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.

Lockdown and Cashless Economy

From last few years, the Government of India pushed for the cashless economy as they find this as one of the major driver to curb the black economy.    There are numbers of ways by which a person can make online payment without any hassles and today people preferred to make the online payment rather than cash payment.  Thus, the concept of online payment is gaining popularity amongst Indians.

New Amendments in Budget 2020

Today Finance bill 2020 being passed in Lok sabha and now only present approval pending.

following are the new changes.

Section	Amendments.
13A	Inserted  Director General of Income Tax & Principal General of Income tax. It means investigation  commissioner have granted power in case of trust.
6	Applicable to Indian Origin person having income more than 15 Lakhs.
11	Inserted Trust cannot accept corpus fund and applicable from 01.06.2020.
10(34)	Dividend income is exempt if DDT paid
80M	Deduction for dividend received from any domestic, foreign and trust.
194K	TDS  not applicable on capital gain
194N	Change in rules of cash withdrawl from bank
206C	Foreign tour package-  limit of 7 lakhs and applicable from 01.10.2020.  Further TDS rate will be 1 ½ % in case of payment from education loan u/s 80E.
206C	No TCS on export of goods.

Understanding Benami Transaction Act.

There has been a series of administrative changes and new laws introduced in the last few years with an aim to crack down the parallel black economy that exists in our country. One of these measures was the unprecedented demonetisation drive that was announced on November 8, 2016. However, prior to that, the government introduced another law by way of comprehensive amendments to the already existing law (The Prohibition of Benami Property Transaction Act, 1988 as amended in 2016 referred hereinafter as “Benami Law”) in order to crack down the Benami Properties. This 28 years old law was given a fresh bout of oxygen with insertion of 63 new sections and notified rules thereto. The law governing the benami transactions in India is now extensively streamlined with threefold objective – broadening the definition of Benami transactions, establishing processes and line of authority and regulating the prosecution and penalty provisions in case of default. This is the first article in a series of three articles intended to give you a holistic view of this law and its interpretation. This article aims to provide you with the panoramic view of how this law operates, transactions covered under its purview and the criminal and civil implication thereon.

Important Points while purchasing property jointly with parents.

I am buying a Joint Property with Parents, what all points i should take care. I was in a fix what to say and what not to say :). It’s hard to answer such queries of my clients. Buying a Joint Property with Parents is quite an emotional decision for a buyer. As a consultant, i have to be extra cautious in selection of words to answer these queries. Despite being extra careful, sometimes the client gets hurt. The biggest problem in India is that people are not open to discussing inheritance and emotional issues. The buyer becomes too sensitive to discuss such topics in a professional way.

Buy-back Tax amendments could exanimate the Buy-back Process

There are multiple ways by which companies can restructure their capital. Each process has its own advantages and disadvantages. The various benefits that buy-back of shares provide led to the Government introducing it as a concept of the year 1998. Some of them are listed below:

Key takeaways on today’s GST Council Meeting –

1. Interest to be charged on Net Cash Liability (retrospective amendment from 01.07.2017)
2. Existing filing of GSTR-3B and GSTR-1 to be continued to 30.09.2020.
3. Relaxation for filing of GSTR-9C (Reconciliation Statement) for the FY 2018-19 upto aggregate turnover of Rs. 5 crores.
4. Due date for filing the GSTR-9 and GSTR-9C for FY 2018-19 to be extended to 30.06.2020.
5. Late fees to be waived for delayed filing of GSTR-9 and GSTR-9C *for *FY 2017-18 and 2018-19 for taxpayers with* aggregate turnover less than Rs. 2 crores.*
6. One time measure proposed for filing of application for revocation of cancellation of registration up to 30.06.2020 (applicable to cancelled registration till 14.03.2020).
7. For FY 2019-20, requirement of filing of GSTR-1 to be waived off for the persons who could not opt for special composition scheme under notification No. 2/2019-CT (Rate) (in form CMP-02).
8. Approval given for “Know your Supplier” scheme.
9. Dates for implementation of e-invoicing and QR Code to be extended to 01.10.2020.
10. Extension of the time to finalize e-Wallet scheme up to 31.03.2021.
11. Extension of the present exemptions from IGST and Cess on the imports made under the AA/EPCG/EOU schemes up to 31.03.2021.
12. Allow for refund to be sanctioned in both cash and credit in case of excess payment of tax.

FAQ on Compulsory Withdrawal from GST Composition Levy.

Q 1. What is meant by Compulsory Withdrawal from Composition Levy?

Ans. A taxpayer can opt out of Composition levy in any of the two ways:

Voluntarily opt out of Composition levy by filing Form GST CMP-04 on the GST Portal or

Compulsorily removed out of Composition levy by the Tax Official at any time during the financial year.

Government approves Tax Reimbursement Scheme For Exporters

The government has approved a scheme for reimbursement of taxes and duties to exporters with a view to give boost to the country's dwindling outbound shipments.

A decision in this regard was taken in a Cabinet meeting today chaired by Hon’ble Prime Minister.  Certain key aspects are highlighted as under;

u  The Commerce and Industry ministry tweeted that, reimbursement of taxes such as duty on power charges, VAT on fuel in transportation, farm sector, captive power generation, mandi tax, stamp duty and central excise duty on fuel used in transportation would make Indian products competitive in global markets.  The tweet also mentioned that measures would be compliant with WTO norms.

u  The sectors and products under the remission of duties and taxes on export products (RoDTEP) will be notified in a phased manner and the MEIS benefit for those sectors and items will be withdrawn.

u  Briefing the media about this decision, Commerce Minister Piyush Goyal said with the rolling out of this new scheme, the Merchandise Export Incentive Scheme (MEIS) will be "phased out".

u  The taxes to be reimbursed will essentially include value added tax (VAT), electricity duties and fuel used for transportation, which are not exempt or refunded under any other existing mechanism.

Amount received back from seller is not a commission towards marketing support but a type of discount - CESTAT

Respondent is engaged in the manufacture of sugar and molasses and procured sugarcane through various societies formed at district level which controlled the sale of sugarcane by the farmers to the respondent - The said societies also made certain payments to the respondent which the Revenue has treated as consideration for Marketing Support services

Hon'ble CESTAT ALL held that -
"Under Business Auxiliary Service, commission is treated as consideration when such commission is received for promotion or marketing of sale of goods or for providing service or for providing Customer Care Service or for arranging procurement of goods for the clients - Appellant in this case is not engaged in promotion of any sale of goods on behalf of anybody else, nor any service, nor any activity being undertaken on behalf of the clients. Clear meaning of the transaction is that when sugarcane is purchased by the appellant, some amount is received back from the seller of the sugarcane. It clearly means that it is a type of discount. The appellant had not provided any marketing support services"

In the case of K S Chini Mills

GST Council Meet - 14th March 2020 - Expectations

-
The next GST Council Meet is scheduled on 14th March 2020 and some of the decisions which the Council may take is as under –

a. Deferment of E-Invoicing under GST – The Council may defer GST E-Invoicing and QR Code benefits till 30th June 2020.

b. Current format of GST Returns may continue till September 2020 -The current format of GSTR 1 and GSTR 3B may continue till September 2020. (Earlier April 2020)

c. Interest on delayed filing of GSTR 3B -GST Council may provide clarity on payment of Interest on delayed filing of GSTR 3B (beyond due date). The Department is demanding Interest on Gross Liability at 18% on delayed payment of GST u/s 50 of the CGST Act, 2017.

e. Extension of due date for filing Annual Returns and GST Audit (GSTR 9 and GSTR 9C) – Same may be extended to 30th June 2020. Currently, the due date is March 31st, 2020.

f. Proposed GST Rate Changes for correction in Inverted Duty Structure – GST rate changes to be proposed for Mobile Phones, Textiles, Footwear and Fertilizer Industry.