Introduction:
Many people have question about maximum cash they can give or accept without facing any problem under Income Tax Act.
People have lot of doubts on one can accept cash and give cash whether in form of loan, advance, deposit or against a business transaction.
Under Income Tax Different sections of IT ACT which prohibits dealing in cash transactions or limits the value of cash transactions.
These sections define the value of cash transactions that are allowed as per income tax Act. Remember there is no constitutional ban on dealing in cash, only thing is that the income tax department assesses cash transactions in different manner putting penalties on cash transaction done.
As per Section 269ST, any person who enters into a transaction of Rs.2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.
For example
If you buy an expensive watch for cash worth Rs.5 Lakh, it is the shopkeeper who receives payment in contravention of section 269ST will have to pay the tax (penalty) of Rs.5 Lakh. So here the tax rate is 100%.
Though this new section on cash Transaction limit sounds simple, we need to go through it in details, as I believe that this may have quite an impact on our daily financial lives.
2. What does section 269ST say ?
With effect from 1st April, 2017, no person shall receive an amount of Rs.2 Lakh or more;
The new Cash transaction limit is not applicable, if a person receives the amount through an Account Payee Cheque (or) an Account Payee Bank Draft (or) through use of electronic clearing system through a bank account. (Look like, any receipts done through e-Wallets like Paytm, credit cards etc, may also be hit by this new amendment, need more clarity though)
Kindly note that Penalty under section 271D will be imposed on a person who receives a sum of Rs.2 Lakh and above in cash. The extent of penalty will be a sum equal to amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention.
3. Section 269ST & Rs.2 Lakh cash Transaction Limit: Examples
Let us understand the above three points with examples;
Single Person
Cash receipt of Rs.2 Lakh or more, from a single person in a day is not allowed even if the amount has been paid through multiple transactions during the day which are below Rs.2 lakh.
For example
Mr.X buys a gold chain worth Rs.2 Lakh and pays the amount by cash to Mr.Y on a single day in 4 equal installments of Rs.50,000 each. As Mr.Y accepted cash worth Rs.2 lakh from a single person and in a single day, section 269ST is applicable in this case. Mr.Y has to pay a penalty of Rs.2 Lakh.
Single Transaction
Cash receipt of Rs.2 Lakh or more which are related to a single transaction are prohibited.
For example
Mr.A goes through a medical surgery and the hospital charges him a bill of Rs.4 Lakh. Mr.A clears the bill in 4 installments if Rs.1 lakh each on four different dates. Here, the cash receipt got by hospital are less than Rs.2 Lakh and have been received on different dates.
Whether this transaction violates section 269ST? – yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill/transaction. So, spitting of payments over several days is prohibited.
Single Event/Occasion
Cash transaction or cash receipts related to a single event or occasion, cannot be more than Rs.2 Lakh.
For Example
X gets married to Y. On their wedding occasion, their relatives gifted Cash amount worth Rs.10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs.2 lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable?
Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gift worth Rs.2 Lakh or more can not be received from relatives and other person.
4. Other Important Points
* Based on interpretation of section 269 ST, payment modes like bearer cheque and self-cheque will also be considered on par with Cash based transactions only.
* It has been clearly stated that penalty (if any) is chargeable to an individual who violates section 269ST, even if you do not have PAN and/or is not a tax assesse.
* The restriction of receipt of money in cash of Rs.2 Lakh or above in cash is applicable irrespective of whether it is for personal/business purpose, capital or revenue in nature, tax-free or taxable income.
* Kindly note that the payer of money is not liable to pay any penalty. It is the receiver of cash who has to bear the penalty under section 271DA.
* Donations in cash exceeding Rs.2,000 are not permitted (Donations can be claimed under section 80G)
* Premiums on Health insurance policies paid in cash cannot be claimed as deduction under section 80D.
* Loans or Deposits cannot be repaid in cash in excess of Rs.20,000 or more.
*Payment of above Rs.10,000 per person, cannot be made for any business payment towards any expenses (or) purchase of capital asset.
* One should not accept a loan or deposit or sale consideration of immovable assets in cash in excess of Rs.20,000.
5. Restriction on capital Expenditure for business in cash above Rs.10,000 (Section 32 of the income Tax Act, 1961)
Where an assessee incurs any expenditure for acquisition of a depreciable asset in respect of which a payment ( or aggregate of payment made to a person in a day ), otherwise than by an account payees cheque/draft or use of electronic clearing system through a bank account, exceeds Rs.10,000. Such a payment shall not be eligible for normal/additional depreciation.
6.Reduction in the limit of Cash Payment to Rs.10,000 in a Day (Section 40A (3) & 40A(3A) of the Income Tax Act, 1961)
The monetary limit on revenue expenditure in cash has been reduced from Rs.20,000 to Rs.10,000 (there is no change in the monetary limit pertaining to cash payment upto Rs.35000 to transport Contractors). Few exceptions are also provided in Rule 6DD of the Income Tax Rules. Consequently, any expenditure in respect of which payment (or aggregate of payment made to a person in a day), otherwise than by an account payee cheque/ draft/use of electronic clearing system through a bank account, exceeds Rs.10,000, no deduction shall be allowed in respect of such payment under sections 30 to 37 of Income Tax Act, 1961.
7.Conclusion
As a business owner or as an economic soldier we should try to avoid cash transactions. Cash is the main source for bribes at lower level of bureaucracy. The best we can do is to minimize cash transactions.
Read More
1. All You Need To Know About Filing ITR With Or Without Form 16
2. A Tax Guide For A YouTube Vlogger
3. Cash Transaction Under Income Tax Law
Have a query or comment to make? Get it answered through call or email from ADCA, one of the best Chartered Accountants In Bangalore.
Understanding the various allowances, deductions, and exemptions available under the Income Tax Act can help salaried individuals optimize their taxes and maximize savings. Let's break down the essential elements of income tax exemptions, reimbursements, and deductions to help you file your tax return with ease
The new tax regime introduced in FY 2023-24 offers lower tax rates by eliminating most of the traditional exemptions and deductions. However, a few allowances and deductions remain available under the new regime, including:
Conveyance Allowance: Received to meet expenditure on travel as part of employment.
Exemption on Voluntary Retirement (Section 10(10C)), Gratuity (Section 10(10)), and Leave Encashment (Section 10(10AA)).
Interest on Home Loan (Section 24): Deduction on interest paid for a home loan on let-out property.
Employer’s Contribution to NPS (Section 80CCD(2)).
Standard Deduction of ?50,000 for salaried individuals.
Deduction under Section 57(iia) for family pension income.
Agniveer Corpus Fund under Section 80CCH(2).
Under the old tax regime, taxpayers can avail themselves of various exemptions and deductions. Let's explore these:
1. Standard Deduction
Every salaried individual is eligible for a standard deduction of ?50,000 from their salary income.
2. Allowable Deductions
Here’s a detailed breakdown of various allowances that can be claimed for tax exemption under the old regime:
House Rent Allowance (HRA): If you receive HRA and pay rent for accommodation, you can claim an HRA exemption. The exemption is the minimum of:
Actual HRA received.
50% of annual salary (basic + dearness allowance) if residing in a metro city, or 40% if residing elsewhere.
Excess of rent paid over 10% of annual salary.
Note: If no rent is paid, the entire HRA is taxable.
Leave Travel Allowance (LTA): Can be claimed for travel within India. Exemption is available on two journeys in a block of four years, covering only travel expenses for the shortest route to the destination.
Children Education Allowance: An exemption of ?100 per month for up to two children. Additional exemption is available for hostel expenses up to ?300 per month.
Other Allowances (Section 10(14)(i)): Includes attire, telephone, vehicle, and helper allowances, which are exempt to the extent of actual expenditure incurred.
3. Medical Expenditure and Insurance Premium (Section 80D)
Medical Insurance Premium: You can claim a deduction of up to ?25,000 for insurance premiums paid for yourself, spouse, and dependent children. An additional ?50,000 deduction is available for senior citizen parents.
Medical Expenditure: For senior citizens without health insurance, medical expenses of up to ?50,000 can be claimed.
4. Interest on Home Loan (Section 80C and Section 24)
Section 80C: Deduction up to ?1.5 lakh for principal repayment of home loan.
Section 24: Deduction up to ?2 lakh on interest paid for a self-occupied property. If the property is let out, there is no upper limit.
5. Deduction for Loan for Higher Studies (Section 80E)
Interest paid on education loans for higher studies can be claimed as a deduction under Section 80E. This benefit is available for up to 8 years or until the interest is fully repaid.
6. Deduction on Savings Account Interest (Section 80TTA)
Interest earned on savings accounts up to ?10,000 is exempt under Section 80TTA. For senior citizens, the exemption limit under Section 80TTB is ?50,000.
7. Tax Treatment on Notice Pay and Joining Bonus
Notice Pay: The amount paid by an employee to the employer for not serving the full notice period is taxable as salary income.
Joining Bonus: It is treated as a part of salary income and is fully taxable.
Understanding the various exemptions and reimbursements available to salaried individuals can significantly reduce your tax liability. Whether you opt for the old or new tax regime, proper planning and documentation are key to maximizing your tax benefits.
If you need expert guidance on tax planning, filing, and management, Anil D'Souza & Associates (ADCA). is here to assist. Our team of professionals can provide tailored solutions for all your tax-related needs. Get in touch with us today for a seamless tax filing experience.
1. What is the exemption limit for reimbursement?
The exemption limit for reimbursements depends on the type of allowance or reimbursement. For instance, medical reimbursements are tax-free, up to ?15,000 per year, while HRA exemption varies based on salary, rent, and location.
2. Is reimbursement of salary taxable?
Reimbursements that are directly related to employment expenses and are supported with valid bills and receipts (e.g., travel, telephone) are generally not taxable. However, excess or unsubstantiated reimbursements are taxable.
3. Is tax deducted on reimbursement?
Employers usually deduct taxes on taxable reimbursements, such as LTA or non-allowable expenses, as part of the salary income. Non-taxable reimbursements do not attract TDS.
4. How do I claim tax reimbursement?
Tax reimbursement is claimed by providing necessary proofs (e.g., rent receipts, travel tickets) to your employer. They will then adjust your taxable salary. You can also claim these during ITR filing if missed through the employer.
5. How do I claim my reimbursement?
Submit the required documentation (receipts, bills, etc.) to your employer to claim the reimbursement. Ensure all expenses are genuine and related to your work.
As part of updating its registry Ministry of Corporate Affairs (MCA) has provided for filing of KYC by all directors on an Annual Basis. MCA has notified Companies (Appointment and Qualification of Directors) Fourth Amendment Rules 2018 on July 5th 2018, which will come into effect from July 10th 2018. Form DIR-3 KYC has been notified for the purpose.
Below is the FAQ on this compliance :
Who is required to file DIR-3 KYC ?
Every person holding a DIN on the last day of financial year is required to file a DIR-3 KYC. Even if a person is holding DIN and not a director in any of the companies, he/ she is required to file DIR-3 KYC.
What is due date? What is extended due date for financial year ending March 31st 2018 ?
Due is date is April 30th of following financial year. For Financial year ending March 31st 2018, due date has been extended to August 31st 2018.
Consequence of not filing DIR-3 KYC? How to rectify non-compliance?
If the DIR-3 KYC is not filed within due date, DIN would be marked as deactivated, and no filing will be allowed with such DIN. To remove the defect DIR-3 KYC need to filed with late fee upon which DIN would activated. Late fees has been prescribed at Rs 5,000/-
Who has to Certify Form DIR- 3 KYC ?
Form DIR 3 KYC need to be certified by DSC of Director and DSC of Practicing Professional.
What are the KYC Documents :
i Photo in JPEG format.
ii. Proof of Identity- self attested :
iii. Proof of Residence – self certified – any of following
iv. Valid Person Email id and Mobile No. Same will be verified by OTP.
Filing your KYC could be hasslesome and time consuming. Mr. Anil D'Souza of ADCA, a higly qualified CA in Bangalore, can help you with that.
Due date for Filing Income Tax Return & Consequences of not filing IT Return within Due Date
The Income Tax Depart Act has prescribed various due dates for filing of Income Tax Return by a different class of assessees. Section 139 of Income Tax Act, 1961 provides for following different due dates for different class of assesses:
Belated filing of Income Tax Return & consequence of not filing IT return within the due date :
Belated Filing :
If the return is not filed within due date same can still be filed within the end of Assessment year, i.e March 31st of the year following the financial year. For example, if Return pertain to Financial year 2017-18, the assessment year is 2018-19, and if the return is not filed within due of July 31st or Sep 30th of 2018, belated return can still be submitted by March 31st 2019.
Consequences of not filing IT return within the due date :
1. Late fees of Rs 5,000 is applicable if the return is filed by December 31st of Assessment Year / Late fees of Rs 10,000 is applicable if return is filed after December 31st of Assessment Year. ( Late fee will be limited to Rs 1,000 for those with income up to Rs 5 lakh).
2. Carry forward of losses (other than loss under House Property) are not allowed unless return is filed within due date.
3. Interest under section 234A @ 1% per month becomes applicable on amount tax payable after the due date. This is in addition to interest @ 1% per month under section 234B. So on any tax which is not paid within the due date for filing return, interest required to paid @ 2% per month on taxes paid after due date. It is advisable to deposit tax before the due date, even if for some reason return can’t be filed before due date to avoid interest @ 2% per month.
Read More
1. All You Need To Know About Filing ITR With Or Without Form 16
2. A Tax Guide For A YouTube Vlogger
3. Cash Transaction Under Income Tax Law
Let ADCA (Excellent team of chartered accountants near HSR layout) do the ITR filing fo you to get the maximum benefits of tax saving.
In the case of Pr.CIT, New Delhi v. Delhi Airport Metro Express Pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017] the Commissioner opined that assessing officer allowed depreciation in excess of what was assessing officer to make fresh assessment. The Delhi High Court held that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusioin that the order of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. That basic exercise of determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the Pr. CIT undertakes an inquiry himself. The High Court held that revision was not justified.The learned author discusses the case in detail.
Subject to it’s Explanations, section 263(1) of the Income Tax Act,1961 (‘Act’) states that the principal Commissioner may call for and examine the record of any proceeding under the Act, ad if he considers that any order passed therein by the assessing officer is erroneous on so far as it is prejudicial to the interests of the revenue, he may after giving the assessee an opportunity of being heard and after such order thereon as the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
More recently, in Pr. CIT, New Delhi v. Delhi Airport Metro Express pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017], the short question raised by the Revenue was whether the ITAT was justified in setting aside the order of the Principle Commissioner of Income Tax (‘Pr. CIT’) passed under section 263 of the Act in respect of assessment year 2011-12 setting aside the original assessment order dated 31-12-2013 passed by the Assessing Officer (‘AO’) under section 143(3) of the Act.
2. Facts of the case
The brief facts in the above –mentioned case were that the assessee being a concessionaire of the Airport Metro Express Project of the Delhi Metro Rail Corporation Ltd. (‘DMRC’) under a Build-Operate-Transfer (‘BOT’) Scheme, had accepted the concession for a period of 30 years During the assessment year in question, the assessee claimed depreciation of Rs.112,29,74,447, on fixed assets of Rs.15,60,48,17,189 50% of the eligible depreciation rates since, during the assessment year in question, the assets were used for less than 180 days. The assessing officer framed the assessment under section 143(3) of the Act allowing depreciation as claimed by the assessee.
The case of the revenue was that the assets were developed under the BOT scheme and the assessee was not eligible to claim depreciation as it was not the owner of the assets. The Revenue contended that the land for the project was handed over by the DMRC to the assessee as Concessionaire of the basic structure was also done by the DMRC.
The case of the assessee was that during the assessment year in question it had purchased and installed plant and machinery and such plant and machinery was legally owned by it. It was further contended that since such assets were used for the purpose assessee’s business,it was entitled to claim depreciation under section 32 of the Act.
The Pr. CIT, in exercise of powers under section 263 of the Act issued a show cause notice (SCN) dated 16-3-2015 to the assessee pointing out that if the value of these fixed assets were to be amortized evenly over a period of 30 years, the amount of to be amortized would only be Rs.52,01,60,572 for each year. Therefore, the depreciation allowed to the assessee was in excess by Rs. 60,28,13,875 and, to that extent, the order passed by the assessing officer was prejudicial to the interest of the Revenue. In reply to the SCN, the assessee took the stand that, interest of the Revenue. In reply to the SCN, the assessee took the stand that, during the assessment year in question, it “had purchased the assets from independent vendors, out of its own funds for settings up the project.
Thereafter, order dated 30-3-2016 was passed by the Pr. CIT.
3. Thus held the court
The learned Judges of the Delhi High Court observed that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the assessing officer is erroneous and prejudicial to the interests of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimum inquiry. In fact, if the Pr. CIT was of the view that the AO did no undertake any inquiry, it became incumbent on the Pr. CIT to conduct such inquiry. All that Pr. CIT had done in the order was to refer to the Circular of the CBDT and conclude that “in the case of the assessee company, the assessing officer was duty-bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular No. 9/2014 but the assessing officer is erroneous insofar as prejudicial to the interest of revenue”. In the considered view of the Court,this can hardly constitute jurisdiction under section 263 of the Act. In the context of the present case depreciation on assets like land and building, it was incumbent upon the purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of the determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only ofter the Pr. CIT undertakes an inquiry himself in the manner indicated hereinbefore. That was missing in the present case.
Finally, the Delhi High Court held, in respect of the appeal, that the ITAT was not in error in setting aside the order of the Pr. CIT under section 263 of the Act, no substantial question of law arose herein.
Have queries? Contact ADCA - One of the best ca firms in bangalore with young team of professionals delivering quality and timely service.
In India's complex Goods and Services Tax (GST) . framework, an authorized representative plays a crucial role by legally representing taxpayers in various proceedings. Section 116 of the GST Act defines authorized representatives' roles, qualifications, and limitations. This article will explore the concept, qualifications, disqualifications, and repercussions related to authorized representatives under GST.
Section 116(2) of the GST Act specifies the following individuals who can act as authorized representatives:
Relatives or Regular Employees: A relative or a regular employee of the taxpayer can be appointed.
Advocates: Advocates qualified to practice in any Indian court can represent a taxpayer, provided they are not debarred from practicing.
Professional Experts: Chartered Accountants, Cost Accountants, or Company Secretaries holding a valid Certificate of Practice are eligible.
Retired Government Officers: Officers retired from Commercial Tax Departments or GST Boards at the rank of Group B or above, with at least two years of service, can act as authorized representatives after a one-year cooling-off period.
GST Practitioners (GSTP): Registered GST practitioners can also represent taxpayers before GST authorities, appellate authorities, or tribunals.
The following individuals are disqualified under Section 116(3):
Dismissed or Removed Government Officials: Permanently disqualified from acting as representatives.
Convicted Persons: Those convicted under GST or related laws.
Individuals Found Guilty of Misconduct: As determined by the prescribed authority.
Insolvent Persons: Disqualified while insolvency continues.
Yes, a retired government officer can act as an authorized representative. However, they must:
Have served in a post of Group B or above for at least two years.
Observe a one-year waiting period post-retirement before representing taxpayers.
Disqualification applies:
Permanently: For individuals dismissed from service, convicted, or found guilty of misconduct.
Temporarily: For those declared insolvent, applicable only during the insolvency period.
What are the Repercussions of Misconduct by an Authorized Representative?
If an authorized representative is found guilty of misconduct:
For Non-Professional Representatives: The GST Commissioner may disqualify the person from representing taxpayers after allowing them to be heard.
For Professionals: Chartered Accountants, Advocates, and Company Secretaries are referred to their respective regulatory bodies for disciplinary action.
Yes, GST practitioners are legally permitted to act as authorized representatives. They can represent taxpayers in:
GST Departmental Proceedings
Appellate Authority Hearings
Tribunal Hearings
| Aspect | Authorized Representative | GST Practitioner (GSTP) | Authorized Signatory |
|---|---|---|---|
| Role | Represents taxpayers in legal proceedings. | Prepares and files GST returns on behalf of taxpayers. | Signs GST-related documents for compliance purposes. |
| Scope | Limited to representation. | Broad compliance activities. | Primarily signing authority. |
| Eligibility | Includes advocates, CAs, CS, etc. | Requires GSTP certification. | No specific certification needed. |
GST Officers
Appellate Authorities under GST
GST Tribunals
Note: Personal appearance is mandatory if the individual is required to appear for examination under oath.
Here’s a sample format for authorization:
[Letterhead of the Registered Person]
Date: [Insert Date]
To,
[GST Officer’s Name/Designation]
[GST Office Address]
Subject: Authorisation for Representation Under GST
Dear Sir/Madam,
I, [Name of the Taxpayer], holding GSTIN [GSTIN Number], hereby authorise [Name of the Representative], [Designation], to represent me in all matters concerning [Specify Case/Proceeding] under the GST Act.
Sincerely,
[Signature of Taxpayer]
[Name and Designation of Taxpayer]
Authorized representatives under GST support taxpayers by representing them in complex proceedings and ensuring compliance. Understanding authorized representatives' qualifications, limitations, and procedures helps taxpayers choose the right individual or professional for their representation needs. For expert assistance in GST compliance and representation, consult ADCA (Anil D’Souza and Associates), one of Bangalore's most trusted chartered accountancy firms .
An authorized representative is approved to represent a taxpayer in GST-related proceedings.
Similar provisions exist under the Service Tax Act for appointing representatives in proceedings.
An authorized representative focuses on legal representation, while GST practitioners assist with compliance and filings.
A similar provision exists in the Income Tax Act for representation during assessments or appeals.
This act defines the legal framework for authorized representatives in corporate and legal matters.
Mr. Anil D'Souza, one of the few entrants of an elite list of chartered accountants in Bangalore can help you in person with understanding the concept of authorized representative.
Accommodation services are under the purview of tax net since a long time It was a handsome source of revenue under service tax law and the legacy is continuing in refined manner,even under GST law.
1.Introduction
Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive list regime.The same is carried forward in the GST law also.Under GST law there is classification of services and accordingly accomdation services have been classified into the various categories according to the practice prevailing in the industry.
2. Classification
Accommodation services have been classified under HSN/SAC 9963 wherein the further classification ia as under.
|
Heading/Group |
Service Tariff Code (HSN/SAC) |
Description of Service |
|
99631 |
996311 |
Room or unit accomdation services provided by Hotels, INN,Guest House , club, etc |
|
|
996312 |
Camp Site Services |
|
|
996313 |
Recreational an vocational camp services |
|
99632 |
996321 |
Room or unit accomdation services for students in student residences |
|
|
996322 |
Room or unit accomdation services provided by Hotels, Capms, Paying Guests, etc. |
|
|
996329 |
Other room or unit accomdation services not specified else where |
|
|
|
|
3.Nature of supply
Accommodation services are generally provided at the premises used for providing accomdation services. Since the GST is destination based consumption tax, therefore, the place of supply of accomdation services is the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before reaching at the conlusion we need to understand the relevantprovisions of the GST law.
The relevant provisions of law determaining the nature of services are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.
According to setion 8(2) of the IGST Act,2017 supply of services where the location of the supplier and the place of supply of services are in the same State or the same Union territory shall be treated as intra-state supply.
According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home stay , club or campsite, by whatever name called and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
Thus, on a combined reading of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.
4.Whether accomdation services can be an inter-State supply
Although by referring to the provisions cited above, it can be inferred that the basic philosophy of implematon of destination based consumption tax goes in line of taxing accommodation services as intra-State supply. Howeve, the following provisions of IGST Act,2017 are worth noting-
(a)Provisio to section 8(2) : The said provision reads as –“the intra-State supply of services shall not include supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit”.
(b) Section 7(5) (b) : Supply of goods or services or both to or by a Special Economic Zone developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter –State trade or commerce.
The direct implication of the above provisions on accomdation services is that the said services if provided to any unit in SEZ shall not be considered as intra-State supply. In other words, it shall be considered as inter –State supply.
Hence, it can be fairly concluded that the accommodation services, when provided to any unit in SEZ or by unit in SEZ, evolve a concept divergent to the basic intent of the GST law of taxing the services on a consumption basis.Now the question that flashes in the minds is the need of such a provision. The purpose of the introduction of such provisions can be understood with the provisions of section 16 of the IGST Act, 2017
The implication of sections 7(5), 8(2) and 16 of the IGST Act, 2017
The implication of sections 16 and 8(2) can be understood i two parts. In one part the supplier of services is outside the SEZ and in another part the supplier of services is in the SEZ. The impact on both the transaction shall be different.
(i) Supply to SEZ – Zero- rated supply
Accordingly to section 16 of the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely:- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
The provision stated in section 16 clearly mandates that the accommodation services provided to SEZ developer or to a unit in SEZ shall be treated as zero-rated supply. To put it differently, the same shall be considered at par with the export of services. Thus, such services shall fall under zero-rated supply under GST law and shall be eligible for benefits attributed to zero-rated supplies including a refund of taxes paid on the relevant, services, subject to the other provisions of GST law.
(ii) Supply by SEZ-Inter-State-supply
On a close reading of section 8(2) and section 16 as mentioned above, it can be inferred that accommodation services provided by the unit in SEZ to any person outside SEZ shall be treated as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State supply and IGST shall be considered as inter-State supply and IGST shall be chargeable on the same.
(iii) Supply within SEZ–Zero–rated supply
Since in case of supply within SEZ the recipient shall always be in SEZ, therefore, such supply shall always fall within the meaning of zero-rated supply. Hence, supplies within SEZ shall be eligible for benefits at par with the benefits available to zero-rated supply.
5. Conclusion
Accommodation services are generally taxed as intra-state supply, however, the law contains the relevant provisions for treating the same as inter-state supply also. Thus, before reaching any conclusion about the place of supply, it is essential to refer the law as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.
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Recently the Delhi high Court in Bostom Scientific India (p) Ltd.v.Asst.CIT 2017 Tax Pub (DT) 3985 (Del –HC) has give it’s verdict regarding allowability of expenditure incurred by pharma companies on sponsoring medical conference in and outside India. The learned author analyses the impugned issue in the light of this recent verdict.
Background
It is general practice of pharma companies to sponsor and conduct medical conferences in & outside India and for this purpose these companies also make arrangements for travel and accommodation of doctors attending the conferences. In a recent past, a serious controversy arose as regards allowability of expenditure incurred b pharma companies for organising such conferences. These expenditure incurred by pharma companies for organising such conference.these expenditure are claimed to be allowable as business expenditure for being incurred for business purpose, however, the department tends to disallow the same by invoking Explanation 1 to section 37 (1).
The Finance (No. 2) Act, 1998 has inserted an Explanation to section 37(1), with retrospective effect from 1-4-1962, so as to clarify that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
The pharma companies incr expenditure to sponso and conduct doctors’ conferences , to distribute its product amongst doctors as free samples, to give gift articles to doctors , etc. These expenditure are classified as advertisement and sales promotion expenditure and claimed to be allowable on the ground of being incurred wholly and exclusively for the business purposes.
The Medical council of India in excersise of its statutory powers amended the Indian medical Council (Professional Conduct, Etiquette and Ethics) Reguations, 2002 (the Regulations ) on 10-12-2009 imposing a prohibition on the medical practitioner & their professional associations from taking any gift travel facility , hospitality, cash of monetary grant from the pharmaceutical and allied health sector industries.
Section 37(1) of the Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expenses is laid out/expended wholly or exclusively for the purpose of business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However,the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.
Thus the of any expense incurred in providing above mentioned or similar freebies in violation of the provisions of Indian medical Council (Professional Conduct Etiquette and Ethics ) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act beingan expense prohibtited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector industries or other assessee which has provided aforesaid freebies and claimed it as a deductable expense in it’s accounts against income.
It is also clarified that the sum equivalent to value of freebies enjoyed by the aforesaid medical practitioner or professional associatiosns is also taxable as business income or income from the other sources, as teh case may be,depending on the facts of each case.The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action.
However,the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations,2002 which has been amended on 10-12-2009 prohibits medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries.
Thus, the expenditure incurred on freebies are disallowed on the ground of being incurred in violation of the provision of Indian medical Council ( Professional Conduct, Etiquette and Ethics) Regulations, 2002.- circular No. 5/2012,dt.1-8-2012.
In live Healthcare Ltd. v. DCIT (2016) 161 ITD 63 (Mum),the Mumbai Bench of the Tribunal held that the expenditure on foreign travel and accomdation of doctors and their spouses was incurred with the intent and the objective of profiteering form the distribution and entertainment that had a direct nexus with promoting the sales and profitability which made such expenditure violative of the provisions of the said regulations of 2002.It held that the expenditure was incurred to seek favours from the doctors by way of recommendation of the company’s product which was an illegal gratification ,was against public policy,was unethical and was prohibited by law. Accordingly,the expenditure in question was liable for disallowance.
However in PHL Parma (p) Ltd. v. ACIT (2017) 163 ITD 10(Mum),the decision was given in favour of the assessee by observing that the code of conduct has meant to be followed and adhered to by the medical practironers and doctors alone and did not apply in any manner to pharmaceutical companies. The Indian Medical Council did not have any jurisdiction nor had any authority upon the pharmaceutical companies and could not have prohibited such companies in conduct of their business. The CBDT in issuing Circular No. 5, dt. 1-8-2012 had enlarged the scope of the said Regulations by applying it to the pharmaceutical companies without any enabling provisions to do so. Further the circular in any case could not be reckoned retrospectively i.e., it could not be applied before the date of its issue, i.e., on 1-8-2012.
Thus the expenditure incurred by the assessee company was in the nature of sales and business promotion and was to be allowed; the gift articles bore the logo of the assessee and could not be held to the freebies,the free samples proved the efficacy of the products of the products of the company and again were not in violation of the said Regulations framed by the Medical Council of India.
In Syncom Foundations (I) Ltd. ( IT PPEAL Nos. 6429 & 6428 (Mum) of 2012, it was observed that CBDT circular would not be applicable in the assessment years 2010-11 and 2011-12 as it was introduced w.e.f. 1-8-2012. Similarly it was held in UCB India (P) Ltd.v. ITO (IT Appeal No. 6681 (Mum) of 2013, dt 13-5-2016), that the CBDT circular colud not have a retrospective effect.
In Boston Scientific India (P) Ltd v. Asstt. CIT 2017 Tax Pub (DT) 3985 (Del-HC), the assessing officer on the specific heads of ‘advertisement and business promotion’ and travel related expenses ‘ made the following disallowances :
(i) Expenditure of Rs. 13,14,548 was stated to be constituting freebies provided to medical consultants and other doctors, disallowable in view of Explanation 1 to section 37(1) of the Act , read with CBDT Circular No. 5/2012, dt.1-8-2012.
(ii) Expenditure of Rs 19,06,000 incurred on conducting seminars conventions, meetings, etc., for the purpose of Appellant’s business.
This was disallowed on the ground that details were scanty, despite ample opportunity being given to the assessee .
(iii) Expenditure of Rs 8,00,000 incurred on sponsorship for organizing conference/seminor. This was disallowed on the ground that the payment was made after the event had place.
On appeal before ITAT , it was held that as the assessee had incurred expenses in the garb of marketing the cardiac machine, onus was upon the assessee to prove that the expenses incurred did not violate any law that may be applicable. The burden lies uopon the assessee which has not been discharged by evidences/materials. Merely by placing the bills of payments, the travel details, the hotel details , where the doctors were stationed , and the seminars / conferences that were actually attended by such doctors. Assessee had also not demonstrated that the doctors by participating in such conferences and accepting the hospitality extendedby it (the assessee ) have not contravened any MCI Regulations.
The High Court ,however, said that the ITAT placed an unfair burden on the assessee to prove that the above expenses was incurred bona fide for the business purpose of the assessee. The assessee had placed before the ITAT all the relevant details thereby discharging the initial onus. Thereafter,it was open to the Revenue to prove to the contrary . It was not possible for the assesee to show that doctors “actually delivered any lectures, attented any meetings for, providing training courses and seminars for assessee, etc.
As regards other disallowances, it was held that since the ITAT proceeded on and conjectures and failed to deal with the contentions of the assessee in that regard , it is only fair that the ITAT considers the entire appeal of the assessee on merits afresh.
Thus, the High Court rendered decision in favour of assessee and against the revenue and all the contentions of the assessee raised in the appeal before the ITAT would be considered afresh.
8. Conclusion
The decision of the Delhi High Court has provided some rays of hope in favour of Pharmaceutical Companies for doctors. If relief is provided, it wil be of great help in sharing and upgrading knowledge in the field of medical science and ultimately whole mankind would get benefitted therefrom.
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