List of due dates not extended and relaxations not granted by the Government vide Press Release dated 24 March 2020

Sr No	Particulars	Consequences	Action Points
1	Due date for payment of TDS for the month of March 2020 has not been extended. Relief has been granted with respect to interest to be charged for the default.	Interest at 9% p.a. will be applicable with respect to delayed payment of TDS upto 30 June 2020. Also, there is no immunity from prosecution for non-deposit of TDS within the due date. There is a good case to argue that there was a sufficient cause for the delay but the acceptance of the same will be at the discretion of the officer/ Court.	TDS for the month of March 2020 should be paid by 30 April 2020 in order to avoid interest payment/ prosecution proceedings.
2	Due date for filing revised income tax return for FY 2018-19 has not been extended	It could be argued that all due dates falling within the period of 20 March 2020 to 29 June 2020 have been extended to 30 June 2020. However, in absence of any clarification on the same, there is a possibility that the portal may not accept revised returns post 31 March 2020.	Hence, it is advisable to file revised return on or before 31 March 2020 in order to avoid unnecessary hardship.
3	No embargo on recovery proceedings under income-tax or GST law	Contrary to the submission of the Solicitor General to the Supreme Court last week, there is no embargo with respect to recovery proceedings.	Not a lot can be done to prevent attachment of bank account except trying to stay in touch with the concerned officer and bank officials.
4	No embargo on survey or search proceedings under income-tax or GST law	There is a risk of community spread of coronavirus – to the families of the concerned officials and to the family members/ neighbors residing at the place where survey/ search is carried out	Nothing can be done to prevent this

Sr No	Particulars	Consequences	Action Points
5	Manner of calculation of interest under Section 234B (default in payment of advance tax) for FY 2019-20 has not been amended. Relief has been granted with respect to interest to be charged for the default.	In case 90% of income-tax is not discharged by 31 March 2020, interest at 9% p.a. will be charged upto 30 June 2020 and beyond that 12% p.a. interest will be charged.	Advance tax for FY 2019- 20 should be discharged by 31 March 2020 in order to avoid interest payment.
6	Due dates with respect to various compliances under the Foreign Exchange Management Act, 1999 (‘FEMA’) have not been extended.	In case compliances under FEMA are not completed within the due date, there may be penal consequences. There may also be penal consequences if the compliance is completed by the entity but is pending with the bank (e.g. SMF – FC GPR etc)	As far as practically possible, compliances under FEMA need to be completed. If the bank is unable to complete the same at their end, e-mails should be written to the banks for follow-up – this will help in justifying the delay to Reserve Bank of India.
7	Due date for filing GSTR 3B for the months of February, March and April 2020 for taxpayers having turnover of Rs 5 crores or more has not been extended. Relief has been granted with respect to interest, late fee and penalty for the default.	If taxpayers having turnover of Rs 5 crores or more do not file GSTR 3B and consequently not make GST payment for the months of February, March and April 2020 by the due date, interest will be charged at 9%. Late fee and penalty will be waived.	In order to avoid interest liability, GSTR 3B needs to be filed on or before the respective due date for the months of March and April 2020.
8	The operation of Rule 36(4) of the CGST rules has not been suspended. Rule 36(4) requires that only that much Input Tax Credit (increased by 10% of credit reflecting) as is shown in GSTR 1 by the vendor can be claimed while paying GST.	The due date for filing of GSTR 1 for all taxpayers for the month of March, April and May 2020 (for those who have opted for monthly returns) has been extended to 30 June 2020. In such a situation, no taxpayer will file GSTR 1 – resulting in the recipient being unable to claim ITC.	In these cases, gross GST liability will be required to be paid in order to avoid interest/ other consequences.

CBIC clarifies apportionment and transfer of ITC in case of business reorganization

This Tax Alert summarizes a recent circular  issued by the Central Board of Indirect Taxes and Customs (CBIC) clarifying apportionment and transfer of input tax credit (ITC) in case of business reorganization. 

As per proviso to rule 41(1) of the Central Goods and Services Tax Rules, 2017 (CGST Rules), in case of demerger, ITC shall be apportioned in the ratio of value of assets of the new units as specified in the demerger scheme. 

The circular clarifies the following: 

·         While apportioning ITC as per the proviso, value of assets of new units shall be taken at the state level (i.e., at the level of each distinct person) and not at the entity level.

·         Proviso not only covers demerger but applies to all forms of business reorganizations resulting in partial transfer of business assets along with liabilities.

·         Ratio for apportionment of ITC need not be applied separately in respect of each tax head, viz. central tax (CGST), state tax (SGST) and integrated tax (IGST).

·         Transferor is at liberty to determine the amount to be transferred under each tax head, subject to availability of ITC balance under such head.

·         Apportionment formula shall be applied on ITC balance available in the electronic credit ledger on the date of filing of Form GST ITC–02 by the transferor.

·         Further, the ratio of the value of assets shall be taken as on the appointed date of demerger. 

Clarifications issued by CBIC addresses most of the ITC related open issues faced by industry while implementing various business transfer arrangements. 

Flexibility in determining amount of ITC to be transferred from each tax head could prove beneficial to taxpayer. 

There are few more GST related issues pertaining to business restructuring which may require clarity. Industry should engage with the government to clear the ambiguity in order to avoid any unwarranted litigation.  

GST Update | Year end activities for FY 2019-20

With the new financial year beginning tomorrow, we wish to provide a brief list of action points to be considered to ensure compliance from GST perspective:

Amendments proposed in the Finance Bill 2020 passed by Lok Sabha

The Finance Bill, 2020 was introduced in the lower house of the Parliament on 1st February, 2020 wherein various/ significant changes in the Income Tax Act, 1961 (‘the Act’) were proposed by the Hon’ble Finance Minister

 Recently, on 23rd March 2020, the lower house of the Parliament has passed the aforesaid Bill with certain amendments to the proposed changes in the Finance Bill.

EXTENSION AND RELIEF MEASURES ANNOUNCED BY FINANCE MINISTER ON 24-MARCH-2020

EXTENSION AND RELIEF MEASURES ANNOUNCED BY FINANCE MINISTER ON 24-MARCH-2020

WHILE THE NATION IS UNDER LOCK DOWN TO FIGHT SPREAD OF CORONA VIRUS

The Hon’ble Finance Minister Smt. Nirmala Sitharaman announced much awaited compliance relief packages in view of the coronavirus pandemic. She also said that the government is working on an economic package to deal with the impact of the coronavirus pandemic on the economy and will make an announcement soon. There were lots of compliance reliefs in her announcements. The same has been dealt below-

GST Input credit - Be ready for more Chaos.

In respect of GST return, following  being announced by FM on 24 March 2020.

1	Due Date for GSTR-3B for supplies made in the months of February, March and April: If a company’s turnover is less than ₹5 crore then on late payment of taxes (Company A)	11th/ 22nd,24th of the following month		30th June 2020	-
Interest, Penalty and Late Fees as applicable			no interest, no late fees and no penalty
2	Due Date for GSTR-1/ GSTR-3B for supplies made in the months of February, March and April: If a company’s turnover is more than ₹5 crore then on late payment of taxes (Company B)	11th/20th of the following month		30th June 2020	Compliance is done on or before 30th June 2020 No Interest if tax is paid by ➔ 04/04/20 (for Feb’20) ➔ 05/05/20 (for Mar’20) ➔ 04/06/20 (for Apr’20)

Following impact  can be noticed in case of Company B due to above-mentioned  changes.

(a)  Company B required to make GST payment on or before May 5, 2020 and June 4, 2020 for GST of month ending March and April.

 

(b)  Most of their  vendors i.e Company A  falls below turnover less than 5 Cr and hence looks like they will not file their  GSTR-1 before June 30, 2020.

(c)  If they don’t file GST -1 return  before our GST payment due date,  then  Company B  going to see massive mismatch  of Input  credit for the month ending March and April.  Mismatch means GST input as per books and GSTR-2A.

(d)  AT present, there is no relaxation of  from rule of 110% means input claimed cannot exceed 110% of input appearing in the GSTR-2A.

(e)  Hence,  Company B  can expect huge shortage in the GST input credit for next 2 months and due to 110% rule, they  have to pay  additional GST input credit.

Please provide your  suggestion or way out by which we can minimise the additional GST payment.

Evaluation of the changes in the Finance Bill, 2020 as passed by the Lok Sabha

The Bill which was presented originally in the Lok Sabha on 01-02-2020 has not passed in its original shape. More than 50 changes have been proposed in the Finance Bill, 2020 which was originally presented in the Lok Sabha. New amendments are proposed, scope of some provisions have been expanded, some  proposed amendments are removed, so on and so forth.

A snippets of all changes made  in the Finance Bill, 2020 (as  passed by the  Lok  Sabha)

viz-a-viz the Finance Bill, 2020 as presented in the Lok Sabha are presented hereunder.

01.  Residential Status  

 

02.  Equalization Levy

03.  Section 194N

04.  TCS 

05.   Section 194K

06.  Business Trust

07.  Section 80M  

08.  Corpus Donation

09.  Tax on Dividend

10.  Others 

Other Amendments.

1.     CENTRAL GOVERNMENT IS EMPOWERED TO PROVIDE FOR A LOWER RATE OF TDS UNDER SECTION 194A

As per section 194A of the Income-tax Act, every person (other than an individual or HUF, whose turnover  or gross receipt during the preceding year does not exceed Rs.  1 crore in the case of business and Rs. 50 lakhs in case of the profession) is required to deduct tax at the rate of 10% from interest, other than on securities, paid or payable to a resident person.

DIVIDEND RECEIVED ON OR AFTER 01-04-2020 SHALL NOT BE TAXABLE IF DDT IS ALREADY PAID BY THE COMPANY

With effect from 01-04-2020, the Finance Bill, 2020 proposed to abolish the Dividend Distribution Tax and move to the traditional system  of taxation wherein  companies do not pay DDT on dividend and, the shareholders are liable to pay tax on such income at the applicable tax rate. Consequent amendments have also been proposed  to Section 10(34) and Section 115-O. The dividend received on or after 01-04-2020 will not be exempt in the hands of the shareholder and the company will not be liable to pay DDT on  any  amount of dividend declared, distributed or paid by the company  on or after 01-04-2020. Section 115BBDA was also proposed to be amended that shareholders receiving dividend in excess of Rs. 10 lakhs shall not be taxed if the same is declared, distributed or paid on or after 01-04-2020.

Amendment for Corpus Donation.

1.     AMENDMENTS MADE TO SECTION 10(23C) TO REMOVE CONFLICTING PROVISIONS

1.1.  Corpus donations received by Section 10(23C) institutions will be exempt from tax

If institutions, registered under section 12AA, receive any income in the form of voluntary contributions with a specific direction that it should form part of the corpus of the trust or institution, it shall not be included in the total income of such trust or institution. However, no such specific exemption was available to entities registered under section 10(23C). Hence, it was always a matter of litigation, compelling the institutions coming within the scope of section 10(23C) to apply even their corpus donations for getting the benefit of exemption. This was prejudicial to them because they cannot build up the corpus fund in the absence of specific exemption available to them.

Amendment in section 80M

1.     SCOPE OF DEDUCTION UNDER SECTION 80M IN RESPECT OF INTER- CORPORATE DIVIDEND EXPANDED

With effect from 01-04-2020, the Finance Bill, 2020 proposed to abolish the Dividend Distribution Tax and move to the traditional system  of taxation wherein  companies do not pay DDT on dividend and, the shareholders are liable to pay tax on such income at the applicable tax rate. To remove the cascading effect where a domestic company receives dividend from another domestic company, a new section 80M has been introduced. This section provides that inter-corporate dividend received by a domestic co. from another domestic co. shall be reduced from the total income of that company that further distributes such dividend income to the shareholders within one month before the due date of filing of return.

The Finance Bill, 2020 (as passed by the Lok Sabha) expanded the scope of deduction available under Section 80M to include the dividend received from a foreign company and business trust. Thus, a domestic company can claim deduction under section 80M even in those cases where dividend received from a foreign company or business trust is further distributed to shareholders within one month before  the due  date of filing of return.

2.     RATE OF TDS ON DIVIDEND DISTRIBUTED TO A NON-RESIDENT OR FOREIGN COMPANY

With effect from 01-04-2020, the Finance Bill, 2020 proposed to abolish the Dividend Distribution Tax and move to the traditional system of taxation wherein companies  do not pay DDT on dividend and, the shareholders are liable to pay tax on such income. As dividend shall be taxable in the hands of shareholders, the domestic companies are also required to deduct tax while distributing the dividend income to shareholders.

Where the dividend is received by a person resident in India, it shall be chargeable to tax at normal tax rates as applicable in his case. Further, the person paying the dividend shall be required to deduct tax under section 194 at the rate of 10%.

The taxability of dividend income in the hands of a non-resident or foreign company  is governed by the provisions of the domestic law or provisions of double taxation avoidance agreements (DTAA), whichever is more beneficial to the assessee. As per  the Income-tax Act, the dividend received by a non-resident person or a foreign company is taxable at the special rate of 20%. Whereas, as per most of the DTAAs  India has entered into with foreign countries, the dividend is taxable in the source country in the hands of the beneficial owner of shares at the rate ranging from 5% to 15% of the gross amount of the dividends.

The person paying the amount of dividend to a non-resident person or a foreign company shall deduct tax under section 195 at the ‘rates in force’, which  is provided  in Part-II of the First Schedule of the Finance Act. In the Finance Bill, 2020, though the relevant amendments had been proposed for  taxability of dividend income in hands of shareholders and deduction of tax therefrom. But, Part-II of the First Schedule of   the Finance Act was not amended to provide a specific rate for deduction of tax in respect of dividend income. Thus, dividend income was falling in the residuary entry of Part-II of the First Schedule of the Finance Act which provides for deduction of tax at the rate of 30% in case of a non-resident and 40% in case of a foreign company. Thus, the tax would have been required to be deducted at a very higher rate in such cases.

This issue has been resolved in the Finance Bill, 2020 (as passed by the Lok Sabha), Part-II of First Schedule is amended to provide the rate of deduction of tax from dividend income distributed to a foreign company, non-resident Indian or other non-resident person. In case of all such persons, the tax shall be withheld from the dividend income at the rate of 20%. However, where dividend income of a non- resident person is chargeable to tax at the reduced rate as per the provision of   Double Taxation Avoidance Agreement (DTAA) then tax shall be deducted at a rate provided under DTAA.

UNIT-HOLDERS OF BUSINESS TRUST SHALL BE EXEMPT FROM PAYING TAX ON DIVIDEND IF SPV OPTS FOR SECTION 115BAA

1.1.           Taxability of dividend income

Business Trusts (Real Estate Investment Trusts (REITs) or Infrastructure Investment Trusts (InVITs)) have been provided the status of pass-through entities under the Income-tax Act whereby they are allowed to pass certain incomes to their unit  holders without paying tax thereon and, consequently, such income is taxable in the hands of the unit-holders.

NO TDS UNDER SECTION 194K FROM CAPITAL GAINS ARISING ON TRANSFER OF UNITS OF MUTUAL FUNDS

With effect from 01-04-2020, the Finance Bill, 2020 proposed to abolish the Dividend Distribution Tax and move to the traditional system of taxation wherein mutual funds do not pay tax on distributed income and, the unit-holders are liable to  pay tax on such income at the applicable tax rate. To ensure the collection of tax, a new Section 194K has been proposed to be introduced which require the Mutual Funds to deduct tax at the rate of 10% while making payment of income to the unit-holders.

The stakeholders had raised doubts about the deduction of tax from the capital gains that may arise on maturity or transfer of mutual funds, which the CBDT vide Press release, dated 04-02-2020, has clarified that the tax under this provision is required to be deducted only from the dividend payment. No tax is required to be deducted from the sum payable which is in the nature of capital gains.

To remove any ambiguity, section 194K explicitly provides that no tax shall be deducted while making payment in respect of capital gain arising from transfer from units.

AMENDMENT IN TCS PROVISIONS TO REMOVE CERTAIN AMBIGUITIES

In the Finance Bill, 2020, the provisions relating to TCS were amended to require collection of tax from a person remitting the amount outside India under Liberalised Remittance Scheme (LRS) or buying an overseas tour program package.

SCOPE OF SECTION 194N EXPANDED

[With effect from 01-07-2020]

1.1.  Threshold of Rs. 1 crore of cash withdrawal

To discourage cash transactions and to move towards the cash-less economy, a new Section 194N has been inserted in the Income-tax Act vide the Finance (No. 2) Act,

2019. This provision requires deduction of tax by a banking company or a co-op. bank or a post office at the rate of 2% from the amount withdrawn in cash from any account (saving or current account) if the aggregate of the amount of withdrawn from one or more account exceeds Rs. 1 crore during the year. The tax shall be deducted on the amount exceeding Rs. 1 crore only.

E-COMMERCE OPERATORS ARE LIABLE TO PAY EQUALIZATION LEVY

1.1.  Scope of equalisation levy extended

The Finance Act, 2016 introduced Equalisation Levy with effect from 01-06-2016. This levy is charged at the rate of 6% from the consideration paid or payable to a non- resident person for the online advertisement services. The Finance Bill, 2020, as passed by the Lok Sabha, has extended the scope of Equalisation Levy to cover within its scope the consideration received or receivable for e-commerce supply or  services made or facilitated by an e-commerce operator.

CHANGES IN PROVISIONS RELATING TO RESIDENTIAL STATUS

1.1.  120 days to substitute 182 days only if total income exceeds Rs. 15 lakhs

[Applicable from Assessment Year 2021-22]

Section 6 of the Income-tax Act defines parameters to determine the residential status of an assessee. The residential status of an individual is determined by the number of days of his stay in India. As per existing section 6(1), an individual is considered as resident in India in a financial year if:

Inventory, Auditor and Lockdown.

Due  to  the  outbreak  of  COVID-19,  it  will  be  challenging  for  the  management  to  plan  for inventory  physical  counts  at  upcoming  year  end  of  March  31,  2020.  The  current  situation  is more severe as lockdown being announced till March 31, 2020.

Here are few insights that can be helpful for the auditors and for the company management in the ongoing scenario:

Scenario 1 – Where the company’s personnel is scheduling inventory physical count just immediately after lockdown is lifted and before any inventory movement takes place (say first week of April), but not feasible for auditors to attend.

Above situation is more likely to happen given that  inventory is stored at various locations  and will be a menace for audit staff to visit at those locations.

Auditor can perform the following key procedures:

ª The audit team can be virtually connected and can attend the inventory physical count through video conferencing, to the extent practical, depending upon the IT infrastructure and nature of inventory.

ª Request the company personnel to share images and approved physical count sheets (at the end of same day or next day)

ª Observe some physical counts on an alternative date (before the audit sign off date - say April 30, 2020) considering the situation would normalize by then.

ª Perform the roll-backward procedures i.e., obtain the inventory movement between the intervening period of year end and subsequent date count date and perform audit procedures on those intervening transactions.

ª If the physical count is impracticable at subsequent date as well, perform alternative procedures for example - inspection of documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory counting.

ª Do enough documentation to support the work and conclusion.

Scenario 2 – Where the company’s personnel is not doing inventory physical count near to year end date.

In such situation, the auditor should perform the possible procedures as enumerated in first scenario. It will be also important to understand the inventory method followed by the company i.e. perpetual inventory system or cyclic count. The auditor should extend the procedures in case of cyclic count.

In all the cases, if it is not possible to perform any of the procedures and unable to test the existence of inventory by any alternate procedures and its impact is pervasive to the financial statements as a whole then the auditor may modify the audit opinion in accordance with the applicable auditing standards.