Amendments to the Central Goods and Services Tax Act, under the Finance bill, 2019

Finance Minister Nirmala Sitharaman in her maiden Budget speech has sought to implement the amendments made by the GST Council under the Finance Bill, 2019. Here are all the major updates, along with our take on how this affects GST-registered taxpayers:

1. Section 10: Composition schemeA new sub-section has been introduced to bring in an alike Composition scheme for service providers, as well as suppliers of both goods and services (mixed suppliers), having an annual turnover of up to INR 50 lakhs in the preceding financial year. Below mentioned are some further explanations which are added to the section –

• Value of exempt supplies of services provided by way of extending deposits, loans or advances, with interest or discount as the consideration shall not be considered as part of the aggregate turnover, for determining eligibility into the scheme.
• Value of exempt supplies of services provided by way of extending deposits, loans or advances, with interest or discount as the consideration shall not be considered as part of the aggregate turnover, to determine the value of turnover in a particular State or Union Territory.

In addition, any supplies made from April 1, 2019 of the year till the date the taxpayer becomes liable for registration shall not be taken into account.

As committed by the GST council, the amendment brings into effect the composition scheme for all the mixed suppliers clarifying that services which include extending deposits etc. shall not be part of aggregate turnover.

1. Section 22 : Persons liable for registrationThe threshold limit for registration under GST is increased from INR 20 lakhs to INR 40 lakhs for a supplier of goods only. Only the suppliers of goods whose turnover exceeds INR 40 lakhs will now come under the purview of GST registration. The amendment is beneficial especially for small and medium taxpayers who need not to get themselves registered under GST unless their turnover exceeds INR 40 lakhs. This is applicable only to those who are exclusive suppliers of goods.
2. Section 25: Procedure for RegistrationThis is a new sub section introduced to mandate authentication using Aadhaar number for every registered person under GST. This section also prescribes the manner in which Aadhaar authentication needs to be done. In case a person fails to undergo Aadhaar authentication, then his registration would be deemed invalid. The mandatory disclosure of the Aadhaar number, first under the Income Tax Act, and now under the Central Goods and Services Act, shows the importance the Government has now placed on the Aadhaar Card. The government plans to administer both direct and indirect taxes via Aadhaar while PAN may continue to be in use for routine compliances.
3. Section 31A: Mode of PaymentThis will be a new section inserted in the CGST Act which will mandate certain registered suppliers to give their recipients the option of prescribed modes of electronic payment.
4. Section 39 : Section 39: Furnishing of returnsThis section has been amended to introduce an option for specified taxpayers to furnish their returns on a quarterly basis instead of monthly. Taxes will need to be paid monthly. The sub-section prescribes the time limit for Composition taxpayers to file their returns, which as per the Act, formerly need to have been filed every quarter. The Government has now introduced the annual filing of returns for Composition taxpayer, however, the tax will still need to be paid on a quarterly basis.
5. Section 49: Payment of tax, interest, penalty and other amountsTo remove inconveniences for taxpayers, a new sub-section has been added to facilitate the transfer of amounts paid under tax, interest, penalty, fee or any other amount that is available in the electronic cash ledger to the correct head under integrated tax, central tax, State tax, Union territory tax or cess in the electronic cash ledger, as applicable. This tax could not be utilized and would need to be paid again under the correct head. The introduction of this sub-section means that henceforth, all taxes that are incorrectly paid under the wrong heads of tax can now be simply transferred to the correct head.
6. Section 50: Interest on delayed payment of taxThis section has been amended to levy interest on unpaid taxes only to the extent of that portion paid in cash i.e. through the electronic cash ledger. This benefit will not extend to those cases where proceedings have been initiated under Section 73 and Section 74, i.e if there is a pending investigation and tax is due, interest shall have to be paid on the gross tax liability.

In conclusion, these amendments will help Indian government to move towards a cashless economy preventing the evasion of taxes. This will greatly reduce the cost and burden of compliance to these small businesses which had to file as many as 24 monthly returns in the past. Several other measures related to the back end infrastructure for registration and reporting of GST, administrative officials related to GST, etc. will also have to be put in place, before GST can be rolled out.

New company registration in India

The Taxation Laws (Amendment) Ordinance, 2019

The Taxation Laws (Amendment) Ordinance, 2019 was promulgated on September 20, 2019. The Ordinance amends the Income Tax Act, 1961, and the Finance (No. 2) Act, 2019. The Ordinance provides domestic companies with an option to opt for lower tax rates, provided they do not claim certain deductions.  It also amends certain provisions regarding levy of surcharge on income from capital gains.

Corporate tax rate reduced to 22 percent for all Domestic CompaniesThe Ordinance has inserted a new section – section 115BAA in the IT Act. As per this section, from the fiscal year 2019-20, all domestic companies shall have an option to be taxed at the rate of 22 % (plus applicable surcharge and cess), provided such companies do not avail specified exemptions/ incentives. Surcharge at the rate 10 percent shall be levied. Accordingly, the effective tax rate for Companies opting to pay tax under section 115BAA of the IT Act shall be 25.168 %. The ordinance further provides that domestic companies availing such reduced rate will not be required to pay Minimum Alternate Tax (MAT) under section 115JB of the IT Act, currently levied at 18.5% of book profits. The Ordinance further clarifies that companies, who do not wish to avail this concessional rate immediately, can opt for the same after expiry of their exemptions / incentives. However, once a company opts to be governed by section 115BAA of the IT Act, it cannot be subsequently withdrawn.

Income tax rate for new domestic manufacturing companiesThe Ordinance provides new domestic manufacturing companies with an option to pay income tax at the rate of 15%, provided they do not claim certain deductions under the Act.  New manufacturing companies include companies which will be set up and registered after September 30, 2019, and will start manufacturing before April 1, 2023. These will not include companies formed by splitting up or reconstruction of an existing business, engaged in any business other than manufacturing, and using any plant or machinery previously used in India (except under certain specified conditions).

Applicability of new tax ratesCompanies can choose to opt for the new tax rate (15% or 22%, whichever is applicable) starting the financial year 2019-20 (i.e. assessment year 2020-21).  Once a company has exercised this option, the chosen provision will apply for all the subsequent years.

Surcharge on tax payable at new ratesCurrently, domestic companies with income between one crore rupees and INR 10 crore are required to pay a 7% surcharge on tax.  Those with an income of more than INR 10 crore are required to pay a 12% surcharge on tax. The Ordinance provides that companies opting for the new tax rates (15% or 22%, whichever is applicable) are required to pay a 10% surcharge on the tax payable by them under the respective provisions.

MAT reduced to 15 percentCompanies opting for reduced rate under section 115BAA or section 115BAB of the IT Act shall be exempted from MAT. For companies not opting for reduced corporate tax rate, MAT under section 115JB is reduced to 15 % from fiscal year 2019-20.

Transfer pricing provisions to apply to Manufacturing Companies opting for reduced tax rateThe definition of the Specified Domestic Transaction (SDT) contained in Section 92BA of the IT Act is amended to bring the Companies opting to be covered by section 115BAB within the ambit of Transfer Pricing. Thus, any transactions entered into by newly set up manufacturing company, opting for reduced rate of 15%, with any of its related parties (domestic or otherwise) are to be at Arm’s Length. This amendment shall be effective from fiscal year 2019-20.

Tax on buy-back of sharesBuy-back of shares refers to a company purchasing its own shares.  When such purchase generates income for the company (because of an increased share price in comparison to the original issue price), the company is required to pay 20% tax on the income so generated.  The Ordinance exempts certain listed companies from this requirement. These are companies which made a public announcement regarding buy-back of shares before July 5, 2019 (as per the provisions of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018).

Surcharge on capital gainsTax and surcharge are levied on capital gains arising from transfer of securities in certain cases.  These include:

1. capital gains to foreign institutional investors from securities (other than the units purchased in foreign currency), and
2. capital gains to individuals, body of individuals, and association of persons from certain short-term and long-term securities liable to securities transaction tax (i.e. equity shares in companies and units of equity oriented funds and business trusts).

Across globe, corporate tax rates are declining. With this tax rate reduction, India has tried to bring its tax rate in line with other countries and has given level playing field to the domestic companies. The lower tax rate of 15 percent to domestic manufacturing companies will further strengthen the Government’s “Make in India” vision.


TAXATION SERVICES | COMPANY FORMATION

Tax Audit Report (Form 3CD)

In order to get the various amendments made to Income-tax Act, 1961 and other laws (indirect taxes) within the format of tax audit report (TAR), the Central Board of Direct Taxes (CBDT) issued notification No. 33/2018  on 20 July 2018 amending the report format of tax audit. These amendments to TAR will come in force from 20 August 2018, which implies that the tax audits filed with the Income-tax on or after 20 August 2018 will have to be in the amended TAR. The point wise changes have been discussed in the ensuing paragraphs:

1. Clause no. 4 of Form 3CD – Registration details of indirect taxesDetails regarding the registration number of Goods & Service Tax (GST) have been added.

2. Clause no. 19 and 24 of Form 3CD – Deduction for investment in new plant or machineryDisclosure with regard to section 32AD has been added in these clauses to Form 3CD. This section allows deduction in respect of investment made in new plant or machinery in notified backward areas.

3. Clause no. 26 – Section 43B Certain deductions on actual payment basisClause f of section 43B has been added for reporting under this clause which pertains to allowing of liability outstanding towards Indian Railways for use of their assets, on actual payment basis.

4. Serial no 29A – New clause introduced for section 56(2) (ix) of the ActThis section was introduced in Finance Act 2014 primarily to tax the advance amounts initially received against the capital asset in the course of negotiation and later forfeited and no transfer effected. Reporting under this section has been got under the TAR

5. Serial no. 29B – New clause introduced for section 56(2) (x)of the ActThis section of the Act widened the scope of taxability of any sum of money, immovable property or any other property received by one person from another person for no consideration or inadequate consideration.

6. Serial no. 30A – New clause introduced for section 92CE of the Act (‘Secondary adjustment’)Section 92CE was introduced by the Finance Act, 2017 which brought in the concept of secondary adjustment in the Act. According to this section, where there has been any primary transfer pricing adjustments made in the case of an assesse, under various circumstances, the assesse is required to make a secondary adjustment.

7. Serial no. 30B – New clause introduced for section 94B of the Act (‘Thin Capitalization’)Section 94B was introduced in Finance Act 2017 to limit the interest deduction in certain cases and to bring in the concept of Thin Capitalization. It is a situation where an entity is financed at a relatively high level of debt compared to equity. Some multinational companies engage in aggressive tax planning techniques such as placing higher levels of third party debt in high tax countries, using intragroup loans to generate interest deductions in excess of their actual third party interest expense, using third party or intragroup financing to fund the generation of tax exempt income. Certain relaxations are also provided under this section

8. Serial no. 30C – New clause introduced for section 96 of the Act (‘GAAR’)Section 96 (impermissible avoidance agreement) falls under the Chapter X-A (General Anti Avoidance Rule). This section was inserted to curb such arrangements where an agreement creates such rights between the parties to the agreement, by misuse of the provisions of the Act, which would not have been created in normal course between parties dealing at arm’s length. Under this clause, where the tax auditor is of the view that a particular arrangement falls under this provisions of the act then they are supposed to state the nature of such arrangement and the tax benefit created in the previous year to all parties in aggregate. Reporting under clause 30C has been deferred till 31^st March 2020 vide circular no. 9/2019 dated 14^th May 2019.

9. Serial no. 31 – Clause (ba), (bb), (bc) and (bd) introduced after clause (b) to serial no. 31 of TAR pertaining to section 269ST of the ActPursuant to introduction of section 269ST by Finance Act 2017, the TAR has been amended to include disclosure under this provision whereby there is a restriction on receiving by any person of an amount exceeding INR two lakh in aggregate from a person in a day; or in respect of a single transaction; or in respect of one event otherwise than by account payee cheque or account payee bank draft or use of electronic clearing system (ECS). Where this section of the act is applicable only to the recipient, the disclosure requirements even mandate the payer to make the relevant disclosures along with the name, address and PAN of the party involved.

10. Amendments have been made to the language of clause 31 (c), (d) and (e) of the TAR with regard to the provision of section 269T of the Act

11. Serial no. 34 – Clause (b) Details of eTDS returnsEarlier this provision required only reporting of the fact as to whether the eTDS statement submitted contains all details/ transactions (Yes/ No). Now with the amendment to this clause, the TAR requires reporting of such details/ transactions which have not been reported in the eTDS return. This will be a task for the assesse with huge volumes of transactions which will require reporting of all such entries.

12. Serial no. 36A – New clause for details regarding deemed dividend u/s 2(22) (e) of the ActUnder the provisions of this section where any company, in which public are not substantially interested, makes any payment by way of loan or advance, to any person who holds not less than 10 percent voting power or to any other person in which such shareholder has substantial interest, then such payment to the extent of accumulated profits, will be treated as deemed dividend.

13. Serial no. 42 – New clause for details regards Form no. 61, 61A and 61BThis requires reporting of details of submission and due date of the respective forms with the income-tax. It also requires the auditor to ensure if all the required details have been submitted and if not, then the unreported details/ transactions are required to be reported in Form 3CD. The details required to be submitted in respective forms have been given hereunder:

• Form 61 – this form requires details of all Form 60 to be submitted. Where transactions specified under Rule 114B of the Income-tax Rules, 1962 (‘the Rules’) have been undertaken by the assesse and document with that regard has been collected by the assesse without the PAN of the person giving the document, then the assesse is required to collect declaration in Form 60.
• Form 61A – Statement of specified financial transactions as given in Rule 114E of the Rules which mandates reporting of certain financial transactions undertaken during a particular financial year, before due date (31 May).
• Form 61B – Statement of reportable accounts in accordance with FATCA and CRS for a calendar year.

14. Serial no. 43 – New clause with regard to Country by Country Reporting (CbCR) u/s 286 of the ActSection 286 r.w.r 10DB specifies the Companies liable to comply with CbCR requirements. Entities to which CbCR is applicable need to comply with reporting requirements of Form 3CEAC and 3CEAD, wherever applicable. The details of parent entity, alternate reporting entity and date of furnishing of these reports are to be mentioned under this clause of TAR.

15. Serial no. 44 – New clause of expenditure with respect to registered / unregistered entities under GSTThis clause requires breakdown of entire expenditure debited to Profit & Loss a /c into the following heads:

• Relating to goods or services exempt under GST
• Relating to entities falling under composition scheme
• Relating to other registered entities
• Relating to entities not registered under GST
  Reporting under clause 44 has been deferred till 31^st March 2020 vide circular no. 9/2019 dated 14^th May 2019.

If you are looking forward for more updates about tax amendment or require assistance in filing of tax returns, tax assessments and tax audits, our team of experts can assist you in complying with the tax regime.