Hi All,
There is a professional (An Engineer) who started his practise w.e,f, July 2015 and ceased practise on 31st May 2016 based upon the contract of 11 months. During the FY: 2015-16, he has earned income of Rs. 20 Lakhs including Service Tax (Service Rs.17.5 Lakhs+2.54 Lakhs as ST) . In the current F.Y. (i.e. FY: 2016-17), he has earned only Rs. 50,000 as a professional income. He doen't have any other income and neither going to continue his practise as a Consulting Engineer anything further. He has taken up a job and now and onwards he will have an income from Salary. He follows Cash basis of Accounting. He has paid Service Tax collected amounting to Rs. 2.54 Lakhs on 6th April 2016+interest for the delayed payment.
Now the question is....!
Since he is following cash basis of accounting, he won't be able to claim ST of Rs. 2.54 Lakhs in FY: 2015-16. He wll be able to claim in FY: 2016-17 only. However his income from profession is just Rs. 50000/- in 2016-17, which is not sufficient to cover up the the amount of service tax of Rs. 2.54 lakhs+service tax applicable on Rs. 50000. Under this scenario, there would be a loss from profesion for FY: 2016-17. There is no scope to follow mercantile basis of accounting since in one of the earlier years he has already selected Cash basis as a method of accounting. What should be ideal way? Should he show as a loss from profession for FY 16-17 and carry forward it? Can he claim ST in 2015-16? Please guide.
CAclubindia
