Translate

Wednesday, June 26, 2013

Eating Ice cream at an ice cream parlour is a “service”!!

The government is thinking of making eating of ice-cream at service parlours subject to service tax! Why? Because ice-cream parlours are air-conditioned and hence subject to service tax!! The question is whether ice-cream is a product or a service! To my mind ice-cream is a manufactured product and is subject to excise duty once it leaves the factory. Because it is a product it will be subject to VAT as per the respective State laws. Now an additional dose of tax – service tax @ 12.36% over and above the two taxes. This will lead to taxation in excess of 35% on ice cream is eaten at ice-cream parlour…..it just makes me want to scream.

The basics of product vis-à-vis service is being brought into question by fuddy-duddy bureaucrats who want to be in the good books of the Finance Ministry by whatever means possible and the citizenry at large be damned, I guess.

It is apparent that a useless Government is trying to fill its pockets through all means possible to enhance its coffers so that it can continue to indulge in wasteful expenditure. The more money they take through direct and indirect taxes, the more the money available for siphoning off through the various on-going scams.
This is going to kill the food industry completely. People have stopped going to beer bars and restaurants due to the high incidence of taxation. Now they will stop going to ice-cream parlours which are basically teen-age and family evening-out hot spots! The government is telling people buy your stuff, take it home and eat. DO NOT EAT OUT. It is becoming a complete kill joy of a government. Its philosophy seems to be tax till you get the axe! Looks like the voters need to sharpen their axes!!

New TDS provision related to purchase of property

 This note is being written in response to various calls I have got from clients with respect to the TDS provision on property transactions. Effective from 1 June 2013, taxes are to be deducted at source ('TDS') on payments for the purchase of immovable property (including any land other than agricultural land, or any building or part of a building) @ 1 per cent as per section 1941A. Taxes would be required to be deducted @ 20 per cent should the seller not hold a PAN. Such requirement to deduct taxes is triggered should the purchased property's cost exceed Rs. 5,000,000.  The representations made by the Confederation of Real Estate Developers of India requesting a rollback of the section was not accepted thus dashing the hopes of the industry. As the rules for the same were not notified there was the hope of a possible rollback similar to the one performed last year, when such a proposal was placed in the Finance Bill, 2012 but not enacted into the Finance Act, 2012.

Unfortunately for the industry and persons dealing in real estate, the Government, vide a notification released on May 31, 2013, has notified the relevant rules for deducting such taxes at source. According to the rules, the buyer / purchaser of property has to deposit TDS within seven days by means of Form 26QB, which is challan cum statement. This tax has to be deducted as per the provisions related to all withholding taxes – at the time of payment or credit whichever is earlier. The buyer / purchaser is also required to download a TDS certificate in Form 16B, from a yet to be notified web portal. This certificate needs to be issued to the seller within 22 days from the end of the month in which the tax is to be deducted.

There are certain questions which arise as to the taxability of such transaction. Generally, whenever anyone buys a property from a developer, the payments are normally made in installments over the construction period. Also, installments may be paid before as well as after the agreement is made. Further, the possession of the property is given only after construction is completed and the full payment is made. In such cases, when does the transfer of property take place? On first payment, on agreement or on possession? From which payment should one deduct the tax – first payment, all payments, payment before agreement, payment on agreement, payment before possession or payment on possession? Whether tax is to be deducted where the initial payment and/or the agreement is made before June 1, 2013, for installments payable thereafter. Further, in case of under-construction property purchased from the developer, service tax is also payable. Hence, it can be argued that developer is providing construction service and not transferring property therefore, TDS provision is not applicable. What happens in such cases? All these issues need to clarified otherwise it could lead to unnecessary litigation.

What happens in case someone has taken a home loan? In such cases the first 20% is paid by the buyer and then subsequently the Bank / Institution provides the finance and pays the seller / developer. Does the loan provider have to pay the tax? This can only become clear when the question of point of taxability is decided. If tax is deducted before the loan disbursement starts, loan provider will not be liable. If not, then what happens? Will the loan provider take on this additional administrative burden?

In case the seller does not have a Permanent Account Number, then it would be better to wait for a few days and let the seller obtain a Permanent Account Number so that TDS by the purchaser is done at the rate of 1 percent only as against 20 percent TDS for non-mentioning Permanent Account Number of the seller. This section specifically states that where such Permanent Account Number is not submitted, then the rate of TDS will be at 20 percent. The provisions of this section 206AA will also be applicable in case of TDS by the purchaser of immovable property of Rs. 50 lakhs or above.

It is important to note that generally speaking, whenever the formalities relating to tax deduction at source are to be complied with, there is also a requirement of obtaining TAN No. (Tax Deduction Account Number). But in respect of TDS relating to purchase of immovable properties there is no requirement to obtain TAN. However, what is most important is to obtain the Permanent Account Number of the seller from whom such tax is being deducted at source.

It is pertinent to note that these provisions are not applicable to a NRI seller as he will be governed by the provisions of section 195 of the Income Tax Act, 1961.

Some of the important columns in the new Form No. 26QB which is a challan-cum statement for deduction of tax are as under :-

1. Full name of the transferee/payer/buyer
2. Complete address of the transferee/payer/buyer
3. Full name of the transferor/payee/seller
4. Complete address of the transferor/payee/seller
5. Complete address of the property transferred
6. Date of agreement/booking
7. Total value of Consideration Rupees
8. Payment in installment or lump sum
9. Amount paid/credited
10. Date of payment/credit.
11. Rate at which tax deducted
12. Amount of tax deducted at source
13. Date of deduction
14. Date of payment of tax deducted at source
15. TDS (Income-tax) Credit of tax to the deductee shall be given from this amount.

The columns given above should more be filled up carefully in the challan-cum statement for deduction of tax under section 194IA. Also, once the tax has been deducted at source, the buyer / purchaser should prepare Form No. 16B which will be generated electronically on the Government’s website and send the same to the seller.
All those who are investing in purchase of immovable property other than rural agricultural land of the value of Rs. 50 lakhs or more should carefully understand their obligations for deducting income-tax at the rate of 1 percent from the payment made to the seller in respect of purchase of the properties on or after 1st of June, 2013.
The TDS certificate can be downloaded from TRACES (www.tdscpc.gov.in).



Wednesday, June 5, 2013

RESPONSIBLE JOURNALISM or SENSATIONALISM

I have stopped reading newspapers in as much detail as I used to earlier and I have completely stopped watching news channels on TV. What is reported is not news – in the print media what you read is sensationalism in the garb of ‘news’ – on TV it is more about TRP and advertising revenue – with 3-4 day old news still being shown as ‘breaking new’!! You open any newspaper it will have news of some scam or the other, rape, murder, land grab, corruption in the local body, suicide, police high handedness, etc – day in day out it is the same with a different set of characters! Good news is hardly ever published. There is plenty of good work being done by unknown local people in the interiors of the country, selflessly and without expectation, but this is not newsworthy as it does not SELL!

Take a case In point – the current news being flogged to death – MS Dhoni and conflict of interest via his business connections. He is a director in 12 companies shout the headlines! Most of these companies were formed last year and he or his relatives are directors in them. So what?!? Has anyone gone on to investigate and find out whether these companies have actually done any business! Such headlines hint at ‘how much money Dhoni is making through these businesses!’ by leaving things left unsaid. It is so easy to slander by putting a question mark at the end of a headline – this is so because the law on civil damages is useless in this country. Do you see such disgusting reporting in the US or elsewhere in the West? No! Why? Because the law is respected and the justice system works with justice being seen to be delivered almost always and that too in time. In India a case can go on forever till kingdom come. Witnesses will die, there will be blatant perjury but all this is done because we have no respect for the law. Has anyone asked our ex-President what happened to the money her company borrowed from banks –why it has not been repaid. What about politicians owning all these engineering colleges which command high fees and below the table money for securing seats. What about big industrialists who owe thousands of crores to banks but still walking free. An ordinary man is hounded for Rs. 1000 not being paid on time to a credit card company – but for dues of 1000 crores these guys don’t have the balls to go after the defaulters.

Please read Arvind Kejrivals open letter to Mukesh Ambani:

Why do we not respect the law? This is in our national psyche – do our so called law makers respect the law? They think that being elected representatives the law is their servant and hence flagrant violations of law take place with next to no consequences. How many politicians, bureaucrats, government officials have actually been taken to task, let alone being prosecuted. Permissions to launch such prosecutions are invariably denied. This is across political parties – as the philosophy at work is you scratch mine and I’ll scratch yours and let the nation go to hell. Loot while there is enough to loot – we have enough middle class tax payers to pay for political profligacy.


I am waiting for the day when our journalists will start publishing balanced news and showing news honestly on TV – the news should be newsworthy. Our newspapers and TV News channels are depressing because nothing good is ever published – and I am too much of an optimist to believe that there is no good which is happening in the world. Maybe some day the media magnates will realise that there is good too which is happening and which needs to be highlighted, even if it means less advertising revenue.