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.

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Special Economic Zones (Amendment) Bill, 2019

The Special Economic Zones (Amendment) Bill, 2019 was introduced in Lok Sabha by Mr. Piyush Goyal, Minister of Commerce and Industry on June 24, 2019. It was first legislation to be passed by newly- constituted 17^th Lok Sabha. It amends the Special Economic Zones Act, 2005 and replaces an Ordinance that was promulgated on March 2, 2019.  The Act provides for the establishment, development and management of Special Economic Zones for the promotion of exports.

Salient features of the Bill
The SEZ (Amendment) Bill 2019 replaced an ordinance of March 2019, which amended the SEZ Act of 2005 to add two new categories – “trusts or any entity, as may be notified by the Central Government” – among those eligible for setting up units in the notified SEZs. Under the Act, the definition of a person includes an individual, a Hindu undivided family, a company, a co-operative society, a firm, or an association of persons.  The Bill adds two more categories to this definition by including a trust, or any other entity which may be notified by the central government. Below mentioned are the salient features of the Bill:

1. Boost to investment and employment generation

The government had already received eight applications from trusts from reputed companies proposing a total investment potential of INR 8,000 crore. The natures of these trusts or the kind of economic activities they are involved in are not clear yet. Though the opposition was skeptical about the usefulness of the amendment, the SEZs had generated 20 lakh jobs, brought investments worth INR 5 lakh crore, with exports worth INR 7 lakh crore by the end of March 2019.

2. Legroom for a wide range of trusts

The Bill opens up the possibility for all types of trusts to operate from the SEZs – public charitable trusts, private trusts run by big and small corporate houses, business trusts like real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), private companies with their own PF trusts and port trusts run by the government. These trusts run a wide range of activities ranging from health, education, skilling and other livelihood generation activities to manufacturing and financing.

3. Utilization of vacant land and non-operational SEZs

The amendment would also facilitate the use of the SEZ land lying vacant. According to the Ministry of Commerce and Industry, 40 % of the notified SEZs are non-operational and more than 50 % of land notified for the SEZ use is lying vacant.

By allowing trusts to set up units in the SEZs, the unused land could be put to productive use now.

The SEZs have contributed significantly to the economy. SEZs are major export hubs in the country as the government provides several incentives and single-window clearance system. The developers and units of these zones enjoy certain fiscal and non-fiscal incentives such as no license requirement for import; full freedom for subcontracting; and no routine examination by customs authorities of export/import cargo. They also enjoy direct and indirect tax benefits.

If you are looking for assistance to setting up a SEZ unit in India as per your business requirements and wish to gather more information about compliances associated with it to refine your business strategies, our team of experts can assist you throughout the process.

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The Companies (Second Amendment) Ordinance, 2019

The Companies (Second Amendment) Ordinance, 2019 was introduced as a replacement of the 2018 Ordinance. It has been formed on the basis of the recommendations of the Committee so as to fill crucial gaps in the corporate governance and compliance framework as enshrined in the Companies Act while extending greater Ease of Doing Business to law-abiding corporates. Prior to its promulgation on February 21, 2019, two similar ordinances were enacted. This particular Ordinance with added provisions is considered to be effective from the date of release of the first Ordinance, i.e. November 2, 2018.

Key features
Below mentioned are the key features for the Companies Ordinance, 2019

1. Re-categorization of certain offencesThe 2013 Act contains 81 compoundable offences punishable with fine or fine or imprisonment, or both. These offences are heard by courts. The Ordinance re-categorizes 16 of these offences as civil defaults, where adjudicating officers (appointed by the central government) may now levy penalties. These offences include issuance of shares at a discount and failure to file annual return.

2. Commencement of businessThe Ordinance states that a company may not commence business, unless it files a declaration within 180 days of incorporation, confirming that every subscriber to the Memorandum of the company has paid the value of shares agreed to be taken by him, and files a verification of its registered office address with the Registrar of Companies within 30 days of incorporation.  If a company fails to comply with these provisions and is found not to be carrying out any business, the name of the Company may be removed from the Register of Companies.

3. Registration of chargesThe Act requires companies to register charges (such as mortgages) on their property within 30 days of creation of charge. The Registrar may permit the registration within 300 days of creation.  If the registration is not completed within 300 days, the company is required to seek extension of time from the central government.

4. Issue of shares at a discountThe Act prohibits a company from issuing shares at a discount, except in certain cases.  On failure to comply, the company is liable to pay a fine between INR 1 Lakh and INR 5 Lakh every officer in default may be punished with imprisonment up to 6 months or fine between INR 1 Lakh and INR 5 Lakh. The Ordinance changes this to remove imprisonment for officers as a punishment. Further, the company and every officer in default will be liable to pay a penalty equal to the amount raised by the issue of shares at a discount or INR 5 Lakh, whichever is lower. The company will also be liable to refund the money received with interest at 12% per annum from the date of issue of the shares.

5. Change in approving authorityUnder the Act, change in period of financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal.  Similarly, any alteration in the incorporation document of a public company which has the effect of converting it to a private company has to be approved by the Tribunal.  Under the Ordinance, these powers have been transferred to central government.

6. Declaration of beneficial ownershipIf a person holds beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest. Under the Act, failure to declare this interest is punishable with a fine between INR 1 Lakh and INR 10 Lakh, along with a continuing fine for every day of default. The Ordinance provides that such person may either be fined, or imprisoned for up to one year, or both.

7. CompoundingUnder the Act, a regional director can compound offences with a penalty of up to five lakh rupees.  The Ordinance increases this ceiling to INR 25 lakh.

The Ordinance changes this to permit registration of charges within 300 days if the charge is created before the Ordinance or within 60 days if the charge is created after the Ordinance. If the charge under the first category is not registered within 300 days, it must be completed within six months from the date of the Ordinance.  If the charge under the second category is not registered within 60 days, the registrar may grant another 60 days for registration.

If you have any questions or would like to discuss more about the company amendment bills, our experts can ensure right business insights and best practices for you.

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