CA Meet Dhrangadhariya, Author at CSM & CO LLP

GST Gets Simpler: Key Rate Changes from Sept 2025

Posted on September 3, 2025September 3, 2025 by CA Meet Dhrangadhariya

How the New GST Rate Changes Will Impact Businesses (w.e.f. 22nd Sept 2025)

56th GST Council Meeting, held in September 2025, has introduced significant changes to GST rates across various goods and services. These revisions aim to simplify compliance, reduce burden on essential items, and ensure higher taxation on luxury and sin goods. Let’s break down the impact for businesses and consumers.

Key GST Rate Changes

Nil Rate (0%)

Individual Health & Life Insurance
Educational Supplies: Pencils, notebooks, erasers, maps etc.

➡ Relief for households and students, encouraging affordability in health and education.

5% GST

Daily Essentials: Dairy, snacks, personal care, kitchenware, baby products, sewing supplies
Medical & Agricultural Supplies

➡ This keeps household and farming necessities affordable while maintaining tax revenues.

18% GST

Automobiles: Cars, motorcycles, three-wheelers, transport vehicles
Electronic Appliances: Air conditioners, large TVs, monitors, projectors, dishwashers

➡ Common in mid-range consumption, this rate continues to balance revenue and accessibility.

40% GST

Tobacco & Sin Goods, Aerated Drinks
Luxury Cars, High-end Motorcycles, Personal Aircraft & Vessels

➡ Heavier taxation on luxury and harmful products to discourage over-consumption and generate revenue.

Compliance & Business Ease Measures

Apart from rate changes, the Council announced key reforms:

Auto-registration within 3 days for taxpayers with ITC claims below ₹2.5 lakhs/month
Faster refunds for exports & inverted duty supplies through smart system checks
GSTAT Appeals to commence from December 2025 for quicker dispute resolution

What This Means for Businesses

Manufacturers & Traders in FMCG, agriculture, and medical supplies benefit from lower rates.
Automobile & Electronics Sectors remain at 18%, ensuring stability.
Luxury & Tobacco Industries face a steeper 40% rate, requiring pricing adjustments.
Exporters & MSMEs gain from faster refunds and easier registration.

Conclusion

The latest GST changes mark a step toward a more equitable and simplified tax structure. Essentials have been made more affordable, while luxury and sin goods will contribute more revenue. Businesses must realign their pricing, compliance, and invoicing systems before 22nd September 2025 to stay fully compliant.

Read the source of this post by clicking here (Recommendations of the 56th Meeting of the GST Council held at New Delhi)

Disclaimer:

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Secondary Demat: A Simple Way to Cut Down Your Tax Bill

Posted on August 21, 2025September 11, 2025 by CA Meet Dhrangadhariya

How Secondary Demat Account Can Save You Lakhs in Taxes

Zerodha has introduced a Secondary Demat Account feature – a huge win for investors who juggle both long-term holdings and short-term trades.

And if you don’t use Zerodha, no worries. You can still achieve the same benefit by simply opening two separate demat accounts with your broker instead of using just one. The idea is the same: keep investments and trades apart so your long-term gains don’t get taxed as short-term under FIFO rules.

We analysed a case where investor Rohan (imaginary investor) ended up paying lakhs of extra tax only because all his shares sat in one account. With a secondary demat, that problem disappears.

The Problem with FIFO in a Single Demat

When you hold all your shares in a single demat, FIFO (First-In-First-Out) rules apply. This means whenever you sell, the system assumes you are selling the oldest lot first.

For active investors, this is a problem. Your long-term, low-cost investments often get sold “on paper” before your newer trades, pushing up your short-term capital gains (STCG) bill unnecessarily.

How Rohan Paid Extra Tax

Let’s say Rohan made these trades:

May 2025: Bought 5,000 shares at ₹200 each → ₹10,00,000
August 2025: Bought another 5,000 shares at ₹260 each → ₹13,00,000
October 2025: Sold 5,000 shares at ₹300 each → ₹15,00,000

If all shares are in a single demat:

FIFO applies → May 2025 lot (₹200/share) is sold
Cost = ₹10,00,000
Sale = ₹15,00,000
Total Short-Term Capital Gain = ₹5,00,000
STCG Tax @ 20% = ₹1,00,000

If shares are split across two demats:

May 2025 lot sits in the primary account (kept as long-term investment)
August 2025 lot sits in the secondary account (used for short-term investment)
Sale in October is from the secondary account → FIFO applies here, so cost = ₹13,00,000
Sale = ₹15,00,000
Total Short-Term Capital Gain = ₹2,00,000
STCG Tax @ 20% = ₹40,000

Just by using a secondary demat, Rohan saves ₹60,000 in tax in a single transaction.

Preserving Long-Term Gains

Now imagine if Rohan sells his May 2025 lot later in June 2026 at ₹350 per share:

Cost = ₹10,00,000
Sale = ₹17,50,000
Total Long-Term Capital Gain = ₹7,50,000
Taxed as LTCG @ 12.5% (after ₹1.25 lakh exemption) ≈ ₹75,000

Since he held the shares for more than 12 months, this qualifies as Long-Term Capital Gain (LTCG). Now, imagine if the same lot had been compulsorily sold earlier under FIFO rules. In that case, it would have been treated as Short-Term Capital Gain (STCG) and taxed at 20% – meaning a much higher tax outgo.

Why This Works

FIFO runs separately in each demat → your long-term and short-term positions stay ring-fenced.
Off-market transfers between your own demats are not taxable.
You still see both demats under one Zerodha Console login.

Costs and Caveats

AMC: Approx. ₹300 + GST per demat
Transfer Fee: Approx.₹25 + GST per off-market transfer
BSDA Loss: Holding more than one demat means you can’t claim BSDA (Basic Services Demat Account) benefits, which are meant for small investors with holdings under ₹2 lakh.

The Takeaway

With just one smart step – opening a secondary demat – Rohan:

Saved ₹60,000 immediately in October 2025
Preserved his long-term capital gains benefit instead of paying 20% STCG in June 2026

For active investors, this isn’t a one-time trick. Over time, keeping trades and investments in separate demats can help save lakhs in taxes year after year.

Disclaimer:

How the New Perquisite Rules Affect Your Salary Package (Notification 133/2025)

Posted on August 20, 2025August 20, 2025 by CA Meet Dhrangadhariya

CBDT Notification No. 133/2025: Key Amendments under Section 17(2) of the Income-tax Act:

Comparison: Old Rule vs Amended Rule (2025)

Provision

Amended Limit
(w.e.f. 18 Aug 2025)

Earlier Limit

Section 17(2)(iii)(c)

Taxability of perquisites for high-salaried employees

₹4,00,000

(salary income threshold)

₹50,000

(salary income threshold)

Proviso (vi) to Section 17(2)

Exemption for medical treatment abroad (travel condition)

₹8,00,000

(gross total income limit)

₹2,00,000

(gross total income limit)

Understanding Section 17(2)(iii)(c) & Proviso (vi) of the Income-tax Act, 1961

The Income-tax Act, 1961 lays down clear definitions of “salary,” “perquisites,” and “profits in lieu of salary.” Among these, Section 17(2) specifically defines perquisites. Over the years, perquisites have become a focal point in taxation, as they include various benefits provided by employers to employees apart from regular salary.

In this blog, we’ll break down Section 17(2)(iii)(c) and the Proviso (vi) to Section 17(2), examine their implications, and look at the latest amendments introduced in August 2025.

Section 17(2)(iii)(c): Value of Benefits or Amenities

According to Section 17(2)(iii), the value of any benefit or amenity granted free of cost or at a concessional rate is considered a perquisite. It applies in three scenarios:

To a director of a company (clause a)
To an employee holding substantial interest in the company (clause b)
To any other employee whose income under the head “Salaries” (excluding non-monetary benefits) exceeds the prescribed threshold (clause c)

Earlier, this threshold was ₹50,000. However, as per the Income-tax (Twenty Second Amendment) Rules, 2025 notified via Notification No. 133/2025 dated 18th August 2025, the new threshold has been revised to ₹4,00,000 .
This means that only employees whose salary income (excluding perquisites) exceeds ₹4 lakh will have the value of employer-provided amenities taxed as perquisites.

Key Points:

Benefits like free housing, concessional loans, or luxury facilities will not be taxed as perquisites unless the employee’s salary income crosses ₹4 lakh.
Commuting facilities (like a company car used for home-to-office travel) remain outside the perquisite scope under this clause.

Proviso (vi) to Section 17(2): Medical Treatment Abroad

The provisos to Section 17(2) carve out certain exemptions where benefits provided by employers are not treated as taxable perquisites.

Under Proviso (vi), the following expenses are exempt from perquisite taxation if incurred by the employer:

Medical treatment of the employee or family abroad
Travel and stay abroad of the employee or family for such medical treatment
Travel and stay abroad of one attendant accompanying the patient

Conditions for exemption:

The expenditure on medical treatment and stay abroad is exempt only to the extent permitted by the RBI.
The expenditure on travel abroad is exempt only if the employee’s gross total income (before including this expenditure) does not exceed the prescribed limit.

Previously, this limit was ₹2,00,000. But as per the as per the Income-tax (Twenty Second Amendment) Rules, 2025 notified via Notification No. 133/2025 dated 18th August 2025, for the purposes of Proviso (vi) to Section 17(2), the prescribed gross total income shall now be ₹8,00,000 .

This revision significantly broadens the scope of employees who can claim exemption for medical expenditure abroad.

Practical Implications of 2025 Amendment

For employees:

The perquisite taxation threshold under Section 17(2)(iii)(c) has increased from ₹50,000 to ₹4 lakh, reducing the tax burden on middle-income employees receiving non-monetary benefits.
For medical treatment abroad, the exemption limit has expanded fourfold from ₹2 lakh to ₹8 lakh, allowing more employees to claim relief.

For employers:

Salary structuring becomes more flexible — many perquisites will now escape taxation for employees with salaries below ₹4 lakh.
Medical support abroad provided by employers can now benefit a larger pool of employees without additional tax liability.

Conclusion

Section 17(2)(iii)(c) ensures that high-income employees pay tax on perks and benefits beyond their core salary, but the 2025 amendment has made the threshold more realistic by raising it to ₹4 lakh. Similarly, Proviso (vi) reflects the humane side of tax law, and the recent upward revision of the exemption limit to ₹8 lakh provides welcome relief for employees facing genuine medical needs abroad.

These changes balance the government’s aim of preventing tax-free luxury perks with providing much-needed support in health-related scenarios.

Read the source of this post by clicking here (Section 17 & Notification No. 133/2025)

Disclaimer:

Learn to Save Taxes on Your Trading Profits

Posted on August 6, 2025 by CA Meet Dhrangadhariya

How Traders Can Save Tax Through Eligible Business Expenses in ITR

In the fast-paced world of share trading, where profits and losses can swing dramatically, smart tax planning can significantly boost your net returns. If you’re a stock market trader dealing in Intraday or Futures & Options (F&O), understanding what expenses you can claim in your Income Tax Return (ITR) can help reduce your taxable income and legally save taxes.

Let’s explore how you can make the most of this benefit.

Who Can Claim Trading Expenses?

If you’re engaged in:
• Intraday Trading
• Futures & Options Trading (F&O)

…then you can claim eligible business-related expenses while computing your taxable income. This applies whether you follow the Old Tax Regime or the New Tax Regime.

Key Benefits for Traders

Reduce Your Taxable Income: Legitimate trading expenses reduce your net business income, directly impacting your tax liability.
Carry Forward of Losses:
• F&O Losses: Can be carried forward for 8 years.
• Intraday Losses: Can be carried forward for 4 years.

This makes it crucial to report your business income and expenses accurately.

Common Expenses You Can Claim

Here’s a sample list of expenses a trader can typically claim in the ITR:

Expense Category	Examples
Internet & Phone Bills	Broadband used for trading activities
Brokerage Charges	Fees paid to brokers for executing trades
Software & Tools	Charting tools, trading platforms, analytics tools
Advisory/Consulting Charges	Subscriptions to trading advisories or analysts
Electricity	If a home office is used for trading
Office Rent	Applicable if a separate office is used
Depreciation	On laptops, phones, and office equipment
Education & Seminars	Trading courses or workshops attended
Books & Journals	Financial newspapers, magazines, or books
Bank Charges	Charges linked to your trading account

Note: Keep proper invoices, payment proofs, and usage justification for all claimed expenses. This is crucial in case of an audit.

What Expenses Cannot Be Claimed?

While many expenses are allowed, some are not claimable, such as:
• Personal expenses (e.g., personal phone bills, family subscriptions)
• Capital expenditures (unless depreciation is claimed)
• Any unrelated professional or personal expenses

Final Thoughts

Every saved rupee is an earned rupee. File smart, trade smarter!

Trading is not just about profits—it’s also about smart financial management. By claiming legitimate business expenses in your ITR, you’re not only reducing your tax outgo but also managing your business like a professional.

Disclaimer:

Relief for TDS/TCS Defaults Due to Inoperative PAN: CBDT Circular No. 9/2025

Posted on July 22, 2025July 24, 2025 by CA Meet Dhrangadhariya

PAN Inoperative? CBDT Gives Grace Period for TDS/TCS Relief

The Central Board of Direct Taxes (CBDT) has issued Circular No. 9/2025 dated 21st July 2025, providing partial modifications to its earlier circulars to offer relief to deductors and collectors facing demands due to TDS/TCS defaults caused by inoperative PANs. This move aims to address numerous grievances raised by taxpayers regarding demands for short-deductions or collections, even in cases where the PAN was later made operative.

This blog outlines the implications, relief measures, and compliance expectations stemming from the new circular.

Background

Circular No. 3/2023 (dated 28th March 2023) had specified that if PAN becomes inoperative (under Rule 114AAA of the Income-tax Rules, 1962), higher TDS/TCS rates under Section 206AA/206CC would apply from July 01, 2023 onwards, until the PAN is made operative.
Circular No. 6/2024 (dated 23rd April 2024) provided temporary relief for transactions done up to March 31, 2024, if the PAN was linked with Aadhaar by May 31, 2024.

However, many deductors/collectors have received notices for short deduction or collection, despite the PAN becoming operative later, leading to avoidable tax demands.

The Issue with Inoperative PAN:

As per Circular No. 3 of 2023, if a PAN is not linked with Aadhaar, it becomes inoperative from July 1, 2023.

Consequences include:

• No tax refunds while PAN is inoperative.
• No interest on refunds for the inoperative period.
• TDS/TCS must be deducted/collected at higher rates under sections 206AA/206CC of the Income-tax Act.

New Relief under Circular No. 9/2025

To mitigate hardships, CBDT has introduced two key relaxations for cases where PANs became operative due to Aadhaar linkage after the transaction dates:

No higher TDS/TCS liability will arise in the following two situations:

Payments/Credits between April 1, 2024 and July 31, 2025

➤ Condition: PAN must be made operative on or before September 30, 2025.
Payments/Credits on or after August 1, 2025

➤ Condition: PAN must be made operative within 2 months from the end of the month in which the amount was paid/credited.

In such cases, higher TDS/TCS under Section 206AA/206CC will not apply, and no default will be treated for the deductor/collector.

Summary Table:

Action Points:

• For deductors/collectors:

Review TDS/TCS statements, communicate with clients/vendors whose PAN was previously inoperative, and encourage prompt PAN–Aadhaar linkage.

• For taxpayers:

Check your PAN–Aadhaar linkage status immediately if there is any doubt.

Notes:

These reliefs are subject to PAN becoming operative through Aadhaar linkage, within the stipulated deadlines.
Other TDS/TCS provisions (under Chapter XVII-B or XVII-BB) must still be complied with.
This circular is a welcome move, ensuring that genuine cases are not penalized due to temporary PAN inoperativeness.

Final Thoughts

This circular reinforces the government’s intent to balance compliance with taxpayer convenience. While PAN-Aadhaar linkage remains mandatory, the latest relief provides much-needed protection for deductors/collectors from unjust demands, provided they meet the revised deadlines.

Download official circular from government by clicking here.

For assistance with PAN-Aadhaar linking or resolving TDS/TCS defaults, feel free to ask in comment section.

Disclaimer:

GST Registration Field Visit Guide for Drop-Shipping & E-commerce Sellers

Posted on July 19, 2025July 24, 2025 by CA Meet Dhrangadhariya

GST Field Visit Guide for E-Commerce Sellers Without Inventory at Home

If you’re an e-commerce seller operating on platforms like Amazon, Flipkart, Meesho, or others—and you don’t store any products at your home address—getting a visit from a GST officer can feel confusing or intimidating.

But don’t worry: field visits are a normal part of the GST registration process, especially when your home is listed as your principal place of business. Here’s exactly what to expect and how to respond confidently and correctly during the verification process.

Why a GST Field Visit Happens

The field visit is meant to verify the existence and legitimacy of your business at the declared address. The officer is not there to harass you, but simply to check:

Whether the address is valid
If business activities are happening from the location
That your documents are genuine

Common Questions Asked — With Sample Answers

What is the nature of your business?

Answer: “I sell clothing (or your product) online through platforms like Amazon, Flipkart, and Meesho.”
Why is your home listed as your business address?

Answer: “I operate the business digitally from home for documentation and compliance purposes. No physical inventory is stored here.”
Where is your stock stored?

Answer: “I don’t stock goods at home. I use a drop-shipping model—suppliers ship products directly to customers.”
Can you show any business setup (e.g., devices or tools used)?

Answer: “Yes, I can show my laptop, mobile, email confirmations, platform dashboards, and order management system.”
Do you have documents related to your suppliers or products?

Answer: “Yes. I maintain supplier contracts, e-commerce platform registrations, and digital copies of invoices and orders.

Documents to Keep Ready

Make sure you have the following documents available (digitally or physically):

PAN & Aadhaar Card
Recent utility bill for address proof
GST application acknowledgment
E-commerce platform registration confirmation (email/screenshot)
Sample order or invoice from your portal
Supplier details or agreement (if applicable)

Important Compliance Tips

Ensure your documents match the GST application exactly—especially address and name.
Clarify that your home is only for communication, not for stocking goods.
Remain calm, honest, and cooperative with the officer.
Keep a clean, professional digital trail of orders, invoices, and platform communications.

You are operating a 100% legitimate e-commerce business under the drop-shipping model. GST law fully supports this approach as long as you:

File your GST returns on time
Maintain proper digital records
Provide truthful responses during verification

Display a Business Name Board at Your Address

Before the GST officer visits, it’s highly recommended to fix a nameplate or board with your business name at a visible location—such as the entrance, main door, or gate of your home. This small step significantly increases the chances of successful verification, as it visibly establishes that your home address is being used for official business correspondence. The board should ideally mention:

Your GST-registered business name
Your GSTIN or “Registered Office” label

This shows the officer that your business is active and traceable at the registered address—even if no stock is stored there.

Final Thoughts

GST field visits can sound intimidating, but with a little preparation and honesty, they’re usually quick and straightforward. As a modern online seller, your business setup is different—but completely valid.

Be transparent, stay compliant, and your GST registration will go through smoothly.

Disclaimer:

Crackdown on Fraudulent ITR Claims: What Every Taxpayer Should Know

Posted on July 14, 2025August 20, 2025 by CA Meet Dhrangadhariya

IT Department Launches Nationwide Crackdown on Bogus Tax Deductions

The Income Tax Department of India has launched an aggressive crackdown on fraudulent deduction claims in Income Tax Returns (ITRs). Powered by AI and advanced data analytics, this crackdown is now targeting suspicious claims under specific deduction sections—some of which have been commonly misused by both individuals and intermediaries.

Here’s what you need to know to stay safe and compliant.

What’s Triggering the Crackdown?

A sharp rise in false or exaggerated claims made under various sections of the Income Tax Act has prompted the government to act. Fraudulent practices—often facilitated by unverified intermediaries—are now being flagged by the Income Tax Department’s advanced detection tools.

The crackdown focuses on deductions claimed under the following sections:

Sections Under Scrutiny:

• Section 10(13A) – House Rent Allowance (HRA)
• Section 80GGC – Donations to political parties
• Section 80E – Interest on education loans
• Section 80D – Health insurance premiums
• Section 80EE – Interest on home loans for first-time buyers
• Section 80EEB – Interest on loans for electric vehicles
• Section 80G – Donations to registered charities and relief funds
• Section 80GGA – Donations for scientific research and rural development
• Section 80DDB – Medical treatment for specified critical illnesses

Many of these claims were found to be either inflated or entirely bogus—submitted with fake documents or no proof at all.

AI-Powered Monitoring & Real-Time Cross-Verification

The Income Tax Department is now leveraging AI and data analytics to automatically flag suspicious deduction patterns across thousands of returns. Real-time cross-verification has also been implemented to compare taxpayer claims with actual data from:

• Banks and financial institutions (for loan interest and repayments)
• Insurance companies (for policy premium verification)
• Employers (for rent and HRA)
• Recognized donation platforms and political party disclosures

If a claim doesn’t match backend data, the taxpayer may receive a notice or demand.

Examples of Fraudulent Practices Being Flagged

1. Fake HRA Claims (Section 10(13A)): Claiming rent deductions using fictitious landlords or PANs.
2. Bogus Political Donations (Section 80GGC): False declarations to inflate refund amounts.
3. Fake or Inflated Education Loan Interest (Section 80E): Claiming deductions for non-existent loans.
4. Unsubstantiated Medical Claims (Section 80DDB): Claims without medical certificates or treatment proof.
5. Misuse of Health Insurance (Section 80D): Deducting for lapsed or ineligible policies.
6. Invalid Home Loan or EV Loan Interest (Sections 80EE & 80EEB): Claiming interest deductions without ownership or valid financing.
7. Questionable NGO Donations (Section 80G, 80GGA): Submitting receipts from unapproved or blacklisted institutions.

Legal & Financial Consequences

The Department has already taken action in major cities like Mumbai, Delhi, Jaipur, and Ahmedabad. Hundreds of notices have been served, and several searches and surveys have been conducted under Sections 132 and 133A of the Income Tax Act.

Penalties for false deduction claims may include:

• Demand for repayment of refunds with interest and penalties
• Prosecution under Sections 276C (evasion) and 277 (false statements)
• Imprisonment, in extreme cases

What Taxpayers Should Do Immediately?

Recheck Your ITR: Ensure that all deductions claimed are accurate and fully supported by documentation.
Avoid Dubious Tax Advisors: Stay away from intermediaries who guarantee high refunds by misusing deduction sections.
File an Updated Return (ITR-U): If you realize an error, you can correct it voluntarily through the ITR-U mechanism to minimize penalties.
Preserve Proof: Maintain receipts, loan sanction letters, insurance policies, and donation certificates for at least 6 years.

Deadline to Act

You can file an Updated Return (ITR-U) for Financial Year 2023–24 up to March 31, 2026. This gives taxpayers a chance to rectify mistakes without attracting harsher consequences—but the longer the delay, the higher the interest and penalties.

Final Takeaway

The Income Tax Department’s message is clear: fraudulent deductions won’t go unnoticed. With technology closing the loopholes, it’s time for every taxpayer to clean up their returns and ensure compliance.

Transparency is not just good practice—it’s now a legal necessity.

Read the source of this post by clicking here.

Disclaimer:

TDS on House Rent Payments: Know the Rates, Rules & Applicability

Posted on March 28, 2025March 29, 2025 by CA Meet Dhrangadhariya

TDS on House Rent Payments: Know the Rates, Rules & Applicability w.e.f April 1, 2025:

Tax Deducted at Source (TDS) is a mechanism in India where tax is deducted at the source of income, ensuring that the government collects tax on income as it is earned. When it comes to house rent, specific TDS rules apply under the Income Tax Act, particularly for individuals, Hindu Undivided Family (HUF), companies, and firms. In this blog, we’ll break down the TDS rates and criteria for house rent for Financial Year 2025-26, as outlined in the table below, helping you understand your obligations as a tenant or landlord.

TDS on House Rent: The Basics

The table outlines two key scenarios for TDS deduction on house rent, including the criteria, applicable rates, sections of the Income Tax Act, and who it applies to. Let’s dive into the details:

A. TDS on Rent Paid to a Resident Indians:

No.

House Rent Criteria

TDS Rate

Section

Tenant Applicability

Rent is more than ₹2.40 lacs per annum

10%

194-I

– Company

– Firm

– Individual/HUF with business turnover more than ₹1 crore

– Individual/HUF with professional gross receipts more than ₹50 lacs

Rent is more than ₹50,000 per month

194-IB

– Individual/HUF with business turnover less than ₹1 crore

– Individual/HUF with professional gross receipts less than ₹50 lacs

Scenario 1: Rent Exceeding ₹2.40 Lacs Per Annum

• Criteria: If the annual rent paid exceeds ₹2,40,000, TDS must be deducted.

• TDS Rate: The applicable TDS rate is 10%.

• Section: This falls under Section 194-I of the Income Tax Act, which deals with TDS on rent payments.

• Applicability: This rule applies to:

a) Companies and firms, regardless of their income.

b) Individuals or HUFs who have a business turnover exceeding ₹1 crore in a financial year.

c) Individuals or HUFs with professional gross receipts exceeding ₹50 lacs in a financial year.

• Example: Suppose a company rents office space and pays ₹3,00,000 annually. Since the rent exceeds ₹2.40 lacs, the company must deduct 10% TDS, which amounts to ₹30,000, and pay the remaining ₹2,70,000 to the landlord. The deducted TDS must be deposited to the government, and the landlord can claim credit for this amount while filing their income tax return.

Scenario 2: Rent Exceeding ₹50,000 Per Month

• Criteria: If the monthly rent exceeds ₹50,000, TDS is applicable.

• TDS Rate: The TDS rate in this case is 2%.

• Section: This is covered under Section 194-IB of the Income Tax Act.

• Applicability: This rule applies to:

a) Individuals or HUFs with business turnover less than ₹1 crore.

b) Individuals or HUFs with professional gross receipts less than ₹50 lacs.

• Example: An individual pays ₹60,000 per month as rent for their apartment, totaling ₹7,20,000 annually. Since the monthly rent exceeds ₹50,000, they must deduct 2% TDS, which is ₹1,200 per month (₹14,400 annually). The remaining ₹58,800 is paid to the landlord each month. The tenant must deposit the TDS to the government and issue a TDS certificate (Form 16C) to the landlord.

Key Points to Understand

1) Threshold Limits: The ₹2.40 lacs per annum threshold (Section 194-I) is an annual limit, while the ₹50,000 per month threshold (Section 194-IB) is a monthly limit. Ensure you calculate the rent correctly to determine which section applies.

2) Who Deducts TDS? Under Section 194-I, companies, firms, and high-income individuals/HUFs are responsible for deducting TDS. Under Section 194-IB, individuals/HUFs with lower incomes (below the specified thresholds) are responsible, making it easier for the government to track rent payments by smaller taxpayers.

3) TDS Deposit and Compliance: The deducted TDS must be deposited to the government by the 7th of the following month (or by April 30th for TDS deducted in March). Additionally, tenants must issue TDS certificates to landlords—Form 16A for Section 194-I and Form 16C for Section 194-IB.

4) No TAN Requirement for Section 194-IB: Unlike Section 194-I, where a Tax Deduction Account Number (TAN) is required to deduct and deposit TDS, individuals under Section 194-IB can use their PAN to deduct and deposit TDS, simplifying the process for smaller taxpayers.

B. TDS on Rent Paid to Non-Resident Indians (NRIs)

When remitting rental payments to a Non-Resident Indian (NRI), Tax Deducted at Source (TDS) must be withheld at a rate of 30%, in addition to the applicable surcharge and a 4% cess. This TDS deduction is mandatory regardless of the rental amount, as there is no prescribed threshold for rent payments to NRIs. However, an NRI may apply for a certificate of nil or reduced TDS deduction if their taxable income in India falls below the basic exemption limit, subject to the provisions of the Income Tax Act.

What Happens If You Miss TDS?

TDS on house rent ensures that rental income is taxed at the source, reducing tax evasion. For tenants, deducting TDS is a legal obligation, and non-compliance can lead to penalties. For landlords, the TDS deducted can be claimed as a credit when filing their income tax returns, ensuring they aren’t taxed twice on the same income.

• Penalties: Non-deduction or late deduction may attract interest (1% per month) and fines equal to the TDS amount.
• Disallowance of Expenses: The rent paid may not be deductible as a business expense for the tenant.

Practical Tips for Tenants and Landlords

Tenants: Always check the rent amount and your income status to determine if TDS applies. Use online tools or consult a tax professional to calculate and deposit TDS correctly. Keep records of rent payments and TDS certificates issued.
Landlords: Ensure your tenants are aware of their TDS obligations. Provide your PAN to the tenant for TDS deduction and verify that the TDS amount is credited to your account when filing your returns.

Conclusion

Understanding TDS on house rent is crucial for both tenants and landlords in India. Whether you’re a company paying high rent or an individual renting a modest apartment, knowing the applicable TDS rates and sections can help you stay compliant with tax laws. The table above provides a clear snapshot of the rules, but if you’re unsure about your specific situation, it’s always a good idea to consult a tax expert.

By staying informed and proactive, you can ensure smooth rent transactions while fulfilling your tax responsibilities. Have questions about TDS on rent? Drop them in the comments below, and let’s discuss!

Check out TDS Section 194-I & 194I-B of the Income Tax Act, 1961.

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The Role of Artificial Intelligence (AI) in Internal Auditing: Transforming Risk and Compliance

Posted on March 1, 2025March 30, 2025 by CA Meet Dhrangadhariya

The Role of Artificial Intelligence (AI) in Internal Auditing: Transforming Risk and Compliance

Introduction

The rapid advancements in Artificial Intelligence (AI) are reshaping industries, and internal auditing is no exception. AI-powered tools are revolutionizing the way audits are conducted by automating repetitive tasks, improving risk assessment, and enhancing fraud detection. For Chartered Accountants (CAs) and internal auditors, AI offers significant opportunities to increase efficiency, accuracy, and compliance in auditing processes.

In this blog, we will explore how AI is transforming internal audits, its key benefits, and practical examples of AI applications in real-world auditing scenarios.

How AI Enhances Internal Audits

1. Automating Routine Audit Tasks

AI helps in automating repetitive and time-consuming audit tasks such as:

• Data extraction from invoices, receipts, and contracts

• Checking financial statements for compliance

• Performing reconciliations

» Practical Example: A multinational company implemented an AI-powered tool to automate bank reconciliations. The tool scanned thousands of transactions in seconds, flagged discrepancies, and reduced reconciliation time by 80%.

2. Advanced Data Analytics for Risk Assessment

AI can analyze vast amounts of financial and operational data to identify patterns and anomalies. It helps in:

• Detecting unusual transactions

• Predicting high-risk areas

• Improving audit sampling techniques

» Practical Example: An internal auditor at a financial institution used AI-driven analytics to assess loan default risks. The AI system analyzed past loan repayment behavior and identified high-risk borrowers, leading to improved credit assessment policies.

3. Fraud Detection and Prevention

AI algorithms can detect fraud by:

• Identifying suspicious transactions in real-time

• Analyzing employee expense claims

• Flagging duplicate invoices

» Practical Example: A retail chain used AI-based fraud detection software to monitor purchase transactions. The system detected irregular refund requests from specific store locations, leading to an internal investigation that uncovered employee fraud.

4. Compliance and Regulatory Monitoring

AI assists in ensuring compliance with regulations like GST, IFRS, and corporate tax laws by:

• Automating regulatory reporting

• Monitoring changes in tax and compliance rules

• Alerting auditors about non-compliance risks

» Practical Example: A CA firm integrated AI-powered compliance monitoring tools to track tax regulation changes. The tool automatically updated compliance checklists and flagged discrepancies in tax filings, reducing compliance errors.

5. Natural Language Processing (NLP) for Document Analysis

NLP enables AI to read and interpret contracts, policies, and legal documents to:

• Identify key terms and clauses

• Detect contract non-compliance

• Automate document reviews

» Practical Example: An internal audit team used AI to analyze vendor contracts. The AI tool scanned thousands of contracts, identified missing clauses, and highlighted high-risk agreements, reducing manual review efforts by 70%.

Challenges in Implementing AI in Internal Audit

While AI offers numerous benefits, some challenges include:

• High initial investment in AI tools

• Need for skilled auditors with AI expertise

• Data security concerns

• Dependence on accurate historical data for AI models

Conclusion: The Future of AI in Internal Auditing

AI is set to become an integral part of internal auditing, making audits faster, more accurate, and insightful. Chartered Accountants and internal auditors who embrace AI will be better equipped to detect risks, ensure compliance, and drive efficiency in auditing processes.

Are you ready to integrate AI into your internal audits? Let’s discuss how AI can revolutionize your audit approach!

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The Importance of Effective Audit Planning in Internal Audits

Posted on March 1, 2025March 30, 2025 by CA Meet Dhrangadhariya

The Importance of Effective Audit Planning in Internal Audits

Introduction

Audit planning is a fundamental aspect of the internal audit function. A well-structured audit plan ensures that the internal audit aligns with an organization’s objectives, assesses risks efficiently, and allocates resources optimally. A lack of planning can lead to incomplete audits, overlooked risks, and ineffective compliance measures.

This blog provides an in-depth look at the key components of an internal audit plan, based on the internal audit checklist, covering aspects such as risk assessment, resource allocation, and governance.

Key Components of an Internal Audit Plan

1. Internal Audit Charter and Terms of Engagement

An internal audit charter outlines the scope, objectives, and authority of the internal audit function. It serves as the foundation of the audit process.

• Risk: Without a well-defined audit charter, audits may not align with the organization’s overall objectives.

• Control Measures: A documented audit process should be established, listing step-by-step procedures to develop an annual audit plan.

• Testing Parameters: Ensure that the auditing plan covers all required areas and adheres to the annual audit planning process.

2. Business Knowledge Development

Understanding the business and regulatory environment is essential for auditors to identify key risks.

• Risk: Lack of business knowledge can lead to oversight of crucial risk elements.

• Control Measures: Internal audit teams should engage with internal and external stakeholders to stay updated on industry developments.

• Testing Parameters: Verify interactions and research conducted by the audit team to ensure business knowledge is current.

3. Defining the Audit Universe

An audit universe includes all auditable entities, such as business units, processes, and legal entities.

• Risk: Missing key risk areas in the internal audit plan can result in financial and operational setbacks.

• Control Measures: Organizations must maintain an up-to-date audit universe and review it periodically.

• Testing Parameters: Assess the availability, risk rating, and periodic updates of the audit universe.

4. Linkage with Enterprise Risk Management (ERM)

Integrating the audit plan with the ERM framework ensures that key business risks are effectively monitored.

• Risk: If the audit planning process is not aligned with ERM, critical risks may not be addressed.

• Control Measures: Input from the ERM team should be factored into the audit planning process.

• Testing Parameters: Verify whether ERM inputs are utilized in formulating the overall audit plan.

5. Independent Risk Assessment for Auditable Units

Each business unit or process should undergo an independent risk assessment to prioritize high-risk areas.

• Risk: Failure to conduct a risk assessment can result in inadequate audit coverage.

• Control Measures: Conduct independent risk assessments of each unit and allocate resources accordingly.

• Testing Parameters: Review methodologies used for risk assessments and verify coverage scope.

6. Resource and Time Allocation

Audit efficiency depends on proper allocation of skilled auditors and sufficient time for review.

• Risk: Inadequate resource allocation can lead to ineffective audits.

• Control Measures: Allocate resources based on the complexity and risk profile of each auditable unit.

• Testing Parameters: Assess the adequacy of time and resource allocation in covering all high-risk areas.

7. Audit Plan Approval Process

The audit plan should be approved by the Audit Committee and the Board to ensure alignment with organizational priorities.

• Risk: Lack of governance approval can lead to misalignment with business strategies.

• Control Measures: Audit plans should be reviewed and approved at multiple levels.

• Testing Parameters: Examine minutes of Audit Committee meetings to verify audit plan discussions and approvals.

8. Periodic Review of the Audit Plan

A periodic review of the audit plan ensures that it remains relevant and adaptable to emerging risks.

• Risk: An outdated audit plan can derail audit objectives.

• Control Measures: The Chief Audit Executive should conduct regular reviews to align the plan with business changes.

• Testing Parameters: Evaluate periodic reviews to confirm alignment with the company’s strategic objectives.

Conclusion

A comprehensive audit planning process is vital for ensuring effective risk management, regulatory compliance, and operational efficiency. By incorporating structured risk assessment, stakeholder engagement, and robust governance measures, organizations can enhance their internal audit effectiveness.

For Chartered Accountants, following a detailed audit checklist and ensuring periodic reviews of the audit plan can significantly improve the quality and reliability of internal audits. By implementing these best practices, businesses can strengthen their financial and operational resilience while maintaining transparency and accountability.

Would you like additional insights on implementing this checklist in your organization? Share your thoughts in the comments! 🚀

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