V. S. Datey

1. Budget 2009 was presented before Parliament on 6-7-2009. The major changes in indirect taxes are summarised below:

2.1-No change in existing rate of service tax - Existing rate of service tax of 10 per cent continues unchanged.

2.2 -New services and expansion of some services - Four new services are proposed to be taxed. Coverage of some existing services is proposed to be altered/enhanced. The levy on new services and expanded services will be effective after Finance (No. 2) Act, 2009 receives assent of President and date is notified.

2.2-1- New Services

a.Transport of goods through rail.

b.Transport of coastal goods and goods transported through inland water.

c.Legal services of consultancy, advice or technical assistance (but not service of appearance before any court of law or any statutory authority). Service will be taxable only when provided by business entity like firms, associates, enterprises, companies, etc., but not individual.

d.Cosmetic and plastic surgery undertaken to preserve or enhance physical appearance or beauty.

2.2-2- Coverage Of Existing Services

a.Job work under Business Auxiliary Service (BAS) is exempt if there is ‘manufacture’. Now, this exemption is available only if ‘excisable goods’ are manufactured. Thus, if alcoholic liquor is manufactured on job work basis, the exemption will not be available.

b.Sub-brokers have been exempted from tax. They will also not be liable under Business Auxiliary Service as commission agent.

c.The word ‘acquiring’ IT software is being changed with retrospective effect from 16-5-2008 to ‘providing’

2.3- Service tax on transfer of right to use IT software - Packaged, i.e., branded (canned) software is ‘excisable goods’ under Heading 8523 80 20 [earlier 8524 91 11, 8524 91 12 and 8524 91 13]. The rate of excise duty is 12% w.e.f.

1-3-2008. Information Technology Software falls under Heading 8524 40 11 of Customs Tariff. Duty is ‘free’. Thus, on import of software (branded or tailor-made), there is no customs duty. However, excise duty of 12% is payable on branded (packaged or canned) software. Hence, CVD was payable if packaged or canned software is imported.

The issue was whether both service tax and CVD/excise duty are payable on transfer of right to use software. It is now provided that service tax is payable and not CVD or excise duty [Notification Nos. 22/2009-CE and 80/2009-Cus dated 7-7-2009].

2.4 -Works contract composition scheme - So far, in case of works contract, if tax was paid under composition scheme at the rate of 4.12%, the value of material supplied free by customer was not required to be included. Now, this value will have to be included while calculating ‘gross amount of works contract’. Further, if contract is split and some amount is shown as ’sale’, that value will also be includible for purpose of calculating ‘gross amount of works contract’.

2.5- Exemptions

a.Private bus operators providing point-to- point transportation of passengers having ‘contract carriage permit’ have been exempted from service tax.

b.Inter-bank transactions of sale and purchase of foreign currency when undertaken by scheduled banks has been exempted.

2.6- Services provided to installations, structures and vessels in continental shelf of India and the EEZ - Services provided to installations, structures and vessels in the continental shelf of India and the EEZ by person outside India will be ‘Import of Service’ and the person receiving the service will be liable to pay service tax under reverse charge method.

2.7 - Modifications in refund scheme of services utilised by exporters Scheme of refund of service tax on services utilised for exports has been modified. In case of GTA service and services of foreign commission agent (where service receiver is liable to pay service tax), the service tax is exempt [Notification No. 18/2009-ST, dated 7-7-2009].

In case of other services, the procedure has been simplified and (hopefully) refund will be obtained within one month on basis of self-certification or certification of CA [Notification No. 17/2009-ST, dated 7-7-2009].

2.8- Cenvat credit when exempt as well as taxable services provided - If both taxable and exempt services are provided, the assessee was required to pay 8% ‘amount’ under rule 6(3)(i) of the Cenvat Credit Rules w.e.f. 1-4-2008. Now, the ‘amount’ payable is 6% of value of exempted services w.e.f. 7-7-2009.

2.9- Duty rate - The general rate of excise duty continues to be 8% (Rate of service tax continues to be 10%). In case of many items, the duty rate which was 4% has been increased to 8%, except a few items.

In case of textile sector, the provision as applicable to manmade and natural textiles was disturbed when excise duty was reduced from 14% to 10% w.e.f. 7-12-2008 (and later to 8%) Now, duty regime as prevailing prior to 7-12-2008 has been restored.

3.0-Exemptions from duty

a.Branded jewellery has been fully exempted from excise duty (The duty rate was 2% till 6-7-2009).

b.Goods falling under Chapter 68 manufactured at the site of construction for use in construction work at the site have been exempted [Sl. No. 10 of Notification No. 5/2006-CE, dated 1-3-2006 amended w.e.f.

7-7-2009] (They had become liable to duty in view of amendment to definition of ‘excisable goods’ in section 2(d) of Central Excise Act amended w.e.f. 10-5-2008)

a.Printed laminated rolls manufactured with brand name of another person would be eligible for SSI exemption.

b.EVA compound manufactured on job work basis for further manufacture of footwear has been exempted.

3.1- Service taxon transfer of right to use IT Software and no excise duty - See para 2.3 above

3.2- Cenvat credit when exempt as well as taxable service provided and exempted as well as taxable goods - See Para 2.8

Similarly, if both dutiable and exempt goods are manufactured, the assessee was required to pay 10% ‘amount’ under rule 6(3)(i) of Cenvat Credit Rules w.e.f. 1-4-2008. Now, the ‘amount’ payable is 5% of value of exempted goods w.e.f. 7-7-2009.

3.3- Input does not include steel, cement etc. used for construction of shed, building or structure - Explanation 2 of rule 2(k) of Cenvat Credit Rules has been amended w.e.f. 7-7-2009 to clarify that ‘Input’ shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.

Are you paying too much in taxes? In the first two parts of this series, we addressed the need to have your own business and how that helps reduce your taxes, often dramatically. Read on for more details on how to make sure this system works the way it’s supposed to.

First of all, it’s crucial that you know how to take your deductions properly — and keep good records. This would include retaining all receipts, maintaining good journals or diaries (scheduling programs like Outlook are very good for this). That’s what this idea of living pretax in the after tax world is all about. You need to know where all the loopholes are that you can legally use.

After all, this is not about grey areas, where you’re not sure whether or not a tax deduction is legitimate. These deductions are all very acceptable. It’s not an issue of whether you can take them but whether you have taken them correctly.

For example, I haven’t taken my wife out for a date in years. But we take weekly due diligence trips. I have put her on one of my companies as a director, so when we go out, we always talk business, even though we’re in business together. I also don’t take her on vacations anymore. We go on legitimate annual retreats for the businesses. So we can honestly mix our business and vacations together thus obtain verifiable write-offs.

Her car is run through her company. Her insurance is run through her company. She works out of the house, so our computers have all been paid with pretax dollars. In fact, if I cannot figure out a way to deduct something, I try not to even spend money in that area anymore.

Of course, it’s hard to do this with everything, but you can do this with an awful lot, so that your real net after-tax expenditures, those expenses that you cannot deduct, end up being a surprisingly small portion of your lifestyle.

But it won’t work unless you do it correctly. If you want to bring your tax bills down, you’ll need to not only have a business, but one that’s set up as a real business. That way, you’ll avoid the problem that many people have in this country, which is that they get audited and have their deductions disallowed, which can leave them with huge bills for interest and penalties.

So how do you set up your business correctly? First of all, avoid operating as a sole proprietor. Because if you do, you’ll end up being a big fish in the small sea. You’re very easily audited, and they will go rifling through your books.

Whereas when you become a “real” company, i.e., a corporation, or an LLC, you become a small fish in a big sea. With that, you’ll lower your risk of being audited in two ways: you’ll be less likely to get audited because the IRS knows you probably have your books in order, and if you should get audited, there’s less that can go wrong.

With a proper business, you’ll get accountants on board, which means, someone is keeping your books, and you’ll also have justifications for all of your expenses. So when you do get audited, you’ll have all that information together, and your paperwork will have been done correctly.

Each country has its own tax system, and be aware of your country, the tax is very important. You must be aware of the different taxes you pay that is actually used by the Government to provide public services.

You must file a tax return if you have taxable income the amount of money. If your business in the United States during the year, or if you have assured the United States (as part of your work), May you be required to file tax returns in the United States even if you live in India today. It is very important to file taxes on time and accurately to avoid any control. And for taxes on the file, it is important that you are fully aware of the filing fee and tax saving procedure.

But equally important is to know about taxes, it is also important to know about tax savings tips and tricks. You know that many countries offer various tax benefits as tax credits.

Speaking of tax saving tips, different countries have different tax cuts. For example, the India government offers to pay less tax under section 80C. You can invest up to Rs 1 lakh and save tax up to Rs 30,000. Similarly, for other countries, you can put it just after simple investment and tax advice tax savings.

Regarding tax credits from Canada, the United States, Singapore government offers various tax credits and benefits. One of the last being “Health in Pregnancy Grant tax”, under this new tax credit from April 2009, May you be able to get at once, without paying for tax if you are a mom to be. If you are a mom, you can apply for health care during pregnancy from 1 January, if you are supposed to give birth to a baby or after 6th April 2009. Similarly, if you have a family and you must raise your children, then you are eligible for child tax benefits.

Thus, it is very important to know about tax and benefits that this will help you save and get a lot of money. Remember at this time of recession, every penny saved is to turn the money earned.

Summertime Tax Tip 2009-03

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

1. The cost of day camp can count as an expense towards the child and dependent care credit.

2. Expenses for overnight camps do not qualify.

3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.

4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.

5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information, including rules for claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov.

Alternative Minimum Tax planning:

Many tax credits that are allowable for the regular tax are not allowable for the Alternative Minimum Tax. Currently the child care credit may be claimed against a taxpayer’s AMT liability, but it is a fairly complicated formula if the taxpayer has other tax credits, and it is a formula that is changed periodically by Congress. Specifically, for tax years through 2008, the nonrefundable portion of the child tax credit that may be claimed by the taxpayer could not exceed his or her regular income tax liability (reduced by the foreign tax credit), plus alternative minimum tax(AMT) liability. Effective in 2009, the nonrefundable portion of the child tax credit that may be claimed cannot exceed the excess of the regular income tax liability plus AMT liability, over the sum of the nonrefundable personal credits allowed (other then the child tax credit, adoption credit, the retirement savings credit, the residential energy efficient property credit, the plug-in electric drive motor vehicle credit, and the foreign tax credit). No carryover of the credit is allowed if the credit exceeds these limits.

Ireland has the distinct and rather unenviable title of being the only country in the world to impose a credit card stamp duty.

Stamp duties are a form of tax that governments levy on certain legally binding documents. They’re known as stamp duties because in the past, a physical stamp was attached or impressed upon the document, to signify that stamp duty had been paid.

Often, stamp duties are attached to things such as wills and conveyancing documents, but in Ireland, they’re also attached to credit card accounts.

In Ireland stamp duty is payable at a rate of €40 per year on every credit card account. Even though one credit card account may have two or more cards attached to it, only one stamp duty applies per account. For example, a joint credit card account between you and your partner may have two separate cards in your individual names - but only one stamp duty will be payable per year.

The stamp duty will be levied at the same time each year, at a time advised by your bank. If you transfer your credit card account, a refund of stamp duty can be obtained via your new account provider.

Credit card stamp duty is a huge source of revenue for the Irish government. According to the Irish Banking Federation (IBF), in 2007, more than 2.3 million credit cards were in use in Ireland, up from 1 million a decade earlier. This accounts for all cards including secondary cards and joint accounts, so stamp duty would not apply on all accounts. Assuming that just 25% of those cards belong to the primary account holder, at €40 per year, that equates to €23 million in credit card stamp duty income per year.

The stamp duty that is levied on credit cards is distinct from the stamp duty that is imposed upon plastic cards, such as debit laser cards and ATM cards. Stamp duty on these cards is payable annually at a rate of €10 on every debit laser card or ATM card, or €20 annually on every combined Laser/ATM card.

Unlike with most credit card offers, stamp duty on debit laser cards and ATM cards is charged for each and every card on your account. If you have a card for yourself, an additional card for your husband, and a third card for your son or daughter, stamp duty would be levied three times per year.

Tax preparation and filing is a must for every citizen and all kinds of businesses in the United States of America. Under the law, every natural or legal entity is required to file and pay their corresponding taxes. The preparation and filing part is such an arduous task. It is commonly prepared manually. You don’t have the luxury of time to dwell on this thing. You’re no expert in the field that when you do it yourself, it ends in disaster. Tax laws are so difficult to understand. You don’t even know how to interpret those laws. You don’t know anything about tax deductions either.

The various documents and receipts are just lying on the table. After trying for many hours, you’ll probably think of hiring a tax expert. You gave up. You’ll let all the experts solve your problems. However, you have qualms on the additional cash you have to spend. Hiring tax specialists comes with a price. You’re having doubts on this matter. But that would not be a problem. Even if you don’t have know-how on tax matters, you still can do it. There is another option for you. That is with the help of a software. The tool is now available in the market.

There are various programs that you can choose from. Many people who are into self-preparation of their taxes are using the software. They say that it’s easier in this manner. The software will help you throughout tax preparation and filing. Of course, you have to buy them. But think about it, extra cash won’t be much of a burden to you. Think of it as a long-term investment. If you hire a professional, you have to pay them every year. In totality, you’ll be spending more on those experts. The tool on the other hand may last for a couple of years.

Even the so-called experts are using the software to make their work easier. Why not use that too. The tax preparation software is a home-based one that you can easily download into your personal computer. There are various companies offering this kind of software. You’ll just have to find one that’s very user-friendly and is within your budget. Actually, the tool costs less and fairly provides easy steps. The forms needed are found in the software itself. Everything is in the package. The software has step-by-step instructions. You wouldn’t get yourself lost in the process. Just follow the instructions. You can even finish it faster than doing it manually.

Preparing returns may test your expertise in basic mathematics. When using the software, calculations are double-checked. Thus, it’s very hassle-free for you. You can also file electronically too. However, there are additional fee when choosing this option. Just pay for the extra charges. At first, you’ll be quite hesitant to try it. When you actually decided to have one, you’ll find yourself smiling like an expert. But then, it’s all up to you. Do you want it the easier way? Use the tax software then. Filing your tax will not be so much of a burden with a little investment for a tool on your part.

The IRS is much feared when it comes to government agencies. While the audit is the tool of the IRS, most people will never experience it. Instead, we are all far more likely to pay penalties at one point or another. Although not nearly as stressful as an audit, they can add up quickly and do serious damage to one’s bank account.

There are a host of penalties that can be assessed from a tax perspective. One need only look at Willie Nelson who was so far upside down on his taxes that he had to actually release a CD for which all the revenue went to the IRS! Hopefully, none of us will ever be in that situation, particularly since I sing like a cat in an alley. Still, there are common tax penalties we may all walk into. Let’s take a look at them.

Filing your tax return late is definitely going to generate a penalty. The penalty is usually 5 percent of each month you are late. That being said, the penalty caps out at 25 percent. Ah, but a percentage of what? The percentage is applied to the tax that was due. If you owed $10,000 and didn’t file for 6 months, the penalty would be $2,500.

What if you file the tax return on time, but don’t actually pay the tax then due? You are still going to face a penalty, but it is going to be much less than what you faced with the failure to file penalty. This penalty will equate to half a percent per month you didn’t pay the tax. That is pretty painless.

The accuracy related penalty is a step up in penalties. This penalty is assessed when you under pay your tax because you show negligence or disregard for the tax regulations. It can also be assessed if you understate the tax due. The penalty in this situation is a hefty 20 percent of the underpayment.

Fraud is something that really gets the IRS fired up. If you under report the tax you owe because of a fraudulent move, the penalty is a killer. How so? It is 75 percent. Yes, 75! There is a very decent chance you will also face criminal charges for the fraudulent act, which raises the specter of jail time.

The tax code is full of provisions allowing the IRS to have at you if it finds fault with your efforts regarding taxes. The above represent the most common assessed penalties, but hardly all of them.

Make Work Pay

There are a lot of misconceptions going around regarding the new Making Work Pay credit. In order to benefit fully, it is important to understand how you can take advantage of the credit. The most common myth is that the credit will be delivered to qualifying taxpayers through the mail, similarly to the stimulus check last year. However, it is actually distributed through a taxpayer’s check in the form of a reduced tax rate. Because of this, it is your job to check you paychecks and make sure the amount is being added (note that you may need to adjust your withholding to reflect the change).

The First Time Homebuyer Credit

A lot of people are talking about the federal government’s credit for people to purchase a home in the 2009 tax year. However, it is important to remember that the credit is only available to first time homebuyers. To be more specific, the IRS defines a new homebuyer as a person who has not owned a principal residence during the three-year period prior to the purchase. The IRS also specifies that you need to purchase the home between January 1 to December 31, 2009. For more information, check out the IRS’ press release titled ‘First-Time Homebuyers Have Several Options to Maximize New Tax Credit.’

Energy Conservation Credit

For those of you hoping to upgrade some of your appliances this year, the IRS is giving you even more incentive to go ‘green.’ If you make an energy efficient upgrade to your home-such as installing double-paned windows or buying an approved washer and dryer-you can take a deduction for up to $1,500. However, you must divide the deduction between the 2009 and 2010 tax years, so you will only be able to claim $750 this year. Please note that according to EnergyStar.gov, ‘geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems… are not subject to this cap.’

Automobile Breaks

Although many hybrid vehicle tax credits are beginning to expire, there are plenty of new ones being announced. The IRS just released new information on the new tax credits being made possible by the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009. The credits apply to low speed electric vehicles, as well as cars with at least four wheels that draw propulsion using a rechargeable battery. Depending on the height and weight of the vehicle the value of the credit can range from $2,500 to $15,000.

Flood Victims

The IRS unveiled some new tax law changes to assist flood victims this year. One big win for flood victims was the removal of some loss limitations. Whereas in 2008, flood victims could only claim a certain amount of losses, now they can deduct the entire amount. However, it is important to remember that this full amount can only claimed by taxpayers who itemize their deductions. Another less popular tax law change affects individuals who helped victims displaced from their homes. According to the IRS these charitable taxpayers can claim an additional exemption of $500 for each displaced individual they help, with a maximum of $2,000.

Unemployment

With more and more Americans losing their jobs, changes have also been made to the way unemployment benefits are taxed. The key to benefiting from these new changes is by knowing exactly what you are entitled to. According to the newest changes to the tax law, the first $2,400 worth of unemployment benefits is income tax free. Therefore, you could expect an increase on each check you receive by around $25. Additionally, 20 more days have been added to the duration of unemployment.