Corporate and Professional Updates on 27th February 2019

Direct tax updates:

• Candidates contesting all forthcoming elections will not only have to declare their income-tax returns of the last five years, offshore assets and PAN details, but also those of their spouses and family members as announced by the Government.
• Form 26 is filed along with the nomination papers giving details about the criminal antecedents, if any, PAN, income tax return of self, spouse and dependent. It is also used to provide a list of assets and liabilities of a candidate, spouse and all dependents. As per the new notification, offshore assets will include the details of deposits or investments in foreign banks, any other body or institution abroad. It will also include details of assets and liabilities abroad.

Indirect Tax Updates:

• All the Business having turnover up to Rs. 1.5 crore can now avail for the composition scheme. Millions of additional micro, small and Medium enterprises (MSMEs) in India will be eligible to choose out of the goods and services tax (GST) system from next Financial year, The Council took a slew of measures for MSMEs by increasing the annual turnover threshold for exemption from GST registration to Rs 40 lakh from the current Rs 20 lakh, introducing a composition scheme for services, easing return filing procedures, and raising the composition threshold for traders and manufacturers. But for services providers, the threshold remains the same at Rs 20 lakh. The revenue impact of this move is estimated to be more than Rs 6,000 crore on an annual basis.
• GST council has allowed Kerala to impose the calamity cess of up to 1 per cent for a maximum period of Two years, said by the finance minister Arun Jaitely. It referred the much-awaited decision on reducing the GST rate on under construction property and lotteries to two groups of ministers. There was no decision on cutting the 28% GST on Cement.
• The threshold will be raised from the current Rs 10 lakh to Rs 20 lakh on April. They will have an option to “move up” to the Rs 40 lakh threshold. Prime Minister Narendra Modi had expressed a view that the threshold needed to be increased to Rs 75 lakh. In place of increasing threshold limit to 75 lakh Finance Minster Arun Jaitely increased it to 40 lakhs because speculated is better while we need to provide relief to small taxpayers, it is equally important to expand the tax base. The decision is likely to have been taken on the basis of the data that only 1.1 million of the roughly 5 million GST filers below a turnover of Rs 20 lakh pay the GST, contributing only 1.5 per cent of overall GST collection.
• Companies with a turnover of Rs 20-40 lakh form 20 per cent of GST filers and contribute less than 3 per cent of overall collection, officials told Business Standard. “Of the GST filers with a turnover of Rs 20-40 lakh, only those whose cost of compliance is higher than the tax they pay will opt out. A composition scheme was introduced for small service providers with a turnover of up to Rs 50 lakh per year, with a GST rate of 6 per cent.
• Scheme would be beneficial for companies providing electrical and other household services, businesses such as beauty parlours, whose rental cost is high, would not opt to save the available input-tax credit. But the Limit for service sector is of Rs 50 lakh for registering under the composition scheme and increasing the exemption threshold to Rs 40 lakh at the same time do not make much sense for those having a high ITC (input tax credit) available at their disposal.
• The upper limit of turnover to become eligible for the composition scheme will be increased to Rs 1.5 crore from the next financial year. This will not be available for dealers involved in inter-state trade. Further, composition dealers will need to file GST returns only annually, but pay tax quarterly, from 2019-20.
• The government extended the exemption to imports from integrated tax and compensation cess under the advance authorisation scheme on Thursday till March 31.

FAQ’s on GST:

Ques. Would forward contracts in commodities or currencies be within the ambit of definition of ‘supply’?

Ans. A forward contract is an agreement, executed, to purchase or sell a predetermined amount of a commodity or currency at a pre-determined future date at a pre-determined price. The settlement could be by way of actual delivery of underlying commodity/currency or by way of net settlement of differential of the forward rate over the prevailing market rate on the settlement date. Where the settlement takes place by way of actual delivery of underlying commodity/currency, then such forward contracts would be treated as normal supply of goods and liable to GST. Where the settlement takes place by way of net settlement of differential of the forward rate over the prevailing market rate on the settlement date, the same would be falling within the purview of ‘securities’ as defined in Section 2(101) of the CGST Act, 2017. As securities are neither ‘goods’ nor ‘services’ as defined in the CGST Act, 2017, future contracts are not chargeable to GST. However, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for supply of service and chargeable to GST.

Ques. What is the nature of income earned / expended in instruments like repos and reverse repos and is such income taxable under GST?

Ans. Section 45U(c) of the RBI Act, 1934 defines ‘repos’ as an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. Section 45U (d) of the RBI Act, 1934 defines ‘reverse repos’ as an instrument for lending funds by buying securities with an agreement to re-sell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent. Repos and reverse repos are financial instruments of short term call money market that are normally used by banks to borrow from or lend money to RBI. Page 14 of 32 The margins, called the repo rate or reverse repo rate, in such transactions are nothing but interest charged for lending or borrowing of money. Thus they have the characteristics of loans and deposits for interest and are accordingly exempt from GST.

Ques. Whether assignment or sale of secured or unsecured debts is liable to GST?

Ans. Section 2(52) of the CGST Act, 2017 defines ‘goods’ to mean every kind of movable property other than money and securities but includes actionable claim. Schedule III of the CGST Act, 2017 lists activities or transactions which shall be treated neither as a supply of goods nor a supply of services and actionable claims other than lottery, betting and gambling are included in the said Schedule. Thus, only actionable claims in respect of lottery, betting and gambling would be taxable under GST. Further, where sale, transfer or assignment of debts falls within the purview of actionable claims, the same would not be subject to GST Further, any charges collected in the course of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration for supply of services

FAQ’s on Financial Sector:

QUES.  Is the condition to make payment for the value of supply plus the GST thereon required to be complied with by the recipient to claim the input tax credit where supplies for services are made between distinct persons?

ANS.  No, this condition is not required to be complied with by the recipient. As per the proviso to sub rule (1) of Rule 37 of the CGST Rules, 2017 the value of supplies made without consideration as specified in paragraph 2 of Schedule I of the CGST Act, 2017 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017.

QUES. Whether a Bank / insurer is required to charge GST on the taxable services provided to United Nations or a specified international organization or, services provided for official use of a foreign diplomatic mission or consular post in India or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein?

ANS. Yes, the bank / insurer is required to charge GST in such cases. However, as per section 55 of the CGST Act, 2017, subject to such conditions and restrictions as may be prescribed, such service recipients would be entitled to claim a refund of taxes paid on the notified supplies of services received by them.

QUES. What is the nature of income / expenditure on Collateralized Borrowing and Lending Obligations (CBLO) transactions?

ANS.. In CBLO transaction, the borrowing bank pays an amount as consideration to the lending bank for funds provided by it for a short term. Such amount would qualify as ‘consideration represented by way of interest or discount’ and hence, would not be subject to GST [serial no. 27 of the table of notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended]. However, if any charges or fees are levied for such transactions, the same would be a consideration and would be chargeable to GST.

Other Updates:

• April-Jan fiscal deficit at 121.5% of full-year target.
• SBI calls lenders’ meeting with Naresh Goyal, Etihad.
• India delays levying retaliatory tariff on U.S. goods.
• Trai to decide rules for internet calling firms soon.
• JM files insolvency case against Hotel Leelaventure.
• True north buys 51% stake in Max Bupa from Max India.
• After tough times, future is bright for telcos.
• RBI removes Allahabad Bank, Corp Bank, Dhanlaxmi from PCA framework.
• ED attaches Nirav Modi’s properties worth Rs 147 crore in PNB fraud case.
• Adani Group emerges highest bidder for Guwahati airport.
• NBFC crisis: $22 billion already gone, but more dark days likely ahead.
• IOC, HPCL win maximum areas under tenth round of city gas bidding.
• ArcelorMittal sees major capex risk in Essar Steel acquisition.
• India’s growth momentum slowed down in late 2018.
• Global, national AAA ratings are not comparable.
• Govt eases import norms for prototype devices.
• Mustard crop seen up 19% on higher yield.
• BHEL’s claims: NCLAT dismisses Monnet Power’s petition.
• E-wallet companies welcome extension in KYC deadline.
• Future Group’s too many diversifications were a mistake.
• Airtel won’t buy 5G spectrum at current prices, says Sunil Mittal.
• Copper slips from 8-month high, dwindling stockpiles limit losses.
• Vedanta sells down Sterlite copper concentrate stockpiles.
• Rating action DHFL’s debt downgraded by Icra.
• Finance ministry asks PSBs to submit asset sale details to ARCs.
• Northeast gas grid project likely to get Rs 5k crore from Centre.
• Jaypee Infra creditors vote against another forensic audit demand.
• Prabhu for extending interest subsidy to more products from chemical sector.
• India, Italy discuss ways to promote trade, investments.
• Kotak Mahindra Bank raises foreign investment limit.
• Sensex ends 240 points lower on rising India-Pak tension.
• Iran buys Indian raw sugar for the first time in five-years

Key Due Dates:

• The due date of TDS Return for the month of January 2019 is 28th February 2019.
• E-Payment of Pf for December is 15th January 2019
• ISD return for the month of December is 13/01/2019.
• Payment of TDS for purchase of property for December is 30th January 2019.
• Quarterly Return for registered person for aggregate turnover 1.5 crore is 31^st January 2019.