Krishi Kalyan Cess – FAQs By: Bimal Jain

Krishi Kalyan Cess – FAQs
 
Pursuing with an objective to finance and promote initiatives to improve agriculture and farmer welfare, the Government announced a new cess namely ‘Krishi Kalyan Cess’ (“KKC”), to be levied at 0.5% on the value of all taxable services w.e.f June 1, 2016. In this regard, a new Chapter VI is inserted in the Finance Bill, 2016, containing relevant provisions, which are applicable with enactment of the Finance Act, 2016. 
 
Proceeds of KKC first be credited to Consolidated Fund of India and the CG may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of KKC for specified purposes
 
Hence, after levy of KKC, Service tax rate will increase from 14.5% to 15%, effective from June 1, 2016. In this regard, there are many queries, which require clarification. We have summarized these queries through Frequently Asked Questions (FAQs) enumerated below.
 
In this context, the relevant Chapter of the Finance Act, 2016 is reproduced below:-
 
“CHAPTER VI
 
‘Krishi Kalyan Cess’ 
 
“161 (1) This Chapter shall come into force on the 1st day of June, 2016.

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services for the purposes of financing and promoting  initiatives to improve agriculture or for any other purpose relating thereto.

(3)The Krishi Kalyan Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.

(4)The proceeds of the Krishi Kalyan Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for such purposes specified in sub-section (2), as it may consider necessary.

(5)The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.”
 
On this issue, the Hon’ble FM in his speech for Budget 2016-17 has stated as under:
 
 “I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016. Input Tax credit of this cess will be available for payment of this cess.”
 
FAQs on Krishi Kalyan Cess for easy digest:
 
Q1: What is KKC?
Answer: It is a Cess called as Krishi Kalyan Cess, which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2016, as Service tax on all the taxable services at the rate of 0.5% on the value of such taxable services.

Q2: For what purpose(s) KKC is proposed to be levied?
Answer: KKC is proposed to be levied for the purposes of financing and promoting initiatives to improve agriculture and farmers welfare or for any other purpose relating thereto.

Q3: What is the date of applicability of KKC?
Answer: KKC would be levied at the rate of 0.5% on the value of all taxable services with effect from June 1, 2016 vide Section 161 of the Finance Act, 2016.

Q4: Whether KKC would be leviable on all taxable services?
Answer: Yes, KKC would be levied on all taxable services. In this regard, the Central Government vide Notification No. 28/2016-ST dated May 26, 2016 has provided that KKC shall not be leviable on services which are exempt from Service tax by a Notification issued under Section 93(1) or Special Order issued under Section 93(2) of the Finance Act, 1994 (“the Finance Act”) or otherwise not leviable to Service tax under Section 66B thereof.

Q5: Whether KKC would be leviable on an activity which is excluded from the definition of ‘Service’?
Answer: No, such activity would not be leviable to KKC. Following activities are excluded from the definition of ‘Service’ under Section 65B(44) of the Finance Act:
 

An activity which constitutes merely,-
 

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
 

A provision of service by an employee to the employer in the course of or in relation to his employment;
 

Fees taken in any Court or tribunal established under any law for the time being in force.

Q6: Whether KKC would be leviable on services contained in the Negative List of services?
Answer: No, KKC would not be leviable on services contained in the Negative List of services under Section 66D of the Finance Act.

Q7: Whether KKC would be leviable on exempted services?
Answer: KKC shall not be leviable on services which are exempt from Service tax by a Notification issued under Section 93(1) or Special Order issued under Section 93(2) of the Finance Act. The services exempted by a Notification issued under Section 93(1) of the Finance Act are as under:
 

1. Services exempted under the Mega Exemption Notification vide Notification No. 25/2012-ST dated June 20, 2012;
2. Services exempted, to specified percentage under the Abatement Notification No. 26/2012-ST dated June 20, 2012;

 

Q8: What will be the effective rate of Service tax w.e.f June 1, 2016 after applicability of KKC?
Answer: The effective rate of Service tax shall be 15% with effect from June 1, 2016 i.e.  Service tax @ 14%, Swachh Bharat Cess (“SBC”) @ 0.5% and KKC @ 0.5% on value of taxable services.

Q9: How KKC will be calculated?
Answer: KKC would be calculated in the same way as Service tax is calculated and would be levied on the gross value of taxable services and will be computed in accordance with Section 67 of the Finance Act and the Rules made there under.

Q10: Whether KKC is a ‘Cess on tax’ and we need to calculate KKC @ 0.5% on the amount of Service tax like we were earlier doing for calculating Education Cess and SHE Cess?
Answer: No, KKC is not a Cess on Service tax. KKC shall be levied @ 0.5% on the value of taxable services.

Q11: Whether KKC would be required to be mentioned separately while raising the invoice?

Answer:KKC would be levied, charged, collected and paid to the Central Government under separate accounting head/ code. It is required to charge KKC separately on the invoice as well as account for the same separately in the books of account and paid separately under separate accounting code which is notified by the Government vide Circular No. 194/4/2016-ST dated May 26, 2016. An illustration showing levy of Service tax and SBC & KKC is given below, assuming Rs. 5,000/- as value of a taxable service:

 

Particulars	Tax/ Cess (Rs.)
Value of taxable service: (a)	5,000/-
Add: Service tax @ 14% on (a)	700/-
Add: SB Cess @ 0.5% on (a)	25/-
Add: KKC @ 0.5% on (a)	25/-
Total:	5,750/-

 
Q12: What is the accounting code for KKC?
Answer: The Central Government vide Circular No. 194/4/2016-ST dated May 26, 2016 has notified separate accounting codes for payment of KKC in the following manner:
 

KKC (Minor Head)	Tax Collection	Other Reciepts (Interest)	Deduct Refunds	Penalties
0044-00-507	00441509	00441510	00441511	00441512

 

Q13: How KKC will be calculated for services where abatement is allowed?
Answer: The Central Government vide Notification No. 28/2016-ST dated May 26, 2016 has clarified that KKC will be levied on value of taxable services after availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012 i.e. KKC would be computed on abated value of taxable services.

Q14: What will be the effective rate of Service tax in case of specified services under the Abatement Notification like GTA services (other than used household goods) after levy of KKC?
Answer: Service tax is required to be paid on 30% of value of taxable service, after abatement of 70% as provided under the said Abatement Notification. The effective rate of Service tax including SBC and KKC would be 4.50% (i.e. 30% of 15%).

Q15: How KKC would be calculated on specified services covered under Service Tax (Determination of Value) Rules, 2006 [“the Service Tax Valuation Rules”]? 
Answer: The Central Government vide Notification No. 28/2016-ST dated May 26, 2016 has clarified that the value of taxable services for the purpose of KKC shall be the value as determined in accordance with the Service Tax Valuation Rules.

Q16: What will be the effective rate of Service tax in case of Works Contract service after levy of KKC?
Answer: As per Rule 2A of the Service Tax Valuation Rules, KKC needs to be applied along with Service tax and SBC on specified portion and the effective rate of Service tax in case of Works contract Service would be as under:

• In case of original works: 6% (15%*40%); and
• Other than original works: 10.50% (15%*70%)

 

Q17: What will be the effective rate of Service tax in case of AC Restaurant services and Outdoor catering services? 
Answer: The KKC would be calculated in similar manner on AC Restaurant Services and Outdoor catering services as calculated for Works Contract service . As per Rule 2C of the Service Tax Valuation Rules, KKC needs to be applied along with Service tax and SBC on specified portion. Therefore, the effective rate of Service tax after KKC would be as under:

• In case of AC Restaurant services: 6% (15%*40%); and
• In case of Outdoor catering services: 9% (15%*60%)

 

Q18: How KKC will be calculated for services under Reverse Charge Mechanism?

Answer: The Central Government vide Notification No. 27/2016-ST dated May 26, 2016, has clarified that the KKC would be leviable on specified services under the Reverse Charge Notification No. 30/2012-ST dated June 20, 2012 and all provision for chargeability of Service tax shall be applicable mutatis mutandis for the purposes of KKC also. In other words, KKC along with Service tax shall be paid on taxable services specified under Reverse Charge and Partial Reverse Charge Mechanism as well for Service Receiver to pay the Service tax, SBC and KKC.

Q19: Whether KKC would be applicable on specified services covered under Rule 6 of the Service Tax Rules, 1994 [“the Service Tax Rules”] (i.e. Air Travel agent, Life insurance premium, Purchase and sale of foreign currency and Services by lottery distributors/selling agents)?
Answer: Sub-rule (7E) has been inserted under Rule 6 of the Service Tax Rules vide Notification No. 31/2016-ST dated May 26, 2016, which prescribes that if Service tax is payable at an alternative rate, KKC would also be computed in proportion to such alternative rate, in similar manner as it was prescribed at the time of introduction of SBC:
  i.e Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%

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

For example in case of air travel agent services, the KKC would be payable as per the following rates:
 

Domestic bookings	0.025%     [(0.7%*0.5%)/14%]
International bookings	0.05%       [(1.4%*0.5%)/14%]

 

Q20: What will be the point of taxation (“POT”) for determination of KKC taxability for a service provider?
Answer: POT in case of new levy on services shall be governed by Rule 5 of Point of Taxation Rules, 2011 (“the POTR”). As per Rule 5 read with explanations inserted vide Notification No. 10/2016-ST dated March 1, 2016, only in following two situations (given below), the KKC shall not be payable and in all other cases, KKC is to be paid:

• Invoice issued and payment received against such invoice before such service becomes taxable i.e prior to June 1, 2016
• Payment received before the service becomes taxable i.e prior to June 1, 2016 and invoice has been issued within 14 days of the date when the service is taxed for the first time

 

Q21: Whether KKC would be leviable in following cases in terms of Rule 5 of the POTR?
Answer:

S. No.	Date of applicability of KKC	Date of Invoice	Date of Payment Received	Applicability of KKC
1.	1st June, 2016	14thJune, 2016	30th May, 2016	No
2.	1st June, 2016	18thJune, 2016	30th May, 2016	Yes
3.	1st June, 2016	30th May, 2016	30th May, 2016	No
4.	1st June, 2016	3rdJune, 2016	3rdJune, 2016	Yes
5.	1st June, 2016	30th May, 2016	3rd June, 2016	Yes

 

Q22: Whether KKC is payable with respect to services provided before June 1, 2016?  
Answer: As per Rule 5 of the POTR, KKC is applicable with respect to all taxable services other than services for which the payment is received before June 1, 2016 and the invoice is issued before June 1, 2016 or within 14 days from June 1, 2016. There is debate that in all cases, other than the two cases specified in Rule 5, KKC will be applicable even if the service is provided before June 1, 2016.

But there is legal jurisprudence that if the levy was not applicable at the time of provision of the service, then merely because the payment is made/ received afterwards, the same cannot be made applicable. This view is duly supported by the Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST] in which it was held that “a tax on a thing or goods can only be with reference to a taxable event” and the same contention was upheld again in the case ofAssociation of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], where in the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service.

Therefore, KKC should not be leviable on a service rendered prior to June 1, 2016 when KKC was not applicable at the time of its rendition, merely because its payment is received on or after the date of levy or the invoice is not issued within 14 days of the date of levy.

Hence, a clarification is required from the Government before the stated issue open up unwanted litigation for no benefit to the Department and Trade both.

Q23: What will be the POT for determination of KKC liability in case of service receiver under Reverse Charge Mechanism?
Answer: POT in case of Reverse Charge is determined in accordance with Rule 7 of the POTR. In terms of Rule 7 of the POTR, point of taxation under reverse charge (except associated enterprises located outside India), shall be as under:

• Payment made within 3 months – Date of payment;
• Payment not made within 3 months - Date immediately following the end of 3 months

In case of associated enterprises, where the person providing the service is located outside India, POT shall be earlier of the following:

• Date of debit in the books of account of service receiver;
• Date of Payment

Recently a proviso has been inserted in the said rule vide Notification No. 21/2016-ST dated March 30, 2016, which provides that where there is change in the liability or extent of liability of Service tax to be paid under Reverse Charge, the POT will be determined as under:

• Service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the POT shall be - the date of issuance of invoice.

 

Q24: When there can be change in the liability or extent of liability of Service tax to be paid by service receiver under Reverse Charge?
Answer: There can be change in the liability or extent of liability of Service tax to be paid by service receiver under Reverse Charge because of changes in abatement rate, composition rate, change in rate of Service tax, applicability of any new levy like KKC w.e.f June 1, 2016 etc.

Q25: Whether KKC would be leviable when GTA service has been provided on May 20, 2016 and invoice issued on May 25, 2016 but the payment was made on June 4, 2016?
Answer: In case of GTA services, the liability to pay Service tax is on the service recipient (Consignor/ Consignee liable to pay freight). Hence, POT would be governed by Rule 7 of the POTR (as amended) in the following manner:
 

Date of service	Date of invoice (DOI)	Date of payment (DOP)	Applicability of KKC
20.05.2016	25.05.2016	04.06.2016	POT shall be DOI as per amended Rule 7 of the POTR: KKC not applicable

 

Q26: How the liability on service receiver in case of new levy has changed after insertion of proviso in Rule 7 of the POTR?
Answer: In order to understand implication of proviso inserted in Rule 7 of the POTR, let us take the same example i.e. GTA service has been provided on May 20, 2016 and invoice issued on May 25, 2016 but the payment was made on June 4, 2016. Now, a comparative analysis of liability of pay KKC (w.e.f. June 1, 2016) under Erstwhile Rule 7 and amended Rule 7 is given as under:

Analyses of Erstwhile Rule 7 Vs. Amended Rule 7:
 

	Date of service	Date of invoice (DOI)	Date of payment (DOP)	Applicability of KKC
As per erstwhile Rule 7	20.05.2016	25.05.2016	04.06.2016	POT would have been DOP: KKC applicable
As per amended Rule 7	20.05.2016	25.05.2016	04.06.2016	POT shall be DOI: KKC not applicable

 

Q27: Please explain how liability to pay KKC would be determined for both service provider (under Forward Charge) and service receiver (under Reverse Charge), when services have been provided on May 20, 2016 and invoice issued on May 25, 2016 but the payment was made on June 4, 2016?
Answer: Whereas POT for new levy in case of service provider is governed by Rule 5 of the POTR, POT in case of service receiver liable to pay Service tax under Reverse Charge is governed by Rule 7 of the POTR. A comparative analysis of liability to pay KKC in the hands of service provider (under Forward Charge) and service receiver (under Reverse Charge) is given as under:

Service Provider Vs. Service Receiver: Anomaly
 

	Date of service	Date of invoice (DOI)	Date of payment (DOP)	Applicable Rule	Applicability of KKC
Liability of SP under forward charge	20.05.2016	25.05.2016	04.06.2016	Rule 5(a) of the POTR	KKC applicable
Liability of SR under reverse charge	20.05.2016	25.05.2016	04.06.2016	Rule 7 of the POTR	POT shall be DOI: KKC not applicable

 
Thus, under similar situation, on one hand KKC would be payable in case liability to pay Service tax is on service provider but KKC would not be payable when liability to pay Service tax is on the service recipient under reverse charge. This is again creating anomaly and confusion among the Trade.

Q28: Whether Cenvat credit of the KKC is available?
Answer: The Central Government vide Notification No. 28/2016-CE (N.T.) dated May 26, 2016, has amended Rule 3 of the Credit Rules to provide that:

• A provider of output service shall be allowed to take Cenvat credit of the KKC on taxable services leviable under Section 161 of the Act;
• Cenvat credit of any duty specified in Rule 3(1) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) shall not be utilised for payment of KKC;
• Cenvat credit in respect of KKC shall be utilised only towards payment of KKC.

 

Q29: Can the Cenvat credit of Service tax be used for payment of KKC?
Answer: No, Cenvat credit of Service tax cannot be used for payment of KKC. Only Cenvat credit of KKC paid on input services shall be allowed to be used for payment of the KKC on taxable services provided by a service provider.

Q30: Whether the Cenvat credit of KKC is available to a Manufacturer?
Answer: No, the Cenvat credit of KKC is not available to manufacturer. In terms of amended Rule 3 of the Credit Rules, Cenvat credit of KKC paid on input services shall be allowed to be used for payment of the KKC on taxable services provided by a service provider.

Q31: How KKC will impact “Make in India” and “Start up India” campaign of the Government?
Answer: The KKC will have adverse impact on the “Make in India” and “Start up India” campaign of the Government as the manufacturers paying KKC on procurement of their input services would not be in a position to avail Cenvat credit of the same and thus would form part of their cost, leading to increase in prices to that extent. Further, there would be separate accounts, codes, records & computation, followed by corresponding peculiar Cenvat provisions, required to be maintained for KKC, going against the ease of doing business. Thus, imposition of KKC is likely to hamper “Make in India” and “Start-up India” campaign of the Modi Government.

Q32: Does a person providing both exempted & taxable services and reversing Cenvat credit @ 7% of value of exempted service under Rule 6 of the Credit Rules, needs to reverse the KKC also?
Answer: Yes, since the KKC is included in the Cenvat credit chain unlike SBC, therefore, Cenvat credit have to be reversed in the similar manner as was earlier reversed in case of Education Cess and Secondary Higher Education Cess.

Q33: Can Input Service Distributor (“ISD”) distribute the Cenvat credit of KKC as per Rule 7 of the Credit Rules?
Answer: Yes, Cenvat credit of KKC may also allowed to be distributed to Units providing taxable output services as per Rule 7 of the Credit Rules, but an appropriate amendment is required in this regard in Rule 7 of the Credit Rules. 

Q34: In which column, KKC and the Cenvat credit details of KKC to be shown in the Service Tax return?
Answer: Although the Government has prescribed the separate accounting code for KKC, but Service Tax return i.e. Form ST-3 is not amended as yet, it will be clarified to show availment and utilization of KKC separately in ST-3 in future.

Q35: Would rebate be available of KKC paid on input services used for provision of export of services?
Answer: The Central Government vide Notification No. 29/2016-ST dated May 26, 2016, has amended Notification No. 39/2012-ST dated June 20, 2012 (Rebate of the duty paid on excisable inputs or Service tax and cess paid on all input services used in providing service exported) to insert KKC under the definition of “service tax and cess”, to enable the provider of services to claim rebate of KKC paid on all the input services used in providing services exported in terms of Rule 6A of the Service Tax Rules.

Q36: Would refund be available of KKC paid on specified services used in Special Economic Zone (“SEZ”)?
Answer: Yes, the Notification No. 30/2016-ST dated May 26, 2016 has amended the Notification No. 12/2013-ST dated July 1, 2013 (Exemption on services received by units located in a SEZ or Developer of SEZ and used for their authorised operation), which allows refund of the KKC paid on the specified services to SEZ Unit or developer, on which ab-initio exemption is admissible but not claimed and the refund amount would be calculated as under:

Service tax distributed to SEZ Unit/ Developer as per Rule 7 of the Credit Rules*(0.5+0.5)
                                                               14

For detailed analysis you can watch our video presentation(s) relating to budgetary changes on following topics:

• Reverse Charge - POT & Applicability of Krishi Kalyan Cess: https://www.youtube.com/watch?v=NU5_2iAMy3g

• ‘Any services’ provided by Government or Local authority to a Business Entity chargeable to ST under Reverse Charge w.e.f. April 1, 2016: https://www.youtube.com/watch?v=AB0LpVkuoUY

• Rate of interest on delayed payment & increase in period of limitation for non-fraud cases under ST, Excise & Customs: https://www.youtube.com/watch?v=pWBMo4v54cc

• Changes in Cenvat Credit Rules, 2004 vide Union Budget 2016: https://www.youtube.com/watch?v=8AfMeePYm-M

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

By: Bimal Jain

Scope of prima facie adjustment u/s 143(1) of Income Tax Act enhanced

Scope of prima facie adjustment u/s 143(1) of Income Tax Act enhanced

The Finance Act, 2016 has made a very important amendment to section 143(1) of Income Tax Act, 1961, whereby the scope of prima facie adjustments u/s 143(1) has been enhanced while processing the returns. The following four sub-cluases and two provisos to the clause (a) of Section 143(1) have been added to allow for the following adjustments also while processing the returns:

“(iii) disallowance of loss claimed, if return of previous year for which set off of loss is claimed was furnished beyond the due date specified under section 139(1);

(iv) disallowance of expenditure indicated in the the audit report but not taken into the account in computing the total income in the return;

(v) disallowance of deduction claimed under section 10AA, 80-IA, 80IAB, 80IB, 80IC, 80ID, 80IE, if the return is furnished beyond the due date specified under section 139(1);

(vi) addition of incopme appearing in form 26AS or form 16A or Form 16 which has not been included in computing the total income in the return:

Provided that no such adjustments shall be made unless an intimation is given to the assesseeof such adjustments either in writting or in electric mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within 30 days of the issue of intimation, such adjustments shall be made.”

Thus before filing your return you must check your 26AS form and audit report as also the dates on which your returns have been filed. Otherwise the return would be processed by addition to your income as per form 26AS or after disallowing the set off of losses, expenditures and deductions which you failed to do in the return of income  filed.

These amendments are applicable w.e.f. 01.04.2017 i.e. A Y 2017-18.

Reversal input tax credit due to non-payment of taxes by the selling dealers

PATH BREAKING JUDGEMENT

Assessee cannot be asked to reverse input tax credit due to non-payment of taxes by the selling dealers

Sri Lakshmi Textiles Vs. the Commissioner of Commercial Taxes and Others [2016 (1) TMI 329 – MADRAS HIGH COURT]

Facts:

Sri Lakshmi Textiles(“the Petitioner”) is a partnership firm engaged in the business of inner garments and textiles registered under Tamil Nadu Value Added Tax Act, 2006 (“TN Vat Act”). The Petitioner was regularly filing the VAT return and paying the VAT liability after adjusting the corresponding input tax credit. For the Assessment Year 2013-2014, the Petitioner had reported total turnover and taxable turnover of Rs. 2,02,88,151/- and Rs. 15,98,693/- respectively in his return.

The Department alleged that because some of the selling dealer of the Petitioner had not paid the tax, the Petitioner is required to reverse the corresponding input tax credit and further sought to levy penalty under Section 27(3) of the TN VAT Act on the Petitioner.

Held:

The Hon’ble High Court of Madras relied upon the decision in the case of Sri Vinayaga Agencies Vs. the Assistant Commissioner (Ct), Chennai and another [(2013) 60 VST 283 (Mad)] and held that when the fact of Petitioner paying the taxes to his supplier is not under dispute, the Petitioner cannot be compelled to reverse the input tax Credit due to non-payment of VAT liability by the selling dealer

income accruing to foreign e-commerce companies from India

In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalisation levy.

 

The levy will only apply to business to business transactions.

 

The salient features of this Equalisation Levy is as under:-

 

* It is to tax the e-commerce transaction/digital business which is conducted without regard to national boundaries.

* The equalization levy would be 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.

* Specified services means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government.

* No levy if aggregate amount of consideration does not exceed Rs.1 lacs in any previous year.

 

The Central Board of Direct Taxes has notified 1 June 2016 as the effective date for Equalisation Levy (Chapter VIII of the Finance Act, 2016). Additionally, the Equalisation Levy Rules, 2016 have also been notified and shall be effective from 1 June 2016.  The notification (attached) prescribes the following:

 

Form 1: To be furnished electronically in respect of specified services chargeable to equalisation levy on or before 30 June immediately following that financial year.

Form 2: Notice of demand.

Form 3: Filing of appeal to commissioner of income tax (Appeals).

Form 4: Filing of appeal to Income tax appellate tribunal.

 

The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio and television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.

Annual Return under Service Tax (Applicable w. e. f. 01.04.2016):

Annual Return under Service Tax (Applicable w. e. f. 01.04.2016):

Rule 7, 7B and 7C of Service Tax Rules 1994 are being amended to provide for filing of annual return by assessee. The important points are as under:

(i)       This return shall be in addition to the half yearly returns filed by the assessee;

(ii)       The due date for filing the annual return is 30th November of succeeding financial year;

(iii)       Annual return can be revised within one month from the date of filing of return;

(iv)      Late filing fees for delay in filing the annual return is Rs. 100/- per day for the period of delay, subject to maximum amount of Rs. 20,000/-;

(v)      The format for the same shall be prescribed separately. Further, assessee or a class of assessee exempted from filing the annual return shall also be notified separately.

CBDT Ciruclars

CBDT Circular No. 20/2016 dated 27-5-2016
Extension of time-limit for e-filing of CIT(A) appeals to mitigate taxpayers' inconvenience

• Appeal due on or before May 15, 2016 can be filed upto June 15, 2016 without being treated as delayed appeals

• EVC functionality for verification of e-appeals was made operational from May 12, 2016 for individuals and from May 19, 2016 for other persons

The word limit for filing grounds of appeal and mapping of jurisdiction of CIT(A) also caused grievance in some cases

CBDT Press Release dated 27-5-2016
Implementation of General Anti Avoidance Rule Provisions- Issuance of Guidance Note-Comments of the Stakeholders
CBDT Clarification dated 26-5-2016
Clarifications for implementation of FATCA and CRS

CBDT issues FATCA/CRS clarification, allows account holders' self-certification through internet banking platform

CBDT issues further clarifications for implementation of FATCA and CRS pursuant to consultation held with Financial Institutions (FI); Considering the difficulty of physically obtaining self-certification from account holders, CBDT now provides an "alternative" channel, allows FIs to obtain account-holders' self-certification  through internet banking platform from the user account where the customer has transaction rights; Regarding Tax Identification Number ('TIN') or other functional equivalent of it, CBDT reiterates that TIN is not required to be collected by FIs if it is not issued by the relevant country in which the person is a tax resident including the cases where person is eligible to obtain TIN, but has not obtained the same, however in such cases CBDT suggests that FIs should make note of it and seek TIN once it is obtained; With regards to valuation guidelines to determine account balance/value of a custodial account for the purpose of reporting, states that the valuation of securities may be done at the values "regularly communicated by Depository (CDSL/NSDL) to the depository participants/brokers"; Lastly in respect of the procedure for furnishing report under FATCA and CRS draws attention to Notification No. 4 dated April 6, 2016 and user manual for registration, upload & view of Form 61B

CBDT : Charitable trusts' temporary receipts beyond threshold won't result in cancellation of Sec 12AA registration

CBDT issues beneficial circular, clarifies that where charitable trust engaged in 'advancement of object of general public utility' crosses the threshold of 20% or Rs. 25 lakhs for prescribed commercial activities under proviso to Sec. 2(15), it shall not be mandatory to cancel the Sec. 12AA registration; CBDT Circular adds a condition that there should not be any change  in  the  nature   of activities of  the institution; CBDT Circular notes the background that such charitable institute could be treated as a charitable institution in one year and not a charitable  institution  in the other  year  depending  on  the aggregate value  of receipts from commercial activities; CBDT clarifies that "The temporary excess of receipts beyond the specified cut-off in one  year may  not  necessarily  be the  outcome of alteration  in the  very nature of the  activities of the  trust orinstitution  requiring cancellation  of registration  already granted to the trust or institution"; CBDT further states that "If  in   any particular   year,    the   specified    cut-off   is exceeded,   the  tax  exemption  would   be denied   to  the  institution   in  that year   and cancellation   of  registration    would  not   be mandatory  unless   such  cancellation becomes necessary  on  the ground(s)   prescribed under the  Act."; CBDT notes that in view of the introduction of special  provisions  relating   to  tax  on  accretedincome under Chapter  XII-EB  in the  Act vide  Finance  Act,  2016, cancellation  of  registration  granted  u/s 12AA  may lead   to  a charitable  institution  getting  hit  by sub-section (3) of Sec. 115TD  and  becoming liable  to tax  on  accreted income & resulting into a hardship; CBDT therefore states that officers should not cancel registration merely because proviso to Sec. 2(15) comes into effect; CBDT further states that "The   process   for cancellation   of registration   is  to  be  initiated  strictly    in  accordance with   section 12AA(3)   and  12AA(4)  after  carefully examining the  applicability of these  provisions"

Beneficial CBDT Circular No. 21/2016 dated 26-5-2016
No cancellation of Sec 12AA registration where charitable trusts' temporary receipts crosses threshold u/s 2(15)

• Where charitable trust engaged in 'advancement of object of general public utility' crosses the threshold of 20% or Rs. 25 lakhs for prescribed commercial activities under proviso to Sec. 2(15), it shall not be mandatory to cancel Sec. 12AA registration.

• However, there should not be any change in the nature of activities of the institution.

• The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution.

• If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act.

• Cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of Sec. 115TD and becoming liable to tax on accredited income & resulting into a hardship.

The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions

 

 

·         CBDT/ GoI Invites Comments and Inputs of the Stakeholders for Issuance of Guidance Note on Implementation of Provisions of General Anti Avoidance Rule (GAAR)

·         The provisions of General Anti Avoidance Rule (GAAR) are contained in Chapter X-A of the Income-tax Act, 1961 (the Act). The GAAR provisions shall be effective from assessment year 2018-19 onwards, i.e.financial Year 2017-18. The necessary procedures for application of GAAR and conditions under which it shall not apply, have been enumerated in Rules 10U to 10UC of the Income-tax Rules, 1962. 

·         Several stakeholders and industry associations have represented that guidelines for implementation of GAAR be issued so that there is adequate clarity in this regard. 

·         The general public and stakeholders are therefore requested by the GoI to provide their inputs on the provisions of GAAR in respect of which further clarity is required, from its implementation perspective. For the exercise to be meaningful, it is essential that reference to hypothetical situation be avoided. If the input relates to interpretation of a specific real world structure or arrangement, the structure should be such as that, which commonly occurs in the sector and involves clarification of general principles of application. Further, in relation to such structure, the particular provision and apprehensions or doubts along with basis thereof may also be provided with all the relevant facts. 2560185

·         The inputs may be provided on or before 30.06.2015 electronically on e-mail ID gaar-dor@gov.in and/or by post at the following address:

·         "Comments for Guidance Note on GAAR", The Director (Tax Policy & Legislation)-I, Room No. 147-D, Central Board of Direct Taxes, North Block, New Delhi – 110001.

High Value Financial transaction Information collected by Income tax

Annual Information Return (AIR) of 'high value financial transactions' is required to be furnished under section 285BA of the Income-tax Act, 1961 by 'specified persons' in respect of 'specified transactions' registered or recorded by them during the financial year. The due date of filing of the return is the 31st of August of the following year. The 'specified persons' and the 'specified transactions' are listed in Rule 114E of the Income-tax Rules, 1962. Briefly, these are as under:

Sl. No. (1)	Class of Person(2)	Nature and Value of transaction(3)	Clarifications by Central Board of Direct Taxes vide Circular No.07/2005 dated 24thAug, 2005(4)
1.	A Banking Company to which the Banking Regulation Act, 1949(10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act).	Cash deposits aggregating to ten lakh rupees or more in a year in any savings account of a person maintained in that bank	Only the aggregate of all the cash deposits in the savings account of a person to be reported as one transaction and the date of the transaction is to be the last date of the financial year i.e. 31.03.2005 in respect of FY 2004-2005.
2.	A Banking Company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or any other Company or institution issuing credit card.	Payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to two lakh rupees or more in the year.	Only the aggregate of all the payments by a person to the credit card company is required to be reported as one transaction and date of transaction is to be the last date of the financial year i.e. 31.03.2005 in respect of FY 2004-05.
3.	A trustee of a Mutual Fund or such other person managing the affairs of the Mutual Fund as may be duly authorized by the trustee in this behalf.	Receipt from any person of an amount of two lakh rupees or more for acquiring units of that fund.	The amount actually received from the transacting party and not the amount relating to allotment is to be reported.
4.	A Company or institution issuing bonds or debentures.	Receipt from any person of an amount of five lakh rupees or more for acquiring bonds or debentures issued by the Company or institution.	The amount actually received from the transacting party and not the amount relating to allotment is to be reported.
5.	A Company issuing shares through public or rights issue.	Receipt from any person of an amount of one lakh rupees or more for acquiring shares issued by the Company.	The amount actually received from the transacting party and not the amount relating to allotment is to be reported.
6.	Registrar or Sub Registrar appointed under section 6 of the Registration Act, 1908	Purchase or sale by any person of immoveable property valued at thirty lakh rupees or more.	There may be certain situations where the transaction in respect of property valued at thirty lakh rupees involves joint parties and value for one or more parties is less than rupees thirty lakh. In such situations, all such transactions are to be reported in respect of all the joint parties even though the value of transaction in the hands of one or more of the joint parties is less than the threshold limit.
7.	A person being an officer of the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 who is duly authorized by the Reserve Bank of India in this behalf.	Receipt from any person of an amount or amounts aggregating to five lakh rupees or more in a year for bonds issued by the Reserve Bank of India.	The aggregate of all the receipts from a person is required to be reported as one transaction and the date of the transaction is to be mentioned as the last date of the financial year i.e. 31.03.2005 in respect of FY 2004-05.

Draft Indirect Transfer Rules

CBDT notifies draft rules for determination of Fair Market Value (FMV)  and reporting requirement for Indian concerns in respect of indirect transfer provisions u/s 9(1) ; Sec 9(1) states  'share or interest is said to derive its value substantially from assets located in India, if fair market value (FMV) of assets located in India comprise at  least 50% of the FMV of total assets of the company or entity'; Draft  rules introduce 11 areas of reporting by Indian company ; CBDT seeks comments on draft rules by May 29

Unique Warehouse Code

Customs

 Allotment of Unique Warehouse Code for Customs Bonded Warehouses

The Central Board of Excise and Customs ("the CBEC") vide Circular No. 19 /2016 –Customs dated May 20, 2016 has informed that in terms of changes made in Finance Act, 2016 in regard to shifting towards a record based control with respect to Bonded Warehouses, it is proposed that each Warehouse be allotted a Unique Warehouse Code so that importers can at the into-bond bill of entry stage declare the Warehouse in which goods shall be deposited.

In this respect a module has been developed in ICES to capture details of Customs Bonded Warehouses licensed in each Commissionerate and to generate a Warehouse Code in the system.

Further, any formation of Central Excise having control over a Customs Bonded Warehouse but not connected on ICES are directed to forward the list of Warehouses licensed by them to the Principal Commissioner/ Commissioner of Customs having jurisdiction over the nearest EDI enabled Customs station latest by June 1, 2016.

Also, the CBEC has requested the Commissioners at EDI locations to complete the said exercise by 6th June, 2016 and confirm the same and it is proposed to publish the said code  generated on the ICEGATE website for the information of trade from June 10, 2016 to June 15, 2016.

From June 20, 2016, declaring the warehousing code in the Bill of Entry would become mandatory for filing Into-Bond and Ex-Bond Bill of Entry and Ex-Bond Bill of Entries with invalid Warehousing Code will be rejected.

*SALARIED EMPLOYEES TO SUBMIT PROOF FOR LTA, HRA CLAIMS*

*SALARIED EMPLOYEES TO SUBMIT PROOF FOR LTA, HRA CLAIMS*

The CBDT (Central Board of Direct Taxes) has introduced a new form (Form 12 BB) for claiming tax deduction towards LTA, LTC, HRA & interest paid for home loans. The new form mandates people to furnish proof of travel while claiming LTA, LTC, and details of landlord in case of HRA claims. Let us understand this in detail:-

*Why this Rule?*

The main reason behind introducing this rule is to plug the loopholes under tax laws by tightening the entire procedure for claiming these tax exemptions. This becomes more important because there was no standard or prescribed format until now for filing these declarations. And in the Budget 2015, the Finance Act had already introduced Section 192(2D) of the Income Tax Act mandating employers to collect all necessary evidences, but the rules and form were yet to be prescribed. The same has been done now.

*What is this form about?*

The declaration needs to be filed for claiming deductions in a prescribed form i.e. Form 12 BB as set up under rule 26C.

*What is the obligation on the Employer?*

Earlier the employers were not under any statutory obligations for collecting bills or other proofs in order to prove the fact that their employees have actually utilized the money they are claiming towards these claims.

But, the current amendment with the introduction of this rule will now make all the employers obligated to collect all the relevant information in the prescribed format apart from collecting the proof of evidence, before they can allow the respective benefits under various tax benefits to the employees.

Details needed to furnish LTA, LTC and HRA claims

The circular as issued by the government has not specified the documents required to be submitted for claiming deductions but the existing documents that employees used to provide should hold good. Following are the documents which are required to claim these benefits:-

*HRA:*

As per the notification issued by the government, a person claiming HRA (Housing Rent Allowance) for over Rs. 1 lakh needs to furnish name, address and PAN i.e. Permanent Account Number of the landlord, apart from giving the rent receipts. With this the government can start tracking the fraudulent claims and can also verify whether the rent received by the landlord has been duly disclosed in their tax-return.

*LTA/LTC:*

To claim LTA (Leave Travel Allowance) or LTC (Leave Travel Concession), people need to provide the evidence of expenditure, and submit boarding pass and tickets for claiming LTA or LTC.

*Housing Loan:*

To claim deduction on the interest on a housing loan, people need to provide PAN of the lender and their name and address.

*Deductions u/s Chapter VI-A*

People need to submit relevant proof for claiming deductions under chapters VIA(A) and VI-A that cover Sections 80C, 80CCC, 80CCD, 80E, 80G, 80TTA. Sections 80CCC, 80CCD and section 80C allow a deduction of Rs. 1.5 lakhs on specified investments.

*What will be the impact of this new Rule?*

The new rule and the forms will make it really easy for both the taxpayer and the employer because it brings standardization which will help employees and employers both. Moreover from the government's point of view, the new format will ensure collection and maintenance of information, and will assist them in streamlining their assessment process and curb the malpractice of fake claims.

*When will this rule come into effect?*

The rules will be applicable from June 1, 2016.