Telecom Accounts and Finance- Experience: Telecommunication Accounts and Finance -8

Chapter - 8

DDOs Role - Tax Laws, Direct & Indirect Taxes,

VAT and CENVAT

Income Tax

1.1 Income tax is a composite tax on all incomes received by, or accruing or arising

to, a taxpayer during a year.

1.2 In the language of the Income Tax Act, the year during which the income is

received or is otherwise earned is called the “Previous year” and that income is

assessed to tax in the year commencing on 1st April next following the close of

previous year. This latter year is termed “Assessment year”.

1.3 Though income Tax is a single Tax on the aggregate of incomes from various

sources the taxable income is first computed under different heads of income.

1.4 If there are two or more sources of income falling under a head of income the

income is computed separately for each source of income. These are then

aggregated. From the aggregated amount, certain deductions are made before the

taxable income is reached. The various heads of income are:-

i) Salaries

ii) Income from House Property

iii) Profits and Gains of Business or Profession

iv) Capital Gains; and

v) Income from Other Sources

2. Income that is exempt from tax (only items related to salary)

2.1 Leave Travel concession in India (Only two journeys in a block of 4 years is

exempt) [(Sec.10 (5)]

2.2 Gratuity [Sec.10 (10]

Government Employee: - Fully exempt

Non Government Employee (Covered by Payment of Gratuities Act)

The least of the following is exempt

15 days salary Last drawn (includes DA) X

length of Service

Less than 6 months service ignored.

6 months & above service is treated as full

Rs.3,50,000 year

Actually Received

Non Government Employee ( Not covered by Payment of Gratuities Act)

The least of the following is exempt

Half months’ average salary(includes DA)

(average of 10 months preceding the month

of retirement) X Completed years of

Service

Fraction of a year is ignored

Average of 10 months preceding the month

of retirement

Rs.3,50,000

Actually Received

However, the assessee can claim relief under Sec.89

2.3 Commuted Value of Pension [Sec.17(1)(iii)]

Employee of Central/State

Govt., Local Authority &

Statutory Corporation

Fully Exempt

Non Government Employee If Gratuity is received If Gratuity is not received

1/3rd of Pension Exempt ½ of Pension Exempt

However, the assessee can claim relief under Sec.89

Any payment received by way of commutation of pension by an individual out of annuity

plan of the LIC from a fund set up by that corporation shall be exempt under sec. 10

(10A).

2.4 Leave Encashment

During Service: - Chargeable to Tax. However, relief can be taken under section 89.

At the time of retirement/leaving job

Government Employee Fully Exempt

Non Government Employee: - Least of the following is exempt

(No. of months) EL at credit

as per records X Average

month salary

Average month salary = Last 10 months (Basic salary +

DA)/10

EL at credit to be limited @ 30 days per year of service

( fraction ignored) – leave availed/ encashed during

service

10 X Average month salary

Rs.3,00,000

Actual Amount received

2.5 House Rent Allowance: [Sec.10(13A)] If an employee lives in rented house and

paying rent, the least of the following is exempt from tax 1. 50% of salary, where

residential house is at Bombay, Calcutta, Delhi or Madras and 40% of salary, where

residential house is at any other place

2. HRA received for the period during which rental accommodation is occupied

3. The excess of rent paid over 10 percent of salary

Salary includes Dearness Allowance, if the terms of employment so provide, but

exclude all other allowances and perquisites.

Salaried employees drawing HRA up to Rs.3000 p.m. will be exempted from

production of rent receipt.

2.6 Special allowances prescribed as exempt under section 10(14):

1. Traveling allowance/Transfer allowance

2. Conveyance allowance

3. Daily Allowance

4. Uniform allowance

5. Special Compensatory allowance (Hilly areas, High altitude, uncongenial climate,

snow bound area, avalanche) [Rs. 300 p.m. to Rs.7000 p.m.)

6. Border area allowance (remote locality, difficult area, disturbed area) [Rs.200

p.m. to Rs.1300 p.m.]

7. Tribal areas/scheduled areas allowance: Rs. 200 p.m.

8. Children Education allowance: Rs.100 p.m. per child up to a maximum of two

children

9. Hostel expenditure allowance: Rs.300 p.m. per child up to a maximum of two

10. Compensatory field area allowance: Rs.2600 p.m. in some cases.

11. Compensatory modified area allowance: Rs.1000 p.m. in some cases.

12. Counter insurgency allowance: Rs.3900 per month in some cases.

13. Transport allowance: up to Rs.800 p.m. (Rs.1600 per month in the case of an

employee who is blind or orthopaedically handicapped

14. Underground allowance: Rs.800 per month

15. High altitude allowance: Up to Rs.1060 per month (for altitude of 9000 to 15000

feet) or Rs.1600 per month (for altitude above 15000 feet)

16. High active field area allowance up to Rs.4200 per month

17. Island duty allowance: Up to Rs.3250 per month

3. Taxable Perquisites

3.1 Rent free unfurnished accommodation:

(a) Accommodation provided by Central Government /State Government: Licence

Fee chargeable

(a) (As per amended section 17 (2)(ii) of Income Tax Act 1961, vide Finance Act

2007)

In a case where an unfurnished accommodation is provided by any employer other than

the Central government or any State Government (AY 2006-07)

Accommodation owned by

the Employer

Accommodation is taken on

lease or rent by the

employer

City having population

exceeding 25 lakhs as per

2001 census

15%

Lease rent or 15% of salary

City having population whichever is lower

exceeding 10 lakhs but not

exceeding 25 lakhs as per

2001 census

10%

Any other place 7.5%

Salary includes all monetary payments except exempted allowance & perquisites, DA if

not considered for retirement Benefits

3.2 Rent free furnished accommodation (not being in a Hotel)

The charges at para 3.1 above + [ 10% of cost of furniture (P.A.) or Actual hire

charges of furniture, if hired.]

3.2.1 Rent free furnished accommodation in a Hotel (includes Guest House)

24% of salary or Actual charges paid by Employer whichever is lower

3.3 Accommodation provided at concessional rent

In a case where an unfurnished accommodation is provided by any employer

other than the Central government or any State Government (AY 2006-07):

Difference between the amount arrived as per 3.1 above (A) and the rent

recoverable from, or payable by, the assessee (B) [If A is more than B only]

3.4 Interest free loan or loan at concessional rate of interest

It is taxable in the hands of all employees. The value of perquisite will be =

Interest charged @ SBI for the year Less Interest actually recovered for the year

The basis of calculation shall be the maximum outstanding balance on the last day

of each month.

SBI lending Rates (AY 2008-09)

Housing loan Up to 5 years 10.25 %

Above 5 years but up to 15 years 10.75 %

Above 15 years but up to 20 years 10.75 %

Car Loan Up to 3 years (Rs.7.5 Lakhs &

above)

11.5 %

Up to 3 years (below 7.5 Lakhs) 11.75 %

Above 3 years and up to 5 years 11.75 %

Above 5 years and up to 7 years 12 %

Two wheeler

loan

14.25 %

Education

Loan

Loan amount up to Rs.4 Lakh 11.5 %

Loan amount above Rs.4 Lakh 13.25%

Personal Loan 15.25%

When perquisite is not chargeable to tax

1. If a loan is made available for medical treatment in respect of diseases specified in

rule 3A (the exemption is, however, not applicable to so much of the loan as has

been reimbursed to the employee under any medical insurance scheme).

2. Where the amount of original loan (loans) does not exceed in the aggregate

Rs.20000

3.5 Use of Movable assets

The value of benefit to the employee resulting from the use by the employee of

any movable asset belonging to the employer shall be = 10% per annum of the

actual cost of such asset (or amount of rent paid /payable by the employer, if

hired) Less amount paid or recovered from the employee for such use. It is

taxable in the hands of all employees. Nothing is taxable if laptop or computer is

provided.

3.6 Movable assets sold by an employer to its employees at a nominal price:-

Perquisite in respect of sale of movable assets to employees

Electronic items/

computers

Motor car Any other asset

Cost of the asset Actual cost to the

Employer

Actual cost to the

Employer

Actual cost to the

Employer

Less normal wear

and tear for

completed years

during which the

asset was used by

the employer for his

business

50% for each

completed year by

reducing balance

method

20% for each

completed year by

reducing balance

method

10% for each

completed year of

actual cost

Less amount

recovered from the

employee

Consideration

recovered from the

employee

Consideration

recovered from the

employee

Consideration

recovered from the

employee

Taxable value of the

perquisite

Balancing amount Balancing amount Balancing amount

3.7 Medical facilities:

1. Fixed medical allowance is always chargeable to tax.

2. The perquisite in respect of medical facilities is generally taxable in the hands of

only specified employees. If, however, bills are issued in the name of an

employee and the employer makes payment, then it is taxable in the hands of all

employees whether specified or not.

Hospital

( including clinic,

dispensary or nursing

home)

Nature of medical

facility made

available to

employees & their

family

Expenditure Is it chargeable to

tax

Maintained by the

employer

Any Incurred by

the employer

Not chargeable to

tax (no monetary

ceiling)

Maintained by --Central/

State Government

-Local authority

-Any other person but

approved by the

Government for the

treatment of its

employees

Any Incurred or

reimbursed by

employer

Not chargeable to

tax (no monetary

limit)

Approved by the Chief

Commissioner

For prescribed

diseases

Incurred or

reimbursed by

employer

Not chargeable to

tax (no monetary

limit)

Health insurance policy

(i.e., group medical

insurance premium for

employees or medical

insurance premium for

employees and family

members)

Medical

insurance

premium paid

or reimbursed

by the

employer

Not chargeable to

tax (no monetary

ceiling)

Maintained by any other

person (for example a

private clinic)

Any Incurred or

reimbursed by

employer

Not chargeable to

tax up to Rs.15000

in aggregate per

assessment year

Tiffin allowance & Servant allowance are taxable.

Tax is to be deducted at source by Employer / Payer

I. From Salary (Sec.192)

Rate of tax deduction at source Normal rates applicable to an individual

Income Tax Rates (A.Y. 2008-09) (F.Y.2007-08)

Individual/HUF/AOP/BOI/Artificial person

Net income range Income-tax rates Education

cess

Secondary

& Higher

education

cess

(1/4/2007)

Up to Rs.1,10,000

Up to Rs.1,45,000

(Resident Woman

below 65 years)

Up to Rs.1,95,000

(Senior citizen)

NIL NIL NIL

Above Rs.1,10,000 to

Rs.1,50,000

10% of the net income in excess of

Rs.1,00,000

[10% of the net income in excess of

Rs.1,45,000

(Resident Woman below 65 years)]

2% of

income tax

1% of

income tax

Above Rs.1,50,000 to

Rs.2,50,000

Rs.4000 plus 20% of the net income

in excess of Rs.1,50,000

[Rs.500 plus 20% of the net income

in excess of Rs.1,50,000 (Resident

Woman below 65 years)]

[20% of the net income in excess of

Rs.1,95,000

(Senior Citizen)]

2% of

income tax

1% of

income tax

Above Rs.2,50,000 Rs.24,000 plus 30% the net income

in excess of Rs.2,50,000

[Rs.20,500 plus 30% of the net

income in excess of Rs.2,50,000

(Resident Woman below 65 years)]

[Rs.11,000 plus 30% of the net

income in excess of Rs.2,50,000

(Senior Citizen)]

2% of

income tax

1% of

income tax

If the net income exceeds Rs.10,00.000 Surcharge shall be payable @10% of Income tax

plus Education Cess 2% and Secondary & Higher education Cess 1% on [Income tax &

Surcharge]

4. Permissible deductions from Salary Income (Sec16)

4.1 Standard Deduction [Sec.16 (i) ]: It is not available from Assessment year 2006-

4.2 Entertainment Allowance [Sec.16 (ii)]: In the case of Government employee, the

lease of the following is deductible:

a. Rs.5000;

b. 20% of basic salary or

c. Amount of entertainment allowance granted during the previous year

In the case of non-Government employee entertainment allowance is not

deductible

4.3 Professional Tax or Tax on Employment [Sec.16 (iii)]: Actual amount paid during

the year

5. Computation of relief when salary has been received in arrears or in advance

(Sec. 89)

1. Calculate the tax payable on the total income, including the additional salary

(arrears/advance salary), of the relevant previous year in which the same is

received.

2. Calculate the tax payable on the total income, excluding the additional salary, of

the relevant previous year in which the additional salary is received.

3. Find out the difference between the tax at (1) and (2)

4. Compute the tax on the total income after including the additional salary in the

previous year to which such salary relates.

5. Compute the tax on the total income after excluding the additional salary in

previous year to which such salary relates.

6. Find out the difference between tax at (4) and (5)

7. The excess of tax computed at (3) tax computed at (6) is the amount of relief

admissible under section 89. No relief is, however, admissible if tax computed at

(3) is less than tax computed at (6). In such a case, assessee-employee need not

apply for relief.

Income from House Property

Let Out House Property

Gross annual value

(Municipal valuation or Fair rent whichever is higher subject to a

maximum of Standard Rent (Rent control Act)

If the actual rent received/receivable is higher than the above, then

that is gross annual value

xxxx

Less Municipal Taxes xxxx

Net annual value xxxx

Less Deduction under Section 24

Standard deduction 30% of net annual value xxxx

Interest on borrowed capital

(Accrual basis) (no maximum limit)

Interest on pre-construction period in 5 equal installments from the

construction year.

xxxx

Income from house property xxxx

Self Occupied House Property (one)

Gross annual value NIL

Less Municipal Taxes NIL

Net annual value NIL

Less Deduction under Section 24

Standard deduction 30% of net annual value NIL

Interest on borrowed capital

Capital is borrowed before 1-4-1999: (Max. ) Rs.30,000

Capital is borrowed on or after 1-4-1999 & the house is

acquired/constructed within 3 years from the end of F.Y in which the

capital is borrowed: (Max.) Rs.1,50,000

(Accrual basis)

(Interest on pre-construction period in 5 equal instalments from the

construction year)

xxxx

Income from self occupied property xxxx

Where a house is self occupied for a part of the year and let out for remaining part of the

year, Income will be computed as if the property is let out.

If there if a loss under the head “Income from house property” it can be set-off against

any income under other heads of income during the current year (No loss can be set-off

against winnings from lotteries, races etc.) If it is not possible to set-off the loss (fully or

partly), it can be carried forward to the next year for being set-off against the income

under the head’ Income from house property”.

Income from other sources

a. Dividends

b. Any winnings from lotteries, crossword puzzles, races including horse-races, card

games and other games of any sort or form, gambling or betting of any form or

nature whatsoever

c. Income by way of interest on securities if the income is not chargeable to tax

under the head “Profits and gains of business or profession”. [ Interest from P.O.

Savings Bank Account & Post Office CTD is exempt from Tax]

d. Where any sum of money exceeding Rs.50000 is received without consideration

by an individual from any person, the whole of such sum

e. Family Pension received by family members of deceased employee [Deduction

Rs.15000 or 331/3 % of such income, whichever is less]

f. Interest on bank deposits and loans

6. DEDUCTIONS FROM GROSS TOTAL INCOME

The aggregate amount of deductions under sections 80C to 80U cannot exceed

gross total income (i.e. gross total income after excluding long-term capital gains,

short-term capital gain taxable under section 111A, winning from lotteries, races,

etc.)

These deductions are to be allowed only if the assessee claims these and

establishes the circumstances warranting such deductions.

6.1 [Sec.80C[: (Only Individual or HUF) (From AY 2006-2007) The investments

eligible for deduction include life insurance premia, contributions to provident

fund or schemes for deferred annuities, purchase of infrastructure bonds,

payments of tuition fees, repayment of principal amount of housing loans, etc.

However, in order to minimise distortions, there are no sectoral caps in the new

section and the assessee is free to invest in any one or more of the eligible

instruments within the overall ceiling specified. Amount deductible under section

80C is equal to (a) 100% of the investment eligible or (b) Rs.1 Lakh, whichever is

lower. From AY 2007-08 investments in fixed deposits in scheduled banks for a

term of not less than five years included in Sec. 80 C. The maximum amount

deductible under sections 80C, 80CCC and 80CCD cannot exceed Rs.1 Lakh.

6.2 [Sec.80CCC] (only individual): Amount deposited under an annuity plan of the

LIC or any other insurer for receiving pension, is allowed as deduction

(Maximum Rs.100000)(AY 2007-08).

Other points:-

1. Where the assessee or his nominee surrenders the annuity before maturity date of

such annuity, the surrender value shall be taxable in the hands of the assessee or

his nominee, as the case may be, in the year of receipt.

2. The amount received by the assessee or his nominee as pension will be taxable in

the hands of the assessee or the nominee, as the case may be, in the year of

receipt.

3. If deduction is claimed under section 80C, in respect of the same investment,

deduction will not be available under section 80CCC.

6.3 Medical Insurance Premia [Sec.80D]:

Conditions:-

1. The Tax payer is an individual

2. Insurance premium is paid by the taxpayer in accordance with scheme of GIC and

approved by Central Government or a similar scheme of any other insurer who is

approved by IRDA.

3. The premium is paid by cheque

4. The policy taken on the health of taxpayer, spouse, dependent parents or

dependent children.

Amount of deduction: - Insurance premium paid or Rs.15000 [AY 2008-

09]whichever is lower. [Rs.20000 (AY 2008-09) where the assessee or his wife or

her husband or dependant parents or any member of the family is a senior citizen.

(65 year of age at any time during the year)]

6.4 Maintenance including medical treatment of a dependent being a person with

disability [Sec.80DD]

The tax payer is an individual/HUF.

The tax payer has opted for any (or both) of the following options

Option 1 Option 2

The taxpayer has incurred an expenditure

for the medical treatment, training and

rehabilitation of a dependent with disability

The tax payer has paid or deposited under

any scheme of LIC or any other insurer or

the administrator or specified company and

approved by the Board in this behalf, for

maintenance of dependent with disability

Amount of deduction: Rs.50000, irrespective of the amount incurred or deposited under

Option 1 and /or Option2. A higher deduction of Rs.75000 shall be allowed, where such

dependent is a person with severe disability having any disability over 80%

If Dependent predeceases the taxpayer: An amount equal to the amount paid or deposited

as stated above shall be deemed to be the income of the assessee of the previous year in

which such amount is received by the assessee and shall accordingly be chargeable to tax

as the income of that previous year.

6.5 Medical Treatment (Sec.80DDB)

Conditions

1. The tax payer is an individual./HUF

2. The tax payer has actually incurred expenditure for the medical treatment of a

specified disease or ailment as prescribed by the Board.

3. The expenditure actually incurred for medical treatment of the assesse himself or

wholly/ mainly dependent husband/wife, children, parents, brothers and sisters of

the taxpayer.

4. The assessee shall have to submit a certificate in the prescribed form (10-I) from a

specialist working in a Government Hospital.

Amount of deduction:- Rs.40000 or the expenditure actually incurred whichever

is lower.

Where the expenditure incurred is in respect of the assessee or his dependant who

is a senior citizen, then Rs.60,000 or actual expenditure, whichever is lower.

Deduction under this section shall be reduced by the amount received, if any,

under an insurance from an insurer, or reimbursed by an employer, for the

medical treatment of the person referred to above.

6.6 Payment of interest on loan taken for higher Education (80E) (Individual)

(no ceiling on amount A.Y.2006-07)

The above deduction is allowed from the assessment year relevant to the previous

year in which the assessee starts paying the interest on the loan and 7 immediately

succeeding assessment years or until the above interest is paid in full, whichever

is earlier.

From F.Y.2007-08, it is extended to also include interest on such loan taken for

higher education of his relative i.e. or her spouse and children.

6.7 Donations to certain Funds, Charitable Institutions, etc. (Sec.80G)

The taxpayer may be individual, company, firm or any other person.

Donee Amount

deductible

Deduction

can be

allowed

by DDO

a. National Defence Fund set up by the Central Government 100% Yes

b. Jawaharlal Nehru Memorial Fund 50% Yes

c. Prime Minister’s Drought Relief Fund 50% Yes

d. Prime Minister’s National Relief Fund 100% Yes

e. National Children’s Fund 50% Yes

f. Indira Gandhi Memorial Trust 50% Yes

g. Rajiv Gandhi Foundation 50% Yes

h. National foundation for Communal Harmony 100% Yes

i. An approved University/ Educational Institution of national

eminence

100% yes

j. Zilla Saksharta Samiti 100%

k. National Blood Transfusion council and State council for

Blood Transfusion

100% Yes

l. Fund set up by a State government for the medical relief to

the poor

100%

m. Central Welfare Fund of the Army and Air Force and the

Indian Naval Benevolent Fund

100% Yes

n. National Illness Assistance Fund 100% Yes

o. Chief Minister’s Relief fund or Lieutenant Governor’s

Relief fund

100% Yes

p. National Sports fund or National Cultural fund or Fund for

Technology Development and Application

100% Yes

q. Any other fund or any institution which satisfied

conditions mentioned in sec. 80G(5)

50%

r. Government or any local authority to be utilized for any

charitable purpose other than the purpose of promoting

family planning

50%

s. Any authority constituted either for the purpose of dealing

with and satisfying the need for housing accommodation or

for the purpose of planning, development or improvement of

cities, towns and villages, or for both

50%

t. Any corporation specified in sec.[10(26BB)] for promoting

interest of minority community

50%

u. Government or any approved local authority, institution or 100%

association to be utilized for the purpose of promoting family

planning

v. Any notified temple, mosque, gurdwara, church or other

place (for renovation or repair)

50%

w. The Indian Olympic Association or to an institute notified

by the Central govt. for the development of infrastructure for

sports and games in India (only donation by a company)

100%

x. National trust for Welfare of Persons with Autism, cerebral

Palsy, Mental Retardation and Multiple disabilities

100% Yes

The amount of deduction mentioned under q. to v. above should not exceed the 10% of

gross total income of the assessee as reduced by the following:-

1. Amount deductible under sec. 80CCC to 80 U (except 80G)

2. Such incomes on which income-tax is not payable

3. Long-term capital gains

4. Short term capital gain which is taxable under sec.111A@ 10% (plus

surcharge plus education cess)

5. Incomes referred to in section 115A to 115D

6.8 Deduction in the case of a person with disability [Sec.80 U]

Amount of deduction: Rs.50000 [Rs.75000 in respect of a person with severe

disability i.e. having any disability over 80%]

Tax Liability-How to find out

Assessment Year 2008-09

1. Find out gross total income

Rs.

---

Rs.

2. Less: Deductions

2.1 Under Section 80C

2.2 Under sections 80 CCC to 80 U

---

----

3. Find out net income [(1) - (2) ---------

4. Find out income-tax on net income --------

5. Add Surcharge -------

6. Find out the total [ (4) + (5)] -------

7. Add: Education cess [2% of (6)] -------

8. Add: Sec. & High Education Cess [1% of 6]

9. Find out the total [ (6) to (8)] -------

10. Deduct: Relief under Section 89 -------

11. Tax liability [(9) – (10)] --------

12. Add : Interest/penalty, etc. --------

13. Less: pre-paid taxes [i.e. advance tax, selfassessment

tax, TDS, TCS]

--------

14. Tax payable [(11) + (12) – (13)] --------

Different payments Form No.

In case of salary payment to a resident individual where the income

from salary before deduction under section 16 does not exceed

Rs.1,50,000

16AA

In case of salary payment not covered by above 12 BA and 16

In case of payment other than salary 16A

De-materialisation of TDS and TCS certificates: The payer of income shall furnish a

quarterly statement of tax deducted at source (in digital format) to the prescribed income

tax authority in respect of tax deducted at source on or after April 1, 2005 (form 24Q for

salary and 26Q for others). Such statement should be submitted within 15 days from the

end of each quarter (30 days in the case of last quarter). The prescribed income-tax

authority will in turn furnish an annual statement (in digital format) in form No.26AS of

tax deducted to the recipient. The recipient will get tax credit in respect of tax deducted at

source without production of a certificate in respect of tax deducted on or after March 31,

2008.

Time limit for payment of tax deduction at source to the Government

Different situations Time limit for deposit of tax Time limit for issue of

certificate to the recipient

Within one week from the

last date of the month in

which tax deduction is

made

In case of salary within 30

days from the close of the

financial year; Otherwise

within one month from the

end of the month in which

tax is deducted at source

When amount under Sec.

194 A, 194 C, 194 H, 194 I

and 194 J is credited to the

account of the recipient as

on the last date of the

accounting year

Within two month from the

last date of the accounting

year

Within two months and

seven days from the last

date of the accounting year

Annual return to the Income-tax Department

Different payments In case of a company Time limit for submission of

return

Salary Form No.24 in electronic

format and Form No.27A

May 31 immediately after the

end of the financial year

Payment (other than

salary) to a resident

Form No.26 in electronic

format and Form No.27A

June 30 immediately after the

end of the financial year

The above return (in electronic format) is to be prepared on the data structure provided by

the NSDL and copied on a floppy. The floppy is to be affixed with a label indicating

name, permanent account number, tax deduction account number and address of the

person deducting tax, the period to which the return pertains, the form number of the

return and the volume number of the floppy in case there is more than one volume of one

return. Separate floppy is to be used for each form of TDS (i.e. Forms 24, 26 ) and each

form on floppy is to be submitted along with the statement in form 27A.

Tax deduction and collection account number (Sec.203A)

Every person deducting tax or collecting tax, who has not been allotted a tax deduction

account number or, as the case may be, a tax collection account number, shall, within one

month from the end of the month in which tax is deducted/collected, apply to the

Assessing Officer for the allotment of a “tax deduction and collection account number” in

form no.49B. Where a “tax deduction account number” or “tax collection account

number” or “tax deduction and collection account number”, has been allotted to a person,

such person shall quote such number:

a. In all challans for the payment of any sum in accordance with the provisions

of section 200 or section 206 C (3);

b. In all certificates furnished under section 203 or section 206 C (5);

c. In all other documents pertaining to such transactions as may be prescribed.

Compliance of TDS Provisions & consequences if the provisions are not followed From

A.Y.2005-2006

[TDS provisions for Interest (Sec.194 A), Commission (Sec.194 H), Fees

technical/Professional services (Sec.194 J) & Payment to contractors (Sec. 194 C)]

Different situations Expenditure deductible in which year

Tax has been deducted and paid to the

Government in a subsequent year but after

the expiry of time limit

Deductible in the year in which tax has

been paid

Tax has not been deducted or

Tax has been deducted but not paid to the

Government

Not deductible

INCOME TAX RATES FOR TAX DEDUCTION AT SOURCE AY 2008-09 (F.Y.2007-08)

If the recipient is (a) an individual,

HUF, BOI or AOP and payment does

not exceed Rs.10,00,000 or

(b) a Co-Operative Society or

(c) a local authority or

(d) Domestic company or firm and

payment does not exceed 1 crore

If the recipient is (a) an individual, HUF, BOI

or AOP and payment exceeds Rs.10,00,000 or

(b) Domestic company or firm and payment

exceeds 1 crore

No Surcharge

Education cess on Intcome tax2%

Secondary & Higher Education Cess on Income tax 1%

Surcharge on Income tax 10%

Education Cess on Income Tax and Surcharge 2%

Secondary & Higher Education Cess on Income tax & Surcharge 1%

Interest other than interest on securities to resident (Sec. 194A)

[Exceeds Rs.5000]

[Exceeds Ra.10000 Interest paid by Banks]

a. Payment to Domestic company 20% 20%

b. Payment to other than Domestic company 10% 10%

Payment to a resident contractor/ sub contractor

(sec.194C)[Exceeds Rs.20000 (aggregate Rs.50000)]

a. Payment to a contractor (advertising) 1% 1%

b. Payment to a contractor (other than advertising) 2% 2%

c. Payment to sub contractor 1% 1%

Commission or brokerage to a resident

(Sec.194 H) [Exceeds Rs.2500]

[Except to (PCO) franchisees of BSNL/MTNL]

10% (1-6-2007)

5% (up to 31-5-07)

10% (1-6-07)

5% (up to 31-5-07)

Rent to a resident (Sec.194-I)

[Exceeds Rs.1,20,000] [Other than P&M]

a. Rent to an Individual or a HUF 15% 15%

b. Rent to a person other than individual or a HUF 20% 20%

Fees for professional or Technical services to a resident (Sec.194

J) [Exceeds Rs.20,000]

10% (1-6-2007)

5% (up to 31-5-07)

10% (1-6-07)

5% (up to 31-5-07)

Payment to Non Resident (rent etc.)

* Non Domestic Company

30%

40%

30%

40%

2.5%

Tax collection at source [Sec.206 C]

Who is responsible to collect tax at source: Every person, being a seller, shall collect

from the buyer of goods specified in section 206 C tax at source

‘Seller’ means the Central government, a State Government or any local authority or

corporation or authority established by or under a Central, State or Provincial Act, or any

accompany or firm or co-operative society. It also includes an individual or a HUF whose

books of account are required to be audited under Sec.44AB(a)(b) during the financial

year immediately preceding the financial year in which goods are sold.

‘Buyer’ means a person who obtains in any sale, by way of auction, tender or any other

mode, goods of the nature specified in the table section 206 C (1) or the right to receive

any such goods. It, however, does not include the following:-

a. A public sector company, the Central Government, a State Government, and

an embassy, a High Commission, Legation, commission, consulate and the

trade representation, of a foreign State and a club, or

b. A buyer in the retail sale of such goods purchased by him for personal

consumption

When tax has to be collected at source: Tax has to be collected by the seller at the time of

debiting of the amount payable by the buyer to the account of the buyer or at the time of

receipt of such amount from the buyer in cash or by issue of cheque/draft, or by an other

mode, whichever is earlier.

How to compute tax collected at source

Nature of goods/nature of contract or license or

lease

Percentage rate of tax

collection at source (TCS)

applicable

Alcoholic liquor for human consumption 1

Tendu leaves 5

Timber obtained under a forest lease 2.5

Timber obtained by any mode other than under a

forest lease

2.5

Any other forest produce (not being timber or tendu

leaves)

2.5

Scrap 1

Parking lot, toll plaza, mining and quarrying (to a

person other than PSU)

The above rates are subject to surcharge & Education Cess

Meaning of Scrap:- “waste and scrap from the manufacture or mechanical working of

materials which is definitely not usable as such because of breakage, cutting up, wear and

other reasons”

Buyer exempt from tax: If income of buyer is exempt from tax, tax cannot be collected at

source.

Percentage is applicable on purchase price

No tax will be collected at source from a buyer who purchases goods for the purposes of

manufacturing, processing or producing any article or thing and not for the purpose of

trading. If a buyer gives a declaration in Form No.27C to the seller that the goods to be

purchased are to be utilized in the carrying on of any of the activities referred to above,

no tax will be collected under section 206 C.

Deposit of tax: Tax collected under sec.206C shall be deposited within one week from

the last day of the month in which collection is made to the credit of Central government.

For non-payment or late payment, interest is payable at the rate of 1 percent per month or

part thereof.

Issue of certificate: Within a period of one month from the end of the month in which tax

is collected, the person collecting tax should issue a certificate of tax collected in form

no.27D.

Quarterly statement of tax collected: Every person collecting tax shall be required to

furnish quarterly statements in form no.27EQ to the prescribed income tax authority, for

the tax collected on or after April 1, 2005. Such statement should be given within 15 days

from the end of each quarter (30 days in the case of last quarter).

Return to the Government: Every person collecting tax at source under sec.206C is

required to send yearly return in form no.27E. W.E.F. 1-4-2005, the annual TCS return

will be in computer readable media along with form No.27B.

Return/Assessment of Income

When return is to be filed as statutory obligation

Taxpayer Minimum income to attract the provision

of filing return of income

Company Any income or loss

A person other than a company If the total income without giving effect to

the provisions of sections 10A, 10B, 10BA

and sections 80C to 80U exceeds the

maximum amount which is not chargeable

to income-tax

(Rs.1,00,00/Rs.1,35,000/Rs.1,85,000)

Time for filing return of income

Where the assessee is a company October 31

Other cases (Individual) July 31

Banking Cash Transaction Tax @ 0.1% w.e.f. 1-6-2005 and restriction on

withdrawal of Rs.1 lakh or more from bank from 1-6-2005

With reference to above, it is mentioned that Banking Cash Transaction Tax is introduced

by Chapter VII of the Finance Act, 2005. It shall apply to all taxable banking transactions

entered into on or after 1st day of June, 2005.

It provides that a banking cash transaction tax @ 0.1% shall be charged in respect of

every taxable banking transactions entered into on or after the 1st day of June, 2005 of the

value of every such taxable banking transaction.

The value of taxable banking transaction shall be, the amount of cash withdrawn or the

amount of cash received on encashment of term deposit or deposits as the case may be.

“Taxable banking transaction” means----

(a) a transaction, being withdrawal of cash (by whatever mode) on any single day

from an account (other than a savings bank account) maintained with any

scheduled bank exceeding,

(i) Rs.50,000/-

(ii) one lakh rupees, in case such withdrawal is from the account maintained

by a person other than any individual or Hindu Undivided Family

(b) a transaction, being receipt of cash from any scheduled bank on any single day

on encashment of one or more term deposits, whether on maturity or otherwise,

from that bank, exceeding,

(i) Rs.50,000/-

(ii) one lakh rupees, in case such term deposit or deposits are by any person

other than any individual or Hindu Undivided Family

Scope of the term “FRINGE BENEFIT” [sub sec.(1) of Sec.115WB]

Any consideration for employment provided by way of:-

Value of fringe benefits

vide sub sec.(1) of

Sec.115

(a) any privilege, service,

facility or amenity,

directly or indirectly,

provided by an employer,

whether by way of

reimbursement or

otherwise, to his

employees (including

former employee or

employees);

Does not include perquisites in

respect of which tax is paid or

payable by the employee sub

sec.(3) of Sec. 115WB

From AY 2007-08, any benefit or

amenity in the nature of free or

subsidized transport or any such

allowance provided by the

employer to his employees for

journeys by the employees from

their residence to the place of

work or such place of work to the

place of residence shall not form

part of FB.

employer to an approved

superannuation fund for

employees.

Aggregate of the actual

amount of contribution

made by the employer

to an approved

superannuation fund

for the employees

The contribution to approved

gratuity or provident fund would

not attract levy of FBT.

The contribution by an employer

to an approved superannuation

fund to the extent that it does not

exceed Rs.1 Lakh per employee

in respect of whom contribution is

made, shall not be liable to FBT.

Scope of the term “FRINGE BENEFIT DEEMED to have been provided” [sub sec. (2) of Sec.115WB]

If the employer has incurred any expense on, or made payment for, the purposes summarized below:

Value of

fringe

benefits

Clarifications by MOF Heads of Accounts & Instructions for Fringe Benefit

Tax in BSNL

(A) Entertainment

20% of

expenses

It includes all expenditure

in connection with

exhibition, performance,

amusement, game or sport,

for affording some sort of

amusement and

gratification.

1712300 / 4712300 Entertainment

(Liable to FBT)

shall be utilized for incurring expenditure on

furnishing accommodation, refreshment, good cheer or

diversion; mental enjoyment, amusement, providing

gratification or diversion, receiving a host,

hospitable/public reception, hospitable provision for

the wants of a guest, a formal or elegant meal etc., a

hospitable resort, a banquet, receiving and

accommodating guest. (Expenditure on items shall be

other than those mentioned under Hospitality)

The expenditure incurred for non-festival occasions

(including annual day) shall be treated as expenditure

on entertainment.

The expenditure on entertainment is something, which

may be beneficial for the mental or physical well being

but is not essential or indispensable for human

existence.

(B) Provision of hospitality of

every kind to any person, whether

by way of food or beverage or in

any other manner excluding food

or beverages provided to the

employees in the office or factory

or non transferable paid vouchers

usable only at eating joints or

outlets;

20% of

expenses

If an employer owns an

exclusive training center

used to train its employees

(construed as an ‘office or a

factory’), any expenditure

on food or beverages

provided by the employer at

such training center to the

employees is not liable to

FBT.

If an employer reimburses

to the employee,

expenditure on food or

beverages consumed by the

employee in the office, such

reimbursement will be

liable to FBT.

1714101 / 4714101 Hospitality given to employees at

Admn./Operative Office premise of BSNL (Not

liable to FBT)

shall be utilized for booking expenditure incurred by

BSNL for giving food or beverages to the employees

of BSNL at office (both Administrative & Operative)

premises of BSNL. Even expenditure on or payment

through paid vouchers for providing food and

beverages to employees of BSNL shall be booked

under above mentioned accode provided such vouchers

are not transferable and can be used only at eating

joints or outlets.

1714102 / 4714102 Hospitality given to any person

anywhere and /or employees not at

Admn./Operative Office premise of BSNL

(Liable to FBT)

shall be utilized for booking expenditure incurred by

BSNL on food and beverages provided to any person

anywhere and employees of BSNL at places other than

Admn./Operative office.

participation by the employees in

any conference;

20% of

Expenses

Expenditure incurred for

attending training

programmes organized by

trade bodies or institutions

or any other agency falls

within the scope of this

provision.

It is liable to FBT,

irrespective of whether the

conference is of agents or

dealers or development

advisors or any other

persons

1714201 / 4714201 Fee for participation in

conference by employees

(Not liable to FBT)

shall be utilized for booking expenditure on fee paid by

BSNL for its employees for attending the

conference/seminars/training programs organized by

trade bodies, institutions or any other agency

1714202 / 4714202 Conference Expense other than

fee for participation

(Liable to FBT)

shall be utilized for booking expenditure on items

other than fee for participation, such as travel expense,

charges towards hotel, boarding and lodging ( if

allowed as per rules & regulation of BSNL to the

employees for attending seminar/conference /training

program)

Expenditure incurred for conducting any conference

and seminars (including conference organized for

agents, dealers or development advisors) other than

those mentioned under “Exhibition, fair & Press

conference” shall also be booked.

(D) sales

promotion

including

publicity but

excluding

specified

expenditure

20% of expenses FBT is not payable on brokerage and selling commission paid

for selling goods (selling expenses).

Discounts or rebates or bonus points (credit card customers)

allowed to customers or wholesale dealers are in the nature of

selling expenses & are not liable to FBT.

Product-marketing research through a separate marketing

agency is not liable to FBT.

Any expenditure in the nature of call center charges for

canvassing sales (cold calls) and carrying out post-sale

activities is in the nature of selling cost and is not liable to

FBT.

Expenditure incurred for the purpose of providing incentives

given to distributors for meeting sales targets (including free

goods for achieving certain sales target and cash incentives

adjustable against future supplies) do not liable to FBT.

Any samples of products distributed to trade or consumers

would be liable to FBT.

Any expenditure on making an ad-film is not liable to FBT.

Any expenditure (including on artwork and royalty charges)

on free offers (with products) such as freebies like tattoos,

cricket cards or similar products, to trade or consumers

(excluding employees) is for the purposes of sales promotion

and, publicity liable to FBT.

Any expenditure incurred for the purposes of lodging and

boarding, or travel of customer/clients liable to FBT [(D) or

(G)]

1722811 /4712811 Sales

promotion & Publicity

Expenditure

(Liable to FBT)

will be utilized for classifying

any expenditure on sales

promotion. Examples of sales

promotion & publicity are

expenditure (including

expenditure on artwork and

royalty charges) on free product,

free offer (with product)

distributed to trade or consumers

etc.

Any expenditure on photography

& video (other than ad-film) for

the purpose of sales promotion

shall be booked under this head.

Any expenditure on photography

& video other than for sales

promotion & publicity (including

ad-film) shall be treated as

general expense and booked

under accodes for “General

Expenses” under difference

“Administrative Expense”

schedules.

1722801/1922801/4712801 –Advertisement & Publicity (Not liable to FBT)

shall be utilized for expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price

lists) or electronic media or transport system. The above mentioned code shall also be utilized for booking expenditure on

advertisement by way of signs, artwork, paintings, banners, awnings, direct mail, electric spectaculars, hoardings, bill boards or by

way of such other medium of advertisement. Any expenditure is by way of payment to any advertising agency for the purpose of

accomplishing the advertising works mentioned above shall also be booked to above accodes. The expenditure on Ad-film shall also

be booked under above-mentioned accodes.

1712802, 1722802, 1922802, 4712802 Exhibition, fair & Press Conference (Not liable to FBT)

shall be utilized for booking expenditure on press conference, business convention, fair, exhibition held or participated by BSNL.

1722810 /4712810 Sponsorship of sports event or any other event (Not liable to FBT)

For booking expenditure of any sports event or any other event organized by any Government agency or trade association or body.

Any expenditure is by way of payment to any agency for the purpose of accomplishing the works mentioned above shall also be

booked to above accodes.

(E)

employee

welfare

excluding

any

expenditure

or payment

made to

fulfill any

statutory

obligations

or mitigate

occupation

al hazards

or provide

first aid

facilities in

the hospital

dispensary

run by the

employer;

20% of

expense

If the expenditure is incurred for treatment of injuries suffered in the course

of performance of duties but the treatment is at a hospital/dispensary not

maintained by the employer, such expenditure is liable to FBT. However, if

such expenditure is pursuant to a statutory obligation, it will not be liable to

FBT.

Any subsidy provided to a school not meant exclusively for employee’s

children is liable to FBT.

Any expenditure incurred for the provision of facilities like garden, site

cleaning, light decoration school, library, mess, television, cable connection

etc. employees’ colonies are liable to FBT.

Expenditure incurred on providing safety shoes or uniform or equipment to

the employees or incurred for the purposes of reimbursement of washing

charges, is exempt from FBT to the extent such expenditure is incurred to

meet such statutory obligation.

Any reimbursement of expenditure on books and periodicals to employees

is liable to FBT

Any expenditure incurred on prizes/rewards to employees for achievements

is liable to FBT.

Expenditure incurred for the purpose of providing transport facility to the

children of employees is liable to FBT.

The payment to any person of repute for promoting the sale of goods or

services i.e. brand endorsement, shall not be included as part of Sales

promotion and publicity expenditure for levy of FBT (AY 2007-08).

Sch 151 to 166

xxx1000 Staff Welfare

(Liable to FBT)

shall be utilized for booking

expenditure on welfare of employee.

This may include any free product/

free offer (with product) given to the

employees by BSNL as per existing

rules & regulation.

However, any expenditure incurred or

payment made to fulfill any statutory

obligation or mitigate occupational

hazards or provide first aid facilities

shall not be considered as expenditure

for employees’ welfare.

1714901 Provision of facilities in

staff colonies

(Liable to FBT)

Expenditure incurred by BSNL for

the provision of facilities like garden,

site cleaning, light decoration, school,

library, mess, television, cable

connection etc. in employees’

colonies

(Q) Tour and travel (including foreign travel);

5% of expenses (AY 2007-08)

This expenditure paid

by the client to the

lawyer or auditor is

treated as

professional fee &

not liable to FBT in

the hands of the

client.

FBT would not be

payable on payment

of advance towards

expenses to be

incurred in the future.

Rent paid or payable

for an operating lease

of a motor-car is

expenditure for the

purposes of

conveyance, tour and

travel.

Sch.171 to 185, 192 & 471

xxx0901 Inland Travel-expense on journey, personal effects & conveyance

shall be utilized for booking the expenditure on fare, road mileage, cost of transportation of personal effects, cost of transportation of

conveyance in connection with TA on tour, TA for local journey, TA when deputed for training, TA on temporary transfer, TA on

Transfer, TA on retirement etc. (Liable to FBT)

1710902 / 4710902 Foreign Travel-Expense on Journey (Liable to FBT)

Sch.171 to 185, 192 & 471

xxx0903 Daily allowance for Inland travel (Not liable to FBT)

The daily allowance portion of traveling allowance (excluding the lodging charges in case of stay in hotel etc. in connection with

inland travel i.e. TA on tour, TA for local journey, TA when deputed for training, TA on temporary transfer shall be booked under

this head

1710907 / 4710907 Daily Allowance for foreign travel (Not liable to FBT)

The expenditure on foreign travel shall be booked by all units under these heads [(Basic segment Sch.171) (CMTS sch.471)]

[Sch.171, 175, 177, 179, 180, 182, 183, 471

xxx1907 Expense on journey-Branch Auditor

Sch.171, 175, 177, 179, 180, 182, 183, 471

xxx1908 Expense on journey-Internal Auditor

Sch.171, 179, 180, 183, 471

xxx1909 Expense on journey-Cost Auditor

Sch.171, 179, 180, 183, 471

xxx1910 Expense on journey-Tax Auditor

Sch.171, 175, 177, 179, 180, 182, 183

xxx1912 Daily allowance, hotel charges of Branch/Internal/Tax/Cost Auditor

(not liable to FBT)]

1711911 / 4711911

Expenses on journey-Professional other than Branch /Internal/ Tax/ Cost Auditors (Liable to FBT)

Sch.171 to 185, 192 & 471

xxx0906 Composite Transfer Grant (Not Liable to FBT)

The composite transfer grants, which are given to the employees at the time of transfer and retirement, shall be booked under this

head.

(F) Conveyance 5% of Expenses

(Telecommunication

infrastructure treated as

Business construction)

Fixed conveyance allowance is not liable

to FBT

171 to 185, 192, 471

XXX1000 Conveyance charges

(G) use of hotel,

boarding and

lodging facilities;

20% of

expenses

Sch.171 to 185, 192 & 471 (Liable to FBT)

xxx0904 Hotel/Guest house-lodging charges for inland travel

For stay in hotel/Guest house/lodges/rest house/other establishment etc. in connection with

inland travel, the eligible portion of lodging charges paid shall be booked under this head.

Sch.171 to 185, 192 & 471 (Liable to FBT)

xxx0905 Hotel/Guest house-other than lodging charges for inland travel

For stay in hotel/Guest house if any expenditure other than lodging charges & daily allowances

allowed, the same shall be booked under this head

1710908 / 4710908 Hotel / Guest House-lodging charges for foreign travel

1710909 / 4710909 Hotel/ Guest House-other than lodging charge for foreign travel

(Liable to FBT)

The expenditure on foreign travel shall be booked by all units under these heads [(Basic

segment Sch.171) (CMTS sch.471)]

(H) Repair,

running

(including fuel)

and maintenance

of motorcars and

the amount of

depreciation

thereon;

20%

expenses

For the purposes

of payment of

advance of tax

on fringe

benefits tax,

depreciation

should be taken

on a pro-rata

basis.

Depreciation on

motor-car or

any other asset

shall be

computed under

the provisions

of sec. 32 of IT

Act.

Rent paid or

payable for a

financial lease

of a motor-car is

in the nature of

expenditure on

running or

maintaining of a

motor-car.

Delivery/display

vans,

trucks/lorries,

ambulance and

tractor are not

motor cars and

the expenditure

on the running,

repair and

maintenance of

such vehicles is

not liable to

Sch.171 to 185, 192& 471

xxx0701 Vehicle-(Other than truck, Delivery van) hiring expense (liable to FBT)

xxx0703 Hiring of vehicle-Truck/lorry, Delivery van. Tractor, ambulance (not liable

to FBT)

Sch.171 to 173, 175 to 185, 192& 471

xxx0804 Motor vehicles & Launches

shall be utilized for booking expenditure on repair & maintenance of

departmental truck, lorry, delivery van, tractor, ambulance, omnibus, motor cycle,

launches

(not liable to FBT)

Sch.171 to 185, 192& 471

xxx0812 Motor car other than truck, lorry, delivery van, tractor (repair

&maintenance)

(liable to FBT)

1714601 / 4714601 Salary of driver of departmental vehicle

shall be utilized for booking the salary of driver of departmental vehicle. Here

departmental vehicle means the vehicle other than departmental truck, lorry, tractor,

ambulance, transport vehicle, omnibus, and delivery/display vans. The pay &

allowance, other benefits such as LTC, Pension contribution, medical allowances

etc. of such driver shall initially be booked under respective remuneration schedule,

however the same shall be transferred to the above accode by crediting the

respective accodes for pay, DA etc.

(liable to FBT)

(I) Maintenance of

any

accommodation in

the nature of guest

house other than

accommodation

used for training

purposes;

20% of

expenses

Expenditure on items like refrigerators, televisions,

furniture and similar items in a guest house would

not fall within the scope of this clause (acquisition of

capital asset)

Expenditure incurred for the purposes of

maintenance of all guest houses is liable to FBT

irrespective of whether they are used as holiday

homes or not.

Expenditure on provision of food at the guest house

maintained by the employer, contract charges paid to

guest house staff and rent paid or payable in respect

of the guest house building are liable to FBT.

1714301 / 4714301 Maintenance expense

of Guest House, Holiday Home

(Liable to FBT)

shall be utilized for booking expenditure

incurred on upkeep and running of guest

house & holiday homes. The expenditure

on salary of guest house and holiday home

staff shall be treated as expenditure on

upkeep and running of guest house,

holiday home. Similarly if guesthouse,

holiday home building is taken on rent,

the said rent will be booked under this

accode. If food is provided to the guest

free of cost the cost of it shall also be

booked under this accode. However, the

expenditure on repair of guesthouse,

holiday home building and depreciation

on guesthouse & holiday home building

and other depreciable assets of guesthouse

& holiday home will not be booked under

this accode. The cost of capital items i.e.

fridges, TVs etc. provided in Guest house,

holiday home shall not be booked under

this accode.

(J) Use of

telephone

(including mobile

phone) other than

expenditure on

leased telephone

lines;

20% of

expenses

(K) Festival

celebrations:

50% of

expenses

Expenditure on meeting/ get-togethers of employees

and their family members on the occasion of any

festival (except Independence Day, Republic Day) is

expenditure on festival celebrations.

1714501 / 4714501 Expenditure on

celebration of Festival

If any expenditure on lighting, decorating,

feast etc., is incurred for celebrating

festivals such as “New Year’, ‘Navratri’,

‘Diwali’, ‘Id’, ‘Christmas’, shall be

booked under this head.

(Liable to FBT)

1722806/1922806/4712806 Expenditure

on ceremonies

shall be utilized for booking expenditure

for celebrating Independence Day &

Republic Day. (Not liable to FBT)

(L) Use of health

club and similar

facilities;

50% of

expenses

Entrance or membership fee of a club or health club

or similar facility are liable to FBT.

1714401 / 4714401 Expenditure on Health

club and similar facility

(Liable to FBT)

1714402 /4714402 Expenditure on club

(other than health club)

(Liable to FBT)

If any expenditure on items such as

membership fee etc/ is incurred for

extending the facility of health club and

Club (other than health club) to the

eligible employees the same shall be

booked under this head.

(M) Use of any

other club

facilities;

50% of

expenses

(N) Gifts; and 50% of

expenses

Expenditure on gifts under trade schemes or for

promotion of company’s products to

distributors/retailers is liable to FBT.

A gift to a customer would fall within the scope of

the clause.

Any expenditure incurred on gifts provided to

employees, whether on the occasion of marriage or

otherwise is liable to FBT (including gift in kind)

1722804 / 1922804 / 4712804 Gift

will be utilized for booking expenditure

on gift if given by BSNL to

distributor/subscriber/employee under

proper sanction. Product/service given

free to trade /subscribers shall not be

booked under this head.

(Liable to FBT)

(O) scholarships 50% of

expenses

Expenditure on the education of employees sent to an educational institution would fall within the

scope of this clause.

FBT is payable on the expenditure incurred or payment for the purposes of scholarship

irrespective of whether the recipient is an employee or his relative or any other person

* Where the employer is engaged in the construction business, 5% of the expenses in

the nature of conveyance, tour and travel (including foreign travel) is treated as Fringe

Benefit (instead of 20%)(AY 2006-07)

What is the meaning of the term ‘business

of construction’ –whether only civil

construction or even other construction

work like construction of plants,

telecommunication infrastructure, etc. are

also covered?

The term ‘business of construction’ must

be understood by giving the ordinary

English language meaning to the words.

Hence, all activities involving

construction would be covered within the

scope of the term ‘business of

construction’ referred to in section

115WC of the Income tax Act.

Important Clarifications:-

1. The amount of expense incurred or payment made, for the purposes listed in

clauses (b) and (c) of sub-section (1) and clauses (A) to (P) of sub-section (2)

of section 115WB, is to be determined according to the books of account.

2. If there is no provision for computing the value of any particular fringe benefit

(as per sec.115WC), such fringe benefit, even if it may fall within clause (a) of

sub-section (1) of section 115WB, is not liable to FBT.

3. FBT is payable in the year in which the expenditure is incurred irrespective of

whether the expenditure is capitalized or not. However, the same expenditure

will not be liable to FBT again in the year in which it is amortized and charged

to profit.

4. There is no requirement to segregate the various expenses referred to in

sec.115WB, between those incurred for official purposes and personal

purposes.

5. The value of fringe benefits shall be determined with reference to the net

expenditure i.e. Gross expenditure incurred by the employer less recovery

from the employees.

6. to the extent the expenses incurred by the employer are personal in nature and

have, therefore, been disallowed under section 37 of the Income-tax Act, such

disallowance would not be liable to FBT.

7. An employer is liable to FBT if it is engaged in business or profession or any

activity, whether or not such activity is carried on with the object of deriving

income, profits or gains.

8. If any sum is paid by the employer for expenditure actually incurred by the

employee for medical treatment in an unapproved hospital and it does not

exceed Rs.15000/- during the year, not liable to income- tax in the hands of

the employee. Such sum is liable to FBT. (Exceeding Rs.15000/- is taxable in

the hands of the employee as per IT Act)

9. Expenditure on ay capital asset in respect of which depreciation is allowable

u/s 32 of the Income-tax Act does not fall within the scope of sub-section (2)

of sec.115WB and such expenditure is not liable to FBT (except depreciation

on motor cars or aircrafts).

Taxable entities (who is liable to pay the tax?

The FBT is payable by an employer who is:-

(i) a company;

(ii) a firm;

(iii) an association of persons or a body of individuals, excluding any fund, trust

or institution eligible for exemption under clause (23C) of section 10 or

registered under section 12AA;

(iv) a local authority; or

(v) an artificial juridical person

The tax on fringe benefits is payable by the employer even if he is not liable to pay

income tax on his total income computed in accordance with the provisions of the

Income tax Act other than the provisions of Chapter-XIIH.

Tax Rate: - 30% of the value of fringe benefits

Payment of FBT: - The employer is required to pay advance tax at the rate of 30% of

the current fringe benefits paid or payable in each quarter. The advance tax is to be

paid on or before the 15th of the month following that quarter. However, in the case of

last quarter ending on 31st March of the financial year, the advance tax shall be

payable on or before the 15th day of March of that year. Any excess advance tax paid

for the preceding quarter can be adjusted against the advance tax for the subsequent

quarter(s). Failure to pay advance tax for any quarter, or payment less than 30% of the

value of fringe benefits in that quarter, will attract interest @ 1% on the shortfall, for

each month or part of the month for which such shortfall continues.

Return of Fringe Benefits:-In case of a company, the due date is 31st of October of

the assessment year (in the prescribed form). Failure to furnish a return of fringe

benefits or delayed filing of such return will result in the levy of interest @1% for

each month of delay or till the assessment is made, on the amount of tax on the value

of fringe benefits.

Treatment of FBT: The FBT shall not be allowed as a deduction in computing the

income chargeable under the head ‘profits and gains of business or profession’.

However, FBT is an allowable deduction in the computation of ‘book profit’ under

section 115JB of IT Act.

SERVICE TAX

Service tax is imposed under Finance Act, 1994 as amended from time to time. There

is no Service Tax Act.

Rates of Service Tax

5% w.e.f. 1-7-1994

8% w.e.f. 14-5-2003

10% w.e.f. 10-9-2004 (Education cess on Service Tax 2%)

12% w.e.f. 18-4-2006 (Education cess on Service Tax 2%)

* TDS (income tax) will be on gross amount of the bill i.e. inclusive of service

tax and education cess charged by the contractor/professional etc.

* Service tax is payable on gross amount charged by service provider for service

provided or to be provided. Thus, tax is payable as soon as advance is

received.(w.e.f. 13-5-2005)

* If gross amount charged by service provider is inclusive of service tax (i.e.

service tax not charged separately in invoice), value of taxable service will be

calculated by back calculations such that with addition of service tax payable,

the total is equal to the gross amount charged. (‘Value of taxable service’ plus

service tax payable is equal to ‘gross amount charged’) [section 67(2)]

* Gross amount charged for taxable services can be before, during or after

provision of service [section 67(3)]

* Service tax is payable on value of taxable service and not on entire value of

contract. Service tax is not payable on value of goods and material supplied to

the service recipient while providing service. (Such exclusion is permissible

only if Cenvat credit on such goods and material is not taken). There should be

evidence about its value.

In case of some services, service tax is payable at lower rates, i.e. partial

abatement is available from gross value. The lower rate is applicable if the

service provider does not avail cenvat credit of duty/tax on inputs, input

services and capital goods.

[Example construction service, goods transport agency etc.]

* Small service providers whose turnover less than Rs.four lakhs per annum

are exempt from service tax. This small service providers shall not avail the

CENVAT credit of service tax paid on any input services. The exemption shall

apply to the aggregate value of all such taxable services from all premises of

service provider taken together and not separately for each premises or each

services.

Person providing taxable service in excess of Rs. Three lakhs per annum (but less than

Rs. Four lakhs ) will have to register with Superintendent of Central Excise under

Service Tax provisions , though they will be eligible for exemption if turnover is less

than Rs. Four lakhs per annum.

Person liable to pay Service tax

In most of the cases, service provider, i.e. person who is providing taxable service is

liable to pay service tax.

Exceptions:

* In relation to taxable service provided or to be provided by any person from a

country other than India and received by any person under section 66A of

finance Act, service tax is payable by recipient of service [rule2(1)(d)(iv)]. In

such case, person receiving the service will have to register.

* In case of services of Goods transport Agency (GTA), service tax is payable

by consignor/consignee who is paying freight [rule2(1)(d)(v)] [However, the

consignor/consignee is not entitled to avail exemption available to a small

service provider]

* In case of sponsorship service provided to a body corporate or firm, the

body corporate or firm receiving such sponsorship service will be liable to pay

service tax [rule 2(1)(d)(vii)]. The body corporate or firm paying such service

tax will be eligible to avail Cenvat credit of the service tax paid, on the basis

of TR-6 challan by which the tax is paid w.e.f.1-5-2006. It may be noted that

when person receiving service is liable to pay service tax, he is not entitled to

exemption of Rs. Four lakhs which is available to a small service provider.

Procedures

* There are no prescribed form of records. The records maintained by assessee

including computerized data maintained by assessee in accordance with

various other laws are acceptable [rule 5(1)]

* In the first return, the assessee should furnish a list of all accounts maintained

by assessee including the memoranda received from his branch offices [rule

5(2)]

* Rule 5(3) makes it obligatory for an assessee to preserve records at least for a

period of five years.

* Rule 5(4) provides that an assessee shall make available records maintained by

him at the registered premises (includes all premises or offices from where an

assessee is providing taxable service) to a Central Excise Officer authorized by

jurisdictional AC/DC, for the purpose of inspection or examination.

Registration

Following will require registration as per the rules

(a) Input Service distributors

(b) Service provider who is exempt but whose aggregate value of taxable service

exceeds Rs. Three lakhs.

A person should register within 30 days from date of commencement of the business

of providing taxable service. They have to apply for registration in form ST-1, along

with the following documents:-

(i) copy of PAN (ii) proof of residence (iii) constitution of applicant

Provisional payments

As per rule 6(4A) of Service Tax Rules (w.e.f. 16-6-2005), you can pay tax on higher

side. You can yourself adjust the excess tax paid against tax liability of subsequent

period. After adjustment, you should inform Superintendent of Central Excise within

15 days from date of adjustment. Note that such adjustment is possible only when

excess tax was paid as details of payments received at other offices or premises was

not received in time. Excess payment was for some other reason; such self adjustment

will not be permissible.

Invoice by service provider

Assessee should prepare invoice in respect of his services. The invoice should be

prepared within 14 days from date of completion of taxable service or receipt of

payment towards the value of taxable service, whichever is earlier.

As per rule 4A(1) of Service Tax Rules, the invoice/challan/Bill should be signed by

authorized person of provider of input services. The invoice/Bill/challan should be

serially numbered

The Invoice should contain following details:- (section 12 A Central Excise Act)

(1) Name, address and registration number of person providing taxable service

(2) Name and address of person receiving taxable service

(3) Description, classification and value of taxable service provided or to be

provided and

(4) Service tax payable on taxable service

The rule does not make mention of date, but actually, date should be mentioned

Service tax and education cess should be shown separately in invoice. Education cess

should be paid by TR-6 challan by showing separate account head in TR-6 challan,

indicating appropriate code.

Payment of Tax

The service tax is payable 5th of the month following the month in which payments

are received towards value of taxable services except in March. Service tax on value

of taxable services received during month of March is required to be paid by 31st

March.

Assessee should first utilize Cenvat credit available. Balance amount is payable in

cash.

TR-6 challan: - the tax is payable by a Yellow colour challan in the bank where excise

duty is accepted. The major account head is ‘044’. In addition, separate accounting

code has been given to each service.

Rule 6(2A) provides that cheque of proper amount should be deposited with bank on

or before due date. If last day of payment and filing return is a public holiday, tax can

be paid and return can be submitted on next working day.

Interest for late payment service tax

In case of delayed payment of service tax, there is mandatory payment of simple

interest under section 75 for period which the payment is delayed. The interest rate is

13% w.e.f. 10-9-2004. Department is not required to issue any show cause notice or

demand, as interest payment is automatic by virtue of statutory provisions.

Returns

Half yearly return in form ST-3 in triplicate within 25 days of the end of the half –

year. Half –year means 1st April to 30th September and 1st October to 31st March of

financial year. The return should be accompanied by TR-6 challans, evidencing

payment of duty. If assessee is providing more than one taxable service, he should file

only one return. However, details of each taxable service shall be shown separately. If

no service is provided in a particular period, NIL return should be submitted. If return

of service tax is not filed within prescribed period, Penalty is leviable under section

77, which can be up to Rs.1000. the penalty can be waived under section 80, if

assessee proved that failure was due to reasonable cause.

Assessment of Service Tax

Like Income tax and central excise, service tax assessment is basically selfassessment.

Show cause cum demand notice can be issued within one year. Notice

beyond one year (within five years) can be issued only if there if fraud, suppression of

facts, willful misstatement or collusion.

Amount collected representing as service tax must be paid to Government

If a person liable to pay service tax collects from recipient of taxable service, an

amount representing as service tax, in excess of service tax assessed or determined

and paid on any taxable service, the excess amount must be deposited forthwith with

government [section 73A(1)]

If a person collects from any person an amount representing it as service tax when not

required to be collected, he shall forthwith deposit the amount so collected to

Government [section 73A(2)]

Really, service tax provisions do not ‘require’ any tax to be collected. Tax is

‘required’ to be paid, whether or not collected.

Penalties

If service tax is not paid or belatedly paid, penalty shall be imposed, which will be

minimum Rs.200 per day during which such failure continues or @2% per month,

whichever is higher, starting with the first day after due date till date of actual

payment of outstanding amount. Mercifully, the penalty cannot exceed the service tax

which was payable. In addition, of course, service tax and interest is payable (section

76).

Penalty for contravention of any provision of the chapter or rules of service tax, can

be up to Rs.1000 (section 77).

Where any tax is not levied or paid erroneously refunded, the person shall be liable to

pay penalty which shall not be less than of service tax but can be up to twice the

amount of service tax amount of tax not levied or not paid or erroneously refunded

(section 78). [The penalty will be reduced to 25%, if tax, interest and penalty is paid

within 30 days from date of receipt of order of Central Excise Officer.]

As per section 80, penalty under sections 76, 77 or 78 can be waived if assessee

proves that he had reasonable cause for the failure.

Appeals

If adjudication order is passed by authority lower than Commissioner of Central

Excise, first appeal will be with Commissioner (Appeals) under section 85(1) within

three months from date of receipt of order of adjudicating authority.

Second and final appeal is with Appellate Tribunal (Customs, Excise and Service Tax

Appellate Tribunal-CESTAT) under section 86(1). Appeal is required to be filed

within three months.

The appeal of assessee should be in form ST-5 in quadruplicate and should be

accompanied by equal number of copies of order appealed against. One of the copies

should be certified copy of order [rule 9(1)].

Telephone, pager, fax, telex, telegraph or leased circuit services

* Local PCO (PCO meant for only local calls) is exempted from service tax.

* Free telephone at airports and Hospitals where no bills are being issued.

(Notification No.3/94 ST dated 30-6-1994)

* Taxable services (telephone connections) provided by the telegraph authority

to the Diplomatic missions or members thereof are exempted from Service

Tax

(Notification no.5/96 ST[GSR 174(E)] dated 3-4-1996)

* The amount of service tax shall be calculated on the total amount of the

telephone bill before adjustment of excess/double payment/deposit etc.

* In case of OYT connections, the service tax at prescribed rate should be

calculated on the amount of rent payable before allowing admissible OYT

rebate.

* It has been clarified by Department of Revenue that service tax is not leviable

on the amount of surcharge collected for delayed payment of telephone bills.

[MF (DR) Service Tax circular No.32/3/2000 CX dated 20-12-2000]

* The value of taxable services in relation to telephone connections provided to

the subscribers is the gross total amount received by the telegraph authority. In

case where the telegraph authority has extended services at a discounted price,

the service tax liability is only in respect of the discounted price so received.

(BSNL HQ No.2-20/2000-BSNL/TR dated 8-9-2003) [M.F. circular

no.23/3/97(F.No.149/1/96-CX.4) dt. 13-10-1997]

* No service tax is leviable for

(i) Rental for junction links (charges for using junction links of the BSNL

from one exchange to another)

(ii) Port charges

(iii) Infrastructure charges

from both the BTSPs and CMSPs

Service tax is leviable on interconnection link charges recovered by BSNL from

BSTPs as well as CMSPs.

(Circular No.46/9/2002 [F.No.149/2/2002-CX.4] dated 8-8-2002]

Interconnect Usage charges (IUC) would not be chargeable to service tax

(M.O.F. Dept. of Rev. No.149/2/2004-CX.4 dt. 15-6-2004)

Since the Service Tax and Education Cess are being charged and accounted for

separately, the same have to be rounded off individually.

(M.O.F. No.137/59/2004-CX-4 dt. 24-3-2005)

Cenvat Credit Rules, 2004

Cenvat scheme allows credit of excise of duty paid on inputs and capital goods and

service tax paid on input service. This credit can be utilized for payment of service tax

on output services. Cenvat credit is available only if there is provision of taxable

output service.

Input Goods for CENVAT

Duty paid on input goods used by service providers for providing output service is

eligible for Cenvat credit. As per rule 2(k)(ii), all goods, except light diesel oil, high

speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for

providing any output service is ‘input’. Credit of duty on inputs can be taken up

instantly, i.e. as soon as inputs are received.

CENVAT credit of input service

Any service in relation to business is ‘input service’. Credit of service tax on input

services is available only after payment is made to service provider for service and

also service tax. A service provider will be entitled to credit of service tax paid by him

which is used by him directly or indirectly in provision of output services. If some

input service is exclusively used for exempted output service, its credit is not

available.(rule 7)

Service provider may have Head office/Regional office at different place/s. The

services may be received at head office/regional office, but ultimately, these will be

indirectly used for providing output service. Provision has been made to avail cenvat

credit of services received and paid for at head office/regional office. Such head

office/regional office will be registered with Central Excise as ‘Input Service

distributor’ and it will have to issue invoice on the service provider. They have to

apply for registration in form ST-1. As per rule 9(1)(g), invoice, bill or challan issued

by an input service distributor under rule 4A of service tax credit rules is an eligible

document for purpose of taking cenvat credit. The input service distributor should

issue an invoice, bill or challan on monthly basis after consolidating the service tax

paid on services received during the month.

Requirement of invoice, bill or challan: (rule 4A(2) of service tax rules)

It shall be signed by authorized person

The document should be for each recipient of the credit distributed

Document should be serially numbered

The invoice should contain following details:

(i) Name, address and registration number of the person providing input

services and Serial number and date of invoice, bill or challan issued by

service provider under rule 4A(1)

(ii) Name and address of input service distributor

(iii) Name and address of the recipient of the credit distributed

(iv) Amount of credit distributed

Responsibilities of Input Service Distributor

(a) Take reasonable steps to satisfy himself about identity and address of

provider of input service [rule 9(3)]

(b) Submit half yearly return within one month from close of the half year, in

prescribed form ST –3 [rule 9(10)]

CENVAT credit of duty paid on Capital goods

• Only capital goods as defined in rule 2(a) of Cenvat Credit rules are eligible

for Cenvat Credit

(i) All goods falling under chapter 82, chapter 84, chapter 85, chapter 90,

heading no.68.02 and sub-heading no.6801.10 of the first schedule to

Excise Tariff Act.

(ii) Pollution control equipment

(iii) Components, spares and accessories of the goods spefified at (i) and (ii)

above

(iv) Moulds and dies, jigs and fixtures

(v) Refractories and refractory material

(vi) Tubes, pipes and fittings thereof, and

(vii) Storage Tank

used for providing output service

Motor vehicle is not capital goods for BSNL.

Service provider (BSNL) is eligible to avail cenvat on equipment or appliance used in

an office, if these are used for providing output service. [rule 2A(2)]

Capital goods should be used for providing output service. Duration is not specified.

Hence, if the capital goods are used for one day, Cenvat eligibility of capital goods is

established, as they are used.[rule 2(b)(a)]

Capital goods used exclusively for providing exempt service are not eligible for

Cenvat credit. [rule 6(4)]. Thus partial use of capital goods for provision of exempt

services is permissible. i.e. in such case, Cenvat credit on capital goods will be

allowed.

• Depreciation under section 32 of Income-tax Act should not be claimed on the

excise portion of the Capital goods [Rule 4(4)]

• Cenvat credit on capital goods is required to be availed in more than one year,

viz. up to 50% credit can be availed when these are received and balance in

any subsequent financial year.

As per rule 3(1), Cenvat credit of capital goods can be taken of duty paid on capital

goods received in the premises of provider of output service. The rules do not require

its installation or commissioning for taking credit.

Rule 4(2)(a) of Cenvat Credit Rules provides that in respect of capital goods, Cenvat

credit shall be taken only for an amount not exceeding 50% of duty. As per rule

4(2)(b), balance may be taken in any subsequent financial year. Thus, it is not that any

credit must be taken in the first year. Assessee can choose to take credit in any

subsequent year, even if he taken Nil credit in the first year, he satisfies the

requirement of rule 4(2)(a), as obviously ‘Nil’ does not exceed 50%.

Utilisation of Cenvat Credit

Rule 3(1) states that following duties/taxes will be available as Cenvat Credit

• Basic Excise duty on indigenous inputs [paid on goods specified in First

Schedule to CETA]. Corresponding CVD on imported goods is allowable.

• Education cess on manufactured excisable goods and CVD equal to education

cess on imported goods. This credit can be utilized only for payment of

education cess on output services.

• Service tax on input services paid u/s 66 of Finance Act.

• Education cess paid on service tax. This credit can be utilized only for

payment of education cess on output services.

Credit can be taken as soon as goods are received in the premises of service provider.

[rule 4(1)]. Service Provider should take credit at the earliest opportunity. Service

provider should maintain record of Cenvat credit availed and of credit utilized.

First proviso to Cenvat Credit rule3(4) states that only Cenvat credit available as on

last day of the month can be utilized for payment of duty even if duty is payable by 5th

of following month. Thus, Cenvat credit in respect of inputs/capital goods/input

services received after end of month cannot be utilized while paying duty on 5th the

credit can be utilized in subsequent month only.

Duty Paying Documents for Cenvat

Rule 9(1) of Cenvat Credit Rules prescribes that Cenvat Credit can be taken on the

basis of:

* Invoice of manufacture from factory

* Invoice of manufacturer from his depot or premises of consignment agent

* Invoice issued by registered importer

* Invoice issued by importer from his premises or consignment agent registered

with Central Excise

* Invoice issued by registered first or second dealer

* Supplementary Invoice

* Bill of entry

* Certificate issued by an appraiser of customs in respect of goods imported

through foreign post office

* TR-6 Challan of payment of tax where service tax is payable by other than

input service provider

* Invoice, bill or challan issued by provider of input service on or after 10-9-

2004

* Invoice, bill or challan issued by Input service distributor under rule 4A of

Service Tax Rules

As per rule 9(2) of Cenvat Credit rules, Cenvat credit cannot be denied as long as the

document contains essential aspects of duty/tax payment i.e.-

(a) Payment of duty or service tax

(b) Description of goods or taxable service

(d) Name and address of the factory or warehouse or provider of input service

Responsibility of person taking CENVAT CREDIT

Explanation to rule 9(3) states that a provider of output services or input service

distributor taking cenvat credit shall be deemed to have taken reasonable steps if he

satisfies himself about identity and address of manufacturer or supplier or provider of

input service, who issued the Invoice or other document.

Such satisfaction can be:-

(a) from his personal knowledge

on the strength of a certificate given by a person with whose handwriting or

signature is familiar or

on the strength of certificate of Range Superintendent within whose

jurisdiction the manufacturer or supplier or provider of output service is

situated.

Thus Cenvat cannot be denied if the documents contains these details and no

permission/condonation is required if the invoice/bill/challan contains these basic

details.

Dealer’s Invoice for CENVAT

When the inputs are purchased directly from factory of original manufacturer, there is

proof regarding amount of duty paid, in the form of Invoice of manufacturer. If goods

are imported directly by manufacturer (who is user of inputs), Bill of Entry is proof of

payment of CVD.

All dealers/depots/consignment agents issuing invoice for Cenvat purposes will have

to register with central excise authorities under rule 9 of CE Rules. Only first stage

and second stage dealers are allowed to issue Invoices. Cenvatable Depots,

consignment agents and importers should be registered with CE. Invoice of

depot/consignment agent of manufacturer is eligible for Cenvat under rule

9(1)(a)(i)(I). Invoice of depot/consignment agent of importer is eligible document for

cenvat as per rule 9(1)(a)(iii).

Invoice raised by manufacturer of inputs will contain details of excise duty paid on

total quantity. The wholesaler or distributor may supply the goods received from

manufacturer to more than one buyer, dealers or sub-dealers. Amount of duty actually

paid on goods should be indicated in the invoice of dealer on prorata basis. (It should

not be charged but merely indicated)

Exempted Output Services

Capital goods used exclusively for providing exempt service are not eligible for

Cenvat Credit [rule 6(4)]. If capital goods are partly used for taxable services, Cenvat

credit will be available.

Duty paid on Inputs and service tax paid on input services used for exempted services

cannot be used for payment of tax on services which are not exempt from tax [rule

6(1)]. If service provider uses common inputs both for exempted as well as unexempted

services, he should maintain separate records for inputs/input services used

for exempted services and should not avail cenvat on such inputs/input services. If he

does not maintain separate records of input/input services used in exempted services,

he can utilize Cenvat credit only up to 20% of service tax payable on output service.

However, rule 6(5) provides an exception to this general rule. In case of specified

services, full Cenvat credit of input service is available even if these are partly used in

exempted out put services. In other words, entire credit will be available for utilization

to the service provider without restriction of 20% of tax payable on output services.

Removal of input, capital goods and waste

The inputs or capital goods can be removed as such from the premises of service

provider on payment of an amount equal to Cenvat credit availed when the credit was

taken. In other words, it amounts to reversal of Cenvat credit taken [rule 3(5)]

* If capital goods on which Cenvat is availed are cleared as such’ (i.e. without

use), an ‘amount’ equal to Cenvat credit availed is required to be paid.

* If capital goods are sold as scrap, an ‘amount’ equal to duty payable on scrap

value of capital goods is payable.

* If capital goods are cleared after use (but not as scrap), legally, neither any

amount nor any duty is payable, since it cannot be said that the capital goods

are removed ‘as such’.

* However, to avoid controversies and fruitless litigation, it is advisable to pay

‘amount’ equal to duty payable on sale price, particularly where buyer is in a

position to avail Cenvat credit.

Miscellaneous provisions of Cenvat

Record of inputs and capital goods

The provider of output service shall maintain proper records for the receipt, disposal,

consumption and inventory of the inputs and capital goods. The record should contain

relevant information regarding (a) value (b) duty paid (c) Cenvat credit taken and

utilized (d) The person from whom inputs/capital goods have been procured. Burden

of proof regarding admissibility of Cenvat credit is on the provider of output service

taking the credit –Rule 9(5)

Record of input services

The provider of output service shall maintain proper records for receipt and

consumption of the input services. The record should contain relevant information

regarding-(a) Value of service (b)Tax paid (c) Cenvat Credit taken and utilized (d)

Person from whom input service has been procured. The burden of proof regarding

the admissibility of Cenvat credit shall lie upon the person taking such credit [rule

9(6)]

Cenvat credit record

It is current account of Cenvat credit received, credit utilized and credit balance. This

should give details of (a) credit availed against each input/capital goods (b) credit

utilised (c) Balance credit available

Returns

* Half yearly return within one month from close of half year, by provider of

output services [rule 9(9)] Return should be in form ST-3.

* Half yearly return with one month from close of half year, by Input Service

Distributor [rule 9(10)] Return should be in form ST-3.

BSNL Instructions

1. The CENVAT Credit will be availed by all the revenue earning SSAs/Units

which are already having service tax registration Number.

2. The offices/units which are generally not earning revenue and not having

Service Tax registration number such as Corporate office, Circle Offices.

Telecom Stores, Telecom Factories, Projects/REP/Task Force, Maintenance

Region, Civil/Electrical, Data Network, NCES, QA, T&D Circle, Training

Centres, CPAO (ITI Bills) etc. will avail the credit of CENVAT [Service tax

paid on input services & Central excise duty paid on eligible Capital

goods/Inputs] through the revenue earning SSAs/Units/Offices situated at the

same area which are nominated as “Nodal Offices” for the purpose.

3. The following offices will be nodal offices for availing Cenvat credit for

Service tax paid on input services & Central excise duty paid on eligible

Capital goods/Inputs by non-revenue earning units

Non-revenue earning units who will avail Cenvat credit for

Service tax paid on input services & Central excise duty paid on

eligible Capital goods/Inputs through Nodal office

Nodal office

Corporate office, Units of Data Network, NCES, NTP, QA,

Telecom Stores any other non-revenue earning units situated at

Delhi

NTR New Delhi

Units/Circle offices of STP, STR, QA, Telecom Stores, NCES,

T&D any other non-revenue earning units situated at Chennai

Chennai Telephones

Units/Circle offices of ETP,ETR, QA, NCES, Telecom Stores,

Telecom Factory, T&D, any other non revenue earning units

located at Kolkata

Kolkata Telephones

Units/Circle offices of WTP, WTR, QA, NCES, telecom Stores,

Telecom Factory, T&D, any other non-revenue earning units

located at Mumbai

Circle office of

Maharashtra Circle

Units of Project Circles/REP/Task Force, Maintenance Region,

Data Network, T&D circle, QA circle, CPAO (ITI Bills),

Training Centres, NATFM, Civil & Electrical Wing situated at

places other than at Mumbai, Chennai, New Delhi & Kolkata

SSAs situated in the

Area where the above

mentioned offices are

located

The PAUs/Divisions of four Project Circles, Task Force Circle, Gauwahati will avail

the Cenvat credit (in respect of ‘eligible capital goods’/Inputs, Input Services) through

the revenue earning SSA/ Metro Circle co-located at the same place. For example GM

Project, Lucknow under NTP will avail the Cenvat credit through Lucknow SSA

under UP (E) Circle.

All the units, who will be availing CENVAT credit directly or through Nodal office,

are required to maintain a Register to keep the following information about service tax

paid on input service, Central Excise duty paid on eligible goods/ Inputs as well as the

credit availed.

i. Sl. No. and date of document on which CENVAT credit is availed.

ii. Service Tax registration number, name and address of the input service

provider

iii. Description and value of input service & Service tax paid

iv. Central Excise registration number of Ist stage Dealer/IInd stage

Dealer/Manufacturer/Importer

v. Description and value of eligible capital goods/Inputs & Central Excise duty

paid

vi. CENVAT credit availed

vii. CENVAT credit utilized for payment of service tax on output service.

The nodal office will keep a separate Register to record the above information in

respect of offices/units which will be availing CENVAT credit through the former.

The information must be compiled on monthly basis.

Accounting Entries

On receipt of goods (capital goods/Inputs), the following JS is to be passed:-

For Value of goods (excluding the

excise duty & Education cess on Excise

duty)

Dr. Concerned final head under

sch.105/114/117/171 to 185

For Excise duty on the above goods Dr.1131503 Excise duty paid on eligible goods

(or)

Dr.1131507 Excise Duty & other levies (other

the Education cess) on Inputs

For Education Cess on Excise duty Dr. 1131504 Education Cess on Excise duty

paid on eligible goods (or)

Dr. 1131508 Education cess on Inputs

For gross value of goods Cr. Sy. Creditors (1190101etc.)

For payment of Service Tax & Education cess on Input Service ( Security

Guards, Auditors etc.) by BSNL,

Dr. Concerned final head under Administrative expenses Sch.171 to 185, 192 (total

amount excluding Service Tax & education cess)

Dr. 1131505 Service Tax paid on Input service (service tax)

Dr. 1131506 Education cess on service tax paid on Input service (education cess)

Cr. Sy creditors (say 1190102 etc.) (Gross amount)

The units/offices which will avail credit on service tax through Nodal office will keep

month) will ascertain the net debit balance under head 1131505/1131506,

1131503/1131504 & 1131507/1131508 and pass on the net debit balance to the

respective Nodal office through ATD, by passing the following JV.

19901xx/19902xx Dr.

1131505/1131506) Cr.

1131503/1131504 Cr..

1131507/1131508 Cr.

The ATD along with xerox copies of the paid bill/Voucher, invoice, challans shall be

sent directly to the respective Nodal office through SPEED POST /REGISTERED

POST/SPL MESSENGER WHEREVER POSSIBLE on the last working day of the

month. In case of Remittance-other circle, ATD particulars shall be intimated to

Circle office of Nodal office. The ATD shall be marked as “ATD FOR AVAILING

CENVAT CREDIT” to draw the attention of Nodal office so that it can take prompt

action. The units/office will ensure that ATD are promptly raised at the end of the

each month and get the same accepted by the responding Nodal office and credit

availed by the latter. AO (Cash) will be personally responsible to ensure that ATDs

are accepted within 7 days of despatch and consequent accounting entries are effected.

The Nodal office on receipt of ATD as mentioned above will accept the ATD

mmediately by passing the following JV:

1131505/1131506 Dr.

1131503/1131504 Dr.

1131507/1131508 Dr.

19903xx/19904xx Cr.

The Nodal office will record the particulars of such service tax paid for input

service/Central excise duty on eligible Capital goods/Inputs in a separate register. It

will keep the bill/challans etc. received in safe custody. The Nodal office will ensure

that ATDs for availing credit for CENVAT, are not kept pending so that the company

does incur a loss on that account. On acceptance of ATDs, AO(Cash) will be

personlally responsible to ensure necessary accounting entries are passed.

The offices/units/Nodal offices which are actually availing the credit of Cenvat

through adjustment against service tax payable on output service, will work out the

net debit balance under head 1131505/1131506, 1131503/1131504,

1131507/1131508 at the end of each month. While paying the service tax for out put

service to Central Excise through TR 6 Challan, the net debit balance under head

1131505/1131506, 1131503/1131504, 1131507/1131508, at the end of the month

shall be taken into account subject to the limitation of 20% of service tax payable on

output service at the end of that month. Before the payment is made the following JV

shall be passed by the paying office to adjust the CENVAT Credit [Adjustment of

Central excise duty & education cess on eligible capital goods, 50% Ist year & 50%

next year]

When the above excise duty on eligible goods / Inputs & service tax paid on Input

service, adjusted against service collected on output service, JS will be:-

Dr.1192301 Service Tax Payable

Cr.1131503 Excise duty paid on eligible goods

Cr.1131507 Excise Duty & other levies (other the Education cess) on Inputs

Cr.1131505 Service Tax paid on Input service

When the above education cess on excise duty on eligible goods / Inputs & Education

Cess on service tax paid on Input service, adjusted against service collected on output

service, JS will be:-

Dr. 1192306 Education Cess payable

Cr. 1131504 Education Cess on Excise duty paid on eligible goods (or)

Cr. 1131508 Education Cess on Inputs

Cr. 1131506 Education Cess on service tax paid on Input service

After making adjustment as mentioned above the units/offices/nodal office will pay

the balance amount (net credit balance) under head ‘service tax payable’ under

119/419 schedule by debiting the above head and crediting bank.

After making payment, the unit/offices/nodal office will update the Registers

mentioned above. The nodal offices will intimate through registered post the

particulars of CENVAT CREDIT availed of to the respective offices on behalf of

which it has availed the credit during the month.

The office/units on receipt of information from the Nodal office will update their

For the month of March the offices/units which avail credit through Nodal offices will

ensure that ATDs along with vouchers are sent to the Nodal office immediately so

that the latter will take the same in their accounts of March.

The units who are collecting service tax on output service shall take action to print the

service tax registration number on the forms used as telephone bills/demand

notes/invoice/challan etc. Where manual demand notes/bills/invoices etc. are issued

action may action to indicate the service tax registration number with the help of

rubber stamp. Similarly the Permanent Account Number (PAN) of BSNLAABCB5576C

shall also be got printed in all the Bills/Challans/demand notes issued

by BSNL.

Source:-BSNL HQ No.700-46/2003-CA-III/BSNL/KW dt. 19-1-2004 &

(BSNL HQ No. 700-46/2003/CA-III/BSNL/Vol.-II Dated: - 11th March

2005)

Proper availment of CENVAT credit and registration as Input service

Distributor-Reg

Many circles have reported that the Service Tax authorities are not permitting the

availment of CENVAT credits in respect of the non-revenue earning circles and units

like CIVIL/Electrical wing/ Store Depots, Administrative Office etc. and also

insisting for the reversal of the credits availed earlier.

Further it is intimated that for availing the credit pertaining to such office, the nonrevenue

earning units are required to get themselves registered as Input service

distributor under the Service Tax Laws/CENVAT Credit Rules.

In view of above requirement under the Service Tax Laws/CENVAT credit Rules, all

the non-revenue earning circles/units like project, Maintenance, Q&A, Data

Networks, Civil, Electrical, Store Depots, Administrative Office etc. may get

registered with the service tax authorities as Input Service Distributors complying

with all the requirements of registration and also covering all the taxable services

handled by them. Attention is also invited to Rule-7 and 9 of the CENVAT credit

Rules. These non-revenue earning circles/units should ensure that the names of all the

BSNL offices to whom the Invoices along with ATD are to be raised for availing the

credit are indicated while registering as Input Service Distributor.

Vide Notification No.31/2005-Service Tax dated 20-10-2005 Government has

introduced New Service Tax Return-in Form-ST-3. It is important to mention vide

para-2 Circular No.82/3/2005-ST dated 21-10-2005 it is clarified that Form ST-3 has

been specified for the purpose of furnishing Return under sub rules-(9) and (10) of

Rule-9 of the CENVAT credit Rules, 2004 vide Notification No.33/2005-Central

Excise(N.T.) dated 20-10-2005.

Every Service Tax paying units/Input Service Distributor are required to file an half

yearly Return in new Form ST-3 only for the half year ended on 31-3-2006 and

onwards.

The copy of the new ST-3 form may be downloaded from the following website:-

www.cbec.gov.in

Immediate action may be taken in the matter and any problems faced in getting the

Registration may be brought to the notice of this office.

(BSNL HQ No.700-04/2005/TAXATION/BSNL/Vol.II dt. 17-3-2006)

Service Tax on Foreign In-roamers (subscribers of foreign operators) roaming in

BSNL GSM network

Service Tax is to be levied on the usage of Foreign In-roamers (subscribers of foreign

operators) roaming in BSNL GSM network @ of 12.24 % w.e.f. 00.00 hrs of 1st July,

2006. The same is applicable both in case of roaming via direct Roaming agreements

of BSNL with foreign operators as well as in case of roaming via M/s Spice, Punjab.

(BSNL HQ No.Mob-53/INT-Roam/2005 dt. 29-6-2006)

Mandatory payment of Service Tax electronically for major assesses-reg

Central Board of Excise & Customs vide Notification No.27/2006-Service Tax dated

21-9-2006 has decided that with effect from 1st October 2006, payment of Service Tax

electronically through internet Banking shall be mandatory for those assessee, who

has paid Service Tax of Rupees Fifty Lakh or above in the preceding Financial year or

has already paid Service Tax of Rupees fifty Lakh in the current Financial Year.

Telecom Accounts and Finance- Experience

Tuesday, November 14, 2023

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