ESIC raises wage threshold to Rs21,000, aims to add 50 lakh workers
The government on Tuesday overruled opposition from employers to allow an increase in the number of people eligible for Employees’ State Insurance (ESI), which provides medical care to industrial workers and their dependents, by raising the salary cap of beneficiaries to Rs.21,000 per month from Rs.15,000.
This means all industrial workers drawing a salary of up to Rs.21,000 will be eligible for health care—from primary to tertiary—at more than 1,500 clinics and hospitals run by the Employees’ State Insurance Corporation (ESIC) directly or indirectly.
The move will add three million workers to the ESIC pool, benefiting 12 million more people when their dependents are taken into account.
Tuesday’s decision will add nearly Rs.3,000 crore to the labour ministry-run ESIC’s corpus annually.
The pro-worker step comes days after a nationwide labour strike disrupted normal life in parts of the country.
Under the Employees State Insurance Act, eligible employees contribute 1.75% of their salary (basic+allowances) and employers contribute 4.75% to the ESI corpus every month.
“The ESIC board approved the wage ceiling hike to Rs.21,000,” said Michael Dias, an ESIC board member and secretary of the Employers’ Association, Delhi.
While the labour ministry and the employees’ representatives were for increasing the wage ceiling to Rs.25,000 per month, the employers’ representatives resisted, leading to the board settling for Rs.21,000 per month, Dias added.
The last increase in the salary cap for ESI was made back in May 2010, when it went from Rs.10,000 to Rs.15,000.
As of 31 March 2016, there were some 21 million insured persons or members of ESIC and a total of over 60 million beneficiaries.
A labour ministry official, who attended the board meeting, said that while labour unions are portraying the National Democratic Alliance government as pro-industry, “we are taking several measures which will benefit the workers. After hiking the minimum wage for unskilled labourers in the central government sphere, we have now increased the salary cap for ESI benefits.”
The official, who declined to be named as a formal announcement is slated to be made in a few days’ time, said that Tuesday’s move will widen the social security benefit net for millions of workers.
The decision will be effective from 1 September.
“It’s a pro-worker move and in a way historic. After hiking the minimum wage late last month, the Union government has again taken a pro-employee stand that will benefit 1.2 crore more beneficiaries,” said S. Mallesham, another ESIC board member.
Mallesham is also president of Bharatiya Mazdoor Sangh (BMS) in Telangana.
BMS is a national trade union affiliated to the ruling Bharatiya Janata Party.
But industry representatives said the move will not benefit workers much.
“We said that unless the quality of medical facilities improves increasing the wage ceiling will not be a great decision. When you have some 14,000 vacancies in the ESIC system, how can you serve more people,” Dias said.
Rama Kant Bharadwaj, vice-president of Laghu Udyog Bharati, a federation of small and medium industries, said that while pro-worker decisions are a political compulsion, the government must remember that to stay competitive in the global economy, workers’ costs need to be competitive.
Relaxing the wage ceiling adds to the financial burden of employers as they have to pay 4.75% of an employee’s salary as ESI contribution every month.
Sonal Arora, vice-president of staffing company TeamLease Services, said, “Though the decision to increase the wage limit for inclusion in ESIC from the current Rs.15,000 to Rs.21,000 is well intentioned, it will have a far-reaching negative impact on employees and corporate India.
“For employees it will mean a reduction in their take-home salary by as much as 6.5% at the onset of the festive season when they would rather have money in their hands. For employers, it will lead to more hassles as compliance and documentation will increase,” he added.
Other than hiking the wage ceiling, the ESIC board also allowed employees to continue as members even after their wages cross the Rs.21,000 threshold.
Currently, a worker goes out of the purview of the ESIC once their salary crosses the wage ceiling.
“This is a good move as older employees need more medical attention and it should be left to the workers to decide if they want to stay with ESIC after their salary crosses the threshold,” Bharadwaj added.
ESIC: Wage ceiling hikes over 20 years
—From Rs3,000 to Rs6,500: effective 1 January 1997.
—From Rs6,500 to Rs7,500: effective 1 April 2004.
—From Rs7,500 to Rs10,000: effective 1 October 2006.
—From Rs10,000 to Rs15,000: Effective 1 May 2010.
—From Rs15,000 to Rs21,000: Effective 1 September 2016.
Source : Livemint
Suggestions For Model GST Law
Dr. Sanjiv Agarwal,FCA, FCS
The model GST law as released by the Government / Empowered Committee on GST is in public domain since mid June 2016. The proposed provisions only conveys the Government’s intention to levy GST in India and the manner in which it will be administered, levied , collected and implemented.
However, the said proposed provisions require refinement, improvement and changes in order to be business friendly and lead to ease of doing business, boost economic growth, tax collection and balancing between inflation, revenue neutrality and participation of citizens by way of contribution to the exchequer in the form of goods and service tax.
It is desirable and expected that the draftsmen should consider the following suggestions and inputs while finalizing the model law in its present form .
Multiple state wise registrations will be a major hurdle for service providers who operate in multiple states or all India basis.
Procedures proposed for registration and returns are complex, cumbersome and regressive. Provision of classification, valuation supply etc also go against the principle of ease of doing business.
Department should not have power to refuse registration ab initio which will adversely affect the business men. Grant of registration must be made obligatory as is at present.
Multiple registrations of same person in different states should be done away with. The concept of centralized registration should be provided for. Further, the assessee should be mandated to provide in his return, the details of all locations from which supply of goods / services is made by him.
Threshold limit for registration should be common for entire country. Presently it is proposed Rs. 4 lakh for North East and Rs. 9 lakh for others. Alternatively, there should be a sunset clause for this, (say 2 years).
Definition of aggregate turnover be suitably amended so as to exclude the value of exempt and non-taxable supplies from aggregate turnover to make it meaningful and objective. Otherwise the purpose of exemption / threshold will be defeated.
Definition of supply should be ‘comprehensive’ and not inclusive. It is defined as ‘supply includes’ rather than supply means….’. This will add to litigation. The supply of capital goods (whether to own depot or to the customer) be kept outside the purview of GST , and only the leasing / renting / transfer of right to use the asset be subject to tax.
Inter-state activities should exclude activities of same person. These activities are unnecessary under the GST law, unworkable and will be tantamount to creating inter-state fiscal frontiers, impeding free flow of goods and / services within the common market of India.
The definition of manufacturer should be delinked from Central Excise Act and an elaborate definition of the term ‘manufacture’ be provided to avoid litigation and interpretational issues.
Threshold exemption limit should be kept at least at Rs. 25 lakh for services and Rs. 2 crore for goods as anybody with lower limit can always voluntarily get registered. Also, small and medium entities may find it difficult to maintain electronic records and wish to avoid unnecessary inspections / litigations from the tax Department.
Composition Scheme is meant for small taxable persons like neighborhood stores who does not keep record of their turnover and does not issue invoices. No facility is given to them in case they are expected to keep their turnover record. Also, the rate of tax should be percentage of their taxable supplies (inputs), the record of which exist in electronic ledger. Linking of rates with total turnover will distort the total scheme.
Composition threshold should be not below Rs. one crore. Disallowing composition benefit to the persons who effect any interstate supply of goods and / or services shall work against the interest of small assessees as there might be a possibility that in aggregate turnover of Rs. 50 lakhs only a small amount constitute inter-state supply of goods or services which will deny him of the benefit of composition scheme.
Valuation rules are too cumbersome so as to even prescribe valuation of services without consideration.
Transaction value of goods and services should factor the ‘discounts’. There should be no tax on free supplies.
In GST system, it is expected that the figures submitted for GST returns will be validated with figures submitted to Income tax. Given the fact that the sale and provision of services is one of the factors for charging of tax, the taxable figures in GST will be far different than figures in accounts or in income tax. A system needs to be built so that the figures in other data base could be used for validation of figures in GST.
The concept of granting input tax credits based on the matching concept of uploading data and filing of valid returns by the supplier of such taxable person will most certainly lead to innumerable amount of litigations on account of a few unscrupulous dealers.
Input tax credit (Cenvat) should not be denied to real estate sector and allowed to works contracts only. Guidelines for valuation of land should be made clear and transparent. Also, non-subsuming of stamp duty in GST should be reconsidered.
Reversal of input tax credit used for goods and / or services used for personal or private consumption should be allowed.
Concept of TCS to be done away with as it proves to be detrimental to small suppliers and leads to blockage of funds in TCS.
Rate of interest on delay in payment of refunds by the Government should be kept at par with the provisions relating to interest payable on delay in payment of taxes by the tax payer.
Requirement of double payment of taxes be eliminated. Further, the refund / adjustment procedure for such cases be made fast-tracked, simple and quick.
Government should not hurry implementation of GST from April, 2017. There is lot of ground work to be done. The most important is awareness, education, training and trial runs. 1st April 2017 is not that sacrosanct but introduction of a perfect law at the right time is more important. Country can wait for a strong and robust GST law for some more time.
It should be ensured that all states have verbatim same provisions for rates, levy, administration and procedures. Only negative list or exemptions may vary based on regional issues.
A large number of compliances / returns / reconciliations are proposed. This will only burden all stakeholders; will make GST inefficient and a regressive tax. Cost of compliance will be major issue which may take away the benefits of GST.
Smooth, transparent and simple transition provisions are needed rather than revenue centric provisions. These ought to be practical too. Transitional provisions should bear this objective. Supplies effected under the current tax regime, but which are delivered or received after the date of implementation of GST, normally referred to as goods – in – transit. The transitional provisions should suitably provide for credit of taxes / duties paid under the current law.
Refund of any credit balance other than for exports is not allowed. This should be allowed subject to safeguards / limitations.
Special focus on awareness and training of all-officers, professionals and assessees is required including making available literature on GST available in different languages.
Current / past disputes on GST introduction should be proactively addressed by way of speedy redressal of cases and / or practical, proactive and objective Dispute Resolution Scheme so that baggage of disputes in not carried forward.
Non compliances attract very harsh and heavy penalties / punishment and need to be diluted in view of GST being a new levy and new law. Prosecution threshold should be kept at Rs. 2 crores as minimum. There should be a provision that except in fraudulent cases, no arrest / prosecution be made in first year of implementation.
No new taxes should be allowed to be levied by states in GST regime when compensation for revenue loss, if any is guaranteed.
GST is the future tax. GST law should, therefore be forward looking and open for futuristic businesses such as e-commerce, technology based, IT etc and recognize internet, digital economy, start ups etc.
GST law should be a very simple tax law as the proposed law / provisions are too complex to understand by a common man.
Impact of Wrong Classification of Goods or Services under GST Era
CA Preetham S L
The entire nation is looking at the implementation of GST as a biggest tax reform in India since the liberalization in the Year 1991. GST aims at bringing uniformity in the way the Goods and Services will be taxed by way of a common levy of tax, for Goods as well as Services.With the concept introducing a unified tax regime, it is expected that cascading effect of taxes will be reduced and thereby reducing the cost of Goods and Services. By now, GST is known as “One Nation, One Tax” in its popular sense and entire India will be looked at as a single market place.
At present, there are different levy of taxes for Goods and Services respectively by different Governments. The legislations dealing with VAT, Excise and Service Tax are independent of each other and a transaction is often subject to both VAT and Service Tax or Service Tax and Excise due to the lack of clarity in the Taxing Statutes. In the existing tax regime, a lot of time and efforts are being spent in litigating whether a particular transaction is a transaction in Goods or Service due to a very simple fact Goods attract levy of VAT whereas Services attract levy of Service Tax and the Governments which levy VAT and Service Tax are different. It’s obvious thatevery Government will pursue for its share of revenue on a particular transaction and that a conservative tax payer would not wish to fight with both Governments and accepts the proposition of the levy of tax by the Centre as well as the State on the same transaction which adds to the cost of such transaction.
With GST being implemented, it is well known that a common levy of Tax on Goods and Services will be applicable. This is expectedat least to ensure that the dispute of whether it is Goods or Services will not exist anymore. It would become redundant to fight for classification of Goods V/s Services since despite the classification, a tax payer will still be paying GST only. However, the following factors under Model GST law still discriminates between Goods and Services and it becomes very important that a transaction is rightly classified as Goods or Service:
Time of Supply
The Point of Taxation under Model GST law for Goods and Services are different. The time at which the liability to pay GST crystalizes in respect of Goods can be different to that of a Service. The impact of timing difference of Goods V/s Servicecan be understood from the below example:
Supply of Food as part of a Service is deemed to be a “Supply of Service” under the Model GST Law. At the same time, Supply of Goods by Unincorporated Association or Body of Individuals to its members is deemed as “Supply of Goods”. Under that circumstances, a Club (which can be said as Unincorporated Association) is providing food to its members and it is the last day of the month, say April. Due to the relationship with the members, let us assume that the club raises invoice for the food supplied, with a description that “charges for foods supplied on 30th April”, say after 15 days i.e in May. The club has wrongly classified the said transaction as “Supply of Service” going by the deeming fiction under Model GST law without the knowledge of the fact that any supply of goods by a club to its members will be deemed as “Supply of Goods”.
The event of removal of goods or making available the goods is the first event followed by raising of the invoice which is second event. Since the club is under presumption that is supply of service, it will consider the payment of GST on the above transaction for the month of May since the date of raising the invoice is May. Whereas, as per the Model GST law the above transaction is supply of goods and the event of removal of goods for supply or making available the goods in the month of April itself had crystalized the liability to pay GST. This implies that the club has delayed the payment of GST by one month which can have impact by way of interest and penalty exposure and can also have impact on the working capital requirements.
Place of Supply
The Place of Supply takes paramount importance under GST regime since GST is destination based unlike origin based taxation under VAT or CST. The place of supply of Goods or Services determine whether CGST/SGST has to be charged or IGST has to be charged. The Model IGST Act has formulated principles to determine the place of supply of Goods and Services. The principles formulated for Goods and Services to determine the Place of Supply is not the same under Model IGST Act for obvious reasons. Accordingly, a wrong classification of a transaction can have an impact in terms of Place of Supply followed by the Tax which was applicable on the same.
For a better understanding, let us assume that A Ltd is big FMCG Companyin Bangalore and his also registered under GST Law. It also manages its transportation and logistics function through its own fleet of vehicles. One of the vehicles of A Ltd breaks down outside Karnataka on its way to Hyderabad for supply of goods. Assuming, A Ltd engages another company in Karnataka, say B Ltd to tackle this situation and B Ltd sends its engineers for inspection of the vehicle and also for repair if required along with spare parts. B Ltd has considered this transaction of repairing the vehicle as supply of goods and charged IGST since there was a movement of the goods from one State to another. However, this transaction of repair can be classified as “Works Contract” due to the very wide definition of “Works Contract”under the Model GST Law. Works Contract is deemed to be a Supply of Service as per the Model GST law and the place of supply of a Service, if service is provided to registered person is location of such person.
In the current case, location of A Ltd and B Ltd is within Karnataka and hence the transaction of repair was required to be charged under CGST & SGST Act and not as per IGST Act since the location of supplier and place of supply both are within the same states. This situation may lead to initiation of proceedings by the State Governments to recover the share of SGST in the said transaction along with interest and penalty exposures.
It is expected that GST law would have multiple tax rates unlike the existing Service Tax law due to the fact that different rates are prescribed for Goods of different importance. The goods of national importance and basic necessities might be exempt and the luxury goods can be taxed at higher rates.Accordingly, it is very important to understand whether a transaction is “Goods” or “Services” and the GST rate would also vary accordingly. It might be possible that due to a wrong classification, the GST paid on such transaction might be more than what was required and vice versa.
For a better understanding, let us assume that A Ltd, a registered person under GST law is in the business of leasing Computers without the transfer of title to the goods. It has been charging GST on said transaction as applicable in case of “Computers”. Under the VAT regime, Computers have history of lower tax rates between 4% to 5.5% and it can be reasonably expected that the same would continue in GST regime. As per the Model GST law, any transfer of right to use the goods without transfer of title is deemed as “Supply of Service” and it is expected that the tax rates in case of Supply of Service will be at RNR. In this situation, it can be understood that A Ltd has been charging lower rate of tax assuming it was a transaction in Supply of Goods rather than Supply of Service and hence A Ltd will be facing serious consequences by way of interest and penalty.
Above are few illustrative situations that may still lead to litigation as “Goods Vs Services” even under GST regimeand many more situations can be expected which can be of the same nature as described above. Hence it is of utmost importance to every tax payer to carefully structure their Indirect Tax function by proper inference of the GST Law. The views expressed in this article are personal and hence you may consult your tax advisor on the said matter before taking any decision.
Author is Practicing Chartered Accountant in Indirect Taxation and can be reached at email@example.com
Amendment in List of Industries for which Industrial Licensing is compulsory
MINISTRY OF COMMERCE AND INDUSTRY
(Department of Industrial Policy and Promotion)
New Delhi, the 11th August, 2016
S.O. 2737 (E).- In exercise of the powers conferred by sub-section (1) of section 29B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), the Central Government hereby makes the following further amendments in the notification of Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O.477 (E) dated the 25th July, 1991 namely:-
2. In the said notification, in Schedule II relating to the ‘List of Industries in respect of which Industrial Licensing is compulsory’ in serial number 3, ITC(HS) Codes 22.03, 22.04, 22.05, 22.06 and 22.08 and the entries relating thereto shall be omitted.
3. This notification shall come into force on the date of its publication in the Official Gazette,
RAVNEET KAUR, Jt. Secy.
Note:— The principal notification was published in the Gazette of India, vide number S.O. 477(E), dated the 251h July, 1991 and last amended vide Notifications number S.O. 998 (E) dated the 10th April, 2015.
Two incomes no kids? Avoid these traps
Vidyuth Sreenivasan, 39, and Jayshree Venkatesan, 35, are a ‘dink’ couple. Theirs is a double income household with no kids. Sreenivasan designs and sells hand block printed saris under the label Chaani, and Venkatesan is a financial inclusion consultant with Consultative Group to Assist the Poor (CGAP).
From a financial standpoint, the choice to not have children automatically meant the couple had more money to spend, but so far they have been conscious to not overstep their financial bounds. “Our incomes are not regular, so we have to make sure that there is regular cash flow every month. While this may seem like a conscious financial decision, we like to be judicious with money,” said Sreenivasan.
This couple is not the norm, but an exception. According to some financial experts we spoke to, the fact that there is more money and lesser responsibility makes ‘dink’ families predisposed to overspending. Overstretching the budget, in fact, is the most common trap that many dink families fall into. The other mistakes would be to not think about long-term goals like retirement, not have an emergency fund and to not think about estate planning.
Overspending: According to Surya Bhatia, managing partner, Asset Managers, the biggest trap is to overspend. “Typically, a household with children or other dependants is able to save 20-30%. Couples with no kids have the potential to save way more than they spend, but often they save about 10-15% of their income,” he said.
This over-indulgence is largely because couples with fewer financial responsibilities can afford to spend more. “If the expense before marriage was, say, x for each person, it doesn’t become 2x after marriage. It becomes, say, 1.6x. This means there is surplus and a great opportunity for the couple to save. But I find that couples don’t make the most of it,” said Priya Sunder, director, PeakAlpha Investment Services Pvt. Ltd. “If you save early, your money gets the boost of compounding,” she added.
Sreenivasan is aware of this. “I have been saving right from the time I started earning. I always make it a point to save 50% of my income because then my money gets more time to compound,” he said.
The basics of financial planning don’t change. You need to save before you spend. Make that your priority and spend according to a budget.
Wrong investments: The trap of buying wrong investment products or being over-exposed to a particular asset class is not the bane of dink families alone. Anyone can fall into the trap, but according to Mrin Agarwal, financial educator and founder director, Finsafe India Pvt. Ltd, dink families should not overexpose themselves to real estate. “Sometimes dink families may have more exposure to real estate than what they require. You must own the house you live in; a second investment in real estate is not recommended. Real estate is not liquid and you end up spending money to maintain it. You also need to think about why you need so many houses or plots. Instead, the funds should be put away in financial investments so that money is readily available to be used,” she added.
Both Sreenivasan and Venkatesan have invested in real estate, but with an aim. “I bought my flat before marriage. I was living with my family and I wanted my own house. My wife bought her flat a few years back with an aim to earn some rental income,” said Sreenivasan. They also have some land on which they plan to build a house and set up a block-printing unit.
Investments should be guided by goals and that should dictate asset allocation. Once you have the right mix of equity and debt, make sure you pick products according to your goals. For instance, investing in equity for a long-term goal like retirement is essential. For Sreenivasan, who invested mainly in fixed deposits, this was a new lesson. “To draw a food analogy, fixed deposits are like curd rice. They are comforting and they helped me a lot as I could take an overdraft for my business. But I know they are not long-term products, so over time, my exposure to fixed deposits has reduced. I now put my money in equity and balanced mutual funds,” said Sreenivasan, who also invests in National Savings Certificates and Public Provident Fund.
Lack of a long-term vision: Having financial goals in mind also gives you a long-term vision on where you want to be financially some years down the line, but according to financial experts, many dink families lack this vision. Biju Dominic, a behavioural science expert and chief executive officer, FinalMile Consulting, said this is human tendency. “People in general don’t have the ability to think too much into the future. But I find children to be the driving force that gets people to think and plan for the future,” he said.
This means that dink families need to be make a conscious effort to plan for the long term. “Most dink couples tend to live in the present. I find most of them conditioned to believe that they will always be able to make money in the future so most of them end up with a high-end lifestyle,” said Agarwal. It’s important to understand that your earning capacity may not remain the same always. Suresh Sadagopan, founder, Ladder7 Financial Advisories, provides a reality check. “A lot of people who earn well, tend to spend equally well. What they forget is that they will not get the same income in the future. When we look at their lifestyle needs post-retirement we see a huge gap, because most in their working years focus on a lavish lifestyle without saving enough to make sure they are able to sustain it during retirement too,” he said.
Retirement is a crucial long-term goal that you can’t ignore. In fact, this is Venkatesan’s biggest worry. “I am paranoid about retirement. I don’t think kids are a great fallback option anyway but there is some sort of an assurance. In our case we know there is no back-up, so we need to make sure we are self-sufficient during the retirement years,” she said. Venkatesan has a portfolio of mutual funds, shares, and real estate targeted for retirement.
Emergency funds: In the short term, the most important goal to achieve is to create an emergency fund. You may not have any financial dependants, but a job loss may set you back financially. Both Venkatesan and Sreenivasan primarily rely on fixed deposits and bank deposits for their emergency corpus. Venkatesan keeps three months’ expenses in reserve.
Having insurance is just as important. While all couples may not need life insurance, health cover is a must.
Estate planning: Many may not have thought about it, but do you know who gets your money after your death? “When you have kids, in the absence of a Will, the law of the land takes over and you have rules around succession. But when you don’t have children, it becomes important that you specify the manner in which your assets should be divided,” said Sunder.
While Venkatesan is yet to plan this, Sreenivasan knows he wants to set up a charitable trust that will train rural artisans and also offer scholarships to students who excel in middle distance running.
Not having children can be financially liberating—you don’t have to worry about saving for their education or other needs—but that should not translate into not having any financial goals or spending in excess. It just means you have more money to save and following the basics of financial planning will hold you in good stead.
Source : livemint
Tax on income earned abroad depends on residential status
I’ll be in France for 3 months for work. I will be paid in euros. Will it be taxed in India in financial year (FY) 2016-17?
Taxability of income earned in France will depend on your tax residential status in India in FY17. This status would be determined by your physical presence in India during FY17 and in the immediately preceding seven FYs (1 April 2009 to 31 March 2016).
Assuming that you have been primarily based in India and will work from France for 3 months, you are likely to qualify as Ordinarily Resident (OR) of India for FY17. So, your global income shall be taxable in India, irrespective of the source or place of receipt of the income. Hence, the income earned in France shall be taxable in India, subject to the benefits, if any, available under the Double Tax Avoidance Agreement (DTAA) between India and France as per Section 90 of the income tax Act, 1961. The taxability or exemption would depend on the nature of income received.
As you would qualify as an OR, if you have any assets located abroad, then you would be required to furnish details of assets such as foreign bank accounts, immovable property, and investment in shares and mutual funds in the personal income-tax return.
Failure to comply with the above disclosure requirements may attract penal consequences.
Further, as an OR, if you claim relief under section 90 of the Act, you have to use income tax return-2 (ITR 2). The salary pertaining to the France assignment has to be reported under schedule FSI (foreign source income). The relief under DTAA has to be reported in the schedule TR and overseas assets in schedule FA.
If depending upon your stay in India, you qualify as either a Non-resident (NR) or as Not Ordinarily Resident (NOR) in FY17, you shall be taxed in India only on India-sourced income. Accordingly, the income earned in France for rendering services there shall not be taxed in India provided the salary is also directly credited to the overseas bank account. If the salary is directly credited to your Indian bank account, it shall be taxable in the first instance in India on receipt basis.
If your total income during FY17 exceeds Rs.50 lakh, you will have to disclose the total assets and liabilities in Schedule AL in your personal tax return.
If the aforesaid salary is taxable in India, your employer will have to deduct taxes from it and deposit into Indian government’s treasury within the specified time, and comply with other tax obligations. If taxes are not deducted by the employer, you will have to pay taxes through the advance tax route in instalments during FY17, or as self-assessment tax at the time of filing your return of income.
Salary would include any taxable benefits or perquisites such as rent-free accommodation provided by the employer in France.
If you are paid on per diem basis in France during the assignment, taxability in India will have to be examined separately.
Source : livemint
Govt notifies service rules of Income Tax & Wealth Tax Settlement Commission
MINISTRY OF FINANCE
(Department of Revenue)
New Delhi, the 23rd August, 2016
G.S.R. 828(E).— In exercise of the powers conferred by the proviso to article 309 of the constitution, the President hereby makes the following rules to amend the Settlement Commission (Income Tax and Wealth Tax) (Recruitment and Conditions of Service of Chairman, Vice-Chairman and Members) Rules, 2015 namely :-
1. (1) These rules may be called the Settlement Commission (Income Tax and Wealth Tax) (Recruitment and Conditions of Service of Chairman, Vice-Chairman and Members) Amendment Rules, 2016.
(2) They shall be deemed to have come into force from the 27th day of March, 2015.
2. In the Settlement Commission (Income Tax and Wealth Tax) (Recruitment and Conditions of Service of Chairman, Vice-Chairman and Members) Rules, 2015, for rule 6, the following rule shall be substituted, namely :-
“6. Contributions to Contributory Provident Fund.– The Chairman, Vice-Chairman and Members shall be entitled to make contribution to the Contributory Provident Fund subject to such conditions as are applicable to a non-pensionable servant of the Central Government.”.
[F.No. Q-22013/1/20 14-Ad. 1 C (AAR)]
S. BHOWMICK, Under Secy.
Foot Note : The Principal Rules were published vide notification number G.S.R. 235(E), dated 27.03.2015.
It is certified that no person shall be prejudicially affected by giving retrospective effect to this amendment.
32 FAQs on Corporate Social Responsibility (CSR)
CS Divesh Goyal
BACKGROUND: Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporate however after enactment of Section 135 of Companies Act 2013 such expenditure is made mandatory for certain corporate (Criteria given below).
Corporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold.
CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large).
Company is a social institution having duties and responsibilities towards the community in which if functions. Its objective is to bring about maximization of social welfare and common good.
India is the only country so far, where CSR has been made mandatory.
B. Applicability to which CSR provisions applicable:
A. Following below mention companies are required to constitute CSR Committee, If Company having following during any financial year (any financial year described below)
B. Provisions of CSR apply to foreign branch/project office of foreign company:-
The Provisions of CSR are applicable to Foreign Company having Branch office or project in India if it fulfill the above given criteria. The criteria of Net Profit etc. apply only to business operations in India in case of foreign Company/ Project Office.
1. When companies get ceases to comply with the provisions of CSR?
Every company which ceases to be a company covered above three conditions for three consecutive financial years shall not be required to:
a) Constitute a CSR Committee; and
b) Comply with the provisions contained in sub-sections (2) to (5) of the said section (to spent amount on CSR Activities).
Once company again fall within the limit provisions of CSR will be applicable on Company.
2. What is meaning of any financial year mentioned above?
General Circular No. 21/2014, Dated: 18.06.2014
“Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years.
As per ICSI FAQ’S
A company which meets the criteria in any of the preceding three financial years (i.e. 2011-12, 12-13, 13-14) but which does not meet the criteria in financial year 2014-15 will need to constitute CSR Committee and comply with provisions of 135 (2) to (5) in the year 2014-15.
C. CSR COMMITTEE
1. Constitutions of CSR Committee: Company to which CSR is mandatory should constitute a CSR Committee to undertake and monitor CSR activities:
The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.
i. An Unlisted Public Company: This is covered under CSR provisions, but need not to have Independent Director on the CSR Committee.
ii. Private Limited Company: which is covered under CSR provisions
a. Need not have Independent director on the CSR Committee
b. Can have CSR committee with only Two Directors.
iii. In case of Foreign Company: The CSR committee should have at least Two person, out of which
a. One person shall be specified under section  380(1)(d) of the 2013 Act and
b. Another person nominated by the Foreign Company.
2. CSR Committee Meeting:
i. Law is silent w.r.t. number of CSR Committee meetings in a year. But as per Secretarial Standard 1 clause no. 2.2 “Committees shall meet as often as necessary subject to the minimum number and frequency stipulated by the Board or as prescribed by any law or authority.”
ii. CSR Committee meeting can conduct business by passing of resolution by circulation.
a. Quorum: Law is silent w.r.t. quorum for the committee meeting. But as per Secretarial Standard 1 clause no. 3.5. “The presence of all the members of any Committee constituted by the Board is necessary to form the Quorum for Meetings of such Committee unless otherwise stipulated in the Act or any other law or the Articles or by the Board.
iii. Time Limit: No time limit prescribed for constitution of CSR Committee. However keeping in view the fact once provision applicable on the Company, it should constitute the committee within 6 month.
3. Role/ Functions of CSR Committee:
i. To formulate and recommend to the board of Directors CSR Policy as per activities specified in Schedule VII.
ii. To recommend the amount of expenditure to be incurred on above activities along with calculation of the same.
iii. To monitor the policy from time to time.
iv. Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.
D. Role/ Responsibility of Board of Directors:
i. To approve the CSR Policy recommended by the Committee.
ii. To disclose the contents of the policy in its report & place it on website.
iii. To ensure that activities reflected in CSR policy are actually undertaken by Company.
iv. To ensure that activities included by a Company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act.
i. After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the Company.
ii. Review activity included in policy undertake by the Company or not.
iii. Check Whether Company is spending the amount if not discuss in the Meeting.
iv. The Board of Director’s report undertakes Section 134(3) of the 2013 Act shall disclose the composition of the Corporate Social Responsibility Committee.
E. Net Profit Require spending on CSR Activity:
To ensure that at least 2% of average net profit of 3 immediately preceding financial years to be spent on CSR activities every year. Exp. For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12, 2012-13 & 2013-14 needed to be considered.
“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:
i. any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
ii. Any dividend received from other companies in India, which are covered under and complying with provisions of Section 135 of the.
Most Imp: average net profit is calculated as per section 198 i.e. calculation done for managerial calculation. (example of calculation as per section- 198 given below)
Net Profit for Foreign Company: In case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act.
Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax?
The explanation to section 135(5) states that “average net profit” shall be calculated in accordance with section 198 of the Companies Act, 2013. In terms of section 198(5)(a) in making computation of net profits, income-tax and super-tax payable by the company under the Income-tax Act, 1961 shall not be deducted. Therefore, the net profit criterion in section 135(5) is NET PROFIT BEFORE TAX.
F. CSR ACTIVITIES INCLUDES:
Preferable Location for spent of Amount:
i. The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
ii. CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.
1. If expenditure done by Foreign Holding Company? ( Refer Circular 21/2014 dated 18 June 2014)
Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
2. If Registration of Trust is not mandatory in any state?
‘Registered Trust’ (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory.
3. Whether a Company can spent through any other Entity:
Contribution to Corpus of a Trust/ Society/ section 8 Companies etc. will qualify as CSR expenditure until unless:
(a) the Trust/ society / Section 8 company etc. is created exclusively for undertaking CSR activities and [established by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company, or holding or subsidiary or associate company of such other company, or otherwise]
(b) If not if such trust, society or company is 86[not established by the company, either singly or alongwith its holding or subsidiary or associate company, or along with any other company, or holding or subsidiary or associate company of such other company] shall have an established track record of three years in undertaking similar programs or projects;
(c) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism
(d) Where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
4. Whether company can collaborate with another company for CSR activity and project?
A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs
5. Building CSR Capacity:
Company may build CSR capacity of their own personnel as well as those of their implementing agencies through institutions with established track record of three years are permissible. However, such expenditure shall not be more than 5% of total CSR expenditure of company in one financial year.
G. ACTIVITY DOESN’T INCLUE IN CSR:
i. Activities undertaken in normal course of business.
ii. Activity undertaken outside India.
iii. CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities.
iv. Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
v. Activity not covered within schedule VII of the 2013 Act.
vi. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
vii. Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act
H. CSR POLICY & EXPENDITURE
‘CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company. The CSR Policy of the company shall, inter-alia, include the following, namely: – As per Rule4, following points must be considered while drafting the CSR Policy:
i. CSR policy shall specifically provide activities which are to be undertaken by the Company during the financial year;
ii. CSR policy may provide for the activities which are for the benefit of the employees of the company. However, such expenditure on such activity will not considered as CSR expenditure;
iii. The companies can build their own capacities of their own personnel as well as those of their implementing agencies through Institutions with established track records of last three financial years. However, administrative overhead in any case shall not exceed 5% of total CSR expenditure in one financial year.
iv. As per Rule 6, following shall be included in CSR Policy:
v. The list of programmes or projects which finds its place in the purview of Schedule VII;
vi. The modalities for exaction of CSR projects;
vii. The schedules for implementation of CSR projects;
viii. Monitoring process of such projects;
ix. Specific declaration to the effect that surplus arising out of the CSR projects shall not form part of the business profit of a company.
1. SCHEDULE VII MANDATES EXPENDITURE FOR THE FOLLOWING ACTIVITY-
a. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,
b. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects,
c. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward ,
d. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;
e. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,
f. Measures for the benefit of armed forces veterans, war widows and their dependents;
g. training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports; 8) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
h. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government,
i. Rural development projects,
j. Slum Area Development
I. EFFECT OF NONE COMPLYING WITH CSR PROVISONS:
If a company fails to provide or spend such amount, the Board shall specify reasons for not spending the amount in its report.
As per FAQ of ICSI, on question of consequence for non-compliance of CSR provisions, the concept of CSR is based on the principle ‘comply or explain’. Section 135 of the Act does not lay down any penal provisions in case a company fails to spend the desired amount. However, sub-section 8 of section 134 provides that in case the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. In case the company does not disclose the reasons in the Board’s report, the company shall be punishable under section 134(8). This view of ICSI seems to be for the reason of provision of section 134(3) (o).]
Provision Added and Omitted:
Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure. [This para stands omitted as Rule 4(6) amended by notification dated 12.09.2014 – Refer Circular 36/2014 dated 17.09.2014.
Net worth meaning
As per Section 2(57), ‘NW’ = (Paid Up Share Capital + All Reserves Created Out of Profits + Securities Premium Account) – (Accumulated Losses + Deferred Expenditure and Miscellaneous Expenditure not Written Off).
To Whom CSR will applicable?
Every company having
i. net worth of rupees five hundred crore or more, or
ii. turnover of rupees one thousand crore or more or
iii. a net profit of rupees five crore or more
during any financial year
What is meaning of any financial year mentioned above?
General Circular No. 21/2014, Dated: 18.06.2014
“Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years.
As per ICSI FAQ’S
A company which meets the criteria in any of the preceding three financial years (i.e. 2011-12, 12-13, 13-14) but which does not meet the criteria in financial year 2014-15 will need to constitute CSR Committee and comply with provisions of 135 (2) to (5) in the year 2014-15.
If the company has made profits in the years earlier to 2011-12, then is there need to comply with the provisions of Section 135?
if the company has made profits in the years earlier to 2011-12 but not in The years 2011-12, 2012-13 or 2013-14, it need not comply with section 135.
For compliance under section 135 i.e. Corporate Social Responsibility, from which Financial Year CSR Expenditure & Reporting Begins?
The constitution of CSR Committee, preparation of CSR Policy, the spending of amount on CSR activities needs to be during the financial year 2014-15.
If section 135 applicable on any company for f.y. 2014-15, then what is the time period for investment on CSR activity?
Companies have to spend the amount on CSR activities as required by section 135 during the F.Y. 2014-15 and Reporting of the same would be in 2015 Board‘s Report or otherwise state the justification for the same in Board Report.
Whether expenditure by Company for fulfillment of any Act/Statute of Regulations will be count as CSR expenditure?
No, Would not count as CSR expenditure.
In case the company has appointed personnel exclusively for implementing the CSR activities of the company, can the expenditure incurred towards such personnel in terms of staff cost etc. be included in the expenditure earmarked for CSR activities?
Salary paid by the companies to regular CSR staff as well as to volunteers of the Companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.
Whether CSR applicable on private limited company also?
If private Company fulfill the criteria given under section 135(1) then CSR will be applicable on that private limited company also.
As per Section Constitution of CSR committee required on Independent Director, whether this condition applicable on Private Company also.
In case of Private Limited Company, CSR Committee may consist only two Board of Directors.
Whether CSR expenditure of a company can be claimed as a business expenditure?
The Finance Act, 2014 provides that any expenditure incurred by an assessed on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessed for the purposes of the business or profession. Accordingly, the amount spent by a company towards CSR cannot be claimed as business expenditure.
Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax?
NET PROFIT BEFORE TAX
The explanation to section 135(5) states that “average net profit” shall be calculated in accordance with section 198 of the Companies Act, 2013. In terms of section 198(5) (a) in making computation of net profits, income-tax and super-tax payable by the company under the Income-tax Act, 1961 shall not be deducted. Therefore, the net profit criterion in section 135(5) is net profit before tax.
Can the CSR expenditure be spent on the activities beyond Schedule VII?
MCA vide General Circular No. 21/2014 dated June 18, 2014 has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.
Whether following activities would be qualified CSR Expenditure?
Event of Marathon NO
Event of Award NO
Event of Charitable Contribution NO
Event of Advertisement NO
Event of TV sponsorship programme NO
Merely being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) make the company liable to comply with section 135, unless the company itself fulfils the criteria
No, It doesn’t make the company liable to comply with section 135, unless the company itself fulfils the criteria.
If section 8 company fulfils the criteria of section 135(1) then, whether provisions of CSR are applicable on Section 8 Company?
There is no specific exemption given to section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions
Can donation of money to a trust by a company be treated as CSR expenditure of the company?
The Ministry of Corporate Affairs has vide General Circular No. 21/2014 dated June 18, 2014 has clarified that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify as CSR expenditure as long as
(a) the Trust/ Society/ Section 8 company etc. is created exclusively for undertaking CSR activities or
(b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act
In case of companies having multi-locational operations, which local area of operations should the company choose for spending the amount earmarked for CSR operations?
As per ICSI FAQ no. 44
Proviso to Section 135(5) of the Companies Act 2013 provides that a company shall give preference to the local area and the areas around it where it operates for Spending the amount earmarked for CSR activities. In case of multi-locational operations, the company could exercise discretion in choosing the area for which it wants to give preference.
If a company having turnover of more than Rs. 1000 crores or more has incurred loss in any of the preceding three financial years, then whether such company is required to comply with the provisions of the section 135 of the Companies Act, 2013?
As per the provisions of section 135 of the Act, one of the three criteria has to be satisfied to attract Section 135. Therefore, if a company satisfies the criterion of turnover, although it does not satisfy the criterion of net profit, it is required to comply with the provisions of Section 135 and the Companies (CSR Policy) Rules, 2014. But, since there are no profits, the company may not spend any amount but explain the reasons for not spending the amount in its Boards Report.
What is the treatment of expenses incurred beyond that of mandated CSR spend?
There are instances of CSR activities that are in the project mode which require funds beyond that of the mandated 2%. Will such expense, where incurred, be counted in subsequent Financial years as part of CSR expenditure?
As per ICSI FAQ- 54
In terms of section 135(5), the board of every company, to which section 135 is applicable, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three preceding year.
There is no provision of spreading over the expenditure incurred in a particular year over the next few years. The words used here is at least. Therefore any
Expenditure over 2% could be considered as voluntary higher spend. However, in case, a company does not want to spend the 2% in the subsequent year on account of it having spent a higher amount in the previous year, the Board’s report may state so.
Whether it is mandatory to display CSR activity on website?
The Board of Directors of the company shall, after taking into account the recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company’s website, if any
Whether reporting of CSR is mandatory in Board report?
The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure.
There is no need to prepare director report for Foreign company so whether it is mandatory for foreign Company also to give reporting of CSR activity?
In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.
Whether profit arise from surplus of CSR activity form part of profit of the company
The surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company
Whether contribution to political party consider as CSR activity?
Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
Whether CSR projects or programmes for employee of the Company and their family will form part of CSR activity?
The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act’
Whether CSR projects and programme undertake outside India consider as CSR activity?
CSR projects and programme undertake in India only consider as CSR activity.
Whether company can collaborate with another company for CSR activity and project?
A company may also collaborate with other companies for undertaking projects or
programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs
How to calculate net profit for the purpose of Section 135?
For the purposes of section 135 “average net profit” shall be calculated in accordance with the provisions of Section 198
What should be the compliance if company fails to spend such amount on corporate social responsibility?
if the company fails to spend such amount, the Board shall, in its report made under clause (o) of Sub-Section (3) of Section 134, specify the reasons for not spending the amount
Is CSR spending required to be done by the Company directly or such amounts can be contributed to charity/ NGO/ section 25 company. Will such contribution qualify as CSR spend?
Yes. Contribution by the Company to such trusts, NGOs etc also qualify for CSR spend if it meets the track record and other criteria as per Rule 4(2) of Companies (CSR Policy) Rules, 2014.
Treatment of shortage in CSR spend and disclosure and possibility of carry forward of excess spending of CSR. Is there any need for creation of a provision in the event of a shortage in spending?
Any shortfall in spending in CSR shall be explained in the financial statements and the Board of Directors shall state the amount unspent and reasons for not spending that amount. Any such shortfall is not required to be provided for in the books of accounts. However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred then, a provision for the requisite amount payable to record that liability needs to be recognized as per the applicable Accounting Standards.
Any amount excess spent (i.e., more than 2% as specified in Section 135) cannot be carried forward to the subsequent years. However, the company is entitled to disclose in their Annual Reports of subsequent years any such excess spending of
Previous years while giving reasons for not spending in those later years.
Whether any dividend received from other companies in India will be include in Net Profit?
Any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act as well as any dividend received from a company incorporated outside India shall also be excluded from the Net Profit
Whether resolution can be pass by Circulation resolution by CSR Committee?
Yes there is no restriction to pass resolution by circulation resolution by the committee. It can pass such resolution.
 Net Profit for the CSR has been discussed at the end of the Article.
 Persons resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the Company.
 Refer Circular 21/2014 dated 18 June 2014
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at firstname.lastname@example.org)
(Republished with amendments)
Surplus/Savings arising on prepayment of deferred sales tax not taxable u/s (iv)
Case Law Details
Case Name : Grindwell Norton Ltd. vs. Addl. CIT (ITAT Mumbai)
Appeal Number : ITA No.528/Mum/2012
Date of Judgement/Order : 27.07.2016
Related Assessment Year : 2007-08
Courts : All ITAT ITAT Mumbai
CA Saurabh Chokhra
Brief of the case:
The ITAT Mumbai in the above cited case held that the surplus/savings arising on prepayment of deferred cannot be taxed u/s 28(iv) as by making prepayment of a future liabity at present value no monetary benefit arises to assessee as the savings it made by prepayment would get set off against the interest it loses by making prepayment.
Facts of the case:
The assessee company is engaged in the business of manufacturing of abrasives & refractory products and also dealt in ceramics and plastics. AO observed that the assessee company had made some gain on savings made by pre-payment of deferred sales tax at Net Present Value (of the tax payable after 7 years) amounting to Rs.1,63,03,435/- which the assessee treated as capital receipt .However, AO sough the same to be taxed as remission of a trading liability u/s 41(1).
CIT(A) accepted the assessee’s contention that savings due to prepayment of deferred sales tax would not amount to remission as envisaged in sec 41(1). However, as per CIT(A) the same results in benefit from business of the assessee as contemplated in sec 28(iv), therefore, such savings taxable as business income in Sec 28(iv).
Aggrieved assessee is in appeal before ITAT.
Contention of the Assessee:
The learned counsel for the assessee contended that the ‘benefit’ as envisaged u/s 28(iv) is something which actually flows to the assessee in monetary terms. By making prepayment of future liability assessee has not received any benefit because by making prepayment though at Net Present Value assessee may have saved some money but at the same time it has foregone the interest it would have earned on the money had it not used for prepayment.
Therefore, by no means any benefit as envisaged u/s (iv) accrue to assessee.
Held by ITAT Mumbai:
ITAT observed that the issue of taxability of surplus arising to the assessee on repayment on deferred sales tax liability has also arisen in earlier A.Y. i.e. A.Y. 2005-06 and 2006-07 wherein this issue has been decided in favour of the assessee by the Tribunal as well as by Hon’ble Bombay High Court. In those decisions it was held that such surplus cannot be said as remission of trading liability to be taxable u/s 41(1).
The deferred sales tax was repayable after a period of 7 years in prescribed no. of instalments. But by way of amendment to Bombay Sales Tax Act, assessee got an option to repay the deferred sales tax in present date at Net Present Value of the same payable in future.
By making payment of net present value of a future liability it cannot be said if any financial benefit, in real terms, has accrued to the assessee as the assessee has paid the same today which he could pay in future , had it not paid then it would have invested such money and earned interest on the same .
It is noted that none of the authorities had gone into this aspect and did not quantify, in financial or monetary terms, if any amount could be worked out which could be said to be a ‘benefit’ that had accrued to the assessee.
Therefore, the tribunal held that the surplus/savings arising of prepayment of a future liability can neither be taxed u/s 41(1) nor u/s 28(iv).
Goods & Services Tax – Road Map to a Stronger Nation
GST or the Goods and Services Tax is an indirect tax that replace most of the taxes that are imposed on all goods and services (except a few) under a single banner. This is in contrast to the current system, where taxes are levied separately on goods and services. The GST, however, is a comprehensive form of tax based on a uniform rate of tax for both goods and services. However, the GST is payable only at the final point of consumption.
GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer’s point and service provider’s point upto the retailer’s level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
An empowered committee was set up by the Atal Bihari Vajpayee government in 2000 to streamline the GST model to be adopted and to develop the required backend infrastructure that would be needed for its implementation.
In his budget speech on February 28, 2006, P. Chidambaram, the then Finance Minister, announced the target date for implementation of GST to be April 01, 2010 and formed another empowered committee of State Finance Ministers to design the roadmap. The committee submitted its report to the government in April 2008 and released its First Discussion Paper on GST in India in 2009.
The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance Minister Arun Jaitley on December 19, 2014, and passed by the House on May 6, 2015. In the Rajya Sabha, the bill was referred to a Select Committee on May 14, 2015. The Select Committee of the Rajya Sabha submitted its report on the bill on July 22, 2015. The bill was passed by the Rajya Sabha on August 03, 2016, and the amended bill was passed by the Lok Sabha on August 08, 2016.
The Act was passed in accordance with the provisions of Article 368 of the Constitution, and must be ratified by more than half of the State Legislatures. The bellow mention Stats are ratifies the bill:
Assam – Legislative Assembly ratifies GST Bill on August 12, 2016;
Bihar – Legislative Assembly ratifies GST Bill on August 16, 2016;
Jharkhand – Legislative Assembly ratifies GST Bill on August 17, 2016;
Himachal Pradesh – Legislative Assembly ratifies GST Bill on August 22, 2016;
Chhattisgarh – Legislative Assembly ratifies GST Bill on August 22, 2016;
Gujarat – Legislative Assembly ratifies GST Bill on August 23, 2016;
Madhya Pradesh – Legislative Assembly ratifies GST Bill on August 24, 2016;
Delhi – Legislative Assembly ratifies GST Bill on August 24, 2016;
Nagaland – Legislative Assembly ratifies GST Bill on August 26, 2016;
Maharashtra – Legislative Assembly ratifies GST Bill on August 29, 2016;
Haryana – Legislative Assembly ratifies GST Bill on August 29, 2016;
Telangana – Legislative Assembly ratifies GST Bill on August 30, 2016;
Sikkim – Legislative Assembly ratifies GST Bill on August 30, 2016;
Mizoram – Legislative Assembly ratifies GST Bill on August 30, 2016;
Goa – Legislative Assembly ratifies GST Bill on August 31, 2016.
Other states has called for special session to ratify GST by month end. It appears that by September 15, 2016 the GST bill will be ratified by required number of State Legislatures. So it is likely imminent that GST may be implemented w.e.f. April 01, 2017.
♣ GST ON INTERNATIONAL LEVEL
GST is one of the widely accepted indirect taxation system prevalent in more than 150 countries across the globe. Globally, GST has been structured as a destination based comprehensive tax levied at a specified rate on sale and consumption of goods and services within a country.
CURRENT RATE OF GST IN SOME OTHER COUNTRIES ARE:
Australia – 10%;
Canada – 5%;
France – 60%;
Germany – 19%;
Japan – 8%;
New Zealand – 15%;
Pakistan – 17%;
Singapore – 7%; and
Sweden – 25%.
♣ IMPLEMENTATION OF GST
Goods and Services Tax (GST), which aims to simplify indirect tax regime, will be a ‘game- changer’ for the country and its implementation is likely to take place from April next year.
According to Japanese financial services major Nomura, GST is a game changing indirect tax reform and its implementation would have a positive for growth in the long term. “While short-term macroeconomic implications of GST should be mixed, longer term, implementation should lift growth and enable greater general government fiscal consolidation,” Nomura said in a research.
While the government has been trying to implement a GST for the past five-six years, it has never been so close, political consensus now seems to be changing in favour of GST. The global brokerage believes, apart from simplifying the indirect tax structure, the GST should help to create ‘One’ India by eliminating geographical fragmentation.
The GST is facing hurdles in the Upper House. We expect these hurdles to be cleared soon and implementation to take place from April 2017. Implementation of the GST will be generally positive for consumption – related sectors (like auto, consumer durables and FMCG) and cement, given the potential reduction in tax incidences. For sectors like utilities and pharma, GST implementation will have a ‘neutral to negative’ impact, while the services sector is likely to see a negative impact from higher tax burdens, it added. The Goods and Services Tax seeks to bring a uniform tax structure subsuming a number of imposts and the government claims that it will help add 1 to 2 % to the country’s GDP.
♣ IMPORTANCE OF GST TO THE ECONOMY
In sum, implementation of a comprehensive GST in India is expected to lead to efficient allocation of factors of production thus leading to gains in GDP and exports. This would translate into enhanced economic welfare and returns to the factors of production, viz. land, labour and capital.
The changeover to GST is designed to be revenue neutral at existing levels of compliance. Given the design of the flawless GST, the producers and distributors will only be pass through for the GST. Further, given the single and low rate of tax the benefit from evasion will significantly reduce. Therefore, there will be little incentive for the producers and distributors to evade their turnover. Accordingly, this policy initiative should witness a higher compliance and an upsurge in revenue collections. This will also have an indirect positive impact on direct tax collections. Further, given the fact that GST will trigger an increase in the GDP, this in turn would yield higher revenues even at existing levels of compliance. Another important source of gain for the Government would be the savings on account of reduction in the price levels of a large number of goods and services consumed by the Government.
GST WILL POSITIVELY IMPACT THE COMMON MAN IN MANY WAYS:
It will add to the overall economic growth by removing economic distortions;
It will create new employment opportunities;
There by increasing the levels of income across a large section of the society;
It will reduce inflation if GST is levied at the combined rate;
It will decentralize production to areas enjoying comparative advantage so more jobs can be expected to be created in rural areas. This will in turn slow down the pace of migration to urban areas;
It will improve governance since the introduction of a comprehensive GST will bring about more transparency and an end to crony capitalism;
GST can create further opportunities for relief under direct taxes over time since it is viewed as a revenue generating machine;
Alternately, it will facilitate fiscal consolidation thereby reducing the debt burden of citizens in general.
♣ GST MODEL IN INDIA
The taxation of goods and services in India has, hitherto, been characterised as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth. It also inhibits voluntary compliance. Therefore, it is necessary to replace the existing indirect tax system by a new regime which would foster the achievement of the following objectives:
a. The incidence of tax falls only on domestic consumption;
b. The efficiency and equity of the system is optimized;
c. There should be no export of taxes across taxing jurisdictions;
d. The Indian market should be integrated into a single common market;
e. It enhances the cause of cooperative federalism.
With a view to attaining the objectives set out above, the task force on GST recommended a VAT type Goods and Services Tax (GST).
♣ CONCEPT OF DUAL GST
In a federal country like India where the power to tax domestic trade is divided between the Central Government and the State Government, the designing of a destination based GST becomes extremely complicated. A conventional national GST cannot be implemented without the States losing their fiscal autonomy. However, this is not feasible since revenues from State VAT account for substantial proportion of State’s revenues. Therefore, the solution has to be found within the existing federal framework where both levels of Governments have the concurrent powers to tax domestic trade in goods and services.
Modal of GST
The GST shall have two components: one levied by the Centre – Central GST (hereinafter referred CGST), and the other levied by the States – State GST (hereinafter referred to as SGST).
The CGST and the SGST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.
The CGST and SGST are to be paid to the accounts of the Centre and the States separately.
Since the CGST and SGST are to be treated separately, taxes paid against the CGST shall be allowed to be taken as input tax credit for the CGST and could be utilized only against the payment of CGST. The same principle will be applicable for the SGST.
Cross utilisation of input tax credit between the CGST and the SGST would, in general, not be allowed.
Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc. where, again refund/adjustment should be completed in a time bound manner.
To the extent feasible, uniform procedure for collection of both CGST and SGST would be prescribed in the respective legislation for CGST and SGST.
The administration of the CGST to the Centre and for SGST to the States would be given. This would imply that the Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.
The States are also of the view that Composition/Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover.
The taxpayer would need to submit periodical returns, in common format as far as possible, to both the CGST authority and to the concerned SGST authorities.
Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax, facilitating data exchange and taxpayer compliance.
Keeping in mind the need of tax payer’s convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.
With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import of goods and services.
CGST SGST IGST
Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in the case of inter-State supply of goods and services under the IGST.
♣ CONCEPT OF INTEGRATED GST (IGST)
The Empowered Committee has accepted the recommendation for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.
THE MAJOR ADVANTAGES OF IGST MODEL ARE:
Maintenance of uninterrupted ITC chain on inter-State transactions.
No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
No refund claim in exporting State, as ITC is used up while paying the tax.
Self monitoring model.
Level of computerisation is limited to inter-State dealers and Central and State Governments should be able to computerise their processes expeditiously.
As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.
♣ TAXES SUBSUMED UNDER GST
⇒ The following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:
Central Excise Duty;
Additional Excise Duties;
Additional Customs Duty, commonly known as Countervailing Duty (CVD);
Special Additional Duty of Customs – 4% (SAD);
⇒The following State taxes and levies would be, to begin with, subsumed under GST:
VAT / Sales tax;
Entertainment tax (unless it is levied by the local bodies);
Taxes on lottery, betting and gambling;
State Cesses and Surcharges in so far as they relate to supply of goods and services;
Entry tax not in lieu of Octroi.
⇒Since all taxes on goods and services, levied by the Centre or the States, should be subsumed in the GST, the following other taxes levied by the States on goods and services should also be subsumed:
Taxes on Vehicles;
Taxes on Goods and Passengers; and
Taxes and duties on electricity.
♣ TAXABLE PERSONS/ ENTITIES UNDER GST
The GST model is expected to cover all types of per sons carrying on business activities, i.e. manufacturers, job- workers, traders, importers, ex porters, all types of service providers, etc. If a Company is having four branches in four different States, all the four branches will be considered as taxable entities under each of the jurisdictions of State Governments concerned.
PERSON IS REQUIRED TO BE REGISTERED UNDER GST
Every person who already registered under any indirect tax law on the date of commencement of this act.
Every other person who is not already registered under any indirect tax law on the date of commencement of this act and whose turnover exceed Rs. Nine Lacs (Rs. Four Lacs for North-Eastern States). However, Registered taxable person required to charge/collect GST when his aggregate turnover in a financial year exceeds Rs.Ten Lacs (Rs. Five Lacs for North-Eastern States).
Person making inter-state supply.
Casual Taxable Person – is a person who occasionally undertakes transactions involving supply or acquisition of goods and/or services in the course or furtherance of business whether as principal, agent or in any other capacity, in a taxable territory whether he has no fixed place of business.
Person liable to pay tax under reverse change mechanism.
Non-resident taxable person.
Person required deducting TDS under GST Law.
Input Service Distributor.
An aggregate who supplies services under his brand name or his Trade name.
♣ RATES OF TAX
The Empowered Committee has decided to adopt a two-rate structure – a lower rate for necessary items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items. For upholding of special need of each state as well as a balanced approach to federal flexibility, it is being discussed whether the exempted list under VAT regime including Goods of Local Importance may be retained in the exempted list under State GST in the initial years. It is also being discussed whether the government of India may adopt, to begin with, a similar approach towards exempted list under the CGST.
For CGST relating to goods, the State considered that the Government of India might also have a two-rate structure, with conformity in the levels of rate with the SGST. For taxation of Services, there may be a single rate for both CGST and SGST. The exact value of the SGST and CGST rates, including the rate for services, will be made known duly in course of appropriate legislative actions.
The rate is expected around 18% to 22%. After the Total GST Rate is arrived at, the States and the Centre will decide on the CGST and SGST rates.
♣ THRESHOLD EXEMPTION FOR GST
Threshold exemption is built into a tax regime to keep small traders out of tax net. This has three-fold objectives:
It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them.
The compliance cost and compliance effort would be saved for such small traders.
Small traders get relative advantage over large enterprises on account of lower tax incidence.
The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, it has been considered that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories might be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also considered that the threshold for Central GST for goods may be kept Rs.1.5 Crore and the threshold for services should also be appropriately high.
♣ DESTINATION PRINCIPLE
A GST can be implemented under either the origin or the destination principle. Under the former, the GST is imposed on the value added of all taxable products that are produced domestically; under the latter, the GST is imposed on the value added of all taxable products that are consumed domestically. Obviously, the two principles are identical in a closed economy. In an open economy, the difference between them lies solely in their treatment of imports and exports: exports are taxed but imports are not under the origin principle, while just the converse holds under the destination principle. It is important to note that the distinction between the two principles is based on the location of production and consumption. In view of our recommendation for a consumption type GST and the need for increased international competitiveness, the task force recommended that –
The GST should be structured on the destination principle. As a result, the tax base will shift from production to consumption whereby imports will be liable to tax and exports will be relieved of the burden of goods and service tax. Consequently, revenues will accrue to the State in which the consumption takes place or is deemed to take place;
international exports should be zero rated;
international imports should be subject to both CGST and SGST at the time of importation irrespective of whether or not the imported goods are produced domestically;
SGST on Business to Business imports should be collected by the same agency which collects the CGST and should be remitted to the state in which the place of destination of the imports is located regardless of where the goods enter the country. However, the place of destination may be defined to mean the address of the importer on the import invoice; and
SGST on Business to Consumer imports should be collected by the same agency which collects the CGST and should be remitted to the state in which the place of residence of the person importing the goods is located regardless of where the goods enter the country.
♣ PLACE OF SUPPLY RULES
The rules and approaches vary across countries, the basic criteria for determining the place of supply (or place of taxation) in the case of services is as follows:-
In the case of a sale of real property, the place of supply is the jurisdiction in which the property is located. Similarly, services directly connected with real property (i.e., services provided by real estate agents or architects) are also taxed in the place in which the property is located.
In the case of mobile services (that is, passenger travel services, freight transportation services, telecommunication services, motor vehicles lease/rentals and E-commerce supplies), there is no fixed place of performance or use/enjoyment of the service. Therefore special rules need to be framed keeping in mind the basic destination principle
In the case of other services and intangible property, the place of supply is determined on the basis of one or more of the following proxies:
a) Place of performance of service;
b) Place of use or enjoyment of the service or intangible property;
c) Place of location/residence of the recipient; and Place of location/residence of the supplier.
In defining the place of supply of services and intangible property, a distinction is often made between supplies made to businesses (B2B) and final consumers (B2C). In general, the place of supply in the case of Business to Business transaction is the place where the recipient is located or established regardless of where the services are performed or used. This is particularly in the case of intangible services like advisory or consulting services for which the place of performance is not important. Therefore, all such services rendered to a non-resident are zero-rated. By contrast, many Business to Consumer services tend to be tangible or physical in nature, e.g. haircuts, hotel accommodation, local transportation and entertainment services which are consumed in the place of their performance. Therefore, the place of supply in the case of Business to Consumer transaction is the place where the supplier is located.
The place of supply rules relate to international transactions of goods and services and also apply to inter-state supplies. However, in practice there are substantial deviations in these rules. The recipient of the services may be located in more than one state and there is no practice to determine the residency of the recipient unlike in the case of international transactions. Therefore, it is extremely difficult to identify the place in which the recipient is established/ located. In general, it would be desirable to tax Business to Business supplies of services and intangibles in the State of destination, and not of origin.
Given that any tax on Business to Business supplies would generally be fully creditable, excessive sophistication would not be warranted for defining the place of destination of such supplies. For multi establishment business entities, the place of destination should be defined as the place of predominant use of the service. However, if there is no unique place of predominant use, the place of destination could be the mailing address of the recipient as stated on the invoice, which would normally be the business address of the contracting party. The risk of misuse of this rule would be minimal if it is limited to Business to Business supplies where the tax is fully creditable.
For Business to Consumer services, the place of supply should be the State in which the supplier is located, which, in turn, could be defined as the place where the services are performed. If there is no unique place of performance of the service, the place of supply could be defined as the State where the supplier’s establishment most directly in negotiation with the recipient is located.
♣ TREATMENT OF CAPITAL GOODS
The treatment of capital goods the task force recommended that:-
Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired; and
any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.
♣ TREATMENT OF PETROLEUM PRODUCTS
One of the classes of products whose consumption needs to be checked to restrict negative externalities is petroleum products. The entire range of petroleum products is subject to multiple taxation at both the Central and State level. As a result, the incidence of tax on products essentially used as intermediate inputs cannot be estimated and leads to a cascading effect on downstream products. Consequently, it is necessary to rationalise the tax treatment of petroleum products.
The Task Force recommends a dual levy of GST and excise on the entire range of emission fuels. As a general rule, no input credit will be allowed to any person in respect of GST on the emission fuels since emission fuels are predominantly used in final consumption and has the potential for creating a flourishing market in trading of invoice and input tax credit. However, this general rule should be relaxed in the case of consumption of transportation fuels by the Ministry of Railways, the State Road Transport Corporations, the Airlines, truckers, taxi operators and a dealer16 trading in these goods on the consideration that the consumption is essentially intermediate in nature and the unlikelihood of these entities indulging in purchase of bogus invoices. However, in the case of truckers and taxi operators, the benefit of input tax credit has the potential of misuse and therefore credit may be allowed through the abatement mechanism only. Further, no input tax credit in respect of excise would be allowed to any other person.
The industrial fuels should be subjected only to GST (both Central and State) with the benefit of input credit like any other intermediate good. Both the Central and the State Governments may determine the appropriate revenue neutral rate of excise in the case of emission fuels.
♣ TREATMENT OF THE POWER SECTOR
The treatment of the power sector the Task Force recommended the following:-
The electricity duty levied by the States should be subsumed in the SGST.
The power sector must form an integral part of the comprehensive GST base recommended by us over which both the Central and State Governments would have concurrent jurisdiction.
The tax regime for the power sector should be the same as in the case of any other normal good.
Article 278 and Article 288 of the Constitution should be amended to enable levy of GST on supply of electricity to Government at all levels like any other normal goods.
The inclusion of the power sector in the GST model would significantly reduce the cost of power projects and consequently the cost of generation and distribution of electricity. As a result, it will improve profitability of power projects thereby attracting new investments into the sector. To the extent the cost of power will witness reduction, downstream industries will also benefit from cost savings and thus become internationally more competitive.
♣ TREATMENT OF TRANSPORT SERVICES
The treatment of transport services the Task Force recommended the following:-
The tax on vehicles and the tax on goods and passengers levied by the State Governments should be subsumed in the GST.
All transport equipments and all forms of services for transportation of goods and services by railways, air, road and sea must form an integral part of the comprehensive GST base recommended by us over which both the Central and State Governments would have concurrent jurisdiction.
The tax regime for the transport equipments and transport services should be the same as in the case of any other normal good.
It is not necessary to levy higher rates of taxes on vehicles as is the existing practice since it is proposed to subject the use of these vehicles to tax at higher rates through excise on emission fuels. Accordingly, the present practice of levying higher rates of taxes on vehicles should be done away.
♣ TREATMENT OF FINANCIAL SERVICES
Treatment of financial services the task force recommended that there are predominantly three alternative methods for levying GST on financial services: the exemption method, the zero rating method and the full taxation method. While the exemption method and the zero rating method reduces the potential GST base and also distorts consumption across financial services and other business services, the full taxation method significantly enhances the tax base and also results in equal treatment of all services. Therefore, the task force recommended that the consumption of financial services should be taxed on the basis of the full taxation method.
There are alternative approaches to full taxation of financial services. These are the addition method, the subtraction method and the cash flow method. The task force recommended that the choice of the method may be based on administrative and compliance consideration.
♣ TREATMENT OF SMALL SCALE INDUSTRIES
The small scale industries are generally wary of dealing with multiple tax administrations. Therefore, in order to inspire confidence of the small scale industry in the new GST framework, we also recommend that the scrutiny/audit of the small scale industry should be conducted only by the state tax administration. However, the State tax administration may seek the assistance of the central tax administration or any other state tax administration if the operations of the small scale industry transcend the state boundaries. Since the CGST and the SGST are proposed to be levied on an identical GST tax base, the outcome of any investigation impacting SGST will also have a corresponding impact on CGST. Therefore, enforcement by the State tax administration would be adequate to even deal with CGST evasion.
♣ COMPOSITION AND COMPOUNDING SCHEME UNDER GST
A Composition/Compounding Scheme will be an important feature of GST to protect the interests of small traders and small scale industries. The Composition/Compounding scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover. In particular there will be a compounding cut-off at Rs. 50 lakhs of the gross annual turnover and the floor rate of 0.5% across the States. Under this scheme –
The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off;
No composition scheme will be allowed to dealer who makes inter state supplies;
Person cannot option for both composition and regular;
Composition dealer not to collect ay tax ans shall not be entitled to take Input Tax Credit;
If it is detected that person was not eligible for composition then penalty equal to tax payable may be levied;
Composition dealer will have to file four quarterly and one annual return.
♣ SCOPE OF WORK FOR PROFESSIONAL UNDER THE BANKRUPTCY AND INSOLVENCY PROCESS
Advisory services or strategic advisor.
Tax Planning of indirect taxes/GST.
Procedure Compliance includes registration, filing of returns, payments of taxes, assessment etc.
Book/Record Keeping and accounting systematic records of credit of input/input service and its proper utilisation.
Representation with various competent authorities.
Acting as authorised representative before Central Excise Authorities.
Appellate work and Documentation.
Valuation and classification of goods.
Assessment of duty and obtaining refunds.
♣ CONTRIBUTED BY
Mrs. Jaya Sharma-Singhania
Mrs. Hetal Chitroda
M/s. Jaya Sharma & Associates, Practicing Company Secretary Firm, Mumbai
Model GST Law
Referencer on Goods & Services Tax by ICSI
Source : taxguru