Direct Tax

DTC Panel – Certain measures the Government should adopt

The idea behind removal of the Dividend Distribution tax is to provide a relief to the investors from the cascading impact of taxation. It was highlighted that the triple taxation effect in the form of corporate Tax, DDT, and the Taxation at the individual investor level was making the Indian capital markets very unattractive on the global stage. The panel appointed for this discussion has recommended that the companies shall be taxed for any dividend not distributed to the shareholders.

To maintain neutrality, LTCG will not be removed. Whereas, STT will be retained as it helps in better tracking of transactions. The panel has also recommended new tax brackets at 5%, 10%, and 20% by scrapping the prevailing slab rates at 5%, 20%, and 30%. This will impact the government coffers for 2-3 years, but ease in filing returns and removal of ambiguous language will increase the overall tax compliance.

CBDT launches one-time facility for compounding of income tax offences

To mitigate the unintended hardships, the CBDT has launched a one-time facility to apply for compounding of income tax offences. This facility can be availed only up to 31 December 2019. Compounding in income-tax parlance means that the taxman does not file a prosecution case against the tax evader in the court in lieu of payment of due taxes and surcharges. This facility will be provided in normal cases only and not in offences of serious tax evasion, financial crime, terror financing, illegal foreign assets, or money laundering.

It is pertinent to note that compounding of offence is not a matter of right and the department can extend such relief to certain cases, viewing various factors like conduct of the person, the nature and magnitude of the offence on the context.

Reporting of Foreign Assets in Income Tax Return

CBDT has clarified that only foreign assets that are acquired as per the relevant accounting year of the foreign country will have to be reported in the ITR. Foreign assets are to be reported if one has held it as beneficial owner, or signing authority in any account located outside India, or received income from any source outside India. The problem was occurring mainly while reporting the assets acquired in January, February and March, as countries like France, Denmark, UAE, Saudi-Arabia follow calendar year as their financial year. The taxpayer shall be required to report the foreign assets held by him at the time during the “previous year” (in India) as also such assets held at the time during the “relevant accounting period” (in Foreign jurisdiction), and fill the schedule FA accordingly.

For instance, a foreign asset acquired and held in May 2018 shall be reported while filing ITR for FY 2018-19. However, if the foreign asset was acquired in January 2019, then same will not be required to be reported at the time of filing ITR for FY 2018-19.

The Central Bureau of Direct Taxes (CBDT) vide notification no. 64/2019 dated 13 September 2019 notified the continuation of the erstwhile tolerance range for arriving at the arm’s length price. Accordingly, the tolerance ranges of 1% for wholesale trading and 3% in all other cases would be applicable for AY 2019-20.

It has also been sought to retain the explanation of “wholesale trading” for this notification to mean trading in goods, which fulfils the following conditions, namely :

  • purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities; and
  • average monthly closing inventory of such goods is 10% or less of sales pertaining to such trading activities.

It is also clarified that none of the taxpayers will be adversely affected by the retrospective effect being given to the notification.

Indirect Tax

Amendment in import policy of iron and steel

The import policy for iron and steel has been amended from ‘free’ to ‘free subject to compulsory registration under Steel Import Monitoring System (SIMS)’ with effect from 1 November 2019. The requirement under SIMS are as follows :

  • Importers have to submit advance information in an online system for the import of specified items and obtain an automatic registration number.
  • Registration fee of INR 1 per thousands of CIF value subject to a minimum of INR 500 and maximum of INR 1 lakh would have to be paid.
  • Registration can be applied for not earlier than the 60th day and not later than the 15th day before the expected date of arrival of import consignment.
  • The registration number shall remain valid for a period of 75 days.

[DGFT Notifications No. 17/2015-2020 dated 5 September 2019]

Decisions of the 37th GST Council meeting

The 37th GST Council meeting was held on 20 September 2019 in Goa. The Council deliberated on a host of issues and devised various steps to provide relief to the industry.

  • Filing of annual return in GSTR-9 has been made optional for businesses with an aggregate turnover of up to INR 20 million.
  • The new return filing system earlier proposed to be implemented in a phased manner from October 2019 has been postponed to April 2020.
  • Earlier, the government had issued a clarificatory Circular on post-sales discounts. In the said Circular it was clarified that discounts provided by original supplier of goods to his dealers, to enable the dealers to offer a special reduced price to the customers, should be chargeable to GST in the hands of the dealer. The said Circular has been now rescinded ab initio.

Rationalization of GST rates

Goods Old rate Revised rate
Caffeinated beverages
28% + 12%Compensation cess
Import of specified defense goods not being manufactured indigenously
Various rates
Exclusive parts and accessories for use with a medical device (specific Chapter headings)
Various rates
Services Old rate Revised rate
Hotel accommodation – Daily tariff above INR 7500
Hotel accommodation – Daily tariff of more than INR 1000 but up to INR 7500
18%/12% (based on tariff)
Machine job work in the engineering industry (other than bus body building)
Intermediary services when both supplier and recipient of goods are located outside the taxable territory

Implementation of online GST refund mechanism

The Goods and Services Tax Network (GSTN) has announced the implementation of the online processing of refund application and single authority disbursement through the GST common portal with effect from 26 September 2019. The entire process of application, processing, and acceptance/rejection will now happen online as originally envisaged under the GST regime. Further, the GST refund applications will now be processed by a single integrated system for quick disbursal of claims.