Queries under IT Act and GST Act.

Here’s a detailed response to Mohan’s queries under IT and GST Acts:

1. Rent Expense Claim with Heavy Security Deposit but No Regular Rent Outgo (IT Act):

• Context:
  Individual takes residential premises on rent with a very heavy security deposit but no or nominal monthly rent. The same premises are partly used to run a pre-primary school under a trust and the trust collects monthly rent from the individual.

• Can the individual claim rent expense?

  • Rent expense is allowable only when there is actual outflow or liability.

  • Security deposit is usually refundable and not an expense, hence cannot be claimed as rent expense.

  • If there is no regular rent payment or liability, the claim for rent expense is not justified.

  • The rent income received by the individual from the trust (for running the school) is taxable under Income from House Property or Other Sources, depending on the facts.

• How to calculate rent expense if no regular outgoing?

  • If no actual rent is paid or payable (except refundable deposit), no expense can be claimed.

  • If nominal rent is paid, that amount alone is allowable.

• Under which head?

  • Rent income from trust is usually Income from Other Sources unless it qualifies as Income from House Property based on ownership and tenancy terms.

  • Rent expense (if any) can be claimed under Business/Profession if related to business premises.

2. GST Implication of Software Purchase Paid via Director’s Personal Credit Card (GST Act):

• Issue:
  Company purchases software; the purchase bill is in the company’s name, but payment is made through the director’s personal credit card.

• GST Concern:

  • GST law requires the supplier to issue invoice in the name of the person liable to pay.

  • The company is the recipient and should be liable for GST input credit.

  • Paying via director’s personal credit card is allowed, provided proper accounting entries are made: the director’s payment should be treated as a loan or advance to the company.

  • No GST issue arises as long as invoice is in company’s name and company accounts for input tax credit correctly.

  • The key is documenting and reflecting this transaction properly in books. Otherwise, issues of misclassification or denial of ITC may arise on audit.