SOLUTIONS FOR INCOME TAX ACT 1956

QUERY:One of the Company Assessee has factory building at Gurgaon and it is let out on a monthly rent of Rs 500000/- PM.The Company has no other income apart from the above rent.

1. May this income be returned as Income from Business or Profession

2. Income from other sources   ?

3. Or it would be Income from House Property ?

What will be treatment for Unabsorbed Depreciation if the answer will be 2 or 3 from the above.

REPLY: The rental income in the given case will be chargeable under the head income from House property as it is only the factory building which has been given on rent. As regards unabsorbed depreciation for earlier years is concerned it is stated that same becomes part of current year’s depreciation only in a case where there are computation under the head business and profession as per section 28 of the Act. In case there is no business at all and no computation under the head profits and gains, unabsorbed depreciation will not be available for set off against income under other head as  same can not form computation of profit in terms of section 28. Firstly there should be applicability of section 32(1) to claim set off of unabsorbed depreciation against income under other heads. So, it is necessary that the assessee should have some business income to claim set off of unabsorbed depreciation.

QUERY: Please advise me in case of a Charitable Trust ( Registered U/s 12 AA of the Income Tax Act enjoying Exemption U/S 11 )  running a Hospital and school and also one chemist shop inside the hospital and a books and stationery shop inside the school.Running of Chemist shop and books/stationery shop are business incidental to main objects of the trust. Whether this trust is Required to file Tax Audit Report in form No. 3CD besides Audit Report in Form No. 10B.  Please guide.

REPLY: The rental income in the given case will be chargeable under the head income from House property as it is only the factory building which has been given on rent. As regards unabsorbed depreciation for earlier years is concerned it is stated that same becomes part of current year’s depreciation only in a case where there are computation under the head business and profession as per section 28 of the Act. In case there is no business at all and no computation under the head profits and gains, unabsorbed depreciation will not be available for set off against income under other head as  same can not form computation of profit in terms of section 28. Firstly there should be applicability of section 32(1) to claim set off of unabsorbed depreciation against income under other heads. So, it is necessary that the assessee should have some business income to claim set off of unabsorbed depreciation.

QUERY: A & Co Ltd is having 1000 shares of X Ltd in its investment account purchased @ Rs 10/- each in the year 2005.The same is sold in 2013 @ Rs 10/- whereas the breakup value is Rs 11.20P. What is the tax implication in the books of A & Co Ltd.

REPLY: Capital gain in the case of A & co. will be determined on the basis of actual sale consideration, which is Rs. 10 per share notwithstanding that break up value is higher. Indexation benefit will also be available and there would be long term capital loss in the given case.

QUERY:

Form for claiming deduction U/s 10AA.

Please guide whether we are required to fill any form for claiming deduction U/s 10AA just like for claiming Sec 10A we have to file Form 56F (only for Sec 10A and not for

Sec 10AA) along with return of income.

REPLY: Sub-section (8) of section 10AA of the Act provides that provisions of sub-section (5) and (6) of section 10A of the Act will apply to this section also. Report in form No.56F is required to be submitted pursuant to provisions of sub-section (5) of section 10A of the Act. Accordingly, for claiming deduction under section 10AA also report in Form 56F is to be submitted.

I am having one doubt relating to sec 37 of Income Tax 1961. Interest paid on service tax of past 5 year service tax due short levy, non deduction, late deposit etc, is this allowable under Income tax act.

REPLY: 

Service tax payable as well as interest on delay is deductible business expense. Penalty, however, is not deductible.

Two Pvt Ltd company made a joint venture to execute a govt project. After the completion of the project the joint venture was duly assesed  Now both pvt ltd company distribute the joint venture profit as per the agreement. I just want to ask that in which head that distrubuted profit will accounte for whether income of the company or its reserve parts. & if it will be treated as income whether it will be a exempted income.

REPLY: 

In terms of Proviso to section 86 of the Income Tax Act where tax has been paid by the Association of Persons at the maximum marginal rate or at a rate higher than the maximum marginal rate, the share of a member therein shall not be included in his total income.In the given case tax would have been paid by the JV at maximum marginal rate and therefore, share of income will not be includible in the income of the member.

A HUF is engaged in trading of shares and securities and is having following income

1.       Income from delivery based equity trading (Treated as Business Income in ITR)

2.       Income from Commodity Trading (MCX) – (Treated as Income from Speculative Business in ITR)

3.       Income from trading in Equity Futures – (Treated as Income from Speculative Business in ITR)

4.       Income from Rent on sub-let (property is in the name of HUF on Salami system) – (Treated as Business Income in ITR)

5.       Interest Income – (Treated as Income from Other sources in ITR)

6.       Dividend Income – (Treated as exempt income in ITR)

HUF has b/f business losses of rs. 30000 and b/f losses from speculative business 125000

Query :

1.       Whether the HUF has rightly treated the income under different heads as said above

2.       Currently HUF is planning to raise funds from members of HUF and give loan to a third party against interest

3.       Under which head such interest income is to be treated in the books (Business  / Other Sources)

4.       Whether interest paid to members is allowed as deduction against interest income (no interest has been provided on loan from Karta in previous year)

5.       Whether this interest income is allowed to be set off against above brought forward losses ….

REPLY: 

Categorization of income appears to be ok except that income from sub-letting can not be business income. It can be income from other source. Brought forward business loss can be set off only against business income in subsequent years. Interest paid on loan taken from members for giving loan to third party will be deductible. Interest income will be chargeable under the head income from other sources as financing is not a regular business in case of HU F.

Name(required)

Email(required)

Website

Comment(required)

Submit

Δ

 

List of Tax Free Perquisite

There are different perquisites which are tax free in nature. List of these perquisites is given below:

1. Medical facility or reimbursement
2. Refresher courses
3. Shares under ESOP/ESOS
4. Free telephone and mobile facility (FBT)
5. Tax on non-monetary perquisite paid by employer
6. Free use of laptop/computer
7. Leave travel concession
8. Food and beverages provided to employees
9. facilities in general

1. Motor car facility and expenses ( Read Valuation of Car, Car Expenses and Driver Salary)
2. Rent free house/conveyance facility (Read Valuation and Exmeption Rules for Rent Free Accommodation)
3. Judge of supreme/high court
4. Education facility for children of employee: if cost doesn’t exceed Rs. 1000
5. Use of health club, sports etc. provided by the employer(FBT)
6. Accommodation in remote area ( Meaning of remote Area and Who is eligible for exemption)
7. Residence of officials of parliament
8. Loans to employee
9. All other perquisite provided shall be tax free

Valuation of Different Perquisites for Income Tax Calculation

(3) The value of benefit to the employee or any member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

(4) The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered :

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed one thousand rupees per month.

(6) The value of any benefit or amenity resulting from the provision by an employer who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity :

Provided that nothing contained in this sub-rule shall apply to the employees of an airline or the railways.

(7) In terms of provisions contained in sub-clause (viii) of clause (2) of section 17, the following other benefits or amenities and value thereof shall be determined in the manner provided hereunder:

(i)  The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:

Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:

Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

(ii)  The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B of these rules, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf. Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or amenity:

Provided that where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or vacation. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:

Provided that where the value of such gift, voucher or token, as the case may be, is below five thousand rupees in the aggregate during the previous year, the value of perquisite shall be taken as “nil“.

(v) The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that there shall be no value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—

(a)  complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;

(b)  the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(vi) (A) The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that account. The amount so determined shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:

Provided that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

(B) Nothing contained in this clause shall apply if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled:—

(a)  complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency;

(b)  the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(C) Nothing contained in this clause shall apply for use of health club, sports and similar facilities provided uniformly to all employees by the employer.

(vii) The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than assets already specified in this rule and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10 per cent per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.

(viii) The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such assets to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10 per cent of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer :

Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50 per cent and in the case of motor cars at the rate of 20 per cent by the reducing balance method.

(ix) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm’s length transaction as reduced by the employee’s contribution, if any :

Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.

(8)(i) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in accordance with the provisions of clause (ii) or clause (iii).

(ii) In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange :

Provided that where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share :

Provided further that where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—

(a)  the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or

(b)  the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

(iii) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.

(iv) For the purpose of this sub-rule,—

(a)  “closing price” of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the closing price shall be the “sell” price of the last settlement;

(b)  “merchant banker” means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c)  “opening price” of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange :

Provided that where the stock exchange quotes both “buy” and “sell” prices, the opening price shall be the “sell” price of the first settlement;

(d)  “recognised stock exchange” shall have the same meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(e)  “specified date” means,—

(i)  the date of exercising of the option; or

(ii)  any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

(9) For the purposes of sub-clause (vi) of clause (2) of section 17, the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

Explanation.—For the purposes of this sub-rule, “merchant banker” and “specified date” shall have the meanings assigned to them in sub-clause (b) and sub-clause (e) respectively of clause (iv) of sub-rule (8).

(10) This rule shall come into force with effect from the 1st day of April, 2009.

Explanation.—For the purposes of this rule—

(i)  “accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;

(ii)  “entertainment” includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;

(iii)  “hotel” includes licensed accommodation in the nature of motel, service apartment or guest house;

(iv)  “member of household” shall include—

(a)  spouse(s),

(b)  children and their spouses,

(c)  parents, and

(d)  servants and dependants;

(v)  “remote area”, for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census;

(vi)  “salary” includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—

(a)  dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(b)  employer’s contribution to the provident fund account of the employee;

(c)  allowances which are exempted from payment of tax;

(d)  the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;

(e)  any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;

(f)  lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

(vii) “maximum outstanding monthly balance” means the aggregate outstanding balance for each loan as on the last day of each month.]

 

Valuation in Respect of Motor Car

Valuation of motor car facility given by employer or Taxability  of Car Expenses bear by either employee or employer or How to divide car expenses when car is used for personnel or private purpose under income tax  and exemption limits for car driver?

Motor car is the movable asset which is one the most basic perquisite given by the company to middle and top level management employees, so that they fulfill their duties more efficiently and timely.

From income tax perspective if car is utilized by the employee only for the official purpose then it will be tax free and no perquisite will be added to the employee salary while calculating salary income but in case if car is used by the employee for the personnel purpose then whatever net expenses beard by the employer will be added to the employee salary as perquisite for calculating gross salary.

If car is partly used for private and partly for official purpose then certain deduction is given under the income tax act. Important point is even if it used for few minutes for personnel purpose then these conditions will applicable there is no specific tenure for which car is too used for private or personnel purpose.

Car is owned by employee

Expenses are bear by employee Not a perquisite Expenses are bear by employer Car is utilized wholly for officially purpose Not a perquisite Car is utilized wholly for private purpose Cost of expenses bear by employer Less: any amount received from employee ___________________________________ If positive= perquisite ___________________________________ Car is utilized partly for private &partly for official purpose Car is less then equal to 1600CC Cost of the employer Less:Rs.1800 P.M + Rs.900P.M. for car driver Less: any amount received from employee ____________________________________ If positive = perquisite ____________________________________ Car is more then to 1600CC Cost of the employer Less:Rs.2400 P.M + Rs.900P.M. car driver Less: any amount received from employee __________________________________ If positive = It will be treated as Perquisite

 

Car is owned by employer

1.Expenses are bear by employer Car is utilized wholly for officially purpose Not a perquisite Car is utilized wholly for private purpose Cost of expenses bear by employer Less: any amount received from employee _______________________________ If positive= It will treated as Perquisite _______________________________ Car is utilized partly for official & partly for private purpose Car is less then equal to 1600CC Rs.1800 P.M Rs.900P.M. if car driver provided __________________________________________________ Perquisite =Rs 1800/- without Driver and Rs 2700/- with driver. __________________________________________________ Car is more then to 1600CC Cost of the employer Rs.2400 P.M Rs.900P.M. if car driver ___________________________________________________ Perquisite =Rs 2400/- without Driver and Rs 3300/- with Driver. ___________________________________________________ 2.Expenses are bear by employee Car is utilized wholly for officially purpose Not a perquisite Car is utilized wholly for private purpose Cost of expenses bear by employer (higher charges if car is taken or normal wear and tear @10% of the actual cost of the car if car is owned by employer Plus: salary of chauffeur) _______________________________ If positive= It will treated as Perquisite _______________________________ Car is utilized partly for private & partly for Official purpose Car is less then equal to 1600 Rs.600 P.M Rs.900P.M. if car driver provided __________________________________________________ Perquisite =Rs 600/- without Driver and Rs 1500/- with Driver. __________________________________________________ Car is more then to 1600CC Rs.900 P.M Rs.900P.M. if car driver provided _________________________________________________ Perquisite =Rs 900/- without Driver and Rs 1800/- with Driver.

Reference: Income Tax Rule 3: Valuation of Motor Car

2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—

TABLE II

VALUE OF PERQUISITE PER CALENDAR MONTH

Sl. No.	Circumstances	Where cubic capacity of engine does not exceed 1.6 litres	Where cubic capacity of engine exceeds 1.6 litres
(1)	(2)	(3)	(4)
(1)	Where the motor car is owned or hired by the employer and—
	(a) is used wholly and exclusively in the performance of his official duties;	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
	(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.
	(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and—
	(i) the expenses on maintenance and running are met or reimbursed by the employer;	Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)	Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
	(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.	Rs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)	Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(2)	Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and—
	(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;	No value:Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.	No value: Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
	(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.	Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.	Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
(3)	Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
	(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;	No value :Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.	Not applicable :
	(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.	Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.

Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.

(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount of charges met or reimbursed by the employer as reduced by such higher amount attributable to official use of the vehicle provided that the following conditions are fulfilled :—

(a)  the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;

(b)  the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

 

Reimbursement of expenses not chargeable to service tax

Issue:

Whether Reimbursable expenses forms part of the taxable value for the chargeability of Service Tax – Clearing and Forwarding service?

Facts of the case:

The Sangamitra Services Agency (“the Assessee“) is providing Clearing and Forwarding service (“C&F”) to its Principal. Various expenses were incurred by the Assessee, which was reimbursed to the Assessee by their Principals for the service of C&F of excisable goods on the actual basis.

The Revenue alleged that various charges like freight, labour, electricity, telephone, etc., which were reimbursed by the Principals on actuals should be included in the taxable value of C&F Service.

In this regards, the Hon’ble CESTAT held that the reimbursable expenses received by the assessee need not be added to the taxable value related to C& F Agents Service. The Hon’ble CESTAT relied on the judgment of Sri Sastha Agencies Pvt Ltd., Vs. Asst. Commissioner [2007 (6) STR 185], holding that no element other than remuneration received by a Clearing & Forwarding agent from their Principal was to be included in the taxable value of the service.

Thereafter the authorities filed appeal to the Hon’ble High Court against the order of the Hon’ble Tribunal raising the following substantial question of law:

“Whether the decision of Tribunal that the reimbursable expenses received by the assessee need not be added to the taxable value related to clearing and forwarding agents service is correct, when the Rule 6(8) of Service Tax Rules, 1994 stipulates that Gross amount of remuneration or commission should be the taxable value in relation to the services provided by a Clearing and Forwarding Agent?

Rule 6(8) of the Service Tax Rules, 1994 (“the STR”) which was omitted vide Notification No.10/2006 dated April 19, 2006 is reproduced as under for the ease of reference:

“The value of the taxable service in relation to the services provided by a clearing and forwarding agent to a client for rendering services of clearing and forwarding operations in any manner shall be deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent.”

The authorities contended that as per the provisions of Rule 6(8) of the STR, the value of taxable service in relation to the services provided by the C&F Agent to the client for rendering services of Clearing and Forwarding operations, in any manner, shall be deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client. The authorities further submitted that considering the charges collected towards freight, labour, electricity, telephone etc., in connection with clearing and forwarding services, the same would form part of remuneration / commission.

Held:

The Hon’ble High Court observed and held that:

In the absence of any material to show the understanding between the Principal and the Client that the Commission payable by the Principal was all inclusive, it is difficult to hold that the gross amount of remuneration/commission would nevertheless include expenditure incurred by the assessee providing the services; that all incidental charges for running of the business would also form part of the remuneration or commission (by whatever name called). The phrase “by whatever name called” must necessarily have some link or reference or nature to the receipt of remuneration or commission.

Thus, if a receipt is for reimbursing the expenditure incurred for the purpose, the mere act of reimbursement, per se, would not justify the contention of the Revenue that the same, having the character of the remuneration or commission, deserves to be included in the sum amount of remuneration / commission.

• As per Rule 6(8) of the STR, the gross amount referred to therein would apply to receipts of such sum, which would bear the character of remuneration or commission, in that, the said sum is brought under the head “receipts”. The Hon’ble High Court observed that the expenditure incurred does not fall under the expression “remuneration or commission”.

• Therefore, the Hon’ble High Court rejected the contention of the Department and dismissed the appeal.

 

What is more efficient for employees, company car lease or owning a car?

Very often salaried employees get stuck with the tax liability of owning a car and using it for both personal and official purpose. We present to you a detailed analysis of tax benefits of leasing a car from your company vs. owning a car. 

Owing the CAR

In case the car is owned by employee and the expenses are reimbursed by the employer the perquisite value will be computed.  The tax liability on perquisite for reimbursement of fuel and driver expenses will be as below:

1. In case car is used for official purpose only –  the value of perquisite will be NIL hence there will be no addition in your taxable salary. however for availing the same employer need to maintain complete details of visits made  for official purpose. Also A certificate from employer confirming the expenditure incurred for official purposes is required.

2. In case car is used for private purpose only – The taxable perquisite will be the amount actually paid by employer minus the amount recovered from employee, if any for car expense.

3. If the car is used partly for office purposes and partly for private purpose – The taxable perquisite will be computed as below:

   a) amount actual incurred by employer b) Less: Rs 1800 p.m. (for car below 1.6 litres) or Rs 2,400 p.m.  (for car above 1.6 litres)  and Rs 900 p.m. for driver.

CAR on company lease     

Taking a car on company lease is always beneficial. In case the car is used partly for office purpose and partly for self use, its tax efficient to have car on company lease instead of owning a car.

Only Rs 2,700 p.m. (1.6 litres) and Rs 3,300 p.m. (above 1.6 litres) will be added as perquisite for car and driver in your taxable salary.  The actual expense incurred by employer could be Rs 10,000 or even higher.

 

 

What is tax planning?

Tax Planning ensures proper handling of tax expenses. Tax planning helps in understanding the tax structure and optimize savings, investments and expenses so as to maximize income.

It also provides an individual or a corporate a tool to instantly understand the impact of various financial actions such as business income, interest income, gifts, profit from sale of investments, sale/purchase of a flat, bullion etc.

http://www.finhealth.in/#!individual-tax/c118p

Basic Accounting Principles

Which accounting method would suit your business the most?

Most businesses typically uses one of two basic accounting methods in their bookkeeping systems: cash basis and accrual basis. While most businesses use the accrual basis, saying which is the most appropriate method for ones company is difficult. It mainly depends on sales volume, whether or not there is credit sales, and the business structure. The cash method is the most simple in that the books are kept based on the actual flow of cash in and out of the business. Income is recorded when it is received, and expenses are reported when they are actually paid. The cash method is used by many sole proprietors and businesses with no inventory.

From a tax standpoint, it is sometimes advantageous for a new business to use the cash method of accounting. That way, recording income can be put off until the next tax year, while expenses are counted right away. With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the check is actually written. The downside of this method is that one pays income taxes on revenue before its actually received.

​

Now a hard question: Should you use the cash or accrual method? The accrual method is recommended if the venture is structured as a corporation. In addition, businesses with inventory must also use this method. It also is highly recommended for any business that sells on credit, as it more accurately matches income and expenses during a given time period. The cash method may be appropriate for a small, cash-based business or a small service company. One should consult accountant when deciding on an accounting method.