Disallowance under section 14A

Expenses disallowed when you earn Exempt Income Section 14A Income Tax Act

      Section 14A

(1) No deduction of Expenditure

 Incurred in relation to Income

 Which does NOT form part of Total Income.

(2) If AO not satisfied with correctness of claim

 Os Assessee in respect of expenditure

 In relation to income which does NOT form part of total income

 SHALL Determine the amount of expenditure incurred in relation to such income

 As Prescribed. (Rule 8D).

(3) Provision of sub-section (2) applies

 Even if Assessee claims that no expenditure has been incurred.

      Rule 8D

(2) The expenditure in relation to income which does not form part of total income

 Shall be Aggregate of the following amounts:

Rule	Provision	Amount/calculation		Amount of disallowance
		Current Year	Previous Year
8D(2)(i)	Amount of Expenditure Directly relating to the income which does not form part of total income.	-	-	xxx
8D(2)(ii)	Where Assessee incurred interest expense which is not directly attributable to any particular income or receipt the amount as follows:	-	-	-
A	Amount of expenditure by way of interest other than interest included in (i)	xxx	-	-
Value A		xxx		-
B	Average value of investment, income from which does not or shall not form part of total income as appearing in balance sheet on first day & last day of previous year	xxx	xxx	-
Average value B		xxx		-
C	Average of  Total Assets as appearing in the balance sheet on first day & last day of previous year	xxx	xxx	-
Average value C		xxx		-
Calculation under 8D(2)(ii)		(A*B)/C		xxx
8D(2)(iii)	Amount equal to .5% of average investment ie(amount under 8D(2)(ii)B)	-	-	xxx
Total Disallowance		-	-	xxxx

         

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For suggestions and feedback please feel free to contact us via e-mail; dhruvjainassociates@yahoo.co.in or you can log on to our website: http://dhruvjainassociates.in/contact

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This blog is the property of Dhruv Jain & Associates. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of the content of blog or of the blog itself  without the prior written consent of the author of this blog is strictly prohibited and doing so will attract legal proceedings. Any views or opinions presented in this blog post are solely those of the author and for informative purpose only and should not be treated /used as guiding rule or professional consultancy in any case. The matter of discussion is highly sensitive to the amendments made by the government under various laws and may not be updated as per the changes. Readers are suggested to take prior professional consultancy of experts before using the blog or its material in any way.

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Valuation of Works Contract

Valuation of Works Contracts

Typically every works contract involves an element of sale of goods and provision of service. Every works contract can be segregated in to a contract of sale of goods & contract of provision of service, Hence every works contract has to face two different laws i.e. One that governs taxation of sale of goods (in present study we will be discussing D-VAT) and other that govern taxation of taxable services.

Taxation of service portion of works contract		Taxation of sale of  goods in works contract (DVAT)
Service tax (determination of value) Rules, 2006		Delhi Value added tax rules, 2005
RULE-2A (i) Actual Value		Rule 3 (1) Actual Value
Value of service portion in execution of Works contract shall be Gross amount Charged for The works contract Less: The value of transfer of Property in goods in the execution.		In case turnover arising from execution of the works contract The amount representing taxable turnover Shall Exclude: ·         Charges towards Labour, services and other like charges ·         The charges towards cost of Land in civil works contract Subject to Dealer maintains proper bifurcated records.
Gross amount Includes: ·  Labour charges ·  Amount paid to subcontractor for labour & service ·  Planning, Designing, & Architect fee ·  Hire charges of machines & tools for the execution of works contract ·  Cost of consumables as water, electricity, fuel, ·  Cost of establishment of the contractor relatable to supply labour & service ·  Other similar expenses relatable to supply of labour & service ·  Profit earned by service provider to supply labour & services Excludes: ·         Value of transfer of property in goods involved in execution (including VAT or sales tax)
		Charges towards Labour, services and other like charges Includes: ·         Labour charges for execution of WC ·         Planning & architects Fee ·         Hire charges for machinery and tools used for execution of WC ·         Cost of consumables such as water, electricity, fuel tec. Used in execution of WC the property in which is not transferred in course of execution of WC ·         Other similar expenses for labour & services ·         Profits earned by contractor to the extent it is relatable to supply of labour & services subject to furnishing P&L of work sites
RULE-2A (ii) Composite Value		Rule 3 (2) Proviso Composite Value
Where the value has NOT BEEN DETERMINED under rule-(i) It shall be determined in following manner:		Where amount of charges toward  labour, services and other like charges are NOT ascertainable from books of the dealer than Amount of such charges shall be as follows
Works contract For	Value of service portion	Contract Type	% amount of total value of contract
Execution of original Work	40% of total amount charged for WC	Fabrication & installation of Plant & Machinery	25%
		Fabrication & erection of structural works of iron & steel	15%
Maintenance, Repairs, Reconditioning, Restoration, Servicing of any goods	70% of total amount charged including such gross amount	Fabrication & installation of cranes & hoist	15%
		Fabrication & Installation of elevators	15%
		Fabrication & installation of rolling shutters	15%
		Civil Works	25%
		Installation of doors, windows	20%
		Supply & fixing of tiles, slabs	20%
Other than above two including Maintenance, Repairs, Completion, finishing services such as glazing, plastering, floor & wall tiling, installation of electrical fitting	60% of total amount charged for WC	Supply & installation of AC	15%
		Supply & installation of AC, cold storage plants	15%
		Supply & fitting of electrical goods, equipments	15%
		Supply & fixing of furniture & fixtures	20%
		Construction of railway coaches	20%
		Construction of bodies of motor vehicle	20%
		Sanitary fitting	25%
		Laying underground surface pipeline	30%
		Dyeing & printing of textiles	30%
		Supply & erection of weighing machines	15%
		Painting & white washing	30%
		All other Contracts	20%
Original Works means: ·         All new Constructions ·         All additions and alteration to abandoned or damaged structures on land that are required to make them workable. ·         Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise.		Valuation under composition scheme N F.3(78)/fin.(T&E)/2005-06/1508kha
		Every registered dealer Engaged Exclusively in Works contract of CIVIL CONSTRUCTION Will pay 3% of entire turnover Provided: ·         He shall not import or procure goods from outside country ·         He shall not make inter-state purchases of material against form C,D,E1,EII for utilising in execution of works contract ·         He shall not purchase goods in delhi from an unregistered person except in case of goods specified in first schedule.
Total Amount Means: Sum total of gross amount charged for WC AND Fair market value of goods & services Supplied in or in relation to Execution of such WC WHETHER or NOT Supplied under the same contract or Any other contract After Deducting ·         Amount charged for such goods or services (provided by the receiver) ·         VAT or sales tax levied to the extent they form part of the gross amount or the total amount.

Since both legislation are separate & independent it is very well possible that value overlaps in composite valuation and assessee will be liable to pay tax for more than 100% value of turnover.

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For suggestions and feedback please feel free to contact us via e-mail; dhruvjain1987@yahoo.co.in or you can log on to our website: http://dhruvjainassociates.in/contact

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This blog is the property of Dhruv Jain & Associates. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of the content of blog or of the blog itself  without the prior written consent of the author of this blog is strictly prohibited and doing so will attract legal proceedings. Any views or opinions presented in this blog post are solely those of the author and for informative purpose only and should not be treated /used as guiding rule or professional consultancy in any case. The matter of discussion is highly sensitive to the amendments made by the government under various laws and may not be updated as per the changes. Readers are suggested to take prior professional consultancy of experts before using the blog or its material in any way.

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