15 June 2023
One of my friends received a notice from the service tax department last month. For the purpose of loan his auditor was declared 40 lakhs gross income and they filed the income tax under civil contractor works. Since he's having rental income from residential properties, the department insisted that he has to pay the service tax of Rs. 6lakhs. Kindly help me out how to deal with this.
11 July 2024
Dealing with a notice from the service tax department can be challenging, but it's essential to address it promptly and appropriately. Here’s a step-by-step approach to handle the situation:
### 1. Understand the Notice
- **Review the Notice**: Carefully read through the notice to understand the specific allegations and demands made by the service tax department. Note down key details such as the amount demanded (Rs. 6 lakhs in your friend's case), the period for which the service tax is alleged, and the reasoning provided by the department.
### 2. Assess Liability
- **Consult with an Expert**: Since your friend has rental income from residential properties and was declared as a civil contractor for loan purposes, it's crucial to clarify whether the service tax liability on rental income applies in this context. Consulting with a tax consultant or chartered accountant specializing in indirect taxes like service tax or GST can provide clarity.
- **Examine Service Tax Rules**: Determine whether rental income from residential properties falls under the purview of service tax liability during the period mentioned in the notice. Service tax laws can be complex and subject to interpretation, so professional advice is crucial.
### 3. Gather Documentation
- **Compile Documents**: Gather all relevant documents, including income tax returns, audited financial statements, rental agreements, bank statements showing rental income, and any correspondence with the service tax department. These documents will help in assessing the accuracy of the department's claims and preparing a response.
### 4. Respond to the Notice
- **Prepare a Response**: Based on the assessment and advice received, draft a comprehensive response to the service tax department. Include: - Clarification on the nature of rental income and whether it attracts service tax. - Any legal interpretations or case laws supporting your position (if applicable). - Details of the income tax filings and how the income was categorized. - Explanation of any discrepancies or misunderstandings regarding the alleged service tax liability.
- **Submit Response**: Send the response to the service tax department within the stipulated timeframe mentioned in the notice. Ensure all documents and explanations are clear and well-supported.
### 5. Follow Up
- **Monitor Communication**: Keep track of any further communication from the service tax department. Respond promptly to any additional queries or requests for clarification.
### 6. Consider Legal Assistance
- **Legal Counsel**: If the matter escalates or becomes legally complex, consider seeking legal assistance from a tax lawyer who specializes in indirect taxes. They can provide strategic advice and representation if required.
### Key Points to Remember
- **Timeliness**: Respond to the notice within the specified timeframe to avoid penalties or further complications. - **Accuracy**: Ensure all information provided in the response is accurate and supported by documentation. - **Professional Advice**: Consult with experts to understand your tax liabilities and obligations under service tax laws.
By following these steps and seeking professional guidance, your friend can effectively navigate the notice from the service tax department and address any potential liabilities related to rental income and service tax.
CAclubindia
