With the General Elections around the corner, the yearly ritual of presenting the General Budget will be curtailed to what is known as a vote-on-account. For taxpayers, this essentially means that no new announcements related to levy of taxation would be made till a new government takes charge.
However, that does not mean a ‘no show’ for the finance ministry during the Budget Session. The government will announce clarifications aimed at making life easier for taxpayers — both in the direct and indirect taxes.
The Central Board of Excise and Customs (CBEC) and the Central Board of Direct Taxes (CBDT) have been issuing a series of such circulars and notifications for common taxpayers to iron out kinks in tax administration that will benefit taxpayers while making the administration more robust. Here are a some of the steps taken by the tax department in recent weeks.
Levy of service tax on services provided by RWAs to members
In one such instance, the tax department has made a clarification on the service tax chargeable on services provided by resident welfare associations (RWA). RWAs are civic bodies representing interests of residents of specific localities. The membership to the RWAs is voluntary. All resident welfare associations are registered under Co-operative Societies Act.
The services such as providing security to the residential locality are chargeable at 12 per cent service tax. According to the clarification, such a tax will not be levied if the contribution by member is below Rs 5,000 per month. However, if the contribution breaches the Rs 5,000-ceiling, the entire amount would be chargeable under the service tax.
This brings a huge relief for the RWAs and residents who have been struggling with tax demands from the department officials.
“This is indeed a welcome clarification. There was no clarity as to what happens when the Rs 5,000-limit breaches. The tax department has also clarified that even if the amount for services is paid in lumpsum, it will not be charged with service tax,” Bipin Sapra, tax partner, EY, said.
According to the clarificatory circular, “However, a monetary ceiling has been prescribed for this exemption, calculated in the form of Rs 5,000 per month, per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month, per member contribution of any or some members of a RWA exceeds Rs 5,000, the entire contribution of such members would be ineligible for the exemption.”
RWAs provide a host of services like maintenance of common areas, facilities including lift, water, health and fitness centre, swimming pool, payment of electricity bills for the common area and lift among other things.
Further, in cases where the RWAs act as pure agents and provide services to its members, like submitting electricity bill of a member to the discom, it will be exempt under the service tax. “Electricity has been one of the major issue as in many cases, RWAs have been acting as pure agent on behalf of residents,” Sapra said.
RWAs, it has now been clarified, will also be eligible for CENVAT credit for the service tax paid, which ultimately will trickle down to benefit taxpayers, Sapra added.
Regarding issue of discharge certificate under VCES and availing CENVAT credit
The government announced the voluntary compliance encouragement scheme (VCES) last year with an aim to nudge tax evaders to come forward and clear their dues without attracting any penalty, interest and prosecution.
According to the scheme, a service tax defaulter wanting to avail of the scheme could pay the tax dues in one or two instalments without paying any penalty and interest by filing a truthful declaration. It provided for self-declaration and payment of service tax dues from October 1, 2007 to December 31, 2012. The defaulters had to declare their dues by December 31 and pay 50 per cent of the total amount. The rest is payable without interest by June 30 this year and with interest by December 31.
The department has clarified that while a minimum of 50 per cent tax dues were to be paid by December 2013 in lumpsum, there is no such condition to pay the remaining amount. The remaining 50 per cent can be paid in instalments before June this year without any interest while any amount remaining unpaid thereafter can be paid by December-end with interest for the period of delay beyond June.
The department has told “payment of 50 per cent tax dues in lump-sum may not be insisted”.
Similarly, the department has also clarified that taxpayers can avail of CENVAT credit for tax paid under the voluntary compliance encouragement scheme after obtaining 'discharge certificate' from the department. The certificate will be issued by the department within seven working days from the date of furnishing details of payment of full tax dues.
Lowering of threshold for e-payment to Rs 1 lakh
This is something which has increased work for taxpayers but has to be watched out for nonetheless. Earlier, according to service tax rules, an assessee paying service tax of Rs 10 lakh or more, had to deposit service tax electronically. However, after the clarification, assessees paying Rs 1 lakh or more service tax in the preceding financial year will have to deposit the tax electronically, through internet banking, beginning this month.
Relaxes withholding on service tax component on payments to residents
The Central Board of Direct Taxes (CBDT) has provided a huge breather regarding withholding requirement on service tax component on all payments to residents.
“The board has decided that wherever... the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source. on the amount paid/payable without including such service tax component,” says the circular issued on January 13.
The tax department had received several representations seeking clarity on withholding tax. In this regard it had received several representations from tax payers. So basically now the TDS on rent paid, hotel charges, taxi services, among others would be levied after reducing the service tax component. This would ensure benefit of cash flows to service providers while would safeguard consumers from disputes.