Thursday, July 24, 2014

Direct Tax changes Clause by Clause in Budget 2014 analysis by E& Y

This section summarises significant proposals of direct Tax  announced in the Union Budget 2014. Most direct tax proposals in the Finance Bill are effective from the financial year commencing on 1 April 2014, unless otherwise specified. 

The Finance Bill is discussed in the Parliament before enactment, and is subject to amendment resulting from these discussions.

Direct tax 

Income-tax Rfates of tax

The personal income-tax rates remain unchanged although the exemption limit for individuals (other than resident individuals of the age of 80 years or above) has been increased by INR 50,000.

The personal income-tax rates have been summarized below: 

Income (INR)                                 Rate

0-250,000*                                            Nil

250,001-500,000                                  10

500,001-1,000,000                                 20

1,000,001 and above                              30

@ Surcharge @10% of the total tax liability where the total income exceeds INR 10 million remains.
Education cess of 3% leviable on the amount of income-tax and surcharge, if any also remains.

* The exemption limit in case of resident individuals of the age of 60 years or more but less than 80 years has also increased from INR 250,000 to INR 300,000.

In case of resident individuals of the age of 80 years or above, the exemption limit remains at INR 500,000.

Tax rates for cooperative societies, partnership firms and local authorities Rates of tax for cooperative societies, partnership firms and local authorities remain unchanged. Surcharge of 10% if income exceeds INR 10 million also remains.

Corporate tax rates

  • Rates of corporate tax remain unchanged for both domestic and foreign companies.
  • Presently, a surcharge of 5% and 2% is levied on domestic and foreign companies respectively, if their income exceeds INR 10 million. Where the income derived by the domestic and foreign company exceeds INR 100 million, the surcharge is levied at an increased rate of 10% and 5% respectively.
  • Education cess shall continue to be levied at the rate of 3% on the amount of tax computed, inclusive of surcharge, in all cases.
  • The corporate tax rates (including surcharge and education cess) have been summarized below:

Description                                                           Rate (%)

A) Domestic company                                 
  • Regular tax                                                         33.99 @
  • MAT                                                                  20.96
  • DDT                                                                   16.995

B) Foreign company                                    
  • Regular tax                                                             43.26#
  • MAT is chargeable at                                              18.5% of book                                                                                                                                    profits (plus applicable surcharge and cess). 

  • @ 32.445% where the total income is more than INR 10 million and up to INR 100 million. 
  • @ 30.9% where the total income is equal to or less than INR 10 million.
  • * 20.008% where the total income is more than INR 10 million and up to INR 100 million.
  • * 19.055% where the total income is equal to or less than INR 10 million.
  • # 42.024% where the total income is more than INR 10 million and up to INR 100 million.
  • # 41.2% where the total income is equal to or less than INR 10 million.
  • Surcharge on profits distributed to shareholders and income distributed to unit holders continue to be 10%. 
Rebate under Chapter VIII
Rebate for resident individuals in lower income bracket
  •  Finance Act 2013 had introduced a new provision to provide rebate of INR 2,000 or actual tax payable whichever is less for resident individuals with total income up to INR 500,000. This provision is still applicable. 

Income from house property
  •  The limit of deduction of interest paid on borrowed capital for acquisition/construction of self-occupied house property where the acquisition or construction of the property is completed within three years from the end of financial year in which capital is borrowed, has been increased from INR 150,000 to INR 200,000. 

  • The limit of deduction from income in respect of sums paid or deposited towards investment instruments such as contribution to provident fund, schemes for deferred annuities under section 80C has been increased from INR 100,000 to INR 150,000.
  • Consequentially, the cumulative limit provided in section 80CCE for deductions under section 80C, 80CC and 80CCD has been increased from INR 100,000 to INR 150,000. 
  • Under the existing provisions of section 80CCD, if an individual employed by the Central Government or any other employer on or after 1 January 2004 has paid or deposited any amount in the New Pension Scheme, a deduction is allowed. Now, the condition of being employed on or after 1 January 2004 for private sector employees has been removed. Further, a limit of INR 100,000 under section 80CCD has been introduced within the overall limit of INR 150,000 under section 80CCE.

Exempt income

Clarification in respect of educational institutions, universities and hospitals substantially financed by the 

  •  Presently, Income-tax Act provides for exemption in respect of the income of certain educational institutions, universities and hospitals which are wholly or substantially financed by the Government. The meaning of the term “wholly or substantially financed by the Government” has been clarified to cover cases where Government grant to such university or other educational institution, hospital or other institution, exceeds a specified percentage of its total receipts (including any voluntary contributions), during the relevant financial year.
  • Presently, section 10(23C) provides for exemption in respect of income when it is applied to acquire a capital asset. Subsequently, notional deduction by way of depreciation is also claimed, thereby resulting in double benefit being claimed by the trusts and institutions under the present law.
  • It has been clarified that income for the purposes of application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.

Exemption for charitable trusts or institutions
  • Any trust or institution registered under section 12AA, can no longer claim exemption under section 10. 
  • In case where an acquisition of a capital asset is to be considered as application of income of trust, depreciation claim on the same capital assets acquired needs to be excluded for the purpose of income computation. 
Registration of trusts or institutions

  •  Registration under section 12AA once granted by CIT can be used for availing tax exemption even for prior years provided the objects or activities of trusts or institutions in those years is same as those on the basis of which registration has been granted.
  • Wider power to the principal CIT or CIT to cancel the registration of trusts or institutions under section 12AA. 
  • These amendments will take effect from 1 October 2014.
Business income

Extension of time limit for depositing withheld taxes to claim deduction of expenditure pertaining to non-residents 
  • Presently, payments to a non-resident are not allowed as a deductible expenditure in case applicable tax is not deducted or after deduction at source, not deposited within the prescribed timelines. However, in respect of payments made to a resident, deduction is allowed even if the applicable tax is deposited on or before the due date of filing the income-tax return.
  •  Now, payments to a non-resident will also be allowed as a  deduction if the tax deducted at source during the year is deposited on or before the due date of filing the income-tax return.
Disallowance of business expenditure for non-deduction/late deduction and deposit of tax on payment to residents

  •  Disallowance on account of non-deduction/late deduction and deposit of tax at source has now been extended to cover all payments to a resident on which tax is deductible at source.
  • Amount of disallowance of expenditure will now be restricted to 30% of the expenditure as against the existing disallowance of 100% of expenditure. 
Expenditure on Corporate Social Responsibility activities

  • Expenditure incurred by a taxpayer on Corporate Social Responsibility activities prescribed under the Companies Act 2013 will not be allowed as a deductible residual expenditure.
  • The same will be allowed as a deduction if it is covered under a specific deduction provision.
Trading in commodity derivatives
  • Presently, transaction of trading in commodity derivatives is not considered to be a speculative transaction if carried out on a recognized association.
  • It is now additionally provided that CTT should be paid on such a transaction.
  • This amendment will take retrospective effect from 1 April 2014.
Rationalisation of presumptive income from the business of plying/hiring or leasing goods carriages

  •  Presumptive income from the business of plying/hiring or leasing goods carriages has been rationalized to INR 7,500 for every month or part of the month during which the goods carriage is owned by the taxpayer. 
New investment based deduction on acquisition and installation of new plant and machinery

  1. Presently, investment based deduction is allowed to a taxpayer subject to meeting prescribed threshold of investment in new plant and machinery during the period 1 April 2013 to 31 March 2015.
  2. To provide additional impetus to the manufacturing industry, a new investment deduction has now been prescribed.
  3. The salient features of this new investment based deduction are as follows:
    • The company is engaged in the manufacture of any article or thing. 
    • The investment is in new plant and machinery acquired and installed during the eligible period i.e. between 1 April 2014 and 31 March 2017.
    • The amount of investment in the relevant financial year exceeds INR 250 million.
    • Deduction would be allowed at the rate of 15% of the amount of investment in the relevant financial year.
    • This deduction would be in addition to the depreciation allowable in accordance with the existing provisions of the Income-tax Act. 
    • Existing investment based deduction will continue till 31 March 2015. Taxpayers eligible to claim a deduction under the existing scheme can continue with the same even if the conditions under the new scheme are not satisfied during the financial year 2014-15. Deduction will not be allowed under both the schemes for the same financial year. 
    • No change on sale or transfer of new plant and machinery as prescribed under the existing scheme will also apply under the new scheme.

Investment linked deduction for specified businesses
  1.  Presently, deduction is allowed for capital expenditure incurred by a taxpayer for certain specified businesses. 
  2. Now, this deduction will also be allowed to taxpayers engaged in:
    1. Laying and operating a slurry pipeline for the transportation of iron ore; or
    2. Setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the CBDT in accordance with the prescribed guidelines.
    3. The businesses specified above should commence on or after 1 April 2014.
    4. An asset, in respect of which investment linked deduction is claimed and allowed, shall be used only for the specified business for a period of eight years beginning with the year in which such asset is acquired or constructed. 
    5. Where any asset, in respect of which such deduction is claimed and allowed, is used for a purpose other than the specified business during the specified period of eight years, the total amount of deduction claimed and allowed (as reduced by the amount of depreciation otherwise allowable for income-tax purposes) shall be taxable as business income of the taxpayer in the year of such use of the asset.
    6. This provision shall not apply to a company which becomes a sick industrial company during the specified period of eight years. 
    7. Where a taxpayer claims an investment linked deduction, the same taxpayer, being a unit in a SEZ, will not be allowed a profit linked deduction in respect of the same business and vice-versa. 

Sunset clause for commencement of business for claiming tax holiday in power sector extended.

  • Sunset clause for commencement of business (to claim tax holiday) extended from 31 March 2014 to 31 March 2017 for undertakings which are set up for generation and/or distribution, transmission or distribution of power or which undertake substantial renovation and modernization of the existing transmission or distribution lines. 

Tax on distributed income

Tax on certain dividends received from foreign companies

  • Currently, where the income of Indian company includes income by way of dividend from foreign company in which it holds more than 26% or more nominal value of equity share capital, such dividend income is taxable at the rate of 15%. However, such benefit was available only up to 31 March 2014. 
  • Now, benefit would be available for all future assessment years without any sunset clause.

  1.  Presently, DDT is paid at the rate of 15% of amount declared, distributed or paid by way of dividends to its shareholders. Similarly, additional income tax is required to be paid by Mutual fund in respect of its income distributed to its investors at specified rates.
  2. Now, section 115-O and 115-R have been amended to provide that tax would be paid after grossing up the net profits distributed by the company or income distributed by mutual fund as the case may be.
  3.  The effective tax rates for DDT shall now stand increased from 16.995% to 20.248%.
  4. This amendment will take effect from 1 October 2014.
Capital gains

Capital gains arising from transfer of an asset by way of compulsory acquisition

  1.  Presently, there is uncertainty regarding the “year” of taxation of enhanced compensation.
  2.  It has been clarified that the enhanced compensation will be taxed as capital gains in the financial year in which the final order is made.
Capital gains exemption in case of investment in a residential house property

  • The existing provisions exempt capital gains arising from sale of a long term capital asset, being a residential property if the gains are utilised for purchasing/constructing another residential property within the specified period.
  • Further, the capital gains arising from transfer of a long term capital asset, other than a residential house are exempt if the gains are utilised in the manner mentioned above.
  • Now, both the sections are amended to provide the rollover relief only if the investment is made in one residential house situated in India.
Capital gains exemption in case of investment in long term specified assets

  •  The existing provisions exempt proportionate capital gains arising from transfer of a long-term capital asset, if the same is invested in specified long-term assets within a period of six months.
  •  Further, the investment in such specified long-term assets during any financial year should not exceed five million rupees.
  •  The existing provisions are ambiguous due to the window of six months being spread in two years in certain cases (transfers post September) which has resulted in claim of relief of ten million rupees instead of the intended relief of five million rupees.
  • Now, the investment made by a tax payer during the financial year in which the assets are transferred and in the subsequent financial year should not exceed INR 5,000,000.
Taxation of advance for transfer of a capital asset

  • Where any sum of money is received as an advance or otherwise in the course of negotiations for transfer of a capital asset and such sum is forfeited on failure of the negotiations, the sum is proposed to be chargeable to tax under the head income from other sources.
  • Correspondingly, where tax is paid on the forfeited advance, the same is proposed not to be reduced from the cost of acquisition of the asset while computing the capital gains on its transfer.
Concessional tax rate of 10% on long term capital gains

  • Presently, the concessional tax rate of 10% is applicable on long term capital gains arising from transfer of listed securities, units of mutual funds and zero coupon bonds. 
  • Now, the said tax rate shall be applicable only on long term capital gains arising from the transfer of listed securities (other than units) and zero coupon bonds.

  • Definition of the term “Capital Asset” has been amended to provide that securities held by FIIs in accordance with the SEBI regulations will be regarded as Capital Asset and not as stock in trade.
  • Section 2(42A) has been amended to provide that securities (other than a listed security) and units of mutual funds (other than equity oriented) funds shall be regarded as short term capital asset where the same are held for a period of less than 36 months.
Transfer Pricing

Definition of international transaction

  • Presently, transactions entered with an unrelated person is deemed as a transaction between associated enterprises if there exists a prior agreement in relation to such transaction between such unrelated person and an associated enterprise or the terms of the relevant transaction are determined in substance between such unrelated person and the associated enterprise Thepresent provisions do not provide whether or not such unrelated person should also be a non-resident.
  •  With the proposed amendment, such transaction shall be deemed to be an international transaction irrespective of whether such unrelated person is a resident or nonresident,as long as either the enterprise or the associated enterprise is a non-resident.
APA roll back provisions

  1. Government in 2012 introduced the APA scheme to provide certainty to taxpayers for determining the arm’s length price in relation to international transactions. APA is an agreement between the taxpayer and the income-tax authorities on an appropriate TP methodology for a set of international transactions over a fixed time period in future. It is proposed to now introduce roll back provisions in the APA scheme. Salient features of the roll back provisions are as follows:
    • Roll back refers to the applicability of the TP methodology agreed in an APA to international transactions entered prior to the period covered under the APA.
    • Roll back period not to exceed four years preceding the first financial year for which APA is applicable. 
    • Procedure, conditions and manner in respect of roll back of APAs to be prescribed.
    • This amendment will be effective from 1 October 2014.

Use of multiple year data for comparability analysis

  1. Presently, the Indian transfer pricing regulations allow the use of single year data for comparability analysis and multiple year data in exceptional cases 
  2.  It is proposed to amend the regulations to allow use of multiple year data for comparability analysis. Rules to be issued on this aspect.
Computation of arm’s length price

  • Range concept to be introduced for determination of arm’s length price.
  • Concept of arithmetic mean to continue where number of comparables is inadequate.
  •  Appropriate rules will be prescribed in due course. 
Penalty for failure to furnish transfer pricing documentation

  • Presently, for failure to furnish transfer pricing documentation, a penalty of 2% of value of international transaction or specified domestic transaction is leviable by assessing Officer or the commissioner (appeals). 
  •  It is proposed to include the transfer pricing officer as an authority to levy such penalty.
  • This amendment will be effective from 1 October 2014. 
Return of income

Filing of the tax return by MFs and STs

  •  Presently, MFs and STs are required to furnish to the prescribed income-tax authority, a statement in the prescribed form and verified in the prescribed manner, giving details of the amount of income distributed to unit holders/investors during the previous year, the tax paid thereon and such other prescribed details. 
  •  Now, the MFs and the STs shall not be required to furnish such a statement but would be required to file their annual tax return with the income-tax authorities where their total income before giving effect to the provisions of the Income-tax Act under which they are exempt, exceeds the maximum amount which is not chargeable to tax. 

Assessment procedures

Introduction of New Income-tax Authorities

  1. Now Income-tax authorities will include new income-tax authorities namely 
    1. “Principal Chief Commissioner of Income-tax”, 
    2. “Principal Commissioner of Income-tax”, 
    3. “Principal Director General of Income-tax” and 
    4. “Principal Director of Income-tax” as persons appointed as Income tax authority.
  2. This amendment will take effect retrospectively from 1 June 2013.
Signing and verification of return of income

  • The existing provisions under section 140 of the Incometax Act provide that the return under section 139 of the Income-tax Act shall be signed and verified in the manner specified therein. With a view to enable the verification of returns either by a sign in manuscript or by any electronic mode, it is proposed that the return shall be verified by the persons specified therein (section 140 of the Incometax Act).
  • This amendment will be effective from 1 October 2014. 
Estimation of value of assets by Valuation Officer

  • Assessing Officer may during the assessment/reassessment proceeding refer valuation of any asset, property or investment to a Valuation Officer who shall give his report within six months from the end of month in which reference is made to him.
  • The Assessing Officer may make a reference whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.
  •  Time taken by the Valuation Officer will be excluded for computing the period of limitation for passing assessment/reassessment order. 
  • This amendment will be effective from 1 October 2014. 
Income computation and disclosure standards (Accounting Standards)

  • Presently, Assessing Officer can do a best judgment assessment where he is not satisfied that notified Accounting Standards are not regularly followed.
  •  It is proposed to provide that Central Government may notify income computation and disclosure standards to be followed in specified situations.
  • Further, it has been clarified that such Accounting Standards are to be followed only for computation of income and not for maintenance of books of account. 
Assessment of income of a person other than the person who has been searched

  •  Presently, if Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person, other than the assessee, then the books of account or documents or assets seized or requisitioned are handed over to the other Assessing Officer having jurisdiction over such other person and that Assessing Officer is required to proceed against such other person and assess or reassess income of such other person.
  • Now, it has been provided the other Assessing Officer shall assess or reassess the income of such other person only if he is satisfied that the seized material will have a bearing on the determination of the total income of such other person. 
  • This amendment will be effective from 1 October 2014. 
Power to survey

  1. A new provision has been inserted to specifically provide that tax authority may conduct survey for verification of tax deduction or collection at source.
  2.  Further, the period for retaining the documents in the custody has been increased from 10 days to 15 days (exclusive of holidays) without obtaining the approval of higher income-tax authorities.
  3. This amendment will be effective from 1 October 2014. 
Power to call for information

  • To enable the Income-tax authority to verify the information in its possession relating to any person, a new provision has been introduced to grant power to the Income-tax authority to issue notice to such person seeking necessary documents or information which may be useful for making any enquiry or proceeding under the Income-tax Act.
  • This amendment will be effective from 1 October 2014. 

Penalty for failure to furnish any document or information under transfer pricing provisions

  •  Presently, penalty for failure of filing or furnishing inaccurate tax withholding/tax collection range from INR 10,000 to INR 100,000. However, there is no mention as to who will levy such penalty.
  •  Now, it has been provided that the Assessing Officer may direct a taxpayer to pay such penalty. 
  • This amendment will be effective from 1 October 2014.
Failure to produce accounts and documents

  • Presently, where a taxpayer wilfully fails to produce books of accounts and any other documents as required by the Assessing Officer or wilfully fails to comply with a direction issued under special audit proceedings, such taxpayer shall be punishable with an imprisonment which may extend up to one year or be levied a fine ranging between INR 4-10 for each day of default or both.
  •  Now, it has been provided that such taxpayer shall be punishable with both imprisonment, which may extend up to one year, and fine. The quantum of fine has not been prescribed.
  • This amendment will be effective from 1 October 2014. 

Withholding tax

Provisions relating to withholding tax on overseas borrowing

  • Presently, a lower withholding tax rate of 5% applies on interest in respect of monies borrowed by an Indian company in foreign currency or by issue of LTIBs at any time on or after 1 July 2012 but before 1 July 2015 subject to certain conditions.
  • Now, the benefit of concessional rate of withholding tax has been extended to all LTBs including LTIBs. 
  • Further, this benefit of lower withholding tax rate has been extended for overseas borrowing made up to 1 July 2017. 
  •  Consequential amendment is also proposed in section 206AA to ensure that this benefit of lower withholding tax is extended to payment of interest on any LTBs referred to in section 194LC.
  • The above amendment will be effective from 1 October 2014.

  1.  As per section 194-DA, any sum received under a life insurance policy, which does not satisfy conditions laid down in section 10(10D) will now be subject to withholding tax at the rate of 2%.
  2. However, withholding tax would not be attracted in case the sum paid during the year is less than INR 0.1 million. 
  3. The above amendment will be effective from 1 October 2014.
Correction of TDS statement

  • Presently, deductor is allowed to file correction statement for rectification of the information earlier furnished in the original TDS statement as per the prescribed Centralised Processing of Statements of Tax Deducted at Source Scheme, 2013. However, no express provision has been stated in the Act for furnishing of correction statement.
  • Now, section 200 has been amended to enable deductor to file correction statement.
  • Further, section 200A has been amended for enabling processing of such correction statements submitted by deductor.
  • This amendment will take effect from 1 October 2014.

Time limit for passing order deeming deductor as assessee in default

  • Time limit for passing order under section 201(1) for all cases has been increased from six to seven years. 
  • This amendment will take effect from 1 October 2014.


Provisions relating to Credit of AMT

  •  Presently, provisions of section 115-JEE relating to AMT are applicable to any person who has claimed a deduction under part C of Chapter VI-A or under section 10AA. Further, section 115-JEE does not apply to individuals or HUF or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person if the adjusted total income does not exceed INR 2 million.
  •  However, there was difficulty in claiming AMT credit in subsequent years, where income of specified persons is less than INR 2 million or no deduction under part C of Chapter VI-A or under section 10AA has been claimed. 
  • Now, credit of AMT shall be allowed in subsequent assessment years whether or not the conditions mentioned above are satisfied or not.

AMT on investment linked deduction claimed under section 35AD

  • Presently, adjusted total income for computing AMT is required to be increased by deductions claimed under Part C of Chapter VI-A and under section 10AA.
  • Now, total income shall be increased by deduction claimed under section 35AD for computing the adjusted income.

Taxation regime for REIT and Invit

  • SEBI has proposed draft regulations relating to two new categories of investment vehicles namely, REIT and Invit. 
  •  Provisions have been announced to provide specific taxation regime for REITs/Invits (referred as business trusts). Business Trust means a trust registered as an REIT/Invit, the units of which are required to be listed on a recognised stock exchange in accordance with SEBI Regulations.
  • The listed units of a business trust would be subject to STT  and would be accorded same tax benefits in respect of taxability of capital gains as equity shares of a company i.e. long term capital gains, would be exempt and short term capital gains would be taxable at the rate of 15%. However, the period of holding of units would be reckoned as long term only where the units have been held for more than 36 months.
  • Sponsor will not be liable to capital gains tax arising at the time of exchange of shares in SPVs with units of the business trust. However, sponsor shall be liable to tax at the time of disposal of such units and no preferential capital gains tax regime (consequential to levy of STT) will be available to sponsor in respect of units of business trust. 
  • For the purpose of computing capital gain, the cost of units shall be the original cost of shares to the sponsor. The holding period of shares shall also be included in the holding period of such units for the sponsor. 
  • Income by way of interest received by the business trust from SPV is not taxable in the hands of the trust when the SPV makes an interest payment to the trust. However, withholding tax at the rate of 5% (non-resident unit holders) and 10% (resident unit holders) shall be applicable in case of payment of interest component of income distributed to unit holders.
  • In case of ECBs availed by the business trust, the benefit of reduced rate of 5% tax on interest payments to nonresident lenders shall be available for a prescribed period subject to conditions. 
  • The dividend received by the trust will be subject to DDT at the level of SPV but will be exempt in the hands of the trust, and the dividend component of income distributed by the trust to unit holders will also be exempt in the hands of unit holders.
  • Income by way of capital gains on disposal of assets by the trust shall be taxable in the hands of the trust. 
  • Any other income of the trust shall be taxable at the maximum marginal rate. 
  • The business trust is required to furnish its return of income.
  •  The necessary forms to be filed and other reporting requirements to be met by the trust shall be prescribed to implement the above scheme.
  • This amendment will be effective from 1 October 2014. 

Mode of acceptance or repayment of loans and deposits

  • Presently, acceptance or repayment of any loan or deposit should be through an account payee cheque or account payee bank draft.
  •  Now, it has been proposed that acceptance or repayment of loan or deposit by use of electronic clearing system through a bank account shall also be allowed. 
Provisions related to provisional attachment of property
  • Presently, provisional attachment of property during the pendency of any assessment or reassessment proceedings was possible for a period of six months, which could further be extended to two years. However, to compute the above limit, the time taken by Settlement  Commission for acceptance or rejection and the time forwhich the proceedings of assessment or reassessment was stayed by any Court was to be excluded.
  • Now, the period of provisional attachment has been specified up to two years from the date of attachment or up to sixty days after the date of assessment or reassessment order, whichever is later. The earlier exclusion of time period due to Settlement Commission and stay by Court has been removed. 
  • This amendment will be effective from 1 October 2014.

Obligation to furnish statement of financial transaction or reportable account

  •  Presently, specified persons are required to report specified financial transactions.
  • A new category of person has been inserted in the list of specified persons, namely; “a prescribed reporting financial institution”.
  • It has also been provided that if a person who has filed a “statement of financial transaction or reportable account” discovers any inaccuracy in the data furnished then he shall inform the prescribed authority within a period of 10 days and shall also furnish the correct information.
  • Further, Central Government may notify rules specifying: 
    • The persons liable for reporting are to be registered with tax authority;
    • Nature of information and the manner in which such information shall be maintained; and 
    • Due diligence to be carried out by such person to identify any reportable account.
  • The amendment seems to be proposed to enable compliance with FATCA.
  • Penalty of INR 50,000 may be levied, where “a prescribed reporting financial institution” provides any inaccurate statement and also fulfils any of the conditions below mentioned:
    • Such inaccuracy is on account of failure to comply with the due diligence requirement for identification of any reportable account which is required to bereported or deliberate on part of such financial institution.
    • Such financial institution is aware of any discrepancy while filing such prescribed statement and does not inform the prescribed authority.
    •  After filing of prescribed statement, discovers such inaccuracy and fails to inform the prescribed authority and furnish the correct information within 10 days.

Free E Book On Service Tax by CA Pritam Mahure Updated 15.07.2014

About the book - This book is a compilation of key Service Tax Legal provisions (Updated up to 15.07.2014).Wherever possible, relevant amendments have been shown in red colour/ track change. Also, Central Excise provisions which are applicable (vide sec. 83 of FA‘ 1994) to ST legislation are highlighted in green colour.

Free E book on Service Tax :Includes

  • Service Tax Act, 
  • Service Tax Rules ,
  • Place of provision rules,
  • ST Voluntary Compliance Encouragement Scheme, 2013,
  • Point of taxation rules ,
  • Cenvat Credit rules ,
  • Service Tax Voluntary Compliance Encouragement Rules, 2013,
  • All Notifications from applicable from 01.07.2012
  • All Circular ,Orders after implementation of Service Tax Negative List regime wef 01.07.2012 up to 15.07.2014.
  • Brief of all procedures under service tax like registration ,Payment, service tax return ,Due dates , Forms etc has also been given.
  • Charts of abatement ,Reverse charge
  • And many more details about service Tax 

Wednesday, July 23, 2014


This form(BB) is to be filled up by all wealth-tax assessees [individual, Hindu Undivided Family (HUF) or company]. This form is applicable for assessment years 2014-15 and subsequent years. 

These notes are meant to help you in filling up this return form. They are not a substitute for law. Notes are given only in respect of items that need some explaining.

Due date to file wealth tax return is same as of Income Tax return 

  • Every individual or HUF or company, whose net wealth exceeds the maximum amount which is not chargeable to wealth tax is obligated to furnish his return of net wealth.
  • This is an annexure-less return and shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax and interest paid, or any document or copy of any account or form of report of valuation by registered valuer required to be attached with the return of net wealth under any provisions of the Wealth-tax Act, 1957. In case return is filed in paper form, all such documents enclosed with the return will be detached and returned to the person filing the return.
  • This return shall be furnished electronically under digital signature. However, for assessment year 2014-15, an individual or a Hindu Undivided Family to whom the provisions of section 44AB of the Income-tax Act, 1961 are not applicable may furnish this return in paper form. From the assessment year 2015-16 and subsequent assessment years, this return form shall be furnished by all assessees electronically under digital signature. 
  • All Parts and Columns must be filled in the manner provided here under. If any Part or column does not apply, please mention NA (Not Applicable) and do not put any mark or symbol. 
  • In case of return filed in paper form, if space provided under any item of the Return Form is found insufficient, then give the computation in respect of such item on separate sheet(s) using the columns indicated for the purpose under the said item in the Return Form and attach that to the Return. The sum totals of such computation done should be indicated in the columns provided under the relevant item in the Return Form. Similarly, any other information asked for in this Form, which cannot be completely furnished on account of paucity of space, may be furnished on a separate sheet. 
  • Sections referred in these instructions are the sections of the Wealth-tax Act, 1957 and references to rules are references to the rules of the Wealth-tax Rules, 1957.

Computation of net wealth

  1. Value of an asset, for an assessment year is to be declared as on the valuation date. Valuation date in relation to an assessment year under the Wealth-tax Act, 1957 means the last day of the previous year as defined in section 3 of the Income-tax Act, 1961. Thus, for the Assessment Year 2014-15, the valuation date will be 31.3.2014.
  2. Value of an asset, other than cash, is to be determined on the basis of the rules in Schedule III to the Wealth-tax Act, 1957.
  3. In the computation of net wealth including net wealth of other persons includible in assessee’s net wealth on the valuation date, the assessee is to furnish in the given columns details of all immovable and movable property held by him and held by any other person which are includible in his/her net wealth of the valuation date.
  4. Details of immovable properties mentioned in section 2(ea) of the Wealth-tax Act, 1957 held by the assessee or by any other person includible in his/her net wealth on the valuation date are:-
    • (i) Any building or land appurtenant thereto (hereinafter referred to as “house”) whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometers from local limits of any municipality (whether known as Municipality, Corporation or by any other name) or a Cantonment board, but does not include –
      • a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than ten lakh rupees
      • any house for residential or commercial purposes which forms part of stock-in-trade;
      • Any house which the assessee may occupy for the purposes of any business or profession carried on by him.
      • any residential property that has been let out for a minimum period of the three hundred days in the previous year;
      • Any property in the nature of commercial establishments or complexes; 
      • “Urban land” means land situate—
        • (i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or
        • (ii) in any area within the distance, measured aerially,—
          • (I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than ten thousand but not exceeding one lakh; or
          • (II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than one lakh but not exceeding ten lakh; or
          • (III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in sub-clause (i) and which has a population of more than ten lakh,
      • The definition of urban land excludes the following:
        • (A) Land classified as agricultural land in the records of the Government and used for agricultural purposes;
        • (B) Land on which construction of a building is not permissible on account of any law or the time being in force;
        • (C) Land occupied by any building which has been constructed with the approval of the appropriate Authority.
        • (D) Unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him; 
        • (E) Any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him; and
  5. Details of assets belonging to any other person but includible in net wealth of the assessee:
    • (i) Assets transferred to certain relatives or to other persons for the benefit of those relatives or  assets transferred under revocable transfer. [Section 4(1)(a)(i), 4(1)(a)(iii), 4(1)(a)(v), 4(1)(a)(vi)]. 
    • (ii) Assets held by a minor child not being a married daughter of such individual except assets acquired by the minor child from his income referred to in the proviso to subsection (IA) of section 64 of the Income-tax Act, and held on the valuation date. Where the marriage subsists, these assets are includible in the hands of the parent, whose net wealth is greater, and where the marriage does not subsist, in the net wealth of the parent maintaining the minor child. (ii) “Assets held by a physically or mentally handicapped minor child as specified in section 80U of the Income-tax Act, will not be clubbed with the net wealth of the parent.”
    • (iii) Interest of a minor child admitted to the benefits of partnership in the assets of a firm. [Section 4(1)(b)]
    • (iv) Individual property of assessee converted into the property of Hindu Undivided Family after 31.12.1969. [Section 4(1A)].
    • (v) Moneys gifted by means of book entries [Section 4(5A)].
  6. Clause (m) of section (2) of the Wealth-tax Act provides that only debts which have been incurred in relation to the assets assessable to wealth-tax will be allowed to be deducted in computing the net wealth.
  7. Under the provisions of section 6, in the case of an individual who is not a citizen of India or of an individual or Hindu Undivided Family not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date, the value of assets located outside India is not to be included in the net wealth.
  8. All sheets must be signed by the assessee. 


  1.  Part A-GEN (Personal Information, Filing Status):
    • It is compulsory to quote PAN.
    • Use block letters only throughout to fill in this form.
    • Please tick  appropriate box.
    • State the section under which the return is filed. In case of revised return, please furnish Receipt No. and date of filing.
  2. Part B-NW (Computation of net wealth): Against items 1 to 5, transfer the appropriate figures from the appropriate items of applicable schedules, as indicated.
  3. Part B-TNW (Computation of tax liability on net wealth): Mention amount payable against item 5 and refundable amount against item 6. As the refund, if any, shall be directly deposited into the bank account of the assessee, it is mandatory to furnish the requested details of bank account against item 7.


  1. Part B-TP (Details of Tax and Interest paid): Furnish the correct BSR Code of the bank branch, date of deposit (in the DD/MM/YYYY format) and Challan Serial Number as mentioned in challan.
  2. VERIFICATION: Read the instructions below the verification carefully before signing it. Fill all the relevant columns in the verification. Give the place and date as indicated.
  3. Schedule IP (Immovable Property):
    • Furnish the details of all immovable properties, mentioned in section 2(ea)(i) or section 2(ea)(v), held by the assessee whether located in or outside India. Value of immovable property should be declared as per the relevant rules of Schedule III to the Wealth-tax Act, 1957.
    • In Sl. No.1, 2 and 3, furnish complete description, address including of all immovable properties. 
    • In Sl. No.4, indicate the value of the immovable property as calculated on the basis of provisions of the relevant rules of Schedule III to the Wealth-tax Act, 1957. 
    •  In Sl. No.5, indicate the amount of debts owed, if any, separately in relation to each of the immovable property. 
    • In Sl. No.7, 8 and 9, in case of valuation by registered valuer, furnish the name of registered valuer, registration number of the valuer and the date of report of the valuer. 
    • Schedule MP [Movable Property (other than jewellery, etc.)]: Furnish the value as per the relevant rules of the Schedule III to the Wealth-tax Act, 1957 and debt owed in relation to motor cars, referred to in section 2(ea)(ii), yacht, etc. referred to in section 2(ea)(iv) and cash in hand referred to in section 2 (ea)(vi).


  1. Schedule JE (Jewellery, etc.):
    • Furnish the details of all items of jewellery, bullion, etc. referred to in section 2(ea)(iii) in this schedule.
    • In Sl.No.1 to 5, furnish the complete description, weight, etc. of precious metal and precious or semi precious stone.
    • In Sl.No.6 to 8, furnish the value of jewellery as per as per the relevant rules of the Schedule III to the Wealth-tax Act, 1957.
    • As per rule 18(2) of the Schedule III to the Wealth-tax Act, 1957 the return of net wealth is required to be supported by a statement in the prescribed form, if the value of the jewellery on the valuation date does not exceed Rs. 5 lakhs or the report of the registered valuer in the prescribed form, if the value of the jewellery on the valuation date exceeds Rs. 5 lakh.
    • The statement or the valuation report as mentioned in Rule 18(2) of Schedule III to the  Wealth tax Act, 1957 is not required to be furnished along with the return but the details of valuation report i.e. the name of registered valuer, registration no. of the valuer and the date of report are required to be filled in Sl.No. 9 to 11.
  2.  Schedule INW (Includible net wealth of other person): Mention the name of the person, relationship, PAN, value, etc. in respect of assets belonging to any other person but includible in the net wealth of the assessee.
  3. Schedule IFA [Interest held in the assets of a firm or association of persons (AOP) as a partner or member thereof]:
    1. Furnish following details in respect of interest held as partner in a firm or as a member of an AOP:-
      • (i) Name and address of each firm in which interest is held as a partner.
      • (ii) Name and address of each firm(s)/AOP(s) in which interest is held as a member.
      • (iii) PAN of Firm(s)/AOP(s)
      • (iv) Name of other partners/Members
      • (v) Assessee’s Profit Sharing Ratio in percentage.
      • (vi) The value of the interest in the firm or AOP is to be determined as per relevant rule of Schedule III to the Wealth-tax Act, 1957. 
      • (vii)Debt owed, if any, in relation to meet interest is to be shown separately for each firm(s)/AOP(s).
    2. The value of the interest of a minor child in the assets of a firm in which he is admitted to the benefit of partnership in such a firm is to be included in the assessee’s net wealth under the provisions of the proviso to section 4(1)(b), should also be indicated at (i) above.
  4. Schedule ACE [Assets referred to in section 2(ea) which are claimed as exempt under section 5]: Furnish the details of assets exempt under section 5 of the Wealth-tax Act, 1957. These are as  under:-
    • (a) Any property held by the assessee under trust or other legal obligation for any public purpose of a charitable or religious nature in India. 
    • (b) The interest of the assessee in the coparcenary property of any HUF of which the assessee  is a member, since the asset is already liable to tax in the hands of the HUF. 
    • (c) Any one building which was in the occupation of a Ruler, which before the commencement of the Constitution (Twenty-sixth) Amendment was declared as his official residence. 
    • (d) Jewellery in the possession of a Ruler, not being his personal property, and recognised by the government as his heirloom or which the Board had recognised as his heirloom at the time of his first assessment to wealth-tax.
    • (e) Moneys and value of assets, or the value of assets acquired by a person of India origin or citizen of India who was residing outside India if he returns to India with the intention of permanently residing in India. The exemption is provided for a period of seven successive assessment years commencing with the assessment year next following his return to India. 
    • (f) In case of individual or HUF, one house or part of a house or a plot of land comprising an area of five hundred square meters or less. 

  1. Schedule OPR (Other properties):
    1. This schedule is to be filled only by an individual or a HUF. A company is not required to fill this schedule. 
    2. In this schedule, furnish the complete details of all immovable and movable property held by the assessee, as on the valuation date, other than the following: 
      • a. assets which are liable for Wealth tax Act, 1957, the details of which are already required to be furnished in other schedules of this return form.
      • b. assets claimed as exempt under section 5, the details of which are required to be furnished in Schedule ACE;
      • c. assets located outside India and are excluded under section 6 based on the citizenship or residential status of the assessee; or
      • d. assets being part of business or profession which is subject to audit under section 44AB of the Income-tax Act, 1961.

Prohibition on Acceptance of Deposit by Private Limited


From the commencement of Companies Act, 2013, Provisions regarding Prohibition on Acceptance of Deposit shall apply to Private Limited companies also along with Public Limited Company.

Companies need more and more funds for expanding their business activities due to Competitive business environment, which led them to borrow funds from banks and financial institutions. However sourcing of funds puts the Company under management & control of those financial institutions and a part from Capital and Free reserves, main source of fund is Unsecured Loans from Directors, Shareholders, their relatives and other contacts. The alternative sources of finance available for the Companies are equity and preference shares, debentures and other debt securities etc., this has induced companies to call for deposits from the public. Such deposits are unsecured debts and neither management control nor the formalities of charge on assets are putting any hindrances for availing of such amount.

First of all, these provisions / Prohibitions does not apply to a banking Company, a non – banking financial Company as well as any other class of Company as specified by the Central government.
Deposits (Section 73-76)

Definition of deposits has been changed drastically and the following amounts have been included in the definition of deposits in respect to acceptance of Deposit Rules:-

  1. Loan from directors if he has not given loan out of his own funds (Borrowed Fund)
  2. Loan from relatives of directors.
  3. Loan from members.
  4. Share application money pending allotment for more than 60 days.
  5. Any amount received in the course of or for the purpose of the business, as advance and is outstanding or 365 days.
  6. Secured debentures and compulsorily convertible debentures convertible within five years from the date of issue.
Now a Private Company cannot accept deposits from relatives of Directors or Shareholders as was allowed under Companies Act, 1956 unless Section 73 of the Companies Act, 2013 and Companies (Acceptance of Deposit) Rules, 2014 are complied with. Further share application money pending allotment for more than 60 days shall also be treated as deposits, if not refunded with 15 days.

As per Section 74(1)(a) and Companies (Acceptance of Deposit) Rules, 2014 every company who has accepted deposit before commencement of Companies Act, 2013 has to file a return in Form DPT-4 within 3 months from commencement of Companies Act, 2013 (i.e. upto 30th June,31st August , 2014) and further it has to be repaid within 1 year from commencement of this Act.(i.e. by 31st March, 2015) 

Process of filling of Form DPT-4: 

  • Form DPT4 is an attachment Form as it is given in attachment category under download forms.
  • It will be attached with Form GNL 2 along with auditor certificate (Form for submission of documents with the Registrar).
  • Auditors report in Old format under Companies Act, 1956 will also be attached with this form.(Format is given below.)
Attachments to Form DPT-4 includes: 

1. Auditor’s certificate; 

2. List of depositors indicating name, address, amount deposited, repaid during the year and outstanding, interest due, paid and payable as at the close of the Financial Year and separately indicating deposits not yet matured, matured, claimed and paid and matured, claimed but not paid and matured but not claimed for payment. List of deposits matured, cheques issued but not yet cleared to be shown separately. The details required to be annexed is very much identical to the details required under to be given under Return of deposits.

Now, a Private Company may accept deposits from its members subject to fulfillment of the following conditions:

  • Passing of resolution in a general meeting. 
  • Issue of circular to members showing the financial position of the Company, the credit rating obtained the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the Company etc.
  • Circular in Form DPT-1 
  • Deposit Trust Deed in Form DPT – 2 (to be executed seven days before executing circular)
  • Filing a copy of the circular with the Registrar within 30 days before the date of issue of the circular.
  • Providing deposit insurance.
  • Certification by the Company that it has not defaulted in the repayment of deposits.
  • Provision of security in respect of deposit and interest and creation of charge on company’s properties and assets.
  • An amount of not less than 15% of the deposits maturing during a financial year shall be deposited in Deposit Repayment Reserve account which shall not be used for any other purpose.

Precaution- A Private Company being subsidiary of a Public Company shall become public company and all the provisions related to public companies shall apply on such private companies. However, the provision of erstwhile Section 4(7) of the Companies Act, 1956, has been dispensed with and now not applicable w.e.f. 1 April 2014. 

Practical Procedure for acceptance of Deposit by Private company
  1. Call Board Meeting:
    • To pass resolution for acceptance of deposit from members
    •  Approve Draft DPT-1 (Circular)
    • Appoint a Trustee
    • Call General Meeting
    • Authorize Director or Secretary for further process 
  2. Call General Meeting 
    • Pass Ordinary Resolution for acceptance of deposit
  3. File form MGT-14 with ROC within 30 days of passing of resolution:
    • Attach Notice, Minute and CTC of Resolution
  4. File DPT-1 with ROC at least 30 days before issue of circular, signed by BOD or Person Authorize by Board.
  5. Enter into contact with Insurance Company at least 30 days before issue of Circular.
  6. Execute Deposit Trust Deed at least 7 days before issuing of circular.
  7. Issue Circular (DPT-1) to members through registered post, courier or through Electronic mode.
    • Company MAY issue circular in DPT-1 through advertisement also.
  8. Within 21 days of Acceptance of Deposit company will issue receipt of deposit to Depositor. Receipt will be signed by Person Authorized by Board of Director.
  9.  Make Entry in register within 7 days of issue of receipt.
  10. Company will create charge on assets of company equal to amount of deposit unsecured by insurance.
  11. File CHG-1 Within 30 days of Creation of Charge.

1. Private Company can accept deposits from member’s up to 25% of paid-up share capital + Free reserve.

2. Company before 30th April each will deposit at least 15% of amount of deposit, whether secured or unsecured, maturing during the year or next financial year in deposit repayment reserve account, maintain with Schedule Bank.

3. Company Before 30th June every year will file DPT-3 with ROC, containing information there in as on 31st March, duly audited by Auditor of company.

4. No trustee can be removed after the issue of circular/advertisement and before the expiry of his term except with the consent of all the Directors Present at a meeting of Board.

5. T & C of Deposit cannot be altered after the issue of circular/ Advertisement or acceptance of Deposit.

6. A panel Rate of Interest 18% shall be payable on nonpayment of matured deposits.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at 

Disclaimer: As under

CS Divesh Goyal Mob: +91-8130757966

PPF Interest rate for FY 2014-15 Notified @ 8.7 % Per annum (no Change)

Central Government notified the interest rate on  subscriptions made in PPF  at the rate of 8.7 per cent.This is same rate as notified for the Financial year 2013-14.


NOTIFICATION NO. GSR 496(E) [F.NO.6-1/2011-NS-II (PT.II)], DATED 11-7-2014

In pursuance of section 5 of the Public Provident Fund Act, 1968 (23 of 1968), the Central Government hereby notifies that the subscriptions made to the Fund on or after the 1st day of April, 2014 and the balances at the credit of the subscriber shall bear interest at the rate of 8.7 per cent.

Tuesday, July 22, 2014

EPF ceiling Limit Set to Increase from 6500 to 15000 wef ?

In Union Budget 2014-15 presented on 10.07.2014 Finance Minister announced that Maximum wage ceiling for EPF contribution by employer is to be increased from Rs 6500 to Rs 15000. But in his address he has not set the effective date of implementation of the new wage limit for epf contribution.

In budget announcement following two annoucement has been made regarding EPF

  1. Government notified a minimum pension of Rs1000 per month to all subscriber members of EPF Scheme. Initial provision of  Rs 250 crore. 
  2. Increase in mandatory wage ceiling of subscription to Rs 15000. 

As we have already informed you that EPF board of trustees has already approved raising of EPF wage ceiling limit to 15000 and Minimum pension to 1000. Further change in other charges has also been approved by EPF board.

Now EPF department has issued a circular to his officers to prepare themselves for implementation of high wage ceiling limit 

So from the above we hope that new ceiling limit will be applicable form 01.08.2014 or 01.09.2014.Though exact date will be known only after issue of notification from the department

Downlaod Above EPF circular on wage Limit

Friday, July 18, 2014

Clarification on matters relating to Related Party Transactions

Clarification on matters relating to Related Party Transactions. 

Government has received representations from stakeholders seeking certain clarifications on related party transactions covered under section 188 of the Companies Act, 2013. These representations have been examined and the following clarifications are given:

1. Scope of second proviso to Section 188{1):

Bare Act Language: Second proviso to sub-section(1) of section 188 said No Member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.

Changes In Service Tax in Budget 2014 Clause By Clause with effective date

With the Promise of “Acche Din” there was great expectations of what would be delivered in the budget this led challenge for finance minister to balance the unduly high expectations built up pre Budget, with the economic realities prevailing at a ground level, with a view to help reshape investment sentiment both domestically and internationally. In his speech, the Finance Minister, rightly pointed to the fact that not everything could be addressed in one Budget and systemic changes would have to be made in the next few years to achieve our economic aspirations.

Amendments in Indirect Taxation


Changes in Cenvat Credit Rules , 2004 :Budget-2014

4. Changes in Cenvat Credit Rules , 2004
(Effective from 11th July 2014 except otherwise specifically specified) 

i) The term “Place of Removal” is defined 

Cenvat credit of input services upto the ‘place of removal’ is allowed. The term ‘place of removal’ was earlier not defined in Cenvat Credit Rules 2004. However, the said term was defined in section 4(3)(c) of Central Excise Act 1944. The Hon’ble Delhi CESTAT in the case of M/s Ultratech Cement Ltd. 2014 TIOL 478 held that the definition of the term ‘place of removal’ as appearing under Central Excise Act cannot be applied under Cenvat Credit Rules. Hence, the said term is now defined under rule 2(qa) of Cenvat Credit Rules 2004 as well which is similar to the definition appearing under Central Excise Act 1944. 

ii) Cenvat Credit on services wherein entire service tax is paid by service recipient can be availed on payment of service tax. 

a) Earlier, the cenvat credit of service tax been paid under reverse charge was allowed only after payment of service tax to the government as well as after payment of service value to the service provider. However w.e.f. 11th July, 2014, the credit of service tax paid on services, where 100% service tax is paid by service recipient shall be eligible on payment of service tax to the government irrespective of the fact whether payment to service provider for the services have been made or not. 

Therefore, in case of import of services, the service recipient can take cenvat credit as soon as they pay the service tax even if the payment to the vendor is not made. This will also apply in cases like GTA, sponsorship, legal services etc. 

b) It must be noted that there is no change with respect to cenvat credit of input services wherein entire service tax is paid by service provider i.e. the credit can be availed on receipt of invoice & it must be reversed if payment is not made to the vendor within 3 months of the date of invoice. 

c) Further, in case of partial reverse charge (rent-a-cab, works contract, manpower supply, security) cenvat credit with respect to service tax paid by the service provider can be availed when the payment is made to the service provider for such service (and not on receipt of invoice) & in respect to service tax paid as service receiver, it can be availed only after the payment towards value of services has been paid to the provider of service & service tax has been deposited to the Government. 

iii) Rule 6(8) of Cenvat Credit rules, 2004 

As per the provisions of rule 6(8) of Cenvat Credit Rules 2004, an assessee was required to reverse the cenvat credit pertaining to export of services if the foreign currency is not received within a period of 6 months from the date of provision of service or such extended period as maybe allowed from time-to-time by the RBI As per the amendment made, if the service provider receives the payment after 6 months or after the extended period as maybe allowed by RBI but within one year from such period, then the cenvat credit so reversed can be availed back to the extent of amount received. It must be noted that in case the payment is received after the end of such period of one year, then the assessee is not eligible to avail the cenvat credit. 

This amendment shall even apply to cases where exports have already been made & the payment has not been received within the specified period. 

iv) Rule 12A(4) of Cenvat Credit rules, 2004 

Henceforth, an LTU is not allowed to transfer cenvat credit from one unit to another unit. Any cenvat credit which has been taken upto 10th July 2014 can only be transferred. 

v) Cenvat credit can be availed within 6 months only (effective from 1st September 2014). 

Earlier there was no time restriction on availment of cenvat credit. The provisions of cenvat credit rules are amended whereby a manufacturer or a service provider shall not take cenvat credit of inputs, input services after a period of six months from the date of issue of invoice, bill or challan as the case may be. It must be noted that cenvat credit with respect to invoices/ challans/ bills which are dated prior to 1st September 2014 will also be subject to such time restriction. 

For example, cenvat credit is not yet taken for a bill dated 1st July 2014. Such credit can be availed only till 31st December 2014. It is thus advisable to immediately take cenvat credit of all pending invoices/ bills. 

There are many cases when assessees are receiving input services but have not taken any registration as they are not engaged in providing any taxable service during that period. For example, in telecommunication industry, the assessee incurs huge cost towards setting up of tower & other infrastructure. At this time, the assessee is receiving many input services but is not providing any taxable service. In such cases, the assessee must take registration & file periodical returns wherein credit must be duly availed. 

vi) ISD distribution 

The provisions relating to distribution of credit from ISD were amended vide notification no. 5/2014 dated 24.02.14. There was a confusion that whether credit pertaining to more than one unit is to be distributed amongst only those units to which the service pertains or to all the units. This has now been clarified by the Board vide circular no. 334/15/2014-TRU dated 11.07.14 wherein it is explained that credit is to be distributed to all the units if any service pertains to more than one unit.

 Amendments in Indirect Taxation


CA. Vineeta Chhatwani Chartered Accountant, M.COM
Address: 302, Purab Paschim Apt, Nehru Chowk,Ulhasnagr -421 002. Mumbai. Co: +91-9028207905