PAN made mandatory for all transactions above Rs.2 lakhs

The move is seen as a way to curb black money; the new regulations come into effect from 1 January 2016

Mint, 16/12/15, Source:

The central government has made it a must to quote the permanent account number (PAN) for all transactions above Rs.2 lakh in a bid to curb black money.

This requirement will come into effect from January 2016 and will be applicable on all sale and purchase of goods and services and for all modes of payment, the tax department said in a statement on Tuesday.

Such a move will bring all high-value household purchases like high-end electronic gadgets, foreign holidays booked through tour packages, luxury items like expensive watches and gold jewellery purchases under the lens of the taxmen.

PAN is already a must for almost all financial sector transactions, car purchases and to buy immovable property above a certain limit.

Quoting PAN will help create an audit trail of all high-value transactions by one particular individual and help the tax department determine if it is in line with the declared income of that person.

This will help the government widen its tax base, curb the circulation of black money and move towards a cashless economy.

The government also made PAN mandatory for the purchase of cash or prepaid cards amounting to Rs.50,000 or more in year. Gold jewellery above Rs.2 lakh too would need PAN details. The current limit is Rs.5 lakh. All fixed deposits with post offices, cooperative banks, Nidhis, non-banking finance companies will also need PAN.

The government has also announced certain relaxations in monetary limits for quoting PAN in certain transactions to “bring a balance between the burden of compliance on legitimate transactions and the need to capture information relating to transactions of higher value”.

For instance, the monetary limit for quoting PAN for sale or purchase of immovable property has been raised to Rs.10 lakh from Rs.5 lakh.

Similarly, PAN needs to be quoted only for a cash payment for a hotel or restaurant bill of Rs.50,000 as against Rs.25,000 applicable at present for any mode of payment.

PAN will also be mandatory for the purchase or sale of shares of an unlisted company amounting to Rs.1 lakh. The limit earlier was Rs.50,000. No-frills bank accounts opened under the Pradhan Mantri Jan Dhan Yojana have been exempted from quoting PAN.

But all other bank accounts, including those opened with cooperative banks, will have to quote PAN. The government has also done away with the need to quote PAN while applying for a telephone or cell phone connection. Also cash payments of only Rs.50,000 and above related to foreign travel like for purchase of forex need PAN, as against the earlier limit of Rs.25,000.

This measure follows the recommendation of the special investigation team (SIT) on black money, which had recommended that PAN should be made mandatory for all transactions above Rs.1 lakh.

Subsequently, finance minister Arun Jaitley had announced this in his budget speech in February. However, after the industry expressed concern over the burden of compliance, the government decided to increase the limit to Rs.2 lakh.

Revenue secretary Hasmukh Adhia said it will ensure that transactions prone to black money usage like gold and bullion purchase as well as transactions related to luxury spends like hotels and foreign exchange purchase come under the tax department’s watch.

N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in New Delhi, said the whole purpose of the move is to improve tax mobilization and check tax evasion.

“The government has no option but to increase the tax base. The Rs.2 lakh limit is still high. There is no reason why the purchase of luxury items should go unreported,” he said.


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Best ways to use the Capital Gains Scheme

The Capital Gains Account Scheme helps you save on long-term gains tax; reason enough to befriend it

Ashwini Kumar Sharma, Mint 23/2/15


Selling a house results in you suddenly having a large sum of money. And unless you have already decided how it’s going to be used, chances are that it will either be put in a savings account, or it gets spent. And, of course, there is tax to be paid on the gains. Some of this can be avoided. If you had the house for at least three years before you sold it, the gains are called long-term capital gains (LTCG); if you held it for a shorter period, your profit is called short-term capital gains (STCG).

Tax on long-term gains can be avoided if you utilize the amount within 2 years and 3 years to buy a new property or to construct one, respectively. You can also invest the money in specified bonds. But the amount on which you can get tax benefit is limited to Rs.50 lakh, and you must invest in the bonds within six months from the date of sale.

Another way to save on the taxes is to use the Capital Gains Account Scheme (CGAS). This scheme is meant for those who are not able to re-invest the gain in a new residential property before the due date of filing tax return (typically 31 July). Parizad Sirwalla, partner-tax, KPMG, India, said, “As per domestic tax laws, an individual can avail an exemption from LTCG tax resulting from sale of house or agricultural land (i.e. after holding the same for specified period from acquisition date) by reinvesting the LTCG into another residential house or plot of agricultural land, as the case may be, within specified timeframes of sections 54 and 54B, respectively.”

Let’s take a look at the scheme and how to get the most out of it:

What’s on offer?

An account under the capital gains scheme, which was introduced in 1988, can be opened only with specified banks or institutions. “The deposit can be made in lump sum or in instalments at any time on or before the due date for filing the return of income,” said Rahul Jain, partner, Nangia and Co. Say, you sold a property on 15 January 2015, and are not able to use the gains by 31 July 2015. In such a situation, you should open a CGAS account and deposit the money in it by 31 July. You can deposit in cash, by cheque or by draft.

There are two types of accounts—account A, similar to a savings account; and Account B, which is like a term deposit. You can put your money in any of the two. Account A offers flexible withdrawals, but interest rate offered is similar to what that bank offers on its regular savings account. Account B offers higher interest, which would be similar to what the bank offers on its other term deposits, but withdrawal is not flexible.

If you plan to, say, buy a property after a year, choose account B. But if you plan to build a house soon, and would need money periodically, choose account A. Money withdrawn has to be used within 2 months.

You can withdraw from account B also, but would need to first transfer the money into account A. For such premature transfers, the interest rate will get adjusted.

Do note that “the interest earned on money deposited in CGAS is taxable in the hands of the taxpayer as ‘Income from other sources’,” said Sirwalla.

How much you can deposit varies across banks. At IDBI Bank Ltd, for example, the range of deposit can be Rs.10,000-100 crore. But at State Bank of India, the lower limit is Rs.1,000, and there is no upper limit.

Any gains arising out of property transaction or transfer attracts tax. Short-term gains are taxed at the normal income slab rate of the assessee. Long-term gains are taxed at 20% with indexation. For instance, the acquisition cost of a Rs.60-lakh house purchased in 2010 and sold in 2013, based on the cost inflation index (CII) for 2010 (632) and 2013 (1024) would be about Rs.97 lakh. If this house is sold for, say, Rs.1 crore, the owner makes a gain of about Rs.12 lakh, and this is the amount that she can invest in a CGAS account.

How to use the money?

The scheme has been made for a special purpose, and therefore, money can only be withdrawn for specific purposes. Jain said, “Money deposited in a CGAS account can be utilized only to buy or construct a new asset.” Typically, small sums of, say, less than Rs.25,000 can be withdrawn in cash; for anything more, you will get a crossed demand draft. Initially, to withdraw money, you will have to give an application mentioning the purpose. For subsequent withdrawals, you can use a specified form, in which you will mention details of how the earlier withdrawal was used. Banks may reject further withdrawal if required details are not given. Therefore, keep the bills for materials purchased, payments to contractor, and so on.

“The money must be utilized within 60 days of withdrawal. Any unutilized sum has to be re-deposited in a savings account immediately,” said Jain.

When closing it, the account holder will have to give a specific authority letter or certificate from an income tax officer. Closure would be allowed on terms mentioned in the letter of authority, which could also be a completion certificate or occupation certificate from the authorized government authority. If you are unable to use the gains from the house sold to buy or construct a new house, the amount will be treated as capital gain for the year in which the period of three years from the date of sale of the original house expires. In the example use earlier, if you sold on 15 January 2015, you must deposit the LTCG in a CGAS account by 31 July 2015. The deposited money should be used either before 14 January 2017 to buy a new house, or to construct one before 14 January 2018. If you are not able to do either of these, you will have to pay tax on the balance amount while filing your tax returns for FY2017-18.

Mint Money take

Since property buying and constructing is a long-term process, a CGAS account is handy for those who have long-term gains from the sale. While the scheme is useful, opening an account under it is difficult as all bank branches do not offer these.

To buy a property you have two full years. But if you are planning to build a house, don’t delay for long because you can use this account for only up to three years, and construction takes a lot of time. Also, do remember that the house will not be considered as complete till you get its occupation certificate, and that your claim for tax exemption is based on the completion of your house.


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Implications on Investments after Moving Abroad

Implications on investments after moving to another country

Lovaii Navlakhi, Mint 25/6/2013


When someone moves abroad for work, they are at times unaware of their long-term future plans.

Suchira lives in Dallas and has a very fulfilling life as a yoga instructor, budding glass maker and a loving wife to Arjun.

She moved to Dallas 15 months ago after marriage. Frustrated with not getting a job as a software engineer, apart from the struggle of adjusting to a new environment, Suchira started teaching yoga at the community centre for free.

Soon, she started another class for “stay-at-home” mothers, and a third followed. The number of people she met, the friendships she struck and the social life she and Arjun developed more than made up for the lack of earnings. Suchira discovered glass making from a student. Life is suddenly much more meaningful for both Suchira and Arjun.

However, on the money front, Suchira wants to fend for herself. She was financially independent in India; she does not want to change that now. During her work tenor in India, she saved all that she earned (the advantage of living with parents); and she has figured a way of using those funds for her personal needs.

Let’s fast forward to five years later. Suchira now has a work visa, a full-time employment and a two-year-old son. She makes trips to India, and as usual accesses her Indian savings account to meet some of her expenses. Through her friend, she meets an Indian financial adviser who understands international taxes and realizes that she needs to correct quite a few things.

Bank account: As she has moved abroad after marriage, she needs to convert her resident account to a non-resident one. Since the amounts have been funded in rupee, she should open a non-resident ordinary (NRO) account and transfer the balance from the savings account to NRO account.

Before she does that, it is best to check what direct debits as well as credits (investments, dividend income, interest credits, etc.) are linked to this account. Not many people are aware, but you are eligible under general provisions to transfer $1 million every financial year out of an NRO account overseas. For this, you need to fill in the relevant remittance forms, obtain a certificate from a chartered accountant that taxes on this income have been paid in India and ensure that the funds are transferred through regular banking channels. You may be glad to know that if you did retain the NRO account, you could add one of your family members or friends who is a resident Indian as a joint holder with signing authority. Many non-resident Indians (NRIs) like to have their parents who are in India have access to this account and even give them a debit card to fund some of their regular expenses.

Public Provident Fund (PPF) account: Her father had opened a PPF account for her when she was a minor. After completion of the first 15 years, the account was renewed for a further five-year period. To keep the account active, annual deposits were made in this account. However, once she became an NRI, the account cannot be extended. She signed the forms for closure of the account which her father will submit when the extended period matures after a few months.

Employees’ Provident Fund (EPF) account: Since her marriage and move abroad happened at short notice, Suchira was unable to apply for withdrawal of her EPF. Thereafter, on advice of her father she retained the amount in the account as the tax-free accumulation was attractive. She now understood that a recent notification allowed for accrual of interest on the EPF balance only for three non-contribution years. She now needs to withdraw these funds.

Taxation: Suchira is a law-abiding citizen. She has been diligently filing returns on the income she has earned in India. She was in for a rude shock when she realized that the country she was now a tax resident of required world income to be subjected to tax, while allowing credit for taxes paid in India.

She also realized that some heads of income which were exempt in India, such as dividend income or long-term capital gains on equities, were taxed in her “home” country. There were also differences in tax rates on other heads of income between the two countries. She vowed to connect to a local certified public accountant when she returned.

(Note: In some countries, returns are filed jointly with the spouse. Ignorance of taxability of world income could lead to serious repercussions.)

When someone moves abroad for work, they are at times unaware of their long-term future plans. If there is an inclination to return to India some time in the future, they like to maintain their links—which also includes bank accounts and investments. It is important to have a financial adviser who understands legal and tax implications in both India and your current “home” country.


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