Friday, December 28, 2012

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

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

Saturday, September 29, 2012

ST-3 Returns due on 25.10.2012

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.

Monday, September 24, 2012

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

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.

Sunday, August 12, 2012

Expatriates in India - Actual Tax Calculation


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

  1. The expatriate is first time in India and hence he is considered a Non Resident for tax purposes
  2. 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
  3. 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
  4. 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)
  5. No Other Income for this expatriate in India
  6. No Other tax savings in India other than 80C
  7. 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

Sunday, July 15, 2012

Expatriates Taxation in India

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 

  1. Section 5, 6, 9 and 10 of Income Tax Act, 1961.
  2. 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 
  1. Services rendered in India and 
  2. 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 
  1. Employees of Consulate etc
  2. 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 

  1. Deducted at 12% - employee contribution and 12% - employer contribution - total 24% contribution
  2. 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

Saturday, July 7, 2012

Account Code for Payment of Service Tax

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 1st July, 2012 is as follows:

Name of Services
Accounting codes
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 1st 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.

Tuesday, July 3, 2012

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

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.  
  1. an Individual or a HUF whose total income is more than Rs.10 lacs
  2. 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.

Sunday, July 1, 2012

Service Tax from 1.7.2012 - Changes a review

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.
  1. Rescinded Sections 65, 65A, 66 & 66A in Finance Act, 1994
  2. Introduced Sections 65A, 66B, 66C, 66D, 66E & 66F in Finance Act, 1994
  3. 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.