When an assessee in India gives away or creates a charge on their business assets, they need to obtain prior permission and a certificate from an Assessing Officer. This is a precedent set under Section 281 of the Income Tax Act. However, many assessees are unaware of the implication and significance of obtaining such a certificate. The Income Tax Department can deem any transaction by sale, gift, exchange or mortgage as void if one fails to get prior permission and certificate.
Read to know about the guidelines under Section 281 in detail.
As per Section 281 of the Income Tax Act, India, if an assessee creates a charge in favour of another individual and transfers an asset, including shares or other securities, without submitting an application form to an Assessing Officer, such charge or transfer shall be deemed void.
However, if assessees obtain permission from the AO before creating a charge or transferring assets, then the transaction can become successful. To obtain permission or a No-objection Certificate (NOC), one has to submit an application form following the guidelines mentioned below. Section 281 exists in order to restrict the chances of assessees transferring their assets to evade taxes.
One must note that Section 281 is only applicable when the tax amount or other surcharge is more than Rs. 5,000. On top of this, the value of assets charged or transferred should exceed Rs. 10,000.
To ensure that creating a charge on business assets takes place successfully, one needs to follow certain guidelines. Through these guidelines, you will be able to obtain a certificate under Section 281 of the Income Tax Act.
Section 281 of the Income Tax Act form contains four parts that one has to fill out diligently. The parts are:
Under this, assessees need to provide their some personal and residential details, such as the following:
Under this section, assessees need to provide all details regarding any outstanding demand(s) as of the application date. In a tabular format, one will have to mention:
Assessees will have to furnish details regarding their assets that do not form part of stock-in-trade of their business as of the application date. These assets can be land, building, securities, fixed deposits, machinery, plants and shares. In a tabular format, assessees need to provide:
Probably the most vital part of this form is mentioning the transaction details for which one is submitting this form. Under this section, an assessee provides the following details regarding the transfer of assets or creation of charge:
Tax evasion is a sad reality in India. Many individuals make use of loopholes in the taxation system to avoid tax liability. Section 281 of the Income Tax Act tries to ensure that assessees do not evade taxes while creating a charge or transferring business assets.
Ans: Obtaining a No-objection Certificate from an Assessing Officer while transferring or creating a charge is mandatory under certain circumstances. If the value of asset under the transaction is above Rs. 10,000 and tax implication is more than Rs. 5,000, you need to obtain permission.
Ans: No-objection Certificate is a legal document issued by an individual stating that they have no objection to the information in this document. An agency, organisation or institute, such as the Income Tax Department can issue this certificate.
Ans: Upon filing the income tax return, the Income Tax Department assesses one’s annual income and tax paid. However, if the IT Department finds that the tax paid by an assessee is lower than the actual amount, they will issue a demand notice. In this case, you have an outstanding demand.
Ans: In India, the Central Board of Direct Taxes performs the role of administering income tax laws. It is also responsible for providing input on policies and planning direct taxes. Most importantly, they analyse assessments, tax evasions and collection of taxes.
Ans: Assessing Officers are responsible for assessing the income tax returns filed by taxpayers within their jurisdiction. They are appointed by the Income-tax Department and are crucial to the process of upholding taxation laws in India.
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