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Updates on Income tax, GST, Company Law, SEBI, FEMA, FCRA

GST Updates (09 Dec 2016)

Posted on by Business So Simple in Miscellaneous


J&K ready to implement GST but with Constitutional rider

December 9, 2016


JAMMU, Dec 8: In a significant decision, Jammu and Kashmir Government today agreed to implement Goods and Services Tax (GST) in the State and set up high level Committee headed by Principal Secretary, Planning Development and Monitoring Department, BB Vyas to draft the legislation, which would be tabled before the Government, and after clearance, in the Legislature.

Official sources told the Excelsior that the Government has, however, kept the option open of protecting the special Constitution position of the State and tax powers being enjoyed by it while drafting the legislation.

Union Finance Minister Arun Jaitley had been stressing on all States including Jammu and Kashmir, which haven’t passed the GST legislation so far to approve it at the earliest to clear decks for implementation of one tax structure across the country. Jaitley had recently admitted that April 2017 deadline would be difficult to meet due to delay in consensus in the GST Council over some issues including duel control.

Describing as “very significant” the decision for implementation of GST in Jammu and Kashmir, sources said the State Government has asked the high-powered committee headed by BB Vyas to draft the legislation within the next three months but taking into account the special Constitutional position of the State and taxation powers enjoyed by it.

“The legislation drafted by the Committee would go to the State Cabinet, and if approved, to the Legislature for final nod before it becomes an Act,” sources said.

Finance Minister Dr Haseeb Drabu had few days back cited special Constitutional provisions of Jammu and Kashmir for delay in implementation of the GST.

Sources said the State Government has deliberated upon the issue and came to the conclusion that it should implement the GST but with the riders so that it’s Constitutional position and special taxation powers are not affected.

Consequently, the General Administration Department (GAD), headed by Chief Minister Mehbooba Mufti has issued the order setting up the high-powered committee to draft legislation for implementation of the GST in the State.

Headed by Vyas, the Committee has been asked to give its report in the next three months.
Other members of the Committee are Commissioner/Secretary Finance Department, Navin Choudhary as Member Secretary, Secretary Law, Justice and Parliamentary Affairs, Abdul Majid Bhat and Commissioner, Commercial Taxes Department Parvez Iqbal Khateeb as its Members.

The Committee has been authorized to call Advocate General of the State as special invitee in the meetings as and when required.

Sources said the Committee would go into details of the GST bill adopted in Rajya Sabha and some State Governments including Bihar and then draft its own bill by ensuring that its special powers remained intact.

As budget session of the Legislature is beginning on January 3 and will conclude by the first week of February, it will not be possible for the Government to introduce the bill in budget session of the legislature as the high-powered Committee has been given three-months to draft the report, which means that it would submit its report around March 10.

Sources said the Government can call special session as done by some State Governments to pass the GST bill.

The GST is a Value added Tax (VAT) and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Central and State Governments.

According to sources, GST could miss the previous deadline of April 1, 2017 set by the Central Government for its implementation across the country as the GST Council, which met in the Union capital few days back had failed to reach consensus on the issue of duel control over some times. It was expected to meet again next week in New Delhi to work out a consensus. Source – http://www.dailyexcelsior.com [09-12-2016]

Traders can get enrolled under GST provisions at govt camps

December 6, 2016


The commercial taxes department (CTD) is to organize mega camps at all the nine divisional headquarters from Tuesday for mass enrolment/registration of traders and heads of business concerns and their units under the provisions of the goods and services tax (GST) regime, which is to be enforced in the country next year. The camps are being organized on the CTD premises in Patna, Gaya, Bhagalpur, Munger, Purnia, Saharsa, Darbhanga, Muzaffarpur and Chhapra. Traders from the districts concerned could also get registered under GST at the camps. A senior CTD official in the rank of joint commissioner said anyone whose business unit’s annual turnover is even Re 1 and carries tax identification number-value added tax (TIN-VAT) and/or TIN central sales tax (TIN-CST) should get registered under GST to reap the benefits of conducting interstate trade as would accrue from the new tax regime in the country.

“The registration done under GST at the camps will be free of cost. The CTD officials and employees will assist them,” said the official, adding that mass registration has already started and would continue till December 15. The camps at the nine divisional headquarters would also continue till December 15. “The mass registration is being organized under mission mode,” he said.

The official said “migration to the GST mode” is mandatory for all traders having the TIN-VAT or TIN-CST and having annual turnover of Rs10 lakh or more. If they fail to avail of the opportunity for migration now, they would have to migrate to GST in April. “Those who do not migrate to the GST mode will not be able to conduct interstate trade. That is, they will not be able to procure any item from outside state for trade within his or her state (read Bihar),” the official said, adding: “Those who do not migrate to the GST mode can trade only within the confines of Bihar.”

Asked as to what about the persons who are about to start any venture or trade or have started it only last month, the CTD official said such persons could “voluntarily register their concerns for TIN-VAT or TIN-CST and then “migrate to the GST mode”. “There is a relevant section, 19(1), of the VAT Act which facilitates voluntary registration under TIN-VAT and TIN-CST. After this, even they could migrate to the GST mode at the mega camps. It would also be free of cost,” he said. Source -http://timesofindia.indiatimes.com [05-12-2016]

GST needs to be deferred

December 9, 2016
Amit Mitra, chairman of the Empowered Committee of Ministers on GST, said the Goods and Services Tax (GST) needs to be deferred so the economy is not hit by another disruption after demonetisation kicked in unexpectedly.

In an interview with Karan Thapar on India Today, Mitra said the compensation to be paid to the states was likely to shoot up in the wake of demonetisation making its implementation unfeasible at the moment.

During the course of the previous meetings between several state finance ministers on GST, Mitra said there was consensus that Rs. 55,000 crore would be needed to compensate the states for the revenue loss arising from adopting the GST regime. However, states, which could post a 14% growth, were not to be compensated from the fund.

But with demonetisation, state taxes collected would sharply decline, Mitra said, adding, “That would mean the compensation to the states, who could have made 14% growth in revenue, is going to fall below the 14%, which means, by constitutional amendment, they will also have to be compensated.” The West Bengal finance minister said Rs. 1 lakh crore would most likely be needed to compensate the states.

Since the compensatory fund consists of taxes from sales of luxury cars, aerated drinks, tobacco and other commodities, from where tax collection is likely to decline in wake of demonetisation, the fund itself will come under stress, he explained.

“While the compensation sources are falling, your need for compensation is steeply rising,” he said, questioning if the country’s populace was ready to take another “destabilisation of the economy by another hit called GST”.

Mitra took a swipe at Urjit Patel, saying, the Reserve Bank of India (RBI) governor seemed to have “lost his way”.

Every state, like the Centre, under the GST regime will have to do away with various tax collection departments, which will result in disruption of an enormous scale, he said. “The whole tax architecture will have to change, which is a huge challenge in the form of destabilisation. Can we not move GST a little bit on so that when the economy stabilises (and) people come back to normal living conditions, you bring in another disruption,” he asked.

Criticising Prime Minister Narendra Modi for bringing in a sudden economic disruption in the form of demonetisation, Mitra said, the PM was gradually changing the narrative for the disruption from referring According to Mitra, in the best case scenario, India’s gross domestic product (GDP) was likely to be hit by 2%, implying a scaling down from 7.5% to 5.5%, while in the worst-case scenario, GDP was likely to fall by 3.2% from the current 7.5%.

West Bengal is likely to lose Rs 5,000-6,000 crore as tax collection on account of demonetisation. Source -http://www.business-standard.com [09-12-2016]

GST rollout to cost Rs 16,000 crore to take old trucks off roads

December 6, 2016

GST rollout to cost Rs 16,000 crore to take old trucks off roads

NEW DELHI: The roll-out of the Goods & Services Tax (GST) will cost the government up to Rs 16,000 crore to get moving on its ambitious programme to take old, polluting trucks off-road under the Voluntary Vehicle Modernisation Programme (V-VMP).
The earlier plan was to offer excise rebates to incentives owners to junk old vehicles for a new one, but with excise duty coming in under the overarching framework of the new tax system expected to take effect next fiscal year, the government is now looking at doling out cash incentives of Rs 50,000-60,000 per heavy vehicle.
“As per the proposal, cash incentives of Rs 50,000-60,000 per vehicle is planned to be given to owners replacing old polluting trucks. Heavy commercial vehicles constitute 2.5 per cent of the vehicle population but comprise 65 per cent of vehicular pollution and consume 70 per cent of fuel. It is the first category which is being targeted to create maximum impact on pollution,” a senior road transport ministry official said.
The proposal will, however, require approval from a committee of secretaries from roads, steel, finance, heavy industries and environment ministries. The scheme is estimated to affect 2.7 million trucks over 15 years old, vehicle registration data available with the roads ministry showed. To be sure, some of these vehicles may have reached the end of life and be defunct by now.
“The incentives will be given for 2-3 years after which regulations will be put in place to mandatorily scrap end-of-life vehicles,” the official added.
As per the original guidelines, V-VMP policy proposed slashing excise duty by half on the purchase of a new vehicle after scrapping an old one, fair value for the scrap and special discounts from automobile manufacturers.
The incentives were expected to reduce the cost of a new vehicle for the buyer by 8-12 per cent. Further, to encourage commuters to shift to new and high capacity buses to help de-congest roads, the policy also recommends complete excise exemption for state transport buses.
As per current voluntary vehicle modernisation scheme, vehicles bought before March 31, 2005, or those below BS IV emission standards, would be eligible for incentives if those were scrapped and replaced by new ones.
The government estimates the V-VMP programme may take 28 million including commercial and passenger vehicles off the road. It would enable generation of Rs 11,500 crore worth of steel scrap Source – http://economictimes.indiatimes.com [06-12-2016]

GST to create level-playing field for bigger textile players

December 6, 2016


GST to create level-playing field for bigger textile players

MUMBAI: The introduction of GST will help create a level-playing field for the bigger textile manufacturers as smaller or unorganised sector will not be able to use some of the current practices to keep themselves competitive, a senior industry official said today.

“The introduction of GST may not have any negative or positive impact for the textile industry in general. However, the consolidation of taxes will help create a level-playing field for the bigger textile manufacturers as smaller or unorganised sector will not be able to use some of the current practices to keep themselves competitive,” Sintex Industries Group MD Rahul A Patel told reporters on the sidelines of India ITME 2016 event here.

Sintex aims to install one million spindles and has already become world’s No 1 compact facility with over 3,00,000 spindles installed at their plant at Pipavav in Gujarat, Patel said.

The textile sector is one of the largest contributors to India’s exports, accounting for approximately 11 per cent of the total outbound shipments. India’s overall textile exports during FY 2015-2016 stood at USD 40 billion and the industry size is expected to reach $223 billion by 2021.

The ongoing six-day India ITME 2016 exhibition provides a platform for joint ventures and collaborations between the stakeholders of textile industry in India and overseas. Nearly 1,050 exhibitors from 38 countries are displaying state-of-the-art machines and technologies at the event. Source – http://economictimes.indiatimes.com [05-12-2016]

FAQ: For Enrolment of the Existing Taxpayer on the GST System Portal

Posted on by Business So Simple in Miscellaneous


1. Who is an existing taxpayer?

An existing taxpayer is an entity currently registered under any of the Acts as specified below:-
a. Central Excise
b. Service Tax
c. State Sales Tax / VAT (except exclusive liquor dealers if registered under VAT)
d. Entry Tax
e. Luxury Tax
f.  Entertainment Tax (except levied by the local bodies)
2. What does the word ‘enrolment’ under GST system portal mean?

Enrolment under GST means validating the data of existing taxpayers and filling up the remaining key fields.



3. Do I need to enroll for GST?

All existing taxpayers registered under any of the Acts as specified in Q1 will be transitioned to GST. Enrolment for GST will ensure smooth transition to GST regime. The data available with various tax authorities is incomplete and thus fresh enrolment has been planned. Also, this will ensure latest data is available in GST Database without any recourse to amendment process, which is the norm to update the data under tax statutes today.

4. Why do I need to enroll myself as a user on the GST System Portal?

GST System portal has been created for this purpose as no paper based enrolment will be allowed.

You need to enroll as a user on the GST system portal, so that you may be enabled as a registrant for GST Compliance requirement viz. return filling, tax payment, etc.


5. When do I need to enroll with the GST Systems Portal?

The taxpayers registered under any Acts as specified under Q1 are required to enroll at GST System Portal. State VAT and Central Excise can start enrolling from October, 2016 on GST System Portal as per plan indicated on GST System portal. The taxpayers registered under Service Tax will be enrolled on a later date for which separate intimation will be sent.


6. Is there any concept of deemed enrolment on GST System Portal?

No. There is no deemed enrolment on GST system portal. All the taxpayers registered under any of the Acts as specified in Q1, are expected to visit the GST System Portal and enroll themselves.


7. Is there any fee/charge levied for the enrolment on GST System Portal?

No. There is no fee/charge levied for the enrolment of a taxpayer with GST System Portal.

8. Is the enrolment process different for taxpayers registered under Centre /State/UT tax Acts as specified in Q1?

No. The enrolment process is common for all taxpayers registered under Centre /State/UT tax Acts as specified in Q1.

9. Are taxpayers required to enroll separately with Central and State authorities under GST?


No, any person who wants to seek enrolment under the GST Act has to apply on the GST System Portal. Enrolment under the GST is common for both Central GST and the State GST. There will be common registration, common return and common Challan for Central and State GST.

10. What is the format of Provisional ID?

Format of GSTIN:     22    AAAAA0000A   1   Z  5 (State code     PAN        Entity number of the same PAN holder in a state     Alphbet Z by default        Check sum digit)


11. What information should be readily available with me before I begin to enroll with GST?


Before enrolling with GST System Portal, you must ensure to have the following information/ documents available with you:-

I. Provisional ID received from State/Central Authorities;
II. Password received from the State/Central Authorities;
III. Valid Email Address;
IV. Valid Mobile Number;
V. Bank Account Number
VI. Bank IFSC

Documents

a. Proof of Constitution of Business :

i. In case of Partnership firm: Partnership Deed of Partnership Firm (PDF and JPEG format in maximum size of 1 MB)

ii. In case of Others: Registration Certificate of the Business Entity

(PDF and JPEG format in maximum size of 1 MB)

b. Photograph of Promoters/ Partners/Karta of HUF (JPEG format in maximum size of 100 KB)

c. Proof of Appointment of Authorized Signatory (PDF and JPEG format in maximum size of 1 MB)

d. Photograph of Authorized Signatory (JPEG format in maximum size of 100 KB)


e. Opening page of Bank Passbook / Statement containing Bank Account Number of , Address of Branch, Address of Account holder and few transaction details (PDF and JPEG format in maximum size of 1 MB)



GST Updates ( 05 Dec 2016)

Posted on by Business So Simple in Miscellaneous



No consensus at GST Council, next meet on 11-12 December

December 5, 2016

The GST Council on Saturday failed to reach consensus on the contentious issue of dual control and will meet again on 11 and 12 December to hammer out the differences.

“There is no consensus… we were not able to arrive at a consensus regarding the cross empowerment model. Therefore, the GST laws could not be completed. No compensation law is taken up, but the formula has arrived and we will rediscuss them,” Kerala Finance Minister Thomas Issac told reporters in New Delhi after the two-day meeting.

The next meeting of the Council, according to an official, will be on 11 and 12 December.
The fifth meeting of the Goods and Services Tax (GST) Council, headed by Union Finance Minister

Arun Jaitley and comprising state finance ministers, ended on Saturday.

The Centre intends to implement GST from 1 April next year. Due to Constitutional compulsion, the GST has to be rolled out by 16 September, 2017, as the existing indirect taxes will come to an end and it would not be possible for either the Centre or states to collect the taxes.

The GST Council is supposed to finalise the model GST, Integrated GST (IGST) and compensation laws. Source -http://www.firstpost.com [05-12-2016]

Opposition using demonetisation as new road block for tax rollout

December 5, 2016
The long-pending roll-out of the ambitious indirect tax regime of Goods and Services Tax (GST) has run into a new wall now — demonetisation. Though it is not yet clear as to how far it will impact the ongoing discussion between the Centre and the states in the GST Council, there are clear hints of opposition from certain states on this issue.

During the meeting of the fifth GST Council on Saturday, some state finance ministers raised the demonetisation issue and the fiscal situation arising due to it in the states. “State finance ministers wanted to have a discussion on demonetisation and fiscal situation in the states, but it doesn’t fall under the jurisdiction of GST Council,” said Finance Minister Arun Jaitley after the meeting.

Aiming to take the main opposition space, Trinamool Congress chief and West Bengal Chief Minister Mamata Banerjee is leading the charge by raking the issue of demonetisation, which may become a hurdle in the passage of GST. The other states sharing a similar view may join her.

After the demonetisation move, West Bengal Finance Minister Amit Mitra had said that the GST would be difficult to implement from April 2017. He had said the abrupt banning of Rs 500 and Rs 1000 notes created an economic slowdown and states were losing more money sooner than planned. His indication was a clear indication and in sync with the TMC chief that GST implementation target was untenable at this juncture and stands on a sticky wicket.

Incidentally, Mitra, former secretary general of Ficci and an economist had played an instrumental role as the chief of the Empowered Committee of State Finance Ministers on GST in drawing a consensus of the states to support GST earlier.

Mamata is hell bent on opposing the GST on the ground of demonetisation, as she had demanded revoking of currency note ban.

GST — probably the single largest tax reform in India post-economic liberalization in 1991 — is a transition from a production-based indirect taxation to a system of taxation which happens at the point of consumption and has been in the making for more than a decade and a half. Considered as a game-changer, GST will significantly restructure the power to tax between Union and State governments and also substantially expand tax-base and revenue.

Though it was first discussed during the Atal Behari Vajpayee government in 2000, the intention to implement it was announced by former FM P Chidambaram during his Budget speech in 2006.

The Congress party in-principle has supported the Bill, but has always insisted on capping the revenue-neutral rate at 18 percent.

The Centre estimates total compensation to states for losses arising out of transition to GST to the tune of Rs 50,000 crore in the first year. This will be met through a fund — Rs 26,000 crore from a corpus generated by the levy of the clean environment cess on coal and Rs 24,000 crore from cess levied on demerit goods (tobacco, pan masala etc) and luxury items (cars etc).

The cess on demerit goods is another area of concern for the states, as some of them think that they would be at the receiving end in the deal. The apprehension is that the revenue earned from the cess will go to central corpus.

Moving a step ahead from yesterday, a consensus was achieved on nine laws in the Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) during the GST Council meeting on Saturday.

However, the Centre and the states couldn’t reach a consensus on the contentious issues of cross empowerment and dual control to divide the administrative, auditing and assessing powers between the two governments under the proposed nation-wide GST, as it continued to be critical.

“Cross empowerment is a critical situation and will take some more time. I want to keep my fingers crossed on whether we are close to resolution. Our effort will always be to implement GST earliest on 1 April but if not, the last date is 16 September, which is constitutional compulsion,” said Finance Minister Arun Jaitley after the GST meeting.

Kerala’s Finance Minister Thomas Isaac, who had earlier distanced himself from the Congress’s demand of 18 percent cap after the state finance ministers’ meeting with Jaitley in June and supported Centre’s GST move, today said if the government is rigid on cross empowerment issue, passage of GST would be difficult.

“There is no consensus regarding the cross empowerment model. Therefore, the GST laws could not be completed. No compensation law is taken up, but formula has been arrived at. We’ll again discuss it in the next meeting,” Isaac said after the meeting.

The next meeting of the GST Council is scheduled to be held on 11 and 12 December. Source – http://www.firstpost.com [05-12-2016]

Mamata Banerjee asks colleagues to raise objections over GST implementation

December 5, 2016

Demonetisation: Mamata Banerjee asks colleagues to raise objections over GST implementation

West Bengal Chief Minister Mamata Banerjee is on warpath with Prime Minister Narendra Modi over demonetisation and apparently, she is not missing any chance to attack him. Now, the Goods and Service Tax, due in April 2017, seems to be the latest casualty of demonetisation.

Evidently, the fifth GST council meeting held on 2-3 December remained “inconclusive” . This is for the fifth time when the all-powerful council could not reach a consensus on the “dual control” issue.

Sources in Trinamool ranks confirmed that Banerjee has instructed her colleagues in Parliament and in the GST council to raise objections over the implementation of the new tax regime saying, the country would not be able to bear two consecutive financial shocks–demonetisation and GST. Political observers feel that Banerjee is emerging as the alternative Opposition to Modi in the national political scenario.

And with that in mind, GST is set to be next battleground for the two. For Banerjee, it’s her lieutenant, Bengal finance minister Amit Mitra who seems to be taking the GST war to Delhi.
A day before the GST council meeting, Mitra hinted that meeting the deadline of April, 2017 is a near impossible situation following the demonetisation.

“The Centre should get their arithmetic correct. The investment in the country is anyway in bad shape. How the country will absorb the shock of such consecutive steps?”asked Mitra Significantly, Banerjee’s Trinamool Congress is adamant on getting dual control, only for those , whose turnover is more than Rs 1.5 crore.

Trinamool Congress always thinks for the small and medium enterprises. How they would survive, if there is a dual control? And with these issues being unresolved, here comes the demonetisation. it is double whammy,” he added. After the fifth GST council meeting, Mitra sounded even more disappointed.

“This is the fifth time , the council failed to reach a consensus on dual control. It would be discussed again in the sixth meeting scheduled on December 11. Moreover, we are now finding many issues, that were not discussed earlier, ” Mitra told ET. Source – http://economictimes.indiatimes.com [05-12-2016]

If GST not rolled out by Sept, there won’t be taxation in country

December 5, 2016

Citing constitutional compulsion, Finance Minister Arun Jaitley today sought to drive home the point that the Goods and Services Tax has to roll out before September 16 next year as the existing indirect taxes will come to an end by then and it would not be possible to run the country without revenue collection.

He made a pitch for widening the tax base, saying efforts are on to make taxation process far simpler and make rates more reasonable.

For instance, he said, the GST Council is deliberating on ways to reduce the taxation process, including assessment by tax officials.

“Today, each person gets assessed thrice, in each of the three taxations (including VAT and central excise). Now, you will only be assessed once and what one authority assesses, others will have to accept that assessment,” he said.

Terming GST as a game changer, Jaitley said: “The Constitution does not permit delay in GST implementation. The government notified GST on 16 September and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come.”

So, if as on 16 September 2017, there is no GST, then there is no taxation in the country, he reasoned.

“So, you have a constitutional compulsion to have a Goods and Services Tax in place before September 16 (2017), otherwise the country doesn’t run, and the tax is absolutely essential. Therefore, our intention is it gets implemented from April 1, 2017, that was the original intention,” he said.

Jaitley made the point that states should not oppose every reform for the sake of opposition because that makes investors wary.

“The states must welcome the decision and I can only tell you, if some states are seen as opposing every reform, then investors in the country and the ones coming from outside, must decide which are the states they want to invest in,” he cautioned.
“So, if your state is seen on the wrong side of the reform, then investors are going to be very wary of those states. Source -http://www.firstpost.com [05-12-2016]

SAP sees huge opportunity in GST, demonetisation

December 5, 2016

SAP sees huge opportunity in GST, demonetisation
German software and accounting technology firm SAP is placing its bet on two large opportunities in the country—the roll out the Goods and Services Tax (GST) and the ongoing demonetisation exercise.

According to a top company executive, GST that is likely to roll out from April 2017 will require companies to not just be tax complaint but also readjust their structure and supply chain networks.

The demonetisation, which is leading to a boom in cashless payments, represents a massive opportunity for SAP in terms of data analytics and storage for digital wallet, banks and other financial services firms. Deb Deep Sengupta, managing director for SAP Indian Subcontinent, told ET in interview that the GST roll out is irreversable, whether it happens on April 1 or a few months later, and over the next 18-24 months, the impact will be felt not just on organisations but also on the ecosystem.

“What is expected are 4 billion digital invoices a day, organisations-—large and small—will have to relook at their contracts, dealers and suppliers,” Sengupta said.

“They will have to make their system fool proof because there can’t be a margin of error. The only way you can do that is through automation and technology.”

He added that it is a great opportunity for customers to relook at their structure and redesign their supply chains, since the current supply chain has been designed according to interstate taxation etc.

Sengupta said SAP has 7,500 customers in India and all of them are GST ready. Moreover, 70 per cent of the corporate taxes are paid by its customers, he claimed. In the recent past, SAP has aggressively promoted its big data platform, SAP HANA, and its cloud offerings.

As a result, each of SAP’s customers are using some version of SAP HANA, which is fully GST ready.

“If I take the case of demonetisation, the promise of HANA is to give you real time data, at the lowest cost and be able to give the analytics immediately, so each one of these financial technology companies mobile wallets etc would need analytics, they would need a database, which is real time fast and can enable their services. That will be a huge opportunity for SAP,” said Sengupta.

On Thursday, SAP launched a technology called the SAP Digital Boardroom in India, which aims to contextualize and simplify performance reporting across areas of business on a real time basis through digital assistants such as Amazon Alexa.

It will enable an interactive board discussion and give decision makers a simplified boardroom process by allowing board members to analyse large volumes of data and identify business risks and opportunities in real time.

As far as data centres are concerned, Sengupta said the company has chosen not to set up its own data centre in India unlike technology companies such as Google and Microsoft, which have announced plans to set up centres in India. He said SAP is not an infrastructure company and wants to be platform agnostic.

It has partnered with local data centre provider called CtrlS to offer services to not just corporates but also governments.

“Our competency is to build software solutions and applications. We are working on a concept called cloud foundry where our application and software can work on any data centre be it Amazon or Google,” he said, adding that it will give its customers choice in terms of choosing their cloud service provider. Source – http://economictimes.indiatimes.com [05-12-2016]

Centre faces fresh opposition over GST

December 3, 2016
Most states agree that demonetisation has stressed their revenue and an early implementation of Goods and Services Tax (GST) will further squeeze it.
At a meeting of the GST Council on Friday, there was no consensus on the contentious issue of dual control under the proposed law, as most states said they “cannot bear double trouble” – demonetisation and GST.
The Union government has kept GST as its top priority after demonetisation. Union Finance Minister Arun Jaitley said the Constitution did not permit a delay in GST implementation beyond September 16, 2017.
“The Constitution does not permit a delay in GST implementation. The government notified GST on September 16 this year and the constitutional amendment itself says the current indirect tax system can continue for one year, after which the GST has to come,” Jaitley said at an event here.
In a veiled reference to West Bengal, Jaitley said: “If a state is seen as always being on the wrong side of every reform, then investors are going to be very wary of that state.”
He said demonetisation and GST together can be a game changer for the Indian economy.
Kerala Finance Minister Thomas Issac, however, said the impasse continued on dual control in the GST Council, but it would not boil down to voting. So far, the council has taken all decisions, including on GST rates, through consensus.
West Bengal Finance Minister Amit Mitra had recently said demonetisation posed a “double whammy” for states already confronting loss of revenue due to GST.
Jammu and Kashmir Finance Minister Haseeb Drabu said GST will be thoroughly discussed in Saturday’s meeting as it incorporates dual control. Parliament has to pass supporting GST legislation – central and integrated GST – and the compensation laws before the proposed GST rollout from April.
The Centre is contemplating introducing these legislation in the Lok Sabha as money bills to avoid the Rajya Sabha. Source -http://www.deccanherald.com [03-12-2016]

GST Updates (02 Dec 2016)

Posted on by Business So Simple in Miscellaneous



After Bengal’s Warning On GST, Finance Minister Arun Jaitley Gives Blunt Advice

December 2, 2016


For West Bengal, which has warned of cancelling its support to the huge tax reform of a national Goods and Services Tax or GST, Finance Minister Arun Jaitley offered this blunt advice: “If a state is seen as always being on the wrong side of every reform, then investors are going to be very wary of those states.” The allusion to Bengal was clear at a time when it is aggressively wooing industry.

Earlier this week, speaking to NDTV, Bengal’s Finance Minister, Amit Mitra, said that the centre’s shock ban of 500- and 1,000-rupee notes creates an unappetising “double whammy” to states already confronting a loss of revenue when GST replaces a pile of levies imposed by them.

When asked if the centre had calculated the impact on states of “two big-bang reforms”, the Finance Minister jested, “well, at least it is being acknowledged that we are bringing in a big bang reform…for two years, I have been asked where is the big bang reform?”

He also stressed, “The Constitution does not permit a delay with GST” which has been cleared by parliament as law. The existing tax system is valid only for another year, the minister said. The government hopes to clear supporting legislation for the reform in this session of parliament.
Mr Mitra, like his counterparts from other states, is a part of the decision-making body of the GST Council, which is finalising the rate and scope of the tax that will unify the country into a single market, making business much easier for manufacturers by removing taxes when goods move between states.
Mr Mitra said that Prime Minister Narendra Modi’s abrupt demonetisation drive has crunched the economy in states. This, he said, means states are losing money ahead of the introduction of GST, planned for April. Sates are to be compensated for the next five years by the centre for the money they will lose from their taxes being removed. But, Mr Mitra said, “The government needs to redo its arithmetic” now to factor in the hit states are taking on account of the notes ban.
He said he will talk to other finance ministers to request them to reconsider their backing of the GST, seen as a mega reform imperative for economic growth. Source – http://www.ndtv.com [2-12-2016]



Note ban shadow over GST Bill

December 2, 2016


Forecasts about the adverse impact of demonetisation on the economy have weakened the Narendra Modi government’s resolve to push the goods and services tax related Bills in the ongoing winter session of Parliament. The Finance Minister Arun Jaitley-chaired GST Council will meet on Friday, not just under the shadow of protests by the West Bengal and the Kerala governments — both of which are of the view that the time is not right for the GST rollout because of the brunt that state finances have suffered after demonetisation — but also a ‘wait and watch policy’ of the Congress-ruled state governments. While the government has the option of ensuring the passage of these Bills as money Bills, there are voices within the government as well advising discretion on the GST roll-out by April 1, 2017.

They have argued the new tax regime could prove to be a double whammy for trade, which is already looking at a slump in the near term because of the currency purge. Senior government strategists, however, were hopeful of officials reaching an agreement that would help the government convince Opposition parties. But if consensus eludes, the government could blame the Opposition for defeating, yet again, its fight against corruption and black money. Some in the government — if it is decided to defer introducing the GST-related Bills in this session — don’t rule out ending the session before its scheduled closure on December 16.
Parliament has been unable to transact any business, ever since the start of the session on November 16, and the Opposition parties showing little signs of relenting on their protests, the prospects of a smoother next week look dim. The Congress Parliamentary Party is slated to meet on Friday morning to decide its strategy in the two Houses for the next week. A last-minute rapprochement with the government aside, the party’s disruption of the proceedings on Thursday indicated it might persevere with its protests. In the Rajya Sabha, Prime Minister Modi made an appearance when the House convened at 2 pm, but Congress Members of Parliament continued to demand an apology from the PM for accusing the Opposition of supporting black money.
Congress Vice-President Rahul Gandhi is likely to chair the meeting of the party’s lawmakers, since party President Sonia Gandhi is unwell. In deciding its strategy, the Congress would factor the support of its Bihar allies, the Janata Dal-United and Rashtriya Janata Dal, to the note ban. The Congress will also discuss its strategy on the Taxation Laws (Second Amendment) Bill, which the Lok Sabha passed on Tuesday and the government introduced in the Rajya Sabha on Wednesday. Even if the House does not discuss the ‘money Bill,’ it will be deemed passed after 14 days.
The Congress would weigh on whether it should let the House function, discuss the Bill and reject it, along with a united Opposition, to embarrass the government. On GST, Congress insiders said they were awaiting the proceedings in the GST Council meeting on Friday. Congress-ruled state governments will oppose the four-tier tax structure and the highest upper limit of 28% tax, against the 18% it has demanded. The Congress vice-president is unmoved in his view of an 18% cap, having stated any percentage above this will adversely impact small traders and the aam aadmi. As for the government, proroguing the House early has the added advantage of not waiting for 14 days to lapse before the Taxation Laws (Amendment) Bill is notified. It can then issue an Ordinance the following day, and will get a wider window to collect unaccounted money for the Pradhan Mantri Garib Kalyan Yojana.  – http://www.business-standard.com[02-12-2016]

Will states get 14% returns after GST rollout?

November 29, 2016

Note war: Will states get 14% returns after GST rollout?
Addressing fears that an “anti-profiteering” clause in the draft goods and services tax (GST) law may spell the return of inspector raj, the Centre stressed that the provision is an enabling element and will be invoked only in the event of significant violations.
“The clause is an enabling provision in case it is noticed that intended benefits of a GST law are not being passed on to consumers. The government has no plans to set up an inspection machinery and no punishment has been prescribed,” revenue secretary Hasmukh Adhia told TOI.
The provision was made a part of the draft GST laws released on Saturday to ensure that the Centre has an option in dealing with traders who do not pass onto consumers any reductions under the tax reform measures. This is seen as a step to protect consumers against any price spike. The view in the government that there was a need for a redressal option was strengthened by the experience of demonetisation as individuals and business entities hunted for inventive means to beat the ban on old currency.
The Centre is, however, keen to assure investors that it does not intend to set up any authority to inspect transactions and the job, if need be, can be done by empowered consumer forums or similar bodies.
The GST is intended as a “one nation, one tax” solution and this objective as well as the government’s credibility will be hurt if refunds are suppressed and an additional charge is levied on consumers. As politics over demonetisation rocks the Centre’s plans to pass two GST related bills, the government feels that states -particularly those like West Bengal which stand to benefit -should consider whether they can turn down an assured bonanza of 14 per cent return once the ambitious tax reform measure is rolled out.
Trinamool chief Mamata Banerjee has demanded an outright rollback of demonetisation with West Bengal finance minister Amit Mitra warning that scrapping of Rs 500 and Rs 1,000 notes was a “double whammy” for the poor along with GST.
Government sources feel states like West Bengal stand to lose a great deal if the tax reform is delayed, all the more as Banerjee had persistently complained of high debt burdens inherited from the Left which she wants to be mitigated.
Implementation of GST is seen to be benefitting both the Centre and the states. States will also be compensated for any revenue loss.” In these daunting time, where will you get a 14 per cent assured return,” said a source.
It would be unfortunate if the ongoing negotiations on administrative control over goods and services below Rs 1.5 crore are derailed due to the political feuding over demonetisation, the government feels. “A call has to betaken by states like West Bengal, Odisha and Uttar Pradesh if they want to miss out on a potent revenue stream due to the politics over demonetisation which in any case cannot be rolled back now,” the source said.
PM Narendra Modi had said criticism of demonetisation was really rooted in anguish over no one being given a warning of the impending decision. Despite opposition parties reacting sharply to the statement, the ruling side remains hopeful of normalcy in Parliament after the ‘Aakrosh Divas’ is over on Monday.
Congress leaders are not so certain as they feel the substantial opposition unity can be used to keep up the pressure on the government and perhaps ensure that the winter session does not transact important business like GST bills.
The plans have worked so far despite faultlines in the opposition that have seen Congress and Left keep a distance from Trinamool and AAP while others like BJD and TRS have not joined protests. The announcement of Janata Dal (U) that it will not take part in the protest on Monday is another indication that political alignments remain fluid. Source -http://economictimes.indiatimes.com [29-11-2016]

Tracking GST: Tax Rate Structure Too Complex

November 29, 2016
The Goods and Services Tax (GST) Council, comprising the Union finance minister, the minister of state in charge of revenue and the state finance ministers, has fixed a four-tier rate structure for the reform that many believe to be the biggest in India since the watershed economic liberalisation of 1991.

The four bands of tax rates have been fixed at five per cent, 12 per cent, 18 per cent and 28 per cent. Beyond this, in order to compensate states for their loss of revenue due to a host of state and Central level taxes being subsumed by GST, luxury cars, aerated drinks and tobacco, will be levied an additional cess over and above the highest tax rate.

This cess, which is intended to supplant a potential loss of about Rs 50,000 crore, will lapse after a period of five years. In the event there is any excess left over, the same will be shared between the Centre and the states.
White And Sin Goods
In a move appreciated widely, foodgrain will be zero rated to insulate people against inflationary pressures. Common use items of mass consumption will be charged at the rate of five per cent and the standard rates of 12 per cent and 18 per cent will accommodate most of the goods and services. White goods will be taxed at 28 per cent (for the most part, with riders — to accommodate goods being used by the lower middle class).
Demerit goods or sin goods such as luxury cars, pan masala, aerated drinks, and tobacco and tobacco products, will invite a tax of 28 per cent plus cess. Accordingly, the overall incidence of cess, could vary between 40 per cent and 65 per cent. There has been no consensus on the tax rate for gold, as yet, with finance minister Arun Jaitley putting on hold the Centre’s initial proposal to charge 4 per cent GST.
Overly Complex
We feel that the multi-tier tax system, coupled with multiple registrations in each state for supply of goods and services makes this procedure overly complex. Reform at this stage should have resulted in one or possibly two rates / slabs to ensure simplicity. As the multi-tiered rate structure is still in a very nascent stage and it is as yet not known what items will fall in each tax bracket, it is too early to comment on whether or not the new rate structure will lead to inflation.
We are of the view that the powers that be should ensure that the majority of manufactured products be kept in the 18 per cent slab and not be pushed into the more cumbersome 28 per cent slab.
Defining Luxury
The GST Council ought to consider present usage trends, along with past historical data, leading up to the current market scenario while determining which products fall in which slab; as items viewed as luxuries a few years ago have fast become a way of life and necessities in today’s day and age.
The GST Council has so far only fixed slab rates for goods. A decision is yet to be taken in terms of services. The current sentiment in the market is a need/demand for a single rate structure applicable to services.
All in all, it is a reform which tries to simplify tax structure and eliminate multi-level tax incidences and burdens in the name of unity and simplicity, but only ends up delivering a confusing tax structure.  Source- http://businessworld.in [29-11-2016]

GST to spur double-digit growth in hiring across sectors

November 29, 2016
The implementation of the Goods and Services Tax (GST) will lead to 11 per cent growth in hiring activities, says a report released today.

HR services provider TeamLease said that GST would not only have a positive impact on the ease of doing business but also propel formal job creation.

“Adoption of GST will lead to an 11 per cent growth in hiring across sectors. Further, from a region perspective though marginally South Indiawill top the job generation chart,” it said.
Automobiles, logistics, home decor, e-commerce, media and entertainment, and cement sectors are projected to create 11-18 per cent additional jobs annually after implementation of GST.
In the case of IT/ITeS and BFSI segments, the growth rate has been pegged between 10 and 12.5 per cent.
According to TeamLease, around 10 to 13 per cent additional jobs are expected to be created every year by consumer durables, pharmaceuticals and telecommunications sectors.
“The uniformity and the reduction in the average tax burden offered by GST will provide a great impetus to employment creation,” TeamLease Services Co-Founder and Executive Vice President Rituparna Chakraborty said.
The report noted that the predictability of cost of products manufactured or services rendered across the country would improve enterprise productivity.
This would also trigger expansion of services, capacity and product ranges, resulting in a subsequent increase in manpower requirement, it added.
With GST, TeamLease said revenue collection from general sales tax would grow from the current level of 6.3 per cent to 11.49 per cent.
“Service tax, central excise and customs will also witness growth leading to greater funding towards workforce welfare and sustained job creation initiatives,” the report said.
The study, aimed at understanding the impact of GST on job creation, covers 11 industry verticals including BFSI (Banking, Financial Services and Insurance), automobile, telecommunication, pharma, IT/ITes and e-commerce. Source -http://economictimes.indiatimes.com [29-11-2016]




To sustain revenue collection, a smooth transition is critical

November 29, 2016

The first interface with a new fiscal legislation that public has, while transiting from the old, is always through the transitional provision in a new enactment. If the changes are major, the transit provisions are required to be more elaborate. Since the draft GST law is the outcome of convergence of various fiscal legislations at the state and central levels, therefore provisions relating to transit are explained in an elaborate manner. These provisions figure in Sections 141 to 162E of the law. There are 27 sections devoted to transition only.

Reportedly, another version of draft legislation has been circulated to the states, but the same has not been put in the public domain, as yet. Therefore, at this moment, we can only analyse the version that is available to us. Transition provisions serve a restricted purpose of envisaging various situations that may arise while moving to a new legislation and gradually become of historical importance with the passage of time. In the draft GST Bill, they broadly, and inter alia, provide for continuity of officers with their previous designations, both under the central and state legislation pertaining to tax on goods and services, automatic migration of existing taxpayers to GST, etc. It also provides that the Cenvat credit, as indicated in the last VAT, central excise or service tax returns shall be eligible to be carried forward, if it is otherwise permissible under both the old and the new law. Therefore, for the business, last return under the old law has to be prepared and the credit has to be properly documented. This is of paramount importance, as claims later may become difficult to sustain. Since there will be quite a few assessees who will come in the tax net for the first time due to lowering of SSI excise limit from Rs 1.5 crore to Rs 25 lakh (as approved by the GST Council), it has been provided that such units shall be entitled to take credit of inputs/goods in stock as on the last day of operation of old law, provided they are in possession of invoice which is not earlier than 12 months from the appointed day.

Similar provisions exist for persons opting out of composition scheme under the new law; they can also claim Cenvat credit after the appointed day (i.e. the date on which new GST law comes into force), provided they possess the relevant invoices which are not more than 12 months’ old.

To the contrary, a person who is switching over to ‘composition scheme’ from the normal tax regime shall be required to reverse credit to the extent of existing stock/inputs. Similarly, there are other transit provisions dealing with stock position, supplementary invoice, debit or credit note, pending refund claims, etc, during transition, which answer most doubts, if not all. Since there can be various situations, the Central Board of Indirect Taxes can issue clarifications, which hopefully it will be promptly doing based on difficulties experienced and feedback received.

Efficiency in issuing clarifications and advice to field officers to put the issues on hold till clarifications are issued in order to avoid litigation will be a welcome move. However, in the ultimate analysis, a smooth transition is always achieved through a taxpayer-friendly approach and thorough understanding of tax authorities. Implementation of Finance Act, 1994, is an example in this regard. The service tax was popularised through the ‘voluntary compliance’ approach and, in the beginning, internal instructions of least searches/summons were issued, and thereafter, stringency in and around 2012 was brought in and arrest provisions introduced. The introduction of the Finance Act, 1994, was smooth enough and ultimately service tax has become a big revenue earner for the central exchequer. The draft GST law has strong enforcement provisions. It is understandable also because this is a switch over of the old taxes to the new, rather than a new one being introduced. The pressure of earning enough revenue, on central/state officials from the initial stage itself, will be phenomenal. As legislation is not meant to generate additional source of revenue like fresh Finance Act in 1994 was. It is incumbent upon authorities to maintain and augment the revenue, which was being generated till the cut-off year both by central and state governments. This can bring in a tendency to use enforcement stick extensively right from the beginning, which may make the whole tax regime unpopular.

Therefore, officers have to be properly trained for a balanced approach, striking a middle path between voluntary compliance and enforcement which is just appropriate to sustain normal buoyancy in revenue collection, in the transition stage. Again, in transition, there are various procedural lapses that happen from the side of the assessee due to lack of knowledge. These are generally liberally viewed even by courts. The normal tendency of revenue officials is to litigate at every point of procedural lapse and allow it to be decided by courts, who with near unanimity deal with such procedural lapses with disdain if they seek to deny substantive benefits, otherwise permissible. But all this results in avoidable litigation swelling up in numbers. The best way forward is to appoint chief commissioner/commissioner-level officers as the authority for condoning such procedural lapses, with or without imposing a nominal fine up to Rs 20,000, so that litigation and resultant compliance cost do not swell for small business enterprises. By resorting to such matters, both central and state governments can considerably reduce the fear factor of new tax regime and can transition smoothly   Source – http://www.financialexpress.com [29-11-2016]



GST Updates ( 25 Nov 2016)

Posted on by Business So Simple in Miscellaneous



GST got your tongue?


November 25, 2016
GST got your tongue?
Developments on the goods and services tax (GST) front in the last week or so have not been particularly encouraging. First, in the meeting of state finance ministers on November 20, no consensus emerged on the issue of ‘dual control’ of businesses by the Centre and the states.

Second, the GST Council meeting scheduled for November 25 has now been deferred to December 2 and 3, apparently to have time to deliberate on the feedback received by the states on the revised GST draft laws circulated to them earlier this month.

This conflict around ‘dual control’ over taxpayers is inherent in the dual GST structure that has been opted for. While the structure envisages ‘duality’ at each stage, industry — rightly — wants a single authority (either central or state) to deal with them for audit and scrutiny. Resolving this conflict will require innovative thinking and strong political will.

For starters, it might be worthwhile to consider choosing only a small percentage of dealers for audit and scrutiny selected on the basis of their risk profile rather than arriving at a formula to segregate the entire universe of registered taxpayers, which is expected to be around 10 million.

The other option could be to divide on asectoral basis. For example, the service sector having large and pan-India footprints (telecom, banking, insurance, etc) could be administered by the Centre, while retail could be with the states. Whatever be the mode of this split, as long as industry is not required to deal with multiple authorities, it should be acceptable to India Inc.

The more critical step would be the finalisation of GST laws. The initial draft falls short of India Inc’s expectations and it wants a relook at a few fundamental aspects of the laws.

First, there is a growing consensus that rules for the service sector need to be significantly simplified. Even if ademand for a single centralised registration for the sector is not acceptable, the service sector industry would expect flexibility in terms of issuing and receiving invoices at a location of their choice, given that anyway state GST would eventually accrue to the Further, the proposal of applying GST on inter-branch supply of services is also extremely complex to implement. It needs to be reviewed.

The other proposal that requires reconsideration is the principle of vendor invoice matching, in which the buyer doesn’t get the credit of GST paid to vendors unless the latter provides the details on the GST Network (GSTN) system and pays GST. While the mechanism of online reconciliation of the vendor’s records with that of the purchaser would help in expanding the tax net and in shrinking the parallel economy, to penalise the customer for non-compliance of the vendor is seemingly inequitable.

Any large company deals with hundreds of vendors and to ensure their compliances would be extremely difficult. This is particularly the case in the initial period, when the smaller vendors may not be geared up in terms of changes in their IT system and processes. This could also hit the small and medium-sized enterprises (SME) sector hard, as large companies may want to deal with bigger vendors only.

Therefore, till the time industry gears up to dealing with such elaborate reconciliations, appropriate relaxations should be incorporated in the law. Also, in keeping with the commitment to do away with ‘Inspector raj’, the seemingly sweeping powers sought to be given to the tax authorities with respect to penalties, prosecution, etc, need to be rationalised.

Finally, it is important that the thinking while dealing with GST moves from ‘what happens today’ to ‘what should ideally happen’. There are lot of lessons and case studies available from other countries that need to be incorporated in the law. The examples could include allowing GST grouping for affiliate entities, and the utilisation of surplus Central GST against income-tax liability. After all, GST is not an incremental change. It’s a quantum leap in tax reforms.

With demonetisation starts a tectonic shift from vote-buying politics to clientelism

Following the demonetisation move, bank unions have withdrawn their strike for a couple of months till normalcy returns. Many common people are silently exchanging their honestly earned money in banks and post offices.

In stark contrast, most political parties are up in arms, making it about the politics of black money. Demonetisation, however, represents a possible tectonic shift in India’s politics: from the naked politics of votebuying to the subtler one of clientelism. Political parties that wish to remain in contention in the future need to heed this shift. Otherwise, they risk sinking into oblivion.

In Cash or in Kind

‘Vote buying’ and ‘voter clientelism’ are common phenomena. Both are ways through which political parties influence voters to vote for them. During the 2014 Lok Sabha election, the Election Commission seized over 100 kg of heroin, 50 kg of opium and thousands of litres of illicit alcohol in Punjab. Similarly, media reported agents of political parties coming to neighbourhoods in the wee hours of the morning with rice sacks filled with cash. These are examples of “vote buying”.

Clientelism, on the other hand, does not involve distribution of cash or its use to provide voters with goodies. It involves providing benefits such as ajob in a public sector undertaking if the particular candidate gets elected and becomes a minister in the government. Widespread hiring in Indian Railways and the indiscriminate introduction of passenger trains in Biharand Bengal under the stewardships of several railway ministers represent examples of crude clientelism.

Clientelism represents a complicated social undertaking that depends on a dense network of interactions between the politicians and their vote banks. The politicians must be sure that the voters they deliver benefits to will vote as promised during polls. The voters, on their part, must be sure that when they return a politician to power, he will deliver the promised benefits.

Research in economics and political science shows that while clientelism works particularly well for incumbents, vote-buying is more effective for challengers. Note that clientelism induces ‘bought’ voters to vote for the ‘buying’ candidate because the former can receive the agreed upon benefit of a job or a bank branch in their village only if the particular candidate is elected. Clearly, incumbents are in a better position to offer credible clientelistic proposals. They hold the public sector resources and allocations before polls.

In contrast, vote-buying is a necessary but sufficient condition for winning elections. Voters, particularly in the lower economic strata of society, expect to be paid in order to consider voting for the party that makes such a payment. If they do not get such a payment from party A, they will definitely not vote for party A’s candidate.

Therefore, both party A and party B would have to pay the voter to remain in contention. So, the voter will receive cash or kind from both parties A and B and then decide whom to vote for. If party A gives more cash than party B, then party A stands a better chance.

Because the incumbent political party can practise clientelism — which, importantly, does not require the use of black money — while challengers have to indulge in vote-buying — which does require using large amounts of unaccountable money — most political parties are upset at the latest demonetisation move.

Bribe Market Matures

In fact, this framework explains the demonetisation move itself. The BJP under Narendra Modi was voted to power by an increasingly aspirational class of voters who were tired of corruption, especially during the UPA rule. So, demonetisation represents aclientelistic quid pro quo, although asubtle one, by the BJP to fulfil these aspirations of its voter base.

The good news, however, is that this clientelistic move signifies the coming together — and coming of age — of a voter group that is tired of corruption. This shift from the naked politics of vote-buying to the subtle politics of clientelism is a natural progression that occurs as countries mature both economically and politically.

For instance, even in the US, the world’s most prosperous democracy, the election of Donald Trump as president represents the success of a clientelistic proposal to protect domestic manufacturing jobs from being taken away by globalisation and immigration. Similarly, clientelistic proposals characterise politics in several other advanced economies.

This shift from vote-buying to clientelism presents an important lesson for political parties. Because the aspirational class that is tired of corruption comprises primarily younger voters, the influence of this voter group will only increase over time. In contrast, the group of voters that does not detest the status quo comprises primarily older voters who have grown accustomed to the old ways of politics in the country. This group will progressively shrink. Source -http://blogs.economictimes.indiatimes.com [25-11-2016]


GST stalemate: Why Centre can’t expect cooperation after concealing data from states

November 25, 2016
GST stalemate: Why Centre can’t expect cooperation after concealing data from states

The crucial meeting of the GST council that was to happen on 25 November has been cancelled. No new date had been finalised, as of 24 November. Prior to the postponement, the GST negotiations between the state finance ministers and the Union government had hit a roadblock after it was exposed that the Union government had been allegedly concealing true data from the state finance ministers during a large part of the negotiations . The present stalemate is around the issue of jurisdiction on the service taxpayers in the under Rs 1.5 crore revenue category. That the Union government has presented misleading data to state finance ministers that hugely under represents the actual taxpayer base size is a prettyserious affair. It’s not surprising that it didn’t make big letter headlines given how the Delhi-based think-tanks anda segment of the business media is cheering for the Union government’s side in the GST negotiations. This sort of thing should have ended the GST negotiations altogether, but the state governments have greater faith in cooperative federalism than the Union government had.

Now that this is out in the open, Arun Jaitley is finding it difficult to defend the Union’s claims on a tax base that he earlier took for granted, given the allegedly misleading information that was fed by the Union government officials to the state finance ministers. Now, those “gains” by the Union government, based on allegedly previously concealed information, is suddenly up for negotiation and grabs. The future of this negotiation will decide a very crucial issue of federalism in the Indian Union – would the states retain any serious amount of revenue autonomy at all or will they become total beggars seeking alms in the court of the New Delhi Empire.

Let us understand the implications of this alleged concealment of data. The crucial issue is, who will control the service tax base for entities under the Rs 1.5 crore annual revenue threshold. This is not a theoretical argument but one that is premised on numbers – the most crucial among which is the actual size of this under Rs 1.5 crore revenue service tax payer base. In the initial meeting of the GST council, service taxpayer data supplied by the Union government to the state finance ministers showed a service taxpayer base of 11 lakh.

Negotiations thus happened on the basis of this number, which the state finance ministers in good faith believed to be true. One does not expect that in a crucial forum like the GST council, the Union government would be concealing real information and feed allegedly misleading information. Based on that 11 lakh number and its estimated revenue corpus, the states were magnanimous to the Union and decided to let the Union government retain control of the under Rs 1.5 crore annual revenue service tax base. Everything changed turned out that this 11 lakh number that was supplied by the Union government to the state finance ministers was deemed to be misleading by them.

New data available with the state finance ministers suggest that the actual service taxpayer base with below Rs 1.5 crore annual revenue is almost 31 lakh! That is almost 3 times the number that the Union government fed the state finance ministers earlier. Chairman of the empowered group of state finance ministers, West Bengal’s Finance Minister Amit Mitra has directly accused the Union government of concealing service taxpayer information from the states. A three-times increase in tax payer base has very different revenue implications. On the basis of that, a majority of the states have now proposed that for the under Rs 1.5 crore revenue class, state governments will have full control of both goods and service taxes, while for the over Rs 1.5 crore slab, there will be dual control and revenue sharing between the States and the Union.

Any entity whose bluff has been called out so directly would be embarrassed and would respond directly to the serious allegations that have been raised. Not, so the Union government. It has refused to agree to the formula proposed by a majority of the states, including Kerala, Bengal, Tamil Nadu, Bihar, Delhi, Odisha and others. Thus the stalemate continues. It is unfortunate when a 31 percent vote share government has the power to hold at ransom the united political decision of a majority of state governments. That is a fundamental flaw in the federal structure of the Indian Union.

In the 4 November meeting of the GST council, the state finance ministers wanted updated data on assesses of service tax, excise and VAT. Without giving updated data to state finance ministers on such crucial matters, what is the point of a GST council meeting? Was the Union government thinking that the GST council will be a tea-drinking, rubber-stamp club for New Delhi’s decisions? After the state finance ministers raised a cry based on the new data on service taxpayer base, the Union government tried to counter that by calling for a “re-opening” of the settled decision.

The goods and services issues are not equivalent. The service taxpayer base issue was “settled” earlier based on false date. Updated data that shows the actual base to be nearly 3 times larger than what the Union government’s earlier allegedly misleading numbers showed has resulted in this justified calls for negotiations from a majority of the states. There has been no such corresponding allegation of concealment from the states about the goods taxpayer base.

The Union government has retained the right to impose cess at will. Thus, it has a rate elastic source of revenue. The state governments, on the other hand, after GST proposals, have not been left with any elastic source of revenue. Thus, Union will generate its own revenue in response to what it deems as an emergency. The states will have to go with a begging bowl to Delhi in a similar situation. This is unjust and a blow to the powers and dignity of the states.

Also, the upper slab of luxury goods, which represents a whopping 25 percent of the total indirect tax base, has been forcibly kept low on Union government’s insistence since it wants to add cess over it, which it does not have to share with the states. Thus, Union already wants to deprive states from their legitimate revenue claims in the top-most tier. Either states should also have the power to impose cess or the highest slab has to be revised upwards significantly to squeeze the space for Union cess. Otherwise this becomes another way where states will be deprived of their rightful revenue.

One hopes that the BJP will not be so shameless to introduce the GST bill as a money bill and silence the Opposition in Rajya Sabha. This too after getting immense cooperation extended by most of the opposition in spite of many reservations and concerns about GST that the opposition had voiced during the parliamentary GST debate. The states, by agreeing to GST, have given up exclusive revenue powers. By dangling deadlines and roll out dates and its pressure tactics via big corporate controlled industry bodies, the Union will try to force the state into a dishonourable and damaging settlement.

It is up to the states to stand up to this blackmail coming from same Union government that has allegedly misled state governments by giving wrong information during crucial GST council meeting. This is about the future federalism in the Indian Union and preservation of the basic structure of the Constitution of India. If the state governments do not have exclusive control over any part of the tax-payer base, it will mean that the federal structure of the Indian Union will be damaged permanently. Any union government that misleads state government by concealing revenue data does not have any moral or ethical right to claim jurisdiction over the revenue sources situated in states. Source – www.firstpost.com [25-11-2016]

Companies may be forced to pass on benefits to consumers under GST


November 25, 2016
Companies may be forced to pass on benefits to consumers under GST
India Inc will have to pass on any benefits derived from the proposed Goods and Services Tax (GST) to consumers in the form of reduced prices or face penal provisions, according to the draft law, which has proposed an anti-profiteering clause.

An authority would be created or empowered under GST law to ensure that companies do not pocket gains in lieu of input tax credits or lower rates, according to the draft law circulated to state governments.

“The central government may by law constitute an authority, or entrust an existing authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in price of the said goods and or services supplied by him,” the draft says.

The authority will be empowered to impose penalties. ET had reported on such a provision in its September 19 edition.

The draft law will be taken up for consideration at a meeting of the GST Council scheduled on December 2-3.

The meeting was postponed from November 25 after state governments sought changes to the draft and the council will take it up after officials thrash out those issues.

The provision is drawn from the Malaysian GST framework, rolled out in 2015, that provided for a separate anti-profiteering law to ensure that companies and traders do not get undue benefits from the sudden lowering of the tax rate and make consumers suffer price shocks. Malaysian tax authorities keep a check on sudden spikes in profit reported in quarterly earnings after the GST roll out.

The centre and the states have been keen to ensure that the benefits from seamless input credits and removal of levies under the new indirect tax regime is passed on to consumers.

The GST structure has four rates – 5%, 12%, 18% and 28%. The effective tax incidence will fall when producers get seamless input tax credit and the cascading of taxes is removed. Many consumer durables could see the effective tax decline by a few percentage points.

There has been some apprehension among policymakers about companies absorbing the tax benefits and not passing them on to consumers.

The empowered committee of state finance ministers had raised this issue at a meeting with the industry on GST some time ago. Companies and industries have been known to pocket tax advantages.
“It was seen when VAT was introduced… It is observed when tax cuts are introduced in the official. Companies usually raise prices before the budget and then reduce it marginally if a tax is cut, without passing on the actual benefit to consumers. Some experts are not enthused by the idea.

“While the idea is to protect the consumers, considering the practical challenges on implementation, it might be counterproductive. It could lead to complex paperwork and unwarranted litigation. The experience in Malaysia on a similar provision has also not been encouraging,” said   Source – http://economictimes.indiatimes.com [25-11-2016]

GST Updates (24 Nov 2016)

Posted on by Business So Simple in Miscellaneous


GST Council meet postponed to December 2-3


November 24, 2016
GST Council meet postponed to December 2-3

The crucial meeting of the GST Council on November 25 to finalise the legislation for the new tax regime has been put off to December 2-3 after some states sought changes to the draft circulated by the Centre.

The meeting was to discuss the draft laws and also the contentious issue of administration of the regime. The committee of officials from the Centre and states will, however, meet on November 25 to finalise the three draft legislations for Central Goods and Services Tax (CGST), Integrated Goods and Services Tax (IGST) and compensation law.

“States desired some more time to internally deliberate on revised draft of the laws within their respective state(s),” a finance ministry statement said on Wednesday.

States have suggested certain changes to the procedure for returns in the model GST law and in the wordings of the compensation law, an official said.

The CGST, IGST and State Goods and Services Tax (SGST) laws deal with the process of returns, registration and refunds as well as jurisdiction. The compensation law will specify how states will be recompensed for revenue loss during the initial five years, on account of GST rollout. The Centre is, however, confident of introducing the legislations in the ongoing winter session of Parliament that ends on December 16.

The issue of division of tax administration would be decided politically by the members of GST Council. The states want administrative rights over both goods and services providers up to a turnover of Rs 1.5 crore. But the Centre is keen on a vertical division under which it will cover a certain percentage of assessees while rest will be assessed by states.

On November 16, the Centre had circulated the draft legislation among states. Subsequently, on November 21-22, the committee of central and state officers discussed the legislation and the changes suggested by states. The GST Council has already agreed on a four-slab structure — 5%, 12%, 18% and 28% — along with a cess on luxury and ‘sin’ goods such as tobacco. Source – http://economictimes.indiatimes.com [24-11-2016]

State tax officers’ strike disrupts work

November 24, 2016
Work was affected in some commercial tax offices across the country today due to a day-long pen-down strike by tax officers of various state governments.

The strike call was given by the All India Confederation of Commercial Taxes Association (AICCTA), which claims to represent over 36,000 gazetted officers and about 2 lakh Class-III and IV employees in support of their demand of having a fair share in the administration of taxes under the GST regime.

Uttarakhand Commercial Tax Service Association President Yashpal Singh, who is also head of the NCR chapter of AICCTA, said the strike was successful in most states and a considerable number of employees participated in the protest.

The confederation is seeking complete authority relating to monitoring, audit, assessment and enforcement activities provided either under the GST Act or the Integrated Goods and Services Tax — to be levied on all inter-state supplies of goods and services.

GST is a single tax to be levied on supply of goods and services, right from the manufacturer to the consumer. Source -www.business-standard.com [24-11-2016]

WB Commercial Tax Dept to help MSMEs in migration from VAT to GST system

November 24, 2016
Kolkata, Nov 23 (KNN)The Goods & Services Tax Network (GSTN) has started migrating existing VAT payers into GST system to allot a provisional Identification Number.
The Directorate of Commercial Taxes, West Bengal, in a letter to the industry associations has said that the dealers registered under the West Bengal Value Added Tax Act, 2003, would be able to log into GST common web portal and furnish required information for GST enrolment from November 30, 2016 to December 15, 2016.

In this regard, the department has called upon the MSME entrepreneurs interested in knowing the procedure of enrolment to attend a presentation on November 25, 2016, at Conference Hall, Annex-III (new Building), 1st Floor, 14, Beliaghata Road, Kolkata-700015.

Several presentations have already been made by the department at several places outside Kolkata for different stake-holders. Source – http://knnindia.co.in [24-11-2016]


GST Council meeting cancelled, new date yet to be announced

November 23, 2016
The goods and services tax (GST) council meeting on Friday has been cancelled. The new dates are yet to be finalized.

“GST Council meeting on November 25 cancelled; new date yet to be finalised,” reported PTI on Wednesday.

The GST Council meeting has now been cancelled twice in November. It was initially scheduled on 9-10 November, which was later deferred to 24-25 November.

The centre and the states had struck a consensus on the rates and structure of the ambitious tax reform earlier this month. The GST council finalized a multi-tier GST rate structure.

Items of mass consumption will be levied 5% and luxury and sin goods will be charged 28% plus cess. In between are two standard rates of 12% and 18% Source – http://www.livemint.com [23-11-2016]


GST progress held up by inter-state sales issue

November 24, 2016
A provision in the draft integrated goods and services tax (GST) law that says only the central government will have administrative power over all traders engaged in inter-state sales may disrupt the government’s plan to bring supporting GST legislation in the winter session of Parliament.

States such as West Bengal and Tamil Nadu have sought to change this provision to empower the states to control traders engaged in inter-state sales.

The GST council’s approval for supporting legislation may hinge on the acceptance of this demand by the centre, said people familiar with the discussions on GST.

So far, the centre and the states have not arrived at a consensus on the sharing of administrative powers under the proposed GST regime.

Pending a solution, the central GST (CGST) and the state GST (SGST) draft laws propose to bring in a generic clause allowing cross empowerment. The SGST law has a provision empowering central authorities and the CGST law has one empowering state authorities to administer taxpayers.

However, the Integrated GST (IGST) law, which deals with inter-state sales, only empowers the centre to preside over IGST proceedings.

States fear that the clause in IGST will lead to dual control as around 30-35% of the estimated 80 million plus traders who are expected to come under GST’s ambit carry out inter-state sales. This percentage increases to 80% if one takes into account both purchases and sales.

“Since IGST deals with movement of goods through various states and no one state will have jurisdiction on the entire supply chain, the centre argues that IGST traders should be under its domain. It has also cited the fact that states may have an incentive to influence a dealer to register his supplies as local supplies rather than inter-state supplies,” said a person familiar with the development. “But the states are countering these arguments (by) arguing that the use of technology negates the centre’s arguments,” the person added, asking not to be identified.

The GST council meeting, scheduled for 25 November, has been postponed till the first week of December as the final changes to the three draft laws—CGST , IGST and SGST—and the compensation law are being put together. The compensation law allows states to be compensated for any loss of revenue in the first five years of GST.

A senior government official, who asked not to be identified, expressed confidence that the government will be able to get the supporting legislation passed in the ongoing session of Parliament.

The centre may bring the CGST and the IGST bills as money bills to ensure their smooth passage in both Houses of Parliament, the official said, adding that a final decision will be taken after the GST council vets both the bills.

The government aims to implement GST from 1 April 2017, but for achieving this deadline, these bills need to be passed in the ongoing winter session.

A finance ministry statement said the GST council meeting has been rescheduled to 2-3 December after states sought some more time to “internally deliberate on revised draft of the laws”.

State and central government officials will meet on 25 November to finalize the draft GST bills and the compensation bill, following which it will be presented to the GST council next week, the statement added.

“Ideally, the industry would want that there is no dual control following the passage of the GST bill. But if it cannot be wished away, then a clear mechanism needs to be created so that for the same case or issue, a scenario does not occur where there are multiple inquiries, audits and investigations,” said Bipin Sapra, tax partner at advisory. auditing and business consulting firm Ernst and Young (EY). Source – www.livemint.com [24-11-2016]

GST to help developers shift focus to affordable housing

November 23, 2016
The Goods and Services Tax (GST) is likely to make real estate developers shift focus to high volume, low to medium housing. Affordable housing costs could fall and those for the premium segment could rise, says a white paper titled Decoding GST and Real Estate Regulation by RICS, , a self-regulatory professional body for qualifications and standards in land, property, construction and associated environment issues.

The Real Estate (Regulation and Development) Act (RERA), 2016, will help ensure that real estate projects get completed on time. Provisions in the Act such as imposition of similar penal interest for developers and homebuyers will incentivise timely delivery of projects, it says.

“GST will lower real estate costs for the affordable segment of housing while increasing costs for the premium segment. A large part of the real estate market – almost 70% is skewed towards middle to high income segment of housing. We might see developers (especially smaller ones) shift focus to low income housing to gain from GST,” says Sachin Sandhir, global managing director – Emerging Business, RICS.

The white paper explores the nuances of the impact of GST and RERA on the real estate sector and examines specifically if there are any issues that could cause ambiguities or discrepancies in the sector.

“An attempt has been made in the real estate act to balance the requirements of all the key stakeholders, namely consumers, developers as well as real estate agents. We expect much more professionalism… as we start progressing on the implementation of this act and ultimately, we may have a situation where projects are delivered as per the timelines. Two of the states, Gujarat and UP, also notified the rules before October 31 and many states are also in the advanced stage. We expect that the implementation of the act will start at the field level at the earliest and the benefits will start accruing to the sector, consumers, developers, everyone,” says Rajiv Ranjan, joint secretary, (housing), ministry of housing and urban alleviation, government of India while releasing the white paper.

The white paper concludes that GST by itself cannot be treated as a panacea for real estate market woes – both for the buyer as well as for the seller or developer. Broader policies in land and housing/ commercial stock management, ensuring availability of appropriate financing resources etc will be just as important to leverage the opportunity posed by GST, it says. Source -www.hindustantimes.com [23-11-2016]

Not only demonetisation, GST to also hit unorganised players


November 23, 2016
Not only demonetisation, GST to also hit unorganised players: Girish Pai, Nirmal Bang

In a chat wth ET Now, Girish Pai, Head of Research, Nirmal Bang Institutional Equities says over the last week or probably 10 days, IT index has outperformed the domestic plays and I think that wll continue for some time. Edited excerpts

ET Now: What is the sense, what have been you telling clients to do this fall”? Invest selectively? I know you have been bearish on certain pockets but I do not quite know what your market view was, what have you told your clients to do in the recent fall?

Girish Pai: I think it is going to be painful in the near term but obviously in the long term, it is positive. The question is when does a long term really start? Does it start two quarters down the road, does it start four quarters down the road or even beyond that because I think few things need to be taken into consideration. It is not just demonetisation, GST is also going to come in 1st of April 2017 and there is a Real Estate Regulation Act which is going to be coming through around the same time. So I would think that three-four things coming together which will going to lead to some kind of tumult in the business, in the economy once and which is going to lead to some kind of slowdown beyond just demonetisation that could be a bit unsettling.

On top of it, we have been basically talking about cash related black money. Now the government is saying that they are going to go after gold and jewellery and real estate and stuff like that. There could be a negative wealth impact also coming from those particular aspects which I do not think the market has taken into consideration. This could probably set back the big discretionary consumption or big ticket discretionary consumption play coming back quickly.

So I would probably think that earnings recovery is going to be a little bit more delayed than what the market is currently anticipating.

But having said that, we continue to believe in some of the same stories that we have pushed in the past. We still think that some of the NBFC plays which have got massive cuts of 25, 30, 35% in recent times still look good. Especially, the gold financiers, the microfmance institutions because they address customers, consumers who are low ticket value consumers in one sense and SKS or a Bharat Financial inclusion probably finances consumers or players out there who run businesses which are very essential to the needs of a particular area so I would be focussed on those kind of stocks.

ET Now: What about consumer durables that is a basket that has gotten hit albeit for the right reasons? Any channel checks which suggest some pick up or otherwise and are the price cuts pricing in the earnings cuts that will come in?

Girish Pai: I cannot speak specifically of consumer durables. We had a call with I would say a semi-urban retailer V-Mart yesterday and we had some very interesting insights out there because that the semi-urban retail is fairly unorganised at this point in time. So there seems to be a massive hit out there in the semi-urban retail sector which is almost like unorganised sector and forms almost 90% of the space. But what we have seen is organised players like V-Mart for instance seems to be gaining a lot of market share/. The overarching theme that one would probably play going forward in the economy where there is a fairly large unorganised sector – be it retail, be it plywood, be it in ceramics, be it in NBFCs. There are various pockets of economy where there is very large share of unorganised players which will get hit not only because of demonetisation but also because of GST.
These are the spaces that I would probably look at for investing.

ET Now: Are you excited about some of the capital good and engineering businesses related to infrastructure? Do you think that investment linked businesses are picking up?

Girish Pai: I think they are picking up in pockets, I do not think it is a broad-based investment recovery as yet. It is picking in the road side, in the railways side. I would not get too excited about it. I do not think it is a broad-based recovery as things stand right now. I think what we will probably have to happen is I think the government will have to probably pitch in a little bit more than what it has done thus far. I think the investment growth that was kind of pencilled in into the budget for FY17 has not been too great.
Going forward into FY18, the spending has to be lot larger than what is going to happen in FY17 because I think there is going to be a down draft from consumption which has to be negated. The government will probably spend a lot more on the infrastructure side which could lead to higher orders coming through for some of these companies.

ET Now: What is it that you like if not at this time and if not at these levels then may be at a later time at better entry points? What is it that you would look out for to buy if the opportunity arose?

Girish Pai: We would like to look at auto. The demand in the near term is going to get hit quite a bit but I think unlike some of the other areas of consumption where it is perishable consumption, here we have a situation where you can at best put off consumption by a few quarters. So I would bet on both two-wheelers especially Hero Honda as a stock that we like. Maruti is another stock that we like though I would probably play Maruti a little later than Hero Honda. Probably Maruti will recover later than Hero Honda. So auto is a space we like, we also like tractor companies out there.
In the financial space we like consumer facing banks I think they have a fairly diversified portfolio yes there will be some pain coming through from a possibly the LAP portfolio because I think the secondary market in real estate is going to take a fairly good hit and good result in some issues in terms of asset quality.
In the NBFC space, we like the MFIs and we like the gold financiers. So we continue to like Bharat Financial inclusion as well as Manappuram and Muthoot. These have taken fairly sharp hits if anywhere between 25 and 35% ever since the demonetisation was announced. So these are the kind of stocks we would look at in terms of buying into with a two plus year time frame. I do not think one should if one has to get into these with a slightly shorter time frame I would look at a better price point may be if market is going to go down by another 5-10% that would probably be giving me a lot more margin of safety for buying into some of these stocks. We could probably get a fairly swift bounce in some of the stocks but if you are buying now I think one would have a two plus year kind of time frame for some decent returns to come through.

ET Now: You would still be bearish on IT that view would not have changed?

Girish Pai: On IT, my sense is that while we have seen pressure on or we will see pressure on earnings in the domestic oriented sectors. So what has kind of played out over the last nine, eleven months is basically a situation where people have played for domestic revival, people have played for the Seventh Pay Commission, a good monsoon, lower interest rates and stuff like that.
Basically a lot of the stocks which were domestic oriented did very well under the expectation that earnings are going to pick up where as with demonetisation we have situation where earnings will have to pegged back quite a bit and one really does not know to what extent. Under such a scenario, we have IT which has been an underperformer for a while now and people have been paring earnings for quite some time is not facing an incremental pressure as things stand, right.
So we have seen over the last week or probably 10 days, IT index has outperformed the domestic plays and I think that will continue for some time. So if you want to play a tactical game in the very near term which could be maybe three, six month timeframe to hide from the probably pressures on earnings that are going to come through on the domestic front, yes I think IT could be an area to get into but I do not think that that is a sector I would bet on from a structural perspective.
I think there are a lot of structural pressures that the industry– I have highlighted this in past many times, I think it will continue to face even going forward. And on the cyclical while there is some buzz about economy picking up in the US on the back of infrastructure spending by Trump and stuff like that. I have my serious doubts about that because I think Republican Party has been fiscal hawk, it has not allowed Obama to spend too much in the last five, six years. So unless you see a completely different Republican Party I doubt whether a lot of the proposals in terms of very steep tax cuts and higher spending that Trump is indicating will go through. And my other big worry is with protectionist measures that Trump is planning to take up going forward.
I would probably think that some of the multinational, the American multinationals will probably have to rejig their operations and will probably have to spend a lot more, their margins could potentially come under pressure if they have to shift operations from China and India and elsewhere back to the US and there could be some kind of rethink in terms of the spending that they have to do in IT services. Source – http://economictimes.indiatimes.com [23-11-2016]

GST Updates (22 Nov 2016)

Posted on by Business So Simple in Miscellaneous



IRS officers demand GST assessments by Centre

November 22, 2016
The Indian Revenue Service (Customs and Central Excise) officers’ association wants the centre to firmly control service tax assessees under the Goods and Services Tax (GST) having a turnover of less than 1.5 crore. This concern has been raised after a few states like Tamil Nadu demanded control over them.

In a letter to Finance Minister Arun Jaitley, they apprehended a rise in black money and tax evasion if states are given control over such assesses.

Other than West Bengal, Kerala, Tamil Nadu, Bihar, Delhi and Odisha, commercial tax officers all over the country working under the state government’s jurisdiction have supported demands for controlling service taxpayers having lesser turnover than Rs. 1.5 crore.
The move towards GST is aimed at simplifying the tax structure, widening the tax base, reducing tax-evasion and incentivising the honest tax payers. It is supposed to be a win-win situation for all the stakeholders including the taxpayers, Central and state government.
The association representing 2000 IRS officers said that the very root and premise of the GST is in conflict with the proposal of state governments controlling assesses with a revenue turnover of less than 1.5 crore. Tax evasion will become rampant and there will be chaos and confusion amongst assesses due to different interpretations of issues.
The letter also states the despair and anguish of the 200 young IRS officers who were recruited every year since 2008 to implement GST Source – www.newindianexpress.com [22-10-2016]


GST Bill proposes new anti-profiteering measure


November 22, 2016
The revised Goods and Services Tax (GST) Bill draft has proposed a new anti-profiteering measure under the new tax regime and the Centre may constitute an authority to oversee the benefits being passed on.

Quoting sources, Sapna Das of CNBC-TV18 reports that the proposed authority may also prescribe penalty against profiteering.

Subsidies provided by Centre and states are to be kept out of GST and the tax is likely to be levied on supply of services by intermediaries, sources said. Source – www.moneycontrol.com [22-10-2016]


Centre conducts sensitisation seminar on GST

November 21, 2016
Racing against time to meet GST deadline, the Centre today held a sensitisation workshop for over 400 officials on the new indirect tax regime which Cabinet Secretary P K Sinha described as moving away from tax exemptions to seamless flow of credit and tax payments.

The workshop, held a day before an informal meeting of state Finance Ministers to discuss administrative control issues, was organized to sensitize these officers about the key features of the Goods and Services Tax (GST).

Speaking at the workshop, Sinha said GST is an important milestone in the concept of cooperative federalism where the Centre and States have come together to address an important national issue of present complex indirect tax regime in the country.

The successful implementation of GST can lead to this model of cooperative federalism being replicated in other spheres, he said, highlighting “GST reform process would lead to a move from the regime of tax exemptions in various sectors of economy to a regime of seamless flow of credit and payment of tax”

Sinha was addressing the seminar organized by the GST Council, in which more than 400 senior officers including Secretaries of various Ministries/Departments of the Government of India participated, an official statement said.

The Cabinet Secretary also urged the senior officers to be fully prepared for roll-out of GST and be in touch with various stakeholders to address their concerns for smooth implementation of GST.

The seminar was also addressed by the Revenue Secretary Hasmukh Adhia. A presentation on the salient features of GST was made by Chairman CBEC, Najib Shah.

The seminar concluded with a session on ‘Questions and Answers’ in which clarifications were given to many queries particularly pertaining to sectors of exports, transport, real estate, railways and airlines etc, it added. Source -http://timesofindia.indiatimes.com [21-11-2016]


GST Updates (21 Nov 2016)

Posted on by Business So Simple in Miscellaneous

Centre conducts sensitisation seminar on GST


November 21, 2016

Racing against time to meet GST deadline, the Centre today held a sensitisation workshop for over 400 officials on the new indirect tax regime which Cabinet Secretary P K Sinha described as moving away from tax exemptions to seamless flow of credit and tax payments.

The workshop, held a day before an informal meeting of state Finance Ministers to discuss administrative control issues, was organized to sensitize these officers about the key features of the Goods and Services Tax (GST).

Speaking at the workshop, Sinha said GST is an important milestone in the concept of cooperative federalism where the Centre and States have come together to address an important national issue of present complex indirect tax regime in the country.

The successful implementation of GST can lead to this model of cooperative federalism being replicated in other spheres, he said, highlighting “GST reform process would lead to a move from the regime of tax exemptions in various sectors of economy to a regime of seamless flow of credit and payment of tax”

Sinha was addressing the seminar organized by the GST Council, in which more than 400 senior officers including Secretaries of various Ministries/Departments of the Government of India participated, an official statement said.

The Cabinet Secretary also urged the senior officers to be fully prepared for roll-out of GST and be in touch with various stakeholders to address their concerns for smooth implementation of GST.

The seminar was also addressed by the Revenue Secretary Hasmukh Adhia. A presentation on the salient features of GST was made by Chairman CBEC, Najib Shah.
The seminar concluded with a session on ‘Questions and Answers’ in which clarifications were given to many queries particularly pertaining to sectors of exports, transport, real estate, railways and airlines etc, it added. Source -http://timesofindia.indiatimes.com [21-11-2016]


Power politics hits GST post Centre’s demonetisation move


November 21, 2016

With the banknote crisis sharpening the political divide, the Centre and states on Sunday virtually refused to move an inch from their stated positions on the separation of administrative powers in the proposed Goods and Services Tax (GST) regime.

After marathon deliberations with state finance ministers, Union Finance Minister Arun Jaitley said “meeting remained incomplete and discussions will continue on November 25”. States alleged that the Centre, which wanted a vertical split of the near-10-million indirect tax assessee base, had only turned more adamant.

With a predictably acrimonious Parliament looking less likely than a few days ago to pass the central GST, integrated GST and compensation-for-states Bills, the Centre’s plan to roll out the comprehensive indirect tax, which will subsume excise, service tax and local levies, from April next year, is indeed threatened.

Kerala finance minister Thomas Isaac told FE: “We had a prolonged discussion from 10am to 3pm. A number of key states have the view that there must a combination of horizontal and vertical split of responsibility. We are discussing about number of dealers and how much (of the base) would be exclusively under the control of the state governments, and what would be a fair division of work between states and the Centre. We couldn’t reach an agreement.”

Isaac added: “The Centre wants a share of the small dealers, who have been exclusively serviced by the states except for the service providers. We fear that this will only create unnecessary problems.”

The political leadership has, however, given the bureaucrats a brief, and officials of both central and state governments will meet on Monday to work out a solution. At Sunday’s meeting, state FMs from West Bengal, UP, Tamil Nadu, Kerala and Uttarakhand have insisted on an exclusive control over small taxpayers, with annual revenue below R1.5 crore, for both goods and services.

They feel states have the infrastructure deployment at the grassroot level and small taxpayers are familiar with local authorities. The central government, on the other hand, is not in favour of the demand as it wants a single-registration regime for ease to service taxpayers.

Instead of horizontally splitting the taxpayers — those with R1.5-crore revenue with states and those above with Centre — it has proposed to divide the entire taxpayer base vertically wherein the taxpayers are divided between the Centre and the states in a fixed proportion. As a compromise, it is willing to give states an administrative power over 2/3rd of the taxpayer base if service tax continues to be administered by the Centre.

There are five options being discussed for the division of administrative powers : 1) a pure turnover-based division where taxpayers with turnover below R1.5 crore would be administered by the states and the larger ones by the Centre, however, this is not acceptable to states as bulk of the tax revenue comes from the second category; 2) below R1.5-crore revenue taxpayers with states and others under cross-empowerment (the Centre won’t agree on this as it is a skewed distribution; 3) the second option tweaked to keep all service taxpayers with the Centre (this option is put on the backburner as it was recognised to create jurisdictional problems for businesses which supply a substantial mix of goods and services; 4) cross-empowerment where every year both the Centre and states will decide who will audit whom on the basis of risk parameters; 5) a complete vertical division for three years, including for audit, with a Centre-state ratio of 4:6; with a mirror image approach favouring the Centre for over R1.5-crore revenue taxpayers.

At its last meeting, the GST Council had agreed on a four-slab structure – 5, 12, 18 and 28 percent — along with an additional cess on luxury and `sin’ goods, such as tobacco, to raise the funds for the Centre to compensate the states. The council is yet to take a call on the rate on precious metals, including gold, but sources say 3-4% rate is under active consideration. Source -www.financialexpress.com [21-11-2016]


With GST on the anvil, system ripe for a change


November 21, 2016

With GST on the anvil, system ripe for a change: YV Reddy

The timing of the government’s demonetisation move was perfect coming when the goods and services tax (GST) is all set to be implemented, former Reserve Bank of India governor YV Reddy has said, and suggested more changes to target black money.

“It is a historic moment. There is bound to be paradigm shift in the economic and political system. With the GST on the anvil, the system is ripe for a change,” Reddy told ET.

“However, to take it forward, contract enforcement and judicial processes will have to play active role,” he said. “It is impossible to have a big change without some inconvenience and some temporary disruptions,” said Reddy who is now chairman of the 14th Finance Commission.

It is possible that black money is merely a symptom of a deeper disease, and that disease is very complex, Reddy said recently.

Black money is defined as “assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession” as per the white paper on the subject tabled in the Parliament in May, 2012.

But there are no official estimates on its quantum in the system.

Explaining the nuances of the issue, Reddy said it was easy to grow from low income economy to a middle income economy on relation-based, or personal contact-based, system when scale of operations are small and trade is largely localised.

“In such a setting, networks of information flows, norms of behaviour and sanctions for deviants may already be present from the social environment, or can develop quickly as people interact economically among themselves,” he said. “Therefore, self enforcing governance is feasible. But for a sustained growth, rule-based governance must prevail over relation based ones.”

Black money, according to Reddy, is not merely an issue of taxation or non-declaration or committing crime and imposing punishment. It is manifestation of a bigger problem of governance. “In countries that are moving from relation-based systems to rule-based systems, there are challenges,” he said.

Interestingly, people urge severe actions by government precisely in those countries where governments are reputed to be weak in governance, Reddy said. Source – http://economictimes.indiatimes.com [21-11–2016]


Informal meeting of GST Council on issue of tax jurisdiction remains inconclusive


November 21, 2016

The Centre and states today failed to reach a consensus on who will control which set of assessees under GST.

The GST Council will meet again on November 25 to work out the modalities.

The informal meeting of Union Finance Minister and his state counterparts was called to break the political deadlock on sharing of administrative control under the proposed goods and services tax (GST) regime.

“The meeting has remained incomplete. Discussions will continue on November 25,” Finance Minister Arun Jaitley told reporters after the meeting.

Today’s meeting, which came ahead of the formal meeting of the all powerful GST Council on November 25, was held after the Centre and states were deadlocked over the issue at two previous meetings.

The government aims to roll out GST, which will subsume excise, service tax and local levies, from April next year Officers of both central and state governments will meet tomorrow and try to workout a solution.

States like Uttarakhand, West Bengal, Uttar Pradesh, Tamil Nadu and Kerala have insisted on exclusive control over small businesses, which earn less than Rs 1.5 crore in annual revenue, for both goods and services.

They feel states have infrastructure deployment at grassroot level and small taxpayers are familiar with state authorities.

The Centre, on the other hand, is unagreeable to the demand as it wants single registration mechanism for ease to service taxpayers.

Instead of horizontally splitting the taxpayers — tax payers with Rs 1.5 crore revenue with states and those above with Centre — it has proposed to divide entire taxpayer base vertically, wherein taxpayers are divided between the Centre and states in a fixed proportion.

As a compromise, it is willing to give states administrative power over 2/3rd of the taxpayer base, with service tax continuing to be administered by Centre.

An official said the informal meeting was held sans civil servants to arrive at a political solution. Source – www.business-standard.com [21-11-2016]


GST updates (19 Nov 2016)

Posted on by Business So Simple in Miscellaneous


Government unlikely to bring GST bills soon

November 19, 2016
Government unlikely to bring GST bills soon

The government is keen to push the passage of three legislations related to the main GST bill in the ongoing Winter session, as Parliamentary nod for these bills is must for rolling out GST from the target date of April 1, 2017.

With the united opposition attacking the ruling dispensation in Parliament over the demonetisation issue, the government is unlikely to bring three bills related to GST in the coming days and hopeful of pushing them in latter half of the Winter session which began on Thursday.

The government is keen to push the passage of three legislations related to the main GST bill in the ongoing Winter session, as Parliamentary nod for these bills is must for rolling out GST from the target date of April 1, 2017.

The three bills related to GST are–the Central Goods and Services Tax Bill, the Integrated Goods and Services Tax Bill, the Goods and Services Tax (Compensation for Loss of Revenue) Bill.

The government is hopeful of passage of the three GST bills in the Winter session, which are likely to be introduced in either third or fourth week of the session, a source said.

As per the GST Constitution Amendment Bill, which was notified on September 17, 2016, the government is required to complete the process of implementation of GST within a year.

The all powerful GST Council, which is chaired by the Finance Minister and has representations from state, had already decided on a four-tier rate structure–5, 12, 18 and 28 per cent–with a cess over and above the peak rate for luxury and demerit goods.

The issue of dual control, which deals with who will control which set of assessees under GST, has been holding back the negotiations between the Centre and the states.

The government has listed total nine bills which also includes Surrogacy (Regulation) Bill for introduction, consideration and passage.

The government has listed 10 pending bills including HIV AIDS Prevention and Control bill, Mental Health Care bill, Maternity Benefit Amendment bill, Prevention of Corruption (amendment) bill and Consumer Protection bill for consideration and passing as these bills have already been introduced in Parliament. Source – http://auto.economictimes.indiatimes.com [19-11-2016]



GST seminar to help govt. officers educate industry

November 19, 2016
Ahead of next week’s Goods & Services Tax (GST ) Council meeting, Cabinet Secretary P.K. Sinha has asked all the officers of the rank of joint secretary and above in all Central government departments to attend an interactive seminar on GST on Saturday. “Impact of GST will be felt by all sectors… various stakeholders need to be familiarised with the new taxation system to ensure smooth transition,” Mr. Sinha said in a letter to all the secretaries. “Senior officials can contribute to this in a major way by educating the different stakeholders,” he said. An official statement on the seminar said introduction of GST is the most important reform in the indirect tax system in the country. “Indirect tax structure in India is highly complex with hidden costs for trade and industry. Non-uniformity across the States, cascading of taxes due to ‘tax on tax’ and multiplicity of taxes in the current tax laws are huge deterrents for the businesses  Source -www.thehindu.com [19-11-2016]


Duty sop in GST holds key to Foxconn’s Nokia unit takeover

November 19, 2016

Duty sop in GST holds key to Foxconn’s Nokia unit takeover

Taiwanese phone maker Foxconn’s plans to take over the shuttered Nokia factory near Chennai rest on a tax structure as India moves into the GST regime. Foxconn had shut its India plant near Chennai after Nokia exited the business of making phones in late 2014 following a large tax demand.

Its second innings had begun with a promise to start 10-12 factories across the country with an investment chest of Rs 12,000-crore ($2-billion). However, its comeback was through a small factory in Andhra Pradesh’s Sri City Special Economic Zone.

FOXCONN’S RETURN

Producing for a range of Chinese brands like Xiaomi, Foxconn’s return coincided with a new tax structure that favoured foreign contract manufacturers to make locally instead of importing completely built units into India.

Now, at its seminal point of its second entry through taking over a now-defunct Nokia Chennai plant, Foxconn is faced with a gnawing uncertainty over whether the duty differential dispensation will exist at all in the GST regime.

In a proposal accessed by ET, Pankaj Mohindroo, president, Fast Track Task Force, wrote to the Department of Electronics and IT(DeitY) in August, saying: “The duty differential dispensation remains at the heart of the current momentum in mobile handsets and components’ manufacturing…”

GST AND FOXCONN

In last year’s budget, the centre imposed a 12.5% countervailing duty on mobile phones that would be imported, strengthening the case of global corporations like Foxconn to set shop in India to serve the Indian market.

Since the Goods and Services Tax (GST) will subsume all state taxes such as the value-added tax -for which manufacturers can claim exemptions-retention of the duty differential becomes key for Foxconn to survive and expand in India.

In the one year after the centre incentivised domestic manufacturing, about 35 smartphone factories and 15 component manufacturers have set up shop, creating 50,000 jobs.

ALL ABOUT THE DEAL

An official aware of developments connected to Foxconn said: “The Nokia factory deal is four-way the centre, the state, Nokia and Foxconn at four corners, with all of them having something to contribute to the deal.”

“From the centre’s part, all the tax concessions that triggered local manufacturing need to remain. Otherwise, it really is going to spoil the deal for Foxconn-not just for the Nokia plant but for the entire industry,” the official added.

Sources aware of the Nokia-Foxconn negotiations say that currently, negotiations are taking place on the sops that Tamil Nadu is willing to offer and the valuations of the 212-acre factory that was shut for overtwo years.

Queries on the issue sent by ETto Foxconn remain unanswered.

Tamil Nadu government officials maintain that the state government is aware of Foxconn angling for the takeover and is liaising with the Centre to making it happen.

TAX ADVANTAGE

The Union government’s Make in India campaign seeks to grab a portion of foreign investments flowing into China for the country’s cheap electronics manufacturing prowess.

The tax advantage has been seen pivotal to this effort.

Tax experts, however, believe that the coming of the GST will only help India gain an edge against China in the exports market.
Sachin Menon, head of indirect tax, KPMG, said: “With the goods and service tax proposing to refund entire input taxes, as opposed to partial refund of input taxes under the current regime, it will help India to be competitive even in the export market.” Source – http://economictimes.indiatimes.com [19-11-2016]


GST to reduce margins

November 19, 2016
The logistics & real estate industries could see their profitability indented if the abatement of tax is not continued under the GST regime.

Whilst industries in general will benefit by GST and will see margin expansion, those like the services that have lower tax rates could see margins contract. It could also bring down prices of products as it would eliminate multiple taxes or ‘taxes on taxes’. Industries like cement and auto manufacturers stand to benefit from lower GST tax rates, while those that could be impacted negatively due to GST include the cotton and downstream value chain and apparel segment of the textile industry and print media, which are currently either tax exempted or subject to concessional rates of taxes.

The logistics and real estate industries could see their profitability indented if the abatement of tax is not continued under the GST regime, while the impact on the infrastructure industry with high value contracts spanning across years would have to be assed contract-wise.

Analysing the pros and cons of the four-rate tax slabs -5 per cent, 12 per cent, 18 per cent and 28 per cent of the GST, India Ratings and Research (Ind-Ra), says the practise of “kaccha bills” which lead to leakages due to non-payment of taxes would be eliminated as the users of input supply would insist on tax invoices to claim the input credit. Source – www.asianage.com[19-11-2016]

Cash Deposits: Tax implications

Posted on by Business So Simple in Miscellaneous



Cash Deposits can’t be shown as income in ITR under Sec.115BBE



November 18, 2016[2016] 75 taxmann.com 198 (Article)


The provisions of section 115BBE are as under:
♦ The Finance Act, 2012 inserted section 115BBE in the Income-Tax Act (‘the Act’) to tax unaccounted money represented by the additions covered by sections 68(Cash credits), 69(Unexplained investments), 69A(Unexplained money, etc.), 69B(Amount on investments, etc., not fully disclosed in books of account), 69C(Unexplained expenditure, etc.)  and 69D(Amount borrowed or repaid on hundi) at flat 30% without any deductions or basic threshold exemption limit.
♦ Section 115BBE provides that where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a)the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b)the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).
♦ Section 115BBE further provides that notwithstanding anything contained in the Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing his income referred to in (a) above.
♦ Section 115BBE was enacted “In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit.
From the above, the following position emerges:
♦ Section 115BBE refers to sections 68,69A, 69B, 69C and 69D
♦ Sections 68 to 69D nowhere contemplate voluntary disclosures made in ITR by the assessee
♦ Sections 68 to 69D contemplate additions for unaccounted/unexplained income detected by the AO during search or survey or scrutiny. This is clear from the words “where any sum is found credited in the books of an assessee”(section 68), “Where in any financial year the asssessee is found to be the owner of any money, bullion, jewellery or other valuable article”(section 69A)
Thus, section 115BBE read with sections 68 to 69D nowhere envisage a voluntary disclosure scheme where past unaccounted income can be declared by assessee in current ITR by paying 30% flat tax. If section 1155BBE is to be construed as a voluntary disclosure scheme, there was no need for Income Disclosure Scheme, 2016 or one-time window under the Black Money Act, 2015 for foreign black money.
Section 115BBE can be invoked only by AO and cannot be invoked by assessee to show huge cash deposits in bank as income in ITR at special tax rate of 30% under Section 115BBE.


No tax free status for all cash deposits up to Rs.2.5 lakhs



November 18, 2016[2016] 75 taxmann.com 197 (Article)


1. Deposits up to Rs. 2,50,000 have not been given any blanket tax-free status. Only such deposits will not be reported to the Income-tax Department by banks/post offices.
At Present:
A. The regular threshold exemption limit for individuals (other than resident senior citizens and super-senior citizens) is Rs. 2,50,000.
B. If the individual is a resident and senior citizen (aged 60 or more but less than 80), then it is Rs. 3,00,000.
C. If the individual is a resident and super-senior citizen (aged 80 years or more), it is Rs. 5,00,000.
D. If total income for any year exceeds this limit, it will be taxed as per applicable slabs.
E. If individual is found to be the owner of any money, bullion, jewellery or other valuable article and same is not recorded in any books of account of the individual and the source of acquisition is not satisfactorily explained, amount will be charged at flat 30% without regard to above threshold exemption limit.
F. If any individual deposits cash exceeding Rs. 50,000, on any one day, in account in bank or post office, PAN is required. This requirement of PAN for cash deposit also applies if aggregate deposits in bank account from 09-11-2016 to 30-12-2016 exceeds Rs. 2,50,000 in the aggregate.
G. Bank and Post office will have to report on or before 31-01-2017 cash deposits during the period 09th November, 2016 to 30th December, 2016 aggregating to:
♦ Rs. 12,50,000 or more in one or more current account of a person; or
♦ Rs. 2,50,000 or more in one or more accounts (other than a current account of a person)
The following clarifications in Press Release dated 10-11-2016 may be noted:
“Q.1 A lot of small businessmen, housewives, artisans, workers may have some cash lying as their savings at home, will the Income-tax Department ask questions if the same is deposited in banks?

A.1: Such group of people as mentioned in the question need not worry about such small amount of deposits up to Rs.1.5 or 2 lacs, since it would be below the taxable income. There will be no harassment by Income Tax Department for such small deposits made.”

Q.2: Will the Income-tax Department be getting reports of cash deposits made during this period? If so, will the current threshold of reporting requirement of reporting cash deposits of more than Rs. 10 lacs will only continue?

A.2: We would be getting reports of all cash deposited during the period of 10th November to 30th December, 2016 above a threshold of Rs. 2.5 lacs in every account. The department would do matching of this with income returns filed by the depositors. And suitable action may follow.

2. Tax-free status is for those whose total income does not exceed threshold limit of Rs. 2,50,000/Rs. 3,00,000/Rs. 5,00,000. One can imagine that savings of people with meagre income are not likely to exceed this amount. If they can prove they saved higher amount because they live in joint family and other family members have more income, then even higher cash deposits will not be taxed.
3. Housewives can even get exemption for higher cash deposits if it is savings out of pin money given to them by husbands for their expenses. Only that it will have to be established that husband is regular ITR-filer and has disclosed sufficient incomes and made sufficient cash withdrawals or transfers through banking channels to wife
4. Those whose cash deposits during the period 09-11-2016 to 30-12-2016 do not exceed Rs. 2,50,000 will not be picked up for scrutiny automatically as no reporting of the same is done by banks/post offices. But if their returns are picked up for scrutiny on random basis, this deposit can be examined and taxed at 30% under section 115BBE if not satisfactorily explained. There is as yet no instruction from department to AOs to ignore demonetized notes deposited in bank account up to Rs. 2,50,000 during scrutiny assessment.
5. Again it is not as if you have Rs. 10 lakhs in old notes and you have four bank accounts and you deposit Rs. 2.5 lakhs in each of the 4 accounts, your Rs. 10 lakhs has become tax-free. Your accounts may not be reported by bank/post office to ITD. But if your return is picked up in scrutiny at random, all four bank accounts will be called for and checked and if you fail to explain source of the amounts satisfactorily, then you will be taxed flat 30% on Rs. 10,00,000 without allowing for any regular threshold exemption limit as above. The Income-tax Department may also come to know about all deposits below the threshold limit, if Income-tax Returns forms introduce a new column asking for maximum balance during the year in each bank account.


Cash deposits in old currency may attract 200% penalty



Introduction
1. The opportunity to declare undisclosed income under Income Declaration Scheme, 2016 and pay 45% on the same expired on 30th September, 2016. If demonetized high denomination notes deposited in bank account pertain to cash in hand declared under IDS, 2016, there would be no problem. But what if IDS has not been availed? Can the assessee simply deposit undisclosed income in form of demonetized notes in his bank account, quantify tax liability @ 30%, pay advance tax and show the same in ITR of FY 2016-17 (current financial year) without attracting penalty of 200% under section 270A for misreporting?
Penalty under Section 270A
2. Salient features of penalty u/s 270A are as under:
♦ Section 270A providing for “Penalty for under reporting and misreporting of income” was inserted in Income-Tax Act,1961 by the Finance Act,2016 with effect from Assessment Year 2017-18.
♦ Section 270A(1) provides that “The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income”.
♦ The words “may…..direct that any person who has under-reported his income shall be liable to pay a penalty” are significant. Imposition of penalty under section 270A is discretionary and not mandatory in view of the word “may” used in sub-section (1).
♦ Where no return is furnished, income is said to be under-reported if the income assessed exceeds the maximum income not chargeable to tax .
♦ Where return has been furnished, the starting point for determining whether there is under-reporting is an arithmetical calculation ascertaining difference between two figures-between income assessed or reassessed and income earlier assessed or as per return processed. If the former figure exceeds the latter, income is said to be under-reported
♦ The amount of under-reported income shall be, in a case where income has been assessed for the first time, if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143.
♦ In a case where no return has been furnished, the amount of under-reported income shall be (A)the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A)
♦ In any other case, under-reported income shall be the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order
♦ Where under-reported income is in consequence of misreporting, the penalty shall be equal to 200% of the amount of tax payable on under-reported income[Section 270A(8)]
♦ Where there is only under-reporting without mis-reporting, the penalty shall be 50% of amount of tax payable on under-reported income[Section 270A(7]
♦ Levy of penalty is discretionary but amount of penalty is not discretionary.
♦ In a fit case, the authorities may decide not to impose penalty. But if they decide to impose, then they must impose the mandatory quantum as per section 270A(7)/(8)-no more and no less.
♦ Section 270A(9) provides that misreporting of income shall cover the following cases (and hence liable to 200% penalty):
(i) misrepresentation or suppression of facts;
(ii) failure to record investments in the books of account;
(iii) claim of expenditure not substantiated by any evidence;
(iv) recording of any false entry in the books of account;
(v) failure to record any receipt in books of account having a bearing on total income; and,
(vi) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction.
From the above provisions of section 270A, the following points emerge:
♦ Now misreporting per se will not attract penalty under section 270A @ 200%..To attract the penalty @ 200%, misreporting should result in assessed income being more than what is determined on processing under section 143(1)(a).
♦ There is a view that when unaccounted income in the form of demonetized notes is banked and same is shown in ITR for FY 2016-17 as “income from other sources” and tax @ 30% is paid thereon, the assessed tax will not exceed the tax as per return processed u/s 143(1)(a) and hence no penalty is imposable under section 270A. This view seems to be based on Press Release dated 10-11-2016 which contains replies by the Revenue Secretary. Q.No.3 in the Press Release clarifies that if huge cash deposits do not match with income declared, then it will be a case of tax evasion attracting penalty.
♦ If huge cash deposit is reported in ITR for AY2017-18, it can not be said to be “not matching with income not declared.
♦ However, one should pay careful attention to Q.No.2 of press release which says that all deposits exceeding Rs.2.5 lacs during 10th November to 30th December 2016 will be reported to Department and “The department would do matching of this with income returns filed by the depositors. And suitable action may follow.” As per amended Rule 114E , cash deposits during the period 09-11-2016 to 30-12-2016 aggregating to Rs.12,50,000 or more in current account or aggregating to Rs.2,50,000 or more in savings account will be reported by banks to tax dept. up to January 31, 2017.
♦ Thus, Department will match cash deposits with returns filed for past assessment years upto and including AY 2016-17 in January 2017 itself. If such deposits not matching with the past returns, notices may be sent out by February 2017 itself. In appropriate cases, surveys and raids may take place also. If that happens, assessee may not get a chance to execute this plan of showing cash deposits in ITR of AY 2017-18. If assessee is not able to explain it as current income of FY 2016-17, then it may attract 200% penalty under Section 270A.
♦ Further, Department will not accept a disproportionate spurt compared to preceding year as current year’s income unless satisfactorily explained. The Finance Minister clarified in Rajya Sabha as under:
“Sir, there is an existing law which would apply. I think what Mr. Gujral is referring to is when somebody declares it as a part of his current income and when current income is taxable at the rates provided in the Income Tax Act. But if the current income suddenly becomes 5,000 per cent of last year’s income, will it be treated as current income or otherwise?”
♦ For instance, if someone declares a total income of Rs.10 lakhs in preceding year and declares a huge amount of Rs.3.15 crores including a huge cash deposit of say Rs.3.0 crores, the Department is unlikely to accept that the huge cash deposit is from current year’s income unless the spurt in economic activity is satisfactorily explained by assessee. Further in such cases, Department may not even wait till ITR of current year is filed and based on report by bank it may initiate survey or search or even issue notice calling for explanation or details.
♦ Declaring past years’ income as current year’s income will amount to making of false statement in verification and would attract prosecution under section 277.
Conclusion
3. The strategy of declaring huge cash deposits in bank as current year’s income and paying tax on it is fraught with risks and assessee may end up with proceedings for past years being reopened with resultant huge interest and penalties for past years besides prosecution. Another thing to be noted is merely showing income does not fulfill assessee’s obligations under the Act as can be seen from a conspectus of various provisions of the Act. Assessee is obliged to also disclose and establish (i) source (ii) manner of deriving income and (iii) period in which derived. In other words a ‘full and true disclosure’ is contemplated. Further, disclosure of huge cash deposit may result in investigations under indirect tax laws such as VAT/Service Tax/Excise for evasion of those taxes also.
(SRINIVASAN ANAND G.CA) November 18, 2016 [2016] 75 taxmann.com 174 (Article)


Receipt of cash in new currency on selling a property would also invite penalty



In CIT v. A.M. Fazil [2012] 22 taxmann.com 238 (Ker.), the Court observed that ” unless prohibition is introduced against cash transactions particularly in sale of property, in film industry and the like at least for payments over a certain limit in cash, black money generation and circulation cannot be controlled because the disincentives on cash dealings contained under the various provisions of the Income-tax Act have failed to achieve the objective.” Accordingly, the Finance Act, 2015 amended sections 269SS and 271D of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Section 269SS, as amended, prohibits acceptance of Rs. 20,000 or more for any transaction of transfer of immovable property otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. The prohibition applies whether the sum is received as advance or otherwise. In terms of section 271D, violation of this prohibition attracts a penalty equal to the amount accepted or received
Following situations can arise where a seller receives property sale proceeds in cash off the record (i.e., in black)
Case 1: Seller sold the property and received part of it in black prior to demonetization and declared it in IDS
If seller had already declared the black component in IDS and old demonetized notes were deposited from this declared amount, seller will get immunity from penalty and prosecution under IT Act, 1961 and, hence, he will not be liable for penalty under section 271D. Also there would be no liability for capital gains tax.
Case 2: Seller sold the property and received part of it in black prior to demonetization and had not declared it in IDS
If the seller of property deposits the black component of sale price (received in cash) in bank account and explains it as consideration for sale of property, he is liable to pay capital gains tax with reference to total consideration including black. He will also be visited with a penalty under section 271D equal to the amount of cash accepted or received by him. What is more unlike IDS declaration which is confidential , these explanations given by seller that it is black component of sales price can be forwarded to Stamp Duty authorities for action.
Case 3: Seller has entered into agreement to sell prior to demonetization and received advance (bayana) in old notes prior to demonetization, i.e., on or before 8thNovember, 2016 and had not declared it in IDS
Seller can deposit in bank. However, he will be liable to pay capital gains tax with reference to total consideration including black. He will also be visited with a penalty under section 271D equal to the amount of cash accepted or received by him. What is more unlike IDS declaration which is confidential, these explanations given by seller that it is black component of sales price can be forwarded to Stamp Duty authorities for action.
Case 4: Seller has entered into agreement to sell post demonetization (unlikely as real estate deals have been hit) and received advance (bayana) in old notes post demonetization, i.e., on or after 9th November, 2016

The deal is illegal as cash ceased to be legal tender.