Taxation Supplementry Study Paper

INTERMEDIATE (IPC) COURSE/
ACCOUNTING TECHNICIAN COURSE

SUPPLEMENTARY STUDY PAPER - 2014
TAXATION
[A discussion on amendments made by the Finance

(No.2) Act, 2014, Budget Notifications and other
important Circulars/ Notifications issued between
1st May, 2013 and 30th April, 2014]
(Relevant for students appearing in May, 2015 and
November, 2015 examinations)
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
This Supplementary Study Paper has been prepared by the Faculty of the Board of Studies of
the Institute of Chartered Accountants of India. Permission of the Council of the Institute is
essential for reproduction of any portion of this paper. Views expressed herein are not
necessarily the views of the Institute.
i
The Institute of Chartered Accountants of India
This Supplementary Study Paper has been prepared by the Faculty of the Board of Studies of
the Institute of Chartered Accountants of India with a view to assist the students in their
education. While due care has been taken in preparing this Supplementary Study Paper, if
any errors or omissions are noticed, the same may be brought to the attention of the Director
of Studies. The Council of the Institute is not responsible in any way for the correctness or
otherwise of the amendments published herein.
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ii
A WORD ABOUT SUPPLEMENTARY

Taxation is amongst the extremely dynamic subjects of the chartered accountancy course.
The level of knowledge prescribed at the Intermediate (IPC) Level for the subject is working
knowledge. For attaining such a level of knowledge, the students not only have to be
thorough with the basic provisions of the income-tax and indirect taxes, but also need to
constantly update their knowledge of statutory developments.
The Board of Studies has been instrumental in imparting theoretical education to the students
of Chartered Accountancy Course. The distinctive characteristic of the course i.e., distance
education, emphasizes the need for bridging the gap between the students and the Institute
and for this purpose, Board of Studies provides a variety of educational inputs for the
students.
One of the important inputs of the Board is the Supplementary Study Paper on Taxation for
the Intermediate (IPC) Course students. The Supplementary Study Paper is an annual
publication and contains a discussion on the amendments made by the Annual Finance Acts
and Notifications/Circulars in income-tax and indirect taxes. They are very important to the
students for updating their knowledge regarding the latest statutory developments in the
respective areas mentioned above. A lot of emphasis is being placed on these latest
amendments in the Intermediate (IPC) examinations.
The amendments made by the Finance (No.2) Act, 2014, Budget Notifications and other
important Notifications/Circulars issued between 1st May, 2013 and 30th April, 2014 have been
incorporated in this Supplementary Study Paper - 2014, which is relevant for students
appearing in May, 2015 and November, 2015 examinations. The Supplementary Study Paper
2014 has been divided into chapters to facilitate co-relation with the Study Material. The
chapter reference given in the Supplementary Study Paper corresponds to the parallel chapter
number of the Study Material. The related sections, however, have been grouped together
and explained in the same chapter in the Supplementary Study Paper to facilitate interlinking
and reading of interconnected provisions. Illustrations have been given, wherever possible,
to aid better understanding of the amendments.
The amendments made by way of notifications/circulars issued after 30th April, 2014 and which
are relevant for May, 2015 and November, 2015 examinations will be given in the Revision
Test Paper (RTP) for May, 2015 and November, 2015 examinations, respectively. In case you
need any further clarification/guidance with regard to this publication, please send your
queries relating to income-tax at priya@icai.in and queries relating to indirect taxes at
smita@icai.in.
Happy Reading and Best Wishes for the forthcoming examinations!
iii
PART I
INCOME TAX
INCOME TAX
AMENDMENTS AT A GLANCE FINANCE (No.2) ACT, 2014
S.No.
I
Particulars
Section
Income-tax
A. Basic Concepts
1.
Rates of income-tax
B. Incomes which do not form part of total income
2.
Registered trusts and institutions which are eligible for exemption

under sections 11 to 13 not allowed to claim exemption under any of
the clauses of section 10, other than exemption available under
clauses (1) and (23C) of section 10
11(7) &
10(23C)
3.
Disallowance of depreciation on commercial lines in respect of a

capital asset, cost of acquisition of which has been claimed as
application of income
11 & 10(23C)
4.
Meaning of Substantially financed by the Government for the

purpose of exemption under sub-clauses (iiiab) and (iiiac) of
section 10(23C)
10(23C)
5.
Power of Principal Commissioner/Commissioner to cancel

registration of trust or institution expanded
12AA
6.
Taxability of anonymous donations exempt from applicability of

maximum marginal rate of tax
115BBC
7.
Registration granted to trust or institution to also be applicable

to earlier years in specific cases
12A
C. Income from house property

8.
Increase in deduction for interest on loan borrowed for

acquisition or construction of self-occupied house property
24(b)
D. Profits and gains of business or profession

9.
Manufacturing companies investing more than ` 25 crore in new

plant and machinery in any previous year during the period from
1.4.2014 to 31.3.2017 entitled to investment allowance@15%
32AC
10.
Expansion of scope of specified business eligible for

investment linked deduction
35AD
11.
Capital asset in respect of which deduction under section 35AD

has been claimed to be used for specified business for a
period of eight years
35AD
12.
Assessees claiming investment linked deduction under section

35AD not eligible to claim exemption under section 10AA
35AD
13.
Disallowance of CSR expenditure
14.
Remittance of TDS on payments to non-residents permitted to

be made on or before the due date of filing of return of income
for avoiding disallowance of related expenditure under section
40(a)(i) during the previous year
40(a)(i)
15.
Expansion of scope of section 40(a)(ia) to cover all

expenditure/payments on which tax is deductible under Chapter
XVII-B and restriction of quantum of disallowance thereunder to
30% of sum paid
40(a)(ia)
16.
Speculative transaction to exclude eligible transaction in

respect of trading in commodity derivatives carried out in a
recognised association, which is chargeable to commodities
transaction tax (CTT)
43(5)
17.
Uniform amount of presumptive income from each goods carriage,

whether heavy goods vehicle or other than heavy goods vehicle
44AE
37
E. Capital Gains
18.
Income arising from transfer of security by a foreign portfolio

investor (FPI) characterized as capital gains
2(14)
19.
Period of holding of units of debt oriented mutual fund and

unlisted securities, to qualify as a long-term capital asset,
increased from more than 12 months to more than 36 months
2(42A)
20.
Benefit of concessional rate of tax@10% on long-term capital

gains (without indexation) not to be available in respect of units
of debt-oriented fund and unlisted securities
112
21.
Compensation received in pursuance of an interim order

deemed as income chargeable to tax in the year of final order
45(5)
22.
Transfer of Government security outside India by a non-resident to

another non-resident not a transfer for charge of capital gains tax
47
23.
Rise in Consumer Price Index (Urban) to be the basis for

notification of Cost Inflation Index
48
24.
Exemption under section 54 and 54F to be available for

investment in one residential house situated in India
54 & 54F
25.
Maximum investment in bonds of NHAI and RECL, out of capital

gains arising from transfer of one or more capital assets during
a financial year, restricted to ` 50 lakhs, irrespective of whether
the investment is made in the same financial year or in the
subsequent financial year or both
54EC
F. Income from other sources

26.
Advance forfeited due to failure of negotiations for transfer of a

capital asset to be taxable as Income from other sources
56(2), 2(24) &

51
G. Set-off and Carry Forward of Losses

27.
Transaction in respect of trading in shares on a recognised

stock exchange by a company, the principal business of which
is the business of trading in shares, not a speculative
transaction
73
H. Deductions from Gross Total Income

28.
Increase in the limit of deduction under section 80C
80C & 80CCE
29.
Benefit under section 80CCD extended to private sector

employees without condition regarding date of joining being on
or after 1st January, 2004
80CCD
30.
Extension of sunset clause for tax holiday under section 80-IA

for power-sector undertakings
80-IA(4)
I. Provisions concerning advance tax and tax deducted at

source
31.
Tax to be deducted on non-exempt payments made under life

insurance policy
194DA
32.
Enabling provision for deductor to file correction statement and

for processing of correction statement so filed
200 & 200A
33.
Revision of time limit for passing an order under section 201(1)
201(3)
34.
Non-applicability of higher rate of TDS under section 206AA in

respect of tax deductible under section 194LC on payment of
interest on long-term bonds to non-corporate non-residents and
foreign companies
206AA(7)
J. Provisions for filing return of income

35.
Return of income of mutual funds, securitization trusts, venture

capital companies/funds to be filed mandatorily
36.
Verification of return of income
140
139(4C)
1
BASIC CONCEPTS
AMENDMENTS BY THE FINANCE (No.2) ACT, 2014
RATES OF TAX
Section 2 of the Finance (No.2) Act, 2014 read with Part I of the First Schedule to the Finance
(No.2) Act, 2014, seeks to specify the rates at which income-tax is to be levied on income
chargeable to tax for the assessment year 2014-15. Part II lays down the rate at which tax is to
be deducted at source during the financial year 2014-15 from income subject to such deduction
under the Income-tax Act, 1961; Part III lays down the rates for charging income-tax in certain
cases, rates for deducting income-tax from income chargeable under the head "salaries" and the
rates for computing advance tax for the financial year 2014-15 i.e., A.Y.2015-16. Part III of the
First Schedule to the Finance (No.2) Act, 2014 will become Part I of the First Schedule to the
Finance Act, 2015 and so on.
Rates for deduction of tax at source for the F.Y.2014-15 from certain income
Part II of the First Schedule to the Act specifies the rates at which income-tax is to be deducted at
source under sections 193, 194, 194A, 194B, 194BB, 194D and 195 during the financial year 201415. These rates of tax deduction at source are the same as were applicable for the F.Y.2013-14.
Surcharge would be levied on income-tax deducted at source in case of non-corporate nonresidents and foreign companies. If the recipient is a non-corporate non-resident,
surcharge@10% would be levied on such income-tax if the income or aggregate of income
paid or likely to be paid and subject to deduction exceeds ` 1 crore. If the recipient is a
foreign company, surcharge@
(i)
2% would be levied on such income-tax, where the income or aggregate of such incomes
paid or likely to be paid and subject to deduction exceeds ` 1 crore but does not exceed
` 10 crore; and
(ii)
5% would be levied on such income-tax, where the income or aggregate of such incomes
paid or likely to be paid and subject to deduction exceeds ` 10 crore.
Surcharge would not be levied on deductions in all other cases. Also, education cess and
secondary and higher education cess would not be added to tax deducted or collected at
source in the case of a domestic company or a resident non-corporate assessee. However,
education cess @2% and secondary and higher education cess @1% on income-tax plus
surcharge, wherever applicable, would be added to tax deducted at source in cases of noncorporate non-residents and foreign companies.
Rates for deduction of tax at source from "salaries", computation of "advance tax" and
charging of income-tax in certain cases during the financial year 2014-15
Part III of the First Schedule to the Act specifies the rate at which income-tax is to be
deducted at source from "salaries" and also the rate at which "advance tax" is to be computed
and income-tax is to be calculated or charged in certain cases for the financial year 2014-15
i.e., A.Y. 2015-16.
It may be noted that education cess @2% and secondary and higher education cess @1%
would continue to apply on tax deducted at source in respect of salary payments.
The general basic exemption limit for individuals (men and women)/HUFs/AOPs/BOIs and
artificial juridical persons has been increased from ` 2,00,000 to ` 2,50,000. The basic
exemption limit of ` 2,50,000 for senior citizens, being resident individuals of the age of 60 years
or more but less than 80 years has also been increased to ` 3,00,000. Resident individuals of
the age of 80 years or more at any time during the previous year would continue to be eligible for
the higher basic exemption limit of ` 5,00,000. The tax slabs are shown hereunder (i)
(a) Individual/ HUF/ AOP / BOI and every artificial juridical person
Level of total income
Rate of income-tax
Where the total income does not exceed

` 2,50,000
Nil
Where the
` 2,50,000
` 5,00,000
total income exceeds 10% of the amount by which the

but does not exceed total income exceeds ` 2,50,000
Where the
` 5,00,000
` 10,00,000
total income exceeds

but does not exceed
` 25,000 plus 20% of the

amount by which the total
income exceeds ` 5,00,000
Where the
` 10,00,000
total
` 1,25,000 plus 30% of the

amount by which the total
income
exceeds
(b) For resident individuals of the age of 60 years or more but less than 80 years
at any time during the previous year
Rate of income-tax

` 3,00,000
Nil
Where the total income exceeds

` 3,00,000 but does not exceed
` 5,00,000
10% of the amount by which the

total income exceeds ` 3,00,000

` 10,00,000
` 20,000 plus 20% of the amount

by which the total income exceeds
` 5,00,000
Where the
` 10,00,000
total
income
exceeds
` 1,20,000 plus 30% of the amount

` 10,00,000
(c) For resident individuals of the age of 80 years or more at any time during the
previous year
Rate of income-tax

` 5,00,000
Nil

` 10,00,000
20% of the amount by which the total

Where the
` 10,00,000
` 1,00,000 plus 30% of the amount

` 10,00,000
total
income
exceeds
(ii) Co-operative society

There is no change in the rate structure as compared to A.Y.2014-15.
Rate of income-tax
(1)
Where the total income does not

exceed ` 10,000
10% of the total income
(2)

` 10,000 but does not exceed
` 20,000
` 1,000 plus 20% of the amount by

which the total income exceeds
` 10,000
(3)

` 20,000
` 3,000 plus 30% of the amount by

which the total income exceeds
` 20,000
(iii) Firm/Limited Liability Partnership (LLP)

The rate of tax for a firm for A.Y.2015-16 is the same as that for A.Y.2014-15 i.e., 30% on the
whole of the total income of the firm. This rate would apply to an LLP also.
(iv) Local authority
The rate of tax for a local authority for A.Y.2015-16 is the same as that for A.Y.2014-15
i.e. 30% on the whole of the total income of the local authority.
(v) Company
The rates of tax for A.Y.2015-16 are the same as that for A.Y.2014-15.
(1)
In the case of a domestic

company
(2)
In the case of a company

6
other than a domestic

company
However, specified royalties and fees for

rendering technical services (FTS) received from
Government or an Indian concern in pursuance of
an approved agreement made by the company
with the Government or Indian concern between
1.4.1961 and 31.3.1976 (in case of royalties) and
between 1.3.1964 and 31.3.1976 (in case of FTS)
would be chargeable to tax @50%.
Surcharge
The rates of surcharge applicable for A.Y.2015-16 are as follows (i)
Individual/HUF/AOP/BOI/Artificial juridical person/Co-operative societies/Local

Authorities/Firms/LLPs
Where the total income exceeds ` 1 crore, surcharge is payable at the rate of 10% of
income-tax computed in accordance with the provisions of para (i)/(ii)/(iii)/(iv) above or
section 111A or section 112.
Marginal relief is available in case of such persons having a total income exceeding ` 1
crore i.e., the additional amount of income-tax payable (together with surcharge) on the
excess of income over ` 1 crore should not be more than the amount of income
exceeding ` 1 crore.
(ii) Domestic company

(a) In case of a domestic company, whose total income is > ` 1 crore but ` 10
crore
Where the total income exceeds ` 1 crore but does not exceed ` 10 crore,
surcharge is payable at the rate of 5% of income-tax computed in accordance with
the provisions of para (v)(1) above or section 111A or section 112. Marginal relief is
available in case of such companies i.e. the additional amount of income-tax
payable (together with surcharge) on the excess of income over ` 1 crore should
not be more than the amount of income exceeding ` 1 crore.
Example
Compute the tax liability of X Ltd., a domestic company, assuming that the total
income of X Ltd. is ` 1,01,00,000 and the total income does not include any income
in the nature of capital gains.
Answer
The tax payable on total income of ` 1,01,00,000 of X Ltd. computed@ 31.5%
(including surcharge@5%) is ` 31,81,500. However, the tax cannot exceed
` 31,00,000 (i.e., the tax of ` 30,00,000 payable on total income of ` 1 crore plus
` 1,00,000, being the amount of total income exceeding ` 1 crore). Therefore, the
tax payable on ` 1,01,00,000 would be ` 31,00,000. The marginal relief is ` 81,500
(i.e., ` 31,81,500 - ` 31,00,000).
(b) In case of a domestic company, whose total income is > `10 crore
Where the total income exceeds ` 10 crore, surcharge is payable at the rate of 10%
of income-tax computed in accordance with the provisions of para (v)(1) above or
Marginal relief is available in case of such companies i.e. the additional amount of
income-tax payable (together with surcharge) on the excess of income over ` 10
crore should not be more than the amount of income exceeding ` 10 crore.
Example
Compute the tax liability of X Ltd., a domestic company, assuming that the total
income of X Ltd. is ` 10,01,00,000 and the total income does not include any
income in the nature of capital gains.
Answer
The tax payable on total income of ` 10,01,00,000 of X Ltd. computed@ 33%
(including surcharge@10%) is ` 3,30,33,000. However, the tax cannot exceed
` 3,16,00,000 [i.e., the tax of ` 3,15,00,000 (31.5% of ` 10 crore) payable on total
income of ` 10 crore plus ` 1,00,000, being the amount of total income exceeding
` 10 crore]. Therefore, the tax payable on ` 10,01,00,000 would be ` 3,16,00,000.
The marginal relief is ` 14,33,000 (i.e., ` 3,30,33,000 - ` 3,16,00,000).
(iii) Foreign company
(a) In case of a foreign company, whose total income is > ` 1 crore but `10
crore
Where the total income exceeds ` 1 crore but does not exceed ` 10 crore,
surcharge is payable at the rate of 2% of income-tax computed in accordance with
the provisions of paragraph (v)(2) above or section 111A or section 112. Marginal
relief is available in case of such companies i.e., the additional amount of incometax payable (together with surcharge) on the excess of income over ` 1 crore
should not be more than the amount of income exceeding ` 1 crore.
(b) In case of a foreign company, whose total income is > `10 crore
Where the total income exceeds ` 10 crore, surcharge is payable at the rate of 5%
of income-tax computed in accordance with the provisions of para (v)(2) above or
Marginal relief is available in case of such companies i.e. the additional amount of
income-tax payable (together with surcharge) on the excess of income over `10
crore should not be more than the amount of income exceeding ` 10 crore.
Note Marginal relief would also be available to those companies which are subject to
minimum alternate tax under section 115JB, in cases where the book profit (i.e. deemed
total income) exceeds ` 1 crore and ` 10 crore, respectively.
Education cess / Secondary and higher education cess on income-tax

The amount of income-tax as increased by the union surcharge, if applicable, should further
be increased by an Education cess on income-tax, calculated at the rate of 2% of such
income-tax plus surcharge, wherever applicable. Further, Secondary and higher education
cess on income-tax (SHEC) @1% of income-tax and surcharge, wherever applicable, is
leviable to fulfill the commitment of the Government to provide and finance secondary and
higher education. Education cess, including SHEC, is leviable in the case of all assessees
i.e., individuals, HUFs, AOP/BOIs, artificial juridical persons, co-operative societies, firms,
LLPs, local authorities and companies. No marginal relief would be available in respect of
such cess.
3
INCOMES WHICH DO NOT FORM PART OF
TOTAL INCOME
CHARITABLE TRUSTS AND INSTITUTIONS
S.
No.
Particulars
(a)
Registered trusts and institutions which are eligible for exemption under sections 11
to 13 not allowed to claim exemption under any of the clauses of section 10, other
than exemption available under clauses (1) and (23C) of section 10
Sections : 11(7) & 10(23C)
Effective from : A.Y.2015-16
Issue
Need for amendment
Amendment
In the case of charitable trusts

and institutions, the rationale of
providing exemption is to ensure
that income derived from the
property held under trust is
applied and utilised for the object
or purpose for which the institution
or trust has been established.
Once an institution or
trust voluntarily opts for
the special dispensation
under sections 11, 12
and 13, it should be
governed by these
specific provisions and
should not be allowed
flexibility
of
being
governed
by
other
general
provisions.
Allowing such flexibility
has adverse effects on
the objective for which
these sections were
enacted.
Section 11 has been

amended to provide that
where a trust or an
institution has been
granted registration for
purposes of availing
exemption thereunder,
and the registration is in
force for a previous year,
then such trust or
institution cannot claim
any exemption under any
provision of section 10
[other than exemption of
agricultural income under
section
10(1)
and
exemption
available
under section 10(23C)].
However, many registered trusts

or institutions claiming benefits of
the exemption regime do not
apply their income, which is
derived from property held under
trust, for charitable purposes.
Consequently, when the income
becomes taxable, the trusts and
institutions resort to claiming
exemption
under
general
10
provisions of section 10 and thus,

avoid tax on such income. As a
result, the very purpose of
requirement of application of
income etc. in respect of income
derived from property under trust
is defeated.
Likewise, entities which

have been approved or
notified for claiming
benefit of exemption
under section 10(23C)
would not be entitled to
claim any benefit of
exemption under other
provisions of section 10
[except exemption under
section 10(1) in respect
of agricultural income].
This issue also arises in the

context of section 10(23C) which
provides for exemption to funds,
institution, hospitals, etc. which
have been granted approval by
the prescribed authority. Section
10(23C) also has similar
conditions of accumulation and
application
of
income,
investment
of
funds
in
prescribed modes etc.
(b)
Disallowance of depreciation on commercial lines in respect of a capital asset, cost

of acquisition of which has been claimed as application of income
Sections: 11 & 10(23C)
Effective from: A.Y.2015-16
Issue
Need for
amendment
Amendment
Both section 11 as well as section 10(23C)

provide exemption in respect of income
applied to acquire a capital asset for
promoting the objects of the trust.
Subsequently, while computing the income
for purposes of these sections, notional
deduction by way of depreciation etc. is
claimed due to which only the net amount
after deduction of depreciation is required
to be applied for charitable purposes. In
effect, the amount of depreciation is not
required to be applied for charitable
purposes. Resultantly, trusts and
institutions resort to claiming dual benefit of
the
same
expenditure
(namely,
expenditure on acquisition of capital asset)
under the existing law.
The allowance of
dual benefit is
not in accord
with the true
intent of law.
Sections 11 and 10(23C)

have been amended to
provide that income for
the
purposes
of
application shall be
determined
without
allowing any deduction
for
depreciation
or
otherwise in respect of
any asset, the cost of
acquisition of which has
been claimed as an
application of income
under these sections in
the same or any other
previous year.
11
(c)
Meaning of Substantially financed by the Government for the purpose of

exemption under sub-clauses (iiiab) and (iiiac) of section 10(23C)
Section: 10(23C)
(d)
Issue
Need for
amendment
Amendment
Income of certain educational

institutions, universities and
hospitals which exist solely
for educational purposes or
solely
for
philanthropic
purposes, and not for
purposes of profit and which
are wholly or substantially
financed
by
the
Government are exempt
under section 10(23C).
There
is
no
definition of the
phrase
substantially
financed by the
Government under
the Income-tax Act,
1961, which has led
to litigation resulting
in varying decisions
of
judicial
authorities, based
upon the other
provisions of the
Income-tax
Act,
1961 and other Acts
on which they have
placed reliance.
An Explanation has, therefore,

been inserted after section
10(23C)(iiiac) to clarify that if the
government grant to a university
or other educational institution,
hospital or other institution during
the relevant previous year
exceeds a percentage (to be
prescribed) of the total receipts
(including
any
voluntary
contributions), of such university
hospital or other institution, as the
case may be, then, such university
hospital or other institution shall
be
considered
as
being
substantially financed by the
Government for that previous
year.
Power of Principal Commissioner/Commissioner to cancel registration of trust or

institution expanded
Section: 12AA
Effective from: 1.10.2014
Issue
Need for
amendment
Amendment
Under section 12AA, the

registration once granted to a
trust or institution shall
remain in force until it is
cancelled
by
the
Commissioner.
Section
12AA(3)
provides
the
On account of the
restrictive
interpretation of the
powers of the
Commissioner
under
section
12AA, registration
In order to rationalise the provisions

relating
to
cancellation
of
registration of a trust, sub-section
(4) has been inserted in section
12AA. It provides that where a
trust or an institution has been
granted
registration,
and
12
following two circumstances

in which the Commissioner
can cancel the registration of
the trust:
(a) the activities of the trust
or institution are not
genuine; or
(b) the activities are not
being carried out in
accordance with the
objects of the trust or
institution.
The
Commissioner
is
empowered to cancel the
registration only if either or
both the above conditions are
met, and not otherwise. The
powers of Commissioner to
cancel
registration
are,
therefore, highly curtailed.
(e)
of such trusts or
institutions
continues to be in
force and these
institutions continue
to
enjoy
the
beneficial regime of
exemption, even if
they have not
properly
applied
their income for
charitable purposes
or diverted such
income for benefit
of certain interested
persons or invested
their
funds
in
prohibited modes.
subsequently it is noticed that its

activities are being carried out in
such a manner that,
(i)
its income does not enure for

the benefit of general public;
(ii)
it is for benefit of any

particular religious community
or caste;
(iii) any income or property of the

trust is applied for benefit of
specified persons like author
of trust, trustees etc.; or
(iv) its funds are invested in
prohibited modes,
then, the Principal Commissioner or
the Commissioner may cancel the
registration of such trust or
institution. However, if the trust or
institution proves that there was a
reasonable cause for the activities
to be carried out in the above
manner, the registration shall not
be cancelled.
Taxability of anonymous donations exempt from applicability of maximum

marginal rate of tax
Section : 115BBC
Issue
Need for
amendment
Amendment
Section 115BBC provides for

levy of tax at 30% in case of
certain assessees, being
university, hospital, etc. on
the amount of aggregate
anonymous
donations
exceeding 5% of the total
donations received by the
assessee or ` 1 lakh,
whichever is higher.
The correct method

of computation is to
reduce the income
by the amount of
anonymous
donations which has
actually been taxed
at the rate of 30%.
Section 115BBC has been

amended to provide that the
income-tax payable shall be the
aggregate of
13
(i)
the amount of income-tax

calculated @30% on the
aggregate of anonymous
donations received in excess
of 5% of the total donations
received by the assessee or
one lakh rupees, whichever

is higher; and
On
account
of
the
mechanism of aggregation of
tax provided in section
115BBC, while incometax@30% is levied on the
amount
of
anonymous
donations exceeding the
threshold, the remaining tax
is chargeable on total income
after reducing the entire
amount
of
anonymous
donations.
(ii)
the amount of income-tax

with which the assessee
would have been chargeable
had his total income been
reduced by the aggregate of
the anonymous donations
received in excess of 5% of
the total donations received
by the assessee or ` 1 lakh,
as the case may be.
Example
Income from property held under trust is ` 6 lakh. The voluntary contributions received by
a trust is ` 20 lakh, which includes anonymous donations of ` 4 lakh and corpus donations
of ` 5 lakh. The trust has applied ` 10 lakh to purchase a building on 1.8.2014 for meeting
its objective. Compute the tax liability of the trust for A.Y.2015-16.
Answer
Particulars
Income from property held under trust1
Voluntary contributions
Less: Corpus donations (not taxable)
`
6,00,000
20,00,000
5,00,000
15,00,000
Less: Anonymous donations (taxable@30% under

section 115BBC) [` 4,00,000 ` 1,00,000]
3,00,000
12,00,000
18,00,000
Less:
15% of income eligible for

accumulation without conditions2
retention/
2,70,000
15,30,000
Depreciation on building is not allowable since cost of acquisition of building has been claimed as
application of income. It is assumed that depreciation on building has not been charged while
computing income from property held under trust.
A view is taken that 15% of ` 1 lakh, representing the amount of anonymous donations exempt from
applicability of 30% tax, is also eligible for retention/accumulation without conditions in line with other
voluntary contributions. A contrary view may also be possible due to the language used in section
13(7), that such anonymous donations chargable to tax at normal rates are not eligible for
retention/accumulation. If this view is taken, ` 2,55,000, being 15% of ` 17,00,000 has to be set apart
(instead of ` 2,70,000, being 15% of ` 18,00,000).
14
Less: Purchase of building for the purpose of the trust

Total Income (excluding anonymous donations taxable@30%)
10,00,000
5,30,000
The tax payable by the trust would be the aggregate of

(i) ` 90,000, being income-tax calculated@30% on ` 3 lakh (i.e., ` 4 lakh ` 1 lakh); and
(ii) ` 31,000, being income-tax calculated at normal rates on ` 5.30 lakh (i.e., ` 5,30,000).
The total tax payable would be ` 1,24,630 (` 1,21,000 plus cess@3%)
(f)
Registration granted to trust or institution to also be applicable to earlier years

in specific cases
Section: 12A
Effective Date: 1.10.2014
Issue
Need for
amendment
Amendment
Under section 12A, a

trust or an institution
can claim exemption
under sections 11
and 12 only after
registration
under
section 12AA has
been granted. Also,
in case of trusts or
institutions
which
apply for registration
after 1st June, 2007,
the registration shall
be effective only
prospectively.
On account of nonregistration,
tax
liability
gets
attracted in those
years even though
they may otherwise
be
eligible
for
exemption due to
compliance
with
other
substantive
conditions.
The
present provisions of
the Act also do not
permit condonation
of delay in seeking
registration.
In order to remove the genuine hardship

and provide relief to the trusts, section
12A has been amended.
Non-application
of
registration for the
period prior to the
year of registration
causes
genuine
hardship to charitable
organisations.
In case where a trust or institution has

been granted registration under section
12AA, the benefit of sections 11 and 12
shall be available in respect of any
income derived from property held
under trust in any assessment
proceeding for an earlier assessment
year which is pending before the
Assessing Officer as on the date of
such registration.
Condition for
exemption:
grant
of
such
The objects and activities of such trust

or institution in the relevant earlier
assessment year should be the same
as those on the basis of which such
registration has been granted.
15
Circumstance
when
exemption
would be granted for an earlier
assessment year:
Reassessment proceedings not to be

initated for earlier years due to
reason of non-registration:
No action for reopening of an assessment
under section 147 shall be taken by the
Assessing Officer in the case of such trust
or institution for any assessment year
preceding the first assessment year for
which the registration applies, merely for
the reason that such trust or institution has
not obtained the registration under section
12AA for the said assessment year.
Non-availability of above benefits to
a trust or institution in certain cases:
The above benefits would, however, not
be available in case of any trust or
institution which at any time had applied
for registration and the same was
denied or a registration granted to it
was cancelled at any time under section
12AA.
SIGNIFICANT NOTIFICATIONS/CIRCULARS
1.
Notification of foreign company for claiming exemption under section 10(48)

[Notification No. 64/2013, dated 19.08.2013]
Income received by a foreign company in India in Indian currency from sale of crude oil,
any other goods or rendering of services, as may be notified by the Central Government
in this behalf, to any person in India is exempt under section 10(48). For this purpose,
the foreign company, as well as the arrangement or agreement, should be notified by the
Central Government having regard to the national interest. The foreign company should
not be engaged in any other activity in India, except receipt of income under such
arrangement or agreement.
Accordingly, vide this notification, the Central Government, having regard to the national
interest, has notified for the purposes of the said clause, the National Iranian Oil
Company, as the foreign company and the Memorandum of Understanding entered
between the Government of India in the Ministry of Petroleum and Natural Gas and the
Central Bank of Iran on the 20th January, 2013, as the agreement subject to the
condition that the said foreign company shall not engage in any activity in India , other
than the receipt of income under the agreement aforesaid.
The Notification is deemed to be effective from 20th January, 2013.
16
2.
Taxability of Awards received by a Sportsman [Circular No. 2/2014 dated

20.01.2014]
The CBDT had issued Circular No.447 on 22nd January, 1986 clarifying that awards
received by a sportsman, who is not a professional, will not be liable to tax in his hands
as the award will be in the nature of a gift and/or personal testimonial. This Circular was
applicable when the gift was not taxable in the hands of the recipient. Thereafter, in the
year 2005, there was a fundamental change in the manner of treatment of gift through
insertion of sub-clauses (xiii), (xiv) and (xv) of section 2(24). Corresponding amendments
were also made in section 56(2) by insertion of clauses (v), (vi) and (vii), thereby making
an amount of money or immovable property received without consideration taxable
subject to provisions of these clauses. Consequently, the CBDT has, through this
Circular, clarified that Circular No.447 had become inapplicable w.e.f. 1-4-2005, since the
statutory provisions have overridden the same.
It may however be noted that, in terms of provisions of section 10(17A), Central
Government approves awards instituted by Central Government, State Government or
other bodies as also the purposes for rewards instituted by Central Government or State
Government from time to time. Tax exemption can be sought by eligible persons in
respect of awards or rewards covered by such approvals.
3.
Clarification regarding disallowance of expenses under section 14A in cases where

corresponding exempt income has not been earned during the financial year
[Circular No. 5/2014, dated 11.2.2014]
The Finance Act, 2001 had introduced section 14A, with retrospective effect from 1st
April, 1962, to provide that no deduction shall be allowed in respect of expenditure
incurred relating to income which does not form part of total income. A controversy has
arisen as to whether disallowance can be made by invoking section 14A even in those
cases where no income has been earned by an assessee, which has been claimed as
exempt during the financial year.
The CBDT has, through this Circular, clarified that the legislative intent is to allow only
that expenditure which is relatable to earning of income. Therefore, it follows that the
expenses which are relatable to earning of exempt income have to be considered for
disallowance, irrespective of the fact whether such income has been earned during the
financial year or not.
The above position is clarified by the usage of the term includible in the heading to
section 14A [Expenditure incurred in relation to income not includible in total income] and
Rule 8D [Method for determining amount of expenditure in relation to income not
includible in total income], which indicates that it is not necessary that exempt income
should necessarily be included in a particular years income, for triggering disallowance.
Also, the terminology used in section 14A is income under the Act and not income of
the year, which again indicates that it is not material that the assessee should have
earned such income during the financial year under consideration.
17
In effect, section 14A read along with Rule 8D provides for disallowance of expenditure
even where the taxpayer has not earned any exempt income in a particular year.
4.
Taxability of partners share, where the income of the firm is exempt under Chapter
III / deductible under Chapter VI-A [Circular No. 8/2014 dated 31.03.2014]
Section 10(2A) provides that a partners share in the total income of a firm which is
separately assessed as such shall not be included in computing the total income of the
partner. In effect, a partners share of profits in such firm is exempt from tax in his
hands.
Sub-section (2A) was inserted in section 10 by the Finance Act, 1992 with effect from
1.4.1993 consequent to change in the scheme of taxation of partnership firms. Since
A.Y.1993-94, a firm is assessed as such and is liable to pay tax on its total income. A
partner is, therefore, not liable to tax once again on his share in the said total income.
An issue has arisen as to the amount which would be exempt in the hands of the
partners of a partnership firm, in cases where the firm has claimed exemption/deduction
under Chapter III or Chapter VI-A.
The CBDT has clarified that the income of a firm is to be taxed in the hands of the firm
only and the same can under no circumstances be taxed in the hands of its partners.
Therefore, the entire profit credited to the partners accounts in the firm would be exempt
from tax in the hands of such partners, even if the income chargeable to tax becomes Nil
in the hands of the firm on account of any exemption or deduction available under the
provisions of the Act.
18
4
UNIT 2: INCOME FROM HOUSE PROPERTY
AMENDMENT BY THE FINANCE (No.2) ACT, 2014
Increase in deduction for interest on loan borrowed for acquisition or construction of selfoccupied house property [Section 24(b)]
(i)
Section 24 provides for two deductions from Net Annual Value of house property, namely,
statutory deduction at 30% of NAV under clause (a) thereof and interest payable on capital
borrowed for acquisition, construction, repair, renewal or reconstruction of house property
under clause (b) thereof.
(ii)
In case of self-occupied house property, the annual value is Nil and the only deduction
available is in respect of interest on borrowed capital. Consequently, the interest deduction
would represent the loss from such house property during the relevant previous year.
(iii) The second proviso to clause (b) of section 24 provides that such interest deduction shall be
restricted to ` 1,50,000 in case of capital borrowed for acquisition and construction of selfoccupied property.
(iv) Taking into consideration the appreciation in the value of house property and the increased
cost of finance, the second proviso to clause (b) of section 24 has been amended to increase
the maximum amount of deduction on account of interest on capital borrowed for acquisition
and construction of self-occupied property to ` 2,00,000.
Example
Mr. Rajesh purchased a residential house property for self-occupation at a cost of ` 30 lakh
on 1.6.2013, in respect of which he took a housing loan of ` 24 lakh from Punjab National
Bank@11% p.a. on the same date. Compute the eligible deduction in respect of interest on
housing loan for A.Y.2014-15 and A.Y.2015-16 under the provisions of the Income-tax Act,
1961, assuming that the entire loan was outstanding as on 31.3.2015 and he does not own
any other house property.
Answer
Particulars
For A.Y.2014-15
(i)
Deduction under section 24(b) ` 2,20,000
[` 24,00,000 11% 10/12]
19
(ii)
Restricted to
Deduction under section 80EE (` 2,20,000 `1,50,000)
For A.Y.2015-16
(i)
Deduction under section 24(b) ` 2,64,000 [` 24,00,000 11%]
Restricted to
(ii)
Deduction under section 80EE
(` 1,00,000 ` 70,000, allowed as deduction in P.Y.2013-14)
1,50,000
70,000
2,00,000
30,000
Note - In this case, Mr. Rajesh is entitled to deduction under section 80EE, in addition to
deduction under section 24(b) since
(1) the loan is sanctioned by Bank of India, being a financial institution, during the period
between 1.4.2013 and 31.3.2014;
(2) the loan amount sanctioned is less than ` 25 lakh;
(3) the value of the house property is less than ` 40 lakh;
(4) he does not own any other residential house property.
20
4
UNIT 3: PROFITS AND GAINS OF BUSINESS
OR PROFESSION
(a) Manufacturing companies investing more than ` 25 crore in new plant and
machinery in any previous year during the period from 1.4.2014 to 31.3.2017
entitled to investment allowance@15% [Section 32AC]
Existing Provisions [Effective from A.Y.2014-15]:
(i)
Section 32AC was inserted by the Finance Act, 2013 w.e.f. A.Y.2014-15 to provide
a tax incentive by way of investment allowance to encourage huge investment in
plant or machinery.
(ii)
As per section 32AC(1), a manufacturing company is entitled to deduction@15%

of aggregate investment in new plant and machinery if it is (a) engaged in the business of manufacture of an article or thing; and
(b) invests a sum of more than ` 100 crore in new plant or machinery during the
period beginning from 1st April, 2013 and ending on 31st March, 2015.
(iii) For A.Y. 2014-15, a manufacturing company was entitled to deduction of 15% of
aggregate amount of actual cost of new assets acquired and installed during the
financial year 2013-14, if the aggregate cost of such assets exceed ` 100 crore.
For A.Y.2015-16, a deduction of 15% of aggregate amount of actual cost of new
assets, acquired and installed during the period beginning on 1st April, 2013 and
ending on 31st March, 2015, as reduced by the deduction allowed, if any, for A.Y.
2014-15.
(iv) The investment allowance@15% under this section is in addition to the depreciation
and additional depreciation allowable under section 32(1). Further, the investment
allowance would not be reduced to arrive at the written down value of plant and
machinery.
Additional benefit [As per amendment by Finance (No.2) Act, 2014 with effect from
A.Y.2015-16]
(v) This year, considering that growth of the manufacturing sector is critical for
employment generation and development of an economy, the deduction available
21
under section 32AC has been extended for investment made in plant and machinery
up to 31.03.2017.
Further, in order to rationalize the existing provisions of section 32AC and also to
make medium size investments in plant and machinery eligible for deduction, new
sub-section (1A) has been inserted to provide that deduction under section 32AC
would be available if the company, on or after 1st April, 2014, invests more than
` 25 crore in plant and machinery in a previous year.
(vi) Companies which are eligible to claim deduction under the existing combined
threshold limit of more than ` 100 crore for investment made in previous years
2013-14 and 2014-15 shall continue to be eligible to claim deduction under section
32AC(1), even if its investment in the year 2014-15 is below the new threshold limit
of investment of ` 25 crore.
(vii) New plant or machinery does not include
(1) any plant or machinery which before its installation by the assessee was used
either within or outside India by any other person;
(2) any plant or machinery installed in any office premises or any residential
accommodation, including accommodation in the nature of a guest house;
(3) any office appliances including computers or computer software;
(4) any vehicle;
(5) ship or aircraft; or
(6) any plant or machinery, the whole of the actual cost of which is allowed as
deduction (whether by way of depreciation or otherwise) in computing the
income chargeable under the head Profits and gains of business or
profession of any previous year.
Example
Compute the admissible deduction under section 32AC for A.Y.2014-15 & A.Y.2015-16 in
each of the following cases Investment in new plant and machinery
(` in crores)
P.Y.2013-14
P.Y.2014-15
80
22
70
25
60
30
75
25
105
15
70
30
70
40
Manufacturing company
A Ltd.
B Ltd.
C Ltd.
D Ltd.
E Ltd.
F Ltd.
G Ltd.
22
Answer
Manufacturing
Company
A Ltd.
B Ltd.
C Ltd.
D Ltd.
E Ltd.
F Ltd.
G Ltd.
Investment in new plant

and machinery
Deduction under section

32AC (` in crores)
P.Y.2013-14
P.Y.2014-15
A.Y.2014-15
A.Y.2015-16
Under
subsection
80
70
60
75
105
70
70
22
25
30
25
15
30
40
Nil
Nil
Nil
Nil
15.75
Nil
Nil
15.30
Nil
4.5
Nil
2.25
4.5
16.5
(1)
(1A)
(1)
(1A)
(1)
(b) Expansion of scope of specified business eligible for investment linked

deduction under section 35AD
(i)
Under section 35AD, a deduction in respect of the whole of any expenditure of capital
nature (other than expenditure on land, goodwill and financial instrument) incurred
wholly and exclusively, for the purposes of the specified business during the
previous year in which such expenditure is incurred is allowed.
(ii)
At present, the following specified businesses are eligible for availing the
investment-linked deduction under section 35AD as enumerated in clause (c) of
sub-section (8) of the said section:(1) setting up and operating a cold chain facility;
(2) setting up and operating a warehousing facility for storage of agricultural
produce;
(3) laying and operating a cross-country natural gas or crude or petroleum oil
pipeline network for distribution, including storage facilities being an integral
part of such network;
(4) building and operating, anywhere in India, a hotel of two-star or above
category as classified by the Central Government;
(5) building and operating, anywhere in India, a hospital with at least one hundred
beds for patients;
(6) developing and building a housing project under a scheme for slum
redevelopment or rehabilitation, framed by the Central Government or a State
Government, as the case may be, and notified by the Board in accordance with
the prescribed guidelines;
(7) developing and building a housing project under a scheme for affordable
housing framed by the Central Government or a State Government, as the
23
case may be, and notified by the Board in accordance with the prescribed
guidelines;
(8) production of fertilizer in India;
(9) setting up and operating an inland container depot or a container freight station
notified or approved under the Customs Act, 1962;
(10) bee-keeping and production of honey and beeswax; and
(11) setting up and operating a warehousing facility for storage of sugar;
(iii) The Finance (No.2) Act, 2014 has included two new businesses as specified
business for the purposes of the investment-linked deduction under section
35AD so as to promote investment in these sectors. They are:(a) laying and operating a slurry pipeline for the transportation of iron ore;
(b) setting up and operating a semiconductor wafer fabrication
manufacturing unit, if such unit is notified by the Board in accordance
with the prescribed guidelines.
(iv) The date of commencement of operations for availing investment linked
deduction in respect of the two new specified businesses shall be on or after 1st
April, 2014.
(c) Capital asset in respect of which deduction under section 35AD has been claimed
to be used for specified business for a period of eight years
(i)
Under section 35AD, the time period for which capital assets on which deduction
has been claimed and allowed, have to be used for the specified business, has not
been specifically provided.
(ii)
In order to ensure that the capital asset on which investment linked deduction has
been claimed is used for the purposes of the specified business, sub-section (7A)
has been inserted in section 35AD.
(iii) Section 35AD(7A) provides that any asset in respect of which a deduction is
claimed and allowed under section 35AD shall be used only for the specified
business for a period of eight years beginning with the previous year in which such
asset is acquired or constructed.
(iv) If any asset on which a deduction under section 35AD has been claimed and
allowed, is demolished, destroyed, discarded or transferred, the sum received or
receivable for the same is chargeable to tax under clause (vii) of section 28. This
does not take into account a case where asset on which deduction under section
35AD has been claimed is used for any purpose other than the specified business
by way of a mode other than that specified above.
(v) Accordingly, sub-section (7B) has been inserted to provide that if such asset is used
for any purpose other than the specified business, the total amount of deduction so
24
claimed and allowed in any previous year in respect of such asset, as reduced by
the amount of depreciation allowable in accordance with the provisions of section 32
as if no deduction had been allowed under section 35AD, shall be deemed to be
income of the assessee chargeable under the head Profits and gains of business
or profession of the previous year in which the asset is so used.
(vi) However, the deeming provision under sub-section (7B) shall not be applicable to a
company which has become a sick industrial company under section 17(1) of the
Sick Industrial Companies (Special Provisions) Act, 1985, during the intervening
period of eight years specified in sub-section (7A).
Example
ABC Ltd. is a company having two units Unit A carries on specified business of setting
up and operating a warehousing facility for storage of sugar; Unit B carries on nonspecified business of operating a warehousing facility for storage of edible oil. Unit A
commenced operations on 1.4.2013 and it claimed deduction of ` 100 lacs incurred on
purchase of two buildings for ` 50 lacs each (for operating a warehousing facility for
storage of sugar) under section 35AD for A.Y.2014-15. However, in February, 2015, Unit
A transferred one of its buildings to Unit B.
Examine the tax implications of such transfer in the hands of ABC Ltd.
Answer
Since the capital asset, in respect of which deduction of ` 50 lacs was claimed under
section 35AD, has been transferred by Unit A carrying on specified business to Unit B
carrying on non-specified business in the P.Y.2014-15, the deeming provision under
section 35AD(7B) is attracted during the A.Y.2015-16.
Particulars
Deduction allowed under section 35AD for A.Y.2014-15
Less: Depreciation allowable u/s 32 for A.Y.2014-15 [10% of ` 50 lacs]
Deemed income under section 35AD(7B)
`
50,00,000
5,00,000
45,00,000
(d) Assessees claiming investment linked deduction under section 35AD not eligible
to claim exemption under section 10AA
(i)
As per section 35AD(3), where any assessee has claimed investment linked
deduction under section 35AD, it would not be eligible to claim profit linked
deduction under Chapter VIA for the same or any other assessment year.
(ii)
Section 10AA also provides for profit linked deduction in respect of units set-up in
Special Economic Zones. However, so far, there was no bar restricting an
assessee claiming investment linked deduction under section 35AD from claiming
profit linked deduction under section 10AA.
25
(iii) Section 35AD has, therefore, been amended to provide that where investment
linked deduction has been availed by an assessee on account of capital expenditure
incurred for the purposes of specified business in any assessment year, no
deduction under section 10AA shall be available to the assessee in the same or any
other assessment year in respect of such specified business.
(e) Disallowance of CSR expenditure under section 37
(i)
Section 135 of the Companies Act, 2013 read with Schedule VII thereto and
Companies (Corporate Social Responsibility) Rules, 2014 are the special provisions
under the new company law regime imposing mandatory CSR obligations.
Mandatory CSR obligations under section 135:
Every company, listed or unlisted, private or public, having a - net worth of ` 500 crores or more [Net worth criterion]; or
- turnover of ` 1,000 crores or more [Turnover criterion]; or
- a net profit of ` 5 crores or more [Net Profit criterion]
during any financial year to constitute a CSR Committee of the Board;
CSR Committee has to formulate CSR policy and the same has to be
approved by the Board;
Such company to undertake CSR activities as per the CSR Policy;
Such company to spend in every financial year, at least 2% of its average net
profits made in the immediately three preceding financial years, on the CSR
activities specified in Schedule VII to the Companies Act, 2013.
(ii) As per Rule 4 of the Companies (CSR) Rules, 2014, the following expenditure are
not considered as CSR activity for the purpose of section 135:
Expenditure on activities undertaken in pursuance of normal course of

business;
Expenditure on CSR activities undertaken outside India;
Expenditure which is exclusively for the benefit of the employees of the company
or their families; and
Contributions to political parties.
(iii) Under section 37(1) of the Income-tax Act, 1961, only expenditure, not covered under
sections 30 to 36, and incurred wholly and exclusively for the purposes of the
business is allowed as a deduction while computing taxable business income. The
issue under consideration is whether CSR expenditure is allowable as deduction
under section 37.
(iv) It has now been clarified that for the purposes of section 37(1), any
expenditure incurred by an assessee on the activities relating to corporate
social responsibility referred to in section 135 of the Companies Act, 2013
26
shall not be deemed to have been incurred for the purpose of business and
hence, shall not be allowed as deduction under section 37.
(v) The rationale behind the disallowance is that CSR expenditure, being an
application of income, is not incurred wholly and exclusively for the purposes
of carrying on business.
(vi) However, the Explanatory Memorandum to the Finance (No.2) Bill, 2014 clarifies
that CSR expenditure, which is of the nature described in sections 30 to 36, shall be
allowed as deduction under those sections subject to fulfillment of conditions, if any,
specified therein.
(f)
Remittance of TDS on payments to non-residents permitted to be made on or

before the due date of filing of return of income for avoiding disallowance of
related expenditure under section 40(a)(i) during the previous year
(i)
Under section 40(a)(i), interest, royalty, fee for technical services or other sum
chargeable under the Act which is payable to a non-resident is not allowable as
deduction while computing business income if tax on such payments has not been
deducted during the previous year, or after deduction, was not paid within the time
prescribed under section 200(1).
(ii)
The parallel provision for disallowance of business expenditure in respect of certain

payments made to the residents under 40(a)(ia) permits remittance of tax deducted at
source on or before the due date for filing of return of income under section 139(1), for
claim of deduction during the relevant previous year in which the sum is payable.
(iii) In order to provide similar extended time limit for remittance of tax deducted from
payments made to non-residents, section 40(a)(i) has been amended to provide that
the deductor shall be allowed to claim deduction for payments made to nonresidents in the previous year of payment, if tax is deducted during the previous
year and the same is paid on or before the due date specified for filing of return
under section 139(1).
(iv) Further, if tax has been deducted in the subsequent year in respect of such
remittances to non-residents, or if tax has been deducted in the previous year but
paid after the due date for filing return of income under section 139(1), deduction in
respect of such remittances would be allowed in previous year in which such tax
has been actually paid.
(g) Expansion of scope of section 40(a)(ia) to cover all expenditure/payments on which
tax is deductible under Chapter XVII-B and restriction of quantum of disallowance
thereunder to 30% of sum paid
(i)
Under section 40(a)(ia), disallowance is attracted while computing business income

in respect of certain payments such as interest, commission, brokerage, rent,
royalty, fee for technical services and contract payments made to a resident, if tax
27
on such payments was not deducted, or after deduction, was not paid within the due
date of filing return specified under section 139(1).
(ii)
Chapter XVII-B mandates deduction of tax from certain other payments such as
salary, directors fee not specifically covered under section 40(a)(ia). In respect of
these payments, non-deduction or non-remittance of tax within the prescribed time
does not attract disallowance under section 40(a)(ia) while computing income under
the head Profits and gains from business or profession.
(iii) In order to rectify this inconsistency and improve TDS compliance in respect of all
payments to residents, disallowance under section 40(a)(ia) has been extended to
all expenditure on which tax is deductible under Chapter XVII-B.
(iv) However, at the same time, in order to alleviate the undue hardship caused to
assessees on account of disallowance of 100% of expenditure under section
40(a)(ia), an amendment has been made to restrict the disallowance for nondeduction of tax or non-remittance of TDS on payments made to residents on or
before the specified due date to 30% of the sum payable to a resident.
Example
XYZ Ltd. made the following payments in the month of March 2015 to residents without
deduction of tax at source. What would be the tax consequence for A.Y.2015-16,
assuming that the resident payees in all the cases mentioned below, have not paid the
tax, if any, which was required to be deducted by XYZ Ltd.?
Particulars
Amount in `
(1)
Salary to its employees
15,00,000
(2)
Non-compete fees to Mr. X
70,000
(3)
Directors remuneration
25,000
Would your answer change if XYZ Ltd. has deducted tax on the above in April, 2015 from
subsequent payments made to these persons and remitted the same in July, 2015?
Answer
Non-deduction of tax at source on any payment on which tax is deductible as per the
provisions of Chapter XVII-B would attract disallowance under section 40(a)(ia).
Therefore, non-deduction of tax at source on salary payment on which tax is deductible
under section 192 and non-compete fees and directors remuneration on which tax is
deductible under section 194J, would attract disallowance@30% of sum paid under
section 40(a)(ia). Therefore, the amount to be disallowed under section 40(a)(ia) while
computing business income for A.Y.2015-16 is as follows
28
Particulars
(1)
Salary
[tax is deductible under section 192]
(2)
Non-compete fees to Mr. X
[tax is deductible under section 194J]
(3)
Directors remuneration
[tax is deductible under section 194J
without any threshold limit]
Disallowance under section 40(a)(ia)
Amount
paid in `
Disallowance
u/s 40(a)(ia) @
30% of sum paid
15,00,000
4,50,000
70,000
21,000
25,000
7,500
4,78,500
If the tax is deducted and paid in the next year i.e., P.Y.2015-16, the amount of
` 4,78,500 would be allowed as deduction while computing the business income of
A.Y.2016-17.
(h) Speculative transaction to exclude eligible transaction in respect of trading in
commodity derivatives carried out in a recognised association, which is
chargeable to commodities transaction tax (CTT) [Section 43(5)]
(i)
The Finance Act, 2013 had introduced a new tax called Commodities Transaction Tax
(CTT) to be levied on taxable commodities transactions entered into in a recognised
association, vide Chapter VII of the Finance Act, 2013.
(ii) For this purpose, a taxable commodities transaction was defined to mean a
transaction of sale of commodity derivatives in respect of commodities, other than
agricultural commodities, traded in recognised associations.
(iii) Section 43(5) defines a speculative transaction to mean a transaction in which a
contract for the purchase or sale of any commodity, including stocks and shares, is
periodically or ultimately settled otherwise than by the actual delivery or transfer of
the commodity or scrips.
(iv) The proviso to section 43(5) specifies the contracts and transactions which shall not
be deemed to be a speculative transaction.
(v) Consequent to introduction of CTT, the Finance Act, 2013 had inserted clause (e) in
the proviso to section 43(5) to exclude an eligible transaction in respect of trading in
commodity derivatives carried out in a recognized association from the definition of
speculative transaction.
(vi) Thereafter, CBDT issued Circular No. 3 dated 24-01-2014 explaining the provisions
of the Finance Act, 2013, which clarified that the eligible transaction shall include
only those transactions in commodity derivatives which are liable to commodities
transaction tax.
(vii) Accordingly, clause (e) of the proviso to section 43(5) has been amended to provide
that an eligible transaction in respect of trading in commodity derivatives, carried
29
out in a recognised association, which is chargeable to commodities transaction

tax under Chapter VII of the Finance Act, 2013 shall not be deemed as a
speculative transaction.
(i)
Uniform amount of presumptive income from each goods carriage, whether heavy
goods carriage or other than heavy goods carriage [Section 44AE]
(i)
Section 44AE provides for a presumptive taxation scheme in the case of an assessee
engaged in the business of plying, hiring or leasing goods carriages and not owning
more than ten goods carriages at any time during the previous year.
(ii)
Upto A.Y.2014-15, the amount of presumptive income (per month or part of a month
during which the goods carriage was owned by the taxpayer) was as follows:
Heavy Goods Vehicle (HGV)
` 5,000
Other than HGV
` 4,500
(iii) The Finance Act, 2014 has amended this provision due to the following two reasons (1) The last revision was made 5 years back by the Finance (No.2) Act, 2009 and
there has been an erosion in the real values of the amount of specified
presumptive income due to inflation over the years; and
(2) To simplify the presumptive taxation scheme by providing for a uniform amount
of presumptive income per month (or part of a month) for all types of goods
carriage without any distinction between HGV and vehicle other than HGV.
(iv) Therefore, with effect from A.Y.2015-16, a uniform amount of ` 7,500 per month (or
part of a month) would be deemed as the income from each goods carriage,
whether HGV or other than HGV, under section 44AE. However, the assessee can
claim a higher amount as actually earned from the vehicle(s) as income from the
vehicle(s).
Example
Mr. X commenced the business of operating goods vehicles on 1.4.2014. He purchased
the following vehicles during the P.Y.2014-15. Compute his income under section 44AE
for A.Y.2015-16.
Type of Vehicle
(1)
(2)
(3)
Light Goods Vehicles

Medium Goods Vehicles
Heavy Goods Vehicles
30
Number
Date of
purchase
10.4.2014
15.3.2015
16.7.2014
2.1.2015
29.8.2014
23.2.2015
Would your answer change if the two light goods vehicles purchased in April, 2014 were
put to use only in July, 2014?
Answer
Since Mr. X does not own more than 10 vehicles at any time during the previous year
2014-15, he is eligible to opt for presumptive taxation scheme under section 44AE.
` 7,500 per month or part of month for which each goods carriage is owned by him would
be deemed as his profits and gains from such goods carriage.
(1)
Number of
Vehicles
2
1
3
1
2
1
10
(2)
(3)
(4)
Date of purchase
No. of months for

which vehicle is
owned
No. of months
No. of vehicles
[(1) (3)]
12
1
9
3
8
2
Total
24
1
27
3
16
2
73
10.4.2014
15.3.2015
16.7.2014
2.1.2015
29.8.2014
23.2.2015
Therefore, presumptive income of Mr. X under section 44AE for A.Y.2015-16 is

` 5,47,500, being 73 ` 7,500.
The answer would remain the same even if the two vehicles purchased in April, 2014 were
put to use only in July, 2014, since the presumptive income of ` 7,500 per month has to be
calculated per month or part of the month for which the vehicle is owned by Mr. X.
1.
Approval of Agricultural Extension Project under section 35CCC: Conditions and

Guidelines [Notification No. 38/2013 dated 30.05.2013 (as amended by Notification
No. 18/2014 dated 21.03.2014)]
In order to incentivize the business entities to provide better and effective agriculture
extensive services, section 35CCC was inserted to provide weighted deduction of a sum
equal to 150% of expenditure incurred by an assessee on agricultural extension project
in accordance with the prescribed guidelines.
Accordingly, the CBDT in exercise of the powers conferred by section 295 read with
section 35CCC(1) of the Income tax Act, 1961, vide Notification No. 38/2013 dated
30.05.2013, prescribed rule 6AAD and 6AAE that contains the guidelines and conditions,
for approval of the agricultural extension project. Rule 6AAD has been substituted and
Rule 6AAE has been amended by this notification.
31
(a) Conditions to be fulfilled for approval of agricultural extension project under

section 35CCC [Rule 6AAD]:
The agricultural extension project shall be considered for notification if it fulfils all of
the following conditions, namely:
(i)
the project shall be undertaken by an assessee for training, education and

guidance of farmers;
(ii)
the project shall have prior approval of the Ministry of Agriculture, Government
of India; and
(iii) an expenditure (not being expenditure in the nature of cost of any land or
building) exceeding the amount of twenty-five lakh rupees is expected to be
incurred for the project.
An assessee shall make an application in Form 3C-O to the Member (IT), CBDT for
notification of such project under section 35CCC.
(b) Conditions to be fulfilled for claiming weighted deduction [Rule 6AAE]:

(i) The assessee undertaking agricultural extension project shall maintain
separate books of account of such agricultural extension project and get such
books of account audited by an Accountant.
(ii) The audit report shall include the comments of the auditor on the true and fair
view of the books of account maintained for agricultural extension project, the
genuineness of the activities of the agricultural extension project and
fulfillment of the conditions specified in the relevant provisions of the Act or the
rules.
(iii) The assessee shall not accept an amount exceeding the amount as approved
in the notification from the beneficiary under the eligible agricultural extension
project for training, education, guidance or any material distributed for the
purposes of such training, education or guidance.
(iv) The assessee shall not get any direct or indirect benefit from the notified
agricultural extension project except the deduction of the eligible expenditure
in accordance with the provisions of section 35CCC of the Act and prescribed
rules.
(v) All expenses (not being expenditure in the nature of cost of any land or
building), as reduced by the amount received from beneficiary, if any, incurred
wholly and exclusively for undertaking an eligible agricultural extension project
shall be eligible for deduction under section 35CCC.
However, expenditure incurred on the agricultural extension project which is
reimbursed or reimbursable to the assessee by any person, whether directly or
indirectly, shall not be eligible for deduction under section 35CCC.
(vi) The assessee shall, on or before the due date of furnishing the return of
income under section 139(1), furnish the following to the Commissioner of
Income-tax or the Director of Income-tax, as the case may be, namely:
32
2.
(a)
the audited statement of accounts of the agricultural extension projects

for the previous year along with the audit report and amount of
deduction claimed under section 35CCC(1).
(b)
a note on the agricultural extension project undertaken by it during the

previous year and the programme of agricultural extension project to be
undertaken during the current year and the financial allocation for such
programme; and
(c)
a certificate from the Ministry of Agriculture, Government of India,

regarding the genuineness of the agricultural extension project
undertaken by the assessee during the previous year.
Approval of skill development project under section 35CCD: Conditions and

Guidelines [Notification No. 54/2013, dated 15.07.2013]
In order to encourage companies to invest on skill development projects, section 35CCD
was inserted, to provide for weighted deduction of a sum equal to 150% of the
expenditure (not being expenditure in the nature of cost of any land or building) incurred
on skill development project notified by the CBDT, in accordance with the prescribed
guidelines.
Accordingly, the CBDT has, in exercise of the powers conferred by section 295 read with
section 35CCD(1) of the Income-tax Act, 1961, laid down the guidelines and conditions
for approval of a skill development project under section 35CCD.
S.
No.
Particulars
(1)
Guidelines for approval of Skill Development Project under section

35CCD:
A skill development project shall be considered for notification if it is undertaken
by an eligible company and the project is undertaken in separate facilities in a
training institute [Rule 6AAF(1)]
(i)
"Eligible company" means a company, which is
engaged in the business of manufacture or production of any article

or thing specified in the Eleventh Schedule; not being beer, wine
and other alcoholic spirits and tobacco & tobacco preparations such
as cigars and cheroots, cigarettes, biris, smoking mixtures for pipes
and cigarettes, chewing tobacco and snuff or
engaged in providing the following services
S. No.
Particulars
1.
Accounting services
2.
Architect services
3.
Automobile repair or maintenance
33
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Banking, insurance and financial services including ATM

installation, maintenance and operations or banking
correspondents or insurance agents
Beauty and cosmetology, including hair styling or manicurists
or pedicurists
Cable operators or Direct To Home (DTH) services
Cargo Handling and stevedoring services
Construction including painting or woodwork or plumbing or
flooring or electrical wiring or installation or maintenance of lifts
Courier services
Design services including fashion or gems and jewellery or
apparel or industrial designing
Event management
Facilities management, housekeeping, cleaning services
Fire and safety services
Food processing or preservation services, including post
harvesting and post farm gate skills
Health and Wellness services including spa or nutritionists or
weight management or health instructors or yoga or gym
trainers
Home decor services, landscaping
Hospital and Healthcare services, such as Lab technicians,
nursing and other paramedical staff
Hospitality, including culinary skills or catering services
Logistics and Transportation by any mode, including by air,
sea, road, rail or pipelines, and related services such as
driving or operation of heavy machinery equipment,
forwarding agents, packers and movers
Market research services
Media or film or advertising
Mining and extraction of mineral resources, including
hydrocarbons
Packaging and Warehousing, including both ambient
temperature storage and cold storage, operation of Internal
Container Depots and Container Freight Stations
Port and maritime services such as dredging, piloting, tug
boat operations, shipbuilding, ship scrapping, bunkering
Power Sector Services, including those required for erection
or installation or maintenance of equipment or towers, etc. in
generation, transmission or distribution sector projects
34
26.
27.
28.
29.
30.
31.
(ii)
Private Security, including guards, supervisors, installation

and maintenance of security equipment etc.
Refrigeration and air-conditioning
Repair and maintenance services, including Installation and
servicing of household goods or white goods
Retail marketing, including shop floor assistants or
merchandisers
Telecom services, including erection and maintenance of
towers
Travel and tourism, including guides or ticketing or sales or
cab drives
Training Institute means a training institute set up by the Central or State

Government or a local authority or a training institute affiliated to National
Council for Vocational Training or State Council for Vocational Training.
A skill development project in respect of existing employees of the
company shall not be eligible for notification under section 35CCD(1),
where the training of such employees commences after six months of
their recruitment [Rule 6AAG(3)].
(2)
Application for approval of project [Rule 6AAF(2)]:

Such company, before undertaking any skill development project, shall :
(3)
make an application for notification of such project under section 35CCD(1),

in duplicate, in Form No. 3CQ, to the National Skill Development
Agency(NSDA); and
also send a copy of the application in Form No. 3CQ to the Commissioner of
Income tax or the Director of the Income tax as the case may be, having
jurisdiction over the case, accompanied by the acknowledgement receipt as
evidence of having furnished the application form in duplicate to the NSDA.
Conditions laid down under Rule 6AAG:

(i)
The Company which undertakes a skill development project shall maintain

separate books of account of the skill development project and get such
books of account audited by an Accountant.
(ii) All expenses (not being expenditure in the nature of cost of any land or
building), incurred wholly and exclusively for undertaking a notified skill

development project shall be eligible for deduction under section 35CCD.
However, the expenditure incurred on the skill development project which is
reimbursed or reimbursable to the company by any person, whether directly
or indirectly, shall not be eligible for deduction under section 35CCD.
(iii) The company shall, on or before the due date of furnishing the return of
income under section 139(1), furnish the audited statement of accounts of the
35
skill development project for the previous year along with the audit report and
amount of deduction claimed under section 35CCD(1) to the Commissioner of
Income-tax or the Director of Income-tax, as the case may be.
3.
Disallowance of any sum paid to a resident at any time during the previous year
without deduction of tax under section 40(a)(ia) [Circular No.10/2013, dated
16.12.2013]
Section 40(a)(ia) provides for disallowance of 30% of the sum payable to a resident, on
which tax is deductible at source under Chapter XVII-B and such tax has not been
deducted or, after deduction, has not been paid on or before the due date specified in
section 139(1).
There have been conflicting interpretations by judicial authorities regarding the
applicability of provisions of section 40(a)(ia), with regard to the amount not deductible in
computing the income chargeable under the head Profits and gains of business or
profession. Some court rulings have held that the provisions of disallowance under
section 40(a)(ia) apply only to the amount which remained payable at the end of the
relevant financial year and would not be invoked to disallow the amount which had
actually been paid during the previous year without deduction of tax at source.
Departmental View: The CBDTs view is that the provisions of section 40(a)(ia) would
cover not only the amounts which are payable as on 31st March of a previous year but
also amounts which are payable at any time during the year. The statutory provisions are
amply clear and in the context of section 40(a)(ia), the term "payable" would include
"amounts which are paid during the previous year".
The Circular has further clarified that where any High Court decides an issue contrary to
the above Departmental View, the Departmental View shall not be operative in the
area falling in the jurisdiction of the relevant High Court.
4.
Clarification regarding treatment of expenditure incurred for development of

roads/highways in Build-Operate-Transfer (BOT) agreements under the Income-tax
Act, 1961 [Circular No. 09/2014, dated 23.04.2014]
The CBDT has, vide this Circular, clarified the tax treatment of expenditure incurred on
development and construction of infrastructural facilities like roads/highways on BuildOperate-Transfer (BOT) basis with right to collect toll - whether the same is entitled to
depreciation under section 32(1)(ii) or can be amortized by treating it as an allowable
business expenditure under the relevant provisions of the Income- tax Act, 1961.
Generally, the BOT basis projects are entered into between the developer and the
government or the notified authority, on the following terms:
(i)
In such projects, the developer, in terms of concessionaire agreement with

Government or its agencies, is required to construct, develop and maintain the
infrastructural facility of roads/highways which, inter alia, includes laying of road,
bridges, highways, approach roads, culverts, public amenities etc. at its own cost
and its utilization thereof for a specified period.
36
(ii)
The possession of land is handed over to the assessee (i.e., the developer) by the
Government/ notified authority for the purpose of construction of the project without
any actual transfer of ownership. The assessee, therefore, has only a right to
develop and maintain such asset. It also enjoys the benefits arising from the use of
asset through collection of toll for a specified period, without having actual
ownership over such asset. Therefore, the rights in the land remain vested with the
Government/notified agencies.
(iii) Since the assessee does not hold any rights in the project except recovery of toll
fee to recoup the expenditure incurred, it cannot be treated as an owner of the
property, either wholly or partly, for purposes of allowability of depreciation under
section 32(1)(ii). Thus, claim of depreciation on tollways is not allowable due to
non-fulfillment of ownership criteria in such cases.
(iv) Where the assessee incurs expenditure on a project for development of
roads/highways, it is entitled to recover cost incurred towards development of such
facility (comprising of construction cost and other pre-operative expenses) during
construction period. Further, expenditure incurred by the assessee on such BOT
projects brings to it an enduring benefit in the form of right to collect the toll during
the period of agreement.
The Supreme Court, in Madras Industrial Investment Corporation Ltd. vs. CIT 225 ITR
802, allowed the spreading over of liability over a number of years on the ground that
there was continuing benefit to the company over a period. Therefore, analogously,
expenditure incurred on an infrastructure project for development of roads/highways
under BOT agreement may be treated as having been made/incurred for the purposes of
business or profession of the assessee and same shall be allowed to be spread during
the tenure of concessionaire agreement.
In view of the above, the CBDT, in exercise of the powers conferred under section 119,
clarifies that the cost of construction on development of infrastructure facility, being
roads/highways under BOT projects, may be amortized and claimed as allowable
business expenditure under the Act in the following manner:
(i)
The amortization allowable may be computed at the rate which ensures that the
whole of the cost incurred in creation of infrastructural facility of road/highway is
amortised evenly over the period of concessionaire agreement after excluding the
time taken for creation of such facility.
(ii)
Where an assessee has claimed any deduction out of initial cost of development of
infrastructure facility of roads/highways under BOT projects in earlier years, the
total deduction so claimed for the assessment years prior to assessment year
under consideration may be deducted from the initial cost of infrastructure facility of
roads/highways and the cost so reduced shall be amortised equally over the
remaining period of toll concessionaire agreement.
The clarification given in this Circular is applicable only to those infrastructure projects for
development of road/highways on BOT basis where ownership is not vested with the
assessee under the concessionaire agreement.
37
4
UNIT 4: CAPITAL GAINS
(a) Income arising from transfer of security by a foreign portfolio investor (FPI)
characterized as capital gains [Section 2(14)]
(i)
Section 2(14) defines capital asset to include property of any kind held by an
assessee, whether or not connected with his business or profession, but does not
include any stock-in-trade or personal assets as provided in the definition.
(ii)
This section has been amended to address

(1) the concern of the foreign portfolio investors (foreign institutional investors) in
characterisation of their income arising from transaction in securities (i.e.,
whether the same is in the nature of capital gain or business income); and
(2) the question of whether the presence of fund manager managing the funds of
such investor in India is likely to affect such characterization.
(iii) Accordingly, to address these concerns, section 2(14) has been amended to provide
that any securities held by Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the SEBI Act, 1992 would
be treated as a capital asset.
(iv) The definition of capital asset under section 2(14) would now include
(a) property of any kind held by an assessee, whether or not connected with his
business or profession;
(b) any securities held by Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the SEBI Act, 1992.
(v) The exclusion of stock-in-trade from the definition of capital asset is only in respect
of sub-clause (a) above and not sub-clause (b). This implies that even if the nature
of such security in the hands of the Foreign Portfolio Investor is stock in trade, the
same would be treated as a capital asset and the profit on transfer would be taxable
as capital gains.
(vi) Further, the Explanatory Memorandum to the Finance (No.2) Bill, 2014 clarifies that
the income arising from transfer of such security by a Foreign Portfolio Investor
38
(FPI) would be in the nature of capital gain, irrespective of the presence or

otherwise in India, of the Fund manager managing the investments of the assessee.
(b) Period of holding of units of debt oriented mutual fund and unlisted securities, to
qualify as a long-term capital asset, increased from more than 12 months to
more than 36 months [Section 2(42A)]
(i)
Section 2(42A) defines a short-term capital asset to mean a capital asset held by an
assessee for not more than 36 months immediately preceding the date of its
transfer. Therefore, a capital asset has to be held for more than 36 months, to
qualify as a long-term capital asset.
(ii)
However, in the case of a share held in a company or any other security listed in a
recognised stock exchange in India or a unit of the Unit Trust of India or a unit of a
Mutual Fund or a zero coupon bond, the period of holding required for qualifying as
a long-term capital asset is more than twelve months.
(iii) Since the shorter period of holding for more than 12 months for consideration as
long-term capital asset was for the purpose of encouraging investment in stock
market, where prices of the securities are market determined, accordingly, clause
(42A) of section 2 has been amended to provide that an unlisted security and a unit
of a mutual fund (other than an equity oriented mutual fund) shall be a short-term
capital asset if it is held for not more than 36 months.
(iv) This implies that an unlisted security and unit of a debt-oriented mutual fund would
qualify as a long-term capital asset and be eligible for the benefit of indexation and
concessional rate of tax@20% only if it is held for more than 36 months.
(v) However, the unlisted securities and units of debt-oriented mutual fund shall be
deemed as long-term capital assets if they have been transferred during the period
from April 1, 2014 to July 10, 2014, being the date of introduction of the Finance
(No.2) Bill, 2014 in the Lok Sabha, after holding them for a period of more than 12
months (instead of more than 36 months).
(c) Benefit of concessional rate of tax@10% on long-term capital gains (without
indexation) not to be available in respect of units of debt-oriented fund and
unlisted securities [Section 112]
(i)
Under section 112, where tax payable on long-term capital gains arising on transfer
of a capital asset, being listed securities or unit or zero coupon bond, exceeds 10%
of the amount of capital gains before allowing for indexation adjustment, then, such
excess shall be ignored.
(ii)
As long-term capital gains is not chargeable to tax in the case of transfer of a unit of
an equity oriented fund which is liable to securities transaction tax, the benefit of
concessional rate of tax@10% under proviso to section 112(1) in respect of units
cover only the unit of a fund, other than an equity oriented fund.
39
(iii) Section 112 has been amended to restrict the concessional rate of tax @10% on
long term capital gain only to listed securities (other than unit) and zero coupon
bonds.
(iv) Consequently, long term capital gains on transfer of units of debt oriented mutual
fund and unlisted securities are not eligible for concessional rate of tax@10%
(without indexation benefit). Therefore, the long-term capital gains, in such cases,
is taxable@20% (with indexation benefit).
(v) However, the concessional rate of 10% (without indexation benefit) would be
available in respect of long-term capital gains arising on units of debt equity
oriented fund transferred during the period from 1st April, 2014 to 10th July, 2014,
being the date of introduction of the Finance (No.2) Bill, 2014 in the Lok Sabha.
(d) Compensation received in pursuance of an interim order deemed as income
chargeable to tax in the year of final order [Section 45(5)]
(i)
Under section 45, any profits or gains arising from transfer of a capital asset is
chargeable to tax.
(ii)
Section 45(5)(b) contains the special provisions dealing with capital gains arising
from transfer by way of compulsory acquisition where the compensation is
enhanced or further enhanced by the Court, Tribunal or any other authority.
(iii) Where the amount of compensation is enhanced or further enhanced by the court, it
shall be deemed to be the income chargeable of the previous year in which such
amount is received by the assessee.
(iv) In order to remove the uncertainty regarding the year in which the amount of
compensation received in pursuance of an interim order of the court is to be
charged to tax, a proviso has been inserted after clause (b) to provide that such
compensation shall be deemed to be income chargeable under the head Capital
gains in the previous year in which the final order of such court, Tribunal or
other authority is made.
(e) Transfer of Government security outside India by a non-resident to another nonresident not a transfer for charge of capital gains tax [Section 47]
(i)
Section 47 lists out the transactions which are not considered as transfer for the
purpose of charging of capital gains.
(ii)
In order to facilitate listing and trading of Government securities outside India, clause
(viib) has been inserted in section 47 to provide that any transfer of a capital asset, (1) being a Government Security carrying a periodic payment of interest,
(2) made outside India through an intermediary dealing in settlement of securities,
(3) by a non-resident to another non-resident
shall not be considered as transfer for the purpose of charging capital gains.
40
(f)
Rise in Consumer Price Index (Urban) to be the basis for notification of CII [Section 48]
(i)
Section 48 prescribes the mode of computation of income chargeable under the

head Capital gains. Indexation benefit is available for computing cost of
acquisition and cost of improvement, where the capital gains are long-term in
nature.
(ii)
Clause (v) of the Explanation to section 48 defines Cost Inflation Index (CII) in
relation to a previous year, to mean such index as may be notified by the
Government having regard to 75% of average rise in the Consumer Price Index
(CPI) for urban non-manual employees (UNME) for the immediately preceding
previous year to such previous year.
(iii) Since the release of CPI for UNME has been discontinued, accordingly, clause (v)
of the Explanation to section 48 has been amended to provide that Cost Inflation
Index in relation to a previous year shall mean such index as may be notified by the
Central Government having regard to 75% of average rise in the Consumer Price
Index (Urban) for the immediately preceding previous year to such previous year.
(g) Exemption under section 54 and 54F to be available for investment in one
residential house situated in India
(i)
As per section 54(1), capital gains, to the extent invested in a residential house, is
not chargeable to tax under section 45 where
(1) the capital gain arises from the transfer of a long-term capital asset, being a
residential house; and
(2) the assessee, being an individual or a HUF, within a period of one year before
or two years after the date of transfer, purchases, or within a period of three
years after the date of transfer constructs, a residential house.
(ii)
Likewise, under section 54F, capital gains, in proportion to the net consideration
invested in a new residential house, is not chargeable to tax under section 45 where
(1) the capital gain arises from transfer of a long-term capital asset, not being a
residential house; and
(2) the assessee, being an individual or a HUF, within a period of one year before
or two years after the date of transfer, purchases, or within a period of three
years after the date of transfer constructs, a residential house.
(iii) There have been controversial judicial views interpreting a residential house to
mean more than one residential house on the reasoning that singular includes
plural under the General Clauses Act. Further, another issue which emerged
before the Courts was whether investment in a residential house situated outside
India would qualify for exemption under these sections.
(iv) Since the real intent of law was to allow capital gains exemption for investment in
one residential house situated in India, sections 54 and 54F have been amended to
41
provide for exemption thereunder in respect of investment made in one residential

house situated in India.
(h) Maximum investment in bonds of NHAI & RECL, out of capital gains arising from
transfer of one or more capital assets during a financial year, restricted to ` 50
lakhs, irrespective of whether the investment is made in the same financial year or
in the subsequent financial year or both [Section 54EC]
(i)
Under section 54EC(1), where capital gain arises from the transfer of a long-term
capital asset and the assessee has, within a period of six months, invested the
whole or part of the capital gains in the long-term specified asset, being bonds of
National Highways Authority of India (NHAI)/Rural Electrification Corporation Ltd.
(RECL), the capital gains so invested in the long-term specified asset, out of the
whole of the capital gain, shall not be charged to tax.
(ii)
The proviso to section 54EC(1) restricts the investment which can be made in the
long-term specified asset (bonds of NHAI/RECL) during any financial year to ` 50
lakh.
(iii) Since the period available for investing in NHAI/RECL bonds is six months from the
date of transfer, and the restriction of ` 50 lakh is in relation to a financial year, it
was possible for assessees transferring an asset or assets on or after 1st October in
a financial year, to invest ` 50 lakh in the same financial year and ` 50 lakh in the
next financial year (within six months from the date of transfer) and claim an
exemption of upto ` 1 crore under section 54EC. This was, however, not in
accordance with the real intent of law to restrict the maximum exemption to ` 50
lakh.
(iv) Accordingly, a second proviso has been inserted in section 54EC(1) to provide that
the investment made by an assessee in bonds of NHAI/RECL, out of capital gains
arising from transfer of one or more original assets, during the financial year in
which the original asset or assets are transferred and in the subsequent financial
year does not exceed fifty lakh rupees.
Example
Mr. Ram, working as a CEO with ABC Ltd., furnishes the following particulars of assets
transferred by him during the P.Y.2014-15
Particulars
(1)
(2)
A residential house in Bangalore which he had

purchased in February, 2000 at a cost of
` 15,56,000.
Listed shares of Indian companies purchased in May
2012 at a cost of ` 1 lakh.
42
Date of
transfer
13/1/2015
1,45,00,000
14/2/2015
2,00,000
(3)
(4)
(5)
Unlisted shares purchased in May 2012 at a cost of

` 50,000.
Units of equity oriented fund purchased in May 2012
at a cost of ` 30,000
Units of debt oriented fund purchased in January
2010 at a cost of ` 31,600
14/2/2015
75,000
14/2/2015
65,000
14/2/2015
75,000
Mr. Ram made the following investments, out of the capital gains arising on sale of
residential house Particulars
(1)
(2)
(3)
(4)
Purchased a residential flat in Pune on 21/5/2015

Purchased a residential flat in Madurai on 14/7/2015
3 year bonds of NHAI on 20/3/2015
3 year bonds of RECL on 15/5/2015
35,00,000
25,00,000
40,00,000
30,00,000
Compute the total income and tax liability of Mr. Ram for A.Y.2015-16, if his salary
income (computed) is ` 24 lakh and interest on fixed deposits with banks is ` 1 lakh.
Assume that he has contributed ` 1,50,000 to PPF and paid medical insurance premium
of ` 12,000 to insure his health.
Cost Inflation Index of F.Y.1999-2000: 389;
F.Y.2014-15: 1024.
F.Y.2009-10: 632; F.Y.2012-13: 852;
Answer
Computation of total income of Mr. Ram for A.Y.2015-16
Particulars
Salaries
24,00,000
Capital gains [See Working Note below]
19,52,800
Interest on fixed deposits
1,00,000
Gross Total Income
44,52,800
Less: Deductions under Chapter VI-A

Under section 80C PPF
1,50,000
Under section 80D Mediclaim premium

Total Income
12,000
1,62,000
42,90,800
Tax on total income:
Tax on long-term capital gains [20% of ` 19,27,800]
3,85,560
Tax on other income of ` 23,63,000 [42,90,800 -19,27,800]
5,33,900
9,19,460
43
Add: Education cess@2% and SHEC@1%
27,584
9,47,044
Working Note Computation of Capital Gains chargeable to tax for A.Y.2015-16

Particulars
(1)
Residential house
Gross Sale consideration
Less: Indexed cost of acquisition [15,56,000 1024/389]
Less: Exemption under section 54
Investment in one residential house (it is more beneficial
to claim exemption in respect of investment in residential
flat at Pune)
Investment in bonds of NHAI/RECL (aggregate
investment to be restricted to ` 50 lakh)
Long-term capital gains taxable@20% u/s 112
`
1,45,00,000
40,96,000
1,04,04,000
35,00,000
50,00,000
19,04,000
(2) &
(4)
Listed equity shares and units of equity oriented fund

Capital gains on sale of listed equity shares and units of equity
oriented fund held for more than 12 months is a long-term
capital gain exempt under section 10(38).
(3)
Unlisted shares
Sale consideration
Less: Cost of acquisition
Short-term capital gains taxable at normal rates of tax
[Since held for less than 36 months]
75,000
50,000
25,000
Units of debt-oriented fund

Sale consideration
Less: Indexed cost of acquisition [31,600 1024/632]
Long-term capital gains taxable at 20% u/s 112
[Since held for more than 36 months]
75,000
51,200
23,800
(5)
Taxable Capital Gains:
Nil
Long-term capital gains taxable@20% u/s 112 [(1) + (5)]

Short-term capital gains taxable at normal rates [3]
19,27,800
25,000
19,52,800
44
1.
Notification of Cost Inflation Index for F.Y.2014-15 [Notification No. 31/2014 dated
11.06.2014]
Clause (v) of Explanation to section 48 defines Cost Inflation Index, in relation to a previous
year, to mean such Index as the Central Government may, by notification in the Official
Gazette, specify in this behalf, having regard to 75% of average rise in the Consumer Price
Index for urban non-manual employees.
Accordingly, the Central Government has, in exercise of the powers conferred by clause
(v) of Explanation to section 48, specified the Cost Inflation Index for the financial year
2014-15 as 1024.
2.
S. No.
Financial
Year
Cost Inflation
Index
S. No.
Financial
Year
Cost Inflation
Index
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
100
109
116
125
133
140
150
161
172
182
199
223
244
259
281
305
331
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
351
389
406
426
447
463
480
497
519
551
582
632
711
785
852
939
1024
Reverse Mortgage Scheme amended to include within its scope, disbursement to

an annuity sourcing institution for periodic payments by way of annuity to the
Reverse Mortgagor [Notification No.79/2013 dated 07.10.2013]
The Central Government had notified the Reverse Mortgage Scheme, 2008 in exercise of
the powers conferred by clause (xvi) of section 47 of the Income-tax Act, 1961. Reverse
Mortgage means mortgage of a capital asset by an eligible person against a loan
obtained by him from an approved lending institution. Such kind of a transaction is not
45
regarded as transfer under section 47(xvi) and amounts received by the Reverse
Mortgagor as loan, either in lump-sum or in installment, are exempt under section 10(43).
The Central Government has, vide this notification, amended the Reverse Mortgage
Scheme, 2008, to include within its scope, disbursement of loan by an approved lending
institution, in part or in full, to the annuity sourcing institution, for the purposes of periodic
payments by way of annuity to the reverse mortgagor. This would be an additional mode
of disbursement i.e., in addition to direct disbursements by the approved lending
institution to the Reverse Mortgagor by way of periodic payments or lump sum payment
in one or more tranches.
An annuity sourcing institution has been defined to mean Life Insurance Corporation of India
or any other insurer registered with the Insurance Regulatory and Development Authority.
Maximum Period of Reverse Mortgage Loan
Mode of disbursement
Maximum period of loan
(a)
Where the loan is disbursed directly to the

Reverse Mortgagor
20 years from the date of

signing the agreement by the
reverse mortgagor and the
approved lending institution.
(b)
Where the loan is disbursed, in part or in full,

to the annuity sourcing institution for the
purposes of periodic payments by way of
annuity to the Reverse mortgagor
The residual life time of the

borrower.
46
4
UNIT 5: INCOME FROM OTHER SOURCES
Advance forfeited due to failure of negotiations for transfer of a capital asset to be
taxable as Income from other sources [Section 56(2)]
Related amendment in sections: 2(24) & 51
(i)
Under section 51, any advance retained or received in respect of a negotiation for transfer
which failed to materialise shall be reduced from the cost of acquisition of the asset or the
written down value or the fair market value of the asset, at the time of its transfer to
compute the capital gains arising therefrom. In case the asset transferred is a long-term
capital asset, indexation benefit would be on the cost so reduced.
(ii)
Section 56(2) provides for the specific category of incomes that shall be chargeable to
income-tax under the head Income from other sources.
(iii) New clause (ix) has been inserted in section 56(2) to provide for the taxability of any sum
of money, received as an advance or otherwise in the course of negotiations for transfer
of a capital asset.
(iv) Such sum shall be chargeable to income-tax under the head Income from other sources,
if such sum is forfeited and the negotiations do not result in transfer of such capital asset.
(v) Consequently, section 2(24), defining income, has been amended to include such sum
forfeited within its scope.
(vi) In order to avoid double taxation of the advance received and retained, section 51 has
been amended to provide that where any sum of money received as an advance or
otherwise in the course of negotiations for transfer of a capital asset , has been included
in the total income of the assessee for any previous year, in accordance with section
56(2)(ix), such amount shall not be deducted from the cost for which the asset was
acquired or the written down value or the fair market value, as the case may be, in
computing the cost of acquisition.
Example
Mr. H has acquired a residential house property in Delhi on 1st April, 2001 for ` 22,00,000 and
decided to sell the same on 3rd May, 2004 to Mrs.P and an advance of ` 70,000 was taken
47
from her. The balance money was not paid by Mrs. P and hence, Mr. H has forfeited the entire
advance sum. In April, 2014, he once again entered into negotiations for sale of the said
property to Mr.Y, and received ` 2 lakh as advance, but the transfer did not materialize and
hence, the advance was forfeited. On 3rd March, 2015, he finally sold this house to Mr. S for
` 95,00,000. In the meantime, on 4th February, 2015, he had purchased a residential house in
Faridabad for ` 28,00,000 and made full payment for the same. However, Mr.H does not
possess any legal title till 31st March, 2015, as such transfer was not registered with the
registration authority.
Mr.H had purchased another old house in Madurai on 14th October, 2014 from Mr. X, an Indian
resident, by paying ` 25,00,000 and the purchase was registered with the appropriate
authority.
Determine the taxable capital gain arising from above transactions in the hands of Mr.H for
Assessment Year 2015-16.
Cost Inflation Index - 2001-02: 426; 2004-05: 480; 2013-14: 939; 2014-15:1024.
Answer
Computation of taxable capital gain of Mr. H for the A.Y.2014-15
Particulars
Sale proceeds
Less: Indexed cost of acquisition (See Notes 1 & 2)
Long Term Capital Gain
Less: Exemption under section 54 in respect of investment in house at
Faridabad (See Notes 3 & 4)
Taxable long-term capital gain
`
95,00,000
51,20,000
43,80,000
28,00,000
15,80,000
Notes:
1.
Computation of indexed cost of acquisition

Particulars
Cost of acquisition
Less: Advance taken in the previous year 2004-05 and forfeited
Cost for the purpose of Indexation
Indexed cost of acquisition (` 21,30,000 x 1024/426)
`
22,00,000
__ 70,000
21,30,000
51,20,000
2.
Advance of ` 2 lakh taken by Mr. H in April, 2014, which was forfeited due to the
transaction not materializing, is taxable under section 56(2)(ix). Hence, such amount
would not be reduced to compute the indexed cost of acquisition while computing capital
gains on sale of the property in March, 2015.
3.
In order to avail exemption of capital gains under section 54, one residential house
should be purchased within 1 year before or 2 years after the date of transfer or
constructed within a period of 3 years after the date of transfer. In this case, Mr.H has
purchased the residential house in Faridabad within one year before the date of transfer
48
and paid the full amount as per the purchase agreement, though he does not possess
any legal title till 31.3.2015 since the transfer was not registered with the registration
authority. However, for the purpose of claiming exemption under section 54, holding of
legal title is not necessary. If the taxpayer pays the full consideration in terms of the
purchase agreement within the stipulated period, the exemption under section 54 would
be available. It was so held in Balraj v. CIT(2002) 254 ITR 22 (Del.) and CIT v. Shahzada
Begum (1988) 173 ITR 397 (A.P.).
4.
The Finance (No.2) Act, 2014 has clarified that exemption under section 54 can be
availed only in respect of one residential house. It would be more beneficial for Mr. H to
claim exemption in respect of the Faridabad house since the cost of the same is higher
than the cost of the Madurai house.
49
6
SET OFF AND CARRY FORWARD OF LOSSES
Transaction in respect of trading in shares on a recognised stock exchange by a
company, the principal business of which is the business of trading in shares, not a
speculative transaction [Section 73]
(i)
Under section 73, losses incurred in respect of a speculation business cannot be set off
or carried forward and set off except against the profits of any other speculation
business.
(ii)
Explanation to section 73 provides that in case of a company deriving its income mainly
under the head Profits and gains of business or profession (other than a company
whose principal business is business of banking or granting of loans and advances), and
where any part of its business consists of purchase or sale of shares, such business
shall be deemed to be speculation business for the purpose of this section.
(iii) Section 43(5) defines speculative transaction as a transaction in which a contract for
purchase or sale of any commodity, including stocks and shares, is settled otherwise
than by way of actual delivery. A transaction in respect of trading in derivatives on a
recognised stock exchange is, however, excluded from the above definition.
(iv) Accordingly, the exclusion part under Explanation to section 73 [i.e., the bracketed part]
has been expanded to provide that the business of purchase or sale of shares by a
company whose principal business is the business of trading in shares, shall also not be
a speculative business.
(v) Therefore, Explanation to section 73 now provides that in case of a company deriving its
income mainly under the head Profits and gains of business or profession (other than a
company whose principal business is business of trading in shares or banking or
granting of loans and advances), any part of its business consisting of purchase or sale
of shares shall be deemed to be speculation business for the purpose of this section.
50
7
DEDUCTIONS FROM GROSS TOTAL INCOME
(a) Increase in the limit of deduction under section 80C
Related amendment in section: 80CCE
(i)
Under section 80C, in computing the total income of an assessee, being an individual or
a Hindu undivided family, a deduction is allowed of an amount not exceeding ` 1 lakh
with respect to sums paid or deposited in the previous year, in certain specified
instruments.
(ii)
In order to channelize household savings, the limit of deduction allowed under section
80C has been raised from ` 1 lakh to ` 1.50 lakh.
(iii) Section 80CCE has been consequently amended to increase the aggregate amount of
deductions under section 80C, 80CCC and 80CCD(1) from ` 1 lakh to ` 1.50 lakh.
(iv) However, the individual ceiling limit under section 80CCC, providing for deduction in
respect of contribution to certain pension funds, continues to be ` 1 lakh.
(v)
Further, clause (1A) has been inserted in section 80CCD to restrict deduction under
section 80CCD(1) in respect of contribution to Notified Pension Scheme of Central
Government to ` 1 lakh.
(vi) The following table summarizes the ceiling limit under these sections w.e.f. A.Y.2015-16
Particulars
Ceiling
limit (` )
80C
Investment in specified instruments
1,50,000
80CCC
Contribution to certain pension funds
1,00,000
80CCD(1)
Contribution to new pension scheme of Government
1,00,000
80CCE
Aggregate deduction under sections 80C, 80CCC &

80CCD(1)
1,50,000
Section
Example
Mr. A, employed with ABC Ltd., has deposited ` 1,20,000 in public provident fund. He has
paid life insurance premium of ` 15,000 on the policy taken on 1.5.2012 to insure his life
51
(Sum assured ` 1,20,000). He has deposited ` 30,000 in a five year term deposit with
bank. He has also contributed ` 1,20,000, being 10% of his salary, to the notified pension
scheme of the Central Government. A matching contribution was made by ABC Ltd. Compute
the deduction available to him under Chapter VI-A for A.Y.2015-16.
Answer
Deduction available to Mr. A under Chapter VI-A for A.Y.2015-16
Section
80C
Particulars
Deposit in public provident fund
Life insurance premium paid ` 15,000 (deduction
restricted to ` 12,000, being 10% of ` 1,20,000, being
sum assured, since the policy was taken after
31.3.2012)
Five year term deposit with bank
Restricted to
80CCD(1)
`
1,20,000
12,000
30,000
1,52,000
1,50,000
Contribution to notified pension scheme of the Central

Government, ` 1,20,000, restricted to
1,00,000
2,50,000
80CCE
Aggregate donations under section

80C and
80CCD(1), ` 2,50,000, but restricted to
80CCD(2) Employer contribution to notified pension scheme
Aggregate Deduction
1,50,000
1,20,000
2,70,000
Note Employers contribution to notified pension scheme has to be first included under
the head Salaries while computing gross total income and thereafter, deduction under
section 80CCD(2) would be allowed, subject to a maximum of 10% of salary.
(b) Benefit under section 80CCD extended to private sector employees without
condition regarding date of joining being on or after 1st January, 2004
(i)
As per section 80CCD(1), if an individual, employed by the Central Government or any

other employer on or after 1st January, 2004, has paid or deposited any amount in a
previous year in his account under a notified pension scheme, a deduction of such
amount not exceeding 10% of his salary is allowed.
(ii)
Individuals employed by the Central Government before 1st January, 2004, were entitled
to pension as per the Pension Rules. Therefore, the new pension scheme is relevant
only for employees joining Government service on or after 1st January, 2004. However,
this date of joining is not relevant for private sector employees joining new pension
scheme.
52
(iii) Accordingly, the provisions of section 80CCD have been amended to provide that the
condition relating to the date of joining the service being on or after 1.1.2004 is not
applicable to private sector employees for the purposes of deduction under this section.
(c) Extension of sunset clause for tax holiday under section 80-IA for power-sector
undertakings [Section 80-IA(4)(iv)]
(i)
As per the provisions of section 80-IA(4)(iv), a deduction of 100% of profits and

gains is allowed to an undertaking which:
(a) is set up in any part of India for the generation or generation and distribution of
power if it begins to generate power at any time during the period beginning on
1st April, 1993 and ending on 31st March, 2014;
(b) starts transmission or distribution by laying a network of new transmission or
distribution lines at any time during the period beginning on 1st April, 1999 and
ending on 31st March, 2014;
(c) undertakes substantial renovation and modernization of existing network of
transmission or distribution lines at any time during the period beginning on 1st
April, 2004 and ending on 31st March, 2014.
(ii) This time limit has been extended by three years i.e., from 31st March, 2014 to 31st
March, 2017, to enable undertakings which start generation, or transmission or
distribution of power during the period between 1st April, 2014 and 31st March, 2017
or which undertakes substantial renovation and modernization of the existing
network of transmission or distribution lines between 1st April, 2014 and 31st March,
2017 to avail benefit of deduction under this section.
1.
Notification of Rajiv Gandhi Equity Savings Scheme, 2013 for the purpose of
deduction under section 80CCG [Notification No. 94/2013, dated 18.12.2013]
The Finance Act, 2012 had inserted section 80CCG in the Income-tax Act, 1961 to
provide for a one-time deduction for A.Y.2013-14 to a resident individual who acquires
listed equity shares in a previous year in accordance with a scheme notified by the
Central Government, to encourage flow of savings in financial instruments and improve
the depth of domestic capital market. However, only a resident individual, being a new
retail investor, whose gross total income did not exceed ` 10 lakh was eligible for the
benefit of deduction. The deduction was 50% of amount invested in such equity shares or
` 25,000, whichever is lower. The maximum deduction of ` 25,000 was available on
investment of ` 50,000 in such listed equity shares.
The Finance Act, 2013 has amended the provisions of section 80CCG w.e.f. A.Y.2014-15
so that the benefit of deduction under this section is available to a new retail investor,
being a resident individual with gross total income of up to ` 12 lakh, for investment in
listed equity shares or listed units of equity oriented fund, in accordance with a
53
notified scheme. Further, the deduction shall be allowed for three consecutive
assessment years, beginning with the assessment year relevant to the previous year in
which the listed equity shares or listed units of equity oriented fund were first acquired.
The quantum of deduction would continue to remain the same.
Accordingly, the Central Government has, in exercise of the powers conferred by section
80CCG(1), notified the Rajiv Gandhi Equity Savings Scheme, 2013. The said scheme provides
for eligibility criteria, procedure for investment, period of holding and other conditions.
S.
No. Particulars
1.
Eligibility
Content
The deduction under this scheme shall be available to a new retail
investor who complies with the conditions of the Scheme and whose
gross total income for the financial year in which the investment is
made under the Scheme is less than or equal to `12 lakh.
New retail investor means a resident individual,:
(i) who has not opened a demat account and
has not made any transactions in the
derivative segment before - the date of opening of a demat account; or
- the first day of the initial year,
However, an individual who is not the first
account holder of an existing joint demat
account shall be deemed to have not opened
a demat account for the purposes of this
Scheme;
(ii) who has opened a demat account but has
not made any transactions in the equity
segment or the derivative segment before
- the date he designates his existing
demat account for the
purpose of
availing the benefit under the Scheme; or
- the first day of the initial year.
whichever
is later
whichever
is later
Initial year means (a) the financial year in which the investor designates his demat
account as Rajiv Gandhi Equity Savings Scheme account
and makes investment in the eligible securities for availing
deduction under the Scheme; or
(b) the financial year in which the investor makes investment in
eligible securities for availing deduction under the Scheme
for the first time, if the investor does not make any
investment in eligible securities in the financial year in which
the account is so designated.
54
2.
Procedure
for
investment
under the
Scheme
A new retail investor shall make investments under the Scheme in

the following manner, namely:1. the new retail investor may invest in one or more financial
years in a block of three consecutive financial years
beginning with the initial year;
2. the new retail investor may make investment in eligible
securities in one or more than one transaction during any
financial year during the three consecutive financial years
beginning with the initial year in which the deduction has to
be claimed;
3. the new retail investor may make any amount of investment
in the demat account but the amount eligible for deduction
under the Scheme shall not exceed fifty thousand rupees in
a financial year;
4. the new retail investor shall be eligible for the tax benefit
under the Scheme only for three consecutive financial years
beginning with the initial year, in respect of the investment
made in each financial year;
5. if the new retail investor does not invest in any financial year
following the initial year, he may invest in the subsequent
financial year, within the three consecutive financial years
beginning with the initial year, in accordance with the
Scheme;
6. the new retail investor who has claimed a deduction under
sub-section (1) of section 80CCG of the Act in any
assessment year shall not be allowed any deduction under
the Scheme for the same investment for any other
assessment year;
7. the new retail investor shall be permitted a grace period of
seven trading days from the end of the financial year so that
the eligible securities purchased on the last trading day of
the financial year also get credited in the demat account and
such securities shall be deemed to have been acquired in
the financial year itself;
8. the new retail investor can make investments in securities
other than the eligible securities covered under the Scheme
and such investments shall not be subject to the conditions
of the Scheme nor shall they be counted for availing the
benefit under the Scheme;
9. the deduction claimed shall be withdrawn if the lock-in
period requirements of the investment are not complied with
or any other condition of the Scheme is contravened by the
new retail investor.
55
3.
Period of
holding
The period of holding of eligible securities invested in each

financial year shall be under a lock-in period of three years to be
counted in the following manner:
Type
of
lock-in
Meaning
The
period
commencing from the
date of purchase of
eligible securities in
the relevant financial
year and ending on
31st March of the
year
immediately
following the relevant
financial year.
Flexible The period of two
lock-in years
beginning
after
period immediately
the end of the fixed
lock-in period shall
be called the flexible
lock-in period.
Fixed
lock-in
period
56
Condition
The new retail investor shall

hold eligible securities for
fixed lock-in period. He shall
not be permitted to sell,
pledge or hypothecate any
eligible security during the
fixed lock-in period.
The new retail investor shall

be permitted to trade the
eligible securities after the
completion of the fixed lock-in
period
subject
to
the
conditions prescribed under
the scheme.
The demat account should be
compliant for a cumulative
period of a minimum of 270
days during each of the two
years of the flexible lock-in
period. The demat account
shall be considered as
compliant for the number of
days for which the value of the
investment portfolio of eligible
securities (other than those
which are in fixed lock-in) is
equal to or higher than the
corresponding
investment
claimed as eligible for the
purpose of deduction under
section 80CCG.
4.
Other
Conditions
(i)
While making initial investments up to ` 50,000, the total

cost of acquisition of eligible securities shall not include
brokerage charges, securities transaction tax, stamp duty,
service tax and any other tax, which may appear in the
contract note.
(ii)
Where the investment of the new retail investor undergoes a

change as a result of involuntary corporate actions including
demerger of companies, amalgamation and such other
actions, as may be notified by SEBI, resulting in debit or
credit of securities covered under the Scheme, the
deduction claimed by such investor shall not be affected.
(iii) In the case of voluntary corporate actions, including buyback resulting only in debit of securities where new retail
investor has the option to exercise his choice, the same
shall be considered as a sale transaction for the purpose of
the Scheme.
2.
5.
Consequence
of failure to
comply with
the
prescribed
conditions
If the new retail investor fails to fulfill any of the provisions of the
Scheme, the deduction originally allowed to him under section
80CCG(1) for any previous year, shall be deemed to be the
income of the assessee of the previous year in which he fails to
comply with the provisions of the Scheme and shall be liable to tax
for the assessment year relevant to such previous year.
6.
Savings
A new retail investor who has invested in accordance with the Rajiv
Gandhi Equity Savings Scheme, 2012 shall continue to be governed
by the provisions of that Scheme to the extent it is not in
contravention of the provisions of this Scheme and such investor shall
also be eligible for the benefit of investment made in accordance with
this Scheme for the financial years 2013-14 and 2014-15.
Contributory Health Service Scheme of the Department of Space notified under

section 80D [Notification No.6/2014 dated 15.01.2014]
Section 80D(2)(a) provides for deduction in respect of medical insurance premium paid or
for contribution made by an individual to the Central Government Health Scheme or such
other scheme as may be notified by the Central Government. Accordingly, the Central
Government has notified the Contributory Health Service Scheme of the Department of
Space, contribution to which would be eligible for deduction under section 80D.
Therefore, any contribution made by an individual towards the Contributory Health
Service Scheme of the Department of Space would be eligible for deduction under
section 80D, subject to the overall limit of ` 15,000 or ` 20,000, as the case may be.
57
9
PROVISIONS CONCERNING ADVANCE TAX AND
TAX DEDUCTED AT SOURCE
(a) Tax to be deducted on non-exempt payments made under life insurance policy
[Section 194DA]
Effective from: 1st October, 2014
(i)
Under section 10(10D), any sum received under a life insurance policy, including
the sum allocated by way of bonus on such policy is exempt subject to fulfillment of
conditions specified under the said section.
(ii)
Consequently, the sum received under a life insurance policy which does not fulfill
the conditions specified under section 10(10D) is taxable.
(iii) For ensuring a proper mechanism for reporting of transactions and collection of tax
in respect of sum paid under life insurance policies which are not exempt under
section 10(10D), new section 194DA has been inserted to provide for deduction of
tax at the rate of 2% on any sum paid to a resident under a life insurance policy,
including the sum allocated by way of bonus, which are not exempt under section
10(10D) .
(iv) However, tax deduction is required only if the payment or aggregate payment in a
financial year to an assessee is ` 1,00,000 or more. This is for alleviating the
compliance burden on the small tax payers.
Example
Examine the applicability of the provisions for tax deduction at source under section
194DA in the above cases (i)
Mr.X, a resident, is due to receive ` 4.50 lakhs on 31.3.2015, towards maturity

proceeds of LIC policy taken on 1.4.2012, for which the sum assured is ` 4
lakhs and the annual premium is ` 1,25,000.
(ii)
Mr.Y, a resident, is due to receive ` 2.20 lakhs on 31.3.2015 on LIC policy

taken on 1.4.2010, for which the sum assured is ` 2 lakhs and the annual
premium is ` 35,000.
58
(iii) Mr.Z, a resident, is due to receive ` 95,000 on 1.10.2014 towards maturity

proceeds of LIC policy taken on 1.10.2010 for which the sum assured is
` 90,000 and the annual premium was ` 19,000.
Answer
(i)
Since the annual premium exceeds 10% of sum assured in respect of a policy
taken on 1.4.2012, the maturity proceeds of ` 4.50 lakhs are not exempt under
section 10(10D) in the hands of Mr.X. Therefore, tax is required to be
deducted@2% under section 194DA on the maturity proceeds of ` 4.50 lakhs
payable to Mr.X.
(ii)
Since the annual premium is less than 20% of sum assured in respect of a
policy taken before 1.4.2012, the sum of ` 2.20 lakhs due to Mr.Y would be
exempt under section 10(10D) in his hands. Hence, no tax is required to be
deducted at source under section 194DA on such sum payable to Mr.Y.
(iii) Even though the annual premium exceeds 20% of sum assured in respect of a
policy taken before 1.4.2012, and consequently, the maturity proceeds of
` 95,000 would not be exempt under section 10(10D) in the hands of Mr.Z, the
tax deduction provisions under section 194DA are not attracted since the
maturity proceeds are less than ` 1 lakh.
(b) Enabling provision for deductor to file correction statement and for processing of
correction statement so filed [Sections 200 & 200A]
(i)
Chapter XVII-B imposes an obligation on certain persons to deduct tax on specified

payments at the prescribed rates if the payment exceeds specified threshold. The
deductor is also required to file a quarterly statement of tax deduction at source (TDS)
containing the prescribed details of deduction of tax made during the quarter by the
prescribed due date.
(ii)
Currently, a deductor is allowed to file correction statement for rectification/updation of

the information furnished in the original TDS statement as per the Centralised
Processing of Statements of Tax Deducted at Source Scheme, 2013 notified vide
Notification No.03/2013 dated 15th January, 2013. However, at present, the Income-tax
Act, 1961 does not contain any express provision to enable a deductor to file correction
statement.
(i)
Therefore, in order to incorporate an express provision in the statute, a proviso has

been inserted in section 200(3) to provide that the deductor may also deliver to the
prescribed authority, a correction statement for
(a) rectification of any mistake; or
(b) to add, delete or update the information furnished in the statement delivered under
section 200(3)
in the specified form and manner.
59
(iv) Consequently, section 200A(1) has been amended to enable processing of correction
statement filed.
(c) Revision of time limit for passing an order under section 201(1) [Section 201(3)]
(i)
Section 201(1) provides for passing of an order deeming a payer as assessee in default
if he does not deduct or does not pay or after deduction fails to pay the whole or part of
the tax as per the provisions of Chapter XVII-B.
(ii)
The time limit for passing of order under section 201(1) for deeming a payer as
assessee in default for failure to deduct tax from payments made to a resident is
specified in section 201(3).
(iii) Clause (i) of section 201(3) provides that no order under section 201(1) shall be passed
after expiry of two years from the end of the financial year in which the TDS statement
referred to in section 200 has been filed.
(iv) Since the processing of TDS statement is done in a computerized environment and
primarily focuses on the transactions reported in the TDS statement filed by the
deductor, there is no rationale for not treating the deductor who has filed a TDS
statement as an assessee in default after two years, where the TDS default arises as a
consequence of transactions not reported in the TDS statement.
(v)
Therefore, clause (i) of section 201(3) which provides time limit of two years for passing
order under section 201(1) for cases in which TDS statement have been filed, has been
omitted.
(vi) Under clause (ii) of section 201(3), a time limit of six years from the end of the financial
year in which payment is made or credit is given for passing of order under section
201(1) has been provided for cases in respect of which TDS statement has not been
filed.
(vii) However, notice under section 148 may be issued for reassessment up to six years from
the end of the relevant assessment year for which the income has escaped assessment.
(viii) Therefore, section 148 allows reopening of cases of one more preceding previous year
than specified under section 201(3)(ii).
(ix) On account of this difference in time limit, an order under section 201(1) cannot be
passed in respect of defaults relating to TDS which comes to the notice during
search/reassessment proceeding in respect of previous year which is not covered under
section 201(3)(ii) but covered under section 148.
(x)
Therefore, in order to align the time limit provided under section 201(3)(ii) and section
148, the time limit provided under section 201(3)(ii) for passing order under section
201(1) has been extended by one more year.
(xi) Accordingly, section 201(3) now provides a uniform time limit of seven years from the
end of the financial year in which payment is made or credit is given, for deeming a
60
person as an assessee-in-default for failure to deduct the whole or any part of the tax
from a person resident in India.
(d) Non-applicability of higher rate of TDS under section 206AA in respect of tax
deductible under section 194LC on payment of interest on long-term bonds to noncorporate non-residents and foreign companies
(i)
With a view to strengthening the PAN mechanism, section 206AA provides that any
person whose receipts are subject to deduction of tax at source i.e. the deductee,
shall mandatorily furnish his PAN to the deductor, failing which the deductor shall
deduct tax at source at higher of the following rates
(1) the rate prescribed in the Act;
(2) the rates in force; or
(3) the rate of 20%.
For instance, in case of rental payment for plant and machinery, where the payee
does not furnish his PAN to the payer, tax would be deductible @20% instead of
@2% prescribed under section 194-I.
(ii)
Further, no certificate under section 197 will be granted by the Assessing Officer
unless the application contains the PAN of the applicant.
(iii) The provisions of section 206AA are also applicable to non-residents where tax is
deductible on payments or credits made to them.
(iv) Section 194LC, inserted by the Finance Act, 2012, provides for a concessional rate
of withholding tax @ 5% on interest payment by an Indian company to a noncorporate non-resident or a foreign company. The concessional rate of tax and
TDS would be applicable if the borrowing is made in foreign currency between
1.7.2012 and 30.6.2015, from a source outside India, inter alia, by way of issue of
long-term infrastructure bonds, as approved by the Central Government in this
behalf.
(v) Though section 194LC provides for a concessional rate of tax @ 5%, in absence of
PAN of the non-resident, section 206AA mandates withholding tax at higher rate of
20%. This would have resulted in genuine hardship to the non-corporate nonresidents/foreign companies, since they would have had to file a return to claim
refund of tax, even though section 115A specifically exempts such assessees from
filing return of income where their income comprises solely of specified interest and
dividend income [referred to in section 115A(1)(a)], on which tax deductible at
source has been deducted and paid to the Government. Hence, these nonresidents would have had to obtain PAN for the sole purpose of avoiding the
adverse impact of section 206AA.
(vi) To address this concern, sub-section (7) was inserted in section 206AA by the Finance
Act, 2013 to provide that the provisions of section 206AA shall not apply in respect of
payment of interest on long term infrastructure bonds, as referred to in section 194LC, to
61
a non-corporate non-resident or to a foreign company.

(vii) This year, the Finance (No.2) Act, 2014 has expanded the scope of deduction of tax
at a concessional rate of 5% under section 194LC to cover interest payable to a noncorporate non-resident or a foreign company by an Indian company or a business
trust on money borrowed by it in foreign currency from a source outside India by
issue of any long-term bond, as approved by the Central Government in this
behalf, at any time between 1.10.2014 and 30.6.2017.
(viii) Consequently, section 206AA(7) has also been amended to provide that the
provisions of section 206AA shall not apply in respect of payment of interest
on any long term bond, as referred to in section 194LC, to a non-corporate
non-resident or to a foreign company.
1.
Time and mode of payment of tax deducted at source under section 194-IA to the credit
of Central Government, furnishing challan-cum-statement and TDS Certificate [Rules
30, 31A & 31] [Notification No. 39/2013 dated 31.05.2013]
New section 194-IA has been inserted by Finance Act, 2013, requiring every transferee
responsible for paying any sum as consideration for transfer of immovable property (land,
other than agricultural land, or building or part of building) to deduct tax, at the rate 1% of
such sum, at the time of credit of such sum to the account of the resident transferor or at
the time of payment of such sum to a resident transferor, whichever is earlier.
Accordingly, the time and mode of, payment of tax deducted at source under section
194-IA, furnishing Challan-cum-statement and TDS Certificate have been provided, by
amending Rules 30, 31A & 31, respectively (i)
Such sum deducted under section 194-IA shall be paid to the credit of the Central
Government within a period of seven days from the end of the month in which the
deduction is made and shall be accompanied by a challan-cum-statement in Form
No.26QB [Rule 30].
(ii)
The amount so deducted has to be deposited to the credit of the Central

Government by electronic remittance within the above mentioned time limit, into
RBI, SBI or any authorized bank [Rule 30].
(iii) Every person responsible for deduction of tax under section 194-IA shall also
furnish to the DGIT (Systems) or any person authorized by him, a challan-cumstatement in Form No.26QB electronically within seven days from the end of the
month in which the deduction is made [Rule 31A].
(iv) Every person responsible for deduction of tax under section 194-IA shall furnish the
TDS certificate in Form No.16B to the payee within 15 days from the due date for
furnishing the challan-cum-statement in Form No.26QB under Rule 31A, after
generating and downloading the same from the web portal specified by the DGIT
(Systems) or the person authorized by him [Rule 31].
62
2.
Non-deduction of tax at source on the service tax component comprised in

payments made to residents, if the service-tax component is indicated separately
[Circular No. 1/2014, dated 13.1.2014]
The CBDT had issued Circular No.4/2008 dated 28.4.2008 clarifying that tax is to be
deducted at source under section 194-I, on the amount of rent paid/payable without
including the service tax component. However, this Circular was silent regarding
deduction of tax at source on the service tax component of other payments on which TDS
provisions are applicable.
Accordingly, in exercise of the powers conferred under section 119, the Board has, vide
this Circular, clarified that wherever in terms of the agreement/contract between the
payer and the payee, the service tax component comprised in the amount payable to a
resident is indicated separately, tax shall be deducted at source under Chapter XVII-B on
the amount paid/payable without including such service tax component.
63
10
PROVISIONS FOR FILING RETURN OF INCOME
(a) Return of income of mutual funds, securitization trusts, venture capital
companies/funds to be filed mandatorily [Section 139(4C)]
(i)
Under section 139, every person (a) being a company or a firm or

(b) being a person, other than a company or firm, whose total income or the total
income of any other person in respect of which he is assessable under the
Income-tax Act, 1961 during the previous year exceeds the basic exemption limit,
shall furnish a return of his income or the income of such other person during the
previous year, in the prescribed form and verified in the prescribed manner and
setting forth such other particulars as may be prescribed, on or before the due
date.
(ii)
In addition to the above, section 139(4C) requires certain other entities, who are not
chargeable to income-tax in accordance with the provisions of section 10, to file their
return of income if their total income, without giving effect to the provisions of section 10
under which they are exempt, exceeds the basic exemption limit.
(iii) Specified income of the following entities are exempt under the clauses of section 10:
(1) Income of a Mutual Fund [Exempt under section 10(23D)];
(2) Income of a securitisation trust from the activity of securitization [Exempt under
section 10(23DA)]; and
(3) Income of a venture capital company (VCC) or venture capital fund (VCF) from
investment in a venture capital undertaking [Exempt under section 10(23FB)].
(iv) So far, there was no obligation requiring the Mutual Fund or securitization trust or VCC
or VCF to furnish their return of income under section 139. These entities were only
required to furnish a statement giving details of the nature of the income paid or credited
during the previous year and such other relevant details as may be prescribed.
(v) Section 139(4C) has now been amended to require 64
(1) a Mutual Fund referred to in section 10(23D),

(2) a securitization trust referred to in section 10(23DA); and
(3) a VCC/VCF referred to in section 10(23FB)
to furnish a return of such income of the previous year in the prescribed form and
verified in the prescribed manner and setting forth such other particulars as may be
prescribed, if the total income in respect of which such mutual fund or securitisation trust
or VCC/VCF is assessable, without giving effect to the provisions of section 10, exceeds
the basic exemption limit.
(vi) In such a case, all the provisions of the Income-tax Act, 1961, so far as may be, apply
as if it were a return required to be furnished under section 139(1).
(b) Verification of return of income [Section 140]
(i)
Section 140 provides that the return under section 139 shall be signed and verified
in the manner specified therein for different categories of persons.
(ii)
In order to enable the verification of returns either by a sign in manuscript or by any

electronic mode, section 140 has been amended to provide that the return shall be
verified by the persons specified therein. Consequently, the words sign and verify,
wherever they have been used in section 140, have been substituted by the word
verify. Further, the words sign or signing, wherever they have been used in
section 140, have been replaced by verify or verifying.
(iii) The manner of verification of return is prescribed under section 139.
65
PART II
INDIRECT TAXES
INDIRECT TAXES
AMENDMENTS AT A GLANCE
Finance (No.2) Act, 2014 & Budget Notifications
S.No.
Particulars
Section/Rule/
Notification
Effective
Date
Central Excise Duty

1.
E-payment of excise duty mandatory for all

assessees irrespective of the duty paid during
previous year
Rule 8(1B) of
Central Excise
Rules, 2002
01.10.2014
2.
Importer issuing CENVATable

required to obtain registration
Rule 9(1) of
Central Excise
Rules, 2002
01.04.2014
3.
Relevant date for determination of rate of duty and Section 15(1)

Customs
tariff valuation for imports through a vehicle to be of
the date of arrival of vehicle where bill of entry is Act, 1962
filed prior to the arrival of the vehicle
06.08.2014
4.
Bill of entry to be filed prior to the delivery of import Section 46(3)

Customs
report if the vehicle in which the goods have been of
Act, 1962
imported is expected to arrive within 30 days
06.08.2014
5.
Articles imported by an EOU/SEZ unit and cleared Section 8B of

as such into DTA or used in the manufacture of Customs Tariff
final products that are cleared into DTA liable to Act, 1975
safeguard duty
11.07.2014
invoices
now
Customs Duty
Service Tax
I.
Chapter V of Finance Act, 1994
6.
Service tax to be levied on sale of space or time for

advertisements in all media except print media
Section 66D(g)
01.10.2014
7.
Radio taxis/radio cabs liable to service tax
Section 66D(o)
01.10.2014
8.
Rate of exchange under section 67A to be

determined as per GAAP
Section 67A
01.10.2014
9.
Retrospective exemption for services provided by

ESIC
New section
100
06.08.2014
II.
Point of Taxation Rules, 2011
10.
Rule 7 to override the provisions of rules 3, 4 and 8

only
Rule 7
01.10.2014
66
11.
Point of taxation under reverse charge to be the

payment date or the first day occurring immediately
after three months from the date of invoice,
whichever is earlier
Rule 7
01.10.2014
III.
Service Tax Rules, 1994
12.
Service tax to be payable by the recipient of

service in case of services provided by recovery
agents to banks, financial institutions and NBFC
Rule
2(1)(d)(i)(AA)
11.07.2014
13.
Service tax to be payable by the recipient of

service in case of service provided by a director to
a body corporate
Rule
2(1)(d)(i)(EE)
11.07.2014
14.
E-payment of service tax mandatory for all

assessees irrespective of the tax paid during
previous year
Rule 6(2)
01.10.2014
IV.
Others
15.
Services provided by common bio-medical waste

treatment
facility
operators
to
clinical
establishments exempted
16.
Transport of organic manure by vessel, rail or road

(by GTA) exempted
17.
IRDA approved life micro-insurance schemes with

sum assured not exceeding ` 50,000 exempted
18.
Loading, unloading, packing, storage or

warehousing, transport by vessel, rail or road
(GTA), of cotton - ginned or baled - exempted
19.
Services received by RBI from outside India in

relation to management of foreign exchange
reserves exempted
20.
Services provided by Indian tour operators to

foreign tourists in relation to a tour wholly
conducted outside India exempted
Mega
Exemption
Notification No.
25/2012 ST
dated
20.06.2012
All
amendments
effective from
11.07.2014
21.
Limited exemptions in respect of services provided

to Government or local authority or governmental
authority
22.
Concept of auxiliary education services done away

with and exemption restricted to only few specific
services
23.
Exemption to transport of passengers in airconditioned contract carriages withdrawn

67
24.
Clinical research on human participants chargeable

to service tax
25.
SEZ Notification amended

procedural compliance
26.
Only service providers need to satisfy the condition

of non- availment of credit for availing abatement in
case of GTA service
27.
Credit allowed on input service received by a

person providing services of renting of motorcab
from a sub-contractor engaged in the similar line of
business
28.
60% abatement prescribed for transport of

passengers by a contract carriage (other than
motorcab) and a radio taxi
29.
Abatement in respect of transport of goods in a

vessel increased from 50% to 60%
01.10.2014
30.
Credit allowed on input service received by a tour

operator from a sub-contractor
01.10.2014
31.
Services tax to be paid under reverse charge in

case of service provided by recovery agents to
banks and directors to body corporate
11.07.2014
for
simplifying
Notification No.
12/2013
ST
dated
01.07.2013
11.07.2014
11.07.2014
Abatement
Notification No.
26/2012 ST
dated
20.06.2012
Reverse
charge
Notification No.
30/12 ST dated
20.06.2012
01.10.2014
11.07.2014
11.07.2014
32.
Entire service tax to be paid by the service receiver

in case of service provided by recovery agents to
banks and directors to body corporate
33.
Service receiver and provider to pay equal service

tax on non-abated value in case of renting of motor
vehicle
34.
Slab rate of interest introduced for delayed

payment of service tax
V.
CENVAT Credit Rules, 2004
35.
Place of removal defined in the rules
36.
Credit on inputs and input services to be availed Sub-rule

(1)
and (7) of rule
within 6 months of the date of invoice
4
01.09.2014
37.
Payment of value of input service to service

provider no more a pre-requisite for availing credit
11.07.2014
Section 75
Rule 2(qa)
68
01.10.2014
Rule 4(7)
01.10.2014
11.07.2014
in case of service tax paid under full reverse

charge
38.
Condition of reversal of credit on failing to pay

value of input service and service tax within 3
months of the date of invoice not to apply in case
of full reverse charge
Rule 4(7)
11.07.2014
39.
Credit reversed on account of non-receipt of export Rule 6(8)

proceeds within the specified or extended period
can be re-availed if export proceeds are received
within one year from the specified or extended
period
11.07.2014
40.
Manner of distribution of common input service

credit under rule 7(d) of the CENVAT Credit Rules,
2004 clarified
69
1
BASIC CONCEPTS OF INDIRECT TAXES
UNIT 2: Central Excise Duty
AMENDMENTS BY BUDGET NOTIFICATIONS
E-payment of excise duty mandatory for all assessees irrespective of the duty paid
during previous year [Rule 8(1B)]
With effect from 01.01.2014, third proviso to rule 8(1) of Central Excise Rules, 2002 CER had been
amended vide Notification No. 15/2013 CE(NT) dated 22.11.2013 to reduce the threshold limit for
e-payment of central excise duty from ` 10 lakh to ` 1 lakh. Thus, with effect from 01.01.2014,
where an assessee had paid an excise duty of ` 1 lakh or more including the amount paid by
utilization of CENVAT credit, in the preceding financial year, he was required to deposit the excise
duty liable to be paid by him electronically through internet banking.
The said proviso has however been omitted with effect from 01.10.2014 and a new sub-rule (1B)
inserted in rule 8 vide Notification No. 19/2014 CE(NT) dated 11.07.2014 to provide that every
assessee shall electronically pay the duty through internet banking.
However, the
Assistant/Deputy Commissioner of Central Excise may for reasons to be recorded in writing, allow
the assessee to deposit excise duty by any mode other than internet banking.
Thus, under the amended provisions, e-payment of excise duty would be compulsory for all
assessees irrespective of the quantum of excise duty paid in the previous financial year.
[Effective from 01.10.2014]
AMENDMENTS BY NOTIFICATIONS/CIRCULARS ISSUED BETWEEN 01.05.2013 TO
30.04.2014
Importer issuing CENVATable invoices now required to obtain registration
Hitherto, every person, who produces, manufactures, carries on trade, holds private store-room
or warehouse or otherwise uses excisable goods, was required to get registration under central
excise.
With effect from 01.04.2014, rule 9(1) of the CER has been amended to provide that an importer
who issues an invoice on which CENVAT credit can be taken is also required to obtain such
registration. Thus, such importer will have to obtain registration as a registered importer with
the central excise authorities to pass on the credit on the imported goods.
[Notification Nos. 8/2014 CE(NT) dated 28.02.2014]
70
UNIT 3: Customs Duty

AMENDMENTS BY FINANCE (NO. 2) ACT, 2014
1.
Relevant date for determination of rate of duty and tariff valuation for imports
through a vehicle to be the date of arrival of vehicle where bill of entry is filed prior
to the arrival of the vehicle [Section 15(1)]
Section 15(1) of the Customs Act, 1962 provides that the rate of duty and tariff valuation,
if any, applicable to any imported goods, is the rate and valuation in force on the relevant
date. Hitherto, the relevant date for determination of rate of duty and tariff valuation of
imported goods in different cases was provided as under:
Particulars
Relevant date
Goods entered for home

consumption under section
46
In case of imports by vessel or aircraft
Date of presentation of bill of entry

OR
Date of entry inwards of the vessel/arrival of the

aircraft
whichever is later
In case of imports by vehicle
Goods cleared from a

warehouse under section
68
Date of presentation of bill of entry for home

consumption
Other goods
Date of payment of duty
Section 15(1) has been amended to provide for determination of rate of duty and tariff
valuation for imports through a vehicle in cases where the bill of entry is filed prior to the
delivery of import report. The proviso to section 15(1) has been amended to lay down
that if a bill of entry has been presented before the date of arrival of the vehicle by which
the goods are imported, the bill of entry shall be deemed to have been presented on the
date of such arrival. Therefore, under the amended provisions, the relevant date for
determination of rate of duty and tariff valuation of imported goods in different cases will
be as under:
Particulars
Goods entered for home
consumption under section
Relevant date
OR
71
46
Date of entry inwards of the vessel/arrival of the aircraft

or vehicle
whichever is later
Goods cleared from a

warehouse under section
68
Date of presentation of bill of entry for home

consumption
Other goods
Date of payment of duty

2. Articles imported by an EOU/SEZ unit and cleared as such into DTA or used in the
manufacture of final products that are cleared into DTA liable to safeguard duty
[Section 8B of Customs Tariff Act, 1975]
Section 8B of Customs Tariff Act, 1975 which provides for imposition of safeguard duty
lays down that the articles imported by a 100% EOU or units in a Free Trade Zone or
Special Economic Zone shall not be liable to safeguard duty unless specifically made
applicable in the notification imposing such duty.
Section 8B has now been amended to provide for levy of safeguard duty on articles
imported by an 100% EOU/unit in a SEZ that are cleared as such into DTA or are used in
the manufacture of goods that are cleared into DTA. In such cases safeguard duty shall be
levied on that portion of the article so cleared or so used as was leviable when it was
imported into India.
3. Bill of entry to be filed prior to the delivery of import report if the vehicle in which
the goods have been imported is expected to arrive within 30 days [Section 46(3)]
Earlier, by virtue of first proviso to section 46(3) of Customs Act, 1962, the bill of entry
could be filed prior to the delivery of import report (as the Manifest is called in case of
imports by land) only under special circumstances and with the permission of
Commissioner of Customs. Further, second proviso to section 46(3) laid down that a bill of
entry may be presented before the delivery of import manifest (in case of import through
vessel or aircraft) if the vessel/aircraft by which the goods have been shipped for
importation into India is expected to arrive within 30 days from the date of such
presentation.
The first proviso to section 46(3) has now been omitted and second proviso amended to
lay down that a bill of entry may be presented before the delivery of import manifest
(import through vessel or aircraft) or import report (import through land route) if the
vessel/aircraft/vehicle by which the goods have been shipped for importation into India is
expected to arrive within 30 days from the date of such presentation.
72
2
BASIC CONCEPTS OF SERVICE TAX
1.
Service tax to be levied on sale of space or time for advertisements in all media
except print media [Section 66D(g)]
Hitherto, selling of space or time slots for advertisements other than advertisements
broadcast by radio or television were covered in negative list of services under clause (g)
of section 66D of Finance Act, 1994.
Finance (No.) Act, 2014 has substituted the said clause (g) with a new clause to the
effect that now only selling of space for advertisements in print media will be covered in
negative list of services. Thus, the service tax levy which was earlier limited to
advertisements broadcast by radio or television now extends to advertisement in all
media except print media. In other words, the new levy would extend to other segments
like online and mobile advertising, advertisements on internet websites, out-of-home
media, on film screen in theatres, bill boards, conveyances, buildings, cell phones,
automated teller machines, commercial publications, aerial advertising, etc.
Further, print media has also been defined vide clause (39a) under section 65B of
Finance Act, 1994 as under:
Print media means,
(i)
book as defined in sub-section (1) of section 1 of the Press and Registration of

Books Act, 1867, but does not include business directories, yellow pages and trade
catalogues which are primarily meant for commercial purposes;
(ii)
newspaper as defined in sub-section (1) of section 1 of the Press and Registration

of Books Act, 1867.
Thus, sale of space for advertisements in business directories, yellow pages and trade
catalogues would attract service tax.
73
2.
Radio taxis/radio cabs liable to service tax [Section 66D(o)]

Earlier service of transportation of passengers, with or without accompanied belongings,
by inter alia metered cabs, radio taxis or auto rickshaws was covered in the negative list
of services under clause (o) of section 66D of Finance Act, 1994.
The said clause has been amended by Finance (No.) Act, 2014 so as to omit the
reference of radio taxis therefrom. Thus, travel by radio taxis or radio cabs, whether or
not air-conditioned, would now be liable to service tax.
Further, consequential amendment has also been made in the definition of metered cab
as provided under clause (32) of section 65B of Finance Act, 1994 reference to radio
taxi has been removed therefrom. The new definition reads as under:
Metered cab means any contract carriage on which an automatic device, of the type
and make approved under the relevant rules by the State Transport Authority, is fitted
which indicates reading of the fare chargeable at any moment and that is charged
accordingly under the conditions of its permit issued under the Motor Vehicles Act, 1988
(59 of 1988) and the rules made thereunder but does not include radio taxi.
3.
Rate of exchange under section 67A to be determined as per GAAP [Section 67A]
Earlier the explanation to section 67A of Finance Act, 1994 linked the rate of exchange
under section 67A to the rate of exchange referred to in section 14 of the Customs Act,
1962.
Finance (No. 2) Act, 2014 has however amended the said explanation to provide that the
rate of exchange would be determined as per the rules prescribed by the Government.
Pursuant to the said amendment, a new rule 11 has been inserted in Service Tax Rules,
1994 vide Notification No.19/2014 ST dated 25.08.2014 to provide the manner of
determination of rate of exchange. The new rule 11 lays down that the rate of exchange
would be the rate applicable as per the generally accepted accounting principles on the
date when point of taxation arises in terms of Point of Taxation Rules, 2011.

30.04.2014
Clarification as to whether agricultural produce includes rice and benefits available in
respect of rice under mega exemption notification
CBEC vide Circular No.177/03/2014 ST dated 17.02.2014, has clarified that the definition
of agricultural produce under section 65(5) of the Finance Act, 1994 covers paddy; but
excludes rice. It implies that benefits available to agricultural produce in the negative list
[Section 66D(d)] are not available to rice.
74
However, many such benefits have been extended to rice by way of appropriate entries in the
mega exemption notification as follows:(i)
Services by way of transportation of food stuff by rail/vessel/goods transport agency is

exempt from service tax. Food stuff includes rice.
(ii) Services by way of loading, unloading, packing, storage or warehousing of rice are
exempt from service tax.
(iii) Carrying out an intermediate production process as job work in relation to agriculture is
exempt from service tax. It is clarified that paddy milled into rice, on job work basis is
also exempt from service tax since such milling of paddy is an intermediate production
process in relation to agriculture.
75
3
POINT OF TAXATION
Following amendments have been made in Point of Taxation Rules, 2011 [POTR] vide
Notification No.13/2014 ST dated 11.07.2014:
1.
Rule 7 to override the provisions of rules 3, 4 & 8 only [Rule 7]

Rule 7 prescribes the provisions to determine the point of taxation when service tax is payable
under reverse charge. Earlier, rule 7 overrided the provisions of all other rules of POTR. It
started with a non-obstanate clause notwithstanding anything contained in these rules.
Rule 7 has been amended to provide that it will override the provisions of only the following
rules:
Rule 3 Determination of point of taxation
Rule 4 Determination of point of taxation in case of change in effective rate of tax
Rule 8 Determination of point of taxation in case of copyrights etc.
Thus, provisions of other rules like rule 2, 2A, 5 or 8A may also apply, as the case may be, for
determination of point of taxation when service tax is payable under reverse charge.
2.
Point of taxation under reverse charge to be the payment date or the first day
occurring immediately after three months from the date of invoice, whichever is earlier
Rule 7 provides that where service tax is payable under reverse charge, point of taxation
is the date of payment. Earlier, the first proviso to rule 7 laid down that if the payment is
not made within 6 months of the date of invoice, point of taxation will be determined as if
rule 7 does not exist.
The said first proviso has been amended to lay down that where the payment is not made
within a period of 3 months of the date of invoice, point of taxation will be the date
immediately following the said period of 3 months.
In other words, under the amended provisions, point of taxation in respect of reverse
charge will be the payment date or the first day that occurs immediately after a period of
3 months from the date of invoice, whichever is earlier. This amendment will apply only
to invoices issued on or after 1st October, 2014.
76
Consequently, a new transition rule 10 has been inserted in POTR in view of the
amendment made in first proviso to rule 7.
The new rule 10 provides that if the invoice in respect of a service, for which point of
taxation is determinable under rule 7 has been issued before 01.10.2014, but payment
has not been made as on the said day, the point of taxation shall
(a) if payment is made within a period of six months of the date of invoice, be the date
on which payment is made;
(b) if payment is not made within a period of six months of the date of invoice, be
determined as if rule 7 and this rule do not exist.
Example
With reference to the position of service tax law as applicable on or after 01.10.2014,
what would be the point of taxation and due date of payment of service tax in each of the
following independent cases:
S. No
(i)
(ii)
Date of invoice
15.10.2014
20.10.2014
Date of payment
10.11.2014
15.02.2015
Note: In both the above cases, service tax has been paid by the service recipient (a
private limited company) under section 68(2) of the Finance Act, 1994.
Answer
Rule 7 of Point of Taxation Rules, 2011 provides that point of taxation in respect of
persons required to pay tax as recipients of service in respect of services notified under
section 68(2) of the Finance Act is the date of payment. However, with effect from
01.10.2014, first proviso to rule 7 has been substituted to lay down that where the
payment is not made within a period of 3 months of the date of invoice, point of taxation
will be the date immediately following the said period of 3 months.
Further, in case of a corporate assessee, due date of e-payment of service tax payable
for a month is the 6th day of the month immediately following the said month. With effect
from 01.10.2014, e-payment has been mandatory for all assessees. Thus, in the light of
aforesaid provisions, point of taxation and due dates in the following cases will be:
S.
No
(i)
Date
of
invoice
15.10.2014
(ii)
20.10.2014
Date of payment
10.11.2014 (within three months of
the date of invoice)
15.02.2015 (beyond three months
from the date of invoice)
77
Point
of
taxation
10.11.2014
Due date of
payment
06.12.2014
20.01.2015
06.02.2015
5
EXEMPTIONS AND ABATEMENTS
Retrospective exemption for services provided by ESIC [New section 100]
Services provided by Employees State Insurance Corporation (ESIC) to persons governed
under the Employees Insurance Act, 1948 have been exempted from service tax from
01.7.2012 vide Sl. No. 36 of Mega Exemption Notification No. 25/2012 ST dated 20.06.2012
when negative list provisions were introduced.
Retrospective exemption from service tax has now been granted to services provided by ESIC
for the period prior to 01.07.2012.
1.
Mega Exemption Notification amended

Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended vide
Notification No. 6/2014 ST dated 11.07.2014. The amendments are basically aimed at
widening the tax base and thus, the exemptions have been either withdrawn/restricted or
rationalized. However, some new exemptions have been extended to social sector. The
amendments are discussed in the following three broad categories:
(a) New exemptions
(b) Exemptions rationalized
(c) Exemptions withdrawn
All the amendments made in the Mega Exemption Notification have become
effective from 11.07.2014.
(a) New exemptions
(i)
Services provided by common bio-medical waste treatment facility

operators to clinical establishments exempted
Mega Exemption notification has been amended by inserting a new entry 2B after
entry 2A to exempt the services provided by operators of the common bio-medical
78
waste treatment facility to a clinical establishment by way of treatment or disposal of

bio-medical waste or the processes incidental thereto.
(ii) Transport of organic manure by vessel, rail or road (by GTA) exempted
Entry 20 providing exemption to services by way of transportation by rail or a vessel
from one place in India to another of the goods specified thereunder has been
amended to extend the said exemption to organic manure.
Further, entry 21 providing exemption to services provided by a goods transport
agency by way of transportation of the goods specified thereunder has also been
amended to extend the said exemption to organic manure.
Therefore, organic manure will be at par with fertilizer which is already exempted.
(iii) IRDA approved life micro-insurance schemes with sum assured not
exceeding ` 50,000 exempted
Entry 26A exempts services of life insurance business provided under specified
schemes. A new clause (c) has been inserted in the said entry to exempt services
of life insurance business provided in respect of life micro-insurance product as
approved by the Insurance Regulatory and Development Authority, having
maximum amount of cover of ` 50,000.
Life micro-insurance product has been defined under new clause (xa) as under:
Life micro-insurance product shall have the meaning assigned to it in clause (e) of
regulation 2 of the Insurance Regulatory and Development Authority (Microinsurance) Regulations, 2005.
As per clause (e) of regulation 2 of the Insurance Regulatory and Development Authority
(Micro-insurance) Regulations, 2005
Life micro insurance product means any term insurance contract with or without return of
premium, any endowment insurance contract or health insurance contract, with or without
an accident benefit rider, either on individual or group basis, as per terms stated in
Schedule-II appended to these regulations.
(iv) Loading, unloading, packing, storage or warehousing, transport by

vessel, rail or road (GTA), of cotton - ginned or baled - exempted
The following services have been exempted in relation to cotton, ginned or baled:
(a) Loading, unloading, packing, storage or warehousing Entry 40 has been
amended to give effect to this amendment.
(b) Transportation by rail or a vessel Entry 20 has been amended to give effect
to this amendment.
(c) Transportation by road (Goods Transport Agency) Entry 21 has been
amended to give effect to this amendment.
79
(v) Services received by RBI from outside India in relation to management of

foreign exchange reserves exempted
Specialized financial services received by Reserve Bank of India from global
financial institutions in the course of management of foreign exchange reserves,
e.g., external asset management, custodial services, securities lending services,
etc. have been exempted. A new entry 41 has been inserted in the notification for
this purpose.
(vi) Services provided by Indian tour operators to foreign tourists in relation
to a tour wholly conducted outside India exempted
A new entry 42 has been inserted in the notification to give effect to this exemption.
For example, service provided by an Indian tour operator to a Chinese National for a
tour conducted in Sri Lanka will be exempted by virtue of this new entry.
(b) Exemptions rationalized
In exercise of powers conferred under section 93(1) of Finance Act, 1994, following
exemptions granted under mega exemption notification have been rationalized:
(i)
Limited exemptions in respect of services provided to Government or

local authority or governmental authority
Earlier, services provided to Government or local authority or a governmental

authority by way of carrying out any activity in relation to any function ordinarily
entrusted to a municipality in relation to water supply, public health, sanitation
conservancy, solid waste management or slum improvement and upgradation were
exempted under entry 25(a) of the notification.
The said exemption has now been made more specific for greater clarity. The
amended entry 25(a) reads as under:
Services provided to Government or local authority or a governmental authority by
way of water supply, public health, sanitation conservancy, solid waste
management or slum improvement and upgradation; or
Therefore, services by way of water supply, public health, sanitation conservancy,
solid waste management or slum improvement and up-gradation will continue to
remain exempted but the exemption would not be extendable to other services such
as consultancy, designing, etc., not directly connected with these specified services.
(ii) Concept of auxiliary education services done away with and exemption
restricted to only few specific services
Earlier, entry 9(a) of the notification exempted services provided to an educational
institution in respect of education exempted from service tax [i.e., education
specified in negative list] by way of auxiliary educational services. Auxiliary
educational service was defined in the notification.
80
There have been many doubts regarding the scope and meaning of auxiliary
educational services. Therefore, in order to bring clarity, concept of auxiliary
educational services has been omitted from entry 9 and in its place, specific
services have been enlisted therein which will be exempt when received by the
educational institutions.
Consequently, clause (f) which defined auxiliary
educational services has also been omitted from the notification.
The new entry 9 exempts the following services:
(a) Services provided BY an educational institution to its students, faculty and
staff;
(b) Services provided TO an educational institution, by way of,(i)
transportation of students, faculty and staff;
(ii)
catering, including any mid-day meals scheme sponsored by the

Government;
(iii) security or cleaning or house-keeping services performed in such

educational institution;
(iv) services relating to admission to, or conduct of examination by, such
institution.
Thus, in the case of services received by the eligible educational institutions,
exemption will be available only in respect of the services specified as above.
Further, educational institution has been defined in new clause (oa) as under:
Educational institution means an institution providing services specified in clause (l)
of section 66D of the Finance Act, 1994.
(c) Exemptions withdrawn
(i)
Transport of passengers in air-conditioned contract carriages taxable
Earlier, service of passenger transportation, with or without accompanied

belongings, by a contract carriage other than for the purposes of tourism, conducted
tour, charter or hire was exempt from service tax under entry 23(b) of the
notification.
The scope of exemption has now been reduced by withdrawing the exemption in
respect of air-conditioned contract carriages. Further, exemption has also been
denied to non air-conditioned radio taxis. However, services by non-air conditioned
contract carriages (other than radio taxi) for purposes other than tourism, conducted
tour, charter or hire will continue to be exempted. The amended entry 23(b) now
reads as under:
81
Transport of passengers, with or without accompanied belongings, by nonairconditioned contract carriage other than radio taxi, for transportation of
passengers, excluding tourism, conducted tour, charter or hire; or.
Therefore, any service provided for transport of passengers by air-conditioned
contract carriages like buses including the ones used for point to point travel, will
attract service tax.
As per section 2(7) of Motor Vehicles Act, 1988
"Contract carriage" means a motor vehicle which carries a passenger or passenger or
passengers for hire or reward and is engaged under a contract, whether expressed or
implied, for the use of such vehicle as a whole for the carriage of passengers mentioned
therein and entered into by a person with a holder of a permit in relation to such vehicle or
any person authorised by him in this behalf on a fixed or an agreed rate or sum-- (a) on a
time basis, whether or not with reference to any route or distance; or (b) from one point to
another, and in either case, without stopping to pick up or set down passengers not included
in the contract anywhere during the journey, and includes-- (i) a maxicab; and (ii) a motor
cab notwithstanding that separate fares are charged for its passengers.
Further, radio taxi has been defined in clause (za) as under:

Radio taxi means a taxi including a radio cab, by whatever name called, which is in
two-way radio communication with a central control office and is enabled for
tracking using Global Positioning System (GPS) or General Packet Radio Service
(GPRS).
Clause (za) earlier defined recognised sports body. The said definition has now
been provided under clause (zaa).
(ii) Clinical research on human participants chargeable to service tax
Earlier, services by way of technical testing or analysis of newly developed drugs,
including vaccines and herbal remedies, on human participants by a clinical
research organization approved to conduct clinical trials by the Drug Controller
General of India were exempt from service tax under entry 7 of the notification.
The said exemption has now been withdrawn. Entry 7 has been omitted to give
effect to this amendment.
Example
determine the applicability of service tax in each of the following independent cases:
(i)
External asset management services received by Reserve Bank of India from

overseas financial institutions.
(ii)
Service provided by an Indian tour operator to Mr. B, a Japanese National, for a tour
conducted in Europe.
82
(iii) Services provided to a Higher Secondary School affiliated to CBSE Board by an IT

company in relation to development of a software to be used for enhancing the
quality of classroom teaching.
Answer
(i)
Exempt. With effect from 11.07.2014, services received by Reserve Bank of India
from outside India in relation to management of foreign exchange reserves have
been exempted from service tax. External asset management services received by
Reserve Bank of India from overseas financial institutions is a specialized financial
service in the course of management of foreign exchange reserves [Mega
Exemption Notification No. 25/2012 ST dated 20.06.2012 amended].
(ii) Exempt. With effect from 11.07.2014, services provided by an Indian tour operator
to a foreign tourist in relation to a tour wholly conducted outside India have been
exempted from service tax [Mega Exemption Notification No. 25/2012 ST dated
20.06.2012 amended].
(iii) Taxable. With effect from 11.07.2014, only the following specific services provided
TO an educational institution (which provides education covered under negative list
of services) have been exempted from service tax:
(i)
transportation of students, faculty and staff;
(ii)
catering, including any mid-day meals scheme sponsored by the Government;
(iii) security or cleaning or house-keeping services performed in such educational

institution;
(iv) services relating to admission to, or conduct of examination by, such
institution.
Services by way of education up to higher secondary or equivalent fall within the
purview of negative list of services. Thus, the education provided by the Higher
Secondary School is not liable to tax. However, the services of a development of
software provided to it are not covered under any of the specific services given
above. Thus, the same will be liable to service tax [Mega Exemption Notification
No. 25/2012 ST dated 20.06.2012 amended].
2.
SEZ Notification amended for simplifying procedural compliance

As a facilitation measure, Notification No. 12/2013 ST dated 01.07.2013, prescribing the
scheme for claiming exemption in respect of services received by a developer/units of a
SEZ, has been amended vide Notification No. 7/2014 ST dated 11.07.2014 to simplify
the procedures prescribed therein.
It may be noted that Notification No. 12/2013 ST dated 01.07.2013 had superseded
Notification No. 40/2012 ST dated 20.06.2012 which earlier exempted services received
83
by a developer/units of an SEZ. Notification No. 12/2013 ST dated 01.07.2013 expanded

the scope of ab-initio exemption and refund available to SEZ unit/developer.
The amendments made in Notification No. 12/2013 ST have become effective from
11.07.2014. The significant changes made in the said notification are given hereunder:
(i)
Form A-2 would be issued by the Central Excise Officer within 15 days from the
date of receipt of Form A-1.
(ii)
Authorization issued by jurisdictional Deputy/Assistant Commissioner will have

validity from the date on which Form A-1 is verified by the Specified Officer of SEZ.
Thus, exemption would be available from the date when list of service on which SEZ
is entitled to upfront exemption is endorsed by the authorised officer of SEZ in Form
A-1.
However, if Form A-1 is furnished after a period of 15 days from the date of its
verification by the Specified Officer, the authorization shall have validity from the
date of furnishing of Form A-1 to the Central Excise Officer.
(iii) Pending issuance of Form A-2, SEZ Units or the Developer will be entitled to avail
upfront exemption on the basis of Form A-1. However, in such a case, the SEZ
Unit/Developer would be required to furnish a copy of authorization issued by the
Central Excise Officer within 3 months from the date when such specified service
were deemed to have been provided in terms of Point of Taxation Rules, 2011.
If a copy of authorization is not provided within the said period of three months, the
service provider shall pay service tax on the service so provided.
(iv) An explanation has been inserted in paragraph 3 of the notification to provide that a
service shall be treated as used exclusively for the authorized operations if the
service is received by the SEZ Unit/Developer under an invoice in the name of such
Unit/Developer and the service is used only for furtherance of authorized operations
in SEZ.
(v) Form A-1, A-2 and A-3 have been amended to provide specifically that in case of
services covered under full reverse charge, there would be no requirement of
furnishing service tax registration number of service provider.
It has been clarified vide DOF No. 334/15/2014 TRU dated 10.07.2014 that the
jurisdictional Deputy/Assistant Commissioner of Central Excise for all purposes under the
said notification would be the authority with whom SEZ Units or the Developers are
registered for taking upfront exemption or for the purposes of Chapter V of the Finance
Act, 1994.
In this context Circular No. 105/08/2008 ST dated 16.9.2008 has clarified that if SEZ
units have obtained a centralized registration under Service Tax Rules, 1994, it will have
option to file a common service tax refund in respect of all units covered under the
84
centralized registration or file a unit-wise refund to the authority having jurisdiction over
centralized registration.
3.
Abatement Notification amended

Abatement Notification No. 26/2012 ST dated 20.06.2012 has been amended vide
Notification No. 8/2014 ST dated 11.07.2014 as under:
(i)
Only service providers need to satisfy the condition of non- availment of

credit for availing abatement in case of GTA service
Earlier, abatement of 75% could be availed in case of transportation of goods by a goods

transport agency if CENVAT credit on inputs, capital goods and input services, used for
providing the taxable service, has not been taken under the provisions of CENVAT Credit
Rules, 2004. Entry 7 of the notification granted the abatement and governed the
eligibility conditions.
However, entry 7 of the notification has now been amended to clarify that the condition
for non- availment of credit is required to be satisfied by the service providers only. The
condition to claim abatement as provided under entry 7 now reads as under:
CENVAT credit on inputs, capital goods and input services, used for providing the
taxable service, has not been taken by the service provider under the provisions of
CENVAT Credit Rules, 2004.
Thus, service receiver may avail abatement without having to establish the satisfaction of
this condition by the service provider.
The old condition mentioned at entry 7 was also applicable for entry 8 providing
exemption to services provided in relation to chit. Consequent to the amendment made
in condition at entry 7, condition in entry 8 has been amended as under:
CENVAT credit on inputs, capital goods and input services, used for providing the taxable
service, has not been taken under the provisions of CENVAT Credit Rules, 2004.
(ii) Credit allowed on input service received by a person providing services of
renting of motorcab from a sub-contractor engaged in the similar line of
business
Following amendments have been made in Entry 9 of the notification which grants
abatement in respect of renting of motor vehicle:
(a) Instead of renting of any motor vehicle designed to carry passengers, the
abatement would now be provided for renting of motorcab.
As per section 2(25) of Motor Vehicles Act, 1988
"Motorcab" means any motor vehicle constructed or adapted to carry not more than six
passengers excluding the driver for hire or reward.
85
(b) Hitherto, abatement of 60% could be availed in respect of renting of motor vehicle, if
taxable service, has not been taken under the provisions of CENVAT Credit Rules,
2004.
However, with effect from 01.10.2014, CENVAT credit of input service of renting of
a motorcab would be allowed. In other words, credit of input service of renting of
motorcab provided by a sub-contractor to the main contractor (providing services of
renting of motorcab) can be availed by the main contractor. It is to be noted that
credit of input service of only renting of motorcab can be availed and not of any
other input service.
Credit of input service of renting of motorcab can be availed in the following
manner:
(i)
Full CENVAT credit of such input service received from a person who is paying
service tax on 40% of the value; or
(ii) Up to 40% CENVAT credit of such input service received from a person who is
paying service tax on full value i.e., no abatement is availed.
(iii) 60% abatement prescribed for transport of passengers by a contract carriage
(other than motorcab) and a radio taxi
A new entry 9A has been inserted in the notification which provides that in case of
transport of passengers, with or without accompanied belongings, by a contract carriage
other than motorcab, service tax would be leviable at 40% of the value of service. The
abatement would be available if CENVAT credit on inputs, capital goods and input
services, used for providing the taxable service, has not been taken under the provisions
of CENVAT Credit Rues, 2004.
It may be noted that with effect from 11.07.2014, exemption available for transport of
passengers by contract carriages for purposes other than tourism, conducted tour,
charter or hire has been restricted to transport of passengers by non air-conditioned
contract carriages (other than radio taxi) only. Thus, following types of passenger
transport in a contract carriage would be liable to service tax:
(a) transport by air-conditioned contract carriages
(b) transport by non- air-conditioned contract carriages for purposes of tourism,
conducted tour, charter or hire
(c) transport by radio taxi whether or not air conditioned.
86
Further, in view of the omission of radio taxis from the purview of negative list from
01.10.2014, abatement of 60% has also been extended to transport of passengers by a
radio taxi from the same day under entry 9A.
It is to be noted that whereas credit of input service received by a rent-a-cab operator
from a sub-contractor is allowed under entry 9, the same is not allowed for radio taxi
under entry 9A.
(iv) Abatement in respect of transport of goods in a vessel increased from 50% to
60%
Hitherto, in respect of transport of goods in a vessel, service tax was leviable at 50% of
the value of taxable service under entry 10.
However, with effect from 01.10.2014, transport of goods in a vessel would attract
service tax at 40% of the value of taxable service. In other words, portion of taxable
value in respect of transport of goods by vessel has been reduced from 50% to 40%.
Thus, effective rate of service tax will decrease from the present 6.18% to 4.944%.
(v) Credit allowed on input service received by a tour operator from a subcontractor
Entry 11 of the notification grants different abatements to services of tour operators in
relation to different types of tours if, inter alia, CENVAT credit on inputs, capital goods
and input services, used for providing the taxable service, has not been taken under the
provisions of CENVAT Credit Rules, 2004.
The said entry has been amended to allow CENVAT credit on input service of another
tour operator, which are used for providing the taxable service.
Example
XY Travels Pvt. Ltd., located in New Delhi, is engaged in providing services of renting of
motorcab and discharges its service tax liability by availing abatement granted under
Notification No. 26/2012 ST dated 20.06.2012. Value of services rendered by the
company during the month of October, 2014 is ` 5,50,000 (before availing abatement).
The company has sub-contracted part of its services to YZ Cabs Pvt. Ltd., which is also
engaged in providing services of renting of motorcab. Total value of such sub-contracted
services is ` 50,000 and service tax payable thereon is ` 6,180.
Determine the net service tax liability of XY Travels Pvt. Ltd. (to be paid in cash) for the
month of October, 2014.
87
Answer
Computation of net service tax liability (to be paid in cash) of XY Travels Pvt. Ltd.
for October, 2014
Particulars
(`)
Value of services
5,50,000
Less: Abatement @ 60% [Note 1]
3,30,000
Value of taxable service
2,20,000
Service tax @ 12.36%
27,192
Less: CENVAT credit [Note 2]
2,472
Net service tax liability to be paid in cash
24,720
Notes
1.
Notification No. 26/2012 ST grants abatement of 60% in respect of services of

renting of motorcab.
2.
With effect from 01.10.2014, Notification No. 26/2012 ST has been amended to
provide that up to 40% CENVAT credit of input service of renting of a motorcab
provided by a sub-contractor to the main contractor (providing service of renting of
motorcab) could be availed by the main contractor if the sub-contractor is paying
service tax on full value i.e., no abatement is being availed by sub-contractor. This
credit will be available even if the main contractor pays the service tax on abated
value.
Since YZ Cabs Pvt. Ltd. has paid service tax on full value (` 50,000 x 12.36% =
` 6,180), XY Travels Pvt. Ltd. can avail credit upto ` 2,472 (40% of ` 6,180).
3.
Since XY Travels Pvt. Ltd. is a company, reverse charge provisions will not apply in
its case. Further, provisions of partial reverse charge will not apply in case of YZ
Cabs Pvt. Ltd. also, as in its case services are provided in similar line of business.
Example
determine the net service tax liability to be paid in cash in each of the following
independent cases:
(i)
Value of services provided by a radio taxi operator is ` 1,00,000. The operator

does not avail CENVAT credit on inputs, capital goods and input services used for
providing the said service. It intends to avail abatement, if any, granted for such
service.
(ii)
Value of services provided by a Company running air-conditioned buses for point to

point travel is ` 5,00,000. The buses do not stop to pick or drop the passengers
88
during the journey. The Company does not avail CENVAT credit on inputs, capital
goods and input services used for providing the said service. It intends to avail
abatement, if any, granted for such service. The Company has sub-contracted part
of its services to another Company running air-conditioned buses for point to point
travel. Total value of such sub-contracted services is ` 50,000 and service tax
payable thereon is ` 6,180.
(iii) Value of services provided by a Company running non air-conditioned buses for
point to point travel is ` 1,00,000. The buses do not stop to pick or drop the
passengers during the journey. The Company does not avail CENVAT credit on
inputs, capital goods and input services used for providing the said service. It
intends to avail abatement, if any, granted for such service.
Answer
(i)
With effect from 01.10.2014, clause (o) of section 66D has been amended by
Finance (No.) Act, 2014 to remove the service of transportation of passengers by
radio taxis from the ambit of negative list of services. Thus, travel by radio taxis or
radio cabs, whether or not air-conditioned, has been made liable to service tax
w.e.f. 01.10.2014. However, an abatement of 60% has been extended to transport
of passengers by a radio taxi from the same day by inserting a new entry 9A in
Notification No. 26/2012 ST dated 20.06.2012. The abatement would be available if
taxable service, has not been taken under the provisions of CENVAT Credit Rues,
2004.
Thus, in the given case, since CENVAT credit on inputs, capital goods and input
services is not being availed by the radio taxi operator, he can claim the abatement
of 60% which will make the effective rate of service tax as 4.944% [40 x 12.36%].
Thus, service tax liability to be paid in cash will be ` 4,944 [` 1,00,000 x 4.944%].
In this case, entire service tax liability will have to be paid in cash as benefit of
CENVAT credit cannot be availed.
(ii) With effect from 11.07.2014, Mega Exemption Notification No. 25/2012 ST dated
20.06.2012 has been amended to restrict the exemption available to transport of
charter or hire to transport of passengers by non air-conditioned contract carriages
only. Thus, transport of passengers by air-conditioned contract carriages has been
made liable to service tax with effect from 11.07.2014. However, an abatement of
60% has been extended to transport of passengers, with or without accompanied
belongings, by a contract carriage other than motorcab from the same day by
inserting a new entry 9A in Notification No. 26/2012 ST dated 20.06.2012. The
aforesaid abatement would be available if CENVAT credit on inputs, capital goods
and input services, used for providing the taxable service, has not been taken under
the provisions of CENVAT Credit Rues, 2004.
89
In the given case, the buses are contract carriages since they are used for point to
point travel and they do not stop to pick or drop the passengers during the journey.
Thus, the passenger transportation services provided in air-conditioned buses
(contract carriages) by the Company would be liable to service tax. Further, since
the Company does not avail CENVAT credit on inputs, capital goods and input
services, it can claim the abatement of 60% which will make the effective rate of
service tax as 4.944% [40 x 12.36%]. Thus, service tax liability to be paid in cash
will be ` 24,720 [` 5,00,000 x 4.944%].
It is to be noted that whereas credit of input service received by a person engaged
in providing services of renting of motorcab from a sub-contractor has been allowed
with effect from 01.10.2014 under entry 9 of Notification No. 26/2012 ST dated
20.06.2012, the same is not allowed for contract carriages other than motorcab
under entry 9A. Therefore, entire service tax liability of ` 24,720 will have to be
paid in cash.
(iii) With effect from 11.07.2014, Mega Exemption Notification No. 25/2012 ST dated
20.06.2012 has been amended to restrict the exemption available to transport of
charter or hire to transport of passengers by non air-conditioned contract carriages
only.
In the given case, the buses are contract carriages since they are used for point to
point travel and they do not stop to pick or drop the passengers during the journey.
Thus, no service tax is payable by the Company running non air-conditioned buses
(contract carriage) for point to point travel as the same are exempt.
30.04.2014
1.
Mega exemption notification amended

Mega exemption Notification No. 25/2012-ST dated 30.06.2012 has been amended as
follows:(i)
Services provided by NSDC or

agency/training partner exempted
by
an
approved
SSC/assessment
Services provided by:(i)
the National Skill Development Corporation (NSDC) set up by the Government of

India;
(ii)
a Sector Skill Council (SSC) approved by the NSDC;
(iii) an assessment agency approved by the SSC or the NSDC;

(iv) a training partner approved by the NSDC or the SSC
90
in relation to:(a) the National Skill Development Programme implemented by the NSDC; or
(b) a vocational skill development course under the National Skill Certification and
Monetary Reward Scheme; or
(c) any other Scheme implemented by the NSDC
have been exempted from service tax.
[Notification No. 13/2013 ST dated 10.09.2013]
(ii) Services provided by cord blood banks by way of preservation of stem cells
exempted
Services provided by cord blood banks by way of preservation of stem cells or any other
service in relation to such preservation have been exempted from service tax.
(iii) Loading/unloading/packing/storage/warehousing of rice exempted
Services by way of loading, unloading, packing, storage or warehousing of rice have
been exempted from service tax.
(iv) Scope of definition of Governmental authority widened
The definition of Governmental authority has been substituted with the following new
definition:Governmental authority means an authority or a board or any other body;
(i)
set up by an Act of Parliament or a State Legislature; or
(ii)
established by Government,
with 90% or more participation by way of equity or control, to carry out any function
entrusted to a municipality under article 243W of the Constitution.
Thus, the scope of the definition has been enhanced. Henceforth, an authority or a
board or any other body established by Government with 90% or more participation by
way of equity or control need not be set up under an Act of Parliament or a State
Legislature to qualify as Governmental authority.
(v) Expansion in the scope of exemption of services provided by way of
sponsorship of sports events
Hitherto, services provided by way of sponsorship of sporting events organized by a
national sports federation, or its affiliated federations were exempt from service tax
where the participating teams or individuals represent any district, State or zone. The
91
said exemption has been extended even in a case where the participating teams or
individuals represent any COUNTRY.
2.
Revised scheme of service tax exemption in case of services provided to SEZ

unit/Developer
Notification No. 40/2012-ST dated 20.06.2012 prescribing the scheme for claiming
exemption in respect of the services received by a developer/units of an SEZ has been
superseded by Notification No. 12/2013 ST dated 01.07.2013. The new notification has
expanded the scope of ab-initio exemption and refund available to SEZ unit/developer.
The significant relevant changes in the new notification vis--vis erstwhile notification
have been outlined as follows:Basis
NN 40/2012
NN 12/2013
Services
eligible for ab
initio exemption
Only specified services wholly

consumed within SEZ were
eligible for the ab initio
exemption.
Further, the
definition of wholly consumed
services, linked with the Place
of Provision of Services Rules,
2012, emphasized that the
specified services must be
provided only within SEZ.
Specified services received by the

SEZ Unit or the Developer used
exclusively for the authorized
operations are eligible for the ab
initio exemption. Consequently,
any services used exclusively for
the authorized operations whether
provided within SEZ or outside,
will be eligible for upfront
exemption.
Refund
of
service tax paid
on the common
services
shared
between
authorized
operations in
SEZ and its
DTA operations
Maximum
refund
was
restricted as under:Maximum refund
ST ET
=
TT
where
ST stands for service tax paid
on services other than wholly
consumed services (used for
both SEZ and DTA Unit)
ET stands for Export turnover
of goods and services of SEZ
Unit/Developer
TT stands for Total turnover
for the period
The service tax paid on the specified

services that are common to the
authorized operation in an SEZ and
the operation in domestic tariff area
[DTA unit(s)] shall be distributed
amongst the SEZ Unit/Developer and
the DTA unit(s) in the manner as
prescribed in rule 7 of the CENVAT
Credit Rules, 2004.
For the purpose of distribution, the
turnover of the SEZ Unit/Developer
shall be taken as the turnover of
authorized operation during the
relevant period. Such amount would
be available as refund.
92
3.
Option not to
avail
the
exemption and
instead
take
CENVAT credit
as usual
Earlier scheme did not SEZ Unit/the Developer has an

expressly provide for such an option not to avail of this
exemption and instead take
option.
CENVAT credit on the specified
services in accordance with the
CENVAT Credit Rules, 2004.
Availability of
refund
of
service tax on
the specified
services
on
which ab-initio
exemption is
admissible but
not claimed
Refund of service tax on the

specified services on which
ab-initio
exemption
is
admissible but not claimed
was not expressly provided in
the earlier scheme.
The SEZ Unit or the Developer

shall be entitled to the refund of
service tax on the specified
services on which ab-initio
exemption is admissible but not
claimed.
Clarification regarding exemption available to services provided by a Resident

Welfare Association (RWA) to its own members
Mega exemption Notification No. 25/2012-ST dated 20.06.2012 provides exemption to
services provided by an RWA to its own members by way of reimbursement of charges or
share of contribution up to ` 5,000 per month per member for sourcing of goods or
services from a third person for the common use of its members.
Certain doubts have been raised regarding the scope of said exemption. CBEC vide
Circular No.175/01/2014 ST dated 10.01.2014, has clarified these doubts as follows:
S.No.
Doubt
Clarification
1.
(i) In a residential complex,

monthly contribution collected
from members is used by the
RWA for the purpose of making
payments to the third parties, in
respect of commonly used
services or goods
Exemption in mega exemption

notification is provided specifically with
reference to service provided by an
unincorporated body or a nonprofit
entity registered under any law for the
time being in force such as RWAs, to
its own members.
[Example: for providing security

service for the residential
complex, maintenance or upkeep
of common area and common
facilities like lift, water sump,
health and fitness centre,
swimming pool, payment of
electricity Bill for the common
However, a monetary ceiling has been

prescribed
for
this
exemption,
calculated in the form of ` 5,000 per
month per member contribution to the
RWA, for sourcing of goods or services
from third person for the common use
of its members.
93
If per month per member contribution of
area and lift, etc.].

Is service tax leviable on the
same?
(ii) If the contribution of a
member(s) of a RWA exceeds
` 5,000 per month, how should
the service tax liability be
calculated?
2.
3.
any or some members of a RWA

exceeds ` 5,000, entire contribution of
such members whose per month
contribution exceeds ` 5,000 would be
ineligible for the exemption under the
said notification. Service tax would then
be leviable on the aggregate amount of
monthly contribution of such members.
(i) Is Small Service Providers

(SSP)
exemption
under
Notification No. 33/2012-ST
available to RWA?
SSP exemption under Notification No.

33/2012-ST is applicable to a RWA,
subject to conditions prescribed in the
notification.
(ii) Does aggregate value for

the purpose of threshold
exemption, include the value of
exempt service?
Under this notification, taxable services

of aggregate value not exceeding ` 10
lakh in any financial year is exempted
from service tax. As per the definition of
aggregate
value
provided
in
explanation
of
the
notification,
aggregate value does not include the
value of services which are exempt
from service tax.
If a RWA provides certain

services such as payment of
electricity or water bill issued by
third person, in the name of its
members, acting as a pure
agent of its members, is
exclusion from value of taxable
service available for the purposes
of SSP exemption or exemption
provided under mega exemption
notification?
In Rule 5(2) of the Service Tax

(Determination of Value) Rules, 2006, it
is provided that expenditure or costs
incurred by a service provider as a pure
agent of the recipient of service shall
be excluded from the value of taxable
service, subject to the conditions
specified in the said rule.
94
For example, where the payment for an

electricity bill raised by an electricity
transmission or distribution utility in the
name of the owner of an apartment in
respect of electricity consumed
thereon, is collected and paid by the
RWA to the utility, without charging any
commission or a consideration by any
other name, the RWA is acting as a
pure agent and hence exclusion from
the value of taxable service would be
available. However, in the case of

electricity bills issued in the name of
RWA, in respect of electricity
consumed for common use of lifts,
motor pumps for water supply, lights in
common area, etc., since there is no
agent involved in these transactions,
the exclusion from the value of taxable
service would not be available.
4.
Is CENVAT credit available to

RWA for payment of service tax?
95
RWA may avail CENVAT credit and use

the same for payment of service tax, in
accordance with the CENVAT Credit
Rules, 2004.
6
SERVICE TAX PROCEDURES
1.
Following amendments have been made in Service Tax Rules, 1994 vide Notification
No. 9/2014 ST dated 11.07.2014:
(i)
Service tax to be payable by the recipient of service in case of services

provided by recovery agents to banks, financial institutions and NBFC [Rule
2(1)(d)(i)(AA)]
Rule 2(1)(d)(i) defines the term person liable for paying service tax in respect of the
taxable services notified under section 68(2) of Finance Act, 1994. A new clause (AA)
has been inserted in the said rule to provide that in relation to service provided or agreed
to be provided by a recovery agent to a banking company or a financial institution or a
non-banking financial company, the recipient of the service would be the person liable for
paying service tax.
(ii) Service tax to be payable by the recipient of service in case of service
provided by a director to a body corporate [Rule 2(1)(d)(i)(EE)]
Prior to 11.07.2014, in case of services provided by directors, service tax was payable
under reverse charge only when the service was provided by a director of a company to
the said company. Reverse charge provisions were not applicable in case of services
provided by a director of a body corporate to the said body corporate.
However, with effect from 11.07.2014, services provided by a director of a body
corporate to the said body corporate have also been brought under the ambit of reverse
charge provisions. This amendment has been made in view of requests by body
corporates such as the Reserve Bank of India.
To give effect to this amendment, clause (EE) of rule 2(1)(d)(i) has been substituted to
provide that in relation to service provided or agreed to be provided by a director of a
company or a body corporate to the said company or the body corporate, the recipient of
such service would be the person liable for paying service tax.
96
(iii) E-payment of service tax mandatory for all assessees irrespective of the tax
paid during previous year [Rule 6(2)]
With effect from 01.01.2014, proviso to rule 6(2) had been amended vide Notification No.
16/2013 ST dated 22.11.2013 to reduce the threshold limit for e-payment of service tax
from ` 10 lakh to ` 1 lakh. Thus, with effect from 01.01.2014, where an assessee had
paid a service tax of ` 1 lakh or more including the amount paid by utilization of CENVAT
credit, in the preceding financial year, he was required to deposit the service tax liable to
be paid by him electronically through internet banking.
Rule 6(2) has been amended to provide that every assessee shall electronically pay the
service tax payable by him, through internet banking. However, the jurisdictional
Assistant/Deputy Commissioner of Central Excise may for reasons to be recorded in
writing, allow the assessee to deposit service tax by any mode other than internet
banking.
Thus, under the amended provisions, e-payment of service tax would be compulsory for
all assessees irrespective of the quantum of service tax paid in the previous financial
year.
2.
Amendments in Reverse Charge Notification

Taxable services in respect of which service tax is payable under section 68(2) of
Finance Act, 1994, i.e., under reverse charge are notified under Notification No. 30/2012
ST dated 20.06.2012. The said notification has been amended vide Notification No.
10/2014 ST dated 11.07.2014 as under:
(i)
Services tax to be paid under reverse charge in case of service provided by

recovery agents to banks and directors to body corporate
Following two services have been added in the list of services on which service tax is
payable under reverse charge:
(a) Services provided or agreed to be provided by a recovery agent to a banking
company or a financial institution or a non-banking financial company Sub-clause
(ia) inserted in clause A in paragraph I of the notification
(b) Services provided or agreed to be provided by a director of a body corporate to the
said body corporate - Sub-clause (iva) substituted in clause A in paragraph I of the
notification.
(ii) Entire service tax to be paid by the service receiver in case of service
provided by recovery agents to banks and directors to body corporate
In case of services provided or agreed to be provided by a recovery agent to a banking
company or a financial institution or a non-banking financial company, 100% of service
97
tax would be payable by the person receiving the service. A new entry 1A has been
inserted in the Table in paragraph II of the notification to give effect to this amendment.
Further, as is the case in services provided by a director of a company to the said
company, 100% of service tax would also be payable by the person receiving the service
in case of services provided or agreed to be provided by a director of a body corporate to
the said body corporate. Entry 5A in the Table in paragraph II of the notification has
been substituted for this purpose.
(iii) Service receiver and provider to pay equal service tax on non-abated value in
case of renting of motor vehicle
Earlier, by virtue of entry 7(b) in the Table in paragraph II of the notification, in respect of
services provided or agreed to be provided by way of renting of a motor vehicle designed
to carry passengers on non abated value to any person who is not engaged in the similar
line of business, 60% of service tax was payable by the person providing the service and
remaining 40% by the service receiver.
However, entry 7(b) of the notification has been amended to modify the percentages of
service tax payable by the service provider and the service receiver from 60%:40% to
50% each.
3.
Slab rate of interest introduced for delayed payment of service tax

Section 75 of Finance Act, 1994 prescribes the provisions in respect of interest payable
on delayed payment of service tax. Earlier, failure to pay service tax by the prescribed
due date attracted simple interest @ 18% p.a. for the period by which such crediting of
tax or any part thereof was delayed. The rate of interest was specified in Notification No.
26/2004 ST dated 10.09.2004.
With effect from 01.10.2014, Notification No. 12/2014 ST dated 11.07.2014 has
superseded Notification No. 26/2004 ST dated 10.09.2004 to prescribe slab rates of
interest which would vary with the extent of delay. The new rates of interest for delayed
payment of service tax are as follows:
Extent of delay
Simple interest rate per annum
Up to 6 months
18%
More than 6 months & upto 1

year
18% for first 6 months, and 24% for the period of

delay beyond 6 months
More than 1 year
18% for first 6 months, 24% for second 6 months,

and 30% for the period of delay beyond 1 year
98
Thus, upto 30.09.2014, flat rate of interest of 18% will apply and variable interest rates
(given above) will apply only on or after 1st October, 2014. Further, as specified in the
proviso to section 75 of Finance Act, 1994, 3% concession on the applicable rate of
interest will continue to be available to small service providers.
Example
Determine the interest payable under section 75 of Finance Act, 1994 on delayed
payment of service tax from the following particulars:
Service tax payable
` 60,500
Due date of payment
06.11.2014
Date of payment
06.01.2016
Note: Turnover of services in the preceding financial year was` 80 lakh.

Answer
Section 75 of Finance Act, 1994 levies simple interest on failure to pay service tax by the
prescribed due date for the period by which such crediting of tax or any part thereof is
delayed. With effect from 01.10.2014, Notification No. 12/2014 ST dated 11.07.2014 has
been issued to prescribe new slab rates of interest for delayed payment of service tax.
Therefore, the interest payable under section 75 will be computed as under:
Computation of interest payable under section 75
Particulars
Rate of interest per

annum
Interest (`)
Delay from 06.11.2014

- 05.05.2015
18% for first six months
5,445 [` 60,500 x 18% x

6/12]

- 05.11.2015
24% for next six months
7,260 [` 60,500 x 24% x

6/12]

- 06.01.2016
30% for period beyond

one year
3,083 [` 60,500 x 30% x

62/365]
Total Interest
15,730
Since the turnover of the services in the preceding financial year is more than ` 60 lakh
concession of 3% on applicable rate of interest cannot be availed.
99
7
CENVAT CREDIT
I.
Following amendments have been made in CENVAT Credit Rules, 2004 [CCR] vide
Notification No. 21/2014 CE (NT) dated 11.07.2014:
1.
Place of removal defined in the rules [Rule 2(qa)]

A new clause (qa) has been inserted in rule 2 to define the term place of removal as
under:
Place of removal means(i)
a factory or any other place or premises of production or manufacture of the

excisable goods;
(ii)
a warehouse or any other place or premises wherein the excisable goods have
been permitted to be deposited without payment of duty;
(iii) a depot, premises of a consignment agent or any other place or premises from
where the excisable goods are to be sold after their clearance from the factory,
from where such goods are removed.
The said definition is same as the one provided in section 4(3)(c) of Central Excise Act,
1944.
2.
Credit on inputs and input services to be availed within 6 months of the date of
invoice [Rule 4(1) and 4(7)]
Rule 4 has been amended to restrict the availability of credit on inputs and input services
to a period of six months from the date of the issue of invoice/bill/challan etc. A third
proviso has been inserted in rule 4(1) and a sixth proviso in rule 4(7) to restrict the
availability of credit in respect of inputs and input services respectively.
Both the provisos lay down that the manufacturer or the provider of output service shall
not take CENVAT credit after six months of the date of issue of any of the documents
specified in rule 9(1).
100
3.
Paymen
nt of value of
o input servvice to serviice provider no more a pre-requisitee for
availing
g credit in caase of servicce tax paid un
nder full reveerse charge [Rule 4(7)]
Earlier, when servicee tax was paid under reveerse charge, whether
w
full oor partial, creddit of
input seervice was allowed to the service
s
receivver only afterr the payment of value of input
service and the serrvice tax paid or payablee as indicateed in invoice/bill/challan [First
[
proviso to rule 4(7)].
The first proviso to ruule 4(7) has been
b
substituted to withdraaw the condittion of paymeent of
value off input servicce to the servvice provider for availing credit
c
of inputt services in case
of servicce tax paid under
u
full reveerse charge. In other worrds, where seervice tax is to
t be
paid under full reverse charge, paayment of seervice tax will ensure availability of creddit of
t the servicee provider.
input seervices even if the value off input servicee is not paid to
Howeveer, there is noo change in respect of parrtial reverse charge.
c
A seecond provisoo has
been inserted in subb-rule (7) to provide
p
the same. Thereffore, in case of partial revverse
b
charge, credit of inpuut service will be allowed only after payyment has beeen made of both,
value off input servicee and servicee tax paid or payable
p
as inddicated in invvoice/bill/challlan.
Full
F
Reeverse
Chharge
Partiaal
Reversse
Charge
After payment ofA

S
Service
tax to the
G
Government
After paayment of(i) Vaalue of inpput

servicee
AND
(ii) Servvice tax
Availaability of Creedit of Input Service in Reverse

R
Charrge
[Effectiive from 11.007.2014]
4.
Condition of reverssal of credit on failing to

o pay value of input servvice and serrvice
hs of the daate of invoicce not to ap
pply in casee of full revverse
tax within 3 month
charge [Rule 4(7)]
Earlier, the second proviso to rule 4(7) laid down
d
that CE
ENVAT creditt availed on input
service ought to be reversed if value
v
of inputt service and service tax is not paid within
w
three months
m
of the date of the invoice/bill/challan. The amount
a
equivaalent to the credit
c
reversed could be taken
t
back whenever
w
thee payment of
o value of input service and
service tax was made.
The proovisions contaained in the erstwhile
e
secoond proviso have
h
now beeen set out in third
proviso to sub-rule (7).
(
Cases where
w
service tax is paid under
u
full reveerse charge have
been exxcluded in thee newly insertted third proviso.
[Effectiive from 11.007.2014]
1011
Example
AB Pvt. Ltd., a manufacturer, has furnished the following information:
S.
No.
Particulars
Excise
duty/Service
tax* (` )
(i)
High Speed Diesel Oil
Invoice
20.04.2015
dated
26,240
(ii)
Input A
Invoice
23.09.2014
dated
1,56,000
(iii)
Input B
Invoice
10.04.2015
dated
1,35,000
(iv)
Machinery falling under Chapter 82
Invoice
12.09.2014
dated
3,54,670
(v)
Cement and iron rods used in making Invoice

a structure for support of the 15.12.2014
machinery at point (iv) above
dated
1,88,290
(vi)
Input C
Invoice missing
(vii)
Input service X
Invoice
12.11.2014
dated
45,340
(viii)
Input service Y
Invoice
20.09.2014
dated
68,240
(ix)
GTA service for bringing raw materials

to the factory [Payment has not been
made to GTA but service tax has been
paid under reverse charge]
Invoice
dated
14.04.2015
Value of service
3,00,000
9,270
(x)
Security services for guarding the

factory [Payment has not been made
to security agency but service tax has
been paid under reverse charge]
Invoice
dated
10.04.2015
Value of service
1,50,000
18,540
89,460
*Including education cess and secondary higher education cess

You are required to determine the total CENVAT credit that can be availed by AB Pvt. Ltd.
during the month of April, 2015.
Note: AB Pvt. Ltd. is not entitled to SSI exemption under Notification No. 8/2003 CE dated
01.03.2003.
102
Answer
Computation of CENVAT credit that can be availed during the month of April, 2015
Particulars
High Speed Diesel Oil (Note 1)
Input A (Note 2)
Input B
1,35,000
Machinery falling under Chapter 82 [50% of ` 3,54,670] (Note 3)
1,77,335
Cement and iron rods (Note 4)
Input C (Note 5)
Input service X
45,340
Input service Y (Note 6)
GTA service (Note 7)
9,270
Security service [` 18,540 x 25%] (Note 8)
4,635
Total CENVAT credit that can be availed during the month of April, 2015
3,71,580
Notes:
1.
High Speed Diesel Oil is not an input in terms of rule 2(k) of CENVAT Credit Rules, 2004
[CCR].
2.
With effect from 01.09.2014, a manufacturer cannot not take CENVAT credit of inputs
after six months of the date of issue of invoice [Third proviso to rule 4(1) of CCR].
3.
Machinery covered under Chapter 82 is eligible capital goods under rule 2(a) of CCR.
Since AB Pvt. Ltd. is not a SSI unit, only upto 50% of the duty paid on the machinery can
be availed as CENVAT credit in the year of purchase in terms of rule 4(2)(a) of CCR.
Time limit of six months for availment of CENVAT credit does not apply to capital goods.
4.
Goods used for making of structures for support of capital goods (machinery in this case)
are excluded from the definition of inputs under rule 2(k) of CCR.
5.
CENVAT credit cannot be availed without a valid invoice [Rule 9 of CCR].
6.
With effect from 01.09.2014, a manufacturer cannot take CENVAT credit of input
services after six months of the date of issue of invoice [Sixth proviso to rule 4(7) of
CCR].
7.
GTA service used for bringing the raw materials to the factory is an input service in terms
of rule 2(l) of CCR. As per Notification No. 30/2012 ST dated 20.06.2012, service tax on
GTA service is payable under full reverse charge. Therefore, entire ` 9,270 would have
been deposited by AB Pvt. Ltd. with the Government.
103
Further, with effect from 11.07.2014, where service tax is paid under full reverse charge,
payment of service tax ensures availability of credit of input services even if the value of
input service is not paid to the service provider [First proviso to rule 4(7) of CCR]. Since
entire service tax has been paid by AB Pvt. Ltd, it can avail credit of such tax paid even
though the payment has not been made to GTA.
8.
Security services used for guarding the factory is an input service in terms of rule 2(l) of
CCR. As per Notification No. 30/2012 ST dated 20.06.2012, service tax on security
service is payable under partial reverse charge - 25% of tax to be paid by service
provider and balance 75% by service receiver. Thus, AB Pvt. Ltd. would have deposited
` 13,905 (75% of the total service tax) with the Government.
Further, with effect from 11.07.2014, where service tax is paid under partial reverse
charge, credit of input service is allowed only after payment has been made for both,
value of input service and service tax payable [Second proviso to rule 4(7) of CCR].
Since, payment has not been made to security agency, credit of 75% of tax paid by AB
Pvt. Ltd. cannot be availed. However, credit of 25% of tax to be paid by service provider
can be availed by AB Pvt. Ltd., on the receipt of the invoice.
5.
Credit reversed on account of non-receipt of export proceeds within the specified

or extended period can be re-availed if export proceeds are received within one
year from the specified or extended period [Rule 6(8)]
Rule 6(8) provides that a service provided or agreed to be provided shall not be an
exempted service when :(a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules,
1994 and the payment for the service is to be received in convertible foreign
currency; and
(b) such payment has not been received for a period of six months or such extended
period as maybe allowed from time-to-time by the Reserve Bank of India, from the
date of provision.
A proviso has been inserted in sub-rule (8) of rule 6 to lay down that if such payment is
received after the specified or extended period allowed by the Reserve Bank of India but
within one year from such period, the service provider shall be entitled to take the credit
of the amount equivalent to the CENVAT credit paid earlier in terms of rule 6(3). The
credit can be availed to the extent it relates to such payment, on the basis of
documentary evidence of the payment so received.
104
II.
Manner of distribution of common input service credit under rule 7(d) of the
CENVAT Credit Rules, 2004 clarified
Rule 7 of CCR provides for the mechanism of distribution of common input service credit
by the Input Service Distributor to its manufacturing units or to units providing output
services.
Rule 7(d) provides that credit of service tax attributable to service used by more than one
unit shall be distributed pro rata on the basis of the turnover of such units during the
relevant period to the total turnover of all its units, which are operational in the current
year, during the said relevant period.
On account of the words such unit used in rule 7(d), it is possible to interpret that the
distribution of the credit would be restricted to only those units where the services are
used. Thus, the credit available for distribution would get reduced by the proportion of
the turnover of those units where the services are not used.
However, it has been clarified vide Circular No. 178/4/2014 dated 11.07.2014 that the
amended rule 7(d) seeks to allow distribution of input service credit to all units in the ratio
of their turnover of the previous year.
Example
An Input Service Distributor (ISD) has a total of 4 units namely A, B, C and D, which
are operational in the current year. How will the credit of input service pertaining to more
than one unit be distributed?
Answer
Distribution to A= X/Y x Z
X = Turnover of unit A during the relevant period
Y = Total turnover of all its unit i.e. A+B+C+D during the relevant period
Z = Total credit of service tax attributable to services used by more than one unit
Similarly the credit shall be distributed to the other units B, C and D.
Example
An ISD has a common input service credit of ` 12000 pertaining to more than one unit.
The ISD has 4 units namely A, B, C and D which are operational in the current year.
Unit
Turnover in the previous year

(in ` )
A (Manufacturing excisable goods)
25,00,000
B (Manufacturing excisable and exempted goods)
30,00,000
C (providing exclusively exempted service)
15,00,000
105
D (providing taxable and exempted service)

Total
30,00,000
1,00,00,000
The common input service relates to units A, B and C. How will the credit be
distributed?
Answer
The distribution of credit will be as under:
(i)
Distribution to A
= 12,000 * 25,00,000/1,00,00,000
= 3,000
(ii)
Distribution to B
= 12,000 * 30,00,000/1,00,00,000
= 3,600
(iii) Distribution to C
= 12,000 * 15,00,000/1,00,00,000
= 1,800
(iv) Distribution to D
= 12,000 * 30,00,000/1,00,00,000
= 3,600
The distribution for the purpose of rule 7(d) will be done in this ratio in all cases,
irrespective of whether such common input services were used in all the units or in some
of the units.
30.04.2014
1.
Procedure, safeguards, conditions and limitations prescribed for refund of

CENVAT credit to service providers covered under partial reverse charge
Rule 5B of CCR stipulates that a service provider providing services taxed under reverse
charge mechanism and unable to utilize the CENVAT credit availed on inputs and input
services for payment of service tax on such output services, shall be allowed refund of
such unutilized CENVAT credit.
The procedure, safeguards, conditions and limitations to which such refund shall be
subject to have been prescribed by CBEC vide Notification No. 12/2014 CE (NT) dated
03.03.2014 as under:
106
A.
SAFEGUARDS, CONDITIONS AND LIMITATIONS
(a) Refund is admissible, of unutilised CENVAT credit taken on inputs and input
services during the half year for which refund is claimed, for providing following
output services:
(i)
renting of a motor vehicle designed to carry passengers on non-abated value,

to any person who is not engaged in a similar business;
(ii)
supply of manpower for any purpose or security services; or
(iii) service portion in the execution of a works contract;

(hereinafter above mentioned services will be termed as partial reverse charge
services). The amount of refund would be computed as follows:
Unutilised CENVAT credit taken on inputs and input

services during the half year for providing partial reverse
charge services.
(A)-(B)
where
credit taken on inputs and

A = CENVAT
input services during the half year
Turnover of output service under partial

reverse charge duirng the half year
Total turnover of goods and
services during the half year
B = Service tax paid by the service provider for such partial reverse charge services
during the half year.
(b) Refund shall not exceed the amount of service tax liability paid/payable by the
service receiver with respect to the partial reverse charge services provided during
the period of half year for which refund is claimed.
(c) Amount claimed as refund shall be debited by the claimant from his CENVAT credit
account at the time of making the claim. However, if the amount of refund
sanctioned is less than the amount of refund claimed, then the claimant may take
back the credit of the difference between the amount claimed and the amount
sanctioned.
(d) The claimant shall submit not more than one claim of refund under this notification
for every half year.
(e) Refund claim shall be filed after filing of service tax return for the period for which
refund is claimed.
107
(f)
No refund shall be admissible for the CENVAT credit taken on input or input
services received prior to 01.07.2012.
Half year means a period of six consecutive months with the first half year beginning
from the 1st day of April every year and second half year from the 1st day of October of
every year.
B.
PROCEDURE FOR FILING THE REFUND CLAIM
(a) The output service provider shall submit an application in Form A, along with
specified
documents
and
enclosures,
to
jurisdictional
Assistant
Commissioner/Deputy Commissioner, before the expiry of 1 year* from the due date
of filing of return for the half year. Copies of return(s) filed for the said half year shall
also be filed along with the application.
*In case of more than one return required to be filed for the half year, 1 year shall be
calculated from due date of filing of the return for the later period.
However, last date of filing of application in Form A, for the half year ending on
30.09.2012, shall be 30.04.2014.
(b) The Assistant Commissioner/Deputy Commissioner, may call for any document in
case he has reason to believe that information provided in the refund claim is incorrect or
insufficient and further enquiry needs to be caused before the sanction of refund claim,
and shall sanction the claim after satisfying himself that the refund claim is correct and
complete in every respect.
2.
Provisions relating to distribution of credit in case of input service distributor

amended
With effect from 01.04.2014, rule 7 of CCR has been amended to simplify the mechanism
of distribution of CENVAT credit in case of input service distributor as under:
S.
No.
Position
as
erstwhile rule 7
per
Position as per the

amended rule 7
1.
In case of a unit
exclusively engaged in
manufacture
of
exempted
goods/
providing
exempted
services, service tax
paid on input services
used IN such a unit
was not allowed to be
distributed as CENVAT
credit.
In case of a unit
exclusively engaged in
manufacture
of
exempted
goods/
providing
exempted
services, service tax
paid on input services
used BY one or more
such units will not be
allowed
to
be
distributed as CENVAT
credit
108
With the substitution of word

IN with BY, credit of
services, which have been
used by such units though
not actually consumed
within such units, would also
not be distributed.
2.
Credit of service tax

attributable to service
used wholly IN a unit
was to be distributed
only to that unit.

used wholly BY a
unit
shall
be
distributed only to that
unit.
Substitution of word IN with

BY would increase the
scope of services pertaining
to which credit could be
distributed to a unit.
Resultantly,
credit
for
services like good transport
agency services, rent-a-cab
service, testing and analysis
of the product etc. would
now be available to the unit
availing them.
3.

used IN more than one
unit was to be
distributed pro rata on
the basis of the turnover
during the relevant
period of the concerned
unit to the sum total of
the turnover of all the
units to which the
service related during
the same period.

used BY more than
one unit shall be
distributed pro rata on
the basis of the
turnover of such units
during the relevant
period to the total
turnover of all its
units, which are
operational in the
current year, during
the
said
relevant
period.
In case of common input

services,
amount
of
CENVAT credit attributed to
a unit may be reduced as
now
turnover
of
all
operational units has to be
taken
in
denominator
instead of only the units to
which the service relates.
4.
Relevant period was

the
month/quarter
previous
to
the
month/quarter during
which the CENVAT
credit was distributed.
Relevant period shall

be the financial year
preceding to the year
during which credit is
to be distributed for
month/
quarter
provided assessee has
turnover
in
such
preceding
financial
year.
Distribution of credit is now

based on previous financial
years turnover instead of
previous months/quarters
turnover.
In case of an assessee
who did not have any
total turnover in the
said period, the input
If the assessee does

not have turnover for
some/ all the units in
the preceding financial
109
service distributor was

to distribute any credit
only after the end of
such relevant period
wherein
the
total
turnover of its units
was available.
year, relevant period

shall be the last
quarter for which
details of turnover of
all the units are
available, previous to
the month/ quarter for
which credit is to be
distributed.
[Notification No. 5/2014-CE (NT) dated 24.02.2014]

3.
Duty leviable on transaction value to be paid on removal of capital goods as waste

and scrap
Rule 3(5A) of the CCR provides for reversal of CENVAT credit in the event of removal of
capital goods after being used, whether as capital goods or as waste/ scrap. Earlier, the
quantum of credit that needs to be reversed was higher of the following two amounts:
(I)
CENVAT credit taken on the said capital goods reduced by the specified percentage
points calculated by straight line method for each quarter of a year or part thereof
from the date of taking the CEVAT credit
or
(II) Duty leviable on transaction value.

However, with effect from 27.09.2013, if the capital goods are cleared as waste and
scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction
value.
Thus, a manufacturer removing capital goods as waste and scrap will no longer be
required to compare the amount equivalent to the duty leviable on transaction value with
the amount equivalent to CENVAT credit taken on the said capital goods reduced by the
specified percentage points. However, when capital goods will be removed, after being
used, otherwise than as waste and scrap, the higher of the above-mentioned two
amounts will be required to be paid.
[Notification No. 12/2013 CE (NT) dated 27.09.2013]
4.
CENVAT credit taken on input services to be reversed if duty paid on final product
remitted
Earlier, where on any goods manufactured or produced by an assessee, the payment of
duty was ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the
CENVAT credit taken on the inputs used in the manufacture or production of said goods
was required to be reversed. Thus, earlier, reversal was only required in respect of
inputs and not for input services.
110
Rule 3(5C) of CCR has been amended to provide that CENVAT credit taken on input
services used in or in relation to the manufacture or production of said goods is also
required to be reversed.
5.
Amount payable under sub-rules (5), (5A), (5B) and (5C) of rule 3 to be paid on or
before the 5th day of the following month by utilizing CENVAT credit or otherwise
As per explanation 1 inserted after rule 3(5C) of CCR, the amount payable under
following sub-rules of rule 3 shall be paid by the manufacturer of goods or the provider of
output service
(i)
Rule 3(5)
Reversal of credit in case of removal of inputs or capital goods

as such from the factory/premises of the output service provider
(ii)
Rule 3(5A)
Reversal of credit in case of removal of capital goods after

being used, whether as capital goods or as scrap or waste
(iii)
Rule 3(5B)
Reversal of credit in case of full or partial writing off of the value

of input or capital goods before being put to use
(iv)
Rule 3(5C)
Reversal of credit in case of remission of duty on final product
by debiting the CENVAT credit or otherwise
on or before the 5th day of the following month except for the month of March,
where such payment shall be made on or before the 31st day of the month of
March.

6.
Failure to reverse the credit taken on inputs and input services used in goods on
which duty is ordered to be remitted also to attract recovery provisions under rule
14 [Explanation 2 to rule 3(5C)]
Hitherto, as per explanation occurring after proviso to rule 3(5B) of CCR, recovery
provisions under rule 14 of CCR were applicable if the manufacturer of goods or the
provider of output service fails to pay the amount payable under sub-rules (5), (5A) and
(5B) of rule 3.
The said explanation has been omitted and a new explanation 2 has been inserted after
rule 3(5C). As per the new explanation 2, in addition to sub-rules (5), (5A) and (5B) of
rule 3, recovery provisions under rule 14 will also apply to sub-rule (5C) of rule 3.
In other words, even in a case where the manufacturer of goods or the provider of output
service fails to reverse the CENVAT credit taken on inputs and input services used in
goods on which duty has been ordered to be remitted, it would be recovered, in the
manner provided under rule 14, for recovery of CENVAT credit wrongly taken.
111
7.
Importer required to file quarterly return

Earlier, rule 9(8) of the CCR required a first stage dealer and a second stage dealer to
submit a return (electronically) within 15 days from the close of each quarter of a year to
the Superintendent of Central Excise.
With effect from 01.04.2014, said rule has been amended. Thus, now a registered
importer is also required to submit such quarterly return.
Consequently, the return form prescribed for the same has also been accordingly
amended.
[Notification Nos. 9 and 11/2014 CE(NT) dated 28.02.2014]
112

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INTERMEDIATE (IPC) COURSE/

ACCOUNTING TECHNICIAN COURSE

[A discussion on amendments made by the Finance

The Institute of Chartered Accountants of India

The Publication Department on behalf of The Institute of

The Institute of Chartered Accountants of India

A WORD ABOUT SUPPLEMENTARY

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Registered trusts and institutions which are eligible for exemption

Disallowance of depreciation on commercial lines in respect of a

Meaning of Substantially financed by the Government for the

Power of Principal Commissioner/Commissioner to cancel

Taxability of anonymous donations exempt from applicability of

Registration granted to trust or institution to also be applicable

C. Income from house property

Increase in deduction for interest on loan borrowed for

D. Profits and gains of business or profession

Manufacturing companies investing more than ` 25 crore in new

Expansion of scope of specified business eligible for

Capital asset in respect of which deduction under section 35AD

The Institute of Chartered Accountants of India

Assessees claiming investment linked deduction under section

Disallowance of CSR expenditure

Remittance of TDS on payments to non-residents permitted to

Expansion of scope of section 40(a)(ia) to cover all

Speculative transaction to exclude eligible transaction in

Uniform amount of presumptive income from each goods carriage,

Income arising from transfer of security by a foreign portfolio

Period of holding of units of debt oriented mutual fund and

Benefit of concessional rate of tax@10% on long-term capital

Compensation received in pursuance of an interim order

Transfer of Government security outside India by a non-resident to

Rise in Consumer Price Index (Urban) to be the basis for

Exemption under section 54 and 54F to be available for

Maximum investment in bonds of NHAI and RECL, out of capital

The Institute of Chartered Accountants of India

F. Income from other sources

Advance forfeited due to failure of negotiations for transfer of a

56(2), 2(24) &

G. Set-off and Carry Forward of Losses

Transaction in respect of trading in shares on a recognised

H. Deductions from Gross Total Income

Increase in the limit of deduction under section 80C

80C & 80CCE

Benefit under section 80CCD extended to private sector

Extension of sunset clause for tax holiday under section 80-IA

I. Provisions concerning advance tax and tax deducted at

Tax to be deducted on non-exempt payments made under life

Enabling provision for deductor to file correction statement and

200 & 200A

Revision of time limit for passing an order under section 201(1)

Non-applicability of higher rate of TDS under section 206AA in

J. Provisions for filing return of income

Return of income of mutual funds, securitization trusts, venture

Verification of return of income

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Where the total income does not exceed

total income exceeds 10% of the amount by which the

total income exceeds

` 25,000 plus 20% of the

` 1,25,000 plus 30% of the