Procedure for Verification and Scrutiny of Service Tax Returns

The CBEC vide its circular no 185/4/2015 dated 30th June 2015 has revised the procedure for scrutiny of the service tax returns. This is a step towards ensuring whether the self­ assessment carried out by the assessees is in line with the provisions of the prevailing service tax law. A two fold procedure has been prescribed which consists of an online scrutiny of all the service tax returns and a detailed manual scrutiny of the returns of select assessees. The new procedure shall be applicable with effect from 1st August 2015. A brief about the new procedure is as below.

Online Scrutiny
It shall be carried out for all the returns without exception.
Purpose / Coverage of Online Scrutiny
Arithmetic checks of the tax calculation.
Timely compliance in terms of payments made and filing of returns.
Ensuring completeness of the information furnished.
Identification of Non­filers and Stop­filers.
The online scrutiny is carried out by ACES and the returns containing any errors shall be marked for review and correction by the range officers.


Detailed Manual Scrutiny (“DMS”)
Applicable from F.Y. 2014 ­15 and onwards and will be carried out on a yearly basis.
Assessee Selection Criteria
Tax Paid (Cash + Cenvat) should be less than Rs. 50 Lacs. The Chief Commissioner may select assessee with tax paid more than 50 Lacs in certain cases.
Equal number of assessees shall be selected in each of the three bands based on the quantum of service tax payments viz. up to 10 Lacs, 10 ­ 25 Lacs and 25 – 50 Lacs.
Assessees selected for audit in the past three years shall not be selected for DMS.
An assessee cannot be subjected to both Audit and DMS.


Purpose / Coverage of DMS
Taxability of Services, whether all taxable services covered, including taxability as per reverse charge mechanism.
Valuation of services as per valuation rules.
Appropriateness of Abatements, Exemptions and Tax Rates.
Appropriateness of Cenvat Credit.
Detailed reconciliation with the Income Tax Return (ITR) and Records.


Process and level of verification.

The scrutiny will be carried out at the Range office. No visits to the assessee premises.
15 days intimation to be given to the assessee before initiating the DMS process.
The data as per the service tax returns and the income tax returns shall be compiled and analysed for the past three years viz. FY 2012 – 13 to FY 2014 ­15. This is to facilitate a better understanding of the details of the assessee by the assessing officer. This shall be done by referring to the service tax returns and income tax returns filed by the assessee.
Sample invoices, debit / credit notes, agreements and any other relevant documents shall be verified for determining the taxability and valuation of service.
Whether Service tax liability on reverse charge has been discharged appropriately.
The abatements and exemptions claimed, if any, are after fulfilling the prescribed conditions.
The eligibility and availment of cenvat credit, with specific reference to Rule 6 of the cenvat credit rules shall be verified. (Rule 6 applies in a case where the assessee is a provider of both taxable services as well as exempted service)
Appropriate applicability of the various rules, for eg. The place of provision rules to check the export of services.
Every possible aspect of the service tax return shall be reconciled with the information furnished in the income tax return. Some areas are indicated below:
Total amount of output service provided with the total revenue as per ITR.
Category wise classification of output service shall be broadly linked with the section under which TDS has been deducted as per the Form 26AS. An indicative list correlating the service categories with the TDS sections is given in annexure III to the above referred circular.
Payments made in foreign currency as appearing in ITR along with service tax paid on import of services. (Eg. Legal and professional expenses incurred in foreign currency are required to be disclosed separately in the ITR)
Certain expense heads in the ITR which prima facie appears to be of the nature of services covered under the reverse charge mechanism along with the service tax paid on reverse charge basis. (Eg. Freight expense may get covered under reverse charge provisions of transport of goods by road service)
Reconciliation of tax amounts – both output tax collected and input credit claimed.
Advances received from the customers as appearing as a liability in ITR and whether service tax has been paid on the same.
Time Limits


The intimation letters for FY 2014 – 15 shall be issued by the 15th July 2015 and the DMS process shall be initiated by 1st August 2015.
A time limit of one month to three months has been prescribed for completion of the DMS.

NRI--Taxation In India and Tax Benefits

Paying a percentage of your earning as taxes to your country’s coffer contribute towards the nation’s functioning and development. Income Tax is levied on all sources of income other than agricultural income. Income taxes are applicable on all the resident citizens who earn their income in India. If you are an NRI (Non Residential Indian), you are only liable to pay taxes for the income that is earned in India. Thus the Income tax rules for the NRIs differ from that of the resident citizens.

 

When are NRIs taxed on their income?

Income tax is payable by every individual citizen. However, your residential status is an important aspect when income tax is being discussed. Your residential status itself determines if at all you are required to pay taxes or not.
The Income tax department classifies an individual to be a non-resident when:

• You reside outside India for a period of 182 days or more during the relevant previous year.
• You are not present in India for 60 days or more during the previous year and again for a combined total of 365 days or more during the previous 4 years prior to the previous year.

Your status of being a resident or a non-resident Indian depends on the above criterion. For example, while you are an NRI, you were physically present in India for more than 182 days during one financial year. In such a case you will be considered as a resident when it comes to taxes and you are obliged to pay taxes to the Indian government for the income earned in India, if any for that year. Thus an NRI is liable to be taxed only for income or capital gains earned in India.

What can an NRI be taxed on while in India?

Since the earnings made abroad do not come under the Indian Income Tax acts, NRIs cannot be taxed for the same. Your earningswhile abroad are completely tax free considering that you do maintain the non-resident status. However if any income or capital gains arise from within Indian shores, you are liable to pay taxes for the same.

Taxable incomes for NRIs include:

Salary: Income earned from your salary in India or income received on your behalf is taxable.
Property and Assets: Any income or capital gain that you generate from the sale/ rent or lease of a valued property or an asset based in India will be taxed as per the Income Tax rules.
Securities and Investments: Income or capital gains from long-term or short term investments are liable to be taxed.
Non-Residential Indians are liable to pay taxes to the government on their income from salaries, assets or from investments or securities held in India. If you are an NRI with your income sourced in India, you have to file your tax returns. Presently, as per Income Tax Act,1961 and Foreign Exchange Management Act (FEMA), you qualify to pay taxes in case you fulfill either of the following conditions:

1. Your taxable income in India during a particular financial year is more than the exemption limit of Rs 2 lakh.
2. You have earned short-term or long term capital gains from sale of any investment or property, even if the gains are less than the exemption limit.

NRI Tax Exemption: Are there any Tax exemptions for NRIs?

NRIs are taxed as per the tax rate and slabs prescribed for resident Indians below 60 years irrespective of whether he is a senior citizen or not. All NRIs are required to pay taxes in order to avail credit of TDS.
As far as Tax Returns are concerned, NRIs cannot file for tax returns under the following circumstances:

• If taxable income consists of only investment income or long term capital gains.
• When the tax has already been deducted at source, on such income.

If you are a Non-Resident Indian, these taxation basics are good to know so that you are aware of when you are liable to pay taxes, how taxes are levied on your income earned in India, what are the tax deductions that you get as well as how tax returns work. Most importantly, it is the right thing to do if you pay taxes (when liable) diligently as they enable the government to meet their expenses as well as fund the country’s development.

RBI grants in-principle approval to 11 applicants for payment banks

1. Aditya Birla Nuvo Limited
2. Airtel M Commerce Services Limited
3. Cholamandalam Distribution Services Limited
4. Department of Posts
5. Fino PayTech Limited
6. National Securities Depository Limited
7. Reliance Industries Limited
8. Shri Dilip Shantilal Shanghvi
9. Shri Vijay Shekhar Sharma
10. Tech Mahindra Limited
11. Vodafone m-pesa Limited
Dos of payments banks

* Has to use the word ‘Payments Bank’ in its name to differentiate from other banks

* Accept demand deposits, i.e., current deposits, and savings bank deposits from individuals, small businesses and other entities

* To hold a maximum balance of Rs one lakh per individual customer.

* Will be allowed to set up branches, ATMs, BCs

* Allowed to issue debit cards also offer internet banking

* Can accept a large pool of money to be remitted but at the end of the day the balance should not exceed Rs one lakh

* Can accept remittances to be sent to or receive remittances from multiple banks

* Permitted to handle cross border remittance transactions in the nature of personal payments / remittances on the current account

* Allowed to distribute mutual fund products, insurance products and pension products

* Bank can also undertake utility bill payments

Don’ts of payments banks

* No NRI deposits should be accepted

* Cannot issue credit card

* Not allowed to set up subsidiaries to undertake non-banking financial services activities

* Other financial and non-financial services activities of the promoters should not be mingled with the working of payment banks

Tax Audit -- Income Tax Act 1961

An Assessee is liable to get his Tax Audit done by a Chartered Accountant mandatorily, if in the previous year,
1. The Person is carrying on business and his Total Sales/Turnover exceeds Rs. 1 Crore (Limit increased wef 1st April 2012) or
2. The Person is carrying on Profession, and his Gross Receipts exceed Rs. 25 Lakhs (Limit increased wef 1st April 2012) or
3. The Person is carrying on business or profession and is covered under the provisions of section 44AD, 44AE, 44AF, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains computed under the relevant section
The Due Date of filing the Tax Audit Report under Section 44AB is 30th September of the Assessment Year and for assesse required to file Transfer pricing report due date is November 30th.



For all other assessee’s who are not liable to get their Tax Audit done under Section 44 AB – the Due Date of filing of Income Tax Return is 31st July.
Several changes in Tax Audit Report have been introduced vide Income Tax (7th Amendment) Rules 2014 are applicable from this AY 2014 – 15 onwards. CBDT has amended Form 3CA, Form 3CB & Form 3CD and the amended Forms now require explicit mention of the observations/qualifications if any, by the auditor while issuing the true and correct audit report.
With the introduction of these changes, the tax auditor’s responsibilities to report detailed information under the new/amended clauses has increased significantly.
In case an Assessee is liable to get his Accounts audited by an Accountant under any other Law for the same accounting period, the assessee is not mandatorily required to get his audit done again and is only required to submit a report in the form mentioned below. However, if the Accounting Year is different from the Accounting Year for which the Audit was done under any other Act, theTax Audit would be required to be conducted again as per the Income Tax Act (Circular No. 561 dated 22051990 issued by CBDT)



Tax Audit efiling
As per Notification No. 34 dated 1st May 2013, efiling of Tax Audit report is now mandatory from the assessment year 2013- 14 onwards.
As per Rule 6G, tax audit report is to be furnished in Form 3CA & Form 3CB and the particulars required to be furnished along with these tax reports should be in Form 3CD.
1. Form 3CA & Form 3CD These Forms are used in case where the Accounts of the business or profession of a person have already been audited under any other Law.
2. Form 3CB & Form 3CD– These Forms are used in case where the Accounts of the business or profession have not been audited earlier.
Computation of Total Turnover for the purpose of Tax Audit
ICAI has through a Guidance Note clarified the following points:
1. Where a person is carrying on 2 Business/2 Professions – the total turnover of both the businesses shall be clubbed together and tax audit shall be liable to be conducted if the Total Turnover exceeds Rs. 1 Crore/ Rs. 25 Lakhs as the case may be.
2. Where a person is carrying on business as well as profession and the Turnover of the business is Rs. 1.2 Crore and the Gross Receipts of the profession is Rs 22 Lakhs. In such a case, ICAI has clarified through a Guidance Note that the Assessee is liable to get the Tax Audit done of both the business as well as profession because the Gross Receipts from the business exceed the limit of Rs. 1 Crore. However, if his Total Turnover was Rs. 95 Lakhs and Gross Receipts from business was Rs. 22 Lakhs, he would not be required to get his Tax Audit done.
3. In case where a person has a total turnover of Rs. 98 Lakhs and has sold a Car for Rs. 8 Lakhs. In such a case, the total amount on adding up becomes Rs. 1.06 Lakhs i.e. above Rs. 1 Crore. Confusion arose whether the person is liable to get an audit done in this case and ICAI has clarified that the turnover will not include any amount on the sale of the fixed asset as it was held by the person for business use and not for the purpose of sale.

ICAI has further clarified that the amount received from the following items shall not be included while computing the Total Sales/Total Turnover/ Gross Receipts:
Sale Proceeds of Fixed Assets
Sale Proceeds of Assets held as Investments
Rental Income
Income by way of Interest unless assessable as Business Income
Any expense which is reimbursable to the Agent by the Client

Penalty for Non Compliance of Section 44AB
Non Compliance of the provisions of this act shall attract Penalty under section 271B of the Income Tax Act. If any person required to get his audit done undersection 44AB fails to do so before the specified date shall be liable for penalty of ½% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000
However, Section 273B states that no penalty shall be levied under section 271B if there is a reasonable cause for such failure. Some instances which have been accepted by the Tribunals/Courts as “Reasonable Cause” are:
1. Resignation of the Tax Auditor and Consequent Delay
2. Death or physical inability of the partner in charge of the Accounts
3. Labour Problems such as strikes, lockouts for a long period
4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assessee
5. Natural Calamities

Revision of Tax Audit Report
Tax Audit Report efiled cannot be revised under normal circumstances. However, in case the Accounts are revised in the following circumstances, the Audit Report efiled can also be revised
1. Revision of Accounts of a Company after its adoption in the Annual General Meeting
2. Change in Law with Retrospective effect
3. Change in Interpretation of Law (Eg: CBDT Circular, Notifications, Judgements etc.)
In case the Tax Audit report efiled is revised, the Auditor shall state that it’s a Revised Report and shall also state the reasons for the same.

Limitation on CA’s for the number of Tax Audits
The Maximum no. of Tax Audit Assignments under Section 44AB which can be taken by a CA has been increased from 45 to 60 by the ICAI Council in its 331st meeting held from 10th to 12th Feb 2014. Thus if a firm has 4 partners, the maximum no. of Tax Audits that can be taken by a firm in an assessment year would be 60*4=240. If the Firm undertakes all the 240 Tax Audit Assignments, the partners would not be in a position to undertake any tax audit assignment in their personal capacity. Now that tax audit efiling is mandatory, the chartered accountant conducting the tax audit would also be required to prepare the tax audit report in electronic format.

As per Companies Act, 2013 following mandatory requirements are to be fulfilled in respect of Adoption of Accounts and holding of AGM for the year 31.03.2015 :

1. Call meeting of the board of directors to adopt the accounts as on 31.3.2015 on or before 04.09.2015.

2.Get the accounts audited for the Financial Year ended 31st March 2015. It must be before 25 days for the date of AGM i.e. upto 04.09.2015.

3.Give notice to shareholders for holding of the AGM. It must be before 25 days from the date of AGM i.e. up to 04.09.2015

4. To hold Annual General Meeting on or before 30.09.2015.

The due dates for filling of mandatory forms are as follows:

👉The appointment of auditors (Form ADT-1) has to be filed within 15 days of AGM and it has to filed by the company now, not by auditors.

👉Balance sheet & Profit & Loss a/c (form AOC-4) has to be filed within 30 days of the AGM.

👉Annual return (Form MGT-7) has to be filed within 60 days of the AGM.

👉MGT-14 within 30 days for adoption of accounts in case of public companies only.