Deposit for set top boxes

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vishal (Querist)
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16 September 2015 My client is Multi System Operator(MSO). It collects deposit from subscriber @ 2000/- per set top boxes with a condition that (1) in case subscriber decides to not continue with MSO after some time, he/she would be entitle to refund of money based on period of usage of STB e.g. if he/she surrender after 6 month, refund amount would be 1500/-. (2) After expiry of 5 years the STB would become the property of subscriber.

My question is :
(1) What would be the tax treatment of money earned on surrender of STB e.g. 500/- in the example given above.
(2) What would be tax treatment of deposit after 5 years when it becomes the property of subscriber.

Rajesh Kumar

Rajesh Kumar (Expert)
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16 September 2015 It is renting of movable property, liable to Service Tax. Amount is received by MSO is liable for service tax.
It is better to sell the Set top box to subscriber (pay VAT). In case of return of set top box, it is can repurchased by MSO at reduced prices. That way there shall be no Service Tax liability.