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By Sandeep Jhunjhunwala
A current pilot survey performed by Reserve Financial institution of India on retail cost habits of people in main cities revealed that debit and bank cards are most most well-liked modes for digital funds, with comfort cited because the paramount cause. As per printed knowledge, 0.19 billion bank card transactions have been reported on the level of sale throughout March 2021, with an combination transaction worth of Rs 72,500 crore.
Whereas comfort is one aspect of the coin, it will be essential that bank card customers study the ropes on the tax aspect as nicely.
Reductions and money again
Sights corresponding to reductions, money backs, journey miles, join bonuses and reward factors supplied by service provider sellers or banks, make bank cards a profitable medium for making digital funds. Little would the bank card holder know that financial worth of those freebies may come inside their tax bracket. Factual facets corresponding to nature of purchases made (whether or not for private or enterprise causes), quantum of reductions, and so on., additionally must be labored out earlier than calling the pictures on the taxability entrance.
Whether or not such rewards would characterise as publish buy rebate/ low cost or qualify as present tax beneath Part 56(2)(x) or enterprise positive aspects beneath Part 28(iv) of the Revenue Tax Act is the query. Declare of enterprise expense, web of reductions or not, is one other aspect.
Regulators have launched provisions in tax legal guidelines for reporting of ‘specified monetary transactions’. Banking and bank card establishments are required to report funds made by an individual of quantities aggregating to Rs 1 lakh or extra in money or Rs 10 lakh or extra by another mode, in a monetary 12 months, in opposition to bank card payments issued to that particular person. This will get disclosed within the Annual Data Assertion in Kind 26AS showing in opposition to the PAN of the bank card holder on his registered income-tax e-filing account.
Revenue and spending
Entry to data on each revenue and spends offers the regulators an in-road into scrutinising transactions and detect income-spend incongruity. Bank card transactions seen within the context of employer-employee liaison throws up challenges for employers. Often, staff use private bank cards for making funds in opposition to official bills corresponding to journey, coaching, subscriptions, and so on. Employers discover themselves in a repair whereas coping with withholding tax facets round such funds made straight by staff utilizing bank cards, notably to overseas distributors.
‘To do’ or ‘to not do’ is the query. ‘To do’ would imply bearing tax prices as a result of inherent sensible impossibility to ‘deduct’ tax prior to creating remittance. ‘To not do’ would imply curiosity and penal penalties for TDS defaults and consequent expense disallowance.
An analogous conundrum is confronted by firms beneath GST for import of companies by staff, as GST paid on such transactions subsequently by employer entails working capital. Alternatively, non-compliance may imply litigation. Availment of enter tax credit score on transactions utilizing bank cards by staff and with out having an bill with out GST variety of employer firm, is a trigger for tax leakage.
Digitisation of economic transactions might undoubtedly be the necessity of the hour to attain a cashless financial system. This goal, when seen in context of impeding tax concerns, makes it crucial to take the sting off a few of these tax uncertainties.
The author is accomplice, Nangia Andersen LLP. Inputs from Amita Jivrajani & Tarun Daga