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Direct Tax

Employee's contribution to PF will be reduced to 10%. Will it increase the tax burden?

[Excerpts from The Economic Times, 28 May 2020]

As an action to stabilize the economy and safeguard the interests of the general public, the Finance Minister had a press conference announcing various measures taken, including an interesting change of reducing the EPF from 12% to 10%. Many questions arose in the minds of the employees, the frequently asked ones being – whether this reduction is mandatory for all employees and will the difference be taxed in the hands of the employee now, which will result in increasing the tax burden. The answers are not pleasing, as the increase in takeaway income will now be taxed at slab rates; also, no deduction under chapter VI will be available for the reduced amount. The reduction in EPF is not a choice with the employee.

India urges for wider information sharing under tax treaties within BRICS

[Excerpts from The Economic Times, 29 May 2020]

BRICS countries, i.e., Brazil, Russia, India, China, and South Africa, have been approached by India for a wider sharing of information. The Finance Secretary stated that India wants to adopt a 'whole of government approach' in dealing with various cross-border financial crimes, not only taxation. This step was taken in light of curbing corruption, money laundering, and terrorist financing.

Tax relief likely on the creation of 'Permanent Establishment'

[Excerpts from The Economic Times, 3 June 2020]

The pandemic and the subsequent enforcement of lockdown has led to a critical issue for many foreign companies as there is a possibility of their income being taxed in India due to the creation of a permanent establishment or 'place of effective management,' as their key management personnel is stuck here. The government has given the due exemption to individuals by excluding their lockdown stay from residency calculations. The CBDT has confirmed that similar relief may be granted in this situation for companies on a case-to-case basis. Any work carried out in the lockdown period by the key management should be ignored while evaluating the creation of permanent establishment exposure of foreign companies.

Undeterred by US probe, government backs' Google Tax'

[Excerpts from The Economic Times, 5 June 2020]

In the recent period, post finance act 2020 of India, the US has launched an investigation into its equalization levy covering or taxing many American tech giants, including Netflix and Amazon. The US has launched similar probes in nearly 10 nations, which have adopted the OECD framework to tax digital companies or are in the process of doing so. These countries include the UK, EU and Brazil. Due to the lack of consensus in the OECD, every nation has resorted to unilateral levy. It is observed that India has been undeterred by the ongoing probe by the US, and officials believe that this is a valid levy and that India should not budge.

Government to consider extension in the deadline for availing 15 % corporate tax rate benefit: Nirmala Sitharaman

[Excerpts from Financial Express, 8 June 2020]

The lower tax rates applicable to new manufacturing units is reduced to 15% as per the latest amendments. But due to the pandemic, many companies seem unable to fulfill conditions mentioned for availing the lower tax rates. An important condition being that such companies must start operations before 31 March 2023. The FM Nirmala Sitharaman clarified that the government is considering an extension in the deadline for availing the tax rate. While addressing members of FICCI, the Minister assured the industry of all possible government support with the intent of supporting Indian business and reviving the economy. She also mentioned that the emergency credit facility covers all companies and not just the MSMEs.

Cost inflation index for FY 2020-21 used for LTCG calculation notified by the Finance Ministry

[Excerpts from The Economic Times, 13 June 2020]

On June 12, 2020, the Finance Ministry has notified the CII rate for FY 2020- 21 as 301. The cost inflation index is used to arrive at the inflation-adjusted purchase price of assets and determine capital gains. For the previous FY, the CII was 289. According to the Finance Ministry notification, the CII for FY 2020- 21 shall come into force with effect from the 1st day of April 2021, and shall accordingly apply to the Assessment Year 2021-22, i.e., FY 2020-21 and subsequent years.

Transfer Pricing

Relaxations for the taxpayers w.r.t. Transfer Pricing matters

With the intention of providing relief to companies, the government has issued a notification on 24 June 2020, announcing certain relaxation for transfer pricing related matters, that are aligned with other tax-related relaxations. However, the due date for annual transfer pricing compliances for the FY 2019-20 has remained unchanged. The summary is provided hereunder:

Particulars Revised due dates
Proceedings before TPO – AY 2017-18 29 January 2021
Indian HQ: Filing of Country by Country Report (CbCR) for the accounting year ended on 31 March 2019. Applicable to an Indian company, which is the ultimate parent entity of the group. 31 March 2021
Indian Subsidiary - CbCR Intimation in Form 3CEAC for the group accounting year ended on 31 December 2019 (Where the group will file CbCR before December 2020) 31 March 2021
Annual compliances for FY 2019-20 31 October 2020
Master File in Form 3CEAA 30 November 2020
Intimation of Master File in Form 3CEAB 31 October 2020
Indian Subsidiary - CbCR Intimation in Form 3CEAC for the group accounting year ended on 31 March 2020 (Where the group will file CbCR before March 2021) 31 January 2021

Our Comments

The due date for annual transfer pricing compliances for the FY 2019-20 has remained unchanged and will be 31 October 2020.

Indirect Tax

Relaxation in compliances approved in the 40th GST Council meeting

The 40th GST Council meeting was held on 12 June 2020 and announced following key compliance-related relaxations in view of the COVID-19 pandemic:

Reduction in interest liability (February 2020 to April 2020)

  • Earlier, the extended due dates in a staggered manner (up to 6 July 2020) were notified for filing of GSTR-3B for the months of February 2020 to April 2020 by small taxpayers with an aggregate turnover in the previous financial year of up to INR 50 million. There was no liability to pay interest if the GSTR-3B was filed by such extended due dates.
  • As a further relief measure, the Council announced in case of further delay in filing GSTR-3B, interest would be charged at a concessional rate of 9% p.a. (instead of 18% p.a.) for the period starting from the extended due date (say, 6 July 2020) till 30 September 2020.

Steps towards 'Faceless, Contactless, Paperless Customs'

In its endeavor towards easing the Customs procedures, the Central Board of Indirect Taxes and Customs (CBIC) has announced two important decisions:

Roll out of 1st phase of Faceless Assessment

  • The 1st phase of Faceless Assessment has begun at Bengaluru and Chennai from 8 June 2020.
  • It is applicable for items of import covered under Chapter 84 and 85 of the Customs Tariff Act.
  • Faceless Assessment will allow the Assessing Officer who is physically located in a particular jurisdiction to assess a Bill of Entry pertaining to imports made at a different Customs station, whenever such a Bill of Entry has been assigned to him in the Customs Automated system.
  • It has been envisaged that the Faceless Assessment would be the norm across the country by 31 December 2020.

Electronic communication of Shipping bills

  • With effect from 22 June 2020, only the digital copy of the Shipping Bill bearing the Final Let-Export Order (LEO) would be electronically transmitted to the exporter. The present practice of printing copies of the said document for the exporters and also for maintaining a docket in the Customs House would stand discontinued.
  • The Directorate General of Systems has enabled the functionality of communicating by email, the PDF version of the Final LEO copy of the Shipping Bill to the Customs Broker and exporter, if registered