UNION Budget 2015

- Investment in Sukanya Samridhi Scheme will be fully exempted from tax 
- No Change in Tax Slabs and 80C Limit
- Tax Benefits on Income upto Rs. 4.42 Lakh.
- Service Tax Rate Increased to 14% from 12.36%
- Transport Allowance Limit increased to Rs. 1600 per Month

- Deduction for Contribution to Pension Fund- Limit increased to Rs. 1.50 lakh
- Limit U/s. 80D raised to Rs. 25000 from existing Rs. 15000/-
- Specified Domestic Transaction Limit proposed to increase to 20 Crore from 5 Crore. 
- 100% deduction to contribtions to Swachh Bharat funds.
- Tax on Royalty from Technical Services cut to 10%
- Wealth Tax act abolished and 2% Surcharge imposed on Super Rich having  Income above 1 Crore – Additional 9000 crore expected
- GAAR to be resolved in 2 Years- Implementation of GAAR deferred by 2 Years. To be applied from April 2017 
- Law to Curb Black Money in Property Transactions- PAN Mandatory for all Transactions above Rs. 1 Lakh 
- Up to 10 Year imprisonment for Black Money, Concealment of Income or Assets 
- Non Filing of Income Tax Return is proposed to make Punishable with Imprisonment.
- FM to Reduce Corporate tax rate from 30 to 25% over next 4 years. 
- Cut in corporate tax rates is accompanied by cut in Tax Exemption 
- Employee’s contribution to EPF below an income threshold will be optional without reducing employer’s contribution.
- FM proposes to do away with different types of foreign investment and replace them with composite caps. 
- 150 countries to be included in Visa for arrival facility
- Amendment in SEBI and RBI Laws Proposed to merge commodities regulator with SEBI Vision of a building direct regime which will be internationally competitive 
- Tax free infra bonds for road, rail and irrigation projects. 
- GST to be put in place by April 1, 2016 
- Govt allocates Rs 346.99 billion for NREGA scheme in Budget 2015 to insure no one is poor and without job 
- Bankruptcy law reform has been identified as a key to ease of doing business. Bring comprehensive Bankruptcy code in 2015-16. 
- Rs 5.20 lakh crore in taxes to go to states in 2015-16. 
- States get 62% of the total resources now 
- Service tax exemption extended to pre-cold storage warehousing 
- 2 per cent cess on services for Swachch Bharat.
- Specified Decased enhanced to Rs. 80K for Sr. Citizen
- Govt permitted FDI in defence already. Pursuing Make in India for greater self sufficiency. As against expenditure at 2,22,000 crore, budget allocation for 15-16 is Rs 2,46,727 crore
- Rs 1,200 crore for fast track corridor between Ahmedabad and Mumbai
- Propose to give special assistance to Bihar and WB as has been provided in case of AP.
- Another AIIMS like institute in Bihar. IIT in Karnataka. Postgrad institute of horticulture in Punjab. IIM in J&K and AP.
- Fully IT based student financial aid scheme for higher education.
- Propose to start working to support heritage sites. Churches in Goa, Hampi in Karnataka, Elephanta Caves in Mumbai, Rajasthan, rani ka Waav, Leh Palace, varanasi temple Town, Jallinagwallah and Tombs in Hyderabad.
- Visa on arrival: 43 countries part of it. Tourism has increase. Propose to increase countries to 150 in different stages.
- Rs. 1,000 crore additional allocation to the Nirbhaya fund.
- Allocation to MNREGA upped by Rs 5,000 crores, MNREGA cash boost will make it highest allocation ever, rural wages will also get boost
- NBFCs registered with RBI above Rs. 5,000 crore to be considered financial institutions.
- Pradhan Mantri Jeevan Jyoti Bima Yojana - Rs. 1 per day premium, Rs. 2 lakh coverage.

Budget 2015 - Service Tax Amendments

1. Change in Service Tax rate :  

♣  The Service Tax rate is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Thus, effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%. The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015. Till the time the revised rate comes into effect, the levy of ‘Education cess’ and ‘Secondary and Higher Education cess’ shall continued to be levied in Service Tax. 

2. Swachh Bharat Cess :  

♣  An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives. This Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.

3. Broadening of tax base :

(A) Review of the Negative List [Amendment in the Finance Act, 1994]  

♣ Service Tax to be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places. The Negative List entry that covers access to amusement facility is being omitted [section 66D (j)]. Consequently, the definition of “amusement facility” [section 65B(9)] is also being omitted.

These proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.  

♣  Service Tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions, if the amount charged is more than ` 500 for right to admission to such an event. For this purpose, the Negative List Entry that covers admission to entertainment events is being omitted [section 66D (j)]. Consequently, the definition of “entertainment event” [section 66B (24)] is being omitted. However, the existing exemption to service by way of admission to entertainment events, namely, “exhibition of cinematographic film, circus, recognized sporting events, dance, theatrical performances including drama and ballets, by way of the Negative List entry shall be continued, irrespective of the amount charged for such service, through the route of exemption. For this purpose a new entry is being inserted in Notification No. 25/201 2-ST, dated 20.6.201 2. The proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.  

♣  The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods [section 66D (f)] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration. In this context, the definition of the term “ process amounting to manufacture or production of goods” [ section 65B (40) is being amended] with a consequential amendment in S. No. 30 of notification No. 25/1 2-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit. The proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.  

♣  Presently, services provided by the Government or a local authority, excluding certain services specified under clause (a) of section 66D, are in the Negative List. Service tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending [section 66D (a)(iv)], to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65B(49)] is being omitted. These amendments shall come into effect from a date to be notified by the Central Government in this regard after the enactment of the Finance Bill, 2015. Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any other entry in the Negative List, shall be liable to Service Tax . 

(B) Review of general exemptions extended under Notification No. 25/2012-ST, dated 20.6.2012: ·  

Exemption presently available on specified services of construction, erection, commissioning, etc. provided to the Government, a local authority or a governmental authority ( vide S. No. 12 of the said notification ) shall be limited only to,- 

(a)     a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity; 

(b)     canal, dam or other irrigation work; and 

(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. Exemption to other services presently covered under S. No. 12 of notification No. 25/1 2-ST is being withdrawn.  

♣  Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn. The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

♣ Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.  

♣  Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue.  

♣  Exemptions are being withdrawn on the following services: 

(a)   services provided by a mutual fund agent to a mutual fund or assets management company, 

(b)  distributor to a mutual fund or AMC, 

(c) selling or marketing agent of lottery ticket to a distributor. 

Service tax on these services shall be levied on reverse charge basis.  

♣  Exemption is being withdrawn on the following service,- 

(a)     Departmentally run public telephone; 

(b)     Guaranteed public telephone operating only local calls; and 

(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued. All the above changes in notification No. 25/12-ST, dated 20.6.2012 shall come into effect from the 1st day of April, 2015. 

4. New Exemptions:  

♣  Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.  

♣  Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.  

♣  Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.  

♣  Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or association of persons consisting of such exhibitor as one of it’s members is being exempted.  

♣  Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from service tax. The scope of this exemption is being widened to include all ambulance services.  

♣  Service provided by way of admission to a museum, zoo, national park, wild life sanctuary,and a tiger reserve is being exempted.  

♣  Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS). [All the above New Exemptions shall come into effect from the 1st day of April, 2015] 

5. New entries being incorporated in notification No. 25/12-ST, to continue exemption to some ofthe servicesthat are presently covered by the Negative List entries which are being omitted:  

♣  Service by way of right to admission to,- 

(i)     exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet.

(ii)    recognized sporting events. 

(iii) concerts, pageants, award functions, musical or sporting event not covered by the above exemption, where the consideration for such admission is upto ` 500 per person. 

These changes shall be brought into effect from the date the amendments being made in the Negative List, concerning the service by way of admission to entertainment events, come into effect. 

6. Other changes being incorporated in the Finance Act, 1994  

♣  Services, excluding few specified services, provided by the government have been included in the Negative List. Further, specified services received by the government are also exempt. Hitherto, the term “government” has not been defined in the Act or the notification. This has given rise to interpretational issues. To address such issues, a definition of the term “government” is being incorporated in the Act.  

♣  The intention in law has been to levy Service Tax on the services provided by: 

(i)     chit fund foremen by way of conducting a chit. 

(ii)    distributors or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery. 

However, Courts have taken a contrary view in some cases, while in some cases the levy has been upheld. 

An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and distributors or selling agents of lottery in relation to lotteries.  

♣ Section 66F (1) prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such service. An illustration is being incorporated in this section to exemplify the scope of this provision.  

♣  Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for service shall include: (a)  all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically by this provision. (b)  amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets;  

♣  Section 73 is being amended in the following manner: (i)     a new sub-section (1B) is being inserted to provide that recovery of the service tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73,; and (ii)    sub-section (4A), that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.  

♣  Section 76 is being amended to rationalize penalty, in cases not involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, in the following manner,- (i)   penalty not to exceed ten per cent of service tax amount involved in such cases; (ii)    no penalty is to be paid if service tax and interest is paid within 30 days of issuance of notice under section 73 (1); (iii)   a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the service tax, interest and reduced penalty is paid within 30 days of such order; and (iv)   if the service tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty ( 25% of penalty imposed) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.  

♣  Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, in the following manner,- (i)   penalty shall be hundred per cent of service tax amount involved in such cases; (ii)  penalty equal to 15% of the service tax amount is to be paid if service tax, interest and reduced penalty is paid within 30 days of service of notice in this regard; (iii) a reduced penalty equal to 25% of the service tax amount determined by the Central Excise Officer, by an order, is to be paid if the service tax, interest and reduced penalty is paid within 30 days of such order; and (iv) if the service tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.  

♣  A new section 78 B is being inserted to prescribe, by way of a transition provision, that,- (i)     amended provisions of section 76 and 78 shall apply to cases where either no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015; and (ii)    in respect of cases covered by sub-section (4A) of section 73, if no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015, penalty shall not exceed 50% of the service tax amount.  

♣  Section 80, that provided for waiver of penalty in specified situations, is being omitted.  

♣  Section 86 is being amended to prescribe that matters involving rebate of service tax shall be dealt with in terms of Section 35EE of the Central Excise Act.

7. Rationalization of Abatements:  

♣  At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road provided by a goods transport agency and 40% for goods transport by vessels. The conditions also vary. A uniform abatement is now being prescribed for transport by rail, road and vessel. Service Tax shall be payable on 30% of the value of such services subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.  

♣  At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and service tax would be payable on 60% of the value of such higher classes.  

♣  Abatement is being withdrawn from chit fund service. Consequently, Service Tax shall be paid by the chit fund foremen at full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit. The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015. 

8. Service Tax Rules:  

♣  In respect of any service provided under aggregator model, the aggregator, or any of his representative office located in India, is being made liable to pay Service Tax if the service is so provided using the brand name of the aggregator in any manner. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator. In this regard appropriate amendments have been made in rule 2 of the Service Tax Rules, 1994 and notification No. 30/2012-ST dated 20.6.2012. This change comes into effect immediately i.e. w.e.f. 1.3.2015. 

♣  Rule 4 is being amended to provide that the CBEC, by way of an order, specify the conditions, safeguards and procedure for registration in service tax.  

♣ Provision for issuing digitally signed invoices are being added along with the option of presentation of records in electronic form. The conditions and procedure in this regard shall be specified by the CBEC. 

♣ Rule 6 (6A) which provided for recovery of service tax self-assessed and declared in the return under section 87 is being omitted consequent to amendment in section 73 for enabling such recovery.  

♣ In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. Amendments to this effect have been proposed in the Service Tax Rules. These amendments shall come into effect as and when the new service tax rate comes into effect. 

9. Reverse charge mechanism:  

♣  Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism. This change will come into effect from 1.4.2015.  

♣ Services provided by mutual fund agents, mutual fund distributors and agents of lottery distributor are being brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agents and mutual fund distributors services shall be paid by assets management company or, as the case may be, by the mutual fund receiving such services. In respect of sub-agents of lottery, Service Tax shall be paid by the distributor or selling agent of lottery. This change will come into effect from 1.4.2015. 

10. Cenvat Credit Rules, 2004:  

♣  Rule 4(7) is being amended to allow credit of service tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider. This change will come into effect from 1.4.2015 

11. Miscellaneous: 

Existing exemption, vide notification No. 42/1 2-ST dated 29.6.201 2, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.

(Source - UNION BUDGET 2015)

Section 43(5) Derivatives include foreign currency call option and put option

IVF Advisors Private Limited vs. ACIT (ITAT Mumbai),

I.T.A. No. 4798/Mum/ 2012, 

Date of Pronouncement :13.02.2015 

While perusing the profit and loss account of the assessee, the AO noticed that the assessee has claimed a loss of Rs.93,63,235/- on account of loss on foreign currency futures. The AO was of the strong belief that the loss cannot be allowed in the light of the provisions of section 43(5) of the Income Tax Act, 1961 (the Act) r.w. clause (ac) of section 2 of the Securities Contracts (Regulation) Act 1956. While disallowing the loss of Rs.93,63,235/-, the AO has considered the relevant provisions of section 43(5) of the Act and section 2(ac) of the Securities Contracts (Regulation) Act. 

Aggrieved by this finding of the AO the assessee carried the matter before Ld. CIT(A). It was strongly contended that the contracts in foreign currency futures were not speculative transaction. It was further explained that the foreign currency contract does not satisfy the condition of being a speculative transaction and, therefore, the loss on account of foreign currency futures was not speculative loss. After considering the facts and the submissions, Ld. CIT(A) observed that the assessee is not engaged in manufacturing or merchanting business and was also a dealer and investor in stock and shares. Therefore, the loss of Rs.93,63,235/- earned by the assessee on account of transactions in foreign currency future was not in the nature of hedging loss, therefore, such loss was not earned in the course of guarding against loss through future price fluctuation in respect of contracts for actual delivery of goods manufactured or in respect of stock of share entered into by a dealer. Ld. CIT(A) was of the firm belief that proviso (d) to section 43(5) was not applicable. Ld. CIT(A) confirmed the assessment order holding that the AO has correctly held that such loss was a speculation loss within the meaning of section 43(5) of the Act. Aggrieved by this assessee is before us. 

Ld. Counsel for the assessee reiterated what has been submitted before lower authorities. Ld. Counsel for the assessee drew our attention to proviso (d) of section 43(5) of the Act and stated that the Revenue Authorities have failed to interpret the said proviso. It is the say of the Ld. Counsel that the contracts entered by the assessee cannot be said to be of speculative in nature because the contracts have ultimately been settled by the delivery of Forex. 

We have carefully perused the orders of the Revenue Authorities and the submissions made by the assessee in the light of the relevant provisions of the IT Act and also Securities Contract Regulation Act, 1956. Section 43(5) of the I.T. Act.

From which it  can be seen that the derivatives also includes securities. The definition of eligible transaction mentioned herein above clearly show that the transaction must have been carried out electronically in accordance with the provisions of Securities Contracts (Regulation) Act and the Rules and Regulations or bye laws made or directions issued under this Act or by banks or mutual funds on a recognized stock exchange and which is supported by time stamped contract note issued by such stock broker or sub-broker or intermediary to every client indicating in the contract note the unique client identity number and permanent account number.

It would be pertinent to consider the decision of Hon’ble Madras High Court in the case of Rajshree Sugar & Chemicals Ltd. vs. Axis Bank Ltd., AIR 2011 (Mad) 144, wherein the term derivative has been defined to include foreign currency as an underlying security of the derivative. The relevant extract of the case is quoted below: 

“What are these derivatives which have gained such a great deal of notoriety? In simple terms, derivatives are financial instruments whose values depend on the value of other underlying financial instruments. The International Accounting Standard (IAS) 39, defines “derivatives” as follows: -

“A derivative is a financial instrument: 

(a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the ‘underlying’); 

(b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions; and 

(c) that is settled at a future date.” 

Actually, derivatives are assets, whose values are derived from values of underlying assets. These underlying assets can be commodities, metals, energy resources, and financial assets such as shares, bonds, and foreign currencies.” 

Further, the SEBI website in its section ‘frequently asked questions’ has explained the meaning of derivative as under: 

Q 1. What are Derivatives? 

A. The term “Derivative” indicates that it has no independent value, i.e. its value is entirely “derived” from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. 

With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations)  Act, as: 

A.   Derivative includes: - 

a. a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; 

b.  a contract which derives its value from the prices, or index of prices, of underlying securities;

It is further provided by SEBI that in Aug.2008 SEBI permitted exchange traded currency derivative. 

Considering the relevant provisions of the relevant Acts, discussed herein above in the light of Hon’ble Madras High Court and the answers given to frequently asked questions by the SEBI and the incorporation of exchange traded currency derivative from August, 2008, there remain no iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. We have also gone through the copies of the contract notes incorporated in the paper book filed before us. A perusal of the contract note shows that the assessee has either entered into call option or put option and on the settlement day the transaction has been settled by delivery, either the assessee has paid US dollar on the settlement day or has taken delivery of US dollar. 

To sum up, the derivatives include foreign currency and call option/ put option, are transactions of derivative markets and cannot be termed as speculative in nature. Considering the totality of the facts and in the light of the judicial discussion herein above, we have no hesitation in setting aside the order of Ld. CIT(A). Appeal filed by the assessee is accordingly allowed.

Guidance Note on Audit of Banks for 2015

The annual statutory bank and bank branch audits for F.Y. 2014-15 are fast approaching.  It, therefore, gives me immense pleasure to inform you that the Auditing & Assurance Standards Board of ICAI has issued the 2015 Guidance Note on Audit of Banks. 

The Guidance Note provides an insight into the banking industry in India and how they carry out their day to day functions. It also discusses in depth the various important items on the financial statements of a bank, its peculiarities, manner of disclosure in the financial statements, the RBI prudential directions thereon, audit procedures, etc.  Similarly, the Guidance Note has Chapters on audit procedures for reporting on long form audit reports for banks and bank branches, reporting under Ghosh and Jilani Committee requirements, special purpose reports and certificates, etc. Importantly, the audit procedures are based on the principles enunciated in the Standards on Auditing.

The Guidance Note, inter alia, has been updated for the impact of RBI Master Circulars issued in 2014, Basel III, service tax requirements, etc.  Importantly, the auditors of the banking companies, in addition to the reporting requirements under the Banking Regulation Act, 1949, would also need to report pursuant to section 143 of the Companies Act, 2013. The auditors would accordingly need to amend their audit engagement letters and the auditor’s report. Illustrative formats of an engagement letter and an auditor’s report for a banking company, meeting the requirements of the Banking Regulation Act, 1949 as well as the Companies Act, 2013, have also been given in the Appendices given in the CD.  Similarly, an updated bank branch audit programme for 2014-15 audits is also given.

The full text of the 2015 Guidance Note on Audit of Banks can be downloaded free of charge from URL :

http://www.icai.org/new_post.html?post_id=11394&c_id=219 

Input Credit mechanism under proposed GST regime

BACKGROUND :

Before I begin this article it is worthwhile to discuss the background behind this since as of today no professional as well dealer is sure about the consequences of proposed GST legislation. There is General perception among professional and society that GST will remove cascading effect, make administration simple and system will become more transparent. All the perception hold good undoubtedly and there is need to go one more step further to understand he exact scenario of Indirect taxes under proposed GST regime. In this article I would discuss the input credit mechanism under GST, glimpse of IT infrastructure under GST and other administrative issues like registration of dealers, filing of returns etc.

INPUT CREDIT MECHANISM IN CASE OF INTRASTATE TRANSACTION (WITHIN A STATE):

Those dealers dealing exclusively within a state have to charge CGST and SGST at the respective rate and will make the payment of CGST and SGST on value addition in the account of Center and State Government respectively. In the above
scenario we have assumed that the dealer is not purchasing goods and services from outside state. We can understand this concept with the help of an illustration where M/s New Delhi trading company is buying goods from M/s
Old Delhi traders for Rs. 100 and the seller is charging CGST @ 12% and SGST @ 10%. The buyer can book input credit of both the CGST and SGST in his book and use this tax for making payment of his output tax liability. M/s Old Delhi is
selling the same product for Rs. 120 (20 profit) and charging Rs. 14.40 as CSGT and Rs. 12 as SGST and making payment to Central Government @ Rs. 2.40 as CGST and Rs. 2.00 @ SGST to State Government . The professionals have no difficulty in understanding this as this system is already in place under existing VAT and Excise law.

INPUT CREDIT UNDER INTER STATE TRANSACTION –MILE STONE TO ACHIVE:

We all are advising on C Forms, F Forms and H Forms and so many other forms which are used if any Dealer makes interstate sales or stock transfer. This system is being followed by us from so many years and the same is full of cascading effect and administrative hurdles. The proposed GST law shall overcome all the above hurdles and remove cascading impact of the same by allowing input credit on the interstate purchase to the importing dealers .To make the above scenario more understandable I shall use one illustration to make it more clear. Under the proposed model the exporting dealer shall charge one single consolidated tax called IGST (CGST+SGST) from importing dealer and the same shall be cenvatable for the importing state dealer. In the above process an agency already setup by the Central Government shall act as a clearing house which will make the settlement of funds between Centre and State. The IGST and CGST shall be administered by Central Govt. and the SGST shall be managed by State Govt. by respective legislation. The loss suffered to each other shall be compensated together through clearing house mechanism which has been setup as GSTN.

UNDERSTANDING OF IGST WITH A HELP OF ILLUSTRATION:

A dealer in Delhi sells goods to a buyer in Haryana worth Rs. 100 by charging IGST @ 20% (CGST+IGST) i.e. Rs. 20 and the buyer in Haryana shall book Rs. 20 as input credit and shall use the same while making payment of output tax on his
sales either in same state or interstate . If the seller in Delhi has procured the goods sold by him from Delhi or outside Delhi his input shall be cenvatable in every case.

FLOW OF CREDIT FROM ONE STATE TO ANOTHER:

Under the proposed GST regime the exporter dealer shall use his CGST credit first to pay the IGST liability and after this SGST shall be used to pay the IGST liability and in the same manner the importer dealer shall use his IGST credit first to pay the CGST liability and at last to pay SGST. At the end of every month the clearing house shall make settlement of funds between centre and state to make the final payment to the losing party

REGISTRATIONS, RETURNS AND OTHER ADMINISTRATIVE ISSUES:

The dealer has to obtain a GSTIN (Goods and service tax identification number) on pan India basis and there will be no need to obtain separate GSTIN in respective states. The GSTIN shall be PAN based which shall also be used to link the
dealers with Income tax and Ministry of corporate affairs and sharing of information shall be on-line. Returns shall be monthly or quarterly depending on size of dealer and there will be on-line matching mechanism to match input tax
booked by buyer with the output tax shown by the selling dealer. The defaulting dealers shall be categorized as blacklisted in the system and their status shall reach to every buyer who has made purchase from said dealer.

CONCLUDING REMARKS:

All hopes are on the budget session of Union Govt. and the promptness of Centre to pass the 122nd Constitutional amendment bill in upcoming session. I pray to God for smooth functioning of parliament and passage of this bill to make the GST law a reality by 01-04-2016.