Finance Bill 2023 – A Silver Spoon or Pinch?

Budget 2023

 

India’s economy rose from being the 10th largest in the world to becoming the 5th largest in the last nine years. With the current economic growth rate estimated to be at 7 per cent, the highest among all major economies, the Budget 2023 was expected to remain focused on tax reforms, boosting exports, reduce imports, continue investment in infrastructure and cure all sectors of the economy from the impact COVID 19 pandemic with a magic wand.

 

In the run up to the Budgetary announcements, the Government introduced the vision for the Amrit Kaal that includes technology-driven and knowledge-based economy with strong public finances, and a robust financial sector, through Jan Bhagidari. The priorities for the budget, as highlighted by the finance minister in her speech were:

 

  1. Inclusive Development
  2. Reaching the last mile
  3. Infrastructure and investment
  4. Unleashing the potential
  5. Green growth
  6. Youth power
  7. Financial sector

 

With that understanding, we bring to you the key highlights of the budget announcements and the proposed finance bill amendments.

Finance Bill 2023 – A Silver Spoon or Pinch?

New Regime versus Old Regime Comparative Tool FY 22-23 (AY 23-24)

With the amendments introduced in the Budget 2020, the individual tax payer in India, now get a choice to be taxed under the new regime whereby, they will not  be allowed to claim any tax deductions in lieu of being taxed at a lower rate.

Central Board of Direct Tax (CBDT) has issued circular in this regard to provide the clarification that an employee, having income other than business income and willing to opt for new tax regime may intimate the deductor (employer) about exercising the option in each year and deductor may deduct their tax according to the new regime. Further, in case of no declaration given by employee, then employer can deduct TDS as per old regime. The CBDT has also clarified that the option once availed in the year cannot be modified during the year.

If you don’t know whether you should opt for the New Regime or not, here is a calculator that let’s you decide.

Download >> here

 

Finance Bill 2021 – A Quest For Survival

Budget 2021

As the economic world rises from the bottoms it travelled to with the pandemic, the hopes and expectations
from the Budget 2021 were many. The Budget 2021 while needed to address the constant demand for reform
and structural changes from the industry, the backdrop is also heavily tinted by the ongoing farmer protests,
pushing back on the agricultural reforms.

Focus on health care and defence was non-negotiable.

Strengthening the arms of the MSME’s has been the need of the hour.

Simplification of the legal and compliance structure is a moving goal post.

The looming fear of the large ‘fiscal deficit’ weighed heavy on the economy.

The buzz words were many ranging from ‘Made in India’ to ‘Ease of doing business’ to ‘आताम्निर्भर
Bharat’.

With that understanding, we bring to you the key highlights of the budget announcements and the proposed
finance bill amendments.

Read here for the full coverage >>> Finance Bill 2021 – A quest for survival

Contributors – Shipra Walia, Bhavya Walia, Mayank Bansal, Mohit Soni, Shubham Verma, Ashrumochan Routray, Rakesh Ojha, Kunal Kohli

Shifting of Registered office of a Limited Liability Partnership

moving offices

Applicable Section and Rules:- Section 13 of LLP Act, 2008 and Rule 17 of LLP Rules, 2009.

Types of Shifting of Registered office of LLP: Registered office of the LLP can be shifted in 3 ways

  • shifting of Registered office within the same state and within the jurisdiction of same Registrar
  • shifting of Registered office within the same state from the jurisdiction of one Registrar to another Registrar
  • shifting of Registered office form one state to another state

Checklist of Shifting of Registered Office within the same state and within the jurisdiction of same Registrar

  • Check Provisions of LLP Agreement: The first step for shifting of registered office of LLP is to check whether LLP agreement contains provision for the same.
  • Resolution for Shifting of Registered office address: If LLP agreement does not provide provision for shifting of registered office address then consent of all partners needs to be taken.
  • Form to be Filed: Form- 15 to be filed with Registrar within 30 days of resolution passed.
  • Execute Supplementary Agreement: LLP shall file Form 3 within 30 days from the change in Registered office address.

Checklist of shifting of Registered office within the same state from the jurisdiction of one Registrar to another Registrar

  • Check Provisions of LLP Agreement: The first step for shifting of registered office of LLP is to check whether LLP agreement contains provision for the same.
  • Resolution for Shifting of Registered office address: If LLP agreement does not provide provision for shifting of registered office address then consent of all partners needs to be taken.
  • Form to be Filed: Form- 15 to be filed with Registrar within 30 days of resolution passed.
  • Execute Supplementary Agreement: LLP shall file Form 3 within 30 days from the change in Registered office address.

Checklist of shifting of Registered office form one state to another state

  • Check Provisions of LLP Agreement: The first step for shifting of registered office of LLP is to check whether LLP agreement contains provision for the same.
  • Resolution for Shifting of Registered office address: If LLP agreement does not provide provision for shifting of registered office address then consent of all partners needs to be taken.
  • Consent of Secured Creditors: Required, if LLP having secured creditors.
  • Public Notice: The limited liability partnership shall publish a general notice, not less than 21 days before filing any notice with Registrar, in a daily newspaper published in English and in the principal language of the district in which the registered office of the limited liability partnership is situated.
  • Form to be Filed: Form- 15 to be filed with Registrar within 30 days of publication of public notice.
  • Execute Supplementary Agreement: LLP shall file Form 3 within 30 days from the change in Registered office address.

Contributors: Shubham Verma, Shipra Walia

Registration for EPFO & ESIC for new Companies through MCA Portal

Registration for EPFO & ESIC for new Companies through MCA Portal

To improve India’s ranking in the Doing Business Report 2021, The Ministry of Labour & Employment has completed the reform to “Integrate process of registration for GST, EPFO, ESIC and Profession Tax for Maharashtra with company incorporation” in tandem with the MCA.

Ministry of Labour & Employment has notified that the Registration for EPFO & ESIC for new Companies via MCA Portal only in which it clearly states that Registration for ESIC and EPFO for new companies as above has been stopped on Shram Suvidha Portal from 15.02.2020. Hereafter, the newly incorporated companies will get their EPFO & ESIC Registration Number via AGILE+PRO Form available on MCA Portal hence acquiring ESIC & EPFO Registration Number becomes mandatory for all the Newly Incorporated Companies after 15.02.2020.

Further the Ministry also clarified that new companies would have to comply with the provisions of EPF & MP Act, 1952, and ESI Act, 1948 when they cross the threshold limit of employment under the respective Acts.

ESIC RETURNS DUE DATE AS PER THE ACT ARE:

Period of Return Due date of filing of Return
April to September 11th Day of November
October to March 11th Day of May

EPF RETURNS DUE DATE

EPF payment due date is the date by which PF from the employees’ salary should be deducted. This should be done on or before the 15th of every next month. However, the due date of PF return and the due date of PF payment are both the same, i.e. on or before the 15th of every month.

Impact of Changes

  • At present, registrations under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (‘EPF Act’) and the Employees’ State Insurance Act, 1948 (‘ESI Act’) are mandatory for companies which employ more than twenty and ten employees, respectively.
  • Also, companies which do not have the aforesaid minimum threshold(s) of employees can voluntarily opt to register under the EPF2 Act and the ESI Act.
  • While the aforesaid development is brought with the prospects of making the incorporation procedure simple, fast and cost-effective, the requirement of mandatory registration(s) under the EPF Act and the ESI Act is bound to lead to confusion among the companies as well as the officials of EPFO and ESIC. Introduction of SPICe+ would also require a statutory change/amendment of the EPF Act and the ESI Act.
  • Now the main question arises out after this amendment that the Companies which don’t fall under the prescribed limit of the said acts will have to file their Return or Not ?
  • In this regard, the Companies may revert /intimate to the respective department that it does not fulfill the criteria for minimum no. of employees for furnishing any returns.

Contributors: Shubham Verma, Shipra Walia

Collect When You Sell Goods

TCS

In order to widen and deepen the tax net, Finance Act 2020 has inserted sub-section (1H) under section 206C, to provide that every person being a seller of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or (1G), section 206C to levy TCS on sale of goods. The provision is applicable from 1 October 2020.

To whom Applicable?

Every person,

  • being a seller,
  • who receives any amount as consideration,
  • for sale of any goods
  • of the value or aggregate of such value exceeding fifty lakh rupees in any previous year,

at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.

Thus, only those sellers whose total sales, gross receipts or turnover from the business carried on by it, exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.

When not Applicable?

The Section shall not be applicable in the following cases:

  • If Gross Turnover/Sales/Receipts of the assessee(seller), during immediately preceding FY is less than Rs.10 Crores.
  • If the sale consideration received from the buyer is less than Rs. 50 lakhs (the consideration to be computed basing PAN not GSTIN).
  • In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
  • In case the transaction is covered by TDS under any other section.
  • In case goods being sold are covered by
    • Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, minerals like coal or iron ore OR
    • Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR

Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same.

Rate of TCS?

PAN / AADHAAR furnished Up to 31st March 2021 From 1st April 2021
YES 0.075% 0.1%
NO 0.75% 1%

Other points:

  1. As Section 206(1H) is Applicable from 1st of October 2020, only amount received for sales made after 1st October 2020 is liable for TCS
  1. If credit sale is made before 01st October 2020 but its receipt is made after 01st October 2020, then, such payment is to be covered under the limit of Rs. 50 lakhs.
  1. The CBDT vide Circular No. 17, dated 29-09-2020, has clarified that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision. Thus, TCS is required to be collected on the sale consideration inclusive of GST.
  1. Every Seller needs to change Invoice format to include line item for TCS Amount.
  1. As TCS needs to be deducted on amount received there will be yearend cases of sales for which amount not received. In such scenarios, need to reconcile TCS liability with Turnover will arise. Also, this may result in extra Working Capital requirement.
  1. CBIC clarified through Corrigendum to Circular No. 76/50/2018-GST dated 7th March 2019 that amount of TCS will not  be included in the total value of goods for computation of the GST.

Contributors: Mayank Bansal; Shipra Walia

GST Council Meeting on 27th August 2020 – What to expect?

41st GST Council Meeting

 

The upcoming council meet is likely to remain focused on the matter of compensation payouts to the states. As the State governments face decreased cash flows due to ongoing COVID-19 lock down induced pause in the economic activity and continue to struggle with the burgeoning expenses, the demand is two-fold:

  • Review the rates of GST compensation cess (herein after referred to as “cess”) to factor in inflation
  • Evaluate the potential for borrowing by the Council to make accelerated payouts to the States. The States have flagged that the council can borrow cheaper than the states.

The council may look to rationalize the GST rates, cast the cess net wider or increase the rate of cess. Alternatively, it may recommend the states to step up the borrowings to be repaid through the future collections in the compensation cess fund. This alternative, however, is likely to meet a serious objection from the States.

The cess was introduced at the inception of GST in 2017, to compensate the manufacturing-heavy states, for the potential loss in revenue due to the allocation GST being based on destination of the consumer as opposed to the destination of the manufacturer under the previous regimes.

Under the existing rules, the cess will be levied for the first five years of the GST regime. The cess is applicable on certain notified goods in addition to the regular GST, as per the GST (Compensation to States) Act, 2017. The cess is also applicable on imports under Section 3 of the Customs Tarrif Act, 1975. Further, input tax credit is also available against the amount of cess paid by the assessees, however, such credit can only be utilized towards the payment of cess and not towards any other liability payable under the GST Act.

The cess collected by the Central Government is allocated to the manufacturing-heavy States by calculating the shortfall in the State’s revenue under GST versus the projected revenue. The projected revenue is calculated taking in to consideration, the State’s revenue for FY 2016-17 as the base revenue and assuming a growth rate of 14% per annum. The cess is provisionally calculated and released to the States every two months.

The challenge for Central Government is the gap between the cess collection versus the compensation payout to the States. The total cess collection and payment status currently stands as follows:

(Amount in Rs. crores)
Financial Year Cess Collection Cess Payout Shortfall
2017-18 62,612 41,146 (21,466)
2018-19 95,081 69,275 (25,806)
2019-20 95,444 165,302 69,858
Total 253,137 275,723 22,586

For FY 2020-21, as the cess collections have fallen due to the pandemic, the gap is expected to be much larger and hence has ignited a debate between the Center and the States. The legal challenge is also, that as per the law the cess is to be paid to the States through collection of the cess and not from the consolidated fund of India. This effectively means, that the shortfall in the cess collection has to be met from the future collections of cess and can not be funded through other budgetary measures.

At the end, it seems inevitable, that the tax payer will ultimately have to shoulder this burden as the gap funding solely from borrowings does not seem viable unless measures are put in place to ensure that future cess collection is sufficient to meet the future payouts as well as the current shortfall.

The Council will meet again on 19 September 2020, to take up the issues such as resolution of the inverted duty structure, tax rate on various items and additional measures for ease of doing business. The tax payer will thus, need to hold until 19 September 2020 to see what the council has in store for them in terms of measure and support for the business lost during the pandemic.

What Happened with Apple?

In the recent past the European Commission has ruled that Cupertino based tech giant saved $ 14.3 billion in taxes from 2004-2014 by striking favourable deals with Irish Government.

European Commission (“EU”) has contested that Irish government has entered into a deal termed as a “sweetheart deal” with Apple which helped the tech giant to save taxes and pay taxes as low as .005%.  Ireland has already got the lowest corporate tax rate i.e. @ 12.5%.

Under EU state aid rule’s it is illegal for any country to give preferential treatment to one company over another when they are both subject to the same tax rules in that state.

Most of the tech giants have chosen Ireland as their headquarters. Apple has been based in Cork since 1980 and headquarters for social media giants Google, Facebook, Twitter, and LinkedIn are also based in Dublin’s Silicon Docks. Apple itself is Ireland’s largest individual taxpayer.

EU’s General Court has turned down the ruling of European Commission of 2016 which held that Apple has been given illegal tax breaks by Dublin, Ireland. The ruling was challenged by both Apple and Ireland government.

Had this ruling been upheld, Irish government would have received a favourable punishment of $ 14.3 billion in the form of tax demand. However, Ireland considers the judgment as a relief, as it will continue attracting the funding of the tech giants.

As per Ireland, no added advantage is provided to Apple for incorporating its companies in Ireland, whereas EU is of the view that this arrangement gave Apple an undue advantage that is illegal under EU state aid rules.

Further, until recently, US tax rules meant that payment of such tax could be deferred, and Apple was taking advantage of that. But those rules changed in 2017 and in 2018 Apple began paying $37 billion in tax on foreign profits to the US as a result. Approx $21 billion of this relates to the time period (2004-2014) being covered by the Commission’s decision. Thus, even if the judgment is appealed and reversed, Apple would be eligible to claim the credit of taxes paid in US against the liability arising towards Ireland.

In past, EU has held the similar view with Starbucks tax dealings in Netherlands and a division of fiat in Luxembourg. The mere premise by EU General Court for overturning the apple demand is that EU cannot justify that the lower tax payable by Apple is “selective economic advantage” provided by Ireland to Apple. It is stated that

“By today’s judgment, the General Court annuls the contested decision because the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU.

According to the General Court, the Commission was wrong to declare that ASI and AOE (Apple Sales International and Apple Operations Europe) had been granted a selective economic advantage, and by extension, state aid.”

The judgment can be appealed by the EU, limited to points of law, and brought before the European Court of Justice within two months and ten days from the date of judgment.

Apple changed its structures in 2015 and thus the issue involves the taxes only till 2014.

E-commerce Equalization Levy – Payee based levy from 1 April 2020

The Finance Act 2020 has received approval from President of India with few Key amendments which were not originally included in the Finance Act. One of the key amendments discussed below includes levy of Equalisation levy on E-commerce. It is discussed in brief below for the ready reference.

Currently the provisions of equalization levy (“EL”) introduced by Finance Act 2016, are applicable on the payments made for online advertising and marketing service, provided by non-resident service providers to a resident in India or non-resident having a Permanent Establishment (“PE’) in India. The EL is withheld by the recipient i.e. the payer for the services.

Finance Act 2020 has further extended the scope of the EL by inserting Section 165A from 1 April 2020 in the Part IV of the Finance Act, 2016 i.e. “Equalisation Levy on E-Commerce Supply or Services” where the foreign owned e-commerce platforms will have to pay EL in India. The EL is to be deposited by the payee.

 

Liable Applicable Rate When to deduct
–  Non-resident
e-commerce operator who  owns, operates or manages-  a digital or electronic facility or platform for

o  Online sale of goods

o  Online provision of services or

o  Both i.e. supply of goods or services

o  Facilitates sale of goods or provision of services

 –      Where non-resident does not have a PE in India

 

–      The sales, turnover or gross receipts are equal to or higher than 2 crore

 

–      Not related to online advertisement for which the EL of 6% is applicable

 2%    plus    surcharge   on amount           of         the consideration received/receivable  by  the E-Commerce Operator E-commerce supply of goods or services rendered or facilitated to

1.       A person resident in India

 

2.      A person who buys goods or services or use facilitation or combination of any by using an Indian IP address

 

3.      A non-resident

–         For sale of advertisement for the audience in India or access of such advertisement through an IP address in India

 

–         For sale of data collected from a person resident in India or from a person who uses an IP address in India.

 

Other important points

  1. Currently, the online goods purchased from foreign vendors are not chargeable to tax. However, now the EL will be payable
  2. Currently, the services rendered by e commerce facilitator or through e-commerce are considered as Fees for Technical/Included Services and are chargeable @ 10% or 20% or applicable treaty as per the facts and circumstances. However, the specific provisions of equalization levy will override the provisions of
  3. The Equalization levy is introduced through Finance Act and is not part of Income-tax Act, 1961. Thus, the provisions of overriding section 90 which provides the treaty benefit (entailing the benefit of make available) will not be
  4. As the Equalization levy is over and above income tax and is separate from the same, the credit of the same may not be available or will be dependent upon the domestic law of the resident country of
  5. Penalty of 100% of the tax withheld for equalisation levy for not depositing the equalisation levy is
  6. The payee has to deposit equalisation levy so collected on a quarterly basis and also file an annual
  7. The income on which EL is paid by the non-resident will be exempt from income tax as per the provisions of section 10(50) of the Income-tax Act, 1961.

 

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