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TAXATION (AMENDMENTS BY FINANCE ACT 2016)

APPLICABLE FOR MAY 2017 EXAMS OF IPCC (2nd EDITION RELEASED ON 04/01/2017)

Page 1

2

INDEX

S. No. Particulars Page No.

1. Income Tax 04 – 37

2. Indirect Taxes 39 – 81

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INCOME TAX

Page 3

IPCC_ Income Tax Amendments Material (For May - 2017) _2 nd Edition___________4

No.1 for CA/CWA & MEC/CEC MASTER MINDS

S. No Chapter Additions Deletions Modifications

1 Introduction To Income Tax Nil Nil Tax rates (surcharge rates), 2(24), 87A

2 Residential Status Nil Nil Sec.6(1) & 6(3), sec.9(1)(i) 3 Exempted Incomes 10(48A),10(12A) Nil 10(34), 10(15) , 10(38) 4 Salaries Nil Nil 10(13)

5 Income From House Property 25A 25AA,

25B 24(b)

6 PGBP-I & II 32ABA, 32ADA Nil 28(va), 32(1)(iia), 32AC, 36(1)(viia), 43B, 44AA, 44AB

7 Capital Gains 47(xix), 54EE Nil 47(xiiib), 47(viic), 49(5), 50C, 54GB, 112

8 Income From Other Sources 115BBDA Nil 56(2)(vii) 9 Clubbing Provisions Nil Nil Nil

10 Set off & carry forward of losses

Nil Nil 80

11 Chapter VI A Deductions 80EE, 80-IAC, 80-IBA Nil 80GG, 80JJAA

12 Return of Income Nil Nil 139(1), 139(3), 139(4), 139(5), 139(9)

12 Advance Tax & Interest Nil Nil 211,234C

13 TDS & TCS Nil Nil 192A, 194BB, 194C, 194D, 194DA, 194EE, 194G, 194H,194LA,206AA.

AMENDMENTS AT A GLANCE – FINANCE ACT, 2016

S.NO. Particulars Section

A. INTRODUCTION TO INCOME TAX

1. Rates of Income Tax -

2. Government grant or subsidy, for the purpose of the corpus of a trust or institution established by the Central Government or State Government not to be included in the definition of income”

2(24)

3. Increase in quantum of rebate 87A

B. RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME

1. No income deemed to accrue or arise in India to a foreign mining company through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Notified Zone

9(1)(i)

2. Deferral of applicability of POEM based residence test and incorporation of transition mechanism for a company incorporated outside India, which has not earlier been assessed to tax in India

6(3)

C. INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

1. Exemption under section 10(34) not to apply to dividend chargeable to tax in accordance with section 115BBDA

10(34) & 115BBDA

2. Exemption of income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India

10(48A)

3. Exemption of interest on deposit certificates issued under the Gold Monetization Scheme, 2015

10(15)(vi) & 2(14)

INCOME TAX AMENDMENTS BY FINANCE ACT 2016


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4.

Exemption of long-term capital gains and concessional tax treatment of short term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre, even when STT is not paid in respect of such transaction

10(38) & 111A

5. Payment from NPS Trust to an employee on closure of his account or on his opting out of the pension scheme exempt to the extent of 40% of such payment

10(12A)

D. INCOME FROM SALARIES

1. Raising the exemption limit in case of superannuation fund from 1 lakh to 1.5 lakhs 10(13)

E. INCOME FROM HOUSE PROPERTY

1. Extension of period for completion of construction from 3 years to 5 years, for claiming higher deduction of upto Rs. 2 lakh in respect of interest on capital borrowed for construction of self-occupied house property

24

2. Special provision for arrears of rent and unrealized rent received subsequently 25A

F. PROFITS AND GAINS OF BUSINESS OR PROFESSION

1. Non-compete fee received/receivable for not carrying on a profession chargeable under the head “Profits and gains of business or profession”

28(va) & 55

2. Assessees engaged in the business of transmission of power eligible for additional depreciation

32(1)(iia)

3.

Deduction under section 32AC to be available in the year of installation in respect of actual cost of new plant and machinery acquired in the P.Y.2015-16 and P.Y.2016-17, if the actual cost of such new plant and machinery acquired in the relevant previous year exceeds Rs. 25 crores, even if the new plant and machinery has not been installed in the relevant previous year but has been installed on or before 31.3.2017

32AC

4. Tax treatment for spectrum fee 35ABA

5. NBFCs eligible for claim of deduction for provision for bad and doubtful debts

36(1)(viia)

6. Sum payable to Indian Railways for use of railway assets allowable as deduction in the year in which the liability to pay such sum is incurred, only if payment is made on or before the due date of filing of return

43B

7. Increase in threshold limit of gross receipts/turnover under section 44AD of a business to be eligible for opting the presumptive taxation scheme

44AA, 44AB & 211

8. Presumptive Taxation Scheme for assessees engaged in eligible profession

44ADA & 44AB

G. Capital Gains

1. Period of holding of unlisted shares to qualify as a long-term capital asset to be reduced from “more than 36 months” to “more than 24 months”

2(42A)

2.

Total value of assets of a private company or unlisted company not to exceed Rs.5 crore in any of the three preceding previous years for exemption of transfer of capital asset or intangible asset on conversion of such company into LLP

47(xiiib)

3. Transfer of units by unit holders on consolidation of plans within a mutual fund scheme not to be regarded as transfer

47(xix)

4. Redemption by an individual of sovereign gold bonds issued by RBI not to constitute transfer for the purpose of levy of capital gains tax

47(viic) & 48

5. Cost of acquisition of asset, whose fair market value has been taken into account for the Income Declaration Scheme, 2016

49(5)



6.

Stamp duty value on the date of agreement may be adopted as full value of consideration of immovable property, being land or building or both, if whole or part of the consideration has been paid by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property

50C

7. Exemption of long-term capital gains on investment in notified units of specified fund

54EE

8. Exemption of long-term capital gains on sale of residential property, where net consideration on sale is invested in shares of an eligible start-up

54GB

9. Long-term capital gains on shares of private companies to be subject to concessional rate of tax@10% in the hands of non-corporate non-residents and foreign companies

112(1)(c)

H. INCOME FROM OTHER SOURCES

1. Shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or a business reorganisation of a co-operative bank not to be subject to tax by virtue of section 56(2)(vii)

56(2)(vii)

Tax on certain dividends received from domestic companies Sec. 115BBDA

I. SET-OFF AND CARRY FORWARD AND SET-OFF OF LOSSES

1. Filing of return of loss on or before the due date under section 139(1) mandatory for carry forward of loss from specified business under section 73A

80 & 139(3)

2. Set-off of losses not permissible against unexplained income, investments, money etc. chargeable under sections 68/69/69A/69B/69C/69D

115BBE

J. Deductions from Gross Total Income

1. Additional deduction for interest on loan borrowed for acquisition of self-occupied house property by an individual

80EE

2. Monetary limit for maximum deduction under section 80GG increased 80GG

3. Tax incentives for new start-ups 80-IAC

4. Deductions in respect of profits and gains from housing projects 80-IBA

5. Deduction in respect of employment of new employees 80JJAA

K. Provisions concerning Advance Tax and TDS

1.

Increase in threshold limits and reduction of rates for deduction of tax at source in respect of certain payments [Chapter XVII-B]

192A, 194BB, 194C, 194D,

194DA, 194EE, 194G, 194H, 194LA

2. Advance tax payment scheme to be the same for companies and other assessees 211 & 234C

3. Requirement to furnish PAN for avoiding higher tax deduction not to apply to non-corporate non-residents and foreign companies subject to certain conditions

206AA

L. Provisions for filing return of income 1. Rationalisation of provisions relating to filing of return of income 139

Copyrights Reserved

To MASTER MINDS, Guntur

IPCC_ Income Tax Amendments Material (For May - 2017) _2nd Edition___________7


1. BASIC CONCEPTS

1) INCOME TAX RATES APPLICABLE FOR THE A.Y. 2017 - 18 (F.Y 2016 – 17)

A. Individual/Hindu undivided Family/ AOP /BOI

TAXABLE INCOME(Rs.) MALE / FEMALE <60 YRS.

(Non – resident)

HUF / AOP / BOI

RESIDENT SENIOR

CITIZEN ≥ 60 & < 80 YRS.

RESIDENT VERY

SR.CITIZEN ≥ 80 YRS.

UP TO 2,50,000 Nil Nil Nil Nil 2,50,001 to 3,00,000 10% 10% Nil Nil 3,00,001 to 5,00,000 10% 10% 10% Nil 5,00,001 to 10,00,000 20% 20% 20% 20% Above 10,00,000 30% 30% 30% 30%

Note: All non- resident individuals are covered in first category (No Age Limit).

Primary & Secondary Education Cess: 3% cess on (tax + surcharge) in all cases.

B. Firm / LLP / Local Authority / Company (Domestic or Foreign)

The rate of tax for A.Y.2017-18 is

• Firm / LLP / Local Authority @ 30%

• Companies:

Domestic Companies: i) Where the total turnover or gross receipt in

the previous year 2014 - 15 does not exceed Rs. 5 crore

ii) In case of other domestic companies

Flat rate

Flat rate

29%

30%

Foreign Companies Flat rate

40%

C. SURCHARGE: It is a tax on tax.

Applicable Surcharge Assessee TI < Rs.1

Crore TI > Rs. 1 Crore, but TI < Rs. 10 Crores

TI > Rs. 10 Crores

1. Individual / HUF / AOP / BOI / AJP - 15% (earlier 12%) 15%(earlier 12%)

2. Other (i.e., firms / LLP, local Authorities, Co-operative societies

- 12% 12%

3. Domestic Companies - 7% 12%

4. Foreign Companies - 2% 5%

D. Marginal relief:

a) In case of non – corporate assessee’s (other than company) exceeds 1 crore. Marginal relief is available in respect of these assessee’s.

Illustration:

Mr. Ram (Age < 60 years) derives a taxable income of Rs.1,03,00,000. Compute the tax liability for the year ended 31.03.2017.

W.e.f. AY 2017-18, Rebate u/s 87A is applicable for a resident individual whose total income does not exceed Rs.5 lakhs. Rebate = Rs.5,000(earlier it is Rs.2,000) or 100% of tax payable, whichever is lower.



Solution:

The tax payable on total income of Rs. 1,03,00,000 of Mr. Ram computed (including surcharge @ 15%) is Rs. 33,52,250. However, the tax cannot exceed Rs. 31,25,000 (i.e., the tax of Rs. 28,25,000 payable on total income of Rs. 1 crore plus Rs. 3,00,000, being the amount of total income exceeding Rs. 1 crore). Therefore, the tax payable on Rs. 1,03,00,000 would be Rs. 31,25,000. The marginal relief is Rs. 2,27,250 (i.e., Rs. 33,52,250 - Rs. 31,25,000).

b) In case of a domestic company, whose total income is > Rs. 1 crore but ≤ Rs. 10 crore

Illustration:

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs. 1,01,00,000 and the total income does not include any income in the nature of capital gains.

Note: the gross receipts of X ltd for the P.Y. 2014 -15 is Rs. 7,00,00,000

Solution:

The tax payable on total income of Rs. 1,01,00,000 of X Ltd. computed @ 32.1% (including surcharge@7%) is Rs. 32,42,100. However, the tax cannot exceed Rs. 31,00,000 (i.e., the tax of Rs. 30,00,000 payable on total income of Rs. 1 crore plus Rs. 1,00,000, being the amount of total income exceeding Rs. 1 crore). Therefore, the tax payable on Rs. 1,01,00,000 would be Rs. 31,00,000. The marginal relief is Rs. 1,42,100 (i.e., Rs. 32,42,100 - Rs. 31,00,000).

c) In case of a domestic company, whose total income is > Rs.10 crore

Illustration:

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs. 10,01,00,000 and the total income does not include any income in the nature of capital gains.

Solution:

The tax payable on total income of Rs. 10, 01, 00,000 of X Ltd. computed@ 33.6% (including surcharge@12%) is Rs. 3,36,33,600. However, the tax cannot exceed Rs. 3,22,00,000 [i.e., the tax of Rs. 3,21,00,000 (32.1% of Rs. 10 crore) payable on total income of Rs. 10 crore plus Rs. 1,00,000, being the amount of total income exceeding Rs. 10 crore]. Therefore, the tax payable on Rs. 10,01,00,000 would be Rs. 3,22,00,000. The marginal relief is Rs. 14,33,600 (i.e., Rs. 3,36,33,600 - Rs. 3,22,00,000).

2) Insertion of new clause in Definition of income (sec.2(24)(xviii): Any Assistance provided by central government or state government or any authority or body or Agency by way of “ subsidy or grant or incentive or Duty Draw Back(DDB) or Waiver or Concession or Re-imbursement or BY WHAT EVER NAME called, will be treated as income (TAXABLE UNDER PGBP) of the Assessee.(ICDS VII – Government Grants)

Exceptions: the following subsidy or grant, shall not be included in the definition of income u/s 2(24)

i) if the grant is received in respect of Depreciable Assets then it shall be reduced from “Actual cost” Defined under ‘Explanation1 to Sec. 43(1)’.

ii) Any subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State Government

2. RESIDENTIAL STATUS

1. Determination of Residential Status of Crew Member of a ship: W.e.f. 01.04.2016 in the case of an individual, being a Indian citizen and a Member of the Crew of a Foreign-bound Ship leaving India, the period(s) of stay in India shall, in respect of such voyage, be determined in the manner and subject to such prescribed conditions. For determining the period of Stay in India, the following period shall not be included-

Period beginning From Period ending to

Date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage

Date entered into Continuous Discharge Certificate in respect of the signing off by that individual from the ship in respect of such voyage.



Meaning of Terms:

a) Continuous Discharge Certificate shall have the meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate – Cum-Seafarer’s Identity Document) Rules, 2001 under Merchant Shipping Act, 1958.

b) Eligible voyage shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where-

i) For the voyage having originated from any port in India, has as its destination any port outside India and

ii) For the voyage Originated from any port outside India, has as its destination any port in India.

Illustration:

Mr. Alok is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in carriage of passengers in international traffic departing from Mumbai port on 6th June, 2016. From the following details for the P.Y.2016-17, determine the residential status of Mr. Alok for A.Y.2017-18, assuming that his stay in India in the last 4 previous years (preceding P.Y.2016-17) is 400 days and last seven previous years (preceding P.Y.2016-17) is 750 days:

Particulars Date Date entered into the Continuous Discharge Certificate in respect of joining the ship by Mr. Alok

6th June, 2016

Date entered into the Continuous Discharge Certificate in respect of signing off the ship by Mr. Alok

9th December, 2016

Solution:

Principles

1. U/s 6(1), any person who stays in India for a period of 182 days or more, during the Relevant Previous Year is a Resident for that year.

2. For a Member of the Crew of a Foreign-bound Ship leaving India, to determine the period of Stay in India, the following period shall not be included:

Period beginning From Period ending to Date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage

Date entered into Continuous Discharge Certificate in respect of the signing off by that individual from the ship in respect of such voyage

Analysis Period of Exclusion from Stay in India = From 06.06.2016 to 09.12.2016 = 187 days [25+31+31+30+31+30+9]

Conclusion Mr. Alok’s period of stay in India during the P.Y.2016 -17 would be 178 days [i.e., 365 days – 187 days]. Since his period of stay in India during the P.Y.2016-17 is less than 182 days, he is a non-resident for A.Y.2017-18.

The above voyage is a Eligible Voyage as the Ship is engaged in the carriage of freight in international traffic having originated from a port in India, and has as its destination any port outside India (Mumbai Port to Singapore Port).

Note - Since the residential status of Mr. Alok is “non-resident” for A.Y.2017-18 consequent to his number of days of stay in P.Y.2016-17 being less than 182 days, his period of stay in the earlier previous years become irrelevant.

2. Residential Status Of Company:

(Generally this provision was applicable from A.Y 2016-17 but due to some practical problems in implementing the concept of POEM for determination of residential status of foreign companies. (i.e., TDS provisions, advance tax payments, application of transfer pricing etc.). so, the applicability of POEM based residence test has been differed by one year i.e., applicable from A.Y 2017-18)

a) Resident: Company would be resident in India in any previous year, if –

i) It is an Indian company (or)

ii) Its place of effective management (POEM), in that year, is in India.

In any other case the company shall be considered as non – resident



Explanation:

1. Indian Company Always Resident (irrespective of where its POEM functions.)

2. Other companies(foreign company) – if place of effective management (a) In India (b) Outside India

Resident Non – Resident

Note: Place of effective management to mean a place where key management and commercial decisions are necessary for the conduct of the business of an entity as a whole are, in substance made.

Illustration : ABC Inc., a Swedish company headquartered at Stockholm, not having a permanent establishment in India, has set up a liaison office in Mumbai in April, 2016 in compliance with RBI guidelines to look after its day to day business operations in India, spread awareness about the company’s products and explore further opportunities. The liaison office takes decisions relating to day to day routine operations and performs support functions that are preparatory and auxiliary in nature. The significant management and commercial decisions are, however, in substance made by the Board of Directors at Sweden. Determine the residential status of ABC Inc. for A.Y.2017-18.

Solution:

Section 6(3) has been substituted by the Finance Act, 2016 with effect from A.Y.2017-18 to provide that a company would be resident in India in any previous year, if-

i) It is an Indian company; or

ii) Its place of effective management, in that year, is in India .

In this case, ABC Inc. is a foreign company. Therefore, it would be resident in India for P.Y.2016-17 only if its place of effective management, in that year, is in India.

Explanation to section 6(3) defines “place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. In the case of ABC Inc., its place of effective management for P.Y.2016-17 is not in India, since the significant management and commercial decisions are, in substance, made by the Board of Directors outside India in Sweden.

ABC Inc. has only a liaison office in India through which it looks after its routine day to day business operations in India. The place where decisions relating to day to day routine operations are taken and support functions that are preparatory or auxiliary in nature are performed are not relevant in determining the place of effective management.

Hence, ABC Inc., being a foreign company is a non-resident for A.Y.2017 - 18, since its place of effective management is outside India in the P.Y.2016 - 17



3. Insertion of new clause (e) in explanation 1 to section 9(1)(i)

In the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in any special zone notified by the Central Government in the Official Gazette in this behalf.

Reason:

In order to ease shifting of operations by FMCs (Foreign Mining Company) to India and to allow the trading of rough diamonds in India by the leading diamond mining companies of the world, a “Special Notified Zone” (SNZ) has been created. Since the activity of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC, the probable tax consequence has been a matter of concern for the mining companies contemplating to undertake these activities in India.

3. INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

S. No SECTION CONDITIONS FOR EXEMPTION

1. 10(12A)

Any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.

2. 10(15)

The interest on Deposit Certificates issued under the Gold Monetisation Scheme, shall be exempt from income-tax. Note: Sec 2(14) also amended i.e., “specifically exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government from the definition of capital asset.” Consequently, transfer of the same would be exempt from capital gains tax.

3. 10(22B)

Any income of a news agency set up in India solely for collection and distribution of news as the Central Government may notify shall be exempt, subject to the condition that such news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members.

Accordingly, the Central Government has, through this notification, specified the Press Trust of India Limited, New Delhi as a news agency set up in India solely for collection and distribution of news, for the purpose of section 10(22B) for three assessment years 2016-17 to 2018-19. The income of such news agency will not be included in computing the total income of a previous year of such agency for these three years, provided it applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members.

4. 10(23FC)

Dividend u/s 115-O or interest Received or Receivable or receivable by a Business Trust from a Special Purpose vehicle is exempt. • Business Trust means a trust registered as an infrastructure investment trust

or a real estate investment trust, the units of which are required to be listed on a recognized stock exchange, in accordance with the regulations made under SEBI act, 1992 and notified central Government.

• Special purpose vehicle means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulation under which such trust is granted registration.

5. 10(23FD)

Exemption is available for any distributed income referred to in sec.115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred u/s 10(23FC)(a) (exemption only for sec. 10(23FC)(a) interest)

6. 10(34) Exemption under section 10(34) not to apply to dividend chargeable to tax in accordance with section 115BBDA



New section 115BBDA deals with any income by way of aggregate dividend in excess of Rs.10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10%. Further, the taxation of dividend income in excess Rs.10 lakh shall be on gross basis i.e., no deduction in respect of any expenditure or allowance or set-off of loss shall be allowed to the assessee in computing the income by way of dividends.(Refer example)

7. 10(38)

The income arising from transaction undertaken in foreign currency on a recognized stock exchange located in an International Financial Services Centre shall be exempted U/S 10(38) even though STT is not paid in respect of such transactions. Note: section 111A to provide that short term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre would be taxable at a concessional rate of 15% even when securities transaction tax is not paid in respect of such transaction.

8. 10(48A)

any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India, if, - a) such storage and sale by the foreign company is pursuant to an agreement

or an arrangement entered into by the Central Government or approved by the Central Government; and

b) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

Example:

A Ltd., a domestic company, declared dividend of Rs. 170 lakh for the year F.Y.2015-16 and distributed the same on 10.7.2016. Mr. X, holding 10% shares in A Ltd., receives dividend of Rs. 17 lakh in July, 2016. Mr.Y, holding 5% shares in A Ltd., receives dividend of Rs. 8.50 lakh. Discuss the tax implications in the hands of Mr.X and Mr.Y, assuming that Mr.X and Mr.Y have not received dividend from any other domestic company during the year.

Answer:

i) The dividend of Rs. 170 lakh declared and distributed in the P.Y.2016-17 is subject to dividend distribution tax in the hands of A ltd., a domestic company.

ii) In the hands of Mr.X, dividend received upto Rs. 10 lakh would be exempt under section 10(34). Rs. 7 lakh, being dividend received in excess of Rs. 10 lakh, would be taxable@10% as per section 115BBDA. Such dividend would not be exempt under section 10(34). Therefore, tax payable by Mr.X on dividend of Rs. 7 lakh under section 115BBDA would be Rs. 72,100 [i.e., 10% of Rs. 7 lakh + cess@3%].

iii) In the hands of Mr.Y, the entire dividend of Rs. 8.50 lakh received would be exempt under section 10(34), since only dividend received in excess of Rs. 10 lakh would be taxable under section 115BBDA.

4. INCOME FROM SALARIES

Raising the exemption limit in case of superannuation fund w.e.f A.Y. 2017-18

Before Amendment After Amendment

Perquisite includes the amount of any combination to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds Rs.1,00,000

Perquisite includes the amount of any combination to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds Rs.1,50,000

Copyrights Reserved




5. INCOME FROM HOUSE PROPERTY

1. Increase in time period for acquisition or construction self occupied property for claiming deduction of interest u/s 24(b):

BEFORE AMENDMENT AFTER AMENDMENT The acquisition or construction should be completed within 3 years, from the end of financial year in which the capital was borrowed

The acquisition or construction should be completed within 5 years, from the end of financial year in which the capital was borrowed

Reason: since housing projects are taking a longer time for completion, in this situation the assessee to get deduction of Rs. 2,00,000 on account of interest u/s 24(b) is very difficult. So, for the convenience of assessee the time period for completion of construction extended from 3 years to 5 years.

2. Simplification and rationalization of provisions relating to the taxation of unrealized rent and arrears of rent u/s 25A:

BEFORE AMENDMENT AFTER AMENDMENT

� Section 25AA contains treatment of unrealised rent allowed as deduction when realised subsequently.

� Section 25B contains treatment of arrears of rent received.

� The basic difference between un realized rent and arrears of rent is allowability of 30% of standard deduction.

Un realized rent Arrears of rent No deduction shall be allowed

30% of the amount of arrears shall be allowed as deduction.

Sec 25AA and sec 25B these two provisions are now merged in new sec 25A. As per new section 25A(1): the amount of rent received in arrears from a tenant or the amount of unrealised rent realised subsequently from a tenant by an assessee shall be deemed to be income from house property in the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year. New section 25A(2): provides a deduction of 30% of arrears of rent or unrealised rent realised subsequently by the assessee.

Summary:

New Section 25A

Arrears of Rent / Unrealised Rent

i) Taxable in the year of receipt / realisation

ii) Deduction@30% of rent received/realised

iii) Taxable even if assessee is not the owner of the property in the financial year of receipt / realisation.

Illustration: Mr. Anand sold his residential house property in March, 2016.

In June, 2016, he recovered rent of Rs. 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2010 to March 2012. He could not realise two months rent of Rs. 20,000 from him and to that extent his actual rent was reduced while computing income from house property for A.Y.2012-13.

Further, he had let out his property from April, 2012 to February, 2016 to Mr. Satish. In April, 2014, he had increased the rent from Rs. 12,000 to Rs. 15,000 per month and the same was a subject matter of dispute. In September, 2016, the matter was finally settled and Mr. Anand received Rs. 69,000 as arrears of rent for the period April 2014 to February, 2016.

Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year?



Solution

Since the unrealised rent was recovered in the P.Y.2016-17, the same would be taxable in the A.Y.2017-18 under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that year. Further, the arrears of rent was also received in the P.Y.2016-17, and hence the same would be taxable in the A.Y.2017-18 under section 25A, even though Mr. Anand was not the owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while computing income from house property of Mr. Anand for A.Y.2017-18.

Computation of income from house property of Mr. Anand for A.Y.2017-18 Particulars Rs. i) Unrealised rent recovered 10,000 ii) Arrears of rent received 69,000 79,000 Less: Deduction@30% 23,700 Income from house property 55,300

6. PROFITS AND GAINS OF BUSINESS OR PROFESSION

1. Non-compete fee received/receivable for not carrying on a profession chargeable under the head “Profits and gains of business or profession” [Section 28(va)]:

BEFORE AMENDMENT AFTER AMENDMENT Any sum whether received or receivable, in cash or kind, under an agreement For not carrying out any activity in relation to any business. Note: However any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head “Capital gains”;

Any sum whether received or receivable (which are recurring in nature) , in cash or kind, under an agreement For not carrying out any activity in relation to any business or profession. Note: However any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession, which is chargeable under the head “Capital gains”;

Clarification: Before amendment, if any non-compete fee received/receivable for not carrying on a profession was not covered under these provisions. So, Clause (va) of section 28 has been amended to bring the non - compete fee received / receivable (which are recurring in nature) in relation to not carrying out any profession, within the scope of profits and gains of business or profession.

2. The effect of amendment made in sec 28(va), sec 55 has also been amended:

For the purpose of sec 48 and 49:

In case of Transfer of capital asset being right to carry on any profession then the cost of acquisition and cost of improvement in relation to a capital asset, being right to carry on any profession shall also be taken as NIL.

Note: how ever in case of acquisition of such asset by the assessee purchase from a previous owner then the amount of purchase price would be COA for the purpose of sec 48 and 49.

3. Assessees engaged in the business of transmission of power eligible for additional depreciation [Section 32(1)(iia)]:

BEFORE AMENDMENT AFTER AMENDMENT An assessee which is an industrial undertaking engaged in • The business of manufacture or production

of any article or thing or • Generation or generation and distribution of

power

An assessee which is an industrial undertaking engaged in • The business of manufacture or production of

any article or thing or • Generation or transmission or distribution of

power

Clarification: The benefit of additional depreciation @ 20% of actual cost of new machinery now has been extended to an assessee engaged in the business of transmission of power also.



4. Deduction under section 32AC to be available in the year of installation in respect of actual

cost of new plant and machinery Acquired during any Previous year but installed on or before 31.03.2017:

BEFORE AMENDMENT AFTER AMENDMENT Section 32AC(1A) provides for deduction@15% of actual cost of new plant and machinery acquired and installed in a previous year by a company engaged in manufacturing or production of any article or thing, if the actual cost exceeds Rs. 25 crore. However, for claim of deduction, the acquisition and installation had to be done in the same previous year.

Deduction under section 32AC to be available in the year of installation in respect of actual cost of new plant and machinery acquired in the P.Y.2015-16 and P.Y.2016-17, if the actual cost of such new plant and machinery acquired in the relevant previous year exceeds Rs. 25 crores, even if the new plant and machinery has not been installed in the relevant previous year but has been installed on or before 31.3.2017. (Refer example)

Reason: The requirement of “acquisition and installation” in the year causes genuine hardship in cases in which assets having been acquired could not be installed in same previous year. So, for this purpose sec 32AC(1A) has been amended. Deduction under section 32AC to be available where the installation of the new assets is in a year other than the year of acquisition, the deduction shall be allowed in the year in which the new assets are installed, provided the installation is on or before 31-03-2017.

Example:

Company Actual cost of new plant and

machinery (Rs.)

Previous year of

acquisition

Previous Year of

installation

Assessment Year in which deduction

u/s 32AC can be claimed

Deduction u/s 32AC

(Rs.)

B Ltd. 40 crores P.Y.2015-16 P.Y.2016-17 A.Y.2017-18 6 crores C Ltd. 50 crores P.Y.2016-17 P.Y.2016-17 A.Y.2017-18 7.50 crores D Ltd. 60 crores P.Y.2016-17 P.Y.2017-18 - -

5. New Sec.35ABA has been inserted for

TAX TREATMENT OF SPECTRUM FEE FOR TELECOMMUNICATION SERVICES

W.e.f. 01.04.2016 – Capital Expenditure for obtaining right to use Spectrum for Telecommunication Services –

Conditions for Allowability:

a) Expenditure should be capital in nature.

b) It should be incurred for the purpose of acquiring any right to use Spectrum for Telecommunication Services.

c) It may be incurred either before the commencement of business or thereafter at any time during any previous year.

d) Payment has actually been made to obtain a right to use Spectrum. (Note: payment has actually been made means the actual payment of expenditure irrespective of the PY in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee or payable in such prescribed manner.)

e) Deduction: A deduction equal to the appropriate fraction of the amount of such expenditure. (appropriate fraction = 1/ (total no. of *Relevant Previous Years)

*Meaning of Relevant previous years: Case Meaning

Where the spectrum fee is actually paid before the commencement of business to operate telecommunication services

The previous years beginning with the P.Y. in which such business commenced and the subsequent P.Y. or P.Y.s during which the spectrum, for which the fee is paid, shall be in force.



In any other case

The previous years beginning with the P.Y. in which the spectrum fee is actually paid and the subsequent P.Y. or years during which the spectrum, for which the fee is paid, shall be in force.

f) Period of Deduction: Deduction shall be allowed for each of the relevant PYs.

g) Failure to comply with the conditions:

i) The deduction shall be deemed to have been wrongly allowed,

ii) The Assessing officer may re-compute the total income of the assessee for the said PY and make the necessary rectification,

iii) The time limit of 4 years as per Sec.154 (7) shall apply from the end of PY in which the failure to comply with the Provisions of this section takes place.

Note: the provisions under sec.35ABB (2) to (8), shall apply to Sec.35ABA, whenever the word “Licence”, is used shall be substituted with the word “Spectrum”. i) In case of transfer of Licence

• Where entire licence is transferred

• Where part of the licence is transferred ii) Transfer of licence in a scheme of Amalgamation iii) Transfer of licence in a scheme of Demerger iv) Depreciation on telecom license

6. NBFCs eligible for claim of deduction for provision for bad and doubtful debts [Section 36(1)(viia)]: Sub-clause (d) has been inserted in section 36(1)(viia) to provide deduction on account of provision for bad and doubtful debts of an amount not exceeding 5% of total income (before making any deduction under section 36(1)(viia) and Chapter VI-A) in the case of NBFCs also.

7. Extension of the scope of sec 43B to include certain payments made to Indian Railways [Section 43B]: with a view to ensure the prompt payment of dues to railways for use of the Railway assets, the Act has inserted clause (g) to section 43B so as to provide that any sum payable by the assessee to the Indian railways for the use of Railway assets shall also be subject to provisions of section 43B.

8. Amendments made in section 44AD

ASSESSEE ENGAGED IN ELIGIBLE BUSINESS - SEC.44AD

a) Eligible assesses: A resident individual, a HUF or a Partnership firm (other than a LLP) and which has not claimed any exemption u/s. 10AA or under any provision in chapter VI-A (income based deductions)

Note: The eligible Assessee is now required to pay Advance Tax of the whole amount in one instalment on or before 15th March of the financial Year.

b) Eligible Business: It apply to any eligible business, which means any business other than the business of plying, hiring or leasing goods carriages.

c) Turnover or Gross receipts should not exceed Rs.2 Crore.

d) 8% of the gross turnover or gross receipts are deemed as business income.

e) This scheme is also not applicable to:

i) A person carrying on profession as referred to in Sec.44AA(1);

ii) A person earning income in the nature of commission or brokerage income; or

iii) A person carrying on any agency business.



f) New Sec.44AD(4): Where an eligible assessee declares profit for any previous year in accordance

with the provisions of section 44AD and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1)(ACTUAL INCOME), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). (Refer Example)

g) New Sec.44AD(5): An eligible assessee to whom the provisions of Sec.44AD(4) are applicable and whose total income exceeds the basic exemption limit has to maintain books of account under section 44AA and get them audited and furnish a report of such audit under section 44AB.

Note:

i) For sec. 44AD: In the case of an assessee which is a partnership firm to which these provisions are applicable the salary & interest paid to partners shall not be deductible from the income computed under these provisions subject to the limits specified in Sec.40 (b)

ii) For sec. 44AE salary & interest paid to partners shall be deductible from the income computed under these provisions subject to the limits specified in Sec.40 (b).

Example:

Let us consider the following particulars relating to a resident individual, Mr. A, being an eligible assessee whose gross receipts do not exceed Rs.2 crore in any of the assessment years between A.Y.2017-18 to A.Y.2019-20

Particulars A.Y.2017 - 18 A.Y.2018 - 19 A.Y.2019 - 20 Gross receipts (Rs.) 1,80,00,000 1,90,00,000 2,00,00,000 Income offered for taxation (Rs.) 14,40,000 15,20,000 12,00,000 % of gross receipts 8% 8% 6% Offered income as per presumptive taxation scheme u/s 44AD

Yes Yes No

In the above case, Mr. A, an eligible assessee, opts for presumptive taxation under section 44AD for A.Y.2017-18 and A.Y.2018-19 and offers income of Rs. 14.40 lakh and Rs. 15.20 lakh on gross receipts of Rs. 1.80 crore and Rs. 1.90 crore, respectively.

However, for A.Y.2019-20, he offers income of only Rs. 12 lakh on turnover of Rs. 2 crore, which amounts to 6% of his gross receipts. He maintains books of account under section 44AA and gets the same audited under section 44AB. Since he has not offered income in accordance with the provisions of section 44AD(1) for five consecutive assessment years, after A.Y.2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years succeeding A.Y.2019-20 i.e., from A.Y.2020-21 to 2024-25.

9. Insertion of new section 44ADA for assessee engaged in eligible profession (Presumptive Taxation Scheme)

ASSESSEE ENGAGED IN ELIGIBLE PROFESSION - Sec.44ADA

a) Eligible assesses: An assessee being a resident in India, engaged in Notified Profession as per Sec.44AA(1).

b) Eligible Profession:

i) who is engaged in any profession referred to in section 44AA(1) such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette; and

ii) whose total gross receipts does not exceed fifty lakh rupees in a previous year,

c) Presumptive Income = 50% of the gross Receipts, or higher sum declared by the assessee in the Previous year.

d) Deductions u/s. 30 to 38 shall be deemed to have been allowed.

e) Depreciation on the assets used for purpose of the Profession shall be deemed to have been calculated and claimed, by assessee in each of the Relevant Assessment Years.



f) The assessee can claim that the profits & gains of the Profession are lower than the income deemed in these provisions, provided whose total income exceeds the basic exemption limit has to maintain books of account and other documents under section 44AA(1) and get them audited and furnish a report of such audit under section 44AB.

10. Amendments made in section 44AB:

TAX AUDIT - Sec.44AB

Who has to get his accounts audited by a C.A. on compulsory basis?

a) Business assessee’s: A person carrying on business, if the net sales in the business for the previous year exceeded 1 Crore Or

Note: Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed Rs.1 crore. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1), he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed Rs.2 crore. The CBDT, has vide its Press Release dated 20th June, 2016, clarified that the higher threshold for non-audit of accounts has been given only to assessee opting for presumptive taxation scheme under section 44AD.

b) Professional assessee’s: A person carrying on profession where gross receipts exceeded 50 lakhs (earlier it is 25 lakhs) for the previous year Or

c) Special assessee’s:

i) An assessee covered U/s.44AE, Sec.44BB, Sec.44BBB, if they claim that the profits from such activities are lower than presumptive income.

ii) The assessee covered u/s. 44AD(4), 44ADA can claim that the profits & gains of the Business or Profession are lower than the income deemed in these provisions, provided whose total income exceeds the basic exemption limit has to maintain books of account and other documents under section 44AA(1) and get them audited and furnish a report of such audit under section 44AB.

SOME IMPORTANT NOTIFICATIONS / CIRCULARS ISSUED BY C.G / CBDT:-

1. Deduction in respect of cost of production allowable under section 37 in the case of Abandoned Feature Films [Circular No. 16/2015, dated 6.10.2015]

The deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year is provided in Rule 9A.( Rule 9A – if Censor board is certified then the cost of production of the film is allowed as deduction).

But in case of abandoned films, since certificate of Board of Film Censors is not received, in some cases no deduction was allowed by applying Rule 9A of the Rules or by treating the expenditure as capital expenditure.

CLARIFICATION:- It is clarified that Rule 9A does not apply to abandoned feature films. So, The cost of production of an abandoned feature film is to be treated as revenue expenditure (not capital expenditure) and allowed as per the provisions of section 37 of the Income -tax Act, 1961.

2. Interest from non-SLR Securities of Banks: Whether chargeable under the head “Profits and gains of business or profession” or “Income from other sources”?

[Circular No. 18, dated 2.11.2015] Section 56(1)(id) provides that income by way of interest on securities shall be chargeable to income-tax under the head "Income from Other Sources", if the income is not chargeable to income-tax under the head "Profits and Gains of Business and Profession".

The investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". (CIT v. Nawanshahar Central Cooperative Bank Ltd. [2007]) (SC) Allowability of Employer's Contribution to funds for welfare of employees paid after the due date under the relevant Act but before the due date of filing of return of income under section 139(1) [Circular No.22/2015 dated 17 – 12 - 2015]



7. CAPITAL GAINS

1. Notification of new cost inflation index (CII):

The CII applicable for AY 2017-18 is “1125”

2. Amendments made in sec 2(14)

Definition of capital asset u/s 2(14) has been amended to specifically

Exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government from the definition of capital asset.

Consequently, transfer of the same would be exempt from capital gains tax.

3. Period of holding of unlisted shares to qualify as a long-term capital asset to be reduced from “more than 36 months” to “more than 24 months” [Section 2(42A)].

A share of a company (not being a share listed in a recognized stock exchange in India) would be treated as a short-term capital asset if it was held by an assessee for not more than 24 months (earlier it is 36 months) immediately preceding the date of its transfer.

4. The period of holding in case of sale of the share / debenture so received on conversion covered u/s 47(x).

Section 2(42A): The period of holding of bond / debenture / debenture-stock /deposit certificate prior to the conversion , shall be taken into account for the purposes of determining the nature of capital gains on the sale of the share / debenture so received on conversion.(U/S 47(x))

5. Section 47 exception to transfer:

A. Consolidation of mutual fund plans with scheme of mutual fund [inserted new sec 47(xix)]:

Any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be considered as a transfer for capital gain tax purposes.

Explanation

i) “Consolidating plan” means the plan with in a scheme of a mutual fund which merges under the process of consolidation of the plans with in a scheme of mutual fund in accordance with the Securities and Exchange Board of India ( mutual funds) regulations, 1996 made under the Securities and Exchange Board of India Act, 1992;

ii) “Consolidated plan” means the plan with which the consolidating plan merges or which is formed as a result of such merger;

iii) “Mutual fund” means a mutual fund specified under clause (23D) of sec 10.

B. Transfer of Sovereign Gold Bonds Scheme by way of redemption[inserted new sec 47(viic)]:

Any transfer of sovereign gold bonds issued by RBI under Sovereign Gold Bonds Scheme, 2015, by way of redemption, by an assessee being an individual would not constitute a transfer for the purpose of levy of capital gains tax.

Under section 43B of the Income-tax Act, 1961, certain deductions are admissible only on payment basis. The CBDT has observed that some field officers disallow employer's contributions to provident fund for the welfare of employees, if it has been paid after the 'due dates' as per the relevant Acts. CLARIFICATION:-

CBDT has clarified the issue that the deduction is allowable to the employer, if he deposits the contributions to welfare funds on or before the 'due date' of filing of return of income. U/S 139 (1). (i.e. due dates as per relevant Acts is not considered)

Note: It is further clarified that this Circular does not apply to claim of deduction relating to employee's contribution to welfare funds



Note:

a) Sovereign Gold Bond Scheme, 2015: This scheme has been introduced by the Government of India to reduce the demand for physical gold and consequently, reduce the foreign exchange outflow due to import of gold. The two-fold benefit of this scheme are: i) The gold bond would serve as a substitute for physical gold; and ii) The gold bond would provide security to the individual investor investing in gold for meeting

their social obligation.

b) Benefit of indexation would be available in respect of long-term capital gains arising from transfer of such sovereign gold bonds.

C. Rationalization of conversion of company into LLP [clause (ea) inserted in sec 47(xiiib)]:

Conversion of private Ltd or unlisted public company into LLP shall not be regarded as transfer, if the following conditions are fulfilled.(new condition is inserted w.e.f AY 2017-18) i) Total sales, turnover or gross receipts in the business of the company does not exceed Rs. 60

lakh in any of the three preceding previous years; ii) The shareholders of a company become partners of the LLP and their capital contribution and

profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion;

iii) No consideration or benefit, directly or indirectly, other than share in profit and capital contribution in the LLP arises to the shareholders;

iv) The erstwhile shareholders of the company continue to be entitled to receive atleast 50% of the profit of the LLP for a period of 5 years from the date of conversion;

v) All assets and liabilities of the company immediately before conversion become the assets and liabilities of the LLP;

vi) The total value of assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed Rs. 5 crore.

vii) No amount is paid, either directly or indirectly, to any partner out of the accumulated profit standing in the accounts of the company on the date of conversion for a period of 3 years from the date of conversion.

6. Cost of acquisition of asset, whose fair market value has been taken into account for the Income Declaration Scheme, 2016 [Section 49(5)]: Where capital gain arises from the transfer of asset declared under the Income Declaration Scheme, 2016 and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme, the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said scheme.

7. Rationalisation of section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property ( sec 50C)


Under section 50C, in case of transfer of a capital asset being land or building or both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains, where the actual consideration is less than such value.

The stamp duty value on the date of transfer(i.e., date of registration) has to be considered for the purpose of section 50C.

There is no option to assessee to claim stamp duty value on the date of agreement.

Option to assessee to claim stamp duty value on the date of agreement: Where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration. (Subject to condition- refer bellow point) However, the stamp duty value on the date of agreement can be adopted only in a case where the amount of consideration, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.



Differences between sec 43CA and Sec 50C

sec 43CA Sec 50C

Transfer of an asset, being land or building or both, held as stock-in-trade

Transfer of capital asset, being land or building or both

Stamp duty value on the date of agreement may be adopted as consideration

Stamp duty value on the date of agreement may be adopted as consideration

Whole or part of consideration should be paid by any mode other than cash on or before the date of agreement

Whole or part of consideration should be paid by A/c payee Cheque /bank draft or ECS through a bank A/c on or before the date of agreement

NEW EXEMPTIONS FROM CAPITAL GAINS (54 EE & 54GB)

Sec Assessee Conditions Quantum of Exemption

54EE Any assessee

1. The asset is a long term capital asset it should be transferred on or after 1-4-16.

2. Within a period of 6 months from the date of transfer; the amount of capital gains should have been invested in notified units of specified fund. (units issued before 1-4-2019 of such fund)

3. Assessee shall not transfer, or convert, or avail loan or advance on the security of the above bonds within a period of a 3 years from the date of its acquisition.

4. The maximum amount of investment made during the financial year in which transfer is made and in the subsequent financial year does not exceed Rs 50 lakhs.

54GB Individual, HUF

1. The asset transferred is a long term capital asset being residential property (a house or a plot of Land) on or before 31-3-17 ( on or before 31-3-19 in case of an investment in eligible start up instead of eligible small or medium enterprise)

2. The assessee, before the due date of furnishing return u/s. 139(1), has utilized the net consideration for subscribing to the equity shares of an eligible company being newly incorporated SME engaged in manufacturing of an article or a thing or in eligible start up company engaged in an eligible business.

3. The eligible company shall in turn utilize the consideration for purchase of a new asset (i.e. new plant and machinery) within 1 year from the date of subscription by the assessee.

GLTCxionConsideratNet

InvestmentofCost



4. Within a period of a 5 years from the date of acquisition:

a) The assessee shall not sell or transfer the equity shares of such eligible company; and

b) Such eligible company also shall not sell or transfer the new asset acquired.

A. FOR THE PURPOSE OF SEC 54 EE

Consequences for Transfer of New Asset with in 3 years:

According to sec 54EE: The capital gain exempted earlier shall be taxed as long term capital gain in the previous year in which such specified asset is transferred.

Note: In the case of sec. 54EE in case Ioan or advance is availed against the Security of specified bonds, the year of availing such loan or advance shall be deemed to be the year of conversion, thereby considered to be violation of the provision.

B. FOR THE PURPOSE OF SEC 54 GB

a) “Eligible company” means a company which fulfill the following conditions

i) It is a company incorporated in India the period from 1st April of the P.Y in which the capital gain arise to the due date U/S 139(1)for furnishing the R.O.I by the assesse.

ii) It is engaged in the business of manufacture of an article or thing or in an eligible business.

iii) It is a company in which the assessee has more than 50% share capital or more than 50% voting rights after the subscription in shares by the assessee, and

iv) It is company which qualifies to be a small or medium enterprise under micro,small and medium enterprises Act 2006 or is an eligible start up (w.e.f 1 – 4 - 16.)

Note: since eligible company also means eligible start up ( investment in LLp’s shall also be eligible for exemption U/S 54GB provided it carries on an eligible Business )

b) Meaning of eligible start up w.e.f A.Y. 2017-18

Eligible start-up means a company or a limited liability partnership engaged in eligible business which fulfills the following conditions, namely:-

i) It is incorporated on or after the 1st day of April, 2016 but before the 1st day of April , 2019.

ii) The total turnover of its business does not exceed 25 crore rupees in any of the previous years beginning on or after the first day of April 2016 and ending on the 31st day of march 2021 and

iii) It holds a certificate of eligible business from the inter – ministerial board of certification as notified in official gazette by the central govt.

c) Eligible business means a business which involves innovation, development, deployment or commercialization of new products, process or services driven by technology or intellectual property.

d) “New asset” means new plant and machinery but does not include

i) Any machinery or plant which ,before its installation by the assesse ,was used either with in or out side India by any other person.

ii) Any machinery or plant installed in any office premises or any residential accommodation including in the nature of guest house.

iii) Any office appliances including computers or computer software.

Note: provided that in the case of an eligible start up being a technology driven startup so certified by the inter-ministerial board of certification notified by the central govt. in the official gazette, the new asset shall include computers or computer software.

iv) Any vehicle or

v) Any machinery or plant ,the whole of actual cost of which is allowed as deduction (whether by way of depreciation or other wise) in computing the income chargeable under the head PGBP of any P.Y.



8. Long-term capital gains on shares of private companies (unlisted) to be subject to

concessional rate of tax@10% in the hands of non-corporate non-residents and foreign companies.

8. INCOME FROM OTHER SOURCES

1. Shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or a business reorganisation of a co-operative bank not to be subject to tax by virtue of section 56(2)(vii)

Where a firm or closely held company receives shares of another closely held company, the fair market value of which exceeds Rs.50,000, from any person, either without consideration or for inadequate consideration - Sec.56(2)(viia).

Note: where shares are received without consideration or inadequate consideration in pursuance of, amalgamation, demerger as provided under Sec.47, the same shall not be subject to tax u/s. 56 (2) (viia)

So, in order to ensure uniformity in tax treatment for individual or HUF. It proposed to amend the second proviso of sec 56(2)(vii)

Any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company or business reorganisation of a co-operative bank shall not be subject to tax by virtue of the provisions contained in section 56(2)(vii).

2. Tax on certain dividends received from domestic companies (Sec. 115BBDA) (w.e.f. A.Y. 2017 – 18)

a) Applicability: Assessee being an Individual, HUF or a firm, Resident in India.

b) Nature of Income: Any income in aggregate exceeding Rs. 10 Lakhs, by way of Dividends declared, distributed or paid by a Domestic Company.

c) Rate of tax: Tax = 10% on the Income in aggregate by way of such Dividends. (Note: this is in addition to the Tax payable on Other Total Income).

d) No Deduction: No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the Assessee under any provision of the Act in computing the income by way of dividends u/s.115BBDA (1)(a).

Some important notifications / circulars issued by C.G / CBDT:

Principles to determine whether gains on sale of listed shares and other securities would constitute capital gains or business income:-

There is no universal principle, to decide whether, shares held as investments or held as stock in trade CLARIFICATION:

CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, instructs the Assessing Officers to take into account the following while deciding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income

1. Where assessee opts to treat such shares and securities as stock – in - trade:

Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income,

2. Listed shares and securities held for a period of more than 12 months: In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;

Other cases: In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.



e) Meaning: Dividend shall have the same meaning as per Sec. 2(22) (a), (b), (c), (d) but Excludes sub – clause (e) thereof.

Example: Refer Chapter 3 (Exempted Incomes)

9. SET OFF AND CARRY FORWARD OF LOSSES

1. Amendments made in sec 80:

BEFORE AMENDMENT AFTER AMENDMENT Section 80 requires mandatory filing of return of loss under section 139(3) on or before the due date specified under section 139(1) for carry forward of the following losses – • Business loss under section 72(1) • Speculation business loss under section

73(2) • Loss under the head “Capital Gains” under

section 74(1) • Loss from the activity of owning and

maintaining race horses under section 74A(3)

However, there was no such stipulation for carry forward of loss from specified business under section 73A.

Section 80 has been amended so as to provide that the loss determined as per section 73A (specified business) shall not be allowed to be carried forward and set off if such loss has not been filed return of loss u/s 139(3). So sec 80 requires mandatory filing of return of loss u/s 139(3) on or before the due date specified u/s 139(1) for carry forward of loss from specified business u/s 73A

2. Set-off of losses not permissible against unexplained income, investments, money etc. chargeable under sections 68/69/69A/69B/69C/69D [Section 115BBE] Effective from: A.Y.2017-18

Under section 115BBE, unexplained cash credits under section 68, unexplained investments under section 69, unexplained money under section 69A, undisclosed investments under section 69B, unexplained expenditure under section 69C and amount borrowed or repaid on hundi under section 69D are taxable at the rate of 30%.

In order to avoid further litigation and clarify the real intent of law, section 115BBE(2) has been amended to expressly provide that no set off of any loss shall be allowable against income brought to tax under Sections 68 or Section 69 or Section 69A or section 69B or Section 69C or Section 69D.

10. CHAPTER - VI A DEDUCTIONS

1. AMENDMENTS MADE IN 80CCD

i) Lump sum amount received by the nominee on account of closure or opting out of pension scheme referred in sec 80CCD(1) or (1B), on the death of the assesse to be exempt (Sec 80CCD)

Note: however, pension received by the nominee from the annuity plan purchased or taken on such closure of opting out shall be taxable.

ii) Central Government has notified “Atal Pension Yojana” as a pension scheme, contribution to which would qualify for deduction u/s 80CCD in the hands of the individual

2. Additional deduction Rs.50,000 for interest on loan borrowed for acquisition of self-occupied house property by an individual [Section 80EE]

An individual shall be allowed a deduction of Rs.50,000 under section 80EE on account of interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential property subject to the following conditions being satisfied:

i) The loan has been sanctioned by the financial institution during the period beginning on 1-4-16 and ending on 31-3-17;

ii) The amount of loan sanctioned for acquisition of the residential house property does not exceed Rs. 35,00,000;

iii) The value of residential house property does not exceed Rs. 50,00,000

iv) The assesse does not own any residential house property on the date of sanction of loan



v) Where a deduction under this section is allowed for any interest, deduction shall not be allowed in

respect of such interest under any other provision of this Act for the same or any other assessment year.

Quantum of deduction: the deduction under section 80EE(1) shall be allowed in the A.Y 2017-18 and subsequent A.Y’s.

Note:

i) The benefit of deduction under this section would be available till the repayment of loan continues.

ii) The deduction of upto Rs. 50,000 under section 80EE is over and above the deduction of upto Rs. 2,00,000 available under section 24 for interest paid in respect of loan borrowed for acquisition of a self-occupied property.

iii) Meaning of certain terms:

Term Meaning

Financial institution

• A banking company to which the Banking Regulation Act, 1949 applies ; or

• Any bank or banking institution referred to in section 51 of the Banking Regulation Act, 1949; or

• A housing finance company.

Housing finance company

A public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.

3. Monetary limit for maximum deduction for rent paid under section 80GG increased


The deduction is allowable up to the least of the three limits –

1. 25% of total income;

2. Rent paid - 10% of total income;

3. Rs. 2,000 per month.

The deduction is allowable up to the least of the three limits –

1. 25% of total income;

2. Rent paid - 10% of total income;

3. Rs. 5,000 per month

Clarification: With a view to provide relief to the individual tax payers who pay rent for the purpose of their own residence, section 80GG has been amended to increase the maximum limit of deduction [third limit given in (ii) above] from Rs. 2000 per month to Rs. 5000 per month.

4. Special provision in respect of eligible business of eligible start up ( sec. 80-IAC)

New section: Special Provision in respect of specified Business

a) Applicability: Assessee being an eligible start up.

b) Quantum of deduction: 100% of the profits and gains derived from such eligible start up business.

c) Period of deduction: deduction can be claimed at the option of the assessee, for any 3 consecutive assessessment years out of 5 years beginning from the year in which the eligible startup is incorporated.

This incentive is available to an eligible start-up which fulfills the following conditions:

a) It is not formed by splitting up, or the reconstruction, of a business already in existence.

However, this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

b) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.



However, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

i) Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

ii) Such machinery or plant is imported into India;

iii) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Income-tax Act, 1961 in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

Note: if value of plant or machinery previously used for any purpose does not 20% of the total value of plant or machinery, sec. 80-IAC conditions on bar of old machine is deemed to be complied with.

Further conditions applicable for an assessee claiming deduction u/s 80IAC

a) Eligible business to be considered as the only source of income

b) Audit of accounts.

c) Transfer of goods/services between eligible business and other business of the assesse made at FM.

d) Deduction not to exceed profits of eligible business.

e) Assessing Officer empowered to make adjustment in case any transaction produces excessive profits to eligible business.

f) Central Government empowered to deny deduction to any class of start-up.

Explanation: for the purpose of this section: i) Eligible business means a business which involves innovation, deployment or

commercialization of new products, processes or services driven by technology or intellectual property;

ii) Eligible start-up means a company or a limited liability partnership engaged in eligible business which fulfills the following conditions, namely. a) It is incorporated on or after 1-4-2016 but before 1-4-2019; b) The total turnover of its business does not exceed Rs. 25 crore in any of the previous

years beginning on or after 1-4-2016 and ending on 31-3-2021; and c) It holds a certificate of eligible business from the inter-ministerial board of certification as

notified in the official Gazette by the central government.

5. 100% Deduction of profit from housing projects (sec 80-IBA)

New section deductions for profits and gains from housing projects:

a) Applicability: All assesses

b) Nature of business: business of developing and building housing projects.

Note: assesse who executes the housing project as a works contract awarded by any person (including central/ state Govt.) is not eligible for deduction.

Quantum of deduction: 100% of the profits & gains derived from such business.

c) Conditions:

Project approval The project shall be approved by the competent authority after 01.06.2016 but on or before 31.03.2019.

Project completion

The project shall be completed with in a period of 3 years from the date of approval by the competent authority. First approval: if the approval in respect of a housing project is obtained more than once the project shall be deemed to have been approved on the date on which building plan of such housing project was first approved by the competent authority.



Deemed completion: the project is deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority.

Shops and commercial

establishments

The built up area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built up area.

Housing project location Chennai, Delhi, Kolkata or Mumbai or within distance measured aerially of 25 Kms from the municipal limits of these cities.

In any other place

Minimum land area for the housing project

1,000 sq. m 2,000 sq. m

Note: the project u/s 80IBA shall be the only housing project on the above mentioned land. Maximum build up area for residential units in the housing project.

30 sq. m 60 sq. m

Conditions as to land area,

residential unit area, floor area,

etc.

Minimum floor area ratio utilization as per rules by central govt./ state govt./ local authority

90% of the permissible ratios

80% if the permissible ratios

Allotment restriction

If a residential unit is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual.

Maintenance of books

The assessee maintains separate books of account in respect of the housing project.

d) Non – completion in 3 years: if the housing project is not completed with in 3 years from the date of approval, and in respect of which a deduction has been claimed and allowed in one or more precious years, shall be deemed to be the income of the assessee chargeable as profits and gains of business or profession of the previous year in which the period for completion so expires.

e) No double deduction; where any amount of profits and gains derived from the business of developing and building housing projects is claimed and allowed u/s 80-IBA for any AY, deduction to the extent of such profit and gains shall not be allowed.

f) No Deduction for person, who is executing the housing project as a works contract.

g) Meaning of certain terms:

Term Meaning Built-up area

The inner measurements of the residential unit at the floor level, including – • projections and balconies, as increased by – • the thickness of the walls, However, built-up area does not include – • the common areas shared with other residential units, and • any open terrace so shared

Competent authority

The authority empowered by the Central Government to approve the building plan by or under any law for the time being in force.

Floor area ratio

The quotient obtained by dividing the total covered area of plinth area on all the floors by the area of the plot of land

Housing project

A project consisting predominantly of residential units with such other facilities and amenities as the competent authority may approve subject to the provisions of this section



Residential unit

An independent housing unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household.

6. Deduction in respect of employment of new employees [New Section 80JJAA]

BEFORE AMENDMENT AFTER AMENDMENT Under section 80JJAA, a deduction of 30% of additional wages paid to new regular workmen in a factory is allowed. The section applies to an assessee, whose gross total income includes any profits and gains derived from the manufacture of goods in a factory. The deduction is allowable for three assessment years, including the assessment year relevant to the previous year in which such employment is provided. The 'workmen' should be employed for not less than 300 days in a previous year. Further, in case of an existing factory, benefits are allowed only if there is an increase of atleast 10% in the total number of workmen employed on the last day of the preceding year.

With a view to extend this employment generation incentive to all sectors, section 80JJAA has been substituted. Quantum of deduction: Accordingly, where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, would be allowed for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Conditions to be fulfilled: The deduction would be allowed only subject to fulfillment of the following conditions: • The business should not be formed by

splitting up, or the reconstruction, of an existing business.

• The business is not acquired by the assessee by way of transfer from any other person or as a result of any business reorganization.

• The report of the accountant, giving the prescribed particulars, has to be furnished along with ROI.

Explanation:- for the purpose of this section :- Additional employee cost:: Total emoluments paid or payable to additional employees employed during the previous year. In the case of an existing business The additional employee cost shall be Nil, if— a) there is no increase in the number of employees from the total number of employees employed

as on the last day of the preceding year; b) emoluments are paid otherwise than by an account payee cheque or account payee bank draft or

by use of electronic clearing system through a bank account In the first year of a new business The emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost. Additional employee: An employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year. Exclusions from the definition: a) an employee whose total emoluments are more than Rs. 25,000 per month; or b) an employee for whom the entire contribution is paid by the Government under the Employees’

Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or

c) an employee employed for a period of less than 240 days during the previous year; or d) an employee who does not participate in the recognised provident fund. Emoluments: any sum paid or payable to an employee in lieu of his employment by whatever name called.



Exclusions from the definition: a) Any contribution paid or payable by the employer to any pension fund or provident fund or any

other fund for the benefit of the employee under any law for the time being in force; and b) Any lump-sum payment paid or payable to an employee at the time of termination of his service

or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

Applicability of availing benefit under the old section 80JJAA: The provisions of this section, as they stood immediately prior to their amendment by the finance Act, 2016, shall apply to an assessee eligible to claim any deduction for any assessment year commencing on or before 1-4-2016.

11. ADVANCE TAX

1. Advance tax payment scheme to be the same for companies and other assesses [Section 211]

Common advance tax payment schedule for both corporates and non-corporates (other than an eligible assessee in respect of eligible business referred to in section 44AD) from 1st June 2016

Due date of installment

Before amendment [Amount payable

For non- corporate assessee upto 31-05-16]

After amendment [Amount payable w.e.f. 1-6-2016 for

corporate and non-corporate assessee(i.e., all assessees)] other

than eligible assessee u/s 44AD On or before 15th June

Not applicable Not less than 15% of advance tax liability

On or before 15th September

Not less than 30% of advance tax liability, as reduced by the amount, if any, paid in the earlier installment.

Not less than 45% of advance tax liability, as reduced by the amount, if any, paid in the earlier installment.

On or before 15th December

Not less than 60% of advance tax liability, as reduced by the amount or amounts, if any, paid in the earlier installment or installments.

Not less than 75% of advance tax liability, as reduced by the amount or amounts, if any, paid in the earlier installment or installments.

On or before 15th March

The whole amount of advance tax liability as reduced by the amount or amounts, if any, paid in the earlier installment or installments.

The whole amount of advance tax liability as reduced by the amount or amounts, if any, paid in the earlier installment or installments.

Note: w.e.f. 1-06-2016, an eligible assessee opting profit on presumptive basis u/s 44AD, shall be required to pay advance tax of the whole amount in one installment on or before the 15th march of the financial year.

However any amount paid by way of advance tax on or before 31st March shall also be treated as advance tax paid during each financial year on or before 15th March.

2. Consequential amendments made in section 234C:

a) Manner of computation of interest under section 234C for deferment of advance tax by corporate and non-corporate assesses other than an eligible assessee u/s 44AD.

Specified date

Specified %

Shortfall in advance tax Period

(1) (2) (3) (4) 15th June 15% 15% of tax due on returned income (-) advance tax

paid up to 15th June 3 months

15th September 45% 45% of tax due on returned income (-) advance tax paid up to 15th September

3 months

15th December

75%

75% of tax due on returned income (-) advance tax paid up to 15th December

3 months

15th March

100%

100% of tax due on returned income (-) advance tax paid up to 15th March

1 month



Note – However, if the advance tax paid by the assessee on the current income, on or before 15th June or 15th September, is not less than 12% or, as the case may be, 36% of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.

b) Computation of interest under section 234C in case of an eligible assessee in respect of eligible business referred to in section 44AD: In case an eligible assessee in respect of the eligible business referred to in section 44AD, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% on the amount of the shortfall from the tax due on the returned income.

c) Non-applicability of interest under section 234C in certain cases: Interest under section 234C shall not be leviable in respect of any shortfall in payment of tax due on returned income, where such shortfall is on account of under-estimate or failure to estimate –

i) The amount of capital gains;

ii) Income of nature referred to in section 2(24)(ix) i.e., winnings from lotteries, crossword puzzles etc.;

iii) Income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time.

However, the assessee should have paid the whole of the amount of tax payable in respect of such income referred to in (i), (ii) and (iii), as the case may be, had such income been a part of the total income, as part of the remaining installments of advance tax which are due or where no such installments are due, by 31st March of the financial year.

12. TAX DEDUCTED AT SOURCE

1. Enabling provision for filing of self-declaration in Form 15G/15H by recipient of rental income, for non-deduction of tax at source under section 194-I [Section 197A] [1-6-2016]

The existing provisions of section 197A of the Income-tax Act, inter alia provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self-declaration in prescribed Form. No. 15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil.

In order to reduce compliance burden in case of rental payment, the act has amended the provisions of section 197A for making the recipients of payments referred to section 194-I (relating to rent) also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A.

Note: For Form no 15G: Incase of a person other than a company or a firm.

For Form No 15H: Incase of a resident individual of the age ≥ 60 years.

2. Increase in threshold limits and reduction of rates for deduction of tax at source in respect of certain payments [Chapter XVII-B] w.e.f. 1st June, 2016

Revision in threshold limits for deduction of tax at source from certain payments:

Threshold limit (Rs.)

Section

Nature of payment

BEFORE AMENDMENT

(Upto 31.5.2016)

AFTER AMENDMENT

(From 1.6.2016)

192A

Payment of accumulated balance due to an employee participating in recognized provident fund

30,000 50,000

194BB Winnings from horse race 5,000 10,000

194C

Payment to contractors (revision of threshold of aggregate payment in a year)

75,000 1,00,000

194D Insurance commission 20,000 15,000*



194G Commission on sale of lottery tickets 1,000 15,000

194H Commission or brokerage 5,000 15,000

194LA Payment of compensation or enhanced compensation on compulsory acquisition of immovable property

2,00,000 2,50,000

* In this case, there is a decrease in threshold limit.

Reduction in rate of tax to be deducted at source in respect of certain payments:

Rate of TDS

Section Nature of payment BEFORE

AMENDMENT (Upto

31.5.2016)

AFTER AMENDMENT

(From 1.6.2016)

194D Insurance commission 10% 5%

194DA Payment in respect of life insurance policy 2% 1%

194EE Payments in respect of deposits under National Savings Scheme

20% 10%

194G Commission on sale of lottery tickets 10% 5%

194H Commission or brokerage 10% 5%

Certain non-operational provisions to be omitted

Present section Heads Date of omission

194K Income in respect of units To be omitted w.e.f 01.06.2016

194L Payment of compensation on acquisition of capital asset

To be omitted w.e.f 01.06.2016

3. Exemption from requirement of furnishing PAN under section 206AAto certain non-resident:

General provision u/s 206AA

Higher rate of tax deduction in respect of persons who fail to furnish PAN to the person responsible for deducting tax at source at:

a) the rate mentioned in the relevant provisions of the Act or

b) the rate or rates in force or

c) the rate of 20%

whichever is higher.

In order to reduce compliance burden of furnishing PAN, the Act has inserted sub section (7) in section 206AA to provide as under:

The provisions of section 206AA shall not apply to a non-resident, not being a company, or to a foreign company in respect of-

a) Payment of interest on long term bonds as referred to in section 194LC: and

b) Any other payment subject to such conditions as may be prescribed.

Some important notifications/ circulars issued by CBDT:-

1. Simplification of format and procedure for self-declaration in Form No.15G & 15H [Notification No. 76/2015, dated 29.09.2015]

CLARIFICATION:-

Under the simplified procedure contained in new Rule 29C, a payee can submit the self-declaration either in paper form or electronically. The deductor will not deduct tax and will allot a Unique Identification Number (UIN) to all self-declarations in accordance with the procedure as specified by the Principal Director General of Income-tax (Systems) under sub-rule (7) of new Rule 29C. The particulars of self-declarations will have to be furnished by the deductor along with UIN in the quarterly TDS statements.



The requirement of submitting physical copy of Form 15G and 15H by the deductor to the income-tax authorities has been dispensed with. The deductor will, however be required to retain Form No.15G and 15H for seven years. The revised procedure shall be effective from 1st October, 2015.

2. Furnishing of evidence of claims by employee for deduction of tax under section 192 [Notification No.30/2016 dated 29.4.2016]

CLARIFICATION:-

New Rule 26C has been inserted in the Income-tax Rules, 1962, with effect from 1st June, 2016, to require furnishing of evidence of the following claims by an employee to the person responsible for making payment under section 192(1) in Form No.12BB for the purpose of estimating his income or computing the tax deduction of tax at source:

S. No. Nature of Claim Evidence or particulars

1.

House Rent Allowance

Name, address and PAN of the landlord(s) where the aggregate rent paid during the previous year exceeds ` 1 lakh.

2. Leave Travel Concession or Assistance Evidence of expenditure

3.

Deduction of interest under the head “Income from house property”

Name, address and PAN of the lender

4. Deduction under Chapter VI-A Evidence of investment or expenditure.

3. Time and mode of payment of TDS to Government account [Notification No.30/2016 dated 29.4.2016]

i) Increase in time limit for payment of TDS under section 194-IA to Government Account [Rule 30(2A)]:

Rule 30(2A) has been amended to increase the time limit for payment of tax deduction under section 194-IA to Government account from 7 days to 30 days from the end of the month in which deduction is made.

ii) Common due date for filing of statement of TDS under section 200(3) in case of Government deductors and other deductors [Rule 31A(2)]:

S. No. Date of ending of the quarter of the financial year

Due date

1. 30th June 31st July of the financial year

2. 30th September 31st October of the financial year

3. 31st December 31st January of the financial year

4.

31st March

31st May of the financial year immediately following the financial year in which the deduction is made.

iii) Mode of payment in the case of an office of the Government, where tax has been paid to the credit of the Central Government without production of a challan [Rules 30 & 37C]:

Time limit for submission of statement in Form 24G in such cases [New sub-rule (4A) of Rule 30]:

Month to which the statement relates

Time limit

(i)

In a case where the statement relates to the month of March

On or before 30th April

(ii)

In any other case On or before 15 days from the end of the relevant month



4. Tax not to be deducted from payments made to Corporations whose income is exempt under section 10(26BBB) [Circular No. 7/2015, dated 23-04-2015]

CLARIFICATION:-

The CBDT has, vide this circular, clarified that since corporations covered under section 10(26BBB) satisfy the two conditions i.e.,(1).unconditional exemption of income under section 10, (2).no statutory liability to file return of income under section 139, Hence, there would be no requirement for tax deduction at source from the payments made to such corporations since their income is anyway exempt under section 10.

Note: Section 10(26BBB), exempts any income of a corporation established by a Central, State or Provincial Act for the welfare and economic up liftment of ex-service-men being the citizen of India.

5. Applicability of provisions for deduction of tax at source under section 194A on interest on fixed deposit made in the name of the Registrar General of Court or the depositor of the Fund on directions of Courts [Circular No.23/2015, dated 28-12- 2015]

CLARIFICATION:-

The CBDT has clarified that the interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court, will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the recipient of the income.

Whether payments made by the broadcaster/telecaster to production houses for production of content/programme are comes under section 194C or 194J?

6. Applicability of TDS provisions on payments by broadcasters or Television Channels to production houses for production of content or programme for telecasting

[Circular No. 04/2016, dated 29-2-2016]

CLARIFICATION:-

In this regard, the CBDT has clarified that while applying the relevant provisions of TDS on a contract for content production, a distinction is required to be made between:

i) A payment for production of content / programme as per the specifications of the broadcaster/telecaster – then 194C is attracted

ii) A payment for acquisition of broadcasting/ telecasting rights of the content already produced by the production house.(only for telecasting) – then 194C is not attracted, but other TDS sections will apply.

7. Applicability of TDS provisions on payments by television channels and publishing houses to advertisement companies for procuring or canvassing for advertisements

[Circular No. 05/2016, dated 29-2-2016] CLARIFICATION:-

The CBDT noted that there are two types of payments involved in the advertising business:

i) Payment by client to the advertising agency,- then 194C is attracted

ii) Payment by advertising agency to the television channel/newspaper company - 194C is not attracted.

iii) payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.- then no TDS provisions is attracted

Example:

Discuss the following issues in the context of the provisions of the Income-tax Act, 1961, with specific reference to clarification given by the Central Board of Direct Taxes -

i) Moon TV, a television channel, made payment of Rs. 50 lakhs to a production house for production of programme for telecasting as per the specifications given by the channel. The copyright of the programme is also transferred to Moon TV. Would such payment be liable for tax deduction at source under section 194C? Discuss.

Also, examine whether the provisions of tax deduction at source under section 194C would be attracted if the payment was made by Moon TV for acquisition of telecasting rights of the content already produced by the production house.



ii) Mudra Adco Ltd., an advertising company, has retained a sum of Rs. 15 lakhs, towards charges for procuring and canvassing advertisements, from payment of Rs. 1 crore due to Cloud TV, a television channel, and remitted the balance amount of Rs. 85 lakhs to the television channel. Would the provisions of tax deduction at source under section 194H be attracted on the sum of Rs. 15 lakhs retained by the advertising company?

Answer

i) In this case, since the programme is produced by the production house as per the specifications given by Moon TV, a television channel, and the copyright is also transferred to the television channel, the same falls within the scope of definition of the term ‘work’ under section 194C. Therefore, the payment of Rs. 50 lakhs made by Moon TV to the production house would be subject to tax deduction at source under section 194C.

If, however, the payment was made by Moon TV for acquisition of telecasting rights of the content already produced by the production house, there is no contract for ‘’carrying out any work”, as required in section 194C(1). Therefore, such payment would not be liable for tax deduction at source under section 194C.

ii) The issue of whether fees/charges taken or retained by advertising companies from media companies for canvasing/booking advertisements (typically 15% of the billing) is 'commission' or 'discount' to attract the provisions of tax deduction at source has been clarified by the CBDT vide its Circular No.5/2016 dated 29.2.2016.

The Circular draws reference to the Allahabad High Court ruling in the case of Jagran Prakashan Ltd. and the Delhi High Court ruling in the matter of Living Media Limited. In both the cases, the Courts have held that the relationship between the media company and the advertising agency is that of a 'principal-to-principal' and, therefore, not liable for TDS under section 194H. Though these decisions are in respect of print media, the ratio is also applicable to electronic media/television advertising as the broad nature of the activities involved is similar.

In view of the above, the CBDT has clarified that no liability to deduct tax is attracted on payments made by television channels to the advertising agency for booking or procuring of or canvassing for advertisements.

Accordingly, in view of the clarification given by CBDT, no tax is deductible at source on the amount of Rs. 15 lakhs retained by Mudra Adco Ltd., the advertising company, from payment due to Cloud TV, a television channel.

Copyrights Reserved




13.RETURN OF INCOME

1. Rationalisation of provisions relating to filing of return of income [Section 139] Effective from: A.Y.2017-18

SECTION BEFORE AMENDMENT AFTER AMENDMENT

139(1) [Sixth

proviso]

Mandatory filing of return if total income before giving effect to deductions under Chapter VIA exceed basic exemption limit Every person, being an individual or HUF or an AOP or a BOI, whether incorporated or not or any artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to provisions of Chapter VI-A, exceeds the basic exemption limit shall be liable to furnish return on or before the due date.

Mandatory filing of return if total income before giving effect to exemption u/s 10(38) in respect of long-term capital gains exceed basic exemption limit If such a person earns income by way of long-term capital gains in the previous year, which is exempt under section 10(38), and income of such person without giving effect to section 10(38) exceeds the basic exemption limit, then also such person shall be liable to mandatorily file return of income for the previous year on or before the due date.

139(4)

Time limit for filing belated return: A person who has not furnished a return within the time allowed to him under section 139(1), or within the time allowed under a notice issued under section section 142(1), may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

Reduction of time limit for filing belated return: Any person who has not furnished a return within the time allowed to him under section 139(1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Thus, belated return can be filed only in case a person has not furnished his return within the time allowed under section 139(1). Also, the belated return cannot be furnished after the end of the relevant assessment year.

139(5)

Belated return cannot be revised: If any person, having furnished the return under section 139(1), or in pursuance of a notice issued under section 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before one year from the end of the relevant assessment year or completion of assessment, whichever is earlier.

Belated return can be revised: If any person, having furnished a return under section 139(1) or belated return under section 139(4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. An enabling provision for revision of belated return has been introduced. However, a return furnished in pursuance of a notice issued under section 142(1) cannot be revised.

Clause (aa) – Expln to

139(9)

Return deemed to be defective if self-assessment tax is not paid before furnishing the return A return of income shall be regarded as defective unless the self-assessment tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of return.

Return not deemed to be defective if self-assessment tax is not paid before furnishing the return A return which is otherwise valid would not be treated defective merely because self-assessment tax and interest payable in accordance with the provisions of section 140A has not been paid on or before the date of furnishing of the return.



2. Transactions requiring the PAN (Rule 114B):

Monetary limits of specified transactions which require quoting of PAN

The Government is committed to curbing the circulation of black money and widening of tax base. To collect information of certain types of transactions from third parties in a non-intrusive manner, it is mandatory under Rule 114B of the Income-tax Rules to quote PAN where the transactions exceed a specified limit.

Value of transaction No. Nature of transaction BEFORE

AMENDMENT AFTER AMENDMENT

1. Sale or purchase of a motor vehicle or vehicle, other than two wheeled vehicles.

All such transactions All such transactions

2. Opening an account [other than a time - deposit Referred to at Sl. No.12 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank.


3. Making an application to any banking company or a co-operative bank or to any other company or institution, for issue of a credit or debit card.


4. Opening of a demat account with a depository, participant, custodian of securities or any other person registered under section 12(1A) of the Securities and Exchange Board of India Act, 1992.


5. Payment to a hotel or restaurant against a bill or bills at any one time.

Payment in cash of an amount exceeding Rs.

25,000.


50,000.

6. Payment in connection with travel to any foreign country or payment for purchase of any foreign currency at any one time.


25,000.


50,000.

7. Payment to a Mutual Fund for purchase of its units

Amount exceeding Rs. 50,000.


8. Payment to a company or an institution for acquiring debentures or bonds issued by it.



9. Payment to the Reserve Bank of India for acquiring bonds issued by it.



10. Deposit with a banking company or a cooperative Bank.

Deposits in cash exceeding Rs. 50,000 during any one day.

Deposits in cash exceeding Rs. 50,000

during any one day 11. Purchase of bank drafts or pay orders or

banker’s cheques from a banking company or a co-operative.

Payment in cash of an amount exceeding Rs. 50,000 during any one

day.

Payment in cash of an amount exceeding Rs. 50,000 during any one

day. A time deposit with, -

i) a banking company or a co-operative bank

ii) a Post Office;

iii) a Nidhi referred to in section 406 of the Companies Act, 2013; or 12 iv) a non-banking financial company which

holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934, to hold or accept deposit from public.

Amount exceeding Rs. 50,000

Amount exceeding Rs. 50,000

or aggregating to more than

Rs. 5 lakh during a financial year.



13. Payment for one or more pre-paid payment

instruments, as defined in the policy guidelines for issuance and operation of pre-paid payment instruments issued by Reserve Bank of India under the Payment and Settlement Systems Act, 2007, to a banking company or a co-operative bank to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution.

-

Payment in cash or by way of a bank draft or pay order or banker’s cheque of an amount aggregating to more than Rs. 50,000 in a

financial year.

14. Payment as life insurance premium to an insurer as defined in the Insurance Act, 1938.

Amount aggregating to more than Rs.

50,000 in a financial year.

Amount aggregating to more than Rs. 50,000

in a financial year.

15. A contract for sale or purchase of securities (other than shares) as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956.

Amount exceeding Rs. 1 lakh per

transaction

Amount exceeding Rs. 1 lakh per transaction

16. Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange.

Amount exceeding Rs. 50,000 per

transaction

Amount exceeding Rs. 1 lakh per transaction

17. Sale or purchase of any immovable property.

Amount exceeding Rs. 5 lakhs

Amount exceeding Rs. 10 lakh or valued by

stamp valuation authority referred to in section 50C of the Act

at an amount exceeding Rs. 10 lakh

18. Sale or purchase, by any person, of goods or services of any nature other than those specified at Sl. No. 1 to 17 of this Table, if any.

- Amount exceeding Rs. 2 lakh per transaction:

Minor to quote PAN of parent or guardian

However, where a person, entering into any transaction referred to in this rule, is a minor and who does not have any income chargeable to income-tax, he shall quote the PAN of his father or mother or guardian, as the case may be, in the document pertaining to the said transaction.

Declaration by a person not having PAN

Further, any person who does not have a PAN and who enters into any transaction specified in this rule, shall make a declaration in Form No.60 giving therein the particulars of such transaction.

Non-applicability of Rule 114B

Also, the provisions of this rule shall not apply to the following class or classes of persons, namely:-

i) the Central Government, the State Governments and the Consular Offices;

ii) the non-residents referred to in section 2(30) in respect of the transactions other than a transaction referred to at Sl. No. 1 or 2 or 4 or 7 or 8 or 10 or 12 or 14 or 15 or 16 or 17 of the Table.

Verified by: Samba Siva rao sir,

Naga Lingeswara Rao sir,

Rajasekhar Sir,

Thomas Sir

Executed By: Srinivas Sir

THE END

Copyrights Reserved


Cell: 98851 25025 / 26



CA - IPCC

COURSE MATERIAL

Quality Education


INDIRECT TAXES

Page 38

IPCC_ Indirect Taxes Amendments Material (For May-2017)_2 nd Edition _________39


INDIRECT TAX AMENDMENTS AT A GLANCE – FINANCE ACT, 2016

(Significant Notifications issued during 01.03.2015 to 06.06.2016)

S.NO Particulars Effective Date

Relevant section/Rule/ Notification

Central Excise Duty 1. Authentication of invoices by digital signatures 01.03.2016 2. Interest payable on delayed payment of excise duty has

been reduced from 18% to 15% 01.04.2016

3. In place of Annual Financial Information Statement [ER-4], an Annual Return will have to be filed by central excise assessees by 30th November of the succeeding year

01.04.2016

4. The Central Government has fixed tariff values for readymade garments under Chapter 61 and 62 as 60% (earlier 30%) of the retail sale price of the readymade garments.

01.04.2016

5. Higher threshold exemption (SSI exemption) up to 10 crores for jewellery manufacturers if his aggregate domestic clearances during preceding financial year did not exceed Rs. 15 crore.

26.07.2016

6. Facility for revision of returns, which was hitherto available for service tax returns only, extended to central excise returns also

[To be effective from a date to be

notified]

Customs Duty

1. Certain class of importers and exporters allowed to make deferred payment of duties

14.05.2016].

2. Transitional product specific safeguard duty on imports from the People’s Republic of China abolished

14.05.2016]

3. simplification and rationalisation of the warehousing provisions under the Customs Law,

14.05.2016]

Central sales tax

1. Sale of gas through a common carrier pipeline/other such transportation system, which involves comingling of gases, deemed to be an inter-State sale

14.05.2016

Explanation 3 to section 3 of the

Central Sales Tax Act, 1956

Service Tax

Chapter V of Finance Act, 1994

1. (i) Service tax rate enhanced from 14.5% to 15% ( including SBC @ 0.5% and [email protected]%)

01.06.2016 Section 66B

2. Activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 is leviable to service tax

14.05.2016

Explanation 2(ii)(a) to section 65B(44) of the

Finance Act, 1994 (FA, 1994)

3. Power of framing rules on point of taxation also obtained from section 67A(2) of the Finance Act, 1994

14.05.2016

4. POT RULES Rule-5: in rule 5 inserted Explanation 1: this rule shall apply mutatis mutandis in case of new levy of service Explanation 2: new levy or tax shall be payable on all the cases other than specified above.

01.03.2016 Rule-5



5. Rule -7: a) When there is a change in the service tax liability or

extent of liability of the service recipient, date of issuance of invoice to be the POT under rule 7, if service has been provided and the invoice issued before date of such change, but payment has not been made as on such date

b) In case of services provided by Government to business entities, POT under rule 7 will be the date on which payment becomes due or the date when payment is made, whichever is earlier

13.04.2016 Rule-7

6. All services provided by the Government or local authority to a business entity removed from the Negative List (i.e. taxable)

01.04.2016 Section 66D(a)(iv)

7. In case of service provided by Government to a business entity, interest chargeable on deferred payment to be included in the value of the taxable service

13.04.2016 [Rule 6(2)(iv) of the Service Tax Determination of

Value Rules, 2006]

II Others notifications 8. Exemption in respect of services provided by a senior

advocate to an advocate or partnership firm of advocates and person represented on an arbitral tribunal to an arbitral tribunal withdrawn (Entry no 6):

01.04.2016

9. Specified services provided by the Indian Institutes of Management (IIM) exempted (Entry no 9B):

01.03.2016

10. Services by assessing bodies empanelled centrally by DGT, Ministry of Skill Development & Entrepreneurship under SDI scheme exempted(Entry no 9C):

01.04.2016

11. Services provided by way of skill/vocational training by DDU-GKY training providers exempted(Entry no 9D):

01.04.2016

12. Threshold limit of consideration charged per performance in folk or classical art forms of music/ dance/ theatre raised from Rs. 1,00,000 to Rs. 1,50,000

01.04.2016

13. Exemption to transportation of passengers by ropeway, cable car or aerial tramway withdrawn

01.04.2016

14. 1. General insurance provided under Pradhan Mantri Suraksha Bima Yojna exempted

2. General insurance provided under Niramaya Health Insurance Scheme exempted

30.04.2015

Life insurance provided under following schemes exempted:

Varishtha Pension Bima Yojna 01.04.2015

15.

Pradhan Mantri Jeevan Jyoti Bima Yojna and Pradhan Mantri Jan Dhan Yojna

30.04.2015

16. Collection of contribution under Atal Pension Yojna (APY) exempted

30.04.2015

17. Annuity under the National Pension System (NPS) exempted

01.04.2016

18. Exemption to services by (i) mutual fund agent/distributor to a mutual fund or asset management company and (ii) selling/ marketing agent of lottery tickets to a distributor/selling agent, withdrawn

01.04.2015

Mega Exemption Notification No.

25/2012 ST dated 20.06.2012



19. Services provided by (i) business facilitator/business correspondent with respect to Basic Savings Bank Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana and (ii) an intermediary to business facilitator/business correspondent with respect to such services, exempt from service tax

21.10.2015

20. Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions (EPFMP) Act, 1952 are exempted

01.04.2016

21. Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999 are exempted

01.04.2016

22. Services provided by Securities and Exchange Board of India (SEBI) set up under

the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market are exempted

01.04.2016

23. Services provided by National Centre for Cold Chain Development (NCCCD) under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination are exempted

01.04.2016

24. Services provided by Government or a local authority to a business entity with a turnover up to Rs. 10 lakh in preceding FY exempted

01.04.2016

25. The following Specified services provided by Government or a local authority exempted

1. Services in relation to any function entrusted to a municipality under article 243W of the Constitution

2. Services provided to another Government or local authority

3. Services provided by way of issuance of passport, visa, driving licence, birth certificate or death certificate

4. Services where gross amount charged does not exceed Rs. 5000

5. Services by way of tolerating non-performance of a contract

6. Services of registration, testing, calibration, safety check/certification relating to protection/safety of workers, consumers or public at large, required under any law

7. Right to use natural resources assigned before 1st April, 2016

8. Services in relation to any function entrusted to a Panchayat under article 243G of the Constitution

9. Services of inspection, container stuffing etc. in relation to import export cargo after office hours or on holidays.

13.04.2016

26. Educational services removed from negative list but remain exempted through mega exemption notification

14.05.2016


25/2012 ST dated 20.06.2012


25/2012 ST dated 20.06.2012



27. a) Services of transportation of passengers by a stage carriage removed from negative list of services – Non-air conditioned stage carriage exempted vide mega exemption notification

b) Transportation of goods by an aircraft from a place outside India up to the customs station of clearance removed from negative list - exempted vide mega exemption notification

01.06.2016

28. Abatement in case of Transport of goods in containers by rail by any person other than Indian Railways reduced from 70% to 60%. Note:- Now CENVAT credit on input services can be taken along with the abatement benefit.

01.04.2016

29. Services of goods transport agency in relation to transportation of goods (i) other than used household goods - 70% (ii) Household Goods – 60%

01.04.2016

30. 30% abatement for services provided in relation to chit 01.04.2015 31. Services by a tour operator in relation to,-

(i) A tour, only for the purpose of arranging or booking accommodation for any person-90%

(ii) A tour other than (i) above -70% Note:- Consequently, with effect from 01.04.2016, definition of ‘package tour’ has been omitted.

01.04.2016

Abatement Notification No.

26/2012 ST dated

20.06.2012

32. Service provided with respect to Kailash Mansarovar and Haj pilgrimage exempted

20.08.2014

33. Services provided by BIRAC approved bio-incubators to incubatees also exempted

01.03.2016. Notification No. 12/2016 ST dated

01.03.2016. 34. Refund of Swachh Bharat Cess/KRISHI KALYAN CESS to

SEZ units/developers 01.06.2016 Notification No.

02/2016 ST dated 03.02.2016

35. Services provided under the Power System Development Fund Scheme of the Ministry of Power exempted

19.05.2015

Notification No. 17/2015 ST dated

19.05.2015 100% service tax to be paid under reverse charge in case of service provided by

(a) mutual fund agent/ distributor to mutual fund/ asset management company,( omitted)

01.04.2015

36.

(b) selling/marketing agent of lottery tickets to lottery distributor/selling agent and

01.04.2015

37. Service tax to be paid under reverse charge in case of ALL taxable services provided by Government (except specified services)

01.04.2016

38. Scope of reverse charge widened 01.03.2015

Reverse Charge Notification No.

30/2012 ST dated

20.06.2012

III Service Tax Rules, 1994 39. Service tax to be payable by provider of service in case of

service provided by (a) mutual fund agent/ distributor to mutual fund/ asset management company, (b) selling/marketing agent of lottery tickets to lottery distributor/selling agent ( forward charge)

01.04.2016

Rule 2(1)(d)(i)(EEA) &

Rule 2(1)(d)(i)(EEB)

40. Interest to be payable at a separate rate on service tax collected but not paid

14.05.2016

Section 75 of FA, 1994

41. Interest payable on (i) delayed payment of service tax

reduced to 15% and (ii) on service tax collected but not paid fixed at 24%

14.05.2016

Notification Nos. 13 and 14/2016

ST dated 01.03.2016



42. Service tax on legal services provided by senior advocate to be paid under forward charge

01.04.2016

Rule 2(1)(d)(i)(D)(ii) of

Service Tax Rules, 1994

43. Facility of (a) quarterly payment of service tax and

payment of service tax on receipt basis extended to OPC having service turnover upto Rs. 50 lakh in the previous financial year and (b) quarterly payment of service tax extended to HUF

01.04.2016

Rule 6(1) of STR

44. Service tax to be payable by the recipient of service in relation to ALL services provided by Government to business entities (except specified services)

01.04.2016

Rule 2(1)(d)(i)(E)

45. Alternative rates for payment of service tax on air travel agent’s service, life insurance services, money changing service and service provided by lottery distributor/selling agent increased pursuant to the upward revision in service tax rate. Note:- Composition rate in case of single premium annuity policies to be 1.4% of the single premium charged

01.06.2015

Sub rules (7), (7A), (7B) and (7C) of rule 6

46. Composition rates fixed for KKC for air travel agents, life insurance, foreign exchange and lottery

01.06.2016

New sub-rule (7E) of rule 6 of STR

47. Entire service tax to be paid under reverse charge in case

of manpower supply and security services 01.04.2015

48. Provisions introduced for filing of Annual Returns 01.04.2016 Rule - 7 49. Annual return filed by the due date may be revised within 1

month from the date of its submission 01.04.2016 Rule 7B(2)

50. Delayed filing of Annual Return to attract a late fee of Rs. 100 per day for the period in default subject to a maximum of Rs. 20,000

01.04.2016 Rule 7C(2)

IV CENVAT Credit Rules, 2004

1. Scope of definition of capital goods & inputs widened 01.04.2016 Rule 2(a) & (k)

2. Services by way of sale of dutiable goods on commission basis is sales promotion and thus, an eligible input service

03.02.2016 Rule 2(l)

3. Restriction on ship breaking units to avail only 85% CENVAT credit of CVD done away with

01.02.2016 Rule 3(1)(vii)

4. Swachh Bharat Cess cannot be paid by utilizing CENVAT credit of any other duty

03.02.2016 Rule 3(4)

5. KKC cannot be paid by utilizing CENVAT credit of any duty / tax specified in rule 3(1) and credit of KKC to be utilized only for payment of KKC

01.06.2016

Rules 3(4) and 3(7) of CCR

6. CENVAT credit of only NCCD to be utilized for payment of the NCCD payable on all goods

01.03.2016 Rule 3(4)

7. Manufacturers allowed to utilize credit of education cess (EC) and secondary and higher education cess (SHEC) for payment of excise duty or output service tax.

30.04.2015 Third, fourth and fifth provisos

inserted in rule 3(7)(b)

8. CENVAT credit allowed on inputs and capital goods received directly in the premises of the job worker

01.03.2015

Rules 4(1) and 4(2)(a)

9. Jewellery manufacturer (excluding manufacturer of plain silver jewellery) with turnover upto Rs. 15 crore in preceding year eligible to avail 100% CENVAT credit on capital goods in the year of purchase

01.03.2016 [Rule 4(2)(a)]



10. CENVAT credit allowed on tools of Chapter 82 of the Central Excise Tariff sent to another manufacturer or job-worker for production of goods

01.04.2016 Rule 4(5)(b)

11. Permission given for sending inputs/partially processed inputs outside factory to a job-worker and clearance therefrom on payment of duty to be valid for 3 financial years

01.04.2016 [Rule 4(6)]

12. Service tax paid on assignment charges of a natural resource to be allowed as CENVAT credit spread over the time for which the rights have been assigned

13.04.2016 Rule 4(7)

13. Provisions relating to availment of CENVAT credit under partial and full reverse charge brought at par

01.04.2015 Rule 4(7)

14. Export goods defined for the purpose of refund of CENVAT credit under rule 5

01.03.2015 Clause (1A) of Explanation 1 to

rule 5 15. Time limit for final refund claim 01.03.2016 Rule - 5 16. No refund of CENVAT credit under rule 5B to service

providers providing manpower supply/ security services 01.04.2015 Rule – 5 (B)

17. Rule 6 simplified and rationalized 01.04.2016 Rule - 6 18. Manner of distribution of credit by input service distributor -

redrafted 01.04.2016 Rule - 7

19. Manufacturers with multiple manufacturing units enabled to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units

01.04.2016 New rule 7B

20. Invoice issued by a service provider for clearance of inputs/capital goods also to be an eligible document under rule 9

01.04.2016 Rule 9(1)(a)(i)

21. Certificate issued by an Appraiser of Customs to be a valid document under rule 9 for goods imported through authorized courier

31.12.2015 Rule 9(1)(d)

1. CENTRAL EXCISE DUTY

1. Registration procedure:-

(a) Authentication of invoices by digital signatures (w.e.f 01.03.2016): An invoice issued under central excise law by a manufacturer may now be authenticated by means of a digital signature. However, where the duplicate copy of the invoice meant for transporter is digitally signed, a hard copy of the duplicate copy of the invoice meant for transporter and self attested by the manufacturer would be used for transport of goods.

2. INTEREST ON DELAYED PAYMENT OF EXCISE DUTY:-

Before amendment ( till 31.03.16) After amendment (w.e.f. 1.04.16)

Failure to pay the amount of duty by due date attracts interest at the rate @ 18% per annum on the outstanding amount.

Failure to pay the amount of duty by due date attracts interest at the rate @ 15% per annum on the outstanding amount.

3. FILING OF RETURNS & THEIR PERIODICITY

Particulars Before amendment ( till 31.03.16) After amendment (w.e.f. 1.04.16)

Form ER-4 ER-4

Periodicity Annually Annually

Purpose - Annual financial information statements to be filed by assessees paying duty of Rs. 1 crore or more.

Annual return to be filed by assessees paying duty of Rs. 1 crore or more.

Last date - 30th April of each financial year 30th November of the succeeding year



4. TARIFF VALUE:-


For Readymade garments tariff value is 30% of retail sale price.

For Readymade garments tariff value is 60% of retail sale price

Articles of jewellery (other than silver jewellery) and articles of jewellery manufactured from precious metal or old jewellery provided by the retail customer. Tariff value is 30% of the transaction value as declared in the invoice.

Articles of jewellery (other than silver jewellery) and articles of jewellery manufactured from precious metal or old jewellery provided by the retail customer. 30% of the transaction value as declared in the invoice. (Omitted w.e.f. 1.3.2016)

Thus, the valuation for jewellery will be governed by provisions of Sec-4 i.e transaction value.

5. SSI EXEMPTION:-

a) SSI exemption In case of jewellery manufacturers:- With effect from 26.07.2016, excise duty of 1% (without CENVAT credit) or 12.5% (with CENVAT credit) has been levied on articles of jewellery [excluding silver jewellery, other than studded with diamonds/other precious stones]. The SSI exemption for such jewellery manufacturers would be upto Rs. 10 crore in a year with an eligibility limit of Rs. 15 crore in the preceding year. Thus, a jewellery manufacturer will be eligible for exemption from excise duty on first clearances upto Rs. 10 crore during a financial year, if his aggregate domestic clearances during preceding financial year did not exceed Rs. 15 crore.

b) SSI exemption In case of other manufacturers:-

A unit whose turnover does not exceed Rs. 4 crores in the previous year is entitled to full exemption from payment of duty on its first clearances of up to Rs. 150 lakh in the current financial year.

6. FACILITY FOR REVISION OF RETURNS, NOW HAS BEEN EXTENDED TO CENTRAL EXCISE ALSO VIDE NOTIFICATION NO. 8/2016

a) REVISED RETURNS:-

i) revision of monthly return:- An Assessee, who has filed a monthly return as per the due dates, may submit a revised return by the end of the calendar month in which the original return is filed.

ii) revision of annual return:- An Assessee, who has filed annual return by the due dates, may submit a revised return with in a period of one month from the date of submission of the said Annual Return (ER - 4).

b) FEES FOR DELAY IN SUBMISSION OF RETURN (Monthly, Quarterly and Annually):- where the return is submitted by the assessee after due date, the assessee shall pay to the credit of the central government, an amount:-

i) Calculated at the rate of Rs. 100 per day;

ii) Subject to a maximum of Rs. 20,000;

For the period of delay in submission of return.

As notified by C.G.

Copyrights Reserved




2. CUSTOMS DUTY

1. Transitional product specific safeguard duty on imports from the People’s Republic of China abolished: In a case where the goods were imported in increased quantities from People’s Republic of China, a specific safeguard duty was imposed under section 8C of the Customs Tariff Act, 1975. The said duty has been abolished. (w.e.f 14-05-2016)

2. Deferred Payment of customs duty: The Central Govt. has been empowered to permit certain class of importers and exporters to make deferred payment of customs duties or any charges in the prescribed manner.

3. Simplification and rationalisation of warehousing of imported goods under customs law:

i) The importer may not clear the goods for home consumption and request the goods to be warehoused.

ii) In such a case, he shall file an Into-Bond Bill of Entry for warehousing and is assessed to duty.

iii) Thereafter, he shall execute a bond binding himself in a sum equal to THRICE (prior it was twice) the amount of the duty assessed on such goods.

The proper officer after satisfying himself that all the requirements have been fulfilled shall make an order permitting the deposit of the goods in a warehouse.

3. CENTRAL SALES TAX

1. Sale of gas through a common carrier pipeline/other such transportation system, which involves co-mingling of gases, deemed to be an inter-State sale

Where the gas sold or purchased and transported through a common carrier pipeline or any other common transport or distribution system becomes co-mingled and fungible with other gas in the pipeline or system and such gas is introduced into the pipeline or system in one State and is taken out from the pipeline in another State, such sale or purchase of gas shall be deemed to be a movement of goods from one State to another. (w.e.f 14-05-2016)

4. SERVICE TAX

1. BASIC CONCEPTS OF SERVICE TAX 1) Service tax rate:

Before amendment (till 31.05.2016) After amendment (w.e.f 01.06.2016) Effective rate of service tax was 14.5% (including Swachh Bharat Cess @ 0.5% )

Effective rate of service tax was 15% (including Swachh Bharat Cess(SBC) @ 0.5% and krishi kalyan cess (KKC) @ 0.5% )

Treatment of Swachh Bharat Cess (SBC) and krishi kalyan cess (KKC) in different cases:-

a) Swachh Bharat cess @ 0.5% and krishi kalyan cess @ 0.5% to be levied on value of all or any of taxable services in addition to the service tax @14% (it is applicable from May 2017 Exams ONWARDS.)

b) SBC and KKC should Not applicable on services fully exempt and those covered under Negative List

Subsequently, the importer of any warehoused goods may clear them for home consumption provided:-

i. An EX-Bond Bill of Entry has been presented to the proper officer and duty is assessed and paid by him

ii. An order for clearance of such goods for home consumption has been made by the proper officer.



c) Utilisation of Swachh Bharat Cess/ krishi kalyan cess: Proceeds of the SBC/KKC will be credited to the consolidated fund of India, such sums of money for the purposes of financing and promoting Swachh Bharat initiatives/ to improve agriculture respectively

d) Swachh Bhart Cess/ krishi kalyan cess to be independent from Service Tax: SBC/KKC would be levied, charged, collected and paid to Government independent of Service Tax. This needs to be charged separately on the Invoice.

e) Reverse Charge applicable on Swachh Bharat Cess/ krishi kalyan cess: The reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC/KKC. So, service receiver is also required to pay SBC/KKC in respect of reverse charge mechanism, SBC/KKC liability is determined in accordance with Rule 7 of Point of Taxation Rules, as per which, point of taxation is the date on which consideration is paid to the service provider.

f) No admissibility of credit of Swachh Bharat Cess: SBC is not integrated in the CENVAT Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax. So it must be paid in Cash.

g) But cenvat credit would be available for krishi kalian cess: service provider allowed to take cenvat credit of KKC on taxable service leviable w.e.f 01-06-2016. Further, credit of KKC on taxable services will be utilized only towards payment of KKC.

h) Point of taxation of SBC/KKC to be determined as per Rule 5 of POT Rules, 2011: As regards Point of Taxation, since this levy has come for the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC/KKC for the first time. SBC/KKC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules, 2011 would be applicable in this case.

i) Calculation of SBC/KKC for services where abatement is allowed: Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC/KKC on the same percentage of value. For example, in the case of GTA, [Service Tax + SBC and KKC] % would be (14% Service Tax + 0.5% SBC + 0.5% KKC) x 30% = 4.5% (4.20% + 0.15%+0.15%) of the total amount charged.

j) Calculation of Service Tax and SBC/KKC on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006: The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%+0.5%]. Therefore, effective rate of Service Tax plus SBC and KKC in case of original works and other than original works under the works contract service would be 6% [(14% + 0.5%+0.5%) x 40%] and 10.5% [(14% + 0.5%+0.5%) x 70%] respectively.

k) Applicability of SBC/KKC on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/ selling agents): Shall have the option to pay SBC/KKC as determined as per the following formula: Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] x 0.5%/14% for SBC and 0.5%/14% for KKC] Example: Air travel agent to pay service tax at special rates of 0.7% and 1.4% of basic pay in case of domestic and international bookings for air travel respectively. Service Tax incase of domestic bookings(Basic Fare) 1,00,000 x 0.7 % = 700 Service Tax incase of International bookings (Basic Fare) 1,00,000 x 1.4% = 1400 Service tax 2100

Add: Swacch Bharath Cess (2100 x 0.5 / 14) = 75 Add: krishi kalian cess (2100 x 0.5 / 14) = 75 Total Service tax payable 2250 The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.

l) SBC/KKC paid on specified services used in an SEZ will be entitled for refund.



2) Explanation 2 substituted in the definition of service u/s 65B(44):

The new Explanation 2 reads as under: For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include ––

any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out ––

i) By a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998.” (w.e.f. 14.05.2016)

ii) by a foreman of chit fund for conducting or organising a chit in any manner.

So, these are leviable to service tax.

2. POINT OF TAXATION

1) Power of framing rules on point of taxation also obtained from section 67A(2) of the Finance Act, 1994

Central government empowers to make specific rules in respect of point of taxation rules 2011, through new sec 67A(2): (w.e.f 01.03.2016)

To make rules regarding the time or the point in time with respect to the rate of service tax will be such as may be prescribed.

2) RULE - 5:

Where a service is taxed for the first time, then,

a) No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

b) No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.

Explanation 1: this rule shall apply mutatis mutandis in case of new levy of service. Explanation 2: new levy or tax shall be payable on all the cases other than specified above.

OBJECTIVE OF AMENDEMENT:-

For Explanation 1:- Doubts have been raised regarding, applicability of provisions of chapter V of finance act 1994, and rules made there under. for this purpose explanation 1 is being inserted in rule 5, stating that if there is any changes made in chapter V and rules made there under, the same are applicable in case of new levy on services.

For Explanation 2:- in rule 5 specified only two situations, for these two situations the new levy would not apply (i.e. S.T is not payable)

Doubts have been raised regarding, any situation raised, other than specified above two situations. Whether general rule (Rule 3) is applicable or not? For this purpose explanation - 2 is being inserted, stating that service tax shall be payable on all the cases other than specified above two situations.

3) RULE - 7:

a) Point of taxation shall be the date of issuance of invoice in case of change in liability to pay service tax by the service recipient.

if there is change in the liability of a person required to pay tax as recipient of service (notified under sub-section (2) of section 68 of the act), the service has been provided and the invoice has been issued before the date of such change, however, the payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice.

Illustration:- XYZ Ltd. provided services to ABC Ltd. which was chargeable to tax under reverse charge basis. XYZ Ltd. billed ABC Ltd. Rs.4,00,000 (before claiming abatement of 40%) on 01-04-2016. W.e.f. 01-05-2016 the abatement was increased from 40% to 50%. Determine the amount of service tax to be deposited by ABC Ltd. if it makes payment on 01-06-2016.



Solution: According to Rule 7 of the Point of taxation Rules, 2011, where there is change in the liability or extent of liability of a person required to pay tax as recipient of service notified under section 68(2) of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice. Since in this case there is change in liability of ABC Ltd. on account of change in percentage of abatement, hence, the point of taxation shall be the date of issuance of invoice. Therefore, the service tax to be deposited by ABC Ltd. shall be 14.5% of Rs.2,40,000 i.e.[ Rs.4,00,000 less abatement Rs.1,60,000 (40% of Rs.4,00,000)] = Rs.34,800.

b) Point of taxation in case of service provided by the government or local authority to business entity:-

In case of services provided by the government or local authority TO any business entity, the point of taxation shall be the earlier of the dates on which-

(a) Any payment ,part or full, in respect of such service becomes due ,as specified in the invoice, bill, challan or any other document issued by the government or local authority demanding such payment ; or

(b) Payment for such service is made “

Illustration:- ABC Ltd. of Delhi received taxable services from Delhi Government on 01-05-2016 for which an invoice was raised on 01-05-2016 and due date of payment was 31-05-2016. Determine the point of taxation in accordance with POT Rules if ABC Ltd. makes the payment for the said services on:-

Case I: 10-06-2016

Case II: 25-05-2016

Solution: According to Rule 7 of the Point of taxation Rules, 2011, in case of services provided by the Government or local authority to any business entity, the point of taxation shall be the earlier of the dates on which, -

(a) any payment, part or full, in respect of such service becomes due, as specified in the invoice, bill, challan or any other document issued by the Government or local authority demanding such payment; or

(b) payment for such services is made.

Case - I: Since the payment has been made after the due date, point of taxation shall be the date when payment s due i.e. 31-05-2016.

Case – II: Since the payment has been made prior to due date, the point of taxation shall be the date of paymenti.e.25-05-2016.

3. NEGATIVE LIST OF SERVICES

1) Section 66D(a)(iv): All services provided by the government or local authority to a business entity is taxable (The word “support services” removed from the negative list)

(w.e.f 01 – 04 - 2016)


Support services provided by the government or local authority to the business entity are taxable

Any services provided by the government or local authority to the business entity are taxable

Points to be noted:-

a) Consequently, the definition of “support service” as provided under section 65B(49) had also been omitted vide the Finance Act, 2015.

b) service tax on these services was made payable under reverse charge.(i.e. S.R – business entity)



Some new mega exemptions are inserted, relating to service provided by Govt or local authority:-

Entry no: Issues Exemption

39 By way of municipal functions

Services by Government, a local authority or a government authority by way of any activity in relation to any function entrusted to municipality under article 243W of the constitution.

48 Services provided by government or a local authority to a business entity

Exempt - if its turnover in preceding FY does not exceed Rs. 10 lakhs.

54 Services provided by government or a local authority to another government or a local authority

Services provided by Government or Local authority to another government or local authority. However, the said exemption does not cover services specified in sub-clauses (i),(ii) & (iii) of clause (a) of section 66D of the Finance Act, 1994.

55 Services provided to individuals

Services provided by Government or Local authority to an Individual who may be carrying out a profession or Business by way of grant of Passport, Visa, Driving license, Birth certificate or Death certificate.

56 Services where gross amount charged does not exceed Rs. 5000

Services provided by Government or Local authority to where the gross amount charged for such services does not exceed Rs.5,000. However, the said exemption does not cover services specified in sub-clauses (i),(ii) & (iii) of clause (a) of section 66D of the Finance Act, 1994. Further, in case of continuous supply of service as a defined in Rule 2(C) of POT Rules, 2011.the exemption shall apply only where the gross amount charged for such service does not exceed Rs.5,000 in a financial year.

57 Services by way of tolerating non- performance of a contract

Services provided by Government or Local authority by way of tolerating non- performance of a contract for which consideration in the form of fines or liquidated damages is payable to the government or local authority under such contract. Note: It is clarified that fines and penalty chargeable by Government or a local authority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax.

58 Services by way of registration

Services provided by Government or Local authority by way of

a) Registration required under any law for the time being in force.

b) Testing, Calibration, Safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force.

Note: However, It is clarified that any activity undertaken by government or a local authority against a consideration constitutes a service and the amount charged for performing such activities is liable to service tax except for above two services.



59

Services by way of assignment of right to use natural resources to an individual former

(Even when assigned on or after 1-04-2016)

Services provided by Government or Local authority by way of assignment / allocation of right to use natural resources to an individual former for the purpose of agriculture. Note: However, such allocation / auctions to categories of persons other than individual farmers would be leviable to service tax.

60 Any function entrusted to a panchayat

Services provided by Government or a Local authority or a governmental authority by way of any activity in relation to any function entrusted to a panchayat under article 243G of the constitution.

61 Services by way of assignment of right to use any natural resource prior to 1-4-2016

Services provided by Government or Local authority by way of assignment of right to use any natural resource where such right to use was assigned by the government or the local authority before the 1st April, 2016. Provided that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resources. (Service tax is payable on such installments in view of Rule 7 of POT rules, 2011 as amended by vide Notification No. 24/2016 – ST dated 13.04.2016. However, the same have been specifically exempted through this notification.) Note: The exemption not apply to any periodic payment required to be made by the assignee, such as Spectrum user charges, license fee in respect of Spectrum, or monthly payments with respect to the local extracted from the coal mine or royalty payable on extracted coal which shall be taxable.

62

Services to telecom service provider license fee or spectrum user charges spectrum during the period prior to 1st April,2016 .

Services provided by Government or Local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum spectrum during the period prior to 1st April,2016 on payment of license fee or spectrum user charges, as the case may be.

63 Merchant overtime charges

Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime Charges (MOT).

2) Educational services removed from negative list but exemption continues through entry 9(a) of Mega Exemption Notification [Section 66D(l)]

E-(l): SERVICES BY WAY OF – (REMOVED FROM NEGATIVE LIST W.E.F 14-05-2016, REFER EXEMPTIONS AND ABATEMENTS

CHAPTER)

a) Pre-school education and education up to higher secondary school or equivalent;

b) Education as a part of a curriculum for obtaining a qualification recognized by any law for time being in force;

c) Education as a part of an “approved vocational education course”.

“Approved vocational education course” means:



a) A course run by an industrial training institute or an industrial training Centre affiliated to the National or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961; or

b) a Modular Employable Skill Course, 'approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of skill development and Entrepreneurship

3) stage carriage services removed from negative list w.e.f 01-06-2016 [Section 66D(o)(i)]

E-(o): SERVICE OF TRANSPORTATION OF PASSENGERS, WITH OR WITHOUT ACCOMPANIED BELONGINGS, BY -

i) A stage carriage;(OMITTED w.e.f 1-06-2016)

(Note: However, service tax will not be payable on services of transportation of passengers by a non-air conditioned stage carriage same have been exempted through mega exemption notification. So, air-conditioned stage carriage would be taxed @ 40%. (same treatment which is applicable to contract carriage with same conditions of non-availment of CENVAT credit in abatement Notification.)

4) Services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance in India, removed from negative list [Section 66D(p)(ii)]

E-(p): SERVICES BY WAY OF TRANSPORTATION OF GOODS -

By an aircraft or a vessel from a place outside India up to the customs station of clearance in India;( omitted w.e.f 01-06-2016) (Refer Note)

Note:

i) However, Service tax will not be payable on services by way of transportation of goods BY AN AIRCRAFT, same have been exempted under mega exemption notification (entry no.53).

ii) Services by way of transportation of goods BY VESSEL from a place outside India up to the custom station of clearance would be liable to service tax.

Note: Services by way of transportation of goods BY VESSEL from a place outside India up to the custom station of clearance is exempt. If, Invoice has been issued on or before the 31st may, 2016 from the whole of the service tax leviable there on, subject to the condition that the IMPORT MANIFEST or IMPORT REPORT required to be delivered on or before 31st may, 2016 (w.e.f 23-06-2016)

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:-

1) All testing and ancillary activities related to testing of seeds are covered in the negative list and are thus, not liable to service tax:

Issue: Whether all activities incidental to seed testing are leviable to service tax and only the activity in so far it relates to actual testing has been exempted in the negative list under section 66D(i) of the Finance Act, 1994?

Seed is not covered under the definition of agriculture produce. All services relating to agriculture by way of agriculture operations directly relating to production of agriculture produce including testing are covered in section 66D(i) the scope of coverage of the negative list entry and to cover any testing in agricultural operations in negative list, which are directly linked to production of agriculture produce and not to limit its scope only to seeds.

Clarification:- In view of the above, it has been clarified that all testing and ancillary activities to testing such as seed certification, technical inspection, technical testing, analysis, tagging of seeds, rendered during testing of seeds, are covered within the meaning of ‘testing’ as mentioned in section 66D(d)(i) of the Finance Act, 1994. Therefore, such services are not liable to service tax under section 66B of the Finance Act, 1994.



4. VALUATION OF TAXABLE SERVICES

1) In case of service provided by Government to a business entity, interest chargeable on deferred payment to be included in the value of the taxable service

[Rule 6(2)(iv) of the Service Tax Determination of Value Rules, 2006]

Interest on delay payments: interest on delayed payment of any consideration for the provision of service or sale of property, whether movable or immovable, for such payment which is not included in the value of taxable services

Exception: However, service tax is payable on the interest charged by government or a local authority where the payment for service is allowed to be made under deferred payment option since the same is included in the value of the taxable service.

5. EXEMPTIONS AND ABATEMENTS

A. MEGA EXEMPTION NOTIFICATION:

1) Exemption in respect of services provided by a senior advocate to an advocate or partnership firm of advocates and person represented on an arbitral tribunal to an arbitral tribunal withdrawn (Entry no 6):

Legal services: Services provided by -

a) an arbitral tribunal to -

i) any person other than a business entity; or

ii) A business entity with a turnover up to Rs. 10 lakh in the preceding financial year.

b) A partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

i) an advocate or partnership firm of advocates providing legal services ;

ii) any person other than a business entity; or

iii) a business entity with a turnover up to Rs. 10 lakh in the preceding financial year.

c) A senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession .i.e business entity ( deleted w.e.f 06.06.2016)

c) A senior advocate by way of legal services to- (inserted w.e.f 06-06-2016)

i) Any person other than a business entity; or

ii) A business entity with a turnover up to Rs. 10 lakh in the preceding financial year

CLARIFICATION:-

a) Person liable to pay tax:

In respect of taxable services provided or agreed to be provided by: i) an arbitral tribunal to any business entity located in the taxable territory, or

ii) an individual advocate or a firm of advocates by way of legal services other than representational services by senior advocates, to any business entity located in the taxable territory; or

iii) “a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, and the senior advocate is providing such services, to such business entity who is litigant, applicant, or petitioner, as the case may be,

The person liable to pay tax shall be the service receiver.

Note: The business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be, shall be treated as the person who receives the legal services.

b) Legal services provided by advocates (including a senior advocate) to a business entity with a turnover up to Rs. 10,00,000 in the preceding financial year is exempted

IPCC_ Indirect Taxes Amendments Material (For May-2017)_2nd Edition _________54


However, in respect of services provided (other than senior advocate) to business entities, with a turnover exceeding Rs.10 lakh in the preceding financial year, tax is required to be paid on reverse charge by the business entities.

c) If Legal services provided by a senior advocate shall not be covered under the ambit of reverse charge mechanism. So, in case of legal services provided by senior advocates, service tax shall be payable by service provider( under forward charge) (w.e.f. 1.04.2016)

Illustration: Representational services by senior advocate: ABC & Co., a partnership firm of advocates, provides advice, consultancy or assistance service. It has given an assignment to Mr. K, a senior advocate to represent its client PQR Ltd. (having turnover of 200 crores in financial year 2015-16) in High Court. Mr. K has charged fees of 25,00,000 (exclusive of service tax, SBC & KKC) for representational services provided on 25-07-2016. Determine the taxability of said services and person liable to pay service tax.

Answer:

Services provided by a senior advocate by way of legal services to a business entity with a turnover exceeding 10 lakh in the preceding financial year is liable to tax. Hence, service provided by Mr. K representing PQR Ltd. in High Court is liable to service tax.

In respect of taxable service provided or agreed to be provided by, a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, and the senior advocate is providing such services, to such business entity who is litigant, applicant, or petitioner, as the case may be, the person liable to pay tax shall be the service receiver i.e. the business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be.

Therefore, in this case PQR Ltd. who is petitioner will be liable to pay service tax under reverse charge mechanism. The amount of service tax liability will be 25,00,000 x 15% = Rs.3,75,000.

2) Yoga included in the definition of charitable activities: In the definition of ‘charitable activities’,.

Now yoga has also been included. Thus, services relating to advancement of yoga provided by charitable entities registered under section 12AAof the Income-tax Act, 1961 will not be liable to service tax e.g., service tax will not be payable on fee charged for yoga camps conducted by charitable trusts.

3) Religious ceremonies: Services provided BY a person by way of (w.e.f 06-09-2016)

i) Renting of precincts of a religious Place meant for general Public, Owned or managed by -

a) an Entity registered as a charitable or Religious trust under section 12AA of the Income Tax Act, 1961 (herein after reffered to as the income tax Act), or

Note:

1. Business entity is defined in section 65B of the Finance Act, 1994 as ‗any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession‘. Thus, it includes sole proprietors as well.

The business entity can, however, take input tax credit of such tax paid in terms of the CENVAT Credit Rules, 2004, if otherwise eligible. The provisions relating to arbitral tribunal are also on similar lines.

2. Senior and other Advocates (Sec.16 of the Advocates Act, 1961 (25 of 1961): It means

i) There shall be two classes of advocates, namely, senior advocates and other advocates.

ii) An advocate may, with his consent, be designated as senior advocate if the Supreme Court or a high court is of opinion that by virtue of his ability (standing at the bar or special knowledge or experience in law) he is deserving of such distinction.

iii) Senior advocates, shall in the matter of their practice, be subject to such restrictions as the bar council of India may, in the interest of the legal profession, prescribe.

iv) An advocate of the Supreme Court who has senior advocate of that court immediately before the appointed day shall, for the purposes of this section, be deemed to be a senior advocate



b) a trust or an institution registered under sub clause (v) of clause (23c) of section 10 of the Income-tax Act or

c) a body or an authority covered under clause (23BBA) of section 10 of the Income Tax Act; or

ii) Conduct of any Religious ceremony;

4) Pilgrimage services: Services provided by a specified organisation in respect of a religious pilgrimage facilitated by the Ministry of External Affairs of the Government of India, under bilateral arrangement, are exempt from service tax.(notification no.25/2016 dated 17.05.2016)

Specified organisation means:

• Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking;

or

• Haj Committee of India and State Haj Committees constituted under the Haj Committee Act, 2002, for making arrangements for the pilgrimage of Muslims of India for Haj.

Thus, the religious pilgrimage organized by the Haj Committee and Kumaon Mandal Vikas Nigam Ltd. are not liable to service tax.

5) Educational services: Services provided- (deleted educational services in negative list is included in this entry through the definition of educational institution.)

a) By an ‘’educational institution’’ to its students, faculty and staff;

b) To an educational institution, by way of,-

i) Transportation of students, faculty and staff;

ii) Catering, including any mid-day meals scheme sponsored by the Government;

iii) Security or cleaning or house-keeping services performed in such educational institution;

Services relating to admission to, or conduct of examination by, such institution. are exempt from service tax.

Note:

“Educational institution means” an institution providing services by way of

a) Pre-school education and education up to higher secondary school or equivalent;

b) Education as a part of a curriculum for obtaining a qualification recognized by any law for time being in force;

c) Education as a part of an “approved vocational education course”.

“Approved vocational education course” means:

a) A course run by an industrial training institute or an industrial training Centre affiliated to the National or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961; or

b) A Modular Employable Skill Course, 'approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of skill development and Entrepreneurship

6)

a) Specified services provided by the Indian Institutes of Management (IIM) exempted (Entry no 9B):

Services provided by the Indian Institute of management, as per the guidelines of the central government, to their students, by way of the following educational programmes, except executive development programme,-

i) Two year full time residential post graduate programmes in management for the post graduate diploma in management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;



ii) Fellow programme in Management

iii) Five year integrated programme in management.

are exempted.

b) Services by assessing bodies empanelled centrally by DGT, Ministry of Skill Development & Entrepreneurship under SDI scheme exempted(Entry no 9C):

Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative(SDI)scheme.

c) Services provided by way of skill/vocational training by DDU-GKY training providers

exempted(Entry no 9D):

Services provided by way of skill / vocational training by Deen Dayal Upadhayy Grameen Kaushalya Yojana training partners.

7) Output services by artist in folk or classical form: (Entry no 16)

BEFORE AMENDMENT AFTER AMENDMENT services provided by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is upto Rs. 1,00,000 for a performance. Is exempt from service tax However service provided by an artist as brand ambassador will continue to remain taxable.

services provided by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is upto Rs. 1,50,000 for a performance. Is exempt from service tax However service provided by an artist as brand ambassador will continue to remain taxable.

8) Exemption to transportation of passengers by ropeway, cable car or aerial tramway withdrawn and inserted non-air conditioned stage carriage (Entry no 23):-

Passenger transportation services: Transport of passengers, with or without accompanied belongings, by -

a) air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal;

b) non air-conditioned contract carriage other than radio taxi, for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or

c) Stage carriage other than air-conditioned stage carriage (inserted w.e.f 01-06-16)

d) ropeway, cable car or aerial tramway (omitted, So, these are taxable.)

is exempt from service tax.

NOTE:-Ministry of Skill Development & Entrepreneurship (MSDE) coordinates the various skill development efforts fragmented across the country, for building the vocational and technical training framework, skill up-gradation, building of new skills, and innovative thinking not only for existing jobs but also jobs that are to be created. SDI Scheme is launched by MSDE. DGT, MSDE empanels assessing bodies to assess the competencies of the persons trained under SDI Scheme. Such assessment is done by assessors of high competence, repute and integrity – sector wise and area wise.

NOTE: Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) is the skilling and placement initiative of the Ministry of Rural Development (MoRD), Government of India, for poor and disadvantaged rural youth. The skill training is imparted under said program by the Project Implementation Agencies which are organisations from specific sector industries, education and training or NGOs who have a reputation in delivering skilling, training and development programs. They are responsible for carrying out skill gap assessment, enrollment, training, counselling, placement, post placement support, career progression and other services.



9)

a) Services of general insurance business: (Entry no 26)

A new clause (p & q) has been inserted vide Notification No. 12/2016 ST dated 30.04.2016 in the said entry to exempt services of general insurance business provided under

• Pradhan Mantri Suraksha Bima Yojna.(w.e.f 30.04.2015) • “Niramaya” Health Insurance Scheme implemented by trust constituted under the provisions of

the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability Act, 1999 in collaboration with Private / Public insurance companies. (w.e.f. 1.04.2016)

b) Annuity under the National Pension System (NPS) exempted:[Entry no 26C]:

Services of Life insurance business provided by way of annuity under the National Pension System (NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India under the pension fund regulatory and development authority Act 2013.

10) Agency Services[Entry no 29] : services by the following persons in respective capabilities-

a) Sub broker or an authorized person to a stock broker;

b) Authorized person to a member of a commodity exchange;

c) mutual fund agent to a mutual fund or asset management company[deleted w.e.f 1.04.2015]

d) distributor to a mutual fund or asset management company[deleted w.e.f 1.04.2015]

e) selling or marketing agent of lottery tickets to a distributor or a selling agent. [deleted w.e.f 1.04.2015]

f) Selling agent or a distributor of SIM cards or recharge coupon vouchers;

g) business facilitator or a business correspondent to a banking company with respect to Basic Savings Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company’s rural area branch, by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificate, Aadhar seeding;(Inserted w.e.f. 21.10.2015)

(ga) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in clause (g); (Inserted w.e.f. 21.10.2015)

(gb) business facilitator or a business correspondent to an insurance company in a rural area; (Inserted w.e.f. 21.10.2015)

h) Sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;

Note: Thus, the service tax will be payable on these deleted services (clause c, d, e) and clause g and h are exempted from service tax

11) Services provided by a Government, a local authority or governmental authorities by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are exempt from service tax.

12) New Exemptions:

SERVICES BY SPECIFIED BODIES EXEMPTED (New Entries 49 to 52 have been inserted to exempt the services provided by the specified bodies)

NOTE:- Niramaya Health Insurance Scheme: In order to provide an affordable health insurance facility to persons with developmental disabilities viz, autism, cerebral palsy, mental retardation & multiple disabilities, Niramaya Health Insurance Scheme is launched by National Trust, in collaboration with private/ public insurance companies.

Copyrights Reserved




a) Entry no 49: Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions (EPFMP) Act, 1952.

b) Entry no 50: Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999.

c) Entry no 51: Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market.

d) Entry no 52: Services provided by National Centre for Cold Chain Development (NCCCD) under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination.

13) Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India. (deleted service from negative list, exempted through this entry 53. w.e.f 01-06-16)

B. ABATEMENT NOTIFICATION:

1) Notification No. 8/2016 ST dated 01.03.2016 as under:

Percentage of abatement S.

No. Description of taxable

service Before After

Conditions

2. Transport of goods by rail 70 70

2A

Transport of goods in containers by rail by any person other than Indian railways.

70 60

3. Transport of passengers, with or without accompanied belongings by rail

70 70

10. Transport of goods in a vessel

70 70

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of CENVAT Credit Rules, 2004.

Note:- So, Input Service has been avail in addition to the Abatement.

• To persons governed under the EPFMP act 1952

• To insurers under the IRDAI Act,

1999

• By way of cold chain knowledge dissemination

• Protecting investors interests &

regulating securities market

EPFO IRDA

NCCCD SEBI

Entry No 48 and 54 To 63 Are Discussed In Negative List Chapter, Under The Heading, Services Provided By Government Or Local Authority



5A Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a regional connectivity scheme Airport. (w.e.f 30-08-2016)

Earlier this

service has no abatem

ent

90 (new

service)

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, 2004

9A Transport of passengers, with or without accompanied belongings, by a. a) a contract carriage other

than motor cab b) a radio taxi Stage carriage (w.e.f 01-06-16)

60 60 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of CENVAT Credit Rules, 2004.

7. Services of goods transport agency (GTA) in relation to transportation of goods other than used house hold goods.

70 70

7A.

Services of goods transport agency in relation to transportation of used household goods.

70 60

8. Services provided by a foreman of chit fund in relation to chit

Nil 30

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, 2004

11. Services by a tour operator in relation to,-

i) a tour, only for the purpose of arranging or booking accommodation for any person

90

90

i) CENVAT credit on inputs, capital goods and input services other than the input service of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.

iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour

operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation.



ii) Tours other than (i) above.

75/60 70 i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour and the amount charged in the bill is the gross amount charged for such a tour.

NOTE:

1. The amendment made in serial no.11, Consequently, with effect from 01.04.2016, definition of ‘package tour’ has been omitted.

2. Cost of fuel to be included in consideration charged, for availing abatement for renting of motor cab service

However, the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

3. 70% abatement available on ancillary services provided by a GTA in the course of transportation of goods

C. OTHER EXEMPTION NOTIFICATIONS:-

1) Services provided by BIRAC approved bio-incubators to incubatees also exempted

Exemption to services provided by TBI / STEP:

All taxable services provided or to be provided by Technology Business Incubators(TBI) / Science and Technology Entrepreneurship Parks (STEP) recognized by National Science and Technology Entrepreneurship Board (NSTEBD) of the Department of Science & Technology have been exempted from the whole of service tax leviable thereon.

With effect from 01.04.2016, such exemption has also been extended to all taxable services provided by bio-incubators recognized by the BIRAC, under Department of Biotechnology, Government of India provided such bio-incubators have also fulfilled the aforesaid conditions.

2) Refund of Swachh Bharat Cess/ krishi kalyan cess to SEZ units/developers.(notification no.30/2016 dated 26.05.2016)

Quantum of refund when specified services are not exclusively used for the authorized operations:

a) The service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer and the DTA unit (s) in the manner as prescribed in rule 7 of the CENVAT Credit Rules. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorised operation during the relevant period.

b) The SEZ Unit or the Developer shall be entitled to refund of – (w.e.f 01-06-2016)

i) the service tax paid on the specified services on which ab-initio exemption is admissible but not claimed, and

ii) the amount distributed to it in terms of clause (a).

c) The SEZ unit or the developer shall be entitled to- (w.e.f 01-06-2016)

i) Refund of the Swachh Bharat Cess (SBC) and krishi kalyan cess (KKC) paid on the specified services on which ab-initio exemption is admissible but not claimed and



ii) The refund of amount as determined by multiplying total service tax distributed to it in terms of Clause (a) by sum of effective rates of SBC and KKC and dividing the product by rate of service tax specified in Section 66B of the Finance Act, 1944.

Formulae:

140.5)(0.5xA)

TaxServiceofRateKKCandSBCofrateseffectiveofSumx(A) +=

Here A = the service tax paid on specified services that are common to authorized operations in SEZ and DTA.

3) Services provided under the Power System Development Fund Scheme of the Ministry of Power exempted from service tax

Exemption from service tax has been granted. If, taxable services provided under the Power System Development Fund Scheme of the Ministry of Power by way of-

A. re-gasification of Liquefied Natural Gas (LNG)* imported by the Gas Authority of India Limited (GAIL);

B. transportation of the incremental Re-gasified Liquefied Natural Gas (RLNG) (e-bid RLNG) to specified power generating companies or plants

subject to fulfillment of certain conditions prescribed in the exemption notification.

However, the exemption shall not be available if such RLNG and LNG are used for generation of electrical energy by captive generating plant as defined in section 2(8) of the Electricity Act, 2003.

Further, the exemption shall be valid only till 31.03.2017.

[Effective from 19.05.2015]

*Re-gasification is a process of converting Liquefied Natural Gas (LNG) back to natural gas at atmospheric temperature. Generally, natural gas is liquefied for ease of transportation.

4) Services provided by state Govt industrial development corporations/undertakings to industrial units (Notification No.40/2016 W.E.F 22-09-2016)

services provided by state Govt industrial development corporations/undertakings to industrial units by way of –

granting long term loan (thirty years or more) lease of industrial plots from so much of service tax leaviable there on the one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for such lease

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:-

Services provided by Institutes of Language Management (ILMs) are liable to service tax

Clarification: Institutes of Language Management (ILMs) are engaged by various schools/institutions to develop knowledge and language skills of students. The services provided by the ILMs are not covered by section 66D (l) of the Finance Act, 1994 or Entry 9 of Notification No. 25/2012 ST as they are not providing pre-school education or education up to higher secondary school (or equivalent) or education for obtaining a qualification recognized by law.

Copyrights Reserved




6. SERVICE TAX PROCEDURES

1) Full reverse charge (100% service tax to be paid by the person liable for paying service tax other than service provider):

S. No.

In relation to service provided or agreed to be provided by-

Service provided to – (i.e. Service Receiver)

% Of service tax payable by any Person

liable for paying service tax other than the service provider

(100%)

1.

By way of Legal services i. an arbitral tribunal, or ii. An individual advocate or a

firm of advocates by way of legal services other than representational services by senior advocates. W.e.f. (06-06-2016.)

To any business entity located in the taxable territory. (Turnover exceeds Rs.10 lacs)

The recipient of such service. Note i. the turnover of

business entity in the preceding F.Y does not exceed Rs 10 lakh then the legal service is exempt from service tax.

ii. If Legal services provided by Senior Advocate then S.P. (i.e. Senior Advocate ) Is liable to pay Service Tax under Forward Charge.

w.e.f (1-4-2016)

2.

Services provided or agreed to be provided by a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly.

W.e.f. (06-06-2016.)

To any business entity located in taxable territory (including where contract for provision of such service has been entered through another advocate or a firm of advocates, and the senior advocates is providing such services.)

The recipient of such service. Note: Which is Business entity , who is litigant, applicant, or petitioner, as the case may be

3.

Government or local authority by way of any services Except, i. renting of immovable

property, and ii. services specified in sub

clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994,

To any business entity located in the taxable territory.

The recipient of such service.

4.

Mutual fund agent/distributor services (Omitted) (W.E.F 01-04-2016)

Mutual fund or asset management company

Recipient of service Note:- so, the effect of amendment S.P shall liable to pay service tax. (forward charge i.e. mutual fund agents/ distributor agents)

5.

Lottery selling or marketing agent services

To Lottery distributor or selling agent of the state Govt. under provisions of the lottery (regulations) Act, 1988

Recipient of service



2) Facility of (a) quarterly payment of service tax and payment of service tax on receipt basis extended to OPC having service turnover upto Rs. 50 lakh in the previous financial year and (b) quarterly payment of service tax extended to HUF [Rule 6(1)]

Particulars One person company (OPC)

eligible or not HUF

eligible or not

(a) Quarterly payment of service tax � �

(b) Payment of service tax on receipt basis, whose turnover up to 50 lakhs, in the Previous financial year.

� ×

3) Sec-75:INTEREST @ 15% ON DELAYED PAYMENT OF SERVICE TAX AND SERVICE TAX COLLECTED BUT NOT PAID @ 24%: (prior to 14-05-2016,slab rates of interest system is there. Now the said slab rates are omitted and new rates of interest have been inserted)

S.NO Situation Rate of simple

interest payable p.a.

1. Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due

24%

2. Other than in situations covered under serial number 1 above 15%

a) However, in the case of a service provider, whose value of taxable services provided in a financial year does not exceed 60 lakh

i) during any of the financial years covered by the notice or

ii) during the last preceding financial year, as the case may be,

Such rate of interest, shall be reduced by 3% p.a. i.e. the aforesaid rate of interest shall be 24% - 3% = 21% p.a. and 15%-3%=12% [Amendment by the Finance Act, 2016 w.e.f 14-5-2016].

Note: Similarly, interest payable under section 73B of the Finance Act, 1994 on amounts collected in excess of the tax assessed/determined and paid for any taxable service has also been reduced from 18% to 15% vide Notification No. 14/2016 ST dated 01.03.2016.

4) Composition scheme:

Life insurance business: Where amount of the gross premium allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service:-

In respect of the amount of the premium charged Service tax

For the First year on 3.5% of the gross amount of premium charged

For the Subsequent year on 1.75% of the gross amount of premium charged

Note: In case of single premium annuity (insurance) policies,@ 1.4% of the single premium charged from the policy holder, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service.

5) Composition rates fixed for SBC and KKC for air travel agents, life insurance, foreign exchange and lottery under composition scheme [New sub-rules (7D) and (7E) of rule 6]

On the service tax so calculated (under composition scheme), Swachh Bharat Cess will be levied by multiplying the service tax so calculated (under composition scheme) by (0.5/14). Similarly Krishi Kalyan Cess will also be levied by multiplying the service tax so calculated by (0.5/14).



6) Service tax (amendment) Rules 2016 (w.e.f 01-04-2016):

(i) Provisions introduced for filing of Annual Returns [Rule 7]

In rule 7 of service tax rules 1994, sub rules (3A) and (3B) was inserted, namely:-

(3A) Notwithstanding anything contained in sub rule (1):-

Every assesse shall submit an annual return for the financial year to which the return relates, in such form and manner as may be specified in the notification in the official Gazette by the CBEC, by the 30th day of November of the succeeding financial year.

(3B) the central government may, subject to such conditions or limitations, specify by notification an assesse or class of assesses who may not be required to submit the annual return referred to in sub rule (3A).

(ii) Annual return filed by the due date may be revised within 1 month from the date of its submission [Rule 7B(2)]

An assesse who has filed the annual return referred to in sub rule (3A) of rule 7 by the due date may submit a revised return within a period of one month from the date of submission of the said annual return.

(iii) Delayed filing of Annual Return to attract a late fee of Rs. 100 per day for the period in default subject to a maximum of Rs. 20,000 [Rule 7C(2)]

Where the annual return is filed by the assesse after the due date, the assesse shall pay to the credit of central government, An amount calculated at the rate of Rs. 100 per day for the period of delay in filing of such return, but subject to a maximum of Rs. 20,000.

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:- 1. Applicability of service tax on the services received by apparel exporters in relation to

fabrication of garments: The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided which would vary from case to case. Issue: Whether services received by apparel exporters from third party on job work is a service of manpower supply, which neither falls under the negative list nor is specifically exempt and thus, liable to service tax? OR Whether services received by them is of job work involving a process amounting to manufacture or production of goods, and thus, would fall under negative list and hence would not attract service tax?

Manpower supply service: The nature of manpower supply service is quite distinct from the service of job work. The essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider’s accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. The value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle.

Job work: On the other hand, the essential characteristics of job work service are that service provider is assigned a job e.g. fabrication / stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.

CLARIFICATION:- the exact nature of service needs to be determined on the facts of each case which would vary from case to case. The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided. Note: every job work is not covered under the negative list. Only if the job work involves a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944, would it be covered under negative list in terms of Section 66D(f) read with section 65B(40) of the Finance Act, 1994.



1. CENVAT CREDIT RULES 2004

AMENDMENTS IN RULE 2 a) Rule 2(a)

Scope of definition of capital goods widened The scope of definition of capital goods has been widened to include within its ambit the following goods:

i) Wagons falling under sub-heading 8606 92 of the Central Excise Tariff

(The above amendment (i) include in the definition of capital goods is as follows:-

Grinding wheels and the like, and parts there of falling under heading 6804 and wagons of sub – heading 860692 of the First Schedule to the Excise Tariff Act.)

ii) Equipment or appliance used in an office located within a factory ( It may be noted that CENVAT credit will be allowed only on those equipment or appliance which are used in an office located within the factory and not outside the factory.)

iii) Capital goods used outside the factory of the manufacturer of the final products for pumping of water, for captive use within the factory.

(The above amendments (ii) &(iii) includes in the definition of capital goods as follows:-

Capital goods includes Motor vehicles, other than those falling under tariff headings: 8702, 8703, 8704 (includes dumpers), 8711

But dumpers and tippers as capital goods if

It is used for:

i) In the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (omitted w.e.f 01-04-2016)

ii) Outside the factory of the manufacturer of the final products of generation of electricity or for pumping of water for captive use within the factory; or

iii) For providing output service.)

b) Rule 2(e):

Goods transport by vessel from customs station of clearance in India to a place outside India Excluded from the definition of Exempted Service [Rule 2(e)] (w.e.f 01-03-2016)

Therefore, shipping lines is now eligible to take CENVAT credit on inputs and inputs services used in the providing the output service

c) Rule 2(k): Scope of definition of inputs widened The scope of definition of inputs has been widened to include within its ambit the following goods:

1. All goods used for pumping of water for captive use.

2. All capital goods which have a value up to Rs. 10,000 per piece (Thus, on such capital goods, 100% credit can be taken in the same year in which they are received.)

2. Incentives received by air travel agents from computer reservation system companies (CCRS) are liable to service tax:-

Clarification:- It has been clarified that incentives received by the ATAs from the companies providing computer reservation system (CCRS) are for using the software and platform provided by the CCRS like Galileo, Amadeus, etc. The CCRS are providing these incentives either for achieving the targeted booking of air tickets or for loyalty for booking of air tickets using their software system. Thus, the service provided by CCRS is to the Airlines and ATA is promoting the service provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is neither covered in the negative list (section 66D of the Finance Act, 1994) nor exempt by a notification. Therefore, service tax is leviable on the same.



Consequential amendment has been made in the definition of input [item (C)] to provide that input excludes

Capital goods except when

i) used as parts or components in the manufacture of a final product; or

ii) the value of such capital goods is up to Rs.10,000 per piece;

Clarification Regarding Sales Promotion In The Definition Of Input Service:-

Clarification given by CBEC in vide Notification No. 2/2016 CE (NT) dated 03.02.2016 to clarify that sales promotion includes services by way of sale of dutiable goods on commission basis. Thus, it is an eligible input service [Rule 2(l)]

AMENDMENTS IN RULE 3

a) Rule 3 (1) :-

Restriction on ship breaking units to avail only 85% CENVAT credit of CVD is withdrawn [Rule 3(1)(vii)]

Proviso to clause (vii) of rule 3(1) restricted CENVAT credit of CVD (leviable under section 3(1) of the Customs Tariff Act) paid on ships, boats and other floating structures for breaking up [Entry 8908 00 00 of the Customs Tariff], to the extent of 85%.

Clarification:-

CENVAT credit shall not be allowed in excess of 85% of the additional duty of customs paid under section 3(1) of the customs Tariff Act, on ships, boats and other Floating Structures for breaking up, falling under Tariff item 8908 00 00 of the First Schedule to the customs Tariff Act.(Omitted w.e.f. 01.03.2015).

Thus, ship breaking units would be entitled to avail 100% credit of the CVD paid with effect from 01.03.2015.

b) Rule 3 (1a) :-

Output service provider allowed to take CENVAT credit of the KKC on taxable services [Rule 3(1a)]

A provider of output service to take CENVAT credit of the Krishi Kalyan Cess (KKC) on taxable services leviable under section 161 of the Finance Act, 2016.

Note: The CENVAT credit of KKC is available only to the service provider, not to manufacturer.

c) Rule 3 (4) :-

i) Swachh Bharat Cess and krishi kalyan cess cannot be paid by utilizing CENVAT credit of any other duty

The CENVAT credit of any duty specified in rule 3(1) shall not be utilized for payment of Swachh Bharat Cess and krishi kalyan cess.

Note:- rule 3(1) is duties / taxes eligible for CENVAT credit. i.e. BED, NCCD, CVD, service tax on input services etc. shall not be utilized for payment of Swachh Bharat Cess and krishi kalyan cess.

ii) CENVAT credit of only NCCD to be utilised for payment of the NCCD payable on all goods

NCCD: The CENVAT credit of any duty specified in rule 3(1), except the National calamity contingent duty thereof, shall not be utilized for payment of National calamity contingent duty leviable under section 136 of the Finance act, 2001.

Clarification: credit of NCCD, can be utilized only for payment of NCCD. Besides this, CREDIT OF OTHER DUTIES cannot be utilized for payment of NCCD (w.e.f 01-03-2016). Prior 01-03-2016 there is no restriction on utilization of credit of basic excise duty for payment of NCCD (EXCEPT MOBILE PHONES).

iii) Infrastructure Cess: The CENVAT credit of any duty specified in rule 3(1) shall not be utilized for payment of Infrastructure cess leviable under section 162(1) of the Finance Act, 2016

Clarification: W.e.f 01-03-2016, Infrastructure cess is been levied on Motor vehicles of Heading 8703. No credit of this Cess is available Under Rule 3(1). Further, credit of other Duties cannot be used for payment of Infrastructure cess. Hence, this amount has to be paid in cash.



d) Rule 3 (7)(d) :- Specific Restrictions In Relation To Utilization Of Credit (KKC):-

CENVAT credit in respect of KKC on taxable services will be utilised only towards payment of KKC on taxable services.


a) Rule 4(2)(a):-

General provision: Availment of credit not exceeding 50% in the year of acquisition.

But in some cases, 100% credit on capital goods can be taken in the same financial year. One of the case is -

Units eligible for SSI exemption:-

i) SSI exemption In case of jewellery manufacturers:- An Assessee engaged in the manufacture of articles of Jewellery, other than Articles of Silver Jewellery but inclusive of Articles of Silver Jewellery studded with diamond, ruby, emerald or sapphire, Falling under chapter heading 7113 of the First Schedule of the Excise Tariff Act, shall be eligible for 100% credit on capital goods in the same financial year, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the manner specified in the said notification did not exceed Rs.15 crores;

ii) SSI exemption In case of other manufacturers:-

A unit whose turnover does not exceed Rs. 4 crores in the previous year is entitled to full exemption from payment of duty on its first clearances of up to Rs. 150 lakh in the current financial year, Shall be eligible for 100% credit on capital goods in the same financial year,

b) Rule 4(5)(b):- CENVAT credit allowed on tools of Chapter 82 of the Central Excise Tariff sent to another manufacturer or job-worker for production of goods:-

Credit admissible on Jigs, fixtures, moulds and dies sent to another manufacturer/ Job-worker [Rule 4(5)(b)]:

The CENVAT credit shall also be allowed to a manufacturer of final products in respect of Jigs, fixtures, moulds and dies, or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act, sent by such manufacturer to,- i) Another manufacturer for the production of goods; or ii) A job worker for the production of goods on his behalf, According to his specifications

However, Credit Shall also be allowed where Jigs, fixtures, moulds and dies, or tools falling under chapter 82 of the first schedule to the Excise Tariff Act, are sent by the manufacturer of final products to the premises of another manufacturer or job worker without bringing these to his own premises.

Clarification:-

The benefit extended to manufacturers of final product to take CENVAT credit on tools falling under chapter 82 of the first schedule to the Excise Tariff Act,

c) Rule 4(6):- Permission given for sending inputs/partially processed inputs outside factory to a job-worker and clearance therefrom on payment of duty shall be valid for 3 financial years (Earlier Permission shall be valid for 1 financial year)

d) Rule 4(7):-

Time limit for availing credit on inputs and input services:-

Service tax paid on assignment charges of a natural resource to be allowed as CENVAT credit spread over the time for which the rights have been assigned

i) Input Service Credit to be availed within one year from the date of invoice: The manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in rule 9(1) except in case of services provided by Government, Local Authority or any other person, by way of assignment of right to use any natural resource.



Clarification: Amendment is made to allow CENVAT credit to be taken on the basis of the documents specified in Rule 9(1) of CENVAT Credit Rules, 2004 even after the period of 1 Year from the date of issue of such a document in case of services provided by the Government or a local Authority or any other person by way of assignment of right to use any natural resource.

ii) (a) CENVAT credit of service tax paid on one time charges for assignment of right to use natural

resources etc.- To be spread over the period of 3 years[substituted by Notification No. 24/2016 dated 13-04-2016 CE(NT) dated 13-04-2016]: The CENVAT credit of service Tax paid in a financial year , on the onetime charges payable in full Upfront or in installments, for the service of assignment of the right to use any natural resource by the government, local Authority or any other person, shall be spread evenly over a period of three years:

(b) Further assignment of Rights- CENVAT credit to the extent of the service tax payable on for

such further assignment to be allowed in the same financial year: Where the manufacturer of Goods or provider of output service , as the case may be , further assigns such right to use assigned to him by the Government or any other person , in any financial year, to another person against a consideration , such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment shall be allowed in the same Financial Year.

Utilization of CENVAT credit in case of assignment of Licenses:

Illustration: Swadeshi Ltd. has obtained by way of assignment a spectrum license on 01 – 06 – 2016 from TRAI for a period of 10 Years. The total license fee paid is Rs 300Crores plus service tax @ 15%.During the F.Y. 2016-2017, the company has provided telecommunication services of Rs. 110 crores plus Service tax @ 15%. Compute the amount of Service Tax Payable by the Company.

What would be your answer in case the company has assigned such rights to Teletalk Ltd for a consideration of Rs.210crores plus service tax @ 15% in financial year 2017- 18.

Solution:

i) The relevant computations are as follows (amounts in Rs.) –

S. No Particulars ST SBC KKC Total 1. Value of taxable services provided 110 Crores 15.40 0.55 0.55 16.5 2. CENVAT Credit: Service tax paid on spectrum

license ST = [300 crores x 14% ÷ 3] KKC = [300 crores x 0.5% ÷ 3]

14.00 - 0.50 14.50

3. Service tax payable in cash [1-2] 1.40 0.55 0.05 2.00

Working Notes:

1. The CENVAT Credit of Service Tax paid in a financial year, on the onetime charges payable in full upfront or in installments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of 3 years

2. No CENVAT credit is allowed of Swachh Bharat Cess. Further, SBC cannot be paid by utilizing credit of any other duty or tax

3. CENVAT credit in respect of KKC on taxable services will be utilised only towards payment of KKC on taxable services.

ii) Where the provider of output service further assigns such right to use, in any financial year, to another person against a consideration, such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year: In case the company has assigned such rights to Teletalk limited for a consideration of 210 Crores in financial year 2017-18. Hence, the remaining CENVAT Credit of 28 Crores [42 Crores — 14 Crores] can be utilized for payment of service tax liability AND the remaining CENVAT Credit of KKC 1 crore [1.5 crores – 0.5 crores ] can be utilized only for payment of KKC. The utilization of CENVAT Credit shall be restricted to service tax liability

3resourcesnaturalusetorighttheofassignment

theforpayableesargchtheonpaidTaxService

yearfinancialaintakenbeshall

thatCreditCENVATofAmount=



S. No Particulars ST SBC KKC Total 1. Value of taxable services provided Rs 210

Crores 29.40 1.05 1.05 31.5

2. CENVAT Credit: Remaining CENVAT Credit 28 Crores to be utilized to the extent of service tax payable

28.00 - 1.00 29.00

3. Service tax payable in cash [1-2] 1.40 1.05 0.05 2.5


a) Rule 5: Export goods defined for the purpose of refund of CENVAT credit: The definition of ‘export goods’ has now been inserted in the rule to mean any goods which are to be taken out of India to a place outside India. Time limit for filing refund claim [Amended by Notification No. 14/2016- CE (N.T.) dated 1-3-2016 w.e.f. 1-3-2016]: The application in the Form A along with the documents specified therein and enclosures relating to the quarter for which refund is being claimed shall be filed as under:

(i) In case of manufacturer, before the expiry of the period specified in Section 11B of the Central Excise Act, 1944;

(ii) In case of service provider, before the expiry of 1 year from the date of –

(a) Receipt of payment in convertible foreign exchange, where provision of service had been completed prior to receipt of such payment; or

(b) Issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice.

b) Rule 5B:-

No refund of CENVAT credit under rule 5B to service providers providing manpower supply/ security services

Rule 5B of the CENVAT Credit Rules, 2004 provides that service providers, rendering notified reverse charge services, being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit.

In this regard, following partial reverse charge services were notified

(i) renting of a motor vehicle designed to carry passengers on non-abated value, to any person who is not engaged in a similar business;

(ii) supply of manpower for any purpose or security services; or (deleted w.e.f. 01.04.2015)

(iii) service portion in the execution of a works contract

Clarification:

Since with effect from 01.04.2015, service tax with respect to supply of manpower for any purpose or security services is payable on the basis full reverse charge, service providers of said services will no longer be eligible for refund of CENVAT credit. Further, application in Form A for claiming refund has also been suitably modified.


Rule 6:- Total Rule 6 Is Re-Drafted, the amended rule 6 is as follows:

Obligation of a manufacturer or producer of final products and a provider of output service [Rule 6] [Amended by Notification No. 13/2016- CE (N.T.) dated 1-3-2016 w.e.f 1-4-2016]:

W.e.f. 1-4-2016 the provisions are as under,—

1. No CENVAT credit on inputs and input services used in exempt goods/ services [(Rule 6(1)]: The CENVAT credit shall not be allowed on —

a) such quantity of input -

i) as is used in or in relation to the manufacture of exempted goods; or

ii) for provision of exempted services; or



b) input service as is used —

i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; or

ii) for provision of exempted services, and

the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of Rule 6(2)/(3), as the case may be.

EXCEPTION:

CENVAT not to be denied to job workers of Jewellery: The CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.

Note:

a) Exempted goods or final products shall include non-excisable goods [Explanation 1]: For the purposes of this rule, exempted goods or final products shall include non-excisable goods cleared for a consideration from the factory.

b) Valuation of non-excisable goods [Explanation 2]: Value of non-excisable goods

i) Invoice value; and

ii) if invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made there under.

c) Activities not a service u/s 65B(44) — to be included in exempted service [Explanation 3]: For the purposes of this rule, exempted services as defined in Rule 2(e) shall include an activity, which is not a ‘service’ as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services.

CENVAT Credit

Inputs Input Service

Manufacture of exempted goods

and their clearance up to

the place of removal

Sub-rule (1) of rule 6

Credit not allowed to be paid in terms of sub rules (2) or (3) of rule 6

Provision of exempted service

Provision of exempted service

Manufacture of Exempted goods

Used in / in relation to

No Allowed

Credit on inputs allowed to jewellery job worker clearing

goods without payment of duty



d) Valuation of such activities [Explanation 4]: Value of such an activity = i) The invoice/ agreement/ contract value; and ii) where such value is not available, such value shall be determined by using reasonable means

consistent with the principles of valuation contained in the Finance Act, 1994 and the rules made there under.

2. No CENVAT credit if final product or output service exempt (Rule 6(2)):

i) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal; or

ii) A service provider who exclusively provides exempted services, shall pay the whole amount of credit of input and input services and shall, in effect, not be eligible for credit of any inputs and input services.

3. Manufacturer of dutiable & exempt goods or provider of taxable & exempt services — Options to be adopted for credit on inputs and input services (Rule 6(3)): a) A manufacturer who manufactures two classes of goods, namely :-

i) non-exempted goods removed; ii) exempted goods removed; (or)

b) a provider of output service who provides two classes of services, namely :- i) non-exempted services; ii) exempted services, Shall follow any one of the following options applicable to him, namely:-

OPTION 1: ADHOC REVERSAL: Pay an amount equal to -

i) 6% of value of the exempted goods; and

ii) 7% of value of the exempted services,

Exempted Goods/ Final products

Include Includes

Non-excisable goods

Activity which is not a service under section

65B(44) of the Finance Act, 1994.

Value of such activity = invoice / agreement / contract value

If such value is not available – value to be determined using reasonable

means consistent with principles of valuation under service tax law.

Credit reversal provisions under 6

Credit on input / input services used in manufacture of non-excisable goods or for provision of non-taxable service or an activity which is not a service liable to be reversed

Explanations to sub-rule (1) of rule 6

Exempted Services

Value of such goods = invoice value

If invoice not available – value to be determined

by using reasonable means consistent with

excise valuation principles



subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period.

However, following points have to be considered here:

i) Excise duty paid on exempted goods to be reduced: If any duty of excise is paid on the exempted goods, the same shall be reduced from the above amount.

ii) If benefit of abatement is taken, then abatement value to be considered: If any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken, then, the ad-hoc reversal shall be on such abated value i.e. 7% of the value so exempted.

Example: If gross amount charged is 100, abatement is 60%, then, the abated value being 60, the adhoc reversal shall be 7% of 60.

iii) Transportation of goods or passengers by rail service: In case of transportation of goods or passengers by rail, the amount required to be paid under above shall be an amount equal to 2% of value of the exempted services, instead of 7% of value of exempted services.

Illustration:-

M/s. XYZ Ltd. engaged in manufacturing of dutiable and exempted goods and provision of taxable and exempted services, furnishes you the following information for the month of April,2016 (all information in addition to the other)-

a) Total value of dutiable excisable goods cleared during the month : RS 100 lakhs (Duty @ 12.5%)

b) Value of excisable goods falling under Notf. No.1/2011-CE, dtd1-3-2011 : Rs 5 lakhs (Duty @ 2%)

Non- exempted goods removed

Exempted goods removed

Non- exempted services

Exempted Services

Sub-rule (3) of rule 6

Output service provider Manufacturer

Pay 6% of value of the exempted goods less duty

payable, if any on exempted goods

Pay amount determined under

sub-rule (3A) proportionate credit

Pay 2% in case of rail transport of goods and passengers

Pay 7% of the value of

exempted service

Subject to maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which

the payment relates and credit of input and input services taken that period

Abatement on condition of non

availment of CENVAT credit on inputs and input services – 7% of

value of exempted service (total value

– abated value) Option once exercised will apply for all exempted

goods or exempted services and cannot be withdrawn during remaining part of the financial year



c) Value of excisable goods falling under Notf. No. 12/2012[SR.No.128]: Value =Rs 5 lakhs (Duty @ 1%)

d) Other exempted excisable goods, cleared during the month : Value = Rs 100 lakshs

e) Clearances of excisable goods to SEZ without payment of duty : Value =Rs 15 Lakshs

f) Total Value of taxable services provided : Rs 50 lakhs (Rate of service tax : 15%)

g) Gross Value of other taxable services provided (abatement @ 30% in value availed on the condition of non-availment of CENVAT credit): Rs 50 lakhs (rate of services tax : 15%)

h) Non-taxable services provided : Rs 30 Lakhs

i) Value of traded goods : Rs 20 lakhs

j) Total CENVAT Credit availed during the month (all common inputs and input services): Rs 25 lakhs.

It doesn’t’ maintain separate accounts for the various inputs and input services used in such excisable goods and services and has, therefore, opted for option under rule 6(3)(a) of the CENVAT Credit Rules, 2004 (Value based payment on exempted goods and services).

Assume that payment of all services provided, as aforesaid, was received in the same month itself.

You are required to compute the amount of payment to be made for the month of July, 2016.

Solution : Since M/s. XYZ Ltd. has opted for value-based payment on exempted goods and services, therefore, it shall pay 6 % of the value of exempted goods and 7% of the value of exempted services computed as follows-

(a)Duty payable on dutiable excisable goods (Rs 100 lakhs x 12.5%) 12,50,000

(b) &(c) (i) Duty payable on excisable goods falling under Notification No.1/2011-CE, dated

1-3-2011 and 12/2012-CE (these goods are “exempted goods” under Rule 2(d) [Rs 5 lakh x 2% +Rs 5 lakhs x1%]

(ii) Since these goods are deemed to be exempted goods, therefore,6% of the value thereof is payable under Rule 6(3), However, the duty paid on such exempted goods under Notification No 1/2011-CE and 12/2012-CE, Shall be allowed as deduction. [6% of (RS 5 lakh+Rs.5 lakhs)]-Duty paid in (b)(i) above] = 60,000 – 15,000

15,000

45,000

(d) 6% of the value of exempted excisable goods under Rule6(3) i.e 6% of Rs 100 lakhs 6,00,000

(e) Clearances of excisable goods to SEZ without payment of duty – No payment under Rule 6(3) is required in view of specific provisions of Rule 6(6)

Nil

(f) Service Tax on taxable services [ Rs 50 lakh x 15%] 7,50,000

(g)

(i) Service Tax payable on taxable value (net of abatement ) [(Rs 50 lakh -30%)x15% ]

(ii) 7 % of the value for which abatement claimed (Service for which abatement in value is availed are covered under ‘exempted Sevices’ under Rule 2(e) The amount of 7% of the value of exempted services is payable on the abatement availed. [Rs 50 lakh x 30% x7%]

5,25,000

1,05,000

(h) 7% of the value of non-taxable services [services not taxable u/s 66B of the Finance Act, 1994 are also ‘exempted services’ under Rule 2(e), hence payment under Rule 6(3) required to be made in respect thereof.] [ Rs 30 lakh x 7%]

2,10,000

(i) 7% of the value of trading of goods [ Trading is also ‘exempted services ‘ under Rule 2(e) ].

1,40,000

Total of (a) to (i) above

Less : CENVAT Credit of common inputs and input services.

36,40,000

25,00,000

Net sum payable through electronic banking 11,40,000



OPTION 2: FORMULA BASED (PROPORTIONATE) REVERSAL FOR INPUTS AND INPUT SERVICES [Rule 6(3A)]:

Pay an amount as determined under rule 6(3A):

T

The manufacturer of final products or the provider of output service shall determine the credit required to be paid, out of this total credit of inputs and input services taken during the month, denoted as T, in the following sequential steps and provisionally pay every month, the amounts determined under sub-clauses (i) and (iv), namely:

A

a) the amount of CENVAT credit attributable to inputs and input services used – i) exclusively in or in relation to the manufacture of exempted goods removed; or ii) for provision of exempted services, shall be called ineligible credit, denoted as A, and shall be paid;

B

b) the amount of CENVAT credit attributable to inputs and input services used – i) exclusively in or in relation to the manufacture of non-exempted goods removed; or ii) for the provision of non-exempted services, shall be called eligible credit, denoted as B, and shall not be required to be paid;

C

c) credit left after attribution of credit under rule 6(3A)(b)(i)/(ii) shall be called common credit, denoted as C and calculated as,

C = T - (A + B); Explanation: Where the entire credit has been attributed under rule 6(3A)(b)(i)/(ii), namely ineligible credit or eligible credit, there shall be left no common credit for further attribution.

D

d) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, - D = (F/F) x C; However, where no final products were manufactured or no output service was provided in the preceding financial year, the CENVAT credit attributable to ineligible common credit shall be deemed to be 50% of the common credit.

+−++

−

+

= )C(CreditCommonx

)F(yearfinancialpreceeding

theduringremovedgoodsexemptedofValueremovedgoods

exemptednonofvalueprovidedservicesexemptedofValue

providedservicesExemptednonofvalueoftotalsumThe)E(yearfinancialpreceeding

theduringremovedgoodsexemptedofValue

providedservicesexemptedofvalueoftotalsumThe

D.e.i

G

e) remainder of the common credit shall be called eligible common credit and denoted as G, where, G=C-D;

Explanation: For the removal of doubts, it is hereby declared that out of the total credit T, which is sum total of A, B, D, and G, the manufacturer or the provider of the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit.

Interest @ 15% p.a. in case of delay in payment: Where manufacturer or the provider of the output service fails to pay the amount determined under sub-clause (i) or sub-clause (iv), he shall be liable to pay the interest from the due date of payment till the date of payment of such amount, at the rate of 15% per annum.

T (Annual)

The manufacturer or the provider of output service shall determine the amount of CENVAT credit attributable to exempted goods removed and provision of exempted services for the whole of financial year, out of the total credit denoted as T (Annual) taken during the whole of financial year in the following manner, namely:-

A (Annual)

(i) The CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services on the basis of inputs and input services actually so used during the financial year, shall be called Annual ineligible credit and denoted as A (Annual);



B (Annual)

(ii) the CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non-exempted services on the basis of inputs and input services actually so used shall be called Annual eligible credit and denoted as B(Annual);

C (Annual)

(iii) common credit left for further attribution shall be denoted as C (Annual) and calculated as, - C (Annual) = T (Annual) - [A (Annual) + B (Annual)]

D (Annual)

(iv) common credit attributable towards exempted goods removed or for provision of exempted services shall be called Annual ineligible common credit, denoted by D (Annual) and shall be calculated as, - D (Annual) = (H/I) x C (Annual)

+−++−

+

= )Annual(Cx

)I(yearfinancialtheduringremovedgoodsexempted

ofvalueremovedgoodsexemptednonofValueprovidedservices

exemptedofvalueprovidedservicesexemptednonofValue)H(yearfinancialtheduringremovedgoodsexempted

ofValueprovidedservicesexemptedofValue

)Annual(D.e.i

The above provisions of sub rule (3A) has been summarized in the following diagram:



NEGR : Non exempted goods removed

EGR : Exempted goods removed

NES : Non exempted services

ES : Exempted service

I : Inputs

IS : Input Services

PFY : Preceding Financial Year

FY : Financial Year

SFY : Succeeding Financial Year

Procedural Compliances:

1. Intimation in writing to the Superintendent before exercising the option: For determination of amount required to be paid under Rule 6(3)(ii), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :-

The manufacturer of goods or the provider of output service shall intimate in writing to the

Superintendent of Central Excise giving the following particulars, namely :-

i) Name, address and registration number of the manufacturer of goods or provider of output service;

ii) Date from which the option under this clause is exercised or proposed to be exercised;

iii) Description of inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services and description of such exempted goods removed and such exempted services provided;

iv) Description of inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non-exempted services and description of such non-exempted goods removed and non-exempted services provided;

v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;

2. Payment of differential amount by 30th June of the financial year: The manufacturer or the provider of output service shall pay on or before the 30th June of the succeeding financial year, an amount equal to difference between the total of the amount of Annual ineligible credit and Annual ineligible common credit and the aggregate amount of ineligible credit and ineligible common credit for the period of whole year, namely, [{A (Annual) + D(Annual)} - {(A + D) aggregated for the whole year)}], where the former of the two amounts is greater than the later;

3. Interest @ 15% p.a. payable in case of delay in payment: Where the aforesaid amount is not paid by the 30th June of the succeeding financial year, the manufacturer of goods or the provider of output service, shall, in addition to the amount of credit so paid, be liable to pay on such amount an interest @ 15% p.a., from the 30th June of the succeeding financial year till the date of payment of such amount;

4. Re-credit in case provisional amount of CENVAT credit reversed is greater than actual amount to be reversed: The manufacturer or the provider of output service, shall at the end of the financial year, take credit of amount equal to difference between the total of the amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of the amount of annual ineligible credit and annual ineligible common credit, namely, [{(A + D) aggregated for the whole year)} – {A (Annual) + D (Annual)}], where the former of the two amounts is greater than the later;

5. Intimation to the Superintendent: The manufacturer of the goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of 15 days from the date of payment or adjustment, as above, the following particulars, namely :-

i) details of credit attributed towards eligible credit, ineligible credit, eligible common credit and ineligible common credit, month-wise, for the whole financial year, determined on provisional basis;

At the end of the year actual amounts of A + D will be computed for the whole year in the similar manner as described above by taking annual figures of T B & C and H [value of ES + EGR during the FY] & I [Value of NES + ES + NEGR + EGR during the FY] in place of E & F.

Shortfall, if any, will be paid by 30th June of the SFY failing which interest @ 15% will be payable from 30th June of SFY till the date of payment of such amount. Excess amount paid, if any, can be taken as credit. If the amount to be paid provisionally is not paid by the due date of payment, interest @ 15% will be payable from the due date of payment till the date of payment of such amount.



ii) CENVAT credit annually attributed to eligible credit, ineligible credit, eligible common credit and ineligible common credit for the whole of financial year, determined on actual basis;

iii) amount short paid along with the date of payment of the short-paid amount, i.e. if actual reversible is more than provisional reversal,

iv) interest payable and paid on such short paid amount; and

v) credit taken on account of excess payment with the date of taking the credit.

Illustration:-

M/s xyz & co. ltd., a manufacturer of dutiable as well as exempted goods and also a provider of taxable as well as exempted services, furnishes the following information

S. No Particulars Financial Year 15 – 16

For the month of April, 2016

1. Value of exempted goods removed @650 per unit 585 65

2. Value of non-exempted goods removed 400 50

3. Value of exempted services provided 250 30

4. Value of non - exempted services provided 500 60

The details of CENVAT credit during the month of April, 2016 are as under:

Particulars Rs. 1 Total CENVAT credit taken of inputs and inputs services 10,00,000 2 The amount of CENVAT credit attributable to input services used exclusively in the

manufacture of exempted goods and for provisions of exempted services 4,00,000

3 The amount of CENVAT credit attributable to input services used exclusively in the manufacture of dutiable goods removed and provision of taxable services.

1,00,000

You are required to compute the provisional amount of proportionate credit reversible under rule 6(3A) of the CENVAT credit rules, 2004 for the month of April, 2016.

Total CENVAT credit taken of inputs and input services 10,00,000 Less: The amount of CENVAT credit attributable to inputs and input services used exclusively in the manufacture of exempted goods and for provision of exempted services which shall be required to be paid. [A]

4,00,000

Less : The amount of CENVAT credit attributable to inputs and input services used exclusively in the manufacture of dutiable goods removed and provision of taxable services which shall not be required to be paid. [B]

1,00,000

Common credit [C] The amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid [D]

5,00,000

2,40,634

Provisional CENVAT Credit reversible u/r 6(3A) for the month [A]+[D] 6,40,634

6. Failure to exercise option by manufacturer! service provider — Adjudicating authority may allow to follow the above procedure and require payment of prescribed amount along with interest calculated @ 15% p.a. [Rule 6(3AA)]: Where a manufacturer or a provider of output service has failed to exercise the option as above and follow prescribed procedure, the Central Excise Officer competent to adjudicate a case based on amount of CENVAT credit involved, may allow such manufacturer or provider of output service to follow the procedure and pay the amount calculated for each of the months along with interest calculated @ 15% p.a. from the due date for payment of amount for each of the month, till the date of payment thereof.



7. Transitional provision - Existing Rule 6 of CCR would continue to be in operation upto 30-06-2016, for the units who are required to discharge the obligation in respect of financial year 2015-16 [Rule 6(3AB)]: Assessee who has opted to pay an amount under Rule 6(3)(ii)/(iii) in the financial year 2015-16, shall pay the amount along with interest or take credit for the said financial year in terms of Rule 6(3A), as they prevail on the day of publication of this notification and for this purpose these provisions shall be deemed to be in existence till the 30th June, 2016.

Other aspects:

1. Option, once exercised, applies to all goods/services for that financial year [Explanation 1]:

If the manufacturer of goods or the provider of output service, avails any of the option, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.

2. No credit on ineligible inputs/ services [Explanation 2]: No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

3. Clarification of Certain terms [Explanation 3]: For the purposes of Rule 6(3) and Rule 6(3A),-

a) “Non-exempted goods removed” means the final products excluding exempted goods manufactured and cleared upto the place of removal;

b) “Exempted goods removed” means the exempted goods manufactured and cleared upto the place of removal;

c) “Non-exempted services” means the output services excluding exempted services.

4. Special provisions for reversal of CENVAT credit in case of banking company and a financial institution including a non-banking financial company- Reversal either on actual basis or of 50% credit taken each month [Rule 6(3B)]: A banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, in addition to options given in Rule 6(1), (2) and (3), shall have the option to pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month.

5. No CENVAT Credit on capital goods are used for the manufacture of exempted goods or provision of exempted service for 2 years from the date of commencement of commercial production or provision of service [Rule 6(4)] : No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services for a period of 2 years from the date of commencement of the commercial production or provision of services, as the case may be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made or services provided in a financial year.

Capital goods installed after the date of commencement of commercial production or provision of service - Period of 2 years to be reckoned from the date of installation: Where capital goods are received after the date of commencement of commercial production or provision of services, as the case may be, the period of two years shall be computed from the date of installation of such capital goods.

6. Non applicability of above provisions - i.e. entire CENVAT credit of duty/ tax paid on inputs/ input services/ capital goods will be allowed if goods cleared to SEZ, EHTP etc.: The provisions discussed above [sub-rules (1), (2), (3) and (4)] shall not be applicable,-

a) In case of manufacturer of excisable goods [Rule 6(6)] : if the excisable goods removed without payment of duty are either,

i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or

ii) cleared to a 100% export-oriented undertaking; or

iii) cleared to a limit in an Electronic Hardware Technology Park or Software Technology Park; or

iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under Notification No.108/95-CE; or



• supplied for the use of foreign diplomatic missions or consular missions or career consular offices- or diplomatic agents in terms of the provisions of Notification No. 12/2012-CE; or

v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or

vii) all goods, which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 and the additional duty leviable under section 3(1) of the said Customs Tariff Act, when imported into India and are supplied-

• against International Competitive Bidding; or

• to a power project from which power supply has been tied up through tariff based competitive bidding; or

• to a power project awarded to a developer through tariff based competitive bidding, in terms of Notification No. 12/2012-CE, dated 17-03-2012.

viii) Supplies made for setting up of solar power generation projects or facilities. ix) Ethanol produced from molasses generated from cane crushed in the sugar Season 2015-16

i.e. 1st October, 2015 onwards, for supply to the public sector oil marketing companies, namely, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. or Bharat Petroleum Corporation Ltd., for the purposes of blending with petrol, in terms of the provisions of S.No. 40A of the Table in Notification No.12/2012-CE, dated 17-03-2012, number G.S.R. 163(E), dated 17-03-2012.(omitted w.e.f 10.08.2016)

b) In case of provider of taxable services [Rule 6(7)] : If the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorized operations or when a service is exported or when a service is provided or agreed to be provided by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India.

As per Rule 6(8), for the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when, -

i) The service is exported as given under Rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and

ii) Such payment has not been received for a period of six months or such extended period, as may be allowed from time-to-time by the Reserve Bank of India, from the date of provision.

However, if such payment is received after -

• the specified or extended period allowed by the Reserve Bank of India,

• but within one year from such period,

The service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub-rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.


a) Rule 7:- Total Rule 7 Is Re-Drafted, the amended rule 7 is as follows:

The following are the provisions, in brief, relating to Input Service Distributor:

1. Definition (Rule 2(m) of the CENVAT Credit Rules, 2004): “Input service distributor” means:

(i) An office of the manufacturer or producer of final products or provider of output service,

(ii) Which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchase of input services; and

(iii) Issues invoice, bill or, challan as the case may be;

(iv) For the purposes of distributing the credit of service tax paid on the said service;

(v) To such manufacturer or producer or provider or an outsourced manufacturing unit as the case may be;



2. Manner of distribution of credit by input service distributor [Rule 7 of CEWVAT Credit Rules, 2004]: The input service distributor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or unit providing output service or an outsourced manufacturing units, as defined in Explanation 4, subject to the following conditions, namely : —

i) The credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;

ii) The credit of service tax attributable as input service to a particular unit shall be distributed only to that unit;

iii) The credit of service tax attributable as input service to more than one unit but not to all the units shall be distributed only amongst such units to which the input service is attributable and such distribution shall be pro rata on the basis of the turnover of such units, during the relevant period, to the total turnover of all such units to which such input service is attributable and which are operational in the current year, during the said relevant period;

iv) the credit of service tax attributable as input service to all the units shall be distributed to all the units pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all the units, which are operational in the current year, during the said relevant period;

v) outsourced manufacturing unit shall maintain separate account for input service credit received from each of the input service distributors and shall use it only for payment of duty on goods manufactured for the input service distributor concerned;

vi) credit of service tax paid on input services, available with the input service distributor, as on 31-03-2016, shall not be transferred to any outsourced manufacturing unit and such credit shall be distributed amongst the units excluding the outsourced manufacturing units,

Explanation: The provision of this clause shall, mutatis-mutandis, apply to any outsourced manufacturer commencing production of goods on or after the 1’ of April, 2016;

vii) Provisions of rule 6 shall apply to the units manufacturing goods or provider of output service and shall not apply to the input service distributor.

Unit: For the purposes of this rule, “unit” includes the premises of a provider of output service or the premises of a manufacturer including the factory, whether registered or otherwise or the premises of an outsourced manufacturing unit. (Explanation 1)

Total Turnover: For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.

The turnover of an outsourced manufacturing unit shall be the turnover of goods manufactured by such outsourced manufacturing unit for the input service distributor. (Explanation 2)

Relevant period - Month or Quarter: For the purposes of this rule, the ‘relevant period’ shall be,-

a) If the assessee has turnover in the ‘financial year’ preceding to the year during which credit is to be distributed for month or quarter, as the case maybe, the said financial year; or;

b) If the assessee does not have turn over for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed. (Explanation 3)

Outsourced manufacturing unit : For the purposes of this rule, “outsourced manufacturing unit” means a job-worker who is liable to pay duty on the value determined under rule 1OA of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 on the goods manufactured for the input service distributor or a manufacturer who manufactures goods, for the input service distributor under a contract, bearing the brand name of such input service distributor and is liable to pay duty on the value determined under section 4A of the Excise Act. (Explanation 4)

b) Rule 7B:-

A new rule 7B has been inserted to prescribe the provisions relating to “Distribution of credit on inputs by warehouse of manufacturer”. [Rule 7B] [Inserted by Notification No.13/2016-CE (N.T.) dated 1-3-2016 w.e.f. 1-4-2016]:

1. A manufacturer having one or more Factories, Shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, who receives inputs under cover of documents specified under Rule-9, towards the purchase of such inputs.



2. Provisions of First Stage Dealer/Second stage dealer to be applicable: The Provisions of these rules made under the Excise Act as applicable to a first stage dealer or Second stage dealer, shall, mutatis mutandis, apply to such warehouse of the manufacturer.

AMENDMENTS RELATING TO RULE 9

a) Rule 9(1)(a)(i): Invoice issued by a service provider for clearance of inputs/capital goods also to be an eligible document


only an invoice issued by a manufacturer for clearance of inputs or capitals goods could be a valid document for availing CENVAT credit under rule 9(1)(a)(i).

Rule 9(1)(a)(i) has been amended to provide that an invoice issued by manufacturer or a service provider for clearance of inputs or capitals goods will also be a valid document for availing CENVAT credit.

b) Rule 9(1)(d): Certificate issued by an Appraiser of Customs to be a valid document under rule 9 for goods imported through authorised courier


Prior to 31.12.2015, certificate issued by an appraiser of customs was a valid document for availing credit in respect of goods imported through a Foreign Post Office in terms of rule 9(1)(d).

the amended Rule 9(1)(d) is to provide that a certificate issued by an appraiser of customs will also be a valid document for availing CENVAT credit in respect of goods imported through an authorized courier registered with the Principal Commissioner of Customs or the Commissioner of Customs in-charge of the customs airport.

Verified by: Samba siva Sir

Pavan Sir, Nagalingeswara Rao Sir

Executed By: Srinivas Sir

THE END

Some important circulars issued by CBEC:-

Circular No. 1027/15/2016-CX, dated

25-4-2016

The CBEC has clarified that Bagasse, Dross and Skimmings of non-ferrous metals or any such byproduct or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of the CENVAT Credit Rules, 2004.

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