Sec 2(31) – Consideration

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Sec 2(31) – Consideration 2017-05-20T14:15:52+00:00
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  • Adarsh MadrechaAdarsh Madrecha
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    #1106 |

    “consideration” in relation to the supply of goods or services or both includes–

    (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

    (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
    Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

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    The following aspects need to be noted:

    •    It refers to the payment received by the supplier in relation to the supply, whether from the recipient or any other person. Therefore, the third party to a contract can also contribute towards consideration;

    •    Consideration, therefore, is not the amount that the recipient pays but the amount that the supplier collects whether from the recipient or any third party. This would be particularly relevant in dealing with complex arrangements in digital economy and new age business;

    •    Consideration can be in the form of money or otherwise. E.g.: Under a JDA model, the flats handed by the developer to the landowner will be considered as ‘consideration’ for the development rights given to the developer by the landowner;

    •    Deposits, as such, are not liable to tax. However, where such deposits have been applied as consideration for the supply it would tantamount to masking of advances and in such cases, will be liable to tax. Merely altering the nomenclature of the payment as ‘deposit’ would not change the nature of the receipt. However, trade practices and the terms used play an important role in identifying whether an amount is a ‘deposit’ or an ‘advance’ or any payment as consideration for the supply;

    •    The suppliers may have to park the deposits in a separate bank account in case of refundable deposits, to comply with this provision. However, whether the amount is refundable or not is not a criterion to determine whether such amount is a ‘deposit’;

    • This is an inclusive definition.

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