I am about to take a property on rent. Do I have to deduct tax at source before making payment to the three owners of the property? — By Leena, e-mail Any person responsible for making payment of rent to a resident has to deduct tax at source while making credit or payment, whichever is earlier, under Section 194-I of the Income Tax (IT) Act, 1961. When the aggregate of the amounts paid, likely to be paid or credited to the account of the recipient does not exceed Rs 1.80 lakh in the financial year, tax deduction at source (TDS) is not warranted. When the payer is an individual or Hindu undivided family (HUF), the applicability of the section arises only if their sales, gross receipts or turnover exceeds the limits prescribed under Section 44AB of the IT Act in the immediately preceding financial year. ‘Rent' means any payment under any lease, sub lease, tenancy or any other agreement or arrangement for the use of, either separately or together, any land, building including factory building, land appurtenant to a building including factory building, machinery, plant, equipment, furniture and fittings, whether or not any or all of these are owned by the payee. The provision of Section 194-I is not applicable to rent credited or paid to a business trust, being a real estate investment trust, of any real estate asset referred to in Section 10(23FCA) owned and directed by it. Tax is to be deducted at source at the following rates: Nature Rate Applicable Rent for plant, machinery or equipment 2% Rent for land, building or both and for furniture or fittings 10% No additional cess or surcharge is to be charged. When the payee has not furnished permanent account number (Pan), tax of 20% is to be deducted. Section 194-I does not make any distinction between rent and arrears of rent. Hence, the arrears of rent whether paid or credited to the account of the payee are liable for tax deduction at source. Rental advanceg payments refundable in future are not subject to TDS. However, TDS must be deducted if the rental advance is non-refundable and is to be adjusted in the future. A circular dated 08 August 1995 clarifies co-ownership. When the share of each co-owner is definite and ascertainable, TDS is required only if the share of rent of each co-owner exceeds Rs 1.80 lakh in a year and not otherwise. The same view was upheld by the Allahabad High Court in 2012. As per the Union Budget 2015-2016, if nil tax is applicable on the income of the person receiving the rent, the recipient of such payment can file Form 15G or 15H for non-deduction of tax at source. As per the Union Budget 2016-2017, individual and HUF not covered under tax audit paying rent to a resident for commercial and residential property exceeding Rs 50000 per month are also liable to undertake TDS at 5%. The amendment became effective from 1 June 2017.   What is an investment charter? — Ganesh Devkar, e-mail An investment charter specifies investment guidance. It defines investment objective such as creating a portfolio designed to provide stability and protection from loss. The primary goal is capital preservation with moderate growth. An investment charter also defines liquidity or cash-flow requirement from the portfolio. It mentions the degree of risk the investor is willing to undertake to achieve the investment objectives. Portfolio returns and risks are positively correlated. An investment horizon is spelt out consistent with risk-tolerance and return expectations. The longer is the investment tenure, the greater is the likelihood of achieving investment objectives. An investment charter ensures return maximization for a given level of risk and aims to optimizing returns through tax-efficiency and legal mechanisms.   There is lot of discussion about e-assessment. What is it? — By Madan Maurya, e-mail The Union Finance Ministry on 12September 2019 notified the e-assessment Scheme, 2019, for conducting faceless scrutiny assessment of income tax returns (ITR). Scrutiny notice will be issued to individuals under Section 143(2) of the IT Act, 1961 Individuals will have to reply within 15 days from the date of receipt of notice. The notice issued will be sent electronically on the tax payer's account on the e-fling website, to the registered email address of the taxpayer or on the mobile app of the IT department that has the registered mobile number of the tax payer.  Individuals will have to respond to the notice or order received through the registered account only. They will not be required to appear either personally or through authorized representative in the proceedings related to the scheme. All the communication between the IT department and the tax payer will be done electronically. All the internal communication within the IT department, too, will be in the electronic mode. The e-assessment scheme will be fully automated. The National E-assessment Centre (NEC) can assign the scrutiny case to any regional e-assessment centre through an automated allocation system. If the regional assessment requires assistance from verification unit or technical assistance from technical unit, then such requests will be processed through the automated allocation system. If the regional assessment unit wants further information or documents from the tax payer, then such request first has to be made to the NEC. The NEC will issue appropriate notice to the tax payer for obtaining the information. The regional assessment unit will make a draft assessment order and send it to the NEC. The NEC will examine the draft received in accordance with the risk management strategy specified by the Central Board of Direct Taxes. It may either finalize the assessment as per the draft assessment order and serve it on the taxpayer or provide an opportunity to tax payer to show cause why the assessment should not be completed as per draft order or it may assign the draft order to a review unit for re-examination. After completion of the assessment, the NEC will send all records to the assessing officer (OF) with jurisdiction for penalty proceedings, recovery of demand, rectification of mistake, appeal effect orders, submission of remand report, representation before appellate authority and launch of prosecution. An appeal against an assessment order made by the NEC can be filed before IT Commissioner (Appeals) with jurisdiction over the jurisdictional AO. The NEC can at any stage of the assessment transfer the case to the AO with jurisdiction. The tax payer or his authorized representative is also entitled to a personal hearing before IT authority in any unit. The IT authority has the power to examine a tax payer or record statement of any tax payer. If required, the process can be undertaken through video conferring or video telephony.  

What are the provisions governing input service distributor under goods and services tax (GST)?

— Trilok Mahulkar, dated 03/01/2019

Input service distributor (ISD) facility is made available to business whose common expenditure and billing is done from a centralized location. The ISD mechanism is meant to simplify the credit-taking process.

ISD is a type of registration. The head office of a company receives invoices for services used by its branches. It distributes the tax paid to such branches on a proportional basis by issuing an ISD invoice as these services are ultimately used to manufacture or provide output services or goods by branches. Branches can have different GST integrated (GSTIN) numbers but must have the same permanent account number (Pan) as that of ISD.

The ISD has to take separate registration apart from registration as a normal tax payer. Mention ISD in serial number 14 of the REG-01 form.

The amount of tax credit distributed should not exceed the amount of tax credit available with the ISD as at the end of the relevant month.

Tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilization of such credit.

Tax credit available against input services used commonly by more than one recipients of the ISD is to be allocated to those recipients on a proportionate basis in the ratio of the turnover of all such recipients that are operational in the year.

Tax credit available against input services used commonly by all the recipients of the ISD is to be allocated to all the recipients that are operational in the year. Credit distributed in contravention of the provisions of the GST Act, 2017, can be recovered along with interest from the recipient to which it is distributed.

ISDs need to file return in GSTR-6 form. The return has details of credit received by them from the service provider and credit distributed by them to the recipient units.

Credit of tax paid under the reverse-charge mechanism is not available for distribution to the recipients. ISD has to utilize such credit as normal tax payer. Also, ISD cannot distribute the input tax credit paid on inputs such as.raw materials and capital goods and to outsourced manufactures or service providers.

What are the important changes in the Income Tax (IT), Act, 1961? from 1 September 2019?

— Prateek Boatwala, dated 03/01/2019

Payment made for amenities such as club membership fee, car parking fee and advance fee while buying property is included in the amount on which tax is to be deducted. Tax deducted at source (TDS) of 2% is levied on aggregate cash withdrawals exceeding Rs 1 crore in the year from an account held with a bank, cooperative bank or post office.

Under Section 194M of the IT Act, individuals and Hindu undivided families (HUFs), other than those covered under Section 194C or 194J, making payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to undertake TDS of 5%. Tax will be deducted even if payment made is for personal use.

Earlier life insurance maturity proceeds were taxable. TDS of 1% was deducted on the total amount paid. Now TDS will be undertaken only on the net income portion and not on the total amount paid. TDS is now 5%. The net income portion is defined as the total sum received less of total amount of insurance premium paid.

Earlier banks and other financial institutions were required to report specified financial transactions if the amount exceeded the threshold limit of Rs 50000 or more. The requirement has now been removed. Banks and financial institutions have to report any or all transactions.

Permanent account number (Pan) will now become inoperative but not invalid if not linked with Aadhaar by the specified deadline. Aadhaar can be quoted in lieu of Pan only for certain prescribed transactions.

The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same. Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com