Prohibited Current Account transactions

Prohibited Current Account transactions (V.Imp!!!!) – you can’t draw foreign

exchange for:-

1. Forex can’t be drawn for making payment to any person in Nepal or Bhutan! Use Rupees!

2. Remitting lottery winnings outside India.

Remitting any income from winning in any races/ horse races/ hobbies etc.

3. You can’t remit any money outside India for the purchase of lottery tickets, or banned magazines, sweepstakes, betting etc.

4. You can’t draw forex for making payments on any ‘Call Back Services’ on telephone calls – call back is when you call and then immediately get a call back being routed through the telephone services of a company where charges are lower

Approval of Central Government needed for:

1. Drawal of forex for taking cultural tours outside India.

2. If state government or its undertakings advertise in foreign print media (for any purpose other than promotion of tourism, investments – exceeding USD 10,000) – then CG approval needed!

3. Remittance of prize money, sponsorship of sporting activities abroad by persons other than sporting bodies – if the amount being remitted exceeds USD 1,00,000.

4. Remittance for hiring of transponders by ISPs and TV channels.

Approval of RBI needed for:-

1. For infrastructure projects – if the consultancy is taken from outside India and the remittance for such exceeds USD 1,00,00,000 per project.

2. For any other projects – if the consultancy is taken from outside India and the remittance for such exceeds USD 10,00,000.

3. Approval of RBI needed to release forex in excess of USD 10,000 in one financial year.

4. Approval of RBI needed for gift/ donation remittances in excess of USD 5,000 in one financial year, per remitter or donor (the receiver of the gift remittance)

5. Exceeding USD 1,00,000 for persons going abroad for employment/ emigration.

6. Exceeding USD 25,000 for business travel, attending conference etc.

FOREIGN EXCHANGE MANAGEMENT ACT

Popularly known as FEMA – the Act is the Bible of all Forex transactions that happen in the country – it is the Holy Rule Book of foreign exchange transactions and of the administration part too.

It is important here to know a little history of FEMA:

FEMA actually has a predecessor – a stricter, meaner and a draconian predecessor, popularly called the FERA.

Foreign Exchange Regulation Act, 1974 or FERA – was introduced in the year 1974 with the prime objective of ‘conserving/ preserving’ the foreign exchange; which means the forex transactions were severely controlled to avoid misuse – as it was

considered a scarce resource.

Also – the mean part – if an offence was committed under FERA it was considered a ‘criminal offence’!

With time, economic liberalization, globalization, better forex transaction infrastructure and opening of the world market, need was felt to do away with FERA as its provision resulted in constricting the growth of forex and ultimately the economy at large.

Thus at the turn of the millennium and India’s coming of age FEMA was introduced in 2000, on 1st June, with the Foreign Exchange Management Act, 1999.

FEMA stands for:

 Facilitating foreign exchange transaction – exports, imports, and payments thereof;

 Promoting development of forex;

 Maintenance of a healthy forex market in the country.

Salient Features of FEMA:

1. FEMA is applicable to Individuals (you and me!), HUFs, companies, firms and AOPs and BOIs.

2. FEMA is applicable to a person ‘Resident’ in India – as opposed to FERA’s citizenship criteria – which means if the status of any person, who is a citizen of India or not, is ‘Resident’ he or she shall be covered under the FEMA for any forex transaction as per the given provisions.

3. Under FEMA – a person, who has been residing in India for more than 182 days, will be considered a ‘Resident’!

4. ‘Currency’ under FEMA includes debit cards, ATM cards and credit cards too!

Service Tax

What is the rate of service tax?

The rate of service tax is 14%

Swachh Bharat cess of 2% was proposed in Union Budget 2015 but it's not yet implemented. In case it is implemented then effective rate of Service tax will be 14%

+ 2% of 14% = 14.28%

Trivia:

1. Service Tax is levied in ‘taxable territory’, which includes the Indian mainland – territorial waters and the airspace above it.

2. Service Tax is NOT levied if services are provided, by anyone, in Jammu and Kashmir. So J&K and rest of the world are – not taxable territories!

3. Sometime even the service receiver has to pay the service tax – this is known as reverse charge!

Latest news on service tax:

 In budget 2015 a higher rate of 14% (inclusive of Education Cesses) was proposed which will come to effect after the approval of the finance bill; which is proposed to be pushed for approval in the second budget session starting after 20th April 2015.

 Service Tax exemption has been granted, w.e.f. 1 April 2015 to the services given byzoos, national parks, wildlife sanctuaries, tiger reserves and museums = they don’t have the obligation to deduct service tax from the public via the tickets.

 Exemption from service tax liability is also forwarded to:

i. Services by life insurance scheme – Varishtha Pension Bima Yojna, 

ii. Retail packing of fruits and vegetables,

iii. Ambulance services

iv. Construction services, when given to Government, in respect of historical monuments, irrigation work, water supply and sewage treatment plants, 

Which services are taxable?

Now, important to know – not all services are taxable. Only those which are ‘taxable services’ are taxable under service tax!

‘Taxable services’ – means those services which are taxable under the service tax net.

In other words,

Taxable Services = All services + Declared Services – Negative List – Any exemptions

Examples:

i. giving the right to use intellectual property right (declared service)

ii. Services by Chartered Accountants

iii. Services by beauty salons!

iv. Services by advertising agencies

v. Courier services

vi. Event management services etc.

Now you must be wondering if you maternal aunt, who runs a ladies beauty parlour at her home in South Delhi is liable to collect and deposit service tax – take heart!

Service tax liability arises if the total value of services provided in a financial year exceeds Rs, 10,00,000!

Service Tax

Service Tax is an indirect tax levied on taxable services; where the obligation/ liability is of the service provider to collect and deposit service tax.

History

In 1994, Service Tax was introduced in India by the then Finance Minister Dr. Manmohan Singh – who envisioned services as being a whole new sector from which tax can be collected to increase Government revenue.

At the time India needed revenue and new sources for revenue generation were being sought. Thus, finally on the recommendations of Dr. Raja Chelliah Committee on tax reforms -Service tax was been first levied at a rate of five per cent flat on 15 July 1994.

Previously until July 2012, we had the selected service approach for taxing services – i.e., only those services shall be taxed which were mentioned specifically in the list.

From July 2012 onwards, India has adopted the ‘Negative List’ system – whereby all services are taxable, except those mentioned in the Negative List. The Negative List concept was introduced during Finance Minister Pranab Ray’s regime.

How to calculate Serviec Tax

Okay just to simply a whole lot of pages worth theories, here’s a numerical example:

If say, you provide the service of preparing food and selling them in containers to office goers – if such a tiffin service is taxable – then you as the service provider are liable to pay service tax.