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| Date: Nov 04, 2011 | |
| Payment of Cheques/Drafts/Pay Orders/Banker’s Cheques | |
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Saturday, 12 November 2011
Payment of Cheques/Drafts/Pay Orders/Banker’s Cheques
Indian Accounting Standards
Accounting is the art of
recording transactions in the best manner possible, so as to enable the
reader to arrive at judgments/come to conclusions, and in this regard it
is utmost necessary that there are set guidelines. These guidelines are
generally called accounting policies. The intricacies of accounting
policies permitted Companies to alter their accounting principles for
their benefit. This made it impossible to make comparisons. In order to
avoid the above and to have a harmonised accounting principle, Standards
needed to be set by recognised accounting bodies. This paved the way
for Accounting Standards to come into existence.
Accounting
Standards in India are issued By the Institute of Chartered Accountanst
of India (ICAI). At present there are 30 Accounting Standards issued by
ICAI.
Objective of Accounting Standards
Objective
of Accounting Standards is to standarize the diverse accounting
policies and practices with a view to eliminate to the extent possible
the non-comparability of financial statements and the reliability to the
financial statements.
The
institute of Chatered Accountants of India, recognizing the need to
harmonize the diversre accounting policies and practices, constituted at
Accounting Standard Board (ASB) on 21st April, 1977.
Compliance with Accounting Standards issued by ICAI
Sub
Section(3A) to section 211 of Companies Act, 1956 requires that every
Profit/Loss Account and Balance Sheet shall comply with the Accounting
Standards. 'Accounting Standards' means the standard of accounting
recomended by the ICAI and prescribed by the Central Government in
consultation with the National Advisory Committee on Accounting
Standards(NACAs) constituted under section 210(1) of companies Act,
1956.
Accounting Standards Issued by the Institute of Chatered Accountants of India are as below:
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Cash Flow Statements:
Cash flow statement is additional information to user of financial
statement. This statement exhibits the flow of incoming and outgoing
cash. This statement assesses the ability of the enterprise to generate
cash and to utilize the cash. This statement is one of the tools for
assessing the liquidity and solvency of the enterprise.
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Contigencies and Events occuring after the balance sheet date:
In preparing financial statement of a particular enterprise, accounting
is done by following accrual basis of accounting and prudent accounting
policies to calculate the profit or loss for the year and to recognize
assets and liabilities in balance sheet. While following the prudent
accounting policies, the provision is made for all known liabilities and
losses even for those liabilities / events, which are probable.
Professional judgement is required to classify the likehood of the
future events occuring and, therefore, the question of contingencies and
their accounting arises.
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Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies :
The objective of this accounting standard is to prescribe the criteria
for certain items in the profit and loss account so that comparability
of the financial statement can be enhanced. Profit and loss account
being a period statement covers the items of the income and expenditure
of the particular period. This accounting standard also deals with
change in accounting policy, accounting estimates and extraordinary
items.
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Construction Contracts :
Accounting for long term construction contracts involves question as to
when revenue should be recognized and how to measure the revenue in the
books of contractor. As the period of construction contract is long,
work of construction starts in one year and is completed in another year
or after 4-5 years or so. Therefore question arises how the profit or
loss of construction contract by contractor should be determined. There
may be following two ways to determine profit or loss: On year-to-year
basis based on percentage of completion or On cpmpletion of the
contract.
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Revenue Recognition :
The standard explains as to when the revenue should be recognized in
profit and loss account and also states the circumstances in which
revenue recognition can be postponed. Revenue means gross inflow of
cash, receivable or other consideration arising in the course of
ordinary activities of an enterprise such as:- The sale of goods,
Rendering of Services, and Use of enterprises resources by other
yeilding interest, dividend and royalties. In other words, revenue is a
charge made to customers / clients for goods supplied and services
rendered.
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The Effects of changes in Foreign Exchange Rates :
Effect of Changes in Foreign Exchange Rate shall be applicable in
Respect of Accounting Period commencing on or after 01-04-2004 and is
mandatory in nature. This accounting Standard applicable to accounting
for transaction in Foreign currencies in translating in the Financial
Statement Of foreign operation Integral as well as non- integral and
also accounting for For forward exchange.Effect of Changes in Foreign
Exchange Rate, an enterprises should disclose following aspects:
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Accounting for Government Grants :
Governement Grants are assistance by the Govt. in the form of cash or
kind to an enterprise in return for past or future compliance with
certain conditions. Government assistance, which cannot be valued
reasonably, is excluded from Govt. grants,. Those transactions with
Governement, which cannot be distinguished from the normal trading
transactions of the enterprise, are not considered as Government grants.
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Accounting for Amalgamation :
This accounting standard deals with accounting to be made in books of
Transferee company in case of amalgamtion. This accounting standard is
not applicable to cases of acquisition of shares when one company
acquires / purcahses the share of another company and the acquired
company is not dissolved and its seperate entity continues to exist. The
standard is applicable when acquired company is dissolved and seperate
entity ceased exist and purchasing company continues with the business
of acquired company
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Borrowing Costs :
Enterprises are borrowing the funds to acquire, build and install the
fixed assets and other assets, these assets take time to make them
useable or saleable, therefore the enterprises incur the interest (cost
on borrowing) to acquire and build these assets. The objective of the
Accounting Standard is to prescribe the treatment of borrowing cost
(interest + other cost) in accounting, whether the cost of borrowing
should be included in the cost of assets or not.
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Segment Reporting :
An enterprise needs in multiple products/services and operates in
different geographical areas. Multiple products / services and their
operations in different geographical areas are exposed to different
risks and returns. Information about multiple products / services and
their operation in different geographical areas are called segment
information. Such information is used to assess the risk and return of
multiple products/services and their operation in different geographical
areas. Disclosure of such information is called segment reporting.
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Related Paty Disclosure :
Sometimes business transactions between related parties lose the
feature and character of the arms length transactions. Related party
relationship affects the volume and decision of business of one
enterprise for the benefit of the other enterprise. Hence disclosure of
related party transaction is essential for proper understanding of
financial performance and financial position of enterprise.
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Accounting for leases :
Lease is an arrangement by which the lesser gives the right to use an
asset for given period of time to the lessee on rent. It involves two
parties, a lessor and a lessee and an asset which is to be leased. The
lessor who owns the asset agrees to allow the lessee to use it for a
specified period of time in return of periodic rent payments.
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Earning Per Share :Earning
per share (EPS)is a financial ratio that gives the information
regarding earning available to each equiy share. It is very important
financial ratio for assessing the state of market price of share. This
accounting standard gives computational methodology for the
determination and presentation of earning per share, which will improve
the comparison of EPS. The statement is applicable to the enterprise
whose equity shares or potential equity shares are listed in stock
exchange.
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Consolidated Financial Statements :
The objective of this statement is to present financial statements of a
parent and its subsidiary (ies) as a single economic entity. In other
words the holding company and its subsidiary (ies) are treated as one
entity for the preparation of these consolidated financial statements.
Consolidated profit/loss account and consolidated balance sheet are
prepared for disclosing the total profit/loss of the group and total
assets and liabilities of the group. As per this accounting standard,
the conslidated balance sheet if prepared should be prepared in the
manner prescribed by this statement.
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Accounting for Taxes on Income :
This accounting standard prescribes the accounting treatment for taxes
on income. Traditionally, amount of tax payable is determined on the
profit/loss computed as per income tax laws. According to this
accounting standard, tax on income is determined on the principle of
accrual concept. According to this concept, tax should be accounted in
the period in which corresponding revenue and expenses are accounted. In
simple words tax shall be accounted on accrual basis; not on liability
to pay basis.
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Accounting for Investments in Associates in consolidated financial statements : The
accounting standard was formulated with the objective to set out the
principles and procedures for recognizing the investment in associates
in the cosolidated financial statements of the investor, so that the
effect of investment in associates on the financial position of the
group is indicated.
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Discontinuing Operations : The
objective of this standard is to establish principles for reporting
information about discontinuing operations. This standard covers
"discontinuing operations" rather than "discontinued operation". The
focus of the disclosure of the Information is about the operations which
the enterprise plans to discontinue rather than dsclosing on the
operations which are already discontinued. However, the disclosure about
discontinued operation is also covered by this standard.
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Financial Reporting of Interest in joint ventures : Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic activity under 'joint control'.
Control is the power to govern the financial and operating policies of
an economic activity so as to obtain benefit from it. 'Joint control' is
the contractually agreed sharing of control over economic activity.
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Impairment of Assets :
The dictionary meanong of 'impairment of asset' is weakening in value
of asset. In other words when the value of asset decreases, it may be
called impairment of an asset. As per AS-28 asset is said to be impaired
when carrying amount of asset is more than its recoverable amount.
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Provisions, Contingent Liabilities And Contingent Assets :
Objective of this standard is to prescribe the accounting for
Provisions, Contingent Liabilitites, Contingent Assets, Provision for
restructuring cost.
Provision: It is a liability, which can be measured only by using a substantial degree of estimation. Liability: A liability is present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. |
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Financial Instrument:
Recognition and Measurement, issued by The Council of the Institute of
Chartered Accountants of India, comes into effect in respect of
Accounting periods commencing on or after 1-4-2009 and will be
recommendatory in nature for An initial period of two years. This
Accounting Standard will become mandatory in respect of Accounting
periods commencing on or after 1-4-2011 for all commercial, industrial
and business Entities except to a Small and Medium-sized Entity. The
objective of this Standard is to establish principles for recognizing
and measuring Financial assets, financial liabilities and some contracts
to buy or sell non-financial items. Requirements for presenting
information about financial instruments are in Accounting Standard.
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Financial Instrument: presentation : The
objective of this Standard is to establish principles for presenting
financial instruments as liabilities or equity and for offsetting
financial assets and financial liabilities. It applies to the
classification of financial instruments, from the perspective of the
issuer, into financial assets, financial liabilities and equity
instruments; the classification of related interest, dividends, losses
and gains; and the circumstances in which financial assets and financial
liabilities should be offset. The principles in this Standard
complement the principles for recognising and measuring financial assets
and financial liabilities in Accounting Standard Financial
Instruments:
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Financial Instruments, Disclosures and Limited revision to accounting standards: The
objective of this Standard is to require entities to provide
disclosures in their financial statements that enable users to evaluate:
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Friday, 16 September 2011
What is Bank rate? Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate. Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down, and it can also indicate an increase or decrease in your EMI.
What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e.(a) ensures that a portion of bank deposits is kept with RBI and is totally risk-free, (b) enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money.
What is SLR? Every bank is required to
maintain at the close of business every day, a minimum proportion of their Net
Demand and Time Liabilities as liquid assets in the form of cash, gold and
un-encumbered approved securities. The ratio of liquid assets to demand and
time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is
empowered to increase this ratio up to 40%. An increase in SLR also restrict the
bank’s leverage position to pump more money into the economy.
Repo (Repurchase) rate is the rate at which the RBI lends
shot-term money to the banks against securities. When the repo rate increases
borrowing from RBI becomes more expensive. Therefore, we can say that in
case, RBI wants to make it more expensive for the banks to
borrow money, it increases the repo rate; similarly, if it wants to make it
cheaper for banks to borrow money, it reduces the repo rate
Reverse Repo rate is the rate at which banks park their short-term excess
liquidity with the RBI. The banks
use this tool when they feel that they are stuck with excess funds and are not
able to invest anywhere for reasonable returns. An increase
in the reverse repo rate means that the RBI is ready to borrow money from
the banks at a higher rate of interest. As a result, banks would prefer
to keep more and more surplus funds with RBI.
Thus, we can conclude that Repo Rate signifies the rate at
which liquidity is injected in the banking system by RBI, whereas Reverse repo
rate signifies the rate at which the central bank absorbs liquidity from the banks
The policy announcements on 03/05/2011, indicates that now
repo rate has become the only independent variable policy rate, marking a shift
from earlier method of calibrating various policy rates separately. The reverse
repo rate -- the rate at which RBI borrows – will be kept 100 basis points
lower than the repo rate. On the other hand Marginal Standing Facility (MSF)
rate will be kept 100 basis points higher than the repo rate.
Continuing with its anti-inflationary
stance, the Reserve Bank of India (RBI) has raised the benchmark interest rates
by quarter of a percent point on Friday, while keeping cash reserve ratio (CRR)
rate unchanged.
The decision comes as the authorities struggle to control near double-digit inflation, which is uncomfortably high for more than two years.
The repo rate now stands at 8.25%, while
the reserve repo gets adjusted to 7.25%. The CRR remains unchanged at 6%.
The hike in rates was along expected lines.
In a poll of bankers and economists by CNBC-TV18, 70% said the RBI will hike
rates by 0.25% while only 20% believed that there will be no hike this time.
The RBI has been one of the most aggressive central banks in
the world, however, price pressures still remain high, mainly due
to strong demand pressures that have spread from food to other
commodities.
The wholesale price index, India's main inflation gauge, rose
9.78% in August, higher than the median forecast for a 9.6% rise in a Reuters's
poll and above the 9.22% recorded for July.
Inflation has been much above the comfort zone, the RBI
official told reporters adding, "We will continue with the current
anti-inflationary stance."
The RBI monetary tightening is impacting the country's
economic growth, finance minister Pranab Mukherjee told reporters on Friday,
after the central bank delivered its 12th rate hike in the last 18 months.
"I am hopeful the measures taken will help control inflation," he
said adding, "…headline inflation is a matter of concern."
He was also optimistic of growth picking up in the second
half of the year.
When the repo rate increases, borrowing from RBI becomes more
expensive. As a result, all loans -- personal and corporate -- are likely to
become costlier and home loan EMIs will increase once banks hike their base
rate - the rate to which most retail loans are pegged.
RBI believes the global economic environment has worsened and
the recent developments in them a matter of "serious concern". It
sees a downside risk to July growth projection.
"The pace of exports is unlikely to sustain on weak
demand," RBI said.
GDP growth during the first quarter (April-June) of the
2011-12 financial year moderated to an 18-month low of 7.7% from 8.8% in the
corresponding period year ago, following a slowdown in industrial output growth
during July to 3.3%, the lowest in 21 months.
Monday, 5 September 2011
Amendment in Service Tax under Union Budget 2011
A. Introduction of new taxable services under the tax net (to be applicable from the date of notification after passage of Finance Bill 2011)
- Services by air-conditioned restaurants having license to serve liquor with a 70% abatement on this service
- Short-term accommodation in hotels/inns/clubs/guest houses etc for a continuos period of less than 3 months with declared tariff of Rs. 1,000 per day or higher by an exemption notification and an abatement of 50% on value of service.
B. Conversion from Cash Basis to accrual basis and Point of Taxation
The Finance bill proposes to revamp the entire service tax regime by conversion from cash basis to accrual. To effect the same, it is proposed by Notification No 3/2011 to amend Rule 6 of Service Tax Rules 1994 and substitute the words “payments are received, towards the value of taxable services ”, with the words “service is deemed to be provided as per the rules framed in this regard ”. Rules as mentioned, that how the calculation will be made will be released shortly.
Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:
- Date on which service is provided or to be provided
- Date of invoice
- Date of payment
Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.
C. Scope of few existing services has been extended / modified (to be applicable from the date of notification after passage of Finance Bill 2011)
- Authorized Service Station ’s Services [section 65 (105) (zo)] to include service by any person, i.e. whether authorized service station or otherwise, for All motor vehicles, other than vehicles used for goods transport and three-wheeler auto-rickshaws; and decoration services.
- Life Insurance business [section 65 (105) (zx)] to include portion of investment along with risk except portion of commission, mortality and handling charges. In case break up is not available 1.5% on value of premium.
- Commercial Training or Coaching Service [section 65 (105) (zzc)] to include service related to unrecognized course even by institute rendering services for recognized course as well. Suitable exemption for pre school etc will be issued.
- Club or Association [section 65 (105) (zzze)] to include service to non-members. Chamber of commerce received one time exemption for the period 16.06.2005 to 31.03.2008.
- Business Support Service [section 65 (105) (zzzq)] to include services of operational or administrative assistance of any kind.
- Health services [section 65 (105) (zzzzo)] redefined to include services by clinical establishment having facility related to 25 beds for in-patient treatment at any time of the year. Service will include diagnostic services and service by doctor who is not employee of clinical establishment. Abatement of 50% will be issue in time being.
- Services by legal professionals [section 65 (105) (zzzzm)]:
The scope of the existing service is being expanded to include:
- Services of advice, consultancy or assistance provided by a business entity to individuals as well;
- Representational services provided by any person to a business entity; and
- Services provided by arbitrators to business entities.
- Services provided by individuals to other individual will remain outside the levy.
- Money changing services [section 65 (105) (zm and zzk)] through a new rule (2B) which has been introduced in the Service tax (Determination of Value) Rules, 2006 to levy service tax on a value of difference between the exchange price and rate prescribed by RBI. In case RBI referred rate is not available, then 1% of value of Indian currency provided or received. In case RBI reference rate is also not available as the currency exchange in not INR, then 1% of lowest of the currency, if exchanged in INR.
D. Amendments related to Compliances (to be applicable from the date of notification after passage of Finance Bill 2011)
- Increase in penalty for late filing of Service Tax Return under section 70 from INR 2000 to INR 20000/- with original slab to continue of Rs. 100/- per day.
- New sub section 73(4A) to replace section 73(1A) and 73(2) to done away the benefit of reduced penalty in case of fraud mis-statement, suppression, collusion etc. Now in audit etc if the certain short payment recovered the same need to be paid along with 1% per month of the tax amount for the duration of default, with an upper ceiling of 25% of the tax amount
- Interest rate for delayed payment of service tax is being increased to 18% per annum with a relief of 3% to assessee having turnover of less than INR 60 lakh.
- Penalty for failure to pay tax under section 76 is being halved from 100% to 50% with a change in INR 100 from INR 200 per day.
- Maximum Penalty under Section 77 increased from INR 5000 to INR 10000.
- Penalty under section 78 reduced from 200% to maximum 100% (mandatory) subject to a further relief of 25% if tax paid together with interest and reduced penalty within one month. (Within 90 days for assessee having turnover of less than INR 60 lakh).
Situation
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Position in Records
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Penalty & Provision
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Mitigation
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Complete Waiver
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No fraud, suppression etc. Under Section 76
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Captured
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1% of tax or Rs.100 per day upto 50% of tax amount: Sec 76
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Totally mitigated if tax and interest paid before issue of notice: Section 73(3)
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On showing reasonable cause under section 80
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Cases of fraud, suppression etc. under Section 78
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Captured true & complete position in records
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50% of tax amount: Proviso to Section 78
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(a) 1% per month; max of 25% if all dues paid before notice: Sec 73(4A);
(b) 25% of tax if all dues paid within 30 days (90 days for small assesses): Provisos to Section 78 |
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Not so Captured
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Equal amount: Section 78
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No mitigation at all
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Not possible
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- Power to issue search warrant given at Joint commissioner level with execution authority to Superintendent.
- Provisions relating to prosecution are proposed in the event of (with permission of chief Commissioner):
- Provision of service without issue of invoice;
- Availment and utilization of CENVAT credit without actual receipt of inputs or input services;
- Maintaining false books of accounts or failure to supply any information or submitting false information;
- Non-payment of amount collected as service tax for a period of more than six months.
E. Changes in Service Tax Rules, 1994, (will come into effect from 01.04.2011)
- A new rule 5B has been introduced to provide that the applicable rate of tax shall be the rate prevailing at the time when the services are deemed to have been provided.
- Rule 6(3) amended to claim credit of earlier tax paid in case of reversal of invoice or money.
- Under Rule 6(4B) limit of adjustment for non-centralized registered assessee increase from INR 1 lakh to INR 2 lakh.
- A new sub-rule 6A has been introduced in rule 6 to provide that if an amount of service tax has been self-assessed but not paid, the same shall be recoverable alongwith interest under section 87 of the Act.
- The composition rate in sub-rule 7B of rule 6 applicable to in relation to purchase or sale of foreign currency, including money changing, has been reduced from 0.25% to 0.1% and the Proviso has been deleted.
- Service provided by builders [section 65(105)(zzzzu)] is being added to sub-rule 1(i) and will thus be considered as exported, subject to compliance with other conditions, if the immovable property is situated outside India.
- Rail travel agent [ 65(105)(zz)] and health check-up or preventive care [65(105)(zzzzo)] are being added to sub-rule 1(ii) and will thus be considered as exported, subject to compliance with other conditions, when they are performed outside India; and
- Services of credit rating agency [65(105)(x)], market research agency [65(105)(y)], technical testing and analysis [65(105)(zzh)], transport of goods by air [65(105)(zzn)], goods transport agency [65(105)(zzp)], opinion poll [65(105)(zzs)] and transport of goods by rail [65(105)(zzzp)] are being deleted from sub-rule 1(ii) and thus the additional condition of performance outside India will stand removed. Thus they will be considered as exported, subject to compliance with the relevant conditions, if the recipient is located abroad.
- Exemption has been granted vide notification 8/2011-ST to services of transportation of goods by air or road or rail provided to a person located in India when the goods are transported from a place outside India to a destination outside India.
- Vide notification 9/2011-ST to the transportation of goods by air service to the extent air freight is included in the customs value of goods in order to avoid taxing this service twice.
- A new sub-rule (2A) is being added in rule 3 in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification 1/2011-ST so as to restrict the Cenvat credit to 40% of the tax paid on services relating to erection, commissioning & installation; commercial or industrial construction and construction of residential complex, in case tax has been paid on full value of the service after availing Cenvat credit on inputs i.e. without availing exemption notification 1/2006-ST dated 01.03.2006. This has been done to ensure that the credit on inputs is not availed of indirectly while availing of the composition scheme.
Changes made in Cenvat Credit Rules, 2004 are as under.
Input:-
- “Input ” has been defined to include, inter-alia, all goods used in a factory by the manufacturer and goods used for providing any output service;
- Goods that shall not constitute input have been specifically excluded. These shall include, besides petroleum items, any goods used for construction of a civil structure (by a manufacturer as well as a service provider) excepting when they are used in the provision of any of the specified construction services. Thus, goods used by a sub-contractor for rendering services of construction to the main contractor shall constitute input.
- Exclusions also cover goods such as food items, goods used in a guesthouse, residential colony, club or a recreational facility or a clinical establishment which are primarily meant for the personal use or consumption of the employees. When any of these goods are used directly in the manufacture of final products or provision of a service they will constitute input.
- Goods which have no relationship whatsoever with the manufacture have also been excluded.
Input Service:-
- The distinction between goods and services is diminishing and many goods can be received as services. Accordingly the definition of “input service ” has been aligned with the definition of “input ” such that goods that do not constitute “input ” do not qualify as “input service ”. Thus a service relating to construction of civil structure will not constitute “input service ” unless it is provided by a sub-contractor to the main contractor.
- Similarly services relating to motor vehicle i.e. rent-a-cab, use of tangible goods, insurance or repair of vehicle shall not constitute an “input service except in respect of output services where credit on motor vehicle is permitted as “capital goods ”.
- On the same lines, a service meant primarily for the personal use or consumption of employees will not constitute an input service. A list of specific services has also been given by way of example in the definition. Most of these services constitute a part of the cost-to-company package of the employee and are provided either free of charge or on concessional basis to company employees.
- Expression “activities relating to business ” has been deleted and Business exhibition and legal services added in the list of services.
Obligation of manufacturer and provider of services
Definition of exempted goods shall include such excisable goods as are covered by the notification relating to concessional duty with the condition that no credit of input and input service shall be availed. This amendment shall come into effect on 01.03.2011.
Similarly the definition of exempted services shall include taxable services which are partially exempted with the condition that no credit of input and input service shall be availed. Moreover it has been clarified that exempted service will include trading service.
Option to maintain separate accounts only in respect of inputs (and not together with input services) has also been given so that allocation as per formula given in rule 6(3A) is done only in so far as credits on input services are concerned.
The amount payable under rule 6(3)(i) in respect of services has been reduced from 6% to 5%. Moreover in the case of exempted services (that are partially taxed with no facility of credits) this amount shall be 5% of the exempted value of the service.
Thus if the exemption on a certain service is 60%, the amount required to be paid shall be 3% (60X5%) of the full value of the service. In case of exempt goods, amount payable will be reduced by the amount paid at the concessional rate.
For the purpose of applying the formula under rule 6(3A) the value of trading service as well as value of services covered by composition schemes has been defined. The value of trading service shall be the difference between the sale price and purchase price of goods. The value in respect of services covered by a composition scheme will be tax amount divided by the rate of service tax applicable under section 66 read with any general exemption. As the prevalent rate is 10% the value shall be ten times the amount of service paid or payable.
A substantial part of the income of a bank or a life insurance company is from investments or by way of interest in which a number of inputs and input services are used. There have been difficulties in ascertaining the amount of credit flowing into earning these amounts. Thus a banking company or a financial institution, including NBFC, providing banking and financial services are being obligated to pay an amount equal to 50% of the credit availed. In case of services relating to life insurance or management of ULIPs such amount will be equal to 20% of credit availed. Other options of payment of amount under Rule 6 shall not be available for these taxpayers.
Consequent to the introduction of the proportionate allocation and its rationalization now, Rule 6(5) that allows full credit of 17 specified services has been deleted.
New sub-rule (6A) has been added to allow provision of services without payment of service tax to a unit in SEZ or to a developer in SEZ for their authorized operations, without requirement of reversal of any CENVAT credit on this account. This will help in tax-free receipt of services by units and developers in SEZs.
Most of the Cenvat changes will come into effect from 01.04.2011 except a few that will be effective from 01.03.2011.
J. Exemptions
Notification 26/2010-ST dated 22-6-2010 is being amended by Notification 4/2011- ST and the service tax applicable in respect of “Transport of passengers by air service ” is being revised as follows:
a. Domestic (economy) : From Rs. 100 to Rs. 150
b. International (economy) : From Rs. 500 to Rs. 750
c. Domestic (other than economy) : Standard rate of 10%
Exemption from service tax is being provided to “Works contract service ” when rendered for the construction of residential complexes or completion and finishing services of a new complex under Jawaharlal Nehru Urban Renewable Mission (JNURM) and “Rajiv Awaas Yojana ” (Notifications No. 6/ST-2011).
Exemption has been given to the taxable service of general insurance when provided under “Rashtriya Swashya Bima Yojna ” (Notifications No. 7/ST-2011).
Exemption from service tax is being provided to works contract service rendered within a port, or other port or airport in specified areas (Notifications No. 10&11/ST-2011).
An exemption of 25% from the taxable value is being provided in respect of services rendered in relation to “transport of coastal goods ” and goods transported through “national waterways ” or “inland water ” (Notification No.16/ST-2011).
Exemptions with retrospective effect have been given by the Finance Bill:
- To an association or chamber representing commerce or industry in respect of membership fee under the “Club or Association Service ” for the period from 16.06.2005 to 31.03.2008; and
- To inter-state or intra-state transportation of passengers, in a vehicle bearing contract carriage and tourist vehicle permit for the period from 01.04.2000 to 06.07.2009
These changes will come into effect on the dates mentioned in the respective notifications or when the bill is enacted and notified, as the case may be.
K. Small scale sector
Finance minister has announced in his budget speech that individual and sole proprietor assessees with a turnover upto Rs. 60 lakhs shall not be subject to audit.
Interest rate for all assessees (including firms and corporate) upto a turnover of Rs. 60 lakhs shall be 3% less than the prescribed rate.
The period for making the payment in order to avail the benefit of reduced penalty under the second proviso to Section 78 shall be 90 days for assessees mentioned at paragraph 13.2.
L. SEZ Refunds
Notification No. 17/2011-ST has been issued superseding notification 9/2009-ST dated 03.03.2009. The new notification has the following unique features:
- Criteria for the determination of “wholly consumed ” services have been laid down in the notification, borrowing from the Export of Services Rules, 2005. It has also been specified that all services received by an entity in a SEZ, which does not have any other DTA operations, will constitute “wholly consumed ” services.
- No service tax is required to be paid ab-initio if the same are meant to be “wholly consumed ” within SEZ, including services liable to tax on reverse charge basis under section 66A.
- Refund of the remaining services i.e. which are not wholly consumed shall be available on pro rata basis i.e. ratio of SEZ turnover to total turnover.
- Suitable rule has been introduced in Cenvat Credit Rules, 2004 to waive the requirements of rule 6 in case of services provided, without payment of tax, to a SEZ unit for its authorized operations.
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