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  • Tax Matters: Is TDS required on overseas travel expenditure?

    Payments made to a travel agent or an airline for purchase of a ticket for travel will not be subjected to TDS. But it is applicable if the mode of transport is chartered.

    I am doctor. I incur travelling expense during the course of my professional work in India and abroad. I am under tax audit. Do I have to deduct tax at source?

    — Deepak Jain, e-mail

    Any person responsible for paying any sum to a contractor, resident or sub-contractor for carrying out any work in connection with a contract (including supply of labour) is liable to deduct tax under Section 194C of the Income Tax (IT) Act, 1961, on payment or credit in the books of accounts, whichever is earlier. These provisions do not apply to an individual and Hindu undivided family (HUF) who are not liable for tax audit or if such a contract is entered for personal purpose of the tax payer.

    The person is required to deduct tax at source (TDS) if the onetime payment or credit in the books of accounts exceeds Rs 30000 or the aggregate payment or credit to the contractor exceeds Rs one lakh in a financial year. TDS is 1% if the receiver of payment or credit is an individual or HUF and 2% for other receiver of payment or credit.

    The term work includes advertising, broadcasting, telecasting and carriage of goods and passengers by any mode of transport other than by railways. For travelling, the travel agent provides services according to the specification of the payer. Therefore, services provided by travel agent are liable for TDS (Commissioner of IT, Delhi, v Delhi Public School in 2013).

    However, a circular issued by the IT department on 2 August 1995 clarified that the provisions of Section 194C of the IT Act do not apply to payment made to the airlines or travel agents for purchase of tickets for air travel of individuals. Further, the provisions were extended to the tickets for travel of individual by any other mode of transport according to a circular dated 2 August 1995.

    A circular on 8 August 1995 noted payments made to a travel agent or an airline for purchase of a ticket for travel will not be subjected to TDS as the contract is between the individual passenger and the airline or travel agent, notwithstanding the fact that the payment is made by an entity mentioned in Section 194C (1). The provisions of Section 194C, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in Section 194C.

    Thus, you need not deduct TDS on your individual tickets.


    I am working for a developer. For our Bangalore residential project, we have taken up a passenger hoist on rent. The passenger hoist is a temporary carriage used to lift men and machines to the required floor in an under-construction building. After completion of the construction, the passenger hoist will be dismantled and will go back to the contractor's warehouse. Accordingly, we had issued an order to one of the contractors who supplies passenger hoist on rental. Pre goods and services tax (GST) regime, there was 15% service tax (ST) (14% ST, 0.5% Krishi Kalyan Cess and 0.5% Swachh Bharat Cess. Post implementation of GST, we are amending the contractor's order with 18% GST as the new tax for such kind of services is 18%. But our contractor is asking 28% GST as the tax will be same as that applicable for supply of such kind of goods. Can you clarify our doubts?

    — Rajesh, email

    As per GST tariff notification, transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration (supply of service) is to attract the same GST rate and compensation cess as applicable on supply of similar goods involving any transfer of title in goods (supply of goods).

    You are taking passenger hoist on rent. It has to be given back to the contractor. So it is a service contract. You pay for renting of services. Refer GST Service Code 997313 applicable for leasing or rental services of construction machinery and equipment with or without operator.

    So see the rate applicable to passenger hoist. Code 8428 is to be used for products ‘other lifting, handling, loading or unloading machinery' such as lift, escalators, conveyors and teleferics. The GST rate is 28%.

    Code 8425 is to be used for products such as pulley tackle and hoists other than skip hoists, winches, capstans, jacks. The GST rate is 18%.

    A hoist is a device used for lifting and lowering load. A passenger-hoist is a lifting system used at construction sites to lift personnel and materials to the upper levels of the unfinished building. It consists of a cage or car, usually open, in which people stand to be transported. A track is mounted to the under-constructed building.

    Some people in the industry charge 18% GST and some 28% GST (treating it as lift). The interpretation might be subject to litigation. Select a category in which your product technically fits the best. To be on the safer side, go for advance ruling under GST and obtain clarification.


    Why should the expense-side of profit and loss (P&L) be paid more attention in the goods and services tax (GST) regime?

    — Dwarkesh, e-mail

    Those dealing with unregistered suppliers and making payments above Rs 5000, have to pay GST under the reverse-charge mechanism (RCM). The Central government has exempted intra-state supplies of goods or services or both, received by a registered person from an unregistered supplier from Central and state GST if the aggregate value of such supplies from all or any of the suppliers does not exceed Rs 5000 in a day.

    Only RCM exemption is provided for purchases from unregistered dealer and not for any other RCM cases. Exemption is not available if any single person receives a bunch of bills and the total value of those bills is more than 5000 per day even if the bills are received from different persons.

    Exceptions include salary and wages; electricity and water charges; interest; car fuel; fees to be paid to the government; professional tax; municipal and property tax; bad debt donation; penalty; conveyance including non-AC taxi, auto, bus and train; rent for residential use; warehouse rent; loading and unloading of agricultural produce; and newspaper and magazines.

    Inclusions comprise rent of Rs 1000 to Rs 2500 per room per day in hotel or lodge. Cost incurred on conveyance such as Ola, Uber and any other AC vehicle and train AC or first class travel, too, comes under the purview. Payment of commission will attract GST. Expenses incurred on training, printing and stationery, repairs and maintenance, food, beverage, refreshments, postage and courier, freight and transportation, gifts; business promotion and international travelling. Asset management companies have to pay GST on expenditure incurred by them. GST is levied on maintenance of office, vehicle and computer. The law has been amended from 13 October 2017.


    We sold premises for Rs 80 lakh and acquired premises with building construction certificate whose value was more than Rs 80 lakh in 2015-16. We are thinking of occupying in next financial year. As it has not been put to use, I think we cannot claim depreciation. Do we have to pay short-term capital gain (STCG) tax on Rs 80 lakh? If we partly shift before 31 March 2018 and claim depreciation as well as benefit of STCG, will the income tax (IT) department ask for proof? If asked, what should be shown?

    — Iyer, e-mail

    Where the asset is not used for the purpose of business, depreciation under Section 32 of the IT Act, 1961, is not allowed. Depreciation is allowed only if the asset is put to use in the year of purchase. Use may be active or passive (ready to use). Only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing organization can it be said that the unit has been set up.

    Yours is a commercial asset. According to Section 50 of the IT Act, if a tax payer has sold a capital asset forming part of block of assets (building or machinery) on which depreciation has been allowed under the IT Act, the income arising from such capital asset is treated as STCG.

    However, if the whole of capital assets in a block has been sold in a year and some gains arise after the sale, such gains are not to be treated as STCG if some new asset has been purchased within the same year in the same block of assets and the total value of the new and old capital assets in the same block is more than the sale consideration of the assets sold. This is because the block of asset does not cease to exist in such case as is required under Section 50(2) of the IT Act.

    A block of assets for purpose of Section 50 means assets of all units of the tax payer with the same rate of depreciation.

    Statement for computing capital gains on depreciable asset.

    Particular Amount
    A) Op. WDV as on 1 April of the relevant PY XX
    B) Actual cost of asset purchased in the year.      XX
    Cost of block (A+B)     XX
    Less : Money received for asset sold,  discarded, demolished     XX
    Value of block     XX
    Less : depreciation as per IT Act     XX
    Closing WDV as on 31 March     XX
    WDV: Written-down value. PY: Previous year

    The provisions of Section 50C will be applicable even for the transfer of depreciable capital assets covered by Section 50. Thus, capital gains arising from the sale of office buildings will have to be computed by adopting the stamp duty valuation, if it was higher than the sale consideration.

    Also, land is not a depreciable asset. It cannot form part of block of assets in the absence of any rate of depreciation prescribed.

    If you shift before 31 March, you can give the electricity or telephone bill as proof of the asset being put to use. Even though Section 50 provides that the gain arising on sale of a depreciable asset, whether long term or short term, is a STCG, provisions of Sections 54 to 54H allow exemption for capital gains arising from transfer of long-term asset. The specialty attached to Section 50 is to be restricted to only the method of computing capital gain and not for determining the nature of capital asset. In such a case, benefits should be given to the tax payer. It should be left open to him to choose which provisions of the law he wants to invoke.

    I made a workout of dividend tax payable by our company. If the amount of dividend is small, the company feels increasing the salary of employees will be more beneficial. Is my working correct?

    Company Company
    Reserves  Rs 10 crore  Rs10 crore 
    Current-year profit Rs 3 crore  3 crore
    Incentive  Nil Rs 2 crore
    Net profit Rs 3 crore Rs 1 crore
    Tax   Rs -90 lakh   Rs -30 lakh
    Net profit Rs 2.1 crore Rs 70 lakh
    Total reserves Rs 12.1 crore Rs 10.7 crore
    Dividend Rs 2 crore Nil
    Total Rs 10.1 crore Nil
    Tax on dividend Rs 40 lakh Nil
    Net reserves Rs 9.7 crore Rs 10.7 crore
    Tax in the hands of receiver Nil Rs  -60 lakh
    Total amount Rs 9.7 crore Rs 10.1 crore

    – Ganesh, e-mail

    A company reserves will not go down due to tax on salary. Tax on salary is to be borne by the recipient. For the receiver, dividend income is tax free. So net in hand is Rs 2 crore only. If salary is given instead of dividend, tax on salary is Rs 60 lakh, as per your working. So net in hand will be Rs 1.40 crore (Rs 2 crore- 60 lakh).

    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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Flash News 21-Jan-2019
  •  ( 16:37) Sensex, Nifty clock modest gains   
  •  ( 15:41) Weak market breadth  
  •  ( 15:40) Sensex, Nifty end with decent gains  
  •  ( 14:19) Most European shares decline  
  •  ( 14:04) Kotak Mahindra Bank Q3 PAT up 22.57% at Rs 1290.93 crore  
  •  ( 13:38) Maruti Suzuki launches its Innovation Program  
  •  ( 11:53) ITI signs contract with Gujarat Fibre Grid Network  
  •  ( 10:01) NTPC to consider issue of bonus shares on 30 January  
  •  ( 08:20) HDFC Bank's total income up 25.8% to Rs 25890.26 cr  
  •  ( 08:18) HDFC Bank's Q3 net profit up 20.32% to Rs 5585.85 cr  
  •  ( 08:09) Asian shares trade higher  
  •  ( 08:03) China GDP growth slips to 6.4% in the fourth quarter  
  •  ( 07:54) China says its economy grew 6.6% in 2018  
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21 January 2019 00:00
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