Reverse Charge and GST: Do Advocates Need to Register?

Q: I’m 23 years old, and this is my first time filing an Income Tax Return ( ITR ). My base salary is around 17 lakh per annum, but my company deducts tax before paying me, so my take-home pay is much lower.

I have a few financial obligations and investments:

• I’m repaying an education loan and a vehicle loan.
• I invest in mutual funds.
• I’ve also invested in the NPS since I thought it’d help me with deductions.

I’ve opted for the new tax regime. Do I qualify for any deductions under this regime? Also, recommend a straightforward guide to filing an ITR.

A: Under the new tax regime, you won’t be able to claim deductions for investments such as those in NPS, mutual funds, or loan repayments. The new tax regime offers lower tax rates but does not allow most deductions and exemptions available under the old regime.

However, according to Section 80E of the Income Tax Act, you can still claim deductions for the interest paid on higher education loans from the notified financial or approved charitable institutions or banks.

Filing ITR:

The Income Tax Department website (https://www.incometax.gov.in/iec/foportal/) offers a user-friendly portal for filing ITRs. Additionally, several resources online and from tax professionals can guide you through the process.

Q: I work remotely for a company based in Dubai and I receive my monthly salary on an international payment/payroll platform. The remuneration I get is $1450/month (INR 1.2 lakh) and after transaction fees, I receive around 1.18 lakh in my Indian bank account. There are no deductions in my salary. How much tax would I have to pay for my income at the end of the year?

A: Since you are a resident of India and performing the work there, your income is taxable in India regardless of the location of the company. Even though Dubai itself does not levy income tax, you’ll need to pay taxes in India based on your residency status.

Factors that affect your tax liability are:

• Residency status in India: If you are considered a resident of India for tax purposes (ordinarily resident or resident and ordinarily resident), your global income will be taxable in India.

• Tax slabs and rates: The income tax system of India works on a slab system, where different tax rates apply to various income brackets. Based on your annual income (Rs. 1.2 lakh after considering transaction fees), you might fall under the lowest tax slab of 0%. However, it’s important to consider any other taxable income you might have during the year.

• Tax deductions and exemption: Various deductions and exemptions can be applied to reduce your taxable income, potentially lowering your tax liability. 

Q: I have been investing into Direct Plan Growth MF and I didn't have an idea about ELSS before that we can only save tax if we invest in ELSS MF. So, which option would be best to do:

1. switch the existing MF to ELSS for tax saving. But if I switch then does that investment be done as a lump sum in ELSS or it would convert every month sip from equity fund to ELSS?

2. Sell existing ones and invest as an SIP for ELSS

3. Stop existing ones and invest as an SIP for ELSS

Please help me decide what to do.

A: Let's look at your alternatives for maximizing your tax benefits using mutual funds.

ELSS Advantage:

ELSS (Equity Linked Savings Scheme) is a form of mutual fund that allows for tax deductions under Section 80C of the Income Tax Act. Investing in ELSS allows you to lower your taxable income by up to ₹1.5 lakh annually.

Considering Your Choices:

1. Switching to ELSS: This option allows you to take advantage of the current corpus in your Direct Plan for tax savings. However, switching is normally done as a one-time investment and does not instantly turn your SIP into an ELSS. You will need to create a second SIP for the ELSS fund.

2. Selling and Investing in ELSS SIPs: This method gives you greater control. You can sell your existing holdings and use the funds to start a new SIP in an ELSS fund. This enables you to select the appropriate ELSS fund depending on your risk tolerance and investing goals.

3. Stopping Existing SIP and Starting ELSS SIP: This is identical to option 2, except you do not have to sell your existing investment right away. Simply cease the current SIP and start a new SIP for ELSS.

The Best Choice for You:

Here's a quick guide to help you decide:

• Need immediate tax benefit? Go for option 1 (switch) if you want to utilize the existing investment for tax saving this year.

• Want more control and choose a specific ELSS fund? Opt for option 2 (sell and invest) or 3 (stop SIP and invest). This allows you to research and pick an ELSS that aligns with your investment goals.

Additional Considerations:

Exit Load: Check if your existing Direct Plan has an exit load (fee for selling units within a specific timeframe). Factor this into your decision, especially if considering option 2 (sell and invest).

Market Timing: Trying to time the market to sell high and buy low is risky. Consider a long-term investment approach and don't base your decision solely on short-term market fluctuations.

Q: In April last year, I bought a new car worth 22 lakhs and received a car loan of 15 lakhs in my name. I made a down payment of 1 lakh from my personal bank account and transferred 4 lakhs from my company account to my personal account, which I then used to pay the dealer. Considering that this is the only amount I transferred to my personal account from my company account last year, will there be any personal tax implications for me?

A: The tax implications of transferring 4 lakhs from your company account to your personal account depend on several factors, including the nature of the transfer and the purpose of the funds.

1. Loan or Salary: If the amount transferred is considered a loan from your company, it should be documented as such, and there should be a repayment plan in place. If it is treated as an additional salary or a dividend, it may be subject to personal income tax.

2. Documentation: Proper documentation and clear records of the transactions are essential. The lack of clear documentation could lead to the amount being treated as income, which would be taxable.

3. Company Expenses: If the transfer was made for a legitimate company expense or reimbursement, you should have the necessary receipts and documentation to support this.

4. Personal Loan: The car loan of 15 lakhs taken in your name is a personal liability and will not have direct tax implications from the company's perspective. However, the interest on the car loan can be claimed as a deduction under Section 80C if the car is used for business purposes.

Given these considerations, it is advisable to consult with a tax professional or accountant who can review your specific situation, ensure proper documentation, and provide guidance on minimizing tax liability. They can help ensure that the transfer is correctly classified and that you comply with all relevant tax regulations.

Q: Is an advocate providing interstate supply, which is chargeable under Reverse Charge, liable for GST registration?

A: Yes, an advocate who provides interstate supply of services chargeable under the Reverse Charge Mechanism (RCM) must register for GST. According to the GST law, everybody who makes an interstate taxable supply, regardless of their revenue, must register for GST. This includes advocates who provide RCM-compliant legal services. Under RCM, the beneficiary of services is required to pay GST, but the supplier (advocate) must still register if they are providing services interstate.

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