CA Amit Jain: 2009

Saturday, December 12, 2009

Good House - Tips

At a time when real estate prices are on the rise, these red flags can be a hindrance.
1. Your main door
Although the main door isn't inside your house, it pretty much gives the first impression of what lies beyond. Surely, you don't need to be Einstein to figure out the importance of having a well-maintained main door. Interior designer Arbasys Ashley says that cleaning doors -- unless they have a zillion stickers of the gods of the world on it -- is the simplest thing to do. "If it's a wooden door, wipe it regularly with a dry cloth. Laminate or PU coated doors can be wiped with semi-wet cloth. That'll help the design looking fresh," he says. It is also important to ensure that you put a thought in designing your main door because first impressions are the ones that last the longest.
2. Clutter when the prospective buyer comes to visit
Even a large house tends to look smaller when cluttered. It's one thing if you like living that way. But chances are that the person coming to buy it does not look at things the way you do. So if you're hoping to sell your house, the first thing you must do is to clear the clutter. Throw away the things you don't require. Stack away the stuff you won't be needing anytime soon and keep only your bare essentials out. Anyway you're selling the house so why keep things for the last moment?
If you are one of those who like things to be in place right from day one, Arbasys suggests you mark out the requirements of storage carefully with your architect. "It ensures that there is definite storage space for everything and all the clutter is well hidden. Avoid clutter even in respect to artefacts. If you cannot display a certain piece, don't! Keep thing to the basic minimum and understated; it makes the place look classy. A home in order makes a large impact to a prospective buyer," he says.
3. Unclean kitchens
Surprising as it may sound, kitchen is the one room that requires the maximum attention in terms of designing. It is also the only 'room' in the house that has a water connection. So trust us when we say maintaining a kitchen can be quite a task. Leaking sinks and walls smeared with your last cooking experiment should be fixed immediately. Owners who give out homes on rent have often had to deal with unclean and terribly maintained kitchens. When you rent out that extra home of yours make sure you give it to the right persons rather than simply looking at the money that will come as rent. Unclean kitchens are huge red flags. It's where the lady of the house spends a lot of time. And if you fail to impress the lady there are little chances the man will go ahead with the deal.
4. Children's graffiti over the walls
Unless you're planning to be a DINK (Double Income No Kids) couple, we'd suggest you take real good care of your walls. Sure kids can be sweet. Heck they are very adorable. But boy don't you hate them when they spoil the wall you spent 20k on?
Not only does kids graffiti look shabby when you're hosting a party, it does not score any brownie points when someone comes over to buy your house. There are two ways of ensuring the safety of your walls -- one is trying to discipline the children and giving them just one wall to display their artistic talents. The other is to take Arbasys' advice and simply cladding a wall with a wipe board so they can fun doing their graffiti and you can wipe it clean when someone drops over.
5. Unclean loos
This one's another major red flag. It shows lack of hygiene but more importantly it is such an assault on your visual senses it's not funny.
Rashmi Deshpande recounts an incident that put her off so much she refused to see another flat in the same building. "I am quite a stickler for cleanliness. And I'm particularly keen on keeping my loo and kitchen area dry. The kitchen had not put me off so much as much as the loo did. There was a good amount of leakage and to say the pot was unclean would be an understatement," she says.
Broker Rekha Mehta, a real estate consultant in Thane says that many owners who rent out their flats to single men face this issue. "Bachelors take little efforts to keep the house clean. Kitchen and loos are the worst maintained in most bachelor pads. That's one of the primary reasons why people avoid renting out their houses to single men."
While we do agree with most of what Mehta says, we think it'd be somewhat unfair to label all single men as messy, unclean people. It would help though, if you do a background check on your prospective tenant before you let him/her live there.
Talk to their previous landlords/ladies and ask them how they were to deal with. That way you know your house will be in safe hands and chances are you won't be sweating over the poorly maintained loo and kitchen while selling it off.
6. The satsang in your neighbour's house
Being religious is okay. But what happens when your neighbour's bhajans become a nuisance? There is no way you can ask them to shut up without raising a controversy in the building. It is pertinent that you bring it to their notice and if they don't relent, the society. CA Cardoz, a secretary of a housing society says that they have a blanket ban on late night music -- religious or otherwise. "We have quite a few senior citizens in the building. So no one is allowed to play loud music beyond a certain time."
7. The building's stairwell
The house may be out of the world. But if the approach to it is less than flattering, chances are that the buyer may chicken out, especially if he is Marc Billimoria a sales manager at a prominent bank.
After looking at the flat, Marc takes the stairs. According to him the stairwell is always a good yardstick to measuring how well maintained a society is. "There have been times when I have loved the house and the view from it but the stairwell is cluttered with garbage bags, beer bottles, unused pieces of furniture and what not. It puts me off because it showed that the callousness of the society members," he says.
Marc agrees that it might be a small thing and young professionals like him rarely spend much time in the house any way. "But the callousness can and usually does extend beyond the stairwell to fixing leakage problems or water shortage issues," he says.
8. The documents not in order
It's one thing if you lose your mark sheet and a completely different story if you cannot find your property papers. Paying stamp duty and registration fees is not an option; it's a rule.
Ensure you've got these two things out of the way when you've bought a property. Vikas Sakpal who recently sold his house in Andheri learnt it the hard way. "We have purchased this place many years ago and were told that it was okay if we paid a part of the stamp duty. We ended up paying a couple of lakh rupees as fine and other charges. That was a huge dent in my pocket," he recollects.
In case of a resale property, insist on seeing the originals of what is called 'chain documents' (papers of ALL the past owners) before making any token payment. Also ensure that the share certificate of the society is in the name of the buyer and no one else.
9. YOU!
It's important that you carry yourself appropriately while approaching the prospective buyer. Rekha Mehta says that she's seen quite a few deals falling through because the owner decided to be a pain.
She says, "One of my clients had liked a house so much, he had given in to almost every demand that the owner was making. The negotiations were in an advanced stage and the buyer was carrying considerable money as a token amount.
But the owner walked in to my office, shabbily dressed, unshaven and listed out a new set of demands. The buyer flinched at first but gave in because he wanted the house desperately. In fact he was even willing to pay more than what was agreed upon earlier.
The final nail in the coffin was when he told the buyer he couldn't move out for the next six months!"
You might think of it as a silly old saying but honesty is indeed the best policy. It is important to be transparent at all times. Also when a buyer approaches you, ensure you're well dressed and carry yourself in an appropriate manner. Think of it as a job interview where the impression you make on the opposite person is crucial. You don't need to lay all your cards on the table. But basic information must be given out to avoid any complications.

Thanks to _____ Rediff.com

Exempt income

Income Tax – Exempt Income
In a few months' time the taxman will coming knocking on your door. However, he cannot tax you on the following 14 important items of income and receipts, as they are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.
1. Agricultural income
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.
Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:
Illustration
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income: Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab): Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10%: Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000): Rs 200
2. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).
3. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).
This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
4. Gratuities
Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.
The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
5. Commutation of pension
The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.
However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely:
(a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
6. Leave salary of central government employees
Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
7. Voluntary retirement or separation payment
Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.
The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
8. Life insurance receipts
Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
9. Payment received from provident funds
Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
10. Certain types of interest payment
There are certain types of interest payments which are fully exempt from income tax u/s 10(15). These are described below:
(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified, and
(viii) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(ix) Stipulated new tax free bonds to be notified from time to time.
11. Dividends on shares and units - Section 10(34) & (35)
With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.
12. Long-term capital gains of transfer of securities - Section 10(38)
With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.
Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.
This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
13. Amount received by way of gift, etc - Section 10(39)
As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative, etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.
Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)
Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards

EXCEL TIPS

CTRL+( Unhides any hidden rows within the selection.
CTRL+) Unhides any hidden columns within the selection.
CTRL+& Applies the outline border to the selected cells.
CTRL+_ Removes the outline border from the selected cells.
CTRL+~ Applies the General number format.
CTRL+$ Applies the Currency format with two decimal places (negative numbers in parentheses).
CTRL+% Applies the Percentage format with no decimal places.
CTRL+^ Applies the Exponential number format with two decimal places.
CTRL+# Applies the Date format with the day, month, and year.
CTRL+@ Applies the Time format with the hour and minute, and AM or PM.
CTRL+! Applies the Number format with two decimal places, thousands separator, and minus sign (-) for negative values.
CTRL+- Displays the Delete dialog box to delete the selected cells.
CTRL+* Selects the current region around the active cell (the data area enclosed by blank rows and blank columns).In a PivotTable, it selects the entire PivotTable report.
CTRL+: Enters the current time.
CTRL+; Enters the current date.
CTRL+` Alternates between displaying cell values and displaying formulas in the worksheet.
CTRL+’ Copies a formula from the cell above the active cell into the cell or the Formula Bar.
CTRL+” Copies the value from the cell above the active cell into the cell or the Formula Bar.
CTRL++ Displays the Insert dialog box to insert blank cells.
CTRL+1 Displays the Format Cells dialog box.
CTRL+2 Applies or removes bold formatting.
CTRL+3 Applies or removes italic formatting.
CTRL+4 Applies or removes underlining.
CTRL+5 Applies or removes strikethrough.
CTRL+6 Alternates between hiding objects, displaying objects, and displaying placeholders for objects.
CTRL+7 Displays or hides the Standard toolbar.
CTRL+8 Displays or hides the outline symbols.
CTRL+9 Hides the selected rows.
CTRL+0 Hides the selected columns.
CTRL+A Selects the entire worksheet.If the worksheet contains data, CTRL+A selects the current region. Pressing CTRL+A a second time selects the entire worksheet.When the insertion point is to the right of a function name in a formula, displays the Function Arguments dialog box.CTRL+SHIFT+A inserts the argument names and parentheses when the insertion point is to the right of a function name in a formula.
CTRL+B Applies or removes bold formatting.
CTRL+C Copies the selected cells.CTRL+C followed by another CTRL+C displays the Microsoft Office Clipboard.
CTRL+D Uses the Fill Down command to copy the contents and format of the topmost cell of a selected range into the cells below.
CTRL+F Displays the Find dialog box.SHIFT+F5 also displays this dialog box, while SHIFT+F4 repeats the last Find action.
CTRL+G Displays the Go To dialog box.F5 also displays this dialog box.
CTRL+H Displays the Find and Replace dialog box.
CTRL+I Applies or removes italic formatting.
CTRL+K Displays the Insert Hyperlink dialog box for new hyperlinks or the Edit Hyperlink dialog box for selected existing hyperlinks.
CTRL+L Displays the Create List dialog box.
CTRL+N Creates a new, blank file.
CTRL+O Displays the Open dialog box to open or find a file.CTRL+SHIFT+O selects all cells that contain comments.
CTRL+P Displays the Print dialog box.
CTRL+R Uses the Fill Right command to copy the contents and format of the leftmost cell of a selected range into the cells to the right.
CTRL+S Saves the active file with its current file name, location, and file format.
CTRL+U Applies or removes underlining.
CTRL+V Inserts the contents of the Clipboard at the insertion point and replaces any selection. Available only after you cut or copied an object, text, or cell contents.
CTRL+W Closes the selected workbook window.
CTRL+X Cuts the selected cells.
CTRL+Y Repeats the last command or action, if possible.
CTRL+Z Uses the Undo command to reverse the last command or to delete the last entry you typed.CTRL+SHIFT+Z uses the Undo or Redo command to reverse or restore the last automatic correction when AutoCorrect Smart Tags are displayed.

F1 Displays the Help task pane.CTRL+F1 closes and reopens the current task pane.ALT+F1 creates a chart of the data in the current range.ALT+SHIFT+F1 inserts a new worksheet.
F2 Edits the active cell and positions the insertion point at the end of the cell contents. It also moves the insertion point into the Formula Bar when editing in a cell is turned off.SHIFT+F2 edits a cell comment.
F3 Pastes a defined name into a formula.SHIFT+F3 displays the Insert Function dialog box.
F4 Repeats the last command or action, if possible.CTRL+F4 closes the selected workbook window.
F5 Displays the Go To dialog box.CTRL+F5 restores the window size of the selected workbook window.
F6 Switches to the next pane in a worksheet that has been split (Window menu, Split command).SHIFT+F6 switches to the previous pane in a worksheet that has been split.CTRL+F6 switches to the next workbook window when more than one workbook window is open.Note When the task pane is visible, F6 and SHIFT+F6 include that pane when switching between panes.
F7 Displays the Spelling dialog box to check spelling in the active worksheet or selected range.CTRL+F7 performs the Move command on the workbook window when it is not maximized. Use the arrow keys to move the window, and when finished press ESC.
F8 Turns extend mode on or off. In extend mode, EXT appears in the status line, and the arrow keys extend the selection.SHIFT+F8 enables you to add a non-adjacent cell or range to a selection of cells by using the arrow keys.CTRL+F8 performs the Size command (on the Control menu for the workbook window) when a workbook is not maximized.ALT+F8 displays the Macro dialog box to run, edit, or delete a macro.
F9 Calculates all worksheets in all open workbooks.F9 followed by ENTER (or followed by CTRL+SHIFT+ENTER for array formulas) calculates the selected a portion of a formula and replaces the selected portion with the calculated value.SHIFT+F9 calculates the active worksheet.CTRL+ALT+F9 calculates all worksheets in all open workbooks, regardless of whether they have changed since the last calculation.CTRL+ALT+SHIFT+F9 rechecks dependent formulas, and then calculates all cells in all open workbooks, including cells not marked as needing to be calculated.CTRL+F9 minimizes a workbook window to an icon.
F10 Selects the menu bar or closes an open menu and submenu at the same time.SHIFT+F10 displays the shortcut menu for a selected item.ALT+SHIFT+F10 displays the menu or message for a smart tag. If more than one smart tag is present, it switches to the next smart tag and displays its menu or message.CTRL+F10 maximizes or restores the selected workbook window.
F11 Creates a chart of the data in the current range.SHIFT+F11 inserts a new worksheet.ALT+F11 opens the Visual Basic Editor, in which you can create a macro by using Visual Basic for Applications (VBA).ALT+SHIFT+F11 opens the Microsoft Script Editor, where you can add text, edit HTML tags, and modify any script code.
F12 Displays the Save As dialog box.

ARROW KEYS Move one cell up, down, left, or right in a worksheet.CTRL+ARROW KEY moves to the edge of the current data region (data region: A range of cells that contains data and that is bounded by empty cells or datasheet borders.) in a worksheet.SHIFT+ARROW KEY extends the selection of cells by one cell.CTRL+SHIFT+ARROW KEY extends the selection of cells to the last nonblank cell in the same column or row as the active cell.LEFT ARROW or RIGHT ARROW selects the menu to the left or right when a menu is visible. When a submenu is open, these arrow keys switch between the main menu and the submenu.DOWN ARROW or UP ARROW selects the next or previous command when a menu or submenu is open.In a dialog box, arrow keys move between options in an open drop-down list, or between options in a group of options.

ALT+DOWN ARROW opens a selected drop-down list.

BACKSPACE Deletes one character to the left in the Formula Bar.Also clears the content of the active cell.

DELETE Removes the cell contents (data and formulas) from selected cells without affecting cell formats or comments.In cell editing mode, it deletes the character to the right of the insertion point.

END Moves to the cell in the lower-right corner of the window when SCROLL LOCK is turned on.Also selects the last command on the menu when a menu or submenu is visible.CTRL+END moves to the last cell on a worksheet, in the lowest used row of the rightmost used column.CTRL+SHIFT+END extends the selection of cells to the last used cell on the worksheet (lower-right corner).

ENTER Completes a cell entry from the cell or the Formula Bar, and selects the cell below (by default).In a data form, it moves to the first field in the next record.Opens a selected menu (press F10 to activate the menu bar) or performs the action for a selected command.In a dialog box, it performs the action for the default command button in the dialog box (the button with the bold outline, often the OK button).ALT+ENTER starts a new line in the same cell.CTRL+ENTER fills the selected cell range with the current entry.SHIFT+ENTER completes a cell entry and selects the cell above.

ESC Cancels an entry in the cell or Formula Bar.It also closes an open menu or submenu, dialog box, or message window.

HOME Moves to the beginning of a row in a worksheet.Moves to the cell in the upper-left corner of the window when SCROLL LOCK is turned on.Selects the first command on the menu when a menu or submenu is visible.CTRL+HOME moves to the beginning of a worksheet.CTRL+SHIFT+HOME extends the selection of cells to the beginning of the worksheet.

PAGE DOWN Moves one screen down in a worksheet.ALT+PAGE DOWN moves one screen to the right in a worksheet.CTRL+PAGE DOWN moves to the next sheet in a workbook.CTRL+SHIFT+PAGE DOWN selects the current and next sheet in a workbook.

PAGE UP Moves one screen up in a worksheet.ALT+PAGE UP moves one screen to the left in a worksheet.CTRL+PAGE UP moves to the previous sheet in a workbook.CTRL+SHIFT+PAGE UP selects the current and previous sheet in a workbook.

TAB Moves one cell to the right in a worksheet.Moves between unlocked cells in a protected worksheet.Moves to the next option or option group in a dialog box.SHIFT+TAB moves to the previous cell in a worksheet or the previous option in a dialog box.CTRL+TAB switches to the next tab in dialog box.CTRL+SHIFT+TAB switches to the previous tab in a dialog box.

Deduction for FY 2010-11

During the last few months of a financial year you see people making last moment impulse decisions to invest in tax saving instruments and in the process they may end up buying products which are not right for them. Tax planning should be done a few months in advance as it gives you ample time to understand and evaluate different options that are specific to your financial situation. Start your tax planning now for Assessment Year 2010-11.
Here are some simple tips for planning your taxes this financial year:
I. Utilise Income Tax exemptions
Section 80C
This is the most popular exemption as you can claim up to Rs. 1 lakh in deductions. The options include Employee Provident Fund (EPF), Public Provident Fund (PPF)- up to Rs.70,000 per annum, National Savings Certificate (NSC), 5-year bank fixed deposits, Life insurance policies, Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), school fees, and home loan principal repayment. For making investments in this section you will have to decide on the ideal debt vs. equity mix that is right for you based on your age, risk-return profile and goals.
Section 80D
If you have taken a medical insurance plan for yourself, your spouse, dependant parents or children, you can claim deductions up to Rs 15,000 (and additional Rs 15,000 for your parents' medical insurance) under Section 80D for the premiums paid. The limit now has been enhanced to Rs 20,000 for senior citizens on the condition that the premium is paid via cheque.
Section 80DD
Expenses on the medical treatment of a dependent with a disability qualifies for tax benefits under Section 80DD. In this case, deductions up to Rs 50,000 or 75.000 can be claimed based on the severity.
The interest component of your home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakhs a year in case of a self-occupied house.
The claim can be made even on loans taken for repair, renewal or reconstruction of an existing property.
Shuffling is a popular strategy used by ELSS investors which have a mandatory lock-in of 3 years. If you have been investing Rs 50,000 for the past few years and don't have cash to invest this year, you can easily redeem investments made 3 years ago and re-invest that amount this year to claim the benefits.
You will not have to pay any long term capital gains since you will be redeeming after more than a year. Thus you can enjoy tax benefits without making any fresh investments. Only risk is that the NAV can go up or down in the shuffle process and you may end up making a small profit or loss.
Some fund houses allow switch option for tax benefits. Let's say an investor with previous ELSS investments doesn't have money to make further investment in the current financial year 2008.
He could consider switching it to a liquid fund and back into the ELSS fund within a short span of time like 10-15 days to enjoy the tax benefits.
While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax. You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act.
The rate of deduction is either 50 or 100 per cent, depending on the choice of the charity fund. There is no restriction on the amount given to charity. However, donations must be made only to specified trusts and also only donations of up to 10 per cent of your total income qualify for such a deduction.
Remember to get receipts whenever you make any charitable donation. Please remember that tax exemption is only an added advantage of charity and it should not be the primary reason for doing so.
Normally, if you invest in your wife's or child's name, the income generated from such investments will be clubbed with your income and taxed accordingly. However, if you transfer money through a deed to a child who is over 18 years of age and invest in his name, then the income generated from such investment will not be clubbed with your income. Instead, that will be clubbed with the income of your child/wife and taxed accordingly.
Cash gifts received from specified relatives are exempt from income tax and there is no upper limit. Similarly, cash gifts of any amount and from anyone received during your child birth, marriage or any other specified event are totally tax-free. However, any cash received from a non-relative where the value is in excess of Rs 50,000 in a particular year will be considered as income in the hands of the recipient.
You should make sure that you have a record & valid receipts for all tax savings investments made in your name. You do not want to be running around at the last minute collecting all the documents required for tax filing.
In a nutshell remember the following:
Combine your tax planning with your financial plan so that the products you invest in match your risk profile and your future goals
A home loan is not necessarily a bad debt. Consider getting a loan while buying a home.
Charity is good- not only for the receiver, but the giver as well; Check on the validity and receipts before you claim that deduction u/s 80G
Take advantage of the tax breaks that the IT sections 80C, 80D and 80DD offer.
Insuring oneself makes sense- as the premium is exempt u/s 80C (upto 1 lakh) and the maturity amount is tax free
By taking medical insurance, you not only insure your family against medical expenses, you also get a tax deduction u/s 80D- so take that cover today!
File your taxes on time!

Monday, September 21, 2009

Top Mutual fund with web-site addresses.

Friday, August 7, 2009

KNOW YOUR PAN STRUCTURE

What is PAN?
Permanent Account Number (PAN) is a ten-digit alphanumeric identifier, issued by Income Tax Department. Each assessee (e.g. individual, firm, company etc.) is issued a unique PAN.
1-5 field are alpha(A to Z) 6-9 field are numeric(0-9) 10 field is alpha(A-Z)
Forth field of pan denotes assessee status :
for individual="P"
for Company="C"
for Trust ="T"
for partnership firm="F"
Body of Individual:"B"
Association of persons:"A"
HUF="H"
Local authority:"L"
Govt.="G"
judicial artificial person:"j"
2.Fifth field of PAN denotes NAME
In case of individual: Surname/last name(as given in pan application)
for ex. in case of Amit Kumar(individual)
5th field will be "K"
4th field will be "P"
In case of Amit Kumar Jain(Individual)
5th field will be "J"
4th field will be "P"
In case of All Other Assesees (not confirmed for all the assessee)
5th field will be first letter of Name/first Name
for ex : In case of Suresh Jindal (HUF)(confirmed)
5th field will be "S"(first letter of First name i.e Suresh)
4th field will be "H"(for Huf)
for ex: in case of ABB LTD(confirmed)
5th field will be "A"(first letter of First name)
4th field will be "C"(for company)

thanks to web-sites from where i gathered the information.

Monday, July 13, 2009

7 reasons why wife must know about finances

Thanks to Rediff.com

Are you the person in the family with the sole responsibility of maintaining the household finances? Is your spouse completely oblivious of what's happening?
God forbid, but what if for some reason you can no longer manage the budget? Or what if you're just tired of managing everything yourself, and want your partner to become more involved in your household's finances? How do you teach her everything you know?
This is the time to sit down and stress on the importance of your partner needing to be aware of all important financial information. This may not be the most entertaining of activities, but it is the key to taking the best possible care of one of the most important people in your life.
1. Make a list of everything and where they are located
While you may be an open book for each other, don't assume your other half possesses the intuition to know where you keep sensitive information.
While you may think your filing system is the most organized one that one can ever come across, and that your financial records are in a pretty obvious location, your partner may not think so.
So what is the first thing you should do? Present your partner with a list of logins, passwords of all of your accounts making it easy to see everything that needs to be addressed. Keep it of course in a safe and secure location.
2. Discuss transparency regarding investment info, emergency funds and bank accounts
Your partner may be under the false impression that not knowing the details of your family finances will reduce stress.
That's not the case. Explain to him/her that sharing knowledge and responsibility for your financial life reduces stress as it makes you ready for any situation that may arise when one is unable to operate.
In times of emergency like a long absence or medical emergency or death - this info then becomes the most important thing.
3. Awareness of all financial dealings is a must
Your partner should know all your financial dealings so that there are no rude surprises. So sit down and review your financial situation together - cash in the bank, investments, equity in your home, mortgages, credit card debt, and any other liabilities you may have. Review your budget together.
Being aware of all financial dealings has a couple of benefits. First, you make better decisions when you collaborate.
Second, you share responsibility for the outcomes -- good and bad -- which means that he/she is never in the dark about where you stand. And this eliminates a lot of the tension that inevitably results when one party knows a lot less than the other.
4. Have your partner watch you handle the finances
Educate your partner on how to handle finances. Let him or her watch and learn.
Explaining things is helpful, and written instructions/checklists/spreadsheets are even better, but nothing beats sitting down with your partner and talking through actually managing the finances.
Let your partner observe the process while you explain it, and then have him or her practice it with your help and guidance.
5. Gradually give your partner some financial responsibility
If your partner hasn't handled the money at all, start off with a small, manageable task - preferably one with low stakes. As he or she becomes more adept, give additional tasks to manage.
Eventually, have your partner handle all the finances for one month (with your supervision, of course). Then, try switching off months, with your partner handling the finances every other month until you both feel completely comfortable.
6. Discuss contingency plans
Make sure your partner knows what you would do in an emergency or unplanned financial event. Don't keep it conceptual - discuss actual, concrete strategies to handle unplanned events.
If there is a sudden loss of income, which bills would need to be prioritized, and which expenses could be reduced or dropped altogether? What are your savings priorities? If there is an accident which account do you access before you get benefits from your insurance? Is there any charity to which you would donate a significant sum?
On a lighter note, if you win a lottery (the ticket of which you have just bought with his/ her consent) which debts do you clear?
7. Maintain a household budget
You may not be the type who needs to write everything down to successfully manage your money, but a budget is an excellent way to give your partner a big-picture idea of all the money in play - the income, the debts, the recurring expenses, the investments and so on.
It can also help your partner pick up where you left off in managing the household's finances if you die or become incapacitated.
So, start encouraging him/her to start making a budget plan. Soon you will find that both of you are enjoying it and life is becoming a real partnership.

Thanks to Rediff.com

Wednesday, May 13, 2009

Boss and I

My Boss & I.
When I take a long time; I am slow.
When my boss taking a long time; He is through.

When I don’t do it; I am lazy.
When my boss doesn’t do it; He is too busy.

When I do something without being told; I am trying to be smart.
When my boss does the same; That is initiative.

When I please my boss by giving an apple; I am polishing
When my boss please his boss; He’s co-operating.

When I do well;my boss never remembers.
When I do wrong; he never forgets.

When I make a mistake; I am an idiot.
When my boss makes a mistake; he's only human.

When I am out of the office; I am wandering around.
When my boss is out of the office; he's on business.

When I am on a day off sick; I am always sick.
When my boss is a day off sick; he must be very ill.

When I apply for leave; I must be going for an interview.
When my boss applies for leave; it's because he's overworked.

Friday, May 1, 2009

Useful weblinks

Excel Utilities :- http://www.powerutilsnet.com/default.htm
Excel Utilities:- http://www.asap-utilities.com/download-asap-utilities.php

Convert File to PDF:- http://www.primopdf.com/

DGFT http://dgft.delhi.nic.in/
Company Law http://dateyvs.com
Bare Acts http://indiacode.nic.in
foreign investment and agreements http://dipp.nic.in
ca,cs,cwa,ll.b proffessionals http://www.feeleminds.com
directory http://www.thefreedictionary.com
longest things http://thelongestlistofthelongeststuffatthelongestdomainnameatlonglast.com
consumer complaint http://www.consumercomplaints.in
Superannuation Bye-Laws http://www.icfre.gov.in
LAND RECORDS OF VILLAGE http://bhulekh.up.nic.in
legal query http://www.lawguru.com
Site same as feeleminds http://www.citehr.com
search engine http://www.cuil.com
small / micro scale units http://www.laghu-udyog.com
industry ministry website http://indmin.nic.in
MSME Act, 2006 http://msme.gov.in
Company Law matters www.yourcompanysecretary.com
NIC Code 1987 http://siadipp.nic.in/policy/nic/nic.htm
typing in hindi http://www.google.com/transliterate/indic/
bare Acts http://www.india.gov.in/govt/acts.php
Patent/Trademark official website http://www.patentoffice.nic.in
Voter list & other related details http://ceodelhi.nic.in
NIC official website http://nicregistry.nic.in
Takeover code http://www.takeovercode.com
Authority for Advance ruling http://aar.gov.in

Officil wesite of Trade Mark Registery http://ipindia.nic.in
Online Dictionary http://dictionary.reference.com

Wednesday, April 29, 2009

Currencies of the World

Currencies of the World
ISO-4217 currency codes are provided along with commonly used symbols. Clicking on the name of a currency redirects you to the corresponding Wikipedia entry. Last updated: May 1, 2008.
Country Currency ISO-4217 Symbol
A
Afghanistan Afghan afghani AFN
Albania Albanian lek ALL
Algeria Algerian dinar DZD
American Samoa see United States
Andorra see Spain and France
Angola Angolan kwanza AOA
Anguilla East Caribbean dollar XCD EC$
Antigua and Barbuda East Caribbean dollar XCD EC$
Argentina Argentine peso ARS
Armenia Armenian dram AMD
Aruba Aruban florin AWG ƒ
Australia Australian dollar AUD $
Austria European euro EUR €
Azerbaijan Azerbaijani manat AZN
Bahamas Bahamian dollar BSD B$
Bahrain Bahraini dinar BHD
Bangladesh Bangladeshi taka BDT
Barbados Barbadian dollar BBD Bds$
Belarus Belarusian ruble BYR Br
Belgium European euro EUR €
Belize Belize dollarBZD BZ$
Benin West African CFA franc XOF CFA
Bermuda Bermudian dollar BMD BD$
Bhutan Bhutanese ngultrum BTN Nu.
Bolivia Bolivian boliviano BOB Bs.
Bosnia-Herzegovina Bosnia and Herzegovina konvertibilna marka BAM KM
Botswana Botswana pula BWP P
Brazil Brazilian real BRL R$
British Indian Ocean Territory see United Kingdom
Brunei Brunei dollar BND B$
Bulgaria Bulgarian lev BGN
Burkina Faso West African CFA franc XOF CFA
Burma see Myanmar
Burundi Burundi franc BIF FBu
Cambodia Cambodian riel KHR
Cameroon Central African CFA franc XAF CFA
Canada Canadian dollar CAD $
Canton and Enderbury Islands see Kiribati
Cape Verde Cape Verdean escudo CVE Esc
Cayman Islands Cayman Islands dollar KYD KY$
Central African Republic Central African CFA franc XAF CFA
Chad Central African CFA franc XAF CFA
Chile Chilean peso CLP $
China Chinese renminbi CNY ¥
Christmas Island see Australia
Cocos (Keeling) Islands see Australia
Colombia Colombian peso COP Col$
Comoros Comorian franc KMF
Congo Central African CFA franc XAF CFA
Congo, Democratic Republic Congolese franc CDF F
Cook Islands see New Zealand
Costa Rica Costa Rican colon CRC ₡
Côte d'Ivoire West African CFA franc XOF CFA
Croatia Croatian kuna HRK kn
Cuba Cuban peso CUC $
Cyprus European euro EUR €
Czech Republic Czech koruna CZK Kč

Denmark Danish krone DKK Kr
Djibouti Djiboutian franc DJF Fdj
Dominica East Caribbean dollar XCD EC$
Dominican Republic Dominican peso DOP RD$
Dronning Maud Land see Norway
East Timor see Timor-Leste
Ecuador uses the U.S. Dollar
Egypt Egyptian pound EGP £
El Salvador uses the U.S. Dollar
Equatorial Guinea Central African CFA franc GQE CFA
Eritrea Eritrean nakfa ERN Nfa
Estonia Estonian kroon EEK KR
Ethiopia Ethiopian birr ETB Br
Faeroe Islands (Føroyar) see Denmark
Falkland Islands Falkland Islands pound FKP £
Fiji Fijian dollar FJD FJ$
Finland European euro EUR €
France European euro EUR €
French Guiana see France
French Polynesia CFP franc XPF F
Gabon Central African CFA franc XAF CFA
Gambia Gambian dalasi GMD D
Georgia Georgian lari GEL
Germany European euro EUR €
Ghana Ghanaian cedi GHS
Gibraltar Gibraltar pound GIP £
Great Britain see United Kingdom
Greece European euro EUR €
Greenland see Denmark
Grenada East Caribbean dollar XCD EC$
Guadeloupe see France
Guam see United States
Guatemala Guatemalan quetzal GTQ Q
Guernsey see United Kingdom
Guinea-Bissau West African CFA franc XOF CFA
Guinea Guinean franc GNF FG
Guyana Guyanese dollar GYD GY$
Haiti Haitian gourde HTG G
Heard and McDonald Islands see Australia
Honduras Honduran lempira HNL L
Hong Kong Hong Kong dollar HKD HK$
Hungary Hungarian forint HUF Ft
Iceland Icelandic króna ISK kr
India Indian rupee INR Rs
Indonesia Indonesian rupiah IDR Rp
International Monetary Fund Special Drawing Rights XDR SDR
Iran Iranian rial IRR
Iraq Iraqi dinar IQD
Ireland European euro EUR €
Isle of Man see United Kingdom
Israel Israeli new sheqel ILS
Italy European euro EUR €
Ivory Coast see Côte d'Ivoire
Jamaica Jamaican dollar JMD J$
Japan Japanese yen JPY ¥
Jersey see United Kingdom
Johnston Island see United States
Jordan Jordanian dinar JOD
Kampuchea see Cambodia
Kazakhstan Kazakhstani tenge KZT T
Kenya Kenyan shilling KES KSh
Kiribati see Australia
Korea, North North Korean won KPW W
Korea, South South Korean won KRW W
Kuwait Kuwaiti dinar KWD
Kyrgyzstan Kyrgyzstani som KGS
Laos Lao kip LAK KN
Latvia Latvian lats LVL Ls
Lebanon Lebanese lira LBP
Lesotho Lesotho loti LSL M
Liberia Liberian dollar LRD L$
Libya Libyan dinar LYD LD
Liechtenstein uses the Swiss Franc
Lithuania Lithuanian litas LTL Lt
Luxembourg European euro EUR €
Macau Macanese pataca MOP P
Macedonia (Former Yug. Rep.) Macedonian denar MKD
Madagascar Malagasy ariary MGA FMG
Malawi Malawian kwacha MWK MK
Malaysia Malaysian ringgit MYR RM
Maldives Maldivian rufiyaa MVR Rf
Mali West African CFA franc XOF CFA
Malta European Euro EUR €
Martinique see France
Mauritania Mauritanian ouguiya MRO UM
Mauritius Mauritian rupee MUR Rs
Mayotte see France
Micronesia see United States
Midway Islands see United States
Mexico Mexican peso MXN $
Moldova Moldovan leu MDL
Monaco see France
Mongolia Mongolian tugrik MNT ₮
Montenegro see Italy
Montserrat East Caribbean dollar XCD EC$
Morocco Moroccan dirham MAD
Mozambique Mozambican metical MZM MTn
Myanmar Myanma kyat MMK K
Nauru see Australia
Namibia Namibian dollar NAD N$
Nepal Nepalese rupee NPR NRs
Netherlands Antilles Netherlands Antillean gulden ANG NAƒ
Netherlands European euro EUR €
New Caledonia CFP franc XPF F
New Zealand New Zealand dollar NZD NZ$
Nicaragua Nicaraguan córdoba NIO C$
Niger West African CFA franc XOF CFA
Nigeria Nigerian naira NGN ₦
Niue see New Zealand
Norfolk Island see Australia
Northern Mariana Islands see United States
Norway Norwegian krone NOK kr
Oman Omani rial OMR
Pakistan Pakistani rupee PKR Rs.
Palau see United States
Panama Panamanian balboa PAB B./
Papua New Guinea Papua New Guinean kina PGK K
Paraguay Paraguayan guarani PYG
Peru Peruvian nuevo sol PEN S/.
Philippines Philippine peso PHP ₱
Pitcairn Island see New Zealand
Poland Polish zloty PLN
Portugal European euro EUR €
Puerto Rico see United States
Qatar Qatari riyal QAR QR
Reunion see France
RomaniaRomanian leu RON L
Russia Russian ruble RUB R
Rwanda Rwandan franc RWF RF
Samoa (Western) see Western Samoa
Samoa (America) see United States
San Marino see Italy
São Tomé and Príncipe São Tomé and Príncipe dobra STD Db
Saudi Arabia Saudi riyal SAR SR
Sénégal West African CFA franc XOF CFA
Serbia Serbian dinar RSD din.
Seychelles Seychellois rupee SCR SR
Sierra Leone Sierra Leonean leone SLL Le
Singapore Singapore dollar SGD S$
Slovakia European euro EUR €
Slovenia European euro EUR €
Solomon Islands Solomon Islands dollar SBD SI$
Somalia Somali shilling SOS Sh.
South Africa South African rand ZAR R
Spain European euro EUR €
Sri Lanka Sri Lankan rupee LKR Rs
St. Helena Saint Helena pound SHP £
St. Kitts and Nevis East Caribbean dollar XCD EC$
St. Lucia East Caribbean dollar XCD EC$
St. Vincent and the Grenadines East Caribbean dollar XCD EC$
Sudan Sudanese pound SDG
Suriname Surinamese dollar SRD $
Svalbard and Jan Mayen Islands see Norway
Swaziland Swazi lilangeni SZL E
Sweden Swedish krona SEK kr
Switzerland Swiss franc CHF Fr.
Syria Syrian pound SYP
Tahiti see French Polynesia
Taiwan New Taiwan dollar TWD NT$
Tajikistan Tajikistani somoni TJS
Tanzania Tanzanian shilling TZS
Thailand Thai baht THB ฿
Timor-Leste uses the U.S. Dollar
Togo West African CFA franc XOF CFA
Trinidad and Tobago Trinidad and Tobago dollar TTD TT$
Tunisia Tunisian dinar TND DT
Turkey Turkish new lira TRY YTL
Turkmenistan Turkmen manat TMT m
Turks and Caicos Islands see United States
Tuvalu see Australia
Uganda Ugandan shilling UGX USh
Ukraine Ukrainian hryvnia UAH
United Arab Emirates UAE dirham AED
United Kingdom British pound GBP £
United States of America United States dollar USD US$
Upper Volta see Burkina Faso
Uruguay Uruguayan peso UYU $U
Uzbekistan Uzbekistani som UZS
Vanuatu Vanuatu vatu VUV VT
Vatican see Italy
Venezuela Venezuelan bolivar VEB Bs
Vietnam Vietnamese dong VND ₫
Virgin Islands see United States
Wake Island see United States
Wallis and Futuna Islands CFP franc XPF F
Western Sahara see Spain, Mauritania and Morocco
Western Samoa Samoan tala WST WS$
Yemen Yemeni rial YER
Zaïre see Congo, Democratic Republic
Zambia Zambian kwacha ZMK ZK
Zimbabwe Zimbabwean dollar ZWR Z$

With Holding Tax - Rates and Rules

1. 10 per cent of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financing business or by an enterprise which holds directly or indirectly at least 10 per cent of the capital of the company paying the interest.
2. Dividend/interest earned by the Government and certain institutions like the Reserve Bank of India is exempt from taxation in the country of source.
3. Royalties and fees for technical services would be taxable in the country of source at the following rates :
a. 10 per cent in case of rental of equipment and services provided along with know-how and technical services ;
b. any other case
i. during first five years of the agreement
- 15 per cent if the payer is Government or specified organisation ;
- 20 per cent in other cases ;
ii. subsequent years, 15% in all cases.
Income of Government and certain institutions will be exempt from taxation in the country of source.
4. Royalties and fees for technical services would be taxable in the country of source at the following rates :
a. 10 per cent in case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment;
b. 20 per cent in case of fees for technical services and other royalties.
5. 10 per cent of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financing business or by an enterprise which holds directly or indirectly at least 20 per cent of the capital of the company paying the interest.
33[Tax on dividends, royalty and technical service fees in the case of foreign companies.
34115A. 35[(1) Where the total income of
(a) a non-resident (not being a company) or of a foreign company, includes any income by way of
(i) dividends 36[other than dividends referred to in section 115-O] ; or
(ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency ; or
(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India,
the income-tax payable shall be aggregate of
(A) the amount of income-tax calculated on the amount of income by way of dividends 36[other than dividends referred to in section 115-O], if any, included in the total income, at the rate of twenty per cent ;
(B) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (ii), if any, included in the total income, at the rate of twenty per cent ;
(C) the amount of income-tax calculated on the income in respect of units referred to in sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and
(D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub-clause (i), sub-clause (ii) and sub-clause (iii) ;
(b) 37[a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of,
38[(A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997 39[but before the 1st day of June, 2005];
39[(AA) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent if such royalty is received in pursuance of an agreement made on or after the 1st day of June, 2005;]
(B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1997 39[but before the 1st day of June, 2005] ; and]
39a[(BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005; and]
(C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services.
Explanation.For the purposes of this section,
(a) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;
(b) foreign currency shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause (15) of section 10 ;
(c) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ;
(d) Unit Trust of India means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).]
40[(1A) Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern 41[or in respect of any computer software to a person resident in India], the provisions of sub-section (1) shall apply in relation to such royalty as if the words 42[43[the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted :
Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and ending with the 31st day of March, 1978, to be imported into India under an Open General Licence :
44[Provided further that such computer software is permitted according to the Import Trade Control Policy of the Government of India for the time being in force to be imported into India under an Open General Licence.]
45[Explanation 1].In this sub-section, Open General Licence means an Open General Licence issued by the Central Government in pursuance of the Imports (Control) Order, 1955.]
46[Explanation 2.In this sub-section, the expression computer software shall have the meaning assigned to it in clause (b) of the Explanation to section80HHE.]
(2) Nothing contained in sub-section (1) shall apply in relation to any income by way of royalty received by a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 31st day of March, 1976, if such agreement is deemed, for the 47[purposes of the first proviso] to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976; and the provisions of the annual Finance Act for calculating, charging, deducting or computing income-tax shall apply in relation to such income as if such income had been received in pursuance of an agreement made before the 1st day of April, 1976.]
48[(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1).
(4) Where in the case of an assessee referred to in sub-section (1),
(a) the gross total income consists only of the income referred to in clause (a) of that sub-section, no deduction shall be allowed to him or it under Chapter VI-A;
(b) the gross total income includes any income referred to in clause (a) of that sub-section, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish under sub-section (1) of section 139 a return of his or its income if
(a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted only of income referred to in clause (a) of sub-section (1); and
(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.]
Income deemed to accrue or arise in India.
469. 47(1) The following incomes shall be deemed48 to accrue or arise in India :—
49(i) all income accruing or arising, whether directly or indirectly, through or from any business connection50 in India, or through or from any property50 in India, or through or from any asset or source of income in India, 51[* * *] or through the transfer of a capital asset situate in India.
52[Explanation 1].—For the purposes of this clause—
(a) in the case of a business of which all the operations53 are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations53 carried out in India ;
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;
54[* * *]
55[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ;]
56[(d) in the case of a non-resident, being—
(1) an individual who is not a citizen of India ; or
(2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or
(3) a company which does not have any shareholder who is a citizen of India or who is resident in India,
no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations57 which are confined to the shooting of any cinematograph film in India.]
58[Explanation 2.—For the removal of doubts, it is hereby declared that “business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident,—
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or
(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or
(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:
Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :
Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.
Explanation 3.—Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India;]
(ii) income which falls under the head “Salaries”, if it is earned59 in India.
60[Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,
shall be regarded as income earned in India ;]
(iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India ;
(iv) a dividend paid by an Indian company outside India ;
61[(v) income by way of interest payable by—
(a) the Government ; or
(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India ;
(vi) income by way of royalty62 payable by—
(a) the Government ; or
(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :
63[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]
Explanation 1.—For the purposes of the 64[first] proviso, an agree-ment made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 65[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
66[(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;]
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to 66[(iv), (iva) and] (v).
67[Explanation 3.—For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data;]
(vii) income by way of fees for technical services payable68 by—
(a) the Government ; or
(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
69[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.]
70[Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.]
Explanation 71[2].—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction72, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]
(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.
72a[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India.]

Taxation of Works Contract

Composition Scheme for Works Contract Service under Ser. Tax

Composition Scheme for Works Contract Service under Service Tax – A Boon for Works Contractor?
Nature of the provisions
1.0 Under the normal scheme of taxation, tax liability is determined with reference to taxable value of the base with the rate of tax. However, due to complexity of the transactions, at times, it is not possible to determine the value of the base, determination of tax liability poses the problem. Since, in such a situation, any solution is prone to litigation and hardship, a via media is found by levying the tax on an ad hoc basis with reference to something which is easily identifiable and can be quantified. Here, the process of determining value of the taxable base is given complete by-pass. Under the taxing statute this is called Composition Scheme (CS). CS is prevalent under the VAT laws of almost all the states. For the purpose of levying tax under Works Contract(WC) which involves both, supply of goods and rendering of services, an option is given to the dealer for payment of tax under CS. Under the CS under VAT the dealer is not required to vivisect the transaction and determine value of property transferred in goods. VAT is required to be paid at substantially lower rate than the scheduled rate.

1.1 Administratively this process under CS is very convenient. However, the tax payer always has the pinch that he is being required to pay the tax on something which is not taxable at all under the statute. In order to take care of such complains, the rate of tax levied is kept substantially lower than the scheduled rate. This dilutes, to some extent, the complain by the taxpayers. While the tax payer is relieved of the hassles of determining value, there is a cost to it. It is in the form of denial of certain tax credit in respect of input. Under VAT scheme of taxation, the dealer is denied input credit of taxes paid on the goods used for executing the WC. However, the dealer is having the additional advantage of not required to detailed scrutiny of the records. Since the tax base is fixed in such a way that there is no ambiguity at all, there is no necessity to go through the said process.

1.2 It should be appreciated that CS is not an alternative tax but it is an alternative method of computing tax liability. Provisions with respect to CS are not the independent charging section. The State will continue to collect the tax under the charging section as provided under the Statute. The only difference being the tax payable in normal way is substituted by the tax to be paid as computed under CS. Thus, it is a rough and ready method of computation of tax.

CS under Service Tax
2.0 It is for the first time that the provisions have been made under the service tax (ST) to pay tax under CS. Notification No. 32/2007 dt. 22-5-2007 lays down detailed rules for composition scheme. ST is being levied for various services wherein supply of goods is involved along with rendering of services. However, in all such cases, abatement in the form of reduction in value of gross amount charged has been preferred by the authorities. The principal difference between abatement and CS is in the process. While in the case of abatement, value of service is determined by deducting value of goods from the gross amount charged on an ad hoc basis and the tax is levied on the balancing amount. However, in the case of CS, no attempt is being made to determine the value of services rendered at all. Tax is computed with reference to gross amount charged. Moreover, the rate of tax is also not the scheduled rate, but the one specifically laid down for this purpose. In the case of abatement, rate of abatement differs from services to services. However, the rate of tax remains the same for all the types of services i.e. the scheduled rate fixed under the Finance Act.

At a first sight, provisions of CS for services involved under WC is surprising. This is for the reason that the scheme of abatement is already in existence under the ST since long. However, the CS is quite popular under VAT laws of almost all the state governments. Perhaps, in order to keep the scheme of taxation of services of WC in alignment with that of the VAT, CS has been proposed.

Redeeming features of CS under ST
3.0 There are six noteworthy features of the CS under ST.

3.1 Firstly, the first part of Rule 3(1) of Works Contract (Composition Scheme for Payment of services) Rules, 2007 overrides the provision of S. 67 of the Finance Act. It is specifically provided that the payment of tax under CS will be discharging the tax liability under section 67. Thus, by not following the provisions of S. 67, there will not be any violation of the Finance Act.

3.2 Secondly, Rule 3(1) overrides the provisions of rule 2A of the Service (Determination of Value) Rules, 2006. Thus, the assessee is freed from the hassles of determining the value of services.

3.3 Thirdly, although not specifically stated so, the clause 3(2) also overrides certain portion of CENVAT Credit Rules. Generally, under the CS of VAT, input credit is not permitted. However, under CS under ST, input credit in respect of goods only is not permitted. It means that all the provisions of CENVAT Credit Rules, particularly input credit in respect of input services and capital goods are applicable.

3.4 Fourthly, unit of assessment under CS is each WC and not the total amount of services rendered during the taxable period WC. It means for WC under CS, tax will have to be ascertained separately and added to the total tax liability for other WC. Total amount of services rendered under WC under CS will not be added to the chargeable value of services for a particular month / quarter, as there is no determination of the volume of services under CS.

3.5 Fifthly, there is no upper limit of the value of the WC in respect of which the option can be exercised. Thus, irrespective of the amount of the WC, the option can be exercised.

3.6 Sixthly, there is live connectivity between provisions of WC under VAT and ST in many respects. For example, the applicability of taxation of services under WC itself is based on the applicability of VAT laws. However, the scheme of CS under ST is silent about it. One would have expected it to be applicable in the case only if the assessee has opted for the same under VAT. However, it is not so. The very fact that there is no reference to option exercised by the dealer under VAT for CS, it is entirely at the option of the assessee, to choose the most beneficial method of taxation.

Optional Scheme
4.0 Rule 3(1) provides that the assessee shall have the option to discharge his service tax liability. Here, two things are worth noting.

4.1 Firstly, there is no compulsion on the assessee to opt for the scheme. Realisation under WC involves value of goods and services, adoption of contract value cannot be permissible mode of levy for ST. Since, the CS is departing from the process of determining tax as laid down under the Statute, assessee’s consent becomes essential. Having opted for the CS, the assessee cannot challenge its provision. It is for this reason the CS is always made optional. The assessee is permitted to follow the scheduled method of determining value of taxable base and pay the tax thereon. It is open for the assessee to work out cost benefit analysis of both the methods of taxation and follow the one wherein the tax liability is lower.

4.2 Secondly, tax paid under CS is considered as discharging the tax liability as laid down under the Finance Act. Thus, by making the payment of tax under CS, the assessee is in fact discharging his liability of ST as laid down under the Finance Act. Since the Rule specifically provides to this effect, it will not be open for the administrative authority requiring the assessee to determine the value of services under and pay tax under the scheduled method. Thus, by paying tax as computed under the CS the assessee will be complying the provisions of S. 67 of the Finance Act.

Determining the Taxable Base
5.0 In terms of provisions of S. 67 of the Finance Act, the tax is required to be paid in respect of service provided or to be provided. Thus, it covers both the contingencies i.e. amount received in respect of services rendered and advance received for the services to be rendered. Provisions as applicable in this respect under CS are also the same. The Rule 3(1) provides that tax will have to be paid on amount realised in respect of service provided or to be provided.

5.1 In the case of WC, at times, advance payment is being made by the contractee. In terms of provisions of S. 65(105), and Explanation 3 to section 67, ST is required to be paid thereon. Therefore, in such cases the assessee will have to take decision about the option at an early stage of execution of WC. If tax is paid on advance received then it will not be possible to exercise the option at a later stage and ST will have to be paid on the value determined as mentioned in Rule 2A of Determination of Value Rules.

5,2 The whole structuring of the CS is such that the assessee will have to make calculations in advance about the element of goods and services involved and carry out cost benefit analysis. Once the bill raised has been approved and dues have been realized, the liability to pay ST will arise. This may pose some problem when the payment is received at the fag end of the month/quarter as the liability to pay tax will arise by the 5th of the next month / quarter.

Rate of Tax
6.0 Generally the scheme of CS provides for by-passing the scheduled process of determining the value for computation of tax and the rate of tax provided in the statute. Accordingly Rule 3(1) provides that under the CS the assessee is permitted instead of paying service tax at the rate specified in section 66 of the Act to pay the tax at the rate as laid down under the scheme. Thus, by paying the tax under CS, the assessee is discharging his liability as laid down under section 67 of the Finance Act. A look at the following table will give idea about the whole process of payment of ST and how CS fit into it.

Under Determination of Value Rule
Under CS
1
Execution of WC
Yes
Yes
2
Raising of provisional bill for work done
Yes
Yes
3
Approval of the work by architect etc.
Yes
Yes
4
Raising of final bill
Yes
Yes
5
Determination of consumption of material for computation of VAT
Yes
Yes
6
Determination of VAT liability
Yes
Yes
7
Payment of VAT
Yes
Yes
8
Receipt of money against the bill raised
Yes
Yes
9
Determination of value of services rendered for ST purposes
Yes
No
10
Computation of Input services
Yes
Yes
11
Computation of final ST / CS liability
Yes
Yes
12
Payment of ST
Yes
Yes
6.1 One may get the feeling that under CS only one step is avoided. This is at the cost of paying ST on value of goods involved in WC. However, it should be appreciated that Step 9 is the most difficult and complex part of the whole process. It is at this stage that one may have to face various factual and legal issues. Therefore, one will have to weigh pros and cons at the early stage of WC.

6.2 Rule 3(1) provides for the rate of tax at the amount equivalent to two per cent of the gross amount charged. Under the normal circumstances ST, is required to be paid at the rate as fixed under the Finance Act on value of services rendered only. However, CS differs here. Firstly, the rate as fixed under the Finance Act is not applicable. Secondly, value of services rendered is not required to be determined. Thirdly, the rate of tax will be as mentioned in the Rules. And lastly, tax will be computed not with reference to value of services rendered but with reference to the gross amount charged.

6.3 The wordings “gross amount charged” may lead one to conclude that CS will be required to be paid on bill raised. However, looking to the scheme of ST, the ST is required to be paid only when value of service is realised. Reference to 2.00% of gross amount charged is for the purpose of determining total tax liability. Assessee’s liability to pay the tax arises only when money is realised against WC executed. Therefore, if for any reason, certain amount is not received against the bill raised, there is no liability to pay the tax thereon.

Exclusion of VAT liability
7.0 As provided under Explanation (a) of Rule 2A(1)(i) of Service Tax (Determination of Value) Rules, 2006, under the CS also, as per Rule 3(2), gross amount charged shall not include Value Added Tax (VAT) or sales tax. Base for computation of CS is gross amount charged in the bill. This amount may be including VAT as well. If so, the amount of VAT required to be paid thereon will have to be deducted. This will avoid payment of ST on VAT. In case, if the assessee has opted for CS under VAT then the amount of CS under VAT will have to be considered, otherwise actual amount of VAT liability computed will have to be deducted. In case, if the bill comprises value of work done and amount of VAT separately then the value of work executed as shown will be the basis for computation of CS.

Input Credit
8.0 The most interesting aspect of CS is the provision for permitting the assessee to avail the benefit of tax paid on input services. Generally, as per the CS under VAT the dealer is not permitted to take input credit for tax paid on goods consumed. This is for the reason that the rate of tax fixed under the CS is substantially lower. Moreover, in many cases the dealer is not required to maintain detailed records as well. However, the CS departs here substantially from CS under VAT. Read the provisions in this respect which runs as follow:

shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract.
8.1 At a first glance, one may get an impression that input credit for tax paid is not permitted. However, it is only with reference to duty paid in respect of goods. WC involves rendering of services and for the said purpose the assessee might have availed the services of other service providers. The assessee also might have bought capital goods and paid duty thereon. The Rule, as mentioned above, does not prohibit claiming so. Please note that the provisions of CENVAT Credit Rules have not been overridden. The assessee is permitted to take input credit in respect of both of these items. See the following extract from clarification No. 097.01/23-8-2007 of Circular No. 96/7/2007 dt. 23-8-2007.
097.01 / 23.08.07
Whether CENVAT credit of duty paid on capital goods and service tax paid on input services can be taken by a service provider who opts to pay an amount equivalent to two per cent. of the gross amount charged for the works contract instead of paying service tax at the rate specified in section 66, under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, notified vide notification No.32/2007-Service Tax dated 22.05.07?

Rule 3(2) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides that the provider of taxable service opting to pay service tax under the composition scheme is not entitled to take CENVAT credit of duty on inputs, used in or in relation to the said works contract, under the provisions of the CENVAT Credit Rules, 2004.

There is no restriction under notification No.32/2007-Service Tax dated 22.05.07 to take CENVAT credit of duty paid on capital goods and service tax paid on input services.

8.2 It categorically states that the assessee can claim input credit for input services and capital goods. This is for the reason that the provisions of CENVAT Credit Rules are applicable to the full extent except to the extent of duty paid on input goods. This is certainly a beneficial provision for the assessee as he is not only paying the tax at a substantially lower rate but also permitted to take credit for tax paid on input services and capital goods. Isn’t it icing on the cake?
Input Credit at Global Level?
9.0 Sub-clause (2) does not permit credit in respect of duty paid on input goods. Thus, input credit on services and capital goods are permitted. A question that may arise is whether the said amount is permitted at global level i.e. whether excess input credit of a particular WC can be adjusted against tax liability arising under other WC under CS or even otherwise? This is for the reason that, in the initial phase of the execution of the contract, payment for input services will start while realization may be at a much later date. What will happen, if during the intervening period, the assessee is required to pay the tax and file ST Returns? There is no clarity about it. It should be appreciated that under the scheme of ST, it is not necessary to follow the principle of one-to-one matching of the services rendered and input services. Therefore, there should not be any problem in claiming input credit in the cases wherein realization of the service is zero or lower than input services.
Time Element of CS
10.0 The CS imposes certain conditions on the assessee with respect to exercising the option. The first condition is that the assessee will have to exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract. The assessee is required to exercise the option before the payment of ST. Once the payment of ST in respect of a particular WC is commenced, the option cannot be exercised. Does this mean that the option can be exercised even though due date of payment of tax has already lapsed? This is for the reason that the option is required to be exercised prior to “payment of service tax” and not the last date of payment of ST as provided under the Finance Act.

10.1 In the case of WC, real problem arises when advance is received prior to commencement of execution of the contract. Since the amount of advance received will attract payment of ST, option will be required to be exercised even before the WC has commenced. Does it mean that payment of tax on advance received can be postponed till the first payment under the normal course is received? Of course here the question of payment of interest for late payment of tax on advance received will arise.
Basic exemption of Rs. 8.00 lacs
11.0 Under CS, unit of assessment is each WC and not the total amount of services rendered. Therefore, a question may arise particularly in the case of a new business whether the basic exemption limit will be available or not. It should be noted that under CS there is no computation of value of taxable services rendered. Sub-rule 3(1) suppresses the provisions of s. 67 and Rule 2A and permit the assessee to discharge the tax liability on an ad hoc basis. Since there is no computation of value of services rendered, the question of applying its value for computation of the basic exemption limit will not arise. Does it mean that the assessee can keep taxable value of services under various contracts under Rs. 8.00 lacs and opt for CS for other contracts? There do not appear to be any provisions, which prohibit the assessee to have mixture of both the options and derive maximum benefits.

11.1 Consider the case of an assessee who has started the business in the year and opts for CS. What will be the amount of taxable services for the purpose of computing threshold limit? Whether the gross amount charged for WC under CS can be considered for the said purpose? No. Since the quantum of services rendered has not been determined at all, gross amount charged for WC under CS cannot be considered for this purpose.
Applicability to the Entire WC
12.0 The option exercised under the CS is applicable to the entire WC. A WC can be consisting of various small jobs clearly identifiable. As long as they remain part of the single WC, the option of CS will be applicable to the entire WC. Therefore, it will be in the interest of the contractor to work out the business plan accordingly particularly keeping in mind element of goods and service involved therein. This can help in minimizing the tax liability to a great extent.
Timeframe of WC
13.0 The option for CS once exercised is final and is not permitted to be withdrawn until the completion of the said WC. It may so happen that the assessee, during the course of execution of WC, may not find the option of CS cost efficient. However, having opted for it once, there is no choice. It is for these reasons to go slowly and take into consideration various aspects involved in execution of WC.

13.1 It should also be kept in mind that the option is available in respect of each WC and therefore, having opted for CS for a particular contract, the assessee need not follow the same for the remaining contracts or future contracts. Discretion for future WC is with the assessee.

Input Credit for CS paid under VAT and ST – a comparison
14.0 Under the CS of VAT of state laws since the dealer is permitted to pay tax at lower rate, the tax so paid is not permitted to be charged separately in the invoice raised. It means the dealer is required to bear the same. Secondly, the contractee dealer is not permitted to take input credit for the amount of tax paid by the contractor. This is for the reason that the contractor has paid the VAT at substantially lower rate and the VAT paid is not shown in the invoice separately. However, CS under ST differs from CS under VAT substantially. As we have already seen input credit is permitted in respect of tax paid for input services and capital goods.
Input Credit for Service Receiver
15.0 Apart from that under VAT the buyer is not permitted to take credit for VAT paid under CS. However, there are no such provisions under the ST. Therefore, service receiver can claim the amount of CS paid as input credit. If structured efficiently, this can help in keeping the ST liability at the lowest.
Records to be maintained
16.0 CS gives relief with reference to computation of value of services and payment of tax on an ad hoc rate. However, there is no reference to maintenance of records as required under Rule 5 of Service Tax Rules. Therefore, the assessee will have to maintain all the records as required under Rule 5.
Arithmetic of CS
17.0 What is the cut-off rate of element of services for determining cost benefit under CS? Following table will give some idea about it.
Element of Goods
Element of Service
ST Liability u/s 67
ST liability under CS
Difference
60
40
4.80
2.00
2.80
65
35
4.20
2.00
2.20
70
30
3.60
2.00
1.60
80
20
2.40
2.00
0.40
84
16
1.92
2.00
-0.08
85
15
1.80
2.00
-0.20
90
10
1.20
2.00
-0.80
17.1 As can be seen from the table, the cut-off rate will be between 15 to 20% of services involved in the WC. Roughly, one can say that if the element of service is more than 20.00% in WC, it will be cost beneficial to opt for CS. However, as explained above the assessee will have to take into account various factors involved.

17.2 For the purpose of detailed cost benefit analysis, the assessee should also consider input credit available under both the options and a comparative analysis be made. Since it varies from case to case it has not be included in the above table. But it will be an important factor to take not of.
CS under VAT and /or ST
18.0 As seen above the assessee is having the option of having CS under VAT and / or under ST. The table below will give an idea about the options available.

Options under VAT
Options under ST
Actual value of goods
CS
Actual value of services
CS
Option A
XX
Yes
XX
Yes
Option B
XX
Yes
Yes
XX
Option C
Yes
XX
Yes
XX
Option D
Yes
XX
XX
Yes
Conclusion:
19.0 Taxation of WC has always posed problems for both, the taxpayers and the administration. CS is the best compromise to the vexed issues involved therein. The state governments have imposed various conditions for availing benefit under CS under VAT. As can be seen, the provisions of CS under ST are one step ahead. It provides various options to the assessee making it possible to keep the tax liability at the lowest level. Perhaps it may become a point of envy for service providers for various other services. If structured methodically, there is no reason why it cannot be a boon for the works contractor. various other services. If structured methodically, there is no reason why it cannot be a boon for the works contractor.

Service taxation of works contracts
The issue of the appropriate taxation of the material and non material (labour/services) elements of a works contract has been a contentious matter for a long time.
The decision of the Supreme Court in Bharat Sanchar Nigam Ltd versus Union of India (2006 (2) STR-161), was a landmark one in that it held that value-added tax (VAT) and service tax were mutually exclusive and would operate in their respective domains.
It held that a transaction in its entirety could not be charged to both taxes and that consequently double taxation of a single transaction, comprising both services and transfer of property in goods, was impermissible. This principle is particularly relevant for understanding the treatment of works contract for the purpose of indirect taxes.
A recent decision of the Supreme Court in Imagic Creative Pvt Ltd versus Commissioner of Commercial Taxes (2008 (9) STR 337), has reaffirmed this principle in relation to a particular category of works contract. The Court had to address the question of whether the charges for conceptualization and design of advertising material on which service tax had already been paid would be eligible to VAT under the relevant state VAT law.
The Kerala High Court had upheld the advance ruling in the matter that since the advertising material so conceptualized and created was undoubtedly sold, in that property in such materials stood transferred from the advertising agency to the customer who had commissioned the work, VAT would be chargeable on the whole contract, which was held to be an indivisible one.
The High Court took note of the judgments of the Supreme Court in the Associated Cement Company (ACC) case (2001 (128) ELT-21) as well as the Tata Consultancy Service case (2006 (3) SCC1) and held that the aforesaid activity did amount to an indivisible contract and was hence chargeable to VAT.
The Supreme Court, on appeal, set aside the order of the Kerala High Court and held that in both the ACC and the TCS cases, the taxation of a works contract involving both services as also the supply of goods was not in consideration and that the issue in those cases was in relation to determination of the value of goods alone, for the purpose of sales taxation.
Accordingly, the Supreme Court differentiated the above decisions and also took note of the decision in the BSNL case and held that in a composite contract such as the one in case (importantly, the Court distinguished a composite contract from an indivisible contract) and held that the respective parameters of services and sales taxation would apply on a mutually exclusive basis.
The Supreme Court therefore held that in the instant case it was incorrect to hold, as was done by the High Court, that sales tax/VAT would be payable on the value of the entire contract irrespective of the element of service provided thereunder, on the supposed ground of indivisibility.
The Supreme Court also held that the legal fiction that was created by the Constitutional amendment, in order to bring works contracts under VAT, was to be applied only to the extent it was applicable. Thus, while the full effect must be given to the legal fiction, it should not also be applied beyond the point which was contemplated by the legislature since this would lead to either anomaly or absurdity.
Efforts should be made in interpreting a statute to ensure that a reasonable outcome was achieved and where two statutes were relevant, the provisions of both were made equally applicable. These are significant and important observations by the Supreme Court and need to be kept in mind for future interpretations of works contracts.
In another recent decision in Johny Joseph versus State of Kerala [2008] 13 VST 64), the Kerala High Court has come to the conclusion that the activity of taking photographs and developing and printing of photograph film would, in totality, constitute a works contract and would hence be chargeable to VAT.
In this decision, the Kerala High Court was again concerned with the 46th Amendment to the Constitution which was made in order to empower the State to bifurcate a works contract and to levy sales tax on the value of the materials involved in the execution of such a contract, regardless of the magnitude of such value.
This case is interesting for the reason that it holds that after the decision of the Supreme Court in the BSNL case, as also in the ACC case, the erstwhile decision of the Supreme Court in Rainbow Colour Lab versus State of Madhya Pradesh [2006] 3 VST 95, was no longer good law and that the transfer of goods involved in the execution of a works contract, which was part of the deeming fiction created by the 46th Amendment, was chargeable to sales tax and that the intent of the contract was not relevant.
Purely through the deeming fiction, sales tax was applicable on the transfer of property in goods used in the works contract, regardless of its value. The High Court followed the decision of the Supreme Court in the BSNL case in coming to this conclusion. It is thus now settled that works contracts will now be chargeable to both service tax and VAT, insofar as they are composite contracts with both material and labour elements being present.
It is also equally clear that both these taxes can only be applied in their respective domains and cannot apply to the entirety of the contract. It is therefore incumbent on works contractors to ensure that they appropriately discharge their liabilities to the two taxes, as according to the options available under the respective statutes.
Works Contract under Service Tax- How to make it work?
Works Contract under Service Tax- How to make it work?
Overlapping of Services
1.0 One of the surprising items of the Budget 2007 was levying Service Tax (ST) on Works Contract (WC). This is for the reason that no one has ever expected it nor it was debated at any level till date. Secondly, the existing provisions of S. 65(105)(zzh), 65(105)(zzq) and 65(105)(zzd) relating to services like commercial or industrial construction service, construction of complex, erection commissioning or installation were already taking care of the services covered under WC. A glance at the provisions of S. 65(105)(zzzza) of the Finance Act relating to definition of WC, will make one wonder how and in what respect it differs from the existing provisions. Was there any justification for inserting new service under the title “Execution of Works Contract”? Will it not lead to complications as the same service will fall into two different types of services? Which section will have to be applied for which service? Like these many other issues will crop-up.

1.1 WC has various aspects viz. definition, which goods have been transferred, value of goods transferred, credit for tax paid etc. An attempt as been made here to discuss definition and other connected aspects like classification of goods. In view of space constraint other issues viz. valuation, tax credit, composition scheme etc. emerging out of taxation of WC have not been covered.

WC under Local Sales Tax Laws
2.0 Levying tax on WC under local sales tax has generated lot of heat till date and will continue to do so even under the existing provisions of Value Added Tax (VAT) Act. Ever since the judgment of the Supreme Court in the case of Gannon Dunkerley, the heat has not cool down. This is despite the fact that large number of judgments by the Supreme Court and High Courts of the various states since 1954 i.e. the judgment of the Madras High Court in the case of Gannon Dunkerley, have tried to examine the issues involved from various angles. In the process, what has happened is that more and more new dimensions have been added, making the issue more complex.

2.1 As if this was not enough, the introduction of ST on WC has added one more dimension to the issue, though not in the realm of VAT but adding wooes for the service providers. The objective of levying tax on service is to put at par the service providers with manufacturers of the goods and have additional source of revenue. However, reading the provisions of ST on WC one is left in no doubt that the Government will not only get more revenue from WC service provider but also from chartered accountants as well. This is for the reason that these provisions will give additional boost to their professional assignments!

Wooes of WC under Sales Tax Laws
3.0 Levying tax on WC has not been easy task for any of the Sate Governments. Since the State Governments are not permitted to tax services, vivisecting the WC transaction and levying tax on transfer of property involved therein has posed serious problems. The issues arising therein are:

-Is the transaction a sale of goods or service?
-Is it a job work or works contract?
-If it is WC whether any property in the goods passes to the buyer?
-If the property is passing to the buyer then at which stage and in what form?
-Is it necessary that all the goods used should exist at the time of passing of the property?
-What will happen if certain goods get extinguished in the process of execution of WC and thus do not get transferred to the buyer?
-How to determine value of goods passing to the buyer?
- How to exclude value of services and levy tax on goods transferred?
- Whether any value is required to be assigned for the goods which have been consumed and could not be transferred?

3.1 Apart from that, all the State Governments started extending the definition of WC so that more and more activities, not falling into the category of sale of goods, can be covered. Having created enough complications, there was no alternative but to find out a short-cut which can solve all these issues. An easy solution was to have a composition scheme. Under the scheme, various transactions were identified which can be treated as WC. Percentages on an ad hoc basis have been fixed for service element involved in each one and tax is being levied on the remainder portion.

3.2 The problems encountered by the State Governments in levying tax in transfer of property in goods can also be faced by the Central Government if it wants to levy ST on it. This is for the reason that of the two aspects involved in the transaction, service is the other aspect. Since the ST is being levied on the service element of the transaction, as against value of goods transferred under VAT, all the issues as mentioned above are bound to arise here as well. Therefore, the easiest way for the Central Government was to devise the whole scheme in such a way that the service provider need not redefine the services or recalculate value of service element but to extract it from the one which has already been computed under the State Laws. It is for this reason one will come across reference to “levying of tax on sale” by the State Government in the Service Tax provisions. It will be appreciated that two different types of taxes are being levied on the same set of transactions under two different statues. Therefore, total value for levying tax cannot exceed the valuation adopted in each case. In order to avoid legal complications, the best solution is to adopt the valuation in the case of sales tax / VAT.

3.3 An issue that still baffles one is the reason for having overlapping of services. Moreover, as against large number of items being covered under VAT laws, why only limited items have been covered under the definition of WC. It appears that the definition of WC will be expanded in such a way that all the items covered under the definition of WC under VAT laws of the State Governments may be covered under the ST provisions. In such a scenario, various services as referred to above may be withdrawn from charge of tax. If it so happens, there will be consistency in chargeability and valuation of services throughout the country.

Classification of Services
4.0 One cannot have any objection about the methodology followed. However, one would have expected a clear picture in this regard. As we shall see while discussing various other aspects of taxation of WC there is no clarity. Let us have a look at the provisions of S. 65(105)(zzzza) regarding WC and compare it with other provisions.

Clause (a) of the definition covers

WC Service
Existing Services under various other provisions
“works contract” means a contract wherein,—
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise,

installation of
electrical and electronic devices,

plumbing, drain laying or other installations for transport of fluids,

heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work,

thermal insulation, sound insulation, fire proofing or water proofing,

lift and escalator, fire escape staircases or elevators; or
(39a) “erection, commissioning or installation” means any service provided by a commissioning and installation agency, in relation to,—
(i)erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise; or
(ii) installation of—
(a) electrical and electronic devices, including wirings or fittings therefor; or

(b) plumbing, drain laying or other installations for transport of fluids; or

(c) heating, ventilation or air-conditioning including related pipe work, ductwork and sheet metal work; or

(d) thermal insulation, sound insulation, fire proofing or water proofing; or

(e) lift and escalator, fire escape staircases or travelators; or
(f) such other similar services;

As can be seen, clause (a) covers “including wirings or fittings therefore” which is not the case under WC. It means that the services of pure wiring or fittings will not be covered under WC but will continue to be so under S. 65(39)(a).

Another difference here is clause “(f) such other similar services”. This is an enabling clause. However, provisions of WC are under (zzzza) very specific and similar services cannot be covered under WC.

4.1 Clause (b) is relating to construction of a building or a part thereof, laying down of pipeline etc. An important aspect hereof is that it should be related to commerce and industry only. Therefore, construction of building or laying down of pipeline for residential purpose will not fall under this clause. However, it may fall into other sub-clause.

WC Service
Existing Services under various other provisions
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
S. 65 (25b) “commercial or industrial construction service” means—
(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,
which is—
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;

S. 65(25)(b) is more exhaustive as it precisely defines what is covered there under. Later portion of S. 65(25)(b) specifically excludes services related to roads, airports, railways, transport terminals, bridges, tunnels and dams. These exclusions have been taken care of while drafting S. 65(105)(zzzza).

WC Service
Existing Services under various other provisions

(c) construction of a new residential complex or a part thereof; or
(30a) “construction of complex” means—
(a) construction of a new residential complex or a part thereof; or
(d) completion and finishing services,

repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;
(64) “management, maintenance or repair” means any service provided by—
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,—
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;

4.2 First part of WC services refers to completion and finishing services. Unlike in the case of S. 65(105)(30)(a), which is applicable to residential complexes only, provisions hereof are applicable in all the cases. Same is the case with repairs or alterations which is applicable to both the types of building i.e. commercial and residential.

4.3 As can be seen, services like commercial or industrial construction service, construction of complex, erection commissioning or installation and are falling under more than one category. This will naturally call for applying provisions of S. 65A which lays down principles of classification. Applying these principles, wherever the WC attracts provisions of local VAT laws, provisions of S. 65(105) (zzzza) i.e. “Execution of Works Contract Service” will be applicable. In case, if for any reason, in a particular State, no tax is levied as sale of goods then such contract will fall into the category of commercial or industrial construction service, construction of complex, erection commissioning or installation. This is for the reason that WC under section (zzzza) has been defined as “works contract” wherein, transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods.” Thus, levy of tax as sale of goods is an essential condition; it is a specific condition for being chargeable under ST. If the WC fails to satisfy it then provisions of other clause may be applicable.

Applicability – new WC or Running WC
5.0 This may be true for new contract to be entered into henceforth. However, a question that remains to be answered is what will be the status of the contracts which are in the process of execution. It may be noted that bills in respect of such contracts are being raised in stages and each stage is billed separately. There is no direct answer to it. However, if the Dealer is not under composition scheme of the local VAT laws then services rendered after 1-6-2007 will be governed by the provisions of S. 65(105) (zzzza) and the tax will have to be paid accordingly. However, if the Dealer is under the Composition Scheme of the local VAT laws then it may not be possible to opt for the Composition Scheme under Service Tax. This is for the reason that the provisions of Rule 3 provides for the assessee to exercise the option prior to the payment of service tax in respect of such WC. Since the assessee has already started making payment for such ongoing WC, provisions of Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 cannot be invoked.

The table below will give some idea about the methodology to be adopted for classifying the services.

Tax leviable under sales tax laws
Covered within the definition of WC u/s 65(105)(zzzza)
Whether the service is covered under any other provision of S. 65(105)
Chargeable under
Service A
Yes
Yes
Yes
WC
Service B
No
Yes
Yes
Under appropriate section – not as WC
Service C
No
No
Yes
Under appropriate section – not as WC
Service D
Yes
Yes
No
WC

Defining the WC
6.0 S. 65(105)(zzzza) defines “works contract” as
a contract wherein,—
(iii) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and”

The wordings “leviable to tax as sale of goods” are vague. As we know, despite the Empowered Committee having drawn a model code of VAT Act, none of the State Governments have adopted it. Each State Government has drafted VAT laws as per their requirements. Thus, there is no consistency in the state laws. Let us see a few of definitions of WC under some of the State laws.
Gujarat VAT Act:
S. 2 (23) “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes,-
(b) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract,
Explanation (ii):
for the purpose of sub-clause (b) of the expression “works contract” means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify;
Delhi VAT Act:
S. 2 (zo) "works contract" includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property;
Karnataka VAT Act:
S. 2 (37) 'Works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.
Andhra Pradesh VAT Act:
S. 2 (45) "Works contract" includes any agreement for carrying out for cash or for deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, laying, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;
Haryana VAT Act:
S. 2 (zt) "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the assembling, construction, building, altering, manufacturing, processing, fabrication, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property;
6.1 As can be seen from above, there are variations in definition of WC in each case. Looking to the provisions it appears that for the purpose of WC under Service Tax provisions of the respective state laws will have to be examined. If the services as mentioned in S. 65(105)(zzzza) are also covered under the state laws then it will be taxed as WC.
6.2 An offshoot of the application of the said definition will be in the case of a service which is, say, taxable as WC in the State of Maharashtra but may not be so in Karnataka or Andhra Pradesh. Does it mean that the same service will be treated separately under section 65(105)? As far as rate of tax is concerned it may not make any difference. However, it does make substantial difference when the assessee opts for composition scheme under WC. Composition Scheme under WC is more tax efficient than service being chargeable under other provisions. Is it not a case of discrimination?
Conclusion:
Transactions covered as WC under VAT laws forms fairly large portion of overall business activities. Same will be true for ST. Introduction of S. 65(105)(zzzza) is a beginning. Time is not far away when all the types of WC under ST may be brought under one umbrella of S. 65(105)(zzzza). The assessee will have to learn to live with it, earlier the better it is.