SNR – GST Update                                                                                                                                                                                 2023-24/06

The 52nd GST Council meeting under the Chairpersonship of Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman was held on 7th October 2023 at New Delhi. Council has made following recommendations pertaining to rate
changes, trade facilitation measures etc.:

A. Changes in GST rates of Goods and Services

a) Food preparation of millet flour in powder form, containing at least 70% millets by weight”, falling under HS 1901

• 0% :- If sold in other than pre-packaged and labelled form
• 5% :- If sold in pre-packaged and labelled form

b) Clarification on Imitation zari thread or yarn made out of metallised polyester film /plastic film, falling under HS 5605:

• Covered by the entry for imitation zari thread or yarn attracting 5% GST rate. However, no refund will be allowed on polyester film (metallised) /plastic film on account of inversion of tax

c) Foreign-going vessels are liable to pay 5% IGST on the value of the vessel if it converts to coastal Run

• Conditional IGST exemption to foreign flag foreign going vessel when it converts to coastal run subject to its reconversion to foreign going vessel in six months

d) Entries at Sl. No. 3 and 3A of notification No. 12/2017-CTR dated 28.06.2017 exempts pure and composite services provided to Central/State/UT governments and local authorities in relation to any function entrusted to Panchayat/ Municipality under Article 243G and 243W of the Constitution of India.

• To exempt services of water supply, public health, sanitation conservancy, solid waste management and slum improvement and upgradation supplied to Governmental Authorities

e) Extra Neutral Alcohol (ENA) used for manufacture of alcoholic liquor for human consumption would be kept outside GST.
f) To reduce GST on molasses from 28% to 5%.
g) To cover rectified spirit for industrial use through a new entry attracting 18% GST.

B. Other GST related Changes/ clarifications

• Clarification shall be issued that job work services for processing of barley into malt attracts GST @ 5% as applicable to “job work in relation to food and food products” and not 18%.
• Bus operators organised as companies to be excluded from the purview of section 9(5).
• To clarify that District Mineral Foundations Trusts (DMFT) set up by the State Governments across the country in mineral mining areas are Governmental Authorities and thus eligible for the same exemptions from GST as available to
  any other Governmental Authority.
• Supply of all goods and services by Indian Railways shall be taxed under Forward Charge Mechanism

C. Trade Facilitation Measures

Amnesty Scheme for filing of appeals : Appeals against demand orders issued on or before 31st March 2023 where appeal could not be filed within the allowable time period, can be filed upto 31st January 2024, subject to the condition of payment of an amount of pre-deposit of 12.5% of the tax under dispute, out of which at least 20% (i.e. 2.5% of the tax under dispute) should be debited from Electronic Cash Ledger.

read more…..

SNR – GST Update                                                                                                                                                                     Issue: 05/2023-24

The 51st GST Council meeting under the Chairpersonship of Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman was held through video conferencing on 2nd August 2023. The council deliberated upon specific issues pertaining to taxation of supplies in casinos, horse racing and online gaming. Council in its 50th meeting held on 11th July 2023 has recommended that the actionable claims supplied in Casinos, Horse racing and Online gaming may be taxed at the
rate of 28% on full face value, irrespective of whether the activities are a game of skill or chance. Subsequently, post representations from industry, the 51st GST Council has announced the following recommendations:

• Amendment in Entry 6 of Schedule III of CGST Act, 2017 to tax casinos, horse racing, and online gaming along with lottery, betting, and gambling.
• Specific provisions for the valuation of the supply of online gaming and actionable claims in casinos shall be inserted in the CGST Rules, 2017.
• Valuation of supply of online gaming and actionable claims in the casino shall be at entry level based on the amount paid or payable to or deposited with the supplier by or on behalf of the player.
• Amount entered into games/bets out of winnings of previous games and bets would be excluded.
• Earlier recommendation to tax each bet placed / game played in the case of online gaming is dropped.
• Insertion of a special provision in the IGST Act, 2017 to provide for liability of payment of GST on supply of online money gaming and simplified registration scheme by off-shore suppliers, in addition to the existing OIDAR regulations.
• The Council aims to bring the amendments into force from 1 October 2023.

Further clarity was provided during press conference held post council meeting with following important announcements:

read more….

SNR – GST Update                                                                                                                                                                    Issue: 04/2023-24

In line with the recommendations of the GST Council in its 50th meeting, the Central Board of Indirect Taxes & Customs (CBIC) issued two circulars on 1st August 2023 providing clarifications on issues relating classification of certain goods and services. Aforesaid circulars have been summarized in this Update…..read more

 SNR – GST Update                                                                                                                                                                   Issue: 03/2023-24

In line with the recommendations of the GST Council in its 50th meeting, the Central Board of Indirect Taxes & Customs (CBIC) issued multiple circulars on 17th July 2023 providing clarifications on various issues ranging from Cross Charge Vs ISD, Interest on wrong availment ofIGST credit, GSTR-2A/ GSTR-3B ITC differences for 1st April 2019 to 31st December 2021, Taxability of warranty replacement etc. Aforesaid circulars have been summarized in this Update…..read more

SNR – GST UPDATE                                                                                                                                                                    Issue: 02/2023-24

The 50th GST Council meeting under the Chairpersonship of Union Minister for Finance Smt. Nirmala Sitharaman
was held in New Delhi on 11th July 2023. The council deliberated upon various issues under GST and made
recommendations thereon. The council recommended several measures for streamlining compliances in GST
apart from recommending the issuance of various circulars/ clarifications on multiple issues being faced by the industry.

1. Recommendations relating to GST rates on goods and services:

• GST rate on uncooked/unfried snack pellets, by whatever name called, to be reduced from 18% to 5%.

• IGST waived off on Dinutuximab (Quarziba) medicine if imported for personal use.

• No IGST to be applicable on medicines & Food for Special Medical Purposes (FSMP) used in the treatment
of rare diseases enlisted under the National Policy for Rare Diseases, 2021 when imported for personal
use subject to conditions.

• To clarify that RCM is applicable on supply of raw cotton, including kala cotton, by agriculturists to
cooperatives and to regularize past period.

• GST rate on imitation zari thread or yarn reduced from 12% to 5%.

• Compensation cess of 20% proposed on all utility vehicles of Length exceeding 4000 mm, Engine capacity
exceeding 1500 cc and having Ground Clearance of 170 mm.

• GST rate on LD slag to be reduced from 18% to 5% to encourage better utilisation of this product and for
protection of environment.

• GST rate on fish soluble paste shall be reduced from 18% to 5%.

• GST on services by way of satellite launch by organizations in private sector not be applied to place these
organizations on same footing as ISRO, Antrix Corporation limited and NSIL.

• Amendments to be made to GST law to include online gaming and horse racing in schedule III as taxable
actionable claims. As such all three namely, Casino, Horse Racing and Online gaming to be taxed at the
uniform rate of 28%. Tax will be applicable on

i) the face value of the chips purchased in the case of casinos.
ii) the full value of the bets placed with bookmaker/totalisator in the case of Horse Racing.
iii) the full value of the bets placed in case of the Online Gaming.

2. Other significant changes relating to GST rates/ taxability of Goods/ services

• No RCM on services in personal capacity by Director:

Services supplied by a director of a company in personal or private capacity to a company shall not be taxable under RCM. However, services provided in the capacity of a director shall continue to be chargeable under RCM and company will be liable to pay tax on same under Notification No. 13/2017-CTR.

• Food and Beverages in cinema halls:

Cinema halls provides supply of foods and beverages in two ways:

i) Food and beverages are supplied by way of or as a part of a cinema exhibition services.
ii) It is supplied independent of cinema exhibition services.

However, when supply of food and beverage is clubbed with cinema exhibition services and are bundled
together then such supply would be treated as a composite supply wherein cinema exhibition supply
shall be principal supply. In all other cases, supply of food and beverages will be taxable as restaurant
services.

• No declaration to pay GST under forward charge by GTA:

If GTAs have exercised the option to pay tax under forward charge for a particular year then it will not
be required to file declaration for same every year. They shall be deemed to have exercised it for the
next and future financial years unless they file a declaration that they want to revert to reverse charge
mechanism (RCM).

3. Recommendations relating to GST law and procedure:

The GST Council has inter-alia made the following recommendations relating to GST law and procedure:

A. Measures for Trade Facilitation includes:

• Goods and Services Tax Appellate Tribunal: The Council recommended that provisions of Finance Act,
2023 pertaining to GST Appellate Tribunal may be notified by the Centre with effect from 01.08.2023
and council also recommended the Rules governing appointment and conditions of President and
Members of the proposed GST Appellate Tribunal for enabling smooth constitution and functioning of
GST Appellate Tribunal

• Threshold for filing Annual Returns for FY 2022-23: Exemption from filing of annual return (in FORM
GSTR-9/9A) for taxpayers having aggregate annual turnover up to ₹ 2 crore, to be continued for FY 2022-
23 also. Further, council recommended that the relaxations provided in FY 2021-22 in respect of various
tables of FORM GSTR-9 and FORM GSTR-9C be continued for FY 2022-23.

• ISD mechanism to be made mandatory: The Council has recommended for amendments to be made in
GST law to make Input service distribution (ISD) mechanism mandatory prospectively for distribution of
input tax credit of such common input services procured from third parties. Further, council
recommended to clarify through a circular that ISD mechanism is not mandatory for distribution of input
tax credit of common input services procured from third parties to the distinct persons as per the present
provisions of GST law

• Extension of Amnesty scheme: Amnesty scheme was notified on 31.03.2023 to reduce/waive off penalty
for non-filing of regarding FORM GSTR-4, FORM GSTR-9 & FORM GSTR-10 returns, revocation of
cancellation of registration and deemed withdrawal of assessment orders issued under Section 62 of
CGST Act, 2017. The GST council recommended extending the amnesty scheme till 31st August 2023.

• Recommendations regarding filing of Returns:
i) Amendment to Rule 108(1) and rule 109(1) of CGST Rules, 2017 to provide for manual filing of appeal under certain specified circumstances.

ii) To extend the due dates for filing of FORM GSTR-1, FORM GSTR-3B and FORM GSTR-7 for the months of April, May, and June 2023 for the registered persons of State of Manipur till 31-07-2023 in view of law-and-order situation in state of Manipur.

• Council recommended issue of circular to clarify following issues:
i) To clarify that refund of accumulated input tax credit (ITC) under Section 54(3) of CGST Act, 2017 for a tax period to be restricted to ITC on inward supplies reflected in FORM GSTR-2B of the said tax period or any previous tax period as a result of amendment in rule 36(4) of CGST Rules 2017.
ii) To provide clarity regarding applicability of TCS and TCS liability u/s 52 of the CGST Act in cases where multiple E-commerce Operators (ECOs) are involved in a single transaction of supply of goods or services or both.

iii) To provide clarity on various issues of GST liability as well as the liability to reverse input tax credit in cases involving warranty replacement of parts and repair services during warranty period without any consideration from the customers and also clarifying that no GST is chargeable by the manufacturer on such replacement of parts and/ or repair service and also,
no reversal of input tax credit is required to be made by the manufacturer.

iv) To provide for the procedure for verification of input tax credit in cases involving differences in Input Tax Credit availed in FORM GSTR-3B vis a vis that available as per FORM GSTR-2A for FY 19-20 and 20-21 as provided via circular No. 183/15/2022-GST dt 27/12/2022 for FY 2017-18 and 18-19.

B. Measures for streamlining compliances includes:

• The Council has recommended inserting rule 138F in CGST Rules, 2017 to mandate the requirement of generation of e-way bills for intra-State movement of gold and precious stones under Chapter 71 within their States.

• Procedure for Recovery of Tax and Interest in terms of Rule 88C(3): The Council has recommended insertion of Rule 142B in the CGST Rules, 2017 and insertion of a FORM GST DRC-01D to provide for manner of recovery of the tax and interest in respect of the amount intimated under rule 88C which has not been paid and for which no satisfactory explanation has been furnished by the registered person.

• System based intimation for differences in ITC: The Council has recommended a mechanism for systembased intimation to the taxpayers in respect of the excess availment of ITC in FORM GSTR-3B vis a vis that made available in FORM GSTR-2B above a certain threshold, along with the procedure of autocompliance on the part of the taxpayers, to explain the reasons for the said difference or take remedial action in respect of such difference. For this purpose, rule 88D and FORM DRC-01C to be inserted in CGST Rules, 2017, along with an amendment in rule 59(6) of CGST Rules, 2017.

• If any registered taxpayers fail to furnish Annual Return in FORM GSTR-9 or FORM GSTR-9A by due date, GST council recommends to amend Form GSTR-3A to to provide for issuance of notice to the taxpayer.

• Council recommends to amend Rule 64 and FORM GSTR-5A of CGST Rules, to require OIDAR service providers to provide the details of supplies made to registered persons in India in his return in FORM GSTR-5A. This will help in tracking due payment of tax on reverse charge basis by such registered persons in India in respect of supplies received from OIDAR service providers.

• The Council has recommended insertion of a clause (ca) in sub-section (1) of section 10 of the IGST Act, 2017 to clarify the place of supply in respect of supply of goods to unregistered person.

• Council recommends following amendment in CGST Rules, 2017 to strengthen registration process:

i) Amendment in rule 10A to provide that the details of bank account, in name and PAN of the registered person, to be required to be furnished within 30 days of grant of registration or before filing of statement of outwards supply under section 37 of CGST Act in FORM GSTR-1/ IFF, whichever is earlier.

ii) Amendment in rule 21A(2A) to provide for system-based suspension of the registration in respect of such registered persons who do not furnish the details of valid bank account under rule 10A with the time period prescribed under the said rule.

iii) Insertion of 3 proviso in rule 21A(4) to provide for automatic revocation of such system based suspension upon compliance with provisions of rule 10A.

iv) Amendment in rule 59(6) to provide that where a registered person has not furnished details of a valid bank account under rule 10A, the said registered person may not be allowed to furnish the details of outward supplies in FORM GSTR-1 or using IFF.

v) Amendment in rule 9 and rule 25 to do away with the requirement that the physical verification of business premises is to be conducted in the presence of the applicant and also to provide for physical verification in high risk cases even where Aadhaar has been authenticated.

06th July 2023                                                                                                                                                                      Issue: 02/2023-24

Increased TCS rates to apply from 1st October, 2023

The Budget 2023-24 amended certain provisions related to the Tax Collection at Source [TCS] on payments under the Liberalized Remittance Scheme [LRS] and on purchase of overseas tour program packages. The said amendments pertained to the increase in the rate of TCS from 5% to 20% with effect from 01st July 2023. Further, by way of amendment in Foreign Exchange Management (Current Account Transaction) Rules vide an e-gazette notification dated 16th May 2023,
the government brought the expenses incurred by International Credit Card under the ambit of LRS.

Now, considering the widespread impact of the changes and the difficulties being faced in their implementation, the government has made the following decisions:

To give adequate time to Banks and Card networks to put in place requisite ITbased solutions, the government has decided to postpone the implementation of its 16th May 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence, would not be subject to TCS until further notification.

Threshold of ₹ 7 Lakh per financial year per individual in clause (i) of section 206C(1G) shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for the first ₹ 7 Lakh
remittance under LRS there shall be no TCS. Beyond this ₹ 7 Lakh threshold, TCS shall be as follows:

A) 0.5% (if remittance is for education and is financed by an education loan);
B) 5% (if remittance is for education/medical treatment);
C) 20% for others

For the purchase of overseas tour program packages under Clause (ii) of section 206C(1G), the TCS shall continue to apply at the rate of 5% for the first ₹ 7 lakhs per individual per annum. Further, the 20% rate will only apply to expenditures above
this limit.

Increased TCS rates to apply from 1st October 2023:The increase in TCS rates which were to come into effect from 1st July 2023 shall now come into effect from 1st October 2023 with the modification as in (ii) above. Till 30th September 2023, earlier rates (prior to amendment by the Finance Act 2023) shall continue to apply.

Summary of Earlier and New TCS Rates:

SNR GST UPDATE                                                                                                                                    16th May 2023

BACKGROUND

In the National Coordination Meeting held on 24th April 2023, the need was felt of having a concerted and coordinated action on a mission mode by Central and State tax authorities to tackle the menace of fake registration and fake input tax credit in a more systematic manner. It was agreed that a nationwide effort in the form of a Special Drive should be launched to detect
such suspicious/fake registrations and to conduct requisite verification for timely remedial action to prevent any further revenue loss to the Government. Accordingly, the following guidelines are issued for such concerted action on fake dealers/ fake billers in a mission mode:

Period of Special Drive:

The Special All-India Drive against fake GST registrations may be launched by all Central and State Tax administrations during the period from 16th May 2023 to 15th July 2023.

Identification of fraudulent GSTINs & Information Sharing Mechanism:

• The GSTN will identify such fraudulent GSTINs based on detailed data analytics and risk parameters.
• The details of such identified suspicious GSTINs shall be shared by GSTN jurisdiction-wise with the concerned State/ Central Tax administration (through DGARM in case of Central Tax authorities) for initiating a verification drive and conducting necessary action subsequently.
• A nodal officer shall be appointed by each of the Zonal CGST Zone and State to ensure a seamless flow of data and for coordination with GSTN/ DGARM and other Tax administrations.

Consequences of being identified as Suspicious GSTINs:

• If, after detailed verification, it is found that the taxpayer is non-existent and fictitious, then the tax officer may immediately initiate action for suspension and cancellation of the registration of the said taxpayer in accordance with the provisions of section 29 of CGST / SGST Act, read with the rules thereof.
• Further, the matter may also be examined for blocking of input tax credit in Electronic Credit Ledger as per Rule 86A of CGST / SGST Rules without any delay.
• Additionally, the details of the recipients to whom the ITC has been passed by such nonexisting taxpayer may be identified through the details furnished in FORM GSTR-1 by the said taxpayer.
• Where the recipient GSTIN as mentioned in GSTR 1 pertains to the jurisdiction of the said tax authority itself, suitable action may be initiated for demand and recovery of the input tax credit wrongly availed by such recipient on the basis of the invoice issued by the said nonexisting supplier, without underlying supply of goods or services or both.
• In cases, where the recipient GSTIN pertains to a different tax jurisdiction, the details of the case along with the relevant documents/ evidence, may be sent to the concerned tax authority, as early as possible.
• Action may also be taken to identify the masterminds/ beneficiaries behind such fake GSTIN for further action, wherever required.
• Recovery of Government dues and/ or provisional attachment of property/ bank accounts, etc. as per provisions of section 83 of CGST / SGST Act.

Steps to be taken by taxpayers/ Registered persons:

The instructions do not contain the primary details that field officers will verify during field visits. However, based on the provisions of GST Law, the following documents shall be kept handy.

Display Registration Certificate and Number:

Rule 18(1) of the CGST/SGST Rules requires all registered taxpayers to display their registration certificate at a prominent location at their principal place of business along with every additional place of business.

Further, Rule 18(2) of the CGST/SGST Rules requires all registered taxpayers to display their GSTIN on their name board at their principal place of business along with every additional place of business.

• Make sure that apart from the Principal place of business, all additional places of business are registered with GST from where taxable goods are stored, supplied, warehoused, etc.
• Keep KYC documents of the Proprietor, directors/partners, and authorized person as well as business ready for verification along with the presence of any of them to the best extent possible.
• The documents may include:
  – Aadhaar Card
  –  PAN Card
  –  Rent Agreement
  –  Latest Electricity Bill
  –  Canceled cheque of Current Bank Account.
• Make sure that if multiple businesses are registered on the same premise the proper demarcation etc. is done to identify the area, stock, etc.
• Although the special drive focuses on the verification of the existence of persons who obtained registration and the existence of a business place, however, the taxpayers should also make sure that relevant books of account and inventory information are available.

SNR LEGAL UPDATE                                                                                                                                                      15th May 202

BACKGROUND

The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the Indian legal framework put in place to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to
implement the provisions of the Act. The PMLA impose obligation upon the reporting entities, to verify the identity of clients, maintain records and furnish information to FIU-IND and ED. The term ‘reporting entity’ has been defined in Section 2(1)(wa) of the PMLA to include banking companies, financial institutions, and intermediaries and ‘persons carrying on a designated business or profession’.

Further, section 2(1)(sa) of the PMLA defines the term ‘person carrying on designated business or profession’. As per this clause, various class of persons such as Inspector-General of Registration, real estate agent, dealer in precious metals have been included. Further, clause (vi) of Section 2(1)(sa), empowers the Central Government to designate any other person
carrying on certain activities to mean ‘person carrying on designated business or profession’ by issuing a notification to that effect

Notification dated 3rd May 2023

With the intention of strengthening the PMLA, the central government has exercised the powers given by section 2(1)(sa) and issued a notification dated 03rd May 2023 stating that the financial transactions in relation to the following activities carried out by practicing chartered accountants (‘CAs’), company secretaries (‘CSs’) and cost & works accountants (‘CWAs’) on
behalf of their clients, shall be activities for the purposes of Section 2(1)(sa):

• Buying and selling of any immovable property.
• Managing client money, securities, or other assets.
• Management of bank, savings, or securities accounts.
• Organization of contributions for the creation, operation, or management of companies.
• Creation, operation, or management of companies, limited liability partnerships, or trusts,
  and buying and selling of business entities.

Further, while defining the ‘relevant person’, the government has specifically included the firms constituted by these professionals.

Notification dated 9th May 2023

In furtherance of the earlier notification dated 3rd May 2023, the Central Government has issued another notification dated 09th May 2023 wherein the scope of activities carried out in the course of business or on behalf of or for another person has been clearly specified. Thus, the provisions of PMLA shall be attracted upon a reporting entity carrying out the following activities:

• Acting as a formation agent of Companies and LLPs;
• Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
• Providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
• Acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
• Acting as (or arranging for another person to act as) a nominee shareholder for another person.

Having said this, the notification dated 09th May 2023 has also listed certain activities that shall not be regarded as activities for the purpose of section 2(1)(sa). They are as follows:

• Any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act; or
• Any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
• Any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under section 7(1)(b) of the Companies Act, 2013; or
• Any activity of a person which falls within the meaning of an intermediary as defined in section 2(1)(n) of the Prevention of Money-laundering Act, 2002 (15 of 2003).

Rationale for changes

It seems that these changes have been made in response to various Chinese companies being formed with Indian directors/ shareholders defeating the restriction imposed by the Indian Government of getting prior approval. Some accounting and secretarial professionals assisted in setting up these companies. These professionals used their office addresses to register these shell companies and even became directors, with some having operational authority to operate their bank accounts.

To prevent such scams, CA, CS, and CWA are now required to perform due diligence on their clients’ ownership, financial status, and source of funds, as well as document the transaction’s purpose.

The change in PMLA law also assumes significance ahead of the proposed assessment of India under the Financial Action Task Force (FATF) expected to be undertaken later this year. The FATF is the global money laundering and terrorist financing watchdog. India’s possible onsite assessment is slated for November, while the assessment is likely to come up for discussion in the plenary discussion in June next year.

Repercussions

As per Chapter IV of the PMLA read with the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, now these professionals are required to comply with the following obligations:

• Verification of their client’s identity as well as their beneficial owners.
• Maintain records of all transactions in the prescribed manner for a period of 5 years from the date of the transaction
• Maintain record of documents evidencing their client’s identity as well as the identity of their beneficial owners and also keep account files and business correspondence relating to the clients, for up to 5 years after the termination of business relationship with the client.
• Carry out enhanced due diligence for certain specified transactions as per Section 12AA.
• Provide access to the records maintained to the Enforcement Directorate (‘ED’).

SNR Income Tax Update

Issue: 01/2023-24

The Union Budget for 2023-24 received the assent of the President of India on 31 st March 2023. While most of the changes proposed in the finance bill laid before the parliament on 01st Feb 2023 have been accepted, a total of 64 additional amendments to the initially proposed Finance Bill on 01st February 2023 also formed part of the bill that was passed in the parliament and laid before the President for final assent. Out of these 64 amendments, one of the key amendments impacting non-residents/ foreign companies (not having a permanent establishment in India) is the doubling of withholding tax rate on royalties and fees for technical services (‘FTS’) from the existing 10% to 20%, plus surcharge and cess.

It is an accepted fact that Indian multinationals import technology and high-end services from foreign jurisdictions and pay royalties and FTS for the use of technologies. Section 115A provides a non-obstante clause by which the Income of
the nature of royalty and FTS is considered to have arisen in India even if the Foreign Company or a non-resident does not have any place of business in India. Thus, section 115A gives paramount importance to the source rule of taxes. By virtue of this, withholding tax obligations arise in the hands of the Indian payer while remitting any sums which qualify as royalty or FTS. At the same time, it must also be noted that the non-residents/foreign companies do have the option to be taxed either as per the provisions of the Double Tax Avoidance Treaty (‘DTAA’) entered into between India and the country of residence of the non-resident/ foreign company or the Income-tax Act, whichever is more beneficial for them.

Upto 31 st March 2023, section 115A provided that tax at the rate of 10% shall be levied on royalty and FTS received by Foreign Companies from India. This rate was in line with the rate prescribed by most of the Tax Treaties. Now with the increase in the domestic withholding tax rate to 20% (plus surcharge and cess), there will be an additional tax burden on non-residents/ foreign companies from countries where the DTAA rate is higher than 10%.

In addition to this, with the increase in tax rates as per the Indian Income Tax Act, non-residents/ foreign companies willing to be taxed at lower tax rate by availing the benefits of DTAA shall have to undertake additional compliances that shall
include but not limited to the following:

• Obtaining a Permanent Account Number (PAN) in India.
• Obtaining a TRC from their resident jurisdictional authorities.
• Furnishing Form 10F electronically. (Appendix-I).
• Filing an Income Tax Returns in India.
• Issuing a ‘No Permanent Establishment’ declaration to the Indian entity (Appendix-II).

Thus, this increase in tax rates shall have an impact on the non-residents/ foreign companies governed by DTAAs prescribing a rate higher than 10% as well as those non-residents/ foreign companies located in tax jurisdiction with which India does not have a tax treaty……..Read more

SNR – Income Tax Update

Income Tax/2020-21/09

As you are already aware, sub-section (1H) has been inserted in Section 206C by Finance Act, 2020 for
collection of TCS by the seller on sale of any goods. Though collection of TCS on sale of certain goods was
already covered under different sub-sections of Section 206C, however all the remaining goods, which were
not so covered under other provisions of section 206C, have now been brought under the ambit of TCS by
inserting sub-section (1H) in Section 206C.

The provisions of sub-section (1H) of section 206C that has been made effective from 1^st October 2020 are reproduced below for ready reference:

• A Seller of Goods is liable to collect TCS from Buyer on Sale of any goods;
• Turnover of seller is more than ₹ 10 Crores in preceding financial year;
• TCS to be collected if the Value/Aggregate Value received for Goods from a buyer is more than ₹ 50 Lakhs in a financial year;
• TCS to be collected on [ Total Sale Value received – ₹ 50 Lakhs];
• Rate of TCS is 1%, if PAN of buyer is available [1% if PAN not Available].

Considering the doubts being raised by trade & industry in relation to interpretation and compliance of the newly introduced provisions, Central Board of Direct Taxes [CBDT] has come up with a slew of clarifications by way of Circular 17/2020 dated 29^th September 2020 and press release dated 30^th September 2020.

We have earlier issued a comprehensive document providing a detailed checklist for readiness to cope with the new compliance obligations and detailed FAQs to dispel any doubts regarding the interpretation and implementation of the same. Through this document, we have updated the FAQs taking into consideration clarifications issued by CBDT.

FAQs:

1. What is the meaning of Seller under the provisions of section 206C(1H)?
Here, Seller means a person whose Total Sales, Turnover, Gross Receipts from the business being carried
out by him in preceding Financial Year exceeds ₹ 10 Crores.
The term turnover has not been specifically defined in the sub-section. In the “Guidance Note on Terms
used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as:
“The aggregate amount for which sales are affected or services rendered by an enterprise.
In the statement issued by ICAI on the CARO the word ‘turnover’ has been defined as under- “The term
‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which
sales are effected or services rendered by an enterprises”.

2. Whether sales consideration includes GST component?
Clarification provided by CBDT on 29th September 2020 states that “it is hereby clarified that no
adjustment on account of sale return or discount or indirect taxes including GST is required to be made
for collection of tax under sub section (1H) of section 206C of the Act since the collection is made with
reference to receipt of amount of sale consideration.” Thus, the intent is to have the TCS on sales
consideration collected including GST.

3. Whether TCS to be collected on total sales value to the buyer to whom sales in excess of ₹ 50 Lakhs has
been made or only to the amount in excess of ₹ 50 Lakhs?
Section 206C(1H) envisages that TCS at the rate of 0.10% of the sale consideration received in excess of ₹
50 Lakhs shall be collected by the seller. As such, TCS shall be collected on Total Sale Value received less
₹ 50 lakh.

4. For calculating the amount of sales of ₹ 50 Lakhs, whether the sales before 01-10-2020 shall be
considered?
This section was introduced by way of Finance Act 2020 and was initially to be made effective from 01-
04-2020 i.e. from the beginning of the financial year 2020-21. Now, since, it is being made effective from
01-10-2020 i.e. middle of the FY 2020-21, the pertinent question that arises is whether the consideration
received for sales effected up to 30-09-2020 shall be considered while determining the threshold of ₹ 50
Lakh.Now, CBDT has clarified that since the threshold of ₹ 50 Lakh is with respect to the financial year,
calculation of receipt of sale consideration for triggering TCS under sub-section (1 H) of section 206C shall
be computed from 1st April 2020. Hence, if a person being seller has already received ₹ 50 Lakh or more
up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of section 206C shall apply on
all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.
CBDT has further issued a Press Note on 30-09-2020 to provide that TCS shall be applicable only on the
amount received on or after 01-10-2020.

Illustration 1: Sales made to a buyer is less than ₹ 50 Lacs up to 30-09-2020

As TCS shall be applicable beyond receipts of ₹ 50 Lacs. Therefore, on the initial receipt of ₹ 25 Lacs
after 01-10-2020, TCS shall not be applicable. Consequently, TCS shall be applicable as and when ₹ 15
Lacs [₹ 35 Lacs + ₹ 30 Lacs – ₹ 50 Lacs] shall be received.

Illustration 2: Sales made to a buyer is more than ₹ 50 Lacs up to 30-09-2020:

As TCS shall be applicable beyond receipts of ₹ 50 Lacs. Therefore, on the initial receipt of ₹ 20 Lacs
after 01-10-2020, TCS shall not be applicable. Consequently, TCS shall be applicable as and when ₹ 35
Lacs [₹ 65 Lacs + ₹ 20 Lacs – ₹ 50 Lacs] shall be received

Illustration 3: Amount received from a buyer is more than ₹ 50 Lakh up to 30-09-2020: 

As TCS u/s 206C(1H) shall be effective from 01-10-2020, therefore TCS cannot be charged on
collections made prior to 01-10-2020. Therefore, in this case, TCS shall be charged on the receipt of
amount on or after 01-10-2020 i.e. on ₹ 30 Lacs [₹ 65 Lacs + ₹ 20 Lacs – ₹ 55 Lacs].

5. What is the meaning of the buyer?

Any person who purchases any Goods but does not include:
• the Central Government, a State Government, an embassy, a High Commission, legation, commission,
consulate and the trade representation of a foreign State
• a local authority
• a person importing goods into India

6. Whether TCS shall be collected on any kind of sales including sale of services?

TCS shall be collected on sale of goods only

7. Whether the consideration amount will be at FOB/CIF?

It would depend upon the terms of the contract. If the contract is on CIF basis, the consideration will
include insurance and freight.

8. Whether TCS shall be collected on export of goods?

No, TCS shall not be collected on export sales being made outside India.

9. For calculating the limit of ₹ 10 crore in the preceding financial year, whether sale of services to be
included?

For calculating the threshold limit of ₹ 10 crore in the preceding financial year, section 206C(1H) provides
that Total Sales, Turnover, Gross Receipts from the business shall be considered. As such, the receipts of
sale of services shall also be considered.

10. In the case of non-availability of PAN or Aadhaar of the buyer, what shall be rate at which TCS to be
collected?

Section 206C(1H) specifically provides that TCS shall be collected at the rate of 1% of sale consideration
in case buyer of the goods fails to provide its PAN. Provisions of section 206CC have been specifically
overruled by section 206C(1H).

11. Whether TCS shall be collected at the time of debiting the buyer with the sale value or at the time of
collection?

Section 206C(1H) specifically provides that the seller shall collect from the buyer a sum equals to 0.1% of
the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will
arise even in case of advance payment received though the goods will be physically delivered at a later
date.
Further, CBDT by way of press release dated 30-09-2020 has also clarified that in order to simplify and
ease the compliance of the collector, it may be noted that this TCS provisions shall be applicable on the
amount of all sale consideration received on or after 01-10-2020, without making any adjustment for the
amount received in respect of sales made before 01-10-2020.

12. Since, TCS to be collected on advance payments, what shall be the course of action in case, the advance
has to be refunded as the sale is not affected?

Where the seller receives an advance for selling the goods and he deposits the TCS thereon, however
later on such deal stands cancelled, in such a case, post month-end, no refund of the TCS can be made to
a buyer. Even if it is collected on higher amount, the same will be deposited with the government. The
buyer can claim credit for the TCS amount while depositing Advance Tax and/or determining the final tax
liability.
CBDT has also clarified that no adjustment on account of sales return or discount or indirect taxes
including GST is required to be made for collection of tax under sub-section (1H) of section 206C of the
Act since the collection is made with reference to receipt of amount of sale consideration.

13. Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced
by the government?

As part of relief measures undertaken by the Central Government on 12-05-2020, it was announced that
in order to provide more funds at the disposal of the taxpayers, the rates of TDS for non-salaried specified
payments such as payment for contract, professional fees, interest, rent, dividend, commission,
brokerage etc. made to residents and rates of TCS for specified receipts shall be reduced by 25% of the
existing rates. This reduction was made effective from 14-05-2020 up to 31-03-2021.
Therefore, in line with the same rate of TCS u/s 206C(1H) shall also be reduced by 25% i.e. rate at which
TCS to be collected shall be 0.075% up to 31-03-2021.

14. Whether TCS shall be collected by the seller where the buyer is also obliged to deduct TDS on payments
being made?

The second proviso to section 206C(1H) specifically provides that this sub-section shall not apply where the
buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by
him from the seller and has deducted such an amount.

15. Whether TCS to be collected on the amount of sale including GST?

Central Board of Direct Taxes (‘CBDT’) vide Circular No. 23/2017 dated July 19, 2017 has clarified that no
tax shall be deducted under Chapter XVII-B, if the GST on services is indicated separately. The above
clarification issued by the CBDT covers only tax deduction under chapter XVII-B, whereas section 206C of
the Act is governed by Chapter XVII-BB.

Further, the FAQ issued by the Income Tax Department on TCS provides that the “amount debited to the
account of buyer or payment shall be received by seller inclusive of VAT /Excise /GST. As such, TCS to be
collected on inclusive of GST.”

Further CBDT has clarified on 29th September 2020 that TCS need to be discharged on sales consideration
received and no adjustment on account of GST is to be done.

16. Whether GST to be charged by the seller on the amount of sale including TCS?

Corrigendum to CBEC Circular No. 76/50/2018-GST issued on 07-03-2019 provides clarifications on
certain issues that includes valuation methodology in case of TCS under Income Tax Act. In this matter, it
states that Section 15(2) of the CGST Act specifies that the value of supply shall include ‘any taxes, duties,
cesses, fees and charges levied under any law for the time being in force other that GST Laws.
Further, it clarified that for the purpose of determination of value of supply under GST, TCS under the
provisions of Income Tax Act, 1961 would not be includible as it is an interim levy not having the character
of tax.

17. How and when to charge TCS from buyer?

• Alternative 1- The TCS can be collected by charging through invoice:

In this case, both buyer and seller need to do accounting as receivable and payable for these amounts.
It may be noted that if the payment is being made in next financial year, TCS obligation may not be
applicable on seller (due to turnover threshold) or may not be applicable on buyer due to not making
payments breaching ‘collection’ threshold in that financial year. In those case, one need to keep track
and write off and reconcile it with the liability.

• Alternative 2: The TCS can be collected by charging through debit note:

The logic for issuance of debit note may be that debit note to be issued at the time of payment so that
it can be charged only on the eligible cases and no hassles of write off etc. (as mentioned in above
points). But in that case, a specific series of debit note number may need to be used to make sure that
these debit notes do not create issues in GST compliance.

18. Whether this sub-section shall also apply on sale of motor vehicle:

The provisions of sub-section (1F) of section 206C of the Act apply to sale of motor vehicle of the value
exceeding ₹ 10 Lakh. Further, Sub-section (1H) of section 206C of the Act exclude from its applicability
goods covered under sub-section (1F). It may be noted he scope of sub-sections (1H) and (1F) are
different. While sub-section (1F) is based on single sale of motor vehicle, sub-section (1H) is for receipt
above ₹ 50 Lakh during a financial year against aggregate sale of good. While sub-section (1F) is for sale
to consumer only and not to dealers, sub-section (1H) is for all sale above the threshold.
In this regard it CBDT has clarified that –

• Receipt of sale consideration of motor vehicle from a dealer would be subjected to TCS under subsection (1H) of the Act, if such sales are not subjected to TCS under sub-section (1F) of section 206C of
the Act.

• In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of ₹ 10
Lakh or less to a buyer would be subjected to TCS under sub-section (1H) of section 206C of the Act, if
the receipt of sale consideration for such vehicles during the financial year exceeds ₹ 50 Lakh during
the financial year.

• In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value
exceeding ₹ 10 Lakh would not be subjected to TCS under sub-section (1H) of section 206C of the Act
if such sales are subjected to TCS under sub-section (1F) of section 206C of the Act.

19. Whether this sub-section shall also apply to fuel supplied to non-resident airlines:

In this regard, CBDT has clarified that the provisions of sub-section (1H) of section 206C of the Act shall
not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India.

20. What are the compliance obligations cast upon business entities due to sec 206C(1H):

Some of the basic compliances that a business entity has to perform are as follows:
• TAN number – Seller needs to have Tax Deduction and Collection Account Number (“TAN”). No need
to obtain a new number if the seller entity has already obtained TAN for tax deduction at sources
(TDS).

• Collecting the tax – Tax to be collected at the time of receipt of sale consideration.

• Deposit with Government- The tax collected during the month need to be deposited within seven
days of next month. Please note that there is no exception or extended time for the deposit of tax
collected in the month of March. (Challan no 281)

• Filing of statement (Form no. 27EQ)- A quarterly statement of all the tax collected at source during
the quarter needs to be submitted within 15 days from the close of quarter as mentioned in Table1.
• Issuance of certificate (Form no 27D)– Certificate for tax collection need to be issued to the buyer by
seller. Due dates mentioned in Table -1.

21. What are the steps to be taken by business entities to get prepared for implementation of sec 206C(1H):

Some of the general steps to be taken by business entities to get ready for new compliances are as follows:

• Firstly, the seller shall check whether the provisions are applicable on it. For this, key is the sales
/gross receipts/turnover of immediately preceding financial year (i.e. sales of FY 2019-20 to be
checked for applicability in FY 2020-21)

Firstly, the seller shall check whether the provisions are applicable on it. For this, key is the sales
/gross receipts/turnover of immediately preceding financial year (i.e. sales of FY 2019-20 to be
checked for applicability in FY 2020-21).
• To identify the customers from whom receipts for consideration for sale of goods is more than ₹ 50
lacs during the year. For this, customers already breached the threshold or potential customer who
may cross the threshold shall be identified.
• The entity may insert a specific line item in invoice to charge TCS or it may charge TCS through debit
note. Further, it has to be made sure that invoice or debit note format remains GST compliant.
• The buyer shall be intimated in advance regarding levy of TCS provisions and obligation on him to
pay for TCS.
• Open a separate ledger account in books of account,to account for the TCS receivable from customer
and TCS payable to Govt. A separate ledger account will help in reporting and reconciliation.
• Setup the check list and procedure for compliance such as deposit of TCS, filing of statement and
issuance of certificate to buyer.