Megha Goswami

Service Tax on Work Contract: According to the Clause 44 of section 65B of the Finance Act, 1994, a Work Contract is defined as a contract wherein the transfer of property in services and goods involved is leviable to tax. The contract’s primary purpose is to carry out the construction, enforcement, installation, commissioning, completion of repair and maintenance, fitting, alteration, and renovation of immovable and movable property. It is also applicable for carrying out any other similar activities or a part thereof about such property.

• What Is Service Tax On Contract?
• Work Contract Is A Declared Service
• Reverse Charge Mechanism for Works Contract
• Taxable Value Of Service In Execution Of Work Contract

What Is Service Tax On Contract?

A work contract is defined as the transfer of goods as part of a service contract that involves repair, renovation, and installation of heavy infrastructure.

Section 65B of Finance Act, 1994, states the following-

• Property transfer in goods and services involved in the execution of such a service and work contract
• The transfer of such property in goods is leviable to tax such as VAT, WCT, or Sales Tax.

The term ‘leviable to tax as sale of goods does not necessitate that the VAT is paid to transfer property involved in such a contract. It simply means the transfer of property is determined whether such a contract is a works contract or not.

The primary purpose of such a contract is for

1. Construction,
2. Erection,
3. Commissioning,
4. Installation,
5. Completion,
6. Fitting out,
7. Repair,
8. Maintenance, like alteration and renovation

The term ‘for carrying out any other similar activity or a part thereof about such property holds a broad implication and is prone to litigation.

It can be concluded that the service contract is the composite or single contract for providing both the transfer of property in goods and provision of service.

Work Contract Is A Declared Service

To get a hold of clarity, section 66E of Finance Act, 1994, states what shall be considered service and hence liable to charge service tax. However, this is applicable unless they are exempted anywhere else in service tax law.

Clause (h) of section 66E of Finance Act, 1994, stipulates that the service portion in executing a work Contract is a service. Hence based on this part, service tax is to be levied accordingly.

Reverse Charge Mechanism for Works Contract

A service provider is under obligation to discharge the service tax liability. This is based on the service portion in the execution of a work contract. However, in a few cases, the obligation mentioned above is partially shifted to service recipients.

A notification issued by CBEC brings the concept of the partial reverse charge in the execution of a work contract.

The notification provides that in case of taxable services either agreed or presented by way of service portion in execution of works contract by any-individual, Hindu Undivided Family or partnership firm.

Taxable Value Of Service In Execution Of Work Contract

Overall, the valuation of service provisions is governed by Section 67 of the Finance Act with Service Tax Rules, 2006. The general rule states that the taxable service value is the gross amount charged for a service, whether in money or otherwise.

According to the new rule, 2A of Service Tax Rules, 2006, the subject to the provisions of section 67, is determined in the following manner, namely-

1. Regular Scheme
2. Standard Deduction Scheme

Regular Scheme

Regular Scheme, also known as, Rule 2A(i) of the said rules, states that the service value portion in the execution of the service contract shall be equivalent to the gross amount. This is the amount charged for the service contract, which is less the value of property in goods transferred in the execution of the said service contract. However, such gross amount charged is said to be not included as a VAT or Sale Tax.

However, there may be an instance where the service provider is paying the VAT or Sales tax, not on the actual value of respective State VAT or respective sales tax law. Then the service element comprises the following components a-

• The overall amount paid to a sub-contractor regarding the labour and services;
• The applicable charges for architect’s fees and the planning and designing process
• The applicable charges for obtaining on hire and the machinery and tools used for the execution of the service contract
• The total cost of consumables such as fuel, electricity, and water used in the implementation of the service contract
• The overall cost of contractor establishment relatable to the labour and service supplies
• Similar expenses that are related to the provision of labour and services
• The profits earned by the service provider congenic to the supply of work and services

Standard Deduction Scheme

Standard Deduction Scheme or Rule 2A(ii) states that where value has not been determined. Here, the person liable to pay tax on the service portion involved in the execution of the service contract shall be determined on the following-

Upto October 2014:

• 40 percent for the execution of original works
• 70 percent for services, such as maintenance or repair or reconditioning or restoration or servicing of any goods
• Sixty percent for any other purposes and reasons that do not fall under the two points mentioned above, including maintenance, repair, completion and finishing services. These services include glazing, floor and wall tiling, plastering, and electrical fittings of immovable property.

With Effect From October 1, 2014:

• 40 percent for the execution of original works
• Seventy percent in case of service contracts not covered under the sub-clause and includes-
  • Repair, reconditioning, maintenance, restoration, or servicing of any goods.
  • Repair, maintenance, completion and finishing services, including processes like glazing, floor and wall tiling, plastering or installation of electrical fittings of immovable property

The term ‘original work’ includes

• New constructions
• Different types of alterations, additions to damaged or abandoned structures required to them workable
• Constructing, commissioning, and installation of structures, plants, and machinery whether pre-fabricated or otherwise

The term ‘fair market value includes

The fair market value of services and goods so supplied may be determined per the generally accepted accounting principles.

The term ‘total amount’ refers to the sum total of the gross amount charged for the works contract and fair market values. x

Taxability of Salary and Other Income for Seafarers: Under Section 5(2), the total income (includes all the revenues from whatever sources) of any financial year of a non-residential:-

1. Revenue is earned or expect to be welcomed in India or arise in India during such a financial year.
2. Total income gathered or generated or is deemed to accrue in India during a financial year.

The income gathered or generated outside India is not considered to be received in India within the meaning of Section by the reason only because it considers the balance sheet prepared in India.

To get the doubts cleared, the person should have to declare that the income which has been included in the total income is on the basis that it is accumulated or arisen or is deemed to have accumulate or arisen to him shall not again be so included based on that he receives it inside India.

• CBDT Clarification Issued
• What is Taxability for Other Income?
• FAQ’s on Taxability of Salary and Other Income for Seafarers

CBDT Clarification Issued

CBDT stands for Central Board of Tax. The Central Board of Tax issues a Clarificationthat a salary gained to a non-resident seafarer for services rendered outside India on a foreign ship will not be included in the total income. The same is because the salary credited is in the NRE account, which is maintained with an Indian Bank by the seafarer.

Central Board of Tax issue this circular under Circular No. 13/2017 on 11th April 2017.

Central Board of Tax clarifies further that Section 5(2)(a) provides only for those such incomes of non-resident that are not received or deemed to be received in India. The salary credited to their NRE accounts is just a remittance to the Indian Banks account, so it would not be considered under Section 5(2)(a).

There are few conditions that have to meet for the salary received in the total income of the seafarer to include in Section 5(2)(a):-

1. The taxpayer must have a seafarer.
2. Taxpayer’s service rendered outside India.
3. Foreign Ship
4. The amount must be credited to the NRE Bank Account.

If the taxpayer receives a salary from an Indian flagship or directly to their NRO bank account, then, in this case, they do not mean to free from paying the tax. They have to pay the tax for such cases as per the circulation. So it is highly advised to get your salary credited to your NRE bank account to safeguard yourself from any further appeals or proceedings.

The Circulation No.13/2017 is just a clarification circular from the Central Board of Tax on the application made by Indian’s leading merchant navy union (MUI and NUSI) against the decision passed in the “Tapas Bandopadhyay case” in August 2016 by the Kolkata Income Tax Tribunal mandating Indian merchant navy workforce to pay tax in India.

What is Taxability for Other Income?

If you accrue or raise any other income inside India, that income is taxable under Section 5(2)(a). Additional income gained from capital gains, interest paid by banks, investment, property, commissions, dividends, etc., are taxable, and these are required to report at the time of filing your Income Tax Return.

NOTE: If you earn interest on your NRE Bank Account or term, then that income will be exempted from the tax under Section 10(4)(ii).

FAQ’s on Taxability of Salary and Other Income for Seafarers

Question 1.
What if you have completed your non-resident status, but your salary is crediting to your NRO bank account? Do you need to pay the tax?

Answer:
No, you do not have to pay the tax to the Indian government. Your salary is non-taxable. But it is highly recommended to change your bank account from NRO to an NRE bank account only to avoid any further appeals or proceedings.

Question 2.
What if you have completed your non-resident status, but your company deducts your TDS (Tax Deducted at Source), which is an Indian company. Do you need to pay the tax?

Answer:
No, you do not have to pay the tax to the Indian government. Your salary is non-taxable. You need to file your  ITR (Income Tax Return) so that you can claim your TDS amount back to your account as a refund from Income Tax Department.

Question 3.
What if you have completed your non-resident status, and you have taken some amount of money (as cash) in India at the time of sign-off from the ship. Do you need to pay the tax?

Answer:
No, you do not have to pay the tax to the Indian government. Your money as a part of your salary is non-taxable. But you need to convert them into Indian National Rupees and deposit that money in your NRE bank account.

Question 4.
What if you have completed your non-resident status, but I’m receiving 600000 per year for renting my house situated in Delhi, India. Do I need to pay the tax on that income?

Answer:
Yes, you need to pay the tax on your income through renting. All the income coming from the renting services of houses, villas, etc., situated in India is taxable for all the people, whether they are residents or non-resident. So in such a case, you are required to file your return and pay the taxes (if applicable) on the income earned from the rent of your house.

Question 5.
What if you have completed your non-resident status, but my NRO bank account is deducting my TDS on the earned interest. Do I need to pay the tax for that earned interest?

Answer:
Yes, you have to pay the tax on the interest earned from the NRO bank account because it is considered Indian income and liable to tax in India. You can file your return and get your refund from the Income Tax Department of your deducted TDS from the NRO bank account.

If you earned interest from an NRE bank account, then that interest is exempted from the taxability under Section 10(4)(ii), and you do not need to pay any TAX, and the bank will not deduct your TDS.

Question 6.
The tax-free income is 250000, and what if you earned 100000 rupees from the stock market, mutual funds, and shares in the last financial year. Do you need to pay the tax?

Answer:
Yes, you have to pay the tax as it comes under the capital gain, and capital gains are taxable at a flat rate. You are not allowed any exemption from tax as a non-resident.

Question 7.
What if you have completed your non-resident status and getting credit on my PPF. Do I need to pay the tax on my earned PPF interest?

Answer:
First of all, a non-resident can not open an account in PPF. However, if you already have a PPF account opened before becoming a non-resident, you can continue such an account for 15 years from the opening date. And the interest earned from the PPF account is exempt from the tax under Section 10(11) of the Income Tax Act. But the amount which is deposited in the PPF account has to qualify for the deduction under Section 80 C of the Income Tax Act.

Form 12BB Excel PDF Format: Form 12 BB is required to be filled by the employer under Income Tax Act. This form is applicable for deduction of the lower amount of TDS (Tax Deducted at Source) from your salary if salaried employees want to consider the HRA, LTA, Section 80, and interest paid on home loans under Section 24. This form is valid from 1st June 2016.

Form 12 BB is an annual form that needs to be submitted every financial year from April to March or at the time of joining the company. If you submit the Form 12 BB earlier, then the TDS deduction will be lower. So it is highly recommended to submit your Form 12 BB in April so that your TDS deduction will be reduced as early as possible.

You have required evidence, and details regarding the claims made are needed in the following manner:-

1. If you want to claim lower TDS for house rent allowance, you need to provide-
   1. Name
   2. Address
   3. Permanent Account Number of the landlord
   4. And an agreement where the aggregate rent paid during the previous year exceeds one lakh rupees.
2. If you went concession or assistance over leave, you have to provide evidence of the expenditure during your break.
3. If you want a deduction of interest under the head “Income from house property,” you need to provide-
   1. Name of the lender
   2. Address
   3. Permanent account number of the lender.
4. If the taxpayer wants deduction under Chapter VI – A, the taxpayer needs to show evidence of expenditure or investment. You need to mention all the details of investment and its type under Section 80 C, Section 80CCC, Section 80 CCD, Section 80G, and Section 80 TTA.

Note: This Income Tax Act was passed under the 11th Amendment in 2016.

Amount Not Allowable as Deduction Section 40A: In 1961, the Income Tax Act was enacted. Profit or gain derived from a business or profession is considered income and is subject to taxation. Expenses incurred in business or work might be deducted from the revenue generated by the business or profession. However, there are several limitations to such expense deductions. Certain expenses are not eligible for a tax deduction. It was stated in Sections 40 and 40A of the Income Tax Act of 1961. Section 40(a) is explained in this article.

The following sum is not allowable as a deduction for calculating the income payable under the heading Profit & gains of business or professions:

• Any Interest, Royalties, Fees for Technical Services, Or Any Other Payment Chargeable In The Recipient’s Hands Under The Act And Payable 
• 30% Of Any Amount Payable To A Resident
• Any Amount Paid To The Government As A Result Of Income Tax
• If The Payment Is Made Outside Of India Or To A Non-Resident, It Is Charged Under The Heading “Salaries”

Any Interest, Royalties, Fees for Technical Services, Or Any Other Payment Chargeable In The Recipient’s Hands Under The Act And Payable

1. outside of India
2. to a non-resident (not a corporation) or a foreign firm in India

on which –

1. Tax is required to be deducted at source, but it has not been deducted at source, or
2. has not been paid on or before the due date provided in sub-section (1) of section 139 [Amended w.e.f A.y 2015-16].

However, such a payment may be deducted from one’s income in the year in which it was deducted and paid.

30% Of Any Amount Payable To A Resident

1. Tax is supposed to be deducted at the source, but it hasn’t been.
2. has not been paid on or before the due date for filing a return of income under section 139 after such deduction (1)

The amount that is denied, on the other hand, is allowed as a deduction in calculating the income of the following year in which it was deducted and paid. Provided, however, that if an assessee fails to deduct all or part of the tax and the payee deposits the self-assessment tax directly, the assessee is presumed to have deducted and paid the tax on such sum on the date of the resident payee’s report of income.

Any Amount Paid To The Government As A Result Of Income Tax

Any income tax paid outside of India eligible for tax relief under sections 90, 90A, or 91 is not deductible. In addition, if you borrow money to pay your taxes, the interest you pay on that money isn’t deductible.

1. Sum paid for wealth tax account.
2. Any money paid as a royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge, by whatever term called, levied only on;
3. the amount appropriated, directly or indirectly, from a State Government undertaking by the State Government. A State Government undertaking includes
   1. a corporation established by or under any Act of the State Government;
   2. a company in which the State Government owns more than fifty per cent of the paid-up equity share capital;
   3. a company in which the entity referred to in clause (i) or clause (ii) owns more than fifty per cent of the paid-up equity share capital (individually or collectively);
   4. a company or corporation in which the State Government has the authority, directly or indirectly, to nominate the majority of the directors or to control the management or policy choices, whether through shareholding or management rights, shareholders agreements, voting agreements, or any other means;
   5. an authority, a board, an institution, or a body created or founded by or under any State Act, or owned or managed by the State Government;

If The Payment Is Made Outside Of India Or To A Non-Resident, It Is Charged Under The Heading “Salaries”

If the tax has not been deducted at source, and if it has been deducted, it has not been paid. Even if tax is deducted on such an income in a subsequent previous year, such a salary is not allowable as a deduction in that year.

1. Unless the assessee has made practical arrangements to secure that tax, any payment made by the employer to a provident fund or other fund established for the benefit of the assessee’s employee shall be deducted at source from any payments made from the fund that are taxable under the head “Salaries.”
2. Any non-monetary perquisites tax that the employer has really paid.

ITR-V Receipt Status: ITR-V is a verification document required by the Income Tax department to start processing your return. When you file your return electronically, you are required to the ITR-V to the CPC Branch of the Income-tax Department in Bangalore. It is only applicable to those who file their e-return without a digital signature. This document has to be submitted within 120 days of filing your ITR. You can also e-verify your return.

ITR-V is a one-page document that you will have to sign in Blue Ink and send to CPC Bangalore via ordinary post or speed post. No other document need not be attached with the signed ITR-V. The ITR-V document cannot be couriered. You are required to send this document at the earliest for your tax refund processing.

• CPC Bangalore
• ITR-V Receipt Status
• Instructions for Sending the ITR-V

CPC Bangalore

The centralized processing centre (CPC) of the Income-tax department is located in Bengaluru. It has been allotted a unique Pincode- 560500 by the department of post for submission of  ITR-V forms and other documents that require a physical mode of transmission.

Address for CPC, Bangalore for speed post is as follows:

Centralised Processing Center, Income Tax Department, Bengaluru, Karnataka 560500.

You can also send your ITR-V by signing the document and sending it at:

Income Tax Department- CPC, Post  Box No-1, Electronic City Post office, Bangalore-560100, Karnataka.

If you want to track the current status of your ITR, it can be done via the ITR-V Receipt Status. Follow these steps to check the current status of your return.

1. Go to the official website https://www1.incometaxindiaefiling.gov.in/home.
2. Click on Services Menu and select ITR Status.
3. The status can be tracked either by using your PAN number and assessment year or your eFiling acknowledgement number.
4. Enter Captcha and click on Submit.
5. On the next page, you will find the ITR-V receipt status.

ITR-V Receipt Status

• No e-return has been filled for this  PAN/Acknowledgement number: It implies that you have not filed your return or have entered incorrect inputs.
• e-Return has been Digitally Signed: It means that your  ITR-V has been already verified using a digital signature and you are not required to send the hard copy of the ITR-V to the Income-tax department.
• ITR-V Received: It signifies that your ITR-V form has been received by the Income-Tax Department.
• ITR-V Not Received: It means that your ITR-V has not been received by the Income-Tax Department as of yet.
• Successfully e-Verified: It implies that the ITR-V has been electronically verified and you do not need to send the hard-signed copy of the ITR-V form to Income-tax Department.
• How to Download the ITR-V Form?

The Income Tax return Verification form needs to be sent to the CPC Bangalore for taxpayers to verify their e-filing. Follow the steps given below  to download  your ITR-V Form:

1. Visit the Income-tax website and log in using your login credentials.
2. Select the “View Returns/Forms” option.
3. You can choose to e-verify your return by selecting “Click here to view returns pending for your verification”.To download the ITR-V form click on the acknowledgement number.
4. Select the ITR/Acknowledgement to begin the download.
5. You will be required to enter the password to open the document. The password will be your PAN number in lower letters followed by your Date of Birth.
6. Print and sign the ITR-V form document, and send it to CPC Bangalore within 120 days of filing your e-return.

Instructions for Sending the ITR-V

Following are the detailed guidelines by the Income-tax Department with regards to the ITR-V.

• Use Ink Jet/Laser printer to print the ITR-V form and avoid Dot Max printer.
• Use only A4 size white paper.
• The ITR-V Form should be printed in black ink only.
• Ensure a crisp and clear printout and it should not be faded/light print.
• Do not use any watermarks on the ITR-V. The Income-tax department watermark is printed automatically on the ITR-V form.
• The document should be signed in Blue Ink.
• Avoid writing any handwritten tax or signature over the bar code.
• Avoid writing anything on the backside of the paper.
• Multiple ITR-V forms can be sent in the same envelope. Use two separate papers for printing ITR-V if you are submitting original and revised returns. Do not them on the backside of the same page.
• Send the ITR-V form to the Centralised Processing Center, Income Tax Department, Bengaluru, Karnataka 560500, via speed post or ordinary post only.
• ITR-V forms that do no comply with the above specifications may be rejected by the CPC Bangalore.
• ITR-V can’t be used as proof of filing your return if your verification is pending.