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How your Income Tax file is Assessed or Scrutinised

Sunil Bhave
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The salient features of the new assessment procedure are:

1. The requirement of passing the assessment order in all cases where returns are filed, has been dispensed with. The matter now generally ends with the filing of return and issue of the Acknowledgement Slip.

2. The Assessing Officer shall send intimation where any tax or interest is found payable by the assessee or the refund is due to the Assessee.
3. Any tax or income found due on the returned income or any refund found payable shall be demanded from or granted to the assessee along with the intimation.

4. Intimation should be sent within one year from the end of the financial year in which the return is filed. Consequently no tax or interest can be demanded after the expiry of such period.
5. In cases where no amount is payable by the assessee or refund due to the assessee, the acknowledgement of the return shall be deemed to be intimation.
6. Scrutiny assessments shall be carried out in certain cases selected by the Assessing Officer.
Compulsory Scrutiny:
As per latest instructions, the following cases will be compulsorily taken up for scrutiny:
1. For Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad:
(a) It deductions claimed under Sec. 8OCCC to 80U are Rs. 10 lakhs or more.
(b) In case of refund claimed of As. 10 lakhs or more.

(c) In case where addition/disallowance of Rs. 5 Iakhs and above has been confirmed by CIT (A) in any three preceding years.

2. For other places:

(a) If deductions claimed under Sec BOCCC to 80U are Rs. 5 lakhs or more.

(b) In case of refund claimed of Rs. 5 Iakhs or above.

(c) In case where addition/disallowance of Rs. 1 lakh & above has been confirmed by CIT (A) in any three preceding years.

3. All search, seizure and survey (u/s 1 33A) cases.

4. Cases where income of As. 2 Iakhs or more has been claimed as exempt.

5. Cases where the value of International Transaction (u/s 92B) exceeds Rs. 5 crore.


6. All cases of Professional with gross receipt of Rs. 50 lakh or more and income declared is less than 20% of gross received.

7. All case of contractors having gross contract receipts of more than Rs. 2 crores and net income is less than 5% of gross contract receipts.

8. All cases of stock brokers and sub brokers having brokerage of As. 50 lakhs or more and taxable income of less than 10% of gross brokerage.

9, All cases of stock brokers and sub brokers claiming bad debts of Rs. 5 lakhs or more.

What is XBRL ? – All about XBRL

Sunil Bhave
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WHAT IS XBRL?

XBRL stands for eXtensible Business Reporting Language. XBRL is a language for the electronic communication of business and financial data which is revolutionising business reporting around the world.
XBRL has been developed by XBRL International, a not-for-profit consortium of over 450 companies and organizations which is promoting its worldwide use. India is now an established jurisdiction of XBRL International. A separate company, under section 25 has been created, to manage the operations of XBRL India.

APPLICABILITY OF XBRL IN INDIA

The Ministry of Corporate Affairs, Government of India, vide its General Circular No. 37/2011, dated June 07, 2011 has required the following class of companies (except banking companies, insurance companies, power companies and the Non Banking Financial Companies) to file the financial statements in XBRL form only from the year 2010– 2011:
  1. All companies listed in India and their Indian subsidiaries;
  2. All companies having a paid up capital of Rs 5 crores and above; and
  3. All companies having a turnover of Rs 100 crores and above

BENEFITS & USES

XBRL offers major benefits at all stages of business reporting and analysis:
·         Automation and cost saving
·         Faster, more reliable and more accurate handling of data,
·         Improved analysis,better quality of information and decision-making.
·         It is extensible, so companies and other organisations can adapt it to meet a variety of special requirements.
·         The language is a flexible one which is intended to support all current aspects of reporting in different countries and industries.

THE WORKING OF XBRL

XBRL makes the data readable with the help of 2 documents:
–          Taxonomy;
–          Instance Document
XBRL Taxonomies are the dictionaries which the language uses. These are the categorisation schemes which define the specific tags for individual items of data (such as “net profit”).  National jurisdictions have different accounting regulations, so each may have its own taxonomy of financial reporting.
For Example: The taxonomy contains the Element Name: Loans Advances which has the following characteristics:
Abstract: False
Data Type: Monetary
Substitution Group: Item
Balance Type: Debit
Period Type: Instant
The Label, Loans Advances, is defined as the total amount of loans and advances given by the entity to all parties and is represented by the sum of the following:
Secured Loans Advances,Unsecured Loans Advances,Advance Tax Paid,Deposit Assets,Tax Deducted At Source,Other Advance Taxes,Advance Tax paid
Instance Document
  A file that contains business reporting information and represents a collection of financial facts and report-specific information using tags from one or more XBRL taxonomies.
  It is a business report in an electronic format created according to the rules of the XBRL. It contains the facts that are defined by the elements in the taxonomy it refers to, together with their values and an explanation of the context in which they are placed.
  Instances documents must be linked to at least one taxonomy, which defines the contexts, labels or references.
 we can infer the following information about the data given for Loans & Advances:
·         Loans Advances amount= Rs. 92868202
·         Currency: INR
·         Balance: Debit
·         Company: ABC Co. Ltd.

HOW TO CREATE FINANCIAL STATEMEMTS IN XBRL

Generation of XBRL formatted financial statements can be through the following modes:
a)      Conversion: At the most basic level of adoption, an organization takes information from various sources within the organization and then copies or keys this information into an XBRL tool. There is no process change in thisapproach, merely a conversion of the results of the existing processes to a different format—including the existing inefficiencies.
b)      Outsourced: A second alternative is to use a third-party service provider to generate the XBRL financial statements by interfacing with them with the financial reporting tool.

STEPS IN CREATION OF XBRL INSTANCE DOCUMENT

  1. Obtain audited financial statements.
  1. These audited financial statements would preferably be in Excel and/ or Word format.
         Preparation of the source document based on the audited financial statement for XBRL conversion.
  1. Mapping the source document to the Target Taxonomy as mandated by MCA.
 Validating the mapped document to create instance document.
  1. Eliminating errors arising out of validation based on error logs.
  1. Approval of Instances and mapping by the Board of Directors before creating XBRL instance document.
  1. Creating XBRL instance document.
  1. Validation of the XBRL instance document by the management using the tool provided by the MCA before filing with the Office of the Registrar of Companies (ROC).
In the above procedure, Mapping or Tagging as per Step no. 4 is the most important step for the creation of an Instance Document because it requires exercise of reasonable judgement and accounting knowledge in mapping the financial statement items to the appropriate tags in the taxonomy.Judgement has to exercised having regard to the nature of the financial statement item/account head to ensure selection of the most appropriate tag.
It has to be ensured that the XBRL financial statements so generated are as per the taxonomy defined by MCA.This includes ensuring completeness, accuracy, mapping and structure of the
XBRL financial statements.
  1. Completeness means that all required information is formatted at the required levels as defined by the entity’s reporting environment. Only permitted information selected by the entity is included in the eXtensible Business Reporting Language (XBRL) files.
  2. Mapping means that the elements selected are consistent with the meaning of the associated concepts in the sourceinformation in accordance with the requirements of theentity’s reporting environment.
  3. Accuracy means that the amounts, dates, other attributes (for example, Monetary units), and relationships (order and calculations) in the instance document and related files are consistent with the source information in accordance with the requirements of the entity’s reporting environment.
  4. Structure means that XBRL files are structured in accordance with the requirements of the entity’s reporting environment.
             To avoid any misunderstandings at a later stage, it would be appropriate that terms of the engagement are formalised in an engagement letter. An illustrative engagement letter is given as per Annexure A. An illustrative management representation letter is given as per Appendix B.

STEPS TO BE FOLLOWED FOR E-FILING OF XBRL DOCUMENTS

  1. Download MCA XBRL validation tool from MCA portal: Validating the instance document is a pre requisite before filing the balance sheet and profit & loss account on MCA portal.
  1. Load the Instance Document in the validation tool: To load the instance document, you need to click the open button, select the instance document and open it. The detail of the company is available under the General Information tag in the XBRL viewer.
  1. Use the tool to validate the instance document.
  2. Perform pre-scrutiny of the validated instance document through the tool: For pre-scrutinizing the instance document, a working internet connection shall be required. In the Pre-scrutiny, the server side validations (i.e. validations which are to be validated from the MCA21 system) shall be performed.
  1. Final verification post pre-scrutiny of the document: the next step is to generate pdf by using ‘Export to pdf’ functionality in the tool to verify the final instance document.
  1. Attach instance document to the Form 23AC-XBRL and Form 23ACA-XBRL: First Form 23AC-XBRL and 23ACA-XBRL are to be filled up. Thereafter, the validated and pre-scrutinized instance document for Balance sheet is to be attached to Form 23AC-XBRL.Similarly, the instance document for Profit and Loss account is to be attached to Form 23ACA-XBRL. Separate instance documents need to be attached w.r.t. Standalone financial statements and consolidated financial statements.
  1. Submitting the Form 23AC-XBRL and Form 23ACA-XBRL on the MCA portal: After the forms are filled, you are required to perform pre-scrutiny of the form, sign the form and then upload the same as per the normal e-Form filing process.
  1. Viewing of balance sheet and profit and loss submitted in XBRL form on MCA portal: The XBRL instance documents submitted along with Form 23AC-XBRL and 23ACA-XBRL are in machine readable format. Therefore, for viewing the same in a human readable format, these shall be converted into human readable format by the MCA21 system. 

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Small Scale Industries (SSI) Scheme under Central Excise

Sunil Bhave
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SSI Scheme
The contribution of Small Scale Sector in the industrial growth of the Indian economy and to the Gross Domestic Product is significant besides the potential for employment generation. The Small Scale Sector has for itself a special dispensation in the Central Excise law in order to make it competitive in the domestic and global market. Central Excise duty concessions have been extended to the units in the small-scale sector based on their turnover so as to facilitate them to graduate by availing these concessions in a graded manner.



ELIGIBILITY
Manufacturers of specified commodities having clearances not exceeding Rs. 4 crores in the preceding Financial Year are eligible for this exemption.
REGISTRATION OF SMALL SCALE COMPANIES
Every manufacturer of excisable goods is required (under Rule 9 of Central Excise Rules 2002) to get registered with the Central Excise Department before starting production. SSI units are exempted from registration till their value of clearances reaches the specified limits. (which is full exemption limit minus Sixty Lakhs Rupees Notification No.36/2001)
WHO IS COVERED BY THE SSI SCHEME
At present, in terms of notification nos. 8/2003-CE dated 1st March, 2003, and effective from 1st April, 2003, a general small scale excise duty exemption scheme has been made operational providing slab-rated concessions from excise duty in respect of clearances of specified excisable goods. Under this notification, all goods specified in the First Schedule to the Central Excise Tariff Act, 1985 are eligible to avail the exemptions/concessions except for those goods which are chargeable to NIL rate of duty or which are exempt from whole of the duty and certain products as given in the Annexure to these notifications.
The salient features of these exemption schemes, as contained in the aforesaid notifications are as under:-
Where the SSI unit does not avail CENVAT
Notification No.8/2003-CE, dated 1st March, 2003. For first clearances effective from 1st April of a financial year up to an aggregate value of Rs. 1.50 Crore, duty is exempted in respect of those SSI units which do not intend to avail CENVAT Credit
Units availing SSI exemption are permitted to remove specified goods to a place outside the factory for getting any job work done on any specified goods without payment of duty (Notification number 83/94 and 84/94 Central Excise dated 11.4.94 as amended)
QUARTERLY RETURN OF PRODUCTION AND CLEARANCE (ER 1)
This return is to be filed once in a quarter, after the 20th day of the close of each quarter. A quarterly return of Cenvat Credit taken is also to be filed.
VISITS BY OFFICERS
No SSI factory should be visited by Central Excise officers except with the specific permission of the Assistant Commissioner and for a specific purpose.
WHOM TO APPROACH IN CASE OF PROBLEMS FACED
In case of any problems faced, the SSI is advised to approach either the jurisdictional Range Supdt., or the Asstt. Commissioner/ Deputy Commissioner of the Division or the Commissioner of Central Excise.

Checklist for Statutory Audit

Sunil Bhave
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STATUTORY AUDIT1.  In  recent days audit was done to check the accuracy of the financial statements and to express a true and fair view on the financial statements.

2.  The primary objective of the Statutory Audit is to ensure that the financial statement (such as balance sheet, profit & loss Account etc.) provides a true & fair view of the company financial state of affairs. As per the company’s Act it is mandatory for all the Registered companies to get their books of Accounts audited by the practicing Chartered Accountants

3.  Statutory audit means audit of statutory areas i.e. Income tax, Service tax , VAT ,ESI, Providend fund ,etc.

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Checklist statutory audit
1.  opening balance verification
2.   vouching
cash vouching
bank vouching
cash verification
bank reconciliation statement
purchase vouching
sale vouching
journal vouching
3. PROFIT AND LOSS
(i)  In the case of profit&loss a/c care should be taken for the individual breakups of sale and services.
(ii)   Verify the various statutory dues such as vat, service tax, excise duties which has amore connection with sales and services and various periodic returns showing the payment due date and vat credit should be accounted properly.
(iii)  Concentrate more on delivery dates and also on deliveries exceeding more than one     month. That results delay in delivery.
(iv)   In the case of purchases verification whether the vat has been accounted separately vat input tax credit account.
(v)   In the case of direct expenses and indirect expenses concentrate on the agreements like rent, fees, royalty, lease rent, advertisement, other expenses.
(vi)  In the case of preliminary expenses the treatment showing whether it is capitalized           within five years
(vii) Minutes of the meeting should be verified showing the any resolutions for capitalization of expenses, managerial remuneration, loans, approving donations(Especially 50,000 or more)
(ix)  In case of foreign agency commission expense change in foreign exchange fluctuation   should be accounted properly
(x) Any income from investment i.e. interest, dividend should be check bank account.
(xi) Verification of valuation of closing stock whether closing stock valuation as per accounting standard-2

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4. BALANCE SHEET
(i)Share capital
To see any resolution pass for increase in share capital how many no. of share issued.
Verify whether the share capital changes are there and whether the     changes are authorized under proper resolution.
(ii) In the case of secured loans whether the loans have been issued under proper sanction and written representation from banks and confirmation of balances from banks
(iii) In case of balance sheet proper disclosure between the secured and unsecured loans should be done and document evidencing the receipt of the loan should be taken.
(iv) Verify deprecation on assets as per company act and income tax act after considering  additions &deletions of assets.
(v)   Where fixed asset has been acquired from outside India and the rate of exchange changes after acquisition, the increase/decrease in the liability of the company for repayment of the whole or part of the money borrowed in any foreign currency for acquisition is adjusted in the cost of the asset (refer AS 11).
(vi) In case of companies other than investment companies or banking Companies, whether any of the shares, debentures or securities were sold at a price less than their purchase cost If so, obtain written explanation from management regarding justification for the same — section 227(1A)(c)
STATUTORY COMPLIANCES
A.Collection and Remittance of CST & VAT
B – Collection and Remittance of Service Tax .
C – Deduction and Remittance of TDS
D – Deducion and Remittance of Provident FUND & ESI
E – Deduction and Remittance of Professional Tax

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Clarification on deduction of TDS on Service Tax

Sunil Bhave
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Clarification on deduction of tax at source (TDS) on service tax component on rental income under section 194-I of the Income-tax Act, CIRCULAR NO. 4/2008, DATED 28-4-2008

Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as
rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) Land; or
(b) Building (including factory building); or
(c) Land appurtenant to a building (including factory building); or
(d) Machinery; or
(e) Plant; or
(f) Equipment; or
(g) Furniture; or
(h) Fittings,
Whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn’t partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
 [F.No.275/73/2007-IT(B)]

PROCEDURE TO INCORPORATE COMPANY

Sunil Bhave
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There are certain processes that are common to any form of business organization. This article analyzes the requirements for starting a Company. These may vary from State to State and may change from time to time. Also a business may require additional (or not all of the below mentioned) registrations, compliance and certifications.
Incorporating your company
1.    Name approval:
The first step in getting your company registered is the approval of name for the Company. Generally, it takes about seven days to get the approval. The following steps are required for name approval:
You have to file an application in Form No. 1A with the Registrar of Companies (ROC) of the State in which the Registered Office of the Company is proposed to be situated. The application is to be signed by one of the promoters and must contain the following details:
Minimum 2 alternative names for the proposed Company. (The name can be coined names from the objects of the Company or the names of the directors, etc. but should definitely be indicative of the main object of the Company. Justification for the name needs to be specified along with the application).
2.    Names and address of the members (minimum 7 for a public Company and 2 for a private Company).
3.    Authorized Capital of the Company (Minimum Rs.5 Lac for a public Company and Rs. 1 lac for a private Company).
4.    Main objects of the Company
On submitting the application, the ROC scrutinizes the same and sends the approval/objections in about 10 days to the applicant.
5.    Director Identification Number (DIN)
Directors for an Indian company, both Indian and foreigners, must register and get identification number under the new requirements. It is called Director Identification Number (DIN). The application needs to be filed online.
The form along with the supporting documents (PAN Card & Residence proof duly attested by CA, Notary or Gazette Officer) is to be sent to the offices designated by respective ROCs.
The fee for obtaining DIN can be deposited online or deposited in banks authorized for this purpose.
6      Digital Signature Certificate (DSC)
Directors for an Indian company, both Indian and foreigners, are also required to get Digital Signature Certificate (DSC). DSC is required for all Directors or authorized representatives of any Company as well as the professionals who will sign ROC forms or documents.
7      Memorandum and Articles of Association (Memorandum and Articles respectively)
While the Memorandum states the main, ancillary/subsidiary and other objects of the Company, the Articles contain the rules and procedures for the routine conduct of the Company. The Memorandum also states the authorized share capital of the Company and the names of its first directors.
Memorandum and Articles also need to be stamped. The stamp duty depends on the authorized share capital.
Documents required to be filed with ROC
The following documents are required to be submitted to the ROC:
Memorandum and Articles – These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed etc.
Form No. 1 – This is a declaration to be executed on a non-judicial Rs 20 stamp paper by one of the directors of the Company or other specified persons such as attorneys or advocates stating that all the requirements of the incorporation have been complied with.
Form No. 18 – This is to be filed by one of the directors of the Company informing the ROC of the registered office of the Company.
Form No. 29 – This is the consent obtained from all the proposed directors of the Company to act as directors of the Company. (Not required in case of private Company).
Form No. 32 – This states the appointment of the proposed directors on the board of directors from the date of incorporation of the Company and is signed by one of the proposed directors.
Name approval letter in original.
Power of Attorney signed by all the subscribers to Memorandum authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
Power of Attorney in case of a subscriber who has appointed another person to sign the Memorandum on his behalf.
These documents need to be filed online first and then a physical copy should be submitted to the ROC.
Certificate of Incorporation
After the above documents are filed, the ROC calls the attorney on a specified date for scrutiny and making corrections, if any in the Memorandum and Articles filed. On complying with the same, the certificate of incorporation is sent by post to the registered office of the newly registered company.

Procedure for change address of Company registered office

Sunil Bhave
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The steps involved in changing the registered company office from one state to another state
1. Call for a board meeting to decide on the change in the domicile clause.
2. In the board meeting fix up the date, time, place of the general meeting and approve the notices for this purpose, send the notices along with the proposed resolution and explanatory statement u/s 173(2).
3. Hold the general meeting and pass special resolutions.
4. After taking the approval of the members in GM, file a certified copy of the special resolution along with the explanatory statement in Form 23 with ROC.
5. Publish a general notice in at least one regional language newspaper and one English language newspaper circulated in the area in which registered office of the company is situated clearly stating the substance of the petition.
6. Send individual notices to all creditors/debenture holders of the company.
6. After a gap of one month from the date of sending notices as above, file petition with the Company Law Board (CLB) pursuant to the CLB Regulations, 1991. The petition has to be filed with the Regional Bench of the CLB at which the existing registered office is situated.
7. Serve a copy of the petition on the ROC.
8. Serve a copy of the notice along with a petition to the Chief Secretary to the Government of the State where the registered office of the company is situated or to the Administrator/Lt. Governor of the Union Territory where the registered office is situated in the Union Territory.
9. A hearing may take place at the CLB office at which creditors, if any, and the representatives of the company are heard before making any order.
10. After receiving the CLB order for shifting the registered office, the company is required to file certified copy of the order with the ROC along with Form No. 21 within 3 months of receipt of certified copy along
with the printed copy of the memorandum of association .
11. A certified copy of the order from the ROC within one month of the date of filing must be obtained.
12. The certified copy of the order should be filed with the ROC of the new state within one month of the date of the filing along with the certified copy of the memorandum of association.
13. The ROC of the new state i.e. at which registered office will be shifted will issue a fresh certificate of incorporation which will be conclusive evidence of the shift of registered office.
14. File Form No. 18 with the new ROC for the situation of the registered office
15. Necessary changes are required to be made in the letter heads ,books, records etc. of the company.
16. Arrange to adopt new common seal of the company.
(Note: In case of Listed Companies requirement of submitting information to Stock Exchange according to Listing Agreement shall be complied with.)

The minute format for Appointment of new director in a Pvt. Ltd.

Sunil Bhave
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Minutes of the Meeting of the Board of Directors of _________________Private Limited held at the registered office of the company on(___ )day, the ___st day of ___________, 20___ at, ___________________
Directors Present:
 _____________________occupied the Chair
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Item No.1
Minute of the previous Board Meeting
The Minutes of the previous Board Meeting were read, confirmed and signed.
 
Item No.2
Appointment of Director:
The chairman proposed to appoint one additional director on the board of the company. After detailed discussion the following resolution is passed:
“RESOLVED THAT _________________ be and is hereby appointed as a Non-Executive Director of the company with the immediate effect.”
“RESOLVED THAT subject to the applicable provisions of the Companies Act, 1956 and also subject to the provisions of the Articles of Association of the Company Mr.____________, the full time director of the company to be paid the remuneration and perquisites during the terms of his office and also be paid a minimum remuneration as pre-decided in the event of inadequacy or absence of profits in any financial year, during his term of office.”
“FURTEHR RESOLVED THAT Mr.__________, Director be and is hereby authorised to file Form No. 32 in respect of the appointment of Mr.__________.”
Vote of Thanks:
There being no other business to transact, the meeting ended with a vote of thanks to the Chair.
Place: Mumbai        
Date :                                                                                                                       Chairman

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How to save incometax?

Sunil Bhave
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Best way to save tax
 Investment in a house could be the best way to save tax. As prices of residential units have gone up in the range of Rs 50 lakh and over, tax experts say buying a second house for investment purpose will save even more tax than that over the first house you bought for personal use.
When you buy a house for personal use, you can take the deduction from your taxable income against the interest payment on your loan taken to buy the house up to Rs 1,50,000 only.
Besides this, you can also avail the benefit of deduction against the repayment of principal amount under section 80C.
However, under 80C, you can avail the deduction up to Rs 1,00,000 – but this is inclusive of all the investments like your contribution in EPF, PPF, tax savings mutual funds and school fees of your children among other things.
Investing in housing is safe and brings in better returns

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Therefore, normally, if your taxable income is more than Rs 5 lakh, most of the limit provided under section 80C is exhausted because of the compulsory savings scheme.
Still, if you take repayment up to Rs 20,000 against principal under section 80C, your net tax savings every year will be Rs 52,350. This is mainly because the benefit against interest payment is capped at Rs 1,50,000 even if you have taken a loan of Rs 50 lakh to buy a house at 8%, and your interest outgo in the first year will be Rs 3,96,181.
The monthly installment on Rs 50 lakh loan at 8% for 20 years will be Rs 41,822.
This works out to an annual payment of Rs 5,01,864. Out of this, Rs 3,96,181 will go against the interest payment in the first year and the rest Rs 1,05,683 will go against the principal repayment.
Get the tax benefits by investing in housing
Despite, the interest payment of Rs 3,96,181 you will get the deduction benefit of Rs 1,50,000 only. So, the tax benefit under this will be Rs 46,350 – including the education cess – at the rate of 30.9%.
Besides this, though you have repaid Rs 1,05,683 from the principal, you will get a deduction of Rs 20,000 as most of the quota of Rs 1,00,000 is used up by the investments in other instruments.
So, the tax benefit against the principal repayment will be Rs 6,180, making your total benefit at Rs 52,350. But, if you have invested the same amount to buy a house as an investment instrument, you can take the benefit against the interest payment for the entire amount.
Rental income from the house included in the income
In this case, the benefit against the interest payment is not capped. But, there is a catch. The rental income of the house will be included in your income.
But in India, annual rental income, most of the time, is in the range of 2% to 3% of the capital value. Even today, an apartment of Rs 50 lakh is easily available on rent for Rs 10,000 a month. At the same time, the repayment of principal amount will not be allowed for deduction from your taxable income under 80C.
But still, as the interest payment on loan is huge, the rental income does not offset a substantial benefit.
Investing in housing a better option
Take for example a loan of Rs 50,00,000. In this case, the interest payment in the first year is Rs 3,96,181 and the rental income is Rs 1,20,000. But, only 70% of the rental income gets added to your income.
You get a rebate of 30% on rental income against the maintenance of the house. So in the first year, only Rs 84,000 will be included in your income as the house income.
Now, as you spend Rs 3,96,181 as interest payment and Rs 84,000 you earned as house income, you will get a net deduction of Rs 3,12,181 because of your investment in the house. At the rate of 30.09%, you will save a tax of Rs 96,464.

Difference between Old Schedule VI vs New Schedule VI

Sunil Bhave
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Old Schedule VI
1. (Op.Stk + Purchases + Direct Exps) – (Cl.Stk)
(i.e Op.Stk – Cl.Stk) are Shown under the Head Expenses.
Direct Expns are Shown Under the Sub  Head Other Expns.
2. Indirect Expenses are Classified as Administrative, Financial and Selling & Distribution Expenses.
Cost and Other Expenses
3. Staff welfare Expenses Expns Details is Given in Administrative Expns Account.
4. Profit is Shown as PBT, PAT & Surplus C/f. P/L of Discontinuing Operation (if any), Tax Expns of Discontinuing Operation (if any) Should be Disclosed Separately.
EPS Should is Shown in Profit & Loss Statement itself.
B. Balance Sheet
Old Schedule VI
1.  Share Holders Fund includes Sh.Capital + Reserves & Surplus.
2. Borrowing are Shown under Loan Funds. Non – Current Liabilities & Current Liabilities Respectively
3. Liabilities & Provisions are shown as Current Liabilities & Provisions.
4. Fixed Asset is Shown as Gross Block Under development.
5. Investments are shown Under application of  funds under the head Investments.
6. Loans and advances are shown under Advances And Deposits.
Under Non – Current asset and Current
Assets respectively.
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New Schedule VI
1. Here, Purchase, and is shown as Cost of Sales
2. As per New Sch VI Indirect Expenses are classified as Financial
3. It is Shown Separately as Employee Benefit Expns Under the Head Expns.
4. Under New Sch VI Profit is Shown as Profit before exceptional and extraordinary items and tax, Profit before extraordinary items and tax, Profit before tax.
New Schedule VI
1. Share Holders Funds also includes
2. Loans Funds Should be Sub classified as Long term borrowings and Short term borrowings under the Heads
3. Liabilities are shown as Non Current  and Current liabilities.
4. Fixed Assets is Classified as Tangible, less Depreciation = Net Block.
5. Investments are Shown as Non – Current investments and Current Investments Under Non – Current asset and Current assets respectively.
6. Loans and Advances should be shown As Long term and Short Term
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