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  • Tax Matters: How will GST affect air travel and entertainment?

    As GST rate is lower from the current burden, it might not result in reduction in tariff on cinema tickets as states will still have the right to levy local charges

    How will the goods and services tax (GST) affect air-travel, eating out and movie tickets?

    — Ganesh Dalia, e-mail

    GST has come out with more than five tax slabs: 5%, 12%, 18%, 28% and nil. Economy class air travel will become cheaper, with the tax rate fixed at 5% as against the existing 6%. However, business class tickets will become more expensive as the tax will go up from 9% to 12%.

    GST might make eating out more expensive from July. There's sharp jump in the tax rates for both non-AC and AC restaurants. Dining out in AC restaurants will attract tax of 18% as against 10.6% charged (value-added tax and service tax) now. The tax rate will be 12% as against 6% now for low-cost restaurants. Restaurants with annual turnover of up to Rs. 50 lakh will have to pay GST of 5%.

    The current tax rate on hotel rooms ranges from 18% to 25%. GST on hotels and lodges charging between Rs 1000 and Rs 2500 will be 12%. GST on hotel rooms in the price range of Rs 2500 to Rs 5000 will be 18% and for rooms above Rs 5000 per night will be 28%. GST on hotels and lodges charging Rs 1000 and less per day will be 5%.

    The entertainment tax will be merged with the service tax under GST. Currently, the average entertainment tax varies between 35% and 55% from state to state. There will be 28% GST on cinema tickets prices above Rs 100. Although, the GST rate is lower from the current burden, it might not result in reduction in tariff on cinema tickets as states will still have the right to levy local charges on top of the GST rate.

    Nearly 80% of the mobile phones sold in India are now assembled in the country. Till 30 June 2017, the tax rate for local mobile manufacturers was 12.5%. However, there was the benefit of countervailing duty of 11.5%, which effectively brought the overall tax burden to around 1%. The new GST regime has imposed a burden of 12% on such mobile phones. Given the steep hike in the tax rate, domestic handset makers are expected to pass on the higher tax burden to the end consumers. Domestic handset makers do not just include home-grown companies such as Micromax, Karbonn, Lava and Intex but also Chinese players such as Xiaomi, Vivo, and Lenovo assembling phones in India.


    Please throw some light on the goods and services tax (GST) issues faced by various industries.

    — Akshar Vadgama, e-mail

    The release of the GST rates has, as expected, triggered varying responses across industries. The Federation of Associations in Indian Tourism & Hospitality has sought lower GST rate for five-star hotels and other similar accommodations with a tariff rate of Rs 5000 and above on the basis that the GST slabs for hotels will make India hugely uncompetitive in the global market. The GST rate is 28%.

    The GST Council is expected to reconsider the levy of 43% GST (28% tax plus 15% cess) on hybrid vehicles considering the concerns of the automobile industry of the steep rate hike.

    Construction services are sought to be taxed at 12% on the amount charged from the recipient including the value of land. Considering that GST will be chargeable on the land value as well, Confederation of Real Estate Developers' Associations of India (Credai), the apex body of private real estate developers, has requested state governments to abolish the stamp duty levied on landed property to avoid multi-point taxation after the introduction of GST.


    How can goods and services tax (GST) companies in tax-free zones claim refund?

    — Akash Ahir, e-mail

    Area-based programmes allow businesses in special-category states with a low industrial base such as Himachal Pradesh, Uttrakhand, and the Seven Sisters of the north-east exemptions from payment of Central taxes such as excise duty and some other state levies.

    Several exemptions have been curtailed under GST. It is expected that other tax holidays will also be terminated. But most of the exemptions will be grandfathered. For instance, excise duty exemptions in Uttarakhand will expire in financial year ending 2020, but investments made until then will need to be grandfathered.

    New Delhi will reimburse the Central GST paid by companies in these areas. This implies that units in these areas will have to first pay the tax and then file for refunds. Individual states will have to take a call on the continuation of specific incentives such as exemptions from value-added tax.

    The refund mechanism will allow a smooth transition to the GST regime, keeping the the new tax framework free from complications.


    How will alcoholic beverages be affected  after goods and services tax (GST) kicks in?

    — Barik Niranjan, e-mail

    Beer, wine and whisky have been kept out of GST. Not being part of GST means consumers from different states will continue to pay different prices for the same beverages. The industry now plans to raise prices of hard drinks, beer and wine. But increasing prices of liquor is not so easy as state governments do not readily approve it.

    Exclusion from GST has also taken away the possibility of expansion of business volume. Smaller wineries will not be able to expand to other states due to different rates of taxation and exorbitant label registration prices.

    Though alcoholic beverages have been kept out of GST, the inputs used in their manufacturing come under the ambit of GST and, thereby, will increase the input costs. Increase in input cost is an additional cost. This works against the alcohol industry.


    Our charitable trust had filed the return of income for assessment year 2015-16 (financial year 2014-15) online. The trust had accumulated Rs 25 lakh as per the provisions of Section 11(2) of the Income Tax (IT) Act, 1961. Having failed to file Form 10 for accumulation of income online due to some technical problem on the last date, the trust filed the form physically and obtained acknowledgement. The Central Processing Centre, Banglore, has rejected the accumulation as Form 10 was not filed online. It has not accepted the filling of the form in physical mode. What is the remedy available to the trust?

    — Suyesh Gabani, e-mail

    Accumulation under Section 11(2) of the IT Act is to be specifically made only under those circumstances when 85% of the income of the trust could not be applied. Section 11(2) becomes operative only beyond 15% of accumulation of income that is otherwise allowed under Section 11(1). The organization desiring to accumulate funds has to give notice to the assessing officer along with reasons for such accumulation in Form 10. The notice has to be made before the expiry of due date of filing return under Section 139(1) of the IT Act.

    The Commissioner of IT (CIT) (Exemptions) has power to condone the late filing of Form 10 in deserving circumstances. The Commissioner condones the delay after ensuring that the failure to apply in time was not deliberate and did not benefit the settlor, trustees and founders in any manner and the accumulation of income was necessary for carrying out the object of the organization. Condoning of delay by CIT has become even more important in the light of the Supreme Court's ruling in the Nagpur Hotels case. It held that the time limit to file Form 10 is mandatory.

    Form 10 is to be filed electronically. The trust did not do this. The trust must file Form No 10 electronically and apply for condoning of delay from the CIT (Exemptions). Besides filing Form 10 electronically, the acknowledgement of filing it physically must be enclosed and a copy of the resolution. The purpose for which the accumulation is sought must be specific.


    I have a residential property in Delhi. I want to transfer the property to my son. There are many options such as will transfer and gift. Will is operative after my death and can be challenged by my daughters. Transfer will involve stamp duty and I cannot bear it. Making my son co-owner also means transfer. Gift is also not free of charge, though the tax is paid by the receiver. My son will not be able to pay gift charges. How can I transfer the property to my son in my lifetime without transfer expenses? Is there any law that a single property can be transferred without transfer charges to a direct blood relation?

    — Parmanand Aggarwal, e-mail

    A will does not require stamp duty for registration. Registration fees are nominal. The person who is making the will needs to be present along with two witnesses. Registration of will is not compulsory. But if you have relatives who you feel may trouble you, then it's advisable to get the will registered. Registration is a proof that the document was actually drawn and helps prevent forgeries and fraud.

    In gift deeds, ownership can be transferred without any exchange of money. But registering a gift deed is mandatory, as per Section 17 of the Registration Act, 1908, and as per Section 123 of the Transfer of Property Act. If not registered, the transfer will be invalid. Also, for the recipient to be able to transfer the property, a registered gift deed will be required. Stamp duty and registration fee have to be paid to register a gift deed.

    To avoid these transfer expenses, you should make a will. After you, as per your will, your property will go to your son.


    I am a director of a private limited company whose registered office is in Bombay. But I am residing in Gujarat. Do I have to enroll and pay professional tax as per Maharashtra Professional Tax law?

    — Mokasi Amrutbha, e-mail

    As per Section 5 (2) of the Maharashtra State Tax on Professions, Trades Callings and Employment (PT) Act, 1975, every person liable to pay tax under the Act (other than person earning salary or wage whose tax is paid by the employer) have to obtain a certificate of enrollment from the prescribed authority in the prescribed manner.

    Directors (other than those nominated by the government) of companies registered under the Companies Act, 2013, in Maharashtra are required to enroll under Professional Tax Enrollment Certificate.

    Explanation to Entry 5 of schedule I the directors excludes persons who are directors of companies whose registered office is situated outside Maharashtra and who are not residing in Maharashtra. In your case, the registered office is situated in Mumbai.

    In the case of Navbharat Seed Pvt Ltd, it was held that directors are liable because the company was registered under Indian Companies Act, 1956, and in business in Maharashtra through its branch. However, in the case of S K Kamath, it was held that if a company is not doing any business, directors are not liable to be enrolled.

    A non-resident director who is not in receipt of any remuneration or sitting fee is not liable for enrolment under Section 5 of the PT Act, as was held in the case of Maftlal Finance Company.


    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same. Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com

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