Populist. Pragmatic. - Interim Budget 2019 · Maruti Suzuki India Ltd. v. CIT (2015) 64 taxmann.com 150 (Delhi) Advertising, Marketing and Promotion (AMP) Expenses 15 Supreme Court

Highlights of Interim Budget 2019

Populist. Pragmatic.

skpgroup.com

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Winner of India Tax Firm of the Year 2016 at the Asia Tax Awards

▪ Direct Tax Proposals

▪ Indirect Tax Proposals

▪ Our Story

Coverage

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Key Budget Numbers and Proposals

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Economy

▪ Increase in direct tax collections from INR 6.38 lakh crores to 12 lakh crores

▪ Inflation at controllable limit of 4.6% of GDP

▪ Fiscal deficit to be contained at 3.4% of GDP and current account deficit of 2.5% of GDP

▪ Implementation of the Insolvency & Bankruptcy Code has resulted in recovering INR 3 lakh crores

▪ Transformation in the interface between the tax payer and the income tax department

▪ A ten point dimension to achieve the long term target of making India a USD 10 trillion economy

Farmers, Poor and Backwards Class

▪ PM-KISAN introduced at an outlay of INR 75000 crores providing farmers an income of INR 6,000 annually

▪ Budget for MNREGA is fixed at INR 60000 crores

▪ Interest subvention of 2% on loans availed for animal husbandry and fisheries farmers and due to natural calamities

▪ Mega Pension scheme for workers in unorganised sector – pension of INR 3,000 per month post retirement

▪ India moving towards social security regime – similar to developed countries

Key highlights

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Direct Tax Proposals

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▪ Tax rebate for tax-payers earning income upto INR 5,00,000

▪ Standard deduction increased from INR 40,000 to INR 50,000 for the salaried taxpayer

▪ Notional rent taxation – abolished for second self owned property

▪ Relaxation in withholding tax provisions

▪ Rent payments – withholding tax limit increased from INR 1,80,000 to INR 2,40,000

▪ Fixed deposit interest – withholding tax limit increased from INR 10,000 to INR 40,000

▪ Capital gains reinvestment exemption

▪ Available for 2 residential houses in cases where capital gains does not exceed INR 2 crore

▪ One time exemption

Individuals

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Individuals – Exemption Calculation

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Particulars FY 2018-19

(Amt in INR)

FY 2019-20

(Amt in INR)

Income under the head salary

(after exemptions) 9,50,000 9,50,000

Income under the head House

Property (interest on Housing loan) -2,00,000 -2,00,000

Gross Taxable Income 7,50,000 7,50,000

Standard deduction u/s 16 -40,000 -50,000

Deductions u/s 80C -1,50,000 -1,50,000

Contribution to NPS u/s 80CCD -50,000 -50,000

Net Taxable income 5,10,000 5,00,000

Tax payable 25,000 12,500

Less: Rebate u/s 87A Nil 12,500

Total Tax Payable 25,000 -

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▪ No reduction in corporate tax rate for all corporates

▪ Finance bill allows 25% tax benefit to companies having turnover of less INR 250 crores in 2017-18

▪ No change in capital gains tax, dividend distribution tax or minimum alternate tax

▪ Deduction for housing projects - Sunset clause extended by 1 year

▪ Holding period increased from 1 year to 2 year – for taxing notional rent for property held as stock in trade

Corporate Entities

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▪ E-assessments scheme implemented in 2018. Key features ▪ A step towards Digital economy

▪ Completion of assessment basis limited scrutiny and full scrutiny has helped to bring down unnecessary documentation

▪ Helped in reducing the time and costs involved in the process and should significantly reduce the discretionary powers of the tax authorities

▪ Reduction in corruption

▪ Transparency and accountability in conducting assessment proceedings

▪ Reforms/highlights from Budget 2019 ▪ Increase in tax returns filed from 37.9 million to 68.5 million

▪ 99.54% tax return accepted as filed

▪ Government approval for path breaking technology intensive project – will help in processing returns in 24 hours and issue refund simultaneously

▪ Establishing anonymized back office

▪ Proposed to carry out all assessments and verification within 2 years

▪ To be manned by tax experts and officials

▪ No interaction between tax officer and tax payer

Simplification of Direct Tax System

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Tax Landscape

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Key Expectation – Final Budget 2019 - Angel Tax Issue

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▪ Angel investor – affluent investor(s) who invest in start-ups

▪ Refers to Section 56(2)(viib) of IT-Act in context of angel investments in start-ups

What is Angel Tax ?

▪ Seen as a major cause for dip in angel investments in India

▪ 38% startups received one or more I-T notices in 2018

Why is it the Villain?

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Angel Tax

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Latest Developments

▪ In the last week of December 2018, the officials of the DIPP and the income tax department met to address the concerns of the tax notices issued to start-ups

▪ Start-ups continue to receive recovery notices specifying the amount payable by March 2019

▪ CBDT has clarified coercive measures should not be adopted in recovering alleged demand

▪ New DIPP Notification proposing relief to Start-ups

Government needs to provide clarity on angel tax issue – current notification limits

are low

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▪ Software Taxation▪ Taxability of software – highly litigated issue

▪ Supreme Court to determine a batch of over 50 cases -expected to be in Quarter 1 of 2019

▪ Equalisation levy (EL)

▪ Coverage - Online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement.

▪ Expectation on expanding the list of services covered

▪ Digital PE▪ Introduction of Significant Economic Presence (SEP) to tax digital transaction

▪ Limits not prescribed till date

▪ Definition covers even non digital transactions

Digital Economy

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Multiple taxes on digital transactions – Whether any relief expected?

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▪ Permanent Establishment – Expansion of definition of Dependent Agent PE (DAPE)▪ Covers service contracts

▪ Covers situation where contracts are in the name of an Indian Party but majority obligations under the contract are to be fulfilled by the foreign company

▪ Few Indian Tax Treaties amended on similar line as per BEPS project (Japan, Netherlands, France etc.)

▪ Key rulings on same principles▪ Daikin Industries Ltd. v. ACIT (2018) 94 taxmann.com 299 (Delhi–Tribunal)

▪ GE Energy Parts Inc

Permanent Establishment

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Appropriate guidance on attribution of profits required

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▪ AMP saga – revolves around intangible value anticipated to be created by an Indian entity of an MNE

▪ Taxpayers having high AMP spends in India subject to detailed scrutiny – alleged to be promoting international brands in India▪ Taxpayers manufacturing or distributing foreign products incur excess AMP expenses in the form of brand

promotion services to related parties

▪ Basis ‘bright line test’, AMP expenses in excess of average of AMP expenses incurred by comparable companies in India are required to be reimbursed by overseas related party

▪ Incurrence of AMP expenses on a stand alone basis cannot be said to constitute an international transaction in absence of any arrangement/evidence for where specific services have been rendered

▪ Key Decisions on this issue▪ Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT (2015) 55 taxmann.com 240 (Delhi)

▪ Maruti Suzuki India Ltd. v. CIT (2015) 64 taxmann.com 150 (Delhi)

Advertising, Marketing and Promotion (AMP) Expenses

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Supreme Court outcome awaited

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▪ Government Agenda to increase tax compliance in India

▪ Non-compliance viewed strictly

▪ Spurt in prosecution notices recently

▪ Prosecution notice issued for non payment of advance tax – Is this fair when interest has been charged for delayed payment?

▪ Non filing of tax return by tax payers – Whether quantum of any relevance?

▪ Short payment of withholding tax

▪ Companies failing to pay self assessment tax

▪ Companies accepted tax demand but didn’t pay the demand

▪ Key Concerns

▪ Notices issued on mechanical basis, without qualitative analysis of offence

▪ Projects wrong image of Government

▪ Prosecution to be invoked for serious offences

Prosecution – Where this stands in light of non adversarial tax regime

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Indirect Tax Proposals

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Budget preceding Ballot :

▪ Was anticipated to be a populist interim budget

▪ Custom duty rates rationalization was expected

▪ Exemption from customs duty on life saving drugs and medical devices was specifically sought

▪ FICCI had been recommending cuts on excise duty on CNG

▪ CEAMA had urged Government to raise customs duty on finished goods such as TV, AC and refrigerators

▪ From GST perspective had a little maneuvering room though

Union Budget 2019 – Overview (Indirect Tax perspective)

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Key highlights of Union Budget 2019:

▪ Thrust on highlighting the GST and customs reform carried out for benefit of consumers and businesses

▪ No major announcement on indirect tax front

▪ Focus clearly on digitization and automation of tax procedures to avoid interface with tax office

▪ Subsuming of petroleum products and power into GST still a distant reality

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GST reform measures mentioned in FM speech

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Relief Already effective (yes / no)

Effective date

Remarks

Exemptions from GST for small businesses has been doubled from INR 20 lakh to INR 40 lakh

No 1 April 2019

Each State to select applicable registration threshold for units registered in such State

Small businesses having turnover up to INR 1.5 crore have been given an attractive composition scheme wherein they pay only 1% flat rate and have to file one annual return only

No 1 April 2019

Small service providers with turnover upto INR 50 lakhs can now opt for composition scheme and pay GST at 6% instead of 18%.

No 1 April 2019

Businesses comprising over 90% of GST payers will be allowed to file quarterly return

No Yet to be notified

Quarterly return proposed if TO < INR 5 Cr

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Other reliefs / recent developments

Area Key Developments Effective Date

Simplifiedreturns

GST Council has approved to design a simplified GST return to be notified(Recommended in the 27th GST council meeting)

1 April 2019

Amendment returns

Provision introduced for filing amendment return(Recommended in the 28th GST council meeting)

01 Feb 2019

ITC-04 due date

Due date of filing Job worker return in GST ITC-04 for July 2017 to Dec 2018 extended till 31 Mar 2019(Recommended in the 31st GST council meeting)

-

GSTR-1 due date (monthly)

Due date for filing monthly GSTR-1 extended to 11th day of the following month(Recommended in the 23rd GST council meeting)

-

Simplified Return for composition dealers

Taxes to be paid annually and a single annual return to be filed(Recommended in the 32nd GST council meeting)

01 Apr 2019

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ANNUAL RETURN & AUDIT


Revision of prescribed formats

Forms for Annual Return & Audit has been modified based on the recommendations of the industry- Functionality for the same has not been activated as on date (expected to be initiated from 01 Apr 2019). (Recommended in the 31st GST council meeting)

-

Due date Due date for furnishing Annual Return has been extended to 30 June 2019(Recommended in the 31st GST council meeting)

-

ITC availment ITC not claimed in the individual returns cannot be claimed in the annual return - such ITC would lapse(Recommended in the 31st GST council meeting)

-

Facility to make payments

Outstanding tax payments or additional tax liability identified for the year can be paid through Annual return(Recommended in the 31st GST council meeting)

-

Disclosure of HSN towards Inward supplies

HSN of Inward supplies accounting for 10% or more of the total procurement need to be reported. (Recommended in the 31st GST council meeting)

-

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INPUT TAX CREDIT


Transactions pertaining to previous FY

Input tax credit on transactions pertaining to the period Jul-Mar 2018 was allowed to be claimed in the returns for period Sep 2018 (due date 20 Oct 2018).- The same is further extended till returns to be filed for period Mar 2019 (due date 20 Apr 2019)(Recommended in the 31st GST council meeting)

-

ITC for schedule III transactions

Transactions or activities specified under schedule III of the CGST Act (except sale of land) are removed from purview of exempt supplies. - Therefore, ITC on common expenses is not required to be reversed for such activities.(Recommended in the 28th GST council meeting)

01 Feb 2019

Motor vehicles Motor vehicles transporting more than 13 persons (including driver) used for specific services to be available. - Additionally, general insurance, servicing, repairs & maintenance in relation to the above motor vehicles

also available(Recommended in the 28th GST council meeting)

01 Feb 2019

Employee expenses

ITC to be available on food & beverages, health services, travel benefits to employees to the extent the same is obligatory for an employer to provide under any legislation(Recommended in the 28th GST council meeting)

01 Feb 2019

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GST RATES


Reverse charge Security services and business facilitator services provided to a bank would be liable to GST under reverse charge(Recommended in the 31st GST council meeting)

01 Jan 2019

Kerala cess A cess of 1% introduced in Kerala for intra-state transactions for a period not exceeding two years(Recommended in the 32nd GST council meeting)

To be notified

Reduction of rates in goods

▪ 18%: Pulleys, transmission shafts and cranks, gear boxes, Monitors and TVs of up to screen size of 32 inches

▪ 12%: Bamboo Flooring, Agglomerated cork, Handicrafts▪ 5%: Solid Bio fuel pellets, Marine Engine

▪ 0%: Rakhi, sanitary Napkins, Stone/Marble/Wood Deities(Recommended in the 28th and 31st GST council meeting)

Effective from specific notifications

Reduction of rates in services

▪ 12%: third party insurance premium of goods carrying vehicles▪ 5%: Supply of e-books▪ Exempt: Services provided by Old age home run by government, Services provided by FSSAI

to food businesses etc.(Recommended in the 28th and 31st GST council meeting)

Effective from specific notifications

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E-WAY BILL


Restriction on generation of e-way bill

Taxpayers who have not filed returns for two consecutive tax periods shall be restricted from generating e-way bills(Recommended in the 31st GST council meeting)

To be notified

GSTR-1 E-way bills to auto-populate based on details filed in GSTR-1 on GST portal. 01 Feb 2019

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OTHER AREAS


Treatment of cross border transactions

Sale of goods from Customs bonded warehouse, High sea sales and drop shipments have been inserted in schedule III of the CGST Act, thereby making such transactions not taxable under GST(Recommended in the 28th GST council meeting)

01 Feb 2019

Procurement fromunregistered dealers

Exemption extended upto 30 September 2019.- Applicability restricted to class of persons to be notified(Recommended in the 28th GST council meeting)

01 Feb 2019

Conditions for export

Transactions to qualify as export, where payment has been received in INR subject to permission by RBI – benefit extended to Nepal and Bhutan(Recommended in the 23rd GST council meeting)

01 Feb 2019

TDS TDS only for government bodies (51% or more participation)(Recommended in the 21st GST council meeting)

01 Oct 2018

Rectification of errors/omissions

Rectification of errors/ omissions for FY 2017-18 extended till due date of furnishing GSTR-1 for Mar 2019 i.e. 11 April 2019 (Monthly) and 30 April 2019 (Quarterly)

-

Issuingconsolidated documents

Consolidated debit/ credit notes can be issued against multiple invoices for a year without the requirement to link them to individual invoices. - GST portal functionality has not been enhanced to such extent(Recommended in the 28th GST council meeting)

01 Feb 2019

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OTHER AREAS


Waiver of Late fee

Late fee on delay in filing GSTR-1 or GSTR-3B for Jul 2017 to Sep 2018 upto Mar 2019 waived off(Recommended in the 31st GST council meeting)

-

Interest on delayed tax

Proposed to levy interest on the net tax liability (post adjustment of ITC) in case of delayed payment of tax(Recommended in the 31st GST council meeting)

To be notified

Creation of AAAR

Proposed to create a centralized Appellate Authority for Advance Ruling (AAAR) to cater to conflicting decisions passed by different AARs(Recommended in the 31st GST council meeting)

To be notified

Creation of GSTAT

The Union Cabinet has approved the creation of National Bench of the GST Appellate Tribunal (GSTAT), which shall be situated at New Delhi.- GSTAT to be the first common forum of dispute resolution between Centre and States(Recommended in the 28th GST council meeting)

To be notified

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MARQUEE ADVANCE RULINGS

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KEY ADVANCE RULINGS (1/2)

Applicant AAR Issue Held that

M/s Columbia Asia Hospitals Private Limited dated 12-12-2018

Karnataka Whether the activities performed by the employees at the Corporate Office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well, i.e., distinct persons as per Section 25(4) of CGST Act shall be treated as supply as per Entry 2 of Schedule I of the CGST Act or it shall not be treated as supply of services as per Entry 1 of Schedule III of the CGST Act?

The employees working out of the Corporate office areproviding services to the Corporate office, and hence there isan employee-employer relationship only in the Corporateoffice. Other offices are distinct persons and therefore theemployees in the Corporate office have no employer-employeerelationship with other offices.Consequently, the employee cost also needs to be taken intoconsideration at the time of valuation of goods or servicesprovided by one distinct entity to the other distinct entities. Inview of the above, activities performed by the employees at theCorporate office in the course of or in relation to employmentfor the units located in the other states as well shall be treatedas supply as per Entry 2 of Schedule I of the CGST Act.The AAAR upheld the ruling rendered by the AAR ie any servicesprovided to its other distinct units by way of carrying outactivities such as accounting, administrative work, etc with theuse of the services of its employees, the outcome of whichbenefits all the other units and such activity is to be treated as ataxable supply and hence taxable under GST.

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KEY ADVANCE RULINGS (2/2)

Applicant AAR Issue Held that

Premier Vigilance & Security Pvt. Ltd dated 02-11-2018

West Bengal

Whether toll taxes reimbursed by the client are chargeable to GST?

The AAR held that the reimbursement of such costs was merelythe recovery of a portion of the value of supply made to thebanks. The applicant was therefore not acting in the capacity ofa ‘pure agent’ of the bank while paying toll charges, andconsequently, GST is chargeable on the entire value of supply,including the toll charges.

M/S. Storm Communication Private limited dated 28-01-2019

West Bengal

Whether a person, registered in one state, claim ITC for CGST and SGST of other states by way of adjustment of ITC of one state’s CGST for payment of another state’s CGST

The Applicant is not registered under Section 25(1) of the CGSTAct in Tamil Nadu. The SGST and CGST paid on intra-stateinward supply in Tamil Nadu are not, therefore, ‘input tax’ tothe Applicant. The GST Act does not contain any concept of‘input tax’ in relation to an unregistered person. No credit of itis, therefore, admissible under the GST Act.

M/S. GGL Hotel & Resort Company Limited dated 08-01-2019

West Bengal

Whether ITC is available on lease rent paid during pre-operative period for the leasehold land on which the resort is being constructed to be used for furtherance of business, when the same is capitalised and treated as capital expenditure

The lease rental paid during the pre-operative period should betreated as part of the cost of goods and services received forthe purpose of constructing an immovable property and thus,Input Tax Credit is not available to the Applicant for lease rentpaid during pre-operative period for the leasehold land onwhich the resort is being constructed on his own account to beused for furtherance of business, when the same is beingcapitalised and treated as capital expenditure.

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Our Story

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SKP Today

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Documents

Populist. Pragmatic. - Interim Budget 2019 · Maruti Suzuki India Ltd. v. CIT (2015) 64 taxmann.com 150 (Delhi) Advertising, Marketing and Promotion (AMP) Expenses 15 Supreme Court