Know more about your PPF account / PPF Scheme

Till date, the Public Provident Fund (PPF) scheme is the most popular investment in India. If you're looking for an exemption on the money you invest, interest that is non-taxable and a maturity amount that is exempt from tax as well, this is the instrument for you.

So it's no surprise that with these very prominent benefits, almost every individual in the country has a PPF account and contributes to it religiously every year.

But do you really have total PPF knowledge? Are you aware of interest rate changes in the PPF over time? Do you know that this money can never be attached to any debt or liability i.e. it is yours forever? There are many ways in which you can derive the maximum benefit from your PPF account.

Let's get straight to the facts... 

1.    PPF stands for Public Provident Fund - a government backed, long term, retirement savings instrument.  

With a 15 year lock in, this is the longest horizon for an investment that exists in India. If you are keen on a safe investment, a decent rate of return, tax benefits (deduction and tax free interest) and have a long term investment horizon, then the PPF is for you. It is a disciplined investment avenue as your money is blocked for 15 years. PPF also offers loan against the account which can help you during occasions like a wedding in the family, further studies of your children, etc.

2.    The main features are:

a. the 15 year lock in,

b. the E-E-E status (tax exemption on investment, interest and maturity) under Section 80C,

c. the minimum investment of Rs. 500 p.a. and maximum of Rs. 1.5 lakh p.a. (as per FY 2014-15 Union Budget)

d. and the interest rate which currently stands at 8.70% for this fiscal year. The interest rate will be announced annually, it is no longer fixed at 8% p.a. In fact, the PPF interest rate has steadily dropped over the years, and can be expected to slowly fall as the years proceed. Here’s a look at what rates used to be in the hey-days of the PPF account:

Period	Interest Rate p.a.
01 April 1986 - 14 Jan 2000	12.00%
15 Jan 2000 - 28 Feb 2001	11.00%
01 March 2001 - 28 Feb 2002	9.50%
01 March 2002 - 28 Feb 2003	9.00%
01 March 2003 - 30 Nov 2011	8.00%
01 Dec 2011 - 31 March 2012	8.60%
01 April 2012 till date	8.70%

3.    An NRI can't open a PPF account.

The rule of 25th July, 2003 states that 'Non Resident Indians are not eligible to open an account under the PPF Scheme'. However 'Provided that if a resident who subsequently becomes a Non Resident during the currency of the maturity period prescribed under the PPF scheme may continue to subscribe to the Fund till its maturity, on a Non Repatriation Basis.' So if you open it as an RI, and during the 15 year tenure become an NRI, you can continue to invest, but on a non-repatriable basis.

4.    Number of yearly transactions:

You can make up to 12 investments in a year into your PPF account, in multiples of Rs. 5, but only one withdrawal in a fiscal year as discussed in point no 7 below

5.    Account mobility:

You can transfer your account from one 'Account Office' to another for example for convenience if you shift home. You don't have to be stuck with the inconvenience of a PPF Account in one city, while you are in another.

6.    When to invest:

The best time to invest is between the 1st and the 5th of any month, preferably April each year. Interest is calculated for the calendar month on the lowest balance at credit of your account, between the close of the 5th day and the end of the month, and is credited at the end of every year. But keep in mind, this rule has recently been tweaked.

So no not only do you have to invest, but your deposit has to clear and the money has to hit your PPF account on or before the 5th of the month, for it to be considered for interest payment in that month.

7.    Regarding withdrawals from your PPF account, there are 2 things you need to know:

a) Any time after the expiry of the 5th year from the date that the initial subscription is made, you become eligible to withdraw an amount of not more than 50% of the previous year's balance or of the 4th year immediately proceeding the year of withdrawal, whichever is less. If you have taken any loan on your PPF, this also gets factored in and reduces your balance.

b) You cannot make more than a single withdrawal in the year. You need to apply with Form C for any withdrawals.

8.    You can close your account or continue your account without deposits after maturity.

This is something not many people know. People usually assume that once your 15 year period is over, you either have to extend by a 5 year block and continue making deposits, or you have to close your account. But there is a third option. Any time after your account matures i.e. after the 15 year tenure is over, you can withdraw the balance using Form C. but this does not have to be done immediately.  As long as the funds lie in your account, interest will continue to be paid on your account and you will receive the total amount including interest up to the last month preceding the month in which you apply for a withdrawal.

9.    You can continue your account with deposits after maturity i.e. you can extend your account.

Few people know this, but the PPF account has no limit on how many times it can be extended after the initial 15 year block matures. Yes, there is a 15 year lock in, but then you can extend it for periods of 5 years at a time, indefinitely. Your account continues to operate normally i.e. you make deposits of up to Rs. 1 lakh, earn interest and renew after 5 years if you wish. Everything remains E-E-E. To extend by a block of 5 years, use Form H.

Keep in mind that banks themselves are not aware that there is no limit on the extension. If you ask the bank official, you will likely be informed that you can extend it only twice, for 2 blocks of 5 years each. However there is no such limit announced by the Government.

If you choose to leave your funds in the account, they will continue to earn interest for as long as they lie in the account. Interest will continue to be paid on your account and you will receive the total amount including interest up to the last month proceeding the month in which you apply for a withdrawal, using Form C.

10. You can withdraw, even if you choose to extend...

If you choose to extend by subscribing for a 5 year block, you can make partial withdrawals (using Form C again) of up to 60% of the amount standing at your credit at the beginning of this 5 year block period. So you do have some degree of liquidity.

11. At any point in your life, you are allowed to have only 1 PPF account in your name.

You can also have an account in the name of a minor child of whom you are the parent / guardian. However that will be the child's account, you will simply be the guardian.

If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you. You cannot have more than 1 PPF account in your name.

12. Is Loan facility available on PPF account

If you choose to take a loan against your PPF account, you can repay it within 36 months from the 1st day of the month following the month in which the loan was sanctioned. So, if your loan is sanctioned in June 2012, the following month is July 2012, and you have until end July 2015 to repay your loan. The interest rate charged is 2% p.a. over the prevailing PPF interest rate.

Conclusion

There's a lot to know that can help you know more about your PPF account. And if past rate changes is anything to go by, you can expect 8.70% interest to not last forever. As it stands today, the PPF remains E-E-E, so if you don’t have a PPF account, then go for it and make the most of it to add to your retirement corpus.

Article Submitted by:
Mr. Sumit Grover
Advocate

Press Release of DTBA meeting with CIT & CCT in regard to taxation matters

Football & Income Tax- Penalty, in both, is Hefty

Football & Income Tax- Penalty, in both, is Hefty

Arjuna (Fictional Character): Krishna, Diwali was celebrated in pomp and splendor. Following the IPL in Cricket, the “Indian Super League” for football has started. It will be really interesting game to link Football and Income Tax Provisions. Could you explain it to me in playful manner?

Krishna (Fictional Character): Arjuna, as in football, all players run behind the ball and make a goal. The referee keeps a tab on the players blows whistle and in the event of foul play penalties are incurred in the form of “Yellow Card”, “Red Card” and other penalties. The reason behind these penalties is to ensure fair play and adherence to the rules of the game. Similarly the reason behind levying penalty under income tax is to make sure that the taxpayers comply with the Income Tax Act, officer issues notices (blows whistle) and in case of foul play levies penalty. If the game of Football and Income tax Act is connected, then “Income Tax Act” becomes the “Football Ground”, “Referee” is the “Income Tax Officer”, “Goal Keeper” is “Tax Consultant”, and the most importantly the “Taxpayers” are the “Players” of the game. One can easily learn only about following tax laws with such a correlation.

Arjuna: Krishna, What are the provisions of Penalty similar to the “Yellow Card?”

Krishna: Arjuna, while playing on the Football Ground if, a player pushes other players or creates any obstruction then the referee whistles and show a Yellow Card. Yellow Card represents a mild penalty. If you look at Income Tax, the taxpayers are intimated by a prior notice and thereafter a penalty is levied. One needs to understand some provisions of mild penalty. As per Section 271 F, if Income Tax Return is not filed before the due date then a notice may be sent. After that if return is still not filed before the end assessment year, then a penalty of Rs. 5,000/- may be imposed. For e.g. Salaried assesse is required to file Return of Income tax for the year 2013-14 before 31st July 2014. If not filed till then it can be filed up to 31st March 2015 and in case of non-compliance a penalty of Rs. 5,000/- may be imposed. As per section 271 (1) (b) if the notice is unattended by the taxpayer or a reply is not received, the income tax officer may levy penalty of up to Rs. 10,000/-. Similarly as per section 271 H if incorrect TDS returns are filed then penalty of minimum Rs. 10,000/- to maximum of Rs. 100,000/- may be imposed. Apart from these, if income tax act is not conformed to, there are various other provisions under which the income tax officer may raise Yellow card.

Arjuna: Krishna, Which provisions of the income tax can fall under the “Red Card” penalty?

Krishna: Arjuna, on the Football Ground, if a player “knowingly” pushes another player or creates obstructions then the referee gives a Red Card penalty which results in the player being sent out of the ground. There are various provisions in Income Tax Act which are synonymous to the Red Card penalty. As per section 271 A if books of accounts are not maintained then penalty of Rs. 25,000/- may be imposed. If a Tax Audit is not carried out then a minimum penalty of 0.5% of the turnover or maximum of Rs. 150,000/- may be imposed. Similarly as per section 271 D and 271 E if loan or deposit is accepted or repaid in cash above Rs. 20,000/- then penalty equivalent of that amount may be levied. As per section 271 C if provisions of TDS were not followed then penalty equivalent to that amount may be levied. As per section 145 if proper books of accounts are not maintained then the penalty provisions are like the “Red Card” which means that the income tax officer rejects the books of accounts and self-assesse and impose tax, interest and penalty.

Arjuna: Krishna, it will be intriguing to know how “Penalty Kick” works on the taxpayer!

Krishna: Arjuna, Penalty Kick can have a very severe impact. In Football when the player goes in the “D” area for making a goal and opponent player knowingly obstruct then a Penalty Kick is given. After that the goal keeper can only rely on his luck to save the goal and the team may win or lose the game! Similarly if income tax provisions were knowingly not followed then a heavy penalty may be levied. In this “Knowingly” word is very important. For e.g. if taxpayer knowingly avails deduction by showing false expenditure or conceals sales and evades tax, then a heavy penalty is imposed, which is just like penalty kick. As per section 271 (1) (c) if taxpayers conceal the income or give false particulars or information of expenses or income then a penalty of minimum of 100% of tax evaded and maximum of 300% of penalty may be levied. This is one of the harsher provisions of penalty under the Income tax. Many cases are filed against this provision of penalty. Further in the game of football, in a few rare cases, a goal may be cancelled due to the “Off Side” (i.e. in wrong direction or not as per rule of the game). Similarly if wrong penalty is levied then taxpayer may get relief in the appeal. But this is possible only if provisions of the law are followed. Unaware taxpayers may suffer because of their bonafied belief.

Arjuna: Krishna, guide as to what a taxpayer should do to avoid a penalty?

Krishna: Arjuna, one of the major reasons behind levying penalty is the financial loss of the government. Loss is incurred if tax or interest is not paid on time and hence penalty is imposed. Further penalty, provisions are made for punishing tax evaders. Many Taxpayers get confused between “Tax Planning” and “Tax Avoidance”. “Tax Planning” means planning in way such that tax can be reduced in compliance with the provisions of the law. “Tax Avoidance” means evading taxes on account of wrong interpretations of tax laws or convenient negligence of the tax laws for earning unwanted benefit, because of which this penalty is imposed. Business should be carried out within the boundaries of tax laws i.e. the football should not go beyond the boundaries of ground. Mistakes do happen in life. The one who makes mistakes and learns from them goes ahead. But mistake should not be made knowingly. A good referee levies penalty as per rules of the game but doesn’t differentiate between players. Tax officers should also behave in a similar manner. The one who follows tax laws diligently should not be scared about penalties because penalties can be appealed. Please remember in following the rules of nature lies the joys of life!

Article Submitted by:

Mr. K.K. Juneja

Advocate

Advocates alone are entitled to Practice, Plead and Act before revenue authorities

Advocates alone are entitled to Practice, Plead and Act before revenue authorities

(1) When the Deptt. is taking so much of security measure for e-filing of tax returns through only Assesses Digital Signature Certificates etc., person filing the return in the capacity of Individual, HUF and Artificial Juridical Person should only appear & produce records in support of return filed, against notice issued by the Deptt.

(2) Indian legislature provided special class of persons called Advocates in Advocates Act, 1961 to practice all Indian laws. Therefore, authorised representative clause not required in any Indian taxation statute. Bar Council of India Vs A.K. Balaji [SLP(Civil)No(s)17150-17154/2012] Dt. 4.7.2012 (SC) & A.K. Balaji Vs Govt. of India (2012) 35 KLR 290 21.02.2012 (Madras HC) it was clearly held by Hon’ble Supreme Court and Madras High Court that Advocates alone are entitled to practice the Profession of Law both in litigious and non-litigious matters, nullifying the effect of Section 33 of Advocates Act. This also confirms to Section 29 of Advocates Act.

(3) The constitution bench of Supreme Court of India in National Tax Tribunal case of Madras Bar Association Vs Union of India bearing No.150 of 2006 Dt. 25.09.2014, it was ultimately held that Chartered Accountant & Company Secretaries to represent a party to an appeal before NTT, unconstitutional and unsustainable in law. In the instant case of Apex Court, it was also held that “In our understanding, Chartered Accountants and Company Secretaries would at the best be specialists in understanding and explaining issues pertaining to accounts”. Further, Chartered Accountants conducting Tax Audit for Revenue can not appear & act again for the same assesse in proceedings before revenue authorities. If explanations from Tax Auditor (CMA/CA/CS) required, they may be called upon by issuing summons under CPC/Evidence Act only. Because, all the procedures laid down in Civil Procedure Code followed in the course of proceedings before revenue authorities requiring only Advocates to appear on behalf of assesses.

(4) On date, authorized representative clause under all Indian taxation laws has been subject to review of apex court and hence require deletion. If such appearance clause still retained in statute book of Indian taxation laws, situation may arise that order of assessing authority passed against the representation of other than Advocates become in-fructose, bad in law, null & void. Further, such orders cannot be enforced / appealed. Power of attorney (Vakalatnama) to practice law can only be given to Advocates.

(Author :- B.S.K. RAO, B.Com, LL.B, MICA, BDKRAO, Beside SBI, Tilak Nagar, Shimoga-577201 Karnataka State, MO: 9035089036, E-Mail : raoshimoga@gmail.com)

Penalty for non issue of WCT Certificate by Contractees

Penalty for non issue of WCT Certificate by Contractee(s)

To view complete notification Click Here

Source: www.comtax.uk.gov.in   Recent Updates  dt 11.11.2014

Article Submitted by:
Mr. Tushar Singhal
Advocate

F. No. 279/Misc./52/2014-(ITJ) Sub: Further steps towards a non-adversarial tax regime-reg.

F. No. 279/Misc./52/2014-(ITJ)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi the 7th November, 2014

OFFICE MEMORANDUM

Sub: Further steps towards a non-adversarial tax regime-reg.

On several occasions the Finance Minister has emphasized the need for furthering a non adversarial tax regime. A non-adversarial tax regime cannot be achieved without concerted endeavour at each level, especially at levels where the public interaction is high. Though the Central Board of Direct Taxes (CBDT) has issued instructions from time to time on some of these issues, there is a need for consolidation of earlier instructions and issuance of further directions in this regard. Accordingly, CBDT hereby directs that the officials of the Income-tax Department must adhere to the following guidelines for achieving such objective:

i. Letter dated 21.08.2014 of Chairman, CBDT on cleanliness and punctuality should be implemented in letter and spirit as these are the basic requirements of an efficient and taxpayer centric organisation.

ii. Any appointment given to the public must be honoured and such appointments should not be cancelled or postponed without any unavoidable reason, especially when the assessee/representative is willing to attend.

iii. Despite less than one percent cases being selected for scrutiny assessment , this area of work continues to remain in focus where the tax administration is questioned as adversarial. The selection of cases under Computer Assisted Scrutiny Selection has resolved the issue of subjectivity in selection of cases for scrutiny. However, the process of scrutiny involving long and non-specific questionnaires, the nature of additions made and the high-pitched assessments without proper basis continue to attract adverse attention. Instruction No. 6/2009 entrusted a responsibility on each Range Head to ensure improvement in quality of assessments by issuing directions under section 144A of the Act. There is a need to follow the said Instruction in letter and spirit and accordingly, the Range Heads are required to ensure that frivolous additions or high-pitched assessments without proper basis are not made. The Principal Commissioners of Income-tax/ Commissioners of Income-tax are required to supervise the work of their subordinates to ensure due discharge of these functions.

iv. Instruction No. 15 of 2008 dated 04.11.2008 provides for review of scrutiny assessment orders by the supervising officers on a quarterly basis. Instruction No. 16 of 2008 dated 4.11.2008 lays down the procedure for Inspection of work of Assessing Officers, Tax Recovery Officers, Range Offices and Commissioners of Income-tax (Appeals). These instructions are issued with the overall aim of capacity building and improving quality of work. Supervisory authorities are required to ensure that these instructions are duly followed.

v. Instruction No. 7 of 2014 dated 26.09.2014 clarifies that ordinarily in scrutiny cases selected on the basis of AIR/CIB/26AS information, the scrutiny shall be limited to that information. Wider scrutiny would be possible only with the sanction of Principal Commissioner of Income-tax/ Commissioner of Income-tax in specified cases and under the monitoring of the Range Head. (Such cases form 25-30% of the total scrutiny basket, thus limiting the cases of full scrutiny).

vi. Withholding of refunds due to mismatch of TDS data has been sought to be remedied through Instruction No. 5 of 2013 dated 08.07.2013 which provides for grant of credit on the basis of evidence submitted by the assessee. This Instruction must be followed scrupulously.

vii. Instruction No. 1914 of 1993 dealing with recovery of demand , stay of demand and grant of instalments has stood the test of time and is equally relevant today. Same is reiterated for implementation in deserving cases. Measures for recovery of tax should be subject to the said Instruction.

viii. In cases of remand, the Commissioners of lncome-tax (Appeals) should specify the aspect which needs to be verified. The practice of forwarding the entire documents/submission of the assessee for comments of the Assessing Officers should cease. Assessing Officers will be required to submit a remand report only in cases where the remand is on a specific matter.

ix. Threshold limits have been set for appeals to ITAT, High Courts and Supreme Court at Rs. 4 lakhs, Rs. 10 lakhs and Rs. 25 lakhs, respectively. This, however, does not imply that appeals above these amounts have to be necessarily filed. Where the tax effect is above these amounts, the officer concerned is enjoined with the duty to ensure that the same is filed only if it is feasible to so do on merits of the case.

x. A review of the proposals for filing SLPs reveals that in most of the cases, the decision to file a reference before the High Court itself was not in order. No substantial question of law existed or the question of law was not correctly drafted. Hence, in stations having more than one Chief Commissioner of Income-tax (CCIT) the decision to file a reference before the High Court will be taken by two CCsiT including the CCIT in whose jurisdiction the matter lies. The Principal CCIT/ CCIT (CCA) concerned may issue directions for pairing of CCsiT for this purpose. In case of disagreement between the two CCsiT, the matter will be referred to the Principal CCIT/ CCIT (CCA). For references in the jurisdiction of the Principal CCIT/ CCIT (CCA), in case of disagreement, the matter will be refe1Ted to the CCIT-II.

xi. Any regime where taxpayers’grievances are not attended to in time may be considered adversarial. Time limits have been set out for their disposal under Citizens’Charter, CPGRAMS, etc. However, the pendency reflects poorly on the monitoring effort. All the supervisory authorities are directed to ensure that the grievances are disposed off within the specified time period

xii. The issue of summons without adequate caution and due application of mind has caused concern to the Board. Supervisory authorities have to ensure that the summons are issued only in deserving cases. Summons should also clarify if the person has been called as a witness or in his own case, and the matter for which he has been called.

2. Officers and staff at all levels are advised to follow the above instructions scrupulously. Non adherence to these instructions will be viewed very seriously and disciplinary action initiated

(Priyanka Singh)

(OSD) ITJ

CBDT

To

All Principal Chief Commissioners of Income-tax /Directors General of Income-tax

5 (Five) Ways People Use to Convert Black Money into White Money but the Department is fully aware

Article found useful for advisers

5 Ways People Use to Convert Black Money into White Money But the department is fully aware 

The Article no ways encourage taxpayers to use any of the below methods. The Article is just to let people know about what others are doing to convert their Black Monet into white money currently in India. In addition to those mentioned below there are many other methods which people use to convert their black money into white money.

CASE 1: Go to a Jeweler. Give him the amount you want to convert into white as cash. he would give you a cheque back for the same amount less 4%. He would give you a purchase bill to show that you have sold silver utensils to him. On the amount of the cheque when you file your return you will have to pay no capital gain tax as Silver utensils are Personal effects and capital gain does not arise on sale of personal effects. There you go , the money is white now!!!

CASE 2: Conversion of Black Money to White Money with the application of Sec 51 of the Income tax act, 1961.

Mr. X : A Business man who wants to convert his black money to white.

Property: Cost of Acquisition: Rs. 10 Lacs.

Mr. Y: A Salaried person who wants to convert his white money to black may be because he has to make payment in black for the property purchased by him.

Mr. X enters into an agreement with Mr. Y for the sale of property for Rs. 150 lacs with a condition that advance money of Rs. 30 lacs shall be given by Mr. Y and balance shall be paid within 3 months else advance money shall be forfeited.

Modus Operandi: Mr. Y makes payment of Rs. 30 lacs to Mr. X by way of a cheque as the advance money and Mr. X in turns gives the black money to Mr. Y of the same amount. Now, Mr. Y intentionally fails to make balance payment within the due time and the amount is forfeited by Mr. X. In this manner black money of Mr. X is converted to white money.The money is white now!!!

CASE 3: Another popular way of converting black into white money is by getting a gift from a relative. For this modus operandi, the relative must possess white money. For example, you have some black money (say Rs. 10 lacs) which you want to convert into white. You can ask your relative to gift you Rs.10 lacs by way of cheque and you will in turn transfer your black money to him/her. Here 56(2)(vii) is not attracted as gift is received from a relative.

CASE 4:- Converting black to white by way of cheque

People also give the black money to a person (say a family member or a friend) and take a cheque from them. They show that as a loan receipt and thus they can temporarily convert their black money into white.

Then they again give them a check as a repayment of loan and receive cash which converts white to black again, but during the time the loan is outstanding, they convert their black into white, but people who do this are not aware that Section 68 on loans is applicable and you will have to prove the creditworthiness as well as the genuineness of transactions to the IT Department or else the loan receipt will be treated as income from undisclosed sources.

CASE 5: Another popular way of converting black into white money is showing income in cash like tuition income or any other professional fees.Just pay the tax at normal rate and your money is white now!!!!

Also people make investment where it is allowed to invest in cash and where the maturity is tax free for example buying an insurance policy where you are not required to show all your premiums and the maturity is tax free. For example your insurance premium is 25000/- per annum and you can pay 6000 in check (shown in books) and remaining in cash, people increasing the proportion of premium paid in cash increasing as and pay entire premium in white for last two years before maturity. No ITO is going to check premium of more then last two years and it is a small example. People are paying huge cash premiums everyday. In case of this small premium, the cost of investigation exceeds the benefit to the exchequer so the ITO will give a test check for at the max last two years.

DISCLAIMER

* I don’t recommend readers to follow any of these steps. I just want them to be aware regarding these false practices.

* I encourage open discussion regarding this article but advices, opinions, suggestions which may land the opinion seekers into trouble later on are not encouraged.

I trust that a tax planning should be done in such a way that it can stand the test of the legal battle of course subject to debates

Article Submitted by:

Mr. K.K. Juneja

Advocate