Goods and services tax (GST)
GST is an indirect tax, which is a transaction-based taxation regime, that has been in effect in India since 1 July 2017.
For smooth GST implementation, the government has formed a GST Council. The Council consists of the State Finance Ministers representing their states. The GST Council provides recommendations to the government on various aspects of GST law, such as rate revisions and amendments in GST rules, etc.
Prior to GST, there were multiple indirect taxes leviable on various transactions at each stage separately by the Union Government and the states at varying rates. Such taxes included excise duty, service tax, value added tax (VAT)/central sales tax (CST), entertainment tax, luxury tax, lottery taxes, state cesses and surcharges, etc. All such taxes (except customs duty) have been subsumed under GST, and there is one single tax applicable on supply of goods and services. However, there are a few products that continue to be outside the ambit of GST, like petrol, diesel, aviation turbine fuel (ATF), natural gas, and crude oil.
GST is a comprehensive ‘consumption tax’ levied on the supply of all goods and services. Indian GST is a dual model:
- Central GST (CGST), levied by the Central Government.
- State GST (SGST)/Union Territory GST (UTGST), levied by the State Governments/Union Territories.
In case of intra-state supply of goods and services, CGST+SGST/UTGST would become applicable, and in case of inter-state supply of goods and services, Integrated GST (IGST) would become applicable. IGST is a sum of CGST and SGST/UTGST. The rate of GST varies from 5% to 28% depending upon the category of goods and services, the general rate of tax being 18%. Additionally, some categories of goods/services, like vehicles, aerated beverages, etc., notified by the government are subject to compensation cess under GST.
The threshold limit for the purpose of obtaining GST registration is INR 2 million aggregate turnover in a financial year (INR 1 million for some special category states, like the North-Eastern states). For the purpose of the threshold, aggregate turnover shall be computed on an all India basis. For some specific categories of supplies and suppliers, the registration requirement is mandatory.
However, with effect from 1 April 2019, the threshold for obtaining GST registration by a person who is engaged in exclusive intra-state supply of goods is INR 4 million aggregate turnover in a financial year, except in some specified cases.
Furthermore, the threshold for obtaining GST registration by a service provider continues to be INR 2 million.
Also, with effect from 1 February 2019, for some special category states making supply of goods/services (viz. Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim, and Uttrakhand), the threshold limit has increased from INR 1 million to INR 2 million. For other special category states, the threshold continues to be INR 1 million.
Similar to previous VAT laws, there is a concept of composition scheme under GST for small traders. Small traders having turnover of INR 10 million have an option to avail a composition scheme. Under the said scheme, GST at a lower rate (1% of the taxable turnover for manufacturer/traders and 5% in case of restaurants) would apply. The concept of composition scheme is not applicable for services except restaurant services.
With effect from 1 April 2019, the threshold for composition scheme has been enhanced to INR 15 million.
Taxpayers who wish to opt for the composition scheme for FY 2020/21 can do so by filing Form CMP 02 by 30 June 2020.
To streamline the real estate sector, the government issued multiple notifications effective from 1 April 2019 to provide a lower rate GST benefit to real estate.
The key aspect of this change was that an option was given to existing under construction projects to either adopt the new rate structure (1% or 5% without input tax credit [ITC]) or continue with the old GST rate (8% or 12% with ITC). This option was exercisable until 20 May 2019.
Import of goods and services
The import of goods under the GST regime will be subject to IGST and compensation cess (if applicable), along with basic custom duty (BCD) and social welfare surcharge (up to 10% levied on the BCD). BCD and social welfare surcharge paid at the time of imports are not available as credit under GST; consequently, they will always be a cost to the importer.
Similar to erstwhile service tax laws, on import of service, service recipient would be liable to pay IGST under reverse charge. Also, there are specified categories of goods and services notified by the government on which GST needs to be paid by the recipient under reverse charge.
Zero-rated supplies/Export of goods and services
Export of goods and services are zero rated under GST. Exporters can claim refund of ITC of inputs/input services used in export of goods/services, subject to fulfilment of prescribed conditions. As per GST laws, exporters will be provided provisional refund within seven days from the date of acknowledgement. For claiming the zero rate on exports, there is a requirement to file a bond/Letter of Undertaking (LUT) to the jurisdictional tax authorities. Alternatively, the exporter can pay tax on output and claim refund for the same.
Also, the supplies to an SEZ for authorised operations have been made zero rated under GST. Unlike the erstwhile indirect tax regime, which involved a lot of paperwork for claiming export refund claims, a simplified online process for claiming refund of exports has been specified under GST. The taxpayer is required to file a refund application and submit the relevant documents online on the GST portal.
To facilitate trade for small exporters, the concept of 'merchant exporter' has been introduced under GST. Accordingly, the merchant exporters will now have to pay nominal GST of 0.1% for procuring goods from domestic suppliers for export, subject to conditions specified in the notification.
- To facilitate exporters, bunching of refund claims across financial years has now been allowed (earlier there was a restriction on clubbing of refund claims for different periods).
- Earlier, for claiming a refund of zero-rated supply of services, there was a requirement to receive remittance in foreign exchange within a stipulated time period. Now this requirement has been extended to zero-rated supply of goods as well.
- Refund of accumulated ITC is restricted to the amount appearing in GSTR 2A. However, the department has now clarified that the restriction as per circular shall not impact the refund of ITC availed on the invoices/ documents relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) etc. merely because the same is not reflecting in GSTR 2A.
- Refund of payment wrongly made through electronic credit ledger is allowed (refund amount would be re-credited to credit ledger).
Further, on account of the COVID-19 pandemic, the Central Board of Indirect Taxes and Customs (CBIC) had issued instruction to its officers to expedite and process all pending GST refund claims by 30 April 2020.
Input tax credit (ITC)
As per the ITC provisions stipulated under GST law, a registered taxable person is eligible to claim ITC of such goods and services that are used or intended to be used in the course or furtherance of business. However, there is a specified list of goods and services mentioned below where credit will not be available under GST:
- Personal use of goods and services procured.
- Goods and services being used for effecting exempt supplies.
- Supply of the following goods and services:
- Motor vehicles (credit available in certain cases where used for transportation business).
- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services.
- Membership of a club, health, and fitness centre.
- Rent-a-cab, life insurance, health insurance, except where the government notifies the services that are obligatory for an employer to provide to its employees under any law for the time being in force.
- Travel benefits extended to employees on vacation, such as leave or home travel concession.
- Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service.
- Goods or services received by a taxable person for construction of an immovable property on one's own account, other than plant and machinery, even when used in the course or furtherance of business to the extend capitalised.
- Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
Under GST, taxpayers are allowed to take credit of taxes paid on inputs (ITC) and utilise the same for payment of output tax liability. However, no ITC on account of CGST can be utilised towards payment of SGST/UTGST and vice versa. The credit of IGST is permitted to be utilised for payment of IGST, CGST, and SGST/UTGST in that order.
With effect from 1 February 2019, the following modifications were made to credit rules:
- Specific credit restriction in respect of general insurance, servicing, repairs and maintenance, hiring, leasing, etc. in respect of motor vehicles, except when used for specified purposes (e.g. used in further supply of vehicles, for transportation of goods/passengers), was inserted. ITC of goods and services that are obligatory for an employer to provide to its employees, under any law for the time being in force, was allowed.
With effect from March 2019, a new rule for setting off of credit was inserted that provides that IGST credit needs to be first utilised towards payment of output IGST liability. The remaining IGST credit can be utilised to offset CGST/SGST or UTGST output liability, as the case may be, in any order.
New provision on procedure for ITC availment
- In case the outward supply is not reported by the supplier in the supplier's GST return (like return not filed), then the recipient can avail maximum credit equivalent to 20% of the ITC available. With effect from 1 January 2020, this was further reduced to 10%.
- Further, for the period February 2020 to August 2020, the above credit restriction would apply cumulatively at the time of filing the September 2020 GST returns. Thus, at the time of filing GSTR 3B for the period February 2020 to August 2020, the above-discussed credit restriction would not apply.
- Where credit has been availed based on invoice, the recipient would be liable to pay credit so availed in case where return has not been furnished by the supplier.
Also, it is pertinent to note that the credit pool is state-specific (i.e. IGST, CGST, and SGST of one state cannot be used to offset output of IGST, CGST, and SGST liability of another state).
There are three monthly returns for a normal taxpayer under GST:
- GSTR 1 for output (to be filed by the tenth day of the succeeding month, extended to the 11th day of the succeeding month for the period April 2020 to September 2020). There is an option to file quarterly GSTR 1 returns (to be filed by the last day of the succeeding quarter) for suppliers whose turnover in the previous or current financial year was less than INR 15 million.
- GSTR 2 for ITC (by the 15th day of the succeeding month).
- GSTR 3, a monthly tax return (by the 20th day of the succeeding month).
The government has also issued a requirement to file monthly GSTR 3B (to be filed by the 20th day of the succeeding month), and such monthly return need to be filed by September 2020.
Further, filing of GSTR 2 and GSTR 3 continues to be suspended.
The government had proposed to implement a new GST return system. The existing returns GSTR 1/GSTR 3B would be revamped in lines with the new format. However, this has currently been deferred (i.e. the existing system of GSTR 1 and GSTR 3B is to continue until March 2021).
There is a requirement to file a GST annual return by 31 December of the succeeding financial year. Also, along with a GST annual return, suppliers whose turnover exceeds INR 20 million in a financial year are required to file a GST Audit Report by 31 December of the succeeding financial year. The government has notified the GST annual return/Audit Report forms. The extended due date of filing a GST annual return/Audit Report for the period July 2017 to March 2018 was 31 March 2020.
Also, for FY 2018/19, the extended due date of filing a GST annual return/Audit Report is 30 June 2020 which has been further extended to 30 September 2020. This has been further extended to 31 December 2020.
Further, for FY 2018/19, filing of a GST annual return is optional for taxpayers whose annual turnover does not exceed INR 20 million in a financial year.
The requirement to file an Audit Report for FY 2018/19 for taxpayers whose annual turnover is below INR 50 million has been waived.
Budget 2020/21 update
- The date of issuance of a debit note has been delinked from the date of issuance of the underlying invoice for purposes of availing ITC. Given the same, ITC on debit notes is available irrespective of the date of invoice to which it relates (earlier there was a specified timeline to avail GST credit against a debit note). The functionality has been made effective on GST portal.
- Requirement of issuance of certificate for tax deducted at source under GST laws has been relaxed (effective date to be notified).
- Penalty and prosecution provisions have been made more stringent in case of passing on or availing fraudulent ITC.
- The due date for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, and any other documents for any compliance under the GST laws where the time limit is expiring between 20 March 2020 and 29 June 2020 has been further extended from 30 June 2020 to 31 August 2020. Further, the time limit for completion of assessments, appeals or undertaking any compliance action by the department has been further extended to 30 November 2020.
- On account of the COVID-19 pandemic, the government has recently announced an extension of GST compliance timelines. The extended timeline for taxpayers having aggregate turnover in a financial year of more than INR 50 million is briefly captured below.
Particulars GSTR 1 GSTR 3B March 2020 April 2020 May 2020 March 2020 April 2020 May 2020 Actual due date 11 April 2020 11 May 2020 11 June 2020 20 April 2020 20 May 2020 20 June 2020 Effective due date 30 June 2020 30 June 2020 30 June 2020 5 May 2020 (without interest) 4 June 2020 (without interest) 27 June 2020 Late fee waiver Yes (if return is filed by 30 June 2020) Yes (if return is filed by 30 June 2020) Yes (if return is filed by 30 June 2020) Yes (if return is filed by 24 June 2020) Yes (if return is filed by 24 June 2020) NA Interest NA NA NA 0% up to 5 May 2020 0% up to 4 June 2020 18% if tax paid after 27 June 2020 Nil for first 15 days from the due date and thereafter 9% up to 24 June 2020 Nil for first 15 days from the due date and thereafter 9% up to 24 June 2020 Penalty waiver NA NA NA Yes (return to be filed by 24 June 2020) Yes (return to be filed by 24 June 2020) NA
- For taxpayers having aggregate turnover in a financial year of INR 50 million or less, there are state-specific due dates (in staggered manner) for filing GSTR 3B. Accordingly, extensions have been provided in a staggered manner.
- The revised timelines have been issued for GSTR 1 for the period October 2020 onwards. Please refer below tables for return filing due dates:
Due date of filing GSTR 1 for the period October 2020 to March 2021
|Particulars||Type of return||Period||Due date|
|Turnover below INR 15 million||Quarterly||October 2020 to December 2020||13 January 2021|
|Trunover below INR 15 million||Quarterly||January 2021 to March 2021||13 April 2021|
|Turnover above INR 15 million||Monthly||October 2020 to March 2021||Eleventh subsequent month|
The due date of GSTR 3B filing for the tax period October 2020 to March 2021 for taxpayers having aggregate turnover of INR 50 million has been notified as twentieth of subsequent month.
- Extension provided for filing of GSTR 3B return for the month of August 2020, for the taxpayers having turnover of up to INR 50m in the previous financial year.
- Enabled furnishing of nil return in Form GSTR 3B or in Form GSTR-1 for a tax period through a SMS using the registered mobile number which shall be verified based on one-time password facility.
- Conditional waiver of late fees (Maximum of INR 500 in case other then nil return and zero for nil return) for the period from July 2017 to July 2020).
- A proviso to section 50 (interest payment) of Central GST Act, 2017 has been inserted (w.e.f. 1 September 2020) which provides that in case of delay in tax payment interest amount would be computed on net output liability payable in cash i.e. tax payable after offsetting the input tax credit balance (before amendment there was ambiguity on calculating the interest amount on gross tax liability or net cash liability). However, now necessary amendment has been made in law. Further, an Administrative instruction (F. No. CBIC/20/10/08/2019-GST, dated 18 September 2020) has been issued to GST authorities for recovery of Interest on net cash liability retrospectively from 1 July 2017
- An auto-populated input tax credit statement GSTR 2B facility has been enabled from 12 September 2020 (available on 12 of subsequent month) capturing details of credit available on import of goods, domestic procurement etc. Basis this statement taxpayers can reconcile credit to availed/ revered in monthly GSTR 3B.
- New HSN disclosure norms applicable from 1 April 2021. This is in respect of HSN wise reporting of supply of goods/ services at the time of filing GST returns. Currently, there is a requirement of reporting HSN codes (0-4 digits HSN code) wise supply of goods/ services depending on the aggregate turnover (INR 15 million/ INR 50 million).
|Aggregate Turnover in the preceding FY||Number of digits of HSN code|
|Below INR 50 million||4 (not required for B2C invoices)|
|Above INR 50 million||6|
CBIC clarified that director's remuneration declared as 'salaries' in the books of company (subject to tax deducted at source) is the consideration for the services provided by an employee to the employer in the course of or in relation to employment. Therefore, in terms of Schedule III of the Central Goods and Services Tax Act, 2017 such remuneration would not subject to GST.
Further, it has been clarified that part of employee director remuneration which is not declared as salary in the company's books and is subject to tax deducted at source (fee for professional or technical services) would be liable to GST under reverse charge i.e. company would be liable to discharge GST liability on it under reverse charge.
- Ad hoc extension till 30 June 2020 had been provided for undertaking compliances filing of SOFTEX, Annual Performance Reports, Extension of Letter of Approval (LoA), etc. For ease of doing business on account of the COVID-19 outbreak, revised guidelines for work from home have been issued. Further, the last date of filing ARPs/QPRs by SEZ units/Developers/EOUs has been extended to 31 December 2020. Also, Department of Telecommunication (DOT) has also allowed SEZ employees to work from home till 31 December 2020.
- A uniform list of services to SEZ for day-to-day operations has been notified to avoid the requirement of getting approval from the Development Commissioner.
- The time period for renewal of Registration Cum Membership Certificates (RCMCs) has been extended. The RCMC is issued by the relevant Export Promotion Council and is valid for a particular period. The Directorate General of Foreign Trade has directed the concerned licensing authorities not to seek an RCMC in cases where the validity expired on or before 31 March 2020 for grant of export benefits/incentives. This dispensation would remain in force till 30 September 2020. Considering this, SEZ units can renew an RCMC granted by the Export Promotion Council for EOU and SEZ (EPCES) till 30 September 2020.
- On account of COVID-19 outbreak, following relief to Government SEZs has been provided:
- No increase in lease rent for FY 2020-21; and
- Deferment in payment of lease rentals of first quarter (April 2020 to June 2020) to 31 July 2020, without any interest.
- Development Commissioners have been requested to advise State Government/ Private SEZs to consider similar relief measures.
The government had proposed to implement a new GST return system. The existing returns GSTR 1/GSTR 3B would be revamped in lines with the new format. However, this has currently been deferred (i.e. the existing system of GSTR 1 and GSTR 3B is to continue until September 2020).
Concept of e-invoicing under GST
The government is proposing to introduce an e-invoicing system under GST laws. A summary of the key aspects of the proposed e-invoicing system is briefly explained below.
- E-invoicing would be applicable on companies having turnover of more than INR 1 billion.
- E-invoicing is a system in which invoices would be authenticated electronically by the government.
- The companies would need to submit details related to the invoice on the government approved/authorised portal known as the Invoice Registration Portal (IRP), which would issue a unique identification number (i.e. Invoice Registration Number [IRN]) and QR code against every invoice.
- Without an IRN/QR code, the invoice issued by the company would be invalid and the recipient company would not be eligible to avail credit.
- All invoice information will be transferred from the IRP to the GST portal (of both supplier and recipient).
The government initially proposed to implement the system with effect from 1 April 2020. Also, a trial run effective from January 2020 was initiated.
However, now the date for implementation of E-invoicing and QR Codehas been extended to 1 October 2020. Also, certain classes of registered persons (insurance company, banking company, financial institution, non-banking financial institution, GTA, passenger transportation service, etc.) are exempted from issuing e-invoices or capturing dynamic QR codes.
Recently, CBIC has notified that registered persons whose aggregate turnover exceeds INR 1000 Mn would be required to comply with e-invoicing provisions with effect from 1 January 2021
The e-invoicing (for B2B invoices/GST registered recipients) has been made mandatory effective from 1 October 2020 for taxpayers whose aggregate turnover in a financial year (in any last 3 Financial Years) exceeded INR 5000 Mn. Further, effective from 1 December 2020 for invoices issued to unregistered customers (B2C) such taxpayers are required to issue/capture dynamic QR code on invoice. The purpose of dynamic QR code is to
encourage digital payments where buyers can scan the dynamic QR code and make payment from mobile wallet directly.
Special procedure for taxpayers for issuance of e- invoices in the period 1 October 2020 - 31 October 2020.
The CBIC has relaxed certain provisions of Rule 48(4)of Central GST Rules, 2017 i.e., requirement of IRN and QR code on the tax invoices for the period October 2020. The key pointers are provided below:
An invoice issued without IRN from 01 October 2020 to 31 October 2020 would be deemed to be a valid invoice:
- IRN for invoices issued in the month of October should be obtained from the Invoice Reference Portal (IRP) within a period of 30 days of the date of invoice;
- Penalty under section 122 of CGST Act 2017 has been relaxed for such cases;
- No such relaxation is applicable for invoices issued from 01 November 2020 onwards
CBIC has shared following example/instance in the press release for ease of understanding:
For instance, in case a registered person has issued an invoice dated 03 October, 2020 without obtaining IRN but reports the details of such invoice to IRP and obtains the IRN of the invoice on or before 02 November, 2020 then it shall be deemed that the provisions of rule 48 (5) of the CGST Rules, 2017 are complied with and the penalty imposable under section 122 of the CGST Act, 2017 shall also stand waived.
In case IRN is not generated for invoices issued in the month of November, invoices would be deemed to be issued in violation of rule 48(4) of the Central GST Rules 2017 and penalty would also be levied.
Other GST returns
With effect from 1 October 2018, the government has made tax deducted at source/tax collected at source provisions stipulated under GST laws effective.
Tax deducted at source provisions are applicable on cases specified under section 52 of the CGST Act, 2017. The notified taxpayers, like the government, Public Sector Undertakings, etc., are required to deduct 2% tax (1% CGST, 1% SGST, or 2% IGST) on payments made to goods/services suppliers where payment exceeds INR 0.25 million. The tax so collected would be available as credit to the supplier in its electronic cash register, which can be used for set-off against future tax liabilities.
Tax collected at source provisions are applicable for e-commerce operators. Every e-commerce operator is required to deduct 1% tax (0.5% CGST, 0.5% SGST, or 1% IGST) on net value of supplies provided by suppliers through the e-commerce portal.
The due date of filing the monthly tax deducted at source return (GSTR 7) for the period March 2020 to May 2020 has been extended to 30 June 2020.
The requirement of issuance of the tax deducted at source certificate under GST laws has been relaxed (effective date to be notified).
The due date of filing the tax collected at source return (GSTR 8) is the tenth day of the next month. For the period March 2020 to May 2020, this has been extended to 30 June 2020.
The e-way bill is an electronic bill that will be required for the movement of goods in case the value of the consignment is above INR 50,000. The movement of goods may be (i) in relation to supply, (ii) for reasons other than supply, or (iii) due to inward supply from unregistered persons.
The bill can be generated from the GSTN portal, and every GST-registered taxpayer is required to comply with the requirement to issue an e-way bill.
With effect from 16 November 2018, new enhancements have been made in the e-way bill system, which involves checking of duplicate e-way bills, complete knock down/semi knock down movement of goods imported/exported, shipping address to be mentioned on e-way bill for goods exported out of India, etc.
Recently, a new rule has been inserted that provides that a person, including consignor, consignee, transporter, courier agency, or an e-commerce operator, who has not filed their GST returns for a consecutive two tax periods will not be allowed to generate ane-way bill. The said rule is effective from 21 November 2019.
The validity of an e-way bill expiring between 20 March 2020 and generated before 24 March 2020 has been deemed to be extended till 30 June 2020.
Advance rulings for Customs and GST
To enable foreign investors to ascertain their indirect tax liabilities arising from proposed business ventures in India, the Central Government has constituted the Authority for Advance Rulings (AAR) as a high-level, quasi-judicial body. The functions of the AAR consist of giving advance rulings on a specific set of facts relating to specified matters under Customs and GST.
Advance rulings may be sought by any resident/non-resident investor entering into a joint venture in India in collaboration with another non-resident or resident of India, or by a resident setting up a joint venture in India in collaboration with a non-resident. Through the Finance Act 2005, this facility has also been made available to existing joint ventures in India. The Central Government is also empowered to include any other class or category of persons as eligible for the benefit of an advance ruling. Under the customs law, the Central Government has allowed a ‘resident public limited company’ to be eligible for an advance ruling. Under the erstwhile excise and service tax regime, advance rulings could be given only on a proposed transaction, whereas under GST, advance rulings can be obtained on a proposed transaction as well as a transaction being undertaken by the appellant.
In terms of GST provisions, the following matters/questions specified can be sought before the AAR:
- Classification of any goods or services, or both.
- Applicability of a notification issued under the provisions of the CGST Act.
- Determination of time and value of supply of goods or services, or both.
- Admissibility of ITC of tax paid or deemed to have been paid.
- Determination of the liability to pay tax on any goods or services, or both.
- Whether applicant is required to be registered.
- Whether any particular thing done by the applicant with respect to any goods or services, or both, amounts to or results in a supply of goods or services, or both, within the meaning of that term.
The comprehensive provision for advance rulings is provided under GST to ensure that disputes are minimal. Timelines are also given within which the ruling is to be given by the concerned authority. The aim is to provide certainty to the taxpayer with respect to one's obligations under the GST Act and an expeditious ruling, so that the relationship between the taxpayer and administration is smooth and transparent and avoids unnecessary litigation.
Kerala Flood Cess (KFC)
To compensate the loss arisen due to massive floods occurred in the State of Kerala in August 2018, KFC at the rate of 1% over and above GST has been imposed in Kerala. KFC was levied from 1 August 2019 on intra-state supplies of goods/services to unregistered persons in Kerala. This cess has been levied for two years in the state of Kerala. In this regard KFC Rules, 2019 have been notified, which provides separate compliance requirements (additional to existing GST compliance requirements) for registration, tax payment, filing of KFC return, etc.
Amnesty scheme under indirect tax
Various states (viz. Gujarat, Maharashtra, Karnataka, Haryana, etc.) have introduced amnesty schemes for settlement of past VAT dues with waiver (certain percentage) of tax dues, interest, and penalty dues, subject to fulfilment of prescribed conditions.
Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019
Similar to state amnesty schemes, the Central Government with effect from 1 September 2019, notified a one-time amnesty scheme for liquidation of past disputes of central excise and service tax (erstwhile indirect tax laws). The brief about the scheme is produced below.
All persons, except the following, can avail benefit of the scheme:
- Those whose reply/appeal has been finally heard as on 30 June 2019.
- Those who have been convicted for any offence.
- Those who have been issued a show cause notice for refund.
- Those who have been subject to audit/enquiry/investigation, but the duty has not been quantified as of 30 June 2019.
- Those making voluntary disclosure in certain circumstances.
- Those who intend to file declaration in respect of tobacco and related products, petroleum, etc.
The benefits of the scheme are produced below.
- Relief for tax dues from 40% to 70% in specified scenarios.
- Complete waiver of interest and penalty.
- Waiver from prosecution.
- Conclusion of proceedings covered under the scheme for the relevant period.
- All proceedings pending below the level of High Court are deemed to be withdrawn.
This one-time dispute resolution scheme is a welcome step towards addressing long-pending litigations. With complete waiver of interest, penalty, and prosecution, and part waiver of tax dues, this would be an opportune moment for taxpayers to review their old tax disputes for early closure.
The date for making payment to avail the benefit of the said scheme has been extended to 30 June 2020. No interest will be levied if payment is made by 30 June 2020.
Customs duty is levied by the Central Government on goods imported into, and exported from, India. The rate of customs duty applicable to a product imported or exported depends upon its classification under the Customs Tariff Act, 1975. With regard to exports from India, customs duty is levied only on a very limited list of goods.
The Customs Tariff is aligned with the internationally recognised Harmonised System of Nomenclature (HSN) provided by the World Customs Organisation (WCO).
Customs duty is levied on the transaction value of the imported or exported goods. According to section 14 of the Customs Act, 1962 (CA), the concept of transaction value is the sole basis for valuation for the purpose of import and export of goods. While the general principles adopted for valuation of goods in India are in conformity with the World Trade Organisation (WTO) agreement on customs valuation, the Central Government has framed independent Customs Valuation Rules that apply to the export and import of goods.
The customs duty applicable to any product is composed of a number of components, which are as follows:
- The import of goods under the GST regime will be subject to IGST and compensation cess (if applicable).
- BCD is the basic component of customs duty levied at the effective rate under the First Schedule to the Customs Tariff Act (CTA) and applied to the landed value of the goods (i.e. the cost, insurance, and freight [CIF] value of the goods). The peak rate of BCD is 10%.
- BCD and social welfare surcharge (up to 10% levied on the BCD). BCD and social welfare surcharge paid at the time of imports are not available as credit under GST; consequently, they will always be a cost to the importer.
- With effect from 2 February 2020, health cess at 5% is to be levied on import of medical devices to support health infrastructure.
The duty incidence arising on account of the IGST may be set off or refunded, subject to prescribed conditions. Where goods are imported, the Indian supplier may take credit of the IGST paid at the time of import for offset against the output IGST, CGST, and SGST liability. Also, the Central Government provides exemption from payment of BCD and IGST on import of certain specified goods, subject to fulfilment of prescribed conditions. For example, goods imported for petroleum operations are exempt from BCD.
In April 2018, the CBIC notified the Pre-Consultation Regulations under customs law. Under the said regulations, before issuance of notice, importer will be informed in writing along with grounds for the intention of issuing the notice. The importer, within 15 days, is expected to respond in writing, including the option to be heard in person. In absence of response within the time period specified, the officer will proceed with issuance of notice.
Further, the CBIC had recently instructed Customs and GST formations to verify the correct availment of ITC by few exporters who are perceived as 'risky' based on pre-defined risk parameters.
In order to mitigate the unprecedented situation due to the COVID-19 pandemic, the CBIC has taken a number of measures to facilitate and expedite the Customs clearance process, making it more contactless (i.e. automated and online) as well as paperless. These measures include the facility to clear goods based on an undertaking (not bond), acceptance of electronic Country of Origin certificate, e-gate pass, electronic transmission of PDF-based first copy of Bill of Entry (BoE), etc. to Customs brokers and registered importers.
Further, the government has announced relief measures viz. (i) 24-7 Customs clearance till 30 June 2020 and (ii) extension of the time limit for undertaking compliance, filing of appeal, approval order, etc. till 30 June 2020.
CBIC has instructed all Chief Commissioners of Customes to setup the Turant Suvidha Kendra (TSKs) in all customs stations by 15 July 2020.
The department has also enabled certain functionalities to reduce the need for physical interaction between customs and trade to speed up the customs clearance process.
Property tax is levied by the governing authority of the jurisdiction in which the property is located. The rate of tax levied varies from city to city in India and is generally related to the prevailing market prices for property in each locality.
Stamp duty is a government tax that is levied on all legal property transactions. Stamp duty is a tax that is paid as evidence for any purchase or sale of a property between two or more parties. Stamp papers, which are bought either in the name of the buyer or seller, are valid for six months, provided the stamp duty is paid without any delay. No document that has not been duly stamped can be introduced as evidence in any court proceedings. Stamp duty is charged at both central and state levels. State level stamp duties vary from state to state, and on the document type. Stamp duty should be paid in full without any delay, failing which, a penalty is levied. Stamp duty has to be paid prior to execution (signature by an individual’s party) of a given document, the next day, or on the day of document execution. Stamp duty is paid by a buyer in most cases. However, both the seller and the buyer have to bear the burden of stamp duty for property exchange cases. Stamp duty rates differ in various states across the country, as stamp duty in India is a state subject. However, the Central Government fixes the stamp duty rates of specific instruments.
Dividend distribution tax (DDT)
The Finance Act, 2020 has abolished the DDT with effect from 1 April 2020 (i.e. DDT shall not be levied on dividends distributed after that date). Henceforth, dividends will be taxable in the hands of shareholders as per applicable rates.
This provision will not be applicable where DDT has already been paid on any dividend declared before 1 April 2020 but paid after said date.
A provision in the Income-tax Act has been introduced to provide for deduction to domestic companies of dividends received from other domestic companies, foreign companies, or business trusts. This would remove the cascading effect in respect of dividends.
Dividend income to non-residents
Dividend income to a non-resident received on or after 1 April 2020 would be subject to tax in the hands of the shareholder at the rate of 20% or beneficial treaty rate, wherever applicable.
Companies paying dividends to non-resident shareholders will withhold taxes at 20% under the domestic tax laws or beneficial tax treaty rate, wherever applicable.
Dividend income to residents
Dividend income/income in respect of units to a resident received on or after 1 April 2020 would be subject to tax in the hands of the shareholder at the normal tax rates applicable to the shareholders.
A provision in the Income-tax Act has been reintroduced, whereby, a company paying dividends to resident shareholders requires to withhold tax at the rate of 10% [for payment of dividends in excess of INR 5,000].
A provision in the Income-tax Act has been introduced to provide for tax to be withheld at 10% on dividends in respect of units of mutual funds (in excess of INR 5,000) on dividend payments to resident shareholders.
Further, no tax will be chargeable/payable by a company located in an International Financial Service Centre, deriving income solely in convertible foreign exchange on profits distributed from the total profits, for any tax year on any amount declared, distributed, or paid by such company, by way of dividends (whether interim or otherwise) on or after 1 April 2017 out of its current income, either in the hands of the company or person receiving such dividend.
Securities transaction tax (STT)
STT is applicable to transactions involving the purchase/sale of equity shares, derivatives, units of equity-oriented funds through a recognised stock exchange, or the purchase/sale of a unit of an equity-oriented fund to any mutual fund. The STT leviable in respect of such transactions varies for each kind of instrument, whether delivery based or non-delivery based. Rate of STT varies from 0.001% to 0.125%, depending upon the nature of securities. However, securities transacted by any person on a recognised stock exchange located in an International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency are not subject to STT.
Payroll taxes and social security payments
Contributions representing 8.33% of the employees’ pay needs to be remitted by the employer to the Employees’ Pension Fund in respect of all Indian nationals working in an establishment covered under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, within 15 days of the close of every month. A ‘foreign worker’ holding a passport of a country with which India has signed a social security agreement is required to contribute to the social security system 12% of one's salary. A similar 12% of salary is contributed by resident employees’ for the Employees’ Provident Fund and Employees’ Pension Fund. However, foreign workers can detach themselves from the scheme under a special provision on obtaining a ‘detachment/ coverage certificate’ issued by an appropriate social security institution indicating the period of employment in India being less than the maximum period of detachment agreed in the agreement.
With effect from 1 April 2020, a new provision has been introduced in the Income-tax Act that provides a reduced tax rate with respect to individual/Hindu Undivided Family (HUF) taxpayers. Hence, an employer would need to take into account these provisions if the employee intimates it of choosing to adopt such reduced tax rates. Accordingly, the employer should modify the payroll taxes to accommodate the reduced rate of tax as per the new provisions.