AAR holds ITC reversal not required on commercial credit note received towards post-sale discount

 This Tax Alert summarizes a recent ruling ^[1] of the Andhra Pradesh Authority for Advance Ruling (AAR). The issue involved was whether a recipient is required to proportionately reverse the input tax credit (ITC) to the extent of commercial credit note issued by the supplier towards post-sale discount.

Capital gain Taxation.

 Period of Holding / Classification of capital Asset:

	Short Term Capital Asset	Long term Capital Asset
General Criteria	An asset held for a period of 36 months or less is a short-term capital asset.	An asset held for a period of 36 months or less is a short-term capital asset.
Immovable Property : Land, Building and House property, Unlisted shares of a company	An asset held for a period of 24 months or less is a short-term capital asset.	An asset held for a period of 24 months or more is a short-term capital asset.
Listed Equity or preference shares	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Listed Securities (like debentures, bonds, govt securities etc.)	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Units of UTI, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Units of equity oriented mutual fund, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Zero coupon bonds, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Specified mutual funds	Acquired April 1, 2023 after irrespective of holding period  is short term	NA
Market Linked debentures(MLD)	Irrespective of holding period  is short term	NA

   

Understand TCS on foreign remittances.

1)    TCS on foreign remittances is applicable only when foreign exchange is remitted abroad under the LRS scheme. 

RECENT JUDGEMENTS –IN DIRECT TAX

q  In the tax regime, generally, the tax department rejected the unutilized credit on the ground the same has not been reflected in the return. Means the Department has allowed the credit only when the credit has been reflected in the return. Credit reflected in the books of account has no more relevance in the eyes of department. Henceforth, to overcome this situation, the Hon'ble CESTAT Mumbai Bench in the case of Wardurg Pincus pronounced the wonderful judgment wherein the court has allowed the refund of unutilized cenvat credit which has not been reflected in the return. Meaning thereby, books of account has to be maintained properly in terms of the provision of law so that the unutilized credit has to be claimed

RECENT JUDGEMENTS –DIRECT TAX

 DIRECT TAX

q  ITAT Bangalore Holds Expenditure Incurred By Flipkart Towards ESOP Is Eligible For Deduction Under S. 37 Of ITA. Further, Mumbai ITAT in the case of Uniliver India Exports Limited deleted the additions made towards ESOP

TAX NEWS

 

DIRECT TAX

q  Form 10-IEA to be fill before filing of return of income when assesee opting for old tax regime and no form to be fill in case assesee opted for new tax regime.

CBIC issues guidelines for processing of applications for registration under GST

 This Tax Alert summarizes the recent Instruction issued by Central Board of Indirect Taxes and Customs (CBIC) prescribing guidelines for processing of applications for registration under Goods and Services Tax (GST).

 It was observed that fake registrations under GST were obtained in certain cases to defraud the Government exchequer. Vide Instruction No. 01/2023–GST, CBIC had issued guidelines for field verifications of the place of business in the form of a Special All-India Drive against fake registrations.   

In view of the above, CBIC has now issued guidelines to strengthen the process of scrutiny and verification of applications for registration. The procedure inter alia includes:

• Close scrutiny of details of the places of business and the corresponding documents uploaded to verify completeness and correctness of such address.
• Special attention to be provided to the cases where “High” risk rating has been assigned to an application by Directorate General of Analytics and Risk Management based on data analytics and risk parameters.
• Where the applicant has either failed to undergo authentication of Aadhaar number or has not opted for the same, the proper officer shall initiate the process for physical verification of the place of business.
• The proper officer must ensure that the entire process relating to registration is completed within the prescribed timeline and no application is approved on deemed basis for want of timely action on the part of tax officers.
• In case registration is granted in specified cases without physical verification of the place of business, the jurisdictional Commissionerate shall conduct such verification of the place within 15 days of registration.

Comments

• CBIC has provided a clear and comprehensive framework for verification of applications for GST registration.

• Persons seeking new registration under GST may need to ensure that all the parameters laid down by CBIC in terms of proper documentation and other related compliance, particularly, relating to the place of business, are fulfilled.  

Budget 2023 refresher.

 Budget 2023 refresher.

The budget 2023 has been announced on February 1, 2023, and below is the summary of important amendments to refresh your knowledge.

GST@6

The Goods and Services Tax (GST) has been in effect for almost six years. The original concept of input credit, which involved matching invoices, has been largely replaced by Form 2B. This has created a significant burden for taxpayers, who must now reconcile their records and follow up with non-compliant vendors. Additionally, taxpayers are constantly being surprised by new notifications and circulars. While there have been some positive developments, such as the introduction of e-invoicing, there are still a number of unresolved issues. A summary of some of these issues, along with suggestions for how they could be addressed, is provided below.

Singapore Property Tax.

 Singapore proposes to tax gains derived from sale/ disposal of property (including shares) situated outside Singapore, in certain situations.

Over past several decades, we have been witnessing Singapore as one of the most favored jurisdictions for investing in South-Asia (especially countries like India), due to several reasons, one of them being favorable tax treatment under treaty and no capital gains tax in Singapore.

This phenomenon was jolted with amendments to India-Singapore tax treaty, whereby India was given taxing rights in respect of capital gains arising from transfer of shares of Indian companies (though investments upto 2017 were grandfathered).

Singapore has now proposed certain amendments to the Singapore Income tax Act (‘the Act’), which are now open for public consultation. One of the significant amendment, proposes to insert section 10L to the Act, which provides that gains derived by a ‘relevant entity’ from sale/ disposal of movable or immovable property situated outside Singapore (at the time of sale), but ‘received in’ Singapore, are treated as income chargeable to tax in Singapore. Such newly inserted provision targets transactions which would otherwise be either exempt or specifically not chargeable to tax in Singapore and is applicable in respect of sale/ disposal that occurs on or after January 1, 2024.

As per the explanatory statement issued, the section targets gains derived by entities that are member of a multinational group, but lack reasonable economic substance in Singapore (number/ experience/ qualification of employees; business expenditure; decision making, etc. in Singapore). Thus, the entities which have business operations only in Singapore are not affected. Section also provides certain exceptions, like financial institutions, entities under tax incentive schemes or gains received in Singapore by individuals.
The computation of gains is to be determined after deduction of expenses incurred for acquisition, improvement or disposal of such asset. Guidelines have also been provided on determination of situs of the property sold/ diposed, like shares of a company are considered to be situated in the place of incorporation of such company; equity interest in any entity other than company shall be considered to be situated where business of the entity is principally carried on.

While the proposed amendment aims to address international tax avoidance by anchoring economic substance in Singapore, it would be interesting to evaluate interplay of such section with amended provisions of India-Singapore tax treaty and taxation of indirect transfer of shares in India.

Malaysia - Changes in TP regulations

 There has been an update to the TP Rules and APA Rules which was issued by the Malaysia Inland Revenue Board on 29^th May 2023.

Government issues stringent verification process for GST Registrations

 Central Board of Indirect Taxes and Customs (‘CBIC’) has issued an Instruction No. 3/2023, dated June 14, 2023, providing guidelines to all GST officials to strengthen the verification process of GST registration applications.

 

Introduction to tax at UAE

 The UAE was a tax-free country until May 31, 2023. On June 1, 2023, the UAE implemented a new corporate tax law with a headline rate of 9%. The new law applies to all businesses that are resident in the UAE, regardless of whether they are in a free zone or not.

Updation of IEC on DGFT portal

 Directorate General of Foreign Trade (‘DGFT’) vide Notification no. 58/2015-2020 dated 12 February 2021 has amended the IEC related provisions under Chapter-1 and Chapter-2 of Foreign Trade Policy, 2023.

How LIC invest to generate returns?

 

Life Insurance Corporation of India (LIC) is one of the largest institutional investors in India, and its annual investments dwarf those of foreign portfolio investors (FPIs) and other investor categories. Hence it is interesting to know LIC is making investments to get the returns that it needs to service its millions of policies. The below table explains the investment pattern of LIC.

Taxation on capital gains with respect to sale of shares:

1) If you sold LISTED SHARES (on Indian stock exchange) and held those for a period less than 1 year, then the gain is categorized as short term capital gain.

If held for more than 1 year, then gain is treated as long term.

◽ Short term capital gain on sale of listed shares - Taxed at 15% u/s 111A

◽ Long term capital gains on sale of listed shares - Taxed at 10% u/s 112A in excess of ₹1 lac

No deduction chapter VIA
No rebate u/s 87A for LTCG u/s 112A
No basic exemption benefit for non residents

2) If you sold UNLISTED shares in India (or foreign shares listed outside India) and held such shares for a period less than 2 years, then the gain is categorized as short term capital gain.

If held for more than 2 years, then gain is treated as long term.

◽ Short term capital gain on sale of unlisted shares - Taxed at slab rates

◽ Long term capital gain on sale of unlisted shares - Taxed at 20% u/s 112 (indexation benefit available to residents)

As indexation benefit is not available to non residents, tax rate of 10% is allowed

CBIC prescribes procedure for payment of IGST and cess on non-fulfilment of pre-import condition and manner of claiming ITC pursuant to SC order

 This Tax Alert summarizes a recent Circular  issued by Central Board of Indirect Taxes and Customs (CBIC) pursuant to the Supreme Court (SC) judgement ², upholding the validity of pre-import condition under Advance Authorization (AA) scheme during the period 13 October 2017 till 9 January 2019.

Bombay HC passes final order upholding constitutional validity of PoS provisions for intermediary services under GST

 This Tax Alert summarizes the final judgment¹ of the Division Bench of the Bombay High Court (HC) on the issue of constitutional validity of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

Highlights of Monetary Policy Statement, 2023-24 – Resolution of the MPC, June 6 to 8, 2023

 Monetary Policy Committee (MPC) decided unanimously to keep the policy repo rate unchanged at 6.50 per cent.

• Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
• MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
• CPI inflation is projected at 5.1 per cent for 2023-24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent. The risks are evenly balanced.
• Real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8.0 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and Q4 at 5.7 per cent, with risks evenly balanced.
• Reserve Bank will continue to remain nimble in its liquidity management, while ensuring that adequate resources are available for the productive requirements of the economy. The Reserve Bank will also ensure the orderly completion of the government’s market borrowing programme.
• With a view to providing greater flexibility for managing the money market borrowings, RBI decided that Scheduled Commercial Banks (excluding Small Finance Banks) can set their own limits for borrowing in Call and Notice Money Markets within the prudential limits for inter-bank liabilities prescribed by the Reserve Bank of India.
• In respect of NPA under the Prudential Framework, which is currently applicable to SCBs and select NBFCs. RBI has proposed to issue comprehensive guidelines on compromise settlements and technical write-offs which will now be applicable to all regulated entities including co-operative banks. Further, it is also proposed to rationalise the extant prudential norms on restructuring of borrower accounts affected by natural calamities.
• RBI has decided to put in place a regulatory framework for permitting Default Loss Guarantee arrangements in Digital Lending. Detailed guidelines on the matter will be issued separately
• RBI has decided to extend the timelines of primary urban cooperative banks (UCBs) for achieving priority sector lending targets by two more years up to March 2026. Further, UCBs which have met the targets as on March 31, 2023 shall be suitably incentivized.
• RBI has been decided to rationalise and simplify the licensing framework for Authorised Persons (APs) issued under FEMA. This is expected to improve the efficiency in the delivery of foreign exchange facilities to various segments of users including common persons, tourists and businesses.
• RBI has proposed to expand the scope and reach of e-RUPI vouchers by (a) permitting non-bank Prepaid Payment Instrument (PPI) issuers to issue e-RUPI vouchers and (b) enabling issuance of e-RUPI vouchers on behalf of individuals. Other aspects like reloading of vouchers, authentication process, issuance limits, etc., will also be modified to facilitate use of e-RUPI vouchers
• Given the gaining acceptance of RuPay Debit and Credit cards abroad (issued by banks in India), RBI has decided to permit issuance of RuPay Prepaid Forex cards by banks. This will expand the payment options for Indians travelling abroad. Further, RuPay cards will be enabled for issuance in foreign jurisdictions. These measures will expand the reach and acceptance of RuPay cards globally.

Supreme Court says.

The decisions of the Supreme Court are of utmost importance. They become the law of the land and must be respected and followed by all citizens of the country. Here are some of the reasons why Supreme Court decisions are so important:

Now income proof mandatory for Rs 10 lakh investments in small savings schemes

 The Department of Posts has issued a circular on May 25, 2023, where it has revised the KYC norms for investing in small savings schemes for investors. The new KYC norms have been made stricter for those making large value transactions in the post office schemes. The proof of source of funds is needed along with the common KYC documents i.e., PAN, Aadhaar.

𝐔𝐀𝐄 𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐞 𝐈𝐧𝐜𝐨𝐦𝐞 𝐓𝐚𝐱 - 𝐃𝐞𝐭𝐞𝐫𝐦𝐢𝐧𝐢𝐧𝐠 𝐐𝐮𝐚𝐥𝐢𝐟𝐲𝐢𝐧𝐠 𝐈𝐧𝐜𝐨𝐦𝐞 𝐟𝐨𝐫 𝐐𝐮𝐚𝐥𝐢𝐟𝐲𝐢𝐧𝐠 𝐅𝐫𝐞𝐞 𝐙𝐨𝐧𝐞 𝐏𝐞𝐫𝐬𝐨𝐧𝐬

 
Whilst we are still analyzing and digesting yesterday’s Cabinet and Ministerial Decisions, it appears that the determination of Qualifying Income for Qualifying Free Zone Persons will be a notably complex task.