Union Budget 2022

Union Budget 2022

THE UNION BUDGET 2022

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

Do not Skip! – The Disclaimer
  • This presentation summarizes the important proposals in a lucid manner based on the Finance Bill which was presented in the Parliament on the 1st of February 2022. These proposals are subject to further amendments before they are enacted.
  • This presentation is not an offer, invitation, or solicitation of any kind. Utmost care has been taken while preparing this presentation, the views and opinion expressed are that of the writers.
  • The readers are requested to kindly verify and check the facts before acting on them as this presentation is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting, as a result of any material contained in this presentation will be accepted by the Firm or its associates.
  • It is recommended that professional and expert guidance or advice is to be taken based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements.
  • This compilation is meant only for the person to whom it is sent and any unauthorized reproduction of the whole or part of the compilation stated above without the writers’ prior permission is not allowed.

 

The Real Figures! – Key Highlights from the Economic Survey 2021-22
  • Overall Economic activity has recovered and surpassed the pre-pandemic levels, Indian economy is expected to witness real GDP expansion of 9.2 per cent in 2021-22 as against the contraction of 7.3 per cent in 2020-21.
  • India is likely to witness a GDP growth of 8.0 – 8.5 per cent in 2022-2023. This projection assumes that there will be no further major pandemic related economic disruption, normal monsoon, orderly withdrawal of global liquidity by major central banks, oil prices in the range of US$70-$75/bbl. against the current price of US$90/bbl., and global supply chain disruptions would steadily ease over the course of the year
  • The most impacted sector by COVID-19 was the Service sector which accounts for more than half of the Indian economy.
  • As of January 14, 2022, India has 83 unicorns with a total valuation of US$ 277.77 billion.
  • The revenue receipts during April- November 2021 have gone up by 67.2 per cent (YoY), against an estimated growth of 9.6 per cent in the 2021-22 Budget Estimates. This is due to strong increase in Direct and Indirect Tax revenues.
  • During April to November 2021, capital expenditure has grown by 13.5 per cent with focus in infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs.
  • India’s total Exports are expected to grow by 16.5 per cent in 2021-22 while Imports are expected to grow by 29.4 per cent in 2021-22
  • RBI’s foreign exchange reserves, stands at US $ 634 billion as on 31st December 2021 which is sufficient to serve 13.2 months of imports.
  • INR 89,066 Crores was raised via 75 IPO issues in April- November 2021, much higher than in any year in the last decade.
  • Exports out of India pegged at US $301.4 billion being more than 75 per cent of target set for US $400 billion in 2021-22.
  • Large corporates have recorded an all-time high net profit to sale ratio of 10.6 per cent in Q2 of 2021-2022.
  • IMF has projected India as the fastest growing economy in the world during 21-22, 22-23 and 23-24 with GDP growth rate of 9 per cent in both 2021-22 and 2022-23 and at 7.1 per cent in 2023-24. (IMF’s latest World Economic Outlook (WEO) growth projections released on 25th January 2022)

India @75 to India @100 – Key Proposals relating to “Amrit Kaal”

  • India is celebrating the Azadi ka Amrit Mahotsav (India @75), and has entered into “Amrit Kaal”, the 25 year long lead up to India @100. Announcements in this Budget lays the foundation and give a Blueprint to steer the economy over the Amrit Kaal for next 25 years from India @ 75 to India @ 100.
  • Moving along the vision of Amrit Kaal, the Budget lays down 4 priorities

01) PM Gati Shakti;

02) Inclusive Development;

03) Productivity enhancement & investment, Sunrise opportunities, energy transition and Climate action;

04) Financing of investments.

 

1. PM Gati Shakti National Master Plan:

  • PM Gati Shakti shall guide ‘big public investments’ for modern infrastructure. The focus will be on planning, financing through innovative ways, use of technology, and speedier implementation.
  • National Highways network to be expanded by 25,000 kms at a cost of INR 20,000 Crores.
  • 400 new generation “Vande Bharat Trains” with better energy efficiency will be developed.
  • 2,000 kms of rail network will be brought under Kavach, the indigenous world-class technology for safety and capacity augmentation in 2022-23.
  • Contracts for 8 ropeway projects for a length of 60 kms will be awarded in 2022-23.

 

2. Inclusive Development:

  • INR 2.37 Lakh Crore direct payment to 1.63 crore farmers for procurement of wheat and paddy.
  • Aimed at providing irrigation benefits to 9.08 lakh hectare of farmers’ lands, drinking water supply for 62 lakh people, 103 MW of Hydro, and 27 MW of solar power
  • 130 lakh MSMEs provided additional credit under Emergency Credit Linked Guarantee Scheme (ECLGS) which stands extended up to March 2023. INR 2 lakh Crore additional credit for Micro and Small Enterprises to be facilitated under the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE)
  • *ECLGS – to provide 100% guarantee coverage to Banks and NBFCs to enable them to extend emergency credit facilities to MSME’s in view of Covid-19 to meet additional working capital requirements.
  • *CGTMSE – to make available collateral-free credit to MSME’s without any third-party involvement.

 

3. Productivity enhancement & investment, sunrise opportunities, energy transition and climate action:

  • E-Passports using embedded chips and futuristic technology will be rolled out in 2022-23 to enhance convenience for the citizens in their overseas travel.
  • Spectrum auctions will be conducted in 2022 to facilitate rollout of 5G mobile services within 2022-23 by private telecom providers.
  • The contracts for laying Optical Fibre in all villages, including remote areas, will be awarded under the Bharatnet project through PPP in 2022-23. Completion is expected in 2025.

 

4. Financing Of Investments:

  • World-class foreign universities and institutions will be allowed in the GIFT City of Gujarat to offer courses in Financial Management, FinTech, Science, Technology, Engineering and Mathematics.
  • Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022- 23.

 

The Most Significant! – Income Tax Proposals

  • Generally, the proposals of The Finance Bill, 2022 will be applicable from 1st April 2022 i.e., for the Assessment Year (AY) 2023-24 onwards unless and otherwise stated. A detailed analysis of the direct tax proposals are as follows:

 

1. Surcharge on Long-Term Capital Gains under Section 112 to be capped at
15%

  • Section 112 – specifies income tax rates on all kinds of long-term capital assets (i.e. those assets which are held for >= 12, 24 & 36 months) be it listed or unlisted securities, zero-coupon bonds, immovable property or other longterm assets. The tax rate is either 10% or 20%
  • Normally, if total income of a person includes long-term capital gains (LTCG) under Section 112, then the total income tax liability is calculated as below:

a )Reduce the total taxable income by the amount of long-term capital gains.

b )Thereafter, calculate tax on the income so reduced as per the normal applicable tax rates applicable to individuals or a HUF.

c) Separately calculate tax on the long-term capital gains at 10%/20%.

d) Add both the amounts (a+b) to know the total tax liability before surcharge and cess.

e) If the total net taxable income exceeds the prescribed limits, then surcharge would be applicable on the tax liability.

f) Finally, calculate cess also on the tax liability to arrive at total tax liability of a person.

 

  • Earlier, the surcharge rates on LTCG under Section 112 was akin to the rates prescribed for normal income of individuals which is given below:
Total income including
LTCG under 112
Surcharge on Income Other than LTCG under 112Surcharge on LTCG under 112
<= 50 LakhsNILNIL
> 50 Lakhs but <= 1 Cr10%10%
> 1 Cr. but <= 2 Crs15%15%
> 2 Crs. but <= 5 Crs.25%25%
> 5 Crs.37%37%

 

  • Now, the maximum surcharge rate on LTCG under Section 112 has been capped at 15% as shown below:
Total income including
LTCG under 112
Surcharge on Income Other than LTCG under 112Surcharge on LTCG under 112
<= 50 LakhsNILNIL
> 50 Lakhs but <= 1 Cr10%10%
> 1 Cr. but <= 2 Crs15%15%
> 2 Crs. but <= 5 Crs.25%15%
> 5 Crs.37%15%

 

  • It is best to understand this change with the help of an example:

a) Let’s say the total income of person comprise of (a) INR 4 Crores of salary income and (b) INR 2 lakhs of LTCG under Section 112. Therefore, the total income comes to INR 4,02,00,000.

b) By applying the prescribed tax slab rates, income tax on normal income of INR 4 Crores comes to INR 1,17,37,500.

c) Income tax on LTCG under Section 112 comes to INR 40000 (20% of INR 2,00,000).

d) Total tax liability before cess and surcharge comes to INR 1,17,77,500.

e) Surcharge would be applicable since total income including LTCG under Section 112 exceeds INR 2 Crs but is less than INR 5Crs.

However, the surcharge calculation shall now be done separately for income excluding LTCG and for LTCG under Section 112 as shown below:

 

Tax liability on income other than LTCG under Section 112Tax liability on LTCG under Section 112Surcharge 
117375004000025% of 11737500 + 15% of 40000 = 29,40,375
  • In order to promote long term investments in equity of start-ups, the rate of surcharge has been capped at 15%, irrespective of amount of long-term capital gains. This is beneficial for HNIs (high-networth individuals) who are holding shares for more than 12 months in start-ups and selling it thereafter, thus to treat gains on sale of such shares as long-term capital gains.

 

2. Extension of time period for commencement of manufacturing by domestic companies availing concessional tax rate under Section 115BAB

  • Section 115BAB – The Taxation Laws (Amendment) Ordinance, 2019 has inserted Section 115 BAB offering a low tax rate of 15% (plus surcharge of 10% and cess of 4%) to new manufacturing companies. This was done to promote the new manufacturing start-ups
  • A domestic company satisfying some specified conditions could claim the benefit of Section 115 BAB.
  • One of main conditions was that the company has to be set up and registered on or after 1 October 2019 and commence manufacturing on or before 31 March 2022.
  • Now, it has been proposed to extend the timeline for commencement of manufacturing by one year from 31st March 2022 to 31st March 2023.

3. Change in surcharge rates for Co-operative Societies

  • Surcharge on co-operative societies with total income of INR 1 Cr. to INR 10 Crs. reduced to 7% from 12%
Total IncomeExisting Surcharge Proposed Surcharge
<= 1 Cr.NILNIL
> 1 Cr. but <= 10 Crs.12%7%
> 10 Crs.12%12%

 

  • Also, Alternate Minimum Tax (AMT) [a minimum tax that is leviable alternative to normal income tax] for Co-operative Societies has been reduced to 15% from 18.5%.

 

4. Scheme for taxation of virtual digital assets (such as Crypto Currencies)

  • There are an estimated 15 million to 20 million cryptocurrency investors in India, with total crypto holdings of around INR 40,000 crore ($5.29 billion), according to industry estimates.
  • At present, there is no specific section(s) to tax such transactions. Therefore, to bring more clarity, a new scheme for taxation of such ‘virtual digital assets’ has been proposed.
  • What is a Virtual Digital Asset? [Section 2(47A)]:

i) any information or code or number or token generated through cryptographic means or otherwise, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;

ii) a non-fungible token (NFT) or any other token of similar nature, by whatever name called;

iii) any other digital asset, as the Central Government may, by notification in the Official Gazette specify.

 

  • What is the tax rate on income from sale of virtual digital assets? (Section 115 BBH)

i) Where the total income of a person includes any income from transfer of any virtual digital asset(s), then the income from the transfer of such virtual digital asset(s) shall be charged to tax at the rate of 30%.

ii) Against such income, no deduction of any expenditure (other than the purchase cost of the asset) or any allowance or any set off of any loss shall be allowed.

iii) If there is a loss from the sale of such assets, no set off of such loss shall be allowed against any other income and no carry forward of such loss shall be allowed to subsequent assessment years.

 

  • Any tax to be deducted on payments made for purchase of virtual digital assets? (Section 194S)

i) It is proposed to levy 1% TDS on payments made to residents for buying such virtual digital assets.

ii) The type of persons making the payments and the threshold limits for the same are given as below:

Type of payerThreshold Limit for TDS @1%
Specified person*>50000
Non-specified person>10000

 

Specified Persons – an individual whose total gross receipts from business does not exceed INR 1 Cr. or INR 50 lakhs in case of profession in the preceding year or an individual who does not have any income under the head “Profits and Gains of Business or Profession.

 

  • Tax on virtual digital assets received as gifts? – if the value of virtual digital asset(s) received as gifts from non-relatives exceeds INR 50,000, then the whole value of asset shall also be subject to normal income tax.

 

5. TDS levy on payments made for the purchase of immovable properties

  • As per Section 194 IA, TDS of 1% is to be levied on the payment made by a person to a resident on the purchase of an immovable property if the value exceeds INR 50 lakhs.
  • Currently, 1% is being computed on the sale value of the immovable property and hence stamp duty value is not considered for the purpose of deduction of TDS.
  • Now, it is proposed to amend this Section 194-IA such that TDS is to be deducted at 1% of the sale value or the stamp duty value of such property, whichever is higher

6. A new concept of filing updated returns

  • Generally, the due-date to file an Income Tax Return for an individual is 31st July of the assessment year (AY). If there is a failure to furnish an IT return before 31st July, then a belated IT return shall be filed by 31st December i.e., three months prior to the end of the relevant AY. Also, if there are mistakes in the original return filed, a revised return shall also be filed before 31st December.
  • To provide more time to file a IT return, it is proposed to introduce a new Section 139 (8A) for filing an updated return of income irrespective of the fact whether the original return has been filed or not. This will facilitate ease of compliance to the taxpayer in a litigation free environment.
  • What does the Section talk about? [Section 139(8A)]

i) Any person, whether he has furnished his original/revised/belated return or not for an AY may furnish an updated return of his income in respect of which he is assessable under the Act, within 24 months from the end of the AY.

ii) The facility for filing of an updated return shall not be available if it is a return of loss or the total tax liability is decreasing or it results in a refund or if there are any pending assessments.

  • Is there any additional tax on filing such updated return? [Section 140B]

i) If no original/belated/revised return filed: pay tax due + interest due + late fees due + additional tax for filing the updated return.

ii) If original/belated/revised return has already been filed: pay net tax due + net interest due + late fees due + additional tax for filing the updated return

iii) Additional tax shall be a % of the total tax due + interest due and shall be subject to surcharge and cess also

The additional tax payable shall be determined based on when the updated return is filed which is explained as below:

Filing of Updated Return% of Additional Tax applied on aggregate tax and interest payable
After 31st December of the AY but within 12 months25%
After 12 months from 31st December of the AY but before 24 months50%

 

7. Higher deduction for State Government employers for NPS contributions

  • As per the existing Section 80CCD (2), for employers who make contributions to NPS (National Pension Scheme) for their employees in the form of PPF and EPF, a maximum deduction of 14% of the salary (Basic + Dearness Allowance) of a Central Government employee and 10% of the salary of all other employees is available.
  • Now, it is proposed to set the maximum deduction as 14% of salary for both Central Government and State Government employees and this would apply retrospectively from 1st April 2020.

8. No tax on amounts received for medical treatment and on account of death due to Covid-19

  • The Finance Ministry by a press statement dated 25th June 2021 announced that income-tax shall not be charged on the amounts received by a taxpayer or any member of his family:

a) for medical treatment from employer or from any person incurred for the treatment of COVID-19 during FY 2019-20 and subsequent years.)

b) for ex-gratia payments received by family members of a person from the employer of such person or from other person on the death of the person on account of COVID-19 during FY 2019-20 and subsequent years.

Maximum limit for exemption:

i. Nil – if from employer and;
ii. INR 10 Lakhs – if from any other persons

  • The respective sections have been amended to accommodate the above insertions. Also, the ex-gratia payments shall be received within 12 months from the date of death of such person. These exemptions would apply retrospectively from 1st April 2020.

9. No more concessional rate of tax on dividends received from foreign companies

  • Presently, dividend received by domestic companies from specified foreign companies is taxed at the concessional rate of 15% [Section 115BBD]
  • Now, it is proposed to withdraw this concessional rate of tax.
  • Accordingly, the dividend income would now be taxed at normal income tax rates as applicable to the domestic companies.

10. Extension of tax benefits for Start-ups

  • Section 80-IAC provides for a deduction of 100% of the profits derived from an eligible business by an eligible start-up for 3 consecutive assessment years out of a block of 10 assessment years (at the option of the taxpayer), beginning from the date of incorporation
  • One of the conditions to qualify as a “eligible start-up” was that the start-up shall be incorporated on or after 1st April 2016 but before 1st April 2022.
  • In order to factor in delays of setting-up units due to Covid-19 Pandemic, it is proposed to amend the provisions of section 80-IAC of the Act to extend the period of incorporation of eligible start-ups to 31st March, 2023.

11. Rationalization of provisions relating to Charitable Trusts and Institutions

  • Taxation of Charitable Institutions have been under scanner in recent times and the Government has, in last few years, have brought in various amendments in the relevant provisions governing the taxation of Charitable Institutions.
  • The Finance Bill proposes to rationalize the provisions by:

a) Ensuing effective monitoring and implementation;

b) Bringing consistency in the provisions; and

c) Providing clarity on taxation

a) Ensuing effective monitoring and implementation

  • It is proposed to provide for maintenance of specified books of accounts trusts/institutions whose income exceeds 2,50,000. Also, to discourage the misuse of the trust property, it is proposed to insert new section to provide for penalty to be levied for trusts

b) Bringing consistency in the provisions

  • In the case of a Trust, where any donation is received for renovation/ repair of any property held under any trust being temple/ mosque/ gurudwara/ church etc. may be treated as a part of its corpus provided that the same is used for the purpose for which the contribution is received
  • Presently, 85% of the income needs to be applied by Trusts. The term “application” includes expenses whether or not paid. It is now proposed to provide that any sum payable by any Trust or Institution shall be considered as “application of income” in the year in which such sum is actually paid by it (irrespective of the year in which the liability was incurred by the Trust).

c) Providing clarity on taxation

  • It is proposed to tax “specified income” at the rate of 30% in the hands of Trust/ institution without allowing any deduction of expenditure.

Specified income means:

i) Income accumulated or set apart in excess of 15% where such accumulation is not allowed.

ii) Accumulated amount which is not invested in the specified modes of investment;

iii) Income accumulated but not applied for the charitable purposes;

iv) Income applied for the benefit of specified persons and;

v) Income applied for charitable purpose outside India

Building a self-reliant India! – the Indirect Tax Proposals

1. Goods and Services Tax (GST)

  • Service by way of grant of alcoholic liquor license, against consideration in the form of license fee or application fee or by whatever name it is called by the State Governments shall be treated neither as a supply of goods nor a supply of service (a retrospective amendment).
  • The rate of interest @ 18% shall be levied on wrong availment and utilization of input tax credit. Earlier the rate of interest was @ 24% (a retrospective amendment)
  • Relevant date for claiming refund of IGST paid (refund of tax on payment of tax without LUT) in respect of zero-rated supplies of goods or services to a Special Economic Zone developer or a Special Economic Zone unit to be 2 years from the due-date of furnishing GSTR 3B
  • It is provided that a registered person can claim the refund of the balance lying in the electronic cash ledger in such form and manner as may be prescribed. The effective date of the amendment is yet to be notified.’
  • The time-limit to avail ITC for a financial year has been extended from 30th September to 30th November of next financial year. Also, credit notes in respect of supply made in a financial year can now be issued by 30th November of next financial year (currently allowed till 30th September).
  • Consequently, any rectification of error in GSTR-1/ GSTR-3B is now permitted till 30th November of next financial year (currently allowed till 30th September).
  • Apart from the 5 existing conditions for availing Input Tax Credit (ITC) under Section 16, an additional condition has been inserted to provide that ITC with respect to a supply can be availed only if such credit has not been restricted in the details communicated to the recipient (ITC could be restricted on account of various defaults by suppliers)
  • Registration of a person is liable for cancellation if a person paying tax under the Composition Scheme for a financial year has not furnished returns beyond 3 months from the due date of furnishing of the said return.
  • It is now confirmed that the taxpayers cannot file GSTR-1 without filing GSTR-1 for the previous month. Also, legal backing has been given on the condition specified in Rule 59(6) that GSTR-1 cannot be filed if GSTR-3B of previous period is not filed.

 

2. Customs Law

  • Rate of Basic Customs Duty on one hand has been increased for certain goods such as umbrellas, imitation jewellery, certain electrical and electronic goods while it has been reduced for textiles, frozen mussels, frozen squid, asafoetida, cocoa beans, whole or broken, raw or roasted, methyl alcohol, acetic acid.
  • Anti-Dumping duty is being permanently revoked, on imports of the following:

i) Straight Length Bars and Rods of alloy-steel, originating in or exported from China;

ii ) High Speed Steel of Non-Cobalt Grade, originating in or exported from Brazil, China and Germany;

iii) Flat rolled product of steel, plated or coated with alloy of Aluminium or Zinc, originating in or exported from China, Vietnam and Korea RP

  • Countervailing duty is being permanently revoked on imports of Certain Hot Rolled and Cold Rolled Stainless Steel Flat Products, originating in or exported from China.

 

Digital Tax not just click away

Digital Tax not just click away

Digital Tax not just a click away

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

Session Structure

Digital Economy & its Challenges

Equalization Levy

TDS Provisions

Today’s Scenario

Significant Economic Presence

GST Provisions

What is a Digital Economy?
  • The economy that is based on digital computing technologies
  • Conducting business through markets based on internet & WWW

Hyperconnectivity between people, organizations and machines

 

Some Statistics – Still behind China
Before COVIDAfter covid
  • 577 Million Internet Users (36.8% of Population)
  • 370 Million Social Media Users (11.1% of Population)
  • 624 Million Internet Users (45% of Population)
  • 448 Million Social Media Users (32.3% of Population)
 
Change due to COVID-19
01) Social Media Websites
02) Work from Home

Target Advertising

Computing Power

“Physically Absent but Fiscally Present”

1 Second = 127 Devices

The Challenges
Where?
In the absence of any physical presence, there is a lack of nexus between the income recipient and the ultimate parent company
How Much?
Categorization of income from transactions involving data for tax purposes and how to determine the quantum of income?
EQUALIZATION LEVY
Some other points relating to EL 2.0

Payment, interest & penalty provisions

FA 2021 Clarifications

  • Does not include consideration is taxable as royalty or FTS
  • “Online sale of goods/provision of services” -acceptance of offer for sale, placing a PO
  • Income of such e-com. operator is exempt under S.10(5) from 1st April 2020
EL chargeable irrespective of whether goods/services are owned/provided/facilitated
Disallowance under S.40(a(ia)
Need to furnish a statement in FORM 1 within 30th June of next year
Case Studies

  1. Apple Inc. running iphone ads to target Indian users on Alibaba platform and pays INR 3 Crs – Yes, EL
  2. Alibaba buys data from Facebook India for INR 1 Cr and sells it to Apple Inc. for INR 6 Crs – Yes, EL on INR 6 Crs
  3. Amazon Music providing services to Indian customers – No, EL
  4. Only order placed online for goods through platform, rest all functions done offline – EL only on the consideration from online service
  5. NR e-com. sells good to a resident for INR 100 which is listed on its platform by another resident from whom commission of INR 30 is received – EL on INR 130
Challenges to EL 1.0 & 2.0

FY 19-20 – INR 1136.5 Crs
FY 2020-21 – INR 1492.7 Crs

TDS under 194-O – with effect from 1st Oct 2020

Scope?

When the sale of goods/provision of services by an e-com. participant (resident) is facilitated through any digital / e-facility or any platform of an e-com. operator (resident/NR)

When?

At the time of credit or payment to e.com participant whichever is earlier

Rate?

@ 1% (0.75% from Oct’20 to Mar’21) of the gross amount of such sales or services or both

No Deduction?

When such e.com participant is an individual/HUF + gross amount <= INR 5 Lakhs + PAN/Aadhaar furnished

 

More points for clarification
  1. Payments made directly to e.com participants shall be deemed to be amount credited / paid by e.com operator – customers directly paying to Ola / Swiggy
  2. No TDS under any section if the transaction attracts 194-O – Cleartax making payment to CA’s (no 194J)
  3. If no PAN furnished, then rate shall be 5% under S. 206AA
  4. The e.com participant shall be a resident

 

Case Study
GST Provisions
  • Liability to pay GST under RCM by e.com operator under S.9(5) of CGST Act, 2017
  • Taxability and POS Rules for OIDARS providers under S.14 of IGST Act, 2017
  • Tax to be collected (TCS) by e.com operator on supplies through it before making payments to e.com participants under S.52 of CGST Act, 2017
RCM Liability u/s 9(5)
TCS u/s 52
Some points relating to TCS
  1. The e.com. operator should not be an agent
  2. TCS shall be on the “net value” of “taxable supplies””
  3. The e-com. operator should get the consideration from the end-customer
  4. Sale of goods/services from own website – not attracting TCS
  5. Applies to NR e-com. operators also
  6. Credit available to the e.com participants / suppliers
OIDARS – S.14 of IGST ACT, 2017

Services whose delivery is mediated by IT where there is automatic supply | Minimal human interference | impossible without IT

 

Includes:Excludes: POS
  • Ads
  • Cloud services
  • e-books
  • online gaming
  • Mailed PDFs
  • CA/lawyer services through mail
  • Supply of goods
  • Transfer of movies

POS

location of recipient (deeming provisions)

 
Case Study – OIDARS
Significant Economic Presence

 

0102 03

S.9 – Income deemed to accrue or arise in India

Business Connection in India under Expl.2

SEP – FA 2018 inserted Expl. 2A (Deemed BC)

 
2 categories for SEP
Category 01Category  02

Transactions in relation to the provision of goods/services/property including download of data/software by an NR in India

Soliciting of business activities/interaction with Indian users through digital means

FA 2018 – no limits were prescribed (less relevant)

SEP – EXPL. 2A REPLACED BY FA 2020

CBDT notification dated 3rd May 2021 – limits

 
Today’s Scenario

Explained : US investigation into digital services tax, and what is the case against India?

What us global minimum tax and what will it mean?

Amazon, Facebook Lobby Groups urge Digital-Tax End, OECD Deal

 

Relevance of Internal Audit

Need for surprise audits

As tax authorities demand more data

Whether FORM-1 of EL has been filed on time?
Indicate the high & low risks that the Boards and Senior Executives should be aware of

Checks in place to find if e.comm operators are meeting compliance requirements

Subsequent Events

Subsequent Events

Subsequent Events (AS 4 | SA 560 | IND-AS 10)

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

AS 4 – Contingencies & Events Occurring After the BS Date
  • Events occurring after BS date (BS to FS signing)
  • Adjusting Events (impacting FS)
  • Non-Adjusting Events (just disclose in DR)
  • Non-Adjusting Events affecting GC (deemed as adjusting events)

 

SA 560 – Subsequent Events (SE)
  • SE (BS to FS signing & afterwards)
  • Audit Procedures for SE
  • Facts known after AR but before FS is issued
  • Facts known after FS is issued

 

A Better Understanding – AS 4 & SA 560
Insolvency of a customer which indicates a loss in trade receivables is an adjusting event

It confirms to a condition existing on BS date

AS 4 & SA 560
Destruction of a major production plant by fire is a non-adjusting event

Does not confirm to a condition existing on BS date

BASIC AUDIT PROCEDURES (SA 560)
  • To obtain SAAE on whether all events between BS date and date of Audit Report require adjustments (if AE) or just disclosures (if NAE)
    • Review the mgmt procedures
    • Make inquiries
    • Read minutes
    • Mgmt reports
    • Mgmt representation
  • Respond to facts that become known after the date of Audit Report
    • Extend the above
    • Inquire how mgmt intends to address the matter in FS

 

DEALING WITH COVID-19

Managements’s Considerations

  • They should exercise judgment in determining the impacts on FS from SE’s (adjusting events) in the wake of COVID-19
  • To issue a written representation that they have identified all events occurring between FS date and AR date which require adjustments/disclosures

 

Auditor’s Responsibilities
  • Obtaining an understanding of the SE’s and how it has been dealt with in FS.
  • Judgment needs to be applied to determine whether the conditions existed on the FS date (adjusting events) or not.
  • Ongoing and regular communication with TCWG – improve understanding of the changes that need responses and also to determine the audit procedures for SAAE.
Examples of Events & Conditions that May be Relevant in the Current Environment*

SECURED LOANS

New commitments and borrowings as a result of the pandemic

FIXED ASSETS

Recent or planned sales and acquisitions of assets as a result of the pandemic

DEBTORS

Expected credit loss provisioning – customers in USA/UK having already filed for liquidaton

GOVT. RELIEFS

Important to understand & determine the conditions and the dates attached

*May require adjustments to FS

REPORTING RESPONSIBILITIES

If the auditor is able to obtain SAAE about SE’s as required in SA 560, then he has 2 options:

  • If he considers that the SE’s identified require user’s attention, then uder KAM paragraph (Key Audit Matters)

OR

  • If it is not necessary to draw the user’s attention, then under EOM / OM paragraph (Emphasis of Matter/Other Matter)
Physical Inventory Verification

Physical Inventory Verification

Physical Inventory Verification

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

SA 501 – Audit Evidence – Specific Considerations for Selected Items
  • SAAE – existence & condition of inventory
  • Things to remember while attending PV
  • When PV is on a date other than the date of FS
  • When attendance at PV is impracticable
  • Inventory lying with 3rd party

 

AS 2 – Valuation of Inventories
  • Valuation – Cost or NRV
  • Determination of cost

 

CARO Clause (ii) – Inventories
  • PV at reasonable intervals
  • Dealing with material discrepancies

 

EXISTENCE & CONDITION

Attendance at PV

  • Evaluate mgmt’s instructions & procedures
  • Observe
  • Inspect
  • Perform test checks

PV at a date other than the date of FS Perform audit procedures to get SAAE on the recording of changes between the 2 dates

Attendance at PV is impracticable Perform alternate audit procedures

 

POTENTIAL CHALLENGES IN THE CURRENT ENVIRONMENT
  • Management is unable to conduct yearly PV
  • PV by mgmt at a date other than the date of FS
  • Where it is impractible for auditors to attend PV
  • Inventory held with third party
  • Inventory in transit

 

MANAGEMENT UNABLE TO CONDUCT PV
  • Should inform TCWG and auditors with the reasons

 

INVENTORY HELD BY A THIRD PARTY
  • Direct confirmation for quantities & conditions
  • Not involving the mgmt
  • Read and understand the contract with the third party

 

INVENTORY IN TRANSIT
  • SAAE – location & condition
  • Documentary records regarding purchase / sale

 

PV ON A DATE OTHER THAN THE DATE OF FS

Perform audit procedures to obtain SAAE about whether the changes between the 2 dates are properly recorded

SAAE for?

  • Proper adjustment in records
  • Reliability of records
  • Reasons for differences between books and physical

What about internal controls?

  • Check the effectiveness of controls over the conduct of PV [Section 143(3)(i)] including the quality of records and security of inventory

 

Performing “roll-back procedures” to the BS date

Q. How to arrive at the balance as on the BS date if PV is conducted on a date other than the date of FS?

BALANCE PHYSICALLY VERIFIED ON THE DATE
(+) ISSUES BETWEEN THE DATES
(-) RECEIPTS BETWEEN THE DATES
EXPECTED STOCK BALANCE AS ON DATE OF FS

WHERE IT IS IMPRACTICABLE FOR AUDITORS TO ATTEND PV

  • “Impracticable” – nature & location of the inventory but not general inconvenience
  • To perform alternate audit procedures to get SAAE about existence & conditions:
    • Inspection of documents for subsequent sale of items purchased prior to PV
    • Evaluation of controls with respect to the purchase and sale of items
  • Using the work of an Internal Auditor
    • Direct assistance relating to observations of inventory counts
    • Understand & evaluate the competence
    • Obtain PV instructions from mgt and give it to IA for compliance
    • Issue own instructions to IA with sample size
    • Inform IA about deliverables
  • Use of technology in inventory counting
    • Video Call
    • Inherent limitations – hiding of obsolete / damaged stock

 

REPORTING REQUIREMENTS

If the auditor is unable to obtain SAAE by performing alternate audit procedures, then

Limitation of scope

Modified Audit Opinion

Qualified or Disclaimer depending on the level of pervasiveness

Going Concern

Going Concern

Going Concern – Key Audit Consideration Amidst COVID-19

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

WHY SHOULD THE MANAGEMENT WORRY?
Section 134(5)(d) of the Companies Act 2013

Director’s Responsibility Statement should state that the Company has prepared the annual accounts on GC basis!

 

WHAT ARE MY OBJECTIVES?
  • Obtain SAAE on the mgmt’s assessment of GC basis of accounting
  • Conclude based on the above SAAE obtained whether there exists a material uncertainty
  • Whether such MU is such that the E+C casts significant doubt on the ability of entity to continue
  • To report properly

 

WHAT ARE THE STEPS INVOLVED?
  • Mgmt to do a preliminary assessment – identification of E+C & plans for the future
  • Check the nature of such E+C – financial / operating/other indicators
  • Perform additional audit procedures to obtain SAAE to establish whether or not MU + mitigating factors
  • Evaluate mgmt’s plans for the future – obtaining a WR
  • Reporting requirements

 

EVENTS & CONDITIONS
Financial Indicators 
  • Withdrawal of financial support by creditors
  • Negative operating cash flows
  • Adverse key financial ratios
Operating Indicators 
  • Loss of key management without replacement
  • Emergence of a highly successful competitor
Other Indicators 
  • Pending legal & regulatory requirements
  • Changes in law or Government policies

 

AUDIT PROCEDURES
  • Analyzing & discussing the cash flow and relevant forecasts with the mgmt
  • Reading the MOM for reference to financial difficulties
  • Inquiring with the entiry’s legal counsel regarding the existence of litigations & claims
  • Evaluating the mgmt’s plan for the future – liquidity, borrowing, expenditure
  • Cash flow forecast – realiability of data
  • SA 580 – WP
EXTRA CONSIDERATIONS DUE TO COVID-19
Have you discussed with the mgmt on the impact of COVID-19 outbreak?
Interruptions in the supply & production life cycles – feasible recovery plans?
Financial difficulties – additional credit risks, potential impairments and write-offs?
SUMMARY OF THE FAQ’S

What matters to be considered by the Management?

REGULATORY CONSIDERATIONS

  • Measures taken by the Govt. in different countries
  • Measures taken by the regulators (banks)

LIQUIDITY CONSIDERATIONS

  • Receivables
  • Business expansion into a new sector

MITIGATING FACTOR

Capital expenditure reduction

 

 

OPERATING ENVIRONMENT CONSIDERATIONS

  • Restructuring of the entity
  • Impact of foreign exchange fluctuations
  • Supply chain management
  • Inventory valuation
  • Raw material pricing
  • Overseas supplies

 

 

 
What period to be used at the time of evaluating the entity’s ability to continue as a GC?

 

If the mgmt’s assessment <12 months from the date of FS

Shall request the mgmt to extend the assessment period to at least 12 months from that date

Subsequent Events – Adjusting Events – Adjust FS

 

 

HOW THE MGMT SHOULD UPDATE ITS ASSESSMENT ABOUT THE ABILITY OF THE ENTITY TO CONTINUE AS A GC?
  • Industry Reports
  • Data from WHO or other local institutions
  • Data from governmental sources about the severity and estimated duration
  • Actions of the Govt. to mitigate the effects
REPORTING & DISCLOSURES

 

REPORTING & DISCLOSURES

 

 

MATERIAL UNCERTAINTY

A KEY AUDIT MATTER?

SA 701 – KAM PARAGRAPH

  • If only E+C, then can use KAM Para
  • If MU exists, then in addition to KAM Para, EOM Para will have to be filled
  • If any qualification – no KAM Para
GST Refund

GST Refund

GST Refunds

KORAH AND KORAH, CHARTERED ACCOUNTANTS

 

What we will discuss?
  • Brushing up of the refund provisions
  • Requirements for filing a Refund Application
  • Practical scenario using a Show-Cause Notice
    • (Limiting the scope of our discussion to only Zero-Rated Supplies of Goods / Services / Both!)
S.54 ➞ R.89 ➞97 (CGST ACT)

Starting with S. 49(9) – you have to prove that you have not passed the burden of GST to get refund

Refund of ?

  • IGST on Exports
  • Unutilized ITC – 0 Rated & Inverted Duty Structure
  • Balance in E Cash Ledger
  • Excess Payment due to a Mistake
  • Others

 

Refund of tax in case of Zero-Rated Supplies
Time Limits (“Relevant Date”)

Explanation under S. 54(14)

Zero-Rated Supplies on payment of IGSTZero-Rated Supplies under LUT

Goods

  • Sea / Air – when it leaves India
  • Land – custom frontiers
  • Post – dispatch

Goods & Services

  • Due-date for furnishing GSTR 3B for the month in which such refund claim
    arises 2 YEARS from the relevant
    date

Services

  • If Advance – date of invoice
  • If receipt later – date of receipt
 
Amount of Refund Claim
Refund Amount in case of Zero-Rated Supplies under LUT (Net ITC)
Breaking up the Formula
Adjusted Total Turnover
Procedure in Brief (In Rules)

RFD-01

Refund Application + Documentary Evidence

RFD-02

Acknowledgment (ARN) 15 days from Application

Process

60
Days

RFD-03

Deficiency
Memo

RFD-04

Order for Provisional Refund 7 days from ARN

RFD-06

Final Sanction
Order

RFD-05

Payment order
(earlier “advice”)

RFD-08

SCN – Liable for Rejection
 

RFD-09

Reply to SCN 15days
from SCN

Master Circular 125/44/2019-GST dated 18/11/2019

Application to all refund claims after 26/9/2019

Deficiency Memos
➞RFD-03 also within 15 days
➞Fresh Refund Application
➞2 years from original application

Disbursements
➞Application and Sanction by one authority
➞Disbursed through PFMS to Bank Account
➞Interest @ 6% if not refunded within 60 days

 

 

Provisional Refunds
➞90% of amount claimed
➞RFD-06 before RFD-04

Unutilized ITC
➞Upload copy of GSTR 2A
➞Self-certified purchase invoices not in 2A
➞Rule 36(4) – 5% restriction – taken care by FA’21

 

 

How does the portal calculate maximum refund amount?

Balance in E Credit Ledger at the end of tax period after filing GSTR 3B or;

As per Formula or;

Balance in E Credit Ledger at the time of refund claim

Zero-Rated Supplies
➞Procedural delay in filing LUT
➞No need proof of realization in case of export of goods
➞Terms and Conditions in LUT

If liable to pay GST, then when?
List of Documents Prescribed

Case 1 : Zero-Rated on payment of IGST

Outside IndiaTo SEZ
  • Declaration that no export duty is liable on goods and no duty drawback claimed (+) FIRCs (services
  • Undertaking that all conditions of ITC availment are fulfilled (+) Copy of GSTR 2A*
  • Statement containing details of invoices vis-vis FIRC details* (+) Annexure B (Purchase invoice details)*
  • Self-certified copies of invoices not in GSTR 2A (+) Self-declaration of no offences committed for Provisional Refund
  • Declaration that no export duty is liable on goods and no duty drawback claimed (+) Endorsement from SEZ officer regarding receipt for authorized operations
  • Declaration that tax has not been collected from the SEZ Unit (+) Self-certified copies of invoices not in GSTR 2A
  • Statement containing details of invoices vis-vis receipt details* (+) undertaking that all conditions of ITC availment are fulfilled
  • Self-declation (<2 Lakhs or CA Certification >= 2 Lakhs)

 

Case 2 : Zero-Rated Under LUT

Outside IndiaTo SEZ
  • Declaration that no export duty is liable on goods and no duty drawback claimed (+) Copy of GSTR 2A*
  • Undertaking that all conditions of ITC availment are fulfilled (+) Annexure B (Purchase invoice details)*
  • Statement containing details of invoices vis-vis FIRC details*
  • FIRC Copies (Services) / Shipping Bill (Goods)
  • Declaration that no export duty is liable on goods and no duty drawback claimed (+) Copy of GSTR 2A*
  • Statement containing details of invoices vis-vis receipt details (+) Annexure B (Purchase invoice details)*
  • Self-certified copies of invoices not in GSTR 2A (+) Endorsement from SEZ officer regarding receipt for authorized operations
  • Undertaking that all conditions of ITC availment are fulfilled
  • Self-declation (<2 Lakhs or CA Certification >= 2 Lakhs)

 

Other Issues faced at the time of Refund Application
  • Invoice copies for high value purchases
  • Claim of ITC should match with details in GSTR 2A
  • Turnover mismatch b/w GSTR 1 & 3B
  • Category of refund Vs Invoice Format
  • 2 Years from the Relevant Date
  • Self-Declarations
  • Annexure B – Correct format including column for HSN/SAC
  • Correct address in FIRC Copies
  • Invoice Vs FIRC Details