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CONTENTS

DIRECT TAX

AUDIT

IDT/GST

........................................................................................................................................1

DEPRECIATION UNDER IT ACT..........................................................................................................................1

................................................................................................................................................6

PRADHAN MANTRI ROJGAR PROTSAHAN YOJANA (PMRPY)..........................................................................................6

.............................................................................................................................................9

DOES PAYMENT IN GST MEANS DEPOSITING THE MONEY...........................................................................................9

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Contributed by & Vetted by CA MadhusudanSai Varun

DEPRECIATION UNDER IT ACT

DIRECT TAX


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INTRODUCTION

Depreciation in normal parlance refers to decrease in value of Asset due to

?Wear and Tear i.e. Usage?Effluxion of Time.?Obsolescence i.e. Technological changes

Depreciation is one of the allowable deduction from income under Business or profession.

Basis for Calculation of DepreciationUnder Section 32 of Income Tax Act 1961, (Here in thereafter referred to as ‘Act’), Depreciation shall be calculated on basis of block of assets at the rate as prescribed by Income Tax Department.

For the purpose of Computation of Income (in case of companies), depreciation already computed and charged to Profit and loss account under Companies Act 2013 (based on useful life of the Asset), will be added back and the depreciation computed as per ACT will be reduced.

Method to Calculate the Depreciation:As prescribed in the Act, Written Down Value (WDV) has to be followed while computing the depreciation, except where an assesse who engaged in business of generation or generation and Distribution of Electricity was given with an option to follow a method of Straight Line Basis instead of WDV.

Eligible conditions to claim depreciation?Assessee claiming depreciation should be the owner of such asset.

Explanation:• Co-owner i.e. the person holds ownership in asset partly.• In case of lease assets, depreciation shall be claimed by lessor i.e. owner of such asset who

provides it for lease, as lessee is allowed with lease charges. Whereas, in the case of Hire purchase agreement, depreciation shall be allowed to Hirer i.e. user of asset even though he may not be real owner, until he pay last instalment, it is because the person use the asset for his business and finally he will be the final owner.

?Asset must be put to use for purpose of business or profession during the previous year in which depreciation claimed,thus it can said that, mere ready for use doesn’t enable an assessee to claim depreciation(This is to be considered during the first time that asset put into use, subsequently depreciation shall be charged irrespective of the usage of assets, due to passage of time/life of the asset).

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?Unlike in companies Act,the depreciation under Act is allowed in full irrespective of days of usage in the previous year.

Exception:Wherein the asset purchased during the previous year and usefor less than 180 days, then depreciation restricted to 50% of normal rate of eligible depreciation.

CLASS OF ASSETS:

NOTE: Goodwill and Land are not eligible for depreciation.

BLOCK OF ASSETS:The term Block of assets means a group of assets falling within a same class of assets and attracting same rate of depreciation.

Example:

Type of Asset Rate of Depreciation

Tangible Assets

Computer 40%

Motor cars 15%

Plant and Machinery 15%

Books 40%

Furniture 10%

Building 10%

In-tangible Assets

Licences 25%

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.Name of assetsBlock No Rate of Depreciation

Block 1 Computer and Books 40%

Block 2 Motor Cars and Plant & Machinery 15%

Block 3 Licenses 25%

Block 4 Furniture 10%

Block 5 Building 10%

Block of Assets for the above assets:

Rates of Depreciation for various Block of assets:

Block Of assets Rates w.e.f 01.04.2017

Buildings 5%/10%/40%

Furniture and Fittings 10%

Plant and Machinery 15%

Vehicles 15%

Computer including Computer Software 40%

Intangible Assets 25%

Depreciation with effect from FY 2017-18 onwards is restricted to maximum rate of 40%

Steps to calculate the depreciationDepreciation shall be calculated on WDV Value that was derived in following way:

Opening WDV of Block as on 1st April of the previous year

Add: Actual cost of the assets acquired during the previous year related to Block.

Less: Sale value of the asset related to block during previous year.

WDV of Block relevant for applying depreciation

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Example:

A block of Assets has an opening value of Rs.15,00,000 and one of asset is purchased for Rs.2,00,000 and used less than 180 days during the year and one of asset is sold for Rs.6,00,000.

The rate of depreciation for this block assumed to be 15%,the calculation of depreciation is as follows:

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Opening value of WDV 15,00,000

Add: Purchases during the year 2,00,000

Less: Sales during the year (6,00,000)

Closing WDV 11,00,000

Based on Closing WDV, Assets up to the value of Rs. 2,00,000 is calculated at half of actual rate i.e.7.5% and remaining 9,00,000 is calculated at rate of 15%.

No Depreciation:

Case (i) If Sale value of an asset or assets related to a Block is more than Opening WDV and purchases of such Block during the previous year.Case (ii)Whole Assets in the block are sold even though there was a balance of Closing WDV.

This result either in Short term Capital Gain or Short-term Capital Loss.

Example:

Opening WDV of Block of assets is Rs.15,00,000, Additions during the previous year is Rs.5,00,000

• Case(i) One or All the assets in this block is sold for Rs.22,00,000, then Closing WDV of -2,00,000 is considered as Short-term capital gain U/s 50 of Act.

• Case(ii) If all the assets of this Block are sold for Rs.18,00,000 then closing WDV of Rs.2,00,000 is considered as Short-term capital loss U/s 50 of Act.

Additional depreciation:

?EligibilityAn Assessee engaged in Manufacture or production of any article or thingor in business of generation, transmission or distribution of power.

?Asset to be PurchasedAny New plant and machinery except following

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Ineligible plant and Machinery for claiming Additional Depreciation:

• Any Plant and Machinery which is used already either within or outside India by any other person.

• Any Plant and machinery which is used either for office purpose or personal purpose i.e. Machinery to be used only for manufacturing purpose.

• Any Vehicles• Any Machinery or plant on which whole of actual cost is claimed as deduction or

depreciation. For example, Scientific related deduction under section 35 of Act.

?Rate of DepreciationAn Assessee engaged in Manufacture or production activities or in business of generation, transmission or distribution of power can further claim Additional Deprecation u/s 32(1)(iia) of Act at the rate of 20% on new plant and machinery acquired and installed during the year.

However, for enterprise which is set up in notified backward areas of Bihar, West Bengal, Andhra iiPradesh and Telangana Additional depreciation is calculated at the rate of 35% instead of 20%.

Note:Additional depreciation shall be restricted to 50% of actual rate (20% or 35%) if plant and machinery acquired and used less than 180 days during previous year and remaining 50% is allowed in immediately succeeding year.

i Notification No. 103/2016/ F.No.370142/29/2016 -TPLii Notification No.61/2016/F.No.142/13/2015-TPL

Notification No.71/2015/F.No.142/13/2015-TPL Notification No.85/2016/F.No.142/13/2015-TPL

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This article is contributed by Intern of SBS and Company LLP. The author can be reached at [email protected]

Sai Varun,

Contributed by & Vetted by CA Sandeep DasSai Krishna

PRADHAN MANTRI ROJGAR PROTSAHAN YOJANA (PMRPY)

AUDIT


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Budget speech by Arun Jaitley – In order to incentivize creation of new jobs in the formal sector, Government of India will pay the Employee Pension scheme contribution of 8.33% for all new employees enrolling in EPFO or the first three years of their employment. This will incentivize the employers to recruit unemployed persons and also to bring into books the informal employees. In order to channelize this intervention towards the target group of semi-skilled and unskilled workers, the Scheme will be applicable to those with salary up to ̀ 15,000 per month. I have made a budget provision of 1,000 crore for this scheme.

Objective of the scheme: The objective of the scheme is to:

• Contribute the employer portion of EPS for all new employees for the first three years of employment, who are earning a salary of up to ̀ 15,000 per month;

• Bring the informal employees into books;• Generation of new employment.

Important terms:

• ECR - Electronic Challan cum ReturnChallan generated after filing Provident Fund details with the EPFO

• UAN - Universal Account NumberUnique identification number allotted to the employees

• NIC - National Industrial Classification CodeA code used to classify the business under various industries

Scheme Eligibility (Employee):

• Earning a salary of up to 15,000 per month;• Who hasn’t worked with any establishment registered with the EPFO in the past;• Shall not have an UAN prior to 01st April 2016;• Post application of UAN, the same shall be Aadhaar seeded.

Scheme Eligibility (Establishments): All establishments registered with EPFO can apply for availing benefits under the scheme subject to following conditions:

• Establishments shall have a Labour Identification Number (LIN) allotted to them under the Shram Suvidha Portal (https://shramsuvidha.gov.in);

• The eligible employer must have added new employees to his establishment;• The establishment shall cover under the NIC codes given in the scheme.

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Provident Fund Contribution

Employer

8.33% - Employee Pension Scheme (EPS

3.67% - Provident Fund (PF)

12% - Provident Fund (PF)

Employee

Provident Fund Contribution – General Scenario

Contribution under the scheme - by the Government:

• Eligible employers will receive the employer portion of EPS i.e., 8.33% from the Government of India.

• In employers of textile industries covered under NIC 1410 to 1430 are also eligible to get the employer portion of PF contribution i.e., 3.67%.

Contribution period:

• Contribution will start from the date of receipt of UAN or 09/08/2016, whichever is later;• The contribution will continue for 3 years.• The newly joined employees under this scheme will be covered till 2019-20.

Contribution process:

• The employer shall remit the employer part of PF contribution i.e., 3.67% on or before 10th of following month;

• In the case of textile industries, the employer shall remit the employee portion of Provident Fund.• The employer portion of EPS i.e., 8.33% and employer portion of PF i.e., 3.67% (only in case of

textile industries) will be contributed by the Government of India.

Declaration of false information by the employer to the Government: Employers/Establishments applying for the Scheme shall be fully responsible for the information uploaded. If at any time, it is found that the information submitted is incorrect or false, it will be assumed that the EPS payment (and EPF payment for textile sector) has not been made for these employees. The employer will then beliable for dues and penalties as already specified under the relevant provisions of The Employees’ Provident Fund Scheme, 1952.

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Industries covered under this scheme:

1) NIC 1410: Manufacture of wearing apparel, except fur apparel

a. NIC 14101: Manufacture of all types of textile garments accessories and clothing accessoriesb. NIC 14102: Manufacture of rain coats of waterproof textile fabrics or plastic sheetingsc. NIC 14105: Custom tailoringd. NIC 14109: Manufacture of wearing apparel not elsewhere classified

2) NIC 1430: Manufacture of knitted and crocheted apparel

a. NIC 14301: Manufacture of knitted or crocheted wearing apparel and other made-up articles directly into shape (pullovers, cardigans, jerseys, waistcoats and similar articles).

b. NIC 14309: Manufacture of other knitted and crocheted apparel including hosiery.

3) NIC1392: Manufacture of made-ups textile articles, except apparel {This class excludes – manufacture of textile articles for technical use – NIC 1399}

a. NIC 13921: Manufacture of curtains, bed covers and furnishings.b. NIC 13922: Manufacture of crocheted made up textile apparel goods except apparelc. NIC 13923: Manufacture of mosquito nets.d. NIC 13925: Manufacture of tarpaulin.e. NIC 13926: Manufacture of blankets.f. NIC 13929: Manufacture of

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Sai Krishna,

Contributed by & Vetted by CA ManindarSai Ram

DOES PAYMENT IN GST MEANS DEPOSITING THE MONEY

IDT/GST


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Months have been passed, after introduction of GST to replace all other indirect taxes. However, even to date, there are several questions which remainedambiguous and unclarified. One of such issues is Payment and Offset of GST, which is being discussed in this article.

As compared to Service Tax and Excise duty regime,the procedure relating to payment of GST is different and which may bring hardships to assesses.

The two words that would have an impact on the issue relating to payment of GST are

a. Payment of Tax b. Deposit of Tax

In the old regime, payment of taxes means depositing tax to the credit of Government, thereby generating a challan. But in the GST regime, tax payment cannot be construed as done to government even if a challan with a BRN code, Date and CIN is generated, amount is deposited and reflected in the Electronic cash ledger. It is just a deposit of tax by way of credit to the account of the Government in the authorised bank. This understanding is based on the following rules of CGST Rules, 2017.

As per Rule 85(3): Electronic Liability Register

Subject to the provisions of section 49, “payment of every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per rule 86 or the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly”

As per Rule 86(2): Electronic Credit Ledger

The electronic credit ledger shall be debited to the extent of discharge of any liability in accordance with the provisions of section 49.

As per Rule 87(1): Electronic Cash Ledger

The electronic cash ledger under sub-section (1) of section 49 shall be maintained in FORM GST PMT-05 for each person, liable to pay tax, interest, penalty, late fee or any other amount, on the common portal for “crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount.”

In terms of Explanation (a) to Section 49 of CGST Act, 2017,the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger;

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From the wordings highlighted above, it is very clear that mere payment of taxes to the credit of the government doesn’t simply imply payment of tax under the GST Laws.

As per Section 50(1): Interest on delayed payment of tax.

“Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.”

In view of the above provision, interest shall be payable in case of non-payment of liability to the Government. The payment in terms of section 49 read with rules referred above, would be by way of debit to electronic cash or electronic credit ledger, which can be undertaken by filing GSTR-3B. This is called offsetting the GST liability with the tax amount deposited/credited in electronic cash or credit ledger as the case may be.

Following illustration can demonstrate the impact of the words depositing and offsetting.

Illustration: Let us assume a company is required to pay an amount of Rs. 100 Crores as tax liability and has input tax credit of Rs. 50 Crores. The due date for making the payment is 20. XX. XXXX. If the company has deposited balance Rs. 50 Crores on 20. XX. XXXX and done offsetting on 22. XX. XXXX. Then the company is said to have paid the tax due amount on 22. XX. XXXX but not on 20. XX. XXXX, even though the Government has unconditionally received the tax amount on the said date. In such case, the company is liable for an interest amounting to Rs.9,86,301/-. (Rs.100,00,00,000 *18/100*2/365 (i.e. both cash component as well as credit component)). Thus, just because of delay in non-offsetting,the company may be asked to compensate for an amount of Rs. 9,86,301/- as interest.

Though above wordings are clear about the payment of taxes, different stand is possible based on the well-established principle laid down by Honourable Supreme Court in the case of Pratibha processors versus Union of India.(Refer Citation)

Para 13 of the said Judgement is held as “ In fiscal Statutes, the import of the words — “tax”, “interest”, “penalty”, etc. are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforce by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty — which is penal in character.”

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Thus, from the above judgement it is very clear that the interest component is only compensatory in nature but not penal in character and would be levied on an assessee who holds payment of any tax beyond the actual due date. It is necessary for the department to differentiate two wordings i.e. Interest and penalty.

By relating the above judgment to the current case, we can clarify that the interest will be paid on withholding of payment of any tax beyond due date, whereas in the current case, the payment is already made to the credit of the Central Government before due date and the only thing which is pending is just offsetting the liability which is purely a procedural compliance. As payment is unconditionally transferred to the exchequer, there is no loss of revenue. Thus, it can be understood from the said Judgement that mere depositing (without offsetting) should amount to the payment of tax.

Conclusion: Thus,after going through the facts stated above, it is pertinent that two different stands are possible about the “event of payment” in GST law. However appellate authority’s judgement will be final with respect to the same.

As a matter of prudence, it may be suggestable that return filing be made on due date (to the extent possible) by crediting the liability ledger in time, so that no (possible) interest is applicable for delay in offsetting the liability ledger with electronic credit or cash ledger balance.

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Sai Ram,

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Relief Under Section 89 Of IT Act 1961

“ICDS-IV Revenue Recognition”

One Year of GST

How Money is Made? -Part 2

AS-22 - Part 2

Core investment companies

Accounting for Taxes on Income

“Compounding and Adjudication under FEMA”

Audit Committee

Due Diligence

Accounts and Records under GST

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Contract under GST - Divyasree Works How Money is Made - Uday Kumar

Input Tax credit - Sukanya Relief Under Section 89 of IT Act 1961 - Sai Varun

Major Deductions under Chapter VI-A for Individuals” (Under Income Tax Act 1961) - Varshita

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