No TDS on service tax component – CBDT Clarification0

Earlier position

Till now the tax has to be deducted on the gross amount paid or payable covered under chapter XVII-B including service tax thereon, except in case of payment of rent covered under section 194J of the Income-tax Act, 1961 where CBDT had clarified that tax was not required to be deducted on service tax component on rent.

Recent Position

CBDT has recently clarified vide its Circular No.1/2014 dated 13th January, 2014 that tax is not required to be deducted under Chapter XVII-B on service tax component comprised in amount paid/payable to a resident if service tax shown separately.

Points to be noted

  • Exemption is available only when amount is paid/payable to a resident
  • Exemption is available only when service tax is shown separately
  • Exemption is available in respect of all payment covered under Chapter XVII-B. Therefore the payments in nature of contractors, subcontractor, insurance commission, professional or technical charges, Royalty etc.


The above clarification is depicted by way of following illustration

Particulars Earlier position Recent position
Amount of professional service 10000 10000
Service tax @ 12.36% 1236 1236
Total 11236 11236
TDS @ 10% 1124 1000

There in view of above clarification, tax required to be deducted in above is illustration is 1000 (not 1124 which required to be deducted before clarification)

Changes in Form 15CA and 15CB0

The Fourteenth Amendment Rules provide that any person responsible for paying to a non-resident (Section 195), not being a company, or to a foreign company, any interest or salary or any other sum chargeable to tax under the provisions of the Act, shall furnish… Read more

Discrepancies while filing ITR0

  • Regarding E-Filing of ITR–7: Not sure why our tax department could not launch properly Form ITR 7 online this year as well, in spite of all big promises made. The professionals were not able to file online Tax Returns of Charitable institutions/ trusts on Form ITR – 7 electronically. Ultimately, these returns were required to be filed in paper form only.
  • Regarding Re-Setting of the Password: The password reset function in respect of individuals and 1st time clients who do not know/ remember their password, is indeed a tedious or challenging task. As per the tax department` website there are 4 methods for re-setting the password and all of them of cumbersome. The department must learn from Google/ Face book and should allow a method of re-setting the password instantly. The department must allow the taxpayers/ professionals to re-set the password instantly by sending a verification code at the registered mobile number of the taxpayer.
  • Regarding Notification of Form ITR-7: It is further interesting to observe that all taxpayers are given a period of 122 days from the end of financial year to file their tax returns. The period of limitation is a cardinal principle or a well established law. The very basic ITR Form 7 was notified on 11th June, 2013 that simply means out of total 122 days granted for filing of tax return to Charitable Institutions/ Trusts, 71 days were swallowed up by the department. Should not the due date of filing of tax return accordingly & automatically be understood to extend by 71 days to the assesses who were never in a position to file their tax return prior to 11th June, unless relevant form is notified? Hat`s Off to the smartness of the bureaucracy that ITR – 7 was introduced on 11th June, 2013 with retrospective effect from 1st April, 2013. Is it practically possible?
  • Regarding Blocking of Income Tax Site: Every tax professional can be sure of filing his all tax returns on time but above all, he is completely at the mercy of the website of the tax department. On the last day when majority of tax returns are expected to be uploaded/ filed, due to huge traffic the website surprised everyone in the morning. The Govt had itself acknowledged this fact by the afternoon and issued an Order extending the date to 5th August, 2013. India is an IT power for the world but our tax department is yet to realize this fact and is required to do lots of things to improve.
  • Confusions for Filing ITR:     Every individual assessee whose total income was below 5.00 Lacs was like earlier years under this impression/confusion that he is not required to file his/her personal tax return due to relaxation provided in earlier years. The clarification, that such individuals are equally required to file tax returns came very late. The tax professionals and the concerned large number of such beneficiaries are still unable to understand why such requirement has been reintroduced which has been abolished in the recent past for the sake of simplicity of a common taxpayer.

While the taxpayers of our country are in fact funding the Government in respect of all its dream projects and basic needs to run the country, the Government has yet to give him all its due share of quality services in return. Hope things will change soon in the times to come.

Cyprus Notified as a notified Jurisdictional Area Under Section 94a of the Income-Tax Act,19610

CBDT notifies Cyprus u/s 94A for not providing information requested by Indian Income tax authorities under EOI provisions; If assessee enters into transaction with person in Cyprus, all parties to be treated AEs & Transfer Pricing regulations to apply; Stringent conditions to avail deduction in case of payments made/expenditure arising from transaction with Cyprus based person; Onus on assessee to satisfactorily explain source of money if received from person in Cyprus; 30% TDS rate to apply to all payments made to person located in Cyprus.

Press Release

New Companies Bill Promotes CSR Initiative0

This is a new initiative of Ministry of Corporate Affairs to ask corporate to contribute towards society. Earlier there were only voluntary guidelines for CSR and now there is a mandatory provision for CSR by some prescribed companies which is expected to cover a huge number of companies in India. One of the important factor to consider that there is no penalty prescribed for non contribution to CSR, even if fall in prescribed conditions.

Salient Features of the Proposed Law

Every company having net worth of:

  1. Rs. five hundred crore or more, or
  2. Turnover of rupees one thousand crore or more or
  3. A net profit of rupees five crore or more

during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an Independent Director.

The Corporate Social Responsibility Committee shall –

  1. Formulate and recommend to the Board, a CSR Policy which shall indicate the activity or activities to be undertaken by the Company as specified;
  2. Recommend the amount of expenditure to be incurred on the activities related to CSR; and
  3. Monitor the CSR Policy of the Company from time to time.

The Board of every company as aforesaid shall –

  1. After taking into account recommendations made by CSR Committee, approve the CSR Policy and disclose contents of such policy in its report and may also place it on the Company’s website, in such manner as may be prescribed; and
  2. Ensure that the activities as are included in CSR Policy of the Company are undertaken by the company and
  3. That the Company spends in every financial year, at least two per cent of average net profits of the Company made during three immediately preceding financial years, in pursuance of its CSR Policy. Corporate Social Responsibility = 2% of the Average net Profits* during three immediately preceding FY’s. *The “Average Net Profit” shall be calculated in accordance with the provisions of section 198.
  4. While spending towards CSR, preference shall be given to the local area and areas around it where it operates.
  5. Specify the reasons in Board Report in case the Company fails to spend the prescribed amount towards CSR.

Activities which may be included by companies in their Corporate Social responsibility Policies

Activities Relating to:-

  1. Eradicating extreme hunger and poverty
  2. Promotion of education
  3. Promoting gender equality and empowering women
  4. Reducing child mortality and improving maternal health
  5. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
  6. Ensuring environmental sustainability
  7. Employment enhancing vocational skills
  8. Social Business projects
  9. Contribution to the Prime Minister’s National relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, The Scheduled Tribes, other backward classes, minorities and women; and
  10. Such other matters as may be prescribed.


The proposed CSR activities may add sense of responsibility and contribution among corporate. It is expected to be beneficial to different class of people such as children, women, uneducated, unemployed etc. towards which such CSR activities may be focused.  There is social security system in most of developed countries and mandating CSR is a step towards creating some social security for citizen of India with focused contribution from Corporate.

RBI announces measures to rationalize Foreign Exchange Outflows by Resident Indians0

Keeping in view the current macroeconomic situation, the Reserve Bank of India has announced the following measures vide A. P. (DIR Series) Circular No.23 and A. P. (DIR Series) Circular No.24 dated 14thAugust 2013:

(i) Reduced the limit for Overseas Direct Investment (ODI) under automatic route for all fresh ODI transactions, from 400% of the net worth of an Indian Party to 100% of its net worth.

This reduced limit would also apply to remittances made under the ODI scheme by Indian Companies for setting up unincorporated entities outside India in the energy and natural resources sectors. This reduction in limit, however, would not apply to ODI by Navratna PSUs, ONGC Videsh Limited and Oil India in overseas unincorporated entities and incorporated entities, in the oil sector.

(ii) Reduced the limit for remittances made by Resident Individuals, under the
Liberalized Remittance Scheme (LRS Scheme), from USD 200,000 to USD 75,000 per financial year.

Resident Individuals have, however, now been allowed to set up Joint Venture
(JV)/Wholly Owned Subsidiary (WOS) outside India under the ODI route within the revised LRS limit.

(iii) While current restrictions on the use of LRS for prohibited transactions, such as, margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed.

The present set of measures is aimed at moderating outflows. However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route.

CBDT notifies Rules and Form for Domestic Transfer Pricing0

The transfer pricing regulations were introduced in India in 2001 and covered only cross border related party transactions. The Finance Act, 2012 however, has extended its scope to cover certain domestic transactions with related parties within India, defined as ‘Specified Domestic Transactions’. The real need for domestic transfer pricing was expressed by Hon’ble Apex court in the judgment of Glaxo Smith Klein Asia Private Limited dated 26th October, 2010. The three Judges bench headed by the Hon’ble CJI S.H. Kapadia ruled in the favour of the assessee but suggested amendments for consideration by Finance Ministry in certain provisions of the tax laws to empower the tax officers to apply any of the generally accepted methods of the determination of arm’s length price including the methods provided under the Transfer Price Regulations applicable to international transactions to domestic transaction between related parties as well.

The suggestion made in this ruling triggered the need for an amendment in Indian Income Tax Law for domestic transfer pricing. The Finance Minster in the Finance Budget 2012, proposed the extension of the Transfer Pricing Regulations to the transactions entered between the domestic related parties (as per section 40A(2)(b) or those undertakings which are enjoying tax benefits under chapter VI-A and chapter VI-C such as sections 80A,80-IA and 10AA of the Income Tax Act,1961. The provisions apply from financial year 2012–13onwards if the aggregate value of the transactions exceeds INR 50 million in the relevant financial year.

This principally has impacted the old law that required related party transactions to be at fair value by them now needing to be justified under arm’s length principle by application of one of the prescribed methods u/s 92C and compliance and documentation obligations u/s 92D read with Rule 10D.

The CBDT vide notification 41 dated June 10, 2013 has made the amendments to Rule 10A to Rule 10E of the Income Tax Rules, 1962 dealing with transfer pricing of international and domestic transactions. This amendment also prescribes the new Form 3CEB which includes disclosure of specified domestic transactions alongwith some additional disclosure for international transactions to be filed with the tax officers electronically with the income tax return certified by a Chartered Accountant.

The extension of transfer pricing provisions to domestic transactions will require enterprises to evaluate their transactions and/or business structures to assess the impact on their existing intra-group pricing policies and practices, evaluate the implications and determine approaches to managing risk and ensure compliance.

CBDT Notification

Amendments in the existing FDI policy in Multi-Brand Retail Trading0

The Union Cabinet approved the proposal for amendment in the existing FDI policy in Multi-Brand Retail Trading.

A. “At least 50% of total FDI brought in the first tranche of US$ 100 million, shall be invested in `backend infrastructure` within three years, where `back-end infrastructure` will include capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. Subsequent investment in the back-end infrastructure would be made by the MBRT retailer as needed, depending upon his business requirements”.

B. “At least 30% of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian micro, small and medium industries which have a total investment in plant & machinery not exceeding US $ 2.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. The `small industry` status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a `small industry` for this purpose even if it outgrows the said investment of US$ 2.00 million, during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers cooperatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years` total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis”.

C. “Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per the 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking”.

The amendment in the extant FDI policy relating to Multi-Brand Retail Trading in respect of `small industry` will bring in a balance between the business exigencies of the MBRT entity and intent of the policy which is to extend the benefits of the FDI policy in multi-brand retail trading to a larger constituency of small industries. The amendment in the provision regarding `back-end infrastructure` will give more clarity to the policy. The amendment to the provision regarding location of retail outlets will bring in parity in the policy as it is proposed to extend such dispensation to all states.

Amendment in the definition of word “control” in the FDI policy0

The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy & Promotion for amendment to the existing definition of “control” under the FDI policy.

Until now, the definition of “control”, in the existing FDI policy is as under: “A company is considered as “controlled” by resident Indian citizens if the resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens, have the power to appoint a majority of its directors in that company”.

The CCEA has now approved to define “control” as below:
” `Control` shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.”

The revised definition of `control` will expand the definition of `control` to cover `control` exercisable inter-alia through management and policy decisions, shareholding, management rights, shareholder agreements and ensure alignment with the definition as per the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 and the definition proposed in the Companies Bill, 2012.

Due date to file ITR extented till 5th August: A quick checklist0

As the last day to file Income Tax Return is extended till 5th August, we assist you with a checklist to ensure you don’t do any mistake.

  • Compulsory E-filing: If you have taxable income above Rs 5 lakh, you need to e-file your ITR online from this year. Last year, the limit was Rs 10 lakh.
  • Forms you have to fill:  While choosing the form many choose the ITR 1 form, but going forward if you have exempt income exceeding Rs 5,000, you will have to choose the ITR2 form. Common examples of exempt income, is interest earned from Public Provident Fund (PPF), dividend earned from shares, interest earned form tax free bonds and the like. So, ensure you choose the correct form.
  •  Declaration of assets and liabilities for business people: If you earn income from business or profession and your total income exceeds Rs 25 Lakh, you have to provide the details of all your personal and business assets and liabilities in the ITR form itself. This is for people filling in ITR-3 and ITR-4.
  •  Bank account detail that you have to provide on the ITR form. From this year, you don’t need to provide the 9 digit MICR number, instead you will have to give your branch’s IFSC code.