Fibota Residential Status of Company/ Firm / AOP

Residential Status of Company – Part 1

Residential status of a Company – (Part-1)

Introduction : In our previous article we have covered residential status for individual; in this article we will cover provisions relating to residential status of corporate entity. It is important to know that how residential status for corporate entity can be determine, is there any special provision which is required to be taken care while determining residential status of corporate entity.

How residential status can be determined?

It has been determined that company would be resident in India in any previous year, if-

(i) it is an Indian company; or

(ii) its place of effective management, in that year, is in India.

Other question that arises is what is place of effective management; it has been defined that place of effective management means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity are undertaken substantially.

What are the guiding principles for determination of Place of Effective management (‘POEM’) of a Company, other than an Indian company?

Before moving with guiding principle, it shall be noted that; there can be more than one place of management, but it can have only one place of effective management at any point of time.

Primary base to determine Place of Effective Management is that whether the company is engaged in active business outside India?

For determining the said following points are worth noting; A company shall be said to be engaged in ‘active business outside India’ if it is fulfilling all the conditions mentioned below:

If passive income is not more than 50% of its total income, i.e., if Income aggregating from the transactions where both the purchase and sale of goods is from/to its associated enterprises; and income by way of royalty, dividend, capital gains, interest (this is point not applicable to banking and financial institute), or rental income; is not more than 50% of Income computed for tax purpose in accordance with the laws of the country of incorporation and as per as per books of account, where the laws of the country of incorporation does not require such a computation.

Illustrations: AB Ltd has sold good to its associated enterprise, the amount of Rs. 20,00,000/- from the said transaction; along with this it has sold goods worth Rs. 70,00,000/- to external parties. Apart from this it has other income (including rent, royalty and interest) worth Rs. 30,00,000/-. Whether the first condition is said to be fulfilled? In the incorporation of country of AB Ltd it is mandatory to have computation of Income and income as per said computation is Rs. 1,40,00,000/-.

It has been stated that first condition will be fulfilled if passive income is not more than 50% of its total income; passive income means Income aggregating from the transactions where both the purchase and sale of goods is from/to its associated enterprises; and income by way of royalty, dividend, capital gains, interest (this is point not applicable to banking and financial institute), or rental income. Here total passive income is Rs. 50,00,000/- and as they are liable to maintain computation of Income, total income will be Rs. 1,40,00,000/- and passive income is less than 50% of total income therefore first test is passed by AB Ltd.

What if they are not liable to maintain computation of Income as per law of country in which it was incorporated?

In said case total income will be Rs. 1,20,00,000/- and passive income is Rs. 50,00,000/- which is not exceeding 50% of total income therefore again first test will be passed by AB Ltd.

Second condition that is required to be fulfilled is; Less than 50% of its total asset are situated in India; i.e., for the purpose of determination of total value of asset:

Value of assets Assets being individually depreciable. The average of its value for tax purposes in the country of incorporation of the company at the beginning and at end of the previous year.
Assets being pool of fixed assets being treated as block of assets for depreciation. The average of its value for tax purposes in the country of incorporation of the company at the beginning and at end of the year.
For other assets (Non-depreciable asse Value as per Books of Accounts

Illustrations: AB Ltd has Machine which is not following under any block of asset Rs. 20,00,000/- the value at the end of year is Rs. 14,00,000/-; some of the assets which are following under block of assets for depreciation. Value of such assets as per books of account is 35,00,000/- aggregately and value of block as per law prevailing in that country is 30,00,000. There is land which is situated in India and the value of such land recognized in books of accounts is Rs. 20,00,000/-.

Whether the second condition is said to be fulfilled?

It has been stated that second condition will be fulfilled when less than 50% of its total asset are situated in India. The valuation of assets is to be done as per the table given above; and therefore, value of machinery will Rs. 17,00,000/- and value of assets which are depreciated under block of assets will be Rs. 15,00,00/- (Here book value will not be considered as per rules). While considering value of land, book value will be considered and book value for the said purpose will be Rs. 20,00,000/-Total value of asset is 42,00,000/- and out of which assets situated in India is 20,00,000/- which is not less than 50%, therefore it will fulfil the second condition.

In this part we have discussed the first two condition which are required to be fulfilled in case assessee wants to establish that it has Active Business Outside India. In next part we will cover the remaining two conditions along with relevant illustrations.

Fibota Residential Status of Company : Latest News in Vadodara, Gujarat

Residential Status of Company – Part 2

Residential status of a Company – (Part 2)

Introduction : In our previous article we have covered residential status for individual; in this article we will cover provisions relating to residential status of corporate entity. It is important to know that how residential status for corporate entity can be determine, is there any special provision which is required to be taken care while determining residential status of corporate entity.

In our previous part we have discussed what the two conditions that are required to be fulfilled for determining that assessee has Active Business Outside India, in this part we will discuss which are the remaining conditions that are required to be fulfilled for determining it.

If less than 50% of total number of employees are situated in India or resident in India.

Illustrations: AB Ltd has total 39 employees on roll, as it has business operation spread over India; it’s 26 employees are been deployed in different country. However out of said 26 employees 3 of them are resident in India.

Whether AB Ltd. if fulfilling the required condition?

It has been stated that if less than 50% of total number of employees are situated in India or resident in India than only it will be treated that condition stated for determining that assessee has active business outside India will be fulfilled. In the given case 26 employees are been deployed outside India and of which 3 employees are resident in India, therefore aggregate employees which are situated in India or which are resident in India is 16 which is less than 50% of total employees and accordingly condition stated above is fulfilled.

The fourth condition is that is required to be fulfilled is payroll expense of above employees (i.e., either situated in India or which are resident in India) is less than 50% of its total payroll expenditure.

In reference to this condition, it is important to know that will be considered for calculating payroll expenditure; it has been clarified that for determining payroll expenditure salaries, wages, bonus, and all other employee compensation including related pension and social costs borne by the employer will be considered.

Illustration: During the year entity has incurred total payroll expense of Rs. 2 Crore, out of which Rs. 70 Lahks has been incurred on employees deployed in India and Rs. 20 Lahks has been incurred on employees which are situated outside India but which are resident in India. Whether entity has fulfilled the fourth condition?

For determination of Active Business outside India it is important that assessee fulfils all the conditions cumulatively. Forth condition which has been specified for determination of place of business outside India is less than 50% of its payroll expenditure is incurred on employees which are resident in India or which are been deployed in India for working. In the given case total expenditure is Rs. 2 Crores and out of which only 90 Lahks has been incurred on employees which are either deployed in India or which are resident in India as the said expenditure is less than 50% of total payroll expenditure; It will be treated as if assessee has fulfilled the fourth condition.

Most Important point that any entity shall note is that all the conditions are cumulative, i.e., even if one condition is breached assessee will fail to establish that it has Active Business outside India.

In case all the four conditions are satisfied and if majority of the board meeting are held outside India; then it will be considered that assessee has Place of effective management outside India.

But in said case also there is exception to general rule, that if Board is not exercising its powers of management and such powers are being exercised by either the holding company or any other person, resident in India, then again Place of effective management will be considered to be in India.

Whether location of head office is considered for determination place of effective management?

Location of head office is important factor for determination of place of effective management. For determining where head office is situated following factors are to be considered:

If senior management of entity is located in single location and the said place is shown to public as company’s principal place of business than in said case that place will be treated as head office of entity.

If in case where management is decentralised or where it is located in scattered manner than in such case; the place where they meet when formulating or deciding key strategies and policies for the company as a whole or place where they are primarily based will be treated as head office of entity.

Fibota Income Deemed to accrue or arise in India

Section – 9 (Income Deemed to accrue or arise in India)

Income Deemed to accrue or arise in India – Section 9 (Part 1)

Introduction : Under Income tax it there are two virtues by which income is taxed in India; i.e., either such Income has accrued in India or such Income has been received in India. However, under said act there is provision which is dealing with Incomes that are deemed to accrue or arise in India. Deeming provision is provision where even when transaction is not covered under original provision but by putting deeming provision it is covered will be covered under original provision and will be treated accordingly. In this article we will discuss provision relating to Income deemed to accrue or arise in India.

Whether Section 9 of Income Tax Act, 1961; is applicable to every person?

It shall be noted that section 9 of Income Tax Act, 1961 is applicable to every person whether such person is resident or non-resident.

Section 9(1) Clause (i)

Income accruing or arising outside India, directly or indirectly through or from any business connection in India then said Income will be deemed to accrue or arise in India. For understanding this clause, it is important to understand that what is business connection in India.

The definition of business connection has been determined in Inclusive manner and therefore any business activity carried out through a person acting on behalf of the non-resident will deemed to be treated as business connection in India.

It shall be noted that there is difference between business connection in India and business connection with India. Simply, if transacting party is India it does not mean that there will be business connection in India.

For establishing business connection in India, the following conditions must be satisfied by the person who is acting on behalf of non-resident

Illustration: Mr. D is working as agent of Mr. H who is non-resident. Mr. D secures order in India for the products sold by Mr. H, also he is working as agent of some of the local vendors for whom he secures order. Whether Mr. H will have business connection in India.

It has been stated that if any non-resident has an agent in India who habitually procures order on behalf of said non-resident than it will be treated as if it has business connection in India. In the given case as Mr. D is working as agent for Mr. H and he procures order on behalf of Mr. H; it will be treated as business connection in India and income arising from such transaction will be Income deemed to accrue or arise in India.

What if Mr. D is not working as agent neither he has authority to conclude contracts on behalf of Mr. H; but he ensures maintenance and delivery of stock as an when needed?

In such case also, it will be treated as business connection in India and income arising from such transaction will be Income deemed to accrue or arise in India as it has been stated that even though he is not working as agent and do not have authority to conclude contract on behalf of Mr. H but if he is maintaining stock and ensure delivery of such stock as an when needed on behalf of such non-resident, he will attract the deeming provisions.

What if Mr. D is procuring order for another person Mr. B who is also non-resident. Mr. B is controlled by Mr. H. Whether the transaction will fall under above provision?

It has been clarified that in case where one person is non-resident on whose behalf order is obtained and he is controlled by another non-resident person or he is controlling another non-resident person or both the said person are controlled by third person; than in that case business connection will be established.

Coming to above illustration if Mr. H is controlling Mr. B or Mr. B is controlling Mr. H or Mr. H and Mr. B both are controlled by some common person, and any agent is procuring order on behalf of Mr. B than in that case it will be deemed to be treated as if it has a business connection in India. Therefore, order procured by Mr. D on behalf of Mr. B will be covered under section 9(1) clause (i) of Income Tax Act, 1961.

What if agent if operating Independently?

There is specific clarification in this regard that business connection will not be established in case where any non-resident assessee is carrying its business through broker, general commission agent or any other agent having an independent status, and if such a person is acting in the ordinary course of his business.

For establishing his independence, it is necessary that he does not work mainly or wholly for the said non-resident. Even if he is working for more than one non-resident but he is working for non-resident who is controlled by common person or where one is controlled by other.

What if business connection is established? Whether total income of such person will be taxed in India?

If business connection is being established than in that case only income which is attributable to transaction which has business connection in India; will be taxed in India.

Which are the cases where even whole of operations is not carried out in India but still it will be treated as Income deemed to accrue or arise in India?

  • Income from advertisement, targeting customers residing in India or accessing which are accessing advertisement through IP address located in India
  • Income from sale of data collected from persons residing in India or who are using IP address located in India.
  • Income from sale of goods and services using data collected from persons residing in India or who is using IP address located in India.

In this part we have analyses one point which has been given under section 9(1) clause (i) of Income Tax Act, 1961. In next part we will discuss on other transaction covered under Section 9.

Fibota GST on Restaurant Services

GST on Restaurant Services

GST on Restaurant Services

Introduction : Since inception GST is been prone to changes and therefore, it is important to understand what will be GST implication on restaurant service and what are the compliance that an shall be followed by entity falling under such category. In this article we will all the provisions, notification relevant for restaurant service.

What is the threshold limit for registration for entity operating as Restaurant?

 If entity is operating as restaurant than the supply made by them will be treated as supply of service, any entity which is operating as service entity will be required to register if turnover exceeds Rs 20 lakh and Rs 10 Lakhs in Special category states.

After registration there will be two options with the entity, either they can opt for composition scheme; i.e., allowed only if it is fulfilling the specified conditions. Other option with entity is to register under regular scheme.

*Specified Condition:

What are the benefits if he has opted for Composition Scheme?

If any assessee has opted for composition scheme than in that case he will be required file only one return for the financial year and will be required to file challan-cum-statement on monthly basis. This will reduce compliance burden. Further as assessee cannot avail Input Tax Credit, therefore this reduces burden to maintenance of books of accounts which the person registered under regular scheme will be required to maintain.

What will be the rate of Tax that will be applicable to Restaurants?

Whether person receiving service can avail GST Input tax credit charged by supplier?

It shall be noted that as per section 17(5) of CGST Act, 2017; it has been specified that entity will be blocked with Input Tax Credit in respect of such purchase; unless entity is operating in same line of business.

Exception to this rule is credit will be allowed to entity if it is incurring such expenses due to compulsion imposed by government.

Illustration : D & Company has incurred food expense for his staff worth Rs. 80,000/-. Whether D& Company can avail the GST charged on such expense?

It has been clarified that even though such expense is business expense entity cannot avail Input Tax Credit and such credit will be blocked. If D & Company is entity which is operating in same line of business than it will be eligible to take the credit of same. Also, if D & Company is incurring such expenditure due to restriction imposed by government or compulsion imposed by government than also, it will be eligible to take the credit of such supply.

Whether there is option for standalone restaurant to opt and charge 12% by taking Input Tax Credit?

From provisions and various notifications issued from time to time it has been specified that assessee does not have option to opt between 5% and 12%; it will be mandatory for him to charge 5% and will not be allowed with Input Tax Credit.

Fibota Key Managerial Personnel

Appointment of Key Managerial Personnel

Appointment of Key Managerial Personnel

Introduction : Under companies act, there is specific provision which describes which entities are required to appoint Key Managerial Person and how they are to be appointed. It is important to understand that whether every entity is required to appoint Key Managerial Person, which are the entities that are being exempted, who can act as Key Managerial Person and what are the provisions that are to be complied on recurring basis. In this article we will cover all the relevant points and provisions relating to Key Managerial Person.

Which are the persons that are covered under the term of Key Managerial Person?

The term includes

  1. a) Managing Director b) Chief Executive Officer c) Manager d) Whole-time director e) Company Secretary and f) Chief Financial Officer.

Which are the companies that are required to appoint Whole-time Key Managerial Personnel? Who can act as whole-time Key Managerial Personnel?

(a) Every listed company; and

(b) Every other public company having a paid-up share capital of 10 crore rupees or more.

Shall be required to appoint a Whole time Key Managerial Personnel which may be as follows

(a) Managing Director, or Chief Executive Officer or Manager and in absence of them, a Whole-time Director;

(b) Company Secretary; and

(c) Chief Financial Officer.

Further, every private company to have a whole-time company secretary if it has paid up share capital is 10 crore rupees or more.

Whether individual can be appointed as chairperson as well as Managing Director or Chief Executive Officer at the same time?

It shall be noted that no person shall be appointed as chairperson of company as well as Managing Director or Chief Executive Officer (CEO) of the company at the same time.

Exception to above rule:

(a) the articles of such a company provide otherwise; or

(b) the company is engaged in carry multiple businesses.

i.e., if company is following under above two exception than in that case, they can appoint Individual as Chairperson and CEO at the same time.

How it can be said that company is engaged in multiple businesses?

If company is public company and it has paid-up share capital of 100 crore rupees or more and annual turnover of 1,000crorerupeesor more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business will be treated as company engaged in multiple class of business.

Which resolution is required to be passed for appointment of KMP?

Every whole-time key managerial personnel of a company can be appointed by means of a resolution passed at meeting of Board of Directors.

Whether there are any other restrictions?

It has been specified that Whole-time key managerial personnel shall not hold office in more than one company at the same time except in its subsidiary company.

If any person is Managing Director or Manager in some other company it is permissible for a company to appoint him as its Managing Director.

Illustrations:

Mr. T is Manager in Z Ltd.; he is willing to be appointed as CFO of S Ltd. whether he can be appointed?

It shall be noted that person is allowed to be appointed as Whole-time key managerial personnel in more than one company at the same time except in its subsidiary company. Here S Ltd. is not subsidiary of Z Ltd. and therefore Mr. T is not allowed to be appointed as CFO of S Ltd. otherwise if he wants such appointment than he will be required to resign from his current position in Z Ltd.

What if S Ltd. is subsidiary company?

In case S Ltd. is subsidiary company than Mr. T will be eligible to be appointed as CFO of S Ltd.

What if S Ltd. is holding company?

In case S Ltd. is holding company than; if we carefully interpret the situation Z Ltd. will be treated as subsidiary company and holding position in subsidiary at same time is not prohibited and therefore, Mr. T will be eligible to be appointed as CFO of S Ltd.

Mr. R is managing director of SV Ltd. at the same time he is willing to be appointed as managing director of RV Ltd., Whether Mr. R will be eligible to be appointed?

It has been specified that if Managing Director or Manager in some other company wants to be appointed as Managing Director in another company than he will be allowed to be appointed. Therefore, Mr. R can be appointed as managing director of RV Ltd.

What if Mr. R is will be appointed as CFO of RV Ltd.?

In case if Mr. R is willing to be appointed as CFO of RV Ltd. than in such case he will not be allowed to appointed as CFO unless he resigns from his current position of Managing Director in SV Ltd.

What if RV Ltd is Joint Venture of SV Ltd. and TV Ltd.

It shall be noted that exception is applicable only in case where the company is a subsidiary company, in above case SV Ltd. and TV Ltd. is having RV Ltd. as Joint venture and therefore, Mr. R will not be eligible to be appointed as CFO of RV Ltd.

What if there is vacancy for the place of Key Managerial Personnel?

If the position of any whole-time KMP is vacated, then resulting vacancy shall be filled-up by the Board of Directors at a meeting of the Board of Directors within a period of six months from the date of such vacancy.

What will be the amount of penalty in case of non-compliance?

Default by Quantum of Penalty
Company If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of 5 Lakh rupees.
Director and Key Managerial Personnel Every defaulting director and KMP shall be liable to a penalty of50,000rupees. Further in case of continuing default they will be liable with an additional penalty of1,000rupeesfor each day after the first day during which such default continues, amount of additional penalty shall not exceed Rs. 5 Lahks.
Fibota Accounts to be Maintained Under GST Latest Details

Accounts to be Maintained Under GST

Accounts to be Maintained Under GST

Introduction: Since inception GST is been prone to changes and therefore it is important to understand that, how accounts are to be maintained under GST, where such books of accounts are to be maintained, what will be duration for which accounts are to be maintained. This are some of the question that are needed to be resolved, in this article we will cover all the provisions relating to maintenance of books of accounts under GST.

Who is required to maintain his books of accounts and at which place?

Every registered person will be required to keep and maintain, his books of accounts at his principal place of business including books of account relating to additional place of business.  If in GST registration certificate more than one place is specified than accounts relating to each place of business shall be kept at respective place of business.

Which are the records that assessee will be required to maintain?

Registered person is required to maintain a true and correct account of:

What are the documents that are required to be maintained by agent, where he is supplying goods on behalf of principle?

Every agent will be required to maintain accounts following accounts:

(a) Particulars of authorisation received by him from each principal to receive/supply goods/services on behalf of such principal

(b) Records relating to particulars including description, value and quantity of goods or services received on behalf of every principal;

(c) Records including description, value and quantity of goods or services supplied on behalf of every principal;

(d) Details of accounts furnished to principal; and

(e) Tax paid on receipts/on supply of goods or services effected on behalf of every principal.

For how much time books of accounts are required to be retained by the assessee?

It has been specified that Every registered person required to keep and maintain books of account or other records for 72 months from the due date of furnishing of annual return for the year pertaining to such accounts and records.

Illustration: Mr. R was registered under GST and therefore, he was liable to maintain books of accounts. For financial year 2020-21 due date of furnishing Annual Return is 31st December, 2021. Till how much time he will be required to retained such books of accounts pertaining to that financial year?

It has been provided by the law that every registered person is required to maintain books of accounts and other records till 72 months from due date of furnishing Annual Return. In the above case due date for furnishing annual return is 31st December, 2021; Therefore, assessee will be liable to maintain the books of accounts till 31st December 2027. It is very important to know that counting of 72 months will begin from due date of furnishing the annual return and not from the date of furnishing said return.

What if such appeal\revision is pending before authority or order has been passed for said financial year; than till how much time books of accounts are required to be maintained?

Provision stated for maintenance of books of accounts for cases where such appeal\revision is pending before authority or order has been passed for said financial year; than in that case assessee will be required to retain such books of accounts or a period of one year after final disposal of such appeal or revision or proceedings or investigation, or for the period of 72 months from due date of furnishing annual return, whichever is later.

By virtue of this it is clarified than generally period will be 72 months from due date of furnishing annual return; if in case any proceeding in form of appeal\revision\investigation is pending than in that case he will be required to maintain such account for 1 year from date of completion of such proceeding. In case if 1 year is completed before completion of 72 months from due date of furnishing annual return than in that case it will retain till completion of that period. On other hand it is possible that 72 months from due date of furnishing annual return has been completed, than in that case accounts are required to be retained for 1 year from date of final disposal of such appeal or revision or proceedings or investigation.

What will be penalty in case books or accounts are not maintained by assessee even if the assessee is liable to maintain such books of accounts?

There no specific penalty which has been prescribed for non-maintenance or retention of accounts but general penalty will be levied which will be Rs. 10,000 rupees or the amount of tax involved, whichever is greater. Further if the assessee fails to maintain proper records in respect of supply undertaken by him then the proper officer will treat such unaccounted goods/services as if the taxpayer had supplied them and he will be required to pay tax on them along with interest and penalty for non\delayed payment of taxes.

Fibota Residential Status of Individual As Per Income Tax

Residential Status of Individual As Per Income Tax, 1961

Residential Status of Individual as per Income Tax, 1961

Introduction: For any individual it is important to know whether he will be treated as resident or non-resident, because if he is resident and ordinary resident (RoR) than his global income will be taxable under Income Tax Act. Further if he is Non-resident than he will be taxed only for income accrued or received in India. In some cases, it may happen that person is resident but not ordinary resident, in such case he will be taxed for his Indian income and for foreign income which is accrued or received in India. In this article we will cover all the provisions relating to residential status of Individual as per Income Tax Act, 1961.

Old Provision i.e., for Financial Year 2019-20:

Individual will be Resident if:

New Provision i.e., for Financial Year 2020-21:

According to new provision now

Illustration:

Question 1 : Mr.GD an Indian Citizen stayed in India during relevant financial year for a period of 129 days after that he went U.K. for the purpose of employment. During immediately preceding 4 previous years he has stayed in India for 460days whether Mr.GD is resident in India?

Ans. Before amendment (For F.Y. 2019-2) Mr.GD has not stayed in India for period of 182 days, though he has stayed more than 365 days in preceding 4 previous years he will not be treated as resident. However now has per Finance Act, 2020.  Mr GD. will be treated as resident of India if total income (other than foreign sources*) exceeds Rs 15 lakhs as he has stayed in India for more than 120days during relevant previous year and other condition of 365 days in immediately preceding 4 years is also completed.

*(Income from foreign source means income accurse or arisen outside India except the income derived from a business controlled in or profession set up in India)

Conclusion : Mr GD. will be treated as Resident in F.Y.2020-21 if total income (other than foreign sources*) exceeds Rs 15 lakhs.

Now Question arise what is provision for being RORI i.e., resident and ordinary resident individual, as per Finance Act, 2020; Clause 6 of section 6 of Income Tax Act,1961 is also amended and now according to new section individual will not be treated as ordinary resident if:

  • Non-resident in India in seven out of the ten previous years preceding that year, and
  • During the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.

Therefore, now if individual is to be treated as ROR then he shall be resident as per section 6(1) in relevant previous year and also, he shall be resident in 4 years out of 10 years immediately preceding relevant previous year and stays in India for 730 or more days in immediately preceding 7 years relevant to previous year.

Illustrations:

Question 1: Mr F. an Indian Citizen has stayed in India for 166 days during relevant previous year after that he left for employment to USA. During immediately preceding 7 previous years he has stayed in India for 860 days and in immediately preceding 4 previous years he has stayed in India for 460 days. His income from India amounts to 19 lakhs during this period, and he was Resident in India for 2 years out of immediately 10 previous year preceding relevant previous year.

Whether Mr F. is resident in previous year 2020-2021?

Ans. Here as Mr. F has fulfilling the condition of 6(1) he will be resident (i.e., stays in India for more than 120 days during relevant previous year and stays in India for more than 365 days during preceding 4 previous year also his income from India exceeds the threshold of 15 lakhs. However as per Amendment to clause 6 of section 6 Mr. F is not ordinary resident as he is Non-resident in India in seven out of the ten previous years preceding that year.

Question 2: What if in above example Mr. F is Resident in India for 4 years out of immediately 10 previous year preceding relevant previous year?

Ans. In that case Mr.F will become RORI i.e., resident and ordinary resident Individual.

Further New clause has been inserted in section 6 of Income Tax Act, 1961. From A.Y. 2021-22 i.e., from P.Y.2020-21 clause (1A) has been introduced which determines Not with standing anything contained in clause (1)an Individual will be deemed to treated as resident of India if he is citizen of India, and he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. Further here also condition that total income (other than foreign sources) should exceed Rs 15 lakhs is applicable.

According to this amendment as Clause (1A) is overriding clause (1) and if we take liberal interpretation, Individual not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature will be deemed to be treated as Resident in India irrespective of his stay in India during relevant previous year. This amendment has raised lot many questions that who will be covered and what Income will be taxed; and immediately government has to come of clarification.

Government has clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned out side India by him shall not be taxed in India unless it is derived from an Indian business or profession.

Therefore, now it is clear that in case of deemed resident income which will be taxed is Income which is derived from India. It is important to note the difference between income derived from India and income attributable to India. Expression attributable to India is wider than derived from India.

From the above article it is clear that how provision for residential status is to be interpreted and what can be solution for questions that may arise while implementing the same.

Fibota Question Relating to Adjournment and Video Conferencing

Question Relating to Adjournment and Video Conferencing

Question relating to Adjournment and Video Conferencing under Income Tax Provisions

Introduction: If any assessment is initiated under Income Tax Act, then assessee is required to submit response to assessing office, due to COVID-19 pandemic it was creating difficulty for assessee to physically submit the response or to seek adjournment. Therefore, to overcome this difficulty and to boost the new initiative of faceless assessment, Income tax department has provided online facility for seeking adjournment and option to connect virtually with department, through video conferencing.

Why such facility is been introduced by the department? Whether it can be treated as substitute of written submission?

The facility of connecting virtually has been introduced by department as a substitute for personal appearance/hearing before an Income Tax Authority. Further this will be in addition to written submission, i.e., assessee will be required to furnish written submission also.

Who can avail video conferencing facility?

It shall be noted that, assessee on whose account hyperlink of video conference is enabled against a notice, will only be eligible. Question that may arise is how to check such link appearance, then for that assessee will be required to login to e-filling, then will be required to click on e-Proceeding and will be required to select from pending proceeding link, which will show the link for video conference (If allowed).

How assessee can avail such facility?

To activate such facility assessee will be required to click the link given on the above-mentioned place. After clicking on said link assessee will be required to provide reason, in case if does not have specific reason than he may select “Others” as option. After that text box will appear where assessee will be required to provide reasons in detailfor seeking video conference, and thereafter assessee will be required to provide date on which he desires to attend video conference meeting.

In case if assessee is willing to upload any document in support of his claim than he may upload the same by clicking “choose file”. The document can be uploaded in PDF format and the size of document shall not exceed 5 MB.

One completion of above-mentioned process, assessee will be required to click on submit button.

 

What if video conference date and time is not suitable?

In case if video conference date and time given by department is not suitable than in that case assessee may submit adjournment request and can seek other date and time for such video conference. This can be done by clicking on “Seek VC Adjournment”. The point which is worth noting is the said request is required to be submitted before expiry of video conference date and time. If the said time is expired than, no request for adjournment will be accepted.

How assessee will be able to join the meeting?

If assessee wants to join the meeting, then he will be required to communicate video conference URL (which is communicated by department) to the browser. On opening of site, assessee will be required to enter the user id and password. The user name will be the registered id of taxpayer and the password for the same will be communicated by department.

While attending meeting, assessee shall keep in mind following points, that he will be required to keep identification document like Aadhaar, PAN Card, Passport or any other government issued identification document handy and share as an when required. He will be required to keep softcopy of all the documents on which you want to place reliance during the Videoconference and which may be shared during video conference.

What if video conference failed due to technical issues?

If due to technical issue video conference is not conducted than in that case, department will cancel the existing video conference and will share new date and time for video conferencing and required link for connecting.

Can Authorized Representative also join the VC meeting?

It shall be noted that only assessee can join Video Conference; however, in case were any authorized representative has been appointed through the e-filing account for such proceeding, then both assessee and authorized representative can join.

Can assessee avail the recording of meeting?

Yes, after video conferencing is successfully conducted. Further ‘VC recording’ hyperlink will be displayed, through which assessee can avail the recording of meeting. Further no charge will be paid by assessee for availing such recording, and it shall be made available to assessee within two days of video conference.

Above mentioned questions were relating to video-conferencing facility provided by department. In below mentioned question we will analyze questions that may arise in relation to adjournment.

 

By clicking “Seek Adjournment” which facility is provided to assessee? Who can avail such facility?

If assessee is not able to join the meeting or he is not able to attend the hearing than in that case assessee can avail the facility of seek adjournment, by clicking on it assessee submits request to extend the response due date of a notice issued by an Income Tax authority. Only those taxpayers for whom hyperlink “Seek Adjournment” is enabled against a notice, can avail the facility of adjournment.

Is there any date limit within which adjournment request can be sought?

If assessee wants adjournment and he has decided to get it before response date mentioned in noticed, then he may seek adjournment up to 15 days from response date mentioned in notice. On other hand if adjournment is applied after response date than he may seek adjournment up to 15 days from date of seeking adjournment.

Fibota Audit Committee Requirements

Formation of Audit Committee and Its Requirement

Formation of Audit Committee and its requirement

Introduction: For any company formed under companies act, it is important to know that whether they are required to form audit committee? If yes, who will be the member of said committee, what will be the responsibility of such audit committee? In this article we will cover all the provisions relating to audit committee.

Which are the companies that are required to constitute audit committee?

It has been clarified that paid-up share capital or turnover or outstanding loans, debentures and deposits, as the case may be shall be seen of last date of latest audited financial statements Which are the class of companies that are exempted from forming audit committee?

If any entity is a) a joint venture or b) a wholly owned subsidiary c) a dormant company as defined under section 455 of companies act than in such case the said companies are not exempted from forming audit committee.

What if in current year company cease to fall in applicability criteria?

It has been specified that if any company which was obligated to constitute an Audit Committee, the said company will be require to constitute such audit committee for three years even if company is not fulfilling the criteria for three consecutive years. If we simply understand than even if company fails to qualify all the three limits prescribed above, then also for three years it will be required to constitute audit committee. If after said three years company is not fulfilling the above-mentioned criteria than they will be exempted from constituting Audit Committee.

Illustration: D & Company was having turnover of Rs. 156 Crores in preceding financial year, the aggregate, outstanding loans, debentures and deposits is not exceeding Rs. 50 Crores for said financial year. The paid-up share capital of company is Rs. 1 Crores. Whether the company is required to form audit committee?

If company is fulfilling any of the above-mentioned criteria than company will be required to form audit committee. In the above case as turnover of company is exceeding the specified limit, therefore in said case company will be required to form audit committee.

What if in next year turnover is below Rs. 100 Crores?

It shall be specified under the provision that even if in current year company is not fulfilling the condition but they will be required to constitute audit committee for three year starting from year in which they cease to fall in applicability criteria. If after completion of said three years company is not fulfilling conditions mentioned above, then they will be exempted from constitution of audit committee.

Who will be the part of audit committee?

According to Section 177(2), the Audit Committee will consist of a minimum of 3 directors with independent directors forming a majority.

Audit Committee Members Required Independent Directors
6 4
4 3
9 5

 

Illustration:

One of the special requirement is majority of members of the Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statement.

It shall be noted that if company is formed under section 8 of companies act, (i.e., Non-profit organization) than in that case requirement of Section 177 (2) i.e., while constituting an Audit Committee, the ‘Independent Directors’ shall form a majority, shall not apply provided, however such companies shall not commit a default in filing its financial statements and Annual Return.

Whether composition of audit committee is required to be disclosed in financial statement?

No. The composition of audit committee is required to be disclosed in Board’s Report. Further if Board of Directors has not accepted any recommendation of the Audit Committee, then the said is also required to be disclosed in the Board’s report along with the reasons for such non-acceptance.

What are the rights of audit committee?

  • Audit committee will have right to review financial statements before their submission to the Board of Directors.
  • It will have right to discuss any issue with the internal auditors, statutory auditors and the management of the company.
  • It may investigate in any matter which is relating to there scope of work and also, they will have power to obtain professional advice from external sources and have full access to information contained in the records of the company.

Whether Audit Committee is required to give rights to speak to Auditors or Key Managerial Personnel?

There is no such requirement prescribed under the law, however auditors of a company and the key managerial personnel shall be heard in the meetings of the Audit Committee when it considers the auditor’s report but in no way, they will have right to vote at such meeting.

What will be penalty if company has not complied with the said requirement?

In case of non-compliance penalty will be as follow:

Sr. No. Who is liable Quantum of Penalty
1. Company
  • punishable with fine which shall be minimum Rs. 1 lakh and maximum up to Rs. 5 lakhs.
2. Defaulting Officer
  • punishable with imprisonment for a term extending up to 1 year, or
  • with fine which shall be minimum Rs. 25,000 and maximum up to Rs. 1 lakh, or
  • with both

From above it is clear that who is required to form audit committee, what are the rights and composition of audit committee.

Fibota Elaborating Provisions relating to Meeting of Board and its Power

Elaborating Provisions relating to Meeting of Board and its Power

Elaborating Provisions relating to Meeting of Board and its Power (Part-1)

Introduction: Under companies act there are certain provisions which entity is required to comply by conducting minimum number of board meeting and by ensuring the required legal compliance. It is important to know that what are the number of meetings that entity is required to conducted, what will be the quorum of meeting, what are the power that are vested to board of directors; in this article we will cover all the provisions relating to meeting of board and its power.

Whether company is required to hold meeting of Board of Directors?

Every company is required to hold meeting of board of directors, company shall hold minimum of 4 meetings every year but the gap between two consecutive board meetings shall not be more than 120 days.

Illustration: D & Co. is had hold its first board meeting on 5th May, 2021; within what time he is required to conduct the remaining board meeting

The second meeting is required to be held within 120 days of first board meeting, therefore before 2nd September, 2021; the third meeting is required to be conducted before 31st December, 2021 and the fourth meeting is required to conducted before 31st March, 2022; as it has been state under section 173 of companies act that every company is required to conduct four board meetings in a financial year and the gap between two board meeting cannot be exceeded 120 days.

Whether company can conduct a greater number of meetings than above stated?

There is no restriction on conducting more than four meetings in a year. There is no restriction provided by the law.

What is the time limit within which first board meeting is required to be conducted by board of directors?

As per provisions any newly incorporated company is required to conduct first meeting of the Board of Directors within 30 days of the date of its Incorporation.

 Illustration: S & co. got incorporated on 31st March, 2021; within what time they are required to conduct their first board meeting?

It has been stated that company is required to conduct first meeting of its board of directors, within 30 days from date of incorporation. It is not necessary that 30 days fall within the same financial year. Therefore, in above case first meeting is required to be conducted before 30th April, 2022.

Whether there is any exemption for conducting less than four meetings in a year?

If in case company is One-person company, Small company and Dormant company, the provision regarding conducting of four board meetings every year will not applicable. In such case entities are required to conduct one board meeting in each 6 months and time gap between two meeting shall be minimum of 90 days.

Here it shall be noted that the gap period is minimum unlike above were such period was of maximum 120 days.

Another special exemption is given to One Person Company (OPC) having only one director on board, i.e., they are not required to hold even single board meeting.

Further government vide amendment clarified that companies being Private Company or company which is formed under section 8 (i.e., Non-profit organization) who has not defaulted in filling financial statements or annual return as required under companies act, 2013; than above exemption (i.e., of conducting one board meeting in each 6 months and time gap between two meeting shall be minimum of 90 days) will be applicable to them also.

Through which means board of director can participate in meeting?

Board of directors can participate in meeting of board by attending the meeting physically, through video conferencing, through other audio-visual means.

Here, meaning assigned to other audio-visual means and video conferencing is that any person participating in meeting is able to communicate to each other and is been able to participate in meeting effectively.

Whether there is any special requirement when meeting is been conducted through video or other audio-visual means?

In case if meeting is been conducted through video or other audio-visual means than entity is required to ensure that audio-visual means should be capable of recording and recognizing the participation of the directors; and recording and storing the proceedings of such meetings along with date and time.

Is there any restriction if meeting is been conducted through video or other audio-visual means?

In case if meeting is been conducted through video or other audio-visual means than in that case following matters are not allowed to be discussed at such meeting, i.e., for discussion of said matter meeting is required to be conducted by being physically present.

Another matter which is not allowed to be discussed if meeting conducted is through other than physical mode, is in case were Audit committee meeting is conducted for consideration of financial statement including consolidated financial statement to be approved by the board.

Special Case:

Question: Rahul & Co. has 7 directors on board. The company’s 3rd Board Meeting is schedule on 12th December, 2022; five of the directors attended the meeting through physical presence, two directors were not able to attend the said meeting through physical mode therefore they decided to join such meeting through virtual mode. During the said meeting company decided to approve prospectus for funds to be raised in future. State the validity of act.

Answer: It has been provided in provisions that directors of company may join the meeting through physical presence or through virtual mode. In case if company is any of the director is attending the virtual meeting, company is required to ensure that the said director is able to freely communicate with other directors and the meeting is capable of being recorded with date and time. It has also been stated that some matters are not allowed to be discussed at meeting if such meeting is conducted through virtual mode and approval of prospectus is one the said specified matter. However, it shall be noted that if minimum quorum is presented through physical mode and other members are present through virtual mode than in said case company is allowed to discuss all the matters at meeting without any restriction.

In the question case as in meeting company has 5 directors which present through physical mode which is exceeding the number of directors required to constitute quorum, therefore company is allowed to discuss all the matter in meeting without any restrictions.

Fibota Elaborating Provisions relating to Meeting of Board and its Power - (Part-2)

Elaborating Provisions relating to Meeting of Board and its Power – (Part-2)

Elaborating Provisions relating to Meeting of Board and its Power (Part-2)

Introduction: Under companies act there are certain provisions which entity is required to comply by conducting minimum number of board meeting and by ensuring the required legal compliance. It is important to know that what are the number of meetings that entity is required to conducted, what will be the quorum of meeting, what are the power that are vested to board of directors; in this article we will cover all the provisions relating to meeting of board and its power.

In this part we will discuss requirement of notice and question that may arise in relation to conduct of meeting and powers of board of directors.

Whether directors are required to attend all the board meeting held during the financial year?

As such there is no requirement that director of company attends all the meeting of board held during the financial year, however as guardian of company it is expected from him that he attends maximum number of meeting held during the financial year. Also, here provision stated under section 167 of companies act is worth noting that if director absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board than he will be required to vacant the office.

 What are the provisions relating to notice of meeting?

It has been prescribed under law that company is required to serve notice of at least 7 days before the meeting in writing to every director of company to its registered address. The notice can be served either by hand delivery or by post or by electronic means.

In case company is giving shorter notice to transact any urgent business to be conducted at said meeting, than at least one director is required to be present at said meeting. In absence of such decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director. If company does not have independent director on board than in that case there is no such requirement of ratification of decision but decision taken at such meeting is required to be circulated to all the directors.

In case if company is allowing directors to participate through audio-visual means or through video conferencing than in that case notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio-visual means, and shall provide all the necessary information to enable the directors to participate through video conferencing mode or other audio-visual means.

Further, if any director is of the view that he will be attending such meeting through video conferencing mode or other audio-visual means than director intending to participate through video conferencing or other audio-visual means shall communicate his intention to the Chairperson or the company secretary of the company in advance to the company. If no such intimation is received from director than in that case it will be assumed that director will attend the said meeting through physical mode.

Whether director who once communicated that he will be attending meeting through video conferencing mode or other audio-visual means can attend the meeting through physical mode?

It shall be noted that if director once communicated that he will be attending meeting through video conferencing mode or other audio-visual means, than in such case he is also allowed to attend the meeting through physical mode there is no such restrictions which has been provided in law.

Illustration: MJD & Co. is decided to hold board meeting on 7th May, 2021; one of the directors intimated the company after receiving notice of meeting that he will be attending such meeting through video conferencing mode or other audio-visual means. On meeting day director decided that he will attend the meeting through physical presence, however company objected the same by stating once communication is done, he is required to attend the meeting through video conferencing mode or other audio-visual means only. Whether the restriction imposed by company is valid?

No, restriction imposed by company that director is not allowed to attend the meeting physical mode if he has communicated that he will be attending such meeting through video conferencing mode or other audio-visual means. Therefore, director is allowed to attend meeting through physical mode.

 What if company fails to give notice in timely manner?

In case if company fails to give notice in timely manner to than penalty of Rs. 25,000/- will be imposed on every officer of the company whose was under duty to give notice of meeting and failed to do so.

Is it necessary that notice of meeting specify the nature of business which is to be conducted at meeting?

There is no specific provision which states content that is to be prescribe in notice for meeting of board of directors. It is well settled position of law that meeting of notice may or may not include agenda of meeting. It the matter of good secretarial practice, that notice of meeting provides agenda of meeting stating details of business to be conducted at meeting.

Fibota Elaborating Provisions relating to Meeting of Board and its Power - (Part-3)

Elaborating Provisions relating to Meeting of Board and its Power – (Part-3) – Quorum

Elaborating Provisions relating to Meeting of Board and its Power (Part-3)

Introduction : Under companies act there are certain provisions which entity is required to comply by conducting minimum number of board meeting and by ensuring the required legal compliance. It is important to know that what are the number of meetings that entity is required to conducted, what will be the quorum of meeting, what are the power that are vested to board of directors; in this article we will cover all the provisions relating to meeting of board and its power.

In this part we will discuss requirement of quorum and question that may arise in relation to conduct of meeting and powers of board of directors.

Whether there is any requirement relating to minimum directors attending the meeting?

Yes. Under companies act, section 174 prescribes that one-third of its total strength or two directors, whichever is higher will be required as quorum. In case of any fraction number shall be rounded off as one. The minimum number of directors required for constitution of quorum shall be present throughout the meeting.

Whether article of association can prescribe for lower number of directors as quorum?

It shall be noted that article of association can prescribe for higher number of directors required for constitution of quorum but articles of a company cannot specify a quorum which is less that prescribed by law.

Illustration : Desai & Co. has 12 directors on board. There is vacancy of 4 directors. The company has conducted it meeting on 4th April, 2021; How much directors are required to be present to constitute quorum.

It shall be noted that meeting will be considered as valid meeting only in case where the meeting is conducted with quorum. For calculation of quorum following formula is to be used; one-third of its total strength or two directors, whichever is higher. Total director on board does not include director whose place is vacant. Therefore, 4 directors will be required to constitute quorum (i.e., 1/3rd of 12 i.e., 4 or 2 whichever is higher). The four directors will be required to be present throughout the meeting.

What if article of association provides that minimum 5 directors will be required for constitution of quorum?

As limit prescribed by article of association is higher limit than the limit required to be comply section 174; therefore 5 directors will be required to constitute quorum. However, if article of association had provided for lower limit for e.g., if the number provided in article of association was 3 than in that case section 174 will override article of association. (i.e., director will be calculated by the above-mentioned formula)

Further it is important to note that if company is section 8 company that is company constituted as non-profit organization than quorum will be 8 directors or 25% of total strength of directors whichever is lower. Provided that quorum shall not be less than two members.

If we consider above illustration, then quorum will be 3 (i.e., 8 or 3 <25% of 12 directors>) whichever is less, not lower than two.

The said relation is provided to company only in case where Section 8 company has not committed a default in filing its financial statements or Annual Return as required under companies act.

Whether participation through electronic means to be counted for Quorum?

As per provisions the directors who participate by video conferencing or other audio-visual means will be counted for the purpose of determining the quorum at the meeting.

Whether there is any exemption to One person company (OPC)?

The provisions relating to quorum are not applicable to One Person Company (OPC) which has only one director on its Board.

How quorum is to be decided in case business which is to be transacted has interested directors?

Firstly, to resolve this query we are required to understand, what do we consider as Interested Director. Interested director means a person who is directly or indirectly interested in contract or arrangement to be entered with company where such person is i) Director or ii) Promoter, Manager, Chief Executive Officer or iii)holds more than 2% shareholding of that either on his own account or jointly with others. In case contract or arrangement to be entered with firm where such person is partner or is person is owner of entity (Proprietor).

Interested director will not be allowed to participate in such meeting. If interested directors are more than or equal to 2/3rd number of total directors than quorum will be the number of non-interested directors, but shall not be less than two.

Illustration: Hari & Co. has 14 directors on board, in meeting of board of directors’ company is going to discuss about contract in which 4 directors are interested, 3 directors were not present at meeting.

How many directors will be required for constitution of quorum?

Quorum for valid conduct of meeting will be 1/3rd of total number of directors or 2 whichever is higher. In case of fraction, it shall be rounded upwards. Therefore, quorum for meeting will be 5 directors. Further, as per the provision interested directors will not be allowed to participate and therefore, will not be considered for quorum required to discuss contract in which director is interested. In that case quorum is non-interested directors which shall be not less than two. Here both the quorum has been fulfilled therefor meeting will be considered as valid meeting.

However, there is one exception which has been provided that if company is private company and has not defaulted in filling annual return or financial statement as required under companies act, then interested director will be allowed for participation of meeting but will not be considered for quorum.

What if required quorum is not present?

In case if required quorum is not present than in that case it will be considered that meeting is not held validly. The said meeting will be automatically adjourned to same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.

In this article we have discuss all the provisions relating to quorum, in next article we will cover who resolution can be passed through circulation and other provisions relating meeting of board and its power.

Fibota Rollback Provision Under Transfer Pricing Details

Rollback Provision Under Transfer Pricing

Transfer Pricing –Roll-Back Provision (Advance Pricing Agreement)

Introduction: In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

In previous part we have discussed how assessee can enter into Advance Pricing Agreement, in this part we will provision relating to rollback in advance pricing agreement

In rollback provision, it has been prescribed that it will determine Arm’s length price for transaction to be entered by assessee during relevant financial year and may be extended up to preceding four financial years.

What are the conditions that assessee is required to fulfil for filling application for rollback provisions?

What are the cases where assessee will not be able to apply for roll-back provisions?

Assessee will not able to apply for rollback provision if, the determination of arm’s length price of the said international transaction for the said year has been subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of such appeal at any time before signing of the agreement or if after entering for rollback provision it has effect of reducing the total income or increasing the loss as declared by assessee in the return of income of the said year.

Within what time assessee is required to furnish application and what will be the fees for it?

Assessee who wants to apply for rollback provision is required to apply in form 3CEDA with filling of application for advance pricing agreement along with additional fees of Rs. 5,00,000/-

What if for year for which rollback provisions are applied are filed belatedly or has been revised?

 For applying for rollback provision one of the conditions that assessee is required to fulfil is return of Income has been filed by assessee withing due date. If original return is filed within due date than assessee can apply for rollback provision even if the said has been revised by assessee as on later date. However, if the related has been filed belatedly than in that case assessee will not be able to apply for said provision for said financial year.

Whether assessee is required to apply for rollback provisions for all four years or applicant can choose the years out of the block of four years?

The applicant does not have the option to choose the years for which it wants to apply for rollback. The applicant has to either apply for all the four years or not apply at all. However, it may happen that the international transaction for which such agreement is entered has not happened in all four year, in that case he is required to apply only for those year for which transaction has been entered.

What if transaction for which rollback provision is applied is been subject matter of appeal or for which ITAT has already issued order?

It is very well-established position of law that if the transaction for which rollback provision is applied by assessee is been considered under the order of Income Tax Appellate Tribunal (ITAT) than assessee will not be able to apply for rollback provision for that transaction as ITAT is the final fact-finding authority and hence, on factual issues, the matter has already reached finality in that year. However, if the ITAT has not decided the matter and has only set aside the order for fresh consideration of the matter by the lower authorities with full discretion at their disposal, then assessee can apply for rollback provisions for that year.

What if there is merger of entities and one of the entities has applied for rollback provisions?

As per provision, agreement is entered by department and assessee he principle to be followed in case of merger is that the person (company) who makes the application for advance pricing agreement will only be eligible for the rollback provisions in respect of international transactions undertaken by it in rollback years. Other assessee who have merged with this entity would not be eligible for the rollback provisions.

Illustration: D Ltd, C Ltd and E Ltd merge to form D Ltd, D Ltd is also applicant of advance pricing agreement. After merger who will be eligible for rollback provisions?

In this case transaction entered by D Ltd. will only be eligible for rollback provision. If in case they had form new company instead of merging with D Ltd. than none of the companies would have been eligible for it.

The same provision is applicable in case of demerger, and in that after demerger only the main entity who has applied before demerger would be eligible for rollback provisions.

Through this article we have mainly covered questions that may arises in relation to rollback provisions under advance pricing agreement. 

An Important point that shall be noted by assessee is, department has described Safe Harbour, In the said rules department has described various business and type of transaction for which if entity is declaring profit as determined in said rules, then department will not undertake any proceedings and Arm’s Length price determined by assessee will be accepted by department without any additions.

Fibota Methods for Computation of Arm's Length Price

Methods for Computation of Arm’s Length Price

Transfer Pricing –International Transaction and Methods of Arm’s Length Price

Introduction : In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

In previous part we have discussed the widely used method, (i.e., Comparable Uncontrolled Price method). In this part we will discuss other method along with its illustrations.

Other method is Resale Price method, this method is likely to be used when the one associate enterprise is selling the goods as obtained from other associate enterprise to external party. In such case the if transaction is not at arm’s length price than price at which it has been sold to external party will be arm’s length price, however from said price normal gross profit margin and expenditure incurred with respect to purchase from such associate enterprise and expense incurred for selling the product shall be adjusted accordingly.

Illustration : Hari & Co. has associated enterprise in Dubai, he has sold good worth Rs. 30,00,000/- to them quoting Rs. 30 per kg. the same goods have been sold by associate enterprise by quoting Rs. 50 per kg. Industry operating margin is 20% on sales value, the said associate enterprise is spending Rs. 5 per kg. as packing cost. What will be arm’s length price and whether such transaction will be acceptable as it is?

It has been prescribed if transaction is International Transaction and the said has been entered between associate enterprise, it is required to be entered at arm’s length price. If the said transaction is not at arm’s length price than entity is required to calculate arm’s length price by using the prescribed method. In this situation as associate enterprise is selling the goods without carrying any further manufacturing process, Resale price method will be best suited for calculation of arm’s length price.

If the industry is operating at margin of 20% on sales price than the cost at which transfer should has been incurred is Rs. 40, however Rs. 5 has been specifically incurred as per kg packing cost. Therefore, packing cost for the purpose of calculation will be Rs. 35 per kg. Transaction has been entered by Hari & Co. at Rs. 30 per kg. which is required to be revised and the new sales value of entire transaction will be Rs. 35,00,000/- (30,00,000/30*35).

The third method by which arm’s length price can be calculated is Cost-Plus Method, this method is widely used when entity is selling semi-finished goods to its associate enterprise.

In such case if transaction is not at arm’s length price than such transaction is required to be identified and shall be recorded at arm’s length price. For determining arm’s length price, entity will be required to identify direct& indirect Cost of Production incurred for property transferred or services provided to associate enterprise, on such cost normal industry gross profit margin will be required to be added. The price which is arrived after such calculation will be treated as arm’s length price.

Another method that can be used for determination of arm’s length price is Profit Split Method.

The method can be used where there is transfer of unique intangibles or in multiple International transaction.

For determining Arm’s Length price through this method associate enterprises are required to combine net profits arising out of international transaction.

Now the said profit is required to be segregated or distributed amongst both the associate enterprise on basis of percentage of market return on contribution made by both associate enterprises.

Illustration: Shiva and Company has associate enterprise in America, during the previous year it has transferred unique patent rights to said associate enterprise. The assessing office is of the opinion that consideration charge by Shiva and Company from its associate enterprise is not at arm’s length price. Associate enterprise has earned the revenue of Rs. 10,00,000/- from use of said patent rights. Shiva and Company has charged Rs. 4,00,000/- as use of such patent rights, total of expense side for them in relation to said transaction was Rs. 2,00,000/-, except consideration paid to Shiva and Company Rs. 1,00,000 has been incurred as expenses by associate enterprise. What will be arm’s length price of said transaction.

According to the guidelines provided for using various method for determining Arm’s length price, in case where transaction is of transfer which is relating to unique intangibles or there is multiple International transaction than in said case profit-split method shall be used by entity.

Profit earned by Shiva and Company from said transaction is Rs. 2,00,000/- and profit earned by its associated enterprise from said transaction is Rs. 5,00,000/-. The said profit will be required to be distributed on basis of contribution done by each enterprise for earning such profit.

Total combined profit earned by the entity is Rs. 7,00,000/-, if is distributed on the basis of expenses incurred by each organisation than the profit earned by Shiva and Company should have been Rs. 4,66,667/- and profit earned by associate enterprise should have been Rs. 2,33,333/-. It is apparent that transaction is not been carried at arm’s length price and therefore, addition of Rs. 2,66,667/- shall be made to total income of Shiva and Company.

The residuary method is Transactional Net Margin Method (TNMM), In this method for determination of Arm’s length price entity will be required to compute net profit margin from International Transaction with associate enterprise after taking into consideration cost incurred, sales affected and asset employed in that regard. Also, entity will be required to compute net profit margin realised from unrelated enterprise in comparable uncontrolled transaction. The said net margin is required to be adjusted in reference to cost/sales/assets employed by the entity for transaction entered with associated enterprise. The revised net margin will be considered for calculation of Arm’s Length price.

In next part we will cover what is advance pricing agreement, and what are the questions that may arise in relation to it.

Fibota GST- Clarifications : Latest News

GST- Clarifications

GST Clarification- GSTR-9 and GSTR-9C

 Introduction : Recently government through news and updates, clarified some of the points relating to GSTR-9 and GSTR-9C. The said point has been covered in this article.

Before moving further, importantly it shall be noted due date for furnishing GSTR-9 and GSTR-9C for financial year 2019-20 has been extended to 31st March, 2021.

Every assessee whose turnover is exceeding Rs. 2 crores are required to furnish GSTR-9 and every assessee whose turnover is exceeding Rs. 5 crores are required to furnish reconciliation statement in GSTR-9C.

Earlier it has already been stated that in GSTR-9 assessee will be required to give segregation of credit relating to Capital Goods and Credit relating to Inputs/Input Service. Assessee will have option to further segregate credit relating to Inputs and Input Service or he may show total of such under Credits relating to Inputs.

Through News and Updates section on GST Portal, government has provided relaxation to assessee by clarifying that while declaring rate wise liability tax amount relating to tax rate of 1%/1.5% and 7.5% may be clubbed together under the that row “others”.

Also, it has been seen that entity is facing issues which uploading GSTR-9 offline utility, i.e., JSON file. It has been advised to assessee that while furnishing GSTR-9 through offline utility entity shall report value only up to two decimals instead of three decimal if value is declared up to three decimals it will show the error while uploading.

It shall be noted that, it is advised to all the assessee to furnish GSTR-9 and GSTR-9C within the time limit prescribed above. As failure in late filling will result in late fees and follows:

Particulars Late Fees Applicable
GSTR-9 Rs.200/- per day during which the default continues (Rs. 100 under CGST law + Rs. 100/- under State / Union Territory GST law). Maximum amount for which penalty can be levied is 0.5% of turnover in State/ Union Territory
GSTR-9C There is no specific provision for late fees, therefore a general penalty of Rs. 25,000/- can be levied
Fibota Advance Pricing Agreement Details & overview according to india

Advance Pricing Agreement

Transfer Pricing –Advance Pricing Agreement

Introduction: In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

In previous part we have discussed the methods used for computation of Arm’s Length price, in this part we will cover what is Advance Pricing Agreement.

Advance pricing agreement is undertaken by assessee to determine transaction price or method for computation of transaction price for transactions to be entered with associated enterprise, the said price is approved by department in advance. Now that question that may arise and solutions to it are as follows:

Whether Advance Pricing Agreement entered by assessee will override normal provision for determination of Arm’ length price?

It has been stated that if entity has entered in to an Advance Pricing Agreement than Arm’ length price will be computed in accordance with said agreement and such agreement will be considered over normal provision for determination of Arm’ length price i.e., Advance Pricing Agreement will override normal provision for determination of Arm’ length price.

What will be the validity of Advance Pricing Agreement?

The advance pricing agreement can be valid for five consecutive previous years, but the said cannot be exceeded for more than five years.

On Whom Advance Pricing Agreement will be Binding?

Advance pricing agreement will be binding on person in whose case, and in respect of the transaction in relation to which it has been entered and on Principal Commissioner or Commissioner and the income-tax authorities subordinate to him, in respect of the said person and the said transaction.

In what circumstance it will be non-binding on Income Tax department?

 In case if there is change in law or if there is change in circumstances than in that case Advance Pricing Agreement will not be binding. Further in case if it comes to knowledge of department that such agreement has been entered by assessee by stating false facts or misrepresentation than in that case it will be treated as void and transaction price will be determined as if agreement has never been entered. 

What are types of matters for which Advance Price Agreement can be entered?

Entity can enter into agreement for determining details of International Transaction to entered, for determining transfer price methodology, for determining arm’s length price, for determining terms to be used in calculation of transfer price or in relation to international transaction.

Whether assessee will be liable for any compliance after entering in to Advance Pricing Agreement?

After entering into advance pricing agreement entity will be required to furnish annual compliance report in quadruplicate to Director General of Income-tax (International Taxation) for every financial year for which advance pricing agreement is entered within 30 days of the due date of filing income-tax return for that year, or within 90 days of entering into an agreement, whichever is later.

Illustration: If agreement is entered on 30th January, 2020 and due for furnishing Income tax return for that year was 30th September, 2021; than what will be due within which annual compliance report is required to be filed by assessee.

As per the provision stated above entity will be required to furnish annual compliance report in quadruplicate to Director General of Income-tax (International Taxation) for every financial year for which advance pricing agreement is entered within 30 days of the due date of filing income-tax return for that year, or within 90 days of entering into an agreement, whichever is later. In this case 90th day after entering into agreement is 30th April, 2021 and 30th Day from due date is 30th October, 2021; therefore, date within which annual compliance report will be required to be furnished by assessee will be later of two date i.e., 30th October, 2021.

Whether once agreement entered can be revised?

It has been stated in provision that agreement entered by assessee can be revised by board on Suo-moto basis or on application of revision made by assessee the competent authority in India or the Director General of Income-tax (International Taxation) on the ground that

One of the conditions which shall be noted is revised agreement shall include the date till which the original agreement is to apply and the date from which the revised agreement is to apply.

Whether there are any circumstances under which agreement can be cancelled?

There are many circumstances where agreement entered by assessee with department can be cancelled, the agreement can be cancelled by board for following reasons:

Department will be required to give opportunity of being heard to assessee before passing order of cancellation. The order of cancellation shall specify effective date of cancellation.

Illustration: Entity has carried out transaction with one of its associate enterprise at transaction price of Rs. 2 Crores, The Arm’s Length price of such transaction is Rs. 4 Crores (Determined in accordance with transfer pricing rules). The entity knowing the fact filled application for advance pricing agreement. The said application is yet not approved, department wants to make addition of such additional amount as Income.  Whether it can be done by department as assessee has already filed application for advance pricing agreement?

It has been stated in provision that if assessee wants to enter into advance pricing agreement, he is required to file application for entering into such agreement. Further if advance pricing agreement is entered than it will override all the provision given for computation of transfer pricing. However, it has been specified that mere filling of application by assessee for entering into advance pricing agreement will not be covered stop department from making addition. Therefore, in above case department can make addition to income by Rs. 2 Crores.

In next part we will consider, what is rollback provision and what are the question that may arise in reference to said provision.

Fibota Transfer Pricing - basic analysis and agreement according to india

Transfer Pricing – Basic Analysis and Agreement

Transfer Pricing – Basic Analyses

Introduction: In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

Applicability and Definitions:

Mr. R has associated enterprise outside India and has transferred goods outside India at specified price, now if such price is lower than he will book sales in his books at lower price which will result in understating on Income in India, or it may happen that enterprise outside India has supplied goods to Mr. R and Mr. R has booked purchase at higher price, resulted in understating of Income. This is were transfer pricing provisions will come into place. Some of the points which are worth noting in relation to transfer price are as follows:

Before moving further, it is necessary to under what the term associated enterprise means:

The definition has been prescribed in two part, first is actual definition and another is deeming fiction, actual definition is as follows:

Sr. No. Conditions
1.

An enterprise which participates, directly or indirectly, or through one or more intermediaries, in:

  • Management of the other enterprise, or
  • Control of other enterprise, or
  • Capital of other enterprise
2.

If one or more persons participates, directly or indirectly, or through one or more intermediaries in:

  • Management of the two different enterprises
  • Control of two different enterprises
  • Capital of two different enterprises

then in such those two enterprises are associated enterprise.

Illustration:

XYZ Limited is participating in management of Y Ltd. and Y Ltd. is holding company of G Ltd. in such case XYZ Limited and G Ltd. will be treated as Associate Enterprise.

Mr. Desai is holding 75% in G Ltd., Also, he is holding 56% in H Limited. In this case G Limited and H Limited will be treated as Associate Enterprise.

From above we have seen that, cases where one entity having control, capital contribution, managerial control, even though through one or more intermediaries it will be treated as associated enterprise.

Whether Transfer pricing provisions are applicable to domestic transactions?

Yes, transfer pricing provisions are applicable to domestic transactions also. It has been prescribed that that one part of entity is claiming deduction specified under chapter IV-A of Income Tax Act, 1961 of 100% of profits and gains derived from his business and profession, and another part of entity is operating in area where no such deduction is available than transfer between said parts of same entity will be covered under transfer pricing. The said transactions are also know as specified domestic transaction.

The transaction will not be treated as specified domestic transaction if aggregate of such transactions entered into by the assessee in the previous year does not exceed a sum of Rs. 20 crores.

All the provisions of transfer pricing applicable to International Transaction will deemed to be applicable to specified domestic transaction.

Whether they are required to furnish any audit report?

Yes, audit report is required to be furnished as per section 92E of Income Tax Act, 1961; in case of failure assessee will be liable to pay penalty of Rs. 1,00,000/-. 31st October will the date within which such report will be required to be furnished by assessee to avoid any penalties.

Whether there is any provision for maintenance of documents relating International Transaction or specified domestic transaction?

Every entity who has entered into International transaction or specified domestic transaction is required to maintain data, document and information relating to such transaction. In case of failure penalty will be levied at the rate of 2% of transaction value of each international transaction entered into by him.

In case if assessee has maintained such documents but fails to furnish such to assessing officer after being called by such assessing officer or any other higher-level authority than in such case penalty will be limited to 2% of the value of each international transaction for which assessee failed to furnish the data. It shall be noted that small penalty is applicable in case if assessee fails to maintains or furnishes any incorrect information or document.

The small and immaterial exemption has been provided that if aggregate value of International transaction entered during the year does not exceed Rs. 1 Crore, assessee is relived from maintaining the prescribed records but in such case assessee will have to substantiate that the income arising from the international transactions with associated enterprises is at arm’s length price.

In next part we will cover the what do we mean by deemed associate enterprise and what are the other provisions relating to transfer price

Fibota International Transaction and Methods details india

International Transaction and Methods

Methods of Payment in International Trade: Cash in Advance

Transfer Pricing –International Transaction and Methods of Arm’s Length Price

Introduction: In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entitywhich is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

International Transaction:

One of the other conditions in chart for applicability of transfer pricing was, transaction must be International transaction and it has been defined that International transaction means a

(i) transaction between two or more associated enterprises, either or both of whom are non-residents; and

(ii) transaction in the nature of:

(a) sale/ purchase/ lease of tangible property; or (b)sale/ purchase/ lease of intangible property; or

(c) provision of services; or (d)lending/ borrowing money; or (e)any other transaction having a bearing on profits, income, losses or assets of such enterprises.

To cover more transactions here also provision has been inserted for treating transaction as deemed to be international transaction.

Deemed International Transaction: Where, in respect of a transaction entered into by an enterprise with a person other than an associated enterprise;

(i) There exists a prior agreement in relation to the relevant transaction between the other person and the associated enterprise or,

(ii) where the terms of the relevant transaction are determined in substance between such other person and the associated enterprise; and

(iii)either the enterprise or the associated enterprise or both of them are non-residents,

then such transaction entered into between the enterprise and the other person shall be deemed to be an international transaction entered into between two associated enterprises, whether or not such other person is a non-resident.

Illustration: Mr. R wants to supply raw material to its associate enterprise situated in Canada. He decided to supply such material directly but due to applicability of transfer pricing provision Mr. R decided to route the transaction he entered in to agreement with one the dealer, dealer is resident and ordinary resident in India. Mr. R has also made him agreed that he will supply such material only to his associate enterprise in Canada at specified price with specified terms and conditions. Whether for transaction entered by Mr. R and dealer transfer pricing provisions are applicable?

It shall be noted that were transaction is been entered between two parties with intention of providing benefit to associate enterprise; i.e., by fulfilling above three transaction than the said transaction will be treated as International Transaction. In the given case Mr. R is supplying material to dealer with the intention that dealer will supply such material to associate enterprise at specified price with specified conditions, therefore transaction entered between Mr. R and dealer will deemed to be treated as international transaction.

So far, we have understood what do we mean by Associate Enterprise and what do the term International Transaction means, one the condition specified in chart was that, the transaction entered must be entered at arm’s length price. To understand this, we need to look at the definition given for it and methods for calculating it.

Arm’s Length price means price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions. It simply means, price that can quoted to non-associate entity in uncontrolled transaction.

There are several methods which has been prescribed for calculation of Arm’s Length Price

It shall be clarified that from the above five methods most appropriate method is to be used for determining arm’s length price.

Comparable uncontrolled price method: Under this method, if open market price of product or service which has been supplied to associate enterprise is available, (i.e., entity has also provided such service or supplied such goods to any other enterprise in an uncontrolled transaction and such entity been non-associate enterprise) than in such case the said price can be taken to determine Arm’s length price for International transaction undertaken with associate enterprise.

Illustration: D & Co. has associate enterprise in Australia, he has supplied them with raw material at the rate of Rs. 15 per kg. where it has not incurred any transportation cost and has not been provided with replacement warranty. The same material has been supplied to local supplier at the rate of Rs. 20 per kg. in said transaction it has incurred transportation cost of Rs. 1 per kg. also, it has been provided with replacement warranty which will cost additional Rs. 2 per kg. cost to D & Co. What can be taken as arm’s length price if entity wants to determine such price according to Comparable uncontrolled price method?

In the given case as entity has also supplied such goods to any other enterprise in an uncontrolled transaction and such entity been non-associate enterprise, arm’s length price can be determined through Comparable uncontrolled price method.

The Arm’s length price as per Comparable uncontrolled price method will be Rs. 17 per kg. as Rs 20 being the price quoted to local supplier from which additional cost incurred is required to be removed i.e., cost which has not been incurred while transacting with associate enterprise, such cost amounts to Rs. 3 per kg.

What if in the given case additional cost incurred while supplying goods to local supplier comes to Rs. 6 per kg.

In said case if transfer pricing provisions are implemented than it will result in reduction of income recognise by the assessee as in said case price will fall to Rs. 14 per kg. and therefore, transfer pricing provisions will not be applied but instead of it, price at which transaction is entered will be deemed to be treated as arm’s length price.

The comparable price method is simplest and widely used method, in other next part we will cover explanation and illustrations relating to other methods and what is Advance Pricing Agreement.

Fibota Deemed to be Associated Enterprise

Deemed to be Associated Enterprise

Transfer Pricing – Deemed to be Associate Enterprise (Part-2)

Introduction : In current scenario it is possible that entity is operating not only in multiple state but also in multiple country; for said purpose it is important to understand whether entity is required to comply any additional law; how income tax will be levied if one of the branches of entity which is operating in tax free zone makes transfer of goods or service to another branch who is operating in taxable zone or vice-versa. In this article we will cover all compliance and related interpretation of transfer pricing.

In part-1 we have discussed what do we mean by associate enterprise by its actual definition, in this part we will cover what do we mean by deemed to be associated enterprise.

Deemed to be treated as Associate Enterprise:

1) Due to Ownership: One enterprise holds 26% or more of the Voting Power, directly or indirectly, in the other enterprise.

Illustration : X Ltd. holds 80% of G Ltd., G Ltd. holds 70% of C Ltd. and C Limited holds 50% in S Ltd.

Here X Ltd. indirectly holds 28% in S Ltd. and therefore X Ltd. to be treated as associate enterprise of S Ltd.

2) Substantial voting power in two entities by common person: Any person or enterprise holds 26% or more of the voting power, directly or indirectly, in each of two different enterprises.

Illustration : Mr. M holds 60% in AIO Limited and 70% in SIO Limited 26% in BIO Limited
Here AIO, SIO and BIO all will be treated as associate enterprise of each other.

3) Advancing of substantial sum of money: One enterprise advances loan to the other enterprise of an amount of 51% or more of the book value of the total assets of other enterprise.

Illustration : Hari and Co. has given loan amounting to Rs. 700 Crores to SIA Limited. The book value of total asset of SIA Limited is Rs. 1200 Crores. The Book value of Hari and Co. is Rs. 2100 Crores.

Here Hari and Co. and SIA Enterprise will be treated as Associate Enterprise as loan given by Hari and Co. is exceeding 51% or more of the book value of the total assets of SIA Limited.

4) Guarantee in respect of borrowing by other enterprise: One enterprise guarantees 10% or more of the total borrowings of the other enterprise.

Illustration: L Ltd. has given guarantee in respect of loan taken by K Ltd. The amount of loan is Rs. 60 Crores, total borrowing of L Ltd. is Rs. 180 Crores and of K Ltd. is Rs. 670 Crores.

Here, L Ltd and K Ltd. will not be treated as associated enterprise as condition required to be fulfilled is One enterprise guarantees 10% or more of the total borrowings of the other enterprise. Total borrowing of K Ltd. is Rs. 670 Crore and guaranteed amount by L Ltd. is 60 Crores which is not 8.95% of total borrowing of K Ltd.

5) Appointment of majority directors of other enterprise: One enterprise appoints more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of other enterprise.

Illustration: D Ltd. has 12 directors on his board out of which 7 are appointed by C Ltd. Here C Ltd. and D Ltd. will be treated as associated enterprise as more than half of the board of directors is appointed by C Ltd.

What if only one executive director was appointed by C Ltd.

In such case also D Ltd. and C Ltd. would have been treated as associated enterprise as one or more executive directors is appointed by C Ltd.

6) Appointment of majority directors of two different enterprises by same persons: More than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board of each of the two enterprises are appointed by the same person.

Illustration : Mr. Hari has right to appoint 6 out of 10 directors of K Ltd. and 3 out of 5 directors of Y Ltd. In said case K Ltd. and Y Ltd. will be treated as associate enterprise

7) Dependence in terms of Intangible Assets, where other enterprise has exclusive rights: The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent (i.e. 100%) on the know-how, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other entity is the owner or in respect of which the other enterprise has exclusive rights.

Illustration : Docdonald has exclusive Intangible rights for producing X quality of product. The said rights has been given by Docdonald to CIZA Ltd. CIZA Ltd. is dependent on Docdonald as Docdonald holds exclusive right of said product.

Here Docdonald and CIZA Ltd. will be treated as associate enterprise as they are fulfilling the above specified conditions.

What if the said rights for manufacturing X quality products are also available with other two enterprise; In such case Docdonald and CIZA will not be treated as associate enterprise.

8) Dependence on raw material supplied by other enterprise: 90% or more of raw materials and consumables required for the manufacture or processing of goods or business carried out by one enterprise, are supplied by the other enterprise, or

by persons specified by the other enterprise, where the prices and other conditions relating to the supply are influenced by such other enterprise.

It shall be noted that even though raw material is not supplied by enterprise but if it is supplied by any other person on instruction of enterprise and where price and other condition pertaining to transaction is been influenced by said enterprise, enterprise on whose instruction raw material is supplied and enterprise to whom raw material is supplied will be treated as associated enterprise.

9) Dependence on sale: The goods or articles manufactured or processed by one enterprise, are exclusively (100%) sold to the other enterprise or

to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise.

10) Control by common individual: Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and his relatives.

It has been very clearly mentioned that in case an individual is controlling two or more enterprise than such enterprise will deemed to be treated as associated enterprise.

Elaborating this further it has also been stated that where one enterprise controlled by HUF and other enterprise is controlled by any other member of HUF than both the enterprise will be deemed to be treated as associate enterprise.

11) Residuary : If there is any mutual interest between two enterprise both will be deemed to be treated as associated enterprise.

The definition of associate enterprise and deemed associate enterprise has been prescribed in very detail manner by the department, and such has been done with the intention to cover large number of entities under the compliance part.

Fibota insolvency and bankruptcy code india

IBC Part 1

Application Under Insolvency and Bankruptcy Code

Introduction : To avoid clumsy process which is prescribe under Chapter-20 of Companies Act, 2013; which is relating to liquidation of company. Government has come out with Insolvency and Bankruptcy Code, 2016. Due to this now the process of liquidation takes place in rapid and fruitful manner. It is always a major concern for the creditor that what if his money becomes bad debts, or what if an assessee has defaulted in paying the amount taken by him from any person in form of loan or from any Financial Institution/NBFC/Bank. What is the remedy they can exercise against the assessee after implementation of Insolvency and Bankruptcy Code, 2016? In this article we will be discussing what are is insolvency, bankruptcy, liquidation and who can make the application under Insolvency and Bankruptcy Code, 2016.

Definition of various terms used:

Adjudicating authority:

  • For Corporates, LLP and Personal Guarantees related to Corporate Debtors, National Company Law Tribunal will be the adjudicating authority. Appeal can be made against the order of National Company Law Tribunal (NCLT) at National Company Law Appellate Tribunal (NCLAT) and thereafter appeal can be made to Supreme Court.
  • For Individuals and Partnership Firms (Including persons not covered above), Debt Recovery Tribunal (DRT) will be adjudicating authority. Appeal can be made against the order of Debt Recovery Tribunal (DRT) at Debt Recovery Appellate Tribunal (DRAT) and thereafter appeal can be made to Supreme Court.

Before moving further, it is important to know, when an application made under Insolvency and Bankruptcy Code, 2016 is liable to be rejected;

It shall be noted that a creditor is eligible to apply on in case when amount due from corporate debtor is more than 1 Lakh Rupees.

Now, in this there are lot many terms have been used such as Corporate Debtor, Financial Creditor, Operational Creditor which is clarified as under;

  • Financial Creditor: Financial Creditor means any person to whom financial debt is owned; i.e. It includes all the person whose financial debt has been owed by the personor the person to whom such debt is legally assigned or transferred.

Financial Debt: It includes all type of instruments and any financial assistance provided.

Illustration: Mr. J has given loan to Mr. D; amount of loan is Rs. 25,00,000/-. Whether Mr. J is financial creditor?

Yes, Mr. J will be treated as financial creditor.

What if in the given case Mr. J has assigned such receivable to D2exchange agency? Whether D2exchange agency will be termed as financial creditor?

Yes, D2exchange will be termed as financial creditor as in definition it has already been prescribed any person to whom debt has ben legally assigned or transferred will also be treated as financial creditor.

  • Operational Creditor : Operational Creditor means any person to whom operational debt is owned; i.e. It includes all the person whose operational debt has been owed by the person or the person to whom such debt is legally assigned or transferred.

Operational Debt:

Claim which is arising due to provision of goods or services or in respect of employment; or any payment arising due to any law for time being in force and which is payable to central government or state government or local authority.

Therefore, if any dues of employees are pending or any dues of person who has supplied goods or service to the entity or ant taxes which are payable to government will fall within the preview of operational creditor.

  • Corporate Debtor:Corporate debtor means corporate person who owes (liable to pay) any person.
  • Corporate Person:Corporate person means any Company, Limited Liability Partnership (LLP), It also includes any entity who is incorporated with limited liability but it does not include any financial service provider. Therefore, this definition does not include Banks, Non-Banking financial institute or any other financial service provider.

Process of Insolvency and Bankruptcy Code, 2016;

Manner in which application is to be made:

Application by Financial Creditor:

Any financial creditor may either itself or jointly with other financial creditors or any other person on behalf of financial creditor (Guardian, Trustee, Person authorized by board of directors of company).

Along with application in Form 1, financial creditor is required to provide

  • Any evidence confirming non-payment by the corporate debtor.
  • Name of the resolution professional proposed to act as an interim resolution professional.
  • Any information which has been demanded by Insolvency and Bankruptcy Board.

Application by Operational Creditor:

In this case firstly, creditor is required to serve demand notice(as specified in Form 3/Form 4)along with copy of invoice demanding payment from corporate debtor.

Corporate debtor has to intimate operational creditor about any dispute which exists in relation to payment or amount which has been paid by corporate debtor.

If after expiry of 10 days operational creditor does not receive his payment or any communication relating to dispute then in that case he may file and application to adjudicating authority.

Along with application in Form 5 operational creditor is required to provide

  • Copy of invoice and demand notice delivered to corporate debtor.
  • Affidavit, determining that no notice of dispute is given by corporate debtor.
  • Any other documents/evidence confirming no receipt of payment; operational creditor may obtain certificate from financial institute, certifying non-receipt of payment.
  • Operational creditor may propose the name of a resolution professional to act as an interim resolution professional.

Application by Corporate Debtor (Suo-Moto):

Corporate debtor may Suo-moto file an application for initiating corporate insolvency process with adjudicating authority.

Along with application in Form 6, following documents are required to be provided

  • Special resolution passed by shareholder of Corporate Debtor or resolution passed by ¾th partner of corporate debtor.
  • Information relating to books of accounts.
  • Name of proposed Interim Resolution Professional.
  • Any other particulars require by Insolvency and Bankruptcy Board (IBB).

Fibota insolvency and bankruptcy code

IBC Part 2

Insolvency and Bankruptcy Code, 2016 – Part-2

Introduction : In previous article we have explained the procedure relating to Insolvency and Bankruptcy Code, 2016; Which are the applications that are liable to be rejected, who are the person that can apply for Insolvency and Bankruptcy Code, 2016 and what are the documents that are required to be furnished. In this article we will cover other relevant provision relating to IBC.

Initiation of Moratorium Period : Once the application for insolvency is approved by adjudicating authority, corporate insolvency resolution process will be initiated during this adjudicating authority will declare moratorium period; The moratorium will be there for 180 days or till approval of resolution plan, whichever is earlier.

What is Moratorium Period?

During this period all the pending litigation/suits against corporate debtor will be temporarily suspended; to give time to corporate debtor to resolve its status.

Further during Moratorium period following transactions are prohibited:

Being exception of above transaction below mentioned transactions are permitted even during moratorium period.

Illustration : NCLT has approved application for Corporate Insolvency Resolution Plan for Dry & Solutions Private Limited. It has also declared Moratorium period starting from 5th October, 2019; after the declaration following transaction has taken place

  1. R has supplied Goods Worth Rs. 50,000/- to Dry & Solutions Private Limited
  2. Owner of building where registered office of corporate debtor is situated has demanded to vacant the property
  3. One of the creditors who is succeeded in case against the corporate debtor has demanded payment and is forcing company to follow the order of court.
  4. D & Solutions Private Limited sold their old machinery.
  5. Desai has instituted fresh proceeding against D & Solutions.

Which are the actions, that will be allowed and will be valid in law?

In the above illustration only action taken by Mr. R is valid; i.e. supply of essential goods or services; all other action undertaken by corporate debtor are invalid as per section 14 of Insolvency and Bankruptcy Code, 2016.

Conditions to be fulfilled for being Resolution Professional :

Illustration : Mr. R is partner in audit firm who is auditor of Hariram Private Limited; Recently Hariram Private Limited has defaulted in payment to some of its creditors; creditors filed suit against Hariram Private Limited and also approved their application for Corporate Insolvency Resolution. Mr. R has told that he is eligible to be appointed as Resolution Professional.

Whether Mr. R is eligible?

In the given case Mr. R will not be eligible as one the condition is for the last three financial years; he is not an employee or proprietor or partner of firm of auditor or secretarial auditors or cost auditors of the corporate debtor. Due to violation of this condition Mr. R will not be eligible to be appointed as Resolution Professional.

What if Mr. R was not the singing partner?

In that case also Mr. R will still not be eligible to be appointed as Resolution Professional. As there is no exception to above rule for non-signing partners.

What if Mr. R is retired from the said firm of auditor and now he is not the partner; Whether now he will be eligible to be appointed?

Whenever condition is checked it is to be checked for previous three year even if Mr. R is presently not partner but in last three financial years he was the partner and therefore, he will not be eligible to be appointed.

Whether any person appointed as who is appointed as resolution professional can be replaced?

Yes, person who is appointed as resolution professional can be replaced; following procedure is required to be followed:

  1. Committee of Creditor has to conduct a meeting in which they are required to pass the resolution with at least sixty-six per cent of voting shares. Along with this written consent will be obtained from proposed resolution professional.
  2. Committee of Creditor will forward the name of person proposed to be appointed to Adjudicating Authority.
  3. Adjudicating Authority may make the reference to Insolvency and Bankruptcy Board and thereafter if Board approves the proposed name then procedure for appointment of resolution professional will begin.

What if Board is not approving the name of proposed resolution professional?

In after reference is made by adjudicating authority to board, If within 10 days, proposed name is not approved then adjudicating authority will direct Interim resolution professional to continue to his duty till board is not approving the name.

Fibota insolvency and bankruptcy code overview

IBC Part 3

Insolvency and Bankruptcy Code, 2016 – Part 3

Introduction : In part 3 we will discuss who can be part of committee of creditor, what are the quorum requirement for meeting of committee of creditors, how company can apply for Fast Track insolvency resolution process or how can company apply for Voluntary Liquidation under insolvency and bankruptcy code, 2016. What will be other practical issues that company is required to face and what will be sequence of payment in case of liquidation.

Committee of Creditors:

The committee is constituted by Interim resolution professional. The composition of committee of creditor will be as follows

What if it is the case of Joint-financial creditor?

In case of joint financial creditor (i.e. if debt is owed by two or more financial creditor) than in that case each such financial creditor will be part of committee of creditors. Further their voting share will be determined on the basis of the financial debts owed by them to corporate debtor.

Meeting of Committee of Creditors:

Whenever any resolution is required to be passed at meeting of committee of creditors will be required to be approved by minimum 51% of the voting share of financial creditor. This we be determined based on value. e.g. If company has total debt of Rs. 1,00,00,000/- then resolution is required to be approved by 51% of creditor i.e. creditor who are holding value of more than Rs. 50,00,000/-.

However, it shall be noted as discussed in previous article that if their replacement of resolution professional then resolution is required to be approved by 66% of the voting share of financial creditor.

Whether notice is required to be severed for meeting of Committee of Creditors? If yes, then to whom it shall be given?

Yes, it is mandatory to given notice of each meeting to committee of creditors. Along with all the members of committee of creditor (in their absence to their authorized representative) notice is require to be served to suspended Board of Directors or the partners of the corporate persons, as the case may be and If aggregate dues of operational creditor are equal to or greater than 10% then notice will also be served to them also.

What is the requirement of quorum for a valid conduct of meeting?

If member having 33% voting rights are present either in personal or by audio/video means; then it will be treated as valid quorum for conducting a valid meeting.

What if meeting requisite quorum is not present?

If the requisite quorum as describe above is not present for committee of creditors meeting than meeting cannot be held and the meeting will automatically stand adjourned at the same time and place on the next day.

Whether in adjourned meeting there is requirement of quorum?

In adjourned meeting the members of committee of creditor attending meeting will be treated as adequate quorum.

Procedure after submission of Resolution Plan.

Once the resolution plan is submitted following process will be undertaken; such plan if approved by committee of creditors; it will be submitted to adjudicating authority. If adjudicating authority is satisfied then it will pass the order which will be binding on corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. On the other side if adjudicating authority is not satisfied then it may, by an order reject the resolution plan.

Whether after approval of resolution plan appeal can be filed? If yes, on which grounds?

Yes, appeal can be filed against the order of adjudicating authority can be filed. On following grounds appeal can be filed;

Whether once application which is accepted by adjudicating authority can be withdrawn?

Yes, the application can be withdrawn if adjudicating authority allows and, in such case, application shall be made by applicant with approval of ninety percent voting share of committee of creditors.

Fibota insolvency and bankruptcy code details

IBC Part 4

Insolvency and Bankruptcy Code, 2016 – Part 4

Proceeds from sale of the liquidation assets will be distributed in following order:

Whether there is any process which is relating to fast track insolvency resolution for corporate persons?

Yes, there is process which is known fast track insolvency resolution it can be applied If the company is,

  1. Small company i.e. company as per section 2(85) of Companies Act, 2013; According to section 2(85) of Companies Act, 2013; means a company which is not a public company

i) Paid-up share capital is not exceeding Rs. 50,00,000/- or such higher amount as may be prescribed by it.

II) Turnover as per last profit and loss account does not exceed Rs. 2,00,00,000/- or such higher amount as may be prescribed by it.

III) Further it shall not be holding company or subsidiary company of any company, it is not company which is registered under section 8 (Non-profit organization), Any company or body corporate which is governed by any Special Act (Electric Company, Banking Company, Insurance Company).

  1. a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government; or
  2. such other category of corporate persons as may be notified by the Central Government.

What is the time period within which fast track corporate in solvency resolution process shall be completed?

According to section 56 of the Code, the fast track corporate in solvency resolution process shall be completed within a period of ninety days from the insolvency commencement date.

Whether any extension of period is possible?

Yes, extension of period is possible if Adjudicating Authority to extend the period of the fast track corporate insolvency resolution process beyond ninety but it shall be backed by resolution passed at a meeting of the committee of creditors and supported by a vote of seventy-five per cent of the voting share.

It shall also be noted that extension will only be granted for once, and it shall not be exceeding 45 days.

Whether companies can apply for voluntary liquidation?

Yes, any corporate debtor who intends to liquidate itself voluntarily can do so, provided he has not defaulted in any manner. However, it is necessary that following conditions shall be satisfied.

Following procedure will be required to be fulfilled;

  1. Company should first prepare declaration from majority of the directors of the company verified by an affidavit stating that – 

i) They have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
II) Company is not being liquidated to defraud any person.

The above declaration shall be accompanied with following documents;

  1. Audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, (whichever is later i.e. maximum up to two financial year).
  2. A report of the valuation of the assets of the company, if any prepared by a registered valuer.

With the above declaration company will be required to furnish special resolution of members of company in a general meeting requiring company to liquidate voluntarily and to appoint insolvency professional to act as liquidator, special resolution shall be submitted within four weeks from date of declaration.

If company owes debt than in that case resolution which is approved by creditors representing two-thirds in value of the debt of the company is required to be obtained.

Fibota Ind As 10 Events after reporting

Ind-As 10

Ind-As 10: Events occurring after reporting period

Introduction: It is the basic accounting principle that financial statements are being prepared for the particular period; sometimes situation may arise that certain events may occur which impacts the financial statements materially. Now the question which arise is whether that transaction or event shall be adjusted in financial statement; whether such event shall be recognized in next financial statement, what if such event is affecting going concern of entity. We will cover all of this aspect in this article.

What are events after reporting period?

Events after the reporting period are those events which may be favorable and unfavorable and that occur between the end of the reporting period and the date when the financial statements are approved.

If we simplify this definition than,

  1. Event may be favorable; it is not necessary that only unfavorable events are considered.
  2. Event must occur after reporting period and before approval of financial statements, approval of financial statement means it will be treated as approved when board of directors approves it, in case of company; In any other case it will be treated as approved only when it is approved by body which is authorised to manage the entity on behalf of all members.
  3. In case any event is occurring after the approval of financial statement than in that case such event will not be considered as events after reporting period and the same will not be considered in next financial year itself.

What will be scenario in case where such financial statements are required to be approved by any supervisory authority also? (i.e. after approval by directors)

In such case financial statement will be treated as approved at a time when the said statements where sent to supervisory board by after the approval of directors; i.e. date on which directors approved the statement will be treated as date of approval.

What if it is the case when before the approval of financial statement interim financial statements has been issued?

Even in such case events occurring after reporting period will be considered till the approval of financial statement.

Illustration : Entity has 7 directors on board of Company; before presenting financial statement for financial year 2019-20 for approval from shareholders they have decided that they will conduct board’s meeting on 7th September, 2020 to approve the same. Before such meeting they have submitted some important financial figures to registrar of company for quarter ending on 30th June, 2020.

What will be the period, that will be considered for above definition of events occurring after balance sheet?

In above case events occurring after balance sheet will be counted from 1st April, 2020 till 7th September, 2020 (assuming on that date board of directors approves the financial statements).

What if meeting of Board of Director is Adjourned?

In that case date of adjourned meeting will be important as it had been specified that approval of financial statement is necessary and not the date on which meeting is conducted.

In case when event is classified as adjusting event than in that case such event will be adjusted in financial statement and on other side even if event is non-adjustable than it will not be adjusted in financial statement.

Illustration: M/s Siva Pvt. Ltd. got the notice to pay the additional tax before the end of financial year; entity was of the strong opinion that he will not be liable to pay such amount and disclosed such amount as contingent liability as at end of financial year. After few days court reject the plea of entity and order to pay additional tax.

Whether this event will be considered as adjusting event?

Yes, In the given case the event will be considered as adjusting event as at end of financial year there was condition, on fulfilment of which entity was liable to pay the amount of tax.

Illustration of Other events that will be termed as adjusting events.

  1. Information that there is requirement to check about impairment loss in relation assets of entity.
  2. Bankruptcy of a customer that occurring after the reporting period.
  3. It has been specified that inventory is to be valued at cost or net realizable value whichever is lower. It may happen that at after year end sale of inventory provides net reliable value which is lower than cost; in such case while determining value of closing stock at cost or NRV whichever is lower; above event will be considered as adjusting event.
  4. In case there is discovery of any error or fraud which shows that financial statements are incorrect.

Illustration of Other events that will be termed as Non-adjusting events.

  1. Fire taking place after the end of reporting period.
  2. Suit filed against company in after the reporting period and no evidence of the same existing as on the reporting period.

Special case relating to above will be discussed in next article.

Fibota Ind-As 10 Part 2

Ind-As 10 Part 2

Ind-As 10: Events occurring after reporting period

Introduction : In previous article we discussed the general concept relating to ‘events after reporting period’. In this part we will cover what are the special topic which has been given as exception to general rule; also, we will cover the relevant illustrations which will provide solutions to some practical difficulty.

Special Topics:

Long Term Loan Arrangements: It has been provided that in case of long term loan arrangement if there is breach of condition which converts liability from long term to current liability or liability which is payable on demand; and in that case entity settle such breach after financial period but before approval of financial statement; than in such case even if on balance sheet date liability to pay the amount was to be disclosed as current liability, event of settlement i.e. amount will be payable as per original terms and conditions will be treated as adjusting event.

Illustration : Entity has borrowed the funds for the 10 years; one of the condition was that entity will not take the additional borrowing from any other party; however due to some emergency need of funds on 24th March, 2020 entity borrowed the funds from one of the financial institute; due to this breach as on 31st March, 2020 the long term liability of entity become payable on demand and therefore entity was liable to disclose the amount as current liability.

What if entity enters into arrangement that this breach will not make the amount payable on demand?

In this case, as specified above that if entity settles the transaction that amount will be payable as per original terms and conditions will be treated as adjusting event and will be disclosed as long-term liability.

What if in above case entity fails to settle the transaction and amount is still payable on demand?

In such case as on balance sheet date entity if it has already classified such amount as current liability than entity is not required to make any adjustment; but if entity has followed any other method of classification (which is also generally not permissible under any other Ind-As) than entity will be required to classify such amount as current liability.

What if in above case breach has been undertaken on 2nd April, 2020?

In such case, the scenario has not been specified in exception. As per Ind-As 10 only breach which has been in crystalized before 31st March and the settlement or non-settlement of which takes place in next financial year before the approval of financial statements is to be treated as adjusting events even though no condition of such settlement exists as at the end of financial year. In case if event of breach itself takes place in next financial year than it will be adjusted in that financial year itself and no adjustment is to carried out in previous financial year even if financial statements pertaining to such financial year is not been approved. In our illustration if breach has been incurred in financial year 2020-21 than it will be adjusted in financial statement for year ending on 31st March, 2021 and not in 31st March, 2020 even if such financial statements has not been approved.

What if after settlement amount is not payable on demand but it is payable with in 12 months from end of financial year?

As per Ind-As 1 it has been specified that if liability is payable within 12 months from end of reporting period than such liability is to be disclose as ‘current liability’. Now in case even if settlement of transactions is to be treated as adjusting event if entity is liable to pay the amount within 12 months than shall continue to display such amount as under current liability; In case entity is settling the transaction in such a way that amount is not payable on demand but the amount is to be paid after 12 months than in such case amount will disclosed as non-current liability and event will be treated as adjusting event.

Transaction impacting Going Concern of Entity: It is fundamental assumption that entity will prepare its financial statements on going concern basis; i.e. entity is does not intends to liquidate nor it wants to cease trading. It may happen that after the end of financial year for which entity has prepared the financial statement on going concern basis condition exists that cast doubts on entity’s ability to continue as going concern. In such case even though the condition has come to the knowledge of entity after the end of financial year and provides no evidence of such condition as at the end of financial year; such event will be treated as adjusting event.

Illustration: What if immediately after the end of financial year there is fire in plant and entire plant is destroyed? Whether this event will be treated as adjusting event?

In this case, event will be treated as non-adjusting event; but what entity needs to understand is that if entity’s going concern is impacted than in that case event will be treated as adjusting event; difference in treating both event is in case of non-adjusting events entity will be required to disclose the events in the financial statement by way of notes; on the other hand if event is treated as adjusting event than entity will be required to adjust that event in financial statement and in the instant case where assumption going concern is not fulfilled than in that case entity will be required to make the financial statement at realizable value.

Thus, it has been made very clear from above Ind-As that what entity is required to do for the transactions or events taking place immediately after financial year but before the approval of financial statements.

Fibota Ind As 108 : Operating systems

Ind-As 108

Ind-As 108: Operating Segments

Introduction : Ind-As 108 prescribes about the reporting requirement and identification of operating segments. It is important to know for giant corporate that how they are required to report about various segments to their stakeholders from viewpoint of management; In this article we will cover how entity will identify the segments; how entity will report financial information in relation to such identified segments; what if entity wants to voluntary provide such information. This article will cover all the requirement given under Ind-As 108.

Which are the entities to whom Ind-As 108 is applicable? What if were entity is exempted with applicability of such standard but wants to disclose information in relation to operating segments?

It has been specified under Ind-As 108, that it will be applicable to company to whom Indian Accounting Standards notified under the Companies Act, 2013 is applicable. In case if company is exempted from applicability of Ind-As 108 but wants to voluntary disclose information in relation to operating segments than in that case it shall disclose information only in accordance with this standard.

Whether segment information is required under Ind-As 108 is applicable to consolidated financial statements?

In case it may happen that requirement of presentation of segment wise information is applicable to parents’ financial statement and also to consolidated financial statement than in that case only consolidated financial statements will be required to provide information in relation to such segments.

What is operating segment?

In case if all the following conditions are satisfied than in that case a component will be determined as operating segment.

Revenue earned or expense incurred can also be due to internal transfer (branch transfer within the entity for internal consumption). Further it shall be noted that it is not necessary that an component is earning revenue or it is incurring expense; having potential to do that is enough for classifying component as an operating segment other conditions are satisfied.

Entity may identify a component as operating segment even if segment in current scenario is not satisfying the requirements to be classified as operating segment but in previous period which was identifiable as operating segment.

The information will be generated by management for its internal reporting and same will be reported to the external authorities and stakeholders so that they can see information through eyes of management.

How it is determined whether a segment is reportable segment or not after identification of operating segment?

Operating segment will be treated as reporting segment in case where following conditions are satisfied.

  • When reported revenue (both external and internal sales) of an operating segment is 10% or more of the combined revenue of all operating segments. Or
  • When the absolute amount of reported profit or loss is 10% or more of

Higher or below amount in absolute terms,

  • the combined reported profit of all operating segments that did not report a loss and
  • (ii) the combined reported loss of all operating segments that reported a loss. Or
  • When assets are 10% or more of the combined assets of all operating segments. Or
  • When management believes disclosure of information about such operating segment will be useful to the users of financial statements.

It shall be noted that in case any of the one condition is satisfied than also such segment will be treated as reportable segment and entity will be mandatorily will be required to report on such segment.

Whether two operating segments can be combined and treated as one segment?

In case when segment is satisfying any of the following conditions than in that case segment can be merged and be treated as a single segment.

  • In case if such operating segments has similar economic characteristics
  • In case if such operating segments have similar nature of the products, services or similar nature of the production processes, having similar type or class of customer for their products and services, and similar nature of the regulatory environment.

Whether there are any minimum criteria for number of reporting segments?

It shall be noted that External revenue of reportable segments must be ≥ 75% of total external revenue of the entity; i.e. reportable operating segment’s external revenue shall be more than or equal to 75% of entity’s total external revenue.

In second part we will cover the additional details in relation Ind-As 108.

Fibota Independent Director eligibility in india

Independent Director

Applicability of Independent Director and provision relating to Eligibility

Who can be Independent Director?

For being independent director, any person is required to fulfill the condition mentioned under section 149(6) of Companies Act, 2013.Therefore, only following person can become Independent director:

  1. Person who in opinion of board of directors, possesses relevant expertise and experience and who is person of integrity.

  1. Person is not related to promoter or director of company or of its holding company, subsidiary company or associate company.

  1. Person does not have pecuniary relationship or transaction which is exceeding 10% of total income of such person, other than remuneration as Independent Director with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year. Pecuniary interest transaction will not include any transaction which has been entered by Independent director in ordinary course of business at arm length price.

Exception : Remuneration received in capacity of independent director or where transaction has been entered in ordinary course of business at arm length price and which is not exceeding 10% of total income of such person.

  1. Who’s relative are not holding security or interest in excess of; Rupees 50 Lahks or 2% of paid-up share capital whichever is higher; in company or its holding company or subsidiary company or associate company during the two immediately preceding financial years or during the current financial year.

  1. None of his relative is indebted to company its holding, subsidiary or associate company or their promoters, or directors during the two immediately preceding financial years or during the current financial year. The amount shall not exceed rupees 50 Lahks at any time during two preceding financial year or during current year.
  2. None of his relative has given guarantee or security in connection with indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company. The amount shall not exceed rupees 50 Lahks at any time during two preceding financial year or during current year.

  1. Further relative shall not have any other pecuniary relationship with the company or its subsidiary, or its holding or associate company and amount of which is exceeding 2% of its gross turnover. Also, if total of above three transaction (4,5,6) is exceeding the limit then also person will not be eligible to be appointed as independent director.
  2. Any person who is willing to get appointed as Independent director shall not hold (either on his own account or his together with their relatives or relatives of that person on their own account) 2% or more voting power in company.

  1. Person proposing himself to be appointed as independent director or his relative shall not be Chief Executive or Director of any non- profit organisation which is receiving twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company. Also, person will not be eligible if such non-profit organisation is holding 2% or more of the total voting power of the company.

  1. Person himself or his relative shall not be key managerial personnel or employee company or its holding, subsidiary or associate company for immediately 3 previous financial (from year in which person is proposed to be appointed); or in current financial year. But there is exception to this rule i.e. relative may be employee of company in immediately 3 preceding financial year; but again, it shall be noted exemption is for 3 preceding financial year and not for current year i.e. if person relative is employment with the company in the year in which person is proposed to be appointed (i.e. of current year) then he will attract this disqualification.

Exception : Relative may be employee of company in immediately 3 preceding financial year; but again, it shall be noted exemption is for 3 preceding financial year and not for current year i.e. if person relative is employment with the company in the year in which person is proposed to be appointed (i.e. of current year) then he will attract this disqualification.

  1. Person who is proposing himself to be appointed as Independent director or his relative shall not be employee or proprietor or a partner, for current year or for any of the three-preceding year of firm of who are auditors or cost auditors or company secretaries in practice of the company or its holding company, subsidiary or associate company.
  2. Person who is proposing himself to be appointed as Independent director or his relative shall not be employee or proprietor or a partner, for current year or for any of the three-preceding year of any legal firm or consulting firm with which company or its holding company, subsidiary or associate company has transaction of more than 10% of gross turnover of such legal or consulting firm.

Thus, from above it can be seen that for a person who is proposing himself to be appointed as independent director law is very stringent and he is required to fulfill all the above conditions simultaneously.

Fibota Independent Director

Independent Director Part 2

Applicability of Independent Director and provision relating to Eligibility

Introduction : It is important to know that who can be Independent director and which are the companies that are mandatorily required to appoint Independent directors. Whether there is any amendment which has been made in the definition of Independent Director; In this article we will cover all the aspect relevant to it.

Applicability of Independent Director:

Every Listed Companyis required to appoint Independent Director, Number of Independent directors in listed company shall be at least one-third of total number of directors on board of company. It shall be noted that here, in case while determining number of independent that are required to be appointed if number is fraction it shall be rounded upwards.

For unlisted company as per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following classes of companies shall have at least 2 directors as independent directors.

Which amount is to be taken to calculate above limit?

To calculate the above limit amount which is prevailing as on last date of latest audited financial statement is to be considered.

What if entity is also required to form audit committee?

As per section 177(2) of Companies Act, 2013; Audit committee shall have minimum of three directors and in which Independent Director shall be forming majority.

What if in current year company is not fulfilling criteria as specified above?

It has been clearly mentioned that company is required to comply with the provision even it is fulfilling any of the condition in receding three years. Therefore, if company wants any relaxation then in that case it shall be noted that none of the conditions has been fulfilled in preceding 3 years.

If we take an illustration that how much minimum number of independent directors will be required to be appointed under various scenario it will be as follows:

Particulars Directors on Board Requirement of Audit Committee Members in Audit Committee Minimum Independent directors required
Listed 9 Yes 5 3
Unlisted 8 No NA 2
Unlisted 12 Yes 5 3
Listed 8 Yes 3 3
Unlisted 4 No NA 2
Listed 7 Yes 3 3
Unlisted 9 Yes 6 4

Scenario 1: It is listed company and therefore will be required to appoint at least 1/3th directors as Independent Director and Majority of members in Audit Committee shall be Independent directors, Higher of two are required to be appointed. Therefore, minimum independent director that will be required to appointed will be 3 (1/3thof 9 rounded upward or majority in 5 members of Audit Committee i.e. 3).

Same way in scenario 4 and 6 calculation will be made to calculate minimum number of directors.

Scenario 2: In case of company being unlisted but fulfilling all the requirement specified above in rule 4, then it will be required to appoint minimum 2 directors as independent director and also if it is required to constitute audit committee then in audit committee members shall consist majority of director as Independent director.

Therefore, in Scenario 2 and Scenario 4, two directors are required to be appointed as Independent Directors (i.e. minimum as required by section 149)

Scenario 3: Minimum Independent director that will be required to be appointed will be 3. (i.e. higher of 2 which is required by section 149 and 3 which is required as per section 177 i.e. majority members in audit committee being independent directors.)

What if there is vacancy in place of Independent director? Who will fill the vacancy?

In case there is vacancy on place of independent director, it shall be noted that if company has minimum number of independent directors than there is no restriction on time limit within which independent director is required to be appointed, however if company has vacancy in place of independent director and it does not fulfills criteria of minimum independent director requirement than Board of Directors shall fill the vacancy in immediate next board meeting or within 3 months from date of vacancy whichever is later.

Whether there is any exemption which has been provided to any class of companies even if they are fulfilling the conditions specified in rule 4?

If company is a joint venture, a wholly owned subsidiary or a dormant company then in that case exemption is provided; i.e. they are not required to appoint independent directors; but it shall be noted if the above class of company are listed company then in that case again they are required to appoint 1/3thof there directors on board as Independent Director.

Fibota Ind As 24 Section Details

Maintenance of Books of Account – IND AS 24 Part 1

Maintenance of Books of Account – Ind-As 24

Introduction : In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure complete maintenance of books of accounts, which in turn will allow the assessee to focus on his main business. In this article we will analyze Ind-As 24.

Why Ind-As 24 is been introduced?

It has been seen that whenever transaction is been entered between two parties, then it is required to be recorded in books of account. If such transaction is between two unrelated parties then recognition of such in books of accounts is ordinary part of business. However, if such transaction is with related party than for better transparency it is necessary to provide specifically details relating to such transaction by way of notes is necessary.

As per Ind-As 24 it is necessary to Identify, i) Related Party, ii) Related Party Transaction, and mandatorily to disclose i) Name of related party irrespective of related party transactions ii) Transactions with related party iii) Outstanding balances with related parties and iv) Commitments with related parties.

Where such related party transactions are required to be disclosed?

It has already been stated that related party transaction are required to be disclosed; therefore, disclosure are required in separate financial statements without any doubt; however if entity is holding company or subsidiary company of any other companies than in such case consolidated financial statement is prepared; and it is important to note that in such statement inter-group balances are eliminated, and therefore, no question arises for disclosure of such transactions or outstanding balances of such group transactions.

Whether there are any other exemptions in relation to disclosure of related party transactions?

Entity is exempted from disclosures requirement in case where such disclosures are in conflict with the entity’s duties of confidentiality in terms of a statute, regulator or similar competent authority governing the entity; or the entity is prohibited by the statute, regulator or similar competent authority to disclose certain information otherwise required to be disclosed as per this standard.

Which are the transactions that are covered under related party transactions?

Any transfer of goods or any other resources or any provision of service irrespective of fact that whether price is charged or not. E.g., i) Purchase/ Sale of Goods or Property, ii) Provision of any service including leasing and iii) Provision of Guarantee and Collaterals.

Who will be the termed as related party of any entity?

*Also, there are some specific case where entity can be treated as related party.

In part two we will cover which are the parties that has been specifically treated as non-related parties, and how disclosures are to be made in financial statement of entity. Mainly we will cover the illustrations relating to each and every point given under the definition of related party

Fibota Maintenance of Books of Account

Maintenance of Books of Account – IND AS 24 Part 2

Introduction : In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure complete maintenance of books of accounts, which in turn will allow the assessee to focus on his main business.In part 1 we have discussed who will be treated as related party and other questions relating to Ind-As 24; in part-2 we will analyze the remaining portion of Ind-As 24.

Which are the parties that will not be treated as related parties?

Whether there is any exemption to government related entity?

An entity who is preparing financial statement (being referred as reporting entity) will be exempted from the disclosure requirement in relation to

  • related party transactions (ii) outstanding balances and (iii) commitments
  • in relation to transaction with government that has control, joint control or significant influence over such entity.
  • and with any other entity which is related party only due to same government has control, joint control or significant influence over that other entity.

But still reporting entity is liable to disclose (a) the name of the government; (b) the nature of the government’s relationship with the entity (i.e., whether the government has control, joint control or significant influence over the entity) (c) Any significant transaction that has impact on decision of user of financial statement.

Illustrations:

  1. R is director in XYZ limited and he is also managing director in FRD limited; whether both the companies are to be treated as related party?

No, as specific exemption is given, both the companies will not be treated as related party.

  1. SB Ltd. is subsidiary of R Ltd.; R Ltd has also three more subsidiaries namely J Ltd. T Ltd. and S Ltd.; In S Ltd. there is one director named Mr. Shiv who is also Key Managerial person in R Ltd.; S Ltd. is holding company of UB Ltd. S Ltd. has D Ltd as its associate company. Which are the parties that will be treated as related parties from separate financial statement point of view.

From prospective of R Ltd., SB Ltd., J Ltd., T Ltd., S Ltd.,   every entity will be treated as related party including D Ltd. and UB Ltd.

From prospective of UB Ltd. also all the parties will be treated as related parties.

From Prospective of D Ltd. all the parties will be treated as related party; only thing that is important to note here is if in case there was any other associate of S Ltd. than in such case it will not be treated as related part of D Ltd.

In same manner is D. Ltd is holding company of any other company (i.e., other company is subsidiary company of D Ltd.) the same would be treated as related party however, if he has any associate company than same will not be treated as related party of any of above entity.

From above it is clear that how government has tried to covered maximum entities to provide better transparency to the user of financial statement.

Fibota Book keeping Services : Overview

Maintenance of Books of Account – Penalty for Non-Compliance of Audit Provision

Maintenance of Books of Account – Penalty for Non-compliance of Audit Provision

Introduction : There are many due dates coming in upcoming period within which assessee is required to furnish books of audit report to the various revenue authority. It is important to know that what if such provision are not complied, what will be the penal consequence in case of such failure.

What if assessee fails to furnish audit report under Income Tax Act, 1962?

In case if assessee fails to furnish audit report within the due date provided (i.e., 30th September, 2020; as provided under Income Tax, 1961) than assessee will be liable to pay the penalty as prescribed under section 271B of Income Tax, 1961.

Also, assessee which is covered under the provision of International taxation will be liable to furnish the Transfer pricing audit report and due date of furnishing such report is 30th November, 2020; if assessee fails to furnish such report he will be liable to pay the penalty as prescribed under section 271E of Income Tax Act. 1961.

What if extended due date of furnishing Tax Audit report?

As per the notification issued by CBDT the extended date for furnishing audit report is 31st Decemeber,2020 for financial year 2019-20 (i.e., 01-04-2019 to 31-03-2020) and for transfer pricing audit report due date is also 31st December,2020.

What if assessee fails to get his accounts audited or furnish a report of such audit u/s 44AB?

In case of assessee fails to get his books of account audited than he will be liable to pay flat penalty of lower of lower of the following two.

  1. 5% of total Sales, turnover or gross receipts in business / profession or
  2. 1,50,000/-

Therefore, it shall be noted the amount of penalty in case of non-compliance maximum penalty amount may go up to Rs. 1,50,000/-.

What will be amount of penalty in case of non-compliance in furnishing transfer pricing report?

In case if audit report required for transfer pricing transaction is not furnished within the due date than in that case penalty as per section 271E will be flat Rs. 1,00,000/-.

Whether this penalty can be waived?

As per section 273B of Income Tax Act, 1961; penalty can be waived in case there was reasonable cause for such failure. Such reasons may be as follows:

  1. Resignation of tax auditor and consequent delay;
  2. Bona fide interpretation of the ‘turnover ‘based on expert advice;
  3. Death or physical inability of the partner in charge of the account.
  4. Labour problems such as strike, lock-out for a long period, etc.
  5. Loss of accounts because of fire, theft, etc., beyond the control of the assessee.
  6. Non-availability of accounts on account of seizure;
  7. Natural calamities, commotion, etc.

What if assessee has furnished the tax audit report but no income return has been filed by the said assessee. Can in that case penalty is levied?

It shall be noted that penalty is levied only in case assessee fails to furnish tax audit report; for non-filling of return on timely manner there is separate section for the levy of penalty (i.e., section 234F)

 What if assessee is required to get his books of account audited but has not maintained the books of account?

In such cases it is well settled position of law that assessee will be liable to pay penalty for non-maintenance of books of account and not for non-compliance of audit provision. As both penalties cannot be levied simultaneously.

It is very clear from above provision that assessee shall get his books of account audited well within time and furnish the audit report to government authority to avoid such harsh penalty.

Fibota Online TDS Return Filing Services : overview

Online TDS TCS return filling and related compliance 3 194IA

Online TDS/TCS return filling and related compliance – (Analysis of Section 194IA)

Introduction: In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194IA of Income Tax Act, 1961 along with relevant illustration.

Which are the persons that are required to deduct TDS under section 194IA?

Any person (transferee/buyer) who is making payment or who is responsible for making payment to any resident (transferor/seller) in reference to consideration on account of sale of any immoveable property (not been an agriculture land) will be liable to deduct TDS under section 194IA of Income Tax Act, 1961.

Which form is to be furnished as TDS return if deduction is under 194IA?

If person has deducted TDS under section 194IA, then such person will be liable to furnish Form 26QB. Such form is to be furnished by deductor and after successful filling such deductor will be required to furnish form 16B to the seller of the property which will describe the amount paid and TDS deducted by the buyer; such will be auto generated; only thing assessee will be required to do is, to request such form after 4-5 days of successful filling of form 26QB.

What is the threshold limit and rate of deduction under section 194IA?

As per section 194IA TDS is required to be deducted only if amount of consideration paid is equal to or exceeding Rs. 50,00,000/-; It shall be noted that this limit is threshold limit that is if the amount is exceeding Rs.  50,00,000/- than in that case person will be required to deduct TDS on entire amount and not only on the amount which is exceeding Rs. 50,00,000/-.

Whether the person whose TDS is deducted under section 194IA will be liable to file return?

In case if person whose TDS is deducted under section 194IA are required to file the return if their total income is exceeding the basis exemption limit which has been specified. Unlike section 194E there is no conditional exemption for the person whose TDS is deducted under section 194IA.

Important Points to be Noted:

  • Person who is required to deduct TDS under section 194IA will not be required to obtain TAN.
  • If payments are made in installments than TDS is required to be deducted on each installment. Also, checking the applicability of provision aggregate amount is to be considered even though amount is paid in installment.

Can assessee reduce the rate of taxation?

Under section 194IA it has been provided that applicable rate of tax will be 1%, (currently 0.75%) it shall be noted that assessee cannot apply to assessing officer for no TDS or TDS at lower rate under Section 197 by filling form-13.

What will be time when TDS is required to be deducted?

TDS will be required to be deducted at time of payment or crediting account of payee in books of payer whichever is earlier.

What if such amount is credited to suspense account?

In case even if amount is credited to suspense account or account of any name, then in that case it is considered as credited to account of payee and TDS will be required to be deducted at time of such credit.

Illustrations : Mr. J is an Indian resident; he has sold a vacant land during the year financial year 2020-21. He has received Rs. 26,00,000/-from each of two co-buyers of the land. He is of the opinion that TDS will not be applicable as such transaction is not exceeding the limit. Determine whether TDS under section 194IA is applicable?

It shall be noted that provision of deduction of TDS under section 194IA is applicable to payer when he is making payment to any resident person and the payment is exceeding Rs. 50,00,000/-; Also, it is well established position of law that in case of co-owner separate limit is to be considered. In instant case even though total amount of transaction is Rs. 52,00,000/- the consideration paid by each of co-owner is Rs. 26,00,000/-. Therefore, 194IA will not be applicable.

What if Mr. J (seller of property) was Non-resident?

In case Mr. J is non-resident than in that case both the buyer will be required to deduct TDS as required under section 195; as section 194IA is applicable only in case when amount is paid to resident person.

From above it is very clear that who all are the person that are required to deduct TDS and what will be the rate of deduction or what will be the threshold limit for deduction.

Fibota Packages for TDS return filing Services Overview

Online TDS TCS Return Filling and Related Compliance 3 194IB

Online TDS/TCS return filling and related compliance – (Analysis of Section 194IB)

Introduction : In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194IB of Income Tax Act, 1961 along with relevant illustration.

Which are the persons that are required to deduct TDS under section 194IB?

According to section 194IB of the Income Tax Act, 1961; assessee is required to deduct TDS in case of payment of rentals i.e., it prescribes that if assessee is Individuals or HUF; and whose gross receipt or turnover is not exceeding Rs. 1,00,00,000/- in previous financial year (Rs. 50,00,000/- for professionals) and who is paying monthly rent of more than Rs. 50,000/-.

Which are the items for which if rentals are paid than it will be covered under above section?

As per section 194IB if amount is paid as rent or lease or sub-lease or any other similar arrangements, for asset being Building including factory building, Land, Land appurtenant to a structure including factory building, Machinery, Plant, Furniture, Equipment, Fittings than in such case TDS will be deducted at the rate of 5% of such amount.

Which form is to be furnished as TDS return if deduction is under 194IB?

If person has deducted TDS under section 194IB, then such person will be liable to furnish Form 26QC. Such form is to be furnished by deductor and after successful filling such deductor will be required to furnish form 16C to the person to whom such rent is paid which will describe the amount paid and TDS deducted by the tenant; such certificate will be auto generated; only thing assessee will be required to do is, to request such form after 4-5 days of successful filling of form 26QC. This certificate is to be provided by tenant within 15 days from due-date of furnishing 26QC.

What is the time when TDS is required to be deducted under section 194IB?

Person will be required to deduct the TDS, on earlier of this event

  1. Month in which premises is vacated or
  2. Month in which agreement is terminated or End of financial year.

What will be procedure after deduction of TDS?

After deduction of TDS person will be required to file 26QC within 30 days from date of deduction, this is challan-cum-statement whereby assessee will be able to pay the tax as well as will be able to file the statement.

What is the threshold limit and rate of deduction under section 194IB?

As per section 194IB TDS is required to be deducted only if amount of consideration paid exceeding Rs. 50,000/- per month; It shall be noted that this limit is threshold limit i.e., if the rent is exceeding Rs.  50,000/- per month than in that case person will be required to deduct TDS on entire amount and not only on the amount which is exceeding Rs. 50,000/-.

What if the recipient of rent is not having Permanent Account Number?

It shall be noted that in case if recipient of rent does not have a valid permanent account number than in that case TDS is to be deducted at the rate of 20%. Further is shall be noted that when deduction at the rate of 20% is applicable than TDS deducted shall not exceed the rent payable for the last month of the previous year or the last month of the tenancy. Further, person who is required to deduct TDS under section 194IB will not be required to obtain TAN.

*TDS will not be applicable on Deposit

*While calculating limit of above section aggregate total is to be seen, (i.e., if rent paid   for plant and machinery is Rs. 50,000/- for furniture Rs. 1,80,000/- and for equipment’s  it is Rs. 40,000/- than in that case total rent is exceeding Rs. 2,40,000/- and therefore person will be covered under the provision.

Fibota Online TDS TCS return filling and related compliance 194E india

Online TDS TCS Return Filling and Related Compliance 194E

Online TDS/TCS return filling and related compliance – (Analysis of Section 194E)

Introduction: In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194E of Income Tax Act, 1961 along with relevant illustration.

Which are the persons that are required to deduct TDS under section 194E?

According to section 194E of Income Tax Act, 1961; if any person is making payment in respect of income and person referred under section 115BBA of Income Tax Act, 1961; than in that case payer will be liable to deduct TDS on such payment.

What is Section 115BBA?

In case if any person who is

  • Sportsman (including an athlete) and
  • not a citizen of India and
  • non- resident and

he is receiving income by way of participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BBA) or sport; or advertisement; or contribution of articles relating to any game or sport in India in newspapers, magazines or journals; than in that case TDS will be deducted at the rate of 20% on amount paid.

or in case if amount is paid or payable or guaranteed to be paid to any person

  • who is non-resident sports association or institution,
  • in relation to any game or sport played in India (not being in nature of betting/gambling or lottery);

in this case also TDS will be deducted at the rate of 20% on amount paid.

or in case if person who is an entertainer, and

  • who is not an Indian citizen and,
  • who is non-resident,

than in this case TDS will be deducted at the rate of 20% of income received or receivable from his performance.

Whether the person whose TDS is deducted under section 194E will be liable to file return?

In case if person whose TDS is deducted under section 194E will not be liable to file return of income in case if both the conditions are simultaneously fulfilled.

  1. During that relevant previous year, he has only income which is covered under section 115BBA (as described above)
  2. and relevant TDS has also been deducted from such amount.

Which form is to be furnished as TDS return?

If person has deducted TDS under section 194E, then such person will be liable to furnish Form 27Q. Such form is to be furnished by deductor on quarterly basis.

What is the threshold limit and rate of deduction?

As per section 194E TDS is required to be deducted irrespective of quantum of amount.

Important Points to be Noted:

  • In above case where person is receiving income as specified under section 115BBA than he will not be allowed to deduct any expenditure in respect of earning such income, or any deduction allowed under chapter VI-A of Income Tax Act 1961; neither the person will be allowed to set-off losses nor basis exemption limit will be applicable to such person; Flat rate of 20% is to be followed for taxation of such Income.
  • It shall be noted that even in case if payment is to non-resident section 195 will not be applicable as section 194E will override that section and other section.
  • Further, the TDS rate will be added with applicable cess and surcharge.

Whether person will have option to go for normal taxation scheme?

No. Person will not have option to go for normal taxation for income specified under section 115BBA as such provision is to be mandatorily applicable.

Can assessee reduce the rate of taxation?

Under section 194E it has been provided that applicable rate of tax will be 20%, it shall be noted that assessee cannot apply to assessing officer for no TDS or TDS at lower rate under Section 197 by filling form-13.

What will be time when TDS is required to be deducted?

TDS will be required to be deducted at time of payment or crediting account of payee in books of payer whichever is earlier.

What if such amount is credited to suspense account?

In case even if amount is credited to suspense account or account of any name, then in that case it is considered as credited to account of payee and TDS will be required to be deducted at time of such credit.

Illustrations : Mr. R has is an Indian resident non-citizen; as he is playing in football team; during the year he has received Rs. 2,00,000/- in financial year 2020-21 from one the American agencies in respect of matches played in USA. Whether such American Agency will be liable to deduct TDS? How Income will be taxed in hand of Mr. R.

It shall be noted that provision of deduction of TDS is applicable to any person; but applicability of Income Tax Act, 1961; is restricted to India therefore, such American agency will not be liable to deduct TDS.

Further if the person is resident than in that case his global income is taxable in India; further as per section 115BBA (Special rate of tax) is applicable only to Non-resident being Non-citizen; therefore; Mr. R will be liable to tax in respect of such income at normal rate; where he can avail the basic exemption limit and no tax will be paid in this as the amount is less than basis exemption limit.

What if Mr. R was Non-resident?

  1. If Income is received in India: In that case only change will be, in taxability of Income of Mr. R. As per section 115BBA (Special rate of tax) it is applicable to Non-resident being Non-citizen; and therefore; Mr. R will be liable to tax in respect of such income at special rate of 20% to be increase by appropriate rate of surcharge and cess. In above case total tax payable will be Rs. 41,600/- (being Rs. 2,00,000/- *20% which will be Rs. 40,000/- to be increased by 4% cess rate, totaling to Rs. 41,600/-). It shall be noted that person will not be eligible for rebate as rebate will be available only to residents.
  2. If Income is received outside India: As income is received outside India and matches are also played outside India; none of the event (i.e., of accrual and receipt arises in India) income will not be taxable in India.

What if Mr. R is Non-resident and Income is received in India but he wants Income to be taxed at normal rate?

Section 115BBA is mandatorily to be followed; if person is falling under the preview of said section than in that case it is to be mandatorily followed by him; Mr. R will not have option to taxed such income at normal rate.

What if the Mr. R was a referee of the match and not the player?

In said case it is we established position of law that section 115BBA will not be applicable as it applicable only to any person other than sports man. Therefore, such income will be taxed as if it is normal income.

This are all the questions relating to section 194E which may arise to assessee.

Fibota section 194H - TDS under section

Online TDS TCS Return Filling and Related Compliance 194H

Online TDS/TCS return filling and related compliance – (Analysis of Section 194H)

Introduction : In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194H of Income Tax Act, 1961 along with relevant illustration.

Which are the persons that are required to deduct TDS under section 194H?

Section 194H is applicable to any person who is responsible paying an amount as commission or brokerage to a resident, is require to deduct TDS. It shall be noted that if person paying commission (payer of commission) is Individuals and HUF than they will be liable to deduct TDS only in case where turnover/receipts of assessee is exceeding the specified limits i.e., Rs. 1 crore in case if entity is operating as business entity or Rs. 50lakhsin case of professionals. If Commission payable is in nature of insurance commission then TDS is deductible under section 194D and if commission is payable in respect of sale of lottery tickets than in that case TDS is deductible under section 194G. Both the above commission will not be covered under section 194H.

What if commission is paid to non-resident?

In case if commission is paid to non-resident than in that case section 195 will be applicable; as section 194H is applicable only is case if payment is made to resident.

What is the threshold limit and rate of deduction?

As per section 194H TDS is required to be deducted only in case where amount payable is exceeding Rs. 15,000/-. This is limit is per payer per annum; rate of deduction will be 5%.

Illustration: XY Ltd. paid Rs. 10,000/- as commission in August, 2020 to Mr. Rahu; after 2 months they again paid Rs. 6,000/- as commission in month September, 2020. Assessee is of the opinion that no TDS is deductible as in none of the transaction is exceeding limit. Determine whether TDS is deductible in such case?

Contention of assessee is not valid. It has been clearly specified that limit is per annum per payer and therefore, TDS will be applicable. The amount on which TDS will be applicable is Rs. 16,000/- as the limit is threshold limit and not exemption limit. The rate of deduction will be 5% and the amount that will be deducted as TDS will be Rs. 800/-.

What if above commission was paid to non-resident?

In case if above commission is paid to non-resident than in that case Section 195 of Income Tax Act, 1961 will be applicable; there is no exemption limit which has been specified under section 195and therefore TDS will be deducted on entire amount at effective rate as specified under finance act; increased by rate of health and education cess or rate which has been specified under double taxation avoidance agreement.

Can assessee reduce the rate of taxation?

Under section 194H it has been provided that applicable rate of tax will be 5%, however it shall be noted that assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197 by filling form-13.

What will be time when TDS is required to be deducted?

TDS will be required to be deducted at time of payment or crediting account of payee in books of payer whichever is earlier.

What if such amount is credited to suspense account?

In case even if amount is credited to suspense account or account of any name, than in that case it is considered as credited to account of payee and TDS will be required to be deducted at time of such credit.

Exemption that are required to be noted:

  • In case amount is payable or paid by BSNL or MTNL in nature of commission or brokerage to their public call office franchisees than no TDS is required to be deducted.
  • In case amount is paid in form of bank guarantee commission than no TDS is required to be deducted as it has been specified through cases law that; in such transaction no agent principal relation exists and therefore, there is no requirement to deduct TDS in such transaction.

What if commission is paid by employer to its employee?

In case if commission is paid employer to his employee in nature of employment than TDS will be deducted under section 192 of Income Tax, 1961; and not under 194H.

Whether TDS is deductible on GST amount?

It has been specified by the government that TDS will not be deducted on GST portion. i.e., if Invoice amount is Rs. 10,000/- and GST amount on such bill is Rs. 1,800/- then TDS will be deducted only on Rs. 10,000/-.

Illustration : XY Ltd. transferred goods worth Rs. 10,00,000/- in August, 2020 to one of its agent Mr. Sahu; after 2 months here limited Rs. 11,80,000 out of Rs. 12,00,000 (total consideration received by him) and he decided to retain remaining Rs. 20,000 as commission; XY Ltd. didn’t deducted TDS on such commission determining that the said has been retained by his agent and not paid him as commission; Determine whether TDS is deductible in such case?

The contention of XY Ltd. is not valid as it has been specifically clarified through a circular that assessee will be liable to pay TDS even in case where commission has been retained by agent and not actually paid by principal.

What if it is normal sale purchase transaction (i.e., Mr. Sahu is customer) and the above amount is discount amount?

In that case no TDS is to be deducted under section 194H as it will not fall under the preview of levy (i.e., it will be treated as ordinary sale purchase transaction.)

What if in same situation (as determined under illustration 1) Mr. Sahu an agent has remitted the entire amount after that his principal has provided him concession on next purchase or rebate?

In case if rebate has been paid to agent Mr. Sahu than such will be covered under section of 194H and will be treated as commission and TDS will be deducted.

On other side it may happen that principal is providing concession to agent on his next purchase instead of giving commission than in said case also it will be treated as commission an assessee being principle will be liable to deduct TDS.

This are all the questions relating to section 194H which may arise to assessee.

Fibota E-way Bill for GST Returns

Unlocking E-way Bill

Online filling of GST returns – Unlocking E-way Bill

Introduction : In our previous article it has been already specified that if turnover of assessee is exceeding the prescribed limit and assessee has not filled the GSTR-3B or CMP-08 for two or more consecutive period than in that case their e-way bill generation facility will be blocked. Now it is important to know that if such facility is blocked, which application and document will be required to furnished.

Which form is required to be filled for unblocking e-way bills?

For unlocking e-way bill generation facility assessee will be required to furnish form EWB-05 to its jurisdictional tax official. This form will be available online on GST login portal.

Whether assessee will be required to pay any fees while filing such form?

If assessee is furnishing EWB-05 than in that case no fees will be required to be paid by the taxpayer.

From where person can file EWB-05 and what will the path where such form will be available?

Person will be required to online through online portal than such person will be required to be navigate to Services> User services> My Applications than person will be required to select “Application for unblocking of E-way bill”. Along with this person will be able to furnish documents up to four attachment.

What will be process after the application?

After application will be filled online by assessee such application will populated to dashboard of jurisdictional tax official; after that jurisdictional tax official an issue a notice for personal hearing to the taxpayer; after that taxpayer can file their reply to the notice online along with all the supporting documents. If such officer is satisfied than tax officer will approve such EWB-05 by ordering unblocking of e-way bill generation facility by passing the order in EWB-06.

Whether application filed by assessee can be rejected?

Yes; jurisdictional tax officer can reject such application if he is not satisfied by passing order through EWB-06 If assessee’s e-way bill generation facility is blocked, and his application in form EWB-05 is rejected than in that case; person will be required to file there pending return only after that assessee will be able to restore e-way bill generation facility.

Therefore, it is important for assessee that he ensure properly filling of GSTR return in timely manner.

Fibota Monthly payment Details

Salient Features of Quarterly Return Filing

Salient features of Quarterly Return filing & Monthly Payment of Taxes (QRMP) Scheme

Introduction : Government under news and update section has notified scheme for quarterly return filing and monthly payment of taxes; it is important to know which are the taxpayers that are eligible to avail the scheme or which are the taxpayers who has option file return on quarterly basis. In this article we will cover all the relevant questions in relation to this scheme. Person will be filling GSTR-3B and GSTR-1 on quarterly basis

Who is eligible assessee and what is the effective date of scheme?

Scheme will be effective from 1st January, 2021; to be eligible under this scheme assessee shall have annual aggregate turnover up to Rs. 5 Crore in previous financial year and who is required to file Form GSTR 3B.

If during current year annual aggregate turnover is exceeding Rs. 5 Crore than assessee will be ineligible to for the scheme from next quarter.

Illustration : Turnover of assessee was Rs. 4 Crore in preceding financial year in current year turnover of assessee in first quarter (April-June) is Rs. 2 Crore in second quarter (July-Sep) is Rs. 2 Crore in month of November turnover of assessee exceeded Rs. 5 Crore.

What is the time period for which assessee will be eligible to opt for above scheme?

In the given case as stated earlier person will be eligible to opt for composition scheme if annual aggregate turnover up to Rs. 5 Crore in previous financial year; he can opt for this scheme in current year up to the turnover of Rs. 5 Crore; in case his turnover exceeds Rs. 5 Crore than in that case assessee will be ineligible to for the scheme from next quarter. Therefore, person will be eligible to opt for composition scheme only up to 3rd quarter; after that he will be required to file return on monthly basis.

Whether any person who has obtain new registration or who has opted out of composition scheme can opt for this scheme of quarterly filling of return?

Yes, any person who has obtained new registration or who has opted out of composition scheme can opt for monthly payment of tax and quarterly filling of return.

What if assessee is registered in more than one states; Whether they can opt for scheme under GSTN of one state and normal scheme for other state/states or vice-versa?

The scheme is applicable GSTN wise and not PAN wise i.e., it may happen that one GSTN is opting for the scheme and another GST is not opting for quarterly return filling and monthly tax payment scheme.

What is the time limit within which person is required to opt for the scheme?

There is no limit to opting such scheme person can avail such facility at anytime throughout the year at any time; further option once exercised, will be continue till registered person revises such option or he becomes ineligible due to turnover exceeding specified limit (i.e., Rs 5 Crore).

How changes on portal will be made and how assessee will be migrated by default?

Assessee who has furnished the return in Form GSTR-3B for the month of October, 2020 by 30thNovember, 2020; and whose annual aggregate turnover in financial year 2019-20 is up to Rs. 5 Crore, then such person will be automatically migrated for above scheme.

  • If annual aggregate turnover in financial year 2019-20 up to Rs 1.5 Crore and who has furnished GSTR-1 on quarterly basis than for him default return period will be quarterly basis.
  • If such above prescribed person has furnished GSTR-1 on monthly basis than in that case default return option for him will be on monthly basis.
  • In case if annual aggregate turnover in financial year 2019-20 more than Rs 1.5 Crore and is up to Rs 5 Crore; in preceding financial year than default return filing period will be on quarterly basis.

Such person who are can be migrated by default to quarterly filing of return and wants to file the return on monthly basis than in that case such person can choose to remain out of the scheme by exercising their option from 5thDecember, 2020 till 31st January, 2021.

How monthly payment of tax is to be done in case person opts for such scheme?

In case if person opts for the scheme than he needs to pay tax on 25th of next month in case of first and second month of the quarter and in challan for payment of tax he will be required to select “Monthly payment for quarterly taxpayer”. Above payment will be used by person for adjusting liability in form GSTR-3B which will be filed quarterly by the taxpayer.

Fibota Recents updates on section 12A

Recents updates on section 12A

Recent amendments under section 12A of Income Tax Act, 1961.

  1. Introduction : Recently government has made major changes relating to Income tax provisions, specifically applicable to charitable trust registered. Union budget, 2020.Under the new tax regime, she proposed to amend Section 10(23C), Section 11, Section12A, Section12AA, Section 80G and proposed to insert a new Section 12AB.
  2. For understanding charitable trust has been bifurcated in four categories
  • Charitable / religious trusts/ institutions etc. registered under existing laws. (‘A Category’).
  • Charitable / religious trusts/ institutions etc. whose registration expired under the new provisions in 5 years. (‘B Category’).
  • Charitable / religious trusts institutions etc. having provisional registration under new provisions. (‘C Category’).
  • Charitable / religious trusts/ institutions etc. acquiring new registration (‘D Category’).
Requirement A Category B Category C Category D Category
Application to be made for registration Charitable trusts and exempt institution which are already registered under section 12A or section 12AA of Income Tax Act, 1961 will now be required to reapply online for registration the provision will come into implementation from 1stOctober,2020. Atleast Six months prior to the expiry of the registration. i.e. registration provided will be valid for the period of five years Within Six Months from the commencement of activities or six months prior to the expiry of provisional registration, whichever is earlier. Atleast one month prior to the commencement of the previous year relevant to the assessment year for which approval is sought.
Time period in which order shall be passed Within three months, to be calculated from the end of the month in which the application was received. Within six months to be calculated from the end of the month in which the application was received. Within six months, respectively, calculated from the end of the month in which the application was received. Within one months to be calculated from the end of the month in which the application was received.
Application to be made for 80G Within three months from the Commencement of the new provisions i.e. 1stOctober,2020. Atleast Six months prior to the expiry of the registration. Within Six Months from the commencement of activities or six months prior to the expiry of provisional registration, whichever is earlier. Atleast one month prior to the commencement of the previous year relevant to the assessment year for which approval is sought.
  1. Important points:
  • It is provided in section 12AB that where the trust or institution is already registered under section 12A or section 12AA and on an application is made under section 12A(1)(ac)(i), registration shall be granted by the Principal Commissioner or the Commissioner by passing an order within a period of three months from the end of the month in which the application was received and such registration shall be valid for a period of 5 years.
  • This amendment will require every trust or institution which are already registered to apply again and in case such application is not made, then, by implication, the registration shall stand cancelled on the expiry of three months i.e. 31st December, 2020; with the consequence that such trust or institution shall not be eligible for claiming exemption under section 11 of the Act.
  • Any registration granted u/s 12AB(1)(a) or u/s 12AB(1)(b) can be cancelled subsequently if the Principal Commissioner or the Commissioner is satisfied that –

(a) the activities of the trust or institution are not genuine; or

(b) are not carried out as per the objects of the trust or institution; or

(c) the trust or institution has not complied with the requirement of any other law for the time being in force as is material for the purpose of achieving its objects and the order or direction or decree, by whatever name called, holding that such non-compliance has occurred has attained finality or has not been disputed, after giving a reasonable opportunity of being heard to the trust or the institution.

  1. Documents Required

(a) Where the trust is created, or the institution is established, under an instrument, self-certified copy of the instrument creating the trust or establishing the institution;

(b) Where the trust is created, or the institution is established, otherwise than under an instrument, self-certified copy of the document evidencing the creation of the trust, or establishment of the institution;

(c) Self-certified copy of registration with Registrar of Companies in case trust is registered under section 8 of Companies Act, 2013.

(d) Where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the trust or institution relating to such prior year or years (Maximum up to 3 years immediately preceding the year in which the said application is made) for which such accounts have been made up.

(e) Self-certified copy of existing order granting registration under section 12A or section 12AA, as the case may be; and

(f) Self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA,as the case may be, if any.

5.Additional Compliance to trust registered under section 80G:

  • Similarly, charitable trusts and exempt institutions which already have section 80G certificate will now be required to reapply online for registration or approval by December 31, 2020. The registration shall remain valid for 5 years.
  • Further, the charitable/religious trusts institution etc. shall file a statement of receipts of donation to the Income tax authority.
  • Also, the charitable/religious trusts institution etc. will be required to furnish the donor, a certificate specifying the of donation, containing such particulars and on the basis of which donor will be provided with deduction under 80G directly in the return of income on the basis of the prescribed statements.

6.Question may arise:

Question : Whether any form has been prescribed for the said registration?

Answer : No. currently no form has been prescribed for the said registration.

Question : Whether it is compulsory to comply with the provisions of 12AB?

Answer : According to amendment it will be mandatory for every trust or institution which are already registered to apply again and in case such application is not made, then, by implication, the registration shall stand cancelled on the expiry of three months i.e. 31st December, 2020; with the consequence that such trust or institution shall not be eligible for claiming exemption under section 11 of the Act.

Question : Whether any trust registered under 80G is required to apply for re-registration?

Answer : Yes, charitable trusts and exempt institutions which already have section 80G certificate will now be required to reapply online for registration or approval by December 31, 2020. The registration shall remain valid for 5 years.

Question : Whether such there is any additional requirement prescribed under section 80G?

Answer : Further, the charitable/religious trusts institution etc. shall file a statement of receipts of donation to the Income tax authority. Further they we also be required to furnish certificate to donor in respect of his donation.

Question : Which Online Form needs to be filed for Annual Statement of Donation?

Answer : The Form needs to be filed Online by the person authorized by Trust or Entity within such time as maybe prescribed by the Income Tax Department. The Income Tax Department has not yet come out with guidelines or forms for the same.

Question : Can Trust Entity Revised the Annual Statement of Donation?

Answer : If Annual Statement of Donation contains any mistakes or there is a need for any addition or updation of information in the same then a correction
statement can be filed like we file revised Income Tax and TDS Returns.

Question : What if Trust or Entity Fail to File Annual Statement of Donation?

Answer : Incase there is a delay in filing according to section 234G late fee of Rs. 200/- per day shall be applicable. Further a penalty of Rs. 10,000/- which may go up to Rs. 10,00,000/- can be levied as per section 271K.

Fibota Provisions relating to EQUALISATION LEVY

Equalisation Levy

Equalisation Levy – CHAPTER VIII IN THE FINANCE ACT, 2016

 

Introduction : Government vide finance act, 2016 inserted equalisation levy, it is necessary to know that when assessee is required to deduct, what will be the rate of deduction, and what are the other provisions relating to equalisation levy. Further there is also amendment which has been inserted last year, effect of which has resulted in widening the scope of equalisation levy.

Who is required to deduct equalisation levy?

If any person being resident in India or non-resident in India but having permanent establishment in India is paying any amount of consideration for specified service to person being non-resident in India and not having permanent establishment in India; than such payer will be required to deposit equalisation levy to the government.

What will be the rate of equalisation levy and whether there is any exception?

  • The payer shall be carrying business or profession and payment made is in relation such business or profession.
  • The amount of payment shall be exceeding Rs. 1,00,000/-.
  • The rate of deduction will be 6% of Gross amount paid.
  • The provision of equalisation levy will not be applicable to Jammu and Kashmir.

Which are the services which will attract above levy?

(i) Online advertisement service;

(ii)Any allowance for digital advertising space or any other service for the purpose of online advertisement;

will attract above levy. For the above purpose ‘Online’ means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network.

Whether assessee on whose account equalisation levy is deducted can avail Tax credit of such levy?

It has been specifically clarified by government that assessee shall note that the above levy is different from Income Tax, and therefore assessee will not be allowed with any credit of any amount deducted on his account as equalisation levy.

Whether will be treatment of Income in hands of person who has received it after deduction of equalisation levy?

If any person is in receipt of Income on which equalisation levy has been deducted than in such case, said receipt will be exempted in hands of recipient.

What is the amendment for widening the scope of equalisation levy?

From assessment year 2021-22, equalization levy at the rate of 2% (of gross amount of consideration) would be chargeable on consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it—

(1)to a person resident in India; or

(2)to a non-resident in the specified circumstances as provided below; or

(3)to a person who buys such goods or services or both using internet protocol address located in India.

         *Specified Circumstances

(1) Sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though internet protocol address located in India; and

(2) Sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India.

Again, if such e-commerce operator has permanent establishment in India and service is connected with such permanent establishment; than there will be no equalisation levy.

Further, if above e-commerce operator has provided the service which attracts the levy under section 165 (mentioned in question no. 3) than equalisation levy will be deducted under that section.

Also, if sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than` 2 crore during the previous year than no equalisation levy will be deducted.

The rule, that amount of payment is exceeding Rs. 1,00,000/- and the consideration paid is in nature of business payment (i.e., transaction undertaken by person who is carrying business and profession) will be applicable to above amendment also.

Service to which amendment will be applicable:

  • online sale of goods owned by the e-commerce operator; or
  • online provision of services provided by the e-commerce operator; or
  • online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
  • any combination of activities listed in (i), (ii) or (iii) above

Important point that is to be considered here is unlike above section 165 where the service recipient is required to deduct the levy, here the person who is receiving the consideration amount is liable to collect the levy and deposit the same to the government.

Within What time Equalisation levy is required to be deposited?

Such levy is required to be deposited by 7th of next month, from the month in which such levy is deducted. If it is the case of service which is relating to e-commerce operator (i.e., the service inserted by amendment) the date of payment will be for quarter ending on 30thJune, 7th July; for quarter ending on30thSeptember, 7thOctober; for quarter ending on 31st December, 7th January and for quarter ending on 31st March, 31st March.

Even in case if person has failed to deducted such levy than also, he will be liable to pay such amount from his own pocket.

In this part we have discussed the basics of equalisation levy, in the second and concluding part we will discuss the remaining provisions relating to equalisation levy.

Fibota India & Scope of Equalisation Levy

Equalisation Levy (Part-2)

EQUALISATION LEVY – CHAPTER VIII IN THE FINANCE ACT, 2016 (PART-2)

Introduction : Government vide finance act, 2016 inserted equalisation levy, it is necessary to know that when assessee is required to deduct, what will be the rate of deduction, and what are the other provisions relating to equalisation levy. Further there is also amendment which has been inserted last year, effect of which has resulted in widening the scope of equalisation levy.

Which are the statements/returns that are required to be filed by person collecting e-commerce levy?

Every assessee who was required to collect equalisation levy (Including e-commerce operator after amendment; are required to furnish FORM-01 and due date for such form will be 30th June immediately of that financial year.

What is the time limit within in which above statement can be furnished, if not furnished within time limit given above?

If due to any reason assessee has failed to furnish above statement within above given time limit than in said case, he may furnish such statement before the expiry of two years from the end of the financial year in which the specified service was provided, or e-commerce supply or services was made or provided or facilitated.

Whether the statement furnished above can be revised?

It is important to note, that assessee will be eligible to revise the above furnished statement, if it has been furnished within the time limit prescribed above (30th June). If assessee wants to revise such statement than he will be required to revise before the expiry of two years from the end of the financial year in which the specified service was provided, or e-commerce supply or services was made or provided or facilitated.

What is the time limit within which processing such statement is required to be completed by department?

Department will be required to process such statement in terms of arithmetical error, interest calculation, determination of refund and issuance of it; within one year from the end of the financial year in which the statement or revised statement is furnished. It is very clear that every revised statement will give one more year to department for processing of the same. Further one year starts from end of financial year in which such statement is revised or furnished.

What if e-commerce operator has failed to deposit an amount in timely manner?

Assessee will be liable to pay Interest at the rate of 1% per month or part of month in case he has not paid such collected amount or short paid to the account of central government. In case of short payment interest will be levied only on proportionate amount which is short paid. Along with interest, person is required to collect equalisation levy (Not being e-commerce operator)will be require to pay penalty of` 1,000 for every day during which the failure continues; (Maximum up to the amount of equalisation levy).

What if person failed to collect equalisation levy?

In case if person failed to collect the equalisation levy than in such case, he will be liable for following:

  • Amount of equalisation levy will be required to be deposited from his own pocket.
  • Interest at the rate of 1% per month or part of month on amount of short-payment.
  • Penalty equal to the amount of equalisation levy.
  • Penalty of Rs. 1,000/- per day after the expiry of 7th day of succeeding month in which equalisation levy was required to be deducted.(Not to be levied on e-commerce operator)
  • Disallowance of such expenditure in the hands of the payer (unless the defect is rectified).
  • Penalty of Rs. 100/- per day for which failure continuous (Failure to furnish statement within 30th June).

Whether opportunity of being heard is given to assessee on whom penalty is to be levied?

It has been stated that no order will be passed, imposing penalty on assessee unless he has been provided with opportunity of being heard. Therefore, department will be required to provide assessee with opportunity of being heard.

What are the remedies available with assessee against order of penalty?

If assessee is aggrieved by an order imposing penalty, then he may file appeal to the Commissioner of Income-tax (Appeals) within a period of 30 days from the date of receipt of the order of the Assessing Officer. He will be required to furnish Form-3 and will be required to pay a non-refundable fee of Rs. 1,000/-.

What if assessee is aggrieved by the order of Commissioner of Income-tax?

In case if assessee is aggrieved by the order, then he may file appeal to appellate tribunal within 60 days from the date on which the order sought to be appealed against is received by the assessee. Further in such case assessee is required to furnish Form 4 and non-refundable Rs 1,000/- as fees.

Thus, from above both the parts we are very clear with the provision of equalisation levy including amendments made in last year.

Fibota Deduction of Tax at Source (TDS) from Fibota

Section 195

Analysis of Section 195 of Income Tax Act, 1961.

 

Introduction : Whenever any payment is made to any non-resident than whether it is subject to TDS or not what will be the rate of deduction and whether there is any exemption from deduction of TDS; all the relevant points has been covered under section 195 of Income Tax Act, 1961. In this article we will cover all the relevant provisions relating to tax deduction at source in case of payment to non-resident.

To whom Section 195 is applicable?

It has been stated under section 195 of Income Tax Act, 1961; that in case of any person responsible for making payment to any non-resident will be required to deduct tax at source. This implies that if any Resident is making payment to non-resident than the section will get triggered and if any non-resident is making payment to non-resident than also section will get trigged.

The question arises that whether any person residing outside India has to follow the provision of India?

Through insertion of explanation (1) to section 195, it has been provided that even in cases where person is non-resident and he is making payment to non-resident, then also he will be liable to deduct TDS on such payment.

Interpretation of our Expert’s: In case where payment is made by non-resident to another non-resident and it is the case were such income has been received in India or accrued in India (or both)and any one person of above two is bond to comply with Indian laws and regulations than TDS should be deducted on such payments.

Whether person being resident but not ordinary resident is covered under section 195?

It has been stated under section 195 that the provision will be applicable only in case were payment is been made to non-resident person. The said provision is not applicable to the person if the person is resident or in case if person is resident but not ordinary resident.

Whether there is any threshold limit?

It has been stated that on case of payment of Any Sum to non-resident TDS is required to be deducted. Therefore, there is no threshold limit. It shall also be noted that deduction of TDS is applicable to any payment chargeable under the provisions of Income Tax Act. Therefore, provisions are equivalently applicable to revenue from sale of goods and revenue from sale of service.

What if person required to make the payment, pays the amount without deduction of TDS?

In case if person required to make the payment, pays the amount without deduction of TDS than in such in that case principle of grossing will be applicable. According to said principle if person is required to make the payment of Rs. 2,000/- and makes such payment without deduction of TDS where rate of TDS is 10% than in that case gross amount for purpose of calculation of TDS will be Rs. 2,222/- and the amount of TDS that person will be liable to pay to government will be Rs. 222/-.

Whether there is any other remedy for the person to reduce the amount on which TDS is to be deducted?

As per section 195(2) of Income Tax, 1961; assessee can make an application to the assessing officer to determine the appropriate proportion of such sum which is chargeable to tax on that portion payer will be liable to deduct TDS. Further in case if on such certified amount if TDS is not deducted than in that case disallowance of expenditure related to such expense on which TDS is not deducted will be limited up to the amount of certified income.

What will the rate of TDS?

No such specific rate has been prescribed, it has been provided that TDS will be deducted at the rate in force or rate prescribed in Double Taxation Avoidance Agreements between India and the country of the payee whichever is more beneficial to assessee. The rate in force for financial year 2021-22 is 10.4% (after cess). In case if the payee doesn’t have a PAN then rate could be rate in force or 20% whichever is higher which is also to be increase by applicable cess rate.

Which are the payments which is not been covered under 195 of Income Tax Act, 1961?

In case payment is in nature of salary 192 or payment is on account from winning from lottery or crossword puzzle or any other sort of game 194B/194BB, in case where payment is relating to non-resident non-citizen sportsperson/athlete where TDS is applicable under section 194E or where payment is relating any specified income given under section 195LB/LC/LD or where the section specifically covers non-residents.

How the assessee can make the payment to non-resident?

It has been stated that person being payer is required to obtain the form 15CB from a Chartered Accountant while remitting the payment to non-resident and will be required to file the form 15CA (undertaking by payer). The said form is to be furnished in online mode under income tax website through their PAN login. The acknowledgement of 15CA and form 15CB will be required to be submitted to their banker/AD to remit the payment.

What are the consequences in case in person liable to deduct TDS does not makes deduction of TDS?

In case there is non-compliance to section 195 than following will be the consequences:

  1. Disallowance of the particular expenses u/s.40(a)(i) (In case TDS is not deducted)
  2. In case were TDS is deducted but not paid, then payer of amount will be liable to pay interest @ 1.50% per month or part of the month from the date of deduction to date of deposit. Also, in said case (TDS is deducted and not paid) penalty is levied which will be equivalent to amount of TDS.

Further if it is the case of short deduction penalty equivalent to difference between actual deductible and deducted amount will be levied.

What if amount paid by the payer is exempted in hands of recipient?

In case if amount is paid by the payer is exempted in hands of recipient, then in said case the payer will not be required to deducted the tax on amount paid by him.

Through this article we have tried to resolve some of the question that will arise in mind of assessee while making payment to non-resident.

Fibota Highlights of Key Income Tax Amendments

Income Tax Amendment

Amendments Relating to Income Tax.

Introduction : There are several amendments which has been introduced through Finance Bill, 2021; and therefore, every professional and assessee shall know this amendment. In this article we will discuss important amendments introduced through finance bill, 2021.

Important points after Finance Bill, 2021:

 Change in Audit Provision

  • After the amendment of under section 44ADA, i.e., professionals who are paying tax on presumptive basis, in that it has been clarified that Limited Liability Partnership will not be allowed to opt for such scheme.
  • Increase in limit of Audit under section of 44AB; it has been specified that if assessee is having turnover up to Rs. 10 Crore and having cash receipt and payment up to specified amount than in such case person will not be liable to tax audit.

Amendment relating to Trust

  • Amendment has been made under section 11, that if any corpus donation has been received by any charitable or religious trust the same shall not be treated as application of Income until and unless the said has been deposited under the various modes specified under section 11(5). Therefore, if trust wants to treat any corpus as application of Income than in that case such shall be deposited in modes or forms specified under section 11(5) of Income Tax Act, 1961; if in case partial amount is deposited than trust will get deduction only to the extent of such partial amount.
  • As per section 10(23C) Income of Specified University/Education Institute/Hospital was exempted if the annual receipts do not exceed Rs 1 crore, now the such limit is increased to Rs. 5 Crores. This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

Common Amendments

  • No change has been made in basic exemption limit of slab of rates for Individual.
  • Further definition of small company is changed and as per new definition under companies act, 2013; If entity is having paid-up share capital up to Rs. 2 Crore and having Turnover up to Rs. 20 Crore and having. It shall be noted that all the other part or definition has been kept unchanged.
  • Extension of Deduction in respect of housing Loan (for the interest amount) on loan taken for a residential house property from any financial institution up to one lakh fifty-thousand rupees. The condition that the loan has been sanctioned during the period beginning on 1st April, 2019 and ending on 31st March, 2021 is now proposed to be extended to 31st March 2022.
  • As per amendment under section 234C of Income Tax Act, 1961; relaxation is provided from paying interest under section 234C it is difficult to calculate applicable advance tax on dividend income or capital gains due to nature of its income; now if shortfall in advance tax payments and tax due has been paid in the subsequent advance tax instalment than no interest will be levied on such shortfall.
  • It has been proposed that last date for filing of belated or revised returns of income, as the case may be, be reduced by three months. Thus, the belated return or revised return could now be filed only up to 31st December of the relevant assessment year. In this case assessee can revise the return on or before 9 months from end on financial year for which return has been filed.
  • As per section 54GB of Income Tax Act, 1961; there is exemption from capital gain which arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee; if the proceeds of capital gain has been utilized for subscription in the equity shares of an eligible start-up, before the due date of furnishing of return of income under sub-section (1) of section 139 of the Act is now available when the residential property is transferred on or before 31st March, 2022.
  • If person is in receipt of interest income on provident fund and such income is due to encashment of contribution made to such fund (amount of contribution to such fund is exceeding two lakh and fifty thousand rupees in a previous year i.e., on or after 1st April, 2021).
  • One more relaxation is provided which is providing major relief to the assessee it has been stated that if any person receives any immovable property for a consideration and the stamp duty value of such property exceeds 10% of the consideration or fifty thousand rupees, whichever is higher, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head Income from other sources, the said limit is to be increased to 20%.
  • Relaxation in audit provision has been provided for specified assessee; business where accounts are required to be audited only in case where turnover is exceeding Rs. 10 Crores instead of earlier limit of Rs. 5 Crores (Specified assesses are those whose all receipts in cash during the previous year does not exceed five per cent of such receipt; and aggregate of all payments in cash during the previous year does not exceed five per cent of such payment).
  • Extension of time limit of specific deduction relating to investment in eligible start-up; It has been prescribed that a deduction of an amount equal to 100% of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee was available under section 80-IAC. Earlier last date of incorporation was on or before 1st day of April 2021 but now the said has been extended to 1st April, 2022.

Insertion of New Section

  • Insertion of section 194P of Income Tax, 1961: Specified Senior Citizen will not be required to file Income tax return, however on any Income paid by specified bank (Banking Company as notified by Central Government) than TDS shall be deducted from such Income at the applicable rate (However, while computing tax on such Income, if applicable than deduction under chapter IV-A and rebate under section 87A shall be deducted).
  • For the above purpose specified senior citizen means Individual and Resident in India and

(i) who is of the age of seventy-five years or more at any time during the previous year;

(ii) who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and

(iii) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.

  • Introduction of section 194QAny person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, will be required to deduct 0.1% of such sum (exceeding fifty lakh rupees) in form of TDS.
Fibota GST-Amendments overview india

GST Amendments

Amendments/Changes in GST After Introduction of Finance Bill, 2021

Introduction : Since its inception GST is prone to changes and amendments, in this finance bill also, there is introduction of some changes and some insertion/deletion/substantial modification in core sections. In this article we will cover all the amendments made in finance bill, 2021 relation to GST.

Important Amendments:

  • Amendment under section 7 of CGST Act, 2017; earlier there was a judgement of supreme court that if any service is provided by club / association to its member, both were not treated as separate person and therefore it would not attract service tax on any services provided by the club to its persons following the concept of mutuality. The same interpretation was carried under GST however to put all the controversy on side, above section is amended and now activities or transactions, by any person (Firm, Association of Person, Body of Individual, etc.) not being individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration will be treated as supply.
  • Amendment under section 16 of CGST Act, 2017; there is always a confusion relating to availment of ITC not shown in GSTR-2A/2B, in reference to said government has amended rule 37 of CGST Rules, 2017; stating that assessee will be allowed only to take the credit up to 110% of credit shown in GSTR-2A/2B. Now new clause has been inserted under section 16 that assessee will be allowed credit for invoice or debit note only if such has been furnished by supplier in GSTR-1 and the tax has been paid by him on such invoice or debit note. This implies 100% matching will be done by the department, but as per our expert there will be amendment in rule 37 which will be in line with above amendment and will allow the assessee to take the credit up to 105% or 110% of credit shown in GSTR-2A/2B.
  • One of the major amendments has been made by omitting section 35(5), 44(1) and 44(2) of CGST Act, 2017; the section was requiring assessee to get its books of account audited and furnish the reconciliation statement in form GSTR-9A/9C along with filing annual return in form of GSTR-9. After amendment the said section is replaced where it states assessee will be required to furnish an annual return which may include a self – certified reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year, with the audited annual financial statement (as per Income Tax or any other law for time being in force) for every financial year electronically. Effect of above amendment is, mandatory requirement of getting the reconciliation in GSTR-9C certified by a Chartered Accountant/ Cost Accountant is proposed to be removed. Any registered person would be able to furnish the annual return along with a self-certified reconciliation statement reconciling the values between annual return and financial statements. The amendment will be effective from prospective date and therefore assessee will be required to file above GSTR-9C for financial year 2019-2020. The said is also clarified by the department.
  • Amendment under section 50 of CGST Act, 2017; it is controversy since beginning that whether interest is to be payable on NET-TAX Liability or GROSS-TAX liability; it has been now clarified through amendment under section 50 of CGST Act, 2017; that assessee will liable to pay interest on net-liability portion. For e.g. if assessee has liability of Rs. 6,000/- and he is eligible to avail and avails the credit of Rs. 4,000/- than interest will be payable only on the difference amount of Rs. 2,000/-. Important point to be noted is that amendment is made retrospectively i.e., it shall be effective from 01/07/2017.
  • Amendment has been made under section 75 of CGST Act, 2017; Earlier for recovery of any taxes from the assessee a show-cause notice was required to be served, however now the section has been amended and it states that if any taxes which has been declared by assessee under GSTR-1 has not been paid by the assessee or has been short paid than the said can be recovered without issuance of show cause notice. This is the remedy provided to government that they can directly opt for recovery of taxes under Section 79 without issuance of any show cause notice u/s 73 or 74.
  • Amendment has been made under section 129(3) of CGST Act, 2017; earlier assessee was able to file the appeal against detention order (passed after detention of goods) upon payment of 10% of the tax in dispute now appeal can be filed only upon payment of 25% of penalty levied under Section 129. This will require additional outflow from assessee’s end.
  • Under the said section there are few more amendments
    • Previously there was no time limit to issue the notice and order of detention or seizure but now it has been amended and law provides for time limit of issuance of notice as 7 days of such detention or seizure and date for issuance of order will be 7 days from date of notice of such detention or seizure.
    • Firstly, there was the provision on basis of which the goods which has been detend or seize, to release such goods upon furnishing or execution of bond and security. Now such provision is removed and assessee will not be available with such facility.
    • Another amendment in said provision is earlier one has to pay tax along with the penalty in order to get the goods released being the case of detention or seizure. Now penalty amount needs to be paid in order to secure release of goods whereas the tax amount would continue to be paid through GSTR-3B of the relevant month.
    • There is change in amount of penalty for non-exempted goods which has been seized or detend:
Situation Earlier Penalty Amended penalty
Where owner comes forward for payment of penalty 100% of the tax payable 200% of the tax payable
Where owner does not come forward for penalty payment 50% of the value of goods less tax paid Higher of:

a) 50% of the value of goods

b) 200% of the tax payable

  • There is amendment in definition of zero-rated supply i.e., under section 16 of IGST Act, 2017;Earlier all supplies made to SEZ unit were covered under the definition of Zero-Rated Supply but now this definition has been amended and supply of goods or services or both for authorized operations to a Special Economic Zone developer or a Special Economic Zone unit will only be treated as zero-rated supply. This will restrict the definition of zero-rated supply.

This were the major amendments which has been made under GST provision, and that every assessee shall take under consideration.

Fibota Advance authority Ruling under income tax details

AAR Under Income Tax

Introduction : We have seen that their Income Tax Act; is amended every year along with this there are notification/circular/press release which assessee is required to interpret. Sometimes there may be several interpretations of particular law, to avoid any controversy on later stage department has provided assessee with a remedy whereby he can sort Advance Ruling. In this article we will cover all the provisions relating to Advance Ruling under Income Tax Act, 1961.

Who can sort Advance Ruling?

Advance Authority Ruling can be sort by following person;

If the person is non-resident:

  • For determination, in relation to a transaction which has been undertaken or is proposed to be undertaken by a Non-resident applicant, on any question of law or fact specified in the application.

If the person is resident:

  • A resident who has undertaken or proposes to undertake a transaction with a non-resident may seek a ruling for determination on any question of law or fact in relation to such transaction involving the tax liability of the non-resident.
  • A resident falling within notified categories may seek determination or decision by the Authority in respect of an issue relating to computation of total income which is pending before any Income-tax Authority or the Appellate Tribunal and such determination or decision shall include the determination or decision of any question of law or fact relating to such computation of total income.
  • *Notified Category
    • A resident who has undertaken or propose to undertake one or more transactions of value of Rs.100 crore or more in total.
    • Public Sector Company where case is pending in relation to said matter is pending in High Court or Supreme Court.
  • Any person, being a resident or non-resident, can obtain an advance ruling to decide whether an arrangement proposed to be undertaken by him is an impermissible avoidance arrangement and may be subjected to General Anti Avoidance Rules or not.
  • As after the amendment Advance Authority Ruling of Customs Act, 1962 and Central Excise Act, 1944; any person who wants to file application for obtaining Custom Authority Ruling and Central Excise Act, 1944 can file such application to above authority.

Points that are worth noting:

  • In case being person is non-resident he may file the application without any threshold limit of transaction or tax liability.
  • The transaction can be proposed or it may happen that it has already been undertaken.
  • Resident person (when he is applying for determination of tax liability any non-resident) may apply without any threshold limit of transaction or tax liability.
  • Resident person will be eligible to apply in his own matter only in case where the transaction amount is exceeding the specified limit and the said matter is not pending in relation to that assessee at any Income-tax Authority or the Appellate Tribunal.

Again, it shall be noted that assessment year for which matter is pending is not relevant i.e., if matter is pending for A.Y. 2018-19 and the assessee is will to raise the question for A.Y. 2019-20 than he will still not be eligible even the year is different. It will be implied that such assessee will not be eligible when such matter is pending at High Court or Supreme Court.

  • Public Sector Company will be eligible only when the said issue relating to computation of Income is pending in High Court or Supreme Court. If the said matter is pending at lower authority than assessee will not be eligible to apply for advance authority ruling.

What time is the time limit for pronouncing ruling?

The advance ruling is required to be pronounced by the Authority within six months of the receipt of a valid application.

Whether ruling pronounced by Advance ruling authority is challengeable?

Ruling pronounce by assessee shall be binding to assessee for whom ruling is pronounce and will be final and conclusive. The said ruling cannot be challenged by assessee. Therefore, the said ruling will be binding

  • On the Commissioner and the income-tax authorities subordinate to him in respect of the applicant; and
  • On the applicant who has sought it.

What are the specific circumstances where filling of application to Advance Authority Ruling is not allowed?

In previous questions it has already been stated that whenever any matter is pending before income tax authority or at appellate authority than in such cannot be referred to Advance Authority Ruling (As stated above public sector company will fall under exception and will be allowed to file application only in cases where the matter is pending before High Court or Supreme Court).

Further if the matter for which Advance Authority Ruling is sorted is:

  • Involving determination of fair market value of any property or where the question raised is relating to transaction which is designed prima facie for the avoidance of income-tax.

What will be the amount of fees that will be payable by applicant?

The fees paid by the assessee who has sorted advance ruling will be non-refundable; the following fees have been prescribed for application by the assessee:

In any other case and for any other applicant the amount of fees will be Rs. 10,000/-.

Whether in future advance ruling can be declared as void?

It may happen that on a representation made to it by the Principal Commissioner or Commissioner or Otherwise (i.e., by application made by any other person or Suo-moto) that an advance ruling pronounced by it has been obtained by the applicant by fraud or misrepresentation of facts, then the Authority may, by an order, declare such ruling to be void ab initio and thereupon all the provisions of the Act shall apply to the applicant as if such advance ruling had never been made. Therefore, it shall be ensured by assessee that all the material facts and reason for which advance ruling has been obtained has been declared to authority at the time of making application.

Fibota Act 1999 Detailed overview

The Foreign Exchange Management Act, 1999 (Part-1)

The Foreign Exchange Management Act, 1999 (Part-1)

Introduction : It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law.

Definitions:

  1. Capital Account Transaction: means a transaction, which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liability in India of persons resident outside India, and includes transactions referred to in Section 6(3).

If we analyze this definition than:

For person resident in India every transaction which has effect of changing assets or liability or contingent liability outside India. The said will be treated as capital account transaction.

For person resident outside India every transaction which has effect of changing assets or liability situated in India.

And for both the above transaction defined in section 6(3) will be treated as capital account transaction.

If we move further than we need to under who is the person that will be treated as resident in India and person resident outside India.

  1. Person Resident in India

(i) Individuals

Exception to above general rule:

If person has gone out of India or who stays outside India for following three purpose;

  1. a) For or on taking up employment outside India, or
  2. b) For carrying on outside India a business or vocation outside India, or
  3. c) For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
  4. d) or the person who comes to India for any purpose other than three specified above. meaning thereby if such person comes/stays in India for the said three purpose and during preceding financial year he has stayed in India for more than 182 days than he will be considered as resident.

(ii) In case of body corporate, it will be treated as resident if it is registered or incorporated in India.

(iii) An office, branch or agency in India owned or controlled by a person resident outside India.

(iv) An office, branch or agency outside India owned or controlled by a person resident in India.

Illustrations: Mr. R has come to India for the purpose of employment; during the preceding financial year he stayed in India for 178 days. Whether he is considered as person resident in India.

As per above definition person can be considered as resident in India only if he was in India for more than 182 days during preceding financial year. In the given case as person was not in India for more than 182 days during preceding financial year he cannot be considered as resident.

What if Mr. R was in India for 293 days during previous year?

In that case as Mr. R was in India for more than 182 days for preceding year and during the current year, he has come for the specified purpose; Therefore, he will be considered as resident in India.

What if in said situation during current year Mr. R leaves India unspecified period of stay outside India.

In that case two residential status will be given to Mr. R;

  1. i) When Mr. R was in India for the purpose of employment; till that he will be considered as resident; after he left India for unspecified period than he become qualified for becoming non-resident.

It shall be noted that unlike Income Tax, here there can be more than one residential status during same financial year.

Illustration: Mr. D is person resident outside India as per the definition given in Foreign Exchange Management Act; he holds the office in India. Whether said office transaction will be considered as transaction by resident?

It has been given in the definition that that any branch, office, agency is situated in India even thought it is controlled from person resident outside India; it will be covered under the definition of person resident in India.

What if in the same case person is resident in India and the office is situated outside India?

In that case also it will be covered under the definition of person resident in India and transaction are to be treated accordingly.

In part two we will continue with the other provision relating to Foreign Exchange Management Act.

Fibota Foreign Exchange Management details

The Foreign Exchange Management Act, 1999 (Part-2)

The Foreign Exchange Management Act, 1999 (Part-2)

Introduction : It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law.

Definitions:

  1. Current Account Transactions: The term ‘Current Account transaction has been negatively defined i.e., any transaction other a capital account will be treated as current account transaction. Further the following transaction are specifically included;

Illustrations:

  1. Mr. R imported a machinery from France. The said machinery is installed in India Whether it is current account transaction or capital account transaction?

It has been specified that if any transaction is entered by person resident in India which has a characteristic of altering any asset, liability or contingent liability outside India than it will be treated as capital account transaction; however, when once the asset is imported into India the same will not fall under above definition and the therefore for importer it will be treated as current account transaction.

What will be the scenario for seller of France?

As, after selling the machine he does not hold any right in it nor he is liable for anything therefore, the said will not fall under the above definition and the therefore for importer it will be treated as current account transaction.

What if such machine has been purchase on credit of 6 months?

In such case for importer there will be liability outside India; and it is asset for the seller of France; however, it has been stated that such transaction which are in nature of short-term banking or credit facilities in ordinary course of business; than it will be treated as current account transactions.

What if credit period is of 12 months instead of 6 months?

In said case the transaction will treated as loan; as it has been prescribed under rules that short term borrowing period is limited to 6 months. Hence, the said transaction will be purchase of asset on loan will be treated as capital account transaction.

  1. Mr. Hari is situated in India; he has taken loan from Mr. Sahu who is situated at Dubai; and the said is invested in one wealth management company situated in Dubai. He does not bring back that money to India.

Whether the transaction will be covered under FEMA?

As it has been specified that any transaction entered by person resident in India which has an effect of altering assets, liability or contingent liability situated outside India the said transaction will be treated as capital account transaction. In the give case the transaction of loan and investment qualifies the definition of capital account transaction.

Further Income from Investment and Interest paid on Loan has been specifically covered under the definition of current account transaction, irrespective of fact that the same is reimbursed to India or not.

What if transaction undertaken by assessee is in nature of gift?

In that case as gift doesn’t create any asset or liability on the giver or recipient, and therefore it will be treated as current account transaction.

In part three we will continue with the other provision relating to Foreign Exchange Management Act.

Fibota Foreign Exchange Management Act 1999 india

The Foreign Exchange Management Act, 1999 (Part-3)

The Foreign Exchange Management Act, 1999 (Part-3)

Introduction: It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law.

Dealing in Foreign Exchange:
It has been specified under Foreign Exchange and Management Act; that person will be restricted from entering or dealing in following foreign currency transactions;

This refers that no person shall enter into any transaction unless which is allowed under the provision of act or which is specifically permitted by the law. The above entire provision is drafted in manner that it will regulate entire transactions relating to foreign currency exchange.

Foreign Security:

It means any security or instrument which is Denominated in Foreign Currency or Expressed in Foreign Currency Including which are expressed in foreign currency even though its redemption or any form of returns is in Indian Currency.

Illustrations:
1. S Ltd. has issued shares, the fixed return of 8% will be paid in Indian currency and the said security will be redeem after 10 Months in Indian currency. The securities are issued in Dollar ($) whether the same is treated as foreign security.
It has been specified than any security or instrument which is Denominated in Foreign Currency or Expressed in Foreign Currency will be treated as foreign security. It also includes security which are expressed or denominated in foreign currency but which will be redeemed or any form of returns on such security is provided in Indian Currency. Therefore, in above case it will be treated as foreign security.

2. Mr. R recently came from London; he along with himself brough $1,000/-. He contracted with his friend to sell such dollars as he his friend was required to pay such dollars to his foreign agent. Whether such transactions are permissible?
It has been specified under above law that Not to deal in foreign exchange or foreign security with person who is not authorised dealer. Here transaction is directly entered between two persons, none of them being foreign dealers; and therefore, such will not be allowed and will be treated as contravention to law.

3. Mr. Deva who is situated in South Africa has taken a fire insurance policy for his warehouse situated in his hometown. The insurance has been taken from small insurance company situated in Bangalore. The amount payable for such policy is Rs. 20,000/-. One of his brothers who is also situated in Bangalore pays such amount on behalf of Mr. Deva. Whether such transaction will be permissible?
According to the provisions it has been clearly specified that person will not be allowed to make payment to any person who is resident outside India ormake payment on behalf of any person who is resident outside India otherwise than through authorised dealer. In this case direct payment by the brother of Mr. Deva is not permissible and such transaction will be treated as contravention to provision.

4. Mr. Rahul came to India with his family; he decided to stay in one hotel. While making the payment to hotel he decided to pay through foreign currency; Whether such hotel can accept payment made by Mr. Rahul in foreign currency?
As per the provision person will not be allowed to accept any payment from any person who is person not resident in India. In such case transaction shall be routed through authorised dealer or such hotel shall be permitted to accept foreign currency.

Fibota what is Act 1999? details & overview

The Foreign Exchange Management Act, 1999 (Part-4)

The Foreign Exchange Management Act, 1999 (Part-4)

Introduction:It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law.

Transaction where withdrawal from India of foreign currency is prohibited:
We noted in our previous article that person may enter in foreign currency transaction, but shall transaction be required to be routed through authorized dealer; Otherwise, it will be treated as violation. There are transactionswhich has been mentioned in Schedule 1; every person is prohibited from withdrawing foreign exchange in respect of all the transactions. That is, such transactions are to be treated as prohibited transactions.

Illustrations:
1. Mr. Hari is person not resident in India, in current year he came to India for a visit. During his visit he has undertaken following transactions;

i. Purchase of Lottery Ticket from Indian vendor.
ii. Foreign exchange of $2,000/- from a hotel where he stayed. Hotel does not hold any specific permission from Reserve Bank of India.
iii. He purchases some magazines outside India for which he paid directly his hometown bank account.
iv. He won $ 1,000/- on purchase of such lottery ticket, now he wants to take such amount back to his hometown?
v. In it has been specified that if person is entering into foreign currency transaction than in that case, he is required to comply with provision mentioned in Foreign Exchange Management Act.

In reference to first transaction; person resident outside India is allowed to purchase lottery tickets in India, irrespective of whether purchase price is mentioned in rupee terms or not. If reverse was the case that is person is resident in India and wants to withdraw foreign exchange for purchasing such lottery tickets outside India; than such transaction was prohibited. However, here the case is not of prohibited transaction therefore, he is allowed to purchase such lottery ticket.

In reference to second transaction, it has been specified that person is not allowed to enter into foreign currency exchange transaction except, through authorized dealer; as hotel is not permitted by RBI, transaction entered by Mr. Hari will be treated as violation.

In reference to third transaction if withdrawal is for reimbursing expense of lottery tickets purchase or purchase of banned magazines outside India than withdrawal of foreign exchange from India is prohibited; here it can be seen that Mr. Hari has paid the said amount from his bank account which is situated outside India; and therefore, the said transaction will not be treated as prohibited transaction

In reference to fourth transaction, it has been specified that, person is prohibited from withdrawing foreign exchange where withdrawal is out of Lottery Winnings; therefore, in first instance where winning amount is specified in foreign currency the person will not be allowed to take such amount to his hometown as transaction is specifically prohibited.

2. Mr. B has a subsidiary situated outside India. He made export of $ 70,000/- to the said country. As he was required to contribute the amount in said subsidiary as equity investment; he directly transfers such proceeds to the said company. Mr. B also, wants to pay commission on said transaction; whether he is allowed to pay?

In above case Mr. B has undertaken a transaction where he wants to pay commission on exports; and where export proceeds are utilised towards equity investment in subsidiaries outside India. If such subsidiary is wholly owned subsidiary than in that case such transaction of paying commission will be treated as prohibited transaction. Assuming such contribution is not towards any Joint venture or Wholly owned subsidiary Mr. B is allowed to undertake such transaction.

Fibota foreign exchange act 1999 Overview

The Foreign Exchange Management Act, 1999 (Part-5)

The Foreign Exchange Management Act, 1999 (Part-5)

Introduction: It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law. In previous article we have discussed about the prohibited transaction in this article we will discuss that which are the transaction that requires specific prior approval of government.

Transaction Transactions, which require prior approval of the Government of India for withdrawal of foreign exchange:

Illustrations:
1. Mr. Desai is willing to go on cultural tour out of India and for the said purpose he is willing to withdraw foreign exchange? Whether he will be required to take permission of ay government authority?
As per the list prescribed in Schedule II of Foreign Exchange Management Act, if any person is undertaking any transaction which has been prescribe in the said schedule, he will be required to take the prior approval of government. Transaction entered by Mr. Desai has been prescribed in the said schedule and he will be required to take the permission of Ministry of Human Resources Development (Department of Education and Culture) will be required.

2. Public Sector Undertaking situated at Gujarat has imported some material form D Country ocean transport on Cost, Insurance and Freight (CIF) Basis. The value of such import if US $ 2,00,000. Whether they are required to obtain prior approval of any government authority?

It has been prescribed in Schedule II of Foreign Exchange Management Act, that if import is made by Government or Public Sector Undertaking through ocean transport on Cost, Insurance and Freight (CIF) Basis than prior approval of Ministry of Surface Transport (Chartering Wing) will be required irrespective of value of transaction. Further if such import is on FOB basis (Free on Board) than transaction will not fall under the prescribed list and therefore, no prior approval will be required for such import.

3. C and Company wants to sponsor a sports event to be held outside India. The amount of sponsorship is US $ 60,000 than in that case whether he will be required to obtain any prior approval?

It has been stated that if any price money or any amount as sponsorship has been paid for any sport activity taking place outside India and the contribution is up to US$1,00,000 than in that case no prior permission is required. In the given case as amount is not exceeding threshold therefore, no prior permission is required to be obtained.

Fibota alternate and casual vacancy director details

Additional-Alternate-Casual Vacancy Director (Part-1)

Additional, Alternate and Casual Vacancy Director (Part-1)

Introduction:It may happen that after incorporation of company, due to additional work there is requirement to appoint a person as additional director. There may also be situation where director is not able to complete his term and company is required to fill such casual vacancy caused. Importantly, it shall also be known that what is the difference between casual vacancy director and alternate director. In this article we will cover all the provisions relating to additional director, casual vacancy director and alternate director.

Additional Director:
How additional director can be appointed?
There is no specific procedure to appoint any person as additional director; but Article of Association of Company shall allow Board of Directors to appoint additional director.

Which resolution is required to appoint additional director?
There is no requirement of shareholders resolution, resolution by board of directors is sufficient to appoint any person as additional director.

Whether there is requirement to conduct board meeting for appointing additional director?
As such there is no requirement to conduct board meeting; only thing that is required is that board of directors passes a resolution for appointment of additional director.

Is there any provision that additional director can only be appointed at year end?
No, board of directors can appoint additional director at any time.

What if article of association is not permitting to appoint additional director?
In such case, Board of directors of company will be required to amend Article of Association and for the said purpose Special Resolution of Shareholders will be required.

Whether any person is restricted from being appointed as additional director?
Any person, who fails to get appointed as a director in a general meeting, cannot be appointed as an additional director.

What will be the tenure of additional director?
Additional director will hold office up to the date of the annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier; i.e., if Annual General meeting is not held in time given under Section 96 of Companies Act, 2013 than in that case Additional director shall vacant the office on date, which was last date to conduct AGM.

Whether additional director is to be considered under the provision of rotation of director?
As it has been stated that the said person has to vacant the office on date on which AGM is held or the last date on which the annual general meeting should have been held; therefore, no question arises for his consideration under the provision of rotation of director. Additional director will not be considered for the calculation of rotational directors.

Alternate Director:
What is the key point relating to alternate director that differentiate it from causal vacancy director?
If any person is out of India for minimum three months but less than twelve months after giving intimation to company about his absence than the Board of Directors will be eligible to appoint alternate director in place of such absent director. It shall be noted that if absence is of less than three months; than in that case Board of directors will not be allowed to appoint any person as alternate director in place of such absent director; and in case if person is not present for more than twelve months with or without intimation, than it will be treated as causal vacancy.

How alternate director can be appointed?
The article of company shall empower board of directors to appoint alternate director if article of association is not giving such power to board of directors of company than in that case; an ordinary resolution will be required from shareholder of company in general meeting. It shall be noted that power to appoint alternate director lies with Board of Directors of the company not with person who is going to be absent.

How can be alternate director?
Any person is proposed to be appointed as alternate director shall not be the person who is director of the said company. Further such person shall not be the alternate director of any other director of said company.

Whether person can be appointed in case of absence of Independent Director?
Yes, person can be appointed in case of absence of Independent Director. In such case person who is proposed to be appointed as alternate director shall be qualified to be appointed as alternate director.

What if article of association is not permitting to appoint alternate director?
In such case, Board of directors of company will be required to amend Article of Association and the for the said purpose Special Resolution of Shareholders will be required.

What will be the tenure of alternate director?
As per the provisions the alternate director it shall not hold office for a period longer than that is permissible to the original director in whose place he has been appointed. Also, if original director comes before completion of his tenure in company than alternate director shall vacate the office.

Whether additional director is to be considered under the provision of rotation of director?
The provision of rotation of directors is applicable to original director in whose place alternate director is appointed; however, it is not applicable to alternate directors.

Whether the holding of alternate directorship will be considered for calculation limit of maximum directorship.
As per section 165 of Companies Act, 2013; it has been determined that person can hold directorship up to the extent of specified limit and holding alternate directorship will be considered for calculating limit of maximum directorship.

Whether provision of disqualification as prescribed under Section 164 will be applicable to alternate director?
As per the provision of section 164 person will be disqualified to be appointed as director if he has attracted a disqualification specified therein; It shall be noted that such provision will be applicable to alternate director.

Whether alternate director is exempted from furnishing DIR-2?
Any person who is holding himself to be appointed as alternate director, then he must furnish his consent in DIR-2 to the company on or before his appointmentand inturn the company shall file his consent with the Registrar in DIR-12.

In part-2 we will discuss the practical illustrations relating to additional director, alternate director and alternate director and remaining provisions relating to alternate director and causal vacancy director.

Fibota casual vacancy director act details

Additional-Alternate-Casual Vacancy Director (Part-2)

Additional, Alternate and Casual Vacancy Director (Part-2)

Introduction:In previous part we have discussed what are the provisions relating to additional director and alternate director. In this part we will discuss the practical illustrations relating to additional, alternate and casual vacancy director along with remaining provisions.

Alternate Director:

Whether re-appointment of original director will be treated as re-appointment of alternate director?

It has been stated that every company shall have 2/3th of its directors as rotational directors and out of such 1/3th of such director shall be retiring directors. It may happen that person in whose place the alternate director is appointed is liable to be retired by rotation. The question arises that whether re-appointment of original director will automatically be treated as re-appointment of alternate director. It has been stated that provision relating to automatic re-appointment will be applicable to original director and not to alternate director. In case if original director is automatically re-appointed than in such case it will not validate the automatic re-appointment of alternate director.   The process relating to automatic appointment is required to be followed again board of directors.

Now, as stated earlier if any person is out of India for minimum three months but less than twelve months after giving intimation to company about his absence than the person will be eligible to appoint alternate director in his place. If after above automatic re-appointment, whether the period of 3 months will include the period before of his re-appointment; It is well established position of law that if after re-appointment person is not is out of India for minimum three months than and only than board of director can appoint alternate director in place of absent director.

Causal Vacancy Director:
If position of any director is who is appointed in general meeting is vacated before his term of office expires than vacancy caused due to such, will be treated as casual vacancy.

How Causal vacancy director is to be appointed?
Casual vacancy director is appointed by passing resolution of Board of directors; such appointment is to be re-validated by shareholders in general meeting by passing ordinary resolution.

Whether Casual vacancy director is to be considered under the provision of rotation of director?
Yes, provision of rotation of directors is applicable to such directors.

Whether any person appointed under causal vacancy will be considered for calculation limit of maximum directorship.
As per section 165 of Companies Act, 2013; it has been determined that person can hold directorship up to the extent of specified limit and been appointed as casual vacancy director, will be considered for calculating limit of maximum directorship.

Whether provision of disqualification as prescribed under Section 164 will be applicable to casual vacancy director?
As per the provision of section 164 person will be disqualified to be appointed as director if he has attracted a disqualification specified therein; It shall be noted that such provision will be applicable to casual vacancy director.

What will be tenure of casual vacancy director?
The tenure of person who is appointed by virtue of provisions relating to casual vacancy director; can hold office up tothe date up to which the director in whose place he is appointed would have held office if it had not been vacated.

Illustrations:
1. ABC and Company has 11 directors in its board, it wants to appoint Mr. G as additional director. Whether they can appoint additional director? If yes what will be tenure of additional director if last date up to which AGM is to be held in 30th Sep, 2021 and actual date of AGM is 7th October, 2021?

If article of association authorizes that Board of Directors of Company than, resolution by board of directors is sufficient to appoint any person as additional director. Further as prescribed the tenure of additional director for holding of office is up to the date of the annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. In above case the additional director can hold office up to 30th September, 2021.

What if Mr. G was rejected from appointed in general meeting?
In said case Mr. G cannot be appointed as additional director.

Whether vacancy caused in place of Mr. G will be treated as casual vacancy?
It has been prescribed that if any director is who is appointed in general meeting has vacated before his term of office expires than vacancy caused due to such, will be treated as casual vacancy. It shall be noted that additional director is not appointed in general meeting of company and therefore vacancy caused due to completion of tenure of Mr. G will not be considered as casual vacancy.

Whether Mr. G can be appointed as director after his completion of term as additional director?
There is no restriction on appointment of Mr. G as regular director after his completion of term as additional director.

Mr. G is holding the position in 20 companies as director, he is of the opinion that such acceptance will not be considered for calculating limit of Maximum Directorship?
It has been determined that position by person as additional director will be considered for calculating limit of Maximum Directorship. Mr. G shall not accept such appointment, otherwise such acceptance will be treated as violation of section 165 of Companies Act, 2013.

Mr. Hari is going out of India for 7 Months; he has intimated about his such tour to company. Company is willing to appoint an alternate director in absence of Mr. Hari? Whether company can do so? What if Mr. Hari wants to appoint alternate director in his absence by his own?
In shall be noted that as per section 161(2) it allows the company to appoint alternate director if original director in whose place alternate director is appointed is outside India for minimum period of 3 continuous months. But the power to appoint alternate director lies with Board of directors of company and not with the person who is going to be absent. Therefore, in above case company can appoint alternate director in absence of Mr. Hari. The appointment shall be carried out by Board of directors of Company.

What if in above case Mr. J has been appointed alternate director of Mr. Hari; What if he is also alternate director of Mr. Shiva who is also director in said company?
In such case it will be treated as violation of 161(2) of Companies Act, 2013; As it has been determined that person can be alternate director of behalf of two directors in same company.

What if he Mr. J is alternate director of Mr. Shiva in other company and not in the company in which he is alternate director on behalf of Mr. Hari?
In case it will not be treated as violation; as Mr. Jis barred from been alternate director of two directors in same company, here he isalternate director of Mr. Shiva in other company and not in the company where he is acting as alternate director on behalf of Mr. Hari.

What if Mr. J is already director in same company?
In such case Mr. J will be barred from been appointed alternate director.

What if Mr. Hari tenure is completed in 5 Months and he is automatically been re-appointed; Whether such re-appointed will led to automatic re-appointment of Mr. J?
In such case it has been prescribed that automatic re-appointment of original director in whose place alternate director is appointed will not be treated as automatic re-appointment of alternate director. Mr. J will vacant the office after the said 5 Months. Further now a fresh period of continuous 3 Months outside India will be required to appoint alternate director by board of directors in case of absence of Mr. Hari. as total period of his absence is 7 months and 5 months has already been completed before his re-appointed, therefore, company will not be able to appoint alternate director for remaining period of 2 months in absence of Mr. Hari.

Mr. Narayan was appointed as director, due to unforeseen circumstances Mr. Narayan couldn’t complete his term and company appointed Mr. Ravi as director after such casual vacancy. Whether such appointment is required to be re-validated by shareholders of the company?
As per the amendment prescribed under section 161(4) if any person is appointed under the name of casual vacancy; his appointed is required to be re-validated by shareholders by passing ordinary resolution in immediate general meeting. In above case appointment of Mr. Ravi is required to be re-validated by shareholders of the company in immediate general meeting.

Fibota Whether Director of a Company can be Removed

Whether Director of a Company can be Removed

Whether Director of a Company can be Removed?

Introduction : It is necessary to know that whether a director can be removed from organization, if yes whether shareholder has such power or the authority lies with company only? What will be the process for removal of director? In this article we will cover entire provisions relating to removal of directors.

Who can remove director of company?
Directors of company can be removed by shareholders of the company and in case of special circumstances it may happen that, they are removed by tribunal by passing order for their removal.

How shareholders can remove the director?
Shareholders will be required to pass ordinary resolution for removing director; if removal is for Independent director who was re-appointed than in such case special resolution will be required for their removal. It shall be noted that if director was appointed by Tribunal or it is appointed by virtue of principle of proportional representationthen such directors cannot be removed.

Illustration: R Ltd. has seven directors on board; 3 of them were appointed by virtue of principle of proportional representation, one of them was appointed by the order of tribunal; How many directors can be removed from company?
In the given case, three directors can be removed by the company as it has been specifically stated that if director was appointed by Tribunal or it is appointed by virtue of principle of proportional representation then such directors cannot be removed.

What if amongst the remaining three one was Independent Director and he was recently re-appointed?
In such case, shareholders can remove such director by passing special resolution. For the remaining two directors, if shareholders want to remove them than in that case, they will be required to pass ordinary resolution.

Whether director who is going to be removed will be provided with opportunity of being heard?
Any director whether being independent or not, who is proposed to be removed shall be provided with opportunity of being heard before his removal.

Whether there is any special formality required to be completed by shareholders for proposing removal of director?
It has been stated that a special notice will be required for proposing removal of director; such special notice is required to be signed by
i) Members holding not less than 1% of total votingpower; or
ii)Members holding shares on which at least Rs. 5,00,000 has been paid in theaggregate.

Time limit to send such notice shall be keep in mind; it shall be sent to all the members at least 14 days before the meeting at which the resolution is desired to be moved.

Whether notice is required to be sent to director who is proposed to be removed?
In case of every removal of director, the above-mentioned special notice is also required to be sent to director who is proposed to be removed, (may or may not be the member of the company) and the at time of such resolution opportunity

Whether director who is proposed to be removed can make written representation?
Right has been provided by the director to make a written representation to the company and he may request the company to circulate such representation with the notice of meeting proposing his/her removal. Company shall circulate representation of facts of representation along with special notice; and if due to limitation of time or due to company’s default director along with his right of opportunity of being heard he will be allowed to be heard orally about his representation at meeting.

What if such representation is abused to secure needless publicity for defamatory matter?
If on an application made by the company or by any other aggrieved person if tribunal is satisfied that the rights of representationare being abused to secure needless publicity for defamatory matter than Tribunal may order that representation need not be sent out and read out at the meeting and may also ask to pay monetary compensation to company.

What process is to be followed after removal of director?
If the resolution proposed for removal of director is passed such vacancy will be treated as causal vacancy and the process described under our article relating to causal vacancy director is to be followed.

Fibota Budget Amendment Analysis

Budget Amendment Analysis

Points Worth Noting after the Introductions of Finance Bill, 2021 (Part 1):

Introduction : There are several amendments which has been introduced through Finance Bill, 2021; and therefore, every professional and assessee shall know this amendment. In this article we will discuss important amendments introduced through finance bill, 2021.

Important points after Finance Bill, 2021:

  • After the amendment of under section 44ADA, i.e., professionals who are paying tax on presumptive basis, in that it has been clarified that Limited Liability Partnership will not be allowed to opt for such scheme.
  • Amendment has been made under section 11, that if any corpus donation has been received by any charitable or religious trust the same shall not be treated as application of Income until and unless the said has been deposited under the various modes specified under section 11(5). Therefore, if trust wants to treat any corpus as application of Income than in that case such shall be deposited in modes or forms specified under section 11(5) of Income Tax Act, 1961; if in case partial amount is deposited than trust will get deduction only to the extent of such partial amount.
  • Increase in limit of Audit under section of 44AB; it has been specified that if assessee is having turnover up to Rs. 10 Crore and having cash receipt and payment up to specified amount than in such case person will not be liable to tax audit.
  • No change has been made in basic exemption limit of slab of rates for Individual.
  • Deduction under section 54GB on Income Tax Act, 1961 will be allowed till 31st March, 2022.
  • Insertion of section 194P of Income Tax, 1961: Specified Senior Citizen will not be required to file Income tax return, however on any Income paid by specified bank (Banking Company as notified by Central Government) than TDS shall be deducted from such Income at the applicable rate (However, while computing tax on such Income, if applicable than deduction under chapter IV-A and rebate under section 87A shall be deducted).
  • For the above purpose specified senior citizen means Individual and Resident in India and

(i) who is of the age of seventy-fiveyears or more at any time during the previous year;

(ii) who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and

(iii) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.

Further definition of small company is changed and as per new definition under companies act, 2013;

If entity is having paid-up share capital up to Rs. 2 Crore and having Turnover up to Rs. 20 Crore and having. It shall be noted that all the other part or definition has been kept unchanged.

Along with this there are insertion of some sections and amendments which are worth noting and which will be covered in Part-2.

Fibota Online GST Return filing

GST Updates

Clarification on updates under GST (News & Updates)

Introduction : Recently government has clarified and implemented certain regulation (e-invoice, e-way bill blockage) and exemption for the taxpayers (returns to be furnished on quarterly basis); it is therefore important to know that what are the updates and to whom it is applicable.

Updates on Blockage of e-way bill generation facility from 1st December, 2020:

It has been specified that generation facility of a taxpayer will be restricted, in case the taxpayer fails to file their GSTR-3B returns / statement or Form GST CMP-08, for two or more tax periods. (i.e. if assessee fails to furnish GSTR-3B for two consecutive tax period than in that case they will not be allowed to generate e-way bill).

On 1stDecember 2020, the GST system will check the status of returns filed in GSTR-3B or the statements filed in GST CMP-08, for the class of taxpayers to who are liable to generate e-way bill and who are registered on e-way bill portal.

This provision will be applicable irrespective of turnover of entity and their category of registration.

To unblock the blockage given by GST department on e-way bill assessee will be required to furnish the returns in such a manner that default period (pendency of filling GST returns) is not equal to or more than 2 months.

Updates on generation of e-way bill:

It has been specified in our previous article that assessee whose aggregate annual turnover exceeds Rs. 500 Crore in preceding financial year will be mandatorily required to generate e-invoice. Further in this relation government provided relaxations also for 30 days from date of implementation; both the topics were deeply covered by us in our previous articles.

It shall now be now be noted that from 1st January, 2021 assessee will be mandatorily be required to generate e-way bill if in case his annual aggregate turnover is exceeding Rs. 100 Crore in any preceding financial year starting from 2017-18 onwards; i.e. in case it may happen that assessee has lower turnover in current financial year (2020-21) but has turnover which is exceeding the above specified limit in any of the preceding financial year than in that case assessee will be liable to comply will the provisions of e-invoicing.

This step has been taken by government to curb the bogus invoice and to insure transparency against the taxpayers but this will surely result in additional compliance for the assessee.

 In this relation to provide the guidance on e-invoicing government has organized the webinar on 27th November, 2020.

Fibota investment property

Investment Property

Interpretation of Ind-As 40 (Investment Property)

Introduction : In Accounting standards as well as in Ind-As they have made an alignment in relation concept of recognition, measurement, disclosure of Property Plant and Equipment; however Ind-As also provides and separate standard on Investment Property; Therefore it is important to understand that what is Investment Property, How it is measured, How it is to be recognized what are the exception which has been provided in such standard. In this article we will cover all the relevant topic in relation to Investment Property.

What is the scope of Ind-As 40?

It has been specified that Ind-As 40 will not be applicable to biological assets related to agricultural activity as in this relation Ind-As 41 (Agriculture) and Ind-As 16 (Property Plant and Equipment) will be applicable.

Also, it will not be applicable to mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

What will be Investment Property?

Investment property is property i.e. being (i) Land (ii) Building or Part of Building (iii) or combination of both to earn rentals or for capital appreciation or both.

Further it will be applicable to owner, lessor under operating lease and lessee under finance lease (For lessee under finance lease, in case where it has held the property for subletting or has taken such property on finance lease for capital lease. As all of the above are required to recognized asset in books of account.

What if such property is used by the owner for other than above purpose?

In case if it has been used by the owner in production or supply of goods or services or for administrative purposes (Ind-As 16, Property Plant and Equipment will be applicable), or it has been held for sale in ordinary course of business (Ind-As 2, Inventories) will be applicable.

In above case it shall also be noted that if property is held for use in the production or supply of goods or services or for administrative purposes than it will be termed as Owner-Occupied Property.

What if property is held for more than one purpose?

It may happen that property is held partly for capital appreciation and/or rentals, and partly for production or supply of goods or services or for administrative purposes; in such cases it shall be noted that if (i) If two parts can be sold, or leased out separately under a finance lease than in that case both are separately accounted(ii) In case it is not possible to split, in such case it will be accounted as Property Plant and Equipment if significant portion is used in the production or supply of goods or services or for administrative purposes; in all other case it will be accounted as Investment Property. (In case where there is insignificant use for a production or supply of goods or services or for administrative purposes than also entire property will be treated as Investment Property).

What if along with other income, other ancillary income is also received or accrued?

In case where such ancillary income is insignificant in proportion to main income (i.e. income from arrangement as a whole): – In such case entire income can be treated as income from investment property.

However, in case if such other income is significant to main income than in that case entire income will be treated as income from owner occupied property and will treated under other standard. It will not be treated as income from investment property and such property will be accounted under other standards.

What if renting leasing of property is with the group companies?

It may happen that entity owns property that is leased to, and occupied by, its parent or another subsidiary. In such case treatment is to be determined for 3 books of accounts; i) Books of Accounts of Owner of Property: In that case such property will be treated as Investment property (However, it shall meet the definition as prescribed above). ii) Books of Accounts of Occupier of Property: In his books of account property will not be accounted as they are not the owners of the property. iii) In consolidated financial statement: In consolidated financial statement such property will be treated as owner occupied property.

How entity will be required to measure investment property at initial recognition and at subsequent date?

Investment property will be initial measured at cost (i.e. purchase cost excluding recoverable taxes included if any, any other transaction cost or cost which is directly attributable to purchase.)

It shall be noted that Investment property is always recognized at cost even on subsequent date it will not be premeasured at fair value.

Whether fair value is required to be disclosed mandatorily?

Yes, even in case entity is required to follow cost model, Entities are required to measure the fair value of investment property and will be mandatory for entity that they disclose such value through notes to accounts.

What can be termed as fair value?

It is the price that would be received to

  • sell an asset or paid to transfer a liability
  • in an orderly transaction
  • between market participants
  • at the measurement date.

In Part-2 we will discuss how treatment will be made in case there is change in use of property, or how disposal of properties are to be accounted.

Fibota Investment Property

Investment Property Part-2

Interpretation of Ind-As 40 (Investment Property-Part 2)

Introduction : In part-1 we have discussed what is investment property and it is to be initially recognized or how it is to be initially recognized and how carrying amount is to be determined. In Part-2 we will discuss how treatment will be made in case there is change in use of property, or how disposal of properties will be accounted and the residual matters as stated under Ind-As 40.


Change in use of asset

How change in use of asset is to be accounted?

It may happen due to change in business condition and that change gives evidence of change in use of asset than in that case classification of asset is required to be changed. It is also important to note that only change in management’s intentions for the use of a property does not provide evidence of change and classification will not be revised.

Changes may happen in following manner

Illustration : XYZ Ltd. has purchase a vacant land; initial cost of land is Rs. 40 Crores. As management was of the intention that they will have capital appreciation there, they didn’t used the asset for any other purpose. After few years price of land fell down to Rs. 25 Crores and the entity decided that they will use such vacant land as parking space for there business. How the change is to be accounted for under the books of account?

In above case, property is to recognized as investment property when entity is of the intention that property will not be used in business or will not be treated as item in which entity will undertake the trading but instead it is kept for the purpose of earning rentals or for capital appreciation. Also, if property is recognized as investment property than in that case it is only allowed to follow the cost model. Now, after there is change in use of asset, classification of property is needed to be revised; as property is used in business such will be accounted under Ind-AS 16 i.e., Property Plant Equipment. Carrying amount for this purpose will be the amount at which asset was initially recognized (Rs. 40 Crore). However, after that that may check for any revaluation gain or loss; i.e., in this case Rs. 15 Crore will be treated as revaluation loss.

Exchange of Asset

It may happen that entity is acquiring investment property in exchange of asset (may be monetary i.e., cash or convertible in fixed sum of money; or non-monetary i.e., not convertible in fixed sum of money receivable). In such case asset which is acquired is to be recognized at Fair value of asset received if not available than at fair value of asset given 

In case if exchange transaction lacks commercial substance or fair value of neither the asset received nor the asset given up is reliably measurable than in that case asset is to be initially recognized at carrying amount of asset which is given.

Disposal of Asset

The accounting in relation of disposal of asset which is held as investment property will be same as accounting which is generally followed on sale of any other asset. But it is important to know what will be treatment of gain or loss which is arising to entity on disposal of investment property.

Gain or loss on account of sale of investment property will be directly to be transferred to profit and loss account.

After this article and the explanation and treatment which is mentioned in part-1; we have completely covered the Ind-As 40.

Fibota Income Tax Return filing & TDS Return Filing Services

Directors Requirement as per Companies Act, 2013 – Part 2

Directors Requirement as per Companies Act, 2013 – Part 2

Introduction: In previous article we discussed who are the directors that are liable to retire by rotation and who are the directors that will retire; In this article we will cover re-appointment of retiring directors and what are the other relevant provision relating to directors.

Reappointment of Retiring Directors:

Whether retiring director can be re-appointed?

Yes, director which is retiring in compliance to section 152(6) and 152(7) of companies act, 2013 can be re-appointed in Annual General Meeting by passing ordinary resolution.

Can company appoint any other person instead of retiring director?

Yes, company may also appoint any other person as director instead of retiring director, for this company is required to pass an ordinary resolution from its shareholders,

Can company keep the vacancy; i.e. by not appointing any person in place of retiring directors?

Yes, company can keep the vacancy unfilled also; but it shall be noted that after the retirement of director number of directors shall not fall less than the requirement of minimum number of directors.

What if Annual General Meeting where such directors where liable to be retire is not conducted?

In case if Annual General Meeting is not conducted then, directors who are liable to retire by rotational have to vacant their office on date on which annual general meeting was required to be held.

Illustration: D & Company Pvt. Ltd. is statutorily required to hold Annual General Meeting on or before 30th August, 2020; Mr. Ramesh and Mr. Suresh are the directors that liable to be retire by rotation as per the provision of section 152(7) of companies act, 2013. They along with other directors did not conducted Annual General Meeting on or before 30th August, 2020 in view that they can be part of company. Whether the contention of directors is valid?

In above case contention of director that they will not be liable to be retire as they have notconducted Annual General Meeting is not correct and they will e liable to vacant their office on date on which annual general meeting was required to be held. i.e. from 1st October, 2020.

What if meeting is Adjourned and still vacancy of retiring director is not filled up?

In case meeting is adjourned and vacancy of the retiring director is not filled up that in that case directors can continue till conduct of adjourned meeting. But this be noted that meeting has not expressly resolved not to fill the vacancy; if meeting resolves such, then in that case directors will be liable to retire and will be required to vacant their office.

What if in adjourned meeting also vacancy of retiring director is not filled up?

In case meeting is adjourned and vacancy of the retiring director is not filled up that in that case directors are deemed to be re-appointed. But this be noted that meeting has not expressly resolved not to fill the vacancy; if meeting resolves such, then in that case directors will be liable to retire and will be required to vacant their office.

Proposing himself or other personfor appointment as director

In case if any person who is willing to be appointed as director or wants to propose the name of any person to be appointed as director than in that case then he is required to follow following steps;

1. Person will be required to serve notice to company at least 14 days prior to annual general meeting of his intention to be appointed as director or proposing name of any person to be appointed as director. This notice will be signed by the person who is proposing his name for appointment as director; therefore, this can be treated as written consent to act as director; otherwise person can also give it separately.

2. Person will also be required to deposit Rs. 1,00,000/-. In case if company in which he is proposing his name to be appointed as director is registered as Nidhi company than in that case amount of deposit shall be reduced to 10,000/-

However, there is exception to this rule, if person is willing to be appointed as Independent director, or person name has been recommended by the Nomination and Remuneration Committee or in case the name has been recommended by Board of Directors of Company where there is no nomination and remuneration committee.

Whether this deposit is refundable?

Deposit will be refunded to person only in case 25% of total members who are present and who has voted meeting are in favor of his appointment. However, in case if company is registered as not for profit organization i.e. under section 8 of companies act, 2013 then in that case it will be up to board of director that whether they want to refund the deposit or not.

Fibota Accounts Outsourcing anywhere in India

Directors Requirement as per Companies Act, 2013

Directors Requirement as per Companies Act, 2013

Introduction: Whenever any company is formed, it requires directors to manage its affairs and along with these they are required to comply with requirement of minimum directors which has been specified under Companies Act, 2013. Also, it is important to know whether there is any limit on other side i.e. maximum number of directors that are required to be appointed. In this article we will cover all the provisions relating to minimum number of directors that are required to be appointed and maximum directors that can be on board along with other provisions relating to director.

Number of Directors

Whether there is any minimum number which has been specified for appointment of directors?

Under Companies Act, 2013 it has been specified for any company which is formed as public company shall minimum have 3 directors. Any company which is formed as private company shall minimum have 2 directors on board, and in case of one-person company there shall be one director on board.

What if company wants to appoint more directors?

If company wants to appoint more directors than required than it can appoint; provided it shall be allowed by its article of association. Further company can appoint directors by passing ordinary resolution, but if number of directors are more than 15 than in that case company will be required to pass special resolution.

Situation 1: Company wants to appoint 10 directors on board of company, Article of Association permits to appoint 12 directors. What are the resolutions that company will be required to pass?

In this case all the directors can be appoint by company by passing separate ordinary resolution for each director; i.e. company will be required to pass 10 ordinary resolutions.

Situation 2:Company wants to appoint 7 directors on board of company, Article of Association permits to appoint 5 directors. What are the resolutions that company will be required to pass?

In this case all the directors can be appoint by company by passing separate ordinary resolution for each director but after appointment of 5 directors’ company will be required to amend its article of association by passing special resolution; i.e. company will be required to pass 7 ordinary resolutions and 1 special resolution to amend its article of associations.

Situation 3: Company wants to appoint 20 directors on board of company, Article of Association permits to appoint 12 directors. What are the resolutions that company will be required to pass?

In this case first company can appoint 12 directors by passing separate ordinary resolution for each director after that company will be required to amend its article of association by passing special resolution and then 3 directors can again be appointed by passing separate ordinary resolution for each of three. For remaining 5 directors’ company will be required to pass separate special resolution for each of five.

Situation 4: Company wants to appoint 20 directors on board of company, Article of Association permits to appoint 25 directors. What are the resolutions that company will be required to pass?

In this case company can appoint 15 directors by passing separate ordinary resolution for each of fifteen, after that for company will be required to pass separate special resolution for each of the remaining five.

Whether there is any exemption to government company or forcompany which is registered under section 8 (Non-profit organizations) of Companies Act, 2013?

It has been provided that in case if government company or for company which is registered under section 8 (Non-profit organizations) then in that case the provision that it can appoint maximum 15 directors and after that for appointment of director, special resolution will be required; this will not be applicable to above companies.

This exemption will only be available in case if company has not committed a default in filing its financial statements under section 137 or Annual return under section 92 of companies act, 2013; with the registrar.

Situation 1: One the company registered under section 8 of companies act, 2013; has 16 directors on board of company. Company wants to appoint more 2 directors on board and for this purpose on of the promoter of company is of the view this can be done by the company only by way of passing special resolution. Whether the contention of promoter is valid?

In this case contention of promoter is not valid; as specific exemption has been given to companies which are government company or for company which is registered under section 8 (Non-profit organizations). Therefore, company can appoint additional directors even by passing separate ordinary resolutions for each of them.

What if company failed to furnished annual return as required under section 92 of companies act, 2013?

In that case contention of promoter is valid company will be required to pass separate special resolution for appoint of directors as number of directors are exceeding 15 and company will not be covered under exemption as it has failed to furnish annual return as required under section 92 of companies act, 2013.

One Woman Director

Which are the companies that are required to appoint woman directors on board?

According to companies act, 2013; some of the companies which are covered under the rule prescribed are required to appoint compulsorily one woman as part of board of company. There is no limit if company is appointing more than one-woman director.

As per rule 3 of companies act, 2013; following companies shall have at least one director on board as woman director.

For the purpose of checking the limit in case of public company paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.

It shall be noted that there is no requirement to appoint woman director in case of company which is registered as private limited irrespective of their turnover or paid-up share capital.

What if company incorporates as listed entity or as public entity which fulfills any of the above two requirements?

In that case company will be provided with 6 months from date of incorporation to comply the provision of appointment of women director.

Which resolution is required to be passed in case of appointment of women-director?

In case of appointment of women-director ordinary resolution is required to be passed.

Illustration: Company incorporated as listed entity as on 1st June, 2020; within which time company shall appoint its first woman director to comply with the provision of companies act, 2013.

In this case company is required to comply with provision up to 31st December, 2020; i.e. company shall appoint its women director on or before 31st December, 2020.

What if there is vacancy in place of women director?

In this case it is to be decided whether vacancy caused is vacancy required to be fulfilled by law i.e. vacancy is of women director which was required to be as per proviso to section 149(1) of companies, 2013; than in that case it shall be fulfilled in immediate next Board meeting or three months from the date of such vacancy whichever is later. But in case vacancy caused is causal vacancy (it is the case where there is already one women director on board even after resignation). This is the situation where there is vacancy but not as per law; even if it is not filled than also there is no violation of provision; therefore, in this case there is no time limit to fulfil the vacancy.

Illustration: Mr. Sita is and Mr. Meta are the women directors on board of company; due to health reasons Mr. Sita resigned from the post of women director. What is the time limit within which new women director is required to be appointed?

In this case the vacancy caused is causal vacancy (it is the case where there is already one women director on board even after resignation). This is the situation where there is vacancy but not as per law; even if it is not filled than also there is no violation of provision; therefore, in this case there is no time limit to fulfil the vacancy.

Resident Director

It has been specified that company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year.

Which year is to be considered while calculating the limit of 182 days?

It has been specified that for calculating above limit current financial year is to be considered.

What if company is incorporated during the year?

In case company is incorporated during the year than in that case above requirement shall apply proportionately; i.e. if company is incorporated on 1st October then in that case director shall be resident in India for period of not less than ninety-two days during the financial year.

First Directors

Who are the first directors of company?

The following sequence shall be followed for determining who will be first director of the company:

1. The name of person which is mentioned under article of association.

2.The manner or method provided for appointing first directors under article of association.

3.If both of this is not available than in that case individuals who are subscribers to memorandum of association shall be deemed to be the first directors of company.

Therefore, from above point it is clear that in case condition 1 or 2 as specified above is not fulfilled than in that case subscriber to memorandum of association shall be 3 Individual in case of public company 2 Individual in case of private company and 1 Individual in case of one-person company so that it will satisfy the condition of minimum directors.

In case of a One Person Company (OPC), an individual being member shall be deemed to be its first director until the director is duly appointed by the member in accordance with the provisions of this section.

What will be tenure of first director which is appointed?

The first director which are appoint will hold the office till holding of first Annual General Meeting (AGM); In AGM the director will be appointed by passing ordinary resolution in case more than one director is to be appointed than separate resolution will be required for appointment of each director.

Rotation and Non-rotational director

To whom the provision of rotational and non-rotational director?

It is applicable to public company or a private company which is subsidiary of a public company in case company is private limited other than specified above than it is not covered under above provision and to them clauses relating to rotational and non-rotational director will not be applicable.

It has been provided that at least 2/3rd directors on board of company will be rotational directors; however, article of association can also provide that all the directors will be rotational directors. From these rotational directors, retiring directors are also to be decided.

It shall be noted that following directors will not be considered while determining director that will be considered for provision of rotational director

  • Independent Directors
  • Small Shareholder Directors
  • Nominee Director
  • Additional Director appointed under section 161 of companies Act, 2013.
  • Alternate Director appointed under section 161 of companies Act, 2013.
  • Director appointed by National Company Law tribunal
  • Director appointed by Banking or Financial Institution.

While deciding the above number if the answer is coming in fraction than in that case it shall be always rounded upwards.

Situation 1: Company has 12 directors on board of company. From this 2 are Independent directors, one of them is additional director, one of them is director of small shareholder who are the director that are liable as rotational directors?
In this case from 12 all the 4 persons i.e. 2Independent directors, 1 being small shareholder director, 1 additional director, remaining 8 will be multiplied by 2/3rd. Therefore, it be 6 will be director which will be treated as rotational directors (8/3*2 = 5.33 to be rounded upward)

What if company is incorporated as Private Limited?

In that case there is no requirement of applicability of provision relating to rotational director.

What if article of association provided for rotation of director of less than 2/3rd?

It shall be noted that in case of public company article of association can provided for more 2/3rd but cannot provide less than of 2/3rd. But in case of company which is incorporated as private limited than in that case it can provided to less than 2/3rd directors of total directors as there is no requirement of law in respect of rotational director for company which is incorporated as private limited. It is apparent that government does not want to increase the compliance burden on company which has been incorporated as private limited.

Retiring Directors

After the number of directors who are liable to retire by rotation is determined, only one-third out of that number will retire from office. If such number is not three or not a multiple of three, then, the number nearest to one-third will be considered.

Total Number of Directors Rotational Director Retiring Directors
10 7 2
12 8 3
7 5 2
9 6 2

What if company is not able to determine who will retire first?

It shall be those who have been longest in office since their last appointment, however in case if both the person is appointed on same day than in that case, they shall mutually decide that who will retire by rotation. If in case it is not possible than in that case decision will be taken by draw of lot. It shall be noted that shall sequence is to compulsorily followed no person who is senior is appointment can argue to have draw of lots unless person with which he is liable to retired is appointed on same day.

Whether rotational director can be reappointed?
Yes, members can re-appoint them by passing ordinary resolution.
In next article we will check what are the provision relating to re-appointment of retiring directors and in which case they are deemed to have been reappointed.

Fibota Filing of Appeal under GST

Recent updates in GST

Latest GST News, Information, Notifications & Announcements

Introduction: Recently through news and update section GST department has clarified some the matters like, auto population of GSTR-3B, due dates for GSTR-3B. In this article we will cover both the updates in detail.

System Generated GSTR-3B

It has been the system that GSTN portal shows an auto populated statement GSTR-2A which shows the invoice which has been generated under the name of and number of assessee (assessee being a buyer). This was helpful to user in manner that it allows to decides assessee that from all the invoices shown under GSTR-2A which are the invoice for which he will be eligible to get the credit. Now GST portal has extended this facility and now it will provide system generated GST-3B. After this assessee will be able to get auto generated figures under system generated GSTR-3B which will be based on GSTR-1 filed by assessee and GSTR-2A generated for the assessee.

But it shall be noted that this facility will not be able for assessee who have opted for quarterly return filing (GSTR-1).

Important points:

  • This facility will be available for normal taxpayer and also for SEZ Developer, SEZ unit and casual taxpayer and it will be available from October, 2020 tax period onwards.
  • Assessee can see their system generated PDF through GST Portal > Returns Dashboard > Select Return period > GSTR-3B> System Generated 3B.

Due date of GSTR-3B

It had been since long that government was providing extension of due dates and was allowing the assessee with extra time limit to file the return. Now it has been decided by the government that no extension will be provided for due dates of GSTR-3B for the month of October, 2020 to March, 2021.

Due date according to turnover of assessee in previous financial year for the period starting from October, 2020 to March, 2021 shall be as follows:

  • In case if turnover of assessee is exceeding Rs. 5 Crore in previous financial year than in that case due date will be 20th of following month.
  • In case if turnover of assessee is less than Rs. 5 Crore in previous financial year than in that case due date will be 22th of following month for the state of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana and Andhra Pradesh, the Union territories of Daman and Diu, Dadra and Nagar Haveli, Puducherry, Andaman and Nicobar Islands and Lakshadweep.
  • For other states being Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, West Bengal, Jharkhand and Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh and Delhi; due date will be 24th of following month.

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Fibota Online GST Return filing

Filling of GSTR 9

Guide to file GSTR-9 on GST portal

Introduction: Government has prescribed that particular class of assessee are required to file GSTR-9C; It is important to understand which are the assesses that are covered by the provision of law and what are the requirement that assessee is required to fulfil before and after filing of GSTR-9C.

What is GSTR-9C?

GSTR-9C is an annual audit form to be filled by taxpayer who are having their aggregate annual turnover of Rs. 2 crore or more in relevant financial year. GSTR-9C is reconciliation statement that prescribes the reconciliation between audited annual accounts and details furnished under GSTR-9. GSTR-9 is an annual return to be furnished by taxpayer based on monthly/quarterly (based on turnover of entity) GST returns filed by him (GSTR-1 and GSTR-3B).

What is the turnover limit, which will require assessee to file GSTR-9 or GSTR-9C?

Particulars GSTR-9 GSTR-9C
Turnover up to Rs. 2 crores Optional Not required
Turnover more than Rs. 2 crores but up to Rs. 5 crores Compulsory Optional
Turnover more than 5 crores Compulsory Compulsory

What is due date for furnishing GSTR-9 and GSTR-9C?

For financial year 2017-18 i.e. starting from 01/07/2017 to 31/03/2018 due date for furnishing GSTR-9 and GSTR-9C was 5th February, 2020. For financial year 2018-19 i.e. starting from 01/04/2018 to 31/03/2019 due date for filing GSTR-9 and GSTr-9C has been extended to 31st December, 2020.

What are the consequences of non-filling of GSTR-9 or GSTR-9C?

If assessee fails to furnish GSTR-9 then late fees for not filing GSTR-9 from due date is Rs. 100 per day for CGST and Rs. 100 per day for SGST. In case total liability of person in form of late fees shall not exceed 0.25% of the taxpayer’s turnover.

In case assessee fails to furnish GSTR-9C then late feed for not filing GSTR-9C is Rs. 100 per day for CGST and Rs. 100 per day for SGST. In case total liability of person in form of late fees shall not exceed 0.50% of the taxpayer’s turnover.

Whether GSTR-9 or GSTR-9C can be used by taxpayer for availing Input tax credit not availed whiling filling the return?

No, GSTR-9 and GSTR-9C cannot be used by assessee for claiming credit.

What assessee has not filed any of GSTR-1 or GSTR-3B for tax period for which GSTR-9 or GSTR-9C is filed?

No, it is mandatory for the taxpayer that he is first required to furnish GSTR-1 and GSTR-3B for all the tax period of relevant tax period, only after that he will be allowed to furnish GSTR-9 and GSTR-9C.

Whether auditor of financial statement as required by any act (Income Tax Act or Companies Act) and auditor required to certify GSTR-9C shall be same?

No, it is not necessary that auditor of financial statement and auditor required to certify GSTR-9C is same.

What if audit has not been carried out under any other law for time in force?

In that case at some place under GSTR-9C it is mandatory that assessee furnishes audited figure also assessee is required to attached audited balance sheet and profit and loss account along with cashflow statement if any. Therefore, practically it will not be possible for assessee to file GSTR-9 and GSTR-9C if he is required to get his books of account audited and he has not obtained audit report.

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E-way bill and its necessity

Introduction: Under GST it has been provided that assessee or in some cases transporter is required to generate e-way bill if transaction amount is exceeding prescribed limit and transaction involves movement of goods. It is important to know that what are the consequence where e-way bill is not generated? What is the time limit for which e-way bill will be valid? In this article we will cover all the provision relating to e-way bill.

What is e-way bill and when it is applicable?

With effect from 1st June, 2018 it is mandatory to generate e-way bill in case there is movement of goods from one place to another place (inter-state movement, i.e. between two states or between union territory and state or between two union territories.)  and consignment value is more than Rs. 50,000.  Therefore, any registered person cannot transfer goods in vehicle if value of such goods is exceeding Rs. 50,000/-.

E-way bill will be required even if supply is relating to taxable goods or non-taxable goods; it will also be applicable in respect of transfer from one branch to another or when goods are been given for job-work. Also, e-way bill will be required in case where purchase is from unregistered dealer.

Simply, e-way bill is required in case of movement of goods whether it is due to supply or due to reasons other than supply or in respect of inward supply from unregistered person.

Whether there is any exception to above transaction limit?

Yes, in case even if value of supply is not exceeding the above specified limit than also e-way bill is required when it is Inter-State movement of Goods by the Principal to the Job-worker or Inter-State Transport of Handicraft goods by a dealer.

Whether e-way bill can be generated for lower than monetary value specified above on voluntary basis?

Yes, if assessee wants he can generate e-way bill for lower monetary value (i.e. less than Rs. 50,000/-)on voluntary basis.

Who is required to generate e-way bill?

(a)Registered Person will be required to generate e-way bill in case where there is a movement of goods of more than Rs 50,000 in value.

(b) Unregistered Persons–Where a supply is made by an unregistered person to a registered person, the receiver will have to ensure all the compliances are met as if he is supplier. Therefore, in such case registered person will be required to generate e-way bill.

(c) Transporter– Even transporters who are carrying goods by road, air, rail, etc. needs to generate e-Way bill if the supplier has not generated e-way bill. In such cases he will require authorisation from registered person and even if there is any lapse in while filling details than registered person will be liable for such lapse.

What if transporter is not registered?

In case if transporter is not registered under GST, he is required to obtain transporter ID from e-way bill portal for generating the e-way bills. Transporter ID is a unique identification number allotted to transporters not registered under GST. Supplier/consignor has to mention the transporter ID on the e-way bill which will enable the transporter to update the vehicle number later while moving the goods actually. Further such unregistered transporters have to mention transporter ID on the e-way bill instead of GSTIN number.

What if transporter fails to comply above e-way bill provision?

In case if transporter is required to generate e-way bill and he fails to comply above provision than in that case he may face penalty of Rs 10,000 or tax sought to be evaded (wherever applicable) whichever is greater, and further he will be liable for confiscation of goods and seizure of vehicle.

What will be validity of e-way bill?

Type of conveyance Distance Validity
Other than Over dimensional cargo Less Than 100 Kms 1 Day
For every additional 100 Kms or part thereof Additional 1 Day
For Over dimensional cargo Less Than 20 Kms 1 Day
For every additional 20 Kms or part thereof Additional 1 Day

*Over Dimensional Cargo mean a cargo carried as a single indivisible unit and which exceeds the dimensional limits prescribed in rule 93 of the Central Motor Vehicle Rules 1989 made under the Motor Vehicles Act, 1988.

Whether e-way bill is required to be generated in case movement of empty cargo containers?

No, in such case exemption is provided therefore, e-way bill will not be required.

Whether there is any special exemption in case supplier is located in Special Economic Zone (SEZ)?

There is no exemption which is given to supplier located in Special Economic Zone (SEZ); Therefore, if registered person who causes movement of goods shall be responsible for the generation of e-Way bill as per the above rules.

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Fibota What is DIN and How to apply for DIN

What is DIN and How to apply for DIN

What is DIN and How to apply for DIN

What is DIN?

Full of DIN is Director Identification Number it is a unique Identification Number allotted to an individual who is willing to be appointed as a director of a company. Any person who is willing to get appointment as director must hold a valid DIN. DIN is an 8-digit unique identification number, for one individual only one DIN is there i.e. person cannot apply for multiple DIN.

Which form is required to be furnished while applying for DIN?

In respect of person who is already director before the provision came into force or person who is willing to get a valid DIN can furnish application in form DIR-03. At time of Incorporation of new company SPICe e-form is furnished, person who does not hold DIN and wants to form a company shall furnish this single form for both the purpose.

What is the procedure of obtaining DIN?

Person who is willing to get appointment is required to furnish basic details along with photograph, relevant identity proof and address proof. Photograph, identity proof and residence proof must be attested by a Chartered Accountant or a Company Secretary or a Cost Accountant, in whole time practice. In case of foreign nationals, their documents can be attested by Consulate of the Indian Embassy and Foreign Public Notary.

After successful filling of application and payment of requisite fees; Central Government will process the application and decide the approval/ rejection. If application is approved concerned person will be allotted with DIN within 1 month and in case if application is rejected, reasons for rejection will be e-mailed to applicant and person will get 15 days’ time to rectify the application.

What if person wants to change any of the details given in DIR-03/SPICe i.e. application of DIN?

Any person who is willing to change any basic information provided while furnishing DIR-03/SPICe is required to file DIR-06. This will allow him to update the details furnished by him.

What if person wants to cancel the DIN?

In case if person wants to cancel or surrender the DIN which he holds than he is required to furnish DIR-05 i.e. application for cancelling/surrendering DIN. Along with this he is required to furnish declaration that he has never been appointed as director in any company; neither he has signed any documents using this DIN. Therefore, if any person is appointed as director in a company even for single day and even though now, he is not director in any company then also he cannot surrender DIN.

What are the circumstances under which central government may cancel the DIN?

The Central government may cancel the DIN due to the following reasons:

  • If a duplicate DIN has been issued to the director.
  • DIN was obtained by fraudulent means.
  • On the death of the concerned person.
  • The person has been declared unsound mind by the court.
  • The person has been adjudicated as insolvent.

What is the amount of fees that is payable for filling DIR-03?

Fees for filling DIR-03 is 500 rupees and which is non-refundable even if application is rejected.

Whether Permanent Account Number (PAN) is mandatory while applying for DIN?

It depends on nationality of person, if person applying is Indian national than PAN is mandatory however if in case of foreign national it is optional. Further applicant’s name (first, middle and last name), applicant father’s name (first, middle and last name) and date of birth should be as per PAN details. In case if details mentioned in DIN application is not as per Income tax database, then person will not be allowed to furnish application.

Whether provisional DIN allotted to person can be used as DIN?

No, it cannot be used by the person for filling e-forms and also applicant cannot sign as a director.

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Filing of CMP Through SMS

Filing of CMP-08 on GST-Portal

What is CMP-08?

Every composition dealer is required to furnish a statement-cum-challan in which he is required to declare details of self-assessment tax payable for a given quarter. This form is also used challan for payment of tax.

Who is composition dealer?

Any person who is registered under composition scheme which has been specified under GST law; will be know as composition dealer. Such person will charge the tax at concessional rate will is prescribe by government and neither he himself (on Inputs, Input services or Capital Goods used by composition dealer) nor his buyer (Person purchasing goods from composition dealer) will be allowed to take Input tax credit.

Who is required to furnish form CMP-08?

Every person either being supplier of goods (i.e. persons having aggregate annual turnover up to Rs. 1.5 crore in previous financial year including restaurant service provider.) or supplier of service or both (i.e. person having aggregate annual turnover up to Rs. 50 lakhs in previous financial year.) is required to furnish form CMP-08.

Who all are the persons that are not eligible to opt for composition scheme?

If in previous financial year aggregate annual turnover of the person is exceeding the limit specified by the government or if the person is manufacturer of ice cream and other edible ice (whether or not containing cocoa), pan masala, or tobacco and manufactured tobacco substitutes or person engaged in making inter-state supply or making supply through an e-commerce operator or person is engaged in making non-taxable supply or person is casual taxable person or a non-resident taxable person then in such cases person will not be eligible to opt for composition scheme.

What is due date of filling Form CMP-08?

Form CMP-08 is required to be filed quarterly, due date of furnishing same is 18th of month succeeding quarter.

What is the due date of CMP-08 for a period from July, 2020 to September, 2020?

The due date of filing CMP-08 is extended for the period of July, 2020 to September, 2020 is 18th October, 2020.

Whether there is any update in relation to form CMP-08?

It has been specified by GSTN portal that composition taxpayer may now file NIL statement in Form GST CMP-08 for a quarter, through an SMS; person is not restricted to file the return through online mode; i.e. now he has option to file it through SMS.

What are conditions that are to be fulfilled for exercising above option?

Person must be registered as composition taxable person; he has filed all the applicable statements i.e. GST CMP-08 of previous quarter. Person who is authorised signatory his/her phone number is registered on GSTN portal. There should not in any uploading of data through online mode i.e. person has not saved any data on GSTN portal.

Which are the persons who are eligible to file NIL return?

It shall also be noted that if person is filing NIL form CMP-08 for a tax period that means he has not undertaken any outward supplies; he is not liable to pay tax on reverse charge basis in respect of supplies procured by him.

What are the steps to be followed to avail the benefits of above provisions?

Person who wants to file NIL CMP-08; has to send SMS to 14409. In SMS he is required to state as NIL space Return Type space GSTIN space Return Period e.g. NIL C8 24ABCDE0123F1ZK 072020. After this person is again required to send the SMS to 14409 with verification code; this will confirm the filing of Nil Form CMP-08.

On successful filing person will receive the ARN (Acknowledgement receipt number) number to its registered e-mail-id and mobile phone.

Fibota Online maintaining books of accounts

Questions relating to Independent Director

Frequently asked question in relation to Independent Director

Whether any self-certification is required from director? If yes whether there is any specific format for it?

Yes, Independent director is required to self-certify that he satisfies the criteria as specified under section 149(6) of Companies Act, 2013; (i.e. definition relating to independent director). This certification is required to be provided at

  1. At the first board meeting in which he participates as a director
  2. At the first board meeting in every financial year
  3. Whenever there is a change in the circumstances which may affect his status as an independent director

There is no specific format relating to self-certificates to be provided.

Whether Independent Director is considered as rotational director?

Any person who is appointed as Independent director in the company will not considered as rotational director, in fact while calculating number of directors that are liable to be rotated by virtue of section 152(6) and 152(7).

Can women become Independent director?

Yes, there is no restriction. Women can become independent director. Also, as per proviso to section 149(1) which prescribes particular class of company as defined under Rule 3 of Companies Rules, 2013 is required to appoint at least one-woman director, that women director can be appointed as Independent director.

What will be term of independent director?

Independent director can hold the office for a term up to five consecutive years, he will be eligible for reappointment after passing special resolution. It shall also be noted that while passing resolution for re-appointment it is not necessary that he is re-appointed for next five year; the term of reappointment may be less than 5 years. As an additional requirement on part of board of directors such re-appointed shall be disclosed in board’s report. Further person will not be eligible to be reappoint for the period of 3 years and for the said period he shall not be in connection in any other capacity whether directly or indirectly with company, only if both the conditions are satisfied then only person will be eligible to be reappointed after cooling period.

What if in re-appointment he is not appointed for 5 years? Whether for balancing year he can be re-appointed?

In this case even if person is not re-appointed for the period of 5 years

No, after completion of two term person shall not be eligible for re-appointment before completion of cooling period. Even if term period of second appointment or first appoint was not 5 years, person will not be eligible.

Which are the acts for which Independent director is liable?

Independent director will be liable for any acts of omission or commission by a company which had occurred with his knowledge i.e. with his consent or connivance and for acts where he had not acted diligently.

Whether nominee director and Independent director are same?

It shall be noted that nominee director cannot be taken as a substitute for appointment of an independent director. Though a nominee director is also independent of the other Board members but this independence does not make him an independent director. He is appointed to safeguard the interest of the respective financial institution to which he belongs.

Illustrations:

Mr R was promoter of one the X Pvt. Ltd.(subsidiary of company), D Pvt. Ltd holding company desires him to appoint as Independent director, person who is applying for appointment is of the view that company can appoint him; as he was promoter of X Pvt. Ltd. (subsidiary of company)which was in past not related to D Pvt. Ltd holding company i.e. when he was promoter in subsidiary company was not subsidiary of D Pvt. Ltd. Determine the validity of statement.

As per section 149(6) it has been clearly stated that person shall not be promoter in company or in its holding company or subsidiary company, or associate company. Further even if he was promoter of the company when it was not the subsidiary company; the condition is checked as on the date of appointment; and therefore, such person will not be eligible to be appointed as independent director.

What if person was not a promoter but was related to promoter?

In that case also person will not be eligible to be appointed as Independent director as it has been mentioned person is not related to promoter or director of company or of its holding company, subsidiary company or associate company.

Mr. Hari is Chief Executive officer in a non-profit organisation which receives 20% of its contribution from G Pvt. Ltd. One of the directors of G Pvt. Ltd has contributed 10% of total contribution of such non-profit organisation. Whether Mr. Hari is eligible to be appointed as Independent director of G Pvt. Ltd.

In the given as Mr. Hari will not be eligible as per one the condition Person proposing himself to be appointed as independent director or his relative shall not be Chief Executive or Director of any non- profit organization which is receiving twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company.

What if instead of director of G Pvt. Ltd. its holding company director has contributed such amount?

In that case Mr. Hari will be eligible to be appointed as only directors and promoters of company has been covered under the above clause.

Mr. Nirav is holding 1% share of D. Ltd. also one of its relative is also holding is also holding 2% of share in D. Ltd; but as on the date of appointment his relative sold the share. Mr. Nirav stated that he is eligible to be appointed as director as now relative is not holding the share. Determine whether the contention of Mr. Nirav is valid.

In the given case it has been stated under section 149(6) any person who is willing to get appointed as Independent director shall not hold (either on his own account or his together with their relatives or relatives of that person on their own account) 2% or more voting power in company. It has not been mentioned that which period will be considered for determining eligibility of appointment. Therefore, if as on date of appoint person either own his own account or along with relative is not holding the share than he will be eligible to be appointed as director. In the given case Mr. Nirav will be eligible to be appointed.

Mr. Desai is relative of Mr. John; he is currently employed at BR Pvt. Ltd; In that company Mr. John applied for his appointment as Independent director whether Mr. John is eligible to be appointed as Independent director?

In the given case it has been specified that person himself or his relative shall not be key managerial personnel or employee company or its holding, subsidiary or associate company for immediately 3 previous financial (from year in which person is proposed to be appointed); or in current financial year as his relative is employed in the company in current year Mr. John will not be eligible to be appointed as Independent Director.

What if Mr. Desai was employed only in previous year?

In that case Mr. John will be eligible to be appointed as independent director as it has been provided through exception that person will be eligible to be appointed if his relative was there in company in capacity of employee in preceding 3 years but is not engaged currently with company.

Mr. Rahul one the relative of Mr. Raj who proposed to be appointed as Independent director in one of the companies. In said company Mr. Rahul has given guarantee of Rs. 75 Lahks in relation to one his friend’s dues toward said company. Whether Mr. Raj is eligible to be appointed as Independent director on board of company?

As per the clause given under section 149(6) of Companies Act, 2013; If relative has given guarantee or security in connection with indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company and amount is exceeding rupees 50 Lahks at any time during two preceding financial year or during current year then person will not be eligible in the given case Mr. Rahul been relative of Mr. Raj has given the guarantee of amount which is exceeding the amount prescribed above; and therefore, Mr. Raj will not be eligible to be appointed as Independent director.

Fibota Tax extension of due date for 2020-21

Extension of Due

Extension of Due-Date of Audit

Introduction: It has been the burning issue that whether due dates will be extended or not; finally, government has notified extension for various due-dates which will act as booster for the assessee as well as for auditors.

Due-date of furnishing Tax-Audit report under Income Tax Act, 1962: It has now been notified that due date for furnishing Tax Audit Report has now been extended to 31st December, 2020.

Due-date of furnishing Transfer Price Audit report under Income Tax Act, 1962: It has now been notified that due date for furnishing audit report in respect of International/Specified Domestic transaction has now been extended to 31st December, 2020.

Due date for filling Income Tax Income Tax:

Particulars Due-Date
1. Person required to get his books of account audited 31st January, 2021
2. Person required to furnish report in respect of International/Specified Domestic transaction carried by him. 31st January, 2021
3. Any other person not covered above; i.e. person who are not required to get his books of accounts audited 31st December, 2020

Extension of due-date for small taxpayers:

If any person who is liable to pay self-assessment tax up to the amount of Rs. 1 Lakh then due date for payment of tax from person who were required to furnish Income tax return on or before 31st July, 2020 has been extended to 31st December,2020. For person who are required to get their books of accounts audited and their liability to pay self-assessment tax up to the amount of Rs. 1 Lakh, due date for payment of tax has been extended to 31st January, 2021.

Further it shall be noted that there is also extension in due date of GST Audit and filling of annual return for financial year 2018-19. The said due-date has now been extended to 31st December, 2020 which was earlier 31st October, 2020.

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Fibota Filing of Appeal under GST

GST Refunds

Refund Under GST Laws

Online GST Refund  Process – A Step-By-Step Guide

  1. Introduction : Under GST law there is structured mechanism for claim of refund. Though there are various forms which has been prescribed as application to claim the refund, along with this there are various Due-date which has been prescribed for different situations. The above process is so much complicated that it becomes difficult to understand for layman. Government is also taking serious steps on speeding up refund processing system in these tough times to support all the registered persons who have applied for their refunds. With this background, let us understand the latest developments in GST Refunds along with process.
  2. Related Provisions : GST Law Mechanism provides for refund related provisions under Section 54 (Chapter IX) of CGST Act, 2017, Rule 89 to 97A (Chapter X) of CGST Rules, 2017 read with various Circulars &Notifications as issued time to time by CBIC. The timeline for filing the refund application is within two years from the relevant date wherein “relevant date” definition has been provided by way of an explanation to Section 54.
  3. Procedure : All the types of refund prescribed under the aforesaid provisions can be divided into 3 buckets i.e. Refund of Taxes Paid, Refund of Accumulated Input Tax Credit and Refund of other amount paid (e.g. Interest/Penalty/Late fees wrongly paid). Drastic changes came out to limelight when CBIC released Master Circular No. 125/44/2019 – GST dated November 18, 2019 which eliminated manual filing of refund applications by transforming to most efficient and time saving electronic filing system. The various types of Refund Applications which are to be filed online through the Common Portal W.E.F September 26, 2019 are listed below
Sr. No Type of refund application Relevant for Before 2 years from expiry of relevant date, where relevant date will be
1 Unutilized ITC on account of exports/SEZ supplies without payment of tax; Exporter* Before 2 years from expiry of relevant date, where relevant date will be
Goods are exported out of Indiaand departure is by land then
1) Exported by sea or air: Ship/Aircraft leaves India.2)Exported by land: Date on which goods passes frontier.3)Exported by post: Date of despatch of goods by the Post Office.
In the case of services exported out of India

1) Date of receipt of convertible foreign exchange payment where it is received after completion of provision of service.

2) Date of issue of invoice in case where payment has been received prior to issuance of invoice.

2 Unutilized ITC on account of accumulation due to inverted tax structure; Specific Taxpayer having higher rate on Inward supply compared to rate on outward supply Due date for furnishing of return under section 39 for the period in which such claim for refund arises.
3 Refund to supplier of tax paid on deemed export supplies; Exporter* Date on which the return relating to such deemed exports is furnished.
4 Excess balance in the electronic cash ledger; Every Taxpayer No minimum limit restriction for refund of excess amount in Electronic Cash Ledger and No time limit is also applicable for application of such.
5 Excess payment of tax; Every Taxpayer Date of payment of such tax.
6 Tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa; Every Taxpayer In this case assessee can avail the benefit of PMT-09 for unsettled tax liability for liability which has been already settled assessee is required to follow the refund procedure, further according to provision assessee will not be required to pay interest on this wrong levy.
7 Refund on account of assessment/provisional assessment/appeal/any other order; Every Taxpayer Date of communication of such judgment, decree, order or direction and in case of provisional assessment; Date of adjustment of tax after the final assessment thereof.

*Conditions:

  • No refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.
  • No refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
  1. Clarification on various issues.
  • No refund will be allowed if the amount is less than one thousand rupees. In case of application of refund where amount less than one thousand rupees it will not be entertained. It is clarified vide Circular 125/44/2019 that the limit of rupees one thousand shall be applied for each tax head separately and not cumulatively.
  • The Board has clarified that in cases where refund of tax paid on supplies other than Zero rated supplies, the disbursement of refund against such applications filed would now be admissible proportionately in the respective original mode of payment i.e. if the assessee had paid the taxes both by debiting electronic cash and credit ledgers then the refund would be disbursed in the same proportion in which such cash and credit ledgers has been debited for discharging the total tax liability for the relevant period for which refund claim was filed. Further, the aforesaid disbursal amount shall be paid by way of issuance of order in Form GST-RFD-06 towards amount refundable in Cash; by way of issuance of Form GST PMT-03 to re-credit the amount attributable to credit as ITC in Electronic Credit Ledger.
  • For e.g. Mr. A has paid his total tax liability in proportion of 60% by debiting credit ledger and 40% in cash, then in that case if refund application has been accepted then the amount of refund will be credited in same proportion. Further as department has also allowed the refund application for unutilised ITC (except in case of Inverted duty structure and zero-rated supply without payment of Tax.), but in absence of any clarification assessee will be required to file fresh application of refund of unutilised ITC.
  1. Questions that may arise:

Question : Whether exporter can claim refund of unutilised ITC pertaining to RCM transactions which does not reflect in Form GSTR-2A?

Answer: Yes, Exporter can apply for refund of unutilised ITC in relation to RCM Transactions as per Circular No. 139/09/2020- GST dated June 10, 2020 read with 135/05/2020-GST dated March 31, 2020.

Question : Whether HSN Code is mandatory in Annexure B filed along with refund application?

Answer: Yes, as per Circular No. 135/05/2020-GST dated March 31, 2020; it will be mandatory to describe HSN code in Annexure B filed with refund application.

Some important question relating to documents to furnished.

Questions Documents to be furnished
Whether undertaking from assessee for grant of refund of provisionally accepted ITC is required? Applicants shall be required to give an undertaking to the effect that the refund sanctioned would be paid back with interest in case of mismatch of credit.
Whether provisional refund can be granted even in cases where the officer believes that the claim should be rejected due to irregularities? In such cases, the proper officer shall grant refund on provisional basis of 90% of refundable amount. Further final sanction of refund will be done after giving opportunity of being heard.
How to deal with rejection of refunds on the common portal pertaining to SEZ supplies due to incorrect disclosure in GSTR-3B For the period July 1, 2017 to June 30, 2019, such applicants will now be allowed to file refund application on the portal.

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Inverted Tax Structure under GST

Inverted Tax Structure under GST

Introduction: It is important to know that what are the provision relating to GST in case where there is inverted tax structure i.e. rate of Input/Input service is higher than the rate of outward taxable supply.

For e.g.: Mr. A is manufacture and it procures raw material on which GST is levied at the rate of 12%; on the other side finished product prepared by Mr. A is under NIL rate.

Above situation creates questions such as, how input tax credit is to be availed, how refund will be claimed, whether provisions of block credit will be applicable, what will be the maximum amount of refund for which assessee will be eligible. In this article we will cover all the provision relating to such inverted tax structure.

Important Points:

  • As per section 17(5) of CGST Act, 2017; assessee is not eligible to claim the input tax credit in case the inputs/inputs procured has been given as free sample or has been written off due to any reason or has been supplied by dealer who has opted for composition scheme, or such inputs/input service has been procured for non-taxable supply or exempt; but above situation of inverted rate will not fall under any of the above provision therefore the said clause will not affect the eligibility of credit.

Illustration: Mr. R has purchase raw material and GST levied on such at time of purchase is at the rate of 12%. Mr. R converts this raw material into finish product and the finished product is taxable at the rate of 5%. One of the consultants advised Mr. R that he will not be eligible to get the credit as the rate of outward supply is lower and said case falls under section 17(5) of CGST Act, 2017.

In the given case advised given by consultant is not correct as section 17(5) of CGST Act, 2017; does not prohibits the assessee from availing the credit relating to inputs/input service where the rate levied on outward supply is lower than the rate levied on inward supply. Mr. R shall claim the credit relating to such input and he can also apply for refund relating to difference between such input rate and output rate.

Refund Provisions : Section 54 (1) of CGST Act 2017; provides that in case of inverted duty structure assessee may make application for refund before the expiry of two years from the relevant date and relevant date for the purpose means end of financial year in which refund claim arises. Further specified assessee will not be eligible to claim the refund such assessee will be notified by the government. The maximum amount of refund for which assessee will be eligible is

Maximum Refund Amount:

(Turnover of inverted rated supply of goods and services)     X  (Net input tax credit)

(Adjusted total turnover)

-Tax payable on such inverted rated supply of goods and services

  • “Net ITC” shall mean input tax credit availed on inputs during the relevant period. Here it does not cover input tax credit relating input service or capital goods. And under the words it will not include input tax credit for which assessee has applied for refund under section sub rule (4A) and (4B) of rule 89 i.e. relating refund where assessee is selling goods to person who will further sale such goods to exporter.
  • “Turnover of inverted rated supply of goods” means the value of the inverted supply of goods and service made during the relevant period.
  • “Tax payable on such inverted rated supply of goods and service” means the tax payable on such inverted rated supply of goods and service under the various head, i.e. IGST, CGST, SGST.
  • “Adjusted Total turnover” means the turnover in a State or a Union territory, excluding the value of exempt supplies other than inverted-rated supplies, during the relevant period.
  • Issues that may arise:

In manufacturing industry may have multiple number of inputs with variable tax rates and in that some inputs may be there with higher tax rate than rate levied on outward taxable supply; and it becomes difficult for the assessee to correlate and compute the amount eligible for refund. It has been clearly specified in the formula that the amount of NET input tax credit is considered therefore, all the inputs are to be taken whether having higher rate or lower rate then rate levied on outward taxable supply. Further this provision of refund is not applicable for input tax credit relating to capital goods and input service.

Illustration : Mr. Deva in May, 2019; has procured raw material R12 at the rate of 12% and raw material F13 at the 18% and raw material W3 at the rate of 5%. The rate levied on outward taxable supply is 12%. How Mr. Deva shall take the credit of the same? Whether Mr. Deva is eligible for refund? If yes within which time he shall file the refund application? Which product ITC will be taken while determining Net ITC for formula of refund? What if he was engaged in construction service?

In the given case Mr. Deva will be eligible to claim the input tax credit relating to all the inputs. Further Mr. Deva will also be eligible to claim the refund and he can apply within 2 years from relevant date and relevant date for the purpose will be end of financial year in which such claim for refund arises. Last date within which Mr. Deva shall apply for refund will be 31st March, 2022. Input tax credit relating to all the three products will be considered while determining Net ITC. However, if Mr. Deva is engaged in construction service then in that case will not be eligible to apply for refund has such industry has been specifically prohibited by the government.

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Mandatory timely filing of GSTR-3B

Mandatory timely filing of GSTR-3B – Recent update

Introduction : Recently GST department has conducted it’s 42th GST council meeting in which decision has been taken regarding threshold limit of turnover for the assessee who are required to file monthly returns. Along with this under news and updates section of GSTN portal government has request for prompt compliance; in this article both the above things will be discussed in detail.

GST return updates: It has been decided that those taxpayers whose annual turnover (PAN based) is less than 5 crore rupees will be required to file returns on quarterly basis i.e. GSTR-1 and GSTR-3B will be filed on quarterly basis. This will be applicable from 1st January, 2020.

Further it shall be noted challan will still be required to file for the payment of tax on monthly basis.

This will reduce the burden of filing return on taxpayer and will reduce number of returns from 24 to 8.

If we look from other aspect those taxpayers who where earlier forced to opt for composition scheme as due to number of returns were required to be filed if they are under regular scheme; Now, they can freely make their decisions that whether they want to join composition scheme or whether they are willing to go under regular scheme.

Mandatory timely compliance requirement : On 10thOctober, 2020 through news and updates section which is given under GSTN portal government clarified that

Those taxpayers whose annual turnover (PAN based) is exceeding Rs. 5 crores; if they are not filling GSTR-3B for a consecutive period of two months or more; the facility of generating e-way bill will be blocked.

Therefore, now if an assessee having annual turnover (PAN based) exceeding Rs. 5 crores in a financial year, fails to file GSTR-3B for a consecutive period of two months or more, up to tax period of August 2020; then facility for such assessee will be blocked on EWB Portal after 15th October, 2020.

Illustration : Mr. Ram having annual turnover of 75 crores has not filed GSTR-3B return pertaining to the month of June and July; Whether he will be allowed to generate E-way bill on EWB portal?

In such case as it has been clearly mentioned that if assessee has not furnished return for two consecutive tax period; up to the month of tax period of August, 2020, then his e-way bill generation facility will be blocked. Therefore, Mr. Ram will not be allowed to generate e-way bill from 15th October, 2020 if he is not filling GSTR-3B till that date.

What if in the given case GSTR-3B of July and August has not been filed?

In that case also Mr. Ram will not be allowed to generate e-way bill from 15th October, 2020 if he is not filling GSTR-3B till that date.

What if GSTR-3B of August and September is pending?

In such case Mr. Ram will be allowed to generate e-way bill till 20th October, 2020; after that if GSTR-3B is not filed for the month of August ( as the above blockage applies when two consecutive return are not filed, by filing return of august assessee will have blockage of one return only, and therefore will be allowed to generate e-way bill) then he will not be able to generate e-way bill.

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POS for Specified Service

GST IMPLICATIONS YOU MUST KNOW IN CASE OF SUPPLY OF SPECIFICIED SERVICES

Whether you should charge IGST or CGST & SGST in case of Supply of Services where both the parties are situated in India?

It is important to determine place of supply as this will decided whether transaction is inter-state or intra-state which will further allow tax payers to determine whether CGST and SGST is to be levied (in case of intra-state transaction) or whether IGST (in case of inter-state transaction) is to be levied.

How to Determine Place of Supply in case of supply of service where both the parties are situated in India?

Situations Place of Supply

Any service in relation to immovable property including service provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use (Renting, Leasing) immovable property. Service provided by hotel, inn, guest house, home stay, club or campsite by whatever name called, including house boat or any other vessel service.

Service by accommodation in any immovable property for organizing any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property.

In all the cases place of supply will be place where immovable property is situated. If immovable property is situated outside India then place of supply will be location of recipient.

In case if any of the parties is situated outside India as per section 13 of IGST Act, 2017 place of supply will be place where immovable property is situated (Whether in India or Outside India).

Example : Mr. Harsh is situated in Delhi he has provided service of interior decoration to one of his clients situated in Mumbai in relation to flat of his client situated in Mumbai. Mr. Harsh is confused about place of supply and whether to treat such transaction as inter-state or intra-state. Place of supply in relation to any service relating to immovable property where both the parties are situated in India will be place where such immovable property is located provided if immovable property is situated outside India then in that case place of supply will be location of recipient. Therefore, here place of supply will be Mumbai and transaction will be treated as Inter-state supply and IGST will be applicable on such transaction. What if in the above transaction flat of client is situated in Australia?
In such case place of supply will location of buyer i.e. Mumbai and Therefore, it will be treated as inter-state supply and IGST will be applicable on such transaction.

What if Client of Mr. Harsh is also situated outside India?

In such section 13 of IGST Act, 2017 will be applicable and in that case place of supply will be place were immovable property is situated i.e. Australia. It shall be noted that here the clause that if immovable property is situated outside India, then place of supply will be location of recipient will not be applicable it is will be applied only and only when both the parties are situated in India. Mr. Henry who is registered as normal taxpayer under the state of Gujarat has visited hotel near Jammu and Kashmir; while billing hotel staff charged him CGST and SGST; Mr. Henry argument and denied the payment of CGST and SGST he was of the opinion that he shall be billed as inter-state customer and IGST shall be levied.

Determine whether the opinion of Mr. Henry is valid?

As per section 12 where both the parties are situated in India then place of supply of immovable property will be place where immovable property is situated provided if place of immovable property is situated outside India then place of supply will be location of recipient. Here it is not relevant whether person is registered or not, but place of supply will be determined as per above rule. In this case place of supply will be Jammu and Kashmir and dealer will charge SGST and CGST.

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Preparing Client for Tax Audit

“Making client ready for tax audit”

Introduction : It is of at most important that every client who is required to get his books of accounts audited, obtains audit report well within time. This will allow him to avoid penalty and other consequence that he may suffer due to non-obtaining of audit report in time. In October the due date of tax audit is falling i.e. if the person required to get his books of account audited, he shall furnish audit report for financial year 2019-20 (i.e. 01/04/2019 to 31/03/20) on or before 31st October, 2020. What are the points that shall be considered so that audit can be completed in rapid manner or how to make client ready for tax audit is the big question; here are some list of points that will allow auditor and assessee to complete the audit activity:

  • Preparation of Bank Reconciliation : It shall be advised to all the clients that they shall be ready with bank reconciliation statements for the bank accounts they have operated during the year. This will allow the auditor to match all bank account balances as per books maintained by client with balance as per bank statement.
  • Collecting Statement of accounts from giant Customers/Suppliers : It is advisable to entity that they shall collect statement of accounts from giant customers and suppliers and reconcile there closing balance with books of accounts this will help the auditor to verify external party balances which are lying in books of accounts as creditor or debtor.
  • Matching TDS and Income amount with 26AS : Entity shall obtain 26AS and shall match the amount which has been shown as income under 26AS with the amount which has been recognized by the entity as income. Along with is another reconciliation that can be prepared by entity is amount which has been shown as TDS in 26AS and TDS recognized in books of account by them.
  • Collecting other audit reports and certificate obtained during the year : If during the year any auditor has provided entity with any audit report required under any other law e.g. Cost audit report, GST audit report, company audit report or if entity has obtained any certificates then copy of the same shall ne furnish to auditor. This will reduce substantial work of auditor and will allow him to act in rapid manner.
  • Related Party transaction and payment : Entity shall make a report about transaction which has been undertaken by him during the year with its related party or related party of any of his promoter/director/partner/proprietor describing nature of relationship, nature of transaction, date of transaction and amount of transaction. This will help the auditor in reporting requirements.
  • Sending detailed trail balance : Entity shall share detailed trail-balance with auditor which will allow the auditor to verify opening balances which will help the auditor to identify any variances in opening balance.
  • Reconciliation of stock : Entity shall provide auditor with detailed working in relation stock which is lying at the premises of entity, if entity has a branch than it shall verify balance which is lying as stock with another branch. Along with this is business of entity is of such nature that it sells goods on sale or approval basis then it shall provide list of parties along with amount of stock lying at there premise. In this regard it is advisable to entity that third-party confirmations are also obtained about the condition of stock.
  • Keep all the register upto date: Along with all the points entity shall keep all the register such as Fixed Asset Register, Cash Expense Register (If maintained separately), Stock Register, Purchase Register, Sales Register and Journal Register along with Copy of relevant Credit Notes and Debit Note up to date for relevant audit period which will help auditor to complete the vouching process in rapid manner.

These are some of the points which will allow the auditor to conduct the audit in rapid and fruitful manner; and this will also ensure that due to audit procedure entity’s routine business is not impacted.

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Fibota Section 269ST Final by Fibota legel services

Section 269ST Final

Section 269ST of Income Tax Act, 1961.

Introduction: To reduce the circulation of cash and to curb black money government has come out with a section 269ST under Income Tax Act, 1961; which restrict the amount that an assessee can receive from another assessee. In this article we will discuss all the special cases that are required to be noted in light of applicability of said section, and what are the exemption that has been provided in this regard.

Analysis of Section 269ST of Income Tax Act, 1961:

According to section 269ST assessee is prohibited from receiving an amount of Rs. 2,00,000/- or more in cash from any person

This section will not be applicable to

  • Government
  • Any banking companies
  • Any post office savings bank
  • Any co-operative bank
  • Other persons/receipts as may be notified
  • Transactions referred to in section 269SS (i.e. applicable when assessee accepts loan from any person).

This created a confusion that if banking companies are receiving cash in excess of Rs. 2,00,000/- then they have been excluded what if any person has withdrawn such amount from bank. This was an important question raised by the industry as, if section 269ST is violatedi.e. person receives the amount in cash over the above specified limit of Rs. 2,00,000/-, he is liable to pay a penalty equal to the amount received in cash.But there after government came out with clarification that such withdrawal will not attract section 269ST.

Further if any person pays an installment in cash then this section will not be attracted if individual installment is not exceeding Rs. 2,00,000/- as this will be treated as completion of single transaction.

Section 269ST specifically clarifies that assessee if assessee wants to transfer amount in excess of Rs. 2,00,000/- then he shall transfer only by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

Illustrations:

  1. Whether capital contributed by partner will attract the said section?

Yes, any capital contributed by the partner or withdrawal by partner from firm in cash in excess of Rs. 2,00,000/- during the year will attract the provision of section 269ST of Income Tax Act, 1961.

  1. Mr. C contributes Rs. 5,00,000/- as in cash as capital contribution in firm M/s ABC. Whether Mr. C has contravened the provision of section 269ST? If yes what will be quantum on penalty.

In the given case the provision of 269ST is contravened and the penalty levied as per section 271DA of Income Tax Act, 1961; will be equal to amount of receipt i.e. Rs. 5,00,000/-.

  1. Srihari Gold Loan Limited a Non-Banking Financial Institute (NBFC) has decided to provide loan to customer who will deposit gold to them. The customer will be at the option to receive the payment in cash against the loan received by him. What if customer exercises such option whether he will be levied with the penalty for contravention of section 269ST?

The section 269ST specifically prescribe if the transaction is covered under section 269SS then the provision of section 269ST will no be applicable. According to section 269SS if any person accepts loan in excess of Rs. 20,000/- in cash then irrespective of turnover of assessee or purpose for which loan is obtain the amount of such loan will be levied as penalty. Therefore, it is advisable to customer that in case amount of loan is more than Rs. 20,000/- then he shall no accept the loan in form of cash.

  1. Mr. Raj has sold goods worth of Rs. 40,000/- in April to Mr. Deva, sold goods worth of Rs. 90,000/- in May to Mr. Deva, sold goods worth of Rs. 1,10,000/- in June to Mr. Deva. Mr. Deva wants to make a single payment of the above transaction in cash. Whether Mr. Raj shall accept the same?

In the given case Mr. Raj shall not accept such payment as this will contravene section 269ST and Mr. Raj will be liable to penalty equivalent to the amount of receipt i.e. Rs. 2,40,000/-

What if payment is made in part?

In that case if there was a single contract and under that contract all the three invoices have been issued then again Mr. Raj will be liable to penalty. However, if all the transaction sare independent from each other and separate payment has been received than section 269ST will not violated. But in both the case Mr. Deva will not be allowed to claim such purchase as deduction in form of expenditure or depreciation if such purchase is capitalised as such expense in cash will exceed the limit specified under section 40A(3) of Income Tax Act, 1961; (i.e. of Rs. 10,000/-)

Important Notes :

  • The section 269ST is applicable irrespective of whether payment is for business purpose or for personal purpose. Further, is applicable to every person irrespective of turnover or total income of assessee.
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Wavier of Late Fees

Relief in late fees to Taxpayers filing Form GSTR-4 or GSTR 10

What is GSTR-4? Who is required to file?

GSTR-4 is return which is filed by composition dealer. Such composition dealer is required to furnish there return once in a year, i.e. at end of year. Due date for GSTR 4 is 30th April of following financial year.

What due date of furnishing GSTR-4 financial year 2019-20?

For financial year 2019-20 due date of furnishing GSTR 4 is 31st October, 2020.

What is GSTR-10?

Any taxpayer whose registration is cancelled or who has surrendered his registration is required to furnish GSTR-10 and this return is also known as final return. GSTR 10 is required to be furnished within 3 months from date of cancellation/surrender of registration or date of receipt of order of cancellation; whichever is earlier.

If above is final return then what is difference between annual return and final return?

Annual return is required to be furnished by any person who is registered as normal taxpayer under GST. Form prescribed for it is GSTR-9; and it is required to be furnished annually. However, GSTR-10 is required to be furnished by persons whose registration has been cancelled or surrendered in Form GSTR-10.

Whether there is any update in respect of GSTR-4?

Yes, Government has issued a Notification 67/2020 dated 21/09/2020 stating that any person who has opted for composition scheme, during any period till 31st March, 2019; are provided with relaxation in payment of late fees for filling GSTR-4 provided they file there GSTR-4 which is available online between 22nd September, 2020; to 31st October, 2020. In such cases late fees will be Rs. 250/- per CGST Act, 2017 and Rs. 250/- per SGST Act, 2017. In cases where person is not liable to pay tax then late fees will be Nil.

Whether there is any update in respect of GSTR-10?

Yes, Government has issued a Notification 68/2020 dated 21/09/2020 stating that any person who has failed to file final return, within the time allowed; are provided with relaxation in payment of late fees for filling GSTR-10 provided they file there GSTR-10 which is available online between 22nd September, 2020; to 31stDecember, 2020. In such cases late fees will be Rs. 250/- per CGST Act, 2017 and Rs. 250/- per SGST Act, 2017.

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Section 194N CBDT Circular

Clarification by Government of India in relation to section 194N

Introduction: Since its introduction section 194N is in the controversy and once again after the amendment by Government of India. On 20th July, 2020 government has again issued clarification in regard to various practical question raised by various stakeholders

According to amendment following is the scenario:

i) If the assessee hasn’t filed the income tax return for any of the three consecutive previous year with the time limit specified under section 139(1):

In that case rate of deduction will be 2% on the amount withdrawn in excess of Rs. 20 lakhs up to Rs. 1 crore withdrawn while 5% applicable on the amount exceeding the INR 1 crore of the financial year.

ii) If the assessee has filed the income tax return for the given year:

TDS deduction applicable only at the rate of 2% on amount withdrawn in excess of Rs. 1 crore.

Therefore, if assessee wants to avail the benefit of reduced rate then Income Tax return for three consecutive year must be filed within the specified time period as per section 139(1).

Basically, section 194N provides to levy TDS when cash withdrawal exceeds the specified limit; i.e. Tax is to be deducted at source when the payment is made by Bank or Co-operative society engaged in business of banking or Post office to the assessee and the payment exceeds above limit of Rs. 1 Crore or Rs. 20 Lahks at rate of 2% or 5%. In this regard it was specified by central government that this section will not be applicable to specified assessee and the said will be notified by way of issue of notification. In this regard central government has specified three different types entity by way of notification 68 of 2019 dated 18.09.2019, 70 of 2019 dated 20.09.2019 and 80 of 2019 dated 15.10.2019. These entities are as follows:

  • Cash Replenishment Agencies (CRAs) and franchise agents of White Label Automated Teller Machine Operators (WLATMOs) for the purpose of replenishing cash in ATMs operated by these entities subject to conditions mentioned in the notification. (Entity restoring back cash in ATM machine).
  • Commission agent or trader operating under Agriculture Produce market committee (APMC) and registered under any law relating to Agriculture Produce Market of the concerned State have been exempted subject to conditions specified in the notification.
  • The authorized dealer and its franchise agent and sub-agent and full-fledged money changer (FFMC) licensed by the Reserve Bank of India and its franchise agent for the purposes of, –
  • (i) Purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by Reserve bank of India; or
  • (ii) Disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MFSS) of the Reserve Bank of India; and subject to the conditions specified in the notification.

Due to amendment the chronology of section was disturb and all the stakeholder were waiting what is the view of the government in this regards and government has clarified by this clarification that all the three notifications will be valid and will also it has been clarified that exemption allowed under the said notifications shall be subject to the conditions laid down therein.

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Investment linked deductions

Investment Linked Deduction under Section 35AD of Income Tax Act 1961

  1. Introduction

Under Section 35AD, government intends to give incentive to businesses to foray into certain industries which are critical for the economy as a whole. These are capital incentive industries i.e. there is high capital and high risk involved in setting up a business in these industries and thus, vide this investment linked deduction, government intends to promote these industries. In a nutshell, this section gives 100% deduction of capital expenditure incurred wholly and exclusively for the purpose of 14 “Specified Businesses” in the year in which it is incurred. Let us understand in detail, what are these “Specified Businesses” and what are the other conditions involved for getting the benefit of this section.

  1. Specified Business
Sr. No. Specified Business Conditions (If Any)
1. Setting up and operating a cold chain facility Cold Chain Facility means facility for storage or transportation of –

  • Agriculture and Forest produce
  • Meat and meat products
  • Poultry, marine and dairy products
  • Horticulture products
  • Floriculture, apiculture and processed food products

It also includes refrigeration and other facilities necessary for preservation of such products.

2. Setting up and operating a warehousing facility for storage of agricultural produce. There is no special condition prescribed for this.
3. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network.
  • Business should be an “Indian Company” or “Consortium of such companies” or “Authority set up under a State or Central Act.
  • Business has been approved by Petroleum and Natural Gas Regulatory Board and notified by Central Government in official gazette.
  • Such business should have made 1/3rd of total pipeline capacity for natural gas pipeline network and 1/4th of total pipeline capacity for petroleum product pipeline network available for use on a common carrier basis by any person other than assessee or an “associated person”

Here, Associated person means a person who,

  • Participates in the management of assessee
  • Holds 26% or more voting power in assessee
  • Appoints more than half of BoD of assessee
  • Guarantees 10% or more of borrowing of Assessee
4. Building or operating a new hotel, anywhere in India
  • Hotel should be of 2 star or above category
  • A relaxation is given to this business – even if the assessee, transfers the operations of the hotel, while continuing to own the hotel, still benefit under this section shall be allowed to him/her
5. Building or building and operating, anywhere in India, a hospital At least 100 beds for patients.
6. Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed There is no special condition prescribed for this.
7. Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed There is no special condition prescribed for this.
8. Production of fertilizer in India There is no special condition prescribed for this.
9. Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962) There is no special condition prescribed for this.
10. Bee-keeping and production of honey and beeswax There is no special condition prescribed for this.
11. Setting up and operating a warehousing facility for storage of sugar There is no special condition prescribed for this.
12. Laying and operating a slurry pipeline for the transportation of iron ore There is no special condition prescribed for this.
13. Setting up and operating a semi-conductor wafer fabrication manufacturing unit notified by the Board in accordance with such guidelines as may be prescribed There is no special condition prescribed for this.
14. Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility
  • Business should be an “Indian Company” or “Consortium of such companies” or “Authority set up under a State or Central Act”
  • Such entity has entered into an agreement with CG/SG/LA/Any statutory body for this purpose

 

  1. Common condition that are to be fulfilled while claiming any of above deductions:

Now let us look at the other conditions that need to be satisfied to claim deduction under this section –

  • Business is not set up by splitting up or the reconstruction of a business already in existence.
  • New plant and machinery should be used in the business. However, there are certain exceptions to this condition;
  1. Imported plant and machinery, even if second hand will be considered new provided it is imported in India for the first time and depreciation on such plant and machinery has not been claimed by an Indian assessee before
  2. Second hand plant and machinery can be used such that the total value of such second hand plant and machinery shall not exceed 20%of total value of plant and machinery used in such business.
  • Any asset for which deduction is allowed under this section shall not be used for any other business for 8 years from the year in which it was first capitalised. If it is so used, then the deduction allowed as reduced by depreciation allowable u/s 32 as if no deduction under this section was availed, shall be taxable as business income of the assessee.

There are certain expenditure which are not eligible as deduction i.e. if entity has incurred expense in relation to

  • Expenditure incurred on the acquisition of any land or goodwill or financial instrument will not be eligible and further;
  • Expenditure in cash to a person in a day shall not exceed Rs. 10,000.
  1. Other Important Points

Some other important points to be noted with regard to investment linked deductions under section 35AD are as under:

  • Expenditure incurred prior to commencement of the business shall be allowed as deduction in the year in which the business commences operations provided such expenditure is capitalised in the books.
  • If deduction u/s 35AD is allowed in respect of any asset than benefit under no other section of Income tax act shall be allowed for such asset like benefit u/s 10AA or income linked deductions under section 80C or even depreciation u/s 32 shall not be allowed.
  • If an asset whose cost is allowed as deduction under this section is sold in a “Slump Sale”, then for the purpose of computing “Net Worth” for section 50B, value of such asset shall be taken as “Nil”.
  • Loss incurred in a “Specified Business” shall be only be allowed to set off against profit of any other specified business only. Further, unabsorbed loss shall be allowed to be carried forward for infinite period just like unabsorbed depreciation.
  1. Question that may arise

Question : What if asset is sold or destroyed?

Answer : If the asset for which deduction under this section is allowed,

  • Is sold, then the entire sale price is taxable as business income
  • Is destroyed/discarded/demolished, then the insurance compensation received is taxable as business income

Question : Whether there is any provision which will be attracted in case where deduction has been availed under section 35AD?

  • Answer : In case of Firm/LLP or any non-corporate assessee; they will be liable to pay tax as per the provision of Alternate Minimum Tax at the rate of 18.5% on adjusted total income, arrived after removing deduction under section 80H to 80RRB (except 80P), deductions which allowed under section 35AD as reduced by depreciation and deduction allowed under section 10AA i.e. deduction of profit varying from 100% to 50% is provided to units in Special Economic Zones (SEZs). It is applicable to LLP without any limit however to other non-corporate assessee it will be applicable on in case where there adjusted gross total income exceeds 20 lacs.

investment linked deductions calculator | investment linked deduction details | investment linked deductions eligibility 

investment linked deductions form , investment linked deductions guide , investment linked tax incentives

Fibota Ind AS 115, Online GSTR 3B and 1 filing

Ind AS 115

Simplified Version of Indian Accounting Standard 115, Revenue from contract with customer

  1. To which entity Ind-As is applicable?

Important Points:

  • Net Worth = Paid-up share Capital + all reserves out of profit & securities premium account –accumulated losses – deferred expenditure – miscellaneous expenditure not written off
    Reserves created out of revaluation of assets and written back depreciation shall not be included in net worth calculation.
  • The net-worth and turnover shall be calculated as per last balance sheet prepared in accordance with accounting standard.
  1. Which are the contracts that are out of scope of Ind-AS 115

This Ind AS will be applicable only when contract is made with the customers. Further it will not be applicable to Lease contracts as Ind-AS 116 will be applicable, it will not be applicable to Insurance Contracts in that case Ind-AS 104 will be applicable, and it is also not applicable to contract in relation financial instruments as in that case Ind-AS 109 will be applicable.

Further were entity is engaged in same line of business and has undertaken transaction in non-monetary terms to facilitate sales to customer then in that case this Ind-AS is not applicable. Non-monetary transaction is those transaction which doesn’t involves flow of money.

Illustration: Rajesh & Refinery Ltd. is engaged in business of petroleum refinery he has to deliver 10,000-liter petrol to one of its customers situated in cochin; Tushar and & Refinery one if the leading giant in petrol refinery business is also engaged in refinery business; Tushar industry has received an same order from Delhi were one of the branch of  Rajesh & Refinery Ltd. is situated; to avoid transportation cost both companies has established mutual understanding and supplied the goods to the nearest location. Whether to this transaction Ind-AS 115 will be applicable?

In the given case where goods are been supplied by each party to facilitate sales of other party; transaction will be treated as non-monetary transaction carried out to facilitate sales where entity is engaged in same line of business and Ind-AS 115 will not be applicable to this arrangement but both the party is required to apply Ind-AS 115 while recognizing revenue from main contract entered with customer.

What if in given case one of the parties was engaged in business of transportation and service of transportation is provided to each other for no consideration. Whether in that case it will be covered under Ind-AS 115 as transaction is non-monetary.

In that case even if consideration to transaction is non-monetary however other condition are not satisfied and there Ind-AS 115 will be applicable in that case.

  1. What are the steps that are required to be fulfilled in case contract is to be recognized under Ind-AS 115?

  1. What if entity has already received consideration and any of the condition is not been satisfied?

In case where contract with a customer does not meet the recognition criteria and an entity receives consideration from the customer the entity shall recognize the consideration received as revenue only when either of the following events is fulfilled.

  1. What are the factors that are important while determining transaction price in step three prescribed above?

Fixed Consideration: The amount of fix consideration shall be recognized as when entity fulfills the promised performance obligation.

Variable Consideration: In case where consideration promised in a contract includes a variable portion i.e. entity is required to estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer; there are two methods for estimating such amounts

Illustration : Mr. Rahul who is a builder is promised by his client that if Mr. Rahul fulfils the contract before 15 days from due date then in that case, he will be eligible to receive an additional bonus of Rs. 3,00,000/-. How much shall be recognized by Mr. Rahul in form of revenue as per Ind-AS 115?

In the given case best method for recognizing revenue will be most likely amount as only two probable outcomes are possible and based on entity’s estimation, they shall recognize revenue for the said contract.

What if in above situation bonus was to be paid as; if contract is completed before 15 days Rs. 3,00,000/- will be paid if contract is completed before 10 days then Rs. 1,50,000/- will be paid, if contract is completed before 5 days then Rs. 50,000/- will be paid. How much shall be recognized by Mr. Rahul in form of revenue as per Ind-AS 115?

In the given case as more than two outcomes is possible there for best method for recognizing variable consideration is expected value method. Against probability of receiving amount expected amount to be realised is multiplied.

However, entity shall note once the method is applied to particular contract it cannot be changed subsequently i.e. method adopted by entity shall be applied consistently for the particular contract.

Non-Cash Consideration: Consideration may be in the form of goods, services or other non-cash consideration (e.g., property, plant and equipment or a financial instrument). In case of contracts involving consideration in a form other than cash, such non-cash consideration shall be measured at fair value. An entity will likely apply the requirements of Ind AS 113, Fair Value Measurement when measuring the fair value of any non-cash consideration. If an entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall measure the consideration indirectly by reference to the stand-alone selling price of the goods or services promised to the customer (or class of customer) in exchange for the consideration.

Consideration consisting financial component: Whenever entity enters into transactions that includes terms in the nature of financing, which requires separate accounting and consideration of time value of money i.e. credit period offered to customer is higher than normal industry practice, then entity is effectively providing finance to the customer. In such case standard requires that while determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if there is significant benefit to either party due to such component. However, as a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. An entity shall present the effects of financing (interest revenue or interest expense) separately from revenue from contracts with customers in the Statement of Profit and Loss.

  1. What are the cases when contract is to be treated as combination of contracts?

An entity shall combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if one or more of the following criteria are met :

  1. What if there is modification in contract?

A contract modification exists when the parties toa contract approves a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. A contract modification could be approved in writing, by oral agreement or implied by customary business practices. If the parties to the contract have not approved a contract modification, an entity shall continue to apply this Standard to the existing contract until the contract modification is approved.

If both the conditions are satisfied then in that case entity is required to account such contract as a separate contract. Conditions are as follows:

Illustration: Mr. Ajay is having business of sale of sarees; he got an order from one of its customers to provide 100 designed material sarees at the price of Rs. 500/- per piece. After delivering 50 sarees the contract was modified and additional 100 sarees were order at the price of Rs. 450/- per piece. The entity has policy that it offers discount of Rs. 50/- in case number of sarees purchase exceeds 120 pieces. How this contract shall be accounted by Mr. Ajay under Ind-AS 115?

In the above case as both the condition i.e. the scope of the contract increases because of the addition of promised goods or services that are distinct and are required to be supplied and the price of the contract increases by an amount of consideration that reflects the entity’s stand-alone selling prices of the additional promised goods or services after any appropriate adjustments to that price to reflect the circumstances of the particular contract. Therefore, contract will be treated as separate contract.

What if above conditions are not satisfied?

Entity shall treat such as if it were a termination of the existing contract and the creation of a new contract

Case 1: Where remaining goods and service are distinct from the goods or services transferred on or before the date of the contract modification. The amount of consideration to be allocated to new contract i.e. to remaining performance obligation will be total of additional consideration promised by customer after contract modification. Consideration that was promised by customer and was in included previous transaction price (i.e. consideration already received) but was not recognised as revenue.

Illustration: Mr. DK is having business of sale of high-quality machine and manufacturing of the same; he got an order from one of its customers to provide 10 machines at the price of Rs. 50,00,000/-. After delivering 5 machines the contract was modified and it was decided that now Mr. DK will only raw parts for another 10 machines additional portion will be provided to entity Rs. 40,00,000/-. Standalone selling price of such parts are Rs. 5,00,000/- per machine raw parts. How this contract shall be accounted by Mr. Ajay under Ind-AS 115?

In the given case contract does not satisfied one of the conditions that the price of the contract increases by an amount of consideration thatreflects the entity’s stand-alone selling prices of the additional promised goods or services after any appropriate adjustments to that price to reflect the circumstances ofthe particular contract. Therefore, entity is advised that not to treat as separate contract and revenue in relation to such contract can be recognised as follow(Additional consideration + consideration not recognised in earlier portion) i.e. Rs. 65,00,000/- (25,00,000 which is not recognised earlier + 40,00,000 additional consideration).

Case 2:Where remaining goods and service are not distinct from the goods or services transferred on or before the date of the contract modification.if the remaining goods or services are not distinct then it will form part of a single performance obligation that is partially satisfied at the date of the contract modification. In that case revenue will be recognised as if it is continuation of contract i.e. service provided till date and consideration received will be merged and will be treated as single contract.

  1. What if entity is also liable to pay consideration to its customer against the services procured from its customer?

In that case consideration payable to a customer may include cash amounts, credit or other items that can be applied against amounts owed to the entity. An entity needs to determine whether consideration payable to a customer represents a reduction of the transaction price, or it is a payment for a distinct good or service. Entity is requiring to determine whether it can reliably measure fair value of goods and service received if yes; then whether the said payable amount exceeds the fair value of the goods and service received if yes; then the excess payment shall be treated as reduction of transaction party that entity has determine in exchange of goods and service promised by it. The amount other than excess amount will be treated as price of goods or service received by entity. However, if fair value of the goods and service received cannot be estimated reliably then in that case consideration payable itself is treated as reduction in transaction price i.e. to be received by entity.

  1. What if the transfer of goods or service is continues supply or it is over the period of time?

In such case revenue is to be recognise over time. However, for said recognition any of the one condition is to be satisfied:

  1. Whether Transaction price includes any amount which is collected on behalf of Government?

The transaction price is the amount of consideration to which an entity expects to been titled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

  1. When entity is providing two or more service for single consideration how transaction price can be allocated?

In such case entity can allocate transaction price based on relative stand-alone selling price basis (stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer) and in case if stand-alone selling price is not directly observable, an entity shall estimate the stand-alone selling price

Case 1:  Allocation based upon standalone selling price: Entity shall determine the stand-alone selling price at beginning of contract of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.

Illustration: M/s Radhe Industry has sold bunch of goods for single consideration of Rs. 5,00,000/-. Standalone selling price of Product A is 2,00,000/-, of Product B is 3,00,000/- and of Product C is 1,00,000/-. In such case how such consideration is bifurcated for recognition of revenue as per Ind-AS 115.

In the given case entity can recognise revenue by allocating transaction price base upon standalone selling price of the product (because standalone selling price of the product is available) i.e. When product A is transferred entity shall recognise revenue of Rs. 1,66,660/- (Approx.) When product B is transferred entity shall recognise revenue of Rs. 2,50,000/- (Approx.) When product C is transferred entity shall recognise revenue of Rs. 83,340/- (Approx.)

Case 2: Allocation when standalone selling price of products transferred by entity is not available:  If a stand-alone selling price is not directly observable, an entity shall estimate the stand-alone selling price and while determining such entity shall consider all the observable inputs that are available with entity. Such approaches may be as follows:

Expected cost plus a margin approach: An entity could forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.

Adjusted market assessment approach: An entity can identify the market in which it sells goods or services and estimate the price that a customer will be willing to pay for those goods or services. In such case entity may also take reference of price of its competitors for similar goods or services and adjusting those prices as necessary to reflect the entity’s costs and margins.

Residual Method: In case if any of above methods is not possible for allocation of transaction price where standalone selling price is not available then in that case entity may use combination of above methods and can also determine the transaction price by taking reference of the total transaction price less the sum of the observable stand-alone selling prices of other goods or services promised in the contract.

  1. What are the costs that entity shall always recognise as expenses?

In case if there is abnormal loss in form of wasted materials, labour or other resources to fulfil the contract that were not reflected in the price of the contract, general and administrative expense, cost relating to satisfied performance obligation in the contract, cost were entity is unable to segregate whether the costs relate to unsatisfied performance obligations or to satisfied performance obligations.

  1. How revenue is to be recognised in case of sale with right to return?

In many of the contracts it has an option to customer that it can return the goods to the entity and can claim refund. Therefore, entity needs to determine whether such sale is in form of consignment sale if not then revenue will be recognised as follows:

  1. How entity shall deal with warranty liabilities?

In general, large number of contracts have warranty clause; the main issue that arises is how to recognise this in books of account in accordance with Ind-AS 115. Generally, there are two types of warranty; One type of provide a customer with assurance that the related product will function as the parties intended (in case product manufactured in accordance with customer specification); and another were customer is provided with a service in addition to the assurance that the product complies with agreed-upon specifications.

However, in both the case if customer has separate option to purchase warranty then the contract will be treated as separate contract then in that case promised service will be warranty service and consideration received will be treated as transaction price.

In other cases, i.e. other than those specified above where customer does not have the option to purchase a warranty separately, an entity shall account for the warranty in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. In that case entity will determine expected amount that it will be liable to pay to fulfil the performance obligation based on entity’s past experience or normal practice followed in industry.

Now if warranty provides a customer with a service in addition to the assurance that the product will comply with agreed-upon specifications, the promised service is also a performance obligation. Then in that case entity shall allocate the transaction price to the product and the service and if entity promises both an assurance-type warranty and a service-type warranty but cannot reasonably account for them separately, then entity shall account for both of the warranties together as a single performance obligation.

Illustration: M/s Arjuna Traders is dealing in business of washing machine. He provides customer with an option that it will provide warranty for three months; every customer has an option that it can purchase additional warranty for 12 months if he is willing to pay additional consideration of Rs. 2,000/-. Who such revenue will be recognised as per Ind-AS 115?

In the given case there are two type of warranty agreement’s, first where there is fixed warranty of 3 months such will be recognisedin accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. i.e. entity will determine expected amount that it will be liable to pay to fulfil the performance obligation based on entity’s past experience or normal practice followed in industry.

The second option of purchasing additional warranty is case where customer has separate option to purchase warranty; Therefore, it will be treated as separate contract and promised service will be treated as separate performance obligation and consideration of Rs. 2,000/- will be treated as transaction price.

  1. What if entity provides customer and voucher or additional option where they can acquire goods at discounted price or for free?

In case where contract gives right to customer to acquire additional goods or services, which creates performance obligation for the entity if right is exercised (i.e. it shall be material right; where chances of exercising rights are higher) then customer in effect pays the entity in advance for future goods or services and the entity recognises revenue when those future goods or services are transferred or when the option expires. However, if a customer has the option to acquire an additional good or service at a price that would reflect the stand-alone selling price for that good or service, that option does not provide the customer with a material right. Such offer will be treated as marketing offer and it will not create any performance obligation on entity.

Now, the question arises whether entity has entered into the contract that provides right to customer for additional goods and service at free of cost or at discounted rate; In such case entity shall allocate the transaction price to performance obligations on a relative stand-alone selling price basis. In case where entity’s provides customer’s option to acquire additional goods or services and such right is directly not observable whether entity will exercise or not then in that case, entity shall estimate probability of exercising the option.

Illustration: Mr Raj is running a huge store and is providing discount of 20% of purchase price to all its customer; however, if any of the member is purchasing goods worth Rs. 5,000/- or more then additional 10% discount is offered over an above the normal discount when customer visits next time and purchases goods worth Rs 2,000/- (Maximum discount available will be Rs.3,000/-). One of its customers has purchase goods worth Rs. 6,000/-; entity estimates 70% chance that customer will exercise the option and will get the benefit of 50% of offer price. Entity is of the question that how revenue shall be recognised in accordance with Ind-AS 115?

In the given case first entity is required to compute post discount price which will be Rs. 4,800/-. Now entity is required to determine discount that customer will receive one next purchase and probability that customer will avail such offer. Therefore, revenue received by entity will be divided into two-part i) Revenue received in respect of goods supplied by entity and ii) Right that is transferred to customer and which creates obligation on entity. In the given case portion allocated to future obligation will be Rs. 1,050/- (3,000*70%*50%). This portion will be recognised as liability and after completion of offer period will be recognised as revenue and the remaining amount will be immediately recognised as revenue i.e. Rs. 3,750/-.

  1. How entity is required to deal with non-refundable upfront fees?

Firstly, entity is required to differentiate between deposit and non-refundable fees in case if entity has received non-refundable deposit then entity is required to determine whether he is required to transfer any goods or service in respect or same or any service is to be provided in respect of receipt of such non-refundable fees then entity shall recognise such fees as revenue only when such performance obligation is satisfied. If such is satisfied over the period of time then in that case revenue is also to be recognised over the period of time. In entity has no obligation against such fees then such shall be recognised as revenue or such can also be recognised as revenue in pattern of cost of setting up the contract is received. Also, any amount received as deposit by entity will not be treated as revenue and for its treatment amortised cost method as prescribed under Ind-AS 109 shall be adopted.

There are many practical aspects which are required to be taken care while recognising revenue under this Ind-AS. Also, revenue recognition is important area because it decides how entity will be liable to various laws and regulation. Our experts are continuously engaged in resolving such difficulties in best possible manner.

Ind AS 115 Details | ind as 115 icai | Scope of Ind AS 115

Fibota advance ruling under gst

Advance Ruling under GST

Advance Authority under Goods and Service Tax

Introduction :  In many case it is possible that assessee is not been able to determine whether the notification prescribed is applicable or not or whether the rate of tax applied by him is correct or not whether exemption provide by government is applicable or not and there are many questions which arises in mind of taxpayer for which he needs an opinion at current stage to avoid levy of interest and penalty at later stage. Therefore, to avoid all this government has come with concept of Advance Authority Ruling whereby ruling that is guidance/judgment will be provided in advance, which will help the assessee to undertake the transaction.

What is Advance Authority Ruling?

Advance ruling is written interpretation of law, which is provided by tax authorities for the requested matters by assessee. For obtaining Advance authority ruling assessee will be required to furnish the specified form along with requisite documents and fees.

Whether Advance Authority Ruling is binding on all the assessee?

No. Ruling obtained is only binding on the assessee who has sort the ruling.

Illustration : Mr. J is confused that whether their product will be taxable or not; to avoid the confusion he decided to opt for Advance Authority Ruling. One of his business partners has decided to apply such ruling in his personal entity. Determine whether he can do so?

In such case ruling is only binding on assessee who has sort the ruling i.e. it is not applicable to any other assessee. As ruling has been obtained by partnership firm it cannot be applied by partner in his proprietary concern; Therefore, contention of business partner is not valid.

Illustration : Mr. P is confused that whether their product will be taxable at 5% or at 18%; to avoid the confusion he decided to opt for Advance Authority Ruling. He is engaged in inter-state supply Determine whether he can do so?

It has been provided that if the person has sort for the ruling from one state authority than that will not be binding on other state authority. Therefore, the person will be required to obtain advance authority ruling from the other state authority also. The contention of Mr. P is not valid.

What are the matters for which ruling can be sort by the assessee?

Which form is required to filled and what is the fees to paid for obtaining Advance Authority Ruling? Whether such fees are refundable?

Assessee is required to furnish ARA-01 for obtaining Advance Authority Ruling and along with this he is required to pay Rs. 5,000/- as fees which will be non-refundable.

Whether Decision of Advance Authority Ruling is Binding and Non-Challengeable?

Decision are required to be pronounced by authority within 90 days from date of receipt of application and decision given by Advance Authority Ruling is binding in nature. The ruling pronounced by Advance Ruling Authority is challengeable by the assessee to Appellate Authority for Advance Ruling.

What is time limit for aggrieved party for challenging decision of Advance Authority Ruling?

Assessee aggrieved by the decision of Advance Authority Ruling can file appeal to Appellate Authority for Advance Ruling within 30 days from date of order of Advance Ruling Authority in form ARA-02 with fees of Rs. 10,000/-. If department is aggrieved by the order of then proper officer can file appeal in form ARA-03 and no fees shall be required to be furnished by him.

In such cases Appellate Authority for Advance Ruling shall be made within 90 days from date of filling the appeal.

Whether ruling pronounced once can be rectified?

Both the above authority can amend its order if there is error apparent on record but it shall be noted that no order can be passed unless opportunity of been heard has been given to assessee in case were such rectification has effect of increasing liability or decreasing Input Tax Credit.

What are the cases where application for Advance Ruling will not be accepted?

The application will not be accepted when

  • The same matter has already been decided in earlier case for same applicant.
  • The same matter is already pending in any proceeding of the assessee.

Whether application for advance ruling can be rejected?

For the above stated matters or if application is incomplete; then it can be rejected but in that case opportunity of being is to be provided to assessee. Also, reasons for such rejection shall be recorded in writing.

Illustration : Mr. Raja wants to obtain advance ruling as he is not able to determine place of supply and therefore, he has applied for the same. Assessing officer rejected the application on the ground that the said matter is not one of the specified matters for which Advance Ruling can be pronounced. Whether the contention of assessing officer is valid?

In the given case contention of assessing officer is valid as determination of place of supply is not one of the specified matters and therefore application in respect of said cannot be made. However, it is advisable that in such cases assessee shall apply as if he is not been able to determine his tax liability then in such case assessing officer cannot deny the application further as ruling pronounced by one state is not binding on another state, in case of inter-state supply assessee will be required to obtain ruling from both the contracting states.

advance rulings under gst | advance rulings rejection reasons

Fibota Delinking of Credit Note Debit Note

Delinking of Credit Note-Debit Note

Delinking of Credit Note/Debit Note under GST

What if assessee has received credit note in respect of various invoice? Whether he can receive single credit note?

There are no restrictions on receiving single credit note against various invoice but under GST till now it was mandatory to prescribe original invoice number by the taxpayers while providing details of Credit note/ Debit note under GSTR-1 or under GSTR-6 and due to this if single credit note/debit note is received it will create hurdle for assessee while uploading the same. But now government has prescribed an amendment which will allow assessee to report single credit note or debit note issued in respect of multiple invoices and for determining type of supply, he will be provided with the option such as Regular supply, Supply to Special Economic Zone, or Supply in form of Deemed Export or Export. Further he will be required to indicate Place of Supply against each credit note or debit note which will help to determine whether it is intra-state supply or inter-state supply.

Whether assessee can issue credit note/debit note without showing taxable amount?

Whenever a credit note/debit note is issued it may be in respect of reduction/increase in tax liability or reduction/increase in overall value of supply. If the credit note/debit note is issued due to reduction in respect of tax liability then, yes it can be issued and, in such cases value of credit note/debit note will be reported as ‘Zero’. Only tax amount will be entered.

Illustration : Mr J has sold the goods to Mr. Y. At a time of supply Mr. J was not able to determine the type and rate applicable to such supply and therefore as per general rule he treated such supply as inter-state supply and 18% was charged as GST. After few months became aware of his tax liability through online consultancy obtained by him; he was liable to charge only 5%. Mr. J was confused as he has correctly charged the taxable value and only rate of tax was not correct. Whether he can issue credit note in respect of above transaction?

Yes, Mr. J can issue credit not in respect of transaction undertaken by him. While issuing credit not value of credit note/debit note will be reported as ‘Zero’. Only tax amount will be entered.

It shall also be noted that assessee while applying for refund can now report such credit notes or debit notes in statements (filed during filing the refund application) without mentioning the related invoice number.

Such a change will allow the assessee to manage the credit note/debit note system, this is one more step taken by government in respect of easse of compliance.

Fibota e invoice update, Online maintaining books of accounts

E-Invoice Update

Latest E-Invoice Update

Introduction : Government has specified certain class of taxpayers which are required to generate e-invoice but recently there is change in applicability of provision of e-invoicing. Along with it there are also some important amendment which are worth noting. In this article we will discuss what are the changes in provision relating to e-invoicing.

Changes in provision : Firstly, e-invoice was mandatory from 1st October, 2020; for any business entity who’s turnover in financial year is greater than or equal to Rs. 100 Crore and invoice which is not complying the requirement will be treated as null or void; and this provision was equally applicable to tax invoice, debit note, credit note, and RCM invoice. It shall be noted it was not appliable to invoice generated in form pro-forma.

Now criteria of applicability have been revised; It is now applicable to business entity whose turnover in any financial year starting from financial year 2017-18 exceeds 500 Crore in a financial year. The provision is equally applicable to “exports” undertaken by entity during the year.

Along with power has been given to commissioner that in case of any contingency it can exempt a person or class of registered person for a specified period.

Now, as on 01-10-2020 government through updates clarified as due to COVID-19 lockdown a genuine hardship is faced by taxpayers, and due to which government has decided that if from 1st October, 2020 invoices are not issued as per the requirement prescribed under e-invoice procedure, however Invoice Reference Number is required to be obtained with in 30 days from date of such invoices; i.e. even if assessee is currently not uploading invoice details on e-invoice portal for obtaining Invoice Reference Number and issuing invoice with QR code but if the same has been obtained withing 30 days from date of issuance of invoice, it will be deemed to be a valid invoice.

cbic e-invoice notification | e-invoice extension notification | e invoice notification latest |  gst e-invoice notification

Fibota GST on Construction and Works Contract Services

GST on Construction and Works Contract Services

GST on Construction and Works Contract Services

  1. Introduction : As per Section 2(119) of the CGST Act, 2017 as ‘works contract’ means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.

In GST Works contract is restricted to the work undertaken in respect of Immovable Property, hence it does not cover any work related to movable property. There is confusion in Taxpayer’s mind whether to treat works contract and construction as supply of goods or supply of service as both the supply includes supply of goods as well as supply of service. Under GST it has prescribe classification for certain supply that whether it will be treated as supply of service or supply of goods under schedule II of CGST Act, 2017; and it has been specifically stated that work contract will be treated as supply of service.

  1. Input Tax Credit on Works Contract Services:

As per section 17(5)(c) of CGST Act,2017; Input Tax Credit will not available in case of works contract services supplied for construction of Immovable property, however there are certain exceptions to this rule

  • In case been construction of Plant and Machinery, Input tax credit relating work contract service will be available irrespective whether such asset is movable or immovable.
  • Further if such expenditure is expensed off in profit and loss account then in that case also credit relating to such service will be available.
  • Supplier will be eligible to take credit when works contract service is provided for further supply of works contract service.

As per section 17(5)(d) of CGST Act,2017; Input Tax Credit is not available when goods or services are received for construction of Immovable Property by taxable person on his own account, irrespective of whether such goods or services are used in his business or not; however there are certain exceptions to this rule

  • In case been construction of Plant and Machinery, Input tax credit relating work contract service will be available irrespective whether such asset is movable or immovable.
  • Further if such expenditure is expensed off in profit and loss account then in that case also credit relating to such service will be available.

Definition of plant and machinery for this purpose will be as follows:

Plant and Machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes
(i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises.

Construction for the purpose of clause (c) and (d) of section 17(5) of CGST Act, 2017; will include reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

Illustration : Suppose Mr. D wants to construct marriage hall for providing such on rental basis. For this purpose, he gives contract to Mr. Y. The contract is to construct marriage hall along with materials. This is what we call works contract, which is considered as service under GST (as per schedule II read with section 7). Now, if the contractor raises bill and charges GST, then Mr. D will not be able to take input tax credit due to the provisions u/s 17(5)(c); but in the same case if Mr. D is registered as a builder instead of a consultant, then he can take credit of such contract.

Further if Mr. ‘X’ purchase goods for construction and gives the contract of construction to contractor for construction only, then can he take credit of both- ITC on goods as well as on contract for construction?

In that case this transaction will attract section 17(5)(d) because it clearly restricts ITC on goods or services for such constructions even when such has been availed in course or furtherance of business.

  1. Important Factors in relation to Construction Service
  • Place of Supply: As per section 12 and 13 of IGST Act, 2017; any service provided in relation to immovable property place of supply will be as follows:
Sr. No. Particulars Condition Place of Supply
1 Directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work. Supplier of service and Recipient of service both are in India; and immovable property is situated in India. Location of Immovable Property.
In case Immovable Property is located outside India and Supplier as well as recipient both are located in India, then Place of supply would be the Location of Recipient. Location of Recipient.
Supplier of service or Recipient of service is located outside India. Where Immovable Property is located or Intended to be located.

3.2 Maintenance of records : As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing –

(a) the names and addresses of the persons on whose behalf the works contract is executed;

(b) description, value and quantity (wherever applicable) of goods or services received for the execution of works contract;

(c) description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract;

(d) the details of payment received in respect of each works contract; and

(e) the names and addresses of suppliers from whom he received goods or services.

3.3 Value of Works Contract service

Generally, as per section 15 of CGST Act, 2017; in case of construction value will be transaction value provided buyer and seller are not related and price charged is sole consideration; However, in case were works contract service includes transfer of property in land or undivided share in land. Then value will be as follows

Value of Works Contract Service = Total amount charged for supply (-) Value of land or undivided share in land where value of land shall be deemed to be one third of total amount charged for such supply.

3.4 Rates on Works Contract Services :

Construction and Works Contract service is supply of service hence normally the rate of works contract service is fixed at 12%. But in some of the activities of works contract attract rate being 5%.

3.5 Time of Supply : Issue of Invoice:

Generally, works contract service is continuous supply of service and therefore time of supply will be as follows:

  • Where due date of payment is ascertainable – Invoice shall be issued on or before the due date.
  • Where due date of payment is not ascertainable – Invoice shall be issued before or at the time of receipt of payment.
  • Further when payment is linked to the completion of an event- Invoice shall be issued on or before completion of an event.

However, if work contract service is not a continuous supply then in that case time of supply will earlier of the following:

If invoice is issued within the period prescribed (i.e. within 30 days after the provision of service except for bank and other financial institute)

  • The date of issuing invoice OR The date of receipt of payment whichever is earlier

If invoice is NOT issued within the period prescribed

  • The date of provision of service OR The date of receipt of payment whichever is earlier

Where the provisions of clause (a) or (b) are not possible then in that case time of supply will be

  • The date on which the recipient shows the receipt of services in his books of account.
  1. Question that may arise:

Question : Mr. Ariya is builder and has procured goods and availed various services for his construction business whether he is eligible to avail the credit of same?

Answer : In such case though Mr. Ariya has availed such service in relation to his business still he will not be eligible to avail the input tax credit of goods and service procured by him.

Question : M/s Raj Traders has constructed an office for his own use whether they are eligible to take credit of goods procured for construction of said office or input service procured during the construction?

Answer : In this case it will fall under block credit and therefore M/s Raj traders will not be eligible to take credit of the same.

Question : M/s Devi Ltd. has constructed a solar plant, by availing various input service in relation to it. Whether he will be eligible to take credit of the same?

Answer : In this case he will be eligible to get the credit. As the said transaction falls under exception (i.e. construction of plant and machinery).

Question : Mr. Jaydeep has been appointed as contractor for office building, he sub-contracted the same to Mr. Ritesh. For fulfilment of said contract Mr. Ritesh has procured various goods and service for construction of office building. Whether Mr.  Jaydeep will be eligible to get the credit in relation to such contract? Further whether Mr. Ritesh will be eligible to get credit for various goods and service procured by him in relation to fulfilment of contract?

Answer : In this case Mr. Jaydeep will be eligible to take the credit of GST charged by Mr. Ritesh; further Mr. Ritesh will be eligible to take the credit of goods and service procured by him; but the person who has given main contract to Mr. Jaydeep will not be eligible to take credit of GST charged by Mr. Jaydeep.

Question: Mr. Dipak is engaged in construction business whether he can opt for composition scheme? He does not have any turnover in preceding financial year.

Answer :Composition scheme is not applicable to supply of service (except restaurant service.) Construction and Works contract service is treated as Supply of Service as per GST Law; hence composition scheme is not applicable to Construction and Works Contract Service. However, government has notified composition scheme for supplier of service having a turnover of less than Rs. 50 lakhs in the previous financial year; then in current financial year dealer may avail composition scheme up to turnover of Rs. 50 lakhs Provide he is not engaged in supply of non-taxable goods or making inter-state supplies; or supply through e-commerce operator. Further the supplier should not be a casual taxable person or non-resident taxable person.

work contracts services in gst audit | work contracts services in gst bill  

work contracts services in gst department | work contracts services in gst exemption

Fibota gst on gta - account outsourcing services

GST ON GTA

GST ON GOODS TRANSPORTATION AGENCY

Introduction: If entity is goods transportation agency, then they had been provided with various option to choose their mode of taxability, along with this entity is also required to see whether service provided by them falls under the given list of exemption; whether they are required to registered or not. In this article we will analyze all the provision relating to goods transportation agency.

Definition:

Goods transportation agency has been defined in clause (ze) of notification no.12/2017-Central Tax (Rate) dated 28.06.2017; which prescribes, any person who provides service in relation to transport of goods by road and issues ‘consignment note’ by whatever name called. Therefore, if service provider wants to qualify himself as Goods Transportation Agency then they shall issue consignment note; because if a consignment note is issued, it indicates that the lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee.

Consignment Note means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency.

Mode of Taxability :

Goods Transportation Agency has been provided with option that either they can opt for forward charge or they can exercise the option of reverse charge if they are opting for forward charge; If GTA is opting for forward charge, they are required to charge 6% CGST and 6% SGST in this option they will be eligible to take credit of inputs, input services and capital goods procured by them. In case where GTA is opting for reverse charge then assessee availing the service of GTA will be liable to pay reverse charge. In that case if assessee is situated in non-taxable territory then again GTA will be liable to such tax the rate of 2.5% CGST and 2.5% SGST. It shall be noted that if such service is provided to unregistered individual then it will be exempted.

Specified person for above purpose is

  1. If GTA service has been availed by person who is unregistered being Individual or HUF then in that case such service will be treated as exempt service.
  2. If any department of Central Government or State Government has any Local Authority is being registered solely for the purpose of deduction of TDS as required under section 51 of CGST Act, 2017 then in such case also service provided by GTA will be exempted.
  3. In case where GTA has opted for reverse charge mechanism then in that case GTA will not be eligible to claim the Input Tax Credit of any of the Inputs or Input service or capital goods procured by them.
  4. In such cases where GTA has opted for taxing their service under reverse charge basis then recipient will be liable to pay tax on such and GTA will not collect any tax on such service; Therefore, it is important to determine who will be recipient. Accordingly, recipient for purpose of discharging GST liability will be, any person who pays the consideration for such service will be treated as recipient of service and he will be eligible to take credit of such payment provided it has been availed for business purpose.

Registration requirement for GTA:

According to section 22 (1) of CGST act 2017, every supplier shall be liable to get registered under GST in a state or UT if his aggregate annual turnover in a financial year exceeds Rs. 20 lakhs (In case of supplier of service) or Rs. 10 lakhs (In case of special category states).

However, as per notification no. 5/2017 – Central Tax dated June 19, 2017, If the persons are exclusively engaged in making supplies of taxable goods or services, and tax on which is to be paid on reverse charge basis by the recipient of such goods or services under section 9(3) of the CGST act, 2017 are exempted from obtaining registration under the act.

Therefore, if GTA has opted for reverse charge mechanism than it is not required to obtain registration as they are exclusively engaged in supply on which tax will be paid on reverse charge basis. However, if GTA has opted for forward charge then it will be required to obtain registration if turnover exceeds the specified limit.

Specific Exemptions:

If GTA has provided service by way of transport in a goods carriage of following products being (i) Agricultural produce, (ii) Milk, salt and food grain including flour, pulses and rice, (iii)Organic manure (iv)Newspaper or magazines registered with the Registrar of Newspapers (v) Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; (vi) Defense or military equipment.

  • In case where consideration charged by GTA for transportation of goods on a consignment transported in a single carriage does not exceeds one thousand five hundred rupees.
  • In case where consideration charged by GTA for transportation of goods for a single consignee does not exceed rupees seven hundred and fifty.
  • Further, it shall also be noted that if any vehicle has been given on hire to GTA by any person than such supply will be exempted; and GTA is not required to pay tax on such amount.

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gst on gta reverse charge exemption | Mode of Taxability 

Fibota gst on healthcare services in Gujarat

GST on Healthcare Service

GST on Healthcare Service 

Introduction: In this situation where healthcare service is our top priority it is important to determine which of the service relating to health care are exempted under Goods and Services Tax and which are taxable. Whether any such service attracts reverse charge mechanism i.e. instead of supplier, recipient will deposit the tax. In below article we will discuss all the provision specified under GST relating to healthcare service.

Whether service provide by hospital to is patients are chargeable to GST?

Any service provided by hospital to its patient in form of retention money and the any fees or payments made to the doctors etc., is towards the healthcare services provided by the hospitals to the patients and is exempted vide notification no. 12/2017.

Whether service provided by senior doctors/consultant/technicians hired by hospital will be taxable?

If doctors are providing service as professional: Even if service provided by the doctors are in nature of independent professional service, they are healthcare service and it has been specified that such service are exempted vide notification no. 12/2017.

If doctors are providing service in form of employee: If such service are provided in course of employment then in that case such service are not considered as supply as according to clause 1 of schedule 1, it prescribes that any service provided by employee to its employer in course of employment are not to be considered as supply.

What if food is supplied to patient? Whether such will be exempted if it has been provided to attended along with patient?

Any food which is supplied to patient as advised by doctor is exempted by virtue of said notification as it will be treated as composite supply with health care service, however if any food is supplied to any attended who is there with patient then in that case it will be treated as supply of service.

What if service is provided by veterinary clinic?

If service is provided by a veterinary clinic in relation to health and care of animals or birds will be exempted by virtue of notification no. 12/2017.

What if service is provided by ambulance hired by hospital for transportation of patient?

In such case there are two services which are involved in above transaction, one being service provided by hospital to patient for there transportation via ambulance and other service provided by ambulance to hospital; it shall be noted that both the transaction is covered under exemption list and therefore it will be exempted. If ambulance is owned by hospital itself then in that case also it will be exempted.

Further it shall be noted that if service is provided by ambulance to any other person other than patient for consideration then in that case it will be taxable as any other service.

Whether service provided by cord blood banks to hospital are exempted or not?

If any service is provided by cord blood banks to hospital in relation to preservation of stem cells or other service in relation to preservation of stem cell will be exempted. However, if any other service is provided by them to hospital than such will be taxable as if any other normal service.

Whether service provided by operators of bio-medical waste treatment facility is exempted?

Yes, any service provided by operators of bio-medical waste treatment facility by way of treatment or disposal of bio-medical waste to any clinical establishment will be exempted by virtue of notification no. 12/2017.

Whether any service other than above two service provided to hospital is exempted?

Service provide to any clinical establishment other than above two will attract normal taxability and said are not exempted.

Whether service provided by medical laboratory are exempted?

This service is in nature of analysis and testing services and such service are not covered under any notification and therefor they are not exempted and will be taxable as if any normal service is taxable.

Government is very clear about taxability of health service and as we can see that all the majority of service received by patient are covered under exemption list.

GST Questions | details in GST

Fibota tds under gst

TDS Under GST

TDS Under GST

Introduction : It is important to understand that what are the provision for deduction of TDS under GST Law. Basically, this article will describe what are the condition which will trigger the levy of TDS/TCS, what will be the rate of deduction, whether there is any exemption (which is provided to specific types of transaction) and how return is required to be furnished along with various due dates.

Relevant provision for applicability of TDS:

Applicability : According to section 51 of CGST Act, 2017; following entities are required to deduct TDS

Registration Threshold Limit : Every person requiring to deduct TDS has to compulsorily obtain registration without any Threshold Limit; It is not mandatory for assessee obtaining registration or while applying for registration to quote his PAN (Permanent Account Number) he can use his TAN (Tax deduction and collection Account Number obtained as per Income Tax Act, 1961). However, government has prescribed the limit of Rs. 2,50,000/- as threshold limit per assessee i.e. TDS will be deducted only case where contract amount exceeds Rs. 2,50,000/-; once the limit is exceeded then TDS is required to be deducted on full amount. It must be noted that supply must be Taxable Supply and the limit prescribed above shall be seen excluding GST.

Illustration : Mr. J has received payment of Rs. 2,60,000/- in respect of contract entered by him with one of the public sector undertaking. Mr. J is of opinion that TDS is not be deducted as the amount of contract is exceeding Rs. 2,50,000/- but that amount is inclusive of GST. (Taxable value supplied is Rs. 2,20,000/-).

Determine liability of PSU to deduct TDS?

In the given case opinion expressed by Mr. J is correct as Public sector undertaking is not required to deduct TDS as contract amount excluding GST is not exceeding Rs. 2,50,000/-.

What if in the given case Value of Supply is exceeding Rs. 2,70,000/- whether in that case PSU is required to deduct TDS?

In that case PSU will be required to deduct TDS at the rate of 1% CGST and 1% SGST and in case if IGST is levied then at the rate of 2%. Further TDS will be deducted on entire contract amount i.e. on Rs. 2,70,000/-.

What if in the given case Value of Supply is exceeding Rs. 2,70,000/- but such supply is exempted vide notification by government. Whether in that case PSU is required to deduct TDS.

In that case PSU is not required to deduct TDS as value of Taxable supply in the contract shall be exceeding Rs. 2,50,000/-

What if the amount of Taxable supply is exactly Rs.2,50,000/-?

It has been stated that value of Taxable supply shall be exceeding Rs. 2,50,000/- i.e if the amount is exactly Rs. 2,50,000/- it will not attract the levy of TDS.

Exemption from Deduction of TDS : In case where place of supply and location of supplier are different from location of recipient then in that case no deduction of TDS will be required.

Illustration :  Mr. R has supplied machinery to local authority of Gujarat. Mr. R is situated in Madhya Pradesh and the machinery is to be delivered Madhya-Pradesh itself at one of the locations specified by local authority of Gujarat. The value of contract is exceeding Rs. 2,50,000/-.

What will be TDS consequence in such case?

In that case place of supply of goods as per section 10 of IGST Act, 2017 will be Madhya Pradesh and Location of supplier is also Madhya Pradesh. However, Location of Recipient in that case will be Gujarat. For determining the levy of TDS, it is necessary to identify Place of supply, Location of Supplier, and Location of Recipient and in case where place of supply and location of supplier are different from location of recipient then in that case no deduction of TDS will be required. The same exemption will be applicable to this transaction and no deduction of TDS will be deducted.

What if in the given case machinery is supplied to Gujarat?

In that case Place of Supply will be Gujarat and Location of Recipient is also Gujarat; Further, Location of supplier will be Madhya Pradesh; Therefore, this transaction will not fall in the above exemption and Therefore it will require deduction TDS at the rate of 2% as transaction will be treated as Inter-State supply.

Due-Date of payment and Returns/Certificate of deduction:

  • The amount of tax deducted in name of TDS is required to be deposited with Government within 10 days after the end of month in which such deduction was made. Delay in deposit will attract interest at the rate of 18% p.a. from due date of payment till actual date of payment of tax to the account of government.
  • Due-Date for furnishing GSTR-7 is required to be furnished on or before 10th day of succeeding month from the month in which TDS was required to deducted. Delay in furnishing the return will attract the penalty of Rs. 100/- per day/per act the maximum late fee will be restricted to Rs.5,000/-.
  • TDS deductor is required to issue certificate to deductee within 5 days of deposit of tax Government account. Otherwise he will be liable to pay late fee of Rs. 100/- per day for the period starting from the expiry of 5 days period until it is issued to deductee. However, the maximum late fee will be restricted to Rs.5,000/-.
  • TDS amount deducted is required to be paid in cash i.e. it cannot be paid using Input tax credit; further it will be shown in cash ledger of deductee. In case any excess payment is made by the assessee he can apply for refund.
Fibota tcs under gst

TCS Under GST

TCS Under GST

Introduction : It is important to understand what are the provision for deduction of TCS under GST Law.Basically, this article will describe what are the condition which will trigger the levy of TCS under GST, what will be the rate of deduction, whether there is any exemption (which is provided to specific types of transaction) and how return is required to be furnished along with various due dates.

Relevant provision for applicability of TCS:

Applicability : According, to section 52 of CGST Act, 2017; Certain E-commerce operators are required to collect TCS from consideration received by them towards taxable supply supplied by supplier; following e-commerce operators are not required to collect tax at source. Other then below specified all the e-commerce operators are liable to deduct TCS. This exception has been placed because in all the below provided cases e-commerce operator is liable to tax on reverse charge basis as per section 9(5) of CGST Act, 2017; or as per section 5(5) of IGST Act, 2017.

If any of the e-commerce operator falls under the category then following conditions are required to be checked; Whether supply is taxable supply; if yes, thenWhether consideration is collected by e-commerce operator; if yes Whether such e-commerce operator is supplying in his own capacity, if no; then such e-commerce operator is required to collect TCS at the rate of 1% of consideration received by him.

Illustration : Jamzon is an e-commerce platform has received payment of Rs. 1,20,000/- in respect of goods sold by Mr. Raja. Jamzon operators are of the opinion that TCS is not be deducted as the amount of consideration is not exceeding Rs. 2,50,000/-. Determine whether e-commerce platform is required to deduct TCS?

In the given case opinion expressed by Jamzon and e-commerce operator is incorrect as limit of Rs. 2,50,000/- is applicable only in case of TDS deduction and not on TCS deduction; Therefore, Jamzon is required to deduct TCS at the rate of 1% in case of IGST and 0.5% in case of CGST and 0.5% in case of SGST on Net Taxable Supply.

What if in the given case supply initiated was exempt supply?

In that case TCS will not be deducted as levy is triggered only when such supply is taxable supply.

What if in the given case Jamzon is just sending the buyer from there website to website operated by Mr. Raja?

In that case as Jamzon is not receiving consideration, TCS levy will not be triggered.

What if instead of Jamzon Mr. Raja itself is running website and he is selling goods through such websites?

In that case no TCS will be levied as provision are applicable only in case where supply is made through e-commerce operator not supplying goods/service in his own capacity.

What if in the given case service is been supplied; whether same provisions will be applicable?

There is no difference in applicability of provision as levy of TCS is attracted on taxable supply whether it is goods or service. However, there are few exceptional cases were if specific service is provided then in that case Reverse charge is applicable (Service specified in above chart).

Illustration : Mr. R has supplied the goods through an online platform named sabong.com; the goods supplied in month of June,2020 is of Rs. 3,20,000/- and in month of July, 2020; there is additional supply of Rs.2,50,000/-. In this month here is also return of goods from customer amounting to Rs. 2,00,000/-; Sabong.com is of the opinion that TCS will be collected on entire amount and i.e. on previous month supply and on current month supply without considering amount of return of supply.

In the given case sabong.com is having incorrect opinion as the levy of TCS is applicable on net taxable supply and not on gross taxable supply. Therefore, TCS will be deducted on Rs. 3,20,000/- in month of June, 2020; and on Rs. 50,000/- (after considering return amount of Rs. 2,00,000/-) in month of July, 2020.

Due-Date of payment and Returns/Certificate of deduction:

  • The amount of tax deducted in name of TCS is required to be deposited with Government within 10 days after the end of month in which such deduction was made. Delay in deposit will attract interest at the rate of 18% p.a. from due date of payment till actual date of payment of tax to the account of government.
  • Due-Date for furnishing GSTR-8 is required to be furnished on or before 10th day of succeeding month from the month in which TCS was required to deducted. Delay in furnishing the return will attract the penalty of Rs. 100/- per day/per act the maximum late fee will be restricted to Rs.5,000/-.
  • Details furnished under TCS return will be reflected in GSTR-2A of the supplier and the tax collected will be reflected in electronic cash ledger.
  • After filing of GSTR 8 it cannot be revised. Any discrepancy found while matching and reconciling the supply data and GSTR 2A it will be communicated to the operator as well as to supplier. And after the given period of time if such discrepancy is not rectified, then difference of tax amount will be added to the liability of the supplier. The supplier will have to pay the difference along with the interest if any.

Important Clarification relating to registration:

Every e-commerce operator is compulsorily required to take registration, along with this every supplier is also required to take registration however there are certain exceptions this general rule:

If the supplier is engaged in providing service and such service are specified under section 9(5) of CGST Act, 2017; or under section 5(5) of IGST Act, 2017. Then in that case he is only required to registered if his turnover is exceeding; again, here supplier can claim the exemption provided under section 23 of CGST Act, 2017; i.e. in case were assessee is exclusively engaged in supplying goods or service and tax on such supply is paid on reverse charge basis.

Further government had come with notification that if the supplier is supply service (any service provider) on e-commerce platform then he is not required to obtain registration if his turnover is not exceeding the threshold limit specified under section 22 of CGST Act,2017; (i.e. Rs. 20,00,000/- in case of other than special category states and Rs. 10,00,000/- in case of special category state). It is important to note that above exemption is not applicable to supplier of goods. Therefore, irrespective of value of goods supplied through e-commerce operator, such supplier is mandatorily required to obtain registration.

 

Fibota tax liability on composite and mixed supplies

Tax liability on Composite and Mixed Supplies

Taxability of Composite and Mixed Supply

Introduction: After determining that transaction is treated as supply as per definition prescribe under section 7 of CGST Act, 2017; In case where there is supply of two or more taxable product it is important to determine that whether such transaction falls withing the definition of composite supply or mixed supply; if yes then what will the rate that will be levied for taxability of product and what are the other compliance in this regard.

Definition:

Composite Supply: As per section 2(30) of CGST Act, 2017; Composite supply means a supply made by a taxable person to recipient consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. A composite supply means supply comprising two or more supplies, one of which is a principal supply, and in such case, it will be treated as a supply of such principal supply.

  • The goods or services or both shall be naturally bundled and they are supplied together in ordinary course of business;
  • It is necessary that one of them must be principle supply.
  • In case of composite supply, it will be treated as transaction of principle supply and rate of principle supply will be relevant for taxability of transaction.

How to determine principle supply in the transaction?

As per section 2(90) it has been determined that principle supply means a supply of goods or services which constitutes the predominant element when it is supplied with other product and to which any other supply forming part of that composite supply is ancillary.

Simply, though two or more products are supplied but principle supply is the main reason for entire supply. In case of transaction being supply of two or more products the other products other than principle supply are ancillary in nature it has just been supplied so that there is proper execution of principle supply.

How to determine whether the transaction is case of naturally bundled supply?

Naturally bundled means a bundle of two or more supplies wherein all the supplies forming part of the main supply are a natural necessity; and customer expects in ordinary course to be supplied with principle supply; without supply of such ancillary products main products cannot be consumed effectively.

How to determine whether supply is bundled in ordinary course of business or not?

There is no specific guideline for determining that whether it is bundled in ordinary course of business or not. However, some of the illustrative indicators are as follows:

  • Consumers perception: If consumer reasonably expects that supply of goods or services or combination is to be made along with ancillary supply then such a package could be treated as naturally bundled in the ordinary course of business.
  • Ancillary products are required to effectively consume the main product.
  • Generally, majority of supplier are providing such goods or service or combination thereof in bunch.

Mixed Supply : As per section 2(74) of CGST Act, 2017; mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

It implies that even when supply is not required to be supplied in bunch but it has been supplied as a bunch and single consideration is charged then in that case rate of tax that will be applied on such single consideration will be highest rate amongst the individual product supplied in such bunch.

Therefore, if two or more products or services or combination thereof is supplied, and single consideration has been charged, the transaction does not fall under the definition of composite supply then such will be treated as transaction of mixed supply.

Illustration : Mr. Raja sales tubes and tyre for motor vehicle; the rate which levied on tube is 12% while on tyre it is 18%; Mr. Raja has supplies both the product at single consideration and he is of the opinion that as he does not sells the products individually this is the case of composite supply and therefore it will attract an average rate of 15%. Determine whether the contention of Mr. Raja is valid?

In the given case contention of Mr. Raja is not valid. It has been clearly stated in definition of composite supply that product shall be naturally bundled and one of them shall be identifiable as principle supply; In the above transaction been tyre and tube both having separate identity and also has individual market in common parlance it cannot be termed as supply which is naturally bundled; Therefore, it is clear that such transaction will not fall under the definition of composite supply rather it will be treated as mixed supply. In case of mixed supply rate of tax that will be applicable to transaction will be higher of individual rates of products and it will be 18%. (i.e. higher of 12% and 18%).

Illustration : Mr. Solo is engaged in business of sarees. He has many designed sarees in which it has attached petty-coats. Mr. Solo, during the year has supplied such sarees which has attached petty-coats for a single consideration and he is of the opinion that the transaction will be treated as composite supply. Determine whether contention of Mr. Solo is valid?

The contention of Mr. Solo is valid as the said supply will be covered as composite supply. The supply of saree is principle supply and petty-coat attached to it is an ancillary product which is provided for effective consumption of principle supply.

Illustration : Mr. Das has supplied a Bunch of 5-Product under the name 5-Pro; The packet consists 5 products having different rate of tax. In the invoice single consideration is charged. Whether such supply will be treated as composite supply or mixed supply?

In the given case as single consideration is charged for bunch of product which has been supplied and further all the products are also not naturally bundled; therefore, it will be treated as transaction of Mixed supply and as per section 8 of CGST Act, 2017; It will be tax at highest rate of individual product in the bunch.

What if in the above case products are supplied individually by showing separate items in bill?

In that case it will neither be treated as Mixed supply nor be treated as Composite supply as products are not supplied for single consideration as provision is only attracted when two or more goods or services or combination thereof has been supplied for a single consideration

Fibota job work under gst

Job Work Under GST

Job-Work under GST

Introduction : It is important to know what is defined as Job-work; what will be the procedure for availing Input Tax Credit in case where goods are given on Job work basis; How time of supply and place of supply will be determined in such cases. Further what will be the liability in case where goods supplied on Job-work basis has not be received on timely basis.

Definition of Job-Work:  As per section 2(68) of CGST Act, 2017; Job work means any treatment or process under taken by a person on goods belonging to another registered person. The words used here clearly states that it will be treated as Job work only in case were Principle (Person giving goods on Job-work) is registered person. It has been state in Schedule II of CGST Act, 2017; that any process or treatment carried on goods belonging to another person will be treated as supply of service. Therefore, Job-Work will be treated as ‘Supply of Service’.

Important points relating to Job-work service:

Valuation of goods given on Job-work basis: Any goods transferred to Job-worker will be given under form ITC-04; Principle will issue delivery challan in this regard but now the question which arises what will be the value that will be stated in bill of supply. As per section 15 of CGST Act, 2017 value will be the transaction value provided it is sole consideration and parties are not related parties in case if party to transaction are related party then in such case value will be determined as per CGST rule, 2017. In short there is no specific provision for valuation of goods supplied by Principle to Job-worker.

Registration process for principle and Job-worker: For principle it is mandatory to be registered if he wants that transaction entered by him is treated as Job-work because it is the prima facie condition. For Job worker there is no specific provision for registration, therefore if turnover of Job-worker exceeds the prescribe limit under section 22 of CGST Act, 2017; he will be required to register himself. There is also exception to this general rule that if such person is engaged in inter-state supply then he will be required to register mandatorily except he provides service in relation to article, goods such as Jewellery, goldsmiths and silversmiths wares.

Illustration : Mr. R is a Job-worker his principle is registered whether he is mandatorily required to register himself?

In that case it is not mandatory to Mr. R to get registered unless he is required by virtue of section 22 of CGST Act, 2017; (i.e. after exceeding specified monetary limits, Rs. 20 lakhs in normal states and Rs. 10 lakhs in case of special category states.)

Illustration : Mr. J is registered under GST; he has supplied goods to Mr. D on Job-work basis. The value of goods supplied is Rs. 30,00,000/-. Mr. J is of the opinion that such will not be treated as supply? Determine whether Mr. J is correct in his opinion?

In the given case opinion expressed by Mr. J is incorrect as supply includes all form of supply i.e. whether by sale, transfer, barter, lease, exchange by whatever name called. Such goods are to be supplied under delivery challan.

When goods are returned by the Job worker the value of such goods will not be included in turnover of Job-worker only Job-worker charges will be included in his turnover.

Illustration: Mr. S has is registered under GST. He has order goods and as principal ordered directly to supply such goods to job worker’s premises, whether it will be included in the aggregate turnover of the job worker?

No. It will be included in the aggregate turnover of the principal. However, the value of goods or services which is used by the job worker for carrying out the job work will be included in the value of services supplied by the job worker.

Illustration: Mr. C has supplied goods outside India for the purpose of Job-work. Whether he is required to provide such details under ITC-04?

There is no exception to the rule and therefore Mr. C will be required to disclose such in ITC-04.

Time Limit allowed when goods are sent to Job-worker:

It shall be noted that in case goods are directly sent to Job-worker premise at the time of initial purchase then in that case time period to bring back goods will be started from date when goods are received by the Job-worker.

Further commissioner has been empowered to extend the time limit for return of goods sent on job work for a further period i.e. for Inputs additional period of 1 year and for Capital goods additional period of 2 years.

It shall also be noted that if the inputs or capital goods are not returned within time limit specified, the principal is liable to pay tax along with interest @18% from the date when goods were sent out for job work. Or in case goods are directly sent to Job-worker premise at the time of initial purchase from date when goods are received by the Job-worker.

This may also create practical difficulty for Job-worker as he has will not be able to take credit of the same. It is advisable that in case if there is delay then principle shall apply to commissioner for extension of time limit.

There may be waste/scrap which is generated at the end of Job-worker in that case GST liability on supply of such waste/scrap will be on Job-worker if he is registered person otherwise principle will be liable to pay tax.

Input Tax Credit in case of Job-work : According to Section 19of CGST Act, principal can avail the ITC in case were inputs/capital goods are supplied by him to Job-worker for Job-work and also, he can avail Input Tax Credit in case where goods are sent to Job-workers premises directly from the vendor location without coming to his premises.

From the above points it has been summarized that what will be Value of Supply, What will be time available with principle and related Input tax credit provision, and other miscellaneous issues are covered.

Fibota input service distributor

Input Service Distributor

Input Service Distributor under Goods and Services Tax

Introduction : It is important to know the concept of Input service distributor, how credit will be distributed by him i.e. manner and amount. Further what will be registration process for him or what will be compliance that is required to be fulfilled by him. What if input service distributor has been issued with credit and debit notes. In this article we will discuss all the above concepts.

Definition : In simple words input service distributor means an entity registered under GST and which will receive the tax invoices for supply of service that is availed by the various unit of entity including any common service availed by multiple unit of entity (Different units registered under same PAN) and will distribute input credit availed on such service to the various units of entity.

Important Points : The CGST Rules, 2017 prescribes the procedural conditions to be complied with by Input Service Distributor and Manner in which such credit will be distributed. Further along with this it also prescribes formula that is to be used to determine quantum of Input tax credit (ITC) to be distributed by Input Service Distributor.

Further it is important to note that whenever Input Service Distributor receives invoice relating to service that is specifically procured by any particular unit of entity credit of such service shall be distribute only to that unit.

However, if input tax credit on input services availed by input service distributor is attributable to more than one recipient of service then it shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis; i.e. turnover in a State or turnover in a Union territory during the relevant period of such recipient to whom credit is to be distributed, is divided by aggregate of the turnover during the relevant period of all such recipients who are eligible for credit distribution to whom such input service is attributable. It shall be noted that for becoming eligible unit for distribution purpose it is necessary that such unit is operational during the relevant period.

Turnover of relevant period means if in case the units to which credit is distributed has turnover in preceding financial year than turnover of preceding financial year is considered, however in case if figure of turnover of previous financial year is not available then in that case turnover of last quarter is to be considered. Even if turnover of single unit is not available for preceding financial year then also for all the unit’s turnover of preceding quarter is considered.

Also, while determining both taxable and non-taxable supplies for calculation of “turnover” it shall exclude Central excise duty, State excise duty and Value added Tax (VAT). There are also some other points which are worth noting

  • The ISD shall separately distribute credit pertaining to different head i.e. by distributing under IGST, CGST and SGST.
  • It shall separately distribute credit attributable to a recipient (i.e. unit under same PAN) even if such unit is unregistered or is engaged in making exempt supplies.
  • The amount of block credit as per section 17(5) of CGST Act, 2017; shall be separately distributed.
  • Credit of IGST will be distributed as IGST even in case where input service distributor and unit to which credit is distributed is located in same state or union territory.
  • Every Input Service Distributor registered under GST is required to furnish GSTR-6 on or before 13th of next Month.

Illustration : BD Ltd has its Head office located in Delhi and it is registered as ISD. The company has five units, three of them located in same state (Delhi) and two of them located in different states (Chennai and Kolkata). Unit located in Chennai is un-operational during the year. Further one of the units located in Delhi is engaged in providing exclusively exempt supply. Turnover of two unit of preceding financial year is not available but turnover of preceding quarter of all units is available except the Chennai unit which is un-operational during the year.

Turnover of units are as follows DELHI 1 (engaged in exclusively exempt supply): Rs. 20,00,000/-,DELHI 2: Rs. 8,00,000/-, DELHI 3: Rs. 12,00,000/-, KOLKATA unit Rs. 10,00,000/-.

During the year following transaction of has been undertaken by BD Ltd.

  1. Received invoice from supplier outside Delhi showing credit of Rs. 40,000/-. The said service has been utilized by all the units located in Delhi.
  2. BD Ltd. serviced invoice from supplier located in Delhi showing credit of Rs. 12,000/- of CGST and Rs. 12,000/- of SGST. The service has been used by only on the unit (named D2).
  3. BD Ltd. has received invoice in respect of credit which is blocked by virtue of section 17(5) of CGST Act, 2017. Amount of credit is Rs. 6,000/- of CGST and Rs. 6,000/- of SGST.
  4. BD Ltd. has received service which is exclusively used by unit located in Kolkata; credit of Rs. 4,000/- of CGST and Rs. 4,000/- of SGST has been shown in such bill.

How the input tax credit is to be distributed by input service distributor?

In the given case the credit is to be distributed in following manner.

Particular DELHI 1 DELHI 2 DELHI 3 KOLKATA
SGST CGST IGST SGST CGST IGST SGST CGST IGST SGST CGST IGST
Transaction (a) 20,000 8,000 12,000
Transaction (b) 12,000 12,000
Transaction (c) (17(5)) 2,400 2,400 960 960 1,440 1,440 2,400
Transaction (d) 8,000

Notes:

  1. Credit will be distributed only amongst operational unit and therefore no credit will be distributed to Chennai unit.
  2. In case service has been exclusively used by particular unit then credit relating to such will be distributed only to that particular unit. If it has been commonly availed or availed by all the unit then in that case it will be distributed on pro-rata basis i.e. based on turnover of relevant period i.e. if turnover of previous financial year is available then of that is taken. However, if turnover of any of unit of previous year is not available then for above calculation turnover of previous quarter is to be considered for all the units.
  3. Credit will be distributed even if particular unit is unregistered or is engaged in exclusively supplying exempt supply.
  4. Credit will be separately distributed in case credit is blocked by virtue of section 17(5) of CGST Act, 2017.
  5. Credit relating to CGST and SGST will be distributed as IGST in case if it has been distributed to unit located outside the state in which ISD is located.
  6. Credit of IGST will be distributed as IGST even in case if it has been distributed to unit located in same state where ISD is located.

What if in given case ISD receives credit note/debit note in respect of any of the above transaction?

In that case credit which is distributed by ISD is required to be reversed of in the same manner in which it has been distributed, therefore BD Ltd. will also be required to reverse the credit in the manner in which it has been distributed.

Fibota gst on agriculture produce

GST on Agriculture produce

GST on Trading of Agriculture Produce

Introduction: In India agriculture sector is always treated as special priority sector; and therefore, under GST law also there are some of the provision which are worth noting. What will be the rate of GST on agriculture produce, what are the exemption which are provided in relation to agriculture sector, what is the registration threshold in relation to person carrying on agriculture activity. Let take a look at all the GST provision which are affecting agriculture sector in India.

Relevant Terms:

    1. Agricultural produce: The agriculture produce means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

It is cleared from definition that

i) Rearing of horses is not covered under above definition.

ii)No processing shall be done on such produce and if it is done it shall be done only by cultivator or by producer.

iii) After carrying such process, it shall not alter its essential characteristics.

iv) After carrying such process, without altering its essential characteristics it marketable only for primary market.

  1. Agriculture extension: The agricultural extension means application of scientific research and knowledge to agricultural practices through farmer education or training.
  2. Agricultural Produce Marketing Committee or Board: It means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce.
  3. Agriculturist: Agriculturist means an individual or a Hindu undivided family who undertakes cultivation of land. a) by own labour b) by the labour of family c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family. Therefore, it is cleared that agriculture activity by any persons other than Individual and HUF is kept out of the definition of agriculturist.

Registration:Only an agriculturist, to the extent of supply in relation to produce out of cultivation of land is exempt from GST registration requirement.Any person who operate as a company or LLP or any other type of entity is not covered under definition of agriculturist and therefore, they would be required to obtain GST registration if the aggregate turnover exceeds the exemption limit or they met one of the condition specified under section 24 of CGST Act, 2017. (Compulsorily required to get registration).

Time of Supply, Value of Supply, Place of Supply: There is no special provision in relation to any of the three normal all the normal provisions are applicable as it is. However, it is important to know the various exemption provided in relation to services relation to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce.

Important Points:

  1. Carrying Job work or any process or service in relation to agriculture or agriculture produce is not taxable is covered under exemption and therefore, will be treated as exempted supply of service.
  2. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables is exempted vide Notification No.12/2017-Central Tax(Rate).
  3. Service provided by Goods Transportation agency (GTA) in relation to transport of goods being agriculture produce is exempted vide Notification No.12/2017-Central Tax(Rate).
  4. Service by way of loading, unloading, packing, storage or warehousing of rice is exempted vide Notification No.12/2017-Central Tax(Rate).
  5. Service in relation to supply of farm labour; processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market; is exempted vide Notification No.12/2017-Central Tax(Rate).
  6. Service by way of renting or leasing of agro machinery or vacant land with or without a structure incidental to its use is also exempted vide notificationNo.12/2017-Central Tax(Rate).
  7. Service by way of Loading, unloading, packing, storage or warehousing of agricultural produce, agricultural extension services and services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce is also exempted vide notification No.12/2017-Central Tax(Rate).
  8. Activity in relation to fumigation of agriculture produce carried at warehouse is also exempted from the preview of GST.
  9. Further many of the seeds and fertilizers are exempted from GST therefore, it will not hinder the farmers even if they are not eligible to take credit of the same.

Important issues and Illustrations:

  1. What is Job work is done by Sortex Machine over agricultural produce?

In that case is such it will not be exempted from GST as only process carried out by cultivator or producer at agricultural farm is exempted vide notification. Such service will attract the rate of 5%.

  1. Whether consultancy service provided to farmer for their crops is exempted?

Yes. Any such service provided to farmer is covered under support service to agriculture and will be covered under exempted service.

  1. What is the scenario relating to levy of GST in case Job work has been performed on paddy; What if such has been performed on rice instead of paddy?

Processing on Paddy to convert such into Rice is  necessary, without processing paddy into rice it cannot be marketable to the primary market; hence if such processing is carried out by cultivator or producer at agriculture farm to make it marketable then in such case it will be exempted from GST; however if such process is carried out by any other person then in that case it will be taxable. If any process is carried on rice it will be taxable as rice is not considered as agriculture produce; however, Service by way of loading, unloading, packing, storage or warehousing of rice is exempted vide Notification No.12/2017-Central Tax(Rate).

  1. What will be the rate of GST when goods are supplied through commission agent? What is the registration requirement in such case for commission agent?

Service provided by commission agent for selling of agriculture produce is exempted. Further any such dealer if he is exclusively dealing as commission agent for agriculture produce then in that case h is not required to get the registration as exempted by section 23 of CGST Act, 2017; however if such agent is also dealing in other product then in that case he will be liable to register if he exceeds limit specified under section 22 of CGST Act, 2017.

  1. Whether sale of pesticides sprayers is exempted from GST?

There is no such benefit provided to the farmers; Therefore, such products are taxable and input tax credit of same will not be allowed to farmers as their end product is exempted.

  1. What will be rate of GST in case of trading of basmati rice?

Under GST, basmati rice has been included in the category of branded cereals registered in the Register of Trade Marks and therefore it will attract the levy of 5% under GST; Further as now the product has been taxable the supplier will be eligible to take credit in relation to any Inputs/Input service directly attributable to such supply and of capital goods directly attributable to such supply.

Further in case of any common inputs (i.e. Inputs/Inputs service used for both i.e. taxable as well as exempted) are there then it will require the computation of eligible Input Tax Credit as per rule 42 and 43 of CGST Act, 2017

Fibota Gst Implications You Must Know In Case of Sale of Goods

GST Implications You Must Know In Case Of Sale Of Goods

Whether you should charge IGST or CGST & SGST in case of Supply of Goods?

It is important to determine place of supply as this will decided whether transaction is inter-state or intra-state which will further allow tax payers to determine whether CGST and SGST is to be levied (in case of intra-state transaction) or whether IGST is to be levied.

How to Determine Place of Supply in case of supply of Goods where in movement of Goods are involved and buyer and sellers are located in India?

Situations – (Buyer and Seller located in India) Place of Supply
Movement of Goods either by seller of buyer or by any other person The movements of goods terminate for delivery to recipient.
Example: – Mr. R of Delhi has sold 10 washing machines to Mr. F of Gujarat (Registered in Gujarat); Mr. F said he will take the machine on ex-factory basis and therefore he insists that Mr. R shall charge CGST and SGST treating such supply as intra-state supply. Determine what will be the place of supply.

Place of supply will be Gujarat i.e. where Mr. F is registered even if the goods are purchased on ex-factory basis. Because irrespective of who is undertaking movements of goods (i.e. either supplier or the recipient) the place of supply is the location of goods where movement of goods terminates for delivery to the recipient which is at Gujarat (as is actually movement undertaken terminates at Gujarat). There Mr. R should charge IGST as it is inter-state transaction.

What is Mr. R of Delhi first Charge CGST and SGST and then realized that IGST should have been charged? Is there any remedy available to Mr. R?

Situations – (Buyer and Seller located in India) Place of Supply
Goods are delivered by supplier to any recipient on direction of any third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods Principal place of business of such recipient.
Example: – Mr. R of Delhi has sold 10 washing machines to Mr. F of Gujarat (Registered in Gujarat); Mr. F suggest to deliver goods to one of his buyers situated in Mumbai?

It is a typical case of Bill to and Ship to Transaction – Here there are two transactions which has been undertaken (i) Sale of Goods by Mr. R to Mr. F (ii) Further sale by Mr. F. In first case i.e. sale by Mr. R place of supply will be where movement of goods terminated i.e. Mumbai. In second case i.e. sale of goods by Mr. F, as it has already been specified that irrespective of whether movement is undertaken by buyer or supplier (Mr. F) or any third person (Mr. R) place of supply will be where the movements of goods is terminated. Therefore, again place of supply will be Mumbai. Therefore Mr. R and Mr. F both are required to Charged IGST on the above mentioned transaction.

What if Mr. R of Delhi sold washing Machine to Mr. F of Gujarat (Registered in Gujarat) and Mr. F suggest to deliver goods to one of his buyers situated in Delhi itself?

What if Mr. R of Delhi sold washing Machine to Mr. F of Gujarat (Registered in Gujarat) and movement of goods where undertaken and during the transit Mr. F suggest Mr. R to deliver goods to Mr. A located in warehouse of Mathura (Uttar Pradesh) and having Principal Place of Business in Delhi?

How to Determine Place of Supply in case of supply of Goods where in movement of Goods are involved and the buyer is not registered under GST?

Let us take one example – Mr. R of Delhi sold washing Machine to Mr. F who is not registered under GST.

In that case it will be practically difficult for the seller to identify the termination of movement of goods sold by him. As buyer may say or may not say about movement that will be undertaken by him; in that case unless otherwise provided it will be treated as intra-state supply.

Jigar the question here is Mr. F would ask the delivery of Goods at Gujarat or at some other place i.e. directly to ultimate customer – in such scenario the movement of Goods are Traced and if it is delivered at Gujarat then it’s a IGST Transaction. Practically when any Goods are sold movement of Goods are generally traced. Please elaborate this example clearly.

How to Determine Place of Supply in case of supply of Goods wherein movement of Goods are involved and the transportation is undertaken by Goods Transport Agency?

 It doesn’t make any difference if transportation is undertaken by Goods Transportation agency – the rule of place of supply is to be determined as per the conditions of the Law and in case of sale/purchase of goods, place of supply will be the place were movements of goods terminate for delivery to recipient.

 How to Determine Place of Supply in case of supply of Goods wherein movement of Goods are involved and any of the parties are situated outside India?

 Such Transactions will be either Import or Export Transactions.

  • In case of import, place of supply will be place where such goods are being imported i.e. location of importer and therefore, in such case IGST will be applicable.
  • In case of export, place of supply will be place where goods are being exported.

 How to Determine Place of Supply in case of supply of Goods wherein movement of Goods are NOT involved and buyer and sellers are located in India?

Situations Place of Supply
Where the supply does not involve movement of goods by any of the person Place of supply will be place where such goods are located at the time of delivery of goods to the recipient.
Mr. Desai wants to sale his workout instruments which are currently lying in his storage near to his home. He contacts Mr. Shiva and sells such instrument as such along with this he will also provide his storage to him for using such instruments. What will be place of supply in this case?

In this case there are two transactions: –

1. Sale of workout instrument and

2. Renting of storage.

Tax Implication of the above transaction is as under: –

1.Sale of working instrument it is sale of goods and in case where supply does not involve movement of goods by any of the person, place of supply will be place where goods are located at time of delivery of goods.

2. In case of renting of storage place of supply will be determined as per section 12 and 13 of IGST Act, 2017; i.e. where the immovable property is situated in case one of the party is outside India;

Jigar we have not addressed what would be the place of supply if both the parties and immovable property is within India? Also please mention IGST or CGST/SGST to be charged on each such transaction

What if in above case both the parties are outside India?

In case both the parties are in India then place of supply will be location of immovable property

What if in above immovable Property is situation outside India?

If immovable property is situated out if India then location of recipient will be the place of supply.

How to Determine Place of Supply in case of supply of Goods supplied through vessels/Conveyance?

Situations Place of Supply
Where the supply is through vessels/Conveyance Place of supply in such case will be location at which such goods are taken on board.
Mr. Harry has purchased goods while travelling to Mumbai through Kolkata Express Train; such goods were loaded on train from Kolkata boarding station. What will be place of supply in such case?
In such case place of supply will be place from which goods have been taken on board; i.e. Kolkata. In above case CGST and SGST will be charged as such supply will be treated as intra-state supply.

gst on sale of fixed assets purchased in pre gst era | gst implications on sale of goods definition

Fibota Levy of GST on OIDAR Service Provider, Online GSTR 3B and 1 filing

OIDAR Services

Levy of GST on OIDAR Service Provider

 What is OIDAR Service?

According to section 2(17) of the IGST Act, 2017; ODIAR service means “Online information and database access or retrieval services” mean services whose delivery is mediated by information technology over the internet or an electronic network, nature of which renders their supply essentially automated, involving minimal human intervention & impossible to ensure in the absence of information technology and includes electronic services such as:

OIDAR-Service Overviews

What will be place of supply in case of OIDAR Service is provided?

In case of OIDAR service as per section 13 of IGST Act, 2017; place of supply will be is determined based on location of recipient i.e. if receiver is situated in India then place of supply will be location of such recipient.

Whether it will attract forward charge or whether it will attract reverse charge?

In case of reverse charge, the person consuming service will be liable to pay tax to government and supplier will not collect any amount from him in form of tax. In case of forward charge supplier will collect the tax and from consumer and will deposit to the government; OIDAR service will attract the reverse charge liability; i.e. recipient of service will be liable to pay to tax on reverse charge basis. However, in case were the recipient is unregistered person then in that case again ODIAR service provider will be liable to pay tax under forward charge.

What will be threshold limit that will be applicable in case of registration of OIDAR service provider?

The person who is supplier of OIDAR service, if he is situated outside India and he is providing service to any recipient being non-taxable person (Non-taxable online recipient means Government, a local authority, a government authority, an individual or any person not registered under GST and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory) then in that case the supplier of such service is compulsory required to registered. Such OIDAR service supplier can take simplified registration by filling GST REG-01. In other case i.e. where service provider is located in India then he is required to obtain registration through normal process.

Points to be noted:

Two condition are simultaneously required to be fulfilled:

  • Person shall be unregistered
  • Service obtained has for any purpose other than commerce, industry or any other business or profession, located in taxable territory;

Otherwise recipient will be required to pay on reverse charge basis for such service obtained.

What are the returns that supplier of OIDAR service provider is required to provide?

OIDAR Service provider located in India then in that case he is required to furnish regular returns i.e. GSTR 1, GSTR 3B. However, if he is situated outside India then in that case, he is required to furnish Form GSTR-5A on or before the 20th of each month.

Whether OIDAR service provider is required to appoint representative?

All the supplier of OIDAR who are located outside India should appoint a representative in India for filing of GST returns and ensuring compliance under GST.

Whether OIDAR Service provider can opt for composition scheme?

Generally, as per section 10 of CGST Act 2017; only person dealing in goods or engaged in providing specific service can apply for composition scheme. OIDAR service is not one of the specified services as section 10 of CGST Act, 2017; However, there is new composition scheme which has been introduced by government which will allow the service provider to opt for composition scheme if their turnover during preceding financial year does not exceeds Rs. 50,00,000/- than they can opt for composition rate of 3% CGST + 3% SGST up to Rs. 50,00,000/- in current financial year. But one of the conditions that has been specified is that the supplier shall not be engaged in providing service through e-commerce platform and this will restrict supplier of OIDAR service from opting the composition scheme.

Illustration: Befilx is providing access to all the latest movies for this it charges an annual subscription charge from his customer @2,999/- per annum (including all taxes and GST @18%). What will be the tax treatment of such service? Who will be the person responsible to pay?

  • If the service is provided to individual or any person not registered under GST and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory) than in that case:

Place of supply will be Location of recipient as per section 13 of IGST Act, 2017;

Value of supply as per section 15 of CGST Act, 2017; will be transaction value i.e. Rs. 2,999/-Time of supply will be

  • Where invoice is issued within prescribed period under section 31(2);
  • Date of issue of Invoice; or (2) Date of receipt of payment; whichever is earlier
  • Where invoice is not issued within prescribed period under section 31(2)
  • Date of completion of provision of service; or (2) Date of receipt of payment; whichever is earlier.

The supplier will be required to pay GST on forward charge basis in this case. The amount of GST will be Rs. 457/- (treating amount inclusive of GST reverse calculation will be undertaken Rs. 2,999/118*18).

  • In all other cases

Place of supply will be Location of recipient as per section 13 of IGST Act, 2017;

Value of supply as per section 15 of CGST Act, 2017; will be transaction value i.e. Rs. 2,999/-

Time of supply will be

(a) the date of payment as entered in the books of account of the recipient or

(b)the date on which the payment is debited in his bank accountor

(c) the date immediately following 60 days from the date of issue of invoice or any other document, by whatever name called i.e. 61st day from the date of issuance of invoice by the supplier, whichever is earlier;

The recipient will be liable to pay GST on reverse charge basis in this case. The amount of GST will be Rs. 457/- (treating amount inclusive of GST reverse calculation will be undertaken Rs. 2,999/118*18)

Fibota Online TDS Return Filing Services - Reconciliation facility for ITC shown in books of accounts and ITC as per GSTR-2A

GST Reconciliation of Credit

Reconciliation facility for ITC shown in books of accounts and ITC as per GSTR-2A:

Government has introduced a facility that will allow taxpayers to reconcile amount of Input Tax Credit shown under GSTR-2A with amount availed by tax payers as input tax credit in Books of Accounts – specifically Purchase register.

Goods and Service Tax Network i.e. GST portal has enabled the reconciliation tool where in amount of Input Tax Credit shown under GSTR-2A can be reconciled with amount availed by tax payers as input tax credit i.e. credit taken as per purchase register.

Tax payers can download (Matching_Offline_Tool) zip file which will contain GSTR2B_Matching_Tool_v1.0.exe (Application), Purchase Register Excel Template and other user manual documents.

The following step will be required to be followed for reconciliation:

  • Tax payers will be required to download the utility from GSTN Portal,
  • Then Tax payers will be required to download auto-drafted input tax credit (ITC) statement – GSTR-2B from GSTN Portaland Tax payers will be required to open such file for review under offline tool downloaded under step-1
  • The main thing which will require exercise from Tax payer’s end is, he will be required to maintain/prepare his business purchase registration in the CSV file downloaded in step-1 and then he will be required to Importing the purchase register in the Offline Tool for matching with GSTR-2B downloaded in step-2.
  • After the above steps data will be ready for the comparison and for Comparing the auto-drafted ITC statement – GSTR-2B, downloaded from the portal and the purchase register; he will be required to use ‘Matching’ tab provided in the tool to identify documents which are fully matched, partially matched or not matched.
  • This will allow Tax payers to reconcile the credit and to analysis the variances if any in most efficient manner. Such steps by government will increase more transparency and ease of doing business.
Fibota GST for Non-resident Taxable Person

GST for Non-Resident Taxable Person

GST for Non-resident Taxable Person

Introduction: In GST there is specific provision for taxability of non-resident taxable person; It is important to know what will be compliances that an assessee, will be required to carry-out. What is return and due date of return that is to be furnished by the assessee; Whether registration is compulsory; What are the special points that are required to be noted. In this article we will cover all the provision relating to non-resident taxable person under GST.

Definition:

Non-resident taxable person means as any person who occasionally undertakes transactions involving the supply of goods or services, or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.

It is important to note that person does not had it is not relevant that in which capacity person is supply, whether transaction is continuous or on occasional basis but person shall not have residence or fixed place of business in India.

Important Points:

Registration requirement: Section 24 of CGST Act, 2017; specifies requirement for registration for a non-resident taxable person. According to it every no-resident taxable person is compulsorily required to obtain the registration irrespective of turnover. If we analyse this then it is not mandatory for every person to obtain the registration but if the person is applying any goods or service and does not have place of residence in India or does not have place of business in India then he is required to register even if value of supply undertaken by him is in single digit.

Further, every non-resident taxable person or business who falls under the definition covered above needs to apply for registration at least five days prior to the commencement of business.

Validity of registration:The certificate of registration issued shall be valid for the period specified in the application or 90 days from the effective date of registration, whichever is earlier.The validity period of 90 days can be extended by a further period not exceeding 90 days. The extension will be allowed on making an application in Form GST REG-11 and after payment of the additional estimated tax liability for the period for which the extension is sought.

Advance Payment of Tax by Non-resident Taxable person:A non-resident taxable person is required to make an advance deposit of tax in an amount equivalent to the estimated tax liability (to be calculated by non-resident taxable person on presumptive basis) of such person for the period for which registration is sought. The tax paid by such non-resident taxable person will be credited to his electronic cash ledger and will be adjusted against his actual tax liability. For such payment of tax after applying for registration non-resident taxable person will get temporary reference number which will be electronically generated by the GST portal.

Return to be furnished by non-resident taxable person: Every non-resident taxable person is required to furnish GSTR-5; which will consist details of outward and inward supplies and payment of tax. The time limit within which such return is required to furnished is within 20 days after the end of a calendar month or within 7 days after the last day of the validity period of registration, whichever is earlier. Such persons will not be required to furnish annual return.

Fibota Different Types of Assessment under GST

Different Types of Assessment under GST

Assessment under Goods and Service Tax (GST)

Introduction: It is important to know that how person is assessed under various provision of GST, whether assessee has an option to opt for provisional assessment or not; in which cases GST authority will considered the case under best judgement assessment; or what are the provision relating to assessment of unregistered person. In this article we will discuss all such provisions along with relevant illustration.

Definition:

Assessment: It meansdetermination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.

It is mandatory for the person to determine the tax liability based on self-assessment, and to pay the tax while filing return under GST.

different types of assessment under gst

Self-assessment (Section 59) : Every person who is a registered has to assess his tax liability on his or her own calculations and application of provision of law and shall furnish returns for each taxation period. The amount which assessee arrives after self-assessment shall be paid by him by way of furnishing return of income.

Provisional-assessment (Section 60): If an assessee is unable to determine his tax liability, or value of supply or rate of tax then he can request the officer for provisional assessment. Therefore, in cases where person is not able to determine transaction value or unable to determine the rate of tax due to difficulty in classification of goods and services or due to not able to determine applicability of notification, he may apply for provisional assessment.

Illustration : Mr. J has supplied service to Mr. T who is unregistered person, Mr. J is not sure about rate that will be applicable to him, he has also consulted with one of friend but he is still not sure. Whether he can apply for provisional assessment?

If in any case assessee is not able to determine transaction value or unable to determine the rate of tax due to difficulty in classification of goods and services or due to not able to determine applicability of notification, he may apply for provisional assessment. In the given case Mr. J can apply for provisional assessment.

What if in the given case instead of rate Mr. J is unable to determine place of supply. Whether still he can apply for provisional assessment?

In that case Mr. J will not be able to apply for provisional assessment. It is advisable to Mr. J that he shall pay the tax on Self-assessment basis and then by virtue of section 77 of CGST Act, 2017; where he is allowed to adjust the supply considered as intra-state as inter-state and inter-state as intra state and no interest is also levied for the same.

What is the procedure for applying under provisional assessment?

  • The assessee has to request the GST officer for provisional assessments in writing.
  • Within 90 days of receipt of such request the officer will pass an order after reviewing the application. This order is for allowing a payment of tax on provisional basis or at a GST rate or value specified by him.
  • The assessee who is making payment on provisional basis has to issue a bond with a security promising to pay the difference amount between provisionally assessed tax and final assessed tax.
  • The GST officer will pass the final assessment within a period of six months from the date of order of provisional payment. The commissioner can even extend this time period to 4 years if required.
  • After the final assessment assessee is required to pay the difference amount if any with interest at the rate of 18% per annum and if he has paid more then the amount required under final assessment then he will be refunded back with the same amount as well as interest will be paid on such refund at the rate 6% per annum.

Summary Assessment (Section 64): The authorized officer is after obtaining prior permission of additional commissioner or joint commissioneron any evidence showing a tax liability of a person coming to his notice, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue. The order of summary assessment is issued under GST ASMT-16 and assessee has an option to file an application in form ASMT-17 within 30 days from receipt of order of commissioner. The Commissioner has power to withdraw such order if he consider it as erroneous.

Best Judgement assessment:

  1. Assessment of non-filers of returns (Section 62) : When a registered person fails to furnish the required returns, even after service of notice an assessment would be conducted by the GST Officer. In such cases, the GST officer would proceed to assess the tax liability of the taxpayer to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issued an assessment order within a period of five years from the date for furnishing of the annual return for the financial year to which the tax not paid relates.

On receipt of the said assessment order, if the registered person furnishes a valid return within a period of 30 days from the date of issuance of assessment order, then in such case, the assessment order would deemed to have with drawn. However, the registered person will be liable to pay interest and late fee if any.

Illustration : Mr. Jive has is registered under GST as Normal Taxpayer he has not furnished GSTR Returns for 8 previous months. GST officer has taken the case under section 62 and has passed the assessment order determining the liability of the taxpayer to the best of his judgement taking into account all the relevant material which is available or which he has gathered and issued an assessment order. On receipt of said order Mr. Jiva furnished all the pending returns withing 30 days from date of issuance of assessment order. GST officer denied such filling and ask to pay tax as determined under assessment order. Whether the contention of GST officer is valid.

In the given case contention of GST officer is not valid as it has been stated under section 62 of CGST Act, 2017 that if the assessee is filling all the pending return within 30 days from the date of issuance of assessment order, then the assessment order under section 62 would be deemed to be invalid. Therefore, contention of GST officer is invalid.

  1. Assessment of unregistered Persons (Section 63) : When a taxable person fails to obtain registration even though he is liable to do so or where registration of person
    }n has been cancelled even if he is liable to pay tax GST officer can process his or her tax liability to the best of his judgement. The officer can issue an assessment order within five years from the due date for furnishing annual return for the financial year for which taxes are unpaid.

Illustration : Mr. D has turnover of Rs. 60,00,000/- during the financial year 2018-19, he has not obtained registration under GST as he is suffering from loss in business, he is of the view that GST registration is not required. Whether the contention of Mr. D is valid? Whether GST officer has power to determine the liability of such unregistered person? If yes what will be the time limit within which order is required to be issued.

In the given case contention of Mr. D is not valid in eye of law as GST registration is mandatory if the turnover of assessee exceed the limit specified under section 22 of CGST Act, 2017; The GST officer can consider the above case under section 63 of CGST Act, 2017; i.e.assessment of unregistered persons and can determine his or her tax liability to the best of his judgement.officer can issue an assessment order within five years from the due date for furnishing annual return for the financial year for which taxes are unpaid.

Summary assessment (Section 61):Whenever any return is furnished it is necessary for the department to verify the correctness of the returns and therefore GST officer will scrutinize it. Such scrutiny is covered under section 61 of CGST Act, 2017. After scrutiny if any discrepancy found, GST officer will furnish the notice to the registered persons about the discrepancy and seeking the reply from the person. And the said person shall within 15 days from the date of the notice furnish explanation in form of reply or he may accept the discrepancy as mentioned in the notice and pay the taxes, interest and any other amount due and inform the same to proper officer.

In case if assessee instead of accepting discrepancy furnishes the reply then proper officer has to determine that information is acceptable or not. If proper officer finds that information provided by the person is satisfactory then he may drop the proceedings and if he is not satisfied, he may initiate recovery by either conducting special audit of assessee or by issuing notice as per section 73 i.e. cases other than