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« Indirect Tax »
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Here is your guide to indirect tax
March, 01st 2016

A Krishi Kalyan Cess ('KKC') shall be levied and collected at 0.5 per cent on value of any or all taxable services (effective from June 1, 2016).

Impact: Total effective service tax rate (along with cesses) will thus be 15 per cent up from current rate of 14.5 per cent. With introduction of KKC, a monthly telephone bill of Rs 1,000 may now cost Rs 1,005, a one-day rent-a-cab ride priced at Rs 3,200 is set to be dearer by Rs 6 and current fee of Rs 50,000 charged by private coaching classes will become pricier by Rs 218.

Proposal: A 2-year full time PG programme in management and 5-year Integrated programme in management and fellowship programme in management offered by IIMs are being exempted from service tax (from March 1, 2016).

Impact: The exemption would lead to savings of Rs 1.65 lakh approximately on a 2-year full time PG programme in management from IIM Indore which costs around Rs 13 lakh.

Proposal: Service tax is proposed to be exempted on construction of affordable houses built under recognized government schemes, which is admeasuring up to 60 sqm (effective from March 1).

Impact: If an under construction property, under the Pradhan Mantri Awaas Yojana, is being purchased savings to the tune of Rs 20,500 could be envisaged on a house costing Rs 5 lakh.

Proposal: Service tax negative list entry relating to service of transportation of passengers, by a stage carriage shall be omitted wef June 1, 2016; however, such services by a non-air-conditioned carriage will be exempted.

Impact: Services of air-conditioned carriage shall become costlier. Travelling the Mumbai-Goa route on air-conditioned stage carriage at Rs 1,200 could become costlier by Rs 72.

Proposal: New Baggage Rules, 2016 are being notified. Under the new rules, duty free baggage allowance carried by an international passenger, when coming to India, is increased from Rs 45,000 to Rs 50,000 per person (from April 1).

Impact: This incremental allowance would result in customs duty saving of approximately Rs 1,800 for international passengers. However, limits for importing alcohol, cigarettes, cigars, tobacco, etc remain unchanged.

Proposal: International passenger, when coming to India, need not file declarations if not carrying dutiable goods as part of baggage (from April 1, 2016).

Impact: This proposal should enable a hassle free entry for international passengers in India carrying goods within the prescribed duty free allowance.

Proposal: Customs and or basic excise duty rates reduced on inputs relating to information technology hardware, capital goods, defense production, textiles, minerals fuels and mineral oils, chemicals, etc (from March 1).

Impact: The duty rationalization measures are essentially to promote Government's Make in India programme and incentivize businesses in relevant sectors.

Proposal: A new levy called Infrastructure Cess is being introduced in case of motor vehicles at 1 to 4 per cent depending upon variant of the vehicle and type of fuel (effective from March 1, 2016).

Impact: Upon implementation of the new cess levy, WagonR VXI (petrol) with an ex-showroom price in Mumbai of Rs 4.50 lakh could get costlier by Rs 3,700 approximately, Swift Dzire LDI (diesel) with an ex-showroom price in Mumbai of Rs 6.72 lakh could get dearer by Rs 13,500 approximately.

Proposal: Basic excise duty on branded readymade garments having retail sale price of Rs 1,000 or more is being increased to 2 per cent from NIL (without cenvat credit) and to 12.5 per cent from 6 per cent (with cenvat credit) (from March 1).

Impact: One will have to shell more for a wide range of ready to wear. A premium Van Heusen shirt priced at Rs 2,200 could get costlier by Rs 135.

Proposal: Basic excise duty of 1 per cent (without cenvat credit) or 12.5 per cent (with cenvat credit) is being levied on articles of jewellery. The levy is, however, exempted for jewellers falling below the turnover threshold (from March 1).

Impact: Now there shall be a price difference of 1 per cent between buying articles of jewellery from small jewellers (having a turnover of less than Rs 6 crore in a year) and large jewellery stores. Thus, a gold bracelet costing Rs 60,000 shall now cost Rs 60,600 approximately at a large branded store.

Proposal: Increase in existing normal period of limitation for issuance of show cause notices by one year under customs, excise and service tax (effective from enactment of Finance Bill, 2016).

Impact: The change would allow tax authorities to have greater time for scrutinizing taxpayer's self-assessment. The intent seems to call for greater accuracy in self-assessment.

Proposal: An Indirect Tax Dispute Resolution Scheme, 2016 is being introduced to reduce the litigation currently lying before Commissioner (Appeals) ie at the first appellate level. Those seeking benefit would be expected to pay the amount of tax in dispute along with applicable interest and 25 per cent penalty. The scheme will be available till December 31, 2016. Once applied for, the scheme entails an immunity from further prosecution (from June 1).

Impact: An order passed by any officer below commissioner (having monetary tax limit up to Rs 50 lakh) can be settled with payment of only 25 per cent of penalty along with tax and applicable interest. Incentive of reduced penalty and reduced interest due to early payment of tax could be a lucrative option.

Proposal: Cenvat credit rules amended with view of simplification and rationalization. Proposals such as credit for capital goods valued up to Rs 10,000 to be allowed in single instalment as 'inputs', manufacturers to be allowed credit on job-worker goods, ad valorem payments in lieu of credit taken in relation to exempted goods and services to be restricted up to the amount of credit taken, transfer input services credit to outsourced manufacturers under certain circumstances, deemed FIFO basis utilization of credit done away with, etc.[Effective implementation date for each specific proposal varies]

Impact: The proposals either result in savings, capping on outgo or administrative convenience. Thus, meet government's broad vision of ease of doing business in India.

Proposal: Interest for delayed payment of tax duties rationalized across customs, excise and service at 15 per cent per annum.

Impact: Previously, rate of interest for delay in payment of service tax beyond one year was 30 per cent, below one year but more than 6 months was 24 per cent and below 6 months was 18 per cent. This has now been rationalised to 15 per cent. Rate of interest for delay in payment of excise duty and customs duty has been reduced from 18 per cent to 15 per cent.

Proposal: An annual service tax cenvat return shall be required to be filed by specified tax payers (from April 1, 2016).

Impact: An additional compliance is being charged on taxpayers and it does not reconcile with Finance Minister's remark of reducing the compliance burden.

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