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Revision of tax return is okay only if there is an omission

dubai - Such omission or wrong statement should be on account of an inadvertent error or a bona fide mistake on the part of a tax payer

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Q: After demonetisation in November 2016, many persons deposited demonetised notes in their bank accounts as it was permitted until December 31, 2016. Some of them have filed revised tax returns for the financial years 2015-16 and 2016-17, showing higher income for those years. Will this be accepted by the tax department?

A: If the purpose of filing the revised returns is to explain the source of the cash deposited in the bank accounts, it would not be acceptable to the tax department. Revision of income-tax return is permitted only if a tax payer discovers an omission or wrong statement made in the original return. However, such omission or wrong statement should be on account of an inadvertent error or a bona fide mistake on the part of a tax payer. The Central Board of Direct Taxes has issued a circular that if the revised return is filed only to provide an explanation for the cash deposited in bank accounts in November/December, 2016, such revised return will not be accepted.  

For example, if higher sales are reported for the financial year 2015-16 by filing a revised return, it would be subjected to scrutiny and would be accepted only if the higher sales had been disclosed in excise or VAT returns. In case of any mis-match in figure of sales, the revised return would be rejected as it would be deemed to be filed in order to manipulate the taxable income of AY 2017-18 which includes the cash deposited in the bank accounts in November/December 2016. Such deposits would be taxed in full as concealed income at the flat rate of 60 per cent.


Q: I have been working for a cold storage company for the past few years. I am planning to return to India and set up an integrated cold chain project. I am told that the government gives some subsidy. Can you give some details about the scheme?

A: The Ministry for Food Processing is authorised to give grant-in-aid to such integrated cold chain projects, which are approved by the ministry. This scheme has been implemented in right earnest and 101 cold chain projects were approved in 2016-17. Apart from this grant, credit is also available at affordable interest rates from banks. Out of the 101 projects, 53 are for processing fruits and vegetables, 33 for dairy products, and 15 for marine, meat and poultry products.

The government is encouraging industry to set up these projects in order to create additional capacity for controlled atmosphere and cold storage. This project also includes refrigerated and insulated vehicles for transportation of milk and dairy products as well as for other foodstuffs. The Government has agreed to give a subsidy or grant of up to ?100 million per project. However, this is subject to the project being implemented within a time frame of 18 months.

 
Q: My mother, who is residing in India, had invested a substantial amount in government of India savings bonds, which were issued in 2003. She had subscribed to these bonds about three years ago. Is the interest on these bonds tax-free and what are the benefits? Can she invest further amount in these bonds?

A: These bonds carry interest at the rate of eight per cent. The bonds mature after six years. Therefore, those who invested in these bonds in the past will continue to earn interest at the rate of eight per cent, but in other savings instruments the rates of interest are below this level. Your mother will, therefore, continue to earn eight per cent interest on these bonds which were subscribed three years ago for the balance tenure of three years.

Though the interest on these bonds is fully taxable, the tax burden on most investors is not substantial as the income earned in the lower marginal slabs is taxed at the rate of five per cent and 20 per cent. To illustrate, if a person's income is ?900,000 per annum, the total tax payable is ?92,500, giving an average tax rate of a little over 10 per cent. However, the government has discontinued these bonds with effect from January 3, 2018.  New Savings Bonds bearing interest at the rate of 7.75 per cent, having tenure of seven years, have been issued from 10th January, 2018 which your mother can subscribe to hereafter.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.