHAT IS LIMITED LIABILITY PARTNERSHIP?

Limited Liability Partnership (LLP) is a combination of a corporate structure along with the flexibility of a partnership. LLP is governed by Limited Liability Partnership Act, 2008. Nowadays, LLP has become very popular of business as many entrepreneurs are willing to opt for it.  An LLP is a separate legal entity and the liability of its partners are limited to the agreed upon contribution in the LLP. An LLP can enter into contracts and hold property in its own name. Just like partnership deed, LLP is also operated on the basis of the LLP Agreement. Limited liability partnerships are taxed at the rate of 30%.

ADVANTAGES

• Limited Liability (from the partner’s point of view): Partners in an LLP have limited liability which implies that the partners are liable only to the extent of their contribution. Partners are not responsible for any misconduct by other partners, and they are not liable to pay off the debts of the LLP from their personal assets.
• Flexibility: Since LLP is operated by LLP Agreement, it has greater flexibility in the management of the business in comparison to a company.
• Separate Legal Entity: LLP is a separate legal entity from its members. It can hold property, and buy assets in its own name.
• Corporate Ownership: LLPs have corporate ownership without having to comply with all the compliances as in a company. It means that LLPs can appoint two companies as their members, rather than having to appoint at least one director as in the case of a company.
• Perpetual Succession: Perpetual succession in an LLP means that it is not affected by the death, insolvency, retirement or any other change of the partners.
• Easy Formation: As compared to a company, forming an LLP is less complicated and less time consuming. It has fewer legal compliances.
• Capital Requirement: There is no minimum cap as for the requirement of capital. LLP can be formed with any amount of capital.
• Audit: Audit of an LLP is not mandatory. Although, if the turnover of an LLP exceeds the certain prescribed limit, then LLP shall require to get the tax audit.

DISADVANTAGES

• Taxation: In an LLP, the rate of taxation is flat 30% irrespective of the turnover, while a company is taxable at the rate of 25% if the turnover is upto Rs.250 crores.
• Limited Liability (from point of view of LLP): Partners are the real owners of the LLP. They can operate in their own ways. And since the liability of the partners are limited, LLP would have to suffer any loss even if the fault is of the partner/member.
• Public Disclosure: Financial Accounts have to be represented as public records. Personal income of the members also has to be disclosed.
• Capital Requirements: LLPs does not have the concept of equity investments. Investors cannot fund an LLP without becoming a member. So, it would be difficult for an LLP to fulfil the capital requirements.

TRADITIONAL PARTNERSHIP V/S LLP

PARTICULARS	TRADITIONAL PARTNERSHIP	LLP
Registration under Act	Indian Partnership Act, 1932	Limited Liability Partnership Act, 2008
Minimum no. of Partners	2 Partners	2 Partners
Maximum no. of Partners	Maximum 20 Partners	No Limit
Liability of Partners	Jointly Liable	To the extent of their contribution
Registration	Not Compulsory	Compulsory
Tax Audit	Required when Turnover/Gross Receipts exceeds Rs.1 crore – Business Rs. 50 Lakhs – Profession	Required only if Turnover > Rs.40 Lakhs; or Contribution > Rs.25 Lakhs

COMPANY V/S LLP

PARTICULARS	COMPANY	LLP
Registration under Act	Companies Act,2013	Limited Liability Partnership Act,2008
Designated Directors/Partners	Minimum – 2 Maximum – 15	Minimum – 2 No Maximum Limit
Minimum no. of members	2	2
Maximum no. of members	200	No Limit
Abiding by	MOA/AOA of the company	LLP Agreement
Tax Audit	Compulsory	Required only if Turnover > Rs.40 Lakhs; or Contribution > Rs.25 Lakhs
Compliances	High Legal Compliances	Less Compliances as compared to company
Registration Costs	Higher as compared to LLP	Low Registration Cost

E-Invoicing is a system for authentication of B2B invoices electronically by the GSTN. Under the electronic invoicing framework, a unique Invoice Reference Number (IRN) is issued against each invoice digitally using Invoice Registration Portal (IRP) managed the GSTN. Maximum 100 items can be incorporated in a single invoice.

E-Invoicing eliminates the need to enter data manually in different portals, i.e., we are not required to enter the same data again and again into GST Portal, E-Way Bill Portal and in the E-Invoice Portal.

E-Invoicing also helps to track the invoices in real-time. It helps in resolving a large gap in data reconciliation under GST to reduce the mismatch of errors. It provides a framework to quickly access the complete invoice related details.

APPLICABILITY

An assessee shall comply with the provisions of e-invoicing if their aggregate turnover exceeds the specified limit in any financial year after the implementation of GST, i.e., 2017-18 onwards. The calculation of aggregate turnover shall include the turnover of all the GSTINs issued under a single PAN across India.

PHASE	APPLICABLE IF	APPLICABILITY DATE
I	TURNOVER > 500 CRORES	01.10.2020
II	TURNOVER > 100 CRORES	01.01.2021
III	TURNOVER > 50 CRORES	01.04.2021
IV	TURNOVER > 20 CRORES	01.04.2022

Example: Suppose PQR Ltd had aggregate turnover as follows:

YEAR	TURNOVER
FY 2017-18	Rs.12 crore
FY 2018-19	Rs.16 crore
FY 2019-20	Rs.23 crore
FY 2020-21	Rs.18 crore
FY 2021-22	Rs.14 crore

PQR Ltd shall mandatorily generate e-invoices from 01.04.2022 irrespective of the current year’s aggregate turnover as it has crossed the threshold limit of Rs.20 crore turnover limit in FY 2019-20.

Following class of taxpayers are currently covered under e-invoicing:

• Supplies to the registered persons (B2B)
• Supplies to SEZs
• Exports
• Deemed exports

WHO DOESN’T REQUIRE E-INVOICING?

Following category of a person exempted under e-invoice

• A banking company
• A non-banking financial company
• A financial institution
• An insurer
• A person engaged in supplying passenger transportation service
• A goods transport agency (GTA) supplying services
• A person engaged in supplying services in terms of admission of the exhibition of cinematograph films in the multiplex screen
• Persons registered in terms of Rule 14 of CGST Rules (OIDAR)
• Special Economic Zone units (although e-invoicing is required for SEZ Developers)

HOW TO REGISTER FOR E-INVOICING

• Go to the website https://einvoice1.gst.gov.in/

• Click on Registration < e-Invoice Establishment.
• Fill your GSTIN, enter the captcha and click on GO.
•  After clicking on GO, the details would be shown as below:

• Then, click on SEND OTP. OTP will be sent on your registered mobile number. Verify the OTP.
• Now, select the respective financial year and specify the turnover of that period.
• Click on SUBMIT.

• After submitting the required details, login credentials would be generated. He/she would be registered for preparing e-invoices.

WHAT IS F&O TURNOVER?

Computing the turnover on Futures and Options is significant for the purpose of tax filing and F&O trading is mostly reported as business income while filing tax returns. Yet, one needs to analyze their total income, which can be positive or negative value (profit or loss). Expenses like office rent, telephone expenses, broker’s commission, etc. which are directly connected to F&O business should be deducted from the income. The remaining amount would be considered as the turnover from the F&O trading.

Traders are often faced with the challenge of calculating trading turnover from Derivatives and Intra-day. So, following are the formulas, using which, we can calculate the turnover:

TYPE OF TRADING	CALCULATION OF TRADING TURNOVER	TAXABLE UNDER THE HEAD	RATES
Equity Trading Intra-day	Absolute Profit/Loss [Sale price – Buy price]	Speculative Business Income	Respective Slab Rate
Futures – Equity, Commodity, Currency	Absolute Profit/Loss [Sale price – Buy price]	Non-Speculative Business Income	Respective Slab Rate
Options – Equity, Commodity, Currency	Absolute Profit/Loss* + Premium received from Sale of Options	Non-Speculative Business Income	Respective Slab Rate
Equity Delivery** Trading & Mutual Fund Trading	Total Sales Value of Shares/ Mutual Fund	Capital Gain	LTCG@10% STCG @15%
Debt Funds***	Total Sales Value of Debt Fund	Capital Gain	LTCG@20% with indexation STCG @ respective slab rate
Hybrid Funds	If: Equity Oriented > 65% = Equity Debt Oriented > 60% = Debt	Capital Gain	Respective slab rates as per Equity and Debt Orientation

*Profit & Loss both here are taken as positive figures.

**In case of Equity Funds, if the holding period is less than one year, it would be treated as Short Term Capital Gain.

***In case of debt funds, if the holding period is less than 3 years, it would be treated as Short Term Capital Gain.

We should understand this with the help of some examples:

Case 1: If Saurabh purchases 500 quantity of Equity Shares @Rs.50 and sells at Rs.57 on the same day (intra-day). His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Profit on Sale of Shares	500 * (57-50)	3,500

Case 2: If Saurabh purchases 500 quantity of Futures @Rs.600 and sells at Rs.620. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Profit on Sale of Futures	500 * (620-600)	10,000

Case 3: If Saurabh buy 500 quantities of Options A @Rs.80 each and sells them at Rs.77. and he also purchases 250 quantity of Options B @ Rs.60 and sells at Rs.62. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
Loss on Sale of Options A	500 * (80-77)	1,500
Premium on Sale of Options A	500 * 77	38,500
Profit on Sale of Options B	250 * (62-60)	500
Premium on Sale of Options B	250 * 62	15,500
Total Turnover		56,000

Case 4: If Saurabh buy 500 quantities of Equity Share A @Rs.80 each and sells them at Rs.87 after 13 months. He also purchased 250 quantity of Equity Share B @ Rs.60 and sells at Rs.62 after 4 months. His turnover would be determined as:

PARTICULARS	CALCULATION	AMOUNT
LTCG on Sale of Equity Share A	500 * (87-80)	3,500
STCG on Sale of Equity Share B	250 * (62-60)	500
Total Capital Gain		4,000

Note: Equity Share A has been taken under Long Term Capital Gain (LTCG) since they have been held as investment for more than one year.

F&O LOSSES AND TAX AUDIT

Intra-day stock trading is taxable under the head Speculative income/loss. Speculative loss can be adjusted only against the speculative income. However, any unadjusted speculative loss can be carried forward up to 4 years. F&O trading income/loss is covered under Non-Speculative business income. Any unadjusted business loss can be carried forward for 8 assessment years.

Tax Audit u/s 44AB is applicable when the trading turnover exceeds Rs.1 crore, but if the taxpayer has opted for presumptive taxation scheme, the limit for turnover is Rs.2 crores.

CONCLUSION

F&O trading has turned into an appealing proposition because of the accessibility of numerous trading platforms. Taxpayers often get confused while filing taxes about the income generated by F&O trading, and it is vital to comprehend the process to ascertain F&O turnover for income tax purposes, and when tax audit is applicable.

Section 40(B) of Income Tax Act provides the maximum permissible amount payable to a partner in a partnership firm. The returns of a partner can be in the form of

• Interest on Capital: Interest payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed 12% per annum.
• Share of Profit
• Remuneration: Remuneration payable to partners shall be in accordance with the terms of the partnership deed

ESTIMATION OF INCOME OF PARTNER IN A FIRM

The partner’s share in the total income of firm is exempt in the hands of the partner and hence would not be included in his total income. And due to this exemption, he cannot set-off his share of profits a firm’s losses.

INTEREST PAYABLE TO PARTNERS

There are few conditions which shall be fulfilled in order to be eligible for interest payable under section 40(B):

• The interest payable by a firm to its partners should be authorized by and in accordance with the partnership deed.
• The interest payable by a firm to its partners should not be for a period falling prior to the date of such partnership deed authorizing the payment of such interest.
• Interest payable to partners has a maximum cap of 12% per annum. Firm cannot pay any more than the prescribed limit.

Note: Interest here means simple interest and not compounding interest.

CONDITIONS FOR DEDUCTION UNDER REMUNERATION:

Remuneration to partners includes salary, bonus, commission, etc. Following conditions need to be satisfied for claiming the deduction:

• Remuneration shall be allowed only to working partners. Working Partner is a partner who actively engages in conducting the business affairs of the firm.
• Remuneration must be authorized by partnership deed and according to the terms of partnership deed.  Clear directions must be specified in the partnership deed.
• Remuneration paid to the working partners will be allowed as deduction but it should belong to the period as specified in the partnership deed. It should be related to the period of the partnership deed.
• It is not allowed if tax is paid on presumptive basis under section 44AD or section 44ADA.
• Remuneration payable shall be within the maximum permissible limits (as mentioned below). This limit is for total salary to all partners and not for any single partner.

CALCULATION OF BOOK PROFIT FOR PARTNER’S REMUNERATION U/S 40(B)

Book profit means the net profit as shown in the profit and loss account which is computed according to the manner laid down in the chapter IV-D. Book profit is calculated after some adjustments which are mentioned below:

• Net profit as per profit and loss account
• Add remuneration/salary/bonus/commission if already debited
• Add Brought forward business loss, deduction under section 80C to 80U if debited to profit and loss a/c
• Deduct interest if it is not deducted
• Make adjustments for expenses as per section 28 to 44D.

AMOUNT OF DEDUCTION:

BOOK PROFIT (Rs.)	MAXIMUM DEDUCTIBLE AMOUNT (Rs.)
Loss	1,50,000
Profit upto Rs.3,00,000	90% of book Profit or Rs.1,50,000; whichever is more
More than Rs.3,00,000	60% of the Book profit

TAXABILITY IN THE HANDS OF PARTNERS:

Remuneration is taxable in hands of partners as Business Income. Note that remuneration to partners is distant from the share of profits payable to partner since share of profits is exempt,  but remuneration is taxable in the income of partners.

SOURCE: SEBI

WHAT IS MUTUAL FUND?

A mutual fund is a professionally-managed investment scheme, made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.

DIFFERENT TYPES OF MUTUAL FUND SCHEMES

EQUITY SCHEMES

S.NO.	CATEGORY	SCHEME CHARACTERISTICS/MINIMUM CONDITIONS
1	Multi-Cap Fund	Invest across large-cap, mid-cap, small-cap stocks Min. equity component – 65%
2	Large Cap Fund	Predominantly invest in large-cap stocks Min. equity component – 80%
3	Large and Mid-Cap Fund	Invest in both large-cap and mid-cap stocks Min. equity component (large-cap stocks) – 35% Min. equity component (mid-cap stocks) – 35%
4	Mid Cap Fund	Predominantly invest in mid-cap stocks Min. equity component (mid-cap stocks) – 65%
5	Small Cap Fund	Predominantly invest in small-cap stocks Min. equity component (small-cap stocks) – 65%
6	Dividend Yield Fund	Predominantly invest in dividend-yielding stocks Min. equity component – 65%
7	Value Fund	The scheme should follow a value investment strategy Min. equity component – 65%
8	Contra Fund	The scheme should follow a contrarian investment strategy. Min. equity component – 65%
9	Focused Fund	Maximum 30 stocks Min. equity component – 65%AMC to mention where the scheme intends to focus, viz., (multi-cap, large-cap, mid-cap, small-cap)
10	Sectoral/Thematic Fund	AMC to clearly mention the sector/theme that the scheme shall focus on Min. equity component (for stocks belonging to that sector/theme) – 80%
11	Equity Linked Savings Schemes (ELSS)	The statutory lock-in period of 3 years Min. equity component – 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)

DEBT SCHEMES

S.NO.	CATEGORY	SCHEME CHARACTERISTICS/MINIMUM CONDITIONS
1	Overnight Fund	Invest in overnight securities – Maturity of 1 day
2	Liquid Fund	Invest in debt and money market instruments – Maturity of up to 91 days
3	Ultra-short Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 6 months
4	Low Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 6 – 12 months
5	Money Market Fund	Invest in Money Market instruments – Maturity up to 1 year
6	Short Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 1-3 years
7	Medium Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 4 years
8	Medium to Long Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 4-7 years
9	Long Duration Fund	Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be more than 7 years
10	Dynamic Bond	Investment across duration
11	Corporate Bond Fund	Minimum 80% investment in corporate bonds (only in highest rated instruments
12	Credit Risk Fund	Minimum 65% investment in corporate bonds (below highest rated instruments)
13	Banking and PSU Fund	Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
14	Gilt Fund	Minimum 80% investment in Government Securities (across maturity)
15	Gilt Fund with 10-year constant duration	Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)

HYBRID SCHEMES

S.NO.	CATEGORY	SCHEME CHARACTERISTICS/MINIMUM CONDITIONS
1	Conservative Hybrid Fund	Minimum equity component – Between 10% and 25% Minimum debt component – Between 75% and 90%
2	Balanced Hybrid Fund	Minimum equity component – Between 40% and 60% Minimum debt component – Between 40% and 60% The AMC cannot do any arbitrage in this scheme
3	Aggressive Hybrid Fund	Minimum equity component – Between 65% and 80% Minimum debt component – Between 20% and 35%
4	Dynamic Asset Allocation (or Balanced Advantage)	Invest in equity or debt – AMC to manage it dynamically
5	Multi-Asset Allocation	Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes Note: AMC cannot offer foreign securities as a foreign asset class
6	Arbitrage Fund	The scheme should follow an arbitrage strategy. Minimum equity component – 65%
7	Equity Savings	Minimum equity component – 65% Minimum debt component – 10% AMC to state minimum hedged & unhedged in the Scheme Information Document (SID) AMC to state Asset Allocation under defensive considerations in the Offer Document

SOLUTION ORIENTED SCHEMES

S.NO.	CATEGORY	SCHEME CHARACTERISTICS/MINIMUM CONDITIONS
1	Retirement Fund	Lock-in: At least 5 years or till retirement age, whichever is earlier
2	Children’s Fund	Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier

OTHER SCHEMES

S.NO.	CATEGORY	SCHEME CHARACTERISTICS/MINIMUM CONDITIONS
1	Index Funds/ Exchange Traded Funds	Minimum 95% investment in securities of a particular index (which is being replicated/ tracked) AMC to mention the name of the index
2	Fund of Funds (Overseas/ Domestic)	Minimum 95% investment in the underlying fund AMC to mention the name of the underlying fund

KEY MUTUAL FUND RATIO

1. Standard Deviation:

Standard Deviation value gives an idea about how volatile fund returns has been in the past 3 years. Lower value indicates more predictable performance.

So, if you are comparing 2 funds (let’s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A standard deviation value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.

2. Beta

Beta value gives idea about how volatile fund performance has been compared to similar funds in the market. Lower beta implies the fund gives more predictable performance compared to similar funds in the market.

So, if you are comparing 2 funds (let’s say Fund A and Fund B) in the same category. If Fund A and Fund B has given 9% returns in last 3 years, but Fund A beta value is lower than Fund B. So, you can say that there is a higher chance that Fund A will continue giving similar returns in future also whereas Fund B returns may vary.

3. Sharpe Ratio

Sharpe ratio indicates how much risk was taken to generate the returns. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the standard deviation of returns.

For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, you can choose fund A, as it has given higher risk-adjusted return.

4. Treynor’s Ratio

Treynor’s ratio indicates how much excess return was generated for each unit of risk taken. Higher the value means, fund has been able to give better returns for the amount of risk taken. It is calculated by subtracting the risk-free return, defined as an Indian Government Bond, from the fund’s returns, and then dividing by the beta of returns.

For example, if fund A and fund B both have 3-year returns of 15%, and fund A has a Treynor’s ratio of 1.40 and fund B has a Treynor’s ratio of 1.25, then you can choose fund A, as it has given higher risk-adjusted return.

5. Jension’s Alpha

Alpha indicates how fund generated additional returns compared to a benchmark.

Let’s say if a fund A benchmarks its returns with Nifty50 returns then alpha equal to 1.0 indicates the fund has beaten the nifty returns by 1%, so the higher the alpha, the better.

6. Sortino Ratio

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns—downside deviation—instead of the total standard deviation of portfolio returns. The Sortino ratio takes an asset or portfolio’s return and subtracts the risk-free rate, and then divides that amount by the asset’s downside deviation.

Just like the Sharpe ratio, a higher Sortino ratio result is better. When looking at two similar investments, a rational investor would prefer the one with the higher Sortino ratio because it means that the investment is earning more return per unit of the bad risk that it takes on.

For example, assume Mutual Fund X has an annualized return of 12% and a downside deviation of 10%. Mutual Fund Z has an annualized return of 10% and a downside deviation of 7%. The risk-free rate is 2.5%. The Sortino ratios for both funds would be calculated as:

Mutual Fund X Sortino = (12%−2.5%)/10% = 0.95

Mutual Fund Z Sortino = (10%−2.5%)/7% = 1.07

Even though Mutual Fund X is returning 2% more on an annualized basis, it is not earning that return as efficiently as Mutual Fund Z, given their downside deviations. Based on this metric, Mutual Fund Z is the better investment choice.

Budget 2022 has hardened the income tax filing norms for regular taxpayers. Under Union Budget 2022, Nirmala Sitharaman announced that the provision of updated return is available in Section 139(8A) of the Income Tax Act. The taxpayers now have a choice to rectify their income tax return by filing an Updated Income Tax Return. The new provision allows the taxpayers to update their ITRs within two years of filing, on payment of additional taxes, in case of errors or omissions.

The Central Board of Direct Taxes (CBDT) has now notified a new Form ITR-U for documenting updated Income Tax returns in which taxpayers will have to give specific justification for filing it along with the amount of income to be offered to tax. The new Form ITR-U will be available to taxpayers for filing updated income tax returns for 2019-20 and 2020-21 fiscals. 

WHO CAN FILE AN UPDATED ITR?

Any person eligible to update returns for FY 2019-20 and subsequent assessment years as per the relevant provisions of the IT Act can file the updated return via Form ITR-U. A taxpayer can file updated return only once for each assessment year.

WHAT DETAILS ARE REQUIRED TO BE MENTIONED IN ITR-U?

In ITR-U, the assessee needs to specify only the amount of additional income, under the prescribed income heads, on which tax is required to be paid. No detailed income break-up needs to be submitted, as in the case of filing regular ITR forms. The taxpayer must also determine the exact reason behind updating the return in ITR-U. Further, it is required to mention the challan details for the additional tax paid for the updated return.

PRESCRIBED DATE TO FILE FORM ITR-U

Form ITR-U can be filed only for the preceding two years of the end of relevant assessment year. The provisions of section 139(8A) have been notified and came into effect from the beginning of financial year 2022-23, hence, in the financial year 2022-23, returns for AY 2020-21 and AY 2021-22 can only be furnished under Updated return.

MANNER OF VERIFICATION OF UPDATED RETURN

Updated return shall be verified using Digital Signature Certificate (DSC) in case of political parties and companies who are liable for tax audit under section 44AB.

In other cases, the taxpayers have an option whether they want to file with Electronic Verification Code (EVC) or DSC.

WHAT ARE THE BENEFITS OF FILING UPDATED RETURN?

1) Taxpayer gets an additional time of 24 months to file Income Tax Return even after the due date of filing Original ITR, Belated ITR and Revised ITR have lapsed

2) Taxpayer can report any missed out incomes and pay tax on it thus reducing chances of future tax notices and litigations

3) Tax Liability and penalty under Updated Return is less than in case of proceedings for undisclosed income or income escaping assessment

CASES WHEN AN UPDATED RETURN OF INCOME CANNOT BE FURNISHED

The Form ITR-U cannot be filed in case of following reasons:

• The provision does not allow the taxpayer to file the updated return if there is no additional tax outgo.
• Where a search has been initiated under section 132 or requisition is made under section 132A of the Income-tax Act
• Where a survey has been conducted u/s 133A other than survey u/s 133(2A) of Income-tax Act
• Where any proceeding for assessment or reassessment or re-computation or revision of income is pending under the Income-tax Act
• Where the Assessing Officer has information for Blank Money law, Benami law, etc. in the relevant assessment year.
• Where any information is received under an agreement referred to in sections 90 or 90A of the Income-tax Act
• Where any prosecution proceedings are initiated under the Income-tax Act.

PENALTY ON FILING UPDATED RETURN – PAY ADDITIONAL TAX UNDER SECTION 140B OF INCOME TAX ACT

The taxpayer filing an Updated Return must also submit proof of payment of tax and penalty as per Section 140B of the Income Tax Act.

The provision requires that the taxpayer has to pay an additional 25 per cent interest on the tax due if the updated ITR is filed within 12 months, while interest will go up to 50 per cent if it is filed after 12 months but before 24 months from the end of relevant Assessment Year. Non-payment of additional tax would be considered as invalid, and hence no return would be updated.

Therefore, the taxpayers looking to update their returns for FY 2019-20 will need to pay the tax due and interest along with an additional 50 per cent of such tax and interest. For those looking to file an updated return for FY 2020-21, the additional amount will be 25 per cent of the tax payable and interest.

NOTE: In case the taxpayer has not filed the Original return or Belated return, he/she will have to pay the taxes due for the relevant assessment year along with the late fees as per section 234F. He/she shall also pay the additional tax liability under section 140B of 25%/50% on the taxes due as per the circumstances.

UPDATED ITR U/S 139(8A) V/S REVISED ITR U/S 139(5)?

• A taxpayer can file an Updated ITR even if an original or belated ITR has not been filed. However, the taxpayer cannot file a Revised ITR if an original or belated ITR has not been filed
• The taxpayer can file an Updated ITR only if there is an additional tax liability. In the case of a Revised ITR, there is no such restriction
• The taxpayer need not pay any penalty for filing a Revised ITR. However, the taxpayer must pay a penalty in form of an Additional Tax of 25% to 50% as per Section 140B for filing an Updated ITR
• Updated ITR can be filed only if there is an additional tax liability and not if there is a reduction in tax liability or an increase in the refund or claiming a loss. Revised ITR can be filed for multiple reasons such as claiming a loss, increasing refund, reduction or increase in tax liability, etc.
• The taxpayer can file Revised Return multiple times while he/she can file Updated ITR only once.

A lively Small and Medium-sized Enterprise (SME) sector is an imperative element for a solid market economy. SMEs assume a significant part in the political economy, assisting to promote and strengthen reforms. There are about 44 million MSME units in India which contribute 45% of the India’s manufacturing output, account for about 35 % of our exports, and provide employment to more than 59 million people in the country.

 The continuing development, intensity and prosperity of MSME units are complicatedly connected with the wellbeing and development of Indian economy. In the long term, SMEs can create a significant ascent in pay, opportunities and the overall GDP. Assuming the business environment to be helpful and steady to new organizations, they won’t just create more employment yet additionally make a variety of items and administrations for the consumers to choose from.

Where MSME are looking for re-organizing their working capital, make or buy decisions, new investment and return thereof, Chartered Accountants can play a very important role as business solution providers. They are being trained in three-year of thorough training to handle a wide range of challenges and having active experience. Chartered Accountants play significant part in the turn of events and advancement of SME area.

From making exceptional products to offering custom administrations, SMEs are an imperative piece of the financial texture of the world. There are many advantages of SMEs for entrepreneurs, buyers, workers and networks. Small and medium endeavours, as they are additionally known, can do things that can be challenging for larger organizations.

Few of the advantages are listed below:

Close relationship

It is quite possibly the clearest advantage. Medium and particularly small companies will manage their clients, which will empower them to address their issues more precisely and to offer a more individualized assistance, and even lay out some bond with their clients. When you know the business, the client’s connection with the SME will frequently be less difficult as compared to any large organization.CAs can play a significant part for making mindfulness among stakeholders.

Flexible

As a result of their size and less difficult construction, they will have a more prominent ability to adjust to changes. Furthermore, it will assist them with being nearer to their clients, which will permit them to know the variations in the market before any other individual.

Economic Development

SMEs have the remarkable capacity to fuel economic development. They set out many new job opportunities, drive the trend of advancement and extend the tax base. In most developing and developed economies, more than 90% of SMEs further develop the employment rate. As a matter of fact, when large businesses scale down and eliminate job opportunities, SMEs continue creating and developing more job positions.

Reduced complications in compliance:

At present a normal SME or start up invests a great amount of time and energy to deal with the different kinds of assessments at different places. Recording separate returns under every office, according to the specified courses of events, in itself is a nightmare. Further, businesses like restaurants, which fall under both sales and service taxation, have to calculate both VAT and service tax separately for compliance purposes. GST, by virtue of its unified structure and neat classification of goods and services for the purpose of taxation, essentially wipes out every such entanglement, and most importantly reduces compliance effort and costs.

Adaptable to dynamic environment:

SMEs act as a cushion against recession by adapting and innovating as per the changing circumstances. SMEs adapt fast to the dynamic business world by switching on to e-commerce and online transaction of goods and services. The progression in innovation has not just eased out the method involved with selling and purchasing, it has assisted the people with reducing expense on promoting and showcasing as well. The different online business platforms make life simple for SMEs.

CA professionals can play pro-active role in creating awareness entry into ready and big market of supplying to Ministries, departments and CPSUs through procurement policy; motivating and facilitating SMEs in registering under SPRS; by filing forms on behalf of SMEs and facilitating pre-registration capability audit.

Although SMEs have its downsides too, it is just with accuracy and care that the public authority can empower business by making business-accommodating approaches and simple funding options. Liberal arrangements urge prospective entrepreneurs to go all in and create value for themselves as well as society eventually. Chartered Accountants play major and important role in the development and promotion of MSME sector. Do not see a CA professional just for the purpose of audit; a certified Chartered Accountant can be of help in anything from money related issues to business related decisions.

Form 61A is a record of the statement of Specified Financial Transactions which must be furnished under the Income Tax Act, 1961 by certain institutions. Statement of Specified Financial Translations or SFT refers to information related to certain high-value transactions which specified persons are required to report to the income tax department. The SFT was earlier known as ‘Annual Information Return (AIR)’. The objective of SFT was to curb black money and widening the tax base.

APPLICABILITY OF FORM 61A

• A banking company, Cooperative bank
• A non-banking financial company (NBFC)
• Any institution issuing credit card
• Any person covered under audit under section 44AB of the Income Tax Act.
• Post offices
• A Nidhi referred to in section 406 of the Companies Act 2013
• A company issuing bonds or debentures
• A company issuing shares
• A mutual fund institution
• A company listed on the recognized stock exchange
• A trustee of a mutual fund or such other person as authorized by the trustee
• Authorize dealer, offshore banking unit, money changer or any other person defined in FEMA
• Inspector general or sub-registrar appointed under Registration act, 1908

KEY SECTIONS OF FORM 61A

The following are the key sections and details mentioned on a typical Form 61A:

• Full Name
• Permanent Account Number (PAN)
• Folio Number
• Address
• Financial Year in which the transactions carried out are being reported
• Number of Specified Financial Transactions
• Total Value of Specified Financial Transactions carries out in the financial year
• Details of the transactions: date of transactions, name of transacting party, PAN of transacting party, full address, mode of transaction, transaction amount, transaction code, etc.

Note that transactions that must be declared and reported in Form 61A.

TRANSACTIONS TO BE REPORTED

Individuals responsible for furnishing Form 61A	Type of Transaction and limit
Banking Companies and Co-operative Banks	Cash payment for the purchase of POs (Pay orders) / DDs (Demand drafts) for amounts annually totalling Rs 10 lakh or more.
Banking Companies and Co-operative Banks	Cash payment exceeding Rs 10 lakh for purchasing any prepaid RBI instruments like RBI bonds, etc.
Banking Companies and Co-operative Banks	Deposits or withdrawals amounting to Rs 50 lakh or more from any number of current accounts of a person with the bank.
Banking Companies, Co-operative Banks and Post Offices	Deposit totalling Rs 10 lakh or more in bank accounts, other than current or time deposit accounts, of a person.
Banking Company, Co-operative Bank, Post Master General of Post office, Nidhi	Cash payment aggregating to INR 1 lakh or more in a year or Rs 10 lakh or more in any other mode of payment against any credit card bill which is issued to a customer in a year
A company or an institution issuing debentures or bonds	Receipt exceeding Rs 10 lakh or more in a year from an individual for acquiring such debentures/bonds
A company issuing shares	Receipt exceeding INR 10 lakhs in a year from an individual for acquiring such shares. This includes share application money received.
Listed companies	Share buyback from a person for an amount totalling Rs 10 lakh or more
Manager/Trustee of a Mutual Fund	Receipt equal to or exceeding Rs 10 lakh in a year from an individual acquiring the units of such Mutual Fund
A Dealer of Foreign Exchange	Receipt from a person for sale of a foreign currency or expenses incurred in such foreign currency via a debit/credit card or via the issue of draft or traveller’s cheque or any other financial instrument for an amount annually totalling Rs 10 lakh or more.
Inspector-General/Sub-Registrar appointed under the Registration Act, 1908	Sale/Purchase by a person of immovable property for Rs30 lakhs or more of sale value or value as per the stamp valuation authority.
Persons liable for audit u/s 44AB of the Income Tax Act	Cash receipt exceeding Rs 2 lakh by a person for sale of goods or rendering of services (other than the ones specified above)

DIFFERENT PARTS OF FORM 61A

Form 61A has two parts:

Part A contains statement level information which is common for all transaction types. Based on the transaction type, the report level information has to be reported in one of the following parts:

• Part B (Reporting of aggregated financial transactions by the person)
• Part C (Reporting of bank accounts)
• Part D (Reporting of immovable property transactions)

PROCEDURE TO FILE SPECIFIED FINANCIAL TRANSACTIONS[SFT] ONLINE

• Register on the Reporting portal under ‘My Account‘ menu.
• All statements uploaded to the Reporting Portal should be in the XML format consistent with the prescribed schema published by the Income Tax Department.
• Once XML is generated, sign and encrypt the XML using the Submission utility and prepare a package to be uploaded.
• Submit the statement on Reporting Portal.
• Upon successful submission, an email with “Acknowledgment Number” will be sent to the registered email id.

DUE DATE & PENALTIES

• Due date for submitting Form 61A for the previous financial year is before 31st May of the applicable assessment year.
• For the initial failure to file Form 61A within the due date, penalty shall be levied under Section 271A of Rs.500 per day.
• The authorities would issue a notice to such an assessee, demanding the assessee to submit the form within 30 days from the issuance of such notice.
• In case of continuous default even after the notice, the penalty would be levied of Rs.1,000 per day.
• The penalty of Rs.1,000 would be calculated after the stipulated time as mentioned in the notice expires.

CONSEQUENCES FOR FILING DEFECTIVE FORM

• If the reporting entity or individual discovers any inaccuracy or discrepancy in the information provided in Form 61A then it shall make the required corrections with the authorities within 10 days.
• In case the income tax authorities fond out that the report is incomplete or defective, the reporting entity or individual is given 30 days from the date of intimation to rectify it.
• Penalty of Rs.50,000 is levied on the reporting entities and individuals in case:
  • Inaccurate information is provided deliberately.
  • Inaccurate information is submitted but does not inform it and does not correct it within 10 days.