Direct Tax
Government’s Angel Tax fix gives VCs, angel groups edge over HNIs
[Excerpts from The Economic Times, 20 February 2019]
The government notification on the so-called Angel Tax could force startups to approach venture capital funds and angel groups for investment over wealthy individuals. New rules that were made formal by the notification from the Department for Promotion of Industry and Internal Trade exempt investments of up to INR 250 million made by Category I of Alternative Investment Funds from the provisions of the tax, compared with INR 100 million earlier. Venture Capitalists (VCs) and angel groups come under this category of investors, giving them an undue advantage over individual investors who are not part of this.
Income Tax department to issue only e-refunds from 1 March 2019; bank account-PAN linking must
[Excerpts from The Economic Times, 26 February 2019]
Come 1st March, 2019 Income Tax department will only issue only e-refunds that will only be credited to bank accounts linked with PAN. In addition to that, you are also required to pre-validate your bank account with the Income Tax department’s e-filing portal to receive tax refund. The Income Tax refunds will be credited only to those bank accounts (savings/current/cash/OD) that are linked to PAN w.e.f. 1 March 2019. If your PAN is not yet linked with your bank account, you must provide the details of the same to your bank branch to get an Income Tax refund.
CBDT seeks details of start-ups with pending appeals
[Excerpts from Tech Economic Times, 23 February 2019]
The Central Board of Direct Taxes (CBDT) has asked community social media platform LocalCircles to furnish details, including names, PAN and income tax notices, on behalf of start-ups that have pending appeals or orders under the so-called Angel Tax. The regulatory authority will use the information to fast-track the resolution of these cases.
Income Tax exemption limit on gratuity doubled to INR 200 million: Labour Min
[Excerpts from The Economic Times, 7 March 2019]
The Labour Ministry said on Thursday that the Income Tax exemption limit on gratuity has been doubled to INR 2 million from the existing INR 1 million, a move that will benefit employees who are not covered by the Payment of Gratuity Act, 1972.
Transfer Pricing
Signing of Bilateral Competent Authority Agreement (BCAA) for the exchange of CbC Reports between India and USA
India and USA have signed an Inter-Governmental Agreement for Exchange of Country-by-Country Reports (CbCR), which will enable both the countries to automatically exchange CbC Reports filed by the ultimate parent entities of Multinational Enterprises (MNE”) for years commencing on or after 1 January 2016.
Background
Pursuant to India’s CbCR provisions applicable from FY 2016- 17, a parent entity, resident in India, is mandated to file the CbC Report in India within a period of twelve months from the end of the reporting accounting year.
Furthermore, under subsection (4) of section 286, an inbound constituent entity (i.e., a constituent entity that is resident in India and is a part of an international group, the parent entity of which is not resident in India) is also required to file CbCR in India if any of the following conditions are met :
- i. The parent entity of the international group is a resident of a country with which India does not have an agreement providing for the exchange of CbC Report
- ii. There is an exchange framework with that country but there has been a systemic failure in exchanging information
Thus, in absence of an agreement between India and US, inbound constituent entities with parent entities resident in the US, were entailed to file CbCR in India and the due date for undertaking such compliance was not yet prescribed.
Signing of BCAA between India and the US
The due date for filing CbCR in India for inbound constituent entities, which fell under Section 286 (4), is 12 months from the end of the reporting accounting year. However, as a one-time measure, vide Circular 9/ 2018, this due date was extended to 31 March 2019 for reporting accounting years ending up to 28 February 2018.
Thus, for FY 2016 and FY 2017 (reporting accounting years ending up to 28 February 2018) the due date for local filing of CbCR by inbound constituent entities of the USheadquartered groups was 31 March 2019. However, with the signing of the BCAA between India and the US, inbound constituent entities of international groups headquartered in the US, who have already filed CbCR in USA, would not be required to do local filing of CbCR in India.
Furthermore, it has been stated that the exchange of CbCR Reports shall be effective from financial years commencing on or after 1 January 2016.
Implication
Inbound constituent entities of the US-based parent entity will no longer fall under the exception set out u/s 286(4) of the Act. Therefore, the Indian subsidiaries of US-based companies are relieved from CbCR filing obligation in India. However, it is pertinent to note that CbCR filing provisions became mandatory in US only from FY 2017. Thus for FY 2016 (voluntary filing of CbCR in US), if the US parent entity had not undertaken any voluntary filing of CbCR in the US, then CbCR filing in India would need to be undertaken by the inbound Constituent entities by 31 March 2019.
SKP’s Comments
The press note provides much-needed clarity and relief to the Indian subsidiaries of the US-based multinational groups, which were apprehensive of local filing of CbCR rather than through an international exchange mechanism.
Indirect Tax
Clarification on the eligibility of ITC in relation to the Sales Promotion Schemes
The government vide Circular No. 92/11/2019-GST dated 7 March 2019 clarified the levy of GST and the eligibility of ITC in case of various sales promotion schemes operated by the business.
| Type of Scheme | Applicability of GST | Availability of ITC to Supplier | Availability of ITC to Recipient |
|---|---|---|---|
Free samples or gifts – For unrelated parties |
Not liable to GST |
No – under section 17(5) |
NA |
Free samples or gifts – For related parties or distinct persons |
Liable to GST under Schedule 1 |
Yes – provided the other conditions are fulfilled |
Yes – provided the other conditions are fulfilled |
Buy one - get one offer |
GST will be chargeable on the actual consideration. It is not a free supply. The consideration received is construed to be for both the supplies. |
Yes – provided the other conditions are fulfilled |
Yes – provided the other conditions are fulfilled |
Post-Sale Discount - Credit note for volume and staggered discounts |
If pre-agreed and documented as per Section 15(3), GST credit note can be issued to adjust the value of supply. |
Yes – provided the other conditions are fulfilled, outward GST liability should be reduced in the month of issuance of a credit note. |
No - The recipient is required to reverse the ITC, which was availed earlier. |
Post-Sale Discount – Not known at the time of supply |
The tax liability cannot be adjusted as it does not fulfil conditions prescribed in section 15(3) |
The outward GST liability cannot be adjusted for such credit note. |
Yes – provided the other conditions are fulfilled. |
Upcoming changes in E-Way Bill System
[Excerpts from the updates announced on the E-Way bill portal]
The E-Way Bill (EWB) System will be undergoing some major changes as follows :
- Auto calculation of route distance based on PIN code for generation of EWB;
- Blocking of generation of multiple e-way bills on one invoice/document;
- Extension of e-way bill in case a consignment is in transit;
- Blocking of interstate transactions for composition dealers.