Finance, Accounts & Tax Issues

USD vs INR

2016-11-22T05:54:00.005+05:30

Rupee has slumped really fast and it is currently at 68.22 from 66.62 which was the rate on 8^th of November when demonisation was announced, this signals a drop of 2.4% in 2 weeks (if annualized comes to a whopping 62%). However Euro continues to be below 73 and it is currently at 72.56.

Reasons :

Demonetisation of Indian rupee has brought in huge liquid cash into system pushing interest rates down. If interest rates go down rupee will not be a favourite currency for investors pushing its value down (meaning alternate currency USD value is increasing).
Trump effect – his promises on infrastructure boost, tax cuts is expected to spur growth and inflation in US. Inflation means higher interest rates (Fed Governor Yellen has already indicated an increase in interest rates soon). USD is expected to gain in the short term atleast
Euro is weak against USD hence Euro / INR rates did not go up as much as USD / INR

Outlook – USD will continue to be above 68 till December. Purchases in USD will be expensive

Brief on New Pension Scheme - NPS

2013-07-29T00:22:00.001+05:30

New Pension Scheme (NPS) is one of the best retirement products available today in India. This is a Defined Contribution based pension scheme, which is being administered in India by Pension Fund Regulatory and Development Authority (PFRDA). If planned properly and if the contribution is made by employer we can avail tax exemption under section 80CCE. Main advantages of this scheme are

It is open to all citizens of India between the age of 18 and 55.
Administration cost is one of the lowest, for non Government employees charge is subject to a limit of 0.25% which is lowest amongst all existing schemes
Scheme closely monitored by PFRDA
Clearly defined investment options which choice resting with employee or in case employee feels it can be an automated option, it is also available. The auto choice is as below (Class G - Government securities; Class E - Equity; Class C - Corporate Debt). The visibility is clear, higher the age lesser the risk and viceversa

The next question arises what is the return over the last 3 years. I have been investing since 2010 April and in these 3 years I have received 8% returns which is a decent return considering the additional interest due to tax benefit which I received on contribution. The calculation of my contribution is as below as on 7th May 2013 and on that date my fund value was Rs.37,350

I would recommend for all non governmental employees who do not have a proper pension plan to adopt NPS and start contributing from an early age to benefit from decent returns and a handsome corpus on retirement.

A Brief guide to Income tax returns filing - PY 2012-13 / FY 2013-14

2013-07-28T17:01:00.003+05:30

Select your relevant form

ITR1

Income from salary / pension
Income from one house property (excluding losses brought forward from previous year)
Income from other sources (excluding lottery, horse races)

ITR2 – ITR1 categories plus / or

Income from Capital Gains
Income from other sources including Lottery, races

ITR3

Income from partnership firms by way of salary, interest, bonus, commission includable under the head “Profits or Gains of business or profession”

ITR4

Individual or HUF who is carrying on a proprietary business or profession

ITR4S – ITR1 categories plus / or

Income from business computed under special provisions of section 44AD & 44AE of income tax act (presumptive taxation)

ITR5

Returns by Firms, Association of Persons, Body of Individuals

ITR6

Returns by companies

ITR7

Returns under section 139(4A) , 139(4B), 139(4C) & 139(4D) – belated returns but before completion of assessment year

Compulsory E-filing of Returns with or without digital signature – Previous Year 12-13 / Assessment Year 13-14

ITR1, ITR2, ITR3, ITR4, ITR4S, ITR5 is mandated for compulsory e-filing (with or without digital signature) if income exceed Rs.5 lacs. Income below Rs.5 lacs can go in for manual filing.

Compulsory E-filing of Returns with digital signature – Previous Year 12-13 / Assessment Year 13-14

ITR4 & ITR5 is mandatory for e-filing with digital signature if section 44AB is applicable (audit of accounts)

ITR6 is mandatory for e-filing with digital signature

How to file returns

Visit site https://incometaxindiaefiling.gov.in/ and download the relevant ITR in excel format.

View your 26AS following this link https://services.tdscpc.gov.in/serv/tapn/welcome26AS.xhtml. If you have not registered in income tax website, there will be a promt to register using your PAN. After registration or login this site provides you all details of your tax deducted by your employer or any other person like your banker on interest income. Also it provides details of advance tax paid & details of high value transactions reported in your name. Cross check the tax deducted & advance tax, ensure that these figures are reflected in your ITR returns. If there is a mismatch then there will be query from income tax as to the mismatch. If there are any discrepancies take it up immediately with the TDS deducing authorities to correct if discrepancy is in TDS or take it up with your banker if discrepancy is in advance tax payment.

Once you have filled in the ITR, convert into an XML file and go to site https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UploadReturnsHome.html?ID=1707942105 to upload your returns. If you would wish to digitally sign your returns register your token in the “Profile settings” menu or follow this link https://incometaxindiaefiling.gov.in/e-Filing/MyAccount/UpdateDscDetailsLink.html?ID=579614307. Upload the returns.

Download the acknowledgement and forward it to CPC Bengaluru, if you have digitally signed the return you need not forward to CPC Bengaluru.

Reform Tax Administration

2013-03-10T18:14:00.003+05:30

In the budget estimates presented by our Honorable Finance Minister, shortfall on account of Corporation tax, Customs Duty and Excise Duty was projected to be around 58k crores. A huge shortfall indeed.

Now the question raised is how do we correct this shortfall or how to stop further shortfall in the above revenues? The following "novel" actions are being taken by our tax authorities.

Corporation Tax

Novel Method 1

Stop all refunds. No refund orders to be passed, if for an assessment year order under section 143(3) comes up for finalisation the officer ensures that the order does not have any refund (even if eligible). So what to do? Simple, Omit an advance tax challan!! If a company has paid Rs.10 crores with Rs.2.5 crore in each quarter miss out one quarter payment and show only Rs.7.5 crores and negate any refund or claim an additional tax. If in case the company immediately goes to the officer and requests for rectification of mistake the officer "off the record" says, Sir, I will pass your refund order in the next financial year, just file a Petition under Section 154, I will take it up next year!!

Novel Method 2

Send letters to companies asking them to appear before the authority asking as to why there is a shortfall in payment of advance tax. Is there a provision in Income tax law for this? Tax experts please guide me!!

Customs Duty

Novel Method 1

Delay assessment of bills filed under DFIA or any duty benefit schemes. Either the assessments for these bills are taken up once a week or only 1 hour per day. Priority given to bills filled with full payment of duty. This is to coerce companies to pay duties, if they want their consignments to be cleared immediately.

Question : Why give benefit at all and make people run around to claim it!!

Novel Method 2

Delay refunds. Either issue a letter seeking clarification or issue a notice demanding more details, if all fails call up the assessee or the clearing agent requesting them to pursue the refund in the next financial year. This is an age old and time tested method, time and again adopted!!

Excise Duty

Call up the companies in January / February or March requesting them not to use CENVAT credit for payment of duty instead pay all taxes through PLA. Is there a provision in law for this?

Imagine what would happen if in case a company official calls up the Assistant Commissioner of Central Excise and says, "Sir, I have a shortfall in my revenue can I pay my taxes later by 15 days?", will he get this opportunity? I am sure he will be greeted with a Show Cause Notice, which will carry Interest and Penalty

Mr.Finance Minister, Is this the way to meet tax targets? Come on Stop it we are in 21st Century and we are not idiots

When a company is at a default or "seemingly default" there is a raid, show cause notice, hearing called for and grilled. On top of this there is interest, penalty and in some cases Jail terms also. But what happens to our tax officers who do not pass refund orders on time, take up assessment on time and pass order denying genuine refunds on a silly ground? I have seen so many innumerable cases getting quashed at Tribunal levels because of trivial orders passed by Quasi Judicial tax authorities, is this the way it should be?

To clarify I will not suggest we should spare companies who are at default or who fail to comply with law, they should be prosecuted according to legal provisions, but rather I would also suggest the same should happen to tax authorities also to ensure that they are responsible enough and there is no hardship for companies in tax compliance.

Tax payments and legal compliance should be a pleasure, but unfortunately in India it is getting more and more of a pain. Imagine attending a Transfer Pricing Hearing, Hearing under section 143(1) of Income tax, Assessment under VAT rules or a Hearing for clarification on refunds with customs. The amount of documents demanded by the officers, the amount of clarifications demanded by them, most of the times, defy logic and in most cases I am sure the innumerable documents given by us land up in shelves unread and subsequently scrapped!! What a waste of time and resource!!

Tax reforms should not only be in the written law but also in tax administration, this will ensure a tax friendly environment and attract more investments, unfortunately, currently our tax administration distracts investments.

Do it Yourself - come on, Bend your Back - Result Corruption free India

2012-12-28T07:58:00.000+05:30

One of my best friend, my bike, a Bajaj 4S bought by me in December 1992 needed a re-registration as he has turned 20. I had my bike neatly painted, changed worn out parts and made it look brand new, and he is sure sparkling and to my surprise he passed the mandatory pollution test with flying colours meaning his engine is absolutely fantastic even after 20 years at work.

Painting, changing parts, pollution test were all easy as at the best what I had to do was find a good mechanic and sure he did a good job. The next challenge is how do I get the re-registration done. The mechanic told me Sir, that is going to be difficult for you to handle, you go to a driving school they will charge around Rs.2,500 but official receipt may be only for a portion of the amount, as you know the people in Regional Transport Office (RTO) are highly corrupt and they will all take money, moreover they will make you run pillar to post and sir, you have better job to do and it is below your standard to deal with the people in RTO.

But I was adamant that I will not pay a dime extra than the official fees, so I decided I will go directly to RTO. I went into the internet read about the procedure and noted down the points. The applications were available in the internet, but I did not download, but went to a xerox shop near the RTO office one Saturday and asked them what are the forms for re-registration and address change they immediately gave me 2 forms for Rs.10 each, these forms exactly tallied with the forms found in internet by me. I brought those forms which were quite easy to fill, in fact the details in the form for re-registration were almost all copied from the RC book available with me.

It was a Wednesday morning (26.12.2012) I decided to go to the RTO. I filled up the forms had all the originals and copies as mentioned in the form. I was at the RTO sharp at 10am. There was an enquiry counter, I asked them what to do? He looked at my completed forms, Oh! this looks good pay the fees and come. So I went into the queue for payment of fees where another 2 people were in front of me. I waited for about 10 minutes when my turn came the cashier looked at me surprisingly and looked at my form turning all the pages. Then he asked me a question Sir, did you pay the taxes? I said my bike is under Life Time Tax and now I have to pay only Rs.500 towards Green Tax, he looked at me puzzled, because he became aware that he cannot take me for a ride as I new something of the procedure. He quickly typed the details on his computer and said this will cost you Rs.630, Rs.500 for Green Tax, Rs.100 for Address Change and Rs.30 for service charge. I said fine and paid the fees. He gave me 4 challans. Three of the challans I have to staple in my RC book and one is my copy, which I did and had it checked with a gentleman standing there who is from a driving school and doing this job for ages. I again went to the enquiry counter and showed him my payment challans, he said sir, the inspector will come and inspect your vehicle around 12 noon as currently he doing the LLR licence now, you wait near such and such spot. The time then was 10.30 am. Being a doubting Thomas myself I thought it appropriate to check with the inspector himself because if I wait till 12 noon and the inspector did not turn up what to do? So I went up to the inspector room it was fully crowded with LLR applicants and the inspector was busy checking their papers. One good thing was there was a queue, so I joined the queue at the end, and when my turn came I told the inspector why I came for, he looked at me and said sir this is queue for LLR you go and wait near your bike I will come around 12 noon. Now I was happy that I have the confirmation.

In the queue for verification by Inspector there were all new vehicles and had the company representatives (bike dealer representatives), I was the odd man out because I had an old vehicle and I am the owner. To my surprise the Inspector was at the inspection place around 11.30 am, first he was inspecting the vans / buses for their re-registration, when the turn for bikes came mine was around 6th in the queue. He came to my bike looked at me and had a small smile in the face asked me for the papers and I gave him all. He checked my application, the annexures, original Registration book, checked the Engine Number, Chassis number, and nodded in satisfaction. He then turned the page in my application to the space where he needed to sign and signed it. He returned the application to me and said Sir, give it to the enquiry counter and they will do the needful, your re-registration is over, he moved on to the next vehicle. I thanked him and pushed my vehicle out of that place and when I was about 20 metres away one of the dealer representative who had a new bike for registration walked up to me and asked rather slowly "Sir, how much did you pay the Inspector for this?", I said "I paid the fees at the counter". "No Sir, I understand but how much to the Inspector"? I said "nothing, so what"? He looked puzzled. I just left him there staring at me, and moved away to the enquiry counter, where I handed over the application and original RC book. The officer there looked at the Inspector's sign and smiled back again, sir come on friday and collect the RC book. It was over, and the time was 12.30pm.

Honestly this is not the first time I did this, in fact this is the 4th time with the RTO I had this experience, once for renewal of my licence, once for my wife licence address change and once for my bike re-registration after 15 years. In fact for all the 4 times I did not pay a paise more than the official fees, but I spent half a day everytime, but I was really proud that even though I spent my time I did not pay anything extra. Same goes to the passport office, I did not have an agent for my passport, I applied online and I went into the queue and got the verification done, paid the fees and came out, passport came to me in 2 weeks.

You can ask me why I am writing all this, I would request you all to contribute in a small way to avoid corruption. What you have to do is quite simple and the following are the steps when you deal with Government departments.

Read and understand the procedures to be followed clearly, so that nobody tries to outsmart you. If people find out that you are not aware of the procedures they will surely take you for a ride and it will cost you money.
Fill up the forms yourself and have the annexures done yourself - believe me this is not Rocket Science, we are so used to signing at the places marked "x" by the agent and allowing him to do everything please avoid it as much as possible
"Do it Yourself" - we have a common excuse "No time". I do not believe this, we have to create time, when we can take holiday for our wife birthday, wedding day, children birthday I am sure we can take holiday for these reasons also as it an important matter concerning our society

My humble request to you all, let's stop complaining "people in Government departments are corrupt and nothing moves without Vitamin-M". To put it bluntly we are the reason for this, we do not want to "bend our back" we want an easy way out, which is through paying money we get our work done. Corruption happens because we want it to happen, if every individual in this country takes responsibility for his tasks I am sure we can avoid corruption. This is easy to say and I am sure easy to follow.

Jai Hind. Let us make India corruption free

ST-3 Returns due on 25.10.2012

2012-09-29T17:43:00.002+05:30

Notification No.47/2012 Service tax has been notifified on 28.9.2012 under which it has been mandated that ST-3 returns due on 25.10.2012 will be covering transactions only for the period 1.4.2012 to 30.6.2012.

As there has been significant amendments to service tax act as on 1.7.2012, the ST-3 form is being modified to adopt to the changes for the period 1.7.2012 to 30.09.2012. The revised form and due date will be announced soon.

Service Tax on Director Fees & Impact under Section 309/310 of Companies Act

2012-09-24T06:04:00.001+05:30

Section 65B(44) of Finance Act, 1994 as Amended by Finance Act 2012 defines Service as follows :

"service" means any activity carried out by a person for another for consideration, and includes a declared service.

This definition further goes on to exclude in clause (b)

(b) a provision of service by an employee to the employer in the course of or in relation to his employment

This definition under 65B(44) and above exclusion makes it amply clear that :

Services of a Director who is not an Employee of the Company (ie) Non Executive Directors are covered under the scope of Service tax. Accordingly any remuneration to Non Executive Directors both monetary and non monetary are subject to Service Tax from 1.7.2012.

Valuation of Service

All monetary benefits like Fees, Commission, bonus etc to be taken at the monetary value. Non monetary benefits like Car, Phone, accommodation etc to be valued as per valuation Rules and subject to Service Tax

Foreign Directors (Only Non Executive)

Irrespective of Directors are within India or abroad Service tax is applicable on their monetary and non-monetary considerations for services rendered as Director

Who Pays Service Tax

From 1.7.2012 to 6.8.2012 for Non Executive Directors within India, liability is on the Directors to pay Service tax. Hence they need to have registration under Service Tax and discharge their liability. On their option they can choose to take the Rs.10 lakh exemption limit for discharge of their liability

From 1.7.2012 for Directors outside India (Foreign Directors), the company has to pay Service tax on Reverse Charge Mechanism as a Representative Assessee. Here there is no provision for Rs.10 lakh exemption. For the full amount (irrespective of the quantum) service tax needs to be paid.

On 7.8 2012 Notification No.45/2012 was introduced under which even for local Non Executive Directors service tax liability has to be discharged by the Company. In this situation, the company has to get itself registered under Service Tax and discharge the Service tax liability.

In short, the situation as on today is that for all Non Executive Directors the company has to discharge service tax liability under Reverse Charge Mechanism as per Notification No.45/2012.

Implications under Company Law

Due to the above changes in Service Tax and the Service Tax amount being 12.36% of the monetary and non monetary benefit of the Non Executive Directors the expenses on Directors to the company has increased to that extent, this in turn affects section 198, 309 & 310 of the Companies Act, 1956. This would mean that some companies have to approch Central Government again if they breach the threshold limits specified in these sections. To avoid this complication for the financial year 2012-13 the Ministry of Corporate Affairs have issued a Notification No.24/2012 dated 9.8.2012 wherein it exempts companies from applying to Central Government for approval for increase in remuneration of Directors only on account of Service Tax. Note, this provision is only for the year 2012-13 and from next year onwards the companies have to apply for approval inclusive of service tax.

Expatriates in India - Actual Tax Calculation

2012-08-12T08:05:00.001+05:30

To bring in a clear understanding and as a supplement to my blog on expatriate taxation http://ssaravanan-vvu.blogspot.in/2012/07/expatriates-taxation-in-india.html, I have tried to demonstrate here a calculation of expatriate taxation and then finally calculate his / her take home salary in India.

Assumptions

The expatriate is first time in India and hence he is considered a Non Resident for tax purposes
His income is split into two parts

Salary paid by overseas parent for services rendered in India- USD 50,000 per annum
Income paid by Indian company for services rendered in India - INR 5,000,000 per annum

He has been given the following perquisites in India

Furnished housing
One Motor Car with Driver
Indian company pays school fees for his children
Indian company pays for maintenance of the house & domestic help

The country from which the expatriate is based does not have a Social Security Agreement (SSA) with India, and hence Providend Fund (PF) has to be deducted @12% on both International & Indian salary (effective from 1.10.2008)
No Other Income for this expatriate in India
No Other tax savings in India other than 80C
No Sweat Equity or ESOP

The tax calculation will be as below for the expatriate

Calculation of perquisites

Calculation of Take Home Salary in India is as below

This is a simplified example of expatriate tax and his / her take home salary, but in practice there will be more complicated scenarios which need to be handled according to the relevant laws prevailing at that time

Expatriates Taxation in India

2012-07-15T23:27:00.000+05:30

India is a fast growing economy with many multinationals setting up shop in India. This means that quite a number of Expatriates of various nationalities come into India and they would in turn like to know tax impact on their salaries earned in India and abroad. To ascertain tax status of these expatriates in India we need to review

Section 5, 6, 9 and 10 of Income Tax Act, 1961.
Indian Provident Fund Scheme, 1952 (specifically notification dated 1.10.2008)

Section 6 - Residence in India
Residence in India determines the taxable status of an individual in India. The following are the various definitions under Income Tax Act, 1961 on Resident status.

Resident	1. Was in India for a period of minimum 182 days during that year or 2. Was in India during the year for a period of minimum 60 days and in the preceding 4 years was in India for a minimum period of 365 days
Non Resident	A person who is not a Resident is a Non Resident
Not Ordinarily Resident	1. Non Resident in 9 out of 10 years preceding that year or 2. In India for a period of 729 days or less during the preceding 7 years

Section 5 - Scope of Taxation

The incomes which are taxed are as given below for each category of Residency.

Resident	1. Received or is deemed to be received in India during the year 2. Accrues or arises or is deemed to accrue or arise in India during the year 3. Accrues or arises outside India during the year
Non Resident	1. Received or deemed to be received in India during the year 2. Accrues of arises or deemed to accrue or arise in India during the year
Not Ordinarily Resident	1. Received or is deemed to be received in India during the year 2. Accrues or arises or is deemed to accrue or arise in India during the year 3. Accrues or arises outside India during the year provided it is derived from a business controlled in or a profession set up in India

Section 9(1)(ii) - Income deemed to accrue or arise in India

Salaries if earned in India for

Services rendered in India and
for the leave period which forms part of the service contract of employment

The either of the above 2 conditions if satisfied will entail taxation in India. Section 9(1)(ii) will hold good irrespective of Residence status.

Taxation impact under Income Tax Act

Due to operation of section 9(1)(ii) salary received for services rendered in India will be taxable in India irrespective of place of receipt of salary. For example if an Expatriate receives salary of Rs.100,000 in India and $5,000 in US, for services rendered in India, then the entire amount of Rs.100,000 and $5,000 are taxable in India

Section 10(6) - Exceptions to the above taxation Rule

Exceptions to the taxation are provided for

Employees of Consulate etc
Remuneration paid by a foreign enterprise for service rendered in India if

the foreign enterprise is not engaged in any trade or business in India
the employee stay is not more than 90 days in the year
the remuneration paid by the foreign enterprise is not deducted from income of the enterprise for purpose of income tax in India

Provident Fund
International worker is defined to include a Foreign National working in India. India has signed social security agreements till todate with 3 countries namely Belgium, France and Germany. Foreign Nationals who belong to these countries do not come under the definition of International workers. Other Foreign Nationals should contribute the Provident Fund Scheme in India. Provident Fund is to be

Deducted at 12% - employee contribution and 12% - employer contribution - total 24% contribution
To be deducted on the full salary both received in India and also abroad and also from the parent company abroad

Conclusion

Expatriate employees come under purview of income tax and provident fund acts. There are certain exemptions which can be claimed. Taxation aspects are quite clear and hence care should be taken to abide by them

Account Code for Payment of Service Tax

2012-07-07T13:49:00.000+05:30

With the changes in Service tax due to introduction of 'Negative list', the account codes for payment of service tax has also being changed to provide for payment under one head called "All Taxable Services"

Circular No.F.No.341/21/2012-TRU has been issued dated 6.7.2012 providing for the below account codes.

Accounting codes for the purpose of payment of service tax under the Negative List approach, with effect from 1^st July, 2012 is as follows:

Name of Services	Accounting codes
Name of Services	Tax collection	Other Receipts	Penalties	Deduct refunds
All Taxable Services	00441089	00441090	00441093	00441094

NOTE: (i) service specific accounting codes will also continue to operate, side by side, for accounting of service tax pertaining to the past period (meaning, for the period prior to 1^st July, 2012); (ii) Primary Education Cess on all taxable services will be booked under 00440298 and Secondary and Higher Education Cess on all taxable services will be booked under00440426 ; (iii) a new sub-head has been created for payment of “penalty”; the sub-head “other receipts” is meant only for payment of interest etc. leviable on delayed payment of service tax; (iv) the sub-head “deduct refunds” is not to be used by the assessees, as it is meant for use by the Revenue/Commissionerates while allowing refund of tax.

Income Tax Returns from Assessment Year 2012-13 - Mandatory e-filing

2012-07-03T05:05:00.001+05:30

From the Assessment year 2012-13 the income tax department has made e-filing compulsory for the following categories of tax payers vide Notification number S.O.626(E), dated 28.3.2012.

an Individual or a HUF whose total income is more than Rs.10 lacs
an Individual or a HUF, who is a resident, having assets (including financial interest in any entity) located outside India or signing authority outside India and required to furnish tax returns under ITR2 or ITR3 or ITR4

CBDT has further clarified under its Press Release No.402/92/2006-MC (12 or 2012) dated 2.7.2012 that though e-returns are mandatory for the above 2 categories, digital signature is not mandatory. The assesses can transmit the data in the return electronically and thereafter submit for verification to ITR-V to CPC in Bangalore by ordinary post within 120 days.

To clarify

ITR1 is for tax payers with

salary or pension income
Rental income from one property
capital gains that are tax free
Interest from interest and other sources

ITR2 is for tax payers with

salary or pension income
Rental income from more than one prpoerty
Any Capital losses or Capital gains
Income from other sources
Foreign assets

ITR3 is for tax payers with

Interest from salary, bonus, commission or remuneration
Capital gains
More than one house rental income with carried forward losses
Income from other sources

ITR4 is for tax payers with

Income from business or profession
Income from other sources
Foreign assets

ITR5 is for Firms
ITR6 is for Companies

E-filing of income tax returns can be done through website of the CBDT @ https://incometaxindiaefiling.gov.in/portal/index.jsp. One has to login using their PAN number and then download the relevant ITR. Once the ITR is completed there is a Submit Return icon available through which online return can be filled and ITR-V can be generated to forward to CPC in Bangalore.

Service Tax from 1.7.2012 - Changes a review

2012-07-01T22:17:00.000+05:30

Collection of Service Tax has undergone a sea change today with the Government notifying 1.7.2012 as the date for implementation of "Negative List Based Taxation" for Service Tax. To enable this the Government has carried out the following changes.

Rescinded Sections 65, 65A, 66 & 66A in Finance Act, 1994
Introduced Sections 65A, 66B, 66C, 66D, 66E & 66F in Finance Act, 1994
Issued Notifications Nos.25/2012-ST to 40/2012-ST dated 20.06.2012

What is this Negative List - Section 66D

Negative list consists of 17 services on which there is no service tax is charged (ie) these 17 items are exempt from Service Tax. These include services provided by Central & State Governments, local authority, RBI, Services by foreign Diplomatic missions in India, services relating to agriculture, manufacturing of goods, trading of goods, transmission and distribution of electricity, admission to entertainment events, services by way of renting residential buildings, transport of passengers in State Transport vehicles (however First class and air-conditioned rail travel attracts service tax), transportation of goods other than GTA and courier, funeral, burial, cremation and mortuary services.

What is taxable under Service Tax? Section 65B (44)

Other than the negative list all other services are taxable. Service is defined under Section 65B, Clause (44) "to mean an activity carried out by a person or entity for another for consideration". In short, all services are taxable other than those specified under Section 66D (Negative List).

Mega Exemption List - Notification No.25/2012-ST dt.20.6.12

The complexity does not stop here, the Government has notified vide Notification Number 25/2012-ST dated 20.06.2012 a list known as Mega Exemption List. This list consists of 39 items which are exempted from Service tax apart from the Negative List provided in Section 66D.

So a Service Provider has to check Section 66D & Mega Exemption List to check his nature of service and pay tax on the same.

Reverse Charge - Notification No.30/2012-ST dt.20.6.12

To add masala to the service tax act this notification No.30/2012-ST dt.20.6.12 has been issued. Which lists 11 services of which 8 services need to be paid by the receiver of services and balance 4 services need to be paid in a given proportion by the provider and receiver. The gist of the items are as listed below

Table

Sl.No.	Description of a service	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1	in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Nil	100%
2	in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Nil	100%
3	in respect of services provided or agreed to be provided by way of sponsorship	Nil	100%
4	in respect of services provided or agreed to be provided by an arbitral tribunal	Nil	100%
5	in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services	Nil	100%
6	in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994	Nil	100%
7	(a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b) 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	Nil 60%	100 % 40%
8.	in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	25%	75 %
9.	in respect of services provided or agreed to be provided in service portion in execution of works contract	50%	50%
10	in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%

Abatement

All earlier abatement notifications have been rescinded and a fresh notification number 26/2012-ST dt.20.6.2012 has been issued mandating the abatement percentages. The following is the new abatement table

Table

Sl. No.	Description of taxable service	Percent- age	Conditions
(1)	(2)	(3)	(4)
1	Services in relation to financial leasing including hire purchase	10	Nil.
2	Transport of goods by rail	30	Nil.
3	Transport of passengers, with or without accompanied belongings by rail	30	Nil.
4	Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal,shamiana or any other place, specially arranged for organizing a function) together with renting of such premises	70	(i) CENVAT credit on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
5	Transport of passengers by air, with or without accompanied belongings	40	CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
6	Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.	60	Same as above.
7	Services of goods transport agency in relation to transportation of goods.	25	CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
8	Services provided in relation to chit	70	Same as above.
9	Renting of any motor vehicle designed to carry passengers	40	Same as above.
10	Transport of goods in a vessel	50	Same as above.
11	Services by a tour operator in relation to,- (i) a package tour	25	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
	(ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour	10	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challanissued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
	(iii) any services other than specified at (i) and (ii) above.	40	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.
12.	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority	25	(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.

New Service Tax Rules

Notification Number 36/2012-ST dt.20.06.12 have promulgated new Service Tax Rules known as Service Tax (Second Amendment) Rule 2012. These rules have brought in some procedural changes in Service Tax regime.

Place of Provision of Services (POPS)

Notification No.28/2012-ST dt.20.6.12 has notified Place of Provision of Service Tax, Rules 2012. This rule is relevant to determine where the services are rendered, whether it is within or outside India.

Rupee

2012-05-21T07:21:00.000+05:30

Today, lot of talk is centered around Indian Rupee which is not surprising considering the below graph.

The upward ascent of the Rupee commenced in August 2011 when INR vs USD was 46 today it is 55 which is a depreciation of 19%. Why this sudden spike? Is this the phenomenon with all other BRIC & some Asian countries.

All currencies have depreciated, but It is clear that Indian Rupee has depreciated more than others (Brazil is the only exception to this rule).

Questions asked by corporate's is why Rupee is depreciating and where it is heading to. Let us try to find an answer to these two questions. The factors which affect Rupee are mainly as follows.

1. Foreign Exchange Reserves & External Debt - Foreign exchange reserve is currently at $293 billion which has slipped a bit from its highest levels of $320 billion in September 2011. However the main concern here is that of external debt which was at $334 billion as on 31st December 2011. External Debt has overtaken foreign exchange reserves, which is not so a few years ago, see table below

The slippage of Forex reserves are fast and equally fast is increase in external debt, this will add pressure to the Rupee in the medium to long term.

2. Balance of Payments - Current account deficit especially on Merchandise has risen sharply over the years, thanks mainly to Oil and Gold (see table below).

This increase in BOP has lead to strain on Indian Rupee.

3. FII - FII flows into India has been affected since December 2012 (see table and graph below)

Rs. in crores

FII's have decreased mainly due to high Current Account and Fiscal deficit, lack of reforms and recent actions in taxation front (retrospective amendments and GAAR)

4. FDI - FDI flows during the years 2009-10 & 2010-11 had negative growth, however it had a positive growth in the year 2011-12. See table below

2011-12 has been a better year but not as good as 2008-09. However with the current policy paralysis and lack of reforms and sustained infrastructure bottlenecks FDI inflows will be under severe strain in the years to come. GAAR which will be implemented from 2013 specifically to counter Mauritius investments will also have a negative impact on FDI inflows.

Outlook on the Rupee

As seen above the 5 major parameters of Foreign exchange reserve, Foreign debt, BOP position, FII inflows and FDI inflows, are throwing out negative signals as far as India is concerned. If we take a look at other parameters which affect the rupee like Industrial Output, Inflation, Interest rate, GDP growth, Global Economic Scenario & Stability of Government there also signals are not "so positive". With US economy seemingly back on rails and Eurozone breaking up more and more investments are moved back to US, which will surely put India on the back foot as far as foreign investment inflows are concerned. Back to India, Industrial Growth is not as good as it should be, infrastructure development has not been taking place at the pace it should be taking place, there is lack of policy reforms, there is lack of political consensus, inflation is moving up again, interest rates are refusing to come down.... What does this mean? Rupee to continue to be under strain? looks like it. Rupee atleast in the short term will be at levels of 55-57. But all is not bad, a good monsoon, a revival of US economy, pull out of Greece (from the European union or bailout), will surely boost demand in India and also globally. This will boost up the Rupee in the long term.

In conclusion my view, Rupee in short term of 6 months will be trading in the range of 55-57, however in the long term (by end of 2012) it will return to levels of 46-48.

Kudos Infy - You have the right Strategy, but Innovation is the Key

2012-04-22T19:06:00.001+05:30

"High Growth comes from balance, you will see us moving towards growth and profitability with the balanced approach that we have adopted" these were the words of Mr.SD Shibulal after the Q4-2012 quarterly results were announced on 13th the Friday. These words summarizes what Infosys "stands for" and "will stand for" the years to come. Right from the days of NRN, Infy never chased volumes at the cost of profits, they were ready to sacrifice volumes if there were no profits. This strategy has worked for them for the past 30 years and will work for them for years to come. True after announcement of results analysts battered Infy, stock prices of Infy crashed by a double digit percentage, but the legend lives strong on its principle of growth with profitability.

Infy has a clear strategy of superior financial growth and strong margins and they have stayed with it. Let us look at numbers of Infy and other major IT players to understand the strategy of Infy vis-a-vis others. As now is the trend to look at quarterly numbers let us also look at the "Q" numbers.

NYA - Not yet announced
The analysts are right definitely Infy's revenue growth is under test compared to its peers, growing slowly over the quarters @ 4.6% lowest among its competing colleagues. Does this mean that the magic of Infosys has waned away? We have only seen one parameter of the strategy which is growth, let us look at the other parameter Margin.

Here Infy & TCS win hands down, margin @ around 40's where as others are in 20's. Clearly Infy is living up with its strategy of growth and profitability. Is it a good strategy to have? Definitely yes because of the following reasons :

Avoiding Cost Sensitive Clients - This strategy means not working with highly cost conscious clients, whose primary aim is cost and second comes the product. If there is a price upward revision these clients simply dump the existing vendor and move to another who offers lower cost - No Loyalty
No Cross Subsidization - Infy looks for profit in every business / client. This is a very good option, some companies will look at taking clients at very low margin because of volume with the belief that from some other clients they will get higher margins. This is cross subsidy. Margins will be under severe threat when the higher margin clients exert price pressure
Falling Quality Standards - In the long run with margins dropping there will be pressure from investors to keep profitability at reasonable levels. At that point reaching to customers with price revisions may not be possible, which means cutting costs and some times at the cost of quality
Increase in working Capital - Companies with lower margins tend to have higher working capital requirements, as over a period of time their margins will be inadequate to cover Receivables & expenses. This is turn would mean requirement for working capital and its related costs
Spreading Too Thin - With volumes increasing constantly at the cost of margin, companies will like to make optimal (high) usage of resources meaning expectations of higher productivity from the existing assets (including Human Resources). This will over a period of time lead to "Over Utilisation" of capacity and consequent costs related to it will occur
Price Pressure from Clients - During difficult times like Euro Crises, clients will definitely like to cut their spends in whatever form and the first cut will happen in services, which means IT. At that point if the margin is reasonably high then a small cut in margin will not affect the company's cashflow and once things are back to normal the margins can be restored. But on the contrary if margins are low then taking a cut in margin will be very difficult as it would mean (at times) borrowing of funds to meet working capital expenses which will also add to profitability woes.
High Investment - High volume of business means requirement for higher investments in infrastructure. Cost of maintaining this infrastructure should also be added to this. When margins are thin this will be definitely a strain on business funds over a long period of time
More Work less money - Though Revenue per employee / asset will be higher in companies with lower margin high growth, Profitability per employee / asset will be lower, meaning "More Work, Less Money". Again in long run this will have its own impact

In the long run definitely the strategy of Infy will be very solid - Growth with Profitability. But the million Dollar question is how do they achieve both? This is where I admire companies like Microsoft & Apple. Both of them rely on innovation. I like the words of Bill Gates who once said "For me a product is obsolete once it is launched", which means as soon as he launches a new version he considers it to be obsolete and goes back to the drawing board to innovate and launch new products. Apple with its "i" range of innovative products has taken the market by storm and it not only grows leaps and bounds but also its profitability is sky rocketing. For information Apple's Gross Margin is in the 40s and Microsoft's Gross Margin is in the whopping 60s.

In short, if Infy has to maintain its strategy as well be a darling to its stake holders it should Innovate. It should roll out more and more innovative products and price them at a premium and earn higher margins. One aspect always surprises me is that Infy (and most of the Indian IT companies) are excellent in rolling out SAP by being partners of SAP, but no one has ever tried to create a product like SAP and successfully roll it out (though some have smaller versions of it)? This is where Indian IT companies have to innovate.

My advice - Infy turn to the drawing board invest in R&D, roll out innovative products and then surely you can walk your talk of Growth with Profitability, if not you will only provide lip service to your strategy and see your competitive colleagues zip past you.

What Went Wrong @ Kingfisher Airlines - An Accountants Perspective

2012-04-14T00:09:00.000+05:30

It was during good times (or deemed good times?) of Kingfisher airlines about 3 years ago, I took a Kingfisher flight from Delhi to Lucknow. It was a 40 minute flight. The aircraft was a big one (not sure of the make), with 6 seats in a row and it had live television on every seat. Once the aircraft took off the hostess hurried with snacks and believe me it was so huge that by the time I could finish half of it the plane was about to land and the hostess came back asking for the plates, so being typical Indian I packed the left out snack in a tissue paper and continued eating and the hostess happily took away my empty plate. Though Immersed onto the live television and the snack provided, I also looked around the aircraft and found it was half empty (or half full to be optimistic). In Lucknow I had one of my colleagues waiting for me to take me to Kanpur and I said to him "for the money I paid, it is too big a service I got from KFA, I am not sure whether they can continue like this for long?" From that time, being an accountant I kept asking myself how does KFA keeps rolling out these big services at the same time keeping the price tag lower to match its competitive colleagues.

Now that the tide has changed on KFA and my fear over the years have become real. The company has been subsidizing its services over the years and the bill for this subsidy was picked by the banks to an extent of Rs.7,200 crores. Am I right in saying subsidy? Let me check the cashflow of KFA.

The analysis of cashflow shows that majority of the Cash realised from financing activities over the years have been consumed to finance the loss in cash from operations, rather than taking the money to investment activities. Argument may be placed that the cash spent on operations is towards working capital but if we look at Net Profit it is negative through out which means expenses outsmarted income by a huge margin. And according to me it is subsidy.

But did KFA had a choice as this is the state of the industry with high cost of wages due to lack of skilled pilots, increasing aviation fuel cost, congestion at airports leading to delays and consequent costs, compulsion to operate in some routes & intense competition from other airlines.

Let us analyse some more facts. First, Indian aviation traffic increased 19% CAGR during the period 2006-11, Second, Indian air travel penetration is approximately 0.1 or less trips per year per person this is compared to China which is 0.2 trips per person per year and 2 trips per person per year in United States. Does this fact suggest something juicy? Yes it does there is lot of meat to chew, a huge potential to tap. That I believe is what made KFA over leverage on their finances (ie) spend more than their means.

Can this huge market availability turn into opportunity for the airlines? I have my doubts. First for an airline to make profits there should be world class infrastructure. I for one believe that our airport infrastructure is far from satisfactory except for some airports in the metros. This lack of infrastructure will make operational costs higher. Second, passenger traffic grew 16% CAGR between 2006-11 will that be maintained is quite doubtful atleast in the short term of 3 years as Indian economy is not growing at the speed which it grew in the last decade and there will be a dent in growth rates. Third most of Airline companies in India have major portion of their revenue from domestic operations which is highly price sensitive, they should tap more into International routes to have better realisation's. Fourth pricing should be aggressive no doubt to keep competition at bay but it should be done smartly to have expenses covered.

If I were to be CFO of an airlines company what I will do? It is easy to buy / lease aircrafts as they are sourced out of developed countries and the financial products in India are aped from developed countries and so financing them is also easy. But the Big Question is "Is the Indian market ready", the answer is NO. The current Indian market though looks big in potential is a small market and highly price sensitive. I will look for the long term and a steady growth. I would not put too much money in too many planes but start modestly, price aggressively (to keep my expenses covered) generate margins, generate net worth and use this positive networth to grow over a period of time (remember our childhood story of Hare & the Tortoise).

KFA is now having a huge negative Networth (BIFR?) they need more money to provide more subsidy to the passengers or alteast pay back the bankers who till now are subsidising. I would suggest KFA to cut planes / routes, bring in more capital, pay off huge debts, stop major chunk of financial lease, recreate the brand of KFA, generate profits and use that profit to leverage in the long run.

My advise as an Accountant : Indian aviation industry will be a success story, but the players in this industry need to progress with caution as there are too many "Smoke and mirrors" there and it is easy to get foxed into them. Price your product aggressively but never lose your focus on margins, because once you let it go it is difficult to get it back. I always say it is good to lose some "Battles" but win the "War".

194LLA - TDS on purchase of immovable property

2012-04-02T23:43:00.000+05:30

From 1.10.2012, if you are buying property more than Rs.50 lacs in urban areas or Rs.20 lacs in other areas be prepared to deduct income tax @ 1% and remit the same to Income tax authorities. This is one more tax procedure proposed to be introduced to be complied by the buyer of property.

Effective 1st October, 2012 a new section is proposed to be introduced in Income Tax Act, 1961 - 194LLA under which, TDS (Tax deduction at Source) should be deducted at the rate of 1% on all payments made for transfer of property other than agricultural land if the value of the property exceed Rs.50 lacs in urban areas and Rs.20 lacs if the property is situated in any other areas.

The buyer has to produce to the registrar the tax payment challan equivalent to 1% of the transaction value to get the land registered. This the Government claims will help rein in information on real estate transactions immediately and will help Government curb black money as the Government feels real estate is a major area which generates black money.

Question is will this new levy help achieve the Government objective of curbing black money? The problem with India is we are extremely good in drafting laws, debating them and enacting them. But the major point is whether we are implementing the law as it should be implemented? The answer is a big no!! What is the Government doing with the data it gets from banks / registrars on large value transactions? This TDS is more of a duplication of information to the Government. This new TDS section will unnecessarily complicate the already complex tax laws we have in our country.

"Come on India" let us move forward with tax reforms these type of tinkering legislations lead to a vicious circle leading us nowhere. Let us not waste time discussing and implementing 194LLA, but spend that time trying to implement GST / DTA and other landmark legislations

Cheques / DD valid only for 3 months from 1.4.2012

2012-04-02T09:50:00.001+05:30

From yesterday 1.4.2012 banks will not honour cheques / Demand Drafts which are more than 3 months. So please ensure that your cheques / DDs are presented for clearing within 3 months.

This follows Reserve Bank of India has issued directions vide RBI/2011-12/251 - DBOD.AML BC.No.47/14.01.001/2011-12, under which it has directed banks from 1st April 2012, not to honour cheques / Drafts / Pay Orders / Banker’s Cheques which are more than 3 months old as against the current practice of 6 months.

Budget 2012 - Direct Taxes

2012-04-01T23:16:00.003+05:30

This article provides a brief overview of budget proposals 2012 and its implications.

Individual Tax Payers

Basic exemption limit extended by Rs.20,000 to Rs.2,00,000. For women exemption limit extended by Rs.10,000 to Rs.2,00,000. No increase for senior citizens to remain at Rs.2,50,000.

Tax slabs have been slightly changed to extend the rate of 20% upto Rs.10 lacs. The revised rate slab is as follows.

Upto Rs.2,00,000 - Nil

Rs.2,00,001 to Rs.5,00,000 - 10%

Rs.5,00,001 to Rs.10,00,000 - 20%

Rs.10,00,001 and above - 30%

80C - There is no change

80D - In addition to the current benefits expense upto to Rs.5,000 on Medical Preventive Health check-up is allowed

80DDB - Senior Citizen age reduced to 60 years from current definition of 65 years

80TTA - Interest received from Savings Bank Account exempt upto a value of Rs.10,000

A new condition has been introduced in 80C as regards insurance premium. Deduction under section 80C for insurance is allowed only to an extent of 10% of the capital sum assured.

Section 80CCF - infrastructure bond has been withdrawn from tax deduction

Corporate Tax Payers

No change in corporate rate of 30% for domestic companies and 40% for foreign companies.

No change in Dividend Distribution tax (DDT) rates, remains @ 15% + 7.5% surcharge + 3% Cess (effective rate 16.60875%)

No change in MAT rate of 18.5%

Section 115JC - AMT (Alternate Minimum Tax) of 18.5% applicable to a person other than a company.

Perquisites Valuation for Salaried Employees

2012-03-04T19:41:00.002+05:30

Section 17(2) of the income tax act, 1961 defines Perquisites and it includes within its gambit a variety of perquisites provided by the employer. This articles provides an insight into the valuation of these perquisites.

Provision of Unfurnished Accommodation

If the employee is employed with Central or State Government the valuation of accommodation is

licence fee determined by the concerned government
Less rent actually paid by the employee

If the employee is employed by other "employers" then

if the accommodation is owned by the employer then the valuation

is 15% of salary in cities having population exceeding 25 lacs as per 2001 census or
is 10% of salary in cities having population exceeding 10 lacs but less than 25 lacs as per 2001 census or
is 7.5% of salary in other places

if the accommodation is leased / rented by the employer then the valuation

is 15% of salary or
actual amount of lease rent payable by the employer

whichever is lower, and reduced by any amount of rent paid by the employee

If accommodation is provided in a hotel for a period exceeding 15 days on transfer from one place to another then valuation is

24% of annual salary or
actual charges payable to the hotel as reduced by the amount paid by the employee

whichever is lower

Provision of furnished Accommodation

Perquisite valuation will be in addition to the valuation under "Provision of unfurnished Accommodation". To the said valuation will be added

10% of the cost of furniture, appliance and equipments or
actual cost of rental of these furniture, appliance and equipments

less any amount paid by the employee

Personal Attendants

Value of services paid by the employer for provision of

Sweeper
Watchman
Gardener

will be treated as perquisite. Actual cost of payment by the employer will be taken as perquisite less any amount paid by the employee

Gas, Electricity & Water

Actual cost (less any amount paid by the employee) of provision of gas, electricity or water to employee's household consumption will be treated as perquisite

Free or Concessional Education

Cost of free education is a perquisite less any amount paid by the employee. If the employer runs the educational institution then valuation will be based on cost of education in a similar institution in a nearby locality.

Interest free or concessional loans

Any loan provided by the employer, in excess of Rs.20,000, either at NIL rate of interest or reduced rate of interest then perquisite valuation will be

Difference in interest rate charged by State Bank of India for similar types of loans and interest payable by the employee. If for example State Bank of India charges 16% for personal loan and the employer extends to the employee personal loan at 2% interest. Then perquisite value will be equivalent to 14% of the loan amount

However loan extended for any medical purpose does not get covered under this clause provided the employer does not reimburse the same under any medical insurance scheme

Use of Assets

If any assets of the employer, except computer & laptop, is used by the employee then perquisite valuation will be 10% of the value of these assets less any amount paid by the employee

Transfer of Assets

Any asset of the employer transferred to the employee is a perquisite, the value of perquisite is as follows

Motor Car - Original value less Depreciation at the rate of 20% in Written down value method for every completed year of usage less any amount paid by the employee
Computer or any other Electronic Gadgets - Original value less Depreciation at the rate of 50% in Written down value method for every completed year of usage less any amount paid by the employee
Any other asset - Original value less Depreciation at the rate of 10% in Straight line value method for every completed year of usage less any amount paid by the employee

The above perquisites valuation can change depending on rules prevalent at various times, you are requested to check the same before proceeding for any decisions

Salary TDS Provisions and Proofs to be given to Employer

2012-02-28T07:44:00.000+05:30

Objective of this article is to explain various provisions tax savings / planning under income tax for salaried persons and documents they need to provide to their employers to enable exemptions / tax deductions by the employer

Multiple Employments - Section 192(2)

An employee who is employed with more than one employer during a financial year should provide to his present employer details of salary earned, tax deduted during his previous employment.

Documents to be submitted to employer

Duly filled in Form 12B duly signed by the employee
If possible, Form 16 provided by the previous employer till the time the employee was in service with the previous employer (as additional proof

Loss from House Property (section 22 - 24) - (Let out Property)

If an house is let out (not occupied by the employee) then exemption can be claimed under this section if there is a loss from house property income. The formula for calculating loss from house income is as follows (an example of Rs.10,000 per month rent, interest paid during the year is Rs.2,55,000 & municipal / water taxes paid is Rs.9,675)

                Actual Rent Received or Annual Value                                            1,20,000
   Less :  30% of Actual Rent received or Annual Value                                    36,000
   Less :  Interest on capital borrowed for purposes of construction /
                                                                                           repair                      2,55,000
   Less : Municipal / water taxes paid for the house                                             9,675

                Loss Under House Property                                                              1,80,675

This loss will be recognised by the employer and taken for tax deduction accordingly.

Documents to be submitted to employer

Details of full address of the property
Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed
Details of Annual rent / municipal taxes (copy of receipts)
A self signed declaration with the following words: I, …………………. (name of the assesse), do declare that what is stated above is true to the best of my information and belief.

Interest on Self occupied house

If housing loan is taken on or after 1.4.1999 for construction or acquiring of a residential unit then a deduction upto maximum of Rs.1,50,000 is allowable on interest on such housing loan. This is not available in case loan is taken for purpose of repair or renovation of an existing residential house. The following points are worth noting

This deduction is available only after completion certificate is obtained from the builder and regular EMI is commenced by the financial institution
All Pre-EMI's can be shown as deduction in 5 equal instalments (5 years) commencing from the year in which the construction is completed

Documents to be submitted to employer

Details of loan along with copy of loan / interest payment certificate from the bank / financial institution from which loan is availed - clearly detailing the amount of interest paid on the housing loan

Medical Allowance - Section 17(2)(v)

Medical expenditure incurred by an employee for himself or any member of his family (who are his dependents) shall be exempted to a maximum extent of Rs.15,000 in a year

Documents to be submitted to employer

Medical bills pertaining to the relevant financial year and in the name of the employee or any member of the family (who are dependents)

Leave Travel Allowance - Section 10(5) - Rule 2B

Expenses incurred on travel for proceeding on leave to any place in India is exempt provided employer pays him a specific allowance to this regard or can allocate a portion of the salary to this allowance. The following are the conditions to avail of this exemptions from income tax.

Cost of the travel is restricted to Economy Air Fare by the shortest route
If travelled by any other mode than Air, then exemption is restricted to cost of First Class Air Conditioned fair by the shortest route
The exemption can be claimed in respect of two journeys in a block of four years
This exemption can be claimed only for expenses incurred on family. Family is defined as Spouse, Children, Parents, Brothers and Sisters wholly dependent of the individual

Documents to be submitted to employer

Proof of Travel - Tickets etc
Proof of availing leave to prove that the employee travelled
If travel by Car / Taxi then as a corroborative evidence Toll Bills, Parking bills etc.

House Rent Allowance - Section 10(13A) - Rule 2A

HRA exemption is restricted to the least of the following

Actual HRA Received by the employee
40% of salary - Salary means Basic + Dearness allowance. (50% of salary if the rented accommodation is situated in Delhi, Mumbai, Kolkata or Chennai)
Actual Rent Paid in excess of 10% of salary (Salary means Basic + Dearness Allowance)

Documents to be provided to employer

Proof of Rent Paid - Rent Receipt (not required to provide if monthly rent is less than Rs,3,000)
Rent receipt should be stamped with revenue stamp and duly signed by the landlord
If rent exceeds Rs.1,80,000 per annum then the PAN number of the landlord should be mentioned in the rent receipt. If the landlord does not have a PAN then a declaration to the effect that no PAN number is available should be taken from the landlord along with the name and address of the landlord

Deductions under Chapter VIA

Deductions under Section 80C

Exemption under 80C is restricted to Rs.1,00,000 and it covers the following.

Payment towards insurance Premium

Payment of insurance premium (including ULIP's) to keep in force an insurance to cover the life of the individual or spouse of the individual or any dependent child of the individual.

It may be clarified that the amount of premium so allowed on the insurance policy is subject to a maximum limit of 20% of the actual sum assured (ie) if sum assured value for a policy is Rs.2,00,000 then the premium allowed per year under section 80C for this policy will be maximum Rs.40,000 or actual premium paid.

Documents to be submitted to employer

Receipt of premium paid
Proof of sum assured (if available in Premium receipt above not required seperately)

Contribution to Public Providend Fund

Contribution to any Providend fund set up by the Central Government and notified accordingly.

Documents to be submitted to employer

Receipt of contribution made
In case of Passbook entry copy is submitted, to submit originals for verification and return

Deposit in Savings Certificates

Deposit in savings certificates as defined under section 2(c) of the Government Saving Certificate Act, 1959. Currently the Government has notified National Savings Certificate VIIIth issue.

Documents to be submitted to employer

Copy of the savings certificate in the name of the individual or spouse or children of the individual who are dependent on the individual

Deposit in Mutual Funds

Deposit in units of any mutual fund referred to in Clause 23(D) of section 10. The Centre has notified that the deposit should be made in an "Equity Linked Savings Scheme"

Documents to be submitted to employer

Proof of investment in designated mutual funds

Repayment of loan borrowed for purpose of construction of residential house property

Deduction will be allowed on repayment of housing loan availed by an employee from any bank or reputed financial institution. For the purpose of this deduction expenses incurred on Stamp Duty, registration fees and other expenses incurred on transfer of property is also exempt in the year of transfer. Note - no other expenses will be allowed for deduction under this clause regarding house property.

Documents to be submitted to employer

Copy of payment certificate from the financial institution clearly mentioning the principal and interest repayments.

Tuition Fees of Children

Tuition Fees for any two children incurred whether at the time of admission or thereafter, paid to any university, college, school or other educational institution situated in India for the purpose of full time education. Full time education includes play-school activities, pre-nursery and nursery classes. Also note payment in nature of development fees, donations or capitation fees or fees of similar nature are not allowed as exemption.

Documents to be submitted to employer

Children's fees receipts - copy

Fixed Term Deposit

Investment in a term deposit for a fixed period of not less than 5 years with a scheduled bank. Please take care to invest only in banks and schemes of the banks which are covered under "Bank Term Deposit Scheme, 2006"

Documents to be submitted to employer

Copy of the deposit receipt

Other deductions (more than Rs.1,00,000

Contribution to New Pension Scheme - Section 80CCD

Contribution made by an Employer into the New Pension Scheme (NPS) is exempt subject to a maximum of 10% of employee's salary (Salary defined to include Basic + Dearness Allowance). The Employer should deduct from the employee salary NPS and deposit the same in Tier 1 account of the employee to enable the employee to avail this benefit. This benefit overrules the limit of Rs.1,00,000 of section 80CCE.

Document to be provided to employer

The law here is that employer should deduct and pay into NPS account, so proof is available with the employer himself similar to Providend Fund (PF) deduction

Contribution to Infrastructure bond - Section 80CCF

This section is extended for financial year 2011-12 and may not be continued for subsequent years. Under this section investment of maximum Rs.20,000 in specified long term infrastructure bonds as notified by Central Government is exempted.

Document to be provided to employer

Copy of infrastructure bond
If demat account copy of transaction statement of demat account

Medical Insurance Premium - Section 80D

No Cash Payment is allowed for this premium (ie) payment for medical insurance premium should be by "other than cash" mode to avail exemption under this section. The deduction allowed for medical insurance premium is 2 fold.

Premium paid on medical insurance of family of assessee for an amount of Rs.15,000
Premium paid on medical insurance of parents of assessee for an amount of Rs.15,000. If the parents are senior citizens (more than 60 years) then the exemption allowed is maximum of Rs.20,000 instead of Rs.15,000.

Document to be provided to employer

Copy of medical insurance premium paid
Copy of policy to prove that it is a Health / Mediclaim policy

Medical treatment of a dependent with disability - Section 80DD

Deduction is provided for Rs.50,000 towards medical treatment, and if treatment is for persons with severe disability then deduction is provided for Rs.1,00,000.

Documents to be provided to employer

Certificate from medical authority in prescribed form

Repayment of Interest on loan taken for higher education - Section 80E

Deduction is allowed for interest on loan taken for purposes of pursuing higher education from any financial institution or Charitable institution. Deduction is allowed for the individual's education loan or loan for spouse or dependent Children or for a student for whom the assessee is a legal guardian. This deduction is allowed for 7 years from the year in which the loan is availed or until the loan is fully repaid whichever is earlier.

Documents to be provided to employer

Details of loan and clear specification of interest on the loan

Donations - Section 80G

Generally no deductions should be provided by employer in deducting TDS from salary for purposes of donations under section 80G, the assessee should claim the same in his return. Only those donations which are deducted by employer for donations and paid by the employer to Prime Minister's Relief fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief fund should be deducted from salary

Important Note

The above is only a illustrative list and may not cover all scenario's. There may be certain instances when the above scenarios may be interpreted differently by taxation authorities. Please treat this article as a basic guide and seek expert advise for taxation purposes.

Section 206AA - Compulsory quoting of PAN

From 1.4.2010 income tax act has inserted section 206AA which makes furnishing of PAN compulsory for all employees in case they are liable for payment of TDS. If the employee fails to produce PAN then the TDS for the employee will be deducted at the higher of the following rate

at the rate specified in income tax act
at the rate or rates in force
at the rate of 20%

In short, if PAN is not obtained tax will be calculated @ the minimum rate of 20% or higher rate as per tax calculation. It is advisable to obtain PAN numbers immediately by all employees.

The Vodafone verdict - Supreme Court judgement & DTC Provisions

2012-01-25T05:48:00.000+05:30

The Supreme Court Judgement in the Vodafone case will have a short life as Direct Tax Code has specific provisions to tax such income. Delay in implementing Direct Tax code may prompt the Government to amend the Income Tax Act, 1961 as early as during this year budget itself. This article discusses the Vodafone judgement "as it is" and also tries to understand the provision under DTC.

The much talked about Vodafone verdict has been delivered and the trade heaved a sigh of relief on receipt of a favourable decision. The sections under question where Section 9(1)(i), Section 195 & Section 163 of the Indian Income Tax Act, 1961. The following are the main areas of dispute

Whether a share transfer involving two off shore entities one of which is registered in a tax haven called "Cayman Islands' is subject to Capital Gains tax in India since the underlying company whose shares are being transferred has assets / business / generates income in India
Whether the non-resident being the purchaser of shares liable under section 195 to deduct Capital Gains tax on such transfer as a representative assessee of the seller

Vodafone International Holdings BV (VIH) incorporated in the Netherlands bought shares from Hutchison Telecommunications International Limited (HTIL) registered in Cayman Islands. The Shares transacted where of Hutchisson Essar Limited which is registered in India and carrying on business in India.

The contention of the tax department in simple words are :

Though the transaction between VIH & HTIL has been transacted overseas but the underlying assets / business of the subject matter company is in India therefore the provisions of section 9(1)(i) are being invoked and the transaction is liable to Capital Gain tax in India. Further as per section 195 tax is deductable on payment of consideration by VIH as a Representative Assessee as defined under section 163.

Arguments of VIH in simple words are :

The transfer of shares are between two off shore entities beyond the jurisdiction of Indian tax laws, and hence the share transfer cannot be taxed under deeming provisions of section 9(1)(i) and section 195 cannot be invoked against VIH.

The Key observations of Supreme Court are :

Principle of "Look At" and not "Look Through" upheld. Section 9 has a deeming provision for taxation of income. Section 9 is not a "Look Through" provision but a "Look At" provision
There is no transfer of Capital assets transfer which is situated in India
Only if the transaction is a sham could tax authorities invoke the "Substance over form" principle or "Piercing the Corporate Veil" test
Section 9(1)(i) being a deeming provision can be invoked only in case of - Transfer; existence of a capital asset & situation of such asset in India. The subject matter in this instance case is "Indirect Transfer" which cannot be deemed as income under section 9(1)(i) as there is no "Direct Transfer"

The Supreme Court further states that Tax Planning is not illegal provided the transaction in not a sham or coloured transaction. In this instance case the companies incorported in Cayman Islands are there in existence since the last 14 years and cannot be said to be incorporated for the purposes of avoidance of capital gains tax in India.

The Supreme Court was of the view that since this is not a Sham transaction and the transactions are between two off shore entities there is no jurisdiction for Indian Tax Laws

The was forward - DTC or No DTC

The way forward will be definitely not as per the Supreme Court ruling. First the Government will come out with an amendment to the Income Tax Act, 1961 (may be even retrospective) to plug this gap as early as this budget.

The Direct Tax Code 2010 (DTC) - Section 5(4)(g) on Income deemed to accrue in India, has the following provision :

"income from transfer , outside India, of any share or interest in a foreign company unless at any time in twelve months preceeding the transfer , the fair market value of the assets in India, owned, directly or indirectly, by the company, represent at least fifty per cent of the fair market value of all assets owned by the company"

Clearly the way forward is to tax the Vodafone kind of transactions, and the language of the law is quite clear.

Summary

In this case Supreme court interpreted the law "as it stands" which is welcome as it brings in consistency in interpreting the law and the trade is quite clear on do's and don'ts under the laws of the land. Taxation of all business income should be possible and this should not be taken away by poor drafting of tax laws and tax havens. Government should act swiftly to plug these holes and ensure that revenue is protected. Caution should be taken in drafting tax laws which should contain clear provisions and not subject to interpretation and consequent litigations. Clear provisions will enable corporates to be clear on their tax liabilities and plan their strategies around it.

Time of Payment of TDS

2012-01-19T15:24:00.000+05:30

Question

Our company had deducted TDS on 31/03/2008 and deposited the same on 31/05/2008.The income tax department issued a demand notice for interest on delayed payment. Is our company liable to deposit the interest? Sir, guide me on this matter

Answer

As per Rule 30(1)(b)(i)(1) of Income Tax Rules, 1962 TDS can be paid to Government account within 2 months of the expiration of the month in which the credit has been made provided in that month the accounts of the company is being made. (ie) if your accounts are finalised as on 31.3.2008 then you can remit TDS within 2 months from date of such closure which is 31.5.2008. So your payment seems to be in order.

This rule has been amended since 1.4.2010 and Rule 30(2)(a) states that payment has to be made to Government on or before 30th day of April where the income or amount is credited or paid in the month of March.

100% FDI in Single Brand Retail

2012-01-11T06:18:00.000+05:30

Department of Industrial Policy & Promotion (DIPP) has issued Press Note No.1 (2012 Series) dated 10.1.2012 through which it allows 100% FDI to be invested in Single Brand Retail. International companies are now free to invest upto 100% in Single Brand Retail. The following are the main conditions laid down for this 100% FDI investment

Products sold should be of Single Brand only
Products should be sold under the same brand internationally
The products should be branded during manufacture
The foreign investor should be the owner of the brand (not a person paying Royalty for the same)
If investment is more than 51% then 30% of the product sourcing should be done only through Indian Small / Cottage industries whose investment does not exceed USD 1 million in Plant & Machinery

Though the conditions stipulated above are quite stringent, there is always scope once the scheme is kicked in there will be further relaxation.

Currently in Single Brand Retail sector there is not much investment due to the 51% cap, in fact as per statistics provided by Economic Times in its 11 Jan edition in the last three and half years only Rs.196 crores were brought in as FDI in Single Brand Retail, which surely does not talk about success of this scheme. I also doubt by bringing in the above 5 conditions to run along with 100% FDI in Single Brand Retail there will be substantial flow of FDI. It will be sometime before both the Government and FDI's get their act together and give this sector a much needed boost

HRA in Tax - Rent Receipts

2012-01-09T05:42:00.001+05:30

"Tax Season" for employees have commenced and all of us will be busy calculating our tax liabilities and providing exemption certificates to our employers. All of you will be aware that for claiming exemption under HRA if we are living in a rented accomodation we have to produce rent receipt from the landlord. The following are the provisions notified by CBDT vide their Circular No.05/2011 dated 16.08.2011.

No requirement to produce rent receipt if rent paid per month is less than Rs.3,000 - but if in case of assessment by the income tax officer, the income tax officer may direct to produce such receipt so it is advisable to get the rent receipt
All rent receipts exceeding Rs.15,000 per month or Rs.1,80,000 per annum should contain the PAN number of the landlord. If the landlord does not have a PAN then the employee should give a declaration that the landlord does not have a PAN and provide in the declaration the details of landlord like his name & address

Centralised Processing of Returns Scheme, 2011

2012-01-08T20:40:00.000+05:30

CBDT has notified Centralised Processing of Returns Scheme, 2011 vide Notification No.2/2012 [F.No.142/27/2011-SO(TPL)] dated 4.1.2012.

This schemes details out the entire process of e-filing of income tax returns, acknowledgement of such return & processing of returns in the Centralised Processing Centers. The scheme also provides procedure for rectification of mistakes on the returns and also provides for issuance of Order Under Section 154 of Income Act, 1961.

This scheme will provide full clarification to all procedural aspects in relation to e-filing of Income Tax Returns.