HOW TO USE DEPRECIATION TO SAVE TAXES

How to Use Depreciation to Save on Taxes

Many business owners think they can't afford to invest in equipment or vehicles for their businesses. But they may be forgetting about the magic of the depreciation deduction, which allows you to subtract the purchase price from your business's gross income and thereby lower your taxes.

Simply put, depreciation is a way of recovering the cost of a purchase across time, usually over several years. If you purchase a vehicle or piece of office equipment that will last more than a year, you can often deduct its cost over several years. The depreciation deduction is based on the idea that your purchase tends to decline in value over the years, as it gets older and more worn. This deduction recognizes that loss of value.

Depreciation is a complicated concept because changes are frequently made to the federal tax code regarding what business purchases qualify for depreciation and the schedules on which these costs can be depreciated. But it's worth taking the time to learn about depreciation laws, as the tax laws may make one type of purchase more advantageous than another. Depreciation rules may also make it more worthwhile to put off a purchase until the next year instead of making it in the current year, or vice versa.

For instance, in 2008 the depreciation limit was doubled to $250,000. The ceiling for purchases you could disclose without reducing your write-off was also expanded, from $500,000 to $800,000. Obviously if you were a business owner planning a big equipment purchase in 2007, it might well have made sense to wait a few months and make that purchase the following year.

In addition, a special first-year depreciation deduction was instituted in 2008 to help owners who made more than $250,000 in purchases. The special deduction allowed owners to write off 50 percent of any remaining purchase cost in the year of purchase. Also for 2008, the deduction for cars and trucks purchased for business was greatly expanded. These provisions were then extended for 2009 as part of the American Recovery and Reinvestment Act.

As this example shows, depreciation deductions are constantly changing. Either study up on current Internal Revenue Service rules as you mull business purchase decisions or consult your tax professional for guidance on the best timing for equipment buying, and for advice on whether your proposed purchase will qualify for depreciation. In some situations you may have the option to write off the entire cost of a piece of equipment in the year of purchase or spread the deduction over five years in the traditional way. Think carefully about which would yield you a better tax savings. If you're having a bad revenue year and your tax base will be fairly low anyway, it doesn't make sense to take the write-off all in one lump that year. But if you've had an exceptionally good year and are facing an unusually high tax bill, it may be beneficial to go for the one-year write-off. If you use an item only partly for business, you will be limited by the amount you can depreciate as a business deduction. Also, in most cases if you purchase and then sell equipment within the same year, it will not qualify for depreciation.

NIL ETDS RETURN- NIL AMOUNT

If person has deposited a challan related to section 194C then it is easy to enter transporter details in it, however if no challan is there then he has to add a nil value challan in etds return u/s 194C for purely for transporter entries. Same is the case where firms has non deduction certificate under various section . In all such cases we have to fill a NIl value challan. Details to create NIL value challan are given below.

Field Value	Value
Serial No. (Column no. 401)	1
Section Code(Section Relevant to the Nature of Payment)	From Dropdown Menu
Amount Fields i.e. TDS, Surcharge,Education Cess,Interest and Others(Column no. 403 to 407)	0.00 (Zero)
Cheque/ DD number (Column no 409)	Blank
Date on which tax deposited (Column no. 411) last day of respective quarter e.g. for quarter 4	31/03/2006
Transfer voucher / Challan serial No. (Column no. 412)	Blank
Whether TDS Deposited by Book Entry ?(Yes)/(No) (Column no.413)	Blank
Interest Rs	0.00 (Zero)
Others Rs	0.00 (Zero)

New levy on utensils: options with trade

New levy on utensils: options with trade

Finance Bill, 2011 has imposed excise duty on a no. of goods that were exempted prior to announcement of Budget. It has withdrawn a no. of exemptions and has imposed the excise duty on them. One such withdrawal of exemption has been done in case of utensils made up of stainless steel and falling under tariff heading 73239420.

Prior to Budget, 2011; utensils were exempted from payment of excise duty vide serial no. 11 of the Notification no. 10/2006-CE dated 1.3.2006. Now, excise duty has been imposed on the same vide Finance Bill, 2011. The rate of excise duty has been imposed @ 1% under Notification no. 1/2011-CE dated 1.3.2011 and @ 5% vide Notification no. 2/2011-CE dated 1.3.2011.

The process of manufacturing the utensils:-

The process of manufacture of utensils starts from purchase of SS flats which are converted to patta Patti by employing the process of hot rolled and then cold rolled. After applying the cold rolled process, the patta Patti is converted to stainless steel circles which are further used for manufacture of utensils. Now, the utensils manufacturers will like to take the Cenvat credit of SS flats @ 10% and pay duty @ 5% so that there is no cash outflow.

The practice employed in industry:-

Thus, for manufacture of utensils prominently two types of manufacturer are there in the industry:-

Category I:-

Those units which procure the duty paid SS flats, take the Cenvat Credit and send them to job worker for carrying out the process of hot rolled and cold rolled. The goods received from the job worker are the cold rolled patta Patti that are used by the manufacturer for making the circles that are further used for manufacture of utensils.

Prior to Budget, 2011; these units were not allowed to take the credit as the final product, i.e., utensils were exempt. However, now, such units can avail the Cenvat Credit on SS flats and use the same for paying the excise duty on utensils.

However, the levy of duty on utensils may obsolete the compounded levy scheme if the SS patta patti are get manufactured on the job work. In this case, credit of the SS flats will be taken and then these will be sent to job worker for carrying out cold rolled process. If the job worker is operating under the compounded levy scheme, he may be denied the benefit of this scheme. This is possible due to proviso contained in the notification no. 17/2007-CE dated 1.3.2007 which reads as follows:-

“Provided that no credit of duty paid on any raw materials, component part or machinery or finished products used for cold rolling of stainless steel pattis/pattas, or aluminum circles under the Cenvat Credit Rules, 2004 shall be taken.”

The above proviso says that the credit of raw material used in manufacture of cold rolled rolled patta patti is not taken. In this case, the principle manufacturer has taken the credit of duty paid on SS flats which are sent to the job worker. Thus, the department may interpret that since the credit of duty paid on the raw material has been availed (though by some other person), the compounded levy scheme is not applicable. This interpretation may scrap out the compounded levy scheme.

Further, in this case, the duty has been paid by the job worker on the cold rolled patta patti under compounded levy scheme. These patta pattis are further used in manufacture of the utensils which also suffer the excise duty. Thus, the duty is levied at the two stages of the same product without the facility of Cenvat Credit thereupon. Thus, if we see logically then there is no harm of taking cenvat credit by Utensils manufacturer and manufacturer of SS patta patti operating under Compounded levy scheme. The Government is getting duty twice on the same goods.

If the job work is not allowed to units operating under special provision of compounded levy under notification 17/2009 then the option lie with utensils manufacturers to pay duty @ 1% without Cenvat credit.

Category II:-

Those who carry the entire process of the manufacture of utensils in the same factory, procure the duty paid SS flats that are subject to the process of hot rolled and cold rolled. Then circles are manufactured which are used in manufacture of utensils. Prior to this Budget of 2011, these units were not allowed to take the Cenvat Credit if these were operating under compounded levy scheme. Since the final product utensils and circles used in the manufacture of utensils were exempt duty liability was there on the patta patti. So, if the duty was paid by such manufacturers on patta patti under compounded levy; no credit was allowed. In the same case, if the duty was paid on the patta patti under normal scheme, the credit was allowed on the SS flats.

After Budget, 2011; these units will have no option other than to exit from the compounded levy scheme. In these cases, since the final product utensils have become dutiable, all the intermediate products will get exempted by virtue of notification no. 67/95-CE. So, when the duty is to be paid on utensils, then either the patta patti units will come out of compounded levy scheme or the utensils manufacturer will start taking the credit of SS flats.

Category-III:- These small units are purchasing the Stainless steel patta patti and using them in manufacture of utensils. The patta patti manufacurter are operating under compounded levy scheme. Thus these units will not get the duty paying documents and such units has to opt for paying 1% duty in cash. Moreover, as these units are very small and hence they will be eligible for SSI exemption under notification 8/2003-C.E dated 1.3.2003.

Before parting:-

Thus, the levy of excise duty on the utensils has direct impact on the compounded levy scheme which is not considered in the Finance Bill, 2011. This may be the reason of initiation of new era of litigation.

Cheque Truncation

1. What is Cheque Truncation ?

Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point en-route to the drawee branch. In its place an electronic image of the cheque is transmitted to the drawee branch along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across branches, other than in exceptional circumstances. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.

2. Why Cheque Truncation in India ?

As explained above, Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole. With the other major products being offered in the form of RTGS and NEFT, the Reserve Bank has created the capability to enable inter-bank and customer payments online and in near-real time. However, to wish away cheques is simply not possible as cheques are still the prominent mode of payments in the country and that is the reason why the Reserve Bank decided to focus on improving the efficiency of the cheque clearing cycle. Cheque Truncation System (CTS) is the alternative. As highlighted earlier, CTS is a more secure system vis-a-vis the exchange of physical documents.

In addition to operational efficiency, CTS offers several benefits to banks and customers, including human resource rationalisation, cost effectiveness, business process re-engineering, better service, adoption of latest technology, etc. CTS, thus, has emerged as an important efficiency enhancement initiative undertaken by Reserve Bank in the Payments Systems area.