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

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.

GST Return Timelines

With the multiple notifications with regard to the due dates and the late fees on the GST returns, it’s been very confusing for the tax payer to know exactly where the deadlines stand.

Following is a summary of the due dates based on all the recent notifications up to 1 July 2020:

Return Type of tax payer Tax Period Return Due Date Last date without late fees^
GSTR 1 Turnover less than Rs. 1.5 crore in the preceding year (quarterly return) Jan 20 to March 20 30-Apr-20 17-Jul-20
April 20 to June 20 31-Jul-20 3-Aug-20
Turnover greater than Rs. 1.5 crore in the preceding year (monthly return) March 20 11-Apr-20 10-Jul-20
April 20 11-May-20 24-Jul-20
May 20 11-Jun-20 28-Jul-20
June 20 11-Jul-20 5-Aug-20
GSTR 3B Turnover greater than Rs. 5 crore in the preceding year February 20 20-Mar-20 24-Jun-20
March 20 20-Apr-20 24-Jun-20
April 20 20-May-20 24-Jun-20
May 20 20-Jun-20 27-Jun-20
June 20 20-Jul-20 20-Jul-20
July 20 20-Aug-20 20-Aug-20
August 20 20-Sep-20 20-Sep-20
Turnover less than Rs. 5 crore in the preceding year  and the principal place of business is in specified states* February 20 21-Mar-20 30-Jun-20
March 20 21-Apr-20 3-Jul-20
April 20 21-May-20 6-Jul-20
May 20 21-Jun-20 12-Sep-20
June 20 21-Jul-20 23-Sep-20
July 20 21-Aug-20 27-Sep-20
August 20 1-Oct-20 1-Oct-20
Turnover less than Rs. 5 crore in the preceding year  and the principal place of business is in specified states# February 20 24-Mar-20 30-Jun-20
March 20 24-Apr-20 5-Jul-20
April 20 24-May-20 9-Jul-20
May 20 24-Jun-20 15-Sep-20
June 20 24-Jul-20 25-Sep-20
July 20 24-Aug-20 29-Sep-20
August 20 3-Oct-20 3-Oct-20

^For the tax payers who fail to furnish the return by the stated due date, but furnish the said return by 30 September 2020, the late fees payable which is in excess of Rs 500, shall stand fully waived for the tax payers where the total amount of tax payable is Nil.

Interest on delayed payment of GST

Tax Payer Rate of interest
Taxpayers having an aggregate turnover of more than Rs 5 crores in the preceding financial year Feb 20, Mar 20, Apr 20 – Nil for the first 15 days and 9 % thereafter till 24 Jun 20
Turnover up to Rs. 5 crore in the preceding year  and the principal place of business is in specified states* Feb 20 – Nil till 30 Jun 20 and 9% thereafter till 30 Sept 20
Mar 20 – Nil till 3 Jul 20 and 9% thereafter till 30 Sept 20
April 20 – Nil till 6 Jul 20 and 9% thereafter till 30 Sept 20
May 20 – Nil till 12 Sept 20 and 9% thereafter till 30 Sept 20
June 20 – Nil till 23 Sept 20 and 9% thereafter till 30 Sept 20
July 20 – Nil till 27 Sept 20 and 9% thereafter till 30 Sept 20
Turnover less than Rs. 5 crore in the preceding year  and the principal place of business is in specified states# Feb 20 – Nil till 30 Jun 20 and 9% thereafter till 30 Sept 20
Mar 20 – Nil till 5 Jul 20 and 9% thereafter till 30 Sept 20
April 20 – Nil till 9 Jul 20 and 9% thereafter till 30 Sept 20
May 20 – Nil till 15 Sept 20 and 9% thereafter till 30 Sept 20
June 20 – Nil till 25 Sept 20 and 9% thereafter till 30 Sept 20
July 20 – Nil till 29 Sept 20 and 9% thereafter till 30 Sept 20

* States of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, the Union territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman and Nicobar Islands or Lakshadweep

# States of Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand or Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh or Delhi

The above summary is collated based on following Notifications:
54/2020- Central Tax ,dt. 24-06-2020
53/2020- Central Tax ,dt. 24-06-2020
51/2020- Central Tax ,dt. 24-06-2020
05/2020-Integrated Tax,dt. 24-06-2020
03/2020-Integrated Tax,dt. 08-04-2020

 

Changes in ITR – 1 (Sahaj) & ITR – 4 (Sugam) notified by CBDT

ITR-1 (Sahaj): For individuals being a resident (other than not ordinarily resident) having total income upto Rs.50 lakh, having Income from Salaries, one house property (single ownership), interest income, family pension income etc. and agricultural income upto Rs.5 thousand.

  • deposited more than Rs 1 crore in a current bank account or
  • have spent Rs 2 lakh on foreign travel or Rs 1 lakh on electric bills in the relevant financial year

 

ITR-4 (Sugam): For Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh, one house property (single ownership), having income from business and profession which is computed under sections 44AD, 44ADA or 44AE or Interest Income, Family pension etc. and agricultural income upto Rs.5 thousand

Note: ITR Forms 1 and 4 are not for an individual who is:

  • either a Director in a company or has invested in unlisted equity shares or
  • has any brought forward / carry forward loss under the head

‘Income from House Property’

  • owns a house jointly with someone else

Changes to ITR Forms

  • Both ITR forms requires to provide the passport number if you have one.
  • ITR 4 form seeks details of your expenditure of Rs 2 lakh in foreign travel and asks you to specify the amount you spent. ITR 4 form also wants to know whether you spent over Rs 1 lakh during the year on electric bills.

New Disclosures

  • Valid Passport number has to be provided in both ITR-1 & ITR-4.
  • Amount or aggregate of amounts exceeding Rs 1 Crore in one or more current account, deposited during the previous year has to be disclosed in ITR-4
  • Amount or aggregate of amount exceeding Rs 2 lakhs for travel to a foreign country for yourself or for any other person

has to be disclosed in ITR-4.

  • Expenditure incurred of amount or aggregate of amount exceeding Rs 1 lakh on consumption of electricity during the previous year has to be disclosed in ITR-4.