Direct Tax

Changes in Income Tax Returns for AY 2019-20

[Notification No. 32/2019, dated 1 April 2019]

Recently, the Central Board of Direct Taxes (CBDT) amended the Income-tax Rules, 1962 and released the Income Tax Returns for Assessment Year (AY) 2019-20. There are many notable changes in the ITR forms for all taxpayers (Individuals, Companies, Trusts, etc). The key changes are as follows:

Applicability of ITR Forms for various assessees

ITR 1 (For Resident Individuals) shall not apply to:

  • The taxpayer who has claimed deduction u/s 57 (i.e., deductions claimed under the heading “Income from Other Sources”
  • The taxpayer who is the director in any company
  • The taxpayer who has held any unlisted equity shares at any time during the previous year

ITR 4 (for resident individuals, partnership firms, excluding LLP and HUFs having opted for presumptive taxation) shall not apply to:

  • HUF and Partnership Firms being Non-Resident
  • The taxpayer who is a director in any company
  • The taxpayer who has held any unlisted Equity Shares at any time during the pervious year
  • The taxpayer having total income more than INR 50 lakhs
  • The taxpayer owing more than one house property

For Companies – following additional reporting requirements introduced

  • Date of commencement of business needs to be mentioned
  • Details pertaining to start-up companies (start-up recognition number, certificate number, etc) in General Information and inserted a New Schedule for a shareholding of start-ups
  • In case of a foreign company, reporting of details of the immediate and ultimate parent company (country of residence, taxpayer’s registration number or any unique identification number)
  • Details of gross receipts/turnover and net profit in case of foreign companies engaged solely in the business of shipping (s.44B), exploration, etc., of mineral oils (s.44BB), operation of aircraft (s.44BBB) and civil construction, etc., in certain turnkey power projects (s.44BBB)
  • Details of capital gains in case of transfer of immovable property (name, PAN, address of the buyer, percentage share, pass through income in case of REITs, AIF, etc)
  • To report a section under which dividend is being declared
  • Reporting of details of foreign bank accounts (including any beneficial interest) at any time during the previous year deleted
  • Reporting details of foreign depository accounts, foreign custodial accounts held (including any beneficial interest) at any time during the relevant accounting period
  • Reporting details of foreign equity and debt interest held (including any beneficial interest) at any time during the relevant accounting period
  • New Schedule inserted for reporting details of shareholding of the unlisted company (name, residential status, PAN, type of shares, face value, issue price, equity share application money pending allotment, etc.)
  • The new ITR forms require the representative assessee to provide the ‘capacity’ under which the return is filed.

For Individuals

  • New ITR Forms seek separate reporting of all allowances, perquisites, exempt allowances, etc.
  • The new ITR forms require the representative assessee to provide the ‘capacity’ under which the return is filed
  • Insertion of “Deemed let-out” under the category “type of property”
  • Insertion of PAN/TAN of tenant mandated if taxes are withheld
  • Detailed reporting of interest income from various sources required (e.g., saving bank interest, FD interest, etc.)

The revised ITR forms have brought about many changes with the intention to curb tax evasion. However, while doing so, reporting requirements have increased a great deal which is more time-consuming.

CBDT releases draft rules for amendment of Rules for Profit Attribution to Permanent Establishment

[F.No. 500/33/2017-FTD]

CBDT releases draft rules for amendment of rules for Profit attribution to Permanent Establishment. These rules have been kept open for public consultation, and suggestions have to be submitted within 30 days from publication of this document on the website of the Income Tax Department.

Transfer Pricing

CbCR Filing in India

In connection with the filing of the Country-By-Country Reports (CbCR) in India for the constituent entities having ultimate parent companies in the USA there has been considerable ambiguity due to delay in activation of the automatic exchange between India and USA governments.

Time Limit for Filing of CbCR in India extended to 30 April 2019

The Central Board of Direct Taxes (CBDT) vide the press release dated 15 March 2019, had stated that India and USA would be signing the Bilateral Competent Authority Arrangement for automatic exchange of CbC Reports before 31 March 2019 due to which the CbCR would not be required to be filed in India. However, on 8 April 2019, the CBDT notified an extension to the due date to 30 April 2019 (it was 31 March 2019 earlier) for the Indian constituent entities whose parent entities are resident in USA, in respect of reporting accounting years ending up to 29 April 2018. The circular also mentioned that an exchange agreement between India and USA had been signed, however it would come into effect only after both the countries notify each other about the completion of all the internal procedures. Accordingly, it implied that such USA headquartered Indian entities are now not required to file CbCR in India till 30 April 2019.

Central Government notifies the signing of the Inter- Governmental Agreement for Exchange of Countryby- Country Reports the India

On 25 April 2019 the Central Government of India has formally notified the signing of the agreement for exchange of CbCR between India and USA as well as provided the copy of the agreement. While the agreement stated to be in place, it is also mentioned that the agreement shall come into force on the date on which the second of the two Parties has provided a written notification to the government of the other jurisdiction that the necessary internal procedures for entry into force of this agreement have been completed. However, exchange of information under this Agreement shall not commence until the Arrangement is operative by its terms.

SKP's Comments

These are important developments for the Indian subsidiaries of US headquartered companies. It would be useful if the CBDT provides clarification of certain contradictory statements in the circulars to give relief to aggrieved taxpayers which ensure and avoid duplicate compliance burdens. The automatic exchange mechanism between India and USA if in place, should not warrant Indian entities to file the CbCR if the same is filed in USA.

Delhi High Court Recalls own order in relation to characterization of taxpayer as KPO

The Delhi High Court had characterized Mckinsey Knowledge Centre India Pvt Ltd as a KPO1. It was noted that the research and information services rendered by the taxpayer were high-end knowledge-based research services (KPO) and were specialized and require specific skill based analysis and research” that is beyond the more rudimentary nature of services rendered by a BPO. However, a review petition was filed by the taxpayer on this issue of characterization which has been allowed by the Delhi High Court.

Resolution of over 10 Bilateral APAs and 30 MAP cases between India and USA

India and USA recently conducted a week-long meeting and held discussions on Bilateral Competent Authority Mutual Agreement Procedure (MAP) and Advance Pricing Agreement (APA). During the course of the meeting, agreement was reached on the terms and conditions of over 10 Bilateral APAs (BAPAs) primarily in the IT sector, which will provide tax certainty to taxpayers for nine years (including a four year rollback period), encouraging taxpayers to opt for Bilateral APA route.

In addition to the above, India and USA also achieved the resolution of over 30 MAP cases, predominantly in the IT/ ITeS space.

Indirect Tax

Barring generation of e-way bill

A taxpayer who has not furnished GST returns for two consecutive months would be barred from generating E-way bills (with effect from 21 June 2019).

[Notification No.22/2019 - Central Tax dated 23 April 2019]

Procedure for composition taxpayers

The GST Council has notified the procedure for quarterly tax payment and annual filing of return for composition taxpayers, including service providers paying tax under composition scheme.

  • Furnish a statement every quarter containing details of payment of self-assessed tax in FORM GST CMP-08 - To be furnished till the 18th day of the month succeeding the quarter.
  • Such taxpayers shall furnish a return annually in FORM GSTR-4 on or before the 30 April following the end of the financial year.

[Notification No.21/2019 – Central Tax dated 23 April 2019]

Clarification in respect of utilization of ITC

The new manner of utilization of ITC provided by Notification No. 16/2019 - Central Tax dated 29 March 2019 has been clarified by issuance of a circular. The new order of utilization of ITC is summarized in the table below:

ITC on account of Output liability on account of IGST Output liability on account of CGST Output liability on account of SGST/UTGST
(2) - In any order and any proportion
(3) ITC on account of IGST to be completely exhausted mandatorily
Not permitted
Not permitted

Hence, from the above table it can be construed as follows:

  • First, ITC of IGST should be set-off against liability of IGST and then against CGST/SGST until it is completely exhausted.
  • Then, ITC of CGST/SGST should be set-off against their respective heads.
  • In case there is any excess ITC of CGST, then it shall be utilized against any IGST liability, and only then excess ITC of SGST shall be utilized for discharging any balance IGST liability.
  • Similar to the previous manner of utilization, ITC of CGST is not permitted to be set-off against SGST, and vice versa

[Circular No. 98/17/2019 - GST dated 23 April 2019]

1 Delhi High Court Order dated 9th August 2018 in the case of Mckinsey Knowledge Centre India Pvt. Ltd. - ITA 461 and 526 and respective cross appeals - AY 2011-12 and AY 2012-13