E-Invoicing Under GST Law

E-Invoicing Under GST Law

E-Invoicing Under GST Law

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

Q) What is this concept of E-Invoicing?
  • A system in which Business to Business (B2B) invoices are authenticated electronically by the GST Network (GSTN) for further use on the common GST portal
  • A 64-digit identification number called as Invoice Reference Number (IRN) will be issued against every invoice by the Invoice Registration Portal (IRP) managed by the GSTN.
  • A Quick Response Code (QRC) will also be generated for every invoice reported which if scanned using the NIC QR code scanning application, will display details relating to a particular invoice.
  • A B2B invoice generated by a specified person (to whom E-invoicing applies) without an IRN will not be considered valid under GST.

 

Q) What is the primary purpose?
  • To bring in more transparency into GST reporting.
  • To curb fake invoicing and reporting of bogus transactions for benefitting from input tax credit (ITC).
  • Ease of flow of information to various returns (GSTR 1, E-Way portal etc.) and other compliance requirements.
  • It is indeed a conscious step made by the government towards digitization and transparency.

 

Q) To whom is it applicable?
  • E-invoicing was first made applicable from 1st April 2020 to all taxpayers having aggregate turnover exceeding INR 100 Crores. The applicability of the same was deferred to 1st October 2020.
  • Thereafter, this threshold limit was further increased to INR 500 Crores with effect from 1st January 2021.
  • From 1st April 2021 onwards, it is applicable to all registered tax payers whose aggregate turnover exceeds INR 50 Crores.
  • If the aggregate turnover of a registered person exceeds the above limits for Financial Years 2017-18 onwards, then E-Invoicing would become applicable.
  • Aggregate turnover for this purpose would have to be calculated at the PAN level i.e., taking the aggregate turnover of all units of a business.

 

Q) To whom is it not applicable?
  • Units in Special Economic Zones (SEZ)
  • Insurance / banking / non-banking financial companies
  • Goods transport agencies (GTA’s) supplying services in relation to transportation of goods by road in a goods carriage.
  • Suppliers of passenger transportation service.
  • Suppliers of services by way of admission to the exhibition of cinematograph films.
Q) What is the process-flow under E-Invoicing?
Q) What is the pre-requisites of E-Invoicing?
  • It is essential to ensure a confirmation from the customer before invoicing owing to the intricacies in this process of invoice cancellation once IRN is generated.
  • Before adoption, it is very important to understand and confirm the extent to which the existing accounting software / ERP can support the integration.
  • QR code generated by IRP must be printed on the physical invoice.
  • The time limit for cancellation of an E-Invoice is 24 hours. This means that an invoice once reported to IRP can be cancelled only within 24 hours from the time of generation of IRN.
  • Automatic filling up of GSTR-1 and linking of an invoice with the E-Way Bill.
  • E-invoicing adds one more layer to the GSTR-2A reconciliation and further complicates the process.

 

Q) Best practices under E-Invoicing?
  • Proper filling up of the offline-tool to ease process of uploading data.
  • Securing access rights on ERP and IRP for generation and cancellation of documents.
  • Daily monitoring of IRNs generated on the previous day by an independent person.
  • Printing IRN on the invoice even though optional.
  • It is advisable to obtain written declarations from vendors regarding applicability of E-Invoicing to them and confirmation of compliance, if applicable. This will serve as a basis for the recipients for availing the ITC.

Taxation of dividends on shares received from companies

Taxation of dividends on shares received from companies

In the light of the Union Budget 2020

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

Up to FY 2019-20, what was the tax treatment of dividends on shares declared / distributed / paid by companies?
A. For Domestic Companies
  • All domestic companies were required to pay dividend distribution tax(DDT) at the rate of 15% (excluding cess and surcharge) on the dividends declared / distributed / paid under Section 115-O of the Income Tax Act,1961.
B. For Foreign Companies
  • Foreign companies were not required to pay DDT.
Up to FY 2019-20, what was the taxability of such dividends in the hands of a shareholder?
A. From Domestic Companies
  • As per Section 10(34), dividends on shares received from domestic companies were exempt in the hands of a shareholder (resident and non-resident).
  • However as per Section 115BBDA of the Income Tax Act, 1961, a resident individual was liable to pay tax at 10% if his total income included income by way of dividends declared / distributed / paid by Domestic Companies in excess of INR 10 Lakhs.
B. From Foreign Companies
  • If received by an individual shareholder, then normal income tax rates applied on such income.
  • If it was received by an Indian Company holding 26% or more equity share capital in the Foreign Company, then dividends were taxed at 15%(excluding cess and surcharge) in the hands of the Indian Company as per Section 115BBD.
What are the changes now as per Finance Act 2020?
A. For Domestic Companies
  • DDT has been abolishede. there is no requirement for domestic companies to pay DDT on dividends declared / distributed / paid to shareholders.
B. For Foreign Companies
  • No change e. foreign companies are still not required to pay DDT.
C. For Shareholders
  • Section 10(34) has been withdrawnand now the shareholders will be required to pay tax on such dividends received from domestic companies (like any other ordinary income) based on their Normal Income Tax Slabs.
  • Also, fromFY 2020-21 onwards, Section 115BBDA has been abolished and dividends received by resident shareholders will be taxed as per Normal Income Tax Slabs without any threshold exemption of INR 10 Lakhs.
  • There is no change as regards dividends from foreign companies i.e. shareholders will still continue to be liable to pay tax on dividends (as discussed above)
What are the amendments in the TDS provisions on dividend payments made by Companies?
    • Earlier, there was no requirementto deduct TDS on dividend payments made by Domestic Companies under Section 194 of the Income Tax Act, 1961 since the same was exempt in the hands of shareholders.
    • Now, this section has been amendedand accordingly, payment of dividends by Domestic Companies to resident recipients shall be liable for tax deduction at 10%.
    • A threshold limit of INR 5000has also been introduced i.e. the requirement to deduct tax at source is only if the aggregated payments made by a Company during a Financial Year exceeds INR 5000.
    • Dividend payments made to non-residents continue to be out of the purview of Section 194.
    • Also, there is no requirement to deduct TDS on dividend payments made by LIC, GIC and their wholly owned subsidiaries.
Taxation of dividends received from mutual funds

Taxation of dividends received from mutual funds

In the light of the Union Budget 2020

KORAH AND KORAH, CHARTERED ACCOUNTANTS

Up to FY 2019-20, what was the tax treatment of dividends received from Mutual Funds in the hands of a unitholder?
  • Exemptin the hands of the unitholders (resident as well as non-resident) under Section 10(35) of the Income-tax Act, 1961.
  • However, the Mutual Fund was required to pay dividend distribution tax (‘DDT’) on the amount of dividend under Section 115R
Up to FY 2019-20, what was the amount of DDT payable by Mutual Funds?
  • The Mutual Fund was required to pay a DDT under Section 115Rof the Act at the following rates (excluding surcharge and cess) –.
Category of InvestorsEquity Oriented

Scheme

Other than Equity

Oriented Scheme

Resident Individual / HUF10%25%
Domestic Company10%30%
NRI10%25%*

*In the case of Infrastructure Debt Fund, the rate was 5%

As per the Finance Act 2020, how has this taxation changed?
  • Removed the levy of DDT in the hands of the Mutual Fund (i.e. equity oriented and other than equity oriented mutual fund schemes under dividend pay-out and dividend reinvestment options).
  • The dividend shall now be taxed only in the hands of the unitholders at applicable tax rates provided under the Act.
  • The new tax regime shall be applicable e.f. April 1, 2020 and will apply from FY 2020-21.
What would be the TDS provisions from FY 2020-21 onwards on dividends paid by Mutual Funds to unitholders?
  • Resident Unitholders:
    Mutual Funds shall be required to deduct tax at source (‘TDS’) as per Section 194K of the Act at the rate of 10%on dividend income credited / paid to resident unitholders.
  • TDS provisions should not apply in case where the amount of dividend credited / paid does not exceed the threshold limit i.e. INR 5000 in aggregate in a particular financial year. (The threshold limit is to be computed at the PAN level)
  • The dividend reinvested under the dividend reinvestment option shall be deemed as dividend paid and accordingly, TDS provision shall apply.

Non-Resident Unitholders:

  • As per Section 196Aof the Act, TDS at the rate of 20% (plus applicable surcharge and cess) should be deducted on dividend income credited /paid to non-resident unitholders.
  • There is no threshold limit applicable in case of dividend income credited / paid to non-resident unitholders.
  • Also, as per Section 196D of the Act, TDS at the rate of 20%(plus applicable surcharge and cess) should be deducted on dividend income credited / paid to FII/FPI.
Some other points related to TDS:
  • In case PAN of the unitholder is not available, TDS shall be deducted at 20%(plus applicable surcharge and cess) for both Residents & Non-residents.
  • In case of dividend payments to a minor, the parent should provide a declaration under to the Mutual Fund for TDS deduction under the PAN of the parent. (In the absence of such a declaration, TDS shall be deducted on dividend credited / paid under the PAN of the minor)
  • A resident unitholder may make an application to the Income-Tax Authorities under Section 197 of the Act for obtaining a certificate for lower / non-deduction of TDS on dividend income credited / paid by Mutual Fund.
  • The non-resident unitholders/FII/FPI may offer the said dividend income to tax in his income-tax return at a lower tax rate by claiming the benefit under relevant tax treaty, if any, subject to eligibility and compliance with applicable conditions.
Statement of Financial Transactions (SFT)

Statement of Financial Transactions (SFT)

  1. Background:
  • Accumulation of black money has been one of the major threats to the Indian economy. The GOI along with the Ministry of Finance has been striving towards curbing black money and also widening the tax base.
  • One such initiative was to cast an obligation on the Government agencies and other authorities to report high-value transactions. Such specified persons were required to submit ‘Annual Information Return (AIR)’introduced in 2003 with respect to specified financial transactions under Section 285BA of the Income Tax Act, 1961.
  • Later,Finance Act 2014 replaced Section 285BA and renamed AIR as “Statement of Financial Transactions or Reportable Accounts” to widen the scope of specified persons and to introduce various other provisions.
  1. Meaning:
  • It is a report of specified financial transactions by specified persons.
  • Financial transactions specifically required to be reported under Section 285BAare as follows:
  • Transaction of purchase, sale/ exchange of goods or property or right or interest in a property; or
  • Transaction for rendering any service; or
  • Transaction under a works contract; or
  • Transaction by way of an investment made or an expenditure incurred; or
  • Transaction for taking or accepting any loan or deposit
  1. The Financial Transactions:
  • Section 285BAauthorizes Central Board of Direct Taxes (CBDT) to prescribe different values with respect to different specified financial transactions in respect of different specified persons having regard to the nature of such transactions. The same have been prescribed by CBDT via Rule 114E.
  • Among the 13 SFT’s prescribed, the following are ones that are to be reported by banks (to which the Banking Regulation Act, 1949 applies):

 

Sr. NoNature of SFT to be reportedThreshold*
1Cash payment purchase of bank drafts or pay orders or banker’s chequeAggregating to Rs 10 lakh or more in a FY
2Cash payments for purchase of pre-paid instruments issued by Reserve Bank of IndiaAggregating to Rs 10 lakh or more during the FY
3Cash deposits in one or more current account of a personAggregating to Rs 50 lakh or more in a FY
4Cash withdrawals from one or more current account of a personAggregating to Rs 50 lakh or more in a FY
5Cash deposits in one or more accounts other than a current account and time deposit of a personAggregating to Rs 10 lakh or more in a FY
6One or more-time deposits (other than renewed time deposit of another time deposit) of a personAggregating to Rs 10 lakh or more in a FY
7Credit card payments made by any person either in cash or by any other mode in a FY.Aggregating to Rs. 1 lakh or more in cash or Rs. 10 lakh or more by any other mode in a FY

*The threshold limits are to be checked based on the aggregate of all transactions.

**The most common transactions have been highlighted in yellow.

  1. Filing of SFT Report
  • SFT shall be submitted in Form 61Aelectronically, under DSC to the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation)
  • SFT in Form 61A shall be submitted on or before 31st Mayof the FY, immediately following the FY in which the transaction is recorded or registered.
  • A separate form is to be filed for each such transaction type.
  1. SFT in Form 26AS
  • From the Assessment Year 2020-21 (FY 2019-20), the Form 26AS would reflect the details of SFTs.
  • The Income Tax Department vide Press release dated 07.2020informed that ‘the information being received by the Income Tax Department from the filers of these specified SFTs is now being shown in Part E of Form 26AS to facilitate voluntary compliance.
  1. In the case of Mr. Rajiv Misra
  • Part E of Form 26AS provides the details of the SFT as below:
  1. Type of transaction: SFT-005
  2. Name of SFT Filer: SBI, Mumbai
  • Single/Joint Party Transaction: Single
  1. No: of parties: 1
  2. Amount: 7,98,000
  • As per Notification No. 3 of 2018dated 5th April 2018, the transaction type SFT-005 has been further explained in Annexure C:
  • Therefore SFT-005 represents one or more-time deposits(other than a renewed time deposit) of a person for an amount aggregating to INR 10 Lakhs or more in a FY. The reporting entity in this case is a banking company to which the Banking Regulation Act, 1949 applies.
  1. Issue Involved
  • As mentioned above, SFT-005 is only applicable when aggregate of time deposits in a FY is >=INR 10 Lakhs.
  • However, in this case, the amount as reported by SBI is only INR 7,98,000for FY 2019-20 which is below INR 10 Lakhs.
  • In the Form 26 AS, there are several interest credits shown, from which it can be inferred that the assessee has Banking Deposits with State Bank of India, in excess of Rs 10 Lakhs. The question is why has this SFT which has been reported by SBI through Form 61A showing only an amount Rs 7,98,000/-. This could be a reporting error.
  • We would advise that the assessee should obtain Interest Certificates for the FY 19-20 from the Banks where he has deposits. The higher of the interest figure appearing in the 26AS or the Interest Certificates issued by the Banks, should be shown as interest income, while filing the Income Tax Return. If the 26AS figure is substantially higher, then clarification should be sought from the concerned Bank regarding the variance, before filing the Tax Return.
Rebuild Kerala

Rebuild Kerala

State Budget 2020 Decoded (applicable for FY 2020-21 onwards)

BMG CONSULTANCY SERVICES  Strategy – Talent – Results

  • Kerala Government is going to hire vehicles instead of buying them – a big boost for rent-a-car companies.
  • CBL (Champions Boat League) allocated INR 20 Crores for conducting boat races across Kerala– a big boost to the tourism sector.
  • Higher education to get INR 493 Crores by way of expansion of laboratories and new courses – a big boost to education.
  • All street lights in Kerala to be replaced with LED. No filament and CFL bulbs from November 2020 – a big boost towards road safety and energy conservation.
  • 75 coconut samplings to be distributed per ward and INR 3 Crores allocated for pineapple farming – a boost to fruit farming in rural areas.
  • INR 2,400 Crores for Kuttanad District in health, education and farming after worst hit floods – a major fillip to many lost hopes.
  • Alappuzha to be developed as a heritage town. INR 323 Crores allocated for tourism and Muziris Heritage to fully take-off from 2021 – a major boost to the tourism sector in Kerala.
  • INR 10 Crores allocated to construct she-lodges for travelling single women – a major boost to women safety and tourism.
  • INR 25 per meal at 1000 Kudumbashree Hotels across Kerala from April 2020 – a major boost towards upliftment of the poor.
  • Metro line to be extended to the IT hub of Kakkanad. Silver Line, the semi-high-speed train project linking Calicut to Trivandrum to begin shortly – a major boost to the transportation and employment industry.
  • 20 flyovers, 74 bridges, 44 stadiums with INR 20,000 Crores by KIIFB (Kerala Infrastructure Investment Fund Board). The Board also plans INR 4,383 Crores for drinking water – a major boost towards infrastructure.

 Let’s Compare:
 

SectorFY 2017-18FY 2018-19
Agriculture1.7%-0.5%
Service 27.7%25%
Manufacturing (PSU’s)2,072 Cr3,443 Cr
  • Movie tickets to be more costly as local bodies can now levy 10% entertainment tax on tickets.
  • Tax rebate of 25% on private electric vehicles for 5 years and 50% for E-Autos – a major boost for the growth of electric vehicles.
  • Bikes under INR 2 Lakhs and cars under 15 Lakhs will become more expensive as tax has been increased by 1% and 2% respectively.
  • Hike in luxury building tax for all residential buildings above 3000 Sq. Ft to mop up additional revenue.
  • Total area of Technopark, Infopark and Cyber Park will be expanded to 245 Lakh square feet. Security free loans for startups securing work from the Government – a major boost for the startup culture in Kerala.
  • INR 100 crores allocated for clean drive in all cities and 12,000 public toilets will be constructed in 2020-21 – a big boost towards sanitation and public health.