Depreciation-Companies Act 2013

Overview of Schedule II of Companies Act 2013

The Schedule II of the Companies Act, 2013 namely, Useful lives to compute Depreciationhave been brought into effect from 1st April, 2014 with a General Circular 08/2014 dated 4th April, 2014, replacing the Schedule XIV of the Companies Act, 1956 where the rates for providing depreciation were specified as per the SLM and WDV method.

For better understanding of the Schedule II of Companies Act, 2013 the terms used in this Schedule shall be discussed.

Terms used in Schedule:

1. Depreciation: In common parlance, As per AS-6 "Depreciation Accounting" as issued by ICAI, It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. As per Schedule II, It is the systematic allocation of the depreciable amount of an asset over its useful life.

2. Depreciable Amount: It is the cost of an asset or other amount substituted for cost, less its residual value.

3. Useful Life:(i) It is the period over which an asset is expected to be available for use by an entity, or (ii) the number of production or similar units expected to be obtained from the asset by the entity.

4. Residual Value: As per Schedule II of Companies Act, 2013 the residual value of the asset shall not be more than 5% of the original cost of the asset.

5. Amortisation: As per AS-26 "Intangible Assets" as issued by ICAI, amortisation means the systematic allocation of the depreciable amount of intangible asset over its useful life. For the purpose of Schedule II the term depreciation includes amortisation.

The Schedule gives the utmost importance to the Useful lives and Residual Value of the different assets. In order to understand the provisions related to Useful Lives in the Schedule the same are discussed in detail.

Schedule about Useful Life and Residual Value

The Schedule clarifies that the Useful Life of an asset shall not be longer than the useful life specified in 'Part C'of the ScheduleandResidual value shall not be more than 5% of the original costbut in case where the company uses a useful life or residual value of an asset which is different from the above limits, justification for the difference shall be disclosed in financial statement.

Example for Useful Life:If the management has estimated the useful life of an asset to be 10 years and life as specified in Schedule II is 8 years only. Schedule II requires the disclosure of justification for using the higher life and similar position will apply if the Schedule II specifies the useful life to be 12 years.It requires the disclosure of justification for using the lower life.          

Example for Residual Value: If the management has estimated the residual value of an asset to be 10% of the original cost as against 5% of the original cost. Schedule II requires the disclosure of justification for using the higher residual value.

Useful Life or residual value governed by other regulatory authority

'Part B' of the Schedule states that if the useful life or residual value of any specific asset is notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government shall be applied in calculating the depreciation irrespective of the requirements of the Schedule.

For example: The MCA had issued a General Circular dated 31 May 2011, which states that for companies engaged in generation/supply of electricity, rates of depreciation prevail over the Schedule XIV to the Companies Act, 1956.

Amortisation of Intangible Assets

Schedule II requires that the provisions of the accounting standard shall be applicable for the amortisation to be provided to the intangible assets i.e. the provisions of AS-26 "Intangible Assets" shall be applicable to amortise the intangible assets.

But, MCA had notified by the amendment on March 31, 2014 providing the manner to amortise the 'Build, Operate and Transfer' (BOT), 'Build, Own, Operate and Transfer' (BOOT) or any other form of 'Public Private Partnership Route' (PPP) in case of Road Projects. According to it, the company may use the Revenue Based Amortisation for such assets.

Mode of Amortisation

Amortisation Amount = Amortisation Rate / Cost of Intangible Assets X 100 OR

 = Cost of Intangible Assets x  Actual Revenue for the year / Projected Revenue from Intangible Asset                                                                                                                                                                                 Example:

Cost of Creation of Intangible Assets: 50 Crores

Total Period of Agreement: 4 Years

Time Used for Creation of Intangible Asset:1 Year

Intangible Asset to be amortised in: 3 Years

 

Year No.

Revenue (In Crores)

Remarks

Year 1

60

Actual

Year 2

100

Estimate*

Year 3

140

Estimate*

Total

300

 

*Will be actual at the end of financial year

Based on this, Amortisation amount for the first year would be (50 Crores x 60/300) 10 Crore which would be charged to profit and Loss and Amortisation Rate would be (10/50 x 100) 20% for the first year.

After discussing the provisions as provided in Schedule, the practical application of these provisions have to beknown regarding the transition from Schedule XIV of the Companies Act, 1956 to the Schedule II of the Companies Act, 2013.

Transitional Provisions under Schedule II

Schedule II specifies that the carrying amount of the asset as on1st April, 2014:-

Shall be depreciated over the remaining useful life of the asset as per this Schedule.

After retaining the residual value, shall be recognised in the Opening balance of retained earnings where the remaining useful life is nil.

For this purpose, company needs to identify the date of acquisition of each existing asset and assess the remaining useful life of that asset in accordance with the useful lives specified in 'Part C' of the Schedule.

For instance: Schedule II specifies the life of General Plant and Machinery to be 15 Years and if a company had purchased the machinery on 2nd April, 2001. The remaining life of such machinery as on 1st April, 2014 (the date of its applicability) will be 2 Years.

 The company may use both the methods of Depreciation:

Straight Line Method (SLM)

Written Down Value Method (WDV)

The use of above provision is different in both the methods of the depreciation:

a. Straight Line Method (SLM)

In this method of depreciation, the carrying amount of the asset shall be depreciated over the remaining useful life of the asset after retaining the 5% value of original cost (Residual Value). The application of transitional provision is simple as the asset is depreciatedequally over the remaining useful life.

For Example: The Company purchased the Machinery on 1st April, 2002 for Rs. 1,00,000. Now, as per Companies Act, 1956 the company used the rate of depreciation as specified there which is 6.33% on SLM basis. So, the Depreciation for every year till 2013-14 would have been Rs.6,330. Therefore, WDV as on 1st April, 2014 will beRs. 24,040.  The useful life specified for Plant and Machinery in Schedule II is 15 Years. So, the remaining useful life on 1st April, 2014 would be 3 Years and Residual Value Shall be 5% of original Cost i.e. (1,00,000 x 5%) Rs.5,000.

In this Case, Depreciation for each year till 3 years shall be=(24,040-5,000) /3 = Rs.6,347

b.  Written Down Value Method (WDV)

In this method, a rate needs to be derived to be applied each year on the carrying amount of the asset for the depreciation to be provided considering the useful lives as specified in the Schedule to depreciate the asset over the remaining useful life of that asset.

The above rate can be derived using the formula:

Rate=1- [Residual value/Cost of the Asset or Written Down Value*]^(1/Remaining useful Life of Asset)x 100

* Cost is used for the asset newly purchased and Written Down Value is used for existing asset

Taking the same example as above:

The Company purchased the Machinery on 1st April, 2002 for Rs. 1,00,000. Now, as per CompaniesAct, 1956 the company used the rate of depreciation as specified there which is 18.10% on WDV basis. Therefore, WDV as on 1st April, 2014 will be (1,00,000 X (1-0.1810)^12) Rs.9,108 (approx).  The useful life specified for Plant and Machinery in Schedule II is 15 Years. So, the remaining useful life on 1st April, 2014 would be 3 Years and Residual Value Shall be 5% of original Cost i.e. (1,00,000 x 5%) Rs.5,000.

In this Case, Depreciation Rate = 1-{5,000/9,108}^(1/3) X 100 = 18.12% (approx.)

Depreciation Amount for the 13th Year =9,108 x 18.12% = 1,650; WDV = 9,108-1,650 = 7,458

Depreciation Amount for the 14th Year = 7,458 x 18.12% = 1,351; WDV = 7,458-1,351 = 6,107

Depreciation Amount for the 15th Year = 6,107 x 18.12% = 1,107; WDV = 6,107-1,107 = 5,000

So, WDV at the end of 15th Year = Residual Value

This shows that at the end of the useful life of the asset i.e. 15 Years, only the residual value is left as the Written Down Value of the Asset till it is used after lapsing of its useful life.

Where the Remaining useful life of asset is Nil

In case, the Useful life of the asset is lapsedas on 1st April, 2014, the difference between the Opening WDV as on 1st April, 2014 and Residual value (5% of the original cost) shall be adjusted from the Opening Reserve and Surplus existing on 1st April, 2014.

For Example: If the Machine is purchased before 1st April, 1999 for Rs.1,00,000 and the WDV as on 1st April, 2014 is say, Rs. 18,000 and the Useful life as specified in Schedule II is say 15 years which is lapsed as on 1st April, 2014.

In this case, the difference between WDV as on 1st April, 2014 i.e. Rs. 18,000 and Residual Value (5% of Cost) i.e. (5% of 1,00,000) Rs.5,000 shall be adjusted from the Opening Reserve and Surplus for the year 2014-15. So, Difference of (18,000-5,000) Rs.13,000 shall be adjusted from Opening Reserve and Surplus.

Where the WDV of an asset is less than 5% of its original cost no adjustment shall be done. 

As per the ICAI announcement:

If the Company opts to adjust the carrying amount of the assets to the retained earnings in accordance with the transitional provisions of the Schedule II, the tax effect of the same has to be also adjusted directly against the retained earnings. "Tax effect of expenses/income adjusted directly against the reserves and/ or Securities Premium Account.".

Some Other Important Points

1. Component Accounting:

The useful life of an asset specified in Part C is for whole of the asset. Where the cost of part of asset is significant to the total cost of the asset and useful life of the part is different from the useful life of the remaining asset, useful life of that significant part shall be separately determined. The above requirement is known as Component Accounting.

For instance:

Building may be split into:

Structural Design

Elevators

Heating System

Water System

2.  Double/triple Shift Working:

The useful lives in Part C of the Schedule are based on single shift working, if an asset is used for the time during the year for double shift, the depreciation shall increase by 50% for that period and in case of triple shift the depreciation increase by 100% for that period.

At last, the key changes between Schedule II of Companies Act, 2013 and Schedule XIV of Companies Act, 1956 should be reviewed:

Schedule II of Companies Act, 2013 prescribes the useful lives for different assets as compared to Schedule XIV of Companies Act, 1956 which provided different rates on SLM and WDV basis for calculating depreciation.

No separate rate for double/ triple shift; depreciation to be increased based on the double shift/triple shift use of the assets whereas in Companies Act, 1956 different rates were specified for double/triple shift.

No reference is given in Schedule II is given to depreciation on low value assets.

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CA SANJAY DEWAN

B.COM (H),FCA

FCMA,LCS,MIMA

www.sanjaydewan.com

New Service Tax Rate @ 14% from 1st June 2015

New Service Tax Rate @ 14% from  1st June 2015 

New service tax rate of 14% is effective from June 1, 2015. This article is intended to provide you with insights of how to deal with change in rate and which scenarios old rate shall prevail and when a new rate has to be applied. Few of the practical questions posed could be as under:

a. What if invoice is issued before the change of rate but payment is received after the change in rate. Which rate needs to be applied?

b. What should be the rate applied in case service is provided before the change in rate and invoice is issued after the change in rate?

c. What if both invoice is issued and service is provided before the rate change but payment is received after the rate change. Which rate needs to be applied?

As per Section 67A of theFINANCE Act, 1994 The rate of service tax, value of a taxable service and rate of exchange, if any, shall be taken as the rate/value in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

In order to understand the point at which the service is said to have been provided, it would be relevant to read the definition of Point of Taxation as per Rule 2(e) "point of taxation" means the point in time when a service shall be deemed to have been provided. This implies that one has to go to Point of Taxation Rules, to ascertain as to when the service is been provided to determine the rate of tax as per Section 67A

However the point of agreeing to provide the service cannot be determined as per the point of taxation rules and when as service can be said to have been agreed to be provided, whether on receipt of the advance or on the entering to mere agreement to provide the service can be called as the point of agreed to be provided would be an area, which could lead to varied interpretation and lead to litigation.

Further Rule 4 of Point of Taxation Rules, 2011 lays down guiding principles to identify the point of taxation, i.e. the point when the service is deemed to be provided specifically in case of change in rate of service tax. The initial portion again requires and assumption that the service is provided before the change in rate. This leads to an anomaly, since we are reading rule 4 to understand when the service is deemed to be provided, where as the rule state that if the service is provided before/after the change in rate, which has not been clarified.

In the view of the paper writer the reference of service being provided before/after the change in rate needs to be understood in common parlance, which may be considered as completion of the service (delivered all the deliverable of a service contract) and if he same is continuous supply service, then the same can be considered as to that extent of the service which has been provided upto the agreed mile stone. 

Discussed below are various changes and its treatment in a tabular form for ease of understanding:

Service provided	Invoice issued	Payment received	Rate to be considered.
Before the change in rate of tax	After the change in rate of tax	After the change in rate of tax	14%
Before the change in rate of tax	Before the change in rate of tax	After the change in rate of tax	12.36%
Before the change in rate of tax	After the change in rate of tax	Before the change in rate of tax	12.36%
After the change in rate of tax	Before the change in rate of tax	After the change in rate of tax	14%
After the change in rate of tax	Before the change in rate of tax	Before the change in rate of tax	12.36%
After the change in rate of tax	After the change in rate of tax	Before the change in rate of tax	14%

 

From the above we can understand that there are 3 events as under:

a. Date of provision of service;

b. Date of issue of invoice; and

c. Date of payment.

Services Provided Earlier to 1.6.2015:

Illustrations when old rate would apply

a. Invoice raisedand payment received after 1.6.2015: The invoice raised on 15thJune 2015, and service provided in May 2015. Payment received in June 2015. The service tax to be paid at 14%[new rate].

b. Where payment received before and invoice issued after 1.6.2015: The invoice raised on 15th June 2015, and service provided on 20th May 2015. Payment received on 30th May 2015. The service tax to be paid at 12.36% [old rate].

c. When the invoice issued before and payment received after 1.6.2015: The invoice raised on 15th May 2015, service provided on 4th May 2015 and payment received on 30th June 2015. The service tax to be paid at 12.36%[old rate].

Services Provided Post 1.6.2015:

Illustrations when old rate would apply

a. Invoice raised and payment received before 1.6.2015: If invoice raised on 5th May 2015, service provided in June 2015 and payment received on 15th May. Then service tax to be paid at 12.36% [old rate].

Illustrations when new rate would apply:

a. When invoice raised after 1.6.2015 and payment received before rate change: If invoice is raised on 5th June 2015, service provided in June 2015 and payment received on 15th May. Then service tax to be paid at 14% [New rate].

b. When invoice raised earlier to 1.6.2015 and payment made post change in rate: If invoice raised on 15th May 2015, service provided in June 2015,payment made on 1.6.2015. Then service tax to be paid at 14%[new rate].

2 out of 3 planning:

From the above it can be understood that out of the 3 elements viz. (Date of issue of invoice, Date of payment and date of provision of service) if any of the 2 events occur before the effective date of change in rate, then the old service tax rate shall be applicable. Since the new rate most likely is to be effective from June 1, 2015 therefore if any 2 events takes place before that then the benefit of old rate can be taken even after June 1, 2015.

 

Anomaly in existence:

On interpretation of Section 67A, which is supreme to the rule the rate needs to be adopted when the service was provided and the receipt of the consideration and the raising of invoice is irrelevant for this purpose, however Rule 4 of the POTR, 2011 states 2 our the three events which is tabled above shall be relent to determine the rate of tax. If one has to go with section 67A then it to be made sure that there is a proper documentation in place to prove the service was provided prior to rate change and also intimae this fact to department. To avoid dispute and one can also examine to issue the Invoice prior to 01.06.2015 for all the completed service.

This situation has arisen perhaps because the POT Rules were notified in 2011 and the Section 67A was inserted in 2012. We may expect some clarification to be issued by the Board in this regard with proper illustrations so that the transition to the new rate is smooth.

Impact of Change in Rate

The immediate impact of the change in rate would be increase in the service tax amount which is to be paid by the service provider post 1.6.2015. As per Section 68(1), service tax is a levy which is payable by the service provider. ST is a destination based levy, could be collected from the customer and paid to the Government.

Service provider has statutory right to pass on the burden of the service tax component to service receiver in absence of prescription by legislature that service tax burden should not be passed on. The Finance Act, 1994 does not contain any such restriction that service provider should not pass on the burden to the service receiver.

However it all depends on terms of contract between the parties. When the contracted price includes all taxes, then the increased service tax burden of 14% would go out of the pocket of the service provider.

When the terms are taxes including service tax extra as applicable, then the service provider could collect and pay the service tax. For all existing contracts as well as future contracts to be inked, care to be taken by service providers engaged in providing taxable services, to renegotiate and put in clause that 'all taxes including service tax as applicable, to be collected extra from the customer'.

The ideal alternatives for on going contracts are as under:

a. Service Completed before 1.6.2015: All the services provided upto end of May 2015 need to be billed. These would include those bills not raised which have been postponed, missed, other reasons. These are to be identified and bill raised by end of May 2015. Otherwise the 14% rate may have to be applied in future.

b. Part services provided before 1.6.2015: The part bill to extent of completed service, could be raised before 1.6.2015 and service tax paid thereon by 5th/6th of June 2015 at 12.36%.

c. Advances received before 1.6.2015 for future services: Even on advances received towards services to be provided in future, invoices to be raised by 30th May 2015 and ST could be paid at 12.36%.

d. Where the invoices are issued before 1.6.2015: When the invoices are raised before 1.6.15 for services to be provided in future[post June 2015], service tax rate is 14%.

Impact of subsuming cess

FA 2015 has done away with the Cess, both under central excise and service tax. The provisions of Rule 3 of the CENVAT Rules permit utilisation of CENVAT credit of Excise duty/Service tax for payment of Cess but not vice versa. With no Cess on Excise duty/service tax, the manufacturer/service provider will merely accumulate such credit.

There has been a notification no.12/2015-CE(NT) where it has clarified that the ED/SHE cess on inputs/input services/capital goods received on or after 1.3.2015 could be set off to pay excise duty by a manufacturer of final product. Similarly that balance 50% of ED and SHE cess on capital goods received in the factory of manufacture of final product in 2014-15 can be utilized to pay excise duty.

There is no clarity on the past period accumulated credit. A similar issue, could arise under service tax, when cesses are subsumed wef 1.6.2015. Where the customer has substantial accumulated credit could examine legal validity and take a call on set off of such accumulated credit of cess against the service tax payable post 1.6.2015 under intimation to department. It is hoped there would be some clarification issued in this regard.

Frequently Asked Questions:

Q. What is the effective rate of service tax that I need to charge on Invoice being raise today for the completed service?

Comments: 12.36%

Q What is the effective rate of service tax that I need to charge on the advance received today for the service to be provided after 01.06.2015?

Comments: In case you also raise the invoice prior to 30.06.2015 (law provides time upto 30days from the date of receipt of the advance) then you can charge 12.36% in case the invoice is raised after 01.06.2015 then the same needs to be charged at 14%.

Q. Work is assigned in the month of May 2015 and 90% of the work is completed as on 31st May 2015, no advance is received, Invoice can be raised only on full completion of service in the month of June 2015. What is the service tax needs to be charged?

Comments: Since the Invoice would be raised in the month of June 2015 and payment would be received in the month of June 2015 14% would be applicable.

Q. I am a builder paying service tax on earlier of receipt of money or completion of milestone as per the contract, how should I apply the rate charge provision?

Comments: For the advance received prior to milestone and if the invoice is raised prior to 31st May 2015 the applicable rate of tax to that extent shall be 12.36% and all further milestone and payments shall be liable at 14%. For the milestone falling prior to 31st May 2015 and if the invoice has raised prior to such date 12.36% would apply to the extent of such amount as mentioned in such milestone, for the balance milestones amounts 14% would apply.

Q. I am a private limited company need to pay service tax on goods transport agency service under reverse charge mechanism? How to apply this rate change provision?

Comment: Point of taxation in case of service tax payment under reverse charge by the recipient of the service is governed by Rule 7 of the POTR, 2011 which has a overriding effect of Rule 4 and hence service tax prevalent as on the date of payment to vendor needs to be adopted however if the payment has not been made in 3 months then the rate prevent as on the date after the expiry of 3 months from the date of Invoice needs to be adopted. For all the payment made before 31.05.2015 service tax would be applicable at 12.36% and for the payments made there after, 14% rate would be applicable for all the invoice received date prior to 28th February 2015 on which the payment is still pending would be liable at the rate of 12.36% and for the Invoice raise from 1st March 2015 onwards for which the payment is pending as on 31st May 2015 will be liable at the rate of 14%.

Q. Do we need to charge Education cess and Secondary and Higher Education Cess on Service Tax w.e.f 01.06.2015?

Comments: No, the levy of the same gets abolished from June 1, 2015 and the same need not be charged from June 1, 2015.

Q. Do we need to charge Swach Bharat Cess on Service Tax?

Comments:  No, Swach Bharat cess shall be applicable from the date to be notified. It has not been notified yet. Therefore, it shall not be applicable from June 1, 2015

Conclusion

The service providers may need to ensure that bills in respect of the completed services and advance receipts is raised and service tax is paid in next month/ month next to quarter. This would ensure that there are no demands for differential service tax, citing increase in service tax rate to take effect from 1.6.2015. The customer may also not have any objection especially those who are unable to avail the credit.

 

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CA SANJAY DEWAN

B.COM (H),FCA

FCMA,LCS,MIMA

BUDGET 2015-AMENDMENTS IN DIRECT TAX

Section /Schedule	Head	Amendment/New Provision	Effective date
Part III to Schedule I	Advance taxes & TDS u/s 192	Advance taxes for the FY 2015-16 and TDS u/s 192 from salary shall be made at the following rates:   • In case of Individuals, HUF, AOP/BOI & Artificial juridical person:   Slab of Income Rate of Income tax Upto Rs. 250,000 [Basic exemption Limit Remains Same] Nil Rs. 250,001 to Rs. 500,000@ 10% RS. 500,001 to Rs. 10,00,000 20% Rs. 10,00,001 & above 30% Surcharge if total income exceeds Rs One Crore 12%   # In case of individual being woman resident in India and below the age of 60 years at any time during the PY, the basis exemption limit has been retained at Rs. 250,000 [in par with men assesses].   # In case of individual, being resident in India, who is age of 60 years or more but less than 80 Years at any time during the PY, the basic exemption limit is same i.e., Rs. 3,00,000.   @ In case of individual, being resident in India, who is age of 80 years or more at any time during the PY, the basic exemption limit is same at Rs. 5,00,000.   In case of Partnership firms [Including LLP], the rate of tax shall be 30%.   In case of companies, the rate of taxes shall be same as specified in the Finance Act 2014. Surcharge shall be levied @ 7% [earlier ​5​ %] [2% in case of non domestic company] in case of domestic companies if total income exceeds Rupees One Crore but does not exceed Rs 10 Crores. If Total Income exceeds Rupees Ten Crores, surcharge shall be levied @ 1 ​2​ % [5% in case of non domestic company]   Surcharge has been increased ​by 2%​(FROM 5% TO 7%)  in ​CASE of domestic company having income of more than RS One Crore but upto RS Ten Crore, Similarly It has been increased by 2%( From 10% to 12%) in case of Domestic Company Having Income of more than RS Ten Crore  subject to marginal relief.   Education cess and SHEC shall be continued to be levied in all cases.	1-4-2015
195	TDS on Payment to Non resident	•TDS on amount paid to Non Resident Person [other than Company] shall be increased by surcharge of 12% where the income paid or likely to be paid and subject to deduction exceeds one crore rupees.	1-4-2015
269SS	Loan accepted or taken	•Section 269SS has been amended so as to include the following:   -No Person shall take or accept from any other person any specified sum otherwise than by way of account payee cheque or account payee bank draft or use of electronic clearing system through a bank account-   - if such specified sum or aggregate amount of such sum so taken or accepted; AND   -any sum taken or accepted earlier by such person from the depositor and remaining unpaid as on the date of taking such specified sum,   Is Rs 20,000 or More   For the purposes of this section –   "Specified Sum" means any sum or money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.	1-6-2015
269T	Repayment of Loan	• Section 269T has been amended so as to provide that no person shall repay any specified advance received by it otherwise than by way of account payee cheque or bank draft or by way of ECS, if the aggregate amount of specified advances including interest are Rs 20,000 or more   • The specified advance shall mean any sum of money in the nature of an advance, by whatever name called, in relation to transfer of an immovable property whether or not the transfer takes place.	1-6-2015
Chapter XA	GAAR	• Provisions relating to General Anti Avoidance Tax has been deferred and made applicable to Income of FY 2017-18	1-4-2015
32AD	Additional Investment Allowance	• Additional Investment Allowance of amount equal to 15% of the cost of new asset acquired and installed by the assessee if -   -he sets he sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st April, 2015 in any notified backward areas in the State of Andhra Pradesh and the State of Telangana; AND   - the new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from the 1st April, 2015 to 31st March, 2020   This deduction is available over and above the existing deduction available under Section 32AC of the Act.	1-4-2015
32(1) (iia)	Additional Depreciation	• Additional Depreciation @ 35% of the Cost of New Plant & Machinery shall be allowed to manufacturing undertaking or enterprise which is set up in notified backward area of State of Andhra Pradesh and Telangana.	1-4-2015
194LD	TDS on Interest to FII and QFI	• Lower Withholding tax at the rate of 5% in case of interest payable to FII and QFI on their investments in Government Securities and Rupee denominated Corporate Bonds has been extended upto 30th June 2017	1-6-2015
115A	Tax on Royalty and Fees for Technical Services	• Tax on Royalty or Fees for technical services paid to non resident tax payer has been reduced to 10% of Gross Amount of Such Income	1-4-2015
80JJAA	Deduction for employment of new workmen	• Deduction @ 30% of additional wages paid to new regular workmen employed by Indian Company [deriving profits from manufacture of goods in a factory] shall be allowed for three AYs.   • Section is amended to as to extend the said benefit to all categories of assessees having manufacturing units   • Section is amended to provide benefit of deduction to small assessees employing 50 Workmen. [Additional Wages mean the wages paid to new regular workmen in excess of 50 Workmen employed during the previous year]	1-4-2015
Second Proviso to Section 32(1)	Depreciation	• If any new asset is acquired and put to use for less than 180 days during the year, additional depreciation shall be allowed @ 50% in year of acquisition and installation and balance 50% in immediately succeeding previous year	1-4-2015
9		• Recommendation of Shome Committee implements as regards taxability of income arising from transfer of capital asset being share or interest in a entity or company incorporated outside india where share or interest derives, directly or indirectly, its value from assets located in India.	1-4-2015
92BA	Specified Domestic Transaction	• The limit of aggregate of specified domestic transaction entered into by assessee in the previous year has been increased to Rs 20 Crores ​(earlier RS 5CRORE)​ for the transaction to be treated as 'Specified Domestic Transaction'	1-4-2015
2(15)	Definition of Charitable Activity	• Definition of Charitable Purpose has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,-   (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and   (ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year	1-4-2015
255(3)	Disposal Limits of Single Bench of ITAT	• A Bench constituting single member may dispose a case where total income of assessee as computed by AO does not excees Rs 15 Lakhs [Earlier Rs 5 Lakhs]	1-6-2015
	Wealth tax Act 1957	• Levy of Wealth tax under Wealth Tax Act, 1957 is abolished w.e.f. 1-4-2015   • It is also proposed that information relating to assets which is currently required to be furnished in the wealth-tax return shall be captured by suitably modifying income-tax return.	1-4-2015
80C	Deduction	• Any sum paid or deposited during the year in Sukanya Samriddhi Scheme in the name of any Girl Child of any individual or in the name of girl child for whom such individual is a legal guardian, shall be eligible for deduction under this section	1-4-2014 Retrospective
10(11A)	Exemption	• An payment from any account opened in accordance with the Sukanya Samriddhi Account Rules, 2014 shall not be included in the total income of the assessee. As a result, the interest accruing on deposits in, and withdrawals from any account under the scheme would be exempt.	1-4-2014 Retrospective
80D	Mediclaim	• Deduction Limit has been raised to Rs 20,000 for Individuals and HUFs and Rs 30,000 for Senior Citizens   • If Very Senior Citizens [being resident in India and aged 80 years or More] do not have any health Insurance and any medical expenditure is incurred in respect of very senior citizen, such expenditure not exceeding Rs 30,000 shall be allowed as deduction.	1-4-2015
80DDB	Deduction for medical treatment of certain chronic and protracted disease	• Relaxation has been given as regards obtaining a certificate from Doctors working in a Government Hospital. it is proposed to amend section 80DDB so as to provide that the assessee will be required to obtain a prescription from a specialist doctor for the purpose of availing this deduction.   • Further, a higher deduction of Rs 80,000 shall be allowed for expenses incurred on medical treatment of very Senior Citizen [being resident in India and aged 80 years or More]	1-4-2015
80DD and 80U	Deduction for Person with Disability	• Deduction Limits u/s 80U and 80DD has been increased from Rs 50,000 to Rs 75,000 for person with disability.   • Deduction Limit has been increased from Rs 1,00,000 to Rs 1,25,000 for persons with severe disability	1-4-2015
80CCC	Deduction for Annuity Plan of LIC	• Deduction Limit Increased from Rs 1,00,000 to Rs 1,50,000 within the overall limit prescribed us 80CCE	1-4-2015
80CCD	Contribution to NPS	• Deduction Limit has been increased from Rs 1,00,000 to Rs 1,50,000   • Additional Deduction of Rs 50,000 provided in respect of any amount paid for contribution made by any individual assessees to NPS	1-4-2015
203A	TAN	• Section 203A amended to provide that the requirement of obtaining and quoting TAN shall not apply to notified deductors and collectors.	1-6-2015
80G	Deduction for donations made	•100% deduction allowed for donation made to National Fund for Control of Drug Abuse	1-4-2015
80G	Deduction for donations made	• 100% Deduction allowed for donations made by DOMESTIC DONORS to Clean Ganga Fund [Any sum paid by way of CSR u/s 135 of Companies Act, 2013 will not be eligible for deduction.   • 100% Deduction allowed for donations made by anu Donor to Swacch Bharat Kosh [Any sum paid by way of CSR u/s 135 of Companies Act, 2013 will not be eligible for deduction[	1-4-2014 Retrospective
9	Interest to Non Residents	• in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery would apply	1-4-2015
11	Accumulation of Income by Charitable Trusts	• Accumulation of income other than 15% shall be allowed provided prescribed Form 10 is filed before due date of filing return of income.   • Benefit of accumulation of 15% of Income shall not be available if return of income is not filed within due date of filing of return of income	1-4-2015
115JB	• MAT	• Share of a Member of AOP, in the income of the AOP, on which no income–tax is payable in accordance with the provisions of section 86 of the Act, shall be excluded while computing the MAT liability of the member [Company] under 115JB of the Act   • The expenditures, if any, debited to the profit and loss account, corresponding to such income (which is being proposed to be excluded from the MAT liability) are also proposed to be added back to the book profit for the purpose of computation of MAT.	1-4-2015
151	Saction for Notice for Reassessment	• No Notice u/s 148 shall be issued by any AO upto Four Years from the end of relevant assessment year without the approval of Joint Commissioner   • No Notice u/s 148 shall be issued by any AO beyond Four Years from the end of relevant assessment year without the approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner	1-6-2015
263	Revision	• The amendment provides that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,—   (a) the order is passed without making inquiries or verification which, should have been made;   (b) the order is passed allowing any relief without inquiring into the claim;   (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or   (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.	1-6-2015
194C(6)	TDS on Payment to Transporters	• Relaxation from non deduction of TDS shall be allowed only to payment made to such transporters who are engaged in the business of transport and who is eligible to compute income as per provisions of Section 44AE of the Act [i.e., a person who is not owning more than 10 goods carriage at any time during the previous year] AND who has given a declaration to this effect along with his PAN.   • TDS has to be deducted in all other cases of payments made to transporters [Whether payment made by person engaged in business of transport or otherwise	1-6-2015
194A	TDS on Interest	• The definition of Time Deposit has been amended to include Recurring Deposit within its purview.   • TDS to be deducted if Interest payment on Time Deposit exceeds Rs 10,000   • Co Operative Banks shall be required to deduct tax at source on Interest Payment on Time Deposits of its members.   • Computation of Interest Income for the purposes of deduction of tax under Section 194A of the Act shall be made with reference to income credited or paid by the banking company or co operative bank or public company which has adopted core banking solutions. The threshold limit of interest per payee for the purposes of TDS shall be computed bank wise and not branch wise.   • Deduction of tax on interest paid on compensation amount awarded by the Motor Accident Claim Tribunal shall be made only AT THE TIME OF PAYMENT if the amount of payment or aggregate of such payments exceeds Rs 50,000	1-6-2015
200A	Processing of TDS Returns	• Section amended to provide computation of fee payable under Section 234E of the Act at the time of processing of TDS Statement under Section 200A of the Act	1-6-2015
206C	TCS	• Section amended to allow collector of tax at source to furnish TCS Correction Statement	1-6-2015
195	TDS on Payment to Non resident	• Penalty of Rs 1,00,000 shall be levied in case of non furnishing of information or furnishing of incorrect information of prescribed sum except where reasonable cause is shown	1-6-2015
6	Residence of Person	A person being a company shall be resident in India in any previous year, if-   -it is an Indian Company; or   -its place of effective management, at any time in that year, is in India   • place of effective management to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.   • In due course, a set of guiding principles to be followed in determination of POEM would be issued for the benefit of the taxpayers as well as, tax administration.	1-4-2015
288	Auditor Disqualification	• Section 288 of the Act is amended to provide that an Chartered Accountant who is not eligible to be appointed as auditor of a company as per the provisions of sub-section (3) of section 141 of the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of Income Tax Act in respect of that company.   • In case of Non Companies, a Chartered Accountant shall not be eligible for carrying out any audit or furnishing of any report/certificate in following cases –   -In case assessee is HUF, if he is a member of such HUF   -In case assessee is AOP, if he is a member of such AOP   -In case assessee is a Firm, if he is a partner of such firm   -In case assessee is a trust or institution, if he is amongst any person referred to in clause (a), (b),(c) and (cc) of Section 13(3);   -If he is relative of any person enlisted hereinbefore   -If he is officer or employee of any assessee   -If he is a partner, or in employment, of any officer or employee of the assessee   -If he has any business relation of prescribed nature, whether directly or indirectly, with the assessee   -If he has become insolvent   -if he has been convicted by a court for any offence involving fraud   -If he has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.   -If he or his relative or partner-   1. Is holding any security of, or interest in, the assessee [Exemption of Value of Rs 1,00,000 provided to a RELATIVE ONLY].   2. Is indebted to the assessee [Exemption of Value of Rs 1,00,000 provided to a RELATIVE ONLY].   3. Has given any guarantee or provided any security in connection with the indebtedness of any third person to the assessee. [Exemption of Value of Rs 1,00,000 provided to a RELATIVE ONLY].	1-6-2015
271	Penalty for concealment of income	• "Amount of Tax Sought to be evaded" shall be sum of tax sought to be evaded under general provisions and tax sought to be evaded under Section 115JB or 115JC.	1-4-2015

Service Tax Amendments In Budget 2015

Ist Full Year Budget of New Government has been introduced in Parliament on 28th February, 2015. This Article intends to outline key amendments made in Service Tax.

 

A. Changes effective from enactment of Finance Bill

 

I. Rate of service tax

 

Present rate: 12.36% (12% + 3% as Education Cess)

 

Revised rate: Consolidated 14% (subsuming Education & Secondary Education Cess)

 

Impact: Cost of all services to get costlier viz. food, flats, insurance, mobile, transport to name a few.

   

II. Enabling Provision for Swachh Bharat Cess (Date to be notified)

 

An enabling provision is being incorporated to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at 2% on the value of such taxable services.

 

As per Budget Speech by FM, the same shall be notified, if required.

 

III. Negative List compressed and consequent change in Exemptions.

 

1. Admission to Entertainment events etc. in service tax net

 

Present: Clause 'admission to entertainment event or access to amusement facility' is at present exempted under Negative List.

 

Proposed: The same is being omitted and exemption is being provided under Mega Exemption Notification 25/2012 on certain specific events viz. Theatrical/cinematographic events, recognised sports event and award functions/concerts/musical performance (in case consideration upto Rs. 500 per head).

 

Impact: Service Tax shall be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

 

2. Manufacture of alcoholic liquor for human consumption under service tax.

 

Present: Clause 'any process amounting to manufacture or production of goods' is covered in negative list

 

Proposed:

 

i. The same is being amended to exclude service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption.

 

ii. Consequently, Notification 25/2012 is being amended to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

 

Impact: Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration.

 

3. Not only Support Services, but all services by Government taxable

 

Present: Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the "support service" provided by the Government or local authority to a business entity.

 

Proposed: An enabling provision is being made to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of "support service" is being omitted. Further to address confusion, term 'Government' is being defined in Finance Act.

 

Impact: As and when this amendment comes into effect, All services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax.

 

4. Activities in respect of Chit funds and lotteries taxable

 

On account of contrary views by Courts, Government has clarified by way of explanation in Definition of Service and Negative List to levy Service Tax on the services provided by:

 

(a) chit fund foremen by way of conducting a chit.

 

(b) distributor or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

 

IV. Other Amendments in Finance Act, 1994

 

1) Reimbursable Expenditure includable in value of taxable service

 

An amendment is being made in Section 67 to include following as part of consideration for value of taxable services:-

 

i. all reimbursable expenditure or cost incurred and charged by the service provider.

 

ii. amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.

 

Impact:- This will nullify landmark judgment of Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd. wherein HC has quashed Rule 5(1) of Service Tax Rules, 1994 which provide for inclusion of expenditure or costs incurred by the service provider in the taxable value.

 

2) Section 73 is being amended in the following manner:

 

(a) a new sub-section (1B) is being inserted to provide that recovery of the Service Tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73; and

 

(b) sub-section (4A) that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.

 

3) Rationalisation of Penalties - Section 76 & 78

 

	Section 76	Section 78
When applicable	Cases other than fraud, suppression etc.	Fraud, Collusion, wilful misrepresentation Suppression,
Maximum	10% of Service Tax	100% of Service Tax
In case ST+ Interest+ Penalty(sec 78) paid within 30 days of Show Cause Notice	No Penalty	15% of Service tax
In case ST+ Interest+ Penalty paid within 30 days of Order of CE Officer	25% of penalty imposed	25% of Service tax
In case ST amount subsequently reduced in Appellate Order	Benefit of reduced penalty (25%) available if ST+ Interest +Reduced Penalty paid within 30 days of such order.

 

A transition provision by way of Section 78B is being provided in respect of pending cases.

 

4) Section 80 struck off

 

The most beneficial Section 80 of Finance Act, 1994 which provides for waiver of penalty in certain bonafide circumstances is being omitted. It is surprising that no reasonable justification has been provided in the Budget where it is being frequently used by Courts to waive penalty in unreasonable demands. This ensures penalty for every non-payment of service tax whatever is the reason.

 

5) Appeals in respect of issue pertaining to rebate of service tax on input services or inputs used in export of service shall be lied before Central Government as Revision Application as against present before CESTAT.

 

6)  The facility of Advance Ruling is being extended to all resident firms by specifying such firms under section 96A (b)(iii) of the Finance Act, 1994        

 

B. Changes effective from 01.04.2015 unless specified otherwise.

 

V. Review of Exemptions (Mega Exemption Notf. No. 25/2012)

 

Several major exemptions have been withdrawn in this Budget tabulated as under:

 

Sr. No.	Service	Exemption withdrawn /limited
12	Construction related service provided to the Government, a local authority or a governmental authority	a. a civil structure or  any other original works meant predominantly for  use other than for commerce, industry, or any other business or profession;   b. a structure meant predominantly for use  as (i) an educational, (ii) a clinical, or  (iii) an art or cultural establishment   c. a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
14	Construction related services	Construction related works pertaining to anairport or port
16	services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre	Exempt upto Rs 1,00,000 for a performance
20& 21	Transport by Road/Rail/Vessel	Exemption withdrawn on all activities except transportation of food grains including rice and pulses, flour, milk and salt and agriculture produce
29	Sub-Contract Services	(a) a mutual fund agent to a mutual fund or assets management company,   (b) distributor to a mutual fund or AMC,   (c) selling or marketing agent of lottery ticket to a distributor.
32	Telephone related service	(a) Departmentally run public telephone;   (b) Guaranteed public telephone operating only local calls;   (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued

 

New Exemptions introduced as under:

 

Sr. No.	Service
2	Transportation of a patient in an ambulance
26A	Life insurance service provided by way of Varishtha Pension Bima Yojna
43	Service provided by a Common Effluent Treatment Plant operator for treatment of effluent
44	Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables
45	Admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve
46	Exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it's members
*	transport of export goods by road from the place of removal to a land customs station (LCS)

*By amendment in Notf. No. 31/2012.

 

VI. Change in Abatement rates and conditions

 

Particulars	Present taxable rate	Proposed taxable rate
Transport by   (a) Road (Goods) (b) Rail(Goods + Passenger) (c) Vessel(Goods)	25% 30% 40%	30% 30% 30%   Subject to condition that no Cenvat on inputs, input services and capital goods is allowed.**
Air Transport of Passenger other than in Economy Class	40%	60%
Services provided in relation to chit	70%	100%

 

**Earlier in case of transport by rail, there was no restriction on Cenvat credit, now aligned for all modes of transport.

 

VII. Changes in Reverse Charge Mechanism

 

1. Manpower supply and security services in full reverse charge

 

Present: Partial Reverse Charge is applicable in case of Manpower Supply and Security Service i.e. 50%  payable by Service provider and balance 50% by Service Receiver when provided by an individual, HUF, or partnership firm to a body corporate

 

Proposed: The same is being brought to full reverse charge i.e. entire service tax payable by Service Receiver.

 

Impact: This will reduce unnecessary compliance burden on small contractors and agencies.

 

2. Following Services have been brought under full reverse charge consequent to withdrawal of the exemption on such services -

 

(i) Service provided by mutual fund agents, mutual fund distributors; and

(ii) Service provided by agents of lottery distributor.

 

3. Aggregator or Representative made liable to pay service tax

 

In case of service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator or representative office located in India is being made liable to pay service tax if the service is so provided using the brand name of the aggregator in any manner under reverse charge scheme. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator.

 

The term "aggregator" has been defined to means a 'person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator'.

 

VIII. Amendments in Rules (w.e.f. 01.03.2015):

 

A.  Service Tax Rules, 1994

 

(1) To move towards ease of doing business, it has been prescribed to grant registration for single premises within 2 days of filing of application. The modalities of the same have been issued by Order No. 1/15-ST, dated 28.2.2015 w.e.f. 01.03.2015.

 

(2) A provision for issuing digitally signed invoices is being added along with the option of maintaining of records in electronic form and their authentication by means of digital signatures.

 

(3) To align with revised general service tax rate, alternative rates of service tax under optional scheme for following services have been revised as under (effective on enactment of Finance Bill):

 

Service	Present	Revised
Air Travel Agent	Domestic- 0.6% International- 1.2%	Domestic- 0.7% International- 1.4%
Life Insurance Service	Ist Year- 3% Subsequent Years-1.5%	Ist Year- 3.5% Subsequent Years-1.75%
Money Changers' Services	Upto Rs. 1 Lac- 0.12% subject to max. Of Rs. 30 1 Lac-10 Lac: 0.06% Above 10 Lac: 0.012%	Upto Rs. 1 Lac- 0.14% subject to max. Of Rs. 35 1 Lac-10 Lac: 0.07% Above 10 Lac: 0.014%
Service of organizing Lottery	Guaranteed payout>80%:Rs. 7000 Guaranteed Payout<80%: Rs. 11000	Guaranteed payout>80%:Rs. 8200 Guaranteed Payout<80%: Rs. 12800

 

B. Cenvat Credit, 2004

 

1. Cenvat Credit allowed on service tax payment in partial reverse charge

 

Present: In cases where partial reverse charge is applicable, Service Recipient can avail the credit only after payment of the value of input service and service tax (unlike Full reverse charge where credit is allowed on payment of service tax).

 

Proposed: The provision has been aligned to allow Cenvat Credit in such cases on payment of service tax.

 

2. Time period for availment of credit extended to one year

 

Present: The time period for availment of Cenvat credit is 6 months from the date of invoice (introduced in Budget 2014.

 

Proposed: Now it has been extended from 6 months to 1 year.

 

Impact: It is a major relief for all manufacturers and service providers.

 

(3) Certain other changes are being made in the provisions of the Cenvat Credit Rules, 2004, which, inter-alia, include allowing Cenvat Credit on input and capital goods received directly by job workers, defining "export goods" for the purposes of rule 5, defining "exempt goods" for the purposes of rule 6, making applicable the provision of rule 9(4) to importer dealers, authorizing imposition of restrictions on registered dealers under rule 12AAA, and provisions relating to recovery of credit wrongly taken and imposition of penalty.