Service Tax, VAT CST update

Service Tax : Even long-term leases of 99 years by state industrial development authorities amount to 'lease' and are liable to service tax under Renting of Immovable Property Services

VAT/CST :

Composite contract of manufacture, supply and installation of lifts in building (involving civil construction) amounts to works contract; however, if there are two contracts of purchase of components of lift from a dealer and separate contract for installation, same would be 'sale' and 'labour and service' respectively.

Income Tax department puts HRA exemption under scanner

NEW DELHI: As if the additional information required in tax returns was not enough, there's more bad news for tax evaders. Salaried taxpayers who claim HRA exemption will now have to report their landlord's PAN if the total rent in a year exceeds Rs 1 lakh. "In case the landlord does not have a PAN, he must submit a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee," says a circular issued by the Central Board of Direct Taxes last week.

Till now, if the total rent paid was less than Rs 15,000 a month, there was no need to submit the landlord's PAN details. The new rule effectively reduces this limit to Rs 8,333 a month.

This is being seen as an attempt to plug tax evasion by salaried professionals who submit fake rent receipts to maximize their HRA exemption. But even honest taxpayers will have to suffer the collateral damage. "This will create problems for many employees as landlords are generally reluctant to provide PAN on rent receipt to tenants," says Vineet Agarwal, director KPMG.

The CBDT circular has also sounded another warning. Under section 10(13A), salaried employees who get HRA up to Rs 3,000 per month are not required to produce rent receipts. "This concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent," the circular clarifies.

Gross direct tax collections between April and September 2013 touched Rs 3.01 lakh crore, a rise of 10.7 per cent over the Rs 2.72 lakh crore collected in the corresponding period of the previous fiscal. But the government had fixed a 19 per cent growth target for direct tax collection. In the first six months of the fiscal, barely 45 per cent of the total direct tax collection target of Rs 6.72 lakh crore has been achieved.

SOURCE: ECONOMIC TIMES

Husband gets HRA exemption on rent paid to wife

In the instant case the AO disallowed assessee's claim for HRA exemption on the ground that assessee and his wife were living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability. The CIT(A) confirmed the addition on the ground the tenant (i.e., assessee) and landlord (i.e., his wife) were staying together which indicated that the whole arrangement was a colourable device. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The section 10(13A) provides that exemption would be allowable to an assessee for any allowance granted to him by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the him;

2) However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent;

3) Admittedly, the AO had given a finding of fact that the assessee and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife of the assessee was occupied by the assessee also;

4) The assessee had submitted the rent receipt(s) and payments had been duly verified. Therefore, the assessee had fulfilled the twin requirements of the provision, i.e., occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A) - BAJRANG PRASAD RAMDHARANI V. ACIT (2013) 37 taxmann.com 186 (Ahmedabad - Trib.)