Direct Tax

Minimum alternate tax credit dilemma grips India Inc.

AT credit is the difference between the tax the company pays under MAT and the regular tax, and is allowed to be carried forward for a period of 15 financial years. By utilizing MAT credit, many companies will be able to bring down their effective tax cost to 17.47% from 25.17% (under the new regime), leading to substantial tax savings of about 8%. Whereas, companies paying the highest effective tax rate of 34.94%— including banks, NBFCs and FMCG majors — would move to the new regime as they would get 9% benefit. Those from sectors such as auto, chemicals, textiles, gems & jewellery, and retail are also likely to shift.

The Central Board of Direct Taxes (CBDT) clarified earlier this month that companies would not be allowed to adjust the MAT credit against their tax liabilities if they opted for lower corporation tax rates. They will also have to let go of incentives under special economic and tax-free zones. Companies opting for the new regime can’t go back to the old one. Hence, Indian companies have been in a dilemma for selecting the new regime of MAT regulations. The way forward should be to carry out tax benefit analysis and evaluate the pro’s and con’s.

Govt. notifies Sec. 194N TDS inapplicable to withdrawals by Money Changers for foreign currency purchase

According to the latest notification, CBDT has exempted, from Sec.194N, cash withdrawal by the authorized dealer and its franchise agent and sub-agent; and Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent from TDS under Section 194N subject to conditions specified in Notification No. 80/2019-Income Tax dated 15 October, 2019. This exemption can only be availed if the withdrawals are made for the purposes of (i) purchase of foreign currency from foreign tourists or non-residents visiting India or from resident Indians on their return to India, in cash as per the directions or guidelines issued by Reserve Bank of India; or (ii) disbursement of inward remittances to the recipient beneficiaries in India in cash under Money Transfer Service Scheme (MTSS) of the Reserve Bank of India.

FM promises more reforms before the end of the fiscal

Finance minister Nirmala Sitharaman said more reforms are on the anvil this fiscal to boost growth as fresh economic data and subdued corporate earnings point to a deeper economic downturn. The government has targeted to generate INR1.05 trillion in 2019-20 through asset sales, including that of Air India. Sitharaman said disinvestment in 25 public sector enterprises is underway to facilitate creation of fiscal space and improve the efficient allocation of public resources. Many financial investors across the world are hoping for the long-term capital gains to be excluded from tax. The common man, at large, is also expecting relaxation on the personal taxes front.

The Central Board of Direct Tax (CBDT) vide notification No. 76/2019 dated 30 September 2019, amended Rule 10CB which provides for computation of interest income pursuant to secondary adjustments. The said notification is applicable with immediate effect and will be applicable from AY 2019- 20 and onwards. Click Here for the amendments in the notification sets.

The time limit for repatriation of excess money or part thereof according to erstwhile rules have now been rationalized in certain cases wherein earlier time limit did not seem to be practical (such as in cases of APA and MAP), eliminating hardships faced by taxpayers.

At the same time, the clarity in respect of the period from when the interest shall be chargeable in case of failure to repatriate funds within prescribed time limits has now been appropriately aligned with the time limits for repatriation.

Indirect Tax

Committee to look into measures to increase GST revenues

In view of the below par GST collections, the government has formed a committee of officers to suggest measures to increase GST revenue. The committee is expected to look into a wide range of reforms and provide comprehensive suggestions on various aspects of the GST regime such as administration, improving compliance etc.

[Excerpts from the Economic Times]

Clarification regarding duty drawback allowed in cases of short realization of export proceeds due to bank charges deducted by foreign banks

In view of various industry representations, the government has clarified that reduction in exports realization on account of bank charges should not be treated as short-realization and duty drawback should be granted on the FoB value without deducting foreign bank charges.

[Circular No. 33/2019 - Customs dated 19 September 2019]

Restriction on the availment of ITC not appearing in GSTR-2A

The government has introduced a new sub-rule (4) in Rule 36 to provide that ITC in respect of invoices / debit notes not uploaded by suppliers cannot exceed 20% of the eligible ITC pertaining to invoices / debit notes uploaded by the supplier.

This rule can be understood with the following illustrative example –

Particulars Actual ITC Eligible ITC as per amendment
Eligible ITC in respect of invoices/debit notes uploaded by the supplier i.e. appearing in GSTR-2A
100 [No change]
Eligible ITC in respect of invoices/debit notes not uploaded by the supplier i.e. not appearing in GSTR-2A
100*20% = 20; or 200, whichever is lower i.e. 20
Total eligible ITC to be claimed in GSTR-3B
Restricted ITC under Rule 36(4) 200-20 =180

[Notification No. 49/2019 - Central Tax dated 9 October 2019]