Bogus HRA Exemptions tracked automatically

Bogus HRA Exemptions tracked automatically

-Dr. Lalit Kumar Setia

The statement of annual information tracks the financial dealings of an individual with a PAN number. Like 26AS – Tax Credit Statement, the AIS can be downloaded by logging in to the incometax.gov.in portal.

PAN number relating dealings are tracked automatically

Wherever the bank account is opened, it is a must to mention the PAN number. Whenever any interest be credited in the saving or fixed deposit bank account, it will automatically be tracked in the Annual Information Statement (AIS). An individual has to verify only, at the time of filing the income tax return. Similarly, the income from dividends or income from the sale of sales, everything is connected with an account, opened with the PAN number.

Rental income will automatically be tracked

The employees in the job, require to give the PAN number of the landlord, to whom they are paying the rent. The employer while giving the HRA exemption, requires to insert the PAN number of the landlord to whom the rent is paid by the employee. This information will be included in the Annual Information Statement of the person whose PAN number is provided by the employee and submitted by the employer to the income tax department. The rental income will automatically be mentioned in the pre-filled income tax return of the person whose PAN number is mentioned.

Bogus HRA exemptions will be tracked automatically

Mr. A in Jhajjar Haryana is working in a Government job in Gurgaon. When his drawing and disbursing officer asked him to provide the PAN number of the landlord, for getting exemption on the HRA amount, he submitted the name and PAN number of the landlord.

In case, he is not providing the PAN number of the landlord and the amount of monthly rent paid is above Rs. 8000 (eight thousand) rupees, then the DDO will not give any tax exemption. The rent receipts are required to be submitted to the DDO and even the rent agreement or declaration is required.

The Annual Information Statement of the landlord will intimate him/her that he/she earned from the rental income and he/she has to report the same in the income tax return.

Section 194I is particularly for TDS on rent paid

As per the income tax act, the individuals who are paying monthly rent above Rs. 50 thousand, require to deduct TDS @5% at the time of paying rent to the landlord. The TDS will be deposited by the individual using his PAN number and it will automatically disclose the income of the landlord to the income tax department. In case, the landlord did not report any rental income, he/she will get a notice from the income tax department.

False Rent Paid Declaration may be tracked automatically

It is also possible that the employees mention the PAN number of another person to the employer in the self-declaration. It is also possible that the employees are giving fake rental receipts to the employer. The bogus declaration of the HRA with PAN number will show the rental income in the AIS of a genuine person. The genuine person may submit feedback on AIS citing the amount mentioned in the pre-filled income tax return or AIS is incorrect. In such a case, the false rent paid declaration will be tracked automatically.  

 *Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

All Intellectual Property rights including Copyright etc. are reserved and vested exclusively with the author or editor, Dr. Lalit Kumar. No part of the material contained in this webpage may be reproduced or transmitted in any form or by any means, electronic, technical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without the written permission of the author or editor, Dr. Lalit Kumar. 

This content is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 23rd December 2021 and last updated on 23rd December 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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Income Tax Deduction u/s 80GGC

Income Tax Deduction u/s 80GGC

-Dr. Lalit Kumar Setia

The income tax act provides a deduction u/s 80GGC for the amount of contribution made during the previous year, to a political party or an electoral trust. This deduction is not available for the amount contributed by way of Cash. For claiming deduction u/s 80GGC, the political party to whom the amount is contributed by way other than cash should be registered under section 29A of the Representation of the People Act, 1951.

How much % of gross earnings can be donated to the political organizations under section 80GGC

As per the income tax act, an individual can donate as much as 10% of his  or her gross earning to any political organization of his or her choice (reference - https://www.bankbazaar.com/tax/section-80ggc.html) 

100% Tax Deduction is possible on the amount contributed under section 80GGC

Yes, it is possible that an assessee claims 100% tax deduction under section 80GGC but it is a must donate through demand draft or cheque or any digital mode to get the deduction. Need not to say, the total amount claimed under section 80GGC cannot be higher than the total taxable income of an individual.

Can a person donate to multiple political parties?

The condition is only one, the political parties should be registered under section 29A of the Representation of the People Act, 1951. There is no limit on the number of political parties to whom an assessee decides to contribute an amount of donation.

Documents required for getting deduction u/s 80GGC

It is worth noting that if the donation is made to any entity which is not notified by the income tax act to get the donations for making the donors claim deduction u/s 80G, the deduction is not admissible. Similarly, in the case of 80GGC, if the donation is made to parties not registered under section 29A of the Representation of the People Act, 1951, then the deduction is not admissible.

The details of the donations are to be submitted in writing to the employer, for incorporating it in form 16. In case, it is not submitted, the assessee may mention the details in the specified column while submitting the income tax return.

The donation may be deducted directly from the salary and the donation receipt is submitted in the name of the employer with proper details i.e. name and address of the party, amount donated, PAN, and TAN of the party.

The employee can claim a deduction if he has this certificate from the employer which confirms that the contribution was made from the employee’s salary account.

In case, the employee himself made any contribution, he may submit the same in writing with the above details of receipt received from the political party.

Most of the taxpayers can misuse section 80GGC for getting tax deductions, may submit fake donation receipts and in such case, how to ensure the admissibility of deduction 80GGC, is a challenge for the Drawing and Disbursing Officers (DDOs).

Filing of Bogus Refund Claims or giving the wrong deduction by a DDO to the employee

In case, any bogus refund is claimed by a taxpayer, the responsibility lies with the taxpayer. But in case a wrong deduction is given by a DDO to an employee, the DDO will be responsible for it. The Income Tax Law makes the assessing officers responsible if the assessment of income is not done accurately.

DDOs are expected to consider the following points in 80G

In the case of 80G, an employer or DDO is allowed only to consider only the following donations to allow while giving deduction under section 80G:

The Jawaharlal Nehru Memorial Fund; The Prime Minister’s Drought Relief Fund; The National Children’s Fund; The Indira Gandhi Memorial Trust; The Rajiv Gandhi Foundation and to the following bodies to the extent of 100 percent of the contribution: The National   Defence  Fund  or  the Prime Minister’s National Relief Fund; The Prime Minister’s Armenia Earthquake Relief Fund; The Africa (Public Contribution-India) Fund; The National Foundation for Communal Harmony; The Chief Minister’s Earthquake Relief Fund, Maharashtra; The National Blood Transfusion Council; The State Blood Transfusion Council; The Army Central Welfare Fund; The Indian Naval Benevolent Fund; The Air Force Central Welfare Fund; The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996; The National Illness Assistance Fund; The Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund, in respect of any State or Union Territory, as the case may be, subject to certain conditions; The University or educational institution of national eminence approved by the prescribed authority; The National Sports Fund to be set up by the Central Government; The National Cultural Fund set up by the Central Government; The Fund for Technology Development and Application set up by the Central Government; The national trust for welfare of persons with autism, cerebral palsy mental retardation and multiple disabilities.

The employer or DDO cannot be in a position to ascertain the genuineness of donations if the donations have been made to private charitable trusts, therefore, only the income tax department can allow such deduction of donation under section 80G.

What can happen if the income tax department detects bogus or fake deduction claims of an individual?

There are three persons, on which action can be taken by the income tax department i.e. Employees, Employers, and the consultant whoever is found guilty of making the bogus or fake deduction allowed. The following points should be considered while getting or allowing deduction in case of donations:

1. Only those deductions which are made in cash (up to Rs. 2000) or cheque or electronic fund transfer (EFT) are eligible for the tax deduction. The donations in form of clothes, milk, medicines, food, etc. are not eligible for getting a tax deduction.

2. The donations to foreign charitable trusts are not eligible for tax deduction under India’s Income Tax Act.

3. In the case of 80GGC, donations to political parties by making miscellaneous expenses such as brochures, souvenirs, or pamphlets cannot be claimed.

4. The following documents are required to claim deduction under section 80G:

Stamped Receipt with proper details:

It is must obtain a stamped receipt from the trust or institution which is notified by the income tax act to receive donations for 80G purposes. The receipt should contain the name, address, and PAN of the trust or institution along with the registration number under section 80G, and validity of registration (registration period) must also be mentioned.

*Copyright © 2021 Dr. Lalit Kumar. A few rights reserved. Use this information in the public interest.

This content is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 23rd December 2021 and last updated on 23rd December 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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How does Unique Code of Payee work?

 How does Unique Code of Payee work?

-Dr. Lalit Kumar

In Government, it is expected that the payments are made directly in the bank account of the beneficiaries/payees. This is implemented in Government to contain corruption. However, there are transactions where the instructions for making direct payment to the account of beneficiaries/payees are not being compliant. For example, a few departments are maintaining bank accounts with the title of ‘Designation’ of Head of Department or Head of Office and use these bank accounts to transfer money to the beneficiaries/payees. Firstly, the funds/money are drawn from treasuries and deposited in such bank accounts and thereafter, it is transferred to the accounts of beneficiaries/payees with the help of Demand Draft or Cheque or EFT.

Why it is wrong to maintain Bank Account by Government Offices?

Let us understand it with the help of an example. Suppose it is required to make payment to Mr. A by the Government from time to time. The right way is to transfer the amount directly from the treasury to the account of Mr. A whenever there is a need to make the payment. But the Head of Office started a bank account and draws the money from the treasury and keeps it in the bank account. Whenever it is required to pay an amount to Mr. A, then it is paid directly with the help of a cheque/demand draft/EFT from the bank account. Why it is wrong? The Financial Rules of Government restrict for parking of funds in a bank account even for a small-time duration i.e. the duration from the day the amount is drawn from the treasury to the day it is paid to the beneficiary/payee. The accurate method is to form a Unique Code of Payee (UCP) of the beneficiary/payee which will be used to identify the correct account to transfer the amount directly from treasury after processing of payment from DDO to Treasury Officer and from Treasury Officer to Treasury Bank.

Exceptions, where it is required to maintain Bank Account by Head of Office

The Government through Finance Department may consider the exceptional circumstances where it is required to open and operate a bank account in the name/designation of an Officer for certain specific transactions. The detailed proposal may be sent by the office where it is required to open and operate a bank account with details of circumstances. In Haryana State, such instructions were issued on 2^nd December 2011 for the closing of bank accounts that are opened without seeking permission of the Finance Department Haryana.

Electronic Payment System (EPS)

For implementing Electronic Payment System (EPS), it is required that all the beneficiaries/payees have their bank accounts and the details are communicated to the treasuries so that a Unique Code of Payee (UCP) is issued to the payee. It is most important to ensure that accurate PAN number and banking details are entered in each UCP, to safeguard the system from frauds on part of concealment of income from the income tax department, a UCP without PAN number may be allotted only in cases where the annual income of the payee is not made him liable to pay any income tax and provisions of TDS are also not attracted in payments to the payee. Such declaration should be done by the Drawing and Disbursing Officer (DDO) before allocating the UCP without mentioning the PAN number.

Unique Code of Payee (UCP) for containing Corruption

In January 2012, the Haryana Government ensured proper implementation of the Electronic Payment System (EPS) and directions issued to the treasury officers to pass the bills to the extent possible with using EPS instead of the issue of cheques. However, where the EPS is not possible due to any fault in the system or other reason, the cheques may be issued.

For containing corruption, the payees are asked to open a bank account and provide the details to the Drawing and Disbursing Officer (DDO). The DDO provides the banking details of the payees for allotment of UCP in the system. It is the responsibility of the DDO to ensure that correct details of PAN, PRAN, and GPF numbers are provided by the payee. In October 2011, the Haryana Government beautifully implemented the UCP in most of its treasuries and sub treasuries.

Payment of NPS Contribution through EPS

In July 2012, the Haryana Government decided to transfer the NPS contribution through EPS instead of the cheque to the trustee bank of NPS. The NPS ‘Subscriber Contribution Form’ is attached with the NPS bill and a token of the bill is given in Form Code 14 in Pension Module. The unique code of the trustee bank is CN0L1O generated in DDO code 0765. After the transfer of the NPS amount, the treasury officer follow-up the status of the file on the site of NSDL.

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 24th September 2021 and last updated on 24th September 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

More Articles of your interest:

https://drlalitsetia.blogspot.com/2021/08/exemption-on-hra-house-rent-allowance.html 

https://drlalitsetia.blogspot.com/2021/08/responsibilities-of-head-of-accounting.html

 

Tax Saving under Section 80C

Tax Saving under Section 80C

The Drawing and Disbursing Officers are responsible to deduct accurate amount of Tax Deduction at Source (TDS) from the salaries of the employees. Most of the employees ask DDOs to advise upon tax savings and each DDO before giving advice, should be clear the instruments, investments, payments associated with the section 80C. The ‘Professional Guidance’ webpage is providing full detail in simplest way for complete understanding of section 80C. The major deduction which attracts taxpayers is still under section 80C of Income Tax Act, however it is still restricted up to Rs. 1,50,000. The taxpayers invest a certain amount to claim this deduction and all insurance companies, financial companies, banking companies targets the taxpayers (individuals and Hindu Undivided Family – HUF) to attract them for their plans to claim deduction under section 80C. Which of the option is good for the taxpayers and why; that is still a matter of concern and every individual considers the pros and cons of each investment before making investment.

Tax Deduction under Section 80C

Options to select for claiming Deduction under Section 80C:

For claiming deduction under section 80C, the individual and HUF can consider various options and payments should be made up to 31^st March of the financial year.

An individual / HUF can take a life insurance policy (for self, spouse and children including annual plans, deferred annuity plans, and Unit Linked Insurance Plans - ULIP) and claim deduction on payment of its premium during the financial year. He can deposit amount in Provident Fund (Public Provident Fund, Recognized Provident Fund, Superannuation Fund), National Saving Certificate / Kisan Vikas Patra, Mutual Funds (Equity Linked Saving Schemes or Notified Pension Funds), UTI funds, specific Bank Fixed Deposits or bonds (infrastructure bonds, notified bonds of NABARD, Senior Citizen Saving Scheme, Five Years-Time Deposit with Post Office etc.) and other investments entitled to claim deduction under section 80C. Apart from it, the deduction can be claimed for payments of tuition fees of two children, repayment of housing loan (only principal component), stamp duty or registration charges paid for purchase or construction of residential house etc.

(a) Life Insurance Premium under Section 80C for Individuals and HUF:

If amount is paid for annuity plan of Life Insurance Policy, that can be claimed as a deduction under section 80C. Such premiums paid for self, spouse and children can be claimed under section 80C and the premium paid for policy of father, mother, or others cannot be claimed as deduction under section 80C.

Here the point is whether the amount received on maturity of the ULIP will be taxable in the year of receipt or not?

It depends upon the amount of premium and sum assured value of the policy. In case, the premium paid is less than 10% of the sum assured value of the policy then amount received on maturity of the policy will be exempt under section 10 (10D), otherwise it will be taxable.

(b) Employee’s Provident Fund Investments under Section 80C for Individuals and HUF:

The salaried people usually pay a part of their monthly salary as a contribution to Employee’s Provident Fund. Such contributions in Provident Fund Investments are eligible to claim deduction under section 80C. The employers also deposit equal amount of contribution in the account of employee’s provident fund.

Here the point is, whether the contribution of employer and interest earned on provident fund during the year is taxable in the hands of employee or not?

The employee and employer’s contribution to provident fund accumulate a corpus and interest is earned upon the same. Such interest earned up to 9.5% is not taxable in the hands of the employee. The interest earned above the limit of 9.5% per annum will be taxable. Further, if the employer contributes more than 12% of employee’s salary in employee’s Provident Fund Account, then the excess will be taxable in the hands of employee.

What will happen if an employee decides to contribute more than 12% in his provident fund?

If an employee contributes more than 12% of his salary in provident fund, then such contribution is known as Voluntary Provident Fund (VPF) and such contribution is also eligible for deduction under section 80C.

Whether the interest earned on maturity of provident fund is taxable or not?

The interest earned and maturity amount is exempt.

(c) Public Provident Fund Investment under Section 80C for Individuals and HUF:

An individual or HUF can open a Public Provident Fund (PPF) Account in post office or bank and the PPF account has a lock-in period of 15 years however, partial withdrawals can be made after 7 years of opening the account. The minimum amount required to be deposited in PPF account is Rs. 500 per year and the maximum amount can be deposited up to Rs. 1,50,000.

Here the point is whether the interest earned on PPF account is taxable or not?

The banks and post office provide interest on PPF account on annual basis means it is compounded yearly. It is exempt in the hands of recipient.

(d) Sukanya Samriddhi Yojana (SSY) investment under Section 80C:

An individual only if he / she is one of the parents or legal guardian of one or two girl children with age up to 10 years, can open Sukanya Samriddhi Yojana Account in post office or bank and contribution in this account can be made up to Rs. 1,50,000 per year. The lock-in period of the account is up to the age of 21 years of the girl child and the amount to be deposited in this account is for 15 years thereafter amount is not deposited in this account. Such contribution can be claimed as deduction under section 80C.

Here the point is whether the interest earned on SSY account is taxable or not?

The interest earned on SSY account is compounded annually and it is exempt in the hands of recipient. The interest rate on SSY account is usually declared higher than the PPF account’s interest rate. Both the interest rates are revised every year by the Government.

To continue the understanding, please go through the next part: Tax Deduction under Section80C.

 *Copyright © 2018 Dr. Lalit Kumar. All rights reserved.

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Organizational Performance depends upon Financial Management

Organizational Performance depends upon Financial Management

-Dr. Lalit Kumar

Financial Administration:

In public sector organizations, most of the drawing and disbursing officers (DDOs) functions in coordination with the Accounts Officers (AOs) and perform their duties very sincerely. They require to have clarity on various areas of finance and accounting to make their decisions more effective. The accounting system is also required to be supervised constantly to prevent the mal-practices. It is required to adopt Double Entry System-cum-Accrual Accounting followed by use of technological tools like in private sector organizations, using Systematic Application Product (SAP) in financial operations.

Accounting Standards:

The Chief Financial Officers (CFOs) of private sector organizations are equivalent to Drawing and Disbursing Officers (DDOs) of public sector organizations. The Accounting Standards of Institute of Chartered Accountants of India (ICAI) are adopted in private sector organizations while in public sector organizations, the Accounting Standards of Government Accounting Standards Advisory Board (GASAB) are implemented.

Procurement Functions:

The use of Government e-Marketplace (GeM) in procurement made the public sector organizations stand at par with the private sector organizations in procuring goods and services. With the constant regular training for upgrading the skills of DDOs, the public sector organizations are performing well and delivering public services in more efficient manner. The Administrative Training Institutions (ATIs) are coming ahead to bear the responsibility of improving the performance of public sector organizations with providing training to the officers and conducting research studies to enhance the transparency and accountability in the system.

Capacity Building for Governance:

The Department of Administrative Reforms and Pension Grievances (DARPG) constantly sponsoring the capacity building programmes and providing financial assistance the raise the standard of living in public through infusing money in various projects. From last one decade, the role of DDOs and CFOs has become hard due to rising level of corruption and mal-practices in organizational operations. It is must to adopt practical solutions along with improving the transparency and accountability.

Challenging Role of DDOs:

The role of DDOs is more challenging because the employees in their organizations cannot be easily removed from their job-role and show less motivation to deliver better results.  The rules and regulations are also not modified strictly as per the requirement to deliver better organizational performances. Even if the rules and regulations are modified, it is difficult to implement the change in their organizations.

Challenging Role of Administrators:

The officers with Indian Administrative Service (IAS) cadre play a very critical role by coordinate themselves between the Ministers and employees of public sector organizations. The rely upon the Head of Offices (officer-in-charges of field organizations) to have better performance and the Head of Offices remain in close touch with advisors, chartered accountants, consultants, and trainers to complete their functions in more effective way.

The challenges in front of IAS officers and concerned ministries required to be modelled in the form of Standard Operating Procedures (SoPs) keeping in view the role of each and every officer of their concerned departments. After having SoPs, it is required to enforce the control with fixing the accountabilities of each employee with strict action in case of irregularities and non-compliance of rules.

Functions of Finance and Accounts Branch

Most of the organizations are headed by the Administrative Officers including IAS Officers in Government / Public Sector Undertakings and Chief Executive Officers (CEOs) in Private Sector Organizations. Whatever functions an organization is doing, its financial records, financial decisions, and financial analysis are done by its Finance and Accounts Branch. Let’s have a snapshot on the functions of Finance and Accounts Branch i.e. the functions of Chief Accounts Officer (CAO) in Government / Public Sector Undertakings and Chief Finance Officer (CFO) in Private Sector Organizations:

Finance Functions in Government Organizations:

In order to ensure proper functioning of the department, the Finance and Accounts Branch facilitates in proper management of funds keeping in view the compliance of financial rules, prescribed procedures in Standard Operating Procedures (SoPs) of internal checks, maintenance of accounts which are audited by Accountant General at regular intervals, and compliance of taxation rules including income tax and goods and services tax (GST). The functions may be categorized:

a.     Maintenance of Books of Accounts

b.     Statutory Compliances

c.     Disbursement and pre audit of expenditure

d.     Funds Management

e.     Preparation and disbursement of Salaries /other remunerations

f.      Application of funds

The employees of Finance and Accounts Branch are entrusted to implement and ensure proper internal checks & control, statutory compliances, flag financial irregularities (if any), ensure quality and speed of disposal of bills and sanctions, proper utilization of funds with furnishing of utilization certificates. But with continuous change in the finance and accounting framework; due to changes in accounting system i.e. manual to computerized, changes in income tax and goods & services tax (GST), changes with adoption of Standard Operating Procedures (SoPs); there is acute requirement to assess the training needs Finance and Accounts Branch for improvement in effectiveness of the performance of accounts personnel.

Use of Information Technology:

The employees working in finance and accounts branch performs their functions on e-Office and Tally Software and also use MS-Excel software for reporting purposes. The work-load becomes huge most of the time due to continuous involvement of the employees in maintenance of cash book, entry of vouchers, processing of bills and sanctions, enforcing deductions and recoveries, and submission of returns of e-TDS and GST. The Information Technology is used to perform the functions fast and efficiently.

*Copyright © 2020 Dr. Lalit Kumar. All rights reserved. 

You might also be interested in reading the following: 

You might also be interested in the following:

Introduction to Income Tax Matters

Advance Tax and How to Avoid Interest on Advance Tax

Implications on Income Tax on Formation and Dissolution of Hindu Undivided Family

Payment and Status of Income Tax

Income Tax Return

Tax Deduction at Source

Tax Planning to Have More Take-Home Salary

Tax Deduction at Source for Deductors

How to save money from being covered under taxes (Tax Saving Options)?

Tier I and II Accounts of NPS

Tax Saving Under Section 80C

Tax Deduction Under Section 80C

11 Must Claim Exemptions and Deductions