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Can service tax paid be deducted from the gross income while calculating income tax? For example, if the gross income for fiscal 2013-14 is Rs 15,00,000 (inclusive of service tax ) and the service tax paid by March 31, 2014 is Rs 40,000, can we consider the taxable income as Rs 14,60,000 and calculate the tax to be paid?
— Arivazhagan
Service tax collected from customers is deductible from the business income of an assessee in the year in which it is deposited with the government treasury. Since you have deposited the service tax with the government, the same will be allowable as deduction from your gross total receipts to arrive at your taxable income.
I earn a commission of Rs 50,000 every month from Google Adsense programme (Google is paying me part of the income generated from advertisements placed in Web sites created and hosted by me). So, my total annual income is about Rs 6 lakh. Can I claim relief under Section 44 AD of the Income Tax Act, whereby 8 per cent of gross turnover will be charged as income, i.e. Rs 48,000 (8 per cent of 6,00,000) will be my income and hence exempted from payment of income tax? If not, should I declare Rs 6,00,000 as income from other sources? I have no other income.
— N. Gautham
According to Section 44AD of the Income Tax Act, 1961, in case of an eligible assessee engaged in eligible business, 8 per cent of the total gross turnover/ receipts of his business shall be deemed to be the profits and gains of such business.
However, the provisions of this section shall not apply to:
(i) a person earning income in the nature of commission, or
(ii) a person carrying on any agency business.
We understand that the revenue received from Google Adsense is in the nature of commission. Therefore, the provisions of the section are not applicable to you. Hence, you need to include Rs 6,00,000 as your gross receipts from business and profession. Any expenditure incurred for running and maintenance of the Web site can be claimed against the said receipts. The balance income (subject to other deductions available under law) shall be taxable in your hands at the slab rate applicable to you.
Mail your queries to taxtalk@thehindu.co.in
(The author is a practising chartered accountant)
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