Changes in CARO 2020 in comparison to CARO 2016

MCA Notifies Companies (Auditor’s Report) Order, 2020 (CARO 2020). The CARO, 2020 is applicable for audit of financial statements of eligible companies for the financial years commencing on or after the 1st April, 2019.

 Read more: Changes in CARO 2020 in comparison to CARO 2016

Union Budget 2020- Analysis of Direct Tax Proposals

On 1^st of Feb., 2020 Union Finance Minister Mrs. Nirmala Sitaraman has introduced the Finance Bill 2020. This year Government of India has introduced out of box proposals when we look into the direct tax proposals.  Some of the proposals are:- New optional Tax slabs for Individuals and HUF, Concessional Tax rates to co-operatives, Tax incentives to startups, widening of tax net, E-Appeals introduced, Very hard penalty provisions on fake invoices, Dividend Distribution Tax on corporate removed, Compliance provisions for trusts have been strengthened, significant change in threshold limit for tax audit, changes in return filing date, Modification in establishing residential status and the most important provision regarding taxation of an  Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India. 

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Union Budget 2020- Analysis of Direct Tax Proposals

SUMMARY OF UNION BUDGET 2020-21

Finance Minister Smt. Nirmala Sitharaman, today unveiled a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term, and long term measures.

Read More:SUMMARY OF UNION BUDGET

Source: Press Information Bureau, Government of India, Ministry of Finance

KEY HIGHLIGHTS OF UNION BUDGET 2020-21

Finance Minister Smt. Nirmala Sitharaman, today unveiled a series of far-reaching reforms, aimed at energizing the Indian economy through a combination of short-term, medium-term, and long-term measures.

Three prominent themes of the Budget

1. Aspirational India - better standards of living with access to health, education and better jobs for all sections of the society
2. Economic Development for all - “Sabka Saath , Sabka Vikas , Sabka Vishwas”.
3. Caring Society - both humane and compassionate; Antyodaya as an article of faith. 

Three broad themes are held together by:

• Corruption free, policy-driven Good Governance.
• Clean and sound financial sector.
• Ease of Living underlined by the three themes of Union Budget 2020-21.

Read more: KEY HIGHLIGHTS OF UNION BUDGET 2020-21

SOURCE: Press Information Bureau, Government of India, Ministry of Finance

DEDUCTION OF TAX AT SOURCE

INCOME TAX DEDUCTION FROM SALARIES UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961 DURING THE FINANCIAL YEAR 2019-20

Central Board of Direct Taxes has released CIRCULAR NO 4/2020, dated 16th January, 2020, on deduction of Tax at source (TDS) on salary. 

The circular in itself is very detailed one, comprising rates of income-tax as per Finance Act, 2018, broad scheme of tax deduction at source from salaries, method of tax calculation, payment of tax on perquisites by employer, computation of average income tax, salary from more than one employer, relief when salary paid in arrear or advance, information regarding income under any other head, computation of Income under the head ―Income from House Property, adjustment for excess or shortfall of deduction, salary paid in foreign currency, persons responsible for deduction of tax and their duties, computation of income under the head ―salaries, rebate, TDS on payment of accumulated balance under recognized provident fund and contribution from approved superannuation fund, Drawing and Disbursing Officers (DDOs) to obtain evidence /proof of claims, calculation of income-tax to be deducted, and other miscellaneous issues like form no 12BA, form no 12BB, revised procedure for furnishing qtly E-TDS/TCS statement by deductors/collectors, the procedure of furnishing form 24G, person responsible for filing form 24G in case of state govt departments/central govt departments, procedure of preparation of quarterly statement of deduction of tax u/s 200 (3), and form no. 10 BA.

Circular No.4/2020, Dated 16/01/2020

Source: https://www.incometaxindia.gov.in/

Assessment of Firms - CBDT directions to Assessing Officers

Central Board of Direct Taxes (CBDT) has preferred that Assessing Officers (AO) should suitably take into consideration the following issues while conducting assessments of firms, including limited scrutiny:

• Interest on capital & remuneration paid to partners shall be cross-verified from the ROI of the partners;
• Interest on capital & remuneration shall be allowed as per Section 40(b)(iv);
• ‘Book Profit’ shall be computed for the payment of remuneration to the working partners and shall be the net profit for the relevant previous year which shall be increased by the remuneration paid to partners;
• Non-compliance with provisions of section 184 may result in dis-allowance of expenses claimed by firm such as remuneration, interest, etc, payable to partners which are otherwise allowable under this provision;
• AO should verify the claim of firm regarding carry forward & set off of losses as per Sec 78 and shall disallow the claim in case of change of constitution of firm or on succession; and
• Instruction No.9/2008, dated 31.7.2008, of CBDT should be followed scrupulously, with respect to issues concerning possible action against Tax Auditor.

Circular No. 12/2019, dated 19/06/2019

Instruction No.09/2008, dated 31/07/2008

Source: CBDT & Taxmann

Recent development in the scope of basic wages under EPF & MP Act, 1952.

'Allowances', paid by employer to its employees, will be included in the scope of 'basic wages' and hence subject to Provident Fund contributions.

A Bench of Hon'ble Justices Arun Mishra and Navin Sinha of the Hon'ble Supreme Court vide judgement dated 28th February, 2019 in the case of The Regional Provident Fund Commissioner (II) West Bengal Vs Vivekananda Vidyamandir & Ors. has reiterated the principle that the crucial test to be applied for inclusion of allowances as part of "Basic Wages" is that of universality i.e. all allowances which are universally, uniformly, necessarily and ordinarily paid to all employees would form part of "Basic Wages" for the purpose of computing provident fund contributions under the Employees' Provident Fund and Miscellaneous Provision Act, 1952 (Act)

Supreme Court ruling expanding the scope of 'basic wages' for calculation of employee provident fund contributions is likely to result in gains for those employees whose basic salary was below Rs.15,000 or Rs.6,500 (as applicable in earlier years) because their employers may have to make good the short contribution in those years. Whereas the ruling will have retrospective impact, presently there's lack of clarity on the precise date back that it'll apply. 

The Supreme Court has processed that solely allowances of the subsequent nature can be excluded from 'basic wages' for calculation of Provident Fund contributions:

a) Allowances which are not paid across the board to all employees in a particular category; or 

b) Allowances which are variable in nature; or 

c) Allowances which are linked to any incentive for production resulting in greater output by an employee; or 

d) Allowance which are paid especially to those who avail the opportunity.

What categories of employees does it impact? 

For employees with basic salary exceeding Rs.15,000 per month - there could be no impact of this ruling as for such employees, Provident Fund contributions are already made on monthly pay exceeding the ceiling limit as prescribed under the law. 

Will the above impact be retrospective or prospective? 

Three points to consider: 

1. The Supreme Court ruling is an interpretation of existing law 

2. The Supreme Court has reiterated the principles laid down earlier in its 1962 ruling within the case       of Bridge & Roof 

3. There is no statute of limitation within Provident Fund 

Given the above, yes - the ruling may have retrospective impact. The major impact will be for the period after 1 September 2014 for employees with basic salary less than Rs.15,000. Where companies have employees prior to 1st September, 2014 with basic salary less than Rs.6,500 - there could be impact for them as well. 

If retrospective, who will bear the cost for past compliance and problems related to the same? 

For the past, employer may need to bear the cost of past compliance. Provident Fund rules do not allow employer to recover past contributions from the current salary of the employees. On the question how far the authorities can go back, the law is silent. The PF office has issued a circular No. 7(l)2012/RCs Review Meeting/345, earlier on 30th November, 2012 stating under para 10 that 7A enquiry period cannot go beyond preceding 7 financial years. However, this circular was kept in abeyance vide another circular No. 7(1)2012/RCs Review Meeting/21224, dated 18th December, 2012.