Thursday, August 26, 2010

Cancellation of Registration

Question

one of the my client (proprietor) had already cancelled their service tax no. (after payment of all dues) , however he had collected some payment in relation to service already provided , now quetion is that under which no. he should require to make payment of service tax .

Answer

Rule 4(7) of the Service tax rules, 1994 states that every assessee should surrender his certificate once he ceases to provide taxable services.

Rule 4(8) states that the Superintendent of Central Excise should ensure that all dues to the Central Government are paid before surrendering of the certificate.

In your specific case Rule 4(8) seem to have been violated. I would advise that you make a letter to the Superintendent of Central Excise stating the reasons for non payment and subsequent collections and then pay the relevant service tax.

Failure to Pay interest

Question

if we don't pay the interest u/s.75 of service on late payment of service tax than what sort of actions department may take

Answer

Under section 87 on the Finance Act, 1994 provisions for recover of any amount due to Central Government is listed. The following is the recovery mode.

1. Deduct the amount from any refund with Central Excise Department
2. Direct any debtor of the company to pay the department instead of the company
3. Distrain any movable or immovable property
4. Collector of the district maybe directed to collect the amount as if it were an arrear of land revenue

Service Tax Registration

Question

I hv a firm registered in Sultanpur, Uttar Pradesh as contractor in a production company.
now, i got a contract by other production company for the same job in Madhya Pradesh.
Can I use same Service Tax Registration no. for other State or i'll apply for the new.

Answer

Section 69 of the Finance Act 1994 read with Rule 4 of Service Tax Rules, 1994 provides for registration of persons liable to pay service tax.

Rule 4(2) & 4(3) of Service Tax Rule, 1994, stipulates that even though services are rendered from various offices / locations but if billing is done from one location (centralised billing), then one registration is adequate.

In your case you are going to bill only from one location, have office in one location but provide service in various places. My view is that it is adequate to have one service tax registration.
Maybe as a precaution you can apply to the Commissioner of Central Excise under Rule 4(3) and get it approved by writing.

Saturday, August 21, 2010

Service tax on Reimbursements

Question


How can we charge service tax if a bill includes reimburesement of expnses? should we charge service tax on gross amount of bill (inclusive reimbursement of expenses) or should we charge on net amount of bill (excluding reimbursement of expenses?
Please answer


Answer


Rule 5(1) of Service Tax (Determination of Values) Rules, 2006 states that all expenses incurred during provision of service be considered as part of taxable service and shall be included for the purpose of charging service tax.

However Rule 5(2) provides certain exclusions to the above if certain conditions (totally 8) are fulfiled. To explain the above exclusions I will provide 2 simple examples.


Example 1 : If a consulting engineer incurs expenses on travel, telephones etc to provide service and his total service cost is Rs.10,000 plus his reimbursement towards travel & telephones are Rs.1,000. Then taxable service will be Rs.11,000 (even though he bills seperately for Rs.10,000 and Rs.1,000). The amount incurred towards travel & telephone are incidental to provision of consuting engineer servcies and should be grossed up for purpose of service tax.


Example 2 : A Forward and clearing agent, on behalf of his client pays Delivery Order Charges to a shipping agent Rs.2,500 & pays CFS Charges of Rs.1,500 and and shows them seperately in the invoice. He also bills Rs.3,000 towards his service charge. In this case taxable service is Rs.3,000 as the other amounts totallying to Rs.4,000 are incurred on behalf and under authorisation of the service recipient and the service receipient has the primary responsibility to pay this amount but for sake of convenience the payments are made by the Forwarding and Clearing Agent.


Hope I was of some help on this query.

Export of Services

Question


Indian company entered into a Joint Venture with a Foreign Company. Indian co. is providing some services to foreign co. & those services are provided in India itself & for those services Foreign co. is paying Commission in foreign currency.
Pl tell whether Indian co. has to raise invoices for those commission including service tax or not. pl reply asap


Answer



As per export of service Rules, 2005 services are treated as exported only when conditions as prescribed under Rule 3(2) of such rules are satisfied.


These rules stipulate the following 2 conditions
1. The services should be provided from India but used outside India
2. Payment for such services is received in convertible foreign exchange.


As per your query it is clear that payment is received in convertible foreign currency. The other key condition that the service should be used outside India also needs to be satisfied to be exempt from service tax.


Hope this answers your query.

Friday, August 20, 2010

TDS on Advance

Question

Advance pymt made to Builder for residential flat - Do we need to deduct TDS on such pymt as per IT Act, India? Payment made by Indian Company to a property developer

Answer

Yes tax needs to be deducted on the Builder as it is a payment to a contractor as defined under section 194C. Section 194C(1) states that tax should be deducted either at the time of credit of such amount or payment of such amount (either by cash or cheque) whichever is earlier. So in this case as you make payment (advance) before crediting the amount, you are liable to deduct TDS under section 194C for the advance

Tax on Arrears of Income

Question

I have to receave pending salary of 7 years back with the suprime court order that is about 5 to 6 lac. I want to know will the employeer deduct the TDS and How I can save income tax on above pending salary.

Answer

Arrears of income is taxable either in the year of receipt if not taxed in the year of accrual. For example if an arrear of salary for the year 2005-06 is received in the year 2009-10 and if tax has not been paid in the year 2005-06 then it will be offered for tax in the year 2009-10.

However exemption under section 89 read with Rule 21A(2) can be claimed as under.

If an assessee receives an income due in the year 1 (not offered for tax in year 1) in year 6 then exemption under section 89 can be claimed as below

A) Calculate in year 1 tax payable "without" including the Arrear amount
B) Calculate in year 6 tax payable including the Arrear Amount
(This is "receipt" method of accounting)

C) Calculate in year 1 tax payable including the arrear amount
D) Calculate in year 6 tax payable "Without" including the Arrear Amount
(This is "Accrual" method of accounting)

Calculate : A+B & then C+D. The excess of A+B over C+D is the exemption limit. If C+D is higher than A+B then there is no exemption.

Regards
S Saravanan
http://ssaravanan-vvu.blogspot.com/

Tuesday, August 17, 2010

Set off Long Term Capital Gains

Question

Can we set off capital gain tax arising out of sale of property by buying more than one residential properties?

Answer

In Section 54 of the income tax act there is no specific limitation to the effect that the assessee should own only one house. Set off for Long Term capital Gain is available for more than one house. Please check Direct Tax Ready Reckoner under Article Capital Gains from transfer of land chapter. There are very good examples given there.

Long Term Capital Gain

Question

Can you please advise me on the followingI bought place and constructed house in it in 2002 with an investment of 10 lakhsNow if I sell it for 15Lakhs , a)What is the indexed acquisition costb)Do we add stamp duty paid for place registration in the total purchase cost of house.c) Do we need to consider sale price fixed by state registrar for property valuationor actual sale deed value which is less than registrar valued) what would be the capital gain tax in this case.e) what are the schemes to invest by which i can get tax exemption.f) If i purchase residential land with this amount, do I get capitalgain tax exemption.g) do I need to invest all 15L for purchasing flat or only capital gains amount to get tax exemption

Answer

In your case : Full value of consideration received Rs.15 lacs

Index for 2010-11 is 711 & Index for 2002-03 is 447, so your indexed cost of acquistion is 10lacs / 447 * 711 = 15,90,604.

As the indexed cost of acquisition is more than your consideration received there is no capital gain tax for you.

Service Tax un-utilised credit

Question

Service tax input credit -how long it can be carried forward in the books-and can it be set off against future?

Answer

Usually the value of goods / services sold or rendered will be more than the value of goods / services bought or received. This means that the Excise duty / Service tax payment will be more than the credit availed. As per Rule 3(4) of the Cenvat Credit Rules Service tax credit can be set off against a host of payments listed in sub-clauses (a) to (e) of the above Rules. There is no time limit prescribed for this set off.

However there may be instance of Exports wherein there is no requirement to pay Excise duty or Service tax, in this situation recourse should be taken to Rule 5 of Cenvat Credit Rules which provides for refund of the Excise duty / Service tax credit available in excess due to exports.

There maybe also instances of manufacturers / service providers having dutiable and exempted goods. In that case procedure provided in Rule 6 of Cenvat Credit Rules should be followed.

Query on Sales to DTA from SEZ

Question

If a company is under SEZ, Is it require to include both special additional duty 4% and also vat 4% in the invoice when we make sale to DTA.

Answer

I am not an expert in SEZ. However as per my limited knowledge on this subject, you have to pay SAD of 4% if VAT is exempted. If you have to pay VAT as per VAT rules of your state then SAD is exempted. In short it is either SAD or VAT and not both. Hope this helps.