Can a trust registered u/s 12A avail benefits of exemption u/s 10 (23C)(iiiad) of Income tax Act ?

Section 10(23C) does not prescribe any stipulation which makes registration u/s 12AA a mandatory condition. The provisions of section 11 and 10(23C) are two parallel regimes and operate independently in their respective realms.

Exemption u/s 11 is available to a Charitable trust or endowments or settlements, but also to a Company incorporated under section 8 of the Companies Act, 2013 (corresponding to S. 25 of the Companies Act, 1956) and to a Society formed under the Societies Registration Act, provided the object of these entities are charitable in nature.

What is charitable purpose is defined u/s 2(15) of the Income tax Act, as including relief of the poor, education, “yoga”, medical relief, preservation of environment (including water sheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. The advancement of any other object of general public utility has qualifications which have been incorporated under the proviso which has been amended by Finance Act, 2015 w.e.f. 1.4.2016.

In order to avail exemption u/s 11, 12 and 13, the entity should be registered u/s 12AA.

The other essential requirements are (a)The property should be held under a trust or legal obligation;(b) The property should be so held for charitable or religious purposes which, ensure for the benefit of the public. No part of the income or property of the trust should be used or applied directly or indirectly for the benefit of the settlor or other specified persons;(c) The trust should not be created for the benefit of any particular religious community or caste; (d) The exemption is restricted to such portion of the income as is applied or accumulated for application to charitable purpose in India;(e) The accounts of the trust should be audited in certain cases as provided in Sec. 12A(b); (f) The funds of the trust should be invested or deposited in the permissible forms and modes only.

For claiming exemption under section 11, it is not necessary that the conditions u/s 10(23)(vi) must be fulfilled.

In Commissioner Of Income tax Vs. Mahasabha Gurukul Vidyapeeth Haryana (2010)326 ITR 25 (Pun), it was held that Exemption under s. 11 was allowable to the assessee society running an educational institution which was registered under s. 12A, once it is held that all requisite conditions for exemption under s. 11 have been met, even if conditions under s. 10(23C)(vi) have not been complied with, there will be no bar to seek exemption under s. 11.

Conversely, while claiming the exemption u/s 10(23)(vi), it is not required to fulfil the conditions mentioned u/s 11 as also exemption u/s 10(23)(vi). Exemption u/s 10(23)(vi) can be claimed by the assessee without applying for registration us 12A. See Commissioner Of Income tax and Another Vs. Society Of Advanced Management Studies (2013) 352 ITR 269 (All) wherein it has been held that Exemption u/s 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration u/s 12A of the Act as it is not required to fulfil the conditions mentioned u/s 11 of the Act while claiming exemption u/s 10(23C) (vi) of the Act.

In the case of Commissioner Of Income tax Vs. Jeevan Deep Charitable Trust (2014) 361 ITR 0143 (All) the assessee was registered u/s. 12A as being a charitable institution. However, its claim for exemption u/s. 10(23C)(vi) was rejected on the ground that the institution was solely not established for the educational purposes. Relying on the same, assessee’s registration u/s. 12A was cancelled by CIT. The High Court held that exemption u/s. 10(23C)(vi) can be claimed by an assessee without applying for registration u/s. 12A as it is not required to fulfil the conditions mentioned u/s. 11 and hence the registration u/s 12A was restored

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WHAT IS JOINT DEVELOPMENT AGREEMENT AND WHAT TRIGGERS INCOME TAX LIABILITY ?

Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

Joint Development Agreements (JDA) are prevalent in India as they are beneficial both for the owner and the developer. The owner gets a better built house and the developer gets his remuneration either in the form of a part of the building or money. Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

The deal
Thus, land is contributed by the land owner and the cost of development and construction is incurred by the developer. The land owner may get consideration in the form of either lump sum consideration or percentage of sales revenue or certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them. In this manner, the resources and efforts of land owner and developer are pooled together so as to bring out the maximum productive result. However, as is the case with any business deal, there are various ifs and buts attached to a JDA as well. Real estate development is subject to approvals from various government authorities, owing to which the consideration under a JDA is also dependent of these approvals. With things still not in the clear, the owner is expected to assess the tax liability and pay it. Is that fair, when the owner is not even sure, whether the deal will go through or fall apart?

Transfer of capital assets

Necessarily, there is a transfer of capital asset under the JDA and there should be a capital gain tax on the same, but various tax questions creep into the mind of the owner as to when to pay the tax? Would mere signing of a JDA lead to taxability in the hands of the owner? Is registration of the JDA is necessary for triggering the taxability? What if the consideration is not final at the time of signing the JDA and is actually dependent on an event/approval? Am I liable to pay tax on accrual basis or only when the consideration is received? There have been contradictory rulings on this matter till now and the income tax law was amended in this year’s Budget, which provides for taxation of such gains on completion of the project under certain circumstances. Till then, Indian tax authorities aggressively took the view that capital gains arise on signing of the development agreement and when the owner gives possession of the property to the developer.

Even the apex court of India has recently dealt with this matter and taken a favourable view. It laid down the law after considering the facts of the case and holding that the answer to these questions depends on two aspects:
Part performance of an unregistered agreement by the owner, by giving possession of the property for the limited purpose of development, would not amount to a transfer, and hence did not give rise to capital gains. Meaning thereby that where the owner continues to be the owner of the property throughout the development of the property, and did not seek to transfer rights similar to ownership to the developer, there was no transfer giving rise to capital gains.
As per income tax law, the income is liable to tax on accrual of receipt, whichever is earlier. But if the right of the owners to receive consideration is dependent on receipt of the necessary approvals and permissions for development of the property, the income can at best be called hypothetical income and hence cannot be taxed on accrual principle. This is an important aspect since these permissions need not necessarily come in and may lead to a situation where the JDA falls through. Accordingly, it becomes all the more important to agree to the terms of the JDA after a thorough analysis. The law on taxability arising on signing of a JDA is now clear and the court ruling makes it easier for the owners to assess their tax liability
Source : Financial Express

Provisions under the Income Tax Act, 1961 in relation to retention of records / books of accounts of a Company?

The applicable section of Income tax act are sections 44AA read with rule 6F – maintenance of books of accounts and Section 92D read with rule 10D for international transactions. Some case laws on this issue are as under:

Important decisions: The Income Tax Appellate Tribunal Delhi in its decision (1998) 97 Taxmann 273(Magzine)/60T.T.J. 278 has held that there is no rule made to the effect that which books of accounts are required to be made by the persons carrying on business covered u/s 44AA (2), therefore if the assessee has kept the details of Incomes and expenditures then no penalty shall be levied u/s 271A.

Similar decision was made by Amritsar bench of Tribunal in case of Sujan Singh v. AO [2007] 110 TTJ (Asr.) 818 wherein it was decided that Rule 6F has not been made applicable to the persons carrying on business or Profession other than those mentioned u/s 44AA(1) and covered u/s 44AA(2). The case of the assessee falls u/s 44AA (2), as the assessee was carrying on a business of poultry farm. the board has not specified or notified the books of account to be maintained by persons covered under sub-section 2 of section 44AA.Therefore, rule 6F is not applicable to the case of the assessee- ITO v. Dinesh Paper Mart [1999] 64 TTJ (Nag.) 674 : [1999] 70 ITD 274(Nag.) relied on.

Period of Preservation of Accounts/Records under Different laws are as under.

COMPANIES ACT

• A company is required to maintain its books of account and vouchers for a period of 8 years immediately preceding the current year.
• A S. 25 company is required to maintain its books of account and vouchers for a period of not less than 4 years.
• The books and papers of the Amalgamated/Transferor Company must be not be disposed of without the prior permission of the Central Government.
• The books and papers of a company which has been wound-up and of its liquidator shall not be destroyed for a period of 5 years from the date of its dissolution. They may be destroyed earlier with prior Central Government permission.
• Every Company (not being an NBFC) accepting public deposits must maintain a Register of deposits for 8 calendar years from the financial year in which the latest entry is made in the Register.
• The Register and Index of Members must be maintained permanently.
• The Register and Index of debenture-holders must be maintained for 15 years after the redemption of debentures.
• The copies of all Annual Returns and Certificates annexed thereto must be maintained for 8 years from date of filing with the ROC.

NBFC DIRECTIONS

• Every NBFC accepting public deposits must maintain a Register of deposits for each branch and a consolidated Register for 8 calendar years following the financial year in which the latest repayment/renewal entry is made in the Register.
• NBFCs should maintain all necessary records of transactions for at least ten years from the date of cessation of transaction between the NBFCs and the client.

INCOME-TAX ACT, 1961

• Assessees are required to preserve the specified books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years. Thus, accounts must be maintained for P.Y. 2008-09 and onwards and accounts up to 31st March, 2008 (P.Y. 2007-08) need not be maintained for income-tax purposes.
• Period of six years gets extended if the assessment is reopened u/s. 147, till the time assessment is completed.
• Transfer Pricing documents and information specified under Rule 10D must be maintained for a period of 8 years from the end of the relevant assessment year, i.e., for a total period of 10 previous years.
• In a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax has escaped assessment for any assessment year — 16 years from the end of relevant assessment year.

CENTRAL EXCISE

• Records including books of account and source documents and data in any electronic media must be maintained for 5 years immediately after the financial year to which such records pertain.

SERVICE TAX

• Records including books of account and source documents and data in any electronic media must be maintained for 5 years immediately after the financial year to which such records pertain.

SEBI REGULATIONS

• Under the SEBI Regulations for Stock Brokers, Merchant Bankers, Portfolio Managers, Underwriters, Debenture Trustees, FIIs, Custodian of Securities and Depository Participants the Records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 5 years. In case of any investigation by CBI or police books and records to be maintained up to settlement of case (see circular dated 4-8-2005).
• Under the SEBI Regulations for Venture Capital Funds and Mutual Funds the records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 8 years.
• SEBI Regulations for Registrar & Transfer Agents and Bankers to an Issue the records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 3 years.

ICAI – COUNCIL’S DECISION OF 1957

• CAs should preserve records relating to audit and other work done by them, routine correspondence and other papers for a minimum period of 10 years

TAXATION OF SHARE PREMIUM UNDER THE INCOME TAX ACT, 1961

1. Section 56(2)(viib) of the Income Tax Act, 1961 – Extract from Bare Act

(viib) where a company, not being a company in which the public are substantially interested, receives in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received –

(i) by a venture capital undertaking from a venture capital company or a venture capital fund ; or
(ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf.
Explanation – For the purposes of this clause, –
(a) the fair market value of the shares shall be the value –
(i) as may be determined in accordance with such method as may be prescribed; or
(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of such shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature,
whichever is higher.
(b) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to Clause (23FB) of section 10;

2. Rules 11U and 11UA(2) of the Income Tax Rules, 1962.

Rule 11UA(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:-
(a) The fair market value of unquoted equity shares = (A-L) X (PV) ,
(PE)
where,
A = book value of the assets in balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance sheet as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;
L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:-
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing, provision for taxation, other than amount of tax paid as deduction or collection at sources or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities, other than arrears of dividends payable in respect of cumulative preference shares;
PE = total amount of paid up equity share capital as shown in the balance-sheet;
PV = the paid up value of such equity shares; or
(b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.
2.1 Relevant clauses of Rule 11U
11U. For the purpose of this rule and rule 11UA, –
(a) “accountant”, –
(i) for the purpose of sub-rule (2) of rule 11UA, means a fellow of the Institute of Chartered Accountants of India within the meaning of the Chartered Accountants Act, 1949 (38 0f 1949) who is not appointed by the company as an auditor under section 44AB of the Act or under section 224 of the Companies Act, 1956 (1 of 1956); and
(ii) ***
(b) “balance-sheet”, in relation to any company, means –
(i) for the purpose of sub-rule (2) of rule 11UA, the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance-sheet on the valuation date is not drawn up, the balance-sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company ; and
(ii) ***
(c) “merchant banker” means category I merchant banker registered with the Securities Exchange Board of India established under section 3 of the Securities Exchange Board of India Act, 1992 (15 of 1992);
(i) “unquoted shares and securities”, in relation to shares or securities means shares and securities which is not a quoted shares or securities;
(j) “valuation date” means the date on which the property or consideration as the case may be, is received by the assessee.

3. Share premium is the amount by which the issue price of a share exceeds the nominal value. Under The Companies Act, the value of the share premium must be credited to a securities premium account.

4. Scope of Section 56(2)(viib) of the Income Tax Act, 1961.

There are five (5) aspects (conditions) inherent in Section 56(2)(viib) – all of which must be cumulatively be satisfied – for the share premium received by a company – to be deemed as income from Other Sources of the company in a particular assessment year.
I. TYPE OF COMPANY
II. NATURE OF RECEIPTS
III. RESIDENTIAL STATUS OF PAYEE
IV. AMOUNT (SHARE PREMIUM)
V. ACCRUAL (IN WHICH ASSESSMENT YEAR)

5. TYPE OF COMPANY

5.1. DEFINITION OF CLOSELY-HELD COMPANY
i. The phrase ‘closely-held company’ is not explicitly defined under the Income Tax Act, 1961 but it means a ‘company in which the public is not substantially interested’.
ii. Section 2(18) of the Income Tax Act, 1961 defines ‘a company in which the public is substantially interested’ to include :-
a. a company owned by the Government or the RBI or more than forty percent of the shares are owned by Government or the RBI or a corporation owned by the RBI.
b. a company registered under section 25 of the Companies Act, 1956.
c. a company not having share capital and declared by the Board to be such company
d. Mutual Benefit Finance Company – business of acceptance of deposits from members and notified by the Central Government u/s 620 of the Companies Act, 1956.
e. a company, whose more than 50% Equity Shares (not being Preference Shares) held by one or more Co-operative Societies throughout the previous year.
f. a company not being a Private Company as defined in the Companies Act, 1956, whose Equity Shares were listed on the 31 March of the previous year in a Recognised Stock Exchange. g. a ‘Government Company’ not being a ‘Private Company’ (both terms being defined in the Companies Act, 1956).
iii. As a corollary to the definition of ‘a company in which the public is substantially interested’, a ‘closely held company’ will include :-
a. a Private Company as defined in the Companies Act, 1956 ; and
b. a Company not being a Private Company as defined in the Companies Act, 1956 and whose Equity Share are not listed on the 31 March of the previous year in a Recognised Stock Exchange.
5.2. APPLICABILITY ON FOREIGN COMPANIES
i. Section 56(2)(viib) does not distinguish between an Indian or a Foreign Company.
ii. Section 2(17) defines “company” to include a body corporate incorporated by or under the laws of a country outside India.

6. NATURE OF RECEIPTS

6.1 Share Premium i.e., any consideration for issue of shares that exceeds the face value of such shares.
6.2 Issue of shares at face value where the fair market value is less than face value would not attract section 56(2)(viib).

7. RESIDENTIAL STATUS OF PAYEE

7.1 Section 56(2)(viib) is applicable only when the payee is “any person being resident.”

8. AMOUNT (SHARE PREMIUM)

8.1 The amount of income under section 56(2)(viib) is “the aggregate consideration received for such shares as exceeds the fair market value of the shares.”
8.2 Rules 11U and 11UA(2) of the Income Tax Rules, 1962 provide the formula for determination of “fair market value” of a share.
8.3 The company may substantiate before the assessing officer based on the value, on the date of issue of such shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature.

9. ACCRUAL (IN WHICH ASSESSMENT YEAR)

9.1 The income referred to in Section 56(2)(viib) shall accrue in the previous year in which the share premium is received by the company.
9.2 Therefore, only receipts(s) during the “current year” is covered & any opening balances are to be ignored.
9.3 The assessing officer may reopen assessment proceedings u/s 147, to bring “share premium” escaping assessment to tax for the preceding assessment years.
9.4 Any share premium(s) which is received beyond the limitation period cannot be assessed to Income-tax. The limitation period is period for which the assessing officer cannot issue Notice u/s 147 for reassessment of income.

10. Exceptions

10.1 Section 56(2)(viib) shall not apply where the consideration for issues of shares has been received by a venture capital undertaking from a venture capital company or a venture capital fund.
10.2 Section 56(2)(viib) shall not apply where the consideration for issues of shares has been received by a company from a class or classes of persons as may be notified by the Central Government in this behalf.

11. Bonus & Right Issue of shares by a company

Hon’ble ITAT Mumbai bench on subject of taxation under deemed gift u/s 56(2)(vii) for concessional share allotment at less than book value (under rule 11U & 11UA) held bonus shares do not fall under the same; right shares and original first time allotment falls in the same however if new shares allotted to existing share holders pro rata as per exiting holdings no adverse inference/addition possible. (I.T.A. No. 4887/Mum/2013 on 12.03.2014)

WHAT IS JOINT DEVELOPMENT AGREEMENT AND WHAT TRIGGERS INCOME TAX LIABILITY

Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

Joint Development Agreements (JDA) are prevalent in India as they are beneficial both for the owner and the developer. The owner gets a better built house and the developer gets his remuneration either in the form of a part of the building or money. Under a typical joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost.

The deal
Thus, land is contributed by the land owner and the cost of development and construction is incurred by the developer. The land owner may get consideration in the form of either lump sum consideration or percentage of sales revenue or certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them. In this manner, the resources and efforts of land owner and developer are pooled together so as to bring out the maximum productive result. However, as is the case with any business deal, there are various ifs and buts attached to a JDA as well. Real estate development is subject to approvals from various government authorities, owing to which the consideration under a JDA is also dependent of these approvals. With things still not in the clear, the owner is expected to assess the tax liability and pay it. Is that fair, when the owner is not even sure, whether the deal will go through or fall apart?

Transfer of capital assets

Necessarily, there is a transfer of capital asset under the JDA and there should be a capital gain tax on the same, but various tax questions creep into the mind of the owner as to when to pay the tax? Would mere signing of a JDA lead to taxability in the hands of the owner? Is registration of the JDA is necessary for triggering the taxability? What if the consideration is not final at the time of signing the JDA and is actually dependent on an event/approval? Am I liable to pay tax on accrual basis or only when the consideration is received? There have been contradictory rulings on this matter till now and the income tax law was amended in this year’s Budget, which provides for taxation of such gains on completion of the project under certain circumstances. Till then, Indian tax authorities aggressively took the view that capital gains arise on signing of the development agreement and when the owner gives possession of the property to the developer.

Even the apex court of India has recently dealt with this matter and taken a favourable view. It laid down the law after considering the facts of the case and holding that the answer to these questions depends on two aspects:
Part performance of an unregistered agreement by the owner, by giving possession of the property for the limited purpose of development, would not amount to a transfer, and hence did not give rise to capital gains. Meaning thereby that where the owner continues to be the owner of the property throughout the development of the property, and did not seek to transfer rights similar to ownership to the developer, there was no transfer giving rise to capital gains.
As per income tax law, the income is liable to tax on accrual of receipt, whichever is earlier. But if the right of the owners to receive consideration is dependent on receipt of the necessary approvals and permissions for development of the property, the income can at best be called hypothetical income and hence cannot be taxed on accrual principle. This is an important aspect since these permissions need not necessarily come in and may lead to a situation where the JDA falls through. Accordingly, it becomes all the more important to agree to the terms of the JDA after a thorough analysis. The law on taxability arising on signing of a JDA is now clear and the court ruling makes it easier for the owners to assess their tax liability
Source : Financial Express

INCOME FROM SALE OF PERSONAL EFFECTS IS NOT TAXABLE IN INDIA

Question : We had been living in London since November 2016. However, we want to wind up and move back to India, rather prematurely. We had bought a lot of new household goods and assets while we were there, including a car. We can sell that and a lot of the large white goods. We will bring back with us what we can but we will also have some cash. Please explain how this money will be taxed in India. I fall in the highest tax bracket.

Answer : Taxability in India depends on the following factors:
(a) Source of income
(b) Residential status

Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located.
Residential status in India is determined based on your physical presence in India in the current financial year (FY) (1 April to 31 March) and preceding 10 FYs .

If an individual satisfies any of the basic conditions mentioned below she would qualify as a resident, otherwise she would qualify as a non-resident (NR):
Basic conditions:

a) Stay in India during the FY is 182 days or more; or
b) Stay in India during the relevant FY is 60 days or more and in the 4 immediately preceding FYs is 365 days or more.

The 60 days mentioned above are extended to 182 days in case of Indian citizens going outside India for employment outside India.
A resident would qualify as a resident and ordinarily resident (ROR) if both the below mentioned conditions are satisfied otherwise she would qualify as a resident but not ordinarily resident (RNOR):

Additional conditions:
a) Resident in India in 2 of 10 FYs preceding the relevant FY; and
b) Stay in the 7 years preceding the relevant FY aggregates 729 days or more.
An individual qualifying as ROR is taxable on her global income and is required to report her global assets in her India tax return. However, an individual qualifying as NR or RNOR is taxable only on her India-source income (this is, income earned in India or received in India).

Assuming that this is the first time you went outside India, you would most likely qualify as an ROR in India for FY 2017-18 (as you would satisfy the basic as well as the additional conditions given above) and accordingly your global income would be taxable in India and global assets will need to be reported in India. Benefit may be claimed under the Double Tax Avoidance Agreement between India and other country in case of double taxation.

Hence, any income received while you were outside India will be taxable in India as per the applicable slab rates. Any income from sale of goods that are in the nature of personal effects such as white goods, car or any other movable property held for personal use is not taxable in India. Cash, if it represents income earned (other than from sale of goods in the nature of personal effects) outside India will be taxable in India as you qualify as ROR in India. There should be proper explanation with respect to source of cash.

Posted in NRI

Chit fund scheme, Salient features, Auctions & Dividends

In the chit scheme, once a member gets the prize, his ticket is ignored for the later draws, tenders, auctions etc. Irrespective of the fact that the member is prized or not he continues to pay his share, throughout the process at each successive interval. Every member is identified with a ticket number. The member’s contribution is called the subscription. Each successive interval is called the installment. The collective sum which passes through the draw is called the prize. The person who organizes the whole exercise is called the foreman.

The salient features of a chit scheme are –
• Every member subscribes equally
• The subscription value to a member is the same for all installments.
• Every member receives the prize only once.
• All members receive the prize which is equal in value.
• The number of members (tickets or subscribers) and the number of installments are same
• The number of prizes and the number of members are same.
• The total subscription in value for one installment is equal to one prize in value.

Auction is a process of open competition among the subscribers to purchase the prize amount of the chit. It involves biddings by the subscribers. The purchase price will be as high as the necessity of a subscriber. The needs vary from subscriber to subscriber and accordingly the purchase price varies. The prize amount will be declared in favour of the member who is the highest bidder . After all, the motive of chit fund is only to enable the subscriber to meet the emergent needs like medical treatment, weddings and long distance travels. These cannot wait and the subscriber does not mind paying the price to get the money. Practically, the tendency to bid in auction is evident only in the beginning. Half way through, very few members have interest in the auction. For the last few installments, there may not be any auction at all. When there is no auction, the prize is declared by a draw. It is not open to the prizewinner to participate in a future auction.

Auction dividend is the amount of purchase price received in consideration of the prize from a prize-winner in an auction to distribute among the subscribers equally. The auction dividend is also called variously as auction benefit, auction discount and auction profit. How the auction dividend is shared depends upon the bye-laws or rules of the concern which conducts the chit. The maximum amount of discount a chit subscriber can forego is 30 per cent. The foregone chit discount is distributed among the chit subscribers as chit dividend. As an incentive for timely payment of the subscription and safeguard against delays conditions may be imposed for eligibility to get the auction dividend. Some foremen impose time limits for claiming the discount of auction dividend. In such cases the share of auction dividend of such of those members who could not remit their subscriptions in time is forfeited. They do not get the auction dividend.