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All about Tax law

jatin kapoor 
on 16 March 2013

LinkedIn


INTRODUCTION

The word tax has not been defined by any law. The Little Oxford Dictionary gives the meaning of word ‘Tax’ as – money compulsorily levied by state on person, property, business, etc.Taxes are levied by Government for using it for expenditure on Infrastructure,Railways,and  in other public welfare areas. The taxes are collected both by the state and the central government. Taxes can be of two forms: 1. Direct taxes, 2. Indirect taxes

Direct Taxes:

Those taxes which are assessed upon the property, person, business, income, etc.  These taxes are paid directly by the taxpayer from his income/wealth etc. (e.g. Income tax, wealth tax, etc.).These taxes are charged in form of income tax, wealth tax, etc. The income tax is a tax on Income earned by the person. The wealth tax is a tax on wealth of the person. The rate of Income tax is different for different person. The rate of wealth tax is 1% of the net wealth of the person exceeding Rs.30 Lacs as on the valuation date determined on the basis of residential status.

Indirect Taxes:

Those taxes which are assessed on goods and services, the incidence of which is borne by the ultimate consumers who pay the same, not as taxes, but as part of the market price of goods/services. The major sources of indirect taxes are excise duty, customs duty, sales tax/ vat, service tax, etc. The rates of Excise duty, customs duty and sales tax/vat are different according to the nature of goods. The rate of Service tax is fixed at the basic rate of 12%, and education cess @ 2% and secondary and education cess @1% by the amendment made to finance act 1994 by the finance minister in the budget 2012.

INCOME TAX

The provisions of income tax are contained in the income tax act, 1961 which extends to whole of India and became effective from 01.04.1962.The income tax act contains provisions for determination of taxable income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It also lays down the powers and duties of various income-tax authorities.

The Income tax Act, 1961 provides the definition of following important concepts:

Assessee 
 

Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any other sum of money is payable under this Act, and includes -

1. Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or the amount of refund due to him or to such other person;

2. Every person who is deemed to be an assessee under any provision of this Act;

3. Every person who is deemed to be an assessee in default under any provision of this Act;

Assessment year

Assessment year means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act. 

Person 

The income tax is charged in respect of the total income of the previous year of every 'person'. Here the person means--

  1. an individual : a natural human being i.e. male, female minor or a person of sound or unsound mind
  2. a Hindu undivided family (HUF)
  3. a company :

·   any Indian company

·   anybody corporate iutside India

·   any institution, association or body whether Indian or non Indian, which is declared by general or special order of the board to be a company

·    any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act, 1922 or which is or was assessable or was assesses under this act as a company for any assessment year commencing on or before the 1st day of April. 1970

  1. a firm i.e. a partnership firm
  2. an association of persons or a body of individuals whether incorporated or not
  3. a local authority-- means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the government with the control and management of a municipal or local fund.
  4. every artificial, juridical person, not falling within any of the above categories.

Previous year 
 

The Financial Year in which the income is earned is known as the previous year. Any financial year begins from 1st of April and ends on subsequent 31st March. The financial year beginning on 1st of April 2003 and ending on 31st March 2004 is the previous year for the assessment year 2004-2005. 

As per section 14, all income, for purposes of charge of Income-tax and computation of total income, are classified under the following heads of income:

1.  Salaries [Sections 15 to 17]

2.  Income from house property [Sections 22 to 27]

3.  Profits and Gains of Business and Profession [Sections 28 to 44DA]

4.  Capital gains [Section 45-55A]

5.  Income from other sources [Section 56-59]

RESIDENTIAL STATUS

In India, as in many other countries, the charge of income tax and the scope of taxable income vary with the factor of residence. There are two categories of taxable entities viz. (1) residents and (2) non-residents. Residents are further classified into two sub-categories (i) resident and ordinarily resident and (ii) resident but not ordinarily resident. The law prescribes two alternative technical tests of residence for individual taxpayers. Each of the two tests relate to the physical presence of the taxpayer in India in the course of the “previous year” which would be the twelve months from April 1 to March 31.

A person is said to be “resident” in India in any previous year if he

  1. is in India in that year for an aggregate period of 182 days or more; or
  2. having within the four years preceding that year been in India for a period of 365 days or more, is in India in that year for an aggregate period of 60 days or more.

The above provisions are applicable to all individuals irrespective of their nationality. However, as a special concession for Indian citizens and foreign citizens of Indian origin, the period of 60 days referred to in Clause (b) above, will be extended to 182 days in two cases: (i) where an Indian citizen leaves India in any year for employment outside India; and (ii) where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India.

In the above context, an individual visiting India several times during the relevant “previous year” should note that judicial authorities in India have held that both the days of entry and exit are counted while calculating the number of days stay in India, irrespective of however short the time spent in India on those two days may be.

A “non-resident” is merely defined as a person who is not a “resident” i.e. one who does not satisfy either of the two prescribed tests of residence.

An individual, who is defined as Resident in a given financial year is said to be “not ordinarily resident” in any previous year if he has been a non-resident in India 9 out of the 10 preceding previous years or he has during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 729 days or less.

Till 31st March 2003, “not ordinarily resident” was defined as a person who has not been resident in India in 9 out of 10 preceding previous years or he has not during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 730 days or more.

Section 6 of the Income-tax Act, 1961, prescribes the tests for determining the residential status of a person. Section 6, as amended, reads as follows:

For the purposes of this Act,

(1) An individual is said to be resident in India in any previous year, if he

  1. is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or
  2. having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

Explanation. - In the case of an individual,

(a) being a citizen of India, who leaves India in any previous year [as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purpose of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted.

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.

(3) A company is said to be resident in India in any previous year, if

(a) It is an Indian company; or

(b) During that year, the control and management of its affairs is situated wholly in India.

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is

(a) an individual who has not been a non-resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

(b) a Hindu undivided family whose manager has not been non-resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

In tabular form, the above may be stated as under

Sources of Income

R & OR

R & NOR

NR

Indian Income

Income received or deemed to be received in India during the current financial year.



Taxable in India



Taxable in India



Taxable in India

Income accruing or arising or deemed to accrue or arise in India during the current financial year.



Taxable in India



Taxable in India



Taxable in India

Income accruing or arising or deemed to accrue or arise out­ side India, but first receipt is in India during the current financial year



Taxable in India



Taxable in India



Taxable in India

Foreign Income

Income accruing or arising or deemed to accrue or arise outside India and recieved outside India, during the current financial year.



Taxable in India



Taxable in India



Not Taxable in India

Income accruing or arising or outside India from a Business/ profession controlled in/from India during the current financial year.



Taxable in India



Taxable in India



Not Taxable in India

Income accruing or arising out­ side India from any source other than Business Profession controlled from India



Taxable in India



Taxable in India



Not Taxable in India.

The rates as per income tax act,1961 amended by the finance budget 2012

Applicable Income Tax Slab For Assessment Year 2013-14

Normal Rates of tax

Where the total income does not exceed Rs. 2,00,000/-.

Nil

Where the total income exceeds Rs. 2,00,000 but does not exceed Rs. 5,00,000/-

10 per cent of the amount by which the total income exceeds Rs.2,00,000/-

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.

Rs. 30,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 130,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-.

Rates of tax for a woman, resident in India and below sixty years of age at any time during the financial year

Where the total income does not exceed Rs.2,00,000/-.

Nil

Where the total income exceeds Rs. 2,00,000 but does not exceed Rs. 5,00,000/-.

10 per cent, of the amount by which the total income exceeds Rs. 2,00,000/-

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.

Rs. 30,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 130,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-.

Rates of tax for an individual, resident in India and of the age of sixty years or more but less than eighty years at any time during the financial year:

Where the total income does not exceed Rs. 2,50,000/-.

Nil

Where the total income exceeds Rs. 2,50,000 but does not exceed Rs. 5,00,000/-.

10 per cent, of the amount by which the total income exceeds Rs. 2,50,000/-

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.

Rs. 25,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 125,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000/-.

In case of every individual being a resident in India, who is of the age of eighty years or more at any time during the financial year

Where the total income does not exceed Rs. 5,00,000/-

Nil

Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-

20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-

Where the total income exceeds Rs.10,00,000/-

Rs. 1,00,000/- plus 30 per cent of the amount by which the total income exceeds Rs.10,00,000/-

Now, following are the hot topics in the income tax :

Higher Rate 20% on TDS Deduction if Deductee have not PAN

If the assessee or Salaried Employee did't have PAN, then the deductions of TDS by the Deductor, how to deduct TDS from Assessee or Salaried Employee. In this matter theIncome Tax Department pass new section 260AA of Income Tax, the TDS Deductions Rate is 20% from assessee or SalariedEmployee. The section 260AA of Income Tax Act provides to deduct TDS at higher end, 20% from TDS Deductee.
 

But what’s in the case when the deductee has the income below the exemption limit under income tax. If the dedcutee has notPAN number and has the income below exemption limit of income tax, will the tax be deducted at higher level?
 

  • If the assessee furnished form 15G or 15H for the declaration that his income is below the exemption level, He needs to attach a photocopy of PAN.
  • Does having a PAN number is must in India that without that card one can’t have a fixed deposit in banks.
  • What income tax rules say about PAN number? Is it necessary for every individual either having any income or not.

Income tax section 139A provides that it is not necessary to have PAN card for the people whose income is below the exemption level. In this regard Karnataka High court gives the decision that TDS can’t be deducted at higher level on the person who have not PAN number and having income below the exemption level. Honorable High court adds some points which are as under.
 

  • Section 206AA makes it conditional for every person who wishes to have a transaction in bank/FIs including small investors/depositors (i.e., investors/depositors with income below taxable limit) to invariably have a PAN. This runs counter to section 139A according to which such persons need not have a PAN.
  • Section 206AA hinders and discourages such small investors from coming forward to invest their money for secured reasons and their secured future. This is also not desirable for country's economy.
  • Further section 206AA is unreasonable as it invalidates Form 15G which does not mention PAN.
  • Section 206AA which overrides section 139A is discriminatory against small investors. Section 139A has withstood scrutiny of Article 14 of the Constitution for reasonableness.
  • In the result, section 206AA read down and made inapplicable to those with incomes below taxable limits. Banks and FIs not to insist on PAN for opening accounts of below taxable limit income-earners.

Latest Section-wise TDS Rates and Threshold Limits for Fin. Year 2012-13

The TDS rates are applicable for financial Year 2012-13 and Asstt. Year 2013-14.  In this regard the Deductor always confused about Threshold Limits of TDS and section-wise TDS Rates to Deduct TDS from Deductee in the financial Year 2012-13.  The below table is described the latest Threshold Limit and section-wise TDS Rates for Asstt. Year 2013-14 to deduct TDS from Deductee.  In case when PAN is not available then higher rates is applicable which is also given in following table:
 

Nature of Payment Made To Residents

Threshold

Company / Firm / Co-operative Society / Local Authority

Individual / HUF

If No / Invalid PAN

Section - Description

(Rs.)

Rate (%)

Rate (%)

Rate (%)

192 - Salaries

-

NA

Average rates as applicable

30

193 - Interest on securities

-

10

10

20

194 - Dividends

-

10

10

20

194A - Interest other than interest on securities - Others

5000

10

10

20

194A - Banks

10000

10

10

20

194B - Winning from Lotteries

10000

30

30

30

194BB - Winnings fromHorse Race

5000

30

30

30

194C - Payment to Contractors

30000

2

1

20

Payment to Contractors - Single Transaction

-

-

-

20

Payment to Contractors - Aggregate During FY

-

-

-

20

194C - Pay to Adv / Sub Contr

30000

2

1

20

194D - Insurance Commission

20000

10

10

20

194E - Payment to Non-Resident Sportsmen or Sports Association

-

-

-

-

- Applicable up to June 30, 2012

-

10

10

20

- Applicable from July 1, 2012

-

20

20

20

194EE - Payments out of deposits under NSS

2500

20

-

20

194F - Repurchase Units by MFs

1000

20

20

20

194G - Commission - Lottery

1000

10

10

20

194H - Commission / Brokerage

5000

10

10

20

194I - Rent - Land and Building

180000

10

10

20

194I - Rent - Plant / Machinery

180000

2

2

20

194J - Professional Fees

30000

10

10

20

194LA - Immovable Property

100000

10

10

20

194LB - Income by way of interest from infrastructure debt fund(non-resident)

-

5

5

20

Sec 194 LC - Income by way of interest by an Indian specified company to a non-resident / foreign company on foreigncurrency approved loan/ long-term infrastructure bonds from outside India (applicable from July 1, 2012)

-

5

5

20

195 - Other Sums

-

Average rates as applicable

-

30

196B - Income from units

 

10

10

20

196C-Income from foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds) (not being dividend)

-

10

10

20

196D - Income of FIIs from securities

20

20

20

20

SERVICE TAX

Service tax is a tax on services. Tax imposed on service providers in India except for the State of Jammu and Kashmir. There is a specific list of services that are able to be assessed this tax. The tax was first introduced on July 1, 1994 and is expected to eventually incorporate all services offered within the country.

The changes brought about by the Union budget can be classified under three broad heads:-

1. General changes

2. Changes effecting provisions under current regime

3. Changes effecting provisions under new regime (involving negative list) 

A.  GENERAL CHANGES

I. Change of rate: -

Notification No. 2/2012 –The rate of service tax has been changed w.e.f 01-04-2012.  The Notification No. 8/2009 which had earlier provided for exemption of 2% in the rate of tax has now been withdrawn. The rate change shall be effective from 1st April 2012.

II. Changes in the Rules and procedures:

As provided in Notification No. 3/2012

1. Partnership includes LLP. Now, the provisions related to Partnership firms shall also be applicable to LLP.

2. The 14 Days time limit for issuing invoice increased to 30 days from the date of provision of service.

3. The 14 Days time limit for issuing invoice increased to 45 days in case of banking company / financial institutions.

4. In case of continuous supply of services, 14 days time limit increased to 30 days of the completion of each taxable event.

5. No invoice  is required to be issued in case of the amount received by service provider from service receiver is in excess of amount mentioned in the invoice by Rs. 1000/-.

6. In case of individual / partnership firms (including LLPs) whose aggregate value from one or more premises is 50 lakhs or less in previous financial year, the service provider may pay tax on receipt basis upto 50 lakhs taxable value.  Beyond 50 lakhs, service tax will have to be paid on the mercantile basis on the basis of issue of invoice.

7. In case of adjustment of service tax amount on account of interpretation, taxability, classification, valuation or exemption now there is no monetary limit, also there is no requirement of intimation to jurisdictional Superintendent.

8. In case of life insurer tax may be paid as under (a) 3 % in first year (b) 1.5 % in subsequent year [ earlier it was 1.5 % for all the year]

III. Not. 04/2012- Point of taxation Rules amended

1.  In case of new levy, no tax is chargeable on services for which invoice issued  and payment received within 14 days of date of new levy.

2.  Normally, date of payment shall be earlier of the date when the payment is entered in the books or credited to bank account. However, in case of new levy or change of rate of service tax, the date of payment shall be taken to be the date when the payment is actually credited in the bank statement of the aseessee if it is later than four days from the date of new levy. By this budget, the rate of service tax shall change to 12.36% w.e.f 1st April 2012. Hence, any advances received upto 04th April 2012 shall be taxed at 10.3% whereas amounts credited beyond that date shall be taxed at the rate of 12.36%.

3.   Please also note that now the change in the rate of tax shall also mean change in the abatement value. Hence, even in such cases, four days time limit has to be kept in mind.

4.   In case of new levy, if the invoice issued and payment received before the date of levy- no tax. Also, in case payment received before the date of levy but invoice issued within 14 days of the date of levy- no tax.

5.   In case service recipient has been made taxable, the point of taxation is the date of payment. 

IV. Not. 05/2012- – Small scale provider Exemption (Not No. 06/2005) fine tuned.

Earlier there was dictionary between the two phrases used in the notification.

o    For the current turnover, the phrase was “aggregate value not exceeding four lakhs rupees” this was defined to mean aggregate consecutive payments.

o    For the previous year the phrase was “aggregate value of taxable services” – this was generally understood to mean billed value of taxable services and not receipt. Also there was confusion whether the turnover which was exempt under notification had to be considered for this limit.

Now they have sorted out the difference in terminology defining aggregate value, in both cases, as sum total of taxable services charged in consecutive invoice not including value of services exempt under other notifications.

V.  Special Audit introduced under section 72A. The Commissioner has to have reason to believe that there is no declaration of service, incorrect valuation, wrong availment, utlisation of credit, multiple locations and it is not possible or practicable to obtain a complete and true picture of his accounts. Opportunity of being heard shall be given to the auditee.

VI.  The ‘normal’ (not involving fraud, collusion etc) time period for issuance of notice u/s 73 has been extended by six months.

VII.  In case a notice has been issued on a particular issue earlier, then for subsequent years, for the same issue, the department needs to just issue a statement containing the demand of service tax.

VIII.  No penalty to be paid if service tax on renting of immovable property is paid with interest within 6 months from enactment of bill.

IX.  Time limit for filing appeal reduced from 3 months to 2 months.

X.   No service tax in respect of management, maintenance or repair of roads for the period from 16-06-2005 to 26-07-2009. Hence, this activity was never taxable. Refund will be granted.

XI.  No service tax in respect of management, maintenance or repair of non-commercial government buildings w.e.f 16-06-2005 to date of enactment of bill. Refund will be granted.

B.  CHANGES EFFECTING PROVISIONS UNDER CURRENT REGIME – These are the changes which amend the position of service tax in respect of all those services which form part of the statute. As soon as the bill is enacted by the Parliament, the negative list shall come into force and these provisions and the corresponding changes shall cease to operate. In their place, the new provisions shall come into being.

I.  Notification No. 6/2012- The abatement provided to aircraft operator service has been revised to be flat 60% without differentiating between domestic and international journey.

II.  Works Contract Scheme amended – Notification No. 10/2012

Service Tax Composition Rate increased from 4 % to 4.8 % w.e.f 1st April 2012.

C. CHANGES EFFECTING PROVISIONS UNDER NEW REGIME (INVOLVING NEGATIVE LIST)

These are the provisions which do not come into effect at once. They shall be in the statute book but shall come into force when Bill is enacted and a notification is issued to bring the new provision into existence.

The following Notifications are relevant for the service tax provisions in the new regime:-

11/2012-              VALUATION

12/2012-              NEGATIVE LIST

13/2012-              ABATEMENT

15/2012-              REVERSE CHARGE MECHANISM  

o    11/2012 – VALUATION RULES SHALL BE AMENDED AS UNDER:-

Rule 2A substituted– As pert this new sub-rule, the valuation of works contract shall be determined as under. Please note that the current provisions of Works Contract Composition scheme shall cease to exist. The value shall be adopted by sequentially following the under mentioned steps. As per the language used, it seems that there is no option available with the assessee. He has to follow these steps.

Case-I:- Default case

Valuation of services involved in the execution of works contract

o    value shall be gross amount charged for the works contract less value of transfer of property in goods.

o    Value shall not include vat

o    Shall  include / exclude certain declared inclusions/exclusions.

o    Value of material to be deducted shall be as declared to vat department.

Case-II: Where value has not been determined under cause (1)

(A)value shall be 40 % of the total amount charged in case of original works (original works meannew constructions and addition and alteration to abandoned or damaged structure). If land value included in total amount charged than value shall be 25 % of total amount charged

(B) in case of other work contracts:- value shall be 60 % of the total amount charged.

In both the above cases, the total amount charged shall include cost of material supplied free of cost. The credit of excise duty paid on inputs shall not be available. However, credit of excise duty paid on capital goods and service tax paid on input services shall be available. It shall be available in case I as well as Case II.

Rule 2 C inserted

Valuation of service included in supply of food and drinks in a restaurant / outdoor catering.

o    Restaurant –                     value shall be 40 %  ; abatement 60%

o    Outdoor catering –          value shall be 60 %  ; abatement 40 %

o    13/2012- Abatement’s provided (w.e.f date when section 66B is notified)

 

Tax rate

Abatement rate

Financial leasing

10 %

90%

Transport goods by rail

30 %

70%

Transport passengers

30%

70%

Supply of food in hotel

70%

30%

Transport of passenger by air

40%

60%

Renting of hotel

60%

40%

Transport of goods by road

25%

75%

Chit fund services

70%

30%

Renting of motor vehicle

40%

60%

Transport of goods in Transport of goods in a vessel  from one port in India to another

50%

50% 

Package tour operator

25%

75%

Tour operator only accommodation service

10%

90%

Other tour or services

40%

60%

15/2012- REVERSE CHANGE MECHANISM

In the following services, the government has provided for payment of service tax on reverse charge mechanism.

o    Insurance services by insurance agent to Insurance company

o    Transport of goods by road.

o    Sponsorship services to company / partnership

o    Service provided by arbitral tribunal

o    Service provided by an individual advocate

o    Support service provided by government to business entity in taxable territory

o    Renting / hiring of motor vehicle by ind. / partnership to company.

o    Supply of man power by ind. / partnership to company.

o    Works contract by ind. / partnership to company.

o    Service provided by any person located in non taxable territory to person in taxable territory

The service tax has to be paid on the basis of following percentages:-

Case

Service provider

Service recipient

Insurance services by insurance agent to Insurance company

NIL

100%

Transport of goods by road to specified persons

NIL

100%

Sponsorship services to company / partnership

NIL

100%

Service provided by arbitral tribunal to any business entity

NIL

100%

Service provided by an individual advocate to any business entity

NIL

100%

Support service provided by government to business entity in taxable territory

NIL

100%

Renting / hiring of motor vehicle by ind./ partnership to company.  – IF ABATEMENT AVAILED (60%)

NIL

100%

Renting / hiring of motor vehicle by ind./ partnership to company.  – IF ABATEMENT NOT AVAILED

60%

40%

Supply of man power by ind./ partnership to company.

25%

75%

Works contract by ind./ partnership to company.

50%

50%

Service provided by any person located in non taxable territory to person in taxable territory

NIL

100%

Note: Please note that the above notification specifies the extent to which the service tax is to be paid by the service recipient. In this regard, please note that the basic exemption limit of Rs. 10 lakhs shall be available to the service provider but it shall not be available to the service recipient. Hence, in all the cases, where the service tax is to be paid by the service recipient, there is no basic exemption and the service tax shall have to be paid irrespective of the turnover. A very harsh provision indeed.

Note 2: In case service recipient has been made taxable, the point of taxation is the date of payment.

DISCUSSION ON NEGATIVE LIST:

The definition of service provided by the Finance At, 1994 in itself is a “negative definition” in as much as it includes every activity excluding the activities specifically mentioned therein. The exclusions are:-

o    Transfer of title in goods/ property by way of sale, gift or in other manner.  (governed by Transfer of Property Act, 1885).

o    Transaction in money or actionable claim.

o    Service by employee to employer

o    Court Fees

o    Service provided by MPS, MLAs, member of panchayat, municipalities etc.

o    Service in pursuance to constitutional duties.

o    Government Corporations

Once it is made certain that it is service, then we have to apply the test of negative list given in section 66C of the Act.

The main points in negative list are as under:-

o    Service by Dept of posts covered under service tax.

o    Services provided for transport of goods or passengers covered

o    Support services provided by Govt. to business entities covered

o    Service tax provided by foreign diplomatic mission not covered

o    Agricultural operations, supply of farm labour not covered.

o    Renting of vacant land or agro machinery not covered

o    Loading, unloading, storage warehousing of agricultural products not covered.

o    Trading of goods not covered.

o    Selling of space or time slots for advertisement other than radio or television not covered.

o    Toll charges not covered.

o    Betting, gaming or lottery not covered.

o    Pre-school education, education for degree and vocational education not covered.

o    Renting of residential dwelling not covered.

o    Interest or discount not covered

o    Transport of goods from place outside India to customs port in India not covered.

If a particular activity is not excluded by the negative list, then we have to apply the test as to whether it is exempted by the general exemption Notification No. 12/2012. The ‘main’ exempted services are as under:- 

1.   Health care services by a clinical establishment, an authorised medical practitioner or para-medics; veterinary clinic

2. Charitable activities by an entity registered under section 12AA of the Income tax Act.

“charitable activities” means activities relating to -

(a) public health by way of -

(I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or preventive health, family planning or prevention of HIV infection;

(b) advancement of religion;

(c) advancement of educational programmes or skill development relating to,-

abandoned, orphaned or homeless children;  physically or mentally abused and traumatized persons;  prisoners; persons over the age of 65 years residing in a rural area;

(d) preservation of environment including watershed, forests and wildlife; or

(e) advancement of any other object of general public utility up to a value of twenty five lakh rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year.

3.  Services by a person by way of-

(a) renting of precincts of a religious place meant for general public; or

(b) conduct of any religious ceremony;

4.  Services provided to any person other than a business entity by -

(a) an individual as an advocate; or

(b) a person represented on and as arbitral tribunals;

5.  Technical testing or analysis by way of of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India;

6.  Services by way of training or coaching in recreational activities relating to arts, culture or sports;

7.  Services provided-

(a) mid – day meals scheme of any educational institution.

(b) transportation of students or staff;

(c) admission services of educational institution

8.  Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of -

(a) a civil structure for a non-industrial or non-commercial use;

(b) a historical monument, archaeological site etc

(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or

(f) a residential complex predominantly meant for self-use or the use of their employees or MPs , MLAs etc

9.  Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,-

(a) road, bridge, tunnel, or terminal for road transportation

(b) building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) for religious use by general public (Please note that in respect of services other than erection, construction etc., the entity needs to be registered under section 12AA for charitable activity. However, for erection, construction activity, the scope is limited- it has to be registered for religious use.  Hence, construction services not exempt for hospitals, educational institution.)

(c) pollution control or effluent treatment plant, except located as a part of a factory; or (d) electric crematorium;

10.  Services by way of erection or construction of original works pertaining to,-

(a) airport, port or railways;

(b) single residential unit otherwise as a part of a residential complex; (The concept of minimum  12 residential units is gone now).

(c) low- cost housing

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or mechanised food grain handling system,

11.  Temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, artistic works or cinematograph films

12.  Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent;

13.  Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a licence to serve alcoholic beverages;

14.    Services provided by a goods transport agency by way of transportation of

(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

(b) gross consignment charge equal to or below one thousand five hundred rupees

(c) single consignment  charge equal to or below seven hundred fifty;

15.   Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;

16.  Services provided to the Government or a local authority by way of -

(a) repair of a ship, boat or vessel;

(b) effluents and sewerage treatment;

(c) waste collection or disposal;

(d) storage, treatment or testing of water for drinking purposes; or

(e) transport of water by pipeline or conduit for drinking purposes;

17.  Services by the following persons in respective capacities -

(a) a sub-broker or an authorised person to a stock broker;

(b) an authorised person to a member of a commodity exchange;

(c) a mutual fund agent or distributor to mutual fund or asset management company for distribution or marketing of mutual fund;

(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;

(e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or

(f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area;

18.  Services by an organiser to any person in respect of a business exhibition held outside India;

19.  Services received from a service provider located in a non- taxable territory by -

(a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or

(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities.


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