CBIC Clarified certain issues related to refund under GST vide Circular No. 135/05/2020 dated 31st March 2020

Various clarifications have been issued for refund related matters in different span of time under GST, a master circular (C.No.125/44/2019-GST dated 18.11.2019) was also issued subsuming most of the earlier refund related issues. Again CBIC, by way of circular  No. 135/05/2020 has clarified various refund related issues, a briefing of the same has been given below:

Bunching of refund claims across Financial Years: –

Earlier applicant was allowed to file refund application by clubbing successive tax periods but the collective period of the application was not allowed to spread across different financial years. On examination of relevant sections i.e. sub-section (3) of section 16 of the IGST Act, 2017 and sub-section (3) of section 54 of the CGST Act, there appears no bar on claiming refund by clubbing different tax periods spanning across different financial years.

It is also supported by Hon’ble Delhi High Court in Order dated 21.01.2020, in the case of M/s Pitambra Books Pvt Ltd. wherein Hon’ble Delhi high court observed that Circulars can supplement but not supplant the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law.

Hence, the restriction on application of refund by clubbing of successive tax periods, spanning across different financial years has been lifted now.

Refund of accumulated input tax credit (ITC) on account of reduction in GST Rate: –

Applicants whose input and output supplies are same can’t apply for the refund of accumulated ITC on account of inverted duty structure, wherein the inversion came into effect due to subsequent decrease in tax rate of goods

Illustration:

An applicant trading in goods has purchased, say goods “X” attracting 18% GST. However, subsequently, the rate of GST on “X” has been reduced to, say 12%. In such cases refund of accumulated ITC on account of IDS will not be applicable. The governing law i.e. Section 54(3)(ii) of CGST Act, allows for refund of ITC on account of IDS where tax rate of input supplies being higher than the tax rate of output supplies. It does not cover cases where input and output supplies are same and attracting different rates of taxes in different points of time.

Change in manner of refund of tax paid on supplies other than zero rated supplies: –

Circular No. 125/44/2019-GST dated 18.11.2019, in para 3, categorizes the refund applications to be filed in FORM GST RFD-01 as under:

  1. Refund of unutilized input tax credit (ITC) on account of exports without payment of tax;
  2. Refund of tax paid on export of services with payment of tax;
  3. Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax;
  4. Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax;
  5. Refund of unutilized ITC on account of accumulation due to inverted tax structure;
  6. Refund to supplier of tax paid on deemed export supplies;
  7. Refund to recipient of tax paid on deemed export supplies;
  8. Refund of excess balance in the electronic cash ledger;
  9. Refund of excess payment of tax;
  10. Refund of tax paid on intra-State supply which is subsequently held to be interstate supply and vice versa;
  11. Refund on account of assessment/provisional assessment/appeal/any other order;
  12. Refund on account of “any other” ground or reason.

In respect of refund on account of output taxes paid such as refund of excess payment of taxes and such other cases mentioned in point (j) to (l) in para 3 of circular 125/44/2019-GST, major change has also been brought up by notification No.16/2020-Central Tax dated 23.03.2020, where applicant seeking refund in such cases has made payment wholly from Electronic Credit ledger, the refund, if found admissible, shall by granted by re-crediting ECL by proper officer by an order made in FORM GST PMT-03.

However, if in the above case, payment of taxes was made from both i.e. partially by Electronic Credit ledger and partially Electronic cash ledger, the refund to be paid in cash and credit shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which application for refund has been filed. The refund in cash shall be made by issuance of order in FORM GST RFD-06 and refund of credit shall be made through crediting the electronic credit ledger by issuance of order in FORM GST PMT-03.

Guidelines for refunds of Input Tax Credit under Section 54(3): –

As per para 36 of circular No. 125/44/2019-GST earlier refund of accumulated ITC availed on invoices which were not reflecting in GSTR-2A was also allowed, provided such invoices were uploaded.

Now refund of accumulated ITC is allowed only to the extent of ITC availed on the invoices which are uploaded by supplier(s) in GSTR-1 and are reflecting in applicant’s GSTR-2A.

New Requirement to mention HSN/SAC in Annexure ‘B’: –

A new column has been inserted in column Annexure B, wherein applicants are required to provide HSN/SAC of the goods or services on which input tax credit is availed. This requirement is brought to distinguish ITC on Capital goods and/or Input services out of total ITC for relevant tax period, as HSN wise detail is not available in GSTR-2A. However, in cases where supplier is not required to mention HSN/SAC on their tax invoices, the applicant is also not necessitated to provide HSN/SAC of such invoice in Annexure-B.

For more details, please refer the relevant circular issued by CBIC in this regards from the link given below.

http://cbic.gov.in/resources//htdocs-cbec/gst/Circular_Refund_135_5_2020.pdf;jsessionid=C73141F58DF33F30D10F4B2C68FFDFA9

Disclaimer:

The information given as above is in summary form based on the relevant CBIC circular (link mentioned above) and information available in public domain. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. This is not an offer, invitation, advice or solicitation of any kind. We accept no responsibility for any errors it may contain or for any loss, howsoever caused or sustained, by the person who relies on it.

Posted in GST |

Key Highlights of Reserve Bank of India Press Release(s) dated 27th March 2020

RBI vide Press release dated 27th March 2020 set out Statement on developmental and regulatory policies addressing stress in financial conditions, aimed at expanding liquidity in the system, reinforcing monetary transmission, easing financial stress and improving the functioning of markets on account of Covid-19 pandemic.

Accordingly, the Monetary Policy Committee (MPC) at its meeting today i.e. 27th March 2020 decided to:

  • Reduce the policy repo rate by 75 basis points to 4.40% from 5.15% with immediate effect;
  • Further, consequent upon the widening of the LAF corridor as detailed in the accompanying Statement on Developmental and Regulatory Polices, the reverse repo rate under the LAF stands reduced by 90 basis points to 4.0%;
  • Reduce the CRR of all banks by 100 bps to 3.0% of net demand and time liabilities (NDTL) from 4.0% with effect from the reporting fortnight beginning 28th March 2020 for a period of one year ending on 26th March 2021;
  • The marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.65% from 5.40%;
  • The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus (COVID-19) on the economy, while ensuring that inflation remains within the target.

These decisions are in consonance with the objective of achieving the medium-term targets for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Chart depicting the said changes is as under:

A brief summary of the decision taken under the same as under:

A. Liquidity Management

Targeted Long Term Repos Operations (TLTROs)
  1. RBI will conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to Rs. 1000 billion at a floating rate linked to the policy repo rate;
  2. Liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, 2020;
  3. Banks shall be required to acquire up to 50% of their incremental holdings of eligible instruments from primary market issuances and the remaining 50% from the secondary market, including from mutual funds and non-banking finance companies;
  4. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio. Exposures under this facility will also not be reckoned under the large exposure framework;
  5. The first TLTRO auction will be held today i.e. 27th March 2020. Following a review of the outcome of this auction, the subsequent TLTRO auctions will be announced.
Cash Reserve Ratio (CRR) (Will release primary liquidity of about Rs. 1370 billion)
  1. One time measure to reduce the CRR of all banks by 100 basis points to 3.0% of net demand and time liabilities (NDTL) from 4.0% with effect from the reporting fortnight beginning 28th March 2020. This dispensation will be available for a period of one year ending on 26th March 2021;
  2. Reduce the requirement of minimum daily CRR balance maintenance to 80% from 90% effective from the first day of the reporting fortnight beginning 28th March 2020. This is a one-time dispensation available up to 26th June 2020.
Marginal Standing Facility (MSF) (Provide additional Rs.  1370 billion of liquidity under LAF window)
  1. To increase the limit of MSF to 3% from 2% of SLR with immediate effect to widen the existing policy rate corridor from 50 bps to 65 bps. This measure will be applicable up to 30th June 2020.
Widening of the Monetary Policy Rate Corridor
  1. To widen the existing policy rate corridor from 50 bps to 65 bps;
  2. The reverse repo rate under the liquidity adjustment facility (LAF) would be 40 bps lower than the policy repo rate as against 65 bps earlier;
  3. The MSF rate would continue to be 25 bps above the policy repo rate.

B. REGULATION AND SUPERVISION

Moratorium on Term Loan (The same is not mandatory)

 

  1. All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (hereinafter referred as “Lending institutions”) are being permitted to allow a moratorium of 3 months (this is not a waiver) on payment of instalments in respect of all term loans outstanding as on 01st March 2020;
  2. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by 3 months;
  3. RBI further clarified that financial institutions can allow 3 month moratorium on repayment of credit card dues for instalments falling due from March 1, 2020 to May 31, 2020.
Deferment of Interest on Working Capital facilities

 

  1. Lending institutions are being permitted to allow a deferment of 3 months on payment of interest in respect of all such facilities outstanding as on 01st March 2020;
  2. The accumulated interest for the period will be paid after the expiry of the deferment period;
  3. The same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.
Easing of Working Capital Financing
  1. Lending institutions may recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers;
  2. Such changes in credit terms permitted to the borrowers to specifically tide over the economic fallout from COVID-19 will not be treated as concessions granted due to financial difficulties of the borrower, and consequently, will not result in asset classification downgrade.
Defer Net Stable Funding Ratio (NSFR)
  1. Defer the implementation of NSFR by 6 months from 01st April 2020 to 01st October 2020
Deferment of Last Tranche of Capital Conversation Buffer (CCB)
  1. To defer the implementation of the last tranche of 0.625% of the CCB from 31st March 2020 to 30th September 2020;
  2. Consequently, the pre-specified trigger for loss absorption through conversion/write-down of Additional Tier 1 instruments (PNCPS and PDI) shall remain at 5.5 % of risk-weighted assets (RWAs) and will rise to 6.125 per cent of RWAs on 30th September 2020.

 C. FINANCIAL MARKETS

Permitting Banks to Deal in Offshore NDF Rupee Market
  1. To permit banks in India which operate International Financial Services Centre (IFSC) Banking Units (IBUs) to participate in the Non-Deliverable Forward (NDF) market with effect from 01st June 2020.
DISCLAIMER:
The information contained herein is in summary form based on Press release(s) dated 27th March 2020 issued by RBI. The said information should be read with Press Release(s) and directions issued and to be issued by RBI giving effect to above decisions. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. We accept no responsibility for any errors it may contain or for any loss, howsoever caused or sustained, by the person who relies on it.
 
Posted in Finance Budget |

Note on Changes made in Finance Act, 2020 as compared to Finance Bill, 2020

A. Amendments to Sec.206C (Tax collection at Source) regarding LRS, Tour Package and Sale of goods

In the Finance Bill, 2020 it was proposed to insert sub-section (1G) to section 206C of the Act to provide for collection of tax from a person purchasing overseas tour package or making foreign remittance exceeding Rs. 7 lakh during a financial year. Further, sub-section (1H) was also proposed to be inserted in section 206C to provide for TCS on sale of goods exceeding Rs. 50 lakh to a buyer in a financial year by seller having turnover of more than Rs. 10 crores in the preceding financial year. Now in the Finance Act 2020 as enacted, the above provisions are inserted with following changes vis-à-vis Finance Bill 2020:

  • The insertion of sub-sections (1G) and (1H) in said section 206C shall be effective from 1st October, 2020 [as against 01st April 2020 as proposed in Finance Bill 2020];
  • It is provided that Board may be authorised to issue guidelines for the purpose of removing difficulty arising regarding interpretation or implantation of these provisions and such guidelines shall be laid before Parliament and shall be binding on income tax authorities and person liable to collect sum.
  • It is also provided that in case the amount remitted is for the purpose of pursuing education through a loan obtained from any financial institution, as defined in section 80E of the Income-tax Act, for the purpose of pursuing any education, the rate of TCS shall be 0.5% of amount exceeding Rs. 7 lakh in a financial year.
  • The threshold limit for non-collection of TCS of Rs. 7 lakh on LRS would apply only for remittance other than for purchase of overseas tour package so as to have a level playing field between domestic and overseas tour operators. Further in cases where the threshold of 7 lakh applies, the TCS would be on the amount exceeding 7 lakh in a financial year.
  • There would be no double collection of TCS under the two provisions (LRS and overseas tour package).
  • The import of goods and export of goods shall be excluded from levy of TCS under said provisions.
  • The provision of TCS on sale of goods would not be applicable if the buyer of goods is liable for deduction of TDS on purchase of goods from seller and he has deducted such amount.

B. Changes in Provisions relating to Residential Status

  • Amendment in Section 6 for substituting 120 days with 182 days if total income exceeds Rs. 15 lakhs

The Finance Bill, 2020 proposed an amendment to the Explanation 1(b) that the concession in the period of stay in India, for an Indian citizen and PIO, shall be reduced from 182 days to 120 days.

However, the Finance Act, 2020 has provided that the new threshold of 120 days or more (instead of 182 days or more) shall only be applicable to Indian Citizen / Person of Indian origin (PIO) having total income other than income from foreign sources exceeding Rs. 15 lakhs during the previous year.

Accordingly, Indian Citizen / PIO having total income other than income from foreign sources less than Rs. 15 lakhs during previous year shall continue to be governed by the old threshold of 182 days or more (and the condition of being in India for 365 days or more within 4 preceding years) for becoming a resident in India shall continue to apply.

  • Provision of ‘Deemed Resident’ applicable if total income exceeds Rs. 15 lakhs

 The Finance Bill, 2020 proposed to insert a new clause (1A) to section 6 of the Income-tax Act to provide that an Indian citizen shall be deemed to be resident in India if he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature. However, Finance Act, 2020 has made amendment in section 6(1A) that an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year 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.

  • Amendment in provision of section 6(6) which defines Resident but Not ordinary Resident ( RNOR)

 As per Section 6(6) of the Act, a resident individual or HUF is deemed as Resident but Not Ordinarily Resident in India, if he satisfies any of the following conditions:

a). Individual or Karta of HUF been a non-resident in 9 out of 10 preceding years; or

b). Stay of individual or Karta of HUF in India for 729 days or less in preceding 7 years.

The Finance Bill, 2020 proposed amendment in these conditions by providing the following:

  1. An Individual/HUF shall be deemed to be Resident but Not Ordinarily Resident if he/Karta of HUF has been a non-resident in any 7 out of the 10 immediately preceding years;
  2. The second condition related to stay of individual or Karta of HUF in India for 729 days or less in preceding 7 years was proposed to be removed.

This proposed amendment has been withdrawn by the Finance Act, 2020. Therefore, the existing conditions as contained under section 6(6) of the Income-tax Act (mentioned in Point a & b above) shall continue. However, the Finance Act, 2020 has inserted the following two more situations wherein a person resident in India is deemed to be ‘Not Ordinarily Resident’ in India:

a). An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;

b). An Indian Citizen who is deemed to be resident in India as per new Section 6(1A)

For the above provisions, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

C. Enlarging scope of Equalisation levy to e-commerce supply or services (This amendment was not proposed in Finance Bill, 2020)

The scope of equalisation levy which till now was applicable only on advertisement services provided by non-resident @6% is enlarged by Finance Act 2020. The scope of this levy is now extended to consideration received or receivable by a non-resident e-commerce operator from e-commerce supply or services made or facilitated by it to:

        i) a person resident in India; or

       ii) a person using IP address in India; or

       iii) a non-resident in certain specified circumstances.

The rate of such levy will be 2% and will be applicable on and from 1st April 2020. Consequential amendment is done in Sec. 10(50) to provide that income arising from e-commerce supply or services chargeable to Equalisation levy would be exempt.

The equalisation levy shall not be charged in the following cases:

  • where the e-commerce operator has a permanent establishment in India and e-commerce supply or services is effectively connected with such permanent establishment;
  • where the equalisation levy is leviable under section 165; or
  • Sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 crore during the previous year.

Every e-commerce operator will be required to make Equalization levy payments quarterly as mentioned below:

Quarter Ending Due date
30th June 07th July
30th September 07th October
31st December 07th January
31st March 31st March

D. Dividend received on or after 01-04-2020 shall not be taxable if DDT is already paid by the Company

Finance Act, 2020 has made suitable amendments in Section 10(34) to provide that if a company has paid DDT u/s 115-O of the Act on amount of dividend before 01st April 2020, then the said amount of such dividend received on or after 01st April 2020 will be exempt in the hands of shareholder u/s 10(34) of the Act.

E. Amendment in Section 194-O (TDS on E-commerce transactions)

Finance Bill 2020, proposed to insert a new section Sec.194-O to levy TDS of 1% on e-commerce transactions requiring an ecommerce operator to deduct tax at the time of credit of sale/service amount to the account of e-commerce participant or at the time of payment thereof by any mode, whichever is earlier. In the Finance Act, 2020, sub sections (4), (5) & (6) have been inserted in Section 194-O which were not there in the Finance Bill, 2020 which provides for

a). Empowering the Board to issue Guidelines, with the approval of the Central Government, to remove difficulties that arise in giving effect to the provisions of Sec.194-O. The Guidelines shall be laid before the House of Parliament and be binding on the IT Authorities and e-commerce operator;

b). Sub-sec. (6) deems e-commerce operator to be the person responsible for paying to e-commerce participant;

c). Definition of e-commerce operator is amended to remove the words “and is responsible for paying to e-commerce participant” and to limit the definition to “a person who owns, operates or manages digital or electronic facility or platform for electronic commerce”.

d). The Section 194-O of the Act shall be effective from 1st October 2020.

F. Amendment to Part II of the First Schedule to the Bill [i.e. TDS rates]

This part seeks to provide rates of TDS for financial year 2020-21 in certain cases. Following are changes made in Finance Act, 2020 vis-à-vis Finance Bill, 2020:

i). The rate of TDS on dividend income in respect of non-resident (Indian or any other person or a company other than a domestic company) shall be 20 %.

ii). For the purposes of the rate of surcharge of 10 % and 15 % of the TDS under the said Part, the dividend income shall also be included whereas for the purposes of surcharge at 25 % and 37 %, the dividend income shall be excluded. It means that higher rate of surcharge of 25% and 37% shall not apply to dividend income.

iii). In case where the total income includes dividend income, the rate of surcharge on the amount of Income-tax deducted in respect of that part of income shall not exceed 15 %.

G. Amendment to Section 115BAC (Alternate Tax Regime for Individuals/HUF)

Finance Act, 2020 has included income from profession [as against only income from business specified earlier in Finance Bill, 2020] under the restriction specified for exercising optional personal tax regime for individual & HUF under newly inserted Sec 115BAC. It states that concessional rate shall not apply unless option is exercised by the individual or HUF in the form and manner as may be prescribed –

  • Where such individual or HUF has income from business or profession, on or before the due date specified u/s 139(1) for furnishing tax return for any previous year relevant to AY commencing on/after 01st April 2021 and such option once exercised shall apply to subsequent AYs;
  • Where such individual or HUF has income other than income referred to in (i) above, along with tax return to be furnished u/s 139(1) for a previous year relevant to the AY

H. Amendment in Section 80M (Related to deduction of inter-corporate dividend)

The Finance Act, 2020 expanded the scope of deduction available under Section 80M to include the dividend received from a foreign company and business trust. Thus, a domestic company can claim deduction under section 80M even in those cases where dividend received from a foreign company or business trust is further distributed to shareholders within one month before the due date of filing of return.

I. Amendment in Section 194A (TDS on Interest other than Interest on Securities)

Sec 194A(3)(iii)(f) specifies that TDS on interest under than ‘interest on securities’ shall not apply to income credited inter alia to such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

Finance Act, 2020 now added a proviso to clarify that no notification under this sub-clause shall be issued on/after April 1, 2020. Instead, inserted a new sub-section 194A(5) to provide that “The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification.”

J. Amendment in Section 194J (TDS on Fee for Professional or technical services)

Finance Act, 2020 has extended lower TDS rate of 2% u/s 194J to royalty [where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films] in addition to such favourable rate on fees for technical services [other than professional fees] as originally proposed in Finance Bill.

K. Amendment in Section 194K – Income on MF Units

TDS u/s 194K [on any income in respect of units of a Mutual Fund specified u/s 10(23D) or units from the administrator of the specified undertaking or units from the specified company] shall inter alia not apply if the income is in the nature of capital gains.

L. Amendment in Section 194LBA (TDS on income from units of business trust)

TDS u/s 194LBA by business trust on dividend income paid to unit holder shall not apply in respect of income of the nature referred to in Sec 10(23FC)(b), if the SPV referred to in the said clause has not exercised the option u/s 115BAA.

M. Amendment in Section 194N w.e.f. 01-07-2020 (Amendment to this section was not proposed in Finance Bill, 2020)

If a recipient has not filed the return of income for three AY relevant to 3 PY immediately preceding the previous year in which the payment of the sum is made to him, then the provision of said section 194N would apply so that TDS would be:

i). At 2% when the cash withdrawal in a year is more than Rs 20 lakh but does not exceed 1 crore (on amount exceeding Rs 20 lakh) and

ii). At 5% when the cash withdrawal exceed 1 crore (on amount exceeding 20 lakh).

Currently, TDS was applicable at 2% when the withdrawal exceeded Rs. 1 Cr.

The Central Government shall be empowered to notify, in consultation with RBI, the recipient in whose case the above provision shall not apply or apply with reduced rate on satisfaction of conditions specified in the notification.

N. Amendment in Section 197A (Lower rate of TDS in certain cases) (Amendment to this section was not proposed in Finance Bill, 2020)

Section 197A of the Act provides for certain cases wherein no deduction is to be made. Sub-section (1F) of the section provides that no deduction shall be made from such specified payment to such institution, association or body or class of institutions as may be notified by the Central Government in the Official Gazette.

It is now provided in Finance Act, 2020 that Central Government by way of notification may provide for non-deduction of TDS or deduction at a lower rate from such payment to such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as may be notified by the Central Government in official Gazette.

O. Amendment to Sec 10(23C) and 11

An explanation is added to clarify that income for the relevant institution shall not include voluntary contribution made with specific direction that they shall form part of corpus of fund, trust, etc.

As per Explanation 2 to Sec 11(1), any amount credited or paid, out of income referred to in clause (a) or clause (b) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes. The provision is extended to such contribution to corpus of university, educational institution, hospital, other medical institution referred in Sec 10(23C).

P. Amendments to Sec 10(23FE) regarding Exemption of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and Sovereign Wealth Fund.

Following changes have been made in Section 10(23FE) in Finance Act, 2020 vis-à-vis Finance Bill, 2020:

  • Exemption for dividend/LTCG/ interest arising from an investment made by it in India, whether in the form of debt or equity subject to specified condition. As per Finance Act, 2020, the investment can be in share capital or unit as against earlier term used as equity in Finance Bill, 2020.
  • Restricts exemption u/s 10(23FE) to investment made during the period from 01st April 2020 to 31st March 2024;
  • Expanding the scope of entities, investment in which would qualify for exemption. Thus, exemption would also be available to investment made in business trust as specified in Sec 2(13A)(i) or category I or II Alternative investment Fund regulated by SEBI having 100% investment in the specified companies (carrying out activities as specified under clause (b)).

Further the amendment also authorizes CBDT to issue guidelines for interpretation of the above eligibility clause which have to be laid before the Parliament.

The amendment further provides that if a person avails exemption and subsequently, it fails to satisfy any condition for exemption, then the said income for which the exemption is claimed would be taxable in the year in which such failure takes place.

As per amended provision, the eligible entities would also include specified pension funds in addition to wholly owned subsidiary of Abu Dhabi Investment authority and a sovereign wealth fund.

For details of the provisions, please refer the link below of The Finance Act, 2020 as passed by Parliament and as approved by Hon’ble President of India:

https://www.incometaxindia.gov.in/news/finance-act-2020.pdf

For Brief summary of Finance Bill, 2020 as presented by Hon’ble Finance Minister of India on 01.02.2020, please refer the link below:

https://www.dpncindia.com/blog/wp-content/uploads/2020/02/Union-Budget-2020-21-A-Snapshot.pdf

 

DISCLAIMER

This document has been prepared in summary form by Dewan P. N. Chopra & Co. from sources believed to be reliable based on Finance Bill, 2020 and Finance Act, 2020 as approved by Hon’ble President of India on 27th March 2020. For further details, please refer Finance Act 2020 as passed by Parliament and approved by President of India and related Explanatory Memorandum. The information contained herein is intended only for the person to whom it is sent. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. Recipients should conduct and rely upon their own examination, investigation and analysis and are advised to seek their own professional advice. The information and data contained herein is not a substitute for the recipient’s independent evaluation and analysis. This document is not an offer, invitation, advice or solicitation of any kind. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.

Posted in Direct Tax |

The Impact of COVID-19 on Financial Reporting

The coronavirus outbreak (COVID-19) has significantly impacted several business across the world due to business shutdowns and obstructed the smooth functioning of business operations by interruptions of production, supply chain disruption, reduction in sales and profitability, unavailability of personnel, etc. Auditors are of the view that companies may have to reflect the impact of COVID-19 in their financial statements.

Auditors are awaiting guidelines from the Institute of Chartered Accounts of India (ICAI) and other regulatory authorities, otherwise they will have to take a call if a company’s loss or dip in profits is due to the COVID-19 outbreak.

Some of the issues companies could face during the COVID-19 outbreak include:

Following items to be considered by Companies to evaluate the impact of COVID-19 on financial reporting:

  1. Disclosure requirements regarding business risks related to the impacts of COVID-19 as recommended by the regulatory authorities
  2. Companies should consider whether economic uncertainties and market volatility have or will affect accounting conclusions and evaluate effects of adjusting events, if any.
  3. Effects on Internal Control over Financial reporting as new IT Controls have been built up. For example remote work access to employees, maintenance of confidentiality of information, etc.
  4. Companies with significant overseas operations may encounter delays in receiving financial data for Consolidated Financial results.

Current reporting period is January-March 2020 for most companies in India, they may have to declare the impact of COVID-19 disruption in its financials.

Further, audit firms say that if there is a significant impact on a company’s economic activities and financial statements due to COVID-19, then an assessment must be conducted to check if the entity can continue as a going concern.

Experts say that since there is no understanding of how long the pandemic and its resultant impact on businesses will last. Therefore, auditors will have to exercise their judgment while working on financial statements and audits during this time.

 

Disclaimer:

The information contained herein is in summary form and is based on information available in public domain. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. This document is not an offer, invitation, advice or solicitation of any kind. We accept no responsibility for any errors it may contain or for any loss, howsoever caused or sustained, by the person who relies on it.

 

Posted in Audit & Assurance |

Some Due Dates Not Extended & Some Relaxation Not Granted vide Press Release dated 24.03.2020

Some due dates that do not appear to be extended and some relaxations that do not appear to have been granted by Ministry of Finance vide Press Release Dated 24-03-2020 have been summarized in the attached pdf.

Points Not covered in Press Release dated 24-03-2020

Posted in Direct Tax, GST, Regulatory |