Service Tax Rate

Increase in Service Tax Rate w.e.f 01.04.2012

With effect from 01.04.2012 by virtue of notification no. 2/2012 dated 17.03.2012 the rate of Service Tax has been increase from 10.30% to 12.36%.

Changes have also been made in respect of rate of tax in Service Tax Rule 1994 and Work Contract (Composition Scheme of Payment of Service Tax) Rule 2007. Hence, Special Rate of Tax w .e. f 01.04.2012 for Services in Execution of Work Contract shall be 4.80%.

The Special rate of tax payable in respect of life insurance business services (fall under Rule 6(7) of Service Tax Rule, 1994) has also been increase from 1.5% to 3% in respect of first year premium charged from policy holders. However, in all subsequent years, the rate of service tax has been retained at 1.50% of the amount of premium.

Applicability of Service Tax and Its Registration
Due Date of Payment of Service Tax
New Services Under Reverse Charge

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Due date of payment of Service Tax

Service Tax collected by service provider or service receiver as the case may be to the credit of Central Government on the regular basis before the Due date of payment of service tax.

As per Rule 6 of service tax rule 1994 , the due date of payment of service tax for individual/partnership firm and others are as follows:

Due date of payment of Service Tax for Individual/Partnership firm

For individual/partnership firm due date of payment of service tax is 5^th of the following quarter in which payment is received. However in case of online payment of tax grace payment of 1 day is given and hence service tax payment in case of online can be made upto 6^th of the following quarter.

 

Due date of payment of Service Tax for for Others (Except Individual/Partnership firm)

For all service tax payer except individual/partnership firm due date of payment of service tax is 5^th of the following month in which payment is received. However in case of online payment of tax grace payment of 1 day is given and hence service tax payment in case of online can be made upto 6^th of the following quarter.

Exception:

In all the cases mentioned above service tax collected for month/quarter ending March shall be payable by 31^st of March of the said calendar year.

Applicability of Service Tax and Its Registration

New Services Under Reverse Charge

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Applicability of Service Tax and Its Registration

Service tax provision have been forced since 1994, since 1994 taxation in respect of service tax has been dealt positively, but with the introduction of finance bill 2012 on 16.03.12 service tax shall be charged on all activity undertaken by a person for another for consideration except services specified in the negative list of services as well as those exempted by virtue of exemption notification.

Every person is required to take Service Tax Registration if the value of Services provided by him during the financial year is more than 9 lacs, but the service tax would be payable only when the value of services provided is more than 10 lacs.

Service Tax Payment is deposited by the service provider with government quarterly in case of individual /Partnership firm and monthly in all other cases

Due date of payment of service tax

Service Tax Rate

New Services Under Reverse Charge

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Precaution to be taken on Making a Smart Property Deal

Property is an asset that is bought as well as sold with due care. Taking property decisions is not an easy task especially when the Real Estate Market suffers a lot of ups and downs. Whether you are a buyer or a seller of property it is imperative for you to act smartly while dealing in property matters.

While selecting property following question should come in mind of the people engaged in the Real Estate:

• Is the time right to buy or sell property?
• Is the location perfect?
• Will the price of the property hike in the near future?
• Should I wait for some more time? etc.

The list of confusion and questions that popup in the mind is never-ending. So, how to deal with it, what steps should you ensure to clear up these dilemmas.

We present you with some useful tips that will assist you in making a smart property deal.

1.       Carry out a thorough market research and carefully examine the growth as well as depression in the economy. The economy conditions directly influences the property markets. In times of high property rates it is always better to sell whereas depression time is the buying time.

2.        Increasing and decreasing interest rates of home loans in India should also be taken care of.

3.       If you have a property that is solely for investment basis then it is always advised to hold it for few years.

4.       The legal issues related to the property should be carefully checked.

5.        Also, the property and broker agreements should be transparent enough.

6.        There are numerous banks and finance companies that offer loans so you must explore different options before opting for one.

7.        For those investing in developer projects, credibility of the developer should be considered: actual location, construction time line, amenities provided, etc. must be kept track of.

Assistance of a Real Estate Agent can be taken in order to analyze the Real Estate Market situations and choosing the right location. Thus following the above tips shall certainly help you enter an appropriate and smart property deal.

Note: The best way to enquire for a property and reputation of builder in internet which is readily available.  

Income Tax Exemption on housing loan

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Waiver of Term Loan, Working Capital Loan and its Taxability under Income-tax Act, 1961

With the globalization, business in India has expended manifold. While existing units have expended their footprint, new entities have entered the booming Indian business arena by availing of various types of finances such as term loan and working capital loan from public institution, bank, private parties, etc. Due to various reasons such as stiff global competition, new invention and global recession financial position of many units have deteriorated and, as a result, their accounts with financial institutions or bank have become non-performing assets (NPA).

Such unit enters into a one-time settlement with banks or financial institutions by paying a stipulated amount against the loan amount, while the balance is waived off. A pertinent question arises is the taxability under the Income-tax Act,1961 of the sum waived off term loan and working capital loans by banks, financial institutions or depositors.

Let us refer decision of Delhi High Court in the case of Logitronics (P) Ltd. vs CIT, in the case assessee – company defaulted in payment of loan taken. Company went into the settlement of loan with bank can substantial amount of principal and interest was waived off by the bank. In the income tax return filed by the assessee, it showed the interest waived off as interest waived off to the credit of Profit & Loss account and was offered for taxation but does not offer the amount of principal  amount for taxation and  credited amount of principal to Capital Reserve.

The matter was produced before HC, from the reading of the judgment answer would depend upon the purpose for which loan was taken. If the loan was taken for acquiring the capital assets, waiver thereof would not amount to any income eligible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, the waiver thereof may result in the income more so when it was transferred to the profit and loss account.

Source: ICAI journal, June'12

Note: For more details please reffer ICAI journal June'12.

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E Voting - mandated for top 500 listed companies on the BSE and the NSE

E Voting is a new concept in India and introduction of which will take India well ahead of other developed countries.  The Securities and Exchange Board of India (SEBI) made it mandatory for top listed firms to provide for electronic voting facilities wherever shareholders are allowed to vote through postal ballot.

“To begin with, it would be mandated for top 500 listed companies on the BSE and the NSE based on market capitalization. Listed companies may choose any one of the agencies which is currently providing the e-voting platform,”.  SEBI has also announced that in future other more companies will be brought into ambit of E Voting. E Voting is proposed to be mandatory from 01.10.2012 in India.

SEBI aims at increase in transparency and participation of shareholders in shareholders meeting. This will also strengthen Corporate Governance standards and also help to reduce administrative cost which is associated with Postal Ballot.

E Voting can be done through NSDL and CDSL by simply creating User ID.

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Foreign Direct Investment (FDI)

Introduction

As the world turned to a global village, India leaped ahead of its Peer Countries due to its several investment opportunities, huge growth potential and favorable business environment and become hub of Foreign Investment. The steady growth of foreign investment in the Country since the past few years has become one of the pivotal factors in determining the pace of growth of Indian Economy. The foreign Investment in India is not only a growth driver for India Inc. but it also it plays a vital role in granting confidence and trustworthiness to the present as well as potential stakeholders of the organization besides earning International repute and recognition for the country. Infusion of foreign funds in the veins of Indian Economy has largely stimulated the growth of Indian Economy and with the government further liberalizing and streamlining the Foreign Investment policies and procedures, is hopefully supposed to play a crucial role even for the times to come

FDI Policy

FDI is primarily governed by the Foreign Exchange Management Act, 1999 (FEMA) which lays down the broad framework under which Government of India through various regulatory bodies create, review and regulate the detailed provisions. The Government of India through Department of Industrial Policy & Promotion (DIPP) releases two comprehensive FDI policy in an year vide its Circulars which are effective from April 1 and October 1 of each year, the said FDI Policy combines all the prior policies/regulations relating to FDI in India in a single document . Every consolidated FDI policy circular, substitutes the last policy circular.

Modes of Foreign Investment in the Company

‘Foreign investment’ refers to an investment in an enterprise by a Non-Resident whether it involves new capital or re-investment of earnings. Foreign investment is of two kinds – (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment. Any non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy. The government of India has also specified the class of entities in which the Foreign Investment can be made and with respect to each set of entities there are separate guidelines and criteria to be followed. Indian Company being one of the recognized entities for receiving Foreign Investment, FDI in such entities flows under two routes – (a) Automatic Route and (b) Approval Route.

Automatic Route

All Foreign Direct Investment proposals which do not require the approval of Foreign Investment Promotion Board are said to be investment under Automatic Route. This route is available to all sectors or activities that do not have a “sector cap” i.e. where 100% foreign ownership is permitted or where investment up to sectoral cap is allowed without approval.

Approval Route

All Foreign Direct Investment proposals, wherein the proposed investment in Indian Company is above the prescribed sector caps or where the proposed investment is in such sectors where investment is allowed only pursuant to approval, falls under the approval route.

Instruments for receiving Foreign Investment

The investment as aforesaid may be made in the Indian companies in any of the following modes:

• equity shares,
• fully, compulsorily and mandatorily convertible debentures and

fully, compulsorily and mandatorily convertible preference shares

In case any Unlisted Company issues any of the aforesaid instrument, than their pricing shall be determined by Discounted Cash Flow (DCF) method of valuation and in case of any listed company, according to method provided in SEBI (ICDR) Regulations. In case of convertible instrument the price or conversion formula of such instruments should be determined upfront at the time of their issuance. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the valuation method as provided aforesaid.

Inwards remittance through the issuance of Depository Receipts and Foreign Currency Convertible Bonds (FCCB) are also counted towards FDI.

Sectoral caps with reference to Foreign Investment

The government of India has, for the purpose of ensuring maximum economic growth and at the same time maintaining National interest divided the business activities into three different sectors. Each of the sectors has specified industries and procedures under its purview and specifies conditions to be followed with a view to infuse Foreign Investment in such specific industry of the sector. Such Sectors includes:-

1. Prohibited Sectors – Sectors wherein Foreign Investment is strictly prohibited i.e wherein no application for approval can be made.
2. Restricted Sector – Sectors wherein Foreign Investment is permitted under automatic approval up to a specified percentage and for any increase beyond such specified percentage, approvals is required or per se there are certain sectors wherein foreign investment is allowed only pursuant to approvals.

100% Automatic Sectors – Sectors under Automatic Route means such sectors wherein 100% investment is allowed without seeking any governmental approvals.

Foreign Investment – Overview of implications involved

As and when the question regarding infusion of Foreign Funds arise, the first criteria to be verified is regarding which sectors such industry falls. In case of Automatic Route, the non-resident investor or the Indian company does not require any approval from Governmental authority, whereas, under the Restricted Sectors, prior approval of the Government of India through Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance may be required. With specific reference to certain specified sectors, Foreign Equity should be infused after seeking approval and abiding by the policies & regulations of concerned authority as well such as SEBI, TRAI, IRDA, MIB etc.

Cases requiring approval

For proposals involving FDI under the Government route the following approval levels operate within the Foreign Investment Promotion Board i.e. though the requisite application would be filed by the applicant to the FIPB, it would be disposed of following the specified manner:-

While granting approval to any application filed with the FIPB the FIPB takes into consideration and scrutinize various important aspects therein a brief flow chart of the procedure followed therein is specified below:-

The FIPB is instructed not to change or impose additional conditions in any specific letter of approval pursuant to grant of such letter of approval to any Non-resident investor, Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at FIPB’s website (http://finmin.nic.in/ ) and (http://www.fipbindia.com ).

Procedural implications with reference to Foreign Investment

In seeking foreign Investment under automatic route or under approval route post acquiring requisite approval, the following issues must be taken care of:-

• The Indian company receiving foreign investment should report the details of the amount of consideration to the Regional Office of concerned RBI through its Category 1 Authorized Dealer not later than 30 days from the date of receipt. Such report should be accompanied with copy of FIRC/s evidencing the receipt of the remittance and the KYC report on the non-resident investor from the overseas bank remitting the amount, upon submission of which a Unique Identification Number (UIN) for the amount reported would be allotted to the entity.
• The Capital Instrument must be issued within 180 days of the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account of the non-resident investor. In case the same is not done within the specified time frame the amount should be refunded to such non-resident shareholder.
• The Capital Instrument must be priced in accordance with the valuation methodology provided.
• After issue of shares (including shares issued on rights basis and shares issued under ESOP)/fully, mandatorily & compulsorily convertible debentures / fully, mandatorily & compulsorily convertible preference shares, the Indian company has to file Form FC-GPR, to the Regional Office of concerned RBI through its Category 1 Authorized Dealer not later than 30 days from the date of issue of Shares along with requisite annexure.
• Separate forms are prescribed for reporting of non cash issuance and FCCB/ADR/GDR issues.

Conclusion

One of the main element which could lead to the improvement in the economic condition of the Country is the increase in the inflow of foreign investment. Towards such initiative the Government has time and again being simplifying procedural aspects and making its guidelines user friendly whether such user be a Foreign investor or the investee company seeking any approval. Though such steps are steadily taken by the Government however it’s essential that a steady flow of such policies is maintained so that foreign investment for future also continues to rise.

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Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is a new concept introduced in India with a view to have social change. There is as such no common definition of CSR. Most ideal definition of CSR has been given by World Business Council for sustained Development which says, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.

Thus, from the above definition CSR works two ways, On the one hand, it exhibits the ethical behavior that an organization exhibits towards its internal and external stakeholders (customers as well as employees). On the other hand, it denotes the responsibility of an organization towards the environment and society in which it operates.

Today employee’s are also actively participating in social activity. A company/enterprise cannot simply explore natural resource and escape their responsibility of CSR. Today companies are expending huge amount of fund on CSR with the motive of giving back nature and society, but the question is whether these money are reaching in right hand. Hence, it is individual responsibility and right to raise voice if any fishy is found in this part.

 Government now-a- day is very keen on CSR but séance of CSR has to come from within. It is not only duty but responsibility of company to take up CSR actively as this will improve society in which they are working and thus make goodwill of the company.

The concept of Corporate Social Responsibility was first mentioned 1953 in the publication ‘Social Responsibilities of the Businessman’ by William J. Bowen. However, the term CSR became only popular in the 1990s, when the German Betapharm, a generic pharmaceutical company decided to implement CSR. The generic market is characterized by an interchangeability of products. In 1997 a halt in sales growth led the company to the realization that in the generic drugs market companies could not differentiate on price or quality. This was the prelude for the company to adopt CSR as an expression of the company’s values and as a part of its corporate strategies. By using strategic and social commitment for families with chronically ill children children, Betapharm took a strategic advantage.

Why do we need CSR

1.       Win new business

2.       Increase customer retention

3.       Develop and enhance relationships with customers, suppliers and networks

4.       Attract, retain and maintain a happy workforce and be an Employer of Choice

5.       Save money on energy and operating costs and manage risk

6.       Differentiate yourself from your competitors

7.       Generate innovation and learning and enhance your influence

8.       Improve your business reputation and standing

9.       Provide access to investment and funding opportunities

10.   Generate positive publicity and media opportunities due to media interest in ethical business activities

Thus, companies has to Take CSR seriously and try to mitigate all ulterior motives. The reality is that CSR is not a tactic for brand building; however, it creates an internal brand among its employees. Indulging into activities that help society in one way or the other only adds to the goodwill of a company.

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