AAR means Authority for Advance Rulings set-up by the Central Government for pronouncing advance rulings in respect applications filed before them.
What does AAR stand for and what are its functions?|What are the functions of AAR?|What are the functions of Authority for Advance Ruling?|Which is the government agency for Advance Ruling?|Where to go for seeking Advance Ruling?
Authority for Advance Rulings | AAR | Advance Ruling | AR | Authorityfor AR|AAR meaning
Advance ruling|AAR:Authority for advance ruling|FunctionAAR|
Purpose of advance rulings|AAR formed|
AAR meaning| Defenition of AAR
An applicant desirous of obtaining an advance ruling may make an application in such form and in such manner as may be prescribed :-
The fees to be paid along with application shall be as follows
Yes, you may withdraw the application within 30 days from the date of such application. If you withdrawl after such period, you can withdraw it only with the permission of the Authority.
An advance ruling pronounced by the Authority is binding on the follows :-
Section 208 of the Income Tax Act,
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An assessee who has opted for computing business income under
section 44AD on presumptive basis is not required to pay advance tax related to such business for the assessment years 2011-12 to 2016-17.
The due dates for payment of different instalments of advance tax are as follows :-
For assessees (other than those covered under
section 44ADA of the Income-tax Act, 1961)
For assessees covered under
section 44AD (under presumptive taxation scheme) of the income-tax Act, 1961, are required to pay whole advance tax in one instalment on or before 15th Mar
Advance tax is liable to be paid in every case where the advance tax payable is Rs. 10,000 or more. A Resident Senior citizen not having any income from business/profession, is not liable to pay advance tax with effect from A.Y 2013-14 onwards.
An assessee, who opts for the presumptive taxation scheme under
section 44AD is exempted from the payment of advance tax related to such business (Upto A.Y 2016-17).
From the A.Y 2017-18, an assessee who opts for the presumptive taxation scheme under
section 44AD and section 44ADA is required to pay advance tax related to such business. However, advance tax can be paid during the financial year (immediately preceding to the assessment year) on or before March 15.
The computation of advance tax can be done in the following manner: Income from salaries xxx
Income from house property xxx
Income from Capital Gains xxx
Income from Business or Profession xxx
Income from other sources
Gross Total Income xxx
Less: Deductions under sections 80C to 80U
Net Income xxx
Income Tax on Net Income xxx
Less: Rebate under section 87A
Balance xxx Add: Surcharge, if any
Total xxx Add: Education Cess @ 2% (not applicable from A.Y 2019-20) xxx Add: Secondary and Higher Education Cess @1% (not applicable from A.Y 2019-20) xxx
Add: Health and Education Cess (Applicable from A.Y 2019-20)
Less: Relief under section 89, 90, 90A or 91
xxx Less: Pre-paid taxes (i.e. advance tax, self -assessment tax, TDS, TCS, MAT/AMT credit)
Advance Tax Liability xxx
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Computation by the Assessing Officer
income of the
latest previous year in respect of which
Officer has assessed income, i.e., the year for which an assessment has been completed by the Income-tax Officer,
(b) The total
income declared by the assesse in
any returnafter the year of assessment by officer., i.e., Any income furnished by the assessee in Income-tax return for any previous year after
Click here to calculate Advance Tax Liability
For computing the advance tax liability of the prevailing tax rates or the rates in force of the previous year for which the advance tax is to be computed are to be used.
Assessing Officer can serve an order requiring the assesse to pay advance tax, if he is of the opinion that such person is liable to pay advance tax.
However, if you feel that year advance tax liability is lower than the liability calculated by the income-tax officer; you may file an estimation of the income and amount of tax payable thereon
Such information should be submitted in
Form No. 28A to the Assessing Officer
Alternatively, In case the tax demand calculated by the Income-tax officer is lower than the tax liability computed by you, you should pay the advance tax as per your own computation.
No intimation to Income-tax officer is required to be made in such cases.
Click here to view the income tax rates for the A.Y 2018-19.and A.Y 2019-20.
Income tax rates
In case the Assessing Officer's estimation of current income is more than the assesse's estimate then he is required to send an intimation in
Form no. 28A giving estimate of such reduced income and advance tax.
The form is prescribed under
Rule 39 of the Income-tax Rules (Form No. 28A).
In case the Assessing Officer's estimation of current income is more than the assesse's estimate then the assessee is required to file an intimation in Form no. 28A giving estimate of income and advance tax.
The estimation is required to be
filled and signed by a person who is authorized to sign a return of income.
A person engaged in business is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme.
A person adopting the presumptive taxation scheme can declare income @ 8% and, in turn, he is relieved from tedious job of maintenance of books of account.
The presumptive taxation scheme of section 44AD can be adopted by following persons:
1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm)
In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, an HUF or a partnership firm (not Limited Liability Partnership Firm).
The scheme of Presumptive taxation is designed to give relief to small taxpayers engaged in any business, except the following businesses:
section 208 of the income-tax Act, 1961, every person whose estimated tax liability for the year is INR 10,000 or more, after TDS (taxes deducted at source), shall pay advance tax.
Therefore, credit of TDS is to be taken while calculating the advance tax liability.
However, if the amount is given or credited by payer without deduction of tax then the benefit of TDS cannot be given while calculating the advance tax liability.
For the purpose of advance tax, an assesse will be considered as assesse-in-default if he:-
Advance tax is payable on total income which includes capital gains and casual income (i.e., income from lotteries, crossword puzzles, etc.).
However, it is practically not possible to estimate the income from capital gain and casual income in advance. Therefore, in such cases it is provided that if any such income arises after the due date of any instalment, then the remaining tax calculated on capital gain and casual income shall be paid in remaining instalments of capital gains which are due.
If the entire amount of tax is so paid then no interest for late payment is levied.
While making payment of tax, apart from other things, one should clearly mention following details :
Advance Tax | Tax Payment
Once the Advance Tax is paid, it will be reflected on assessee's
Form 26AS within 3-4 working days of making the payment.
Advance Tax is not an expense.
Advance Tax | Filling of Return of Income
Form 26AS can be verified and seen by different modes as below: -
Through Net Banking Account of the assessee
Through Logging in at www.incometaxindiaefiling.gov.in
Through Traces login at http://www.tdscpc.gov.in
Advance Tax | Form 26AS
Form 26AS is a tax credit statement with respect to a financial year which includes the following details:
a) Tax deducted at source (TDS)
b) Tax collected at source (TCS)
c) Advance tax/self- assessment tax/regular assessment tax, etc., deposited in the bank by the taxpayers (PAN holders)
d) Refund details, if issued by the Income Tax Department.
e) Details of AIR (Annual Information Report) Transactions.
f) TDS on sale of immovable Property (both for buyer & seller)
Where advance tax is payable due to the notice of demand issued by Assessing Officer then whole or part of the advance tax is payable in the remaining instalments, i.e., instalments due during the financial year after the date of notice.
An assessee can revise the estimation of income and pay the taxes accordingly without any requirement of filing the estimation of income with the department.
Advance Tax | Interest under section 234A, 234B &234C
For a corporate and non-corporate assesse the interest for the late payment/deferment of advance tax instalment is as follows"-
On or before March 15
For corporate and non-corporate assessee( from Assessment year 2017-18)
For Assessee covered by
section 44AD (from the assessment year 2017-18)
For Assessee covered by
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Advance Tax | Interest under section 234A, 234B & 234C
Advance Tax | Interest under section 234A, 234B & 234C
In order to take the credit of advance tax while filing the return an assessee is required to fill up the necessary details (BSR Code, Date of deposit, Serial no. of challan and total tax paid) under the tab TDS as shown below:-
An assessee can earn taxable income which can be classified under the following heads:-
The aggregate of the above mentioned taxable income (after adjusting /clubbing of income, set off of losses) is Gross Total Income. The benefit of tax saving investments under Chapter VI-A (e.g., Insurance premium, PPF, etc.)is given/deducted from Gross Total Income. Therefore, Gross Total income
minus deductions u/Chapter-VI-A is Taxable Total Income.
As per Sec 92A of the Act, an enterprise is called as an associated enterprise of another entity if such an entity directly or indirectly participates in the management, control or capital of an enterprise.
Further, Sec 92(2) of the Act has laid down following guidelines as per which an enterprise can be deemed to an associated enterprise of another enterprise:
Section 92 of the Income Tax Act 1961 provides that income arising from any international transaction shall be computed having regard to the arm's length price. Further, allowance for any expense arising from an international transaction is also required to be computed having regard to the arm's length price.Further, any allowance for an expenditure or allocation of any cost or an expense or any income in relation to the specified domestic transaction shall also be computed having regard to the arm's length price.
Section 92F of the Act defines the arm's length price to mean a price which is applied or proposed to be applied to a transaction between uncontrolled entities (persons other than associated enterprises) under uncontrolled circumstances.
Any assessee who has entered into an international transaction of more than Rs. 1 crore (as recorded in books of account) is required to maintain transfer pricing documentation
Transfer pricing documentation is required to be kept and maintained for a period of eight years from the end of the relevant assessment year.
Section 92C(1) of the Act prescribes the following six methods for determination of the arm's length price:
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method;
(f) the Other method
While applying CUP method a direct comparison is made between price charged in controlled transactions and the price charged in uncontrolled transactions under similar circumstances.
Rule 10B(1)(a) explains the applicability of CUP method as under:
I Co and Indian company are subsidiaries of US based Co. I Co purchases certain raw materials from US based Co at USD 1,000 per unit on CIF basis. US based Co also sells identical goods to another India entity, a third party at USD 950 per unit on FOB basis. Assuming that the two transactions can be considered as comparables in terms of credit period and volume of transaction and the cost of insurance and freight is USD 100, the arm's length price of transaction between I CO and US based Co can be computed as under:
Step 1: Price charged for identical property transferred in an uncontrolled transaction : USD 950
Step 2: Adjustment in account for differences in delivery terms : USD 100
Step 3 :Arm's length price, i.e., Price charged under uncontrolled circumstances adjusted for differences in delivery terms :
Since the price at which transaction of purchase of material has been undertaken between associated enterprises, i.e., USD 1,000 is lower than the arm's length price of USD 1,050 no adjustment is required to be made in the taxable income of I Co.
The RPM is generally applied as the most appropriate method while benchmarking the international transactions undertaken by a distribution entity.
Rule 10B(1)(b) explains the applicability of RPM as under(The RPM is applicable in cases where the arm's length price in respect of transaction of purchase of goods for distribution is required to be computed):
Step 1: Determine the gross profit margin earned in comparable uncontrolled transactions or gross margin earned by comparable uncontrolled entities engaged in performing similar distribution functions as the taxpayer or the controlled distribution entity
Step 2: Subtract the gross margin so computed from the re-sale price, i.e., from the price at which goods are sold by the distribution entity to the third party customers
Step 3: The remainder will be the arm's length price of the transaction of purchase of goods
Under CPM arm's length Price is determined by adding arm's length gross profit mark-up
(charged by the
independent sellers under uncontrolled transactions) to the controlled seller's cost of producing the property or provision of service
Rule 10B(1)(c) explains the applicability of CPM as under:
PSM is applicable in cases where the transactions are highly integrated and one sided testing is not possible or where both transacting entities contribute non-routine intangibles. PSM is the most appropriate method in cases involving inextricably linked activities contributing to value chain.
Under the Indian Transfer Pricing regulations PSM can be applied by following either: (i) contribution approach, or (ii) Residual profit split approach.
12.1 Contribution approach:-
Arm's length price may be determined applying PSM following a contribution approach in the following manner:
Step 1: Determining the combined net profit of the associated enterprises arising from the international transaction in which they are involved.Generally, the profit to be split is the operating profit, although occasionally it may be appropriate to carry out a splitting up of the gross profit and then deduct the expenses incurred by or attributable to each relevant party.
Step 2: The second step involves splitting up the profit by reference to the relative contribution of the parties in the transaction. In order to arrive at the key or basis for splitting up the profit, the relative contribution made by each of the transacting entities needs to be evaluated.These contributions are identified by taking into account the functions performed, the assets used and the risks assumed by each party and valuing them as far as possible by reference to independent market date.
Step 3: The combined profit is split up amongst the enterprises in proportion to their relative contribution as per evaluation above.
Step 4: The profit thus apportioned is used to arrive at arm's length price.
12.2 Residual profit split up approach:-
Arm's length price may be determined applying PSM following a Residual Profit Split up approach in the following manner:
Step 1: Identify profit to be split up under Profit Split Approach
Step 2: Partially allocate the combined net profit in the first instance to each enterprise as to provide it with a basic return. Such basis represents the routine functions performed by the transacting entities
Step 3: The residual profit after allocation above may be split up among the enterprises on the basis their relative contribution towards the earning of non-routine profit. The profit may be split up on the basis of factors such as expenditure on Marketing, development of brand name, research and development expenses, etc.
Step 4: The aggregate of net profit arrived at by allocation in step 3 and step 4 which pertains to an enterprise will be taken as its net profit from the international transaction.
PSM is generally applicable where:
The TNMM can be applied for determining the arm's length price of international transactions in the following manner:
Step 1: Compute the net margin realized by an enterprise from an international transaction with associated enterprise. The computation may be in relation to costs incurred or sales effected or assets employed or any other relevant base. Such profitability ratios are known as profit level indicators ('PLI').
Step 2: The net profit margin realized by the enterprise or by an unrelated enterprise from comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base.
Step 3: The net profit margin in Step 2 is adjusted for differences between the transactions / enterprises involved in the transaction that could materially affect the amount of net profit margin in the open market.
Step 4: The net profit margin in step 3 is taken into account to compute arm's length price.
The other method was
introduced by CBDT vide notification dated 23.05.2012
The use of any methodology “which takes into account the
price which has been charged or paid, or would have been charged or paid, for
the same or similar uncontrolled transaction” is permitted under the other
The other method provides flexibility for
benchmarking unique transactions such as transfer of intangibles, etc.
Various valuation methodologies such as DCF,
relief from royalty, etc, can be applied for benchmarking transactions applying
In terms of
Section 92C of the Act the arm's length price shall be determined by applying one of the prescribed methods, being the most appropriate method having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons.
Anything received from employer in cash or kind due
to employer-employee relationship is taxable under the head salary.
Anything received from employer in cash or kind due to employer-employee
relationship is taxable under the head salary. The relationship will be termed
as that of an employer-employee if there is control over the method of doing
the work of other person.
Any salary or remuneration received from a partnership firm is taxable under the head Profits and Gains from Business and Profession; not under the head Salary. It is because there is no employer-employee relationship.
Salary is taxable on receipt basis or due
basis, whichever is earlier. This means that if salary is taxed by employer in
the earlier years, then it will not be taxed again even if you have received it
in the next year. If it has not been taxed in the earlier year, this shall be
taxable in the year in which it is paid.
For example, Mr A earns bonus for his performance of
FY 2015-16; the bonus is calculated after the financial year in the month of
April-16. In this case, the bonus is taxable in FY 2016-17 even if it relates
to performance of FY 2015-16. In the same case, if the bonus was calculated and
announced in Mar-16 and tax was deducted by employer, then it will be taxed in
FY 2015-16 even if it is received in April-16.
Arrear salary| arrears of salary |Taxabilty of arrear salary|
- Previous/Financial year covers the period of 1st April of certain year to 31st March of subsequent year. For example FY 2015-16 will be a period of April 2015 to March 2016. Previous/Financial year is called as the year in which we earn the income. Assessment year is the period of next 12 months starting immediately after previous year. The income earned in previous year is reported to/assessed by Income tax department in the Assessment year.
Assessment year is the period of next 12 months starting immediately after previous/financial year. It covers the period of April of a year to March of the subsequent year. An income earned in previous/financial year is assessed in Assessment year
Salary is taxable on receipt basis or due basis, whichever is earlier. Advance salary shall be taxed in the year in which it is received. Further, the salary will not again be taxed on due basis when it already taxed in the month when it is received.
section 16 of the Income tax Act , following two deductions are available from the salary income (a) Entertainment Allowance – Only to Government employees (subject to the limit) (b) Professional Tax/ Tax on Employment paid by employee (c) Standard Deduction ( Section 16(ia) inserted from A.Y 2019-20)
Entertainment allowance is taxable for all
employees except government employees.
The deduction allowed to government employees shall
be equal to the minimum of the following:-
1/5th of Salary (only basic
section 16 of the Income tax Act 1956, entertainment allowance is allowed as deduction from salary income. Deduction shall be the least of the following amounts:-
Entertainment allowance in the hands of non-government employee is fully taxable.
Professional tax is deduction available from salary income as per
section 16 of the Income-tax Act. As per Income-tax Act, it is tax which can be levied by the State on all employees working in a State under any law.
is Professional tax?
As per article 276(2) of the constitution of India, the total amount payable by one person to the State towards professional tax shall not exceed INR 2,500 per annum.
is fixed amount of cash, substance or compensation given regularly in addition
form part of the salary income. They are fully taxable unless specifically
exempted under the Income Tax Act.
allowance given by Government to its employees is not taxable (fully exempt),
if the employee is posted outside India for work and the employee is a citizen
allowance given by the United Nations Organisation (UNO) is fully exempt from
tax (not taxable).
allowance received by an employee to cope with increasing price is called as
Dearness Allowance (DA). DA is fully taxable in the hands of the employee
Travelling allowance is an allowance granted to meet the cost of travel on tour or on transfer (other than the normal place of work) and includes any sum paid in connection with transfer, packing and transport called as travelling allowance.
It is exempt to the extent of amount received or amount spent, whichever is less. For example, if amount received is Rs. 100 and amount spent is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is Rs. 100, then nothing is taxable.
Conveyance allowance is granted to meet the expenses incurred on conveyance for official duties or for performance of duties of an office.
As per Section 10(14) read with Rule 2BB Conveyance allowance is exempt to the extent of amount received or amount spent, whichever is less. For e.g., If amount received is Rs. 100 and amount spent is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is Rs. 100; then nothing is taxable.
Academic allowance is an allowance granted for encouraging the academic, research and training pursuits in educational and research institution.
Academic allowance is exempt to the extent of amount received or amount spent, whichever is less. For e.g., If amount received is Rs. 100 and amount spent is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is Rs. 100; then nothing is taxable.
Uniform allowance is granted to meet expenditure on purchase or even
maintenance of uniform for place of work.
allowance is exempt (not taxable) to the extent of amount received or amount
spent, whichever is less. For e.g., If amount received is Rs. 100 and amount spent
is Rs. 80, then only Rs. 20 is taxable. However, if amount actually spent is
Rs. 100; then nothing is taxable.
Children’s Education allowance is an allowance granted by an employer to an employee for promoting education of employee’s children. Children’s education allowance is exempt to the extent of (maximum) (a) Actual amount received per child, or
Rs. 100 per month per child - Upto maximum of 2 children
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Hostel Expenditure allowance is given to employees to meet expenditure towards hostel expenses of children. The allowance can be claimed for maximum of 2 children.Children's hostel allowance is exempt to the extent of (maximum)
(a) Actual amount received per child, or
(b) Rs. 300 per month per child - Up to maximum of 2 children
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An Allowance is granted to an employee to meet expenses on commuting between place of residence and place of duty called as transportation allowance.
Transportation allowance is exempt to the extent of (maximum of) :
(a) Actual amount received
(b) Upto Rs. 1,600 per month (applicable till AY 2018-19, Refer note 1) orRs. 3,200 per month for blind, deaf, dumb and handicapped employees (Refer note 2)
Click here to calculate taxability of Transport Allowance
Note 1 : This exemption is not available from AY 2019-20 onwards.
Note 2: This exemption is still available.
Transport allowance in transport business is given to meet personal expenditure in the course of running such transport from one place to another place. The exemption shall be lower of:-
Above exemption is available if the employee is not in receipt of daily allowance.
For example, If you are getting an amount of INR 15,000 as transportation allowance, then lower of the following amount shall not be taxable:-
So, Rs. 10,000 shall not be taxable and only Rs. 5,000 will be taxable.
is an allowance given to employees when the person is posted in tribal areas.
This allowance is given when employees are posted in any of the following States in India:-
Tribal Area/ Special Compensatory Schedule Area/ Agency Area Allowance is exempt (not taxable) to the extent of (maximum of):-
An Underground allowance is granted to employees for working in uncongenial (unsuited, not agreeable), unnatural climate in underground mines.
Travelling allowance is granted to meet the expenses
of travelling during period when an employee is on tour or transfer. Transport
allowance is granted to meet the cost of commuting between the place of
residence and place of duty.
Daily allowance is granted to meet the ordinary daily expenses incurred by an employee on account of absence from his normal place of duty.
Daily allowance is exempt to the extent of expenditure incurred for official purpose on account of absence from normal place of duty.
City Compensatory Allowance (CCA) is an allowance
offered by companies to their employees to compensate them for the high cost of
living in metropolitan and large cities. It is fully taxable in the hands of
Medical allowance is a fixed allowance paid to the employees of a company on a monthly basis, irrespective of whether they submit the bills to substantiate the expenditure or not. It is fully taxable in the hands of employee.
As per the Income Tax Act (ITA) if the allowance is not specifically exempt then it is considered as fully taxable. There is no exemption given for the monthly amount given as Holiday allowance. Therefore, Holiday allowance is fully taxable in the hands of employee.
Project Allowance is an amount of money paid to employees who are involved in projects or other specific work's in an organization.
As per Income Tax Act (ITA) if the allowance is not specifically exempt then it is considered as fully taxable. There is no exemption given for the monthly amount given as Project allowance.
It is fully taxable in the hands of employee.
Overtime allowance is payable to employees to work beyond regular working hours.
As per Income Tax Act (ITA) if the allowance is not specifically exempt then it is considered as fully taxable. There is no exemption given for the amount given as Overtime allowance. It is fully taxable in the hands of employee.
Telephone allowance is an allowance given to employees to meet telephone expenses.
As per Income Tax Act (ITA) if the allowance is not specifically exempt then it is considered as fully taxable. There is no exemption for the monthly amount given as Telephone allowance. It is fully taxable in the hands of employee.
Tiffin allowance is given to employees for meeting personal expenditure on lunch/Dinner/refreshment.
As per Income Tax Act (ITA) if the allowance is not specifically exempt then it is considered as fully taxable. There is no exemption for the monthly amount given as Tiffin/Lunch/Refreshment allowance. It is fully taxable in the hands of employee.