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CA - IPCC

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TAXATION

AMENDMENTS MATERIAL FOR NOV 2016 IPCC EXAMS

Page 1

2

INDEX

S. No. Particulars Page No.

1. Income Tax 4 – 33

2. Indirect Taxes 35 – 82

NOTE:

All Amendments are already included in the following editions of MM materials – 35 & 35.5,

Except Amendments in Central Excise and Circulars issued by CBEC recently.

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CA - IPCC

COURSE MATERIAL

Quality Education


INCOME TAX

Page 3

IPCC_ Income Tax Amendments Material (For Nov - 2016) ____________________4

No.1 for CA/CWA & MEC/CEC MASTER MINDS

S.No Chapter Additions Deletions Modifications

1 Introduction To Income Tax Nil Nil Tax rates (surcharge rates), 2(24)

2 Residential Status Nil Nil Sec.6(1) & 6(3)

3 Exempted Incomes 10 (23EE) Nil 10(11A), 10(23FBA / FBB) 10(23C), 10(23FC)

4 Salaries Nil Nil 10(14) & Rule 2B

5 Income From House Property

Nil Nil Nil

6 PGBP-I & II 32AD Nil 32(1), 35(2AB), 35(2AA), 36(1)(iii),(vii), (xii)

7 Capital Gains 47(xviii), 2(42A), 49(2AD), 49(2ABB)

Nil 47(viab), (vicc), 49(1)

8 Income From Other Sources Nil Nil Nil

9 Clubbing Provisions Nil Nil Nil

10 Set off & carry forward of losses Nil Nil Nil

11 Chapter VI A Deductions 80CCD(1B) Nil 80C, 80D, 80DD, 80DDB, 80G, 80JJAA, 80U

12 Return of Income Nil Nil 139(1), 139(A)

12 Advance Tax & Interest Nil Nil Nil

13 TDS & TCS 192(2D) Nil 192A, 197A, 194A, 194C, 194LD, 195(6), 203A

AMENDMENTS AT A GLANCE – FINANCE ACT, 2015

S.NO. Particulars Section A. INTRODUCTION TO INCOME TAX 1. Rates of Income Tax - B. RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME

1. CBDT to prescribe the manner of computation of period of stay for an Indian citizen, being a member of the crew of a foreign bound ship leaving India

6(1)

2. Residential status of a company to be determined on the basis of “Place of Effective Management

6(3)

C. PROFITS AND GAINS OF BUSINESS OR PROFESSION

1. Balance 50% of additional depreciation to be allowed in the subsequent year, where the plant and machinery is put to use for less than 180 days during the previous year of acquisition and installation

32(1)

2. Manufacturing industries set up in the notified backward areas of specified States to be eligible for a deduction @ 15% of the actual cost of new plant and machinery acquired and installed during the previous year

32AD

3. Additional depreciation @ 35% to be allowed to assessees setting up manufacturing units in notified backward areas of specified States and acquiring and installing of new plant and machinery

32(1)(iia)

AMENDMENTS BY FINANCE ACT 2015


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4.

Prescribed conditions relating to maintenance of accounts, audit, etc. to be fulfilled by the approved in-house R&D facility [Section 35(2AB)]; Prescribed Authority may also submit Report to Chief Commissioner or Commissioner

35(2AB) & 35 (2AA)

5.

Interest paid in respect of capital borrowed for acquisition of an asset, for the period upto the date on which the asset is first put to use to be capitalized, even if the acquisition of the asset is not for extension of existing business or profession

36(1)(iii)

6. Amount of debt taken into account in computing the income of the assessee on the basis of notified ICDSs to be allowed as deduction in the previous year in which such debt or part thereof becomes irrecoverable

36(1)(vii)

7. Amount of expenditure incurred by a co-operative society for purchase of sugarcane at price fixed by the Government allowable as deduction

36(1)(xvii)

D. Capital Gains

1.

Any transfer of capital asset, being share of a foreign company, referred in Explanation 5 to section 9(i), deriving its value substantially from the shares in an Indian company, in a scheme of amalgamation/demerger not to be regarded as transfer under section 47, where the amalgamating/demerged and amalgamated/resulting companies are foreign companies

47(viab), 47(vicc) & 49

2. Transfer of units by unit holders in consolidation scheme of mutual funds not to be regarded as transfer

47(xviii), 2(42A) & 49(2AD)

3. Cost of acquisition of the capital asset acquired in the scheme of demerger referred to in section 47(vib) in the hands of resulting company

49(1)(iii)(e)

4. Cost of acquisition and period of holding of shares acquired on redemption of Global Depository Receipts (GDRs) by a non-resident assessee

49(2ABB) & 2(42A)

E. Deductions from Gross Total Income

1. Deduction under section 80C to be available in respect of deposit in Sukanya Samriddhi Account Scheme for the welfare of girl child

80C & 10(11A)

2. Increase in the limit of deduction in respect of contribution to certain pension funds under section 80CCC

80CCC

3. Additional deduction in respect of contribution to NPS of Central Government under section 80CCD(1B) and enhancement of limit of deduction under section 80CCD(1)

80CCD(1B) &

80CCD(1)

4. Enhancement of the limit of deduction under section 80D and allowability of deduction for incurring medical expenditure in respect of very senior citizen

80D

5. Increase in the limit of deduction under section 80DD and 80U in respect of persons with disability and severe disability 80DD & 80U

6. Enhanced limit of deduction for expenditure incurred in respect of medical treatment of very senior citizen 80DDB

7.

Scope of section 80G expanded to allow 100% deduction in respect of donation to Swachh Bharat Kosh, Clean Ganga Fund and National Fund for Control of Drug Abuse Exemption of income of Swachh Bharat Fund & Clean Ganga Fund

80G

10(23C)

8. Deduction for employment of new regular workmen extended to all assessees deriving profits and gains from manufacture of goods in a factory

80JJAA



F. Provisions concerning Advance Tax and TDS

1. Person responsible for paying income chargeable under the head “Salaries” to obtain proof or evidence or particulars of prescribed deductions/exemptions/set-off of losses claimed by the assessee

192(2D)

2. Tax to be deducted@10% on premature taxable withdrawal from employees provident fund

192A & 197A

3. Co-operative banks to deduct tax at source on interest on time deposits credited or paid to its members

194A

4. Interest on recurring deposits to be subject to tax deduction at source under section 194A

194A

5. Threshold limit to be reckoned with reference to the aggregate interest credited or paid by all branches of a banking company/co-operative bank/public company which has adopted core banking solutions

194A(3)

6. Tax deduction from interest on compensation awarded by the Motor Accidents Claims Tribunal to be made at the time of payment, where the interest or aggregate interest paid exceeds Rs.50,000

194A

7.

Exemption from applicability of TDS provisions under section 194C to be available only in respect of payments to transport operators owning ten or less goods carriages at any time during the previous year, on furnishing of PAN

194C(6)

8. Extension of eligible period of concessional tax rate@5% under section 194LD 194LD

9.

Person responsible for paying any sum, whether or not chargeable to tax, to a non-corporate non-resident or to a foreign company, to furnish the information relating to payment of such sum in the prescribed form and prescribed manner

195(6)

10. Facilitating filing of Form 15G/15H for payments made under life insurance policy

197A

11. Notified deductors not required to obtain and quote TAN 203A

13. Enabling provision for computation of fee payable under section 234E at the time of processing TDS statements

200A

G. Provisions for filing return of income

1. Beneficial Owner / Beneficiary of any asset located outside India required to file return of income in the prescribed form and manner 139(1)

2. Monetary limits of specified transactions which require quoting of PAN 139(A)



1. BASIC CONCEPTS

1) INCOME TAX RATES APPLICABLE FOR THE A.Y. 2016-17

A. Individual/Hindu undivided Family/ AOP /BOI

TAXABLE INCOME(Rs.)

MALE / FEMALE <60 YRS.

(Non – resident)

H.U.F / AOP / BOI

< 60 YRS.

RESIDENT SENIOR

CITIZEN ≥ 60 & < 80 YRS.

RESIDENT VERY

SR.CITIZEN ≥ 80 YRS.

UP TO 2,50,000 Nil Nil Nil Nil

2,50,001 to 3,00,000 10% 10% Nil Nil

3,00,001 to 5,00,000 10% 10% 10% Nil

5,00,001 to 10,00,000 20% 20% 20% 20%

Above 10,00,000 30% 30% 30% 30%

Primary & Secondary Education Cess: 3% cess on (tax + surcharge) in all cases.

B. Firm / LLP / Local Authority / Company (Domestic or Foreign)

The rate of tax for A.Y.2016-17 is

• Firm / LLP / Local Authority / Domestic Company @ 30%

• Foreign Company @ 40%

C. SURCHARGE: It is a tax on tax.

Applicable Surcharge Assessee TI < Rs.1

Crore TI > Rs. 1 Crore, but TI < Rs. 10

Crores TI > Rs. 10

Crores 1. Domestic

Companies - 7% (earlier 5%) 12% (earlier 10%)

2. Foreign Companies

- 2% 5%

3. Others - 12% (earlier 10%) 12% (earlier 10%)

D. Marginal relief:

a) In case of non – corporate assessee’s (other than company) exceeds 1 crore. Marginal relief is available in respect of these assessee’s.

Illustration:

Mr. Ram derives a taxable income of Rs.1,03,00,000. Compute the tax liability for the year ended 31.03.2016.

Solution:

The tax payable on total income of Rs. 1,03,00,000 of X Ltd. computed (including surcharge @ 12%) is Rs. 32,64,800. However, the tax cannot exceed Rs. 31,25,000 (i.e., the tax of Rs. 28,25,000 payable on total income of Rs. 1 crore plus Rs. 3,00,000, being the amount of total income exceeding Rs. 1 crore). Therefore, the tax payable on Rs. 1,03,00,000 would be Rs. 31,25,000. The marginal relief is Rs. 1,39,800 (i.e., Rs. 32,64,800 - Rs. 31,25,000).

b) In case of a domestic company, whose total income is > Rs. 1 crore but ≤ Rs. 10 crore

Illustration:

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs. 1,01,00,000 and the total income does not include any income in the nature of capital gains.



Solution:

The tax payable on total income of Rs. 1,01,00,000 of X Ltd. computed @ 32.1% (including surcharge@7%) is Rs. 32,42,100. However, the tax cannot exceed Rs. 31,00,000 (i.e., the tax of Rs. 30,00,000 payable on total income of Rs. 1 crore plus Rs. 1,00,000, being the amount of total income exceeding Rs. 1 crore). Therefore, the tax payable on Rs. 1,01,00,000 would be Rs. 31,00,000. The marginal relief is Rs. 1,42,100 (i.e., Rs. 32,42,100 - Rs. 31,00,000).

c) In case of a domestic company, whose total income is > Rs.10 crore

Illustration:

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs. 10,01,00,000 and the total income does not include any income in the nature of capital gains.

Solution:

The tax payable on total income of Rs. 10, 01, 00,000 of X Ltd. computed@ 33.6% (including surcharge@12%) is Rs. 3,36,33,600. However, the tax cannot exceed Rs. 3,22,00,000 [i.e., the tax of Rs. 3,21,00,000 (32.1% of Rs. 10 crore) payable on total income of Rs. 10 crore plus Rs. 1,00,000, being the amount of total income exceeding Rs. 10 crore]. Therefore, the tax payable on Rs. 10,01,00,000 would be Rs. 3,22,00,000. The marginal relief is Rs. 14,33,600 (i.e., Rs. 3,36,33,600 - Rs. 3,22,00,000).

2) Insertion of new clause in Definition of income (sec.2(24)(xviii): Any Assistance provided by central government or state government or any authority or body or Agency by way of “ subsidy or grant or incentive or Duty Draw Back(DDB) or Waiver or Concession or Re-imbursement or BY WHAT EVER NAME called, will be treated as income (TAXABLE UNDER PGBP) of the Assessee.(ICDS VII – Government Grants)

However, if the grant is received in respect of Depreciable Assets then it shall be reduced from “Actual cost” Defined under ‘Explanation1 to Sec. 43(1)’.

2. RESIDENTIAL STATUS 1) Determination of Residential Status of Crew Member of a ship: W.e.f. 01.04.2016 in the case

of an individual, being a Indian citizen and a Member of the Crew of a Foreign-bound Ship leaving India, the period(s) of stay in India shall, in respect of such voyage, be determined in the manner and subject to such prescribed conditions. For determining the period of Stay in India, the following period shall not be included-

Period beginning From Period ending to

Date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage

Date entered into Continuous Discharge Certificate in respect of the signing off by that individual from the ship in respect of such voyage.

Meaning of Terms:

a) Continuous Discharge Certificate shall have the meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate – Cum-Seafarer’s Identity Document) Rules, 2001 under Merchant Shipping Act, 1958.

b) Eligible voyage shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where-

i) For the voyage having originated from any port in India, has as its destination any port outside India and

ii) For the voyage Originated from any port outside India, has as its destination any port in India.



Illustration:

Mr. Alok is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in carriage of passengers in international traffic departing from Mumbai port on 6th June, 2015. From the following details for the P.Y.2015-16, determine the residential status of Mr. Alok for A.Y.2016-17, assuming that his stay in India in the last 4 previous years (preceding P.Y.2015-16) is 400 days and last seven previous years (preceding P.Y.2015-16) is 750 days:

Particulars Date Date entered into the Continuous Discharge Certificate in respect of joining the ship by Mr. Alok

6th June, 2015

Date entered into the Continuous Discharge Certificate in respect of signing off the ship by Mr. Alok

9th December, 2015

Solution:

Principles

1. U/s 6(1), any person who stays in India for a period of 182 days or more, during the Relevant Previous Year is a Resident for that year.

2. For a Member of the Crew of a Foreign-bound Ship leaving India, to determine the period of Stay in India, the following period shall not be included:

Period beginning From Period ending to Date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage

Date entered into Continuous Discharge Certificate in respect of the signing off by that individual from the ship in respect of such voyage

Analysis Period of Exclusion from Stay in India = From 06.06.2015 to 09.12.2015 = 187 days [25+31+31+30+31+30+9]

Conclusion Mr. Alok’s period of stay in India during the P.Y.2015-16 would be 179 days [i.e., 366 days – 187 days]. Since his period of stay in India during the P.Y.2015-16 is less than 182 days, he is a non-resident for A.Y.2016-17.

The above voyage is a Eligible Voyage as the Ship is engaged in the carriage of freight in international traffic having originated from a port in India, and has as its destination any port outside India (Mumbai Port to Singapore Port).

Note - Since the residential status of Mr. Alok is “non-resident” for A.Y.2016-17 consequent to his number of days of stay in P.Y.2015-16 being less than 182 days, his period of stay in the earlier previous years become irrelevant.

2) Residential Status Of Company

a) Resident: Company would be resident in India in any previous year, if –

i) It is an Indian company (or)

ii) Its place of effective management (POEM), in that year, is in India.

In any other case the company shall be considered as non – resident

Explanation:

1. Indian Company Always Resident (irrespective of where its POEM functions.)

2. Other companies(foreign company) – if place of effective management (a) In India (b) Outside India

Resident Non – Resident

Note: Place of effective management to mean a place where key management and commercial decisions are necessary for the conduct of the business of an entity as a whole are, in substance made.



3) Section – 9: explanation 6 to section 9(1)(i): Explanation 5 to section 9(1)(i) inserted vide Finance Act, 2012 has the effect of bringing within tax net the transfer of share or interest (“interest”) in a foreign company or entity (“entity” by a non-resident outside India, if such interest in the entity derives its value substantially from the assets located in India, commonly referred to as “indirect transfer”. It was not clear before the amendment as to what would constitute for the purpose of the above explanation.

It is now provides that the share or interest of the foreign company or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date the value of Indian assets-

a) Exceeds the amount of Rs. 10 crores; and

b) Represents at least a 50% of the value of all the assets owned by the company or entity;

The value of an asset shall be the fair market value as on the specified date, of such asset without deduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed

The taxation of the gains arising on the transfer of a share or interest deriving, directly or indirectly, its value substantially from assets located in India will be on proportional basis. The method of determining proportionality will be on proportional basis. The method of determining proportionality will be specified in the rules. However such indirect transfers will not be taxed in the following cases:

Where the non-resident transferor, individually or along with its associated enterprises, at any time in the 12 months preceding the date of transfer of interest in an entity.

i) Neither holds the right of the management or control in such entity which directly holds assets in India nor holds right of the management or control in such entity which would enable it to the right of the management or control of the entity which holds assets in India.

ii) Neither holds more than 5% of the total voting power or share capital or interest in such entity directly owning assets in India nor does it holds a percentage of the total voting power or share capital or interest in any entity which results in more than 5% of the total voting power or share capital or interest in the entity directly owning assets in India.

4) Sec 9(1)(v): Sec 9(1)(v) relates to interest income and provides that the income by way of interest, if payable by the specified persons shall be sec 9(1)(v)(c) deemed to accrue or arise in india.

An Explanation has been inserted after providing that in the case of a non- resident, being a person engaged in the business of banking, any interest payable by the permanent establishment(PE) in India of such non-resident to the head office or any PE or any other part of such non-resident outside India, shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable tom PE in India and the PE in India shall be deemed to be a person separate and independent of the non-resident person of which it is PE and the provisions of the act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly.

3. INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

S. No SECTION CONDITIONS FOR EXEMPTION 1 10(11A) Any payment (interest accruing and withdrawals) from an account, opened

as per sukanya samriddhi Account Rules, 2014 made under the Government savings bank Act,1873,is exempt from Tax.

2 10(22B) Any income of a news agency set up in India solely for collection and distribution of news as the Central Government may notify shall be exempt, subject to the condition that such news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members.

3 10(23c) Without any conditions the Income of • Swachh bharat kosh (F- Act-2015, w.e.f. A.Y. 2015 – 16)



• Clean Ganga Fund (F- Act-2015, w.e.f. A.Y. 2015 – 16) Is exempted

4 10(23EE) Specified income of core settlement guarantee fund is exempt: a) Entity: Core settlement guarantee Fund ,set up by a recognized clearing corporation b) Exempt incomes: following incomes of above fund is exempt- i) Contribution received from specified persons, ii) Penalties imposed by the recognized clearing corporation and credited to the core settlement guarantee fund, or iii) Income from investment made by the fund. c) Taxable if shared with specified person: if any amount standing to the credit of the fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly be chargeable to income-tax. d) ‘’Specified person’’ shall mean ,- • Any recognized clearing corporation which establishes and maintains the core settlement guarantee fund, and • Any recognized stock exchange being a shareholder in such recognized clearing corporation, or as a contributor to the core settlement guarantee fund, and any clearing member contributing to the core settlement guarantee fund.

5 10(23FBA) Any income of an investment fund other than the income chargeable under the head “profits and gains of business or profession”(incomes from investment funds/ unit holders are exempt)

6 10(23FBB) Any income referred to in sec.115UB, accruing or arising to, or received by , a unit holder of an investment fund, being that proportion of income which is of the same nature as income chargeable under the head “profits and gains of business or profession’’. (incomes from investments fund / unit holder are exempt) NOTE: investment fund is as specified under sec.115UB Explanation 1 clause (a).

7 10(23FCA) Any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust, shall be exempt.

8 10(38) Exemption of long term capital gain arising from sale of unit of business trust subjected to STT

4. INCOME FROM SALARIES Increase in the maximum limit for exemption of transport allowance [notification no. 39/2015, dated 13 – 04 – 2015] (sec 10(14) & Rule 2BB)

Transport allowance: it is given to meet the employee’s expenditure for traveling from his residence to office and back. Transport allowance received. Less: Exempt u/s 10(14) Rs.1600 p.m. (EARLIER 800 p.m.)(If employee is blind / deaf & dumb / handicapped, Rs.3200 p.m. (EARLIER 1600 p.m.))

XXX

XXX

TAXABLE AMOUNT XXX



5. PROFITS AND GAINS OF BUSINESS OR PROFESSION 1. Amendments Relating To Additional Depreciation

a) Additional depreciation @ 20%: An assessee who is engaged in manufacturing activity or engaged in power sector is eligible to claim an additional depreciation @ 20% of actual cost (50% of 20% in case of the asset put to use for less than 180 days). in respect of “ELIGIBLE PLANT AND MACHINERY “

b) Additional depreciation @ 35%: In order to encourage acquisition and installation plant and machinery for setting up of manufacturing units in the notified backward areas of the states of Andhra Pradesh, Bihar, Telangana and West Bengal, a proviso has been inserted to section 32(1)(iia) to allow higher additional depreciation @ 35% (instead of 20%)(50% of 35% in case of the asset put to use for less than 180 days) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed during the period between 1st April, 2015 and 31st March, 2020 by a manufacturing undertaking or enterprise which is set up in the notified backward areas of these specified States on or after 1st April, 2015.

c) Balance 50% of additional depreciation to be allowed in the subsequent year (applicable to both (a) & (b) points): Balance 50% of the additional depreciation on new plant and machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant & machinery, shall be allowed in the immediately succeeding previous year.

Illustration:

XYZ ltd., a manufacturing concern, furnishes the following particulars:

S.No Particulars Rs.

1.

2.

3.

4.

Opening WDV of plant and machinery as on 1.4.2015

New plant and machinery purchased and put to use on 08.06.2015

New plant and machinery acquired and put to use on 15.12.2015

Computer acquired and installed in the office premises on 2.1.2016

30,00,000

20,00,000

8,00,000

3,00,000

Compute the amount of depreciation and additional depreciation as per the income tax Act, 1961 for the A.Y. 2016 - 17.

Solution:

Computation of depreciation and additional depreciation for A.Y. 2016 - 17

Particulars Plant &

Machinery (15%)

Computer (60%)

Normal depreciation: • @ 15% on Rs. 50,00,000 [See Working Notes 1 & 2] • @ 7.5% (50% of 15%, since put to use for less than 180

days) on Rs. 8,00,000 • @ 30% (50% of 60%, since put to use for less than 180

days) on Rs. 3,00,000 Additional Depreciation: • @ 20% on Rs. 20,00,000 (new plant and machinery put to

use for more than 180 days) • @10% (50% of 20%, since put to use for less than 180

days) on Rs. 8,00,000

Total depreciation

7,50,000

60,000

-

40,000

80,000 12,90,000

- -

90,000

-

- 90,000



Working Notes:

1) Computation of actual cost of Plant & Machinery as on 31.03.2016

Particulars Plant & Machinery Computer

Written down value as on 1.4.2015 Add: Plant & Machinery purchased on 08.6.2015 Add: Plant & Machinery acquired on 15.12.2015 Computer acquired and installed in the office premises Actual cost of as on 31.03.2016

30,00,000 20,00,000 8,00,000

- 58,00,000

- - -

3,00,000 3,00,000

2) Composition of plant and machinery included in the WDV as on 31.3.2016

Particulars Plant & Machinery Computer

Plant and machinery put to use for 180 days or more [Rs. 30,00,000 (Opening WDV) + Rs. 20,00,000 (purchased on 8.6.2015)]

50,00,000 -

Plant and machinery put to use for less than 180 days 8,00,000 -

Computers put to use for less than 180 days - 3,00,000

58,00,000 3,00,000

Notes:

1. As per the second proviso to section 32(1)(ii), where an asset acquired during the previous year is put to use for less than 180 days in that previous year, the amount of deduction allowable as normal depreciation and additional depreciation would be restricted to 50% of amount computed in accordance with the prescribed percentage.

Therefore, normal depreciation on plant and machinery acquired and put to use on 15.12.2015 and computer acquired and installed on 02.01.2016, is restricted to 50% of 15% and 60%, respectively. The additional depreciation on the said plant and machinery is restricted to Rs.80,000, being 10% (i.e., 50% of 20%) of Rs.8 lakh

2. As per third proviso to section 32(1)(ii), the balance additional depreciation of Rs.80,000 being 50% of Rs.1,60,000 (20% of Rs.8,00,000) would allowed as deduction in the A.Y.2017-18.

3. As per section 32(1)(iia), additional depreciation is allowable in the case of any new machinery or plant acquired and installed after 31.3.2005 by an assessee engaged, inter alia, in the business of manufacture or production of any article or thing, @ 20% of the actual cost of such machinery or plant.

However, additional depreciation shall not be allowed in respect of, inter alia, any machinery or plant installed in office premises, residential accommodation or in any guest house.

Accordingly, additional depreciation is not allowable on computer installed in the office premises.

2. Section 32AD:

Investment In New Plant And Machinery In Notified Backward Areas Of Specified States

a) Applicable Assessee: Industrial undertaking (Manufacturers)

b) Investment: Investment in new plant and machinery in notified backward areas in specified States of Andhra Pradesh, Bihar, Telangana and West Bengal.

c) Investment Period: 1st April, 2015 to 31st March, 2020.

d) Deduction: 15% of cost of new plant and machinery.

e) Double benefits available: Where the assesse is a Company, deduction under section 32AD would be available over and above the existing deduction available under section 32AC, subject to the satisfaction of conditions thereunder.



f) Holding Period: If any new asset acquired and installed by the assesses is sold or otherwise transferred except in connection with the amalgamation or demerger or reorganisation of business referred to in section 47(xiii), (xiiib) or (xiv), within a period of 5 years from the date of its installation, the consequence of the same shall be as under:

i) The amount of deduction allowed under section 32AD (1) in respect of such new asset shall be deemed to be income chargeable under the head profit and gains of business and profession of the year in which new asset is sold or otherwise transferred.

ii) In addition to the above, if any capital gain arises under section 50 on account of transfer of such new asset that too shall become taxable in that previous year.

g) For the purpose of this section, “New plant and machinery” does not include –

i) Any ship or aircraft;

ii) Any plant and machinery, which before its installation by the assesse, was used either within or outside India by any other person;

iii) Any plant and machinery installed in any office premises or any residential accommodation, including accommodation in the nature of guest house

iv) Any office appliances including computers or computer software;

v) Any vehicle;

vi) Any plant and machinery, the whole of the actual cost of which is allowed as deduction.(whether by way of depreciation or otherwise)

Note:

i) It may be noted that deduction u/s. 32AC and/or 32AD in respect of new plant & machinery acquired and installed shall be allowed as a deduction in addition to the normal depreciation u/s. 32 and additional depreciation u/s. 32(1)(iia), irrespective of number of days for which the asset is put to use.

ii) The Eligible plant & machinery discussed under sec 32AC, 32AD, 32(1) (iia) & 54GB are one and the same.

iii) Certain districts of Bihar notified as backward areas under the first proviso to section 32(1)(iia) and section 32AD(1)

Accordingly, the Central Government has, vide this notification, notified the following 21 districts of the State of Bihar as backward areas under the first proviso to section 32(1)(iia) and section 32AD(1).

S. No. District S. No. District 1. Patna 12. Samastipur 2. Nalanda 13. Darbhanga 3. Bhojpur 14. Madhubani 4. Rohtas 15. Purnea 5. Kaimur 16. Katihar 6. Gaya 17. Araria 7. Jehanabad 18. Jamui 8. Aurangabad 19. Lakhisarai 9. Nawada 20. Supaul

10. Vaishali 21. Muzaffarpur 11. Sheohar

Illustration:

X ltd set up a manufacturing unit in notified backward area in the state of Telangana on 01.06.2015. It invested Rs.30 core in new plant and machinery on 1.6.2015. Further, it invested Rs.25 core in the plant and machinery on 01.11.2015, out of which Rs.5 core was second hand plant and machinery. Compute the depreciation under sec:32, is X ltd entitled for any other benefit in respect of such investment? If so, what is the benefit available?



Would your answer change where such manufacturing unit set up by a firm?

Solution:

i) Computation of depreciation under section 32 for X Ltd. for A.Y. 2016-17

Particulars Rs. in crores

Plant and machinery acquired on 01.06.2015 Plant and machinery acquired on 01.11.2015 WDV as on 31.03.2016 Less: Depreciation @ 15% on Rs. 30 crore Depreciation @ 7.5% (50% of 15%) on Rs. 25 crore Additional Depreciation@35% on Rs. 30 crore Additional [email protected]% (50% of 35%) on Rs. 20 crore WDV as on 01.04.2016

4.50 1.87

10.50 3.50

30.00 25.00

55.00

20.37 34.63

Computation of deduction under section 32AC & 32AD for X Ltd. for A.Y. 2016-17

Particulars Rs. in crores

Deduction under section 32AC(1A) @ 15% on Rs. 50 crore (since investment in new plant and machinery acquired and installed in the previous year 2015-16 by X Ltd., a manufacturing company, exceeds Rs. 25 crore) Deduction under section 32AD @ 15% on Rs. 50 crore Total benefit

7.50

7.50 15.00

ii) Yes, the answer would be different, where the manufacturing unit is set up by a firm. The deduction under section 32AC is available only to corporate assesses, and therefore, the deduction of Rs. 7.50 crore under section 32AC would not be available if the manufacturing unit is set up by X & Co., a firm. However, it would be eligible for deduction of Rs. 7.50 crore under section 32AD.

Notes:

1. As per the second proviso to section 32(1)(ii), where an asset acquired during the previous year is put to use for less than 180 days in that previous year, the amount deduction allowable as normal depreciation and additional depreciation would be restricted to 50% of amount computed in accordance with the prescribed percentage.

Therefore, normal depreciation on plant and machinery acquired and put to use on 1.11.2015 is restricted to 7.5% (being 50% of 15%) and additional depreciation is restricted to 17.5% (being 50% of 35%).

2. As per third proviso to section 32(1) (ii), the balance additional depreciation of Rs. 3.5 crore, being 50% of Rs. 7 crore (35% of Rs. 20 crore) would be allowed as deduction in the A.Y.2017-18.

3. As per section 32(1)(iia), additional depreciation is allowable in the case of any new machinery or plant acquired and installed after 31.3.2005 by an assessee engaged, inter alia, in the business of manufacture or production of any article or thing. In this case, since new plant and machinery acquired was installed by a manufacturing unit set up in a notified backward area in the State of Telangana, the rate of additional depreciation is 35% of actual cost of new plant and machinery. Since plant and machinery of Rs. 20 crore was put to use for less than 180 days, additional depreciation @17.5% (50% of 35%) is allowable as deduction. However, additional depreciation shall not be allowed in respect of second hand plant and machinery of Rs. 5 crore.

Likewise, the benefit available under sections 32AC and 32AD would not be allowed in respect of second hand plant and machinery.

Accordingly, additional depreciation and investment allowance under sections 32AC and 32AD have not been provided on Rs. 5 crore, being the actual cost of second hand plant and machinery acquired and installed in the previous year.



3. Section 35(2AA):

Before Amendment After Amendment • Section 35(2AA) provides for a weighted

deduction 200% for Scientific research under a programme approved by the prescribed authority. (prescribed authority namely the secretary department of scientific and industrial research (DSIR))

• The prescribed authority shall submit its report in the prescribed form to the principal DG or DG.

• Section 35(2AA) provides for a weighted deduction 200% for Scientific research under a programme approved by the prescribed authority. (prescribed authority namely the secretary department of scientific and industrial research (DSIR))

• The prescribed authority shall submit its report in the prescribed form to the principal DG or DG, principal chief commissioner or chief commissioner

Reason: to provide better facility to the assessee, which were paid to National laboratory, university or Indian Institute of Technology or a specified person with a specified direction to get weighted deduction 200%.

4. Section – 35(2AB):

According to Section 35(2AB), to get weighed deduction 200% in respect of expenditure on in house research and development expenses inserting the following new conditions (w.e.f A.Y 2016-17)

a) Assessee must enter into an agreement with the prescribed authority for co-operation in such research and development facility and fulfills prescribed conditions with regard to maintenance and audit of the accounts and also furnishes prescribed reports

b) The prescribed authority shall submit its report in the prescribed form to the principal DG or DG, principal chief commissioner or chief commissioner.

5. Amendments relating to sec 36(1) a) Interest on borrowed capital - Sec 36(1)(iii):

Before Amendment After Amendment Proviso to section 36(1)(iii): Interest paid in respect of capital borrowed for acquisition of an asset, for period up to the date on which the asset is first put to use to be capitalized, only if the acquisition of an asset is for an extension of existing business or profession.

Proviso to section 36(1)(iii): Interest paid in respect of capital borrowed for acquisition of an asset, for period up to the date on which the asset is first put to use to be capitalized, even if the acquisition of an asset is not for an extension of existing business or profession.

Reason: In order to remove the inconsistency between the requirement under the income tax Act, 1961 and the requirement under ICDS IX. The proviso to section 36(1)(iii) has been amended to remove the condition that the acquisition should have been for extension of existing business or profession.

b) Bad debts - sec 36(1)(vii):

Before Amendment After Amendment One of the essential conditions for claiming bad debts as deduction • It should be written off in the books of

accounts Note: Mere provision is not sufficient but actual write off of account is required.

One of the essential conditions for claiming bad debts as deduction • It should be written off in the books of

accounts However, actual written off in the books of accounts is not necessary, if a debt which has not been recognized in the books of accounts as per the accounting Standards but has been taken into Account in the computation of Income As per noticed ICDS has become irrecoverable, still it can be claimed as bad debts.



Reason : There are significant deviations between the notified ICDSs and accounting standards in case of recognition of income or gains or postponing the recognition of expenditure or losses under tax laws and consequently, impacting the computation of tax liability under income tax Act In order to overcome this difficulty arising out of the notified ICDS a second proviso has now been inserted in sec 36(1)(vii) If a debt, which has not been recognised in the books of accounts as per the requirement of the accounting standards but has been taken into account in the computation of income as per notified ICDS, has become irrecoverable, it can still be claimed as bad debts u/s 36(1)(vii) since it shall be deemed that the debt has been written off as irrecoverable in the books of accounts by virtue of the second proviso to sec 36(1)(vii)

c) Co-operative societies – sec 36(1)(xvii): The amount of expenditure incurred by a co-operative society engaged in the business of manufacture of sugar for purchase of sugarcane at a price which is equal to or less than the price fixed or approved by the Government. Thus, it may be noted that amount paid in excess of the price approved by the Government shall not be allowed as deduction for purchase of sugarcane.

Some important circulars issued by CBDT:-

1. Deduction in respect of cost of production allowable under section 37 in the case of Abandoned Feature Films [Circular No. 16/2015, dated 6.10.2015]

The deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year is provided in Rule 9A.( Rule 9A – if Censor board is certified then the cost of production of the film is allowed as deduction).

But in case of abandoned films, since certificate of Board of Film Censors is not received, in some cases no deduction was allowed by applying Rule 9A of the Rules or by treating the expenditure as capital expenditure.

CLARIFICATION:- It is clarified that Rule 9A does not apply to abandoned feature films. So, The cost of production of an abandoned feature film is to be treated as revenue expenditure (not capital expenditure) and allowed as per the provisions of section 37 of the Income -tax Act, 1961.

2. Interest from non-SLR Securities of Banks: Whether chargeable under the head “Profits and gains of business or profession” or “Income from other sources”?

[Circular No. 18, dated 2.11.2015] Section 56(1)(id) provides that income by way of interest on securities shall be chargeable to income-tax under the head "Income from Other Sources", if the income is not chargeable to income-tax under the head "Profits and Gains of Business and Profession". The investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". (CIT v. Nawanshahar Central Cooperative Bank Ltd. [2007]) (SC)

3. Allowability of Employer's Contribution to funds for welfare of employees paid after the due date under the relevant Act but before the due date of filing of return of income under section 139(1) [Circular No.22/2015 dated 17 – 12 - 2015] Under section 43B of the Income-tax Act, 1961, certain deductions are admissible only on payment basis. The CBDT has observed that some field officers disallow employer's contributions to provident fund for the welfare of employees, if it has been paid after the 'due dates' as per the relevant Acts. CLARIFICATION:-

CBDT has clarified the issue that the deduction is allowable to the employer, if he deposits the contributions to welfare funds on or before the 'due date' of filing of return of income. U/S 139 (1). (i.e. due dates as per relevant Acts is not considered)

Note: It is further clarified that this Circular does not apply to claim of deduction relating to employee's contribution to welfare funds



6. CAPITAL GAINS

1. Notification of new cost inflation index (CII):

The CII applicable for AY 2016-17 is “1081” (Notification no. 60/2015 dated 24.6.2015)

2. Section 47 exception to transfer:

Sec Nature of transaction

not regarded as transfer

Conditions to be fulfilled for the

transaction not to be regarded as transfer between transferor

and transferee(sec.47)

Holding period in the hands of the transferee

sec 2(42A)

Cost in hands of

transferee [sec.49(1)]

47(viab) (w.e.f. AY2016-17)

Transfer in a scheme of amalgamation: Asset transferred: share of a foreign co. referred to in Expln.5 to sec.9(1)(i), which derives ,directly or indirectly, its value substantially from the share(s)of an Indian co. From: amalgamating foreign co. To: amalgamated foreign co.

• At least 25% of the shareholders of amalgamating foreign co. remain shareholders of amalgamated foreign co.

• Such transfer does not attract capital gain tax in country in which the amalgamating company is incorporated

Previous owners holding period

shall be included

Cost to previous owner

47(vicc) (w.e.f. AY2016-17)

Transfer in a scheme of Demerger: Asset transferred: share of a foreign co. referred to in Expln. 5 to sec.9 (1) (i), which derives, directly or indirectly its value substantially from the share(s) of an Indian co. From: demerged foreign co. To: resulting foreign co.

• Shareholders holding not less than 3/4th in value of shares of demerged foreign co. continue to remain shareholders of resulting co.

• Such transfer does not attract capital gain tax in the country in which the demerged company is incorporated

Previous owners holding period

shall be included

Cost to previous owner

47(×viii) Transfer by a unit holder, made in consideration of the allotment to him of a capital asset, being unit (s), in the consolidated scheme of a mutual fund Assets Transferred: unit(s) held by him in the consolidating scheme of the mutual fund

Consolidation is of two or more schemes of equity oriented or of two or more schemes of a fund other than equity oriented fund

Holding period in consolidating

scheme of mutual fund

shall be included.

Cost to consolidating

scheme of mutual fund

Meaning of the following terms:

a) Consolidating scheme of mutual fund: The scheme of mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the SEBI (Mutual Funds) Regulations1996 made under SEBI act 1992

b) Consolidated scheme of mutual fund: The scheme with which the consolidating scheme merges or which is formed as a result of such merger.



3. Insertion of new clause for determining cost of acquisition and period of holding by a non -

resident assessee:

i) Cost of acquisition of shares acquired on redemption of GDR’s[sec 49(2ABB)]: Sub section 2(ABB) has been inserted in sec 49, to provide that the cost of acquisition of the capital asset, being share or shares of a company acquired by a non – resident assessee, consequent to redemption of GDR’s [referring to section 115AC(1)(b)] held by him would be the price of such share or shares prevailing on any recognized stock exchange on the date in which a request for such redemption was made.

ii) Period of holding of shares acquired on redemption of GDR’s [sec 2(42A)]: Period of holding would be taken from the date on which a request for such redemption was made.

7. CHAPTER - VI A DEDUCTIONS

1. Section 80C: deposit in sukanya samriddhi scheme” for welfare of girl child: “Sukanya samriddhi scheme” for welfare of girl child has been notified as eligible deposit schemes of central Govt u/s 80C (2). Accordingly where an individual has paid any contribution to such deposit scheme, he will be allowed a deduction provided the contribution is made in the name of:

a) The individual himself or herself or

b) The girl child of individual or

c) Any girl child for whom such individual is legal guardian.

Would be eligible for deduction u/s 80C

Note: Interest accruing on deposits and withdrawals from the sukanya samriddhi scheme would be exempt u/s 10(11A)

2. Section 80CCC: increase in ceiling limit: The present ceiling limit of 1,00,000/- has been increased to 1,50,000/- in respect of contribution to pension fund of LIC or any other insurer. However this deduction is subject to the overall limit of 1,50,000/- as mentioned u/s 80CCE.

Some important circulars issued by CBDT: Principles to determine whether gains on sale of listed shares and other securities would constitute capital gains or business income:-

There is no universal principle, to decide whether, shares held as investments or held as stock in trade CLARIFICATION:

CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, instructs the Assessing Officers to take into account the following while deciding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income

1. Where assessee opts to treat such shares and securities as stock – in - trade:

Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income,

2. Listed shares and securities held for a period of more than 12 months: In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;

Other cases: In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.



3. Section 80CCD: Contribution to notified pension scheme (NPS)

A. Deduction in respect of Assessee’s contribution:

a) Sec 80CCD(1): the assessee contribution shall be allowed as deduction subject to maximum of 10% of the salary or 10% of the GTI, as the case may be. (Now the limit of 1,00,000/- has been eliminated)

Note:- Atal pension yojana is notified under section 80CCD(1), So contribution to this scheme, would qualify for deduction U/S 80CCD

b) Sec 80CCD (1B): Further the above contribution the assesse can also make a separate contribution of 50,000/-. The deduction under this sub section is over and above the overall limit of sec.80CCE.

B. Deduction in respect of employer or CG contribution (sec. 80CCD(2)): Further the contribution by Employer or CG will be allowed as a deduction subject to maximum of 10% of the salary. The deduction under this sub sec is over and above the overall limit of sec.80CCE.

The following table summarizes ceiling limit under these sections

Section Particulars Before amendment

(Ceiling limit in Rs.)

After amendment

(Ceiling limit Rs.)

80C Investment in specified instruments 1,50,000 1,50,000

80CCC Contribution to certain pension funds 1,00,000 1,50,000

80CCD(1) Contribution to Notified Pension Scheme (NPS)

1,00,000

10% of salary or 10% of GTI, as

the case may be (Now the limit of

1, 00,000 has been eliminated.)

80CCE Aggregate deduction under sections 80C, 80CCC & 80CCD(1)

1,50,000 1,50,000

80CCD(1B) contribution to NPS notified by the CG (outside the limit of Rs. 1,50,000 u/s 80CCE)

Not Applicable 50,000

Note:

a) Thus the maximum contribution allowed under this section.80CCD(1) shall be 10% of the salary or GTI and further the deduction will be allowed of Rs, 50,000/- foe assessee contribution u/s 80CCD(1B).

Deduction also available towards Employers contribution subject to maximum of 10% of the salary(sec.80CCD(2)).

b) ‘Salary’ includes DA (forming part of retirement) but excludes all other allowances and perquisites.

Illustration:

The following are the particulars of investments and payments made by Mr. A, employed with ABC Ltd., during the previous year 2015-16:

a) Deposited Rs.1,20,000 in public provident fund

b) Paid life insurance premium of Rs.15,000 on the policy taken on 1.5.2012 to insure his life (Sum assured – Rs.1,20,000).

c) Deposited Rs.30,000 in a five year term deposit with bank.



d) Contributed Rs.1,80,000, being 15% of his salary, to the NPS of the Central Government. A

matching contribution was made by ABC Ltd.

i) Compute the deduction available to Mr. A under Chapter VI-A for A.Y.2016-17.

ii) Would your answer be different, if Mr. A contributed Rs.1,20,000 (being, 10% of his salary) towards NPS of the Central Government?

Solution:

i) Deduction available to Mr. A under Chapter VI-A for A.Y.2016 - 17

Section Particulars Rs. Rs. 80C Deposit in public provident fund 1,20,000

Life insurance premium paid Rs. 15,000 (deduction restricted to Rs. 12,000, being 10% of Rs. 1,20,000, being sum assured, since the policy was taken after 31.3.2012)

12,000

Five year term deposit with bank 30,000 Total 1,62,000 Restricted to 1,50,000

80CCD(1)

Contribution to NPS of the Central Government, Rs.1,30,000 [Rs.1,80,000 – Rs.50,000, being deduction under section 80CCD(1B)], restricted to 10% of salary [Rs.1,80,000 x 10/15] [See Note 1]

1,20,000

Total 2,70,000

80CCE Aggregate deduction under section 80C and 80CCD(1), Rs.2,70,000, but restricted to

1,50,000

80CCD(1B) Rs.50,000 would be eligible for deduction in respect of contribution to NPS of the Central Government

50,000

80CCD(2) Employer contribution to NPS, restricted to 10% of salary [See Note 2]

1,20,000

Deduction under Chapter VI-A 3,20,000

Notes:

a) The deduction under section 80CCD (1B) would not be subject to overall limit of Rs.1.50 lakh under section 80CCE. Therefore, it is more beneficial for Mr. A to claim deduction under section 80CCD (1B) first in respect of contribution to NPS. Thereafter, the remaining amount of Rs.1,30,000 can be claimed as deduction under section 80CCD(1), subject to a maximum of 10% of salary.

b) The entire employer’s contribution to notified pension scheme has to be first included under the head “Salaries” while computing gross total income and thereafter, deduction under section 80CCD(2) would be allowed, subject to a maximum of 10% of salary.

ii) If the contribution towards NPS is Rs.1,20,000, here again, it is beneficial for Mr. A to first claim deduction of Rs.50,000 under section 80CCD (1B) and the balance of Rs.70,000 can be claimed under section 80CCD (1), since the deduction available under section 80CCD (1B) is over and above the aggregate limit of Rs.1,50,000 under section 80CCE. In any case, the aggregate deduction of Rs.2,20,000 [i.e., Rs.1,50,000 under section 80C and Rs.70,000 under section 80CCD(1)] cannot exceed the overall limit of Rs.1,50,000 under section 80CCE. The total deduction under Chapter VIA would remain the same i.e., Rs.3,20,000.

4. Section – 80D:

a) Enhancement of the ceiling limit

Nature of payment:

i) Up to Rs. 25,000 (earlier Rs.15,000) to an assessee, being an individual/HUF in respect of –

• Health insurance Premia paid by any mode other than cash, to effect or to keep in force insurance on the health of the assessee or his family.



• Any contribution made to CGHS or any other notified scheme; and

• Any payment made on account of preventive health checkup of the assessee or his family; and

ii) An additional deduction of Rs. 25,000 (earlier Rs.15,000) is provided to an individual to effect or to keep in force insurance on the health of his or her parent or parents

iii) If the sum specified in a & b above is paid to effect or keep in force an insurance of a person who is a senior citizen, being a resident individual of the age of 60 years or more at any time during the previous year, the limit specified would be Rs.30,000(earlier Rs.20,000) instead of Rs.25,000 (earlier Rs.15,000)

b) Allowability of medical expenditure in respect of very senior citizen upto Rs.30,000: Any payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force insurance on health of such person.

The aggregate deduction available to any individual/ or his parents in respect of health insurance premium and the medical expenditure incurred would, however, be limited to Rs.30,000.

Note:

A “very senior citizen” is as an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

The following table summarizes the deduction allowable u/s. 80D:

Description Amount paid in respect of

self, spouse & dependent

children

parents, dependent or not

Total deduction u/s 80D

a. in respect of medi claim premium and preventive health check up

No one attained the age of 60 years

25,000(earlier 15,000)

25,000 (earlier 15,000)

Rs. 50,000

assessee and his family less than 60 years of age and parent is a senior citizen or very senior citizen

25,000(earlier 15,000)

30,000 (earlier 20,000)

55,000

assessee and the parents attained the age of 60 years or above

30,000(earlier 20,000)

30,000 (earlier 20,000)

60,000

b. in respect of medical expenditure incurred for a very senior citizen

Assessee and his family less than 80 years of age and parent is a very senior citizen.

Nil 30,000 30,000

Assessee and parent attained the age of 80 years or above

30,000 30,000 60,000

Maximum cumulative deduction under a and b

30,000 30,000 60,000

Copyrights Reserved

To MASTER MINDS, Guntur



Illustration:

Mr. Arjun (52 years old) furnishes the following particulars in respect of the following payments:

S. No. Particulars Amount (Rs.)

1.

Premium paid for insuring the health of – Self spouse dependant son mother

10,000 8,000 4,000

18,000

2.

Paid for Preventive Health Check up of himself spouse mother

2,000 1,500 4,000

3. Incurred medical expenditure of Rs.25,000 and Rs.15,000 for his mother, aged 80 years and father, aged 85 years. Both mother and father are resident in India.

Compute the deduction available to Mr. Arjun under section 80D for the A.Y. 2016-17.

Solution:

Computation of deduction under section 80D for the A.Y. 2016-17

S.No. Particulars Amount (Rs.)

1. i) In respect of premium paid for insuring the health of – � Self � spouse � dependant son

Total ii) In respect of expenditure on preventive health check up of –

� Self � Spouse

Total Restricted to [Rs.25,000 – Rs.22,000, since maximum deduction is Rs.25,000] Aggregate of deduction (I+II) under (1) restricted to

10,000 8,000 4,000

22,000

2,000 1,500 3,500

3,000

25,000 2. i) In respect of payment towards health insurance premium for his

mother ii) In respect of preventive health check up of his mother [Rs. 4,000,

restricted to Rs. 2,000, (Rs. 5,000 – Rs. 3,000), since maximum deduction for preventive health check up under section 80D is Rs. 5,000]

iii) Medical expenditure for father would only be eligible for deduction [See Note below]

Amount of deduction under (2) restricted to

18,000

2,000 15,000 35,000

30,000 Total deduction under section 80D [(1) + (2)] 55,000

Note: Irrespective of the fact that the mother of Arjun is a very senior citizen the deduction under section 80D would not available to him in respect of the medical expenditure incurred for his mother, since Mr. Arjun has taken a health insurance policy for his mother.

5. Section 80DD: Enhancement of the ceiling limit:

a) Section 80DD, inter alia, provides for a deduction of Rs. 75,000,(earlier Rs. 50,000 )to an individual or HUF, who is a resident in India, who has incurred —

i) Expenditure for the medical treatment (including nursing), training and rehabilitation of a dependent, being a person with disability or

ii) Paid any amount to LIC or any other insurer in respect of a scheme for the maintenance of a disabled dependent.



If the dependent is suffering from severe disability, the deduction under section 80DD is Rs. 1,25,000.(earlier Rs.1,00,000)

The following table summarizes the deduction allowable u/s. 80DD:

Maintenance and medical treatment of:

Before amendment (Ceiling limit in Rs.)

After amendment (Ceiling limit in Rs.)

Persons with disability 50,000 75,000 Persons with severe disability 1,00,000 1,25,000

6. Section 80U: Enhancement of the ceiling limit: Section 80U, inter alia, provides for a deduction of Rs. 75,000(earlier Rs. 50,000), to an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability. If the person is suffering from severe disability, deduction under section 80U is Rs.1,25,000. (Earlier Rs. 1,00,000)

The following table summarizes the deduction allowable u/s. 80U:

Maintenance and medical treatment of:

Before amendment (Ceiling limit in Rs.)

After amendment (Ceiling limit in Rs.)

Persons with disability 50,000 75,000 Persons with severe disability 1,00,000 1,25,000

7. Section 80DDB: Enhanced limit of deduction for expenditure incurred in respect of medical treatment of very senior citizen

a) Section 80DDB has been amended to provide for a higher limit of deduction of upto Rs. 80,000, for the expenditure incurred in respect of the medical treatment of himself or a dependent, being a “very senior citizen”.

S.NO Dependent Maximum limit (Rs.)

1. A very senior citizen, being a resident individual 80,000 2. A senior citizen, being a resident individual 60,000 3. Dependent, other than mentioned in (1) & (2) above 40,000

b) Further the condition to obtain a certificate from the specialist doctor working in government hospital has been removed. Means the assessee will be required to obtain a prescription for such medical treatment from a specialist doctor(need not worked in Govt hospital).

8. Section 80G: New funds has been notified for donations(W.e.f. 01.04.2016): The following three funds had been notified to get 100% deduction in respect of ALL ASESSEES which comes under category 1 of sec 80G

a) The National Fund for Control of Drug Abuse constituted u/s 7A of the Narcotic Drugs & Psychotropic Substances Act, 1985.

b) Swachh Bharat Kosh set up by the Central Government (See Note below)

c) Clean Ganga Fund, set up by the Central Government, where such Assessee is a Resident (see Note below)

Note: Deduction is not available for sum spent by the Assessee in pursuance of Corporate Social Responsibility u/s 135(5) of the Companies Act, 2013.

9. Section 80JJAA:

Before amendment After amendment i) Eligible Assessees: Indian company ii) “Additional wages” to mean the wages

paid to the new regular workmen in excess of 100 workmen employed during the previous year.

i) Eligible Assessees: All Assessees ii) “Additional wages” to mean the wages

paid to the new regular workmen in excess of 50 workmen employed during the previous year.



Reason: For the purpose of encouraging generation of employment, section 80JJAA(1) has been amended to extend the benefit so far available only to corporate assessee’s to all assessee’s whose gross total income includes profits and gains derived from manufacture of goods in a factory.

Note –

i) No deduction would be allowed if the factory is acquired by the assessee by way of transfer from any other person or as a result of any business reorganization.

ii) “Regular workman” does not include a casual workman or a workman employed through contract labour or any other workman employed for a period of less than 300 days during the previous year.

Illustration:

Mr. A has commenced the operations of manufacture of goods in a factory on 1.4.2015. He employed 125 new workmen during the P.Y.2015-16, which included –

i) 15 casual workmen;

ii) 15 workmen employed through contract labour;

iii) 25 regular workmen employed on 1.4.2015;

iv) 55 regular workmen employed on 1.5.2015; and

v) 15 regular workmen employed on 1.7.2015 Compute the deduction, if any, available to Mr. A for A.Y.2016-17, if wages @ Rs.5,000 per month is paid to each workman and the profits and gains derived from manufacture of goods in the factory for the A.Y.2016-17 is Rs.4.75 lakhs.

Solution:

Mr. A is eligible for deduction under section 80JJAA since his gross total income includes profits and gains derived from the manufacture of goods in a factory and he has employed more than 50 new regular workmen in his factory. Working Note: Number of new regular workmen

Particulars No. of workmen Total number of workmen employed during the year 125 Less: Casual workmen employed during the year Workmen employed through contract labour Workmen employed for a period of less than 300 days during the P.Y.2015-16 (workmen employed on 1.7.2015)

15 15 15

45 Total number of new regular workmen 80 Number of new regular workmen in excess of 50 = 80 – 50 30

Note – “Regular workman” does not include a casual workman or a workman employed through contract labour or any other workman employed for a period of less than 300 days during the previous year. Alternative answer: (As per Bare Act)

Therefore the deduction u/s 80JJAA is Rs.5,32,500. [(15,00,000 + 2,75,000) x 30%]

Number of new regular workmen in excess of 50 = (80 – 50 = 30)

15 casual workmen No deduction u/s .80JJAA Nil

15 workmen employed through contract labour No deduction u/s .80JJAA Nil

25 regular workmen employed on 1 – 4 - 2015. Deduction available u/s .80JJAA 25x5000x12m=15,00,000

55 regular workmen employed on 1-5 - 2015. (But 5 members are eligible for deduction, because restricted to 30 members)

Deduction available u/s .80JJAA 5x5000x11m=2,75,000

15 regular workmen employed on 1 - 7 - 2015. No deduction u/s .80JJAA Nil



7. TAX DEDUCTED AT SOURCE 1. Section – 192(2D):Obligation of person responsible for TDS on salaries: The person

responsible for making payment (employer), for the purpose of estimating income of assessee or computing the amount of tax deductible, shall obtain the evidence or proof or particulars of prescribed claims (including claim for set off of loss) from the assessee in the prescribed form and manner.

2. Section – 192A:TDS @ 10% on premature withdrawal from employees provident fund

a) Person responsible to deduct TDS: Trustees of employees provident fund scheme or any person authorised under the scheme

b) Situation: if the accumulated balance due to an employee participating in a recognized provident fund is includable in his total income(which is not exempt from tax u/s 10(12))

c) Rate of TDS: 10%.

However where the payee has not furnished PAN, then tax @ maximum marginal rate (i.e, 34.608 %)

d) Time of deduction at the time of payment of the accumulated balance due to the employee.

e) No TDS: where the payment or aggregate payment is less than Rs.30,000 (TDS only if amount is Rs.30,000 or more).

3. Section – 194A: Rationalization of the provisions of sec.194A (w.e.f 01.06.2015).

a) Cooperative banks to deduct tax at source on interest on time deposits credited or paid to it members if interest exceeds Rs.10,000.

Note: exemption has been granted from the deduction of tax at source in respect of the following (no TDS is required):

i) Interest credited or paid by a cooperative society(other than a cooperative bank) to its members

ii) Interest credited or paid by a cooperative society to any other cooperative society;

iii) Interest credited or paid by a firm to a partner of the firm.

b) Interest on recurring deposits exceeds Rs.10,000 then subject to TDS

Note: Definition of ‘time deposits’ include “recurring deposits” with in its scope for the purpose of TDS u/s 194A

c) Threshold limit to be reckoned with reference to the aggregate interest credited or paid by all branches of a banking company/co-operative bank/public company which has adopted core banking solutions(CBS) [Section 194A(3)]

Payer Payer has adopted core banking solutions(CBS)

Computation of interest for threshold

Banking company or cooperative society

yes Rs.10,000 cumulative for all branches

no Rs.10,000 per branch

yes Rs. 5,000 cumulative for all branches

Public company with main objective of providing long term finance for construction or purchase of residential houses in India no Rs. 5,000 per branch

d) Interest on the compensation amount awarded by the Motor Accidents Claims Tribunal shall be made only at the time of payment, and that too only if the amount of interest payment or the aggregate amount of such interest payments during the financial year exceeds Rs. 50,000.

Note: No tax is deductible at source on such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal.



Illustration:

Examine the TDS implications under section 194A in the cases mentioned hereunder –

i) On 1.10.2015, Mr. Harish made a six-month fixed deposit of Rs. 10 lakh@9% p.a. with ABC Co-operative Bank. The fixed deposit matures on 31.3.2016.

ii) On 1.6.2015, Mr. Ganesh made three nine month fixed deposits of Rs. 1 lakh each carrying interest@9% with Dwarka Branch, Janakpuri Branch and Rohini Branches of XYZ Bank, a bank which has adopted CBS. The fixed deposits mature on 28.2.2016.

iii) On 1.4.2015, Mr. Rajesh started a 1 year recurring deposit of Rs. 20,000 per month@8% p.a. with PQR Bank. The recurring deposit matures on 31.3.2016.

Solution:

i) ABC Co-operative Bank has to deduct tax at source@10% on the interest of Rs. 45,000 (9% × Rs. 10 lakh × ½) under section 194A. The tax deductible at source under section 194A from such interest is, therefore, Rs. 4,500.

ii) XYZ Bank has to deduct tax at source@10% under section 194A, since the aggregate interest on fixed deposit with the three branches of the bank is Rs. 20,250 [1,00,000 × 3 × 9% × 9/12], which exceeds the threshold limit of Rs. 10,000. Since XYZ Bank has adopted CBS, the aggregate interest credited/paid by all branches has to be considered. Since the aggregate interest of Rs. 20,250 exceeds the threshold limit of Rs. 10,000, tax has to be deducted@10% under section 194A.

iii) Tax has to be deducted under section 194A by PQR Bank on the interest of Rs. 10,400 falling due on recurring deposit on 31.3.2015 to Mr. Rajesh, since –

a) “recurring deposit” has been included in the definition of “time deposit”; and

b) Such interest exceeds the threshold limit of Rs. 10,000.

4. Section – 194C(6): Tax deduction in case of transport operators

Before amendment After amendment

Exemption of TDS to the transport operators if the following conditions satisfied cumulatively.

1. Payee is engaged in the business of plying, hiring or leasing goods carriages.

2. Payee furnishes PAN to the person responsible for TDS u/s.194C (6).

Exemption of TDS to the transport operators if the following conditions satisfied cumulatively.

1. Payee is engaged in the business of plying, hiring or leasing goods carriages.

2. Payee does not own more than 10 goods carriages at any time during the previous year.

3. Payee furnishes PAN to the person responsible for TDS u/s.194C(6)

Reason: To reduce the compliance burden on the small transport operators, as defined in section 44AE by exempting them from TDS under section 194C on furnishing of PAN, the language of section 194C(6) did not convey the correct intention. Consequently, all transporters, irrespective of the number of goods carriages owned by them, were claiming exemption from TDS under section 194C(6) by furnishing their PAN.

In order to convey the true intent of law, section 194C(6) has been amended to clarify that the relaxation provided only to who owns 10 or less goods carriages at any time during the previous year(i.e, small transport operators)



5. Section – 194LD:


1. Tax is required to be deducted at a concessional rate of 5% in case of interest payable to Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) on their investments in Government securities and rupee denominated bonds of an Indian company provided that the rate of interest does not exceed the rate notified by the Central Government in this regard.

2. This concessional TDS rate applicable only on payment of interest payable between 1st June, 2013 to 31stmay 2015.

1. Tax is required to be deducted at a concessional rate of 5% in case of interest payable to Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) on their investments in Government securities and rupee denominated bonds of an Indian company provided that the rate of interest does not exceed the rate notified by the Central Government in this regard.

2. This concessional TDS rate applicable only on payment of interest payable between 1st June, 2013 to 30th June 2017.

Reason: The Finance (No.2) Act, 2014 has extended the limitation date for availing benefit of concessional rate of TDS@5% under section 194LC in respect of External Commercial Borrowings (ECB) from 30th June, 2015 to 30th June, 2017. In line with such extension, the benefit of concessional rate of TDS@5% under section 194LD has also been extended in respect of such interest payable to FIIs and QFIs up to 30th June, 2017.

6. Section – 194LBA:

Interest on certain income from units of a business trust

nature of distributed income TDS if unit holder is resident

TDS if unit holder is non resident(not being a company or a foreign company)

Income of a business trust, by way of interest received or receivable from a special purpose vehicle.[sec 10 (23FC)

10% 5%

Income of a real estate investment trust (REIT), by way of renting or leasing or letting out any real estate asset owned directly by such REIT[sec 10(23FCA)

10% at the rates in force

7. Section 194LBB

Income of unit holder from alternative investment fund

Type of income income referred to in sec 115UB,accruing or arising to, or received by, a unit holder of an alternative investment fund , being other than that proportion of income which is of the same nature of income chargeable under the head PGBP.

Person responsible for TDS

person responsible for making the payment

Time to TDS at the time of credit or payment, whichever is earlier Rate of TDS 10%

8. Section 195(6):

a) Section 195(6) requires the person referred to in section 195(1) to furnish prescribed information.



b) Section 195(1) casts responsibility on every person responsible for paying any interest

(other than interest referred to in sections 194LB or 194LC or 194LD) or any sum chargeable to tax (not being in the nature of salary) to a non-corporate nonresident or to a foreign company, to deduct tax at the rates in force.

c) Now sec 195(6) has been substituted to provide that on the above payer to furnish information about all the above mentioned payments whether or not chargeable to tax. In the prescribed form and prescribed manner.

9. Section 197A: Facilitating filing of Form 15G/15H for payments made under life insurance policy u/s 194DA: According to Section 197A, tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer, a self-declaration in prescribed Form No.15G/15H, declaring that the tax on his estimated total income of the relevant previous year would be nil.

Section 197A has been amended for making the recipients of payments referred to in section 194DA also eligible for filing self-declaration in Form No.15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A.

10. Section 203A: notified deductors not required to obtain and quote TAN: The quoting of TAN for reporting of tax deducted at source is a matter of procedure. The same purpose would be served by requiring mandatory quoting of PAN particularly for the transactions which are likely to be one time transaction.

For example, a one-time transaction of purchase of immovable property from non-resident by an individual or HUF on which tax is deductible under section 195.

Therefore, in order to alleviate the compliance burden of such deductors, section 203A has been amended to provide that the requirement of obtaining and quoting of TAN under section 203A shall not apply to such person(a one-time transaction done by an individual or HUF), as may be notified by the Central Government in this behalf.

Some important circulars issued by CBDT:-

1. Tax not to be deducted from payments made to Corporations whose income is exempt under section 10(26BBB) [Circular No. 7/2015, dated 23-04-2015]

CLARIFICATION:-

The CBDT has, vide this circular, clarified that since corporations covered under section 10(26BBB) satisfy the two conditions i.e.,(1).unconditional exemption of income under section 10, (2).no statutory liability to file return of income under section 139, Hence, there would be no requirement for tax deduction at source from the payments made to such corporations since their income is anyway exempt under section 10.

Note: Section 10(26BBB), exempts any income of a corporation established by a Central, State or Provincial Act for the welfare and economic up liftment of ex-service-men being the citizen of India.

2. Applicability of provisions for deduction of tax at source under section 194A on interest on fixed deposit made in the name of the Registrar General of Court or the depositor of the Fund on directions of Courts [Circular No.23/2015, dated 28-12- 2015]

CLARIFICATION:-

The CBDT has clarified that the interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court, will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the recipient of the income.

2. Applicability of TDS provisions on payments by broadcasters or Television Channels to production houses for production of content or programme for telecasting

[Circular No. 04/2016, dated 29-2-2016]

Whether payments made by the broadcaster/telecaster to production houses for production of content/programme are comes under section 194C or 194J?



8. RETURN OF INCOME

1. Section 139(1): Mandatory filing of return by resident person in certain cases even though otherwise not required.

Before amendment After amendment The fourth proviso to section 139(1) requires a person, being a resident and ordinarily resident in India, having – (1) any asset (including financial interest in any entity) located outside India or (2) Signing authority in any account located outside India To file a return of income in the prescribed form compulsorily, whether or not he has income chargeable to tax. The return of income should be verified in the prescribed manner and provide such particulars as may be prescribed.

The fourth proviso to section 139(1) requires a person, being a resident and ordinarily resident in India within the meaning of sec 6(6), who is not required to furnish a return u/s 139(1) and who at any time during the previous year (a) holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has a signing authority in any account located outside India; or (b) Is a beneficiary of any asset (including any financial interest in any entity) located outside India? To file a return of income in the prescribed form compulsorily, whether or not he has income chargeable to tax. The return of income should be verified in the prescribed manner and provide such particulars as may be prescribed. However in case of an individual, being a beneficiary of any asset (including any financial interest in any entity) located outside India, the return of income shall not be necessary in case where, income, if any, arising from such asset is includable in the income of the beneficiary owner,.

CLARIFICATION:-

In this regard, the CBDT has clarified that while applying the relevant provisions of TDS on a contract for content production, a distinction is required to be made between: (i) A payment for production of content / programme as per the specifications of the

broadcaster/telecaster – then 194C is attracted (ii) A payment for acquisition of broadcasting/ telecasting rights of the content already produced

by the production house.(only for telecasting) – then 194C is not attracted, but other TDS sections will apply.

4. Applicability of TDS provisions on payments by television channels and publishing houses to advertisement companies for procuring or canvassing for advertisements

[Circular No. 05/2016, dated 29-2-2016] CLARIFICATION:-

The CBDT noted that there are two types of payments involved in the advertising business:

i) Payment by client to the advertising agency,- then 194C is attracted

ii) Payment by advertising agency to the television channel/newspaper company - 194C is not attracted.

iii) payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.- then no TDS provisions is attracted



MEANINGS:

a) Beneficial owner: An individual who has provided, directly or indirectly, consideration for the asset for the immediate or the future benefit ,direct or indirect ,of himself or any other person

b) Beneficiary: An individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary.

2. Section 139(6): Particulars required to be furnished with the return: Amendments made in sec 139(1), with that effect section 139(6) has been amended: The assessee shall be required to furnish the particulars of the assets of the prescribed nature and value, held by him as a beneficial owner or otherwise or in which he is a beneficiary

Transactions requiring the PAN (Rule 114B):

Monetary limits of specified transactions which require quoting of PAN

The Government is committed to curbing the circulation of black money and widening of tax base. To collect information of certain types of transactions from third parties in a non-intrusive manner, it is mandatory under Rule 114B of the Income-tax Rules to quote PAN where the transactions exceed a specified limit.

Value of transaction S. No. Nature of transaction

Before Amendment After Amendment

1. Sale or purchase of a motor vehicle or vehicle, other than two wheeled vehicles.

All such transactions All such transactions

2. Opening an account [other than a time - deposit Referred to at Sl. No.12 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank.


3. Making an application to any banking company or a co-operative bank or to any other company or institution, for issue of a credit or debit card.


4. Opening of a demat account with a depository, participant, custodian of securities or any other person registered under section 12(1A) of the Securities and Exchange Board of India Act, 1992.


5. Payment to a hotel or restaurant against a bill or bills at any one time.

Payment in cash of an amount exceeding Rs. 25,000.


6. Payment in connection with travel to any foreign country or payment for purchase of any foreign currency at any one time.



7. Payment to a Mutual Fund for purchase of its units

Amount exceeding Rs. 50,000.


8. Payment to a company or an institution for acquiring debentures or bonds issued by it.



9. Payment to the Reserve Bank of India for acquiring bonds issued by it.



10. Deposit with a banking company or a cooperative Bank.

Deposits in cash exceeding Rs. 50,000 during any one day.

Deposits in cash exceeding Rs. 50,000 during any one day



11. Purchase of bank drafts or pay orders or banker’s cheques from a banking company or a co-operative.

Payment in cash of an amount exceeding Rs. 50,000 during any one day.

Payment in cash of an amount exceeding Rs. 50,000 during any one day.

A time deposit with, -

(i) a banking company or a co-operative bank

(ii) a Post Office;

(iii) a Nidhi referred to in section 406 of the Companies Act, 2013; or 12

(iv) a non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934, to hold or accept deposit from public.

Amount exceeding Rs. 50,000

Amount exceeding Rs. 50,000

or aggregating to more than

Rs. 5 lakh during a financial year.

13. Payment for one or more pre-paid payment instruments, as defined in the policy guidelines for issuance and operation of pre-paid payment instruments issued by Reserve Bank of India under the Payment and Settlement Systems Act, 2007, to a banking company or a co-operative bank to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution.

-

Payment in cash or by way of a bank draft or pay order or banker’s cheque of an amount aggregating to more than Rs. 50,000 in a financial year.

14. Payment as life insurance premium to an insurer as defined in the Insurance Act, 1938.

Amount aggregating to more than Rs. 50,000 in a financial year.

Amount aggregating to more than Rs. 50,000 in a financial year.

15. A contract for sale or purchase of securities (other than shares) as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956.

Amount exceeding Rs. 1 lakh per transaction


16. Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange.

Amount exceeding Rs. 50,000 per transaction


17. Sale or purchase of any immovable property. Amount exceeding Rs. 5 lakhs

Amount exceeding Rs. 10 lakh or valued by stamp valuation authority referred to in section 50C of the Act at an amount exceeding Rs. 10 lakh

18. Sale or purchase, by any person, of goods or services of any nature other than those specified at Sl. No. 1 to 17 of this Table, if any.

-

Amount exceeding Rs. 2 lakh per transaction:

Copyrights Reserved




Minor to quote PAN of parent or guardian

However, where a person, entering into any transaction referred to in this rule, is a minor and who does not have any income chargeable to income-tax, he shall quote the PAN of his father or mother or guardian, as the case may be, in the document pertaining to the said transaction.

Declaration by a person not having PAN

Further, any person who does not have a PAN and who enters into any transaction specified in this rule, shall make a declaration in Form No.60 giving therein the particulars of such transaction.

Non-applicability of Rule 114B

Also, the provisions of this rule shall not apply to the following class or classes of persons, namely:-

i) the Central Government, the State Governments and the Consular Offices;

ii) the non-residents referred to in section 2(30) in respect of the transactions other than a transaction referred to at Sl. No. 1 or 2 or 4 or 7 or 8 or 10 or 12 or 14 or 15 or 16 or 17 of the Table.

Verified by: Narasimhulu Sir, Samba siva Sir

Raja Shekar Sir, Ramakrishna Sir

Executed By: Srinivas Sir

THE END

Copyrights Reserved


Education is the most powerful weapon which you can use to change the world.

Nelson Mandela

Cell: 98851 25025 / 26



CA - IPCC

COURSE MATERIAL

Quality Education


INDIRECT TAXES

Page 34

IPCC_ Indirect Taxes Amendments Material (For Nov-2016) ___________________35


AMENDMENTS AT A GLANCE – FINANCE ACT, 2015

(Significant Notifications issued during 01.03.2015 to 30.04.2016)

S.NO Particulars Effective Date

Relevant section/Rule/ Notification

Central Excise Duty 1. Standard ad valorem rate of excise duty increased from

12% to 12.50% and education cesses leviable on excisable goods fully exempted

01.03.2015

2. Central excise registration to be granted online within 2 working days

01.03.2015

3. Authentication of invoices by digital signatures 01.03.2016 4. Allow single Registration for different premises of the

same registered person 01.03.2016

5. Interest payable on delayed payment of excise duty has been reduced from 18% to 15%

01.04.2016

6. In place of Annual Financial Information Statement [ER-4], an Annual Return will have to be filed by central excise assessees by 30th November of the succeeding year

01.04.2016

7. The Central Government has fixed tariff values for readymade garments under Chapter 61 and 62 as 60% (earlier 30%) of the retail sale price of the readymade garments.

01.04.2016

8. Higher threshold exemption (SSI exemption) up to 6 crores for jewellery manufacturers if his aggregate domestic clearances during preceding financial year did not exceed Rs. 12 crore.

01.03.2016

Customs Duty 9. Notifications exempting education cesses on CVD

rescinded consequent to education cesses on excise duty being exempted

01.03.2015

10. Education Cess and Secondary & Higher Education Cess leviable on imported goods to continue

Service Tax Chapter V of Finance Act, 1994

11. (i) Service tax rate enhanced from 14% to 14.5% ( including SBC @ 0.5%)

15.11.2015 Section 66B

12. Activities undertaken by (i) chit fund foremen in relation to chit and (ii) lottery distributors and selling agents in relation to lotteries are not transactions in money or actionable claim and are thus, liable to service tax - Explanation 2 substituted in the definition of “service”

14.05.2015

Explanation 2 to section 65B(44)

13. POT RULES Rule-5: in rule 5 inserted Explanation 1: this rule shall apply mutatis mutandis in case of new levy of service Explanation 2: new levy or tax shall be payable on all the cases other than specified above.

13.04.2016 Rule-5

14. Rule -7: a) When there is a change in the service tax liability or

extent of liability of the service recipient, date of issuance of invoice to be the POT under rule 7, if service has been provided and the invoice issued before date of such change, but payment has not been made as on such date

13.04.2016 Rule-7



b) In case of services provided by Government to business entities, POT under rule 7 will be the date on which payment becomes due or the date when payment is made, whichever is earlier

15. All services provided by the Government or local authority to a business entity removed from the Negative List (i.e. taxable)

01.04.2016 Section 66D(a)(iv)

16. Definition of Government incorporated in the Act 14.05.2015 Section 65B(26A)

17. Services by way of carrying out any process amounting to manufacture/ production of potable liquor made liable to service tax

01.06.2015 Section 66D(f)

18. Admission to entertainment events or access to amusement facilities made liable to service tax

01.06.2015 Section 66D(j)

19. Consideration for a service includes (i) reimbursements and (ii) amount retained by distributor/selling agent of lottery from gross sale amount of lottery ticket or discount received thereon

14.05.2015

Clause (a) of Explanation to

section 67

20. In case of service provided by Government to a business entity, interest chargeable on deferred payment to be included in the value of the taxable service

13.04.2016 [Rule 6(2)(iv) of the Service Tax Determination of

Value Rules, 2006]

II Others notifications 21. Ambulance services provided by all service

providers (whether or not by clinical establishment or an authorized medical practitioner or paramedics) exempted

01.04.2015

22. Exemption in respect of services provided by a senior advocate to an advocate or partnership firm of advocates and person represented on an arbitral tribunal to an arbitral tribunal withdrawn (Entry no 6):

01.04.2016

23. Specified services provided by the Indian Institutes of Management (IIM) exempted (Entry no 9B):

01.03.2016

24. Services by assessing bodies empanelled centrally by DGT, Ministry of Skill Development & Entrepreneurship under SDI scheme exempted(Entry no 9C):

01.04.2016

25. Services provided by way of skill/vocational training by DDU-GKY training providers exempted(Entry no 9D):

01.04.2016

26. Threshold limit of consideration charged per performance in folk or classical art forms of music/ dance/ theatre raised from Rs. 1,00,000 to Rs. 1,50,000

01.04.2016

27. Exemption to transportation of food stuff by rail or vessels or road limited to milk, salt and food grain including flours, pulses and rice

01.04.2015

28. Exemption to transportation of passengers by ropeway, cable car or aerial tramway withdrawn

01.04.2016

29. 1. General insurance provided under Pradhan Mantri Suraksha Bima Yojna exempted

2. General insurance provided under Niramaya Health Insurance Scheme exempted

30.04.2015

30. Life insurance provided under following schemes exempted:

Mega Exemption Notification No.

25/2012 ST dated

20.06.2012



Varishtha Pension Bima Yojna 01.04.2015

Pradhan Mantri Jeevan Jyoti Bima Yojna and Pradhan Mantri Jan Dhan Yojna

30.04.2015

31. Collection of contribution under Atal Pension Yojna (APY) exempted

30.04.2015

32. Annuity under the National Pension System (NPS) exempted

01.04.2016

33. Exemption to services by (i) mutual fund agent/distributor to a mutual fund or asset management company and (ii) selling/ marketing agent of lottery tickets to a distributor/selling agent, withdrawn

01.04.2015

34. Services provided by (i) business facilitator/business correspondent with respect to Basic Savings Bank Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana and (ii) an intermediary to business facilitator/business correspondent with respect to such services, exempt from service tax

21.10.2015

35. Exemption to carrying out an intermediate production process of alcoholic liquor for home consumption on job work basis withdrawn

01.06.2015

36. Exemption withdrawn for services by way of making telephone calls from departmentally run public telephone etc.

01.04.2015

37. Treatment of effluent by Common Effluent Treatment Plant operator exempted

01.04.2015

38. Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables exempted

01.04.2015

39. Admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo exempted

01.04.2015

40. Exhibition of movie by exhibitor to distributor/ association of persons consisting of such exhibitor as one of its members exempted

01.04.2015

41. Services by way of right to admission to certain events/programmes exempted

01.06.2015

42. Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions (EPFMP) Act, 1952 are exempted

01.04.2016

43. Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999 are exempted

01.04.2016

44. Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market are exempted

01.04.2016

45. Services provided by National Centre for Cold Chain Development (NCCCD) under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination are exempted

01.04.2016

46. Services provided by Government or a local authority to a business entity with a turnover up to Rs. 10 lakh in preceding FY exempted

01.04.2016

Mega Exemption Notification No.

25/2012 ST dated

20.06.2012



47. The following Specified services provided by Government or a local authority exempted 1. Services in relation to any function entrusted to a

municipality under article 243W of the Constitution 2. Services provided to another Government or local

authority 3. Services provided by way of issuance of passport,

visa, driving licence, birth certificate or death certificate

4. Services where gross amount charged does not exceed Rs. 5000

5. Services by way of tolerating non-performance of a contract

6. Services of registration, testing, calibration, safety check/certification relating to protection/safety of workers, consumers or public at large, required under any law

7. Right to use natural resources assigned before 1st April, 2016

8. Services in relation to any function entrusted to a Panchayat under article 243G of the Constitution

9. Services of inspection, container stuffing etc. in relation to import export cargo after office hours or on holidays.

13.04.2016

48. Abatement in case of Transport of goods in containers by rail by any person other than Indian Railways reduced from 70% to 60%. Note:- Now CENVAT credit on input services can be taken along with the abatement benefit.

01.04.2016

49. Services of goods transport agency in relation to transportation of goods (i) other than used household goods - 70% (ii) Household Goods – 60%

01.04.2016

50. 30% abatement for services provided in relation to chit 01.04.2015

51. Services by a tour operator in relation to,- (i) A tour, only for the purpose of arranging or booking accommodation for any person-90% (ii) A tour other than (i) above -70% Note:- Consequently, with effect from 01.04.2016, definition of ‘package tour’ has been omitted.

01.04.2016

Abatement Notification No.

26/2012 ST dated

20.06.2012

52. Service provided with respect to Kailash Mansarovar and Haj pilgrimage exempted

20.08.2014

53. Services provided by BIRAC approved bio-incubators to incubatees also exempted

01.03.2016. Notification No. 12/2016 ST dated

01.03.2016. 54. Refund of Swachh Bharat Cess to SEZ units/developers 03.02.2016 Notification No.

02/2016 ST dated 03.02.2016

55. GTA service provided for transport of export goods by road from place of removal/ CFS/ICD to land customs station exempted

01.04.2015 Notification No. 31/2012 ST

dated 20.06.2012

100% service tax to be paid under reverse charge in case of service provided by

56.

(a) mutual fund agent/ distributor to mutual fund/ asset management company,( omitted)

01.04.2015



(b) selling/marketing agent of lottery tickets to lottery distributor/selling agent and

01.04.2015

(c) person involving an aggregator 01.03.2015 57. Service tax to be paid under reverse charge in case of

ALL taxable services provided by Government (except specified services)

01.04.2016

Scope of reverse charge widened 01.03.2015

Reverse Charge Notification No.

30/2012 ST dated

20.06.2012

III Service Tax Rules, 1994 58. Concept of aggregator introduced in service tax -

Definition of aggregator and brand name inserted in rule 2

01.03.2015 Rule 2(1)

59. Aggregator to pay service tax under reverse Charge

01.03.2015

Rule 2(1)(d)(i)(AAA)

60. Service tax to be payable by provider of service in case of service provided by (a) mutual fund agent/ distributor to mutual fund/ asset management company, (b) selling/marketing agent of lottery tickets to lottery distributor/selling agent ( forward charge)

01.04.2016

Rule 2(1)(d)(i)(EEA) &

Rule 2(1)(d)(i)(EEB)

61. Service tax to be payable by the recipient of service in relation to ALL services provided by Government to business entities (except specified services)

01.04.2016

Rule 2(1)(d)(i)(E)

62. CBEC to specify conditions, safeguards and procedure for registration in service tax

01.03.2015

New sub-rule (9) inserted and sub-rule (1A)

omitted in rule 4 63. Provisions introduced for authentication of

invoices by digital signatures 01.03.2015 New Rule 4C

64. Sub-rule (6A) of rule 6 omitted consequent to amendment made in section 73

14.05.2015

Rule 6(6A) omitted

65. Alternative rates for payment of service tax on air travel agent’s service, life insurance services,money changing service and service provided by lottery distributor/selling agent increased pursuant to the upward revision in service tax rate. Note:- Composition rate in case of single premium annuity policies to be 1.4% of the single premium charged

01.06.2015

Sub rules (7), (7A), (7B) and (7C) of rule 6

66. Entire service tax to be paid under reverse charge in case of manpower supply and security services

01.04.2015

67. Provisions introduced for filing of Annual Returns 01.04.2016 Rule - 7 68. Annual return filed by the due date may be revised within

1 month from the date of its submission

01.04.2016 Rule 7B(2)

69. Delayed filing of Annual Return to attract a late fee of Rs. 100 per day for the period in default subject to a maximum of Rs. 20,000

01.04.2016 Rule 7C(2)

IV CENVAT Credit Rules, 2004 70. Scope of definition of capital goods & inputs widened 01.04.2016 Rule 2(a) & (k) 71. Services by way of sale of dutiable goods on commission

basis is sales promotion and thus, an eligible input service

03.02.2016 Rule 2(l)

72. Restriction on ship breaking units to avail only 85% CENVAT credit of CVD done away with

01.02.2016 Rule 3(1)(vii)

73. Swachh Bharat Cess cannot be paid by utilizing CENVAT credit of any other duty

03.02.2016 Rule 3(4)

74. CENVAT credit of only NCCD to be utilised for payment of the NCCD payable on all goods

01.03.2016 Rule 3(4)



75. Manufacturers allowed to utilize credit of education cess (EC) and secondary and higher education cess (SHEC) for payment of excise duty or output service tax.

30.04.2015 Third, fourth and fifth provisos

inserted in rule 3(7)(b)

76. CENVAT credit allowed on inputs and capital goods received directly in the premises of the job worker

01.03.2015

Rules 4(1) and 4(2)(a)

77. Jewellery manufacturer (excluding manufacturer of plain silver jewellery) with turnover upto Rs. 12 crore in preceding year eligible to avail 100% CENVAT credit on capital goods in the year of purchase

01.03.2016 [Rule 4(2)(a)]

78. CENVAT credit allowed on tools of Chapter 82 of the Central Excise Tariff sent to another manufacturer or job-worker for production of goods

01.04.2016 Rule 4(5)(b)

79. Permission given for sending inputs/partially processed inputs outside factory to a job-worker and clearance therefrom on payment of duty to be valid for 3 financial years

01.04.2016 [Rule 4(6)]

80. Service tax paid on assignment charges of a natural resource to be allowed as CENVAT credit spread over the time for which the rights have been assigned

13.04.2016 Rule 4(7)

81. Provisions relating to availment of CENVAT credit under partial and full reverse charge brought at par

01.04.2015 Rule 4(7)

82. Export goods defined for the purpose of refund of CENVAT credit under rule 5

01.03.2015 Clause (1A) of Explanation 1 to

rule 5 83. Time limit for final refund claim 01.03.2016 Rule - 5 84. No refund of CENVAT credit under rule 5B to service

providers providing manpower supply/ security services 01.04.2015 Rule – 5 (B)

85. Rule 6 simplified and rationalized 01.04.2016 Rule - 6 86. Manner of distribution of credit by input service distributor

- redrafted 01.04.2016 Rule - 7

87. Manufacturers with multiple manufacturing units enabled to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units

01.04.2016 New rule 7B

88. Invoice issued by a service provider for clearance of inputs/capital goods also to be an eligible document under rule 9

01.04.2016 Rule 9(1)(a)(i)

89. Certificate issued by an Appraiser of Customs to be a valid document under rule 9 for goods imported through authorized courier

31.12.2015 Rule 9(1)(d)

90. Provisions applicable to first/second stage dealer regarding maintenance of records to be able to pass on the credit, to apply to an importer issuing cenvatable invoice

01.03.2015 Rule 9(4)

Copyrights Reserved




1. CENTRAL EXCISE DUTY

1. Standard ad valorem rate of excise duty:

Before amendment(till 28 .02.2015) After amendment (w.e.f 01.03.2015)

Effective rate of excise duty was 12.36%(including EC and SHEC)

Effective Rate of excise duty is 12.5% (EC and SHEC exempted)

Illustration: Calculate the assessable value and the excise duty payable from the following particulars: List price of the product (inclusive of taxes) Rs. 5,960 Trade discount 10% VAT 12.5% Excise duty 12.5% An exemption notification grants exemption of 50% of the duty payable on this product. Solution:

Particulars Amount in (Rs.) List price of the product 5,960 Less: Trade discount 596 Price net of discounts but including taxes (a) 5,364 Less: VAT [(Rs. 5,364 x 12.5)/112.5] 596 Price-cum-duty 4,768 Less: Excise duty @ 6.25% (on account of 50% exemption) [(Rs. 4,768 x 6.25)/106.25] (rounded off to nearest rupee) (b)

280

Assessable value (a) - (b) 4488

2. Registration procedure:-

(a) Central excise registration to be granted online within 2 working days (w.e.f 1.03.2015): With effect from 01.03.2015, only an online application can be made for obtaining central excise registration and the same will be granted within two working days of the receipt of a duly completed application form. Verification of documents and premises, as the case may be, can be carried out after the grant of the Registration.

(b) Registration of different premises of the same registered person: if the person has more than one premises requiring registration, separate registration certificate shall be obtained for each of such premises.

However, if two or more premises of same factory are located within a close area in the jurisdiction of a range Superintendent, the manufacturing process under taken therein are interlinked, and the units are not operating under any of the area based exemption notifications, the commissioner of central excise, may, subject to proper accountal of a movement of goods from one premises to other and such other conditions and limitations as he may impose, allow single registration

(c) Authentication of invoices by digital signatures (w.e.f 01.03.2016): An invoice issued under central excise law by a manufacturer may now be authenticated by means of a digital signature. However, where the duplicate copy of the invoice meant for transporter is digitally signed, a hard copy of the duplicate copy of the invoice meant for transporter and self attested by the manufacturer would be used for transport of goods.

3. INTEREST ON DELAYED PAYMENT OF EXCISE DUTY:-

Before amendment ( till 31.03.16) After amendment (w.e.f. 1.04.16)

Failure to pay the amount of duty by due date attracts interest at the rate @ 18% per annum on the outstanding amount.

Failure to pay the amount of duty by due date attracts interest at the rate @ 15% per annum on the outstanding amount.



4. FILING OF RETURNS & THEIR PERIODICITY

particulars Before amendment ( till 31.03.16) After amendment (w.e.f. 1.04.16)

Form ER-4 ER-4

Periodicity Annually Annually

Purpose - Annual financial information statements to be filed by

assessees paying duty of Rs. 1 crore or more.

Annual return to be filed by assessees paying duty of Rs. 1 crore

or more.

Last date - 30th April of each financial year 30th November of the succeeding year

5. TARIFF VALUE:-


For Readymade garments tariff value is 30% of retail sale price.

For Readymade garments tariff value is 60% of retail sale price

6. SSI EXEMPTION:-

a) SSI exemption In case of jewellery manufacturers:- With effect from 01.03.2016, excise duty of 1% (without CENVAT credit) or 12.5% (with CENVAT credit) has been levied on articles of jewellery [excluding silver jewellery, other than studded with diamonds/other precious stones]. The SSI exemption for such jewellery manufacturers would be upto Rs. 6 crore in a year with an eligibility limit of Rs. 12 crore in the preceding year. Thus, a jewellery manufacturer will be eligible for exemption from excise duty on first clearances upto Rs. 6 crore during a financial year, if his aggregate domestic clearances during preceding financial year did not exceed Rs. 12 crore.

b) SSI exemption In case of other manufacturers:-

A unit whose turnover does not exceed Rs. 4 crores in the previous year is entitled to full exemption from payment of duty on its first clearances of up to Rs. 150 lakh in the current financial year.

2. CUSTOMS DUTY

1. Exempting education cesses on CVD:

Before amendment(till 28 .02.2015) After amendment(w.e.f 01.03.2015)

Effective rate of CVD was 12%(with EC and SHEC exempted)

Effective rate of CVD is 12.5% (with EC and SHEC not being leviable at all)

Note: however EC and SHEC leviable on imported goods to be continue

Illustration:

An importer has imported a machinery to be used for providing the service of construction of commercial buildings. The assessable value of imported machinery as approved by customs is Rs. 1,00,000. Customs duty payable is 10%. If the machinery is manufactured in India, excise duty @ 12.5% is leviable on such machinery. Education cess and secondary and higher education cess are as applicable. Special CVD is payable on said machinery. You are required to:

a) Calculate the total customs duty payable.

b) Examine whether the importer can avail any CENVAT credit? If yes, how much?



Solution:

Particulars Duty % Amount (Rs.)

Amount of Duty (Rs.)

Assessable value 1,00,000.00

Basic customs duty 10 10,000.00 10,000.00

Sub-Total for calculating CVD 1,10,000.00

CVD x excise duty rate 12.5 13,750.00 13,750.00

Sub-total for education cess on customs (Rs. 10,000 + Rs. 13,750)

23,750.00

Education cess of customs 2 475.00 475.00

Secondary and Higher Education cess of customs

1 237.50 237.50

Sub-total for Special CVD (Rs. 1,00,000 + Rs. 10,000 Rs. 13,750 + Rs. 475 + Rs. 237.50)

1,24,462.50

Special CVD u/s 3(5) 4 4,978.50 4,978.50

Total customs duty 29,441

Customs duty payable (rounded off) 29,441

Since importer is a service provider, he can avail CENVAT credit of only CVD i.e. only of Rs. 13,750 and not of special CVD.

3. SERVICE TAX

1. BASIC CONCEPTS OF SERVICE TAX

1) Service tax rate:

Before amendment (till 14.11.2015) After amendment (w.e.f 15.11.2015)

Effective rate of service tax was 14%(no Education cess is added)

Effective rate of service tax was 14.5% (including Swachh Bharat Cess @ 0.5% )

Treatment of Swachh Bharat Cess (SBC) in different cases:-

a) Swachh Bharat cess to be levied on value of all or any of taxable services @ 0.5% w.e.f 15.11.2015 (it is applicable from Nov 2016 Exams ONWARDS.)

b) Not applicable on services fully exempt and those covered under Negative List

c) Utilisation of Swachh Bharat Cess: Proceeds of the SBC will be credited to the consolidated fund of India, such sums of money for the purposes of financing and promoting Swachh Bharat initiatives.

d) Swachh Bhart Cess to be independent from Service Tax: SBC would be levied, charged, collected and paid to Government independent of Service Tax. This needs to be charged separately on the Invoice.

e) Reverse Charge applicable on Swachh Bharat Cess: The reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC. So, service receiver is also required to pay SBC in respect of reverse charge mechanism, SBC liability is determined in accordance with Rule 7 of Point of Taxation Rules, as per which, point of taxation is the date on which consideration is paid to the service provider.

f) No admissibility of credit of Swachh Bharat Cess: SBC is not integrated in the CENVAT Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax. So it must be paid in Cash.



g) Point of taxation of SBC to be determined as per Rule 5 of POT Rules, 2011: As regards Point of Taxation, since this levy has come for the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC for the first time. SBC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules, 2011 would be applicable in this case.

h) Calculation of SBC for services where abatement is allowed: Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value. For example, in the case of GTA, [Service Tax + SBC] % would be (14% Service Tax + 0.5% SBC) x 30% = 4.35% (4.20% + 0.15%) of the total amount charged.

i) Calculation of Service Tax and SBC on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006: The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%) x 40%] and 10.15% [(14% + 0.5%) x 70%] respectively.

j) Applicability of SBC on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/ selling agents): Shall have the option to pay SBC as determined as per the following formula:

Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] x 0.5%/14%]

Example: Air travel agent to pay service tax at special rates of 0.7% and 1.4% of basic pay in case of domestic and international bookings for air travel respectively.

Basic fare incase of domestic bookings. 1,00,000 x 0.7 % = 700

Basic fare incase of International bookings 1,00,000 x 1.4% = 1400

Total Service tax 2100

Add: Swacch Bharath Cess (2100 x 0.5 / 14) = 75

2175

The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.

k) Reversal of CENVAT Credit by a person providing both exempted and taxable service under Rule 6 of CENVAT Credit Rule: As SBC is not integrated in the CENVAT Credit chain and reversal under Rule 6 is payment of amount equal to 7% of the value of exempted services, hence, reversal of SBC is not required under Rule 6 of CENVAT Credit Rules, 2004.

2) Explanation 2 substituted in the definition of service: The new Explanation 2 reads as under:

For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include––

a) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

b) Any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out––

i) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner;

ii) by a foreman of chit fund for conducting or organizing a chit in any manner.

Note: “Lottery distributor or selling agent” means a person appointed or authorized by a State for the purposes of promoting, marketing, selling or facilitating in organizing lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998.



2. POINT OF TAXATION

1) RULE -5:- Where a service is taxed for the first time, then,

a) No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

b) No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.

Explanation 1: this rule shall apply mutatis mutandis in case of new levy of service Explanation 2: new levy or tax shall be payable on all the cases other than specified above.

OBJECTIVE OF AMENDEMENT:-

For Explanation 1:- Doubts have been raised regarding, applicability of provisions of chapter V of finance act 1994, and rules made there under. for this purpose explanation 1 is being inserted in rule 5, stating that if there is any changes made in chapter V and rules made there under, the same are applicable in case of new levy on services.

For Explanation 2:- in rule 5 specified only two situations, for these two situations the new levy would not apply (i.e. S.T is not payable)

Doubts have been raised regarding, any situation raised, other than specified above two situations. Whether general rule (Rule 3) is applicable or not? For this purpose explanation - 2 is being inserted, stating that service tax shall be payable on all the cases other than specified above two situations.

2) RULE - 7:-

a) Point of taxation shall be the date of issuance of invoice in case of change in liability to pay service tax by the service recipient.

if there is change in the liability of a person required to pay tax as recipient of service (notified under sub-section (2) of section 68 of the act), the service has been provided and the invoice has been issued before the date of such change, however, the payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice.

Illustration:- XYZ Ltd. provided services to ABC Ltd. which was chargeable to tax under reverse charge basis. XYZ Ltd. billed ABC Ltd. Rs.4,00,000 (before claiming abatement of 40%) on 01-04-2016. W.e.f. 01-05-2016 the abatement was increased from 40% to 50%. Determine the amount of service tax to be deposited by ABC Ltd. if it makes payment on 01-06-2016.

Solution: According to Rule 7 of the Point of taxation Rules, 2011, where there is change in the liability or extent of liability of a person required to pay tax as recipient of service notified under section 68(2) of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice. Since in this case there is change in liability of ABC Ltd. on account of change in percentage of abatement, hence, the point of taxation shall be the date of issuance of invoice. Therefore, the service tax to be deposited by ABC Ltd. shall be 14.5% of Rs.2,40,000 i.e.[ Rs.4,00,000 less abatement Rs.1,60,000 (40% of Rs.4,00,000)] = Rs.34,800.

b) Point of taxation in case of service provided by the government or local authority to business entity:- In case of services provided by the government or local authority TO any business entity, the point of taxation shall be the earlier of the dates on which-

(a) Any payment ,part or full, in respect of such service becomes due ,as specified in the invoice, bill, challan or any other document issued by the government or local authority demanding such payment ; or

(b) Payment for such service is made “



Illustration:- ABC Ltd. of Delhi received taxable services from Delhi Government on 01-05-2016 for which an invoice was raised on 01-05-2016 and due date of payment was 31-05-2016. Determine the point of taxation in accordance with POT Rules if ABC Ltd. makes the payment for the said services on:- Case I: 10-06-2016 Case II: 25-05-2016

Solution: According to Rule 7 of the Point of taxation Rules, 2011, in case of services provided by the Government or local authority to any business entity, the point of taxation shall be the earlier of the dates on which, - (a) any payment, part or full, in respect of such service becomes due, as specified in the

invoice, bill, challan or any other document issued by the Government or local authority demanding such payment; or

(b) payment for such services is made.

Case - I: Since the payment has been made after the due date, point of taxation shall be the date when payment s due i.e. 31-05-2016.

Case – II: Since the payment has been made prior to due date, the point of taxation shall be the date of paymenti.e.25-05-2016.

3. NEGATIVE LIST OF SERVICES

1) Section 66D(a)(iv): All services provided by the government or local authority to a business entity is taxable (The word “support services” removed from the negative list)


Support services provided by the government or local authority to the business entity are taxable

Any services provided by the government or local authority to the business entity are taxable

Points to be noted:-

a) Consequently, the definition of “support service” as provided under section 65B(49) had also been omitted vide the Finance Act, 2015.

b) service tax on these services was made payable under reverse charge.(i.e. S.R – business entity)

Some new mega exemptions are inserted, relating to service provided by Govt or local authority:-

Entry no: Issues Exemption

39 By way of municipal functions

Services by Government, a local authority or a government authority by way of any activity in relation to any function entrusted to municipality under article 243W of the constitution.

48 Services provided by government or a local authority to a business entity

Exempt - if its turnover in preceding FY does not exceed Rs. 10 lakhs.

54 Services provided by government or a local authority to another government or a local authority

Services provided by Government or Local authority to another government or local authority. However, the said exemption does not cover services specified in sub-clauses (i),(ii) & (iii) of clause (a) of section 66D of the Finance Act, 1994.

55 Services provided to individuals

Services provided by Government or Local authority to an Individual who may be carrying out a profession or Business by way of grant of Passport, Visa, Driving license, Birth certificate or Death certificate.



56 Services where gross amount charged does not exceed Rs. 5000

Services provided by Government or Local authority to where the gross amount charged for such services does not exceed Rs.5,000. However, the said exemption does not cover services specified in sub-clauses (i),(ii) & (iii) of clause (a) of section 66D of the Finance Act, 1994. Further, in case of continuous supply of service as a defined in Rule 2(C) of POT Rules, 2011.the exemption shall apply only where the gross amount charged for such service does not exceed Rs.5,000 in a financial year.

57 Services by way of tolerating non- performance of a contract

Services provided by Government or Local authority by way of tolerating non- performance of a contract for which consideration in the form of fines or liquidated damages is payable to the government or local authority under such contract. Note: It is clarified that fines and penalty chargeable by Government or a local authority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax.

58 Services by way of registration

Services provided by Government or Local authority by way of

a) Registration required under any law for the time being in force.

b) Testing, Calibration, Safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force.

Note: However, It is clarified that any activity undertaken by government or a local authority against a consideration constitutes a service and the amount charged for performing suchactivities is liable to service tax except for above two services.

59 Services by way of assignment of right to use natural resources to an individual farmer

Services provided by Government or Local authority by way of assignment / allocation of right to use natural resources to an individual farmer for the purpose of agriculture. Note: However, such allocation / auctions to categories of persons other than individual farmers would be leviable to service tax.

60 Any function entrusted to a panchayat

Services provided by Government or a Local authority or a governmental authority by way of any activity in relation to any function entrusted to a panchayat under article 243G of the constitution.

61 Services by way of assignment of right to use any natural resource prior to 1-4-2016

Services provided by Government or Local authority by way of assignment of right to use any natural resource where such right to use was assigned by the government or the local authority before the 1st April, 2016. Provided that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resources.



(Service tax is payable on such installments in view of Rule 7 of POT rules, 2011 as amended by vide Notification No. 24/2016 – ST dated 13.04.2016. However, the same have been specifically exempted through this notification.) Note: The exemption not apply to any periodic payment required to be made by the assignee, such as Spectrum user charges, license fee in respect of Spectrum, or monthly payments with respect to the local extracted from the coal mine or royalty payable on extracted coal which shall be taxable.

62 Services to telecom service provider license fee or spectrum user charges for F.Y 2015 -16.

Services provided by Government or Local authority by way of allowing a business entity to operate as a telecom service provider or use radiofrequency spectrum during the financial year 2015-16 on payment of license fee or spectrum user charges, as the case may be.

63 Merchant overtime charges

Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime Charges (MOT).

2) Section 65B(26A): Definition of Government incorporated in the Act:

Government means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made there under.

3) Services by way of carrying out any process amounting to manufacture/production of potable liquor made liable to service tax [Section 66D(f)]:


Services by way of carrying out any process amounting to manufacture or production of goods.

Services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption.

Note: with the effect of amendment made in sec 66D (f), the definition u/s 65B (40) has been amended

a) The words “alcoholic liquors for human consumption” have been omitted from the definition of the term “process amounting to manufacture or production of goods” as provided in clause (40) of section 65B.

The amended definition reads as under:

"Processes amounting to manufacture or production of goods" means a process on which duties of excise are leviable under Sec. 3 of the Central Excise Act, 1944 or the Medicinal and Toilet Preparation (Excise Duties) Act, 1955 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act - Sec. 65B(40).

b) Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended to withdraw exemption pertaining to intermediate production of alcoholic liquor for human consumption.



4) Section 66D(j): Admission to entertainment events or access to amusement facilities made liable to service tax: “Admission to entertainment events or access to amusement facilities” has been omitted vide the Finance Act, 2015. Consequently, the definitions of “amusement facility” and “entertainment event” as contained in section 65B(9) and section 65B(24) have also been omitted.

However the following exemptions have been provided in respect of admission to entertainment events or access to amusement facilities [vide exemption notification no.25/2012 – ST, dated 20-06-2012].

a) The services provided by way of admission to a museum, zoo, national park, wildlife sanctuary and a tiger reserve have been exempted.

(Entry 45 to mega exemption notification)

b) The services provided by way of right to admission to

i) Exhibition of cinematographic film, circus, dance, or, theoretical performance including drama or ballet.

ii) Recognized sporting event.

iii) Award function, concert, pageant, musical performance or any sporting event other than a recognized sporting event, where the consideration for admission is not more than Rs. 500 per person.

(Entry.47 of mega exemption notification)

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:-

1) Clarification regarding levy of service tax on joint venture:[circular no: 179/5/2014 ST dated 24.09.2014.]:

a) Services provided by the members of the Joint Venture (JV) to the JV and vice versa or between the members of the JV are treated as distinct persons therefore, taxable services provided for consideration are taxable.

b) If cash calls (capital contributions) made by the members to the JV are merely a transaction in money and hence not in the nature of consideration for taxable service, but which may vary from case to case. Detailed and close scrutiny of the terms of JV agreement may be required in each case, to determine the service tax treatment of cash calls.

2) All testing and ancillary activities related to testing of seeds are covered in the negative list and are thus, not liable to service tax:

Issue: Whether all activities incidental to seed testing are leviable to service tax and only the activity in so far it relates to actual testing has been exempted in the negative list under section 66D(i) of the Finance Act, 1994? Seed is not covered under the definition of agriculture produce. All services relating to agriculture by way of agriculture operations directly relating to production of agriculture produce including testing are covered in section 66D(i) the scope of coverage of the negative list entry and to cover any testing in agricultural operations in negative list, which are directly linked to production of agriculture produce and not to limit its scope only to seeds.

Admission into entertainment event

OTHERS

• Non Recognized Sporting Event • Award – convert-pageant -Music

• Cinema – Circus – Dance – theatre

• Recognized sporting event Exempt

Exempt

ST Payable

ST Payable

Taxable service

Any Amount

Upto Rs.500

> Rs.500



4. VALUATION OF TAXABLE SERVICES

1) Section 67:Consideration [Amended w.e.f.14-05-2015] includes–

a) Any amount that is payable for the taxable services provided or to be provided;

b) Any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

c) Any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.

2) In case of service provided by Government to a business entity, interest chargeable on deferred payment to be included in the value of the taxable service

[Rule 6(2)(iv) of the Service Tax Determination of Value Rules, 2006]

Interest on delay payments: interest on delayed payment of any consideration for the provision of service or sale of property, whether movable or immovable, for such payment which is not included in the value of taxable services

Exception:-However, service tax is payable on the interest charged by government or a local authority where the payment for service is allowed to be made under deferred payment option since the same is included in the value of the taxable service.

5. EXEMPTIONS AND ABATEMENTS

A. MEGA EXEMPTION NOTIFICATION: 1) Health care services(Entry no 2):


Ambulance services provided by way of transportation of a patient, to and from a clinical establishment, was exempt from service tax only when the said service was provided by a clinical establishment or an authorized medical practitioner or paramedics.

Ambulance services provided by all service providers (whether or not by clinical establishment or an authorized medical practitioner or paramedics) is exempted.

2) Exemption in respect of services provided by a senior advocate to an advocate or partnership firm of advocates and person represented on an arbitral tribunal to an arbitral tribunal withdrawn (Entry no 6):

Legal services: Services provided by -

a) an arbitral tribunal to -

i) any person other than a business entity; or

ii) A business entity with a turnover up to Rs. 10 lakh in the preceding financial year.

b) A partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

Clarification:- In view of the above, it has been clarified that all testing and ancillary activities to testing such as seed certification, technical inspection, technical testing, analysis, tagging of seeds, rendered during testing of seeds, are covered within the meaning of ‘testing’ as mentioned in section 66D(d)(i) of the Finance Act, 1994. Therefore, such services are not liable to service tax under section 66B of the Finance Act, 1994.



i) an advocate or partnership firm of advocates providing legal services ;

ii) any person other than a business entity; or

iii) a business entity with a turnover up to Rs. 10 lakh in the preceding financial year.

c) a person represented on an arbitral tribunal to an arbitral tribunal (deleted w.e.f 1.04.2016)

c) A senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession .i.e business entity ( inserted w.e.f 1.04.2016)

CLARIFICATION:-

a) In the following cases service tax will apply

i) A person represented on an arbitral tribunal to an arbitral tribunal.

ii) Services provided by a senior advocate to an advocate or partnership firm of advocates

iii) Services provided by a senior advocate to a business entity

b) Legal services provided by OTHER THAN a senior advocate to a business entity with a turnover up to Rs. 10,00,000 in the preceding financial year is exempted

However, in respect of services provided to business entities, with a turnover exceeding Rs.10 lakh in the preceding financial year, tax is required to be paid on reverse charge by the business entities.

c) Legal services provided by a senior advocate shall not be covered under the ambit of reverse charge mechanism. So, in case of legal services provided by senior advocates, service tax shall be payable by service provider( forward charge) (w.e.f. 1.04.2016)

S. No

Service Provider

Nature of service

Recipient of service Taxability

Reverse charge

provisions Remarks

1. Senior advocate as a person represented on an arbitral tribunal

Arbitration services

Individual Exempted Not applicable

Exemption given earlier is continued

2. Senior advocate as a person represented on an arbitral tribunal

Arbitration services

Arbitration Tribunal

Taxable service

Not applicable

Exemption withdrawn w.e.f. 1-4-16. Service provider liable to pay S.T

3. Senior Advocate Legal Services

Individual other than person carrying on any business or profession.

Exempted Not applicable

Exemption given earlier is continued.


Individual Advocate or firm of Advocates

Taxable service

Not applicable

Service tax is payable by senior advocate


Business entity (10 lakhs limit of turn over is not applicable)

Taxable service

Not applicable

Service tax is payable by senior advocate



3)

a) Specified services provided by the Indian Institutes of Management (IIM) exempted (Entry no 9B):

Services provided by the Indian Institute of management, as per the guidelines of the central government, to their students, by way of the following educational programmes, except executive development programme,-

i) Two year full time residential post graduate programmes in management for the post graduate diploma in management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;

ii) Fellow programme in Management

iii) Five year integrated programme in management.

are exempted.

b) Services by assessing bodies empanelled centrally by DGT, Ministry of Skill Development & Entrepreneurship under SDI scheme exempted(Entry no 9C):

Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative(SDI)scheme.

c) Services provided by way of skill/vocational training by DDU-GKY training providers exempted(Entry no 9D):

Services provided by way of skill / vocational training by Deen Dayal Upadhayy Grameen Kaushalya Yojana training partners.

NOTE:-Ministry of Skill Development & Entrepreneurship (MSDE) coordinates the various skill development efforts fragmented across the country, for building the vocational and technical training framework, skill up-gradation, building of new skills, and innovative thinking not only for existing jobs but also jobs that are to be created. SDI Scheme is launched by MSDE. DGT, MSDE empanels assessing bodies to assess the competencies of the persons trained under SDI Scheme. Such assessment is done by assessors of high competence, repute and integrity – sector

Note:

1. Business entity is defined in section 65B of the Finance Act, 1994 as ‗any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession‘. Thus, it includes sole proprietors as well.

The business entity can, however, take input tax credit of such tax paid in terms of the CENVAT Credit Rules, 2004, if otherwise eligible. The provisions relating to arbitral tribunal are also on similar lines.

2. Senior and other Advocates (Sec.16 of the Advocates Act, 1961 (25 of 1961): It means

i) There shall be two classes of advocates, namely, senior advocates and other advocates.

ii) An advocate may, with his consent, be designated as senior advocate if the Supreme Court or a high court is of opinion that by virtue of his ability (standing at the bar or special knowledge or experience in law) he is deserving of such distinction.

iii) Senior advocates, shall in the matter of their practice, be subject to such restrictions as the bar council of India may, in the interest of the legal profession, prescribe.

iv) An advocate of the Supreme Court who has senior advocate of that court immediately before the appointed day shall, for the purposes of this section, be deemed to be a senior advocate



4) Output services by artist in folk or classical form: (Entry no 16)


services provided by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is upto Rs. 1,00,000 for a performance. Is exempt from service tax However service provided by an artist as brand ambassador will continue to remain taxable.

services provided by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is upto Rs. 1,50,000 for a performance. Is exempt from service tax However service provided by an artist as brand ambassador will continue to remain taxable.

5) General exemption of transportation of specified goods by rail or vessel or goods transport agency[Entry no 20]

Before amendment After amendment Transportation of foodstuff - including flours, tea, coffee, Jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages - by rail/ vessel and by goods carriage was exempt from service.

Transportation of foodstuff only milk, salt and food grain including flours, pulses and rice by rail/ vessel and by goods carriage is exempt from service tax.

6) Exemption to transportation of passengers by ropeway, cable car or aerial tramway withdrawn (Entry no 23):- Transportation of passengers, with or without accompanied belongings by ropeway, cable car or aerial tramway withdrawn the exemption.so, these are taxable.

7)

a) Services of general insurance business: (Entry no 26)

A new clause (p & q) has been inserted vide Notification No. 12/2016 ST dated 30.04.2016 in the said entry to exempt services of general insurance business provided under

• Pradhan Mantri Suraksha Bima Yojna.(w.e.f 30.04.2015)

• “Niramaya” Health Insurance Scheme implemented by trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability Act, 1999 in collaboration with Private / Public insurance companies. (w.e.f. 1.04.2016)

b) Services of Life insurance business:((Entry no 26A): New Clauses (d), (e) and (f) have been inserted vide Notification No. 12/2015 ST dated 30.04.2015 in the said entry to exempt services of life insurance business provided in respect of the following additional schemes:

NOTE:- Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) is the skilling and placement initiative of the Ministry of Rural Development (MoRD), Government of India, for poor and disadvantaged rural youth. The skill training is imparted under said program by the Project Implementation Agencies which are organisations from specific sector industries, education and training or NGOs who have a reputation in delivering skilling, training and development programs. They are responsible for carrying out skill gap assessment, enrollment, training, counselling, placement, post placement support, career progression and other services.

NOTE:- Niramaya Health Insurance Scheme: In order to provide an affordable health insurance facility to persons with developmental disabilities viz, autism, cerebral palsy, mental retardation & multiple disabilities, Niramaya Health Insurance Scheme is launched by National Trust, in collaboration with private/ public insurance companies.



• Varishtha Pension Bima Yojna - [w.e.f 01.04.2015]

• Pradhan Mantri Jeevan Jyoti Bima Yojna – [w.e.f 30.04.2015]

• Pradhan Mantri Jan Dhan Yojna - [w.e.f 30.04.2015]

c) Collection of contribution under Atal Pension Yojana (APY):[Entry no 26B]: A new entry 26B has been inserted in the notification vide Notification No. 12/2015 ST dated 30.04.2015 to exempt the services by way of

• Collection of contribution under Atal Pension Yojna.

d) Annuity under the National Pension System (NPS) exempted:[Entry no 26C]:

Services of Life insurance business provided by way of annuity under the National Pension System (NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India under the pension fund regulatory and development authority Act 2013.

8) Agency Services[Entry no 29] : services by the following persons in respective capabilities-

a) Sub broker or an authorized person to a stock broker;

b) Authorized person to a member of a commodity exchange;

c) mutual fund agent to a mutual fund or asset management company[deleted w.e.f 1.04.2015]

d) distributor to a mutual fund or asset management company[deleted w.e.f 1.04.2015]

e) selling or marketing agent of lottery tickets to a distributor or a selling agent. [deleted w.e.f 1.04.2015]

f) Selling agent or a distributor of SIM cards or recharge coupon vouchers;

g) business facilitator or a business correspondent to a banking company with respect to Basic Savings Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company’s rural area branch, by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificate, Aadhar seeding;(Inserted w.e.f. 21.10.2015)

(ga) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in clause (g); (Inserted w.e.f. 21.10.2015)

(gb) business facilitator or a business correspondent to an insurance company in a rural area; (Inserted w.e.f. 21.10.2015)

h) Sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;

Note: Thus, the service tax will be payable on these deleted services (clause c, d, e) and clause g and h are exempted from service tax

9) Job work [Entry no 30]:


Carrying out an intermediate production process as job work in relation to any goods on which appropriate duty is payable by the principal manufacturer was exempt from service tax.

Carrying out an intermediate production process as job work in relation to any goods excluding alcoholic liquor for human consumption on which appropriate duty is payable by the principal manufacturer was exempt from service tax. Thus, carrying out an intermediate production process alcoholic liquor for human consumption on job work is liable to service tax. (w.e.f. 01.06.2015)

10) New Exemptions:

a) Entry no 43: Services by operator of Common Effluent Treatment Plant by way of treatment of effluent are exempt from service tax.



b) Entry no 44:Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables, which do not change or alter the essential characteristics of the said fruits or vegetables, are exempt from service tax.

c) Entry no 45: Services by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve are exempt from service tax.

Here,

i) National park has the meaning assigned to it in the clause (21) of the section 2 of The Wild Life (Protection) Act, 1972.

ii) Wildlife sanctuary means sanctuary as defined in the clause (26) of the section 2 of The Wild Life (Protection) Act, 1972.

iii) Zoo has the meaning assigned to it in the clause (39) of the section 2 of the Wild Life (Protection) Act, 1972.

Section 2(39) of the Wild Life (Protection) Act, 1972 provides that “Zoo” means an establishment, whether stationary or mobile, where captive animals are kept for exhibition to the public but does not include a circus and an establishment of a licenced dealer in captive animals.

iv) Tiger reserve has the meaning assigned to it in clause (e) of section 38K of the Wild Life (Protection) Act, 1972.

d) Entry no 46: Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members are exempt from service tax.

e) Entry no 47: Services by way of right to admission to-

i) exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet;

ii) recognized sporting event;

iii) award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than Rs. 500 per person are exempt from service tax.

Therefore, service tax would be levied on service by way of admission to entertainment event of concerts, pageants, musical performance, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event.

Note: Recognised sporting event means any sporting event-

• Organised by a recognised sports body where the participating team or individual represent any district, state, zone or country;

• Covered under entry 11.

Entry 11 of the notification covers services by way of sponsorship of sporting events organised-

a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state, zone or country;

b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat;

c) by Central Civil Services Cultural and Sports Board;

d) as part of national games, by Indian Olympic Association; or

e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme.



11) SERVICES BY SPECIFIED BODIES EXEMPTED (New Entries 49 to 52 have been inserted to exempt the services provided by the specified bodies)

a) Entry no 49: Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions (EPFMP) Act, 1952.

b) Entry no 50: Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999.

c) Entry no 51: Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market.

d) Entry no 52: Services provided by National Centre for Cold Chain Development (NCCCD) under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination.

B. ABATEMENT NOTIFICATION: 1) Notification No. 8/2016 ST dated 01.03.2016 as under:

Percentage of abatement

S. No.

Description of taxable service

Before After

Conditions

2. Transport of goods by rail

70 70

2A

Transport of goods in containers by any person other than Indian railways.

70 60

3. Transport of passengers, with or without accompanied belongings by rail

70 70

10. Transport of goods in a vessel

70 70

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of CENVAT Credit Rules, 2004. Note:- So, Input Service has been avail in addition to the Abatement.

Entry No 54 To 63 Are Discussed In Negative List Chapter, Under The Heading, Services Provided By Government Or Local Authority



7. Services of goods transport agency (GTA) in relation to transportation of goods other than used house hold goods.

70 70

7A.

Services of goods transport agency in relation to transportation of used household goods.

70 60

8. Services provided by a foreman of chit fund in relation to chit

Nil 30

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, 2004

Services by a tour operator in relation to,- i) a tour, only for the

purpose of arranging or booking accommodation for any person

90

90

i) CENVAT credit on inputs, capital goods and input services other than the input service of a tour operator, 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 challan issued by the tour operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation.

11.

ii) Tours other than (i) above.

75/60 70 i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, 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 and the amount charged in the bill is the gross amount charged for such a tour.

NOTE :-

1. The amendment made in serial no.11, Consequently, with effect from 01.04.2016, definition of ‘package tour’ has been omitted.

2. Cost of fuel to be included in consideration charged, for availing abatement for renting of motor cab service



However, the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

3. 70% abatement available on ancillary services provided by a GTA in the course of transportation of goods

C. OTHER EXEMPTION NOTIFICATIONS:-

1) Pilgrimage services: Services provided by a specified organisation in respect of a religious pilgrimage facilitated by the Ministry of External Affairs of the Government of India, under bilateral arrangement, are exempt from service tax.(notification no.17/2014 dated 20.08.2014)

Note: Specified organisation means:

• Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking; (or)

• Haj Committee of India and State Haj Committees constituted under the Haj Committee Act, 2002, for making arrangements for the pilgrimage of Muslims of India for Haj.

2) Services provided by BIRAC approved bio-incubators to incubatees also exempted

Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubatees. .(notification no.12/2016 dated 01.03.2016)

3) Refund of Swachh Bharat Cess to SEZ units/developers.(notification no.2/2016 dated 03.02.2016)

a) The service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer and the DTA unit (s) in the manner as prescribed in rule 7 of the CENVAT Credit Rules. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorised operation during the relevant period.

b) The SEZ Unit or the Developer shall be entitled to refund of the service tax paid on (i) the specified services on which ab-initio exemption is admissible but not claimed, and (ii) the amount distributed to it in terms of clause (a).

c) The SEZ unit or the developer shall be entitled to-

i) Refund of the Swachh Bharat Cess paid on the specified services on which ab-initio exemption is admissible but not claimed and

ii) The refund of amount as determined by multiplying total service tax distributed to it in terms of Clause (a) by effective rate of Swachh Bharat Cess and dividing the product by rate of service tax specified in Section 66B of the Finance Act, 1944.

tax service of RateCess Bharat Swachh of Rate Effective X)A(= %

140.5 X )A(

=

Here A = the service tax paid on specified services that are common to authorized operations in SEZ and DTA.

4) GTA service provided for transport of export goods by road from place of removal/ CFS/ICD to land customs station exempted.

Before amendment After amendment The following services by goods transport agency are exempt: a) Transport of goods by road from any

container freight station (CFS) or inland container depot (ICD) to port / airport as the case may be, from where the goods are exported; or

The following services by goods transport agency are exempt: a) Transport of goods by road from any

container freight station (CFS) or inland container depot (ICD) to port / airport / land customs station as the case may be, from where the goods are exported; or



b) Transport of goods by road from the place of removal (i.e. factory) to CFS, ICD, Port / airport, as the case may be, from where the goods are exported

b) Transport of goods by road from the place of removal (i.e. factory) to CFS, ICD, Port / airport / land customs station, as the case may be, from where the goods are exported

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:-

Services provided by Institutes of Language Management (ILMs) are liable to service tax

Clarification:- Institutes of Language Management (ILMs) are engaged by various schools/institutions to develop knowledge and language skills of students. The services provided by the ILMs are not covered by section 66D (l) of the Finance Act, 1994 or Entry 9 of Notification No. 25/2012 ST as they are not providing pre-school education or education up to higher secondary school (or equivalent) or education for obtaining a qualification recognized by law.

6. SERVICE TAX PROCEDURES

1) Full reverse charge (100% service tax to be paid by the person liable for paying service tax other than service provider):

S. No.

In relation to service provided or agreed to be

provided by-

Service provided to – (i.e. Service Receiver)

% Of service tax payable by any Person

liable for paying service tax other than the service provider

(100%)

1.

By way of Legal services i. an arbitral tribunal, or ii. a firm of advocates or an

individual advocate other than senior advocate,

To any business entity located in the taxable territory.

The recipient of such service. Note: the turnover of business entity in the preceding F.Y does not exceed Rs 10 lakh then the legal service is exempt from service tax.

2.

Government or local authority by way of any services Except, i. renting of immovable

property, and ii. services specified in sub

clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994,

To any business entity located in the taxable territory.

The recipient of such service.

3.

Supply of manpower for any purpose or security services Note: Service provider: Service provider located in the taxable territory must fall under any one of the following categories,- i) Individual ii) Hindu Undivided Family iii) Partnership firm, whether

registered or not; or iv) Association of Persons.

To any business entity located in the taxable territory. Note: Service Recipient: Service Recipient located in the taxable territory must be a Business Entity registered as a Body Corporate

The recipient of such service.



4.

Mutual fund agent/distributor services (Omitted) (W.E.F 01-04-2016)

Mutual fund or asset management company

Recipient of service Note:- so, the effect of amendment S.P shall liable to pay service tax. (forward charge i.e. mutual fund agents/ distributor agents)

5.

Lottery selling or marketing agent services

Lottery distributor or selling agent

Recipient of service

6. Services involving an aggregator (refer note point)

To the recipient of the Services

Aggregator(other than service recipient)

Note: - Services involving an aggregator: Concept of aggregator introduced in service tax. Therefore, companies which act as aggregator for service providers like travel portals, food portals or cab services will now be liable to pay service tax.

Definition of aggregator and brand name inserted in rule 2 [Rule 2(1)]: “Aggregator means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator” [Rule 2(1)(aa)]

Accordingly, “brand name or trade name” has also been defined by inserting clause (bca) in rule 2(1) as under:

“Brand name or trade means a brand name or a trade name whether registered or not, that is to say, a name or a mark, such as an –

• Invented word or writing,

• Or a symbol,

• Monogram,

• Logo,

• Label,

• Signature

which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some person using the name or mark with or without any indication of the identity of that person” [Rule 2(1)(bca)]. [Effective from 01.03.2015]

Aggregator to pay service tax under reverse charge [Rule 2(1)(d)(i)(AAA)]: Rule 2(1)(d)(i)(AAA) in relation to service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator of the service would be the person liable for paying service tax.

The liability of aggregator has been represented in the diagram given below:



2) Facility of (a) quarterly payment of service tax and payment of service tax on receipt basis extended to OPC having service turnover upto Rs. 50 lakh in the previous financial year and (b) quarterly payment of service tax extended to HUF [Rule 6(1)]

Particulars One person company (OPC) eligible or not

HUF eligible or not

(a) Quarterly payment of service tax � �

(b) Payment of service tax on receipt basis, whose turnover up to 50 lakhs, in the Previous financial year. � ×

3) CBEC to specify conditions, safe guards and procedure for registration in service tax (inserted Rule 4(9):

a) Online Registration: with effect from 01.03.2015, registration for single premises will be granted online within two days of filing the application. The documentation, time limits and procedure for online registration is outlined below:

b) General procedure

i) Applicants seeking registration for single premises shall file an online applicationfor registration on ACES website in Form ST-1.

ii) Following details are to be mandatorily furnished in the application form:

• Permanent Account Number (PAN) of the proprietor or the legal entity being registered (except Government Departments)

• E-mail and mobile number

iii) Registration would be granted online within 2 days of filing the complete application form. On grant of registration, the applicant would be enabled to electronically pay service tax.

iv) Registration Certificate downloaded from the ACES website would be accepted as proof of registration and there would be no need for a signed copy.

c) Documentation required: A self attested copy of the following documents will have to be submitted by registered post/ speed post to the concerned Division, within 7 days of filing the Form ST-1 online, for the purposes of verification:

i) Copy of the PAN Card of the proprietor or the legal entity registered

ii) Photograph and proof of identity of the person filling the application

iii) Document to establish possession of the premises to be registered such as proof of ownership, lease or rent agreement, allotment letter from Government, No Objection Certificate from the legal owner

iv) Details of the main Bank Account

v) Memorandum/Articles of Association/List of Directors

vi) Authorisation by the Board of Directors/Partners/Proprietor for the person filing the application

vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application Verification of premises, if there arises any need for the same, will have to be authorised by an officer not below the rank of Additional/Joint Commissioner



d) Revocation of registration certificate: The registration certificate may be revoked by the Deputy/Assistant Commissioner in any of the following situations, after giving the assessee an opportunity to represent against the proposed revocation and taking into consideration the reply received, if any:

i) The premises are found to be non existent or not in possession of the assessee.

ii) No documents are received within 15 days of the date of filing the registration application.

iii) The documents are found to be incomplete or incorrect in any respect.

4) Authentication by Digital Signature [Rule 4C]: Any invoice, bill or challan issued under rule 4A or consignment note issued under rule 4B may be authenticated by means of a digital signature. The Board may specify the conditions, safeguards and procedure to be followed by any person issuing digitally signed invoices, by way of a notification.[w.e.f from 1-03-2015 ]

5) Composition scheme: Person liable for paying the service tax in relation to the services provided, shall have the option to pay following amounts instead of paying service tax at the rate of 14.5%

a) Air travel agent:

In the case of Before amendment After amendment Domestic bookings 0.6% of basic fare 0.7% of basic fare International bookings 1.2% of basic fare 1.4% of basic fare

b) Life insurance business: Where amount of the gross premium allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service:-

In respect of the amount of the

premium charged Before amendment After amendment

For the First year on 3% of the gross amount of premium charged

on 3.5% of the gross amount of premium charged

For the Subsequent year



Note:- In case of single premium annuity (insurance) policies,@ 1.4% of the single premium charged from the policy holder, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service.

c) Money changing services:

Gross amount of currency exchanged


Up to Rs.1,00,000 0.12% of the gross amount of currency exchanged or Rs.30; which ever is higher

0.14 % of the gross amount of currency exchanged or Rs.35; which ever is higher.

Exceeding Rs.1,00,000 - up to Rs. 10,00,000

Rs.120 + 0.06% of the gross amount of currency exchanged exceeding Rs. 1,00,000 up to Rs.10,00,000

Rs. 140 + 0.07% of the gross amount of the currency exchanged exceeding Rs.1,00,000 upto Rs.10,00,000.

Exceeding Rs.10,00,000 Rs,660 +0.012% of the gross amount of the currency exchanged exceeding Rs.10,00,000 or Rs.6,000; whichever is lower

Rs.770 + 0.014% of the gross amount of the currency exchanged exceeding Rs.10,00,000 or Rs.7,000; which ever is lower



d) Distributor or selling agent of lottery services

Conditions Before amendment After amendment

If the lottery scheme is one where the guaranteed price payout is more than 80%

Rs. 7,000 on every Rs. 10,00,000 (or part of 10,00,000)of aggregate face value of lottery tickets printed by organizing states


If the lottery scheme is one where the guaranteed price pay out is less than 80%



6) Service tax (amendment) Rules 2016 (w.e.f 01-04-2016):

(i) Provisions introduced for filing of Annual Returns [Rule 7]

In rule 7 of service tax rules 1994, sub rules (3A) and (3B) was inserted, namely:-

(3A) Notwithstanding anything contained in sub rule (1):-

Every assesse shall submit an annual return for the financial year to which the return relates, in such form and manner as may be specified in the notification in the official Gazette by the CBEC, by the 30th day of November of the succeeding financial year.

(3B) the central government may, subject to such conditions or limitations, specify by notification an assesse or class of assesses who may not be required to submit the annual return referred to in sub rule (3A).

(ii) Annual return filed by the due date may be revised within 1 month from the date of its submission [Rule 7B(2)]

An assesse who has filed the annual return referred to in sub rule (3A) of rule 7 by the due date may submit a revised return within a period of one month from the date of submission of the said annual return.

(iii) Delayed filing of Annual Return to attract a late fee of Rs. 100 per day for the period in default subject to a maximum of Rs. 20,000 [Rule 7C(2)]

Where the annual return is filed by the assesse after the due date, the assesse shall pay to the credit of central government, An amount calculated at the rate of Rs. 100 per day for the period of delay in filing of such return, but subject to a maximum of Rs. 20,000.

SOME IMPORTANT CIRCULARS ISSUED BY CBEC:- 1. Applicability of service tax on the services received by apparel exporters in relation to

fabrication of garments: The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided which would vary from case to case.

Issue: Whether services received by apparel exporters from third party on job work is a service of manpower supply, which neither falls under the negative list nor is specifically exempt and thus, liable to service tax?

OR Whether services received by them is of job work involving a process amounting to manufacture or production of goods, and thus, would fall under negative list and hence would not attract service tax?



1. CENVAT CREDIT RULES 2004

AMENDMENTS IN RULE 2 a) Rule 2(a)

Scope of definition of capital goods widened The scope of definition of capital goods has been widened to include within its ambit the following goods:

i) Wagons falling under sub-heading 8606 92 of the Central Excise Tariff

(The above amendment (i) include in the definition of capital goods is as follows:-

Grinding wheels and the like, and parts there of falling under heading 6804 and wagons of sub – heading 860692 of the First Schedule to the Excise Tariff Act.)

ii) Equipment or appliance used in an office located within a factory ( It may be noted that CENVAT credit will be allowed only on those equipment or appliance which are used in an office located within the factory and not outside the factory.)

iii) Capital goods used outside the factory of the manufacturer of the final products for pumping of water, for captive use within the factory.

Manpower supply service: The nature of manpower supply service is quite distinct from the service of job work. The essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider’s accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. The value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle.

Job work: On the other hand, the essential characteristics of job work service are that service provider is assigned a job e.g. fabrication/stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.

CLARIFICATION:- the exact nature of service needs to be determined on the facts of each case which would vary from case to case. The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided. Note :- every job work is not covered under the negative list. Only if the job work involves a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944, would it be covered under negative list in terms of Section 66D(f) read with section 65B(40) of the Finance Act, 1994.

2. Incentives received by air travel agents from computer reservation system companies (CCRS) are liable to service tax:-

Clarification:-

It has been clarified that incentives received by the ATAs from the companies providing computer reservation system (CCRS) are for using the software and platform provided by the CCRS like Galileo, Amadeus, etc. The CCRS are providing these incentives either for achieving the targeted booking of air tickets or for loyalty for booking of air tickets using their software system. Thus, the service provided by CCRS is to the Airlines and ATA is promoting the service provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is neither covered in the negative list (section 66D of the Finance Act, 1994) nor exempt by a notification. Therefore, service tax is leviable on the same.



(The above amendments (ii) &(iii) includes in the definition of capital goods as follows:-

Capital goods includes Motor vehicles, other than those falling under tariff headings: 8702, 8703, 8704 (includes dumpers), 8711

But dumpers and tippers as capital goods if

It is used for:

i) In the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (omitted w.e.f 01-04-2016)

ii) Outside the factor of the manufacturer of the final products of generation of electricity or for pumping of water for captive use within the factory; or

iii) For providing output service.)

b) Rule 2(k): Scope of definition of inputs widened The scope of definition of inputs has been widened to include within its ambit the following goods:

1. All goods used for pumping of water for captive use.

2. All capital goods which have a value up to Rs. 10,000 per piece (Thus, on such capital goods, 100% credit can be taken in the same year in which they are received.)

Consequential amendment has been made in the definition of input [item (C)] to provide that input excludes

Capital goods except when

i) used as parts or components in the manufacture of a final product; or

ii) the value of such capital goods is up to Rs.10,000 per piece;

Clarification Regarding Sales Promotion In The Definition Of Input Service:-

Clarification given by CBEC in vide Notification No. 2/2016 CE (NT) dated 03.02.2016 to clarify that sales promotion includes services by way of sale of dutiable goods on commission basis.

AMENDMENTS IN RULE 3

a) Rule 3 (1) :-

Restriction on ship breaking units to avail only 85% CENVAT credit of CVD is withdrawn [Rule 3(1)(vii)]

Proviso to clause (vii) of rule 3(1) restricted CENVAT credit of CVD (leviable under section 3(1) of the Customs Tariff Act) paid on ships, boats and other floating structures for breaking up [Entry 8908 00 00 of the Customs Tariff], to the extent of 85%.

Clarification:-

CENVAT credit shall not be allowed in excess of 85% of the additional duty of customs paid under section 3(1) of the customs Tariff Act, on ships, boats and other Floating Structures for breaking up, falling under Tariff item 8908 00 00 of the First Schedule to the customs Tariff Act.(Omitted w.e.f. 01.03.2015).

Thus, ship breaking units would be entitled to avail 100% credit of the CVD paid with effect from 01.03.2015.

b) Rule 3 (4) :-

i) Swachh Bharat Cess cannot be paid by utilizing CENVAT credit of any other duty The CENVAT credit of any duty specified in rule 3(1) shall not be utilized for payment of Swachh Bharat Cess. Note:- rule 3(1) is duties / taxes eligible for CENVAT credit. i.e. BED, NCCD, CVD, output service tax etc.. shall not be utilized for payment of Swachh Bharat Cess.

ii) CENVAT credit of only NCCD to be utilised for payment of the NCCD payable on all goods



NCCD: The CENVAT credit of any duty specified in rule 3(1), except the National calamity contingent duty thereof, shall not be utilized for payment of National calamity contingent duty leviable under section 136 of the Finance act, 2001.

Clarification: credit of NCCD, can be utilized only for payment of NCCD. Besides this, CREDIT OF OTHER DUTIES cannot be utilized for payment of NCCD (w.e.f 01-03-2016). Prior 01-03-2016 there is no restriction on utilization of credit of basic excise duty for payment of NCCD (EXCEPT MOBILE PHONES).

iii) Infrastructure Cess: The CENVAT credit of any duty specified in rule 3(1) shall not be utilized for payment of Infrastructure cess leviable under section 162(1) of the Finance Act, 2016

Clarification: W.e.f 01-03-2016, Infrastructure cess is been levied on Motor vehicles of Heading 8703. No credit of this Cess is available Under Rule 3(1). Further, credit of other Duties cannot be used for payment of Infrastructure cess. Hence, this amount has to be paid in cash.

c) Rule 3 (7)(b) :- Specific Restrictions In Relation To Utilization Of Credit:-

EC and SHEC can be used for payment of excise duty or out put service tax ( w.e.f 30.04.2015): Notification No. 12/2015 CE (NT) dated 30.04.2015 has inserted third, fourth and fifth provisos in rule 3(7)(b) to give effect to this amendment.


EC can be utilized for payment of EC

SHEC can be utilized for payment of SHEC

Manufactures allowed to utilize credit of EC and SHEC for payment of excise duty or output service tax (conditional)

However, pursuant to the exemption granted to EC and SHEC leviable on all excisable goods (with effect from 01.03.2015), a manufacturer has been allowed to utilise the following credits of EC and SHEC for the payment of basic excise duty or output service tax:

Conditions:

A. EC and SHEC paid on inputs or capital goods

i. Credit of EC and SHEC paid on inputs or capital goods received in the factory of manufacture of final product on/after the 1st day of March, 2015.can be utilized for payment of duty of excise specified in first schedule to the Excise Tariff act.

ii. Credit of EC and SHEC paid on inputs or capital goods received in the premises of the provider of output service on or after 01-06-2015 can be utilized for payment of service tax on any output service.

Note: the credit of balance 50% EC & SHEC paid on capital goods received in the factory of manufacture of final product / premises of the provider of output service in the financial year 2014-15 can be utilized for payment of duty of excise / service tax on any output service

B. EC and SHEC paid on input services

i) The credit of EC and SHEC paid on input services received by the manufacturer of final product on or after the 1st day of March, 2015 can be utilized for payment of duty of excise specified in first schedule to the Excise Tariff act.

ii) The credit of EC and SHEC paid on input services in respect of which the invoice, bill, challan or Service Tax Certificate for Transportation of goods by Rail ( referred to in Rule 9), as the case may be is received by the provider of output service on or after the of 1st day of June, 2015 can be utilized for payment of service tax on any output service.

Copyrights Reserved





a) [Rules 4(1) and 4(2)(a)]:

CENVAT credit allowed on inputs and capital goods received directly in the premises of the job worker [Rules 4(1) and 4(2)(a)]:

Before amendment After amendment According to Rule 4(1) and rule 4(2A) when goods were directly sent to job-worker’s premises without bringing them in the manufacturer/output service provider’s premises, CENVAT credit could be taken only when such goods were received back from the job-worker’s premises in the premises of manufacturer/output service provider.

Rule 4(1) and rule 4(2)(a) have been amended to allow CENVAT credit in respect of inputs and capital goods immediately on receipt of the same in the premises of job worker where the same are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be.

b) Rule 4(2)(a):-

General provision: Availment of credit not exceeding 50% in the year of acquisition.

But in some cases, 100% credit on capital goods can be taken in the same financial year. One of the case is -

Units eligible for SSI exemption:-

i) SSI exemption In case of jewellery manufacturers:- An Assessee engaged in the manufacture of articles of Jewellery, other than Articles of Silver Jewellery but inclusive of Articles of Silver Jewellery studded with diamond, ruby, emerald or sapphire, Falling under chapter heading 7113 of the First Schedule of the Excise Tariff Act, shall be eligible for 100% credit on capital goods in the same financial year, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the manner specified in the said notification did not exceed Rs.12crores;

ii) SSI exemption In case of other manufacturers:-

A unit whose turnover does not exceed Rs. 4 crores in the previous year is entitled to full exemption from payment of duty on its first clearances of up to Rs. 150 lakh in the current financial year, Shall be eligible for 100% credit on capital goods in the same financial year,

c) Rule 4(5)(b):-

CENVAT credit allowed on tools of Chapter 82 of the Central Excise Tariff sent to another manufacturer or job-worker for production of goods:-

Credit admissible on Jigs, fixtures, moulds and dies sent to another manufacturer/ Job-worker [Rule 4(5)(b)]:

The CENVAT credit shall also be allowed to a manufacturer of final products in respect of Jigs, fixtures, moulds and dies, or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act, sent by such manufacturer to,-

i) Another manufacturer for the production of goods; or ii) A job worker for the production of goods on his behalf, According to his specifications

However, Credit Shall also be allowed where Jigs, fixtures, moulds and dies, or tools falling under chapter 82 of the first schedule to the Excise Tariff Act, are sent by the manufacturer of final products to the premises of another manufacturer or job worker without bringing these to his own premises.

Clarification:-

The benefit extended to manufacturers of final product to take CENVAT credit on tools falling under chapter 82 of the first schedule to the Excise Tariff Act,



d) Rule 4(6):-

Permission given for sending inputs/partially processed inputs outside factory to a job-worker and clearance therefrom on payment of duty shall be valid for 3 financial years (Earlier Permission shall be valid for 1 financial year)

e) Rule 4(7):-

Time limit for availing credit on inputs and input services:-


The manufacturer and the provider of output service shall not take CENVAT credit after 6 months of the date of issue of any of the documents specified in rule 9(1)

The manufacturer and the provider of output service shall not take CENVAT credit after 1 year of the date of issue of any of the documents specified in rule 9(1) except in case of services provided by Government, Local Authority or any other person, by way of assignment of right to use any natural resource.

Service tax paid on assignment charges of a natural resource to be allowed as CENVAT credit spread over the time for which the rights have been assigned

i) Input Service Credit to be availed within one year from the date of invoice: The manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in rule 9(1) except in case of services provided by Government, Local Authority or any other person, by way of assignment of right to use any natural resource.

Clarification: Amendment is made to allow CENVAT credit to be taken on the basis of the documents specified in Rule 9(1) of CENVAT Credit Rules, 2004 even after the period of 1 Year from the date of issue of such a document in case of services provided by the Government or a local Authority or any other person by way of assignment of right to use any natural resource.

ii) (a) CENVAT credit of service tax paid on one time charges for assignment of right to use

natural resources etc.- To be spread over the period of 3 years[substituted by Notification No. 24/2016 dated 13-04-2016 CE(NT) dated 13-04-2016]: The CENVAT credit of service Tax paid in a financial year , on the onetime charges payable in full Upfront or in installments, for the service of assignment of the right to use any natural resource by the government, local Authority or any other person, shall be spread evenly over a period of three years:

(b) Further assignment of Rights- CENVAT credit to the extent of the service tax payable on

for such further assignment to be allowed in the same financial year: Where the manufacturer of Goods or provider of output service , as the case may be , further assigns such right to use assigned to him by the Government or any other person , in any financial year, to another person against a consideration , such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment shall be allowed in the same Financial Year.

Utilization of CENVAT credit in case of assignment of Licenses:

Illustration: Swadeshi Ltd. has obtained by way of assignment a spectrum license on 1 – 4 – 2016 from TRAI for a period of 10 Years. The total license fee paid is Rs 300Crores plus service tax @ 14.5%.During the F.Y. 2016-2017, the company has provided telecommunication services of Rs. 110 crores plus Service tax @ 14.5%. Compute the amount of Service Tax Payable by the Company.

3resourcesnaturalusetorighttheofassignment

theforpayableesargchtheonpaidTaxService

yearfinancialaintakenbeshall

thatCreditCENVATofAmount=



What would be your answer in case the company has assigned such rights to Teletalk Ltd for a consideration of Rs.210crores plus service tax @ 14.5% in financial year 2017- 18.

Solution:

i) The relevant computations are as follows (amounts in Rs.) –

S. No Particulars ST SBC Total

1. Value of taxable services provided 110 Crores 15.40 0.55 15.95

2. CENVAT Credit: Service tax paid on spectrum license [300 crores x 14% ÷ 3]

14.00 - 14.00

3. Service tax payable in cash [1-2] 1.40 0.55 1.95

Working Notes:

1. The CENVAT Credit of Service Tax paid in a financial year, on the onetime charges payable in full upfront or in installments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of 3 years

2. No CENVAT credit is allowed of Swachh Bharat Cess. Further, SBC cannot be paid by utilizing credit of any other duty or tax

ii) Where the provider of output service further assigns such right to use, in any financial year, to another person against a consideration, such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year: In case the company has assigned such rights to Teletalk limited for a consideration of 210 Crores in financial year 2017-18. Hence, the remaining CENVAT Credit of 28 Crores [42 Crores — 14 Crores] can be utilized for payment of service tax liability. The utilization of CENVAT Credit shall be restricted to service tax liability

S. No Particulars ST SBC Total

1. Value of taxable services provided Rs 210 Crores 29.40 1.05 30.45

2. CENVAT Credit: Remaining CENVAT Credit 28 Crores to be utilized to the extent of service tax payable

28.00 - 28.00

3. Service tax payable in cash [1-2] 1.40 1.05 2.45

f) Credit allowed on payment of service tax, if service tax is paid under reverse charge (both full and partial reverse charge): In respect of input service where the whole or part of the service tax is liable to be paid by the recipient of the service, credit of service tax payable by the service recipient shall be allowed after the service tax is paid [First proviso to sub-rule (7)].

Effect of amendment: In case of partial reverse charge (w.e.f. 01-04-2015): in respect of input service where part of the service tax is liable to be paid by the recipient of service, credit of service tax shall be allowed as under-

For service receiver’s portion: only after payment of service tax to the treasury of the government by the receiver of service

For service provider’s portion: CENVAT credit shall be allowed, on or after the day on which the invoice, bill or, as case may be, challan referred to in rule 9, is received.


a) Rule 5:

Export goods defined for the purpose of refund of CENVAT credit: The definition of ‘export goods’ has now been inserted in the rule to mean any goods which are to be taken out of India to a place outside India.



Time limit for filing refund claim [Amended by Notification No. 14/2016- CE (N.T.) dated 1-3-2016 w.e.f. 1-3-2016]: The application in the Form A along with the documents specified therein and enclosures relating to the quarter for which refund is being claimed shall be filed as under:

(i) In case of manufacturer, before the expiry of the period specified in Section 11B of the Central Excise Act, 1944;

(ii) In case of service provider, before the expiry of 1 year from the date of –

(a) Receipt of payment in convertible foreign exchange, where provision of service had been completed prior to receipt of such payment; or

(b) Issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice.

b) Rule 5B:-

No refund of CENVAT credit under rule 5B to service providers providing manpower supply/ security services

Rule 5B of the CENVAT Credit Rules, 2004 provides that service providers, rendering notified reverse charge services, being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit.

In this regard, following partial reverse charge services were notified

(i) renting of a motor vehicle designed to carry passengers on non-abated value, to any person who is not engaged in a similar business;

(ii) supply of manpower for any purpose or security services; or (deleted w.e.f. 01.04.2015)

(iii) service portion in the execution of a works contract

Clarification:

Since with effect from 01.04.2015, service tax with respect to supply of manpower for any purpose or security services is payable on the basis full reverse charge, service providers of said services will no longer be eligible for refund of CENVAT credit. Further, application in Form A for claiming refund has also been suitably modified.


Rule 6:- Total Rule 6 Is Re-Drafted, the amended rule 6 is as follows:

Obligation of a manufacturer or producer of final products and a provider of output service [Rule 6] [Amended by Notification No. 13/2016- CE (N.T.) dated 1-3-2016 w.e.f 1-4-2016]:

W.e.f. 1-4-2016 the provisions are as under,—

1. No CENVAT credit on inputs and input services used in exempt goods! services [(Rule 6(1)]: The CENVAT credit shall not be allowed on —

a) such quantity of input -

i) as is used in or in relation to the manufacture of exempted goods; or

ii) for provision of exempted services; or

b) input service as is used —

i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; or

ii) for provision of exempted services, and

the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of Rule 6(2)/(3), as the case may be.



Note:

a) CENVAT not to be denied to job workers of Jewellery: The CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.

b) Exempted goods or final products shall include non-excisable goods [Explanation 1]: For the purposes of this rule, exempted goods or final products shall include non-excisable goods cleared for a consideration from the factory.

c) Valuation of non-excisable goods [Explanation 2]: Value of non-excisable goods

i) Invoice value; and

ii) if invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made there under.

d) Activities not a service u/s 65B(44) — to be included in exempted service [Explanation 3]: For the purposes of this rule, exempted services as defined in Rule 2(e) shall include an activity, which is not a ‘service’ as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services.

e) Valuation of such activities [Explanation 4]: Value of such an activity =

i) The invoice! agreement/ contract value; and

ii) where such value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Finance Act, 1994 and the rules made there under.

2. No CENVAT credit if final product or output service exempt (Rule 6(2)):

i) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal; or

ii) A service provider who exclusively provides exempted services, shall pay the whole amount of credit of input and input services and shall, in effect, not be eligible for credit of any inputs and input services.

3. Manufacturer of dutiable & exempt goods or provider of taxable & exempt services — Options to be adopted for credit on inputs and input services (Rule 6(3)): a) A manufacturer who manufactures two classes of goods, namely :-

i) non-exempted goods removed;

ii) exempted goods removed; (or) b) a provider of output service who provides two classes of services, namely :-

i) non-exempted services;

ii) exempted services,

Shall follow any one of the following options applicable to him, namely:-

OPTION 1: ADHOC REVERSAL: Pay an amount equal to -

i) 6% of value of the exempted goods; and

ii) 7% of value of the exempted services, subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period.

However, following points have to be considered here:

i) Excise duty paid on exempted goods to be reduced: If any duty of excise is paid on the exempted goods, the same shall be reduced from the above amount.



ii) If benefit of abatement is taken, then abatement value to be considered: If any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken, then, the ad-hoc reversal shall be on such abated value i.e. 7% of the value so exempted.

Example: If gross amount charged is 100, abatement is 60%, then, the abated value being 60, the adhoc reversal shall be 7% of 60.

iii) Transportation of goods or passengers by rail service: In case of transportation of goods or passengers by rail, the amount required to be paid under above shall be an amount equal to 2% of value of the exempted services, instead of 7% of value of exempted services.

Illustration:-

M/s. XYZ Ltd. engaged in manufacturing of dutiable and exempted goods and provision of taxable and exempted services, furnishes you the following information for the month of April,2016 (all information in addition to the other)-

a) Total value of dutiable excisable goods cleared during the month : RS 100 lakhs (Duty @ 12.5%)

b) Value of excisable goods falling under Notf. No.1/2011-CE, dtd1-3-2011 : Rs 5 lakhs (Duty @ 2%)

c) Value of excisable goods falling under Notf. No. 12/2012[SR.No.128]: Value =Rs 5 lakhs (Duty @ 1%)

d) Other exempted excisable goods, cleared during the month : Value = Rs 100 lakshs

e) Clearances of excisable goods to SEZ without payment of duty : Value =Rs 15 Lakshs

f) Total Value of taxable services provided : Rs 50 lakhs (Rate of service tax : 14.5%)

g) Gross Value of other taxable services provided (abatement @ 30% in value availed on the condition of non-availment of CENVAT credit) : Rs 50 lakhs (rate of services tax : 14.5%)

h) Non-taxable services provided : Rs 30 Lakhs

i) Value of traded goods : Rs 20 lakhs

j) Total CENVAT Credit availed during the month (all common inputs and input services) : Rs 25 lakhs.

It doesn’t’ maintain separate accounts for the various inputs and input services used in such excisable goods and services and has, therefore, opted for option under rule 6(3)(a) of the CENVAT Credit Rules, 2004 (Value based payment on exempted goods and services).

Assume that payment of all services provided, as aforesaid, was received in the same month itself.

You are required to compute the amount of payment to be made for the month of April, 2016.

Solution : Since M/s. XYZ Ltd. has opted for value-based payment on exempted goods and services, therefore, it shall pay 6 % of the value of exempted goods and 7% of the value of exempted services computed as follows-

(a)Duty payable on dutiable excisable goods (Rs 100 lakhs x 12.5%) 12,50,000 (b) &(c) (i) Duty payable on excisable goods falling under Notification No.1/2011-CE,

dated 1-3-2011 and 12/2012-CE (these goods are “exempted goods” under Rule 2(d) [Rs 5 lakh x 2% +Rs 5 lakhs x1%] (ii) Since these goods are deemed to be exempted goods, therefore,6% of the

value thereof is payable under Rule 6(3), However, the duty paid on such exempted goods under Notification No 1/2011-CE and 12/2012-CE, Shall be allowed as deduction. [6% of (RS 5 lakh+Rs.5 lakhs)]-Duty paid in (b)(i) above]

= 60,000 – 15,000

15,000

45,000

(d) 6% of the value of exempted excisable goods under Rule6(3) i.e 6% of Rs 100 lakhs

6,00,000

(e) Clearances of excisable goods to SEZ without payment of duty – No payment under Rule 6(3) is required in view of specific provisions of Rule 6(6)

Nil

(f) Service Tax on taxable services [ Rs 50 lakh x 14.5%] 7,25,000



(g) (i) Service Tax payable on taxable value (net of abatement ) [(Rs 50 lakh 30%)x14.5% ] (ii) 7 % of the value for which abatement claimed (Service for which abatement in

value is availed are covered under ‘exempted Sevices’ under Rule 2(e) The amount of 7% of the value of exempted services is payable on the abatement availed. [Rs 50 lakh x 30% x7%]

5,07,500

1,05,000

(h) 7% of the value of non-taxable services [services not taxable u/s 66B of the Finance Act, 1994 are also ‘exempted services’ under Rule 2(e) , hence payment under Rule 6(3) required to be made in respect thereof.] [ Rs 30 lakh x 7%]

2,10,000

(i) 7% of the value of trading of goods [ Trading is also ‘exempted services ‘ under Rule 2(e) ].

1,40,000

Total of (a) to (i) above Less : CENVAT Credit of common inputs and input services.

35,97,500 25,00,000

Net sum payable through electronic banking 10,97,500

OPTION 2: FORMULA BASED (PROPORTIONATE) REVERSAL FOR INPUTS AND INPUT SERVICES [Rule 6(3A)]:

Pay an amount as determined under rule 6(3A):

T

The manufacturer of final products or the provider of output service shall determine the credit required to be paid, out of this total credit of inputs and input services taken during the month, denoted as T, in the following sequential steps and provisionally pay every month, the amounts determined under sub-clauses (i) and (iv), namely:

A

i) the amount of CENVAT credit attributable to inputs and input services used – a) exclusively in or in relation to the manufacture of exempted goods removed; or b) for provision of exempted services, shall be called ineligible credit, denoted as A, and shall be paid;

B

ii) the amount of CENVAT credit attributable to inputs and input services used – a) exclusively in or in relation to the manufacture of non-exempted goods removed; or b) for the provision of non-exempted services, shall be called eligible credit, denoted as B, and shall not be required to be paid;

C

iii) credit left after attribution of credit under rule 6(3A)(b)(i)/(ii) shall be called common credit, denoted as C and calculated as,

C = T - (A + B); Explanation: Where the entire credit has been attributed under rule 6(3A)(b)(i)/(ii), namely ineligible credit or eligible credit, there shall be left no common credit for further attribution.

D

iv) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, - D = (F/F) x C; However, where no final products were manufactured or no output service was provided in the preceding financial year, the CENVAT credit attributable to ineligible common credit shall be deemed to be 50% of the common credit.

+−++

−

+

= )C(CreditCommonx

)F(yearfinancialpreceeding

theduringremovedgoodsexemptedofValueremovedgoods

exemptednonofvalueprovidedservicesexemptedofValue

providedservicesExemptednonofvalueoftotalsumThe)E(yearfinancialpreceeding

theduringremovedgoodsexemptedofValue

providedservicesexemptedofvalueoftotalsumThe

D.e.i

G

v) remainder of the common credit shall be called eligible common credit and denoted as G, where, G=C-D;



Explanation: For the removal of doubts, it is hereby declared that out of the total credit T, which is sum total of A, B, D, and G, the manufacturer or the provider of the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit. Interest @ 15% p.a. in case of delay in payment: Where manufacturer or the provider of the output service fails to pay the amount determined under sub-clause (i) or sub-clause (iv), he shall be liable to pay the interest from the due date of payment till the date of payment of such amount, at the rate of 15% per annum. T (Annual)

The manufacturer or the provider of output service shall determine the amount of CENVAT credit attributable to exempted goods removed and provision of exempted services for the whole of financial year, out of the total credit denoted as T (Annual) taken during the whole of financial year in the following manner, namely:-

A (Annual)

(i) The CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services on the basis of inputs and input services actually so used during the financial year, shall be called Annual ineligible credit and denoted as A (Annual);

B (Annual)

(ii) the CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non-exempted services on the basis of inputs and input services actually so used shall be called Annual eligible credit and denoted as B(Annual);

C (Annual)

(iii) common credit left for further attribution shall be denoted as C (Annual) and calculated as, - C (Annual) = T (Annual) - [A (Annual) + B (Annual)]

D (Annual)

(iv) common credit attributable towards exempted goods removed or for provision of exempted services shall be called Annual ineligible common credit, denoted by D (Annual) and shall be calculated as, - D (Annual) = (H/I) x C (Annual)

+−++−

+

= )Annual(Cx

)I(yearfinancialtheduringremovedgoodsexempted

ofvalueremovedgoodsexemptednonofValueprovidedservices

exemptedofvalueprovidedservicesexemptednonofValue)H(yearfinancialtheduringremovedgoodsexempted

ofValueprovidedservicesexemptedofValue

)Annual(D.e.i

Copyrights Reserved




The above provisions of sub rule (3A) has been summarized in the following diagram:

NEGR : Non exempted goods removed

EGR : Exempted goods removed

NES : Non exempted services

ES : Exempted service

I : Inputs

IS : Input Services

PFY : Preceding Financial Year

FY : Financial Year

SFY : Succeeding Financial Year

Manufacturer manufacturing NEGR+EGR OR

Output service provider providing NES+ES

Avail credit on ALL I + IS

T= Total monthly credit taken

A B C

Credit Attributable to I +IS used exclusively in manufacture of

EGR / provision of ES

Credit attributable to I +IS used exclusively in manufacture of

NEGR/ provision of NES

Remaining Credit = T-(A+B)

Common Credit

Ineligible credit Eligible credit

D G NOT TO BE PAID

Credit attributable to EGR/ ES

Remaining common credit = C-D

Eligible common credit

NOT TO BE PAID

D= E/F x C E= value of (ES+EGR) in PFY F= Value of (NES+ES+NEGR

+ EGR) in PFY

D = 50% of C, if no final products manufactured/ output service provided in PFY

Ineligible credit A D +

TO BE PAID

At the end of the year actual amounts of A + D will be computed for the whole year in the similar manner as described above by taking annual figures of T B & C and H [value of ES + EGR during the FY] & I [Value of NES + ES + NEGR + EGR during the FY] in place of E & F.

Shortfall, if any, will be paid by 30th June of the SFY failing which interest @ 15% will be payable from 30th June of SFY till the date of payment of such amount. Excess amount paid, if any, can be taken as credit. If the amount to be paid provisionally is not paid by the due date of payment, interest @ 15% will be payable from the due date of payment till the date of payment of such amount.



Procedural Compliances:

1. Intimation in writing to the Superintendent before exercising the option: For determination of amount required to be paid under Rule 6(3)(ii), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :-

The manufacturer of goods or the provider of output service shall intimate in writing to the

Superintendent of Central Excise giving the following particulars, namely :-

i) Name, address and registration number of the manufacturer of goods or provider of output service;

ii) Date from which the option under this clause is exercised or proposed to be exercised;

iii) Description of inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services and description of such exempted goods removed and such exempted services provided;

iv) Description of inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non-exempted services and description of such non-exempted goods removed and non-exempted services provided;

v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;

2. Payment of differential amount by 30th June of the financial year: The manufacturer or the provider of output service shall pay on or before the 30th June of the succeeding financial year, an amount equal to difference between the total of the amount of Annual ineligible credit and Annual ineligible common credit and the aggregate amount of ineligible credit and ineligible common credit for the period of whole year, namely, [{A (Annual) + D(Annual)} - {(A + D) aggregated for the whole year)}], where the former of the two amounts is greater than the later;

3. Interest @ 15% p.a. payable in case of delay in payment: Where the aforesaid amount is not paid by the 30th June of the succeeding financial year, the manufacturer of goods or the provider of output service, shall, in addition to the amount of credit so paid, be liable to pay on such amount an interest @ 15% p.a., from the 30th June of the succeeding financial year till the date of payment of such amount;

4. Re-credit in case provisional amount of CENVAT credit reversed is greater than actual amount to be reversed: The manufacturer or the provider of output service, shall at the end of the financial year, take credit of amount equal to difference between the total of the amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of the amount of annual ineligible credit and annual ineligible common credit, namely, [{(A + D) aggregated for the whole year)} – {A (Annual) + D (Annual)}], where the former of the two amounts is greater than the later;

5. Intimation to the Superintendent: The manufacturer of the goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of 15 days from the date of payment or adjustment, as above, the following particulars, namely :-

i) details of credit attributed towards eligible credit, ineligible credit, eligible common credit and ineligible common credit, month-wise, for the whole financial year, determined on provisional basis;

ii) CENVAT credit annually attributed to eligible credit, ineligible credit, eligible common credit and ineligible common credit for the whole of financial year, determined on actual basis;

iii) amount short paid along with the date of payment of the short-paid amount, i.e. if actual reversible is more than provisional reversal,

iv) interest payable and paid on such short paid amount; and

v) credit taken on account of excess payment with the date of taking the credit.



Illustration:-

M/s xyz & co. ltd., a manufacturer of dutiable as well as exempted goods and also a provider of taxable as well as exempted services, furnishes the following information

S. No Particulars Financial Year 15 – 16

For the month of April, 2016

1. Value of exempted goods removed @650 per unit 585 65 2. Value of non-exempted goods removed 400 50 3. Value of exempted services provided 250 30 4. Value of non - exempted services provided 500 60

The details of CENVAT credit during the month of April, 2016 are as under:

Particulars Rs.

1 Total CENVAT credit taken of inputs and inputs services 10,00,000

2 The amount of CENVAT credit attributable to input services used exclusively in the manufacture of exempted goods and for provisions of exempted services

4,00,000

3 The amount of CENVAT credit attributable to input services used exclusively in the manufacture of dutiable goods removed and provision of taxable services.

1,00,000

You are required to compute the provisional amount of proportionate credit reversible under rule 6(3A) of the CENVAT credit rules, 2004 for the month of April, 2016.

Total CENVAT credit taken of inputs and input services 10,00,000 Less: The amount of CENVAT credit attributable to inputs and input services used

exclusively in the manufacture of exempted goods and for provision of exempted services which shall be required to be paid. [A]

4,00,000

Less : The amount of CENVAT credit attributable to inputs and input services used exclusively in the manufacture of dutiable goods removed and provision of taxable services which shall not be required to be paid. [B]

1,00,000

Common credit [C] The amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid [D]

5,00,000

2,40634

Provisional CENVAT Credit reversible u/r 6(3A) for the month [A]+[D] 6,40,634

6. Failure to exercise option by manufacturer! service provider — Adjudicating authority may allow to follow the above procedure and require payment of prescribed amount along with interest calculated @ 15% p.a. [Rule 6(3AA)]: Where a manufacturer or a provider of output service has failed to exercise the option as above and follow prescribed procedure, the Central Excise Officer competent to adjudicate a case based on amount of CENVAT credit involved, may allow such manufacturer or provider of output service to follow the procedure and pay the amount calculated for each of the months along with interest calculated @ 15% p.a. from the due date for payment of amount for each of the month, till the date of payment thereof.

7. Transitional provision - Existing Rule 6 of CCR would continue to be in operation upto 30-06-2016, for the units who are required to discharge the obligation in respect of financial year 2015-16 [Rule 6(3AB)]: Assessee who has opted to pay an amount under Rule 6(3)(ii)/(iii) in the financial year 2015-16, shall pay the amount along with interest or take credit for the said financial year in terms of Rule 6(3A), as they prevail on the day of publication of this notification and for this purpose these provisions shall be deemed to be in existence till the 30th June, 2016.



Other aspects:

1. Option, once exercised, applies to all goods/services for that financial year [Explanation 1]: If the manufacturer of goods or the provider of output service, avails any of the option, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.

2. No credit on ineligible inputs/ services [Explanation 2]: No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

3. Clarification of Certain terms [Explanation 3]: For the purposes of Rule 6(3) and Rule 6(3A),- a) “Non-exempted goods removed” means the final products excluding exempted goods

manufactured and cleared upto the place of removal; b) “Exempted goods removed” means the exempted goods manufactured and cleared upto the

place of removal; c) “Non-exempted services” means the output services excluding exempted services.

4. Special provisions for reversal of CENVAT credit in case of banking company and a financial institution including a non-banking financial company- Reversal either on actual basis or of 50% credit taken each month [Rule 6(3B)]: A banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, in addition to options given in Rule 6(1), (2) and (3), shall have the option to pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month.

5. No CENVAT Credit on capital goods are used for the manufacture of exempted goods or provision of exempted service for 2 years from the date of commencement of commercial production or provision of service [Rule 6(4)] : No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services for a period of 2 years from the date of commencement of the commercial production or provision of services, as the case may be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made or services provided in a financial year.

Capital goods installed after the date of commencement of commercial production or provision of service - Period of 2 years to be reckoned from the date of installation: Where capital goods are received after the date of commencement of commercial production or provision of services, as the case may be, the period of two years shall be computed from the date of installation of such capital goods.

6. Non applicability of above provisions - i.e. entire CENVAT credit of duty/ tax paid on inputs/ input services/ capital goods will be allowed if goods cleared to SEZ, EHTP etc.: The provisions discussed above [sub-rules (1), (2), (3) and (4)] shall not be applicable,-

a) In case of manufacturer of excisable goods [Rule 6(6)] : if the excisable goods removed without payment of duty are either,

i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or

ii) cleared to a 100% export-oriented undertaking; or

iii) cleared to a limit in an Electronic Hardware Technology Park or Software Technology Park; or

iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under Notification No.108/95-CE; or

• supplied for the use of foreign diplomatic missions or consular missions or career consular offices- or diplomatic agents in terms of the provisions of Notification No. 12/2012-CE; or



v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or

vii) all goods, which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 and the additional duty leviable under section 3(1) of the said Customs Tariff Act, when imported into India and are supplied-

• against International Competitive Bidding; or

• to a power project from which power supply has been tied up through tariff based competitive bidding; or

• to a power project awarded to a developer through tariff based competitive bidding, in terms of Notification No. 12/2012-CE, dated 17-03-2012.

viii) Supplies made for setting up of solar power generation projects or facilities. ix) Ethanol produced from molasses generated from cane crushed in the sugar Season 2015-

16 i.e. 1st October, 2015 onwards, for supply to the public sector oil marketing companies, namely, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. or Bharat Petroleum Corporation Ltd., for the purposes of blending with petrol, in terms of the provisions of S.No. 40A of the Table in Notification No.12/2012-CE, dated 17-03-2012, number G.S.R. 163(E), dated 17-03-2012.

b) In case of provider of taxable services [Rule 6(7)] : If the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorized operations or when a service is exported or when a service is provided or agreed to be provided by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India.

As per Rule 6(8), for the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when, -

i) The service is exported as given under Rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and

ii) Such payment has not been received for a period of six months or such extended period, as may be allowed from time-to-time by the Reserve Bank of India, from the date of provision.

However, if such payment is received after -

• the specified or extended period allowed by the Reserve Bank of India,

• but within one year from such period,

The service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub-rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.


a) Rule 7:- Total Rule 7 Is Re-Drafted, the amended rule 7 is as follows:

The following are the provisions, in brief, relating to Input Service Distributor:

1. Definition (Rule 2(m) of the CENVAT Credit Rules, 2004): “Input service distributor” means:

(i) An office of the manufacturer or producer of final products or provider of output service,

(ii) Which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchase of input services; and

(iii) Issues invoice, bill or, challan as the case may be;

(iv) For the purposes of distributing the credit of service tax paid on the said service;

(v) To such manufacturer or producer or provider or an outsourced manufacturing unit as the case may be;



2. Manner of distribution of credit by input service distributor [Rule 7 of CEWVAT Credit Rules, 2004]: The input service distributor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or unit providing output service or an outsourced manufacturing units, as defined in Explanation 4, subject to the following conditions, namely : —

(i) The credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;

(ii) The credit of service tax attributable as input service to a particular unit shall be distributed only to that unit;

(iii) The credit of service tax attributable as input service to more than one unit but not to all the units shall be distributed only amongst such units to which the input service is attributable and such distribution shall be pro rata on the basis of the turnover of such units, during the relevant period, to the total turnover of all such units to which such input service is attributable and which are operational in the current year, during the said relevant period;

(iv) the credit of service tax attributable as input service to all the units shall be distributed to all the units pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all the units, which are operational in the current year, during the said relevant period;

(v) outsourced manufacturing unit shall maintain separate account for input service credit received from each of the input service distributors and shall use it only for payment of duty on goods manufactured for the input service distributor concerned;

(vi) credit of service tax paid on input services, available with the input service distributor, as on 31-03-2016, shall not be transferred to any outsourced manufacturing unit and such credit shall be distributed amongst the units excluding the outsourced manufacturing units,

Explanation: The provision of this clause shall, mutatis-mutandis, apply to any outsourced manufacturer commencing production of goods on or after the 1’ of April, 2016;

(vii) Provisions of rule 6 shall apply to the units manufacturing goods or provider of output service and shall not apply to the input service distributor.

Unit: For the purposes of this rule, “unit” includes the premises of a provider of output service or the premises of a manufacturer including the factory, whether registered or otherwise or the premises of an outsourced manufacturing unit. (Explanation 1)

Total Turnover: For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.

The turnover of an outsourced manufacturing unit shall be the turnover of goods manufactured by such outsourced manufacturing unit for the input service distributor. (Explanation 2)

Relevant period - Month or Quarter: For the purposes of this rule, the ‘relevant period’ shall be,-

a) If the assessee has turnover in the ‘financial year’ preceding to the year during which credit is to be distributed for month or quarter, as the case maybe, the said financial year; or;

b) If the assessee does not have turn over for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed. (Explanation 3)

Outsourced manufacturing unit : For the purposes of this rule, “outsourced manufacturing unit” means a job-worker who is liable to pay duty on the value determined under rule 1OA of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 on the goods manufactured for the input service distributor or a manufacturer who manufactures goods, for the input service distributor under a contract, bearing the brand name of such input service distributor and is liable to pay duty on the value determined under section 4A of the Excise Act. (Explanation 4)



b) Rule 7B:-

A new rule 7B has been inserted to prescribe the provisions relating to “Distribution of credit on inputs by warehouse of manufacturer”. [Rule 7B] [Inserted by Notification No.13/2016-CE (N.T.) dated 1-3-2016 w.e.f. 1-4-2016]:

1. A manufacturer having one or more Factories, Shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, who receives inputs under cover of documents specified under Rule-9, towards the purchase of such inputs.

2. Provisions of First Stage Dealer/Second stage dealer to be applicable: The Provisions of these rules made under the Excise Act as applicable to a first stage dealer or Second stage dealer, shall, mutatis mutandis, apply to such warehouse of the manufacturer.

AMENDMENTS RELATING TO RULE 9

a) Rule 9(1)(a)(i):-

Invoice issued by a service provider for clearance of inputs/capital goods also to be an eligible document

Before amendment After Amendment

only an invoice issued by a manufacturer for clearance of inputs or capitals goods could be a valid document for availing CENVAT credit

under rule 9(1)(a)(i).

Rule 9(1)(a)(i) has been amended to provide that an invoice issued by manufacturer or a service provider for clearance of inputs or capitals goods will also be a valid document for availing CENVAT credit.

b) Rule 9(1)(d):- Certificate issued by an Appraiser of Customs to be a valid document under rule 9 for goods imported through authorised courier

Before Amendment After Amendment

Prior to 31.12.2015, certificate issued by an appraiser of customs was a valid document for availing credit in respect of goods imported through a Foreign Post Office in terms of rule 9(1)(d).

the amended Rule 9(1)(d) is to provide that a certificate issued by an appraiser of customs will also be a valid document for availing CENVAT credit in respect of goods imported through an authorized courier registered with the Principal Commissioner of Customs or the Commissioner of Customs in-charge of the customs airport.

c) Rule 9(4): Provisions applicable to first/second stage dealer regarding maintenance of records to be able to pass on the credit, to apply to an importer issuing CENVATable invoice [Rule 9(4)]: Credit on goods purchased from first stage / second stage dealer: Sub-rule (4) lays down that the CENVAT credit in respect of inputs or capital goods purchased from a first stage dealer or second stage dealer shall be allowed only if-

a) Such first stage dealer/second stage dealer has maintained records indicating the fact that the input or capital goods was supplied from the stock on which duty was paid by the producer of such input or capital goods; and

b) Only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.

Note: The provisions of this sub-rule will apply to an importer who issues an invoice on which CENVAT credit can be taken. [Effective from 01.03.2015]



Verified by: Narasimhulu Sir, Samba siva Sir

Pavan Sir, Raja Shekar Sir

Executed By: Srinivas Sir

THE END

Some important circulars issued by CBEC:-

Circular No. 1027/15/2016-CX, dated

25-4-2016

The CBEC has clarified that Bagasse, Dross and Skimmings of non-ferrous metals or any such byproduct or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of the CENVAT Credit Rules, 2004.

Copyrights Reserved


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