TAX - IPCC Amendment for Nov, 2013 Attempt [carocks.wordpress.com]

8/22/2019 TAX - IPCC Amendment for Nov, 2013 Attempt [carocks.wordpress.com]

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TAXATIONAmendments made by Finance Act, 2012 (For A.Y. 2013-14)

Relevant for Nov. 2013 Exams.

v CA. Krishna Shankar PrasadICAI Faculty Member

Basic Concepts

Page 7

F Rates of I ncome Tax for Assessment Year 2013-14 [ I n the Case ofInd iv idual /HUF]

1. For an individual (man or woman), resident in India who is of the age of 60 years or more but

less then 80 years at any time during the previous year [Senior Citizen]

Upto`2,50,000 Nil

Next`2,50,000 10%

Next`5,00,000 20%

Balance Income 30%

2. For an individual (man or woman), resident in India who is of the age of 80 years or more atany time during the previous year [Very Senior Citizen]

Upto`5,00,000 Nil

Next`5,00,000 20%

Balance Income 30%

3. Other Individual / HUF / AOP / Body of Individuals :-

Upto`2,00,000 Nil

Next`3,00,000 10%

Next`5,00,000 20%

Balance Income 30%Surcharge : No sur charge is payable as it has been aboli shed for above persons.

Education cess : Education cess of 2% shall be levied on the Income tax.

Secondary and H igher Education cess :-1% shall be levied on the Income tax.

KSP Classes; PH : 9811880881, 9868308387 [ Amendment Page - 1]

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CA. Krishna Shankar Prasad

Nil

NilNil

@ 5% on tax payable shall be levied where total

income of the co. exceeds one crore rupees.

@ 2% on tax payable shall be levied where total

income of the foreign company exceeds

one crore rupees.

Firms/LLP

Local AuthorityCo-operative

Societies

Companies

@ 30%

@ 30%Upto`10,000 @ 10%

Next`10,000 @ 20%

Balance Income @ 30%

Domestic Company @ 30%

Foreign Company @ 40%.

For all assessee - Education Cess @ 2%, and Secondary and Higher Education Cess @ 1% onincome tax (inclusive of surcharge if applicable) shall be chargeable.

F Rates of I ncome Tax f or A.Y. 2013-14

Amount of Tax Surcharge

F Deemed Incomes :-

(1) Unexplained Cash Credits (Section 68) -

The amount credited in the books of assessee.

He offers no explanation about its nature and source or the explanation offered is not satisfactory.

The amount credited is treated as the income of the previous year in which books of accounts

found credited. Unexplained cash credit shall be chargeable to tax under the head Income from Other Sources.

Where the assessee is a closely held company and the sum so credited consists of share

application money, share capital, share premium or any such amount then the person being a

resident in whose name such credit is recorded in the books of such company should offer an

explanation about the nature and source of such sum credited. If the nature and source of such

amount is not found satisfactory by the Assessing Officer then such amount credited shall be

treated as income of the company in whose books of account such sum is found credited.

(2) Unexplained Investments (Section 69) -

The assessee made investments but has not recorded in his books.

He offers no explanation about its nature and source or the explanation offered is not satisfactory.

The value of the investment made shall be treated as the income of that financial year in which

investment is made.

Unexplained Investments shall be chargeable to tax under the head Income from Other Sources.

(3) Unexplained Money, bullion or jewel or Valuable article (Section 69A) -

In search, the assessee was found to be owner of any money, bullion or jewel or other valuable

article etc.

Such money, bullion etc. are not recorded in the books of accounts of the assessee.

He offers no explanation about its nature and source of acquisition or the explanation offered is

not satisfactory.


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The value of such items shall be treated as the income of that financial year it is found.

Unexplained Money, Bullion, Jewelry etc. shall be chargeable to tax under the head

Income from Other Sources.

(4) Investment not fully disclosed (Section 69B) -

The assessee made investments or found to be owner of bullion, jewellery or other valuable

article, but has not fully recorded in his books of accounts.

He offers no explanation about such excess amount or the explanation offered is not satisfactory.

The value of the investment made shall be treated as the income of that financial year in which

investment is made.

The excess value of unexplained investments shall be chargeable to tax under the head In-

come from other sources.

(5) Unexplained Expenditure (Section 69C) -

The assessee has incurred expenditure during the financial year.

He offers no explanation about such expenditure or the explanation offered is not satisfactory.

The amount of such expenditure shall be treated as income of the previous year in which it was

incurred.

Unexplained expenditure shall be chargeable to tax under the head Income from Other Sources.

It shall not be allowed as a deduction under any head of income.

(6) Amount borrowed or repaid on hundi, other than by way of account payee cheque

(Section 69D) -

The amount is borrowed on a Hundi or the same was repaid in excess of`20,000.

The borrowal is made otherwise than through an Account Payee Cheque.

The amount is borrowed or repaid shall be treated as income of the person borrowing orrepaying the amount for the previous year in which the amount was borrowed or repaid.

Such amount borrowed or repaid shall be chargeable to tax under the head Income from

Other Sources.

Any amount borrowed on Hundi and treated as income u/s 69D shall not be taxed once again

at the time of repayment.

F Undisclosed income referred to in section 68, 69, 69A, 69B, 69C or 69D to be taxable at

special rate [w.e.f. A.Y. 2013-14]

Rate of Tax @ 30%. (without aallowing any deduction or expenditure).


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F Investment-linked tax incentive for specified business Section 35AD :-

(i) 100%, deduction would be allowed in respect of the whole of any expenditure of capital

nature incurred, wholly and exclusively, for the purposes of the specified business during the

previous year in which such expenditure is incurred.

However, the expenditure incurred, wholly and exclusively, for the purpose of any specified

business shall be allowed as deduction during the previous year in which he commences

operations of his specified business, if -

(a) the expenditure is incurred prior to the commencement of its operations; and

(b) the amount is capitalised in the books of account of the assessee on the date of

commencement of its operations.

(ii) The expenditure of capital nature shall not include any expenditure incurred on acquisition

of any land or goodwill or financial instrument.

(iii) The benefit will be available -

(iv) This section applies to the specified business which fulfils all the following conditions, namely :-

(a) It is not set up by splitting up, or the reconstruction, of a business already in existence;

(b) It is not set up by the transfer to the specified business of machinery or plant previously used

for any purpose. However, 20% value of the total plant and machinery can be second hand.

Date of Commencement of businessSpecif ied business

Setting up and operating a cold chain facility, warehousing

facility for storage of agricultural produce.

Laying and operating a cross-country natural gas or crude or

petroleum oil pipeline network for distribution, including storage

facilities being an integral part of such network

On or after 1-4-2009.

On or after 1-4-2007, in the case

of laying and operating & a cross-

country natural gas pipeline

network for distribution or storage.

In other cases, on or after 1-4-09.

Business of building and operating anywhere in India a new

hotel of 2 star or above category,

a new hospital with at least 100 beds for patients, developing

and building a housing project under a scheme for slum

redevelopment or rehabilitation.

Developing and Building a housing project & production of

fertilizer in India

Setting up ICD or CFS, Bee-keeping, warehousing facility for

storage of sugar




Profits and Gains of Business of Profession

F Additional Depreciation Section 32(1)(iia) :-

(4) Power generation equipments qualify for claiming additional depreciation in respect of new plantand machinery from A.Y. 2013-14


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(c) Where the assessee is carrying on business relates to laying and operating a cross country

natural gas or petroleum oil pipeline network for distribution then such business :

(i) is owned by a company formed and registered in India under the Companies Act,

1956 or by a consortium of such companies or by an authority or a board or a

corporation established or constituted under any Central or State Act;(ii) has been approved by the Petroleum and Natural Gas Regulatory Board;

(iii) has made not less than one-third (for a natural gas pipeline network) or one-fourth

(for petroleum product pipeline network) of its total pipeline capacity available for

use on common carrier basis by any person other than the assessee or an associated person.

(iv) fulfils any other condition as may be prescribed.

Key Note :-

(a) an associated person, in relation to the assessee, means a person, -

(i) who participates in the management of the assessee;

(ii) who holds at least 26% voting power in the assessee;

(iii) who appoints more than half of the Board of directors; or

(iv) who guarantees not less than 10% of the total borrowings of the assessee;

(b) cold chain facility means a chain of facilities for storage or transportation of agricultural and forest

produce, meat and meat products, poultry, marine and dairy products, products of horticulture,

floriculture and apiculture and processed food items under scientifically controlled condition including

refrigeration and other facilities necessary for the preservation of such produce;

(c) specified business means the any one or more of the following business, namely -

(i) setting up and operating a cold chain facility;

(ii) setting up and operating a warehousing facility for storage of agricultural produce;

(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network

for distribution, incluing storage facilities being an integral part of such network.

(iv) Business of building and operating anywhere in India a new hotel of 2 star or above category

(v) A new hospital with at least 100 beds for patients,

(vi) Developing and building a housing project under a scheme for slum redevelopment or

rehabilitation.

(vii) Developing and building a housing project under a scheme for affordable housing framed

by the Central Government or a State Government, as the case may be, and notified by

the Board in this behalf in accordance with the guidelines as may be prescribed

(viii) production of fertiliser in India.

(ix ) setting up and operating an I nland Container Depot or Container F reight Station

noti f ied and approved under the Customs Act, 1962;

(x) bee-keeping and production of honey and beeswax; and

(xi ) setting up and operating a warehousing facil ity for storage of sugar.


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Nature and amount of deduction [Section 35AD] :

100% deduction shall be allowed an account of any expenditure of capital nature incurred

wholly and exclusively for the purpose of the above specified business carried on by such

assessee during the previous year in which such expenditure in incurred by him.

However, in case any of the following business has commenced its operation on or

after 1-4-2012, the deduction allowed shall be 150% of such capital expenditure incurred instead

of 100%.

(i) Setting up and operating a cold chain facility.

(ii) Setting up and operating a warehouse for storage of agricultural produce.

(iii) Building and operating, anywhere in India, a hospital with atleast one hundred beds for

patients.

(iv) Developing and building a housing project under a scheme for affordeable housing framed

by the Central Government or State Government and notified by the Board in accordance

with guidelines as prescribed.

(v) Production of fertilizer in India.

F Expenditure incurred on agricultural extension project [Section 35CCC]

[W.e.f. A.Y. 2013-14]

Nature of Expenditur e :-Expenditure incurred on agricultural extension project..

Deduction : -Weighted deduction @ 150%

Conditions: -Where a deduction claimed and allowed for any assessment year in respect

of any expenditure referred to in section 35CCC(1), deduction shall not be allowed in respect

of such expenditure under any other provisions of the Income-tax Act for the same or any

other assessment year.

F Expenditure incurred by a company on skill development project

[Section 35CCD] [W.e.f. A.Y. 2013-14]

Nature of Expenditure :-Expenditure incurred by a company on skill development project..(not

being expenditure in the nature of cost of any land or building).

Deduction : -Weighted deduction @ 150%

Conditi ons: -Where a deduction claimed and allowed for any assessment year in respect

of any expenditure referred to in section 35CCD(1), deduction shall not be allowed in respect

of such expenditure under any other provisions of the Income-tax Act for the same or any

other assessment year.


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F Expenses not Deductible Section 40(a) :-

Nature of expenditure

(1) Salary, interest, royalty, fees for technical services payable outside India or in india to non-

resident on which tax has not been paid or deducted at sources.

u Will be allowed as a deduction in computing the income of the previous year in which

such tax has been paid.

(2) Interest, Commission or brokerage, rent, fees for technical services, Fees for professioanl

services, Royalty, Payment to contractors / sub-contractors payable to resident on which tax

has not been paid or deducted at source.

(3) Rates of taxes levied on profits or gains of any business or profession

u Not deductible

(4) Wealth Tax

u Not deductible

Is such expenditure deductible in

any subsequent previous year

If tax is deducted in any subsequent year,the expenditure will be deducted in the year

in which TDS will be deposited by the

assessee with the Government.

If tax is deposited with the Government

after the due date of submission of return

of income the expenditure will be

deductible in that year in which tax will be

deposited.

Cases

Case 1 - Tax isdeductible but not

deducted

Case 2 - Tax is

deductible (and is so

deducted) during the

current Financial Year

but it is not deposited on

or before the due date

of submission of returnof income under

section 139(1).

Expenditure - Is

it deductible in

the current

previous year

No deduction in thecurrent previous year

No deduction in the

current previous year

Circumstances under which tax shall be deemed to have been deducted and paid

Where an assessee makes the payment of an expense to a resident payee without deduction of taxand is not deemed to be an assessee in default under section 201(1) because the payee and the payer

have satisfied conditions mentioned therein then it shall be deemed that the assessee has deducted

& paid the tax on such sum on the date of furnishing of return of income by the resident payee.

Conditions to be satisfied by the resident payee

(i) he has furnished his return of income under section 139;

(ii) he has taken into account such sum for computing income in such return of income;

(iii) has has paid the tax due on the income declared by him in such return in income.

Conditions to be satisfied by the payer (i.e. assessee)

The payer furnishes a certificate to this effect from a Chartered Accountant in such form as may be prescribed.


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(i) Where the assessee has under taken any

international transaction as per section 92B

or specified domestic transaction as per

section 92BA

(ii) In any other case

30th Novemberof the relevant assessment

year

30thSeptember of the relevant assessmentyear

F Compulsory Audit of Accounts Section 44AB :-

(1) Applicability in the case of :-

(a) Assessee carrying on any business where total sales or gross receipts exceeds

`1,00,00,000; or

(b) Assessee carrying on profession where gross receipts exceeds`25,00,000; or

(c) Assessee carrying on business referred to u/s 44AD/AE/BB/BBB and declaring lower income

than prescribed.

(2) Filing of report :-

(3) Other Point :-

If accounts are required to be audited under any other law, then it will be sufficient compliance

if the assessee get the accounts audited under such law and furnish an audit report by the due

date under such other law and a further report under this section.

(4) Consequence of non-compliance :-

If the audit report is not submitted alongwith return then AO may treat the return as defective return.

F Presumptive income in case of Specific Business or Profession

Section 44AD/AE :-

Particulars

Eligible business

Eligible assessee

M i n i m u m

amount of

p resu mpt ive

income

Section 44AD

Any business

except the business

of section 44AE

(Gross receipt

does not exceeds

`1 crore)

Individual, HUF,

Firm (not being a

LLP)

8% or more of

gross turnover or

gross receipts

Section 44AE

Persons carrying on business of

plying, hiring and leasing goods

carriages and not owning more than

10 goods carriages at any time

during the P/Y.

Any Assessee

In case of

Heavy goods vehicle -`5,000per

month or part of a month.

Others -`4,500 per month or part

of a month

Income shall be considered from thedate of ownership.


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Common Provisions in case of all the above two Sections :-

(1) Allowability of deduction u/s 30 to 38 --- Deemed to be allowed

(2) Allowability of depreciation in case of subsequent previous year--- WDV of the assets

shall be computed as if depreciation had been allowed in earlier years.(3) Consideration of turnover for Compulsory audit u/s 44AB shall not be considered if the

assessee opts for section 44AD/AE.

(4) Option for lesser amount of Income --- Books of accounts to be maintained u/s

44AA and audit u/s 44AB has to be fulfilled.

(5) Computation of presumptive income in case the assessee is a firm --- Compute

presumptive income as above Less interest, salary and remuneration to partners. The

balance is chargeable to tax.

(6) Deduction u/s 80C to 80U shall be available to the assessee.

(7) The provision of section 44AD shall not apply to (a) a person carrying on specified profession as referred to in section 44AA(1),

(b) a person earning income in the nature of commission or brokerage, or

(c) a person carrying on any agency business.

F Fair Market Value to be full value of consideration in certain cases

Section 50D [W.e.f. A.Y. 2013-14]:Where the consideration received of accruing as a result of the transfer of a capital asset

by an assessee :-

(a) is not ascertainable, or

(b) cannot be determined.

then, for the purpose of computing income chargeable to tax as capital gains, the fair market

value of the said asset on the date of transfer shall be deemed to be the full value of the

consideration received or accruing as a result of such transfer.

F Cost Inflation Index (CII) as notified by Central Government is as under :-

Financial Year 2012-13 852

Capital Gains


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F Exemption of long-term capital gains tax on transfer of residential

property if invested in a new manufacturing SME company Section 54GB

[W.e.f. A.Y. 2013-14]

(a) Asset Transferred :Residential Property (a house or plot of land)

(b) Who is entitled : Individual or HUF

(c) Use or Holding period :Exceeding 36 months

(d) Amount to be invested :Net consideration

(e) New Asset :The amount of net consideration should be utilized by the individual or HUF

before the due date of furnishing of return of income under section 139(1), for subscription in

equity shares of a eligible company

The amount of subscription as share capital is to be utilized by the company for the purchase of

new asset (eligible plant and machinery) within a period of one year from the date of subscrip-

tion in the equity shares.

(f) Treatment of unutilised amount by Company : If the amount of net consideration which

has been received by the company for the issue of equity shares by the individual of HUF is not

utilized by the company for the purchase of a new asset (eligible plant and machinery) before

the due date of furnishing the return of income under section 139, the unutilized amount should

be deposited before the said due date under a deposit scheme, notified by the Central Gov-

ernment in this behalf and the return furnished by the assessee shall be accompanied by proof

of such deposit having been made.

(g) Consequences if the amount deposited in deposit scheme is not utilised, wholly or

party for the purchase of new asset within a period of one year from the date of

subscription in equity shares by the Individual or HUF :-Taxable as a long-term capital

gain in the hands of individual or HUF.

Taxable Amount = The exemption allowed under section 54GB lessthe exemption that should

have been allowed based on the amount actually utilized, in the purchase of new asset (eligible

plant and machinery).

(h) Consequence if equity shares or new asset is transferred within a period of 5 years from the

date of its acquisition :(i) If the equity shares acquired by the individual or HUF are sold or otherwise transferred

within a period of 5 years from the date of its acquisition, the capital gain shall

arise as under:

(a) the capital gain arising from the transfer of equity shares shall be taxable in

the previous year in which such shares are transferred, which can be short-

term or long-term depending upon the period of holding.

(b) the amount of capital gain which was exempt under section 45(1) earlier shall

be taxable as long-term capital gain of the previous year in which such shares

are sold or otherwise transferred and hence taxable.


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(ii) Similarly, if the new asset (eligible plant and machinery) is sold or otherwise transferred

by the company within a period of 5 years from the date of its acquisition, the

capital gain shall arise as under:

(a) the capital gain, if any arising from the transfer of such asset will be taxable

in the hands of company, which will be sort-term as asset is a depreciable asset

forming part of block of asset.

(b) the amount of capital gain which was exempt under section 45(1) earlier shall

be taxable as long-term capital gain in the hands of such individual or HUF

in the previous year in which such asset (eligible plant and machinery) is sold

or otherwise transferred.

Share premium in excess of the Fair Market value to be treated as Income[Section 56(2)(viib)]

[W.e.f. A.Y. 2013-14] :-

Where a company, not being a company in which the public are substantially interested, receives, in any

previous year, from any person being a resident, any consideration for issue of shares and if the

consideration received for issue of shares exceeds the face value of such shares, the aggregate

consideration received for such shares as exceeds the fair market value of the shares shall be chargeable

to income-tax under the head Income from other sources.

However, the above provision shall not apply where the consideration for issue of shares is received

(i) by a venture captial undertaking from a venture capital company or a venture capital fund; or

(ii) by a company from a class or classes of persons as may be notified by the Central Government in

this behalf.

Other Sources

Deductions

F Deduction in respect of Life Insurance Premium contribution to

Provident Fund, etc. Section 80C :-

Applicability :- Only Individual and HUF

Quantum of Deduction :- Maximum`1,00,000

Nature of Payment :- On the following amounts deduction is allowed -

(i) Life Insurance Premium on life of himself, Spouse and Children, in HUF any member of family.

(M aximum 10% of the Capital Sum assured).


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F Deduction in respect of investment made under an equity savings scheme

Section 80CCG [W.e.f. A .Y. 2013-14]

Applicability: Individual who is resident in India.

Nature of Payment : Deduction is allowed to such assessee who has

(i) in a previous year, acquired listed equity shares in accordance with a scheme, as may

be notified by the Central Government in this behalf, and

(ii) satisfied the prescribed conditions.

Quantum of Deduction :

(i) 50% of the amount invested in such equity shares

(ii) `25,000

whichever is less.

Condition to the satisfied :

(i) The gross total income of the assessee for the relevant assessment year should not exceed

`10,00,000;

(ii) The assessee is a new retail investor as may be specified under the scheme notified in

this behalf;

(iii) The investment is made in such listed equity shares as may be specified under the notifiedd

scheme;

(iv) The investment is locked-in for a period of three years from the date of acquisition in

accordance with the notified scheme; and

(v) Such other condition as may be prescribed.

Consequences if the above condition are not satisfied : If the assessee, in any previous

year, fails to comply with any condition specified above, the deduction originally allowed

shall be deemed to be the income of the assessee of such previous year and shall be liable

to tax for the assessment year relevant to such previous year.


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F Deduction in respect of donation etc. Section 80G :-

Key Notes :-

(1) (i) Qualifying limit :- 10% of Adjusted Gross Total Income

(ii) Adjusted Gross Total Income means :-

Gross Total Income

Less : (i) Deduction u/s 80C to 80U except u/s 80G

(ii) LTCG ( if already included in GTI)

(iii) STCG u/s 111A

(2) Donation in kind are not eligible.

(3) No deduction shall be allowed under this section in respect of donation of any sumexceeding`10,000 unless such sum is paid by any mode other than cash.

F Deduction of Medical Insurance Premium Section 80D :-

Applicability :- Individual or HUF.

Nature of payment :- Mediclaim insurance policy, any contribution made to the

Central Govt. Health Scheme (CGHS) and payment made on account of preventiveHealth Check-up (Maximum`5,000) :-

(1) In case of individual, in the name of individual, his spouse, parents (whether dependent or not)

and dependent children.

(2) In case of HUF, in the name of any member.

Quantum of deduction :-

Conditions :-

(i) Premium can be paid by any mode other than cash. However for preventive

Health Check-up it can be made in cash also.

(ii) Payment shall be made out of income chargeable to tax.

(iii) Payment as per GIC scheme or any other insurance as approved by Central Govt.

Maximum amount deductible (including

preventive Health Check-up)

Additional amount which is deductible

when policy is taken on the health of a

senior citizen (i.e., resident in India and

60 years or more)

Taxpayer, spouse

and dependentchildren

`

15,000

5,000

Parents of the

taxpayer whetherdependent or not

`

15,000

5,000

Individual

Any member

of family

`

15,000

5,000

HUF


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F Deductionin respect of donation for scientific research or rural

development Section 80GGA :-

(vi) No deduction shall be allowed under section 80GGA in respect of any sum exceeding

`10,000 unless such sum is paid by any mode other than cash.

F Deduction in respect of interest on deposits in savings accounts to

the maximum extent of` 10,000 Section 80TTA [W.e.f. A.Y. 2013-14]

Where the gross total income of an assessee, being an individual or a Hindu undivided family,

includes any income by way of interest on deposits (not being time deposits) in a savings

account with

(a) a banking company to which the Banking Regulation Act, 1949, applies (including any

bank or banking institution referred to in section 51 of that Act);(b) a co-operative society engaged in carrying on the business of banking (including a co-

operative land mortgage bank or a co-operative land development bank); or

(c) a Post Office

Quantum of Deduction :- a deduction of such interest shall be allowed to the maximum extent

of`10,000.

Key Note: -

Where the income referred to in this section is derived from any deposit in a savings account,

held by, or on behalf of, a firm, an association of persons or a body of individuals, no deductionshall be allowed under this section in respect of such income in computing the total income

of any partner of the firm or any member of the association or any individual of the body.


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Return of Income

Compulsory filing of income tax return in relation to assets located outside India

[Fourth proviso to section 139(1)] [W.r.e.f. A.Y. 2012-13]Fourth proviso has been inserted to section 139(1) to provide that a person, being a resident,

who is not required to furnish a return under section 139(1) and who during the previous

year has :

(a) any asset (including any financial interest in any entity) located outside India or

(b) signing authority in any account located outside India,

shall furnish, on or before the due date, a return in respect of his income or loss for the previous

year in such form and verified in such manner and setting forth such other particulars as may

be prescribed.

Tax Deducted at Source

F TDS from Salary Section 192 :-

Employers

Employee

Salary

Rates of tax as applicable to the individual

No TDS If income under head Salaries does not exceed

u `5,00,000(Resident very senior citizen),

u `2,50,000(Resident Senior Citizen),

u `2,00,000(Other individual),

At the time of Payment

In case of Government :- Same day

In case of others :- One week from the last day of the month

Form No. 16 along with Form No. 12BA

Employee shall make an application in Form No. 13 to A.O.

A.O. shall issue certificate in Plain Paper. The same is to

be furnished to the employer.

(1) Who is liable to deduct tax

(2) Type of Recipient

(3) Nature of Payment

(4) Rate of TDS

(5) Exemption

(6) Wh en TD S i s to be

deducted(7) Time for deposit of

TDS

(8) Certificate of TDS

(9) Deduct ion of Tax at

lower rate or non-deduc-

tion of Tax


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F TDS from Payment to non-resident sportsmen or sports associations

Section 194E :-

Any Person

Non-resident spor tsmen / Sports association or

non-resident & non-citizen entertainer

Payment to non-resident Sportsman / Sports association

10% [W.e.f. 1.7.2012 @ 20%] plus EC @ 2% & SHEC @ 1%

Nil

At the time of payment or credit, whichever is earlier.

In case of Government :- Same day.

In all other cases :

u Where income or amount is paid or credited in the month

of March : 30th April.u Other cases - within 7 days from the last day of the month.

Form 16A

No Provision




(4) Rate of TDS

(5) Exemption

(6) When TDS is to be deducted

(7) Time for deposit of TDS


(9) Deduction of Tax at lower

rate or non-deduction of Tax

F TDS on fees for professional or technical services Section 194J :-

All assessees except individual and HUF, who are not

subject to tax audit u/s 44AB of the Act, during the

preceding financial year.

A resident person

Fees for Professional Services,

Fees for Technical Services,

An remuneration or fee or commission by whatever name

called, other than those or which tax is deductible under

section 192, to a director for a company (W.e.f. 1.7.2012)

Royalty,

Sum received for not carrying out any activity or not sharingany know-how, patient etc.

10%

Aggregate of payments does not exceed`30,000 in a financial

year, for each of the nature of payment referred above.

However there is no threshold limit of`30,000 in case a

payment to a Director remuneration




(4) Rate of TDS

(5) Exemption


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F TDS on Compensation on acquisition of certain immovable properties

Section 194LA :-

Any Person

A resident personPaying compensation or enhanced compensation on account

of compulsory acquisition under any law for any

immovable property other than agricultural land.

10%

If the amount of payment does not exceed`1,00,000 during

a financial year. (W.e.f . 1.7.2012`2,00,000)

At the time of credit or payment, whichever is earlier.

In case of Government :- Same day

In case of others :- One week from the last day of the monthForm 16A

Application in Form No. 13 shall be made to the A.O.

A.O. shall issue certificate in plain paper.


(2) Type of Recipient(3) Nature of Payment

(4) Rate of TDS

(5) Exemption

(6) When TDS is to be deducted

(7) Time for deposit of TDS


(9) Deduction of Tax at lower

rate or non-deduction of Tax

Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than

agricultural land) [Section 194LAA] [W.e.f. 1.10.2012]

Every transfree, at the time of making payment or crediting any sum by way of considerationfor transfer of immovable property (other than agricultural land), shall deduct tax, at the rate

of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds

(a) `50,00,000 in case such property is situated in a specified area; or

(b) `20,00,000 in case such property is situated in any other area.

Further, where the consideration paid or payable for the transfer of such property is less than

the value adopted or assessed or assessable by any authority of a State Government for the

purposes of payment of stamp duty, the value so adopted or assessed or assessable shall be

deemed as consideration paid or payable for the transfer of such immovable property.

Note :

Specified Area :- Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangaluru, Ahmedabad,

Faridabad, Gurgaon, Gautam Budh Nagar, Ghaziabad, Gandhinagar and Secunderabad.


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Payer not to be deemed to be an assessee in default [Proviso to section 201(1)]

[W.e.f. 1-7- 2012]

In order to provide clarity regarding discharge of tax liability by the resident payee on payment

of any sum received by him without deduction of tax, a new proviso has been inserted in section201(1) to provide that the payer who fails to deduct the whole or any part of the tax on the

payment made to a resident payee shall not be deemed to be an assessee in default in respect

of such tax if such resident payee

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due one the income declared by him in such return of income, and the

payer furnishes a certificate to this effect from a chartered accountant in such form as

may be prescribed.

The date of payment of taxes by the resident payee shall be deemed to be the date on which

return has been furnished by the payer.

Advance Payment of Tax

F Exemption for Senior Citizens from payment of Advance TaxSection 207(2) :-

The provisions of advance tax shall not apply to an individual resident in India, who

(i) does not have any income chargeable under the head Profits and gains of business or

profession; and

(ii) is of the age of 60 years or more at any time during the previous year.

F Liability to pay advance tax in case of non-deduction of tax

Section 209 [W.e.f. F.Y. 2012-13]

Where a person has received any income without deduction or collection of tax, he shall be

liable to pay advance tax in respect of such income.


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P.1 Punjab and Power Ltd. engaged in the business of generation of power, furnishes the

following particulars pertaining to P.Y. 2012-13 Compute the depreciation allowable

under section 32 for A.Y. 2013-14, while computing its income under the head Profits

and gains of business or profession. The company has opted for the deperciation

allowance on the basis of written down value.

1. Opening Written down value of Plant and Machinery (15% block)

as on 01.04.2012 (Purchase value `18,00,000)

2. Purchase of second hand machinery (15% block) on 22.12.2012

for business purpose.

3. Machinery Y (15% block) purchased and installed on 10.07.2012

for the purpose of power generation

4. Acquired and installed for use a new air pollution control equipment

on 31.07.2012 (100% block)

5. New air conditioner purchased and installed in office premises on

08.09.2012

6. New machinery Z (15% block) acquired and installed on 23.12.2012

for the purpose of generation of power

7. Sale value of an old machinery X, sold during the year (Purchase

value` 4,80,000, WDV as on 01.04.2012` 3,46,800)

5,78,000

2,00,000

8,00,000

8,50,000

3,00,000

3,25,000

3,10,000

Particulars `

REVISION TEST PAPER

CA-IPCC [For May, 2013 Exam]


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Ans:-

Computation of depreciation allowance under section 32 for the A.Y. 2013-14

Notes:

(1) Power generation equipments qualify for claiming additional depreciation in respect of

new plant and machinery from A.Y. 2013-14

(2) Additional depreciation is not allowed in respect of second hand machinery.

(3) No additional depreciation is allowed in respect of office appliances. Hence, on depreciation

is allowed in respect of air conditioner installed in office premises.

(4) Additional depreciation is not allowed in respect of an asset whose actual cost is allowed

as deduction in computing the income chargeable under the head Profit and Gains of

business or profession. It is presumed that the new air pollution control equipment installed

is eligible for 100% depreciation. Therefore, no additional depreciation is allowed inrespect of the same.

Opening WDV as on 01.04.2012

Add : Plant and Machinery acquired during the year

Second hand machinery 2,00,000

Machinery Y 8,00,000

Air conditioner for office 3,00,000

Machinery Z 3,25,000

Air pollution control equipment

Less : Asset sold during the year

Written down value before charging depreciation

Normal depreciation

100% on air pollution control equipment

Depreciation on plant and machinery put to use for less than

180 days @ 7.5% (i.e., 50% of 15%)

Second hand machinery (`2,00,000 7.5%) 15,000

Machinery Z (`3,25,000 7.5%) 24,375

15% on the balance WDV being put to use for more than

180 days (`13,68,000 15%)

Additional depreciation

Machinery Y (`8,00,000 20%) 1,60,000

Machinery Z (`3,25,000 10%) 32,500

Total depreciation

Particulars

Plant and

Machinery

(15%) (`)

Plant and

Machinery

(100%) (`)

5,78,000

16,25,000

22,03,000

3,10,000

18,93,000

39,375

2,05,200

1,92,500

4,37,075

8,50,0008,50,000

Nil

8,50,000

8,50,000

Nil

8,50,000


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P.2 Mr. Sohan commenced operations of the businesses of setting up a warehousing facility

for storage of food grains, sugar and edible oil on 1.4.2012. He incurred capital

expenditure of`80 lakh,`60 lakh and`90 lakh, respectively, on purchased of

land and building during the period January, 2012 to March, 2012 exclusively for the

above businesses, and capitalized the same in its books of account as on 1st April,2012. The cost of land included in the above figures are`50 lakh,`40 lakh and

`70 lakh, respectively. Further, during the P.Y. 2012-13, it incurred capital expenditure

of`20 lakh,`15 lakh &`10 lakh, respectively, for extension/ reconstruction of

the building purchased and used exclusively for the above businesses. Compute the

income under the dead Profits and gains of business or profession for the A.Y. 2013-

14 and the loss to be carried forward, assuming that Mr. Sohan has fulfilled all the

conditions specified for claim of deduction under section 35AD and has not claimed

any deduction under Chapter VI-A. The profits from the business of setting up a

warehousing facility (before claiming deduction under section 35AD and section 32)

for the A.Y. 2013-14 is`16 lakhs,`14 lakhs and`55 lakhs, respectively

Ans:-

Computation of profits and gains of business or profession for A.Y. 2013-14

Particulars ` (in Lakh)

Profits from business of setting up of warehouse for storage of edible oil

(before providing for depreciation under section 32)

Less: Depreciation under section 32

10% of `30 lakh, being (` 90 lakh- ` 70 lakh+`10 lakh)

Income chargeable under Profits and gains from business or

profession

55

3

52


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Food Sugar Total

Grains

` (in Lakhs)

Particulars

(A) Profit from the specified business of setting up a warehousing

facility (before providing deduction under section 35AD)

Less: Deduction under section 35AD

(B) Capital expenditure incurred prior to 1.4.2012 (i.e., prior to

commencement of business) and capitalized in the books of

account as on 1.4.2012 (Excluding the expenditure incurred

on acqusition of land) =`30 lakh (`80 lakh -`50 lakh)

and ` 20 lakh (` 60 lakh - ` 40 lakh)

(C) Capital expenditure incurred during the P.Y.2012-13

(D) Total capital expenditure (B + C)

(E) Deduction under section 35AD

150% of capital expenditure (food grains)

100% of capital expenditure (sugar)

Total deduction u/s 35AD for A.Y. 2013-14

(F) Loss from the specified business of setting up and operating

a warehousing facility (after providing for deduction under

section 35AD) to be carried forward as persection 73A

16 14 30

30 20 50

20 15 35

50 35 85

75

35

75 35 110

(59) (21) (80)

Computation of income/loss from specified business under section 35AD


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P.3 Mr. Suresh sold his residential property on 2nd February, 2013 for `80 Lakh and

paid brokerage@1% of sale price. He had purchased the said property in May 2002

for `18,00,000. In June, 2013, he invested`75 lakh in equity of M (P) Ltd. a newly

incorporated SME manufacturing company, which constituted 63% of share capital

of the said company. M (P) Ltd. utilized the said sum for the following purposes-(a) Purchase of new plant and machinery durung July 2013 -`65 lakh

(b) Included in (a) above are`6 lakh for purchase of computers and`8 lakh for purchase of cars

(c) Air-conditioners purchased for`1 lakh, included in the (a) above, were installed at the

residence of Mr. Suresh.

(d) Amount deposited in specified bank on 28.09.2013 -`10 lakh

Compute the chargeable capital gain for the A.Y. 2013-14. Assume that Mr. Suresh is liable to file

his return of income on or before 30th September, 2013 and he files his return on 25.09.2013

Ans:Computation of taxable capital gains for A.Y. 2013-14

Deemed cost of new plant and machinery for exemption under section 54GB

Particulars `

Gross consideration

Less: Expenses on transfer (1% of the gross consideration)

Net consideration

Less: Indexed cost of acquisition

(`18,00,000

852

447 )

Less: Expenses under section 54GB

(44 89 128

79 20 000

, ,

, ,`60,00,0000)

Taxable capital gains

80,00,000

80,0000

79,20,000

34,30,872

44,89,128

34,00,855

10,88,273

Particulars ` `(1) Purchase cost of new plant and machinery acquired in july, 2013

Less: Cost of office appliances, i.e., computers

Cost of vehicles i.e., cars

Cost of air-conditioners installed at the residence of Mr. Suresh

(2) Amount deposited in the specified bank before the due date of

filing of return

Deemed cost of new plant and machinery for exemption undersection 54GB

65,00,000

15,00,000

50,00,000

10,00,000

60,00,000

6,00,000

8,00,000

1,00,000


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P.4 Mr. Rohan, aged 35 years, paid medical insurance premium of`12, 000 during the

P.Y. 2012-13 to insure the health as well as the health of his spouse. He also paid

medical insurance premium of`17,000 during the year to insure the health of his

father, aged 64 years, who is not dependent on him. He contributed`2,400 to Central

Government Health Scheme during the year. He has incurred `3,500 in cash onpreventive health check-up of himself and his spouse and`4,500 by cheque on preventive

health check-up of his father. Computer the deduction allowable under section 80D

for the A.Y. 2013-14.

Ans:

Deduction allowable under section 80D for the A.Y.2013-14

Note:

(1) The total deduction under A. (i), (ii) and (iii) above should not exceed`

15,000 Therefore, theexpenditure on preventive health check-up for self and spouse would be restricted to `600,

being (`15,000 `12,000 `2400).

(2) The total deduction under B. (i) and (ii) above should not exceed`20,000. Therefore, the

expenditure on preventive health check-up for father would be restricted to`3,000, being

(`20,000 - `17,000)

(3) In this case , the total deduction allowed on account of expenditure on preventive health check-

up of self, spouse and father is`3,600 (i.e.,`600 +`3,000), which is less than the maximum

permissible limit of`5,000.

Particulars ` `

A. Premium paid and medical expenditure incurred for self and

spouse

(i) Medical insurance premium paid for self and spouse

(ii) Contribution to CGHS

(iii) Exp. on preventive health check-up of self & spouse

B. Premium paid and medical expenditure incurred for father,

who is a senior citizen

(i) Mediclaim premium paid for father, who is over 60 years of age

(ii) Expenditure on preventive health check-up of father

Total deduction under section 80D (15,000+20,000)

12,000

2,400

3,500

17,400

17,000

4,500

21,000

Actual

Payment

Maximum

deduction

allowable

12,000

2,400

600

15,000

17,000

3,000

20,000

35,000


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The following topics pertaining to SERVICE TAX law will not be

included in the syllabus of IPCC (Taxation) :

(i) Section 66C - Determination of place of provision of service

(ii) Place of provision of Service Rules, 2012

(iii) Section 66E - Declared services

(iv) Section 68(2) and Reverse Charge notification

(v) Export of Services (Rule 6A of the Service Tax Rules, 1994)

(vi) Mega Exemption (N.No. 25/2012 Service Tax)

(vii) Abatement [Notification No. 26/2012 S.T.]

Most Important Announcements

IPCC (May 2013 Examination)

Paper - 4 (Taxation)


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) Extent, Commencement and Application Section 64 :-

This Chapter extends to the whole of India except the State of Jammu and Kashmir.

It shall apply to taxable services provided.

Service Tax is Consumption - Based Destination Tax

It means that service tax is leviable only if the services are rendered by service provider

i.e. consumed by service receiver at a destination, where Finance Act, 1994 is applicable.

) Definition Section 65B

Actionable Claim [Section 65B(1)]

Actionable Claim shall have the meaning assigned to it in Section 3 of the Transfer of Property

Act, 1882. As Per Section 3 of the Transfer of Property Act, 1882 Actionable claim means

a claim to

(a) any debt, other than a debt secured by mortgage of immovable property or by hypothecation

or pledge of movable property; or

(b) any beneficial interest in movable property not in the possession, either actual or contructive,

of the claimant, which the Civil Courts recognize as affording grounds for relief;

whether such debt or beneficial interest be existent, accruing, conditional or contingent.

Business Entity [Section 65B(17)]

Business entity means any person ordinarily carrying out any activity relating to industry,

commerce or any other business or profession.

Declared Services [Section 65B(22)]

Declared service means any activity carried out by a person for another person for

consideration and declared as such under section 66E.

Goods [Section 65B(25)]

Goods means every kind of movable property other than actionable claim and money; and

includes securities, growing crops, grass, and things attached to or forming part of the land

which are agreed to be severed before sale or under the contract of sale.

Basic Concept of Service Tax

[Finance Act 1994]

Chapter - 1


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CA. Krishna Shankar Prasad, (9868308387) Basic Concept of Service Tax [2]

India [Section 65B(27)]

India means

(a) the territory of the Union.

(b) its territorial waters, contintal shelf, exclusive economic zone or any other maritime zone

as defined in the Territorial Waters, Contintal Shelf, Exclusive Economic Zone and other

Maritime Zones Act, 1976.

(c) the seabed and the subsoil underlying the territorial waters.

(d) the air space above its territory waters; and

(e) the installations, structures and vessels located in the continental shelf of India and the

exclusive economic zone of India, for the purposes of prospecting or extraction or

production of mineral oil and natural gas and supply thereof.

Non Taxable Territory [Section 65B(35)]

Non-taxable territory means the territory which is outside the taxable territory.

Person [Section 65B(37)]

Person includes,

(a) an Individual,

(b) a Hindu undivided family,

(c) a company,

(d) a society,

(e) a limited liability partnership,

(f) a firm,

(g) an association of persons or body of individuals, whether incorporated or not,

(h) Government,(i) a local authority, or

(j) every artificial juridicial person, not falling within any of the preceding sub-clauses.


28/84


Service [Section 65B(44)]

Service means any activity carried out by a person for another for consideration, and includes

a declared service, but shall not include

(a) An activity which constitutes merely a transfer of title in goods or immovable property, by

way of sale, gift or in any other matter.

(b) An activity which constitutes merely "deemed sale" of goods or immovable property as

given in clause (29A) of article 366 of the Constitution.

(c) An activity which constitutes merely a transaction in money or an actionable claim.

(d) Provision of service by an employee to the employer in the course of, or in relation to, his

employment.

(e) Fees taken in any Court or Tribunal established under any law for the time being in force.

(f) Functions performed by the Members of Parliament, Members of State Legislative, Members

of Panchayats, Members of Municipalities and Members of other local authorities who

receive any consideration in performing the functions of that office as such members.

(g) Duties performed by any person who holds any post in pursuance of the provisions of the

Constitution in that capacity.

(h) Duties performed by any person as a Chairperson or a Member or a Director in a body

established by the Central Government or State Governments or local authority and who is

not deemed as an employee before the commencement of this section.

Taxable Services [Section 65B(51)]

Taxable service means any service on which service tax is leviable under section 66B.

Taxable Territory [Section 65B(52)]

Taxable Territory means the territory to which the provisions of this Chapter apply.

) Charge of Service Tax Section 66B

Charge of service tax on and after Finance Act, 2012

There shall be levied a tax at the rate of 12% on the value of all services, other than those

services specified in the negative list, provided or agreed to be provided in the taxable territory

by one person to another and collected in such manner as may be prescribed.

[Service tax is to be increased by Education cess @2% and Secondary & Higher education

cess @1%. Hence, effective rate of charge of service tax is 12.36% of value of taxable service.


29/84


) Principles of interpretation of Specified descriptions of Services of

Bundled Services Section 66F

(a) Reference to main service not to include incidental service : As per Section 66F(1),

unless otherwise specified, reference to a main service shall not include reference to a

service which is used for providing main service.

(b) Specific description shall be preferred over a general description : As per Section

66F(2), where a service is capable of differential treatment for any purpose based on

its description, the most specific description shall be preferred over a more general description.

For instance, differential treatment can arise as for some of the services where tax is

payable by service recipient and not the service provider.

(c) Natural bundle of Service : Classified as service which gives it the essential character:

If various elements of such service are naturally bundled in the ordinary course of business,

it shall be treated as provision of the single service which gives such bundle its

essential character.

(d) Artificial bundle of Service : Classified as one which attracts the highest tax liability:

If various elements of such service are not naturally bundled in the ordinary course of

business, it shall be treated as provision of the single service which results in highest

liability of service tax.

Bundled Service :Bundled Service means a bundle of provision of various services wherein an

element of provision of one service is combined with an element or elements of provision of any

other service or services.


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Basic Concept of Service Tax (P & S) 5

P.1 What are the sources of Service Tax Law?

P.2 Which Act and Rule governs the levy of Service Tax in India?

P.3 State with reasons in brief whether the following statements are correct or incorrect with

reference to the provisions of service tax

Service tax provisions are not applicable in J & K because the Central Government

concurrence was not obtained in respect of Finanace Act, 1944.

P.4 Is an unincorporated association liable to pay any service tax?

P.5 Explain as to how and when the amendments made in the finance bill in respect of the service

tax matter come into the force.

P.6 Briefly explain the nature of the service tax.

P.7 Briefly explain the charge of the service tax.

P.8 What are Different approaches to service tax.

Problem and Solutions


31/84


P.1 Sources of Service Tax Law :-

(i) Chapter V of Finance Act 1994.

(ii) Rules on Service Tax:-

Service Tax Rules, 1994

Service Tax (Determination of Value) Rules, 2006

Cenvat Credit Rules, 2004.

Place of Provision of Services Rules, 2012

Service Tax (Registration of Special Category of Persons) Rules, 2005

Service Tax (Advance Rulings) Rules, 2003

Point of Taxation Rules, 2011.

Service Tax (Publication of Names) Rules, 2008

Service Tax (Settlement of Cases) Rules, 2012

Service Tax (Compounding of Offences) Rules, 2012

(iii) Circulars of Central Board of Excise & Customs.

(iv) Judicial Decisions.

P.2 Chapter V of the Finance Act, 1994 & Service Tax Rules, 1994.

P.3 Solution :-

Incorrect.

It is not Finance Act, 1944 but the Finance Act, 1994.

P.4 Yes, An unincorporated association is liable to pay service tax.

Unincorporated associations or body of persons providing taxable services to its members for

cash, deferred payment or any other valuable consideration are liable to pay Service Tax.

P.5 Service tax amendments made by a Finance Bill are generally applicable from the date when the

Finance Bill is given assent by the President. Immediately after the Presidents assent, the Finance

Bill becomes Finance Act.

P.6 Service tax is in nature of Indirect Tax. Service Tax is a tax on service. If there is no service,

there is no tax. There is no Service Tax Act as such. Service tax is imposed by ameding

Chapter V of Finance Act, 1994 from time to time.

P.7 Section 66B of Finance Act, 1994.

[Solutions]


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P.8 There are two approaches to taxation of services

(a) Selective approach :- In the case of selective approach, only selective services are subject

to service tax. In this case, the legislator attempts to specify and list the services that would

be taxable and the scope of coverage of each service.

(b) Comprehensive approach :- In the case of comprehensive approach all services are taxable

and a negative list is specified for services, which are not taxable.

w.e.f. 1-7-2012, India has shifted from selective approach to comprehensive approach.


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F Valuation of Taxable Services for Charging Service Tax Section 67

Valuation of taxable services for charging service tax -

(1) Subject to the provisions of this chapter, service tax chargeable on any taxable service

with refeence to its value shall,-

(2) Where the gross amount charged by a service provider, for the service provided or to

be provided is inclusive of service tax payable, the value of such taxable service shall be

such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received

towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined

in such manner as may be prescribed.

Key Notes :-

(i) Money [Section 65B(33)] :-Money means legal tender, cheque, promissory note,

bill of exchange, letter of credit, draft, pay order, traveller cheque, money order,

postal or electronic remittance or any such similar instrument but shall not include

any currency that is held for its numismatic value.

(ii) Meaning of Gross amount charged :- Gross amount charged includes payment by cheque,

credit card, deduction from account and any form of payment by issue of credit notes

or debit notes and book adjustment.

Case

(i) In a case where the provision of service

is for a consideration in money

(ii) In a case where the provision of service

is for a consideration not wholly or partly

consisting of money

(iii) In a case where the provision of service

is for a consideration which is not

ascertainable

Value of Service

The gross amount charged by theservice provider for such service

provided or to be provided by him;

Such amount in money, with the

addition of service tax charged, is

equivalent to the consideration;

The amount as may be determined

in the prescribed manner.

Valuation of Taxable Services

Chapter - 2


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CA. Krishna Shankar Prasad, (9868308387) Valuation of Taxable Services [9]

F Rule 3 of Service Tax (Determination of Value) Rules, 2006 -

Manner of determination of value

Subject to the provisions of section 67, the value of taxable service, where such value is not

ascertainable, shall be determined by the service provider in the following manner:-

(a) the value of such taxable service shall be equivalent to the gross amount charged by the

service provider to provide similar service to any other person in the ordinary course of

trade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service provider

shall determine the equivalent money value of such consideration which shall, in no case

be less than the cost of provision of such taxable service.

F Date of Determination of Rate of Tax, Value of Taxable Service and

Rate of Exchange Section 67A

The Rate of service tax, value of a taxable service and rate of exchange, if any, shall be the

rate of service tax or value of a taxable service or rate of exchange, as the case may be, in

force or as applicable at the time when the taxable service has been provided or agreed to

be provided.

F In case of Free Services :-

No Service tax is leviable if free services are provided by the provider.

CBDT Circular : 4/2008 (Date 28-04-2008)

TDS under section 194 I (Rental Amount):-

Amount of Rent Paid/Payable without Including the Service Tax.

TDS under section 194J (Professional or technical Services):-

Any sum paid as professional and technical fees. (Including Service tax)


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Valuation of Taxable Services (P & S) 10

P.1 Should service tax be paid even if not collected from the client or Service Receiver?

P.2 Will the payment to a hotilier of`20,000 on behalf of an architect by a service receiver beincluded in the value of taxable services?

P.3 Can it be said that if the taxable service is not capable of ascertainment, the same cannot form

part of value of taxable services?

P.4 Mr. Suresh a service provider who pays service tax regularly, was of the opinion that a

particular service was not liable for service tax. He, therfore, did not charge service tax in his

bill. He received the bill amount without service tax. How will service tax liability of Mr.

Suresh be determined in such case?

P.5 Ms Rani rendered taxable services to a client. A bill of`

5,00,000 was raised on20/4/2012. `3,00,000 was received from a client on 30/5/2012 and the balance on

13/6/2012. No service tax was separately charged in the bill. The questions are:

(a) Is Ms Rani liable to pay service tax, even though the same has not been charged by her?

(b) In case she is liable, what is the value of taxable services and the service tax payable?

P.6 Ms. Dipti, a proprietress of Royal Security Agency received`2,00,000 by an account payee

cheque, as advance while signing a contract for providing taxable services. She receives

`4,00,000 by credit card while providing the service and another`7,00,000 by a pay order

after completion of service on 28/2/2013. All three transactions took place during financial

year 2012-2013. She seeks your advice about her liability towards value of taxable serviceand the service tax payable by her.

(a) If Ms Dipti is a new service provider

(b) If Ms Dipti is a not a new service provider {service tax was levied last year).

P.7 Mr. Shyam has rendered freely, a service to a client which is taxable, but has not charged or

received any fee from a client. Is service tax payable on such free services?

P.8 Whether free services after the sale of motor vehicle given by the authorized dealer for which

they are reimbursed by the vehicle manufacturer are subject to the service tax?

P.9 How the value of taxable services determind when the consideration against taxable servicesis received in other than monetary terms?

P.10 M/s. Subhay Coaching Ltd. provides coaching in the field of engineering. One of the students,

Mr. X, paid Rs. 15,000 in cash and a gold chain valuing Rs. 35,000 (cost to Mr. X's father

who is a jeweller. Rs. 28,000) to M/s. PQR Ltd. Compute the amount of service tax payable

by M/s. Subhay Ltd. thereon @ 12.36%. Make suitable assumptions.

P.11 State with reason in brief whether the following statement is TRUE or FALSE with reference

to the provisions of Service Tax: [April 2012]

Mr. Arun, an architect has received the fees of`6,30,000 after the deduction of Income Taxof`70,000. The Service Tax is payable on`6,30,000.

Problem and Solutions


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P.1 Yes

It has to be paid even if the service provider fials to charge the service tax from the service

receiver. If however, the service provider fails to recover service tax from the client in lieu of

services rendered, it will be taken to be inclusive of service tax.

Value of taxable service = Gross amount charged 100

(100 + Rate of tax)

Service tax = Gross amount charged Rate of tax

(100 + Rate of tax)

P.2 Yes.

Section 67 of Finance Act, 1994 provides that taxable value shall be gross amount charged

for the service. Service Tax (Determination of Value) Rule, 2006 provides that where any

expenditure or costs are incurred by the service provider in the course of providing taxable

service, all such expnditure or costs shall be treated as consideration for the taxable service

provided or to be provided and shall be included in the value for the purpose of charging service

tax on the said service.

P.3 Section 67 of Finance Act, 1994 provides that in a case where the provision of service is for a

consideration which is not ascertainable, then value of service shall be determined in such manner

as prescribed by Service Tax (Determination of Value) Rules, 2006.

P.4 Mr. Suresh is liable to pay service tax even though the Service Tax has not been collected

by his.


receiver. If however, the service provider fails to recover service tax from the client in lieu of

services rendered, it will be taken to be inclusive of service tax.

P.5 (a) Rani is liable to pay service tax even though the service tax has not been collected by her.


receiver. If however, the service provider fails to recover service tax from the client in lieu

of services rendered, it will be taken to be inclusive of service tax.

[Solutions]


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(b) Gross amount charged 100

(100 + Rate of tax)

5,00,000 100

(100 + 12.36)

Gross amount charged Rate of tax

(100 + Rate of tax)

5,00,000 12.36

(100 + 12.36)

P.6 (a) If Dipti is a new service provider, then there is no service tax liability so long as the value of

taxable services does not exceed`10,00,000. However, registration is required if the value

of taxable of services exceeds`9,00,000.

Out of`13,00,000,`10,00,000 is not chargeable to service tax. If service tax is not

separately charged, it will be assumed that`3,00,000 is inclusive of service tax.

Gross amount charged 100

(100 + Rate of tax)

3,00,000 100

(100 + 12.36)Gross amount charged Rate of tax 3,00,000 12.36

(100 + Rate of tax) (100 + 12.36)

(b) If Dipti is not a new service provider (service tax was levied last year), then the entire

amount of`13,00,000 will be subject to service tax. If service tax is not separately charged,

it will be assumed that 13,00,000 is inclusive of service tax.

13,00,000 100

(100 + 12.36)

13,00,000 12.36

(100 + 12.36)

P.7 Mr. Shyam shall not be liable to pay service tax on services rendered without

any consideration.

P.8 Free after sale service is provided by authorized dealer to the purchaser of motor vehicles. Thevehicle manufacturer later on reimburses the amount. Since for the service provider, it is not

free service, it is liable for service tax.

= = 4,44,998

= = 55,002 (Due Date = 5 July, 2012)

Service Tax =

Value of taxable service =

= = 2,66,999

= = 33,001Service Tax =

Value of taxable service =

Value of taxable service = = 11,56,995

Service Tax = = 1,43,005


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P.9 Rule 3 of Service Tax (Determination of Value) Rules, 2006.

P.10 Solution :-

It is a case covered by section 67(1)(ii), whereunder it is provided that in a case where theprovision of service is for a consideration not wholly or partly consisting of money, the value

shall be such amount in money as, with the addition of service tax charged, is equivalent to

the consideration.

In this case, M/s. Subhay Coaching Ltd. has received`15,000 in cash and gold valuing

`35,000, therefore, the total consideration received by M/s. Subhay Coaching Ltd. is`50,000

(inclusive of taxes). Hence, the service tax payable by M/s. Subhay Coaching Ltd. =`50,000

12.36% 112.36% =`5,500 approx.

P.11 Statement is False:

Service tax is payable on gross amount charged by the service provider for the services

provided or to be provided. Service Tax is payable On`7,00,000. If service tax is not

separately charged, it will be assumed that`7,00,000 is inclusive of service tax.

Gross amount charged Rate of tax

(100 + Rate of tax)

7,00,000 12.36

(100 + 12.36)= `77,002


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F Payment of Service Tax Section 68

Payment of Service tax

(1) Every person providing taxable service to any person shall pay service tax at the rate specified

in section 66B in such manner and within such period as may be prescribed.

(2) Notwithstanding anything contained in sub-section (1), in respect of such taxable services

as may be notified by the Central Government in the Official Gazette, the service tax thereon

shall be paid by such person and in such manner as may be prescribed at the rate specified

in section 66B and all the provisions of this Chapter shall apply to such person as if he

is the person liable for paying the service tax in relation to such service.

Provided that the Central Government may notify the service and the extent of service

tax which shall be payable by such person and the provisions of this Chapter shall apply

to such person to the extent so specified and the remaining part of the service tax shall

be paid by the service provider.

Payment of Service Tax and

Due Dates

Chapter - 3

F Rule 4A of Service Tax Rules, 1994 (Amendment w.e.f. 1-4-2012)

Service provider to issue bill :

Every person providing any taxable service shall issue an invoice, bill, challan signed by such

person or person authorised by him in respect of such taxable service provided or agreed

to be provided. The invoice, bill, challan shall be issued not later than 30 daysfrom

(a) the date of completion of such taxable services, or

(b) the receipt of payment towards the value of such taxable service whichever is earlier.

Note :

(1) Where the provider of taxable service is a banking company or a financial insititution including

a non-banking financial company, or any other person, providing service to any person,

in relation to banking and other financial services, the period within which the invoice,

bill or challan, as the case may be is to be issued, shall be 45 days.

(2) Point of Taxation of amount upto ` 1000 received in excess of invoice amount :-

wherever the provider of taxable service receives a payment upto `1000 in excess of

the amount indicated in the invoice, the point of taxation to the extent of such excess amount,

at the option of the provider of taxable service, shall be determined on the basis of invoiceissued instead of date of receipt of payment.

Where such option is exercised, no invoice is required to be issued to such extent.


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CA. Krishna Shankar Prasad, (9868308387) Payment of Service Tax & Due Dates [15]

Rule 5 of Service Tax Rules, 1994 :- Maintenance of Records

(1) Records maintained under by any other law- acceptable as Service Tax Records

(2) Every assessee shall furnish to the Superintendent of Central Excise at the time of filing of return

for the first time or the 31st day of January, 2008, whichever is later, a list in duplicate of -

(i) all the records prepared or maintained by the assessee for accounting of transactions in regard to -

(a) providing of any service

(b) receipt or procurement of input services and payment for such input services;

(c) receipt, purchase, manufacture, storage, sale, or delivery, as the case may be, in regard

to inputs and capital goods;

(d) other activities, such as manufacture and sale of goods, if any.

(ii) all other financial records maintained by him in the normal course of business.

(3) Period of preservation - Minimum 5 Years.

(4) Records must be made available for inspection and examination by Central Excise Officer.

Rule 5A of Service Tax Rules, 1994 :-Access to a registered premises -

(1) An officer authorised by the Commissioner in this behalf shall have access to any premises registered

under these rules for the purpose of carrying out any scrutiny, verification and checks as may

be necessary to safeguard the interest of revenue.

(2) Every assessee shall, on demand, make available to the officere authorised under sub-rule (1)

or the audit party deputed by the Commissioner or the Comptroller and Auditor General of

India, within a reasonable time not exceeding fifteen working days from the day when such de-

mand is made, or such further period as may be allowed by such officer or the audit party,

as the case may be -

(i) the records as mentioned in rule 5(2), (ii) trial balance or its equivalent, and

(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 for

the scrutiny of the officer or audit party, as the case may be.


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Point of Taxation Rules, 2011

FDetermination of Taxable event Point of Taxation of Taxable Services

Rule 2(c) :- Continuous Supply of Service

Continuous supply of service means any service which is provided, or agreed to be provided

continously or on recurrent basis, under a contract, for a period exceeding three months with

the obligation for payment periodically or from time to time, or where the central government,

by a notification in the official gazette, prescribes of a particular service to be a continuous

supply of service, whether or not subject to any condition.

Rule 2A Date of payment

For the purposes of these rules, date of payment shall be-

(a) the date on which the payment is entered in the books of accounts or

(b) the date on which the payment is credited to the bank account of the person liable to pay tax,

whichever is earlier.

However, as per proviso to Rule 2A,-

(A) the date of payment shall be the date of credit in the bank account when -

(i) there is a change in effective rate of tax or when a service is taxed for the first time during

the period between such entry in books of accounts and its credit in the bank account;

(ii) the credit in the bank account is after four working days form the date when there is

change in effective rate of tax or a service is taxed for the first time; and

(iii) the payment is made by way of an instrument which is credited to a bank account,

(B) if any rule requires determination of the time or date of payment received, the expression date

of payment shall be construed to mean such date on which the payment is received.


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Rule 3 :- (Amendement w.e.f. 1-4-2012)

Point of Taxation : Thus, point of taxation i.e. deemed date of provision of service shall be

(a) the date of issue of invoice, if such invoice is issued within 30 / 45 days (as the case may

be) of completion of service

[in case of continuous supply of service, the invoice must be issued within 30 days from

each of the event dates specified in the contract for payment by service receiver].

(b) the date of completion of service, if such invoice is not issued within 30 / 45 days (as

the case may be) as aforesaid,

(c) the date on which the payment is received by the service provider,

whichever is the earliest.

Rule 4 :-

Determination of point of taxation in case of change in effective rate of tax]

(a) In case a taxable service has been provided before the change in effective rate of tax

(b) In case a taxable service has been provided after the change in effective rate of tax

Invoice Issued Payment Received Point of Taxation

(i) After the Change

(ii) Before the Change(iii) After the Change

After the Change

After the ChangeBefore the Change

whichever is earlier

Date of issuing of InvoiceDate of Payment

Invoice Issued Payment Received Point of Taxation

(i) Before the Change

(ii) Before the Change

(iii) After the Change

After the Change

Before the Change

Before the Change

Date of Payment

whichever is earlier

Date of issuing of Invoice


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Rule 5. Payment of tax in cases of new services - 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 becomestaxable and invoice has been issued within 14 days of the date when the service

is taxed for the fi rst time.

Rule 6. In case of continuous supply of service - Omitted w.e.f. 1-4-2012 as it has been merged

with rule 3.

Rule 7. Point of Taxation in case of specified services

Rule 7 is applicable if service tax is payable by the recipient of service under reverse charge

mechanism under section 68(2).

If payment is made by service recipient within 6 months of the date of invoice Point of

taxation will be the date on which payment is made by the recipient of service to the

service provider.

If payment is not made by service recipient within 6 months of the date of invoice

Rule 7 will not be applicable. Point of taxation will be decided by other rules. If no other

rule is applicable, point of taxation will be determined by rule 3.

When service is received from an associated enterprise located outside India If service

is received from an associated enterprise located outside India, Point of taxation will be

(i) date of debit in the books of account of

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