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.
Multiple indirect 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, alcohol for human consumption and crude oil.
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.
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 FY (INR 1 million for some special category states, like the North-Eastern states). For the purpose of the threshold, aggregate turnover will be computed on a PAN-India basis. For some specific categories of supplies and suppliers, the registration requirement is mandatory.
However, 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 FY, except in some specified cases.
Also, 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 manufacturers/traders and 5% in case of restaurants) would apply. The option to avail such a scheme, restricts the admissibility to avail input credit.
Further, the option to pay tax under a composition scheme has been extended to services except the following:
- Supply of services not leviable to tax under the CGST Act.
- Inter-state outward supply of services.
- Outward supply of services through an e-commerce operator.
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 such as legal services, Goods Transport Agency services etc.
Zero-rated supplies/export of goods and services
Export of goods and services are zero rated under GST. Exporters can claim refund of input tax credit (ITC) of inputs/input services used in export of goods/services, subject to fulfilment of prescribed conditions. To claim the zero rate on exports, there is a requirement to file a bond/Letter of Undertaking (LUT) to the jurisdictional tax authorities at the beginning of each financial year. 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 to claim export refund claims, a simplified online process to claim 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 smaller 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 specified conditions.
Some clarifications issued by the government in relation to claiming refunds are as follows:
- Aadhaar authentication of registration made mandatory for being eligible for filing refund claim.
- Bank account for credit of refund means such bank account of the applicant that is in the name of the applicant and obtained on one's Permanent Account Number (PAN).
- Option for filing refund of accumulated input tax credit (ITC) by taxpayers making exempt/nil-rated supplies, by selecting an option of not having a Letter of Undertaking (LUT) number in the refund application (to enable a taxpayer making exempt and/or nil-rated supplies, without LUT, to file a refund application [as they don’t have a valid LUT number to enter in the refund application], the Form RFD-01 has now been modified).
- To facilitate exporters, bunching of refund claims across financial years has now been allowed.
- 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 Form GSTR-2A/2B. However, the department has now clarified that the restriction will not impact the refund of ITC availed on the invoices/documents relating to imports, Input Service Distributor (ISD) invoices, and the inward supplies liable to reverse charge (RCM supplies) merely because the same is not reflecting in Form GSTR-2A.
- For export of goods, if unutilised ITC is claimed as refund, it is proposed to be mandated to realise the consideration in foreign currency within the timelines prescribed in the FEMA guidelines. If the consideration is not realised in time, the refund needs to be remitted back to the government along with interest.
- Refund of payment wrongly made through electronic credit ledger is allowed (refund amount would be re-credited to credit ledger).
Input tax credit
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).
- 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).
- 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.
- Having said the above, the 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, is allowed.
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 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.
Procedure for ITC availment
- Possession of tax invoice/debit note or any other credit availing document.
- Goods/services should have been received.
- ITC can be availed only on invoices/debit notes which have been furnished by the supplier in its Form GSTR-1 and which are reflecting in auto-populated Form GSTR-2A/2B of the buyer claiming ITC.
- The date of issuance of a debit note has been de-linked 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 time line to avail GST credit against a debit note). The functionality has been made effective on GST portal. Further, with effect from 1 January 2021, the date of issuance of debit note (not the date of underlying invoice) will determine the relevant FY for the purpose of determining time period to avail credit as per the GST law.
- 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.
- Penalty and prosecution provisions have been made more stringent in case of passing on or availing fraudulent ITC.
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:
- Form GSTR-1 for output (to be filed by the 11th day of the succeeding month). There is an option to file quarterly Form 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.
- Form GSTR-2 for ITC (by the 15th day of the succeeding month).
- Form GSTR-3, a monthly tax return (by the 20th day of the succeeding month).
The government has notified a requirement to file monthly Form GSTR-3B (to be filed by the 20th day of the succeeding month).
Further, filing of Forms GSTR-2 and GSTR-3 continues to be suspended.
The government had proposed to implement a new GST return system. The existing returns Form 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 Forms GSTR-1 and GSTR-3B is to continue).
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 50 million in a financial year are required to file a self certified GST Audit Report by 31 December of the succeeding financial year.
- Facility to view and download Electronic Credit Ledger, Electronic Cash Ledger, and Electronic Liability Register is available for 12 months (earlier this facility was available for 6 months).
- A download facility for the entire HSN directory in Excel format has also been provided to taxpayers under the link 'Download HSN in Excel Format'. This facility is available as a part of the ‘Search HSN’ functionality, available both in Pre and Post Login, on the GST Portal.
- The taxpayers having annual aggregate turnover up to INR 20 million are exempted from the requirement of furnishing annual return for FY 2020/21.
- Effective 1 September 2021, the GSTN portal will check whether, before the filing of Form GSTR-1 of a tax-period, the following has been filed or not:
- Form GSTR-3B for the previous month (for monthly filers), or
- Form GSTR-3B for the previous quarterly tax period (for quarterly filers), as the case may be.
- The system will restrict filing of Form GSTR-1 till Form GSTR-3B is filed.
- Taxpayers whose annual aggregate turnover in the preceding financial year is above INR 50 million shall furnish ITC-04 (job work return) once in six months commencing on 1 April and 1 October.
- Taxpayers whose annual aggregate turnover in the preceding financial year is up to INR 50 million shall furnish ITC-04 once in a financial year.
- A self-service functionality has been made available on the GST Portal that can be used to search Bill of Entry (BOE) details, which did not auto-populate in GSTR-2A, in GST System, and fetch the missing records from ICEGATE.
- It usually takes two days (after reference date, either out of charge date, duty payment date, or amendment date, whichever is later) for BOE details to get updated on the GST Portal from ICEGATE.
- 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.
- An auto-populated ITC statement Form 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 statement taxpayers can reconcile credit to be availed/revered in monthly Form GSTR-3B. W.e.f. January 2022, credit that reconciles with GSTR-2B can be availed. No excessive credit permitted to be availed.
- 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.
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
- Officer can proceed for cancellation of GSTIN where a taxpayer avails ITC exceeding that permissible in Section 16 of CGST Act, 2017 (Form GSTR 2B).
- Where the liability declared in Form GSTR-3B is less than that declared in Form GSTR-1 in a particular month, department may now proceed with cancellation of GSTIN.
- Now, no opportunity of being heard shall be given to a taxpayer for suspension of GSTIN, where the proper officer has reasons to believe that the registration of person is liable to be cancelled.
- Where a GSTIN is suspended, no refund under Section 54 of Central Goods and Services Tax Act, 2017 can be availed by the taxpayer.
- Where a taxpayer fails to file Form GSTR-3B for two subsequent months, one's Form GSTR-1 shall now be blocked.
- It is clarified that there is no need to carry the physical copy of tax invoice in cases where invoice has been generated by the supplier in the prescribed manner and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, would suffice.
- It is clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under the GST law, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as 'merely establishments' of a distinct person in accordance with provisions of the GST law. This was one of the major issues why the tax authorities were rejecting the GST refund claims.
- Time period to claim refund of tax paid on an intra-state/inter-state supply subsequently held to be inter-state/intra-state supply is two years from the date of payment of tax under the correct head. Earlier, there was ambiguity around the time period to claim such refund claim.
- It is clarified that service provided by way of cooking and supply of food, by cloud kitchens/central kitchens, are covered under 'restaurant service' and attract 5% GST [without ITC].
- It is clarified that where ice cream parlours sell already manufactured ice cream and do not cook/prepare ice cream for consumption like a restaurant, it is supply of ice cream as goods and not as a service, even if the supply has certain ingredients of service. Accordingly, it is clarified that ice cream sold by a parlour or any similar outlet would attract GST at the rate of 18%.
- Guidelines for disallowing debit of electronic credit ledger has been issued.
- Clarification issued around classification of intermediary services.
Central Board of Indirect Taxes and Customs (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 be subject to GST.
Further, it has been clarified that part of employee director remuneration that 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).
- A new declaration has been introduced in the SEZ online portal while filing the DTA Procurement Form (Goods) and DSPF (services) confirming that the supplies are availed by an SEZ entity from DTA for authorized operations only.
- 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. This has been further extended to 31 December 2021 which has been further extended to 30 June 2022.
- 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.
- Development Commissioners have been requested to advise State Government/Private SEZs to consider similar relief measures.
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.
- The e-invoicing (for B2B invoices/GST registered recipients) has been made mandatory effective from 1 October 2021 for the taxpayers whose aggregate turnover in a financial year (in any last three financial years) exceeded INR 500 million.
- The applicability of the e-invoicing threshold was INR 5 billion till 31 December 2020, INR 1 billion till 31 March 2021, further revised to INR 500 million with effect from 1 April 2021 and has been made applicable on threshold of INR 200 million w.e.f. 1 April 2022.
- 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).
- 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.
- Further, effective from 1 October 2021, 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.
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 Central Goods and Services Tax 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 requirement of issuance of the tax deducted at source certificate under GST laws has been relaxed (post acceptance of tax deducted at source by deductee on GST portal, it shall be electronically available on GST portal).
The due date of filing the tax collected at source return (Form GSTR-8) is the 10th day of the next month.
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 e-way 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 outside India, etc.
A rule was inserted to cover a person, including consignor, consignee, transporter, courier agency, or an e-commerce operator, who has not filed their GST returns for consecutive two tax periods will not be allowed to generate an e-way bill.
In cases where the principal supply is purely a supply of service and involving no movement of goods, the e-way bill is not required to be generated.
However, in cases where, along with the principal supply of service, movement of some goods is also involved, the e-way bill may be generated. Such situations may arise in cases of supply of services like printing services, works contract services, catering services, pandal or shamiana services, etc. In such cases, the e-way bill may be generated by entering the details of HSN code of the goods, along with SAC (Service Accounting Code) of services involved.
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. 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 Central Goods and Services Tax Act, 2017.
- 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. Time lines 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 Central Goods and Services Tax Act, 2017 and an expeditious ruling, so that the relationship between the taxpayer and administration is smooth and transparent and avoids unnecessary litigation.
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.
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 the Customs Act, 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.
As per the Pre-Consultation Regulations under customs law, 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 specified time, 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.
It has been clarified that all Import Export Code (custom registration) holders are required to update their IEC details during April-June of every year. IEC details need to be updated even if there are no changes in particulars.
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.
Action Plan 1 (Digital Economy) of the OECD’s BEPS project discussed several options to tackle direct tax challenges in the digital environment. Taking cues from this, an equalisation levy is available, the summary of which is as follows:
- Rate of levy: 6% of the amount of consideration for specified service.
- Meaning of ‘specified service’: Online advertisement, any provision for digital advertising space, or any other facility or service for the purpose of online advertisement, which includes any other service as may be notified by the Central Government in this regard.
- On whom: Non-resident receiving consideration for specified services from:
- a person resident in India and carrying on business or profession, or
- a non-resident having a PE in India.
- Exemption from income tax: The income arising to the non-resident from the specified service and chargeable to an equalisation levy will be exempt from income tax.
- With effect from 1 April 2020, equalisation levy is extended to include transactions where consideration exceeding INR 20 million is received/receivable by a non-resident ‘e-commerce operator’ for ‘e-commerce supply or services’ made/provided/facilitated on or after 1 April 2020. Rate of equalisation levy on such transactions will be at the rate of 2%. This will include the following transactions where services are provided by e-commerce operator to:
- a person resident in India
- a non-resident in specified circumstances, or
- a person who buys goods/services using an IP address located in India.
- Non-applicability in specified cases: Equalisation levy will not be charged in the following cases:
- The non-resident providing specified service has a PE in India and the specified service is effectively connected with the PE.
- The aggregate consideration received or receivable in the previous year by the non-resident does not exceed INR100,000.
- The payment for the specified service by the Indian resident or PE is not for conducting business or a profession in India.
The Finance Act, 2021 has amended the provisions of equalisation levy to clarify that “online sale of goods” and “online provision of services” will include one or more of the following online activities:
- Acceptance of offer for sale;
- Placing the purchase order;
- Acceptance of the Purchase order;
- Payment of consideration; or
- Supply of goods or provision of services, partly or wholly
Consideration received or receivable from e-commerce supply or services will include:
- Consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and
- Consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.
In addition to the above, it has been provided that the consideration taxable as royalty or fees for technical services will not be subjected to Equalisation levy.
These amendments have been made effective retrospectively from 1 April 2020.
Further, withholding tax provisions on e-commerce operators making payments to resident e-commerce participants were introduced. These provisions provides that e-commerce operator making payment to resident e-commerce participant will withhold taxes at the rate of one percent of the gross amount of sales/ services. The e-commerce participant means as an Indian resident who is selling goods or providing services or both through digital or electronic facility or platform. These provisions are applicable from 1 October 2020.
Compliances under Equalisation levy provisions:
Payment of Equalisation Levy
Equalisation Levy is required to be deposited to the credit of the Central Government on a quarterly basis by the below mentioned due dates:
Furnishing of Annual Statement
Annual Equalisation Levy statement is required to be filed on or before 30 June of each year. For FY 2020-21, the due date for furnishing the return has been extended to 31 December 2021.
Virtual Digital Assets– Crypto taxation
Finance Act 2022 has introduced provisions to bring Virtual Digital Assets (VDA) (including crypto currencies, NFTs etc) into tax ambit. The gains arising on transfer of VDA would be taxable at 30% without providing any deduction of expenses other than cost of acquisition. Further, any loss arising on transfer of VDA is not permitted to be set-off against any other income in the current year or subsequent years.
Tax is to be deducted @1% payment to a resident on transfer of VDA with effect from 1 July 2022.
Buyback of shares
An additional tax is payable on transactions involving buyback of shares by Indian companies from its shareholders. A tax at 20% (plus surcharge at 12% and health and education cess at 4%) is payable by the company on the difference of consideration paid on buyback and the issue price of shares. The CBDT has prescribed the methodology for determination of amount received for issue of shares under 12 different situations, being a subject matter of tax on buyback. The buyback consideration received will be tax exempt in the hands of the receiver. No tax credit will be allowed in case of such taxes paid either to the company or to the shareholder.
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.
Taxability of Partnership/ LLP
A partnership firm and an LLP are taxed as separate legal entities. The share of income of partners from a partnership firm or an LLP is exempt from tax. Partnerships and LLPs are taxed at 31.2% (inclusive of surcharge and health and education cess) if the income is less than INR 10 million and 34.944% (inclusive of surcharge and health and education cess) if the income exceeds INR 10 million. Alternate minimum tax at the rate of 18.5% applies to a partnership/LLP.
The interest payment to partners on capital or current account is allowed as tax-deductible expenditure. However, the maximum interest rate allowable for tax purposes is 12% per annum. A working partner can be paid salary, bonus, commission, or remuneration. The maximum permissible deduction in respect of remuneration payable collectively to all working partners is based on the book profit of the firm, at slab rates for different levels of book profit.
Payroll taxes and social security payments
Please see Social security contributions in the Other taxes section of the Individual tax summary.