Summary of recent GST circulars

 Circular No. 192/04/2023-GST dated 17^th July 2023

Clarification on charging of interest under section 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof.

Note on Exposure Draft Ind AS 12

Indian Accounting Standards (Ind AS) are based on the IFRS Standards issued by the International Accounting Standards Board (IASB).

 

GST Credit not available to purchaser on supplier's default - Patna HC

 

It is to apprise you about an important Patna High Court (‘HC’) decision in case of Aastha Enterprises v. State of Bihar, 2023-VIL-546-PAT, wherein it is held that the recipient cannot claim Input Tax Credit (‘ITC’) where its supplier has not paid GST to the Government.

 

CBDT notifies Rule for determination of value of perquisite in respect of residential accommodation provided by employer

 The Finance Act, 2023 brought in an amendment for the purposes of calculation of “perquisite” with regard to the value of rent-free or concessional accommodation provided to an employee, by his employer. Accordingly, CBDT has modified Rule 3 of the Income-tax Rules, 1961 to provide for the same.

Understand Thin Capitalization

 Thin capitalization refers to a situation where a company is financed with a high proportion of debt compared to equity. This can result in the company's interest payments on the excessive debt being disproportionately high, which could lead to reduced taxable income and consequently lower tax payments. Many countries implement thin capitalization rules to prevent companies from using excessive debt to manipulate their taxable income.

Taxation of Listed Bonds:

 

Listed Securities (like debentures, bonds, govt securities etc.) shall be treated as short term capital asset if held for a period of 12 months or less and long term if held for a period of 12 months or more

 

Understand Economic Ratios

 

In the below article, we will explain a few economic terms like GDF, CPI, Repo rate etc in simple terms.

Circular on Taxation of Life Insurance Receipts

Finance Act, 2023 had amended Section 10(10D) of the Income Tax Act(“Act”) to provide that in case of new policy/ policies taken up on or after 1^st April 2023, if the amount of premium paid in any year during the term of the policy/policies exceeds Rs. 5,00,000/- then the amount received on maturity shall not be exempt u/s 10(10D).

 

Understand Transfer for Capital Gains.

 Definition of Transfer includes sale/exchange ore relinquishment of the asset and hence redemption is considered as transfer for the purpose of capital gains.

 

Parliament passes bills amending GST law for taxability of supplies in casinos, horse racing and online gaming

 This Tax Alert summarizes bills passed by the Parliament for amendments in the Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act) regarding taxability of supplies made in casinos, horse racing and online gaming.

The key amendments are as follows:

Understand Average Maturity.

In the case of an individual bond, Maturity refers to the time period after which the initial investment, i.e., the Principal, is repaid by the Bond Issuer to the Bond Holder. Debt Mutual Funds invest in multiple bonds with different maturities. So to calculate the Average Maturity of a Debt Fund, you have to use the weighted average method to determine how much time it will take for all the bonds in the fund’s portfolio to mature. The weights are the percentage holding of each security in the portfolio.

Understand Modified duration for bond & Mutual Fund.

 

Modified duration is a measure of how much the price of a bond or a mutual fund changes when the interest rate changes. It is based on the concept that bond prices and interest rates move in opposite directions. Higher modified duration means higher sensitivity to interest rate changes.

For example, if a bond has a modified duration of 4%, the bond price will rise by 4% with a decrease in interest rate by 1%

INCOME TAX RECENT JUDGEMENTS

 

§  The Delhi High Court declared that the subscription amount earned by a non-resident taxpayer from Indian entities is not taxable as royalty or fee for technical services 

 

HUF: Benefits and Hurdles:

The Hindu Undivided Family (HUF) is a recognized legal entity under the Income-tax Act, 1961. It is treated as a separate ‘person’ for tax purposes, distinct from its individual members.

Benefits of HUF:

GST on Development rights (TDR)

 Whether GST is applicable on Development rights (TDR) transferred by the landowner to the developer under JDA entered prior to 01.07.2017 where OC/CC or conveyance deed is after 01.07.2017.

 
Completion of the project in GST period is the sole reason for proposing tax under GST on such TDR. Some arguments in support of the non-applicability of GST:

Changes made in CGST Rule 2017 as per Notification No.38/2023-Central Tax dated 04/08/2023

👉Rule 9. Verification of the application and approval
• For physical verification of premises presence of a registered person is not required

GIFT & GST

 

It is important to understand and identify the thin line of difference between gift and disposal to better understand the implications under GST.
 
Section 122 of TOPA defines Gift to mean a transfer of property made voluntarily and without consideration (a "Gratuitous" Act). In the context of employer and employee, gifts could include Diwali hampers, birthday presents, marriage gifts and the like. Whereas if anything is given to an employee as part of a contractual obligation which may or may not directly be related to his performance, viz., laptops given to all the employees who complete three years in the organization, mobiles presented on achieving prefixed targets and the like may not be at par with gifts.

GST Circular on Cross Charge

 

Clarifications from the GST Council The GST Council has recommended the following clarifications on ISD and cross charge:

 

Mutual Fund Ratio

Investment in Mutual Fund is always subject to market risk and no one can predict the future. However, by study past performance ratios of the mutual fund will provide you understanding that how much you risk you will carry and help to compare with other similar fund. Lets understand few of such ratio which help investor to analyze their risk in the mutual fund.

Changes in Treatment of Supplies to SEZ Units/Developers !

 

 
📅 Until 30-Sep-2023 : Supplies to SEZ units or developers are considered as 'Zero rated supplies' under Section 16 of the IGST Act, allowing suppliers to avoid paying IGST upfront.
 
📅 Effective from October 1, 2023: The Finance Act, 2021 (Section 123) brought a significant change, limiting zero-rated supplies to only those supplies which are intended for 'authorized operations' within SEZs.

📜 Reference : Notification No. 27/2023-CT dated July 31, 2023 along with section 123 of Finance Act 2021
 
🤔What does this mean for you? Going forward, only supplies utilized for ‘authorized operations’ by SEZ units or developers will be considered as ‘zero-rated supplies. For supplies not meant for ‘authorized operations’, the option of not paying IGST upfront or claiming a refund later will no longer be available.
 
⚖️ Section 2(c) of SEZ Act 2005 defines “Authorised Operation” as operations which may be authorised under sub-section (2) of section 4 and sub-section (9) of section 15. According to the clause , Development Commissioner of the SEZ may after approval of the proposal grant a “Letter of Approval” (LOA) mentioning the authorised operations .
 
📜 Implication for Suppliers to SEZ : SEZ suppliers must now understand in advance or take critical actions to ensure that their supply comes under the "Authorised operation" of a SEZ unit.
 
1️⃣ Evidencing Zero Rate Supply - The supplier must get an endorsement on the tax invoice from the recipient SEZ unit or developer declaring that the supplies will be utilised for 'approved operations' in accordance with SEZ law. This step is critical to keeping supplies zero-rated.

2️⃣ For IGST Refund of SEZ Supply: Endorsement from SEZ officer – According to Rule 89 of the CGST Act, the application for the IGST refund should be accompanied by the tax invoice of goods or services, which must be endorsed by the specified officer of the SEZ. The endorsement should confirm that the supplies have indeed been used for 'authorized operations' as per the SEZ law.
 
In summary, suppliers to SEZ units or developers need to follow these endorsement procedures diligently to ensure compliance with SEZ laws and to facilitate zero-rated supplies or claim refunds where applicable.