Indirect Taxation of Automobiles

Background

Humankind moved towards civilization when men ceased to produce all the goods to meet their requirements and instead looked towards others to provide items of need in exchange of other items. With the emergence of one commonly recognized valuable currency, the barter system gave way to the concept of ‘sale’. Today, sale of goods forms the backbone of a highly complex economy and nations have implemented taxation systems to efficiently tax these transactions.

In India, the taxation system is based on fiscal federalism i.e. the Centre and State have independent taxing powers. Further, some taxes are levied by the Centre but collected and assigned to States. One such example is that of sales tax. Sales tax is undisputedly, the greatest source of revenue for States. Therefore, States attempt to envelop most sales transactions within their taxing  jurisdiction, which at times conflict and compete with other States’ taxing powers. This article seeks to discuss these conflicts from the perspective of sale of automobiles.

FAQ on E invoicing

1.  Why E invoicing? 

·         From April 1^st 2020 onwards any enterprise having turnover exceeding Rs. 100 Crore mandatorily have to issue E invoice to their customer.

 

02.  Which invoices covered under E invoice system?

 

·         All business to business i.e B2B invoices which include domestic and export sale.

·         Debit and credit note 

 

03.  Which invoices not covered under E invoice system?

·         Business to consumer i.e  B2C invoices 

·         Onsite sale.

 

04.   How to generate E invoice?

·         The E invoice required to be generated in the Government portal.  

·         There are two ways of generating E-invoice

(i)                 Automatic

(ii)               Manual.  

 

05.  What is the difference between Automatic and Manual process.

SN	Manual	Automatic
1	No additional Technology cost.	There will be additional Technology cost.
2	E invoices will be generated outside SAP and  all additional data of E invoice will be stored  outside SAP  only	The E invoices will be generated in the SAP system only and all additional data of E invoices will be saved in SAP only
3	E invoice will be printed outside SAP in government format.	E invoice will be printed from SAP with our own customized format.
4	Reconciliation to be done manually.	Since data saved in SAP,   system itself will be able to provide the reconciliation.
5	There will be a time lag between  regular invoice and E invoice	Generation of regular invoice and E invoice can be done on real time basis.
6	Due to manual process, there is always scope for error.	Due to automatic flow of data from SAP, there will be 100 % accuracy.

Destination Mautitus to earn Dividend.

 Executive summary                                 

Abolishment of dividend distribution tax and make its taxable in hand of share- holders has stopped multi-level scheme of Taxation on dividend income and disallowance of expenses1 related to dividend income. Foreign Investor would also benefit from available foreign tax credit in home country on Income tax withholding in India.

Income Tax withholding for resident shareholder is 10% and 20% (plus applicable surcharge and cess) for foreign shareholder. Foreign shareholder can certainly avail Foreign Tax credit. Indian Income tax withholding tax would be further reduced to tax rate as per Tax treaty. Pre TCJA, 2017, Foreign Tax credit was available u/s 902 of IRC on Indian dividend distribution tax and corporate income tax. Now, India investment planning in most import for available lesser withholding tax rate 5% through Mauritius or Hongkong.

For availing tax treaty benefits, foreign investor is required to furnish income Tax return in India and establish substance in these jurisdictions Income Tax withholding in hand of Mauritius shareholder as 5%. However, income tax withholding in hand of UK and US shareholder is 10% and 15% respectively.2

Revised ‘Direct Tax Vivad se Vishwas Bill, 2020’

The Finance Minister, Smt. Nirmala Sitharaman, in her budget speech, has proposed to bring a scheme similar to the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 to reduce the litigation in the direct taxes. This will not only benefit the exchequer to recover the blocked revenue but also the taxpayers to save time, energy and resources to be spent on unwanted litigations.

The Finance Minister has introduced the Direct Tax Vivad se Vishwas Bill, 2020 ('the Scheme') in the Lok Sabha on 05-02-2020 for dispute resolution related to direct taxes. As per media report, numerous of changes are made in the bill.

The highlights of the revised bill are discussed in the below paragraphs:

Important Rulings on Duration/ Link between Cash Withdrawals & Deposits

All cases discussed below have as an important factor the time gap between cash withdrawals and deposits in different factual circumstances where the withdrawals have been cited as source  of  deposits.  It  also  includes  a  recent   ITAT   ruling   distinguishing   a   landmark ruling Bhaichand N. Gandhi to holds, that bank pass book could be treated as a book of the assessee; and an ITAT 5-member Special Bench ruling that held, that even if sec. 68 is not applicable, the assessee can be asked to explain cash deposit in bank account u/s 69 or sec. 69B of the Act.

Two important principles discussed are – on/ to whom the onus lies/ shifts, and the tests to be applied to decide whether the onus has been discharged or not.

Analysis of assessment of demonetisation cases

In its ongoing Operation Clean Money drive (OCM), Various cases were selected for scrutiny assessment for  AY  2017-18  where  large  amount  of  CASH  was  deposited  during  demonetisation  period  i.e. 9th  November 2016 to 31st  December 2016.

Changes for the company after budget 2020.

In the below article, we try to summarize the budget 2020 proposals which will have an impact on the operation of companies.  The first impact is levying tax on Dividend Income.  This change will have several impacts on the company. The below points to summarize the impact.

How Personal taxes creates more hassles after Budget 2020.

In the Budget Speech of 2020, The Finance Minister (FM)  proclaimed before the nation that she will simplify the process of taxation of Individuals and also reduce their tax expense. In this regard, she provided right to choose  by  Individual taxpayer to either select conventional tax slab with all exemptions and deductions or else go with new reduce slab without any exemptions or deductions.   Given below the new tax slab rate with various exemptions.

Tax on Dividend.

According to the Indian Income Tax Act, domestic companies declaring dividend out of its residual profits are required to pay dividend distribution tax (DDT) under section 115 O of the Income-tax act. The shareholder will receive their share of profit after the payment of DDT and same is tax-exempted in the hands of investors under section 10(34) of the Income-tax act.  From last two years shareholders who are receiving dividend more than Ten Lakhs are now require to pay tax @ Ten percent on the dividend income earned over and above Rs. Ten Lakhs.  Not only this, there are different ranges of surcharge on tax for different slabs

HC strikes down levy of Integrated tax on inbound ocean freight under GST

This Tax Alert summarizes a recent ruling ^[1] of Gujarat High Court (HC). The issue involved was whether Integrated Goods and Services Tax (IGST) can be separately levied and collected from Indian importer on ocean freight paid by the foreign exporter to a foreign shipping line, where Customs duty together with IGST has been already discharged on the value of imported goods.

Introduction to Vivad se Viswas Scheme.

Further to the proposal made by the Hon'ble Finance Minister in Union Budget 2020, for introduction of Vivad se Vishwas Scheme ('the Scheme'), the Direct Tax Vivad se Vishwas Bill, 2020 (‘the Bill’) has been tabled today at the Lok Sabha.

Compare Old tax regime with new tax regime

In Finance Bill, 2020 a new section 115BAC has been inserted to provide concessional slab rate of tax for individuals and HUFs. Further, this section is optional and option has to be exercised on or before the due date of filing return. However, to avail the benefit of concessional rate, following conditions needs to be satisfied.

Tax on Dividend.

In yet another bold move after the Ordinance announcements, the Finance Bill, 2020, inter alia, proposes to abolish dividend distribution tax (DDT), thereby, boosting investible funds and higher dividend payouts by corporates.

Key Highlights of Transfer Pricing Proposal in Union Budget 2020-21:

> As per amended provisions, Form 3CEB filing date is 31^st October 2020 for FY 2019-20.

> Dispute Resolution Panel forum is now not limited to Transfer Pricing disputes only but also allowed to non residents for all disputes.

TCS on Foreign Payments under LRS

In Para 3.3  of budget speech of FM, for widening the scope of TCS, it is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees.

BUDGET 2020 - OTHER DIRECT TAX PROVSION

·         In case of transfer of Land or Building held as stock in trade, Full Value of Consideration will be the sale value if the sale value plus 10% of the sale value (Previously 5%) is equal to the stamp duty value. Otherwise the stamp duty value shall be considered as Full Value of consideration. [Section 43CA]

·         Fair market value of immovable property under section 55 as on 1.4.2001 for computing cost of acquisition not to exceed circle rate value.

·         A specific preamble text along with adoption of MLI has been incorporated in Section 90 of the Act. 

·         Tax Audit thresholds increased from Rs 1 crore to Rs 5 crore with a rider that total receipts and total payments in cash should not exceed 5% of such total receipts and total payments made during the year. 

·         A new section 115BAD has been proposed to be inserted to provide an option to the co-operative societies to pay tax at the rate of 22% plus 10% surcharge and 4% cess. The income of such societies shall be computed without claiming specified exemption, deduction or incentive available under the Act. Provisions of Alternate Minimum Tax (AMT) shall not apply to such co-operative societies.

·         CO-operative societies now to do TDS in case their turnover exceeds  50% on interest payment exceeding 40K.

·         The scope of the provision which allows carrying forward of losses or depreciation in certain amalgamations of banks and the insurance company has been proposed to be extended in order to facilitate recent government bank and insurance companies mergers /amalgamations.

·         The Finance Bill 2020 has proposed that Business Trusts will not be required to get listed on a recognised stock exchange for availing the benefit of pass-through allowed under section 115UA.

·         It has been proposed that assesses can seek advance pricing agreement (APA) or SHR in respect of the determination of attribution of profits to PE.

·         To do away with the existing distinction between a working and a nonworking partner of a firm with respect to the due dates by amending dozens of relevant  provisions prospectively with effect from 1st April, 2020 to apply from the assessment year 2020-21 onwards.    

·         Allowing deduction for amount disallowed under section 43B, to insurance companies on payment basis.

·         Widening the scope of Commodity Transaction Tax

·         Rationalisation of the provisions of section 49 and clause (42A) of section 2 of the Act in respect of segregated portfolios.

BUDGET 2020 - START UPS

Start Ups.

·         Section 80-IAC has been proposed to be amended to provide that deduction to an eligible start-up shall be available for a period of 3 consecutive assessment years out of 10 years. Earlier, this deduction was available for 3 consecutive financial years out of first 7 years. Further, the turnover limit for claiming such exemption has been proposed to raised to Rs. 100 crore which was earlier Rs. 25 crore.

·         Deduction of tax from perquisite arising on the allotment of shares, under ESOP to an employee of a Start-up, shall be proposed to be made at the time of happening of any of the following events:

(i)            On expiry of 4 year from the end of the Assessment year in which ESOP are exercised;

(ii)           At the time the employee leaves the organization

(iii)          At the time of sale of shares allotted under ESOP

BUDGET 2020 - Charitable Trust

Charitable Trust

·         Charitable Trust Registration and 80 G exemption to be for 5 years . All existing trust to apply online again  and obtain the online unique number.

·         80 G exemption holder to submit annual statement of donation received . Failure to submit such statement , a fee of Rs 200 per day for each day of default under section 271G and penalty of Rs 10000 to Rs 1.00 lakh under new section 271J.

BUDGET 2020 - FII’s & Foreign Companies.

FII’s & Foreign Companies.

·         Section 194LC of the Act provides for a concessional deduction of tax at 5% by a specified company or a business trust, on interest paid to non-residents. The period of said concession deduction has been proposed to be extended to 01-07-2023 from 01-07-2020. Further, the rate of TDS been reduced to 4% on interest payment against borrowings through issues of long-term bonds and RDB which are listed only on a recognised stock exchange in any IFSC. 

·         Section 194LD of the Act provides for lower TDS of 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and Rupee Denominated Bonds of an Indian company. It has been proposed to extend the period of concessional TDS of 5% to 01-07-2023 from existing 01-07-2020. Further, the concessional rate of TDS of 5% under the said section shall also apply on the interest payable to an FII or QFI in respect of the investment made in municipal debt security.

 

·         Exemption to Non Resident in filing of ROI in certain cases.  non-residents whose total income consists royalty or fees for technical services subject to requisite tax has been deducted at source, by amending section 115A of the Act with prospective effect from 1st April, 2020 to apply from the assessment year 2020-21 onwards.

·         Deferral of ‘significant economic presence’ (SEP) provisions-Applicability of the SEP provisions deferred to AY 2022-23.

 

·         Section 9A of the Act provides for a special regime in respect of offshore funds by providing them exemption from creating a “business connection” in India on fulfilment of certain conditions. It has been proposed that certain conditions for offshore funds shall be relaxed.

·         Section 94B provides for the restriction on deduction of interest payment made by the Indian company or a permanent establishment of the foreign company in India to its Associated Enterprise abroad. Finance bill proposed that provisions of interest limitation would not apply to interest paid in respect of a debt issued by a lender which is a PE of a non-resident, being a person engaged in the business of banking, in India. 

·         Safe harbour and APA going to be  extended to PE Attribution.

BUDGET 2020 - TDS/ TCS

TDS/TCS

·         TCS in foreign remittance under LRS exceeding Rs 7 lakh at the rate of 5%. Also on overseas tour package -@ 5%.

·         TDS on e-commerce payment to e commerce participant at the rate of 1%  (194-O limit)

·         TDS on FTS (few cases or other than professional) reduced under section 194J to 2%.

·         TCS at the rate of 0.1% will be applicable on sale of goods if total sales to one person is more than Rs 50 lakhs by a person having turnover of more than Rs 10 crore.

·         TDS on Dividend  is applicable (194 -@ 10%. Limit 5000)  including  foreign shareholder (194LBA-10%, No PAN/ TRC-20%)

·          Section 194C provides for deduction of tax from payment to a resident person for carrying out any “work”. The definition of work has been proposed to be amended to provide that if any product is supplied or manufactured according to requirements of the customer, it shall fall under the category of ‘work’ even if raw material is supplied by the associated enterprise of such customer.

BUDGET 2020 - Assessment Procedure

Assessment Procedure

·         DRP forum not to be limited to TP issues only but to be allowed to non residents for all disputes.   It is proposed that any variation done by the AO which is prejudicial to the interest of the assesse (even if there is no impact on profits/losses) can be referred to DRP.

·         Penalty for false entry of invoice or omitted invoice @100% of such transactions under new section 271AAD.

·         Vivad se Vishwash Scheme  to reduce litigation. Only tax amount to be paid . Full waiver of interest and penalty .  In case of penalty and interest dispute which is not related to income only 25% of such interest and penalty to be paid. In case payment is made after 31.3.2020 the amount to be paid is 110% of tax in dispute and 30% in case of penalty. (Scheme not yet in public domain).

·         Survey under section 133A now only with the approval of CIT or DIT.

·         E Appeals system for appeal before CIT(A). ( Faceless Appeals)

·         E Penalty system before AO.

·         Due date of filing of Tax Audit report de linked from filing of return .  Tax Audit filing by 30th September  and Return filing by 31st October.

·         Tax Charter to made and brought into Statute books.

·         The scope of e-Assessment is proposed to be extended, so as to include the proceedings under Section 144 of the Act relating to best judgement assessment;

·         It is proposed to provide that stay under the first proviso to section 254(2A) shouldn’t be provided by ITAT unless assesse deposits or furnish security for at least 20% of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act. The stay cannot exceed 365 days.

·         Insolvency Professional now can act as authorized representative ( sec 288).

·         New section 285BB replacing section 203AA towards rationising Form 26AS.

Amend clause (c) and (cd) of section 140 of the Act so as to enable any other person, as may be prescribed by the Board to verify the return of income in the cases of a company and a limited liability partnership.