The Indian tax and regulatory space is changing at an unprecedented rate. We are witnessing policy announcements, legislative changes, judicial precedents and clarifications almost daily. This has made it challenging for corporate professionals to stay abreast of relevant developments. The aim of the TaxPod series is to keep you updated with key tax and regulatory developments of the past month, in under 5 minutes.
- Finance Minister tables the Union Budget 2021
- Ministry of Corporate Affairs amends norms relating to ‘one-person company’
- Government proposes to replace GST audit with self-certification process
Hello and welcome to this month’s edition of the TaxPod from Grant Thornton Bharat. We bring you the latest tax and regulatory developments that took place in the last month.
In the backdrop of the pandemic and the rising fiscal deficit, on 1 February, the Union Finance Minister tabled Budget 2021. Overall a bold Budget which aims to put India back on high growth trajectory. The focus area has been to increase government spending on infrastructure and healthcare, stepping up the disinvestment process, furthering ease of doing business and administrative reforms.
On the direct tax front, the government has maintained status quo on both corporate and personal tax rates, which is a big respite for taxpayers.
As a major relief to foreign portfolio investors (FPI), it has been provided that the payer can apply beneficial tax treaty rate at the time of deducting tax at source while making dividend payments to FPIs. This would be subject to availability of a valid tax residency certificate by the FPI. Earlier FPIs could claim treaty benefit only at the time of return filing.
Another significant amendment is the introduction of tax deduction at source (TDS) on purchase of goods. It has been proposed that a buyer shall deduct tax at the rate of 0.1% on payments in excess of INR 50 lakh made to a domestic seller. This provision will be applicable when the buyer’s sales, gross receipts or turnover exceeds INR 10 crore.
A proposal that will significantly impact business restructuring is that goodwill shall not be eligible for depreciation whether acquired pursuant to a restructuring or specifically purchased. It has also been proposed that depreciation claimed on such goodwill before 1st of April 2020 will need to be adjusted from the cost of acquisition. This move, in effect, overrules the Apex Court ruling in the case of Smifs Securities wherein the Supreme Court had held that goodwill is a depreciable asset.
Taking one step further on its journey towards Transparent Taxation, the government has proposed a scheme for disposal of appeals by the Income-tax Appellate Tribunal in a faceless manner. The scheme shall be separately notified.
On the international tax front, the government has proposed to clarify certain aspects of equalisation levy. It has been clarified that equalisation levy shall be triggered if any leg of a transaction, such as placing or acceptance of orders/offers take place online or online payment is made for supply of goods or services. This change will significantly increase the scope of this levy. It has also been clarified that the gross consideration shall be subjected to equalisation levy irrespective of whether the e-commerce operator owns the goods or is acting as facilitator.
On the indirect tax front, the proposals are aimed towards enhancement of trade facilitation, stricter penal action and avoidance of manual interventions. Some of the key announcements includes the automatic expiry of any new condition-based custom duty exemption notification, on 31st of March, upon completion of two years from the date of exemption, removal of mandatory requirement of GST audit and replacing it with self-certification process, mandatory pre-deposit of 25% penalty before filing an appeal against the order passed for the seizure of goods in transit, mandatory requirement to earn in foreign exchange to claim export benefits.
It has also been proposed that supply of goods or services to SEZ shall be regarded as zero-rated supply only when it is for ‘authorized operations’. Also, the government has now withdrawn the benefit to procure goods using "Form C" for goods not specified under the Central Sales Tax Act (like mining, for generation / distribution of electricity etc.).
For detailed analysis of last month’s GST related developments, download our monthly GST compendium from our website www.grantthornton.in.
On the regulatory front, the Ministry of Corporate Affairs (MCA) has amended the norms relating to a ‘One Person company’ (OPC). Now NRIs have been allowed to incorporate a one-person company. Further, to set up an OPC, residency requirement for an Indian citizen has also been reduced from 180 days to 120 days. Some major amendments have been made in the provisions relating to Corporate Social Responsibility (CSR). Earlier, if a company had failed to spend the CSR amount in any financial year, it could specify the reasons in the board report and could be exempted from making CSR contribution. In addition to reporting in the Board Report, Companies have now been mandated to set aside the unspent amount in prescribed manner. Further, earlier, there was no penal consequence for non-spending of funds of CSR, if the company specifies the reason in Director Report. Now, the spending of funds has been mandated and non-spending will invoke penal provisions.
That’s all for this time.
We will see you next month.