Amendments by finance Act-2014.pdf

AMENDMENTS AMENDMENTS BOOKLET

CA VINOD KUMAR MAVILLA

01GURUKUL FOR CA & CMA

Amendments made by the Finance Act, 2014

RATES OF TAX

where the total income does not exceed Rs.

2,50,000

Nil;

where the total income exceeds 2,50,000 but

does not exceed Rs. 5,00,000

Rs. 10% of the amount by which the total income

exceeds Rs. 2,50,000


does not exceed Rs.10,00,000

Rs. Rs.

total income exceeds Rs.5,00,000;

25,000 plus 20% of the amount by which the

where the total income exceeds 10,00,000 Rs. Rs.

the total income exceeds Rs.10,00,000.

1,25,000 plus 30% of the amount by which

(1) Individual / Hindu Undivided Family (HUF) / Association of Persons (AOP) / Body

of Individuals (BOI) / Artificial Juridical Person.

Financial Yearwhere the total income does not exceed 3,00,000

Rs. Nil;




exceeds Rs.3,00,000;



Rs. Rs.20,000 plus 20% of the amount by which the

total income exceeds Rs.5,00,000;

where the total income exceeds Rs.10,00,000 Rs.1,20,000 plus 30% of the amount by which the

total income exceeds Rs.10,00,000.

For senior citizens (being resident individuals of the age of 60 years or more but

less than 80 years)

Financial Year

where the total income does not exceed

5,00,000

Rs. Nil;




exceeds Rs.5,00,000;

where the total income exceeds 10,00,000Rs. Rs.1,00,000 plus 30% of the amount by which the

total income exceeds Rs.10,00,000.

For resident individuals of the age of 80 years or more at any time during the

previous year

Amendment Basic exemption limit increased from 2,00,000 to 2,50,000

Amendment Basic exemption limit increased from 2,50,000 to 3,00,000

No Amendment

INCOME TAX

Income Tax 02GURUKUL FOR CA & CMA

On the whole of the total income 30%

(2) Firm/LLP

On the whole of the total income 30%

(3) Local authority

Where the total income does not exceed Rs.

10,000

10% of the total income

Where the total income exceeds 10,000 but

does not exceed Rs.20,000

Rs. Rs.

total income exceeds Rs.10,000

1,000 plus 20% of the amount by which the

Where the total income exceeds 20,000Rs. Rs.3,000 plus 30% of the amount by which the

total income exceeds Rs.20,000

(4) Co-operative Society

In the case of a domestic company 30% of the total income

In the case of a company other than a domestic

company

40% on the total income

(5) Company

No Amendment

No Amendment

No Amendment

No Amendment

Income from house property

Increase in deduction for interest on loan borrowed for

acquisition or construction of self-occupied house property

[Section 24(b)]

BEFORE AMENDMENT AFTER AMENDMENT

Maximum amount of deduction on account of

interest on capital borrowed for acquisition and

construction of self-occupied property to Rs

1,50,000.

Maximum amount of deduction on account of

interest on capital borrowed for acquisition and

construction of self-occupied property to Rs

2,00,000.

Reason: Taking into consideration the appreciation in the value of house property and the

increased cost of finance


Mr. Rajesh purchased a residential house property for self-occupation at a cost of Rs.30 lakh

on 1.6.2013, in respect of which he took a housing loan of Rs.24 lakh from Punjab National

Bank@11% p.a. on the same date. Compute the eligible deduction in respect of interest on

housing loan for A.Y.2014-15 and A.Y.2015-16 under the provisions of the Income-tax Act,

1961, assuming that the entire loan was outstanding as on 31.3.2015 and he does not own

any other house property.An

sw

er Particulars Rs.

For A.Y.2014-15

(i) Deduction under section 24(b) Rs.2,20,000

[Rs. 24,00,000 11% 10/12] Restricted to

1,50,000

(ii) Deduction under section 80EE ( 2,20,000

Rs.1,50,000)

Rs. 70,000

For A.Y.2015-16

(I) Deduction under section 24(b) 2,64,000 [

24,00,000 11%] Restricted to

Rs. Rs. 2,00,000

(ii) Deduction under section 80EE ( 1,00,000

Rs.70,000, allowed as deduction in P.Y.2013-14)

Rs. 30,000

Note - In this case, Mr. Rajesh is entitled to deduction under section 80EE, in addition to

deduction under section 24(b) since

(1) the loan is sanctioned by Bank of India, being a financial institution, during the period

between 1.4.2013 and 31.3.2014;

(2) the loan amount sanctioned is less than Rs. 25 lakh;

(3) the value of the house property is less than Rs. 40 lakh;

(4) he does not own any other residential house property.

Profits and gains of business or profession

1. Manufacturing companies investing more than Rs 25 crore in new plant and

machinery in any previous year during the period from 1.4.2014 to 31.3.2017

entitled to investment allowance@15% [Section 32AC]

In the case of a

domestic company

Manufacturing companies investing more than Rs100 crore in

acquisition and installation of new plant and machinery during the

period from 1.4.2013 to 31.3.2015 entitled to deduction@15% under

section 32AC(1).

AFTER

AMENDMENT

Manufacturing companies investing more than Rs 25 crore in new

plant and machinery in any previous year during the period from

1.4.2014 to 31.3.2017 entitled to deduction@15% under section

32AC(1A).

Income Tax


REASON 1. This year, considering that growth of the manufacturing sector is

critical for employment generation and development of an

economy, the deduction available under section 32AC has been

extended for investment made in plant and machinery up to

31.03.2017.

2. in order to rationalize the existing provisions of section 32AC and

also to make medium size investments in plant and machinery

eligible for deduction, new sub-section (1A) has been

inserted(amount of investment reduced to 25crore from

100crore.)

CLARIFICATION Companies which are eligible to claim deduction under the

existing combined threshold limit of more than Rs100 crore for

investment made in previous years 2013-14 and 2014-15 shall

continue to be eligible to claim deduction under section 32AC(1), even

if its investment in the year 2014-15 is below the new threshold limit of

investment of Rs 25 crore

Compute the admissible deduction under section 32AC for A.Y.2014-15 & A.Y.2015-16 in

each of the following cases -

Answ

er

Manufacturing company Investment in new plant and machinery

(Rs. in crores)

P.Y.2013-14 P.Y.2014-15

A Ltd. 80 22

B Ltd. 70 25

C Ltd. 60 30

D Ltd. 75 25

E Ltd. 105 15

F Ltd. 70 30

G Ltd. 70 40

Manufacturing

company

Investment in new plant and

machinery (Rs. in crores)

Deduction under section 32AC

(Rs. in crores)

Under

subsection

P.Y.2013-14 P.Y.2014-15 A.Y.2014-15 A.Y.2015-16

A Ltd. 80 22 Nil 15.30 (1)

B Ltd. 70 25 Nil Nil -

C Ltd. 60 30 Nil 4.5 (1A)

D Ltd. 75 25 Nil Nil -

E Ltd. 105 15 15.75 2.25 (1)

F Ltd. 70 30 Nil 4.5 (1A)

G Ltd. 70 40 Nil 16.5 (1)

Income Tax


2. Expansion of scope of specified business eligible for investment linked

deduction under section 35AD

BEFORE

AMENDMENT

Specified businesses are eligible for availing the investment-linked

deduction under section 35AD(11 specified businesses)

AFTER

AMENDMENT

The Finance Act, 2014 has included two new businesses as

specified business for the purposes of the investment-linked

deduction under section 35AD so as.

(date of commencement of operations-on or after 1st

April, 2014.)

1. laying and operating a slurry pipeline for the transportation of

iron ore;

2. setting up and operating a semiconductor wafer fabrication

manufacturing unit, if such unit is notified by the Board in

accordance with the prescribed guidelines.

REASON to promote investment in these sectors

3. Capital asset in respect of which deduction under section 35AD has been

claimed to be used for specified business for a period of eight years

BEFORE

AMENDMENT

Under section 35AD, the time period for which capital assets

on which deduction has been claimed and allowed, have to be used for

the specified business, has not been specifically provided.

AFTER

AMENDMENT

1. Section 35AD(7A) provides that any asset in respect of which a

deduction is claimed and allowed under section 35AD shall be

used only for the specified business for a period of eight years

beginning with the previous year in which such asset is

acquired or constructed.

2. Sub-section (7B) has been inserted to provide that if such

asset is used for any purpose other than the specified

business, the total amount of deduction so claimed and

allowed in any previous year in respect of such asset, as

reduced by the amount of depreciation allowable in

accordance with the provisions of section 32 as if no deduction

had been allowed under section 35AD, shall be deemed to be

income of the assessee chargeable under the head

Profits and gains of business or profession of the

previous year in which the asset is so used.

Income Tax


REASON 1. In order to ensure that the capital asset on which investment linked

deduction has been claimed is used for the purposes of the

specified business, sub-section (7A) has been inserted in section

35AD.

2. If any asset on which a deduction under section 35AD has been

claimed and allowed, is demolished, destroyed, discarded or

transferred, the sum received or receivable for the same is

chargeable to tax under clause (vii) of section 28. This does not take

into account a case where asset on which deduction under section

35AD has been claimed is used for any purpose other than the

specified business by way of a mode other than that specified

above.

ABC Ltd. is a company having two units Unit A carries on specified business of setting up

and operating a warehousing facility for storage of sugar; Unit B carries on nonspecified

business of operating a warehousing facility for storage of edible oil. Unit A commenced

operations on 1.4.2013 and it claimed deduction of Rs.100 lacs incurred on purchase of two

buildings for Rs.50 lacs each (for operating a warehousing facility for storage of sugar) under

section 35AD for A.Y.2014-15. However, in February, 2015, Unit A transferred one of its

buildings to Unit B.

Examine the tax implications of such transfer in the hands of ABC Ltd.

Answ

er

Since the capital asset, in respect of which deduction of Rs.50 lacs was claimed under section

35AD, has been transferred by Unit A carrying on specified business to Unit B carrying on non-

specified business in the P.Y.2014-15, the deeming provision under section 35AD(7B) is

attracted during the A.Y.2015-16.

Particulars Rs.

Deduction allowed under section 35AD for A.Y.2014-15 50,00,000

Less: Depreciation allowable u/s 32 for A.Y.2014-15 [10% of Rs. 50 lacs] 5,00,000

Deemed income under section 35AD(7B) 45,00,000

4. Assessees claiming investment linked deduction under section 35AD not eligible

to claim exemption under section 10AA

BEFORE

AMENDMENT

Where any assessee has claimed investment linked deduction

under section 35AD, it would not be eligible to claim profit linked

deduction under Chapter VIA for the same or any other assessment

year.

AFTER

AMENDMENT

Where any assessee has claimed investment linked deduction

under section 35AD, it would not be eligible to claim profit linked

deduction under Chapter VIA or under section 10AA for the same or

any other assessment year.

Income Tax


5. Disallowance of CSR expenditure under section 37

BEFORE

AMENDMENT

Under section 37(1) of the Income-tax Act, 1961, only

expenditure, not covered under sections 30 to 36, and incurred wholly

and exclusively for the purposes of the business is allowed as a

deduction while computing taxable business income. The issue

under consideration is whether CSR expenditure is allowable as

deduction under section 37.

AFTER

AMENDMENT

It has now been clarified that for the purposes of section 37(1),

any expenditure incurred by an assessee on the activities relating to

corporate social responsibility referred to in section 135 of the

Companies Act, 2013 shall not be deemed to have been incurred for

the purpose of business and hence, shall not be allowed as deduction

under section 37.

REASON The rationale behind the disallowance is that CSR

expenditure, being an application of income, is not incurred

wholly and exclusively for the purposesof carrying on business.

6. Remittance of TDS on payments to non-residents permitted to be made on or before

the due date of filing of return of income for avoiding disallowance of related

expenditure under section 40(a)(i) during the previous year

BEFORE

AMENDMENT

1. Interest, royalty, fee for technical services or other sum

chargeable under the Act which is payable to a non-resident is

not allowable as deduction while computing business income if

tax on such payments has not been deducted during the

previous year, or after deduction, was not paid within the time

prescribed under section 200(1).

2. Provision for disallowance of business expenditure in respect

of certain payments made to the residents under 40(a)(ia)

permits remittance of tax deducted at source on or before the

due date for filing of return of income under section 139(1), for

claim of deduction during the relevant previous year in which

the sum is payable.

AFTER

AMENDMENT

Section 40(a)(i) has been amended to provide that the

deductor shall be allowed to claim deduction for payments made to

non residents in the previous year of payment, if tax is deducted during

the previous year and the same is paid on or before the due date

specified for filing of return under section 139(1).

REASON In order to provide similar extended time limit for remittance of

tax deducted from payments made to non-residents. (now time limit

for section 40(a)(i) and 40(a)(ia) are same )

REASON Section 10AA also provides for profit linked deduction in

respect of units set-up in Special Economic Zones. However, so far,

there was no bar restricting an assessee claiming investment linked

deduction under section 35AD from claiming profit linked deduction

under section 10AA.

Income Tax


7. Expansion of scope of section 40(a)(ia) to cover all expenditure/payments on which

tax is deductible under Chapter XVII-B and restriction of quantum of disallowance

thereunder to 30% of sum paid.

BEFORE

AMENDMENT

Disallowance is attracted while computing business income in

respect of certain payments such as interest, commission,

brokerage, rent, royalty, fee for technical services and contract

payments made to a resident, if tax on such payments was not

deducted, or after deduction, was not paid within the due date of filing

return specified under section 139(1)

AFTER

AMENDMENT

Disallowance under section 40(a)(ia) has been extended to all

expenditure on which tax is deductible under Chapter XVII-B.

REASON 1. Chapter XVII-B mandates deduction of tax from certain other

payments such as salary, directors fee not specifically

covered under section 40(a)(ia). In respect of these

payments, non-deduction or non-remittance of tax within the

prescribed time does not attract disallowance under section

40(a)(ia) while computing income under the head Profits and

gains from business or profession.

2. In order to rectify this inconsistency and improve TDS

compliance in respect of all payments to residents.

BEFORE

AMENDMENT

Disallowance of 100% of expenditure under section 40(a)(ia)

AFTER

AMENDMENT

An amendment has been made to restrict the disallowance for

Nondeduction of tax or non-remittance of TDS on payments made to

residents on or before the specified due date to 30% of the sum

payable to a resident.

REASON In order to alleviate the undue hardship caused to assessees

on account of disallowance of 100% of expenditure under section

40(a)(ia)

XYZ Ltd. made the following payments in the month of March 2015 to residents without

deduction of tax at source. What would be the tax consequence for A.Y.2015-16, assuming

that the resident payees in all the cases mentioned below, have not paid the tax, if any, which

was required to be deducted by XYZ Ltd.?

Particulars Rs.

1. Salary to its employees 15,00,000

2. Non-compete fees to Mr. X 70,000

3. Directors remuneration 25,000

Income Tax


Would your answer change if XYZ Ltd. has deducted tax on the above in April, 2015 from

subsequent payments made to these persons and remitted the same in July, 2015?An

sw

er

Non-deduction of tax at source on any payment on which tax is deductible as per the

provisions of Chapter XVII-B would attract disallowance under section 40(a)(ia). Therefore,

non-deduction of tax at source on salary payment on which tax is deductibleunder section 192

and non-compete fees and directors remuneration on which tax is deductible under section

194J, would attract disallowance@30% of sum paid under section 40(a)(ia). Therefore, the

amount to be disallowed under section 40(a)(ia) while computing business income for

A.Y.2015-16 is as follows

Particulars Amount paid in Rs. Disallowance

u/s 40(a)(ia) @

30% of sum paid

1. Salary

[tax is deductible under section 192]

15,00,000 4,50,000

2. Non-compete fees to Mr. X

[tax is deductible under section 194J]

70,000 21,000

3. Directors remunerat ion [ tax is

deductible under section 194J without

any threshold limit]

25,000 7,500

Disallowance under section 40(a)(ia) 4,78,500

If the tax is deducted and paid in the next year i.e., P.Y.2015-16, the amount of Rs. 4,78,500

would be allowed as deduction while computing the business income of A.Y.2016-17.

8. Uniform amount of presumptive income from each goods carriage, whether heavy

goods carriage or other than heavy goods carriage [Section 44AE]

BEFORE

AMENDMENT

The amount of presumptive income (per month or part of a month

during which the goods carriage was owned by the taxpayer) was

as follows:

Heavy Goods Vehicle (HGV) Rs 5,000

Other than HGV Rs 4,500

AFTER

AMENDMENT

A uniform amount of Rs 7,500 per month (or part of a month)

would be deemed as the income from each goods carriage, whether

HGV or other than HGV, under section 44AE.

REASON To simplify the presumptive taxation scheme by providing for a

uniform amount of presumptive income per month (or part of a month)

for all types of goods carriage without any distinction between HGV

and vehicle other than HGV.

Income Tax


Mr. X commenced the business of operating goods vehicles on 1.4.2014. He purchased the

following vehicles during the P.Y.2014-15. Compute his income under section 44AE for

A.Y.2015-16.

Answ

er

Since Mr. X does not own more than 10 vehicles at any time during the previous year 2014-15,

he is eligible to opt for presumptive taxation scheme under section 44AE. Rs. 7,500 per month

or part of month for which each goods carriage is owned by him would be deemed as his

profits and gains from such goods carriage.

Type of Vehicle Number Date of

purchase

1. Light Goods Vehicles 2

1

10.4.2014

15.3.2015

2. Medium Goods Vehicles 3

1

16.7.2014

2.1.2015

3. Heavy Goods Vehicles 2

1

29.8.2014

23.2.2015

Would your answer change if the two light goods vehicles purchased in April, 2014 were put to

use only in July, 2014?

(1) (2) (3) (4)

Number of

Vehicles

Date of purchase No. of months for

which vehicle is

owned

No. of months

No. of vehicles

[(1) (3)]

2 10.4.2014 12 24

1 15.3.2015 1 1

3 16.7.2014 9 27

1 2.1.2015 3 3

2 29.8.2014 8 16

1 23.2.2015 2 2

10 Total 73

Therefore, presumptive income of Mr. X under section 44AE for A.Y.2015-16 is Rs.5,47,500,

being 73 Rs. 7,500.

The answer would remain the same even if the two vehicles purchased in April, 2014 were put

to use only in July, 2014, since the presumptive income of Rs.7,500 per month has to be

calculated per month or part of the month for which the vehicle is owned by Mr. X.

Income Tax


1. Income arising from transfer of security by a foreign portfolio investor (FPI)

characterized as capital gains [Section 2(14)]

Capital Gains

BEFORE

AMENDMENT

Section 2(14) defines capital asset to include property of any

kind held by an assessee, whether or not connected with his business

or profession, but does not include any stock-in-trade or personal

assets as provided in the definition.

AFTER

AMENDMENT

1. The definition of capital asset under section 2(14) would now

include

(a) property of any kind held by an assessee, whether

or not connected with his business or profession;

(b) any securities held by Foreign Institutional Investor which

has invested in such securities in accordance with the

regulations made under the SEBI Act, 1992.

2. The exclusion of stock-in-trade from the definition of capital

asset is only in respect of sub-clause

(a) above and not sub-clause (b).

2. Period of holding of units of debt oriented mutual fund and unlisted securities, to

qualify as a long-term capital asset, increased from more than 12 months to more

than 36 months [Section 2(42A)]

BEFORE

AMENDMENT

In the case of a share held in a company or any other security

listed in a recognised stock exchange in India or a unit of the Unit Trust

of India or a unit of a Mutual Fund or a zero coupon bond, the period of

holding required for qualifying as a long-term capital asset is more

than twelve months.

AFTER

AMENDMENT

A security (other than a unit) listed in a recognized stock

exchange in India, a unit of UTI or a unit of an equity oriented fund or a

zero coupon bond will be treated as short term capital asset if it is held

for not more than 12 months immediately preceding the date of its

transfer.

REASON Encouraging investment in stock market, where prices of the

securities are market determined, accordingly

3. Benefit of concessional rate of tax@10% on long-term capital gains (without

indexation) not to be available in respect of units of debt-oriented fund and unlisted

securities [Section 112]

BEFORE

AMENDMENT

Capital gains on transfer of listed securities, Government

securities, units of mutual fund, bonds or zero coupon bonds shall be

chargeable to tax @10% computed without the benefit of indexation or

@20% availing the benefit of indexation, whichever is more beneficial to

the assessee.

Income Tax


4. Compensation received in pursuance of an interim order deemed as income

chargeable to tax in the year of final order [Section 45(5)]

BEFORE

AMENDMENT

Uncertainty regarding the year in which the amount of

compensation received in pursuance of an interim order of the court is to

be charged to tax.

AFTER

AMENDMENT

Compensation shall be deemed to be income chargeable under

the head 'Capital gains' in the previous year in which the final order of

such court, Tribunal or other authority is made.

5. Transfer of Government security outside India by a non-resident to another

nonresident not a transfer for charge of capital gains tax [Section 47]

In order to facilitate listing and trading of Government securities outside India, clause

(viib) has been inserted in section 47 to provide that any transfer of a capital asset, -

(1) being a Government Security carrying a periodic payment of interest,

(2) made outside India through an intermediary dealing in settlement of securities,

(3) by a non-resident to another non-resident

shall not be considered as transfer for the purpose of charging capital gains.

6. Exemption under section 54 and 54F to be available for investment in one residential

house situated in India


1. As per section 54(1), capital gains, to the

extent invested in a residential house

2. section 54F, capital gains, in proportion to

the net consideration invested in a new

residential house

sections 54 and 54F have been amended to

provide for exemption thereunder in respect of

investment made in one residential house

situated in India.

REASON

1. There have been controversial judicial views interpreting a residential house to mean

more than one residential house on the reasoning that singular includes plural

under the General Clauses Act.

2. Further, another issue which emerged before the Courts was whether investment in a

residential house situated outside India would qualify for exemption under these

sections.

3. Since the real intent of law was to allow capital gains exemption for investment in one

residential house situated in India

AFTER

AMENDMENT

Capital gains on transfer of listed securities (other than units) or

zero coupon bonds shall be chargeable to tax @10% computed without

the benefit of indexation or @20% availing the benefit of indexation,

whichever is more beneficial to the assessee.

Income Tax


7. Maximum investment in bonds of NHAI & RECL, out of capital gains arising from

transfer of one or more capital assets during a financial year, restricted to Rs50

lakhs, irrespective of whether the investment is made in the same financial year or

in the subsequent financial year or both [Section 54EC]


section 54EC(1) restr icts the

investment which can be made in the

long-term specified asset (bonds of

NHAI/RECL) during any financial year

to Rs 50 lakh.

Investment made by an assessee in bonds of

NHAI/RECL, out of capital gains arising from transfer of

one or more original assets, during the financial year in

which the original asset or assets are transferred and in

the subsequent financial year does not exceed fifty

lakh rupees.

REASON

The period available for investing in NHAI/RECL bonds is six months from the date of transfer,

and the restriction of Rs 50 lakh is in relation to a financial year, it was possible for assessees

transferring an asset or assets on or after 1st October in a financial year, to invest Rs 50 lakh in

the same financial year and Rs 50 lakh in the next financial year (within six months from the

date of transfer) and claim an exemption of upto Rs 1 crore under section 54EC. This was,

however, not in accordance with the real intent of law to restrict the maximum

exemption to Rs 50 lakh.

Notification of Cost Inflation Index for F.Y.2014-15 [Notification No. 31/2014 dated

11.06.2014] - 1024

Mr. Ram, working as a CEO with ABC Ltd., furnishes the following particulars of assets

transferred by him during the P.Y.2014-15

Type of Vehicle Date of

transfer

Rs.

1. A residential house in Bangalore which

he had purchased in February, 2000 at a

cost of Rs. 15,56,000.

13/1/2015 1,45,00,000

2. Listed shares of Indian companies

purchased in May 2012 at a cost of Rs.

1 lakh.

14/2/2015 2,00,000

3. Unlisted shares purchased in May 2012

at a cost of Rs. 50,000.

14/2/2015 75,000

4. Units of equity oriented fund purchased

in May 2012 at a cost of Rs.30,000

14/2/2015 65,000

5. Units of debt oriented fund purchased in

January 2010 at a cost of Rs.31,600

14/2/2015 75,000

Income Tax


Mr. Ram made the following investments, out of the capital gains arising on sale of residential

house -

Particulars Rs.

1. Purchased a residential flat in Pune on 21/5/2015 35,00,000

2. Purchased a residential flat in Madurai on 14/7/2015 25,00,000

3. 3 year bonds of NHAI on 20/3/2015 40,00,000

4. 3 year bonds of RECL on 15/5/2015 30,00,000

Compute the total income and tax liability of Mr. Ram for A.Y.2015-16, if his salary income

(computed) is Rs. 24 lakh and interest on fixed deposits with banks is Rs.1 lakh. Assume that

he has contributed Rs.1,50,000 to PPF and paid medical insurance premium of Rs.12,000 to

insure his health.

Cost Inflation Index of F.Y.1999-2000: 389; F.Y.2009-10: 632; F.Y.2012-13: 852; F.Y.2014-15:

1024.Answ

er

Computation of total income of Mr. Ram for A.Y.2015-16

Particulars Rs.

Salaries 24,00,000

Capital gains [See Working Note below] 19,52,800

Interest on fixed deposits 1,00,000

Gross Total Income 44,52,800

Less: Deductions under Chapter VI-A

Under section 80C PPF 1,50,000

Under section 80D Mediclaim premium 12,000 1,62,000

Total Income 42,90,800

Tax on total income: Rs.

Tax on long-term capital gains [20% of 19,27,800] 3,85,560

Tax on other income of Rs.23,63,000 [42,90,800 -19,27,800] 5,33,900

9,19,460

Add: Education cess@2% and SHEC@1% 27,584

9,47,044

Rs.

Income Tax


Working Note Computation of Capital Gains chargeable to tax for A.Y.2015-16

Particulars Rs.

(1) Residential house

Gross Sale consideration 1,45,00,000

Less: Indexed cost of acquisition [15,56,000 1024/389] 40,96,000

1,04,04,000

Less: Exemption under section 54

Investment in one residential house (it is more beneficial

to claim exemption in respect of investment in residential

flat at Pune) 35,00,000

Investment in bonds of NHAI/RECL (aggregate

investment to be restricted to 50 lakh) 50,00,000

Long-term capital gains taxable@20% u/s 112 19,04,000

(2) & Listed equity shares and units of equity oriented fund

(4) Capital gains on sale of listed equity shares and units of equity

oriented fund held for more than 12 months is a long-term

capital gain exempt under section 10(38). Nil

(3) Unlisted shares

Sale consideration 75,000

Less: Cost of acquisition 50,000

Short-term capital gains taxable at normal rates of tax

[Since held for less than 36 months] 25,000

(5) Units of debt-oriented fund

Sale consideration 75,000

Less: Indexed cost of acquisition [31,600 1024/632] 51,200

Long-term capital gains taxable at 20% u/s 112

[Since held for more than 36 months]

23,800

Rs.

Taxable Capital Gains: Rs.

Long-term capital gains taxable@20% u/s 112 [(1) + (5)] 19,27,800

Short-term capital gains taxable at normal rates [3] 25,000

19,52,800

Income Tax


1. Advance forfeited due to failure of negotiations for transfer of a capital asset to be

taxable as Income from other sources [Section 56(2)]

Income from other sources

BEFORE

AMENDMENT

Under section 51, any advance retained or received in respect

of a negotiation for transfer which failed to materialise shall be reduced

from the COA of the asset or the WDV or the FMVof the asset, at the

time of its transfer to compute the capital gains arising therefrom. In

case the asset transferred is a long-term capital asset, indexation

benefit would be on the cost so reduced.

AFTER

AMENDMENT

1. section 56(2) to provide for the taxability of any sum of money,

received as an advance or otherwise in the course of

negotiations for transfer of a capital asset.

2. section 2(24), defining income, has been amended to include

such sum forfeited within its scope.

3. Now section 51 deleted and new in section 56(2) inserted.

Ie. In simple terms Advance forfeited is not required to

reduce from COA of the asset or the WDV or the FMV u/s 51

,It is taxable under the head income from other

sources.(u/s 56(2))

REASON 1. Advance forfeited in excess of COA or FMV or WDV if ignored

under existing provisions of income tax.(Now government

want to tax this type of transactions).

2. In case the asset transferred is a long-term capital asset,

indexation benefit would be on the cost so reduced.(it is

illogical).

3. Advance forfeited by previous owner is ignored under existing

provisions of income tax.(Now government want to tax this

type of transactions)

Mr. H has acquired a residential house property in Delhi on 1st April, 2001 for Rs.22,00,000

and decided to sell the same on 3rd May, 2004 to Mrs.P and an advance of 70,000 was

taken from her. The balance money was not paid by Mrs. P and hence, Mr. H has forfeited the

entire advance sum. In April, 2014, he once again entered into negotiations for sale of the said

property to Mr.Y, and received 2 lakh as advance, but the transfer did not materialize and

hence, the advance was forfeited. On 3rd March, 2015, he finally sold this house to Mr. S for

95,00,000. In the meantime, on 4th February, 2015, he had purchased a residential house

in Faridabad for 28,00,000 and made full payment for the same. However, Mr.H does not

possess any legal title till 31st March, 2015, as such transfer was not registered with the

registration authority.

Mr.H had purchased another old house in Madurai on 14th October, 2014 from Mr. X, an Indian

resident, by paying 25,00,000 and the purchase was registered with the appropriate

authority.

Determine the taxable capital gain arising from above transactions in the hands of Mr.H for

Assessment Year 2015-16.

Cost Inflation Index - 2001-02: 426; 2004-05: 480; 2013-14: 939; 2014-15:1024.

Rs.

Rs.

Rs.

Rs.

Rs.

Income Tax


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Computation of taxable capital gain of Mr. H for the A.Y.2014-15

Particulars Rs.

Sale proceeds 95,00,000

Less: Indexed cost of acquisition (See Notes 1 & 2) 51,20,000

Long Term Capital Gain 43,80,000

Less: Exemption under section 54 in respect of investment in house at

Faridabad (See Notes 3 & 4) 28,00,000

Taxable long-term capital gain 15,80,000

Notes:

1. Computation of indexed cost of acquisition

2. Advance of Rs.2 lakh taken by Mr. H in April, 2014, which was forfeited due to the

transaction not materializing, is taxable under section 56(2)(ix). Hence, such amount

would not be reduced to compute the indexed cost of acquisition while computing capital

gains on sale of the property in March, 2015.

3. In order to avail exemption of capital gains under section 54, one residential house should

be purchased within 1 year before or 2 years after the date of transfer or constructed

within a period of 3 years after the date of transfer. In this case, Mr.H has purchased the

residential house in Faridabad within one year before the date of transfer and paid the full

amount as per the purchase agreement, though he does not possess any legal title till

31.3.2015 since the transfer was not registered with the registration authority. However,

for the purpose of claiming exemption under section 54, holding of legal title is not

necessary. If the taxpayer pays the full consideration in terms of the purchase agreement

within the stipulated period, the exemption under section 54 would be available. It was so

held in Balraj v. CIT(2002) 254 ITR 22 (Del.) and CIT v. Shahzada Begum (1988) 173 ITR

397 (A.P.).

4. The Finance (No.2) Act, 2014 has clarified that exemption under section 54 can be availed

only in respect of one residential house. It would be more beneficial for Mr. H toclaim

exemption in respect of the Faridabad house since the cost of the same is higher than the

cost of the Madurai house.

Particulars Rs.

Cost of acquisition 22,00,000

Less: Advance taken in the previous year 2004-05 and forfeited __ 70,000

Cost for the purpose of Indexation 21,30,000

Indexed cost of acquisition (Rs.21,30,000 x 1024/426) 51,20,000

Income Tax


1. Increase in the limit of deduction under section 80C & Related amendment in

section: 80CCE

Deductions from Gross Total Income


Ceiling limit (Rs)

1. 80C 1,00,000

2. 80CCC -1,00,000

3. 80CCD(1) -1,00,000

4. Under section 80CCE,

Aggregate deduction under

sections 80C, 80CCC &

80CCD(1) -1,00,000

Ceiling limit (Rs)

1. 80C 1,50,000

2. 80CCC -1,00,000

3. 80CCD(1) -1,00,000

4. Under section 80CCE, Aggregate deduction

under sections 80C, 80CCC & 80CCD(1) -

1,50,000

REASON:

In order to channelize household savings, the limit of deduction allowed under

section 80C has been raised from Rs 1 lakh to Rs 1.50 lakh.

Mr. A, employed with ABC Ltd., has deposited Rs.1,20,000 in public provident fund. He has

paid life insurance premium of ` 15,000 on the policy taken on 1.5.2012 to insure his life (Sum

assured Rs. 1,20,000). He has deposited ` 30,000 in a five year term deposit with bank. He

has also contributed ` 1,20,000, being 10% of his salary, to the notified pension scheme of the

Central Government. A matching contribution was made by ABC Ltd. Compute the deduction

available to him under Chapter VI-A for A.Y.2015-16.Answ

er Deduction available to Mr. A under Chapter VI-A for A.Y.2015-16

Section Particulars Rs. Rs.

80C Deposit in public provident fund 1,20,000

Life insurance premium paid Rs.15,000 (deduction

restricted to Rs. 12,000, being 10% of Rs.1,20,000,

being sum assured, since the policy was taken after

31.3.2012) 12,000

Five year term deposit with bank 30,000

1,52,000

Restricted to 1,50,000

80CCD(1) Contribution to notified pension scheme of the Central

Government, Rs. 1,20,000, restricted to 1,00,000

2,50,000

80CCE Aggregate donations under section 80C and

80CCD(1), Rs. 2,50,000, but restricted to 1,50,000

80CCD(2) Employer contribution to notified pension scheme 1,20,000

Aggregate Deduction 2,70,000

Income Tax


1.Tax to be deducted on non-exempt payments made under life insurance policy

[Section 194DA]

Provisions concerning advance tax

and tax deducted at source

BEFORE AMENDMENT Section 194DA is not available.

AFTER AMENDMENT 1. new section 194DA has been inserted to provide for

deduction of tax at the rate of 2% on any sum paid to a resident

under a life insurance policy, including the sum allocated by

way of bonus, which are not exempt under section 10(10D) .

2. However, tax deduction is required only if the payment or

aggregate payment in a financial year to an assessee is Rs

1,00,000 or more. This is for alleviating the compliance

burden on the small tax payers.

REASON For ensuring a proper mechanism for reporting of

transactions and collection of tax in respect of sum paid under life

insurance policies which are not exempt under section 10(10D)

2. Benefit under section 80CCD extended to private sector employees without

condition regarding date of joining being on or after 1st January, 2004


condition relating to the date of

joining the service being on or after

1.1.2004 is applicable to Government

and private sector employees for the

purposes of deduction under section

80CCD.

condition relating to the date of joining the

service being on or after 1.1.2004 is not applicable to

private sector employees for the purposes of deduction

under this section.

RESONE

Individuals employed by the Central Government before 1st January, 2004, were

entitled to pension as per the Pension Rules. Therefore, the new pension scheme is relevant

only for employees joining Government service on or after 1st January, 2004. However, this

date of joining is not relevant for private sector employees joining new pension scheme.

Examine the applicability of the provisions for tax deduction at source under section 194DA in

the above cases -

(I) Mr.X, a resident, is due to receive Rs.4.50 lakhs on 31.3.2015, towards maturity proceeds

of LIC policy taken on 1.4.2012, for which the sum assured is Rs.4 lakhs and the annual

premium is Rs.1,25,000.

(ii) Mr.Y, a resident, is due to receive Rs.2.20 lakhs on 31.3.2015 on LIC policy taken on

1.4.2010, for which the sum assured is Rs.2 lakhs and the annual premium is Rs.35,000.

(iii) Mr.Z, a resident, is due to receive Rs.95,000 on 1.10.2014 towards maturity proceeds of

LIC policy taken on 1.10.2010 for which the sum assured is Rs.90,000 and the annual

premium was Rs.19,000.

Income Tax

An

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(I) Since the annual premium exceeds 10% of sum assured in respect of a policy taken on

1.4.2012, the maturity proceeds of Rs.4.50 lakhs are not exempt unde section 10(10D)

in the hands of Mr.X. Therefore, tax is required to be deducted@2% under section

194DA on the maturity proceeds of Rs.4.50 lakhs payable to Mr.X.

(ii) Since the annual premium is less than 20% of sum assured in respect of a policy taken

before 1.4.2012, the sum of Rs.2.20 lakhs due to Mr.Y would be exempt under section

10(10D) in his hands. Hence, no tax is required to be deducted at source under section

194DA on such sum payable to Mr.Y.

(iii) Even though the annual premium exceeds 20% of sum assured in respect of a policy

taken before 1.4.2012, and consequently, the maturity proceeds of Rs.95,000 would not

be exempt under section 10(10D) in the hands of Mr.Z, the tax deduction provisions

under section 194DA are not attracted since the maturity proceeds are less than Rs.1

lakh.

2. Enabling provision for deductor to file correction statement and for processing of

correction statement so filed [Sections 200 & 200A

BEFORE

AMENDMENT

Currently, a deductor is allowed to file correction statement for

rectification/updation of the information furnished in the original TDS

statement as per the Centralised Processing of Statements of Tax

Deducted at Source Scheme, 2013 notified vide Notification No.03/2013

dated 15th January, 2013. However, at present, the Income-tax Act, 1961

does not contain any express provision to enable a deductor to file

correction statement.

AFTER

AMENDMENT

A proviso has been inserted in section 200(3) to provide that the

deductor may also deliver to the prescribed authority, a correction

statement for

(a) rectification of any mistake; or

(b) to add, delete or update the information furnished in the statement

delivered under section 200(3) in the specified form and manner.

REASON In order to incorporate an express provision in the statute

Income Tax


1. Section 201(1) provides for passing of an order deeming a payer as assessee in default if

he does not deduct or does not pay or after deduction fails to pay the whole or part of the tax

as per the provisions of Chapter XVII-B.

Revision of time limit for passing an order

under section 201(1) [Section 201(3)]

BEFORE

AMENDMENT

Clause (i) of section 201(3) provides that no order under section

201(1) shall be passed after expiry of two years from the end of the

financial year in which the TDS statement referred to in section 200 has

been filed.

AFTER

AMENDMENT

Clause (i) of section 201(3) which provides time limit of two years

for passing order under section 201(1) for cases in which TDS statement

have been filed, has been omitted.

REASON Processing of TDS statement is done in a computerized

environment and primarily focuses on the transactions reported in the TDS

statement filed by the deductor, there is no rationale for not treating the

deductor who has filed a TDS statement as an assessee in default after

two years, where the TDS default arises as a consequence of transactions

not reported in the TDS statement.


Under clause (ii) of section

201(3), a time limit of six years from

the end of the financial year in which

payment is made or credit is given for

passing of order under section 201(1)

has been provided for cases in

respect of which TDS statement has

not been filed.

Under clause (ii) of section 201(3), a time

limit of seven years from the end of the financial year in

which payment is made or credit is given for passing of

order under section 201(1) has been provided for

cases in respect of which TDS statement has not been

filed.

RESONE

1. Notice under section 148 may be issued for reassessment up to six years from the end

of the relevant assessment year for which the income has escaped assessment.

2. Therefore, section 148 allows reopening of cases of one more preceding previous year

than specified under section 201(3)(ii).

3. On account of this difference in time limit, an order under section 201(1) cannot be

passed in respect of defaults relating to TDS which comes to the notice during

search/reassessment proceeding in respect of previous year which is not covered

under section 201(3)(ii) but covered under section 148.

4. Therefore, in order to align the time limit provided under section 201(3)(ii) and section

148, the time limit provided under section 201(3)(ii) for passing order under section

201(1) has been extended by one more year.

Income Tax


1. Return of income of mutual funds, securitization trusts, venture capital

companies/funds to be filed mandatorily [Section 139(4C)]

PROVISIONS FOR FILING RETURN OF INCOME

BEFORE

AMENDMENT

There was no obligation requiring the Mutual Fund or securitization trust or

VCC or VCF to furnish their return of income under section 139.

AFTER

AMENDMENT

Section 139(4C) has now been amended to require

1. a Mutual Fund referred to in section 10(23D),

2. a securitization trust referred to in section 10(23DA); and

3. a VCC/VCF referred to in section 10(23FB)

to furnish a return of such income of the previous year in the prescribed

form and verified in the prescribed manner and setting forth such other

particulars as may be prescribed, if the total income in respect of which

such mutual fund or securitisation trust or VCC/VCF is assessable,

without giving effect to the provisions of section 10, exceeds

the basic exemption limit.

2. Verification of return of income [Section 140]

BEFORE

AMENDMENT

Section 140 provides that the return under section 139 shall be signed

and verified in the manner specified therein for different categories of

persons.

AFTER

AMENDMENT

1. section 140 has been amended to provide that the return shall be

verified by the persons specified therein.

2. Consequently, the words sign and verify, wherever they have

been used in section 140, have been substituted by the word

verify.

3. Further, the words sign or signing, wherever they have been

used in section 140, have been replaced by verify or verifying.

REASON In order to enable the verification of returns either by a sign in manuscript

or by an electronic mode.

Income Tax


Indirect Tax

Central Excise Duty

E-payment of excise duty mandatory for all assessees irrespective of the duty paid

during previous year


where an assessee had paid an excise

duty of Rs 1 lakh or more including the

amount paid by utilization of CENVAT

credit, in the preceding financial year, he

was required to deposit the excise duty

liable to be paid by him electronically

through internet banking.

1. Every assessee shall electronically pay the

duty through internet banking.

2. However, the Assistant/Deputy Commissioner

of Central Excise may for reasons to be

recorded in writing, allow the assessee to

deposit excise duty by any mode other than

internet banking.

2. Importer issuing CENVATable invoices now required to obtain registration


Not required to obtain

registration

An importer who issues an invoice on which

CENVAT credit can be taken is also required to obtain such

registration.

Thus, such importer will have to obtain registration

as a 'registered importer' with the central excise authorities

to pass on the credit on the imported goods.

Customs Duty

1. Relevant date for determination of rate of duty and tariff valuation for imports

through a vehicle to be the date of arrival of vehicle where bill of entry is filed prior

to the arrival of the vehicle [Section 15(1)]

Particulars Relevant date

BEFORE AMENDMENT

Goods entered for home

consumption under section

46

In case of imports by vessel or aircraft

Date of presentation of bill of entry

OR

Date of entry inwards of the vessel/arrival of the

aircraft

whichever is later

In case of imports by vehicle


Indirect Tax 24GURUKUL FOR CA & CMA

2. Relevant date for determination of rate of duty and tariff valuation for imports

through a vehicle to be the date of arrival of vehicle where bill of entry is filed prior

to the arrival of the vehicle [Section 15(1)]


Section 8B of Customs Tariff Act,

1975 which provides for imposition of

safeguard duty lays down that the

articles imported by a 100% EOU or units

in a Free Trade Zone or Special

Economic Zone shall not be liable to

safeguard duty unless specifically made

applicable in the notification imposing

such duty.

Section 8B has now been amended to

provide for levy of safeguard duty on articles

imported by an 100% EOU/unit in a SEZ that are

cleared as such into DTA or are used in the

manufacture of goods that are cleared into DTA. In

such cases safeguard duty shall be levied on that

portion of the article so cleared or so used as was

leviable when it was imported into India.

Particulars Relevant date

AFTER AMENDMENT

Goods entered for home

consumption under section 46


OR

Date of entry inwards of the vessel/arrival of the

aircraft or vehicle

whichever is later

3. Bill of entry to be filed prior to the delivery of import report if the vehicle in which

the goods have been imported is expected to arrive within 30 days [Section 46(3)]


A bill of entry may be presented

before the delivery of import manifest (in

case of import through vessel or

aircraft) if the vessel/aircraft by which

the goods have been shipped for

importation into India is expected to

arrive within 30 days from the date of

such presentation.

A bill of entry may be presented before the

delivery of import manifest (import through vessel or

aircraft) or import report (import through land route)

if the vessel/aircraft/vehicle by which the goods

have been shipped for importation into India is

expected to arrive within 30 days from the date of

such presentation.


SERVICE TAX

1. Service tax to be levied on sale of space or time for advertisements in all media

except print media [Section 66D(g)]

BEFORE

AMENDMENT

Selling of space or time slots for advertisements other than

advertisements broadcast by radio or television were covered in negative

list of services

AFTER

AMENDMENT

Selling of space for advertisements in print media will be covered in

negative list of services.

Print media means,

(i) book as defined in sub-section (1) of section 1 of the Press and

Registration of Books Act, 1867, but does not include business

directories, yellow pages and trade catalogues which are primarily

meant for commercial purposes;

(ii) newspaper as defined in sub-section (1) of section 1 of the Press and

Registration of Books Act, 1867.

2. Omission of radio taxis from the purview of negative list

BEFORE

AMENDMENT

Services of transportation by:

(i) to (v)

(vi) metered cabs, radio taxis or auto rickshaws

AFTER

AMENDMENT

Services of transportation by:

(i) to (v)

(vi) Metered cabs and auto rickshaws

Radio Taxis Deleted

Indirect Tax

3. Clarification as to whether agricultural produce includes rice and benefits

available in respect of rice under mega exemption notification.

BEFORE

AMENDMENT

1. Definition of agricultural produce under section 65(5) of the

Finance Act, 1994 covers 'paddy'; but excludes 'rice'.

2. It implies that benefits available to agricultural produce in the

negative list [Section 66D(d)] are not available to rice.

AFTER

AMENDMENT

However, many such benefits have been extended to rice by way of

appropriate entries in the mega exemption notification as follows:-

(i) Services by way of transportation of food stuff by rail/vessel/goods

transport agency is exempt from service tax. Food stuff includes rice.

(ii) Services by way of loading, unloading, packing, storage or

warehousing of rice are exempt from service tax.

(iii) Carrying out an intermediate production process as job work in

relation to agriculture is exempt from service tax. It is clarified that

paddy milled into rice, on job work basis is also exempt from service

tax since such milling of paddy is an intermediate production process

in relation to agriculture.


5. Rule 7 to override the provisions of rules 3, 4 & 8 only [Rule 7]

BEFORE

AMENDMENT

Earlier, rule 7 overrided the provisions of all other rules of POTR. It

started with a non-obstanate clause notwithstanding anything contained

in these rules.

AFTER

AMENDMENT

Rule 7 has been amended to provide that it will override the

provisions of only the Rule 3 , Rule 4, Rule 8.

Thus, provisions of other rules like rule 2, 2A, 5 or 8A may also

apply, as the case may be, for determination of point of taxation when

service tax is payable under reverse charge.

Indirect Tax

4. Rate of exchange under section 67A to be determined as per GAAP [Section 67A]

BEFORE

AMENDMENT

Explanation to section 67A of Finance Act, 1994 linked the rate of

exchange under section 67A to the rate of exchange referred to in section

14 of the Customs Act, 1962.

AFTER

AMENDMENT

The new rule 11 lays down that the rate of exchange would be the

rate applicable as per the generally accepted accounting principles on the

date when point of taxation arises in terms of Point of Taxation Rules,

2011.

6. Point of taxation under reverse charge to be the payment date or the first day

occurring immediately after three months from the date of invoice, whichever is

earlier

BEFORE

AMENDMENT

The first proviso to rule 7 laid down that if the payment is not made within 6

months of the date of invoice, point of taxation will be determined as if rule

7 does not exist.

AFTER

AMENDMENT

Point of taxation in respect of reverse charge will be the payment date or

the first day that occurs immediately after a period of 3 months from the

date of invoice, whichever is earlier.

With reference to the position of service tax law as applicable on or after 01.10.2014, what

would be the point of taxation and due date of payment of service tax in each of the following

independent cases:

Note: In both the above cases, service tax has been paid by the service recipient (a private

limited company) under section 68(2) of the Finance Act, 1994.

S. No. Date of invoice Date of payment

(i) 15.10.2014 10.11.2014

(ii) 20.10.2014 15.02.2015

27GURUKUL FOR CA & CMA Indirect Tax

Rule 7 of Point of Taxation Rules, 2011 provides that point of taxation in respect of

persons required to pay tax as recipients of service in respect of services notified under section

68(2) of the Finance Act is the date of payment. However, with effect from 01.10.2014, first

proviso to rule 7 has been substituted to lay down that where the payment is not made within a

period of 3 months of the date of invoice, point of taxation will be the date immediately following

the said period of 3 months.

Further, in case of a corporate assessee, due date of e-payment of service tax payable

for a month is the 6th day of the month immediately following the said month. With effect from

01.10.2014, e-payment has been mandatory for all assessees. Thus, in the light of aforesaid

provisions, point of taxation and due dates in the following cases will be:

An

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S.

No.

Date of

invoice

Date of payment Point of

taxation

Due date of

payment

(i) 15.10.2014 10.11.2014 (within three months of

the date of invoice)

10.11.2014 06.12.2014

(ii) 20.10.2014 15.02.2015 (beyond three months

from the date of invoice)

20.01.2015 06.02.2015

7. Retrospective exemption for services provided by ESIC [New section 100]

Services provided by Employees State Insurance Corporation (ESIC) to persons

governed under the Employees Insurance Act, 1948 have been exempted from service tax

from 01.7.2012 vide Sl. No. 36 of Mega Exemption Notification No. 25/2012 ST dated

20.06.2012 when negative list provisions were introduced. Retrospective exemption from

service tax has now been granted to services provided by ESIC for the period prior to

01.07.2012.

8. Mega Exemption Notification amended

1. Services provided by common bio-medical waste treatment facility operators to

clinical establishments exempted.

2. Transport of organic manure by vessel, rail or road (by GTA) exempted.

3. IRDA approved life micro-insurance schemes with sum assured not exceeding `

50,000 exempted.

4. Loading, unloading, packing, storage or warehousing, transport by vessel, rail or

road (GTA), of cotton - ginned or baled exempted.

The following services have been exempted in relation to cotton, ginned or baled:

(a) Loading, unloading, packing, storage or warehousing Entry 40 has been amended

to give effect to this amendment.

(b) Transportation by rail or a vessel Entry 20 has been amended to give effect to this

amendment.

(c) Transportation by road (Goods Transport Agency) Entry 21 has been amended to

give effect to this amendment.

5. Services received by RBI from outside India in relation to management of foreign

exchange reserves exempted. e.g., external asset management, custodial services,

securities lending services, etc. have been exempted.

6. Services provided by Indian tour operators to foreign tourists in relation to a tour

wholly conducted outside India exempted.

New exemptions


Exemptions rationalized

9. Limited exemptions in respect of services provided to Government or local

authority or governmental authority

BEFORE

AMENDMENT

Services provided to Government or local authority or a

governmental authority by way of carrying out any activity in relation to any

function ordinarily entrusted to a municipality in relation to water supply,

public health, sanitation conservancy, solid waste management or slum

improvement and upgradation were exempted

AFTER

AMENDMENT

Services provided to Government or local authority or a

governmental authority by way of water supply, public health, sanitation

conservancy, solid waste management or slum improvement and

upgradation;

EFFECT Services by way of water supply, public health, sanitation

conservancy, solid waste management or slum improvement and up-

gradation will continue toremain exempted but the exemption would not be

extendable to other services such as consultancy, designing, etc., not

directly connected with these specified services.

10. Concept of auxiliary education services done away with and exemption restricted

to only few specific services

BEFORE

AMENDMENT

Services provided to an educational institution in respect of

education exempted from service tax [i.e., education specified in negative

list] by way of auxiliary educational services. Auxiliary educational service

was defined in the notification.

AFTER

AMENDMENT

(a) Services provided BY an educational institution to its students,

faculty and staff;

(b) Services provided TO an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by

the Government;

(iii) security or cleaning or house-keeping services performed in

such educational institution;

(iv) services relating to admission to, or conduct of examination

by, such institution.


BEFORE

AMENDMENT

Service of passenger transportation, with or without accompanied

belongings, by a contract carriage other than for the purposes of tourism,

conducted tour, charter or hire was exempt from service tax under entry

23(b) of the notification.

AFTER

AMENDMENT

Transport of passengers, with or without accompanied belongings, by

non air conditioned contract carriage other than radio taxi, for

transportation of passengers, excluding tourism, conducted tour, charter

or hire;

Thus, following types of passenger transport in a contract carriage would

be liable to service tax:

a. transport by air-conditioned contract carriages

b. transport by non- air-conditioned contract carriages for purposes of

tourism, conducted tour, charter or hire

c. transport by radio taxi whether or not air conditioned.

Exemptions withdrawn

1. Transport of passengers in air-conditioned contract carriages taxable

2. Clinical research on human participants chargeable to service tax

With reference to the position of service tax law as applicable on or after 01.08.2014,

determine the applicability of service tax in each of the following independent cases:

(i) External asset management services received by Reserve Bank of India from overseas

financial institutions.

(ii) Service provided by an Indian tour operator to Mr. B, a Japanese National, for a tour

conducted in Europe.

(iii) Services provided to a Higher Secondary School affiliated to CBSE Board by an IT

company in relation to development of a software to be used for enhancing the quality of

classroom teaching.

Answ

er

(i) Exempt. With effect from 11.07.2014, services received by Reserve Bank of India from

outside India in relation to management of foreign exchange reserves have been

exempted from service tax. External asset management services received by Reserve

Bank of India from overseas financial institutions is a specialized financial service in the

course of management of foreign exchange reserves [Mega Exemption Notification No.

25/2012 ST dated 20.06.2012 amended].

(ii) Exempt. With effect from 11.07.2014, services provided by an Indian tour operator to a

foreign tourist in relation to a tour wholly conducted outside India have been exempted

from service tax [Mega Exemption Notification No. 25/2012 ST dated 20.06.2012

amended].

(iii) Taxable. With effect from 11.07.2014, only the following specific services provided TO an

educational institution (which provides education covered under negative list of services)

have been exempted from service tax:

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational

institution;


(iv) Services relating to admission to, or conduct of examination by, such institution.

Services by way of education up to higher secondary or equivalent fall within the

purview of negative list of services. Thus, the education provided by the Higher

Secondary School is not liable to tax. However, the services of a development of

software provided to it are not covered under any of the specific services given

above. Thus, the same will be liable to service tax [Mega Exemption Notification

No. 25/2012 ST dated 20.06.2012 amended].

1. Only service providers need to satisfy the condition of non- availment of credit for

availing abatement in case of GTA service

BEFORE

AMENDMENT

Abatement of 75% could be availed in case of transportation of

goods by a goods transport agency if CENVAT credit on inputs, capital

goods and input services, used for providing the taxable service, has not

been taken under the provisions of CENVAT Credit Rules, 2004.

AFTER

AMENDMENT

CENVAT credit on inputs, capital goods and input services, used

for providing the taxable service, has not been taken by the service

provider under the provisions of CENVAT Credit Rules, 2004.

Abatement Notification amended

BEFORE

AMENDMENT

1. The abatement provided for renting of any motor vehicle designed

to carry passengers

2. CENVAT credit on inputs, capital goods and input services, used

for providing the taxable service, has not been taken .

AFTER

AMENDMENT

1. The abatement would now be provided for renting of motorcab.

2. CENVAT credit of input service of renting of a motorcab would be

allowed.

3. credit of input service of only renting of motorcab can be availed and

not of any other input service.

4. Credit of input service of renting of motorcab can be availed in the

following manner:

(i) Full CENVAT credit of such input service received from a

person who is paying service tax on 40% of the value; or

(ii) Up to 40% CENVAT credit of such input service received from a

person who is paying service tax on full value i.e., no abatement

is availed.

2. Credit allowed on input service received by a person providing services of renting

of motorcab from a sub-contractor engaged in the similar line of business


3. 60% abatement prescribed for transport of passengers by a contract carriage

(other than motorcab) and a radio taxi

BEFORE

AMENDMENT

Transport of passengers by a contract carriage (other than motor cab) is

covered in mega exemption notification.

AFTER

AMENDMENT

1. transport of passengers, with or without accompanied belongings, by

a contract carriage other than motor cab.

2. service tax would be leviable at 40% of the value of service.

3. The abatement would be available if CENVAT credit on inputs, capital

goods and input services, used for providing the taxable service, has

not been taken.

4. Abatement in respect of transport of goods in a vessel increased from 50% 4o 60%

BEFORE AMENDMENT service tax was leviable at 50% of the value of taxable

AFTER AMENDMENT service tax at 40% of the value of taxable service.

5. Credit allowed on input service received by a tour operator from a subcontractor

BEFORE

AMENDMENT

CENVAT credit on inputs, capital goods and input services, used for

providing the taxable service, has not been taken under the provisions of

CENVAT Credit Rules, 2004.

AFTER

AMENDMENT

Allow CENVAT credit on input service of another tour operator, which are

used for providing the taxable service.

BEFORE

AMENDMENT

Service provider is liable to pay service tax

AFTER

AMENDMENT

Service provided or agreed to be provided by a recovery agent to a

banking company or a financial institution or a non-banking financial

company, the recipient of the service would be the person liable for paying

service tax.

6. Service tax to be payable by the recipient of service in case of services provided by

recovery agents to banks, financial institutions and NBFC

7. Service tax to be payable by the recipient of service in case of service provided by

a director to a body corporate

BEFORE

AMENDMENT

In case of services provided by directors, service tax was payable under

reverse charge only when the service was provided by a director of a

company to the said company.

AFTER

AMENDMENT

Service provided or agreed to be provided by a director of a company or a

body corporate to the said company or the body corporate, the recipient of

such service would be the person liable for paying service tax.


8. E-payment of service tax mandatory for all assessees irrespective of the tax paid

during previous year

BEFORE

AMENDMENT

Where an assessee had paid a service tax of Rs 1 lakh or more including

the amount paid by utilization of CENVAT credit, in the preceding financial

year, he was required to deposit the service tax liable to be paid by him

electronically through internet banking.

AFTER

AMENDMENT

Every assessee shall electronically pay the service tax payable by him,

through internet banking. However, the jurisdictional Assistant / Deputy

Commissioner of Central Excise may for reasons to be recorded in writing,

allow the assessee to deposit service tax by any mode other than internet

banking.

9. Service receiver and provider to pay equal service tax on non-abated value in case

of renting of motor vehicle

BEFORE

AMENDMENT

In respect of services provided or agreed to be provided by way of renting

of a motor vehicle designed to carry passengers on non abated value to

any person who is not engaged in the similar line of business, 60% of

service tax was payable by the person providing the service and

remaining 40% by the service receiver.

AFTER

AMENDMENT

Percentages of service tax payable by the service provider and the service

receiver from 60%:40% to 50% each.

XY Travels Pvt. Ltd., located in New Delhi, is engaged in providing services of renting of

motorcab and discharges its service tax liability by availing abatement granted under

Notification No. 26/2012 ST dated 20.06.2012. Value of services rendered by the company

during the month of October, 2014 is Rs.5,50,000 (before availing abatement).

The company has sub-contracted part of its services to YZ Cabs Pvt. Ltd., which is also

engaged in providing services of renting of motorcab. Total value of such sub-contracted

services is Rs.50,000 and service tax payable thereon is Rs.6,180.

Determine the net service tax liability of XY Travels Pvt. Ltd. (to be paid in cash) for the

month of October, 2014.

Answ

er

Computation of net service tax liability (to be paid in cash) of XY Travels Pvt. Ltd. for

October, 2014

Particulars Rs.

Value of services 5,50,000

Less: Abatement @ 60% [Note 1] 3,30,000

Value of taxable service 2,20,000

Service tax @ 12.36% 27,192

Less: CENVAT credit [Note 2] 2,472

Net service tax liability to be paid in cash 24,720


Notes

1. Notification No. 26/2012 ST grants abatement of 60% in respect of services of renting of

motorcab.

2. With effect from 01.10.2014, Notification No. 26/2012 ST has been amended to provide

that up to 40% CENVAT credit of input service of renting of a motorcab provided by a sub-

contractor to the main contractor (providing service of renting of motorcab) could be

availed by the main contractor if the sub-contractor is paying service tax on full value i.e.,

no abatement is being availed by sub-contractor. This credit will be available even if the

main contractor pays the service tax on abated value. Since YZ Cabs Pvt. Ltd. has paid

service tax on full value (Rs.50,000 x 12.36% = Rs. 6,180), XY Travels Pvt. Ltd. can avail

credit upto Rs.2,472 (40% of Rs. 6,180).

3. Since XY Travels Pvt. Ltd. is a company, reverse charge provisions will not apply in its

case. Further, provisions of partial reverse charge will not apply in case of YZ Cabs Pvt.

Ltd. also, as in its case services are provided in similar line of business.

With reference to the position of service tax law as applicable on or after 01.10.2014,

determine the net service tax liability to be paid in cash in each of the following independent

cases:

(I) Value of services provided by a radio taxi operator is Rs.1,00,000. The operator does not

avail CENVAT credit on inputs, capital goods and input services used for providing the

said service. It intends to avail abatement, if any, granted for such service.

(ii) Value of services provided by a Company running air-conditioned buses for point to point

travel is Rs.5,00,000. The buses do not stop to pick or drop the passengers

during the journey. The Company does not avail CENVAT credit on inputs, capital goods

and input services used for providing the said service. It intends to avail abatement, if

any, granted for such service. The Company has sub-contracted part of its services to

another Company running air-conditioned buses for point to point travel. Total value of

such sub-contracted services is Rs.50,000 and service tax payable thereon is ` 6,180.

(iii) Value of services provided by a Company running non air-conditioned buses for point to

point travel is Rs.1,00,000. The buses do not stop to pick or drop the passengers during

the journey. The Company does not avail CENVAT credit on inputs, capital goods and

input services used for providing the said service. It intends to avail abatement, if any,

granted for such service.A

nsw

er

(I) With effect from 01.10.2014, clause (o) of section 66D has been amended by Finance

(No.) Act, 2014 to remove the service of transportation of passengers by radio taxis from

the ambit of negative list of services. Thus, travel by radio taxis or radio cabs, whether or

not air-conditioned, has been made liable to service tax w.e.f. 01.10.2014. However, an

abatement of 60% has been extended to transport of passengers by a radio taxi from the

same day by inserting a new entry 9A in Notification No. 26/2012 ST dated 20.06.2012.

The abatement would be available if CENVAT credit on inputs, capital goods and input

services, used for providing the taxable service, has not been taken under the provisions

of CENVAT Credit Rues, 2004. Thus, in the given case, since CENVAT credit on inputs,

capital goods and input services is not being availed by the radio taxi operator, he can

claim the abatement of 60% which will make the effective rate of service tax as 4.944% [40

x 12.36%]. Thus, service tax liability to be paid in cash will be ` 4,944 [` 1,00,000 x

4.944%]. In this case, entire service tax liability will have to be paid in cash as benefit of

CENVAT credit cannot be availed.


(ii) With effect from 11.07.2014, Mega Exemption Notification No. 25/2012 ST dated

20.06.2012 has been amended to restrict the exemption available to transport of

passengers by contract carriages for purposes other than tourism, conducted tour,

charter or hire to transport of passengers by non air-conditioned contract carriages only.

Thus, transport of passengers by air-conditioned contract carriages has been made liable

to service tax with effect from 11.07.2014. However, an abatement of 60% has been

extended to transport of passengers, with or without accompanied belongings, by a

contract carriage other than motorcab from the same day by inserting a new entry 9A in

Notification No. 26/2012 ST dated 20.06.2012. The aforesaid abatement would be

available if CENVAT credit on inputs, capital goods and input services, used for providing

the taxable service, has not been taken under the provisions of CENVAT Credit Rues,

2004.

In the given case, the buses are contract carriages since they are used for point to point

travel and they do not stop to pick or drop the passengers during the journey. Thus, the

passenger transportation services provided in air-conditioned buses (contract carriages)

by the Company would be liable to service tax. Further, since the Company does not avail

CENVAT credit on inputs, capital goods and input services, it can claim the abatement of

60% which will make the effective rate of service tax as 4.944% [40 x 12.36%]. Thus,

service tax liability to be paid in cash will be 24,720 [ 5,00,000 x 4.944%].

It is to be noted that whereas credit of input service received by a person engaged in

providing services of renting of motorcab from a sub-contractor has been allowed with

effect from 01.10.2014 under entry 9 of Notification No. 26/2012 ST dated 20.06.2012, the

same is not allowed for contract carriages other than motorcab under entry 9A. Therefore,

entire service tax liability of Rs.24,720 will have to be paid in cash.

Rs. Rs.

BEFORE

AMENDMENT

failure to pay service tax by the prescribed due date attracted simple

interest @ 18% p.a. for the period by which such crediting of tax or any part

thereof was delayed.

AFTER

AMENDMENT

prescribe slab rates of interest which would vary with the extent of delay.

10. Slab rate of interest introduced for delayed payment of service tax

Extent of delay Simple interest rate per annum

Up to 6 months 18%

More than 6 months & upto 1 year 18% for first 6 months, and 24% for the period of

delay beyond 6 months

More than 1 year 18% for first 6 months, 24% for second 6 months,

and 30% for the period of delay beyond 1 year

The new rates of interest for delayed payment of service tax are as follows:


Computation of interest payable under section 75

Particulars Rate of interest per annum Interest (Rs.)

Delay from 06.11.2014

- 05.05.2015

18% for first six months 5,445 [Rs.60,500 x 18% x 6/12]


- 05.11.2015

24% for next six months 7,260 [ 60,500 x 24% x 6/12]Rs.


- 06.01.2016

30% for period beyond

one year

3,083 [ 60,500 x 30% x 62/365]Rs.

Total Interest 15,730

Since the turnover of the services in the preceding financial year is more than Rs.60 lakh

concession of 3% on applicable rate of interest cannot be availed.

CENVAT CREDIT

1. Credit on inputs and input services to be availed within 6 months of the date of

invoice.

2. Availability of Credit of Input Service in Reverse Charge

3. Condition of reversal of credit on failing to pay value of input service and service tax

within 3 months of the date of invoice not to apply in case of full reverse charge.

4. Credit reversed on account of non-receipt of export proceeds within the specified or

extended period can be re-availed if export proceeds are received within one year

from the specified or extended period [Rule 6(8)]

Full Reverse Charge Partial Reverse Charge

After payment of Service tax to the

Government

After payment of-

(i) Value of input service AND

(ii) Service tax

Determine the interest payable under section 75 of Finance Act, 1994 on delayed payment of

service tax from the following particulars:

Note: Turnover of services in the preceding financial year was Rs.80 lakh.

An

sw

er

Service tax payable Rs.60,500

Due date of payment 06.11.2014

Date of payment 06.01.2016

Section 75 of Finance Act, 1994 levies simple interest on failure to pay service tax by the

prescribed due date for the period by which such crediting of tax or any part thereof is delayed.

With effect from 01.10.2014, Notification No. 12/2014 ST dated 11.07.2014 has been issued to

prescribe new slab rates of interest for delayed payment of service tax.

Therefore, the interest payable under section 75 will be computed as under:

Amendments by finance Act-2014.pdf

Documents

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