Harsh Penalty for Property Transaction in Cash of Rs. 20,000 or more w.e.f. 1st June, 2015

Arjuna (Fictional Character): Krishna, It is said that black money is used in the transactions of immovable properties. To restrict the use of Black Money in these transactions, Income Tax Department has introduced the new provision, what is that?

Krishna (Fictional Character): Arjuna, Government is initiating various ways to curb Black Money. A few days ago, “Black Money Bill” was passed in the Lok Sabha. In this Bill, very stringent punishment was mentioned for those who transact in Black Money. Also considering the fact that Black Money is widely used in transactions of immovable properties, Income tax Dept. has brought a penalty provision in budget 2015-16 for transactions of immovable property in Cash. For this the government has made amendments in sections 269SS, 269T, 271D and 271E of the Income Tax Act. This provision will be having a long lasting impact on real estate market of India.

Arjuna: Krishna, What are the amendments made in section 269SS of Income Tax Act?

Krishna: Arjuna, According to section 269SS of Income Tax Act, while transacting Immovable Property, 100% penalty will be levied if seller has accepted an amount of Rs. 20,000 or more in cash from the buyer. e.g. if for selling an immovable property “A” has received an amount of Rs.1 lakh in cash from “B” then “A” has to pay 100% penalty of Rs. 1 lakh. That means, Cash Transaction should be done carefully when selling a Plot, House Property, Flat, Shop etc. Generally, in the rural areas cash transactions are done in property, as the buyers are not considered trustworthy. Issues of Cheque bounce; etc creates legal hassle for the property sellers. Now it will be difficult to carry on such transaction in cash.

Arjuna: Krishna, What are the amendments made in section 269T of Income Tax Act?

Krishna: Arjuna, According to section 269T of Income Tax Act, from 1st June, 2015 100% Penalty will be levied while repaying the amount received for Transfer of Immovable Property in cash for Rs. 20,000 or more. E.g. if any transaction of Immovable Property is cancelled then while repaying the amount received 100% penalty will be levied if the amount of Rs. 20,000 or more is paid in cash. Thus wherever property advance is repaid, in case the deal is cancelled it should be done in cheque only. Tax planning in survey will be affected in some cases.

Arjuna: Krishna, to which Persons are the above Penal Provisions not applicable?

Krishna: Arjuna, the provision of section 269SS is not applicable to the 1) Government 2) any Banking Company 3) Government Company and 4) any other person as notified by the Central Government. Also Section 269T will not be applicable while making repayment to the above mentioned persons. The section 269SS is not applicable to persons from whom the loan or deposit is taken or accepted and if the person by whom the loan or deposit is taken or accepted are both having Agricultural Income and neither of them has any Income chargeable to Tax. Thus farmers selling there agricultural land, etc will not be covered, only if they don’t have any other income chargeable to tax. It will be very hard to find such a farmer, as many may have income from Interest on FDRs, etc. Both the seller and the buyer need to be farmers. Further if immovable property is sold and amount is received in cash on the same day of sale / purchase then whether section 269 SS will be applicable or not is question? It seems that same may not be covered u/s 269SS, whereas applicability U/s 40 A 3(a) needs to be check on case to case basis.

Arjuna: Krishna, What are the penal provisions if Taxpayer has made default in following the above provisions?

Krishna: Arjuna, the Penal Provisions of section 269SS and 269T were mentioned in sections 271D and 271E. That means, 100% penalty has to be levied, if a person has taken or accepted a loan or deposit or any specified sum of money or has repaid the loan or deposit or specified sum of money of an amount of Rs.20,000 or more in cash. The right of levying of penalty is of the department. Further the Tax Auditor has to mention details of such transactions in the Tax Audit Report.

Arjuna: Krishna, What will be the effect of the amendments of these provisions?

Krishna: Arjuna, if a businessman has incurred expenditure of more than Rs.20,000 in cash on a single day to a single person then the said expenditure is disallowed u/s 40A 3(a) of Income Tax Act and income tax will have to be paid on it. This Provision is different. But in the provision of section 269SS and 269T, 100% penalty will have to be paid if a person has accepted or repaid an amount of Rs.20,000 or more in cash. Also in this if many a times an amount less than Rs. 20,000 is accepted or repaid but its gross total exceeded Rs.20,000 then it is also covered and penalty will have to be paid. This provision is going to affect the Builders and Developers as Cash Transactions were widely incurred in transaction with Immovable Properties. This Provision will also avoid those Sales Transactions that take place only on the basis of bonds i.e., unregistered documents. Further, the Taxpayer can make an appeal on the penalty levied.

Arjuna: Krishna, What should the Taxpayer learn from above?

Krishna: Arjuna, one should be careful while making Transactions in cash for an amount of Rs. 20,000 or more. The penal provisions are applicable to the seller. Various Departments of the Government are becoming very strict day by day regarding cash transactions in order to curb black money. One should be prudent while making Cash Transactions otherwise the Government will levy Penalties. These are very stringent provisions but these are also other ways out to reduce Black Money or to reduce Tax Evasion. Already the Real Estate Market is in a state of “SLASH”; If transaction is done in “CASH” then the Income Tax officer may give you a ”DASH”.

Source: Online Article

Received Gift? Check taxability before enjoying!

We receive gifts in cash, ornaments, land, car, gadgets, vouchers and many more on various occasions like on birthday, marriage, achievements and even sometimes out of gratitude too. Feel special and happy on its receipt, right? But have you ever bothered to check its taxability under Indian Income Tax Law? If not, then here are the provisions of income tax law related to gift. Some of the gifting transactions are to be taxed under the Income Tax Act, 1961 and the onus to offer such gift for tax and then to pay tax on it; is on the recipient of such gift. Remember in this article, we will be testing only those transactions for “taxability” which are having gift value exceeding Rs.50,000/- and that too received without consideration i.e. nothing is exchanged for such gift by an individual on or after October 1, 2009.  

There are 3 aspects of the transaction which need to be considered in consolidation before concluding its taxability…

1. Money or Property received as Gift.

2. Relationship with the person gifting such money or property.

3. Occasion on which gift is received.

Let us first understand; what are those things which can be a taxable gift under the law.

1. Money i.e. cash or cheque or draft.

2. Property: The term “Property” is specifically narrated in the law. So besides those items, other gifts will not come in the purview of taxability and property includes;

i. immovable property being land or building or both;

ii. shares and securities;

iii. jewellery;

iv. archaeological collections;

v. drawings;

vi. paintings;

vii. sculptures;

viii. any work of art;

ix. bullion (bullion w.e.f June 1, 2010)

Lesson: Receipt of Gift other than in Money or Property is not liable for tax.

Second aspect to be look upon is the relationship with the person gifting such money or property. Income Tax Act has excluded transactions of gift received from relatives from taxing and relative with respect to an individual includes;

i. spouse of the individual;

ii. brother or sister of the individual;

iii. brother or sister of the spouse of the individual;

iv. brother or sister of either of the parents of the individual;

v. any lineal ascendant or descendant of the individual;

vi. any lineal ascendant or descendant of the spouse of the individual;

vii. spouse of the person referred to in items (ii) to (vi)

Lesson: Receipt of Gift in Money or Property from a relative is not liable for tax.

Now coming to occasions, gift received on specified events or circumstances is excluded from taxability such as;

i. on the occasion of the marriage of the individual;

ii. under a will or by way of inheritance;

iii. in contemplation of death of the payer or donor;

iv. from any local authority;

v. from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in section 10(23C);

vi. from any trust or institution registered under section 12AA.

Lesson: Receipt of Gift in Money or Property from a relative or from a non-relative on specified occasion/circumstances is not liable for tax.

So whenever you will be doing a taxability test for any gift transaction, go by each of these step and conclude. But it is not as simple and straight as it looks; it also includes many other aspects relating to computation and documentation; so it is always advised to consult your Tax Advocate or Tax Advisor on receipt of gift or if possible before entering into such gifting transactions.

Article found online

Service tax rate increased from 12.36% to 14% (Subsuming EC and SHEC) effective from 01.06.2015

After the Hon’ble President has given assent to the Finance Bill, 2015 on Thursday, May 14, 2015, the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 has notified increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015.

Service Tax: Analysis of Changes Applicable With Enactment of Finance Bill 2015

FINANCE BILL 2015 RECEIVED PRESIDENT ASSENT

Finance Bill, 2015 has got President Assent on 14th May, 2015 and has become Finance Act, 2015. As you know, Finance Bill 2015 has proposed lot of changes in Service tax provisions, applicable with effect from various dates.

Now with the enactment of Finance Bill, 2015, following changes have become applicable:

DEFINITIONS INTRODUCED / AMENDED

1. The Term “Government Defined: 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.

Sub-section 26A inserted in section 65B in order to define the term Government. The term ‘Government’ defined to mean Central Government, State Government, Union territory and its departments. But it would not include entities whose accounts are not required to be kept under Article 150 of the Constitution.

2. Service Tax liability on Chit fund foremen and distributors or selling agents of lottery:

The intention in law has always 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.

Hence, in order to remove ambiguity, 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.

CHANGES IN PRINCIPLES OF INTERPRETATION

3. Section 66F which deals with Principles of interpretation of specified description of services or bundled services. It 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.

As illustrated, reference to service provided by RBI, in section 66D(b) does not include any agency service provided by other banks to RBI, as such agency services are input services used by RBI for provision of its main service. Accordingly, banks providing agency service to or in relation to services of RBI, are liable to pay Service Tax on the agency services so provided by virtue of the existing section 66F (1).

CHANGES IN VALUATION OF SERVICES

4. Section 67 : Valuation of Taxable Service: The definition of the term ‘consideration’ amended to include:

(a) all reimbursable expenditure or cost incurred and charged by the service provider subject to prescribed circumstances.

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.

PENAL PROVISIONS, RECOVERY OF TAX, APPEALS

5. Section 73 : Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded: 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 section73,; 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.

Consequently, Rule 6 (6A) of Service Tax Rules which provided for recovery of service tax self-assessed and declared in the return under section 87 is being omitted due to the amendment in section 73 for enabling such recovery

6. Section 76: Penalty for failure to pay service tax: 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, inthe 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.

7. Section 78: Penalty for suppressing etc. : 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

8. New Section 78B : Transitory Provision: A new section 78 B is being inserted to prescribe, by way of a transition provision, that,-
* 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
* 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.

9. Section 80: Penalty not to be imposed in certain cases: Section 80 provided for waiver of penalty in specified situations, is being omitted.

10. Section 86: Appeals to appellate tribunal: Section 86 is being amended to prescribe that matters involving rebate of service tax shall be dealt with in terms of Section35EE of the Central Excise Act.

11. Settlement Commission: Certain changes have been made in the provisions relating to Settlement Commission. These provisions, contained in the Central Excise Act, 1944, are made applicable to Service Tax, through section 83 of the Finance Act, 1994.

12. 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 the amendment in section 73 for enabling such recovery.

SERVICE TAX : CHANGES TO BE APPLICABLE FROM THE DATE TO BE NOTIFIED AFTER THE ENACTMENT OF FINANCE BILL 2015

SERVICE TAX RATE

The rate of Service Tax 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, the effective increase in Service Tax rate will be from the existing rate of 12.36% (inclusive of cesses) to 14%, subsuming the cesses.

Service Tax Rate                    Earlier 12.36%                  New 14.00%

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. The new rates are summarized in the table below:

Services	Old Rate	New Rate
Air Travel Agent
Domestic booking	0.60%	0.70%
International booking	1.20%	1.40%
Life insurance
First Year premium	3.00%	3.50%
Subsequent year premium	1.50%	1.75%
Money changing service
Amount of currency upto 1 Lakh	0.12% subject to min Rs.30	0.14% subject to min Rs.35
Amount of currency exchanged exceeding INR 1 Lakh and upto 10 lakh	Rs.120 and 0.06%	Rs.140 and 0.07%
Amount of currency exchanged exceeding INR1 million	Rs.660 and 0.012% subject to max Rs.6,000	Rs.770 and 0.014% subject to max Rs.7,000
Lottery
Where guaranteed prize payout is more than 80 per cent	Rs.7,000	Rs.8,200
Where guaranteed prize payout is less than 80 per cent	Rs.11,000	Rs.12,800

SWACHH BHARAT CESS

An enabling provision is being incorporated in the Finance Bill, 2014 to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. The cess shall be levied from the date to be notified after the enactment of the Finance Bill 2014.

CHANGES IN SECTION 66D OF NEGATIVE LIST

Entertainment Event or Amusement Facility

The Negative List entry that covers “admission to entertainment event or access to amusement facility” is being omitted [section 66D (j)]. Consequently, the definitions of “amusement facility” [section 65 B (9)] and “entertainment event” [section 65B(24)] are also being omitted. The implication of these changes are as follows,-
* Service Tax shall 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 and theme parks.
* Service tax to be levied on service by way of admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. However, the existing exemption, by way of the Negative List entry, to service by way of admission to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical performance including drama and ballet shall be continued, through the route of exemption. For this purpose a new entry is being inserted in notification No. 25/12-ST.

The term recognized sporting event has been defined in the proposed amendment in the said notification (No 6/2015 ST dated 1st March 2015).

Any Process Amounting to Manufacture or Production of goods

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 65 B (40)] is also being amended, along with the Negative List entry [section 66D (f)], with a consequential amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

Support Services by Government to Business Entities

Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by 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 65 B (49)] is being omitted. 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 another entry in the Negative List, shall be liable to service tax.

(Author – CA. Chitresh Gupta, B.Com(H), FCA, IFRS (Certified), IDT (Certified) is Author of Book “An Insight Into Goods & Service Tax” and also Managing Partner at M/s Chitresh Gupta & Associates)