Tax Column

Jayesh Dadia
Chartered Accountant

For the financial year 2019-20, I have earned interest and long-term capital gain. The entire long-term capital gain has been invested in a new residential house under Section 54 of the Income Tax Act and therefore nothing is taxable. After deduction, my total income does not exceed the maximum amount which is chargeable for Income Tax. Therefore, am I supposed to file IT return in view of non-taxable income?

Yes, you are under obligation to file return of income if your total income exceeds the taxable limit before claiming deduction under Section 54 of the Income Tax Act. This has been made very clear under proviso to Section 139(1) of the Income Tax Act. As such please file your return to avoid penalty, interest and prosecution. For your information, under the present law, even if your income is below the taxable limit but if you have deposited more than Rs1 crore in any bank account even through cheques or bank transfer or you have incurred expenses exceeding Rs2 lakhs on yourself or any other person for foreign travel or incurred expenses of an amount more than Rs1 lakh towards payment of electricity bill, then you are required to file your return of income under Section 139(1) of the Income Tax Act. This is also clearly mentioned in the 7th proviso to Section 139(1) of the Income Tax Act. Further, you are also required to furnish relevant details in the ITR form.

I am an individual carrying on a business as a sole proprietorship firm. My business turnover is around Rs3 crore. I have got my accounts audited up to the financial year Tax Column 2018-19. I was told that now the turnover limit has been increased to Rs5 crore with effect from the financial year 2019-20. Is it correct or is it subject to certain conditions?

Up to the assessment year 2019-20 every person carrying on business was required to get his accounts audited under Section 44AB of Income Tax Act if his total sales turnover or gross receipts from the business exceeded Rs1 crore during the previous year. To reduce the compliances burden on small and medium enterprises, the Finance Act 2020 has increased the threshold limit under Section 44AB of the Income Tax Act with effect from the assessment year 2020-21 i.e. financial year 2019-20. The threshold limit for tax audit for a person carrying on business has now been increased from Rs1 crore to Rs5 crore. However, increase in threshold limit of Rs5 crore shall be applicable only if the cash receipts and cash payments, during the year, do not exceed 5 per cent of the total receipts or payment, as the case may be.

In other words, more than 95 per cent of business transactions should be done through banking channels. As such, if your turnover does not exceed Rs5 crore or cash receipts or cash payments do not exceed 5 per cent of the total receipts or payments, then you will be exempted from getting your accounts audited under Section 44AB of the Income Tax Act but if the cash payments or cash receipts exceed 5 per cent then the threshold limit for tax audit is only Rs1 crore. For your information, to incorporate the above amendment, the ITR form for the assessment year 2020-21 has been amended requiring the assessee to tick the ‘check box’ if cash receipts or cash payments exceed 5 per cent.

My firm has purchased a car during the financial year 2019-20. What is the rate of depreciation applicable in this case?

Up to the assessment year 2019-20, cars were entitled for depreciation at 15 per cent. To boost the demand for motor vehicles, the finance minister announced additional depreciation of 15 per cent on motor vehicles purchased between August 23, 2019 and March 31, 2020. This announcement was made on August 23, 2019 as part of a stimulus package. Accordingly, if you have acquired a car between the above dates and have put to use on or before March 31, 2020, then you are entitled for 30 per cent depreciation. If you have not acquired the car during the above period, then you will get depreciation at old rate i.e. 15 per cent.

I am an individual. My regular income is derived from interest on deposits with banks, rent and capital gains both long-term and short-term. During the year I have sold land and building for a total consideration of Rs12 crore and my long-term capital gain, after deducting indexed cost and other expenses, works out to Rs8 crore. My tax consultant said that I am liable to pay surcharge at 37 per cent since my income exceeds Rs5 crore. However, I have read a newspaper report stating that capital gain should not be considered for the purpose of super surcharge. What is the actual case scenario?

The rate of surcharge was enhanced by the Finance Act 2019. In case of individuals, HUF, AOP and BOI, two new additional rates of surcharge have been introduced i.e. 25 per cent in case income exceedsRs2 crore and 37 per cent in case income exceeds Rs5 crore. Subsequent to the announcement, there was hue and cry from domestic and foreign investors. Under pressure, the finance minister has exempted long-term and short-term capital gain which are taxable under Section 111A, 112A and 115AD(1) of the Income Tax Act. These provisions relate to long-term and short-term capital gains on listed equity shares. What you have sold is land and building and earned long-term capital gain. Such a gain is outside the purview of the ‘exempt’ category of capital gain. Therefore, you have no option but to pay super surcharge at 37 per cent as your income exceeds Rs5 crore.