Direct Tax

India ratifies OECD's convention to check tax evasion

The multilateral convention is an outcome of the OECD/ G20 Project to tackle base erosion and profit shifting [BEPS], which is resorted to by multinational corporations through tax planning strategies by exploiting gaps and mismatches in tax rules. The convention enables all signatories to meet treaty-related minimum standards that were agreed as part of the BEPS package. India has now deposited the instrument of ratification to OECD, Paris, along with its final position in terms of covered tax agreements (CTAs). The Cabinet last month approved ratification of the convention, which will modify India's treaties in order to curb revenue loss through treaty abuse and BEPS strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out and where value is created.

Under this global tax framework, investors from tax heavens including Singapore and Cyprus who have availed the benefit of exemption or concessional rate of taxation for investments made prior to this financial year may have to face tax scrutiny by Indian tax authorities.

NRIs’ residential status comes under I-T lens

As per Indian tax laws, a resident can attain NRI status by staying overseas for more than 182 days. The law also states that a person is a ‘resident’ if he has been in India for more than 60 days in the year in question and 365 days during the four years prior to that year. While an NRI is spared tax on income from outside India, a resident is required to pay tax on global earnings. Due to severe tax implications, many Indians carefully divide their time between India and abroad. To look into this issue, the department has issued notices to several NRIs for reopening tax assessments of the past five to six years and were also told to share photocopies of their passports. Under the circumstances, persons who claimed NRI status (without fulfilling the norms on the period of stay) are being pulled up for tax evasion and may be in for lengthy litigation.

Task force on Direct Tax Code to submit report by 31 July 2019

The Finance Minister, Nirmala Sitharaman, has stated that the task force shall submit a report on the Direct Tax Code by 31st July. The existing Income Tax Act shall be replaced by the new direct tax code which aims to reform the complex Income Tax laws into simpler tax codes with reduced rates, fewer exemptions, and tax slabs.

Transfer Pricing

On 5th July 2019, the Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman made her maiden Budget Speech and presented the Union Budget 2019-20 before the Parliament. Key transfer pricing highlights of Union Budget 2019 are as follows :

Secondary Adjustments (SA) simplified

To address concerns regarding the provisions of Section 92CE, following amendments have been proposed:

  • Clarification that these provisions shall not apply if the primary adjustment does not exceed INR 10 million or the same pertains to AY 2016-17 and earlier years. These two conditions are not cumulative.
  • Further, the amount of primary adjustment can be repatriated from any associated enterprise not resident in India
  • The taxpayer may choose not to make secondary adjustment by a one-time tax payment at 18% on amount to be repatriated plus 12% surcharge on such tax. The taxpayer will have to pay due interest till the date of payment of such onetime tax as per the existing provisions. However, the additional tax is not deductible nor any credit can be claimed for such tax.

The first two amendments mentioned above are clarificatory in nature and will retrospective take effect from 1st April 2018. The last amendment is effective from 1 September 2019.

Master file compliance (Part A of Form No. 3CEAA) applicable even when no international transaction

It is proposed to clarify that master file related compliance (only Part A of Form No. 3CEAA) needs to be filed even when there is no international transaction.

Clarification regarding definition of the ‘Accounting Year’

It is proposed to amend Section 286 of the act so as to provide clarification with respect to definition of “accounting year” wherein in case of a constituent entity of an international group, the parent entity of which is not resident in India, the reporting accounting year shall be the one applicable to such parent entity. The said amendment will take effect retrospectively from the 1 April 2017 (from AY 2017-18 & onwards).

Advance Pricing Agreement (APA)

Effective 1st September 2019, it is proposed to amend Section 92CD(3) to clarify that once an advance pricing agreement has been signed and modified return is filed by the taxpayer, the assessing officer shall pass an order only to modify the total income for the relevant AY in accordance with the APA. Accordingly, he shall not have the power to initiate fresh assessments/ re-assessments for such AYs.




Indirect Tax

Extension in the tax periods for which exporter despite an error in GSTR-3B can claim refund

Certain registered persons, while filing the return in FORM GSTR-3B, committed errors in declaring the export of services on payment of IGST or zero-rated supplies made to a SEZ unit/developer on payment of IGST. They showed such supplies in the Table under column 3.1(a) (outward taxable supplies) instead of showing them in column 3.1(b) (zerorated supplies) of FORM GSTR-3B.

The above error prevented registered persons from claiming a refund as there is an in-built validation check on the common portal which restricted the refund amount to the amount mentioned under column 3.1(b) of FORM GSTR-3B filed for the corresponding tax period.

Earlier, in order to give relief to such registered persons, it was decided that for the tax periods from 1 July 2017 to 31 March 2018, they shall be allowed to file the refund application to the extent of aggregate amount of IGST mentioned in 3.1(a), 3.1(b) and 3.1(c) of GSTR-3B. Now, by issuing corrigendum, this relief has been extended to the tax periods till 30 June 2019.

[Corrigendum dated 18 July 2019 to Circular No. 45/19/2018- GST dated 30 May 2018]

Clarification in respect of goods taken out of India for exhibition or on a consignment basis for export promotion

In respect of goods taken out of India for exhibition, the government vide a Circular has clarified the following :

  • The activity of taking goods out of India on a consignment basis for the exhibition would not in itself constitute a supply under GST since there is no consideration received. Under the GST law, this activity shall be considered in the nature of “sale on approval.”
  • A registered person involved in the said activity is required to maintain records in the prescribed format provided as an annexure to the said Circular.
  • The movement of these goods out of India shall be accompanied by a delivery challan issued in accordance with rule 55 of the CGST Rules.
  • The goods so taken out of India are required to be either sold or brought back within a period of six months from the date of removal. In case such goods are not brought back within six months from the date of removal then it shall be deemed to have been sold, and the sender is required to issue a tax invoice.

[Circular No. 108/27/2019-GST dated 18 July 2019]

Clarification on doubts related to the supply of Information Technology enabled Services (ITeS)

The government has issued a Circular to clarify what qualifies as an ‘intermediary’ in relation to ITeS services.

The Circular provides various scenarios when a supplier of ITeS services located in India has supplied services for and on behalf of a client located abroad –

Sr. No. Scenario Clarification Issued
Supplier of ITeS services supplies services on his own account to a client located abroad. E.g., back-office operations, data processing, payroll, revenue accounting etc.
Such supplier shall not be categorized as an ‘intermediary’.
Supplier of backend services arranges or facilitates for the supply of goods or services by the client located abroad to the customers of such client. E.g., pre-delivery, delivery and post-delivery logistical support, obtaining government clearances, post-sales support, etc.
Such a supplier shall qualify as an ‘intermediary’ under the GST law.
Supplier of ITeS services on his own account also supplies various support services (as mentioned in Scenario 2 above) on behalf of the client located abroad.
The determination of whether the supplier is an ‘intermediary’ or not shall depend on the facts and circumstances of the case.

[Circular No. 107/26/2019-GST dated 18 July 2019]