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The <keyword id="48485" type="General" weightage="50" keywordseo="bombay-high-court" source="Orion">Bombay High Court</keyword> on Thursday refused relief to actor <keyword id="6357860" type="General" weightage="100" keywordseo="anushka-sharma" source="Orion">Anushka Sharma</keyword> and disposed of her petitions challenging orders passed by the state Sales Tax department demanding tax for assessment years between 2012 to 2016 under the <keyword id="16042124" type="General" weightage="50" keywordseo="maharashtra-value-added-tax-act" source="Orion">Maharashtra Value Added Tax Act</keyword>. A division bench of <keyword id="9774337" type="General" weightage="50" keywordseo="justices-nitin-jamdar" source="Orion">Justices Nitin Jamdar</keyword> and <keyword id="9265938" type="General" weightage="50" keywordseo="abhay-ahuja" source="Orion">Abhay Ahuja</keyword> said the actor had the alternate remedy of filing appeal against the orders under provisions of <keyword id="601688" type="General" weightage="50" keywordseo="maharashtra-value-added-tax" source="Orion">Maharashtra Value Added Tax</keyword> (MVAT) Act. <keyword id="445" type="General" weightage="90" keywordseo="sharma" source="Orion">Sharma</keyword> had filed four petitions challenging four orders passed by the Sales Tax department levying tax for assessment years 2012-13, 2013-14, 2014-15 and 2015-16 under the Act. "Why should we entertain the petitions when the petitioner (Sharma) has a full fledged remedy of appeal available under the Act? Statutory provision is available," the bench said. The court, while disposing of Sharma's petitions, directed her to file appeal before the Deputy Commissioner of Sales Tax (Appeals) within a period of four weeks. Under the Act, when a person files appeal, he or she will have to deposit 10 per cent of the tax amount levied by the department. As per the Sales Tax department, Sharma was the "first owner of copyrights" on her performances at awards functions or stage shows, and, therefore, liable to pay sales tax when she received income from them. As she "transferred" this <keyword id="15456337" type="TOPIC" weightage="60" keywordseo="Copyright" source="TOPIC" sourcekeytype="business,investopedia" meta.keywordsubtype="null" meta.msid="92982198" meta.seopath="c/copyright" meta.entityname="Copyright" meta.hostid="153" meta.entityid="copyright">copyright</keyword> to the producers of such events for a fee, it was akin to a sale, the Sales Tax department contended. Sharma's contention is an actor who performs in a film, advertisement or a stage/TV show cannot be called a creator or producer, and, hence, she or he does not own a copyright on the same. The court said all the issues raised by Sharma in her petitions can be decided by the appellate authority. "The authority will go into all the issues and conduct a detailed inquiry. If we sit to decide this, then every <keyword id="16987535" type="General" weightage="20" keywordseo="mvat-act" source="Orion">MVAT Act</keyword> matter will come here," the court said. The department had sought for the petitions to be dismissed and cost be imposed on Sharma as she had an alternate remedy available under the MVAT Act. According to Sharma's petitions, during the concerned period she performed in films and at award ceremonies as part of a tri-party agreement with her agent <keyword id="15841112" type="General" weightage="50" keywordseo="yashraj-films-pvt-ltd" source="Orion">Yashraj Films Pvt Ltd</keyword> and producers/event organisers. The assessing officer levied sales tax not on film consideration but on product endorsements and anchoring at award functions, holding that Sharma had transferred her performer's rights, her petitions said. For Assessment Year 2012-13, the sales tax demand, inclusive of interest, was Rs 1.2 crore on Rs 12.3 crore consideration and for 2013-14, it was Rs 1.6 crore on a consideration of Rs 17 crore. The sales tax department passed the orders between 2021 and 2022. Sharma is known for her roles in films like "PK", "Rab Ne Bana Di Jodi", "Sultan" and "Zero", among others. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/news/spicejet-cmd-ajay-singh-takes-over-as-the-president-of-industry-body-assocham/articleshow/99115277.cms">SpiceJet CMD Ajay Singh takes over as the president of industry body Assocham</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/news/sebi-directs-top-100-listed-firms-to-clarify-market-rumours-from-oct-1/articleshow/99115234.cms">SEBI directs top 100 listed firms to clarify market rumours from Oct 1</a>

Anushka Sharma gets no relief from Bombay HC on pleas against sales tax demand

The concept of <keyword id="6354678" type="DEFINITION" weightage="20" keywordseo="Indirect-Tax">indirect tax</keyword> has been introduced in India in order to reduce the burden on the tax payers. In other words, we can say that the burden of these taxes are borne by someone else other than the taxpayer. What is Indirect Tax? As the name indicates, indirect tax is levied on goods and services that carry a higher price. Some of the typical examples of indirect <keyword id="707923" type="PERSON" weightage="20" keywordseo="taxes-in-India">taxes in India</keyword> include service tax, value added tax (<keyword id="6370857" type="UNKNOWN" weightage="20" keywordseo="VAT">VAT</keyword>), central excise and customs duty. Different kinds of indirect taxes levied in India Service tax Service tax is applicable to be paid by the entities that provide services like consulting, legal assistance and other such services. This kind of tax is collected from the recipients of the services and paid to the Central Government. Starting from June 1, 2016, service tax was fixed at 14% along with Swacch Bharat Cess (0.5%) and Krishi Kalyan Cess (0.5%). Thus the resulting rate of service tax chargeable is 15%. Small service providers who do not make more than Rs 10 Lakhs per annum are exempted from paying the service tax in India. <keyword id="6356916" type="UNKNOWN" weightage="20" keywordseo="excise-duty">Excise duty</keyword> Excise duty is applied on all kinds of goods that are manufactured in India. This kind of indirect tax needs to be paid by the manufacturers and then eventually passed on to the end buyers. Excise duty is levied by the Central Government in India. This tax works based on the provisions found in the Central Excise Act, 1944. VAT Value Added Tax (VAT) is levied on the sale of goods that are movable within the nation. VAT is charged during all stages of production and distribution channels that include the instance of value addition. The State Governments levy this tax under Entry 54 of the State List. Customs duty Customs duty is a kind of indirect tax that is applicable to goods imported from other countries. This is payable towards getting some goods inside the country. In some cases, this kind of tax is also levied on exported goods. The Customs Act, 1962 contains the procedures and regulations on how the customs duty must be levied, how it must be collected and the procedures of imports and exports, penalties, offenses and prohibitions. Securities Transaction Tax (STT) Securities transaction tax is levied while purchasing or selling stocks through the Indian stock exchange. Introduced in the year 2004, STT is applicable in cases of shares, mutual funds, and future and options transactions. STT was levied in order to bring down the short-term capital gains tax and eradicate the long-term capital gains tax. Stamp duty This kind of indirect tax is charged by the state government while movable and immovable properties are transferred within their jurisdiction. Also, stamp duty is made compulsory on all kinds of legal documents. The rates of stamp duty varies from one state to another. <keyword id="62084" type="ORGANIZATION" weightage="20" keywordseo="Entertainment-tax">Entertainment tax</keyword> Entertainment tax is yet another kind of indirect tax levied by the state government on the different kinds of transactions connected to entertainment. Some examples to entertainment taxes are movie tickets, stage shows, amusement parks, sports activities, adventures, video game arcades and others.

Here’s all you need to know about Indirect Tax in India

Those under investigation for unaccounted foreign assets allegations won’t get the benefit of a one-time disclosure window under the new <keyword id="6356023" type="UNKNOWN" weightage="100" keywordseo="Black-Money">black money</keyword> law if the government had prior information about this, according to detailed rules on the last chance being offered to people looking to come clean. Hence, those under the so-called <keyword id="6358584" type="CITY" weightage="80" keywordseo="HSBC">HSBC</keyword> list won’t get any leeway. On the other hand, those who declare such assets during the disclosure period won't find themselves being prosecuted under other laws based on this information. Assets will have to be valued in general at cost or fair market value on the valuation date, whichever is higher, according to the rules issued by the <keyword id="47209" type="ORGANIZATION" weightage="100" keywordseo="Finance-Ministry">finance ministry</keyword> on Friday. The government is giving black money holders one last chance to pay 30 per cent tax and 30 per cent penalty to escape the law that provides for imprisonment of three to 10 years for undisclosed foreign assets or income. 

	Disclosures can be made from July 1 to September 30, with another three months ending December 31 to pay up, the government said earlier this week. The law came into force on July 1. 

	"Considering the stringent nature of the provisions of the new law... (it) provides for a one-time compliance opportunity for a limited period to persons who have any foreign assets which have hitherto not been disclosed for the purposes of income tax," the finance ministry said in the explanatory statement on the window. 
 

	Any statement in which the assessee fails to pay tax or misrepresents facts will be deemed invalid and treated as a non-declaration, inviting the harsh provisions of the law passed in the budget session.
 It is a very simple and clear compliance scheme that has been given in line with the letter and spirit of the law, said <keyword id="120753" type="POSITION" weightage="100" keywordseo="revenue-secretary">Revenue Secretary</keyword> <keyword id="6359111" type="PERSON" weightage="60" keywordseo="Shaktikanta-Das">Shaktikanta Das</keyword>. The government has not promised any confidentiality to those declaring undisclosed foreign assets under the black money law but said it won't be used as evidence under legislation such as the harsh <keyword id="6368276" type="COMPANY" weightage="100" keywordseo="Foreign-exchange">Foreign Exchange</keyword> Management Act (FEMA). 

	"The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the Income Tax Act, the Wealth Tax Act, the Foreign Exchange Management Act, the Companies Act or the Customs Act," the government said. Also, the value of assets in the declaration won't be liable to wealth tax for any assessment year.
 

	In the case of bank accounts, all deposits will be added up to arrive at the taxable amount but credit will be given for any withdrawals deposited back into the account. The government will accept the estimates of valuers approved by the government of the country where the asset is located. It has clarified the valuation rules through illustrations and will soon issue FAQs to make it easily understandable.
 

	"It is time now for people to look at their existing assets/ income positions and utilise this opportunity for onetime disclosure to bring their records up to date," Amarpal Chadha, tax partner, EY India, told ET.
 

	The government has been receiving data from various sources about foreign assets of Indians. If the revenue authorities had information about any asset on June 30, then the same has to be excluded and the declaration filed again.
 

	In respect of such assets, the one-time opportunity will be denied and action taken under the law. Additionally, those already under income tax investigation before June 30 or against whom survey and search have been conducted and proceedings are still on on will not be able to use this opportunity.
 

	The disclosure under this window can be made for any undisclosed asset located outside India and acquired from income chargeable to tax under the Income Tax Act for any assessment year prior to that of 2016-17. A senior government official told ET the law allows the tax authorities to go back 16 years.

	Experts said the rules were reasonable and should encourage people to declare such assets.
 

	"This indeed is a one-time opportunity and the taxpayer needs to make sure to make the correct disclosure," said Kuldip Kumar, partner at PwC. "Any misrepresentation or suppression of facts or information will make the declaration void as if such declaration was never made and tax payer would be subject to the penal consequences under the Act. Further, the amount of tax and penalty paid would also not be refunded."
 

	The declaration may be filed with the Commissioner of Income Tax, Delhi, or online through the e-filing portal. 

	 
	 
	(image credits: indiatimes)

Tough Black Money law exempt those under investigation from getting any leeway

<ul><li><keyword id="61430" type="PERSON" weightage="20" keywordseo="fuel-prices">Fuel prices</keyword> in India reached an all-time high again today partly owing to the continued depreciation of the rupee. </li><li>Rather than cutting taxes on fuel, the government is instead trying to stem the slide in rupee by selling rupee-denominated bonds to foreigners and NRIs. </li><li>A cut in fuel duties runs the risk of increasing the <keyword id="6365485" type="DEFINITION" weightage="20" keywordseo="Fiscal-Deficit">fiscal deficit</keyword> further, which will, in turn, lead to the rupee’s depreciation. </li></ul>Fuel prices in India reached an all-time high again today as <keyword id="6367091" type="UNKNOWN" weightage="20" keywordseo="petrol">petrol</keyword> was being sold for ₹80.87 a litre in Delhi and ₹88.26 a litre in Mumbai while <keyword id="6356109" type="UNKNOWN" weightage="20" keywordseo="diesel">diesel</keyword> hit ₹72.97 a litre in Delhi and ₹77.47 a litre in Mumbai. The backlash has been resounding. In addition to political mudslinging, The Congress and other Opposition parties staged a “Bharat Bandh” or series of peaceful protests around India. Some schools and government offices were shut. Truck drivers also staged demonstrations. The central government, led by the BJP, has ruled out a cut in duties on fuel. In addition to a customs duty of 2.5%, the excise duty on fuel is currently ₹19.48 per litre while it is ₹15.33 per litre for diesel. The rates have been raised nine times and decreased only once since the BJP government came to power in May 2014. The rising price of fuel is mainly due to the fact that India imports most of its oil and the rupee is currently at an all-time low against the dollar. Rather than cutting taxes on fuel, the government is instead focusing on trying to stem the slide in rupee by selling rupee-denominated bonds to foreigners and NRIs, which will make the rupee appreciate. Why is the government refusing to cut fuel prices? While protests from the Opposition indicate that the central government has a choice in the matter of fuel duties, which it does in principle, the actual reality is that it is lodged between a rock and a hard place. A affects B which affects C which affects A The government is currently dealing with a large, and growing, fiscal deficit - which occurs when its expenses outweigh its revenues. It is able to keep this deficit in check (within the range of 3% of GDP) partly owing to the duties it imposes on fuel and fuel products. However, if the government were to cut fuel duties and risk a widening of its fiscal deficit, the rate of yield on its rupee-denominated bonds would be higher in light of the increased risk associated with them. This, in turn, would make them less attractive to investors, potentially leading to further depreciation of the rupee. Hence, in order to cut fuel prices, the government would find itself in a position where the rupee was worse off than it was before, which would counteract the effects of the initial reduction in fuel duties. However, this does not mean that the government will never be able to cut taxes on fuel. Once it is able to increase revenues from duties and taxes on non-oil products, which will follow heightened GST compliance and the continued crackdown on tax evasion, then its fiscal deficit will be able to bear the brunt of a reduction in fuel duties. Countries which feature a high rate of tax compliance usually have much lower duties on fuel, relative to India. Rates can also be cut at the state level, wherein <keyword id="463828" type="PERSON" weightage="20" keywordseo="value-added-tax">value-added tax</keyword> (VAT) is imposed on fuel products. Once again, though, this depends on the state’s financial situation. Some states like Andhra Pradesh and Rajasthan, which are in better financial health, have been able to cut the VAT rate on fuel products. However, for most states like Maharashtra and Bihar, which run a deficit, a cut would be hard to stomach. Banking on RBI intervention The Indian government has asked the RBI to intervene in capital markets and prevent the rupee from depreciating further. The central bank has been withdrawing funds from its foreign exchange reserves to prop up the rupee and prevent volatility in recent months, however this hasn’t proved an adequate solution. It will likely raise interest rates for the third successive time to keep inflation and check and to prevent capital outflows.

Here’s why the Indian government is not being able to cut fuel prices

<ul class="summary-list"><li><keyword id="6358817" type="LOCATION" weightage="60" keywordseo="ireland">Ireland</keyword>'s Supreme Court has <a href="https://www.courts.ie/view/judgments/fad40678-a172-44c7-9f84-66f8c102c0f0/88cac706-404b-4cd0-afeb-8562cd2ead95/2020_IESC_60%20(Unapproved).pdf/pdf">ruled</a> that <keyword id="6366667" type="UNKNOWN" weightage="60" keywordseo="subway">Subway</keyword>'s sandwich rolls are not legally bread because of their high sugar content.</li><li>The case was brought to the court by a franchisee holder in County Galway that believed the bread should be exempt from value-added tax.</li><li>But the VAT Act 1972 has a narrow definition of tax-exempt bread, saying the fat, sugar, and bread improver can't exceed 2% of the weight of the flour.</li><li>Sugar accounts for 10% of the weight of the flour in Subway's rolls, making them too sugary to be considered tax-exempt bread. </li></ul>Subway sandwich rolls cannot be legally defined as bread in Ireland, the nation's Supreme Court <a href="https://www.courts.ie/view/judgments/fad40678-a172-44c7-9f84-66f8c102c0f0/88cac706-404b-4cd0-afeb-8562cd2ead95/2020_IESC_60%20(Unapproved).pdf/pdf">recently ruled</a>.The case brought before the court was from Bookfinders Ltd., a Subway franchisee in County Galway that believed the rolls should be exempt from value-added tax. The judgment was delivered Tuesday.In Ireland, certain staple foods like bread are exempt from VAT. But to differentiate between bread and baked goods, the VAT Act 1972 provides a specific definition of bread saying the fat, sugar, and bread improver should not account for more than 2% of the weight of the flour in the product.Subway's sandwich rolls don't meet this definition because the sugar accounts for 10% of the weight of the flour, the five judges wrote.Subway did not immediately respond to Business Insider's request for comment on Thursday morning.It's not the first time the chain's bread has come under scrutiny. When reports in 2014 found that its bread contained a chemical also found in yoga mats, Subway <a href="https://www.businessinsider.com/subway-removes-chemical-from-its-bread-2014-2">immediately changed the recipe</a>.<ul class="read-more-links"><li>Read more:</li><li><a href="https://www.businessinsider.com/coronavirus-subway-apologizes-for-shops-free-mask-with-sandwiches-deal-2020-3">Subway apologizes after a location advertised free medical masks for customers who bought 2 sandwiches</a></li><li><a href="https://www.businessinsider.com/coronavirus-subway-panera-and-other-chains-roll-out-grocery-2020-4">Chains like Subway and Panera are selling groceries, including loaves of bread, milk, and even toilet paper, as grocery stores struggle with shortages and long wait times</a></li><li><a href="https://www.businessinsider.com/subway-cuts-roast-beef-and-rotisserie-chicken-from-the-menu-2020-6">Subway faces backlash after slashing roast beef and rotisserie chicken from the menu</a></li><li><a href="https://www.businessinsider.com/subway-lays-off-hundreds-workers-corporate-hq-2020-2">Subway slashed hundreds of jobs at its corporate headquarters</a></li></ul>

The Irish Supreme Court ruled that Subway's sandwich rolls don't meet the legal definition of bread because they have too much sugar

<ul><li>The effective tax rate on the <keyword id="1004835" type="PERSON" weightage="20" keywordseo="Lottery-industry">lottery industry</keyword> is at 28%. </li><li>Adding the taxes on prize money, the tax rate has tripled under the GST regime. </li><li>Excessive taxes have given birth to illegal lotteries, allege lottery sellers. </li><li>The government also collected only ₹3,725 crore of GST from lotteries and the potential is as high as ₹12,000 crore, according to the industry body. </li></ul> Sugal and Damani who market government licenced lotteries have cut two-thirds of their points of sale in the last one year, to 10,000 from 30,000. And, it is not because Indians have stopped betting on their luck, but because lotteries have turned plain expensive after the levy of goods and services tax. “Effective overall tax incidence of service tax and lottery tax was 6.71% on the face value in pre-GST whereas now it is nearly 28%,” said a press release by the lottery sellers. It is not just the tickets which are taxed, but the prize money is also heavily taxed and the industry laments that the tax incidence on it overall has increased a whopping 300%. Added to that, the centre and state also tax them differently, making the licenced lottery tickets of some states less attractive. “This huge difference in the tax rate on the same commodity acts as a tariff barrier for smaller states like Goa, Sikkim, Arunachal etc. when their tickets are sold in other bigger States like West Bengal or Kerala,” said Kamlesh Vijay, group CEO of Sugal &amp; Damani. The industry is also affected by increased illegal lotteries which are eating into their market. The GST council too has taken cognizance of the issue has been which had earlier recommended that only 5% should be charged on the face value of lottery tickets. Another option was to charge 28% on the price, after excluding the prize payout. “These has been of great concern and fears among the retailers’ employees and their families of job loss, but we are hopeful of a turnaround with support from the government,” said Vijay. And, there is something in it for the government too promises the retailer. Only ₹3725 crore of GST was collected from the industry in the last nine months, while the industry believes that as much as ₹12,000 crore should have been collected considering the 20% face value of industry which has a massive size of ₹59,600 crore per annum.

India’s ₹60,000 crore lottery industry is blaming GST for their loss of fortune

<ul class="summary-list"><li>"British markets aren't acting like those of an advanced country," Paul Krugman said in an op-ed for the NYT on Friday.</li><li>After announcing tax cuts last week, the pound plunged in value, a sign markets are losing confidence.</li></ul>Markets are now treating the UK as if it's a developing economy, a sign that confidence has plunged after Britain floated a plan to cut taxes, according to Nobel Laureate Paul Krugman. The top economist pointed to the turmoil last week, when the <a href="https://markets.businessinsider.com/news/currencies/currencies-dollar-british-pound-record-low-liz-truss-kwasi-kwarteng-2022-9">pound plunged</a> after new Prime Minister Liz Truss announced she would be implementing tax cuts, including a 5% cut on top wealth holders and slashing planned corporate tax increases. "British markets aren't acting like those of an advanced country," <a href="https://www.nytimes.com/2022/09/23/opinion/uk-truss-tax-cut-economy.html">Krugman said in an op-ed for the New York Times</a> on Friday.The government acknowledged the plan would require heavy borrowing to cover budget deficits. Typically, advanced countries in a budget deficit see the value of their currencies rise as investors expect their central banks to raise rates to offset inflationary effects, he noted. But Britain's markets are "behaving like those of a developing country, in which investors tend to see budget deficits as a sign of irresponsibility and a harbinger of future policy disaster," Krugman said.The tax cuts are all part of Britain's plan to spur growth amid tight economic conditions. But investors <a href="https://markets.businessinsider.com/news/currencies/pound-dollar-tax-cuts-inflation-recession-stagflation-interest-rates-hikes-2022-9?utm_medium=ingest&amp;utm_source=markets">fear the cuts</a> would not only increase the government debt but also fuel inflation, spurring the Bank of England to hike interest rates more aggressively and potentially drag the UK economy into a deep recession. Cutting taxes in the hopes of fueling economic growth is a "zombie" idea, Krugman said, arguing that they have failed in practice and should be dead but continue to live on. Meanwhile, the US economy took off during the Clinton administration, which raised taxes. "But officials still insisted, despite all the historical evidence to the contrary, that their tax cuts would do great things for the British economy. Obviously, I don't believe their assurances. More importantly, neither do financial markets," he added.But the chaos in Britain's markets could be an overreaction, but it is a testament to the "crisis of confidence" Truss has set off overseas, which could be an omen for the British economy in the near-future, Krugman noted."There is no reason anyone who isn't a right-wing apparatchik, sealed in a hermetic intellectual bubble, should believe that tax cuts for the rich are the answer to what ails us," he said.

Markets are treating the UK as if it's a developing economy after the government's plan for tax cuts deepened the risk of 'policy disaster,' top economist Paul Krugman says

<ul class="summary-list"><li>Puerto Rico's Act 60 offers tax incentives and is attracting wealthy Americans to the island. </li><li>However, there are misconceptions about what gains are exempt.</li></ul><a target="_blank" href="https://www.businessinsider.com/retire-puerto-rico-tax-benefits-healthcare-residency-requirements-real-estate-2024-1">Puerto Rico</a> offers an enticing proposition for wealthy Americans from the mainland seeking <a target="_blank" href="https://www.businessinsider.com/puerto-rico-act-60-tax-breaks-bona-fide-citizen-residency-2024-2">tax relief</a>, but making the move can be challenging if you are not familiar with all the rules.<a target="_blank" href="https://www.andersen.com/people/cole-clarissa">Clarissa Cole</a>, a managing director at the tax advisor firm Anderson — which specializes in expatriation consequences and planning, especially for high net-worth individuals — said some of the important details often missed or overlooked include residency, investments, and charitable contributions.Between 2021 and 2022, about 27,000 individuals moved from the US mainland to Puerto Rico, according to data collected by the <a target="_blank" rel="noopener noreferrer" class="c-link c-link--focus-visible" href="https://www.census.gov/topics/population/migration/guidance/state-to-state-migration-flows.html">US Census Bureau</a>. <a target="_blank" rel=" nofollow" href="https://www.investpr.org/why-puerto-rico/tax-benefits-policy/?nis=6">Act 60,</a> which provides financial incentives to entice <a target="_blank" href="https://www.businessinsider.com/retire-puerto-rico-tax-benefits-healthcare-residency-requirements-real-estate-2024-1">Americans to move to Puerto Rico</a> full-time for an extended period, has been a lure for some wealthy Americans seeking financial benefits without having to give up US citizenship.If you qualify for an Act 60 decree, it includes a 4% income tax rate, a 75% discount on property tax, and no tax on capital gains accrued while on the island.At its core, <a target="_blank" href="https://www.investpr.org/why-puerto-rico/tax-benefits-policy/">Puerto Rico's Act 60</a> aims to invigorate its economy by attracting foreign residents and investors, especially those with a lot of money. However, to get the Act 60 benefits, you have to become what is called <a target="_blank" href="https://www.businessinsider.com/puerto-rico-act-60-tax-breaks-bona-fide-citizen-residency-2024-2">a "bona fide" resident</a>.<h2>Common misconceptions of the Puerto Rico tax breaks</h2>Cole said one of the biggest misconceptions from people seeking tax breaks in Puerto Rico is that all gains from the selling of assets, such as a house or investments, are excluded once the person becomes a bona fide resident of the island. However, the true tax break is determined by how much of the gains came after becoming a resident, and this is determined by a special rule called the "possession holding period."Cole explained that the "possession holding period" is the key and means that only gains made while living in Puerto Rico are exempt from the US capital gains tax. She noted that this is also true for those who qualify for citizenship for the entire year, but only lived on the island for a portion of that time.For Sean Flynn and Sarah Lindsey, a <a target="_blank" href="https://www.businessinsider.com/retire-puerto-rico-tax-benefits-healthcare-residency-requirements-real-estate-2024-1">semi-retired couple who moved from Texas to Puerto Rico</a>, that means keeping a detailed log of asset values before they moved and how much they have changed each year after becoming residents."I have to keep track of the day that I moved here and the gains that I had up until that point," Flynn said. "So if I sell an asset that I owned before I moved, I have to keep track of that and say, 'Oh, I had a gain that was not while I lived in Puerto Rico.'"After moving to Puerto Rico, the couple sold their condo in Austin, a move that was not exempt from capital gains tax. However, the condo they purchased on the island after moving will be free of the tax if it accrues value by the time they sell.<div type="image" title="Houses in Old San Juan, Puerto Rico." height="1668" width="2500" msid="108648598" hostid="261" sizebytes="386096"></div>According to Cole, another misunderstanding is income tax and what is eligible for the lower rate. Similar to the capital gains tax exemption, only income from sources within Puerto Rico qualify for the lower rate.The same is true for income derived from a business being operated in the US territory. The lower tax rate only pertains to income received for services exported from Puerto Rico.However, there are some gray areas that people may seek to avoid for the sake of being safe. For example, Flynn, who owns an IT consulting business, AFI Technologies, has been advised that if he conducts business while visiting the 50 states, that could be viewed as a service not exported from Puerto Rico and therefore not applicable for the lower income tax rate even those his business is registered on the island.<h2>The tax incentives are designed to lure the wealthy</h2>The tax breaks are nice, but not everybody can afford them.Cole said that another rule that often surprises people is they can't claim the tax breaks if they have previously lived on the island, moved away, and returned within 10 years. Additionally, those seeking tax breaks must give $10,000 annually to specific Puerto Rico-based charities and purchase a residence on the island within two years of moving to Puerto Rico.<div type="image" title="Condos in Condado, Puerto Rico, are popular with wealthy mainlanders." height="1667" width="2500" msid="108648602" hostid="261" sizebytes="660206"></div>The latter two requirements help ensure that those seeking the tax breaks have higher net worths to contribute to Puerto Rico's economy."Act 60 was designed to promote economic growth in Puerto Rico by encouraging foreigners to move to the island for extended periods of time," Cole said. "It's therefore designed to benefit the Puerto Rican economy the most and is structured to attract those more likely to positively impact the local economy to relocate to the island."<h2>With the tax breaks comes extra scrutiny from the IRS</h2>One downside, according to Cole, is the same people the island is trying to attract will automatically attract the attention of the IRS."Focus from the IRS often begins with the identification of those applying for Act 60 benefits, filing change of address requests to Puerto Rico, claims of exemption, and nonfilers," Cole said. She added that once somebody is under the IRS's radar, investigations may include the inspection of travel records, credit card purchase locations, and income sources.Those who do get caught not adhering to the rules may be subjected to what Cole described as a "significant monetary and criminal penalty."Cole shared a common piece of advice given by others who live on the island: visit the island ahead of time and talk to people who have already made the move.However, she also added that it is important to speak with tax professionals on the mainland and in Puerto Rico so that there are no surprises.If you moved to Puerto Rico for tax incentives and want to share your experiences, contact this reporter at <a target="_blank" href="mailto:cgaines@businessinsider.com">cgaines@businessinsider.com</a>.

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