Revised Procedure for non-dedcution of TDS against Form 15G / Form 15H

This is most relevant for entities which have borrowed monies from individuals who are not chargeable to tax. An example would be a loan to a private company by the individuals non-working parents or spouse.

Payee can now submit their self-declaration (Form 15G / Form 15H) either in paper form or electronically to the Payer / Deductor.

The Payer / Deductor will, based on this submission, not deduct tax at source (withholding tax) and is now required to allot a Unique Identification Number (UIN) to each self-declaration (Form 15G / Form 15H) received in a given financial year.The Payor / Dedector has to allot the UIN based on 3 fields –

  • 1st Field – Sequence Number: A 10 character alphanumeric (1 letter and 9 digits) sequence starting with “G” for Form 15G and “H” for Form 15H. The sequence number should restart at 1 for each financial year.
  1. Sequence number for 1st Form 15G should be – G000000001
  2. Sequence number for 1st Form 15H should be – H000000001
  • 2nd Field – Financial Year: This represents the financial year for which the Form 15G / Form 15H is submitted as follows 201516 (for financial year 2015-16) or 201617 (for FY 2016-17)
  • 3rd Field – The TAN of the Payer/ Deductor: i.e. the PAN person / entity responsible for deducting TDS (or not deducting TDS in this case).

Combining these three fields gives the UIN for the Form 15G / Form 15H declaration.

  1. UIN for 1st Form 15G of FY 2016-17 should be G000000001201617ABCD12345Z
  2. UIN for 1st Form 15H of FY 2016-17 should be H000000001201617ABCD12345Z

Points to Note:

  1. The payer/ deductor is required to upload all the declarations (paper and electronic) to the Income Tax Department website on a quarterly basis
  2. The payer / deductor is required to furnish the Form 15G / Form 15H declaration in their Quarterly TDS Return, even if no tax has been deducted for the quarter
  3. The PAN of the payee has to be mandatorily quoted
  4. If the payer has not reported the UIN in their Quarterly TDS Return or not uploaded the UIN to the Income Tax website, they have to file an exceptional report
  5. The payer / deductor is required to retain Form No.15G / Form 15H for seven years.

The last date for uploading the Form 15G / Form 15H for 2015-16 is 31st May 2016.

For Quarter 1 of 2016-17 (April to June 2016) the last date for uploading the Form 15G / Form 15H is 31 July 2016.

Full text of the notification is available here.

Unlisted shares held for 24 months or less to be now treated as short-term capital gains / losses

Gains / Losses from sale of unlisted shares would be treated as short-term capital only if the shares are held for 24 months or less, as against the earlier period of 36 months.

Thus, gains / losses from unlisted shares held for more than 24 months would classify as long-term.

This distinction is crucial, especially to investors in start-ups as the short-term meant income tax at the slab applicable, while long-term means a flat 10% income tax without the benefit of indexation on purchase cost or 20% income tax with the benefit of indexed cost of purchase.

Tax to be Collected by Seller of Goods / Provider of Services in certain cases

A seller of goods or provider of services is from 1st June 2016 required to collected tax at 1% from the buyer of goods / receiver of services, if whole or part of the payment is made is cash.

Luckily this is not a blanket provision and applies only to transactions / invoices of over Rs2 lakhs for goods (including bullion) and services and Rs5 lakhs for purchase / sale of jewellery.

The 1% tax is to be collected when the cash portion is received and the tax should be collected on the full value of invoice (and not only on the cash portion)

Do note that this Rule is applicable irrespective whether the buyer or goods / receiver of services is a manufacturer, trader or the purchase is for personal use.

Exception: The seller of goods / provider of services is not obliged to collect the tax, if the buyer has deducted the tax at source from the payment being made. IN other words, the seller of goods / provider of service is not required to collect tax if the buyer of goods / recipient of service has deducted tax at source.
For example: If M/s A rendered the services to Mr Z for Rs2 lakhs and Mr Z deducts TDS on this Rs2 lakhs before making the payment to M/s A, then M/s A is required to collect TCS from Mr B.

Change in Due Dates for TDS Return

From the first quarter of financial year 2016-17, i.e. April to June 2016 quarter, the due date for filing TDS returns has been revised. The new dates have increased from the earlier period by 15 days. The full annual schedule is below:

Revised TDS Return Due Dates

Quarter Ending Due Date to File Return
30th June 31st July
30th September 31st October
31st December 31st January
31st March (tax year end) 31st May

Form 12BB to be submitted by Employees to the Employer

A recent change in the Income Tax Act has now standardised the format in which all employees have to submit their tax, savings and investment declaration.

As an employer, you have to deduct TDS based on these declarations by the employee.

Briefly the employer needs to collect Form 12 BB along with the evidence as below:

Nature of Claims Evidence or Particulars
House Rent Allowance (HRA) Name, address and Permanent Account Number (PAN) of the landlord, where the aggregate rent paid during the previous year exceeds INR 1 lakh
Leave Travel Concession or Assistance (LTA) Evidence of expenditure
Deduction of interest under the head “Income from House Property” Name, address and PAN of the lender
Deduction under Chapter VI-A Evidence of investment or expenditure

The declaration is in Form 12BB and is available here in excel format (13kb) and here in pdf format (38kb).

Full Text of the Notification is available here.

Swacch Bharat Cess – Service Tax wef 15 November 2015

Swacch Bharat Cess of 0.5% wef 15th November 2015

The Swacch Bharat Cess was announced in the Budget 2015. However it was not made effective / applicable at that time.

The Budget 2015 (Finance Act, 2015) provided for the levy and collection of the Swacch Bharat Cess at a rate not exceeding 2%. The government has now notified that the Swacch Bharat Cess will be levied at a rate of 0.5% and will be effective from 15 November 2015.

Notification No. 21/2015 has been issued notifying 15th November 2015 as the date from which the Swacch Bharat Cess would be applicable.

Notification No. 22/2015 has been issued which specifies that an exemption has been granted in excess of the Swacch Bharat Cess calculated at 0.5% of the value of taxable services. Effectively, the rate of cess will be 0.5%.

Thus, the Rate of Service Tax increases to 14.5% with effect from 15th November 2015.

Below are some additional points to help you understand the implications better:

  • For services covered by abatement, for example, Goods and Transport Agency (GTA) service where at present the tax is payable at 4.2% (30% of 14%), the new rate of service tax will be 4.35% (30% of 14.5%, and not 4.2%+0.5% = 4.70%). Similarly, for other services covered by abatement, the effective service tax rate will be 14.5% x effective abatement rate under the latest notification/s.
  • In case of works contract, Service Tax is to be applied on the value at the rate of 14.5%. Thus, the effective rate of tax in case of original works will be 5.8% (14.5% * 40%) and in case of other than original works it will be 10.15% (14.5%*70%). Similar, would be for restaurant and outdoor catering services.
  • Swacch Bharat Cess has to be collected and paid separately from service tax and is not subsumed in existing service tax rate. The Swacch Bharat Cess should be be charged separately on the invoice, accounted separately in the books of account and paid separately under separate accounting code (which is soon expected to be notified).
  • If the services provided are covered by mega exemption notification i.e. 25/2012-ST. one does not need to charge only the Swacch Bharat Cess. Similar the Swacch Bharat Cess will not be applicable to the services covered by the negative list.
  • If the service have been provided prior to 15th November 2015 but invoiced on / after 15th November, and no advance has been received, we believe that teh Swacch Bharat Cess should be levied as required under the Point of Taxation Rules.
  • In case of reverse charge services where services have been received prior to 15th November 2015 but the consideration paid post after 15th November 2015, teh Swacch Bharat Cess will have to be paid.
  • We believe that since there has been no amendment to the Cenvat Credit Rules, 2004 regarding availment and utilisation of the Swacch Bharat Cess, credit of this cess is unlikely to be admissible. However, we also do believe that a suitable amendment would be made to the Cenvat Credit Rules, 2004 in due course.
  • Do remember that the Swacch Bharat Cess applicable only to services (and thus Service Tax). It does not apply to excise or customs duties. Thus, manufacturing entities should not charge any extra cess.

Service Tax Changes from 1 June 2015

The new service tax rate of 14% is applicable from 1st June 2015 (per Notification No. 14/2015-ST dated 19th May 2015).

  • Ensure that all your bills and invoices from that date on has the higher rate of service tax.
  • Also ensure that you DO NOT charge the Education and Higher Education Cess (2% and 1%) as the new service tax rate is inclusive of these.
  • You do not need to show the Cess in your bills / invoices after 1st June 2015.

Changes (in Rules 6 of Service Tax Rules, 1994) for change in abatement rates of Service Tax for: Air Travel Agent, Life Insurance Business, Foreign Exchange Brokers and Distributor & Selling Agent of Lottery will also be applicable from 1st June 2015 (Notification No. 15/2015-ST dated 19th May 2015).

  • In addition following changes are also applicable from 1st June 2015:
  • Service Tax on amusement facilities and Entertainment Events. Exemption will be available for following services where tickets are priced at Rs.500 or less per person.
  • Service Tax on Liquor Job Work

Date of applicability of following provisions is yet to be notified:

  • Expansion of scope of services provided by Government and Local Authority; and
  • Applicability of ‘Swachh Bharat Cess’

Do refer to our earlier note on Service Tax Changes from 1st April 2015 either in our earlier newsletter or on our blog.

Service Tax Changes from 1st April 2015

The recent Union Budget on 28th February 2015 brought with it some changes to Service Tax. While some of the changes are indeed applicable from 1st April 2015, others are not. We are detailing below each of these for your ready reference.

Increase in Rate from 12.36% to 14.00%

  • NOT effective from 1st April 2015.
  • It shall be effective from the date it is notified in the gazette (we shall keep you informed)
  • Till then charge 12.36% as earlier

Swach Bharat Cess of 2%

  • NOT effective from 1st April 2015.
  • It shall be effective from the date it is notified in the gazette (we shall keep you informed)

Changes in the Reverse Charge Mechanism

All these are effective from 1st April 2015 and base your bills, calculation and payments accordingly

  • Goods Transport – Abatement Rate changed to 30% from 25%. In a nutshell, pay service tax at 3.708% instead of the earlier 3.09%.
  • Manpower Supply / Security Services – 100% to be paid by service receiver (earlier 75% was paid by service receiver and 25% by service provider). Thus, service receiver will now have to pay service tax at full 12.36%.

For these two changes (above) ensure that, for the services availed in 2014-15, the service provider’s invoice is dated 31 March 2015.

  • For the following services the existing rates will continue. The new rates will be effective only after the date is notified.
  1. Air Travel Agent
  2. Life Insurance
  3. Money Changing Service
  4. Lottery

Exemptions Withdrawn

The following services will now be liable for Service Tax as the exemptions provided till now have been withdrawn

  • Services provided to the Government / local authority / governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (a) civil structure for use other than for commerce, industry, etc., (b) structure for use as educational / clinical / art or cultural establishment, and (c) residential complex for self-use / use of employees

Thus exemption for historical monuments, etc., canals, dams, etc. and water supply, water treatment and sewage disposal continues

  • Construction, erection, commissioning or installation of original works pertaining to an airport or port
  • Transportation of food stuff by rail / vessels / road. Thus, services by way of transportation of foodstuff except milk, salt and food grain (including flour, pulses and rice) would be liable to service tax.
  • Services provided by mutual fund agent to a mutual fund / asset management company and selling / marketing agent of lottery ticket to a distributor. These will be now chargeable to service tax under the Reverse Charge Mechanism, i.e. the Mutual Fund / AMC will have to pay the service tax.

New Exemptions

The following services will NOT be liable to service tax:

  • Transportation of a patient to / from a clinical establishment by a clinical establishment by all ambulance services
  • Service provided by a Common Effluent Treatment Plant operator for treatment of effluent
  • Services of pre-conditioning / pre-cooling / ripening / waxing / retail packing / labeling of fruits & vegetables
  • Admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve
    Goods transport agency service for transport of export goods by road from the place of removal to a land customs station (LCS). Note that transport of export goods by road from place of removal to an inland container depot / container freight station / port / airport is already exempt.

Changes to Claiming CENVAT Credit

One can now claim credit (set-off) of service tax paid under reverse charge by service receiver after making the payment of service tax and even if value of service is not paid.
Earlier, the set-off could be claimed only if the provider of service was paid his/her dues.

Your feedback would be of immense help in improving our blog and newsletter. Is this too short/long? Too verbose? Just email us, we would love to hear from you.

Loans & Deposits in a private limited company

The Companies Act 2013 has heralded a new era in governance and compliance. A critical portion of many of the private limited companies was raising funds from friends and relatives as loans or deposits, which was allowed under the earlier Companies Act, 1956 but disallowed under the new act.

Companies and their promoters had been given one year till 31st March 2015 to repay these loans and deposits, while of course was difficult given that the funds were already invested in the business, and at many times a significant multiple to the equity capital of the company.

The fine, on the company, for not repaying these was Rs1 crore to Rs10 crore, irrespective of the amount of loan or deposit. Further, the directors were personally liable for fines from Rs25 lakhs to Rs2 crores and imprisonment of upto 7 years!

The only two options were to either repay the deposits / loans or apply to the Company Law Board (CLB) for an extension, which was anyways unlikely to grant it.

To the relief of all these companies and promoters, the Ministry of Corporate Affairs (MCA) has clarified that if any amount was not considered a deposit under the Companies Act, 1956 the same status would continue, i.e. it will not be considered as a deposit under the new Act. Do that for this to apply the amount should have been received prior to 1st April 2014 (i.e. on or before 31st March 2014).

Additional conditions for disclosure have been laid down in respect of such loans / deposits. The company will have to disclose the notes in its financial statement the figure of such amounts and the accounting head in which such amounts have been shown.

While this news came very late in the year, it is nevertheless a welcome clarification.

Link to the MCA Circluar: General Cicular 5/2015

RBI Notification on NBFC’s M&A

RBI has recently issued a circular with regard to M&A activities related to NBFC, whether deposit-taking or not.

Summary: any acquisition of NBFC will now require prior approval of the RBI.

  1. Both deposit-taking and non-deposit taking NBFC’s are covered.
  2. Further all types of transactions are covered, i.e. purchase of shares, control through shareholders’ agreement and merger with another company (even if it is an NBFC).

The application needs to be made to the Regional Office of the DNBS (Dept of Non-Banking Supervision).

The key objective is to ensure that the new management are ‘fit and proper’ persons.

Hence, while pursing any transaction ensure this prior approval is taken.


Relevant Extract of RBI Notification on NBFC M&A transactions:

The prior written permission of the Reserve Bank of India shall be required for –

  1. any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
  2. any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
  3. any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
  4. Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.

Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the Company is located.


Link to RBI notification – pdf file