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AUDIT LOG/TRAIL

According to The Ministry of Company Affairs (MCA) notification dated March 24, 2021 (Companies (Accounts) Amendment Rules, 2021), every company that uses accounting software to maintain its books of account shall use only Accounting Software that has a feature of recording an –

Audit Trail of each and every transaction,

Creating an edit log of each change made in books of account along with the date when such changes were made.

Ensuring that the audit trail cannot be disabled.

The MCA has later announced that the above amendments will take effect on April 1, 2023, which suggests that accounting software used by businesses will have to comply with the Accounts Rules beginning in the financial year 2023-24.

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Highlights of Union Budget 2022-23 under Direct Taxes:

  • Rebate limit of Personal Income Tax to be increased to RS. 7lakh from the current RS. 5lakh in the new tax regime. Thus, persons in the new tax regime, with income up to RS. 7lakh to not pay any tax.
  • Tax structure in new personal income tax regime, introduced in 2020 with six income slabs, to change by reducing the number of slabs to five and increasing the tax exemption limit to RS. 3lakh. Change to provide major relief to all tax payers in the new regime.
  • New Tax Rates  :       
Total Income (RS)Rate(percent)
Up to 3,00,000Nil
From 3,00,001 to 6,00,0005
From 6,00,001 to 9,00,00010
From 9,00,001 to 12,00,00015
From 12,00,001 to 15,00,00020
Above 15,00,00030
  • Proposal to extend the benefit of standard deduction of RS. 50,000 to salaried individual, and deduction from family pension up to RS. 15,000, in the new tax regime.
  • Highest surcharge rate to reduce from 37 per cent to 25 per cent in the new tax regime. This to further result in reduction of the maximum personal income tax rate to 39 per cent.
  • The limit for tax exemption on leave encashment on retirement of non-government salaried employees to increase to RS. 25lakh.
  • The new income tax regime to be made the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
  • Enhanced limits for micro enterprises and certain professionals for availing the benefit of presumptive taxation proposed. Increased limit to apply only in case the amount or aggregate of the amounts received during the year, in cash, does not exceed five per cent of the total gross receipts/turnover.
  • Provision of a higher limit of RS. 2lakh per member for cash deposits to and loans in cash by Primary Agricultural Co-operative Societies(PACS) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs).
  • A higher limit of RS. 3crore for TDS on cash withdrawal to be provided to co-operative societies.
  • Date of incorporation for income tax benefits to start-ups to be extended from 31.03.23 to 31.3.24.
  • Deduction from capital gains on investment in residential house under sections 54 and 54F to be capped at RS. 10crore for better targeting of tax concessions and exemptions.
  • Proposal to limit income tax exemption from proceeds of insurance policies with very high value. Where aggregate of premium for life
  • insurance policies (other than ULIP) issued on or after 1st April, 2023 is above RS. 5lakh, income from only those policies with aggregate premium up to RS. 5lakh shall be exempt.
  • Minimum threshold of RS. 10,000/- for TDS to be removed and taxability relating to online gaming to be clarified. Proposal to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year.
  • TDS rate to be reduced from 30 per cent to 20 per cent on taxable portion of EPF withdrawal in non-PAN cases.
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NFRA to introduce annual transparency report requirement for Audit Firms

In a first of its kind move aimed at improving audit quality, the National Financial Reporting Authority (NFRA) proposed introducing annual transparency reports requirement for audit firms. The watchdog has come out with draft requirements to be followed by auditors and audit firms for preparing Annual Transparency Reports (ATRs).

According to NFRA, the effort is aimed at enhancing the transparency about management and governance of audit firms and their internal policy framework to ensure high quality audits and preventing conflict of interest by maintaining independence.

“The ATR requirements are proposed to be implemented in a gradual manner for PIEs (Public Interest Entities) starting with statutory auditors of top 1,000 listed companies (by market capitalization) with effect from the financial year ending on 31 March 2023,” the regulator said in a release.

An audit firm will have to publish the ATR within three months from the end of each financial year.

“Transparency report containing certain critical information about the auditor’s operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits etc. The information contained in the ATR will be useful to the investors, audit committees, independent directors and public at large,” the release said.

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All about EPCG Scheme

EPCG Scheme was launched in the 1990s to facilitate the import of capital goods with the aim to enhance the production quality of goods and services, thereby, increasing India’s international manufacturing competitiveness. This is a scheme relating to import of capital goods at Zero duty. The benefit of zero duty is subject to fulfillment of export obligations and other conditions.

THE OBJECTIVE

To facilitate import of capital goods for producing quality goods and services to enlarge India’s Export competitiveness.

SCHEMES

  1. Import capital goods by enjoying the zero duty benefit first and then fulfil the export obligation conditions within the stipulated period. This is called Pre-Export EPCG
  2. Post Export EPCG: Under this, capital goods are imported first by paying import duty, then remission (refund)of import duties is claimed after fulfilling export obligation.
  3. EPCG Scheme for capital goods purchased in India.

ELIGIBILITIES

  • Capital goods’ has been defined under FTP.
  • Such capital goods eligible must be used as per the eligibility conditions.

CONDITIONS

  • The scheme is subject to actual user condition and a certificate of installation in own premises shall be produced from Excise Dept./ other authorities.
  • Import must be made within 18 months of date of issue of authorization and no extension is granted.
  • Even the capital goods under the scheme are not transferable till the Export obligation is fulfilled.
  • The importer has to achieve the export turnover of 6 times the amount of import duty saved within 6 years of authorization.

Capital Goods defined: ‘ Means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services,including those required for replacement, modernization, technological upgradation or expansion. It includes packaging machinery and equipment , refrigeration equipment, power generating sets, machine tools, equipments and instruments for testing, research and development, quality and pollution control Capital goods may be for use in Manufacturing, Mining, Agriculture, Aqua culture, Animal husbandry, Floriculture, Horticulture, Pisciculture, poultry, sericulture and viticulture as well as for use in services sector.

BENEFITS FROM EPCG SCHEME

  • EPCG is intended for promoting exports and the Indian Government with the help of this scheme offers incentives and financial support to the exporters.
  • Heavy exporters could benefit from this provision. However, it is not advisable to go ahead with this scheme for those who don’t expect to manufacture in quantity or expect to sell the produce entirely within the country, as it could become almost impossible to fulfil the obligations set under this scheme.

What are other Schemes to Promote Export?

Merchandise Exports from India Scheme

MEIS was introduced in the Foreign Trade Policy (FTP) 2015-20, under MEIS, the government provides duty benefits depending on product and country.

Service Exports from India Scheme

It was introduced in April 2015 for 5 Years under the Foreign Trade Policy of India 2015-2020. Earlier, this Scheme was named as Served from India Scheme (SFIS Scheme) for Financial Year 2009-2014.

DOCUMENTS REQUIRED FOR EPCG LICENSE

Director General of Foreign Trade (DGFT), The licensing authority is the issuing authority. The following documents must be self-certified and attached to the DGFT portal:

  • GST Registration
  • Chartered Accountant Self-Certified Copy and Original Certificate of CA needs to be attached.
  • IEC (Import Export Code)
  • Brochure
  • Digital Signature
  • Excise Registration
  • Proforma Invoice
  • Chartered Engineer Self-Certified Copy and Original Certificate
  • PAN Card
  • Registration Cum Membership Card
  • Registration certificate from Tourism Department

How to apply for an EPCG License online?

The Applicant should submit an online application to DGFT to get EPCG License.

Please find steps below:

  • Visit the DGFT Official Website- www.dgft.gov.in
  • Login with DSC -> Select Services -> Online E-com Application
  • Click on EPCG (0%)
  • Fill all the details and upload the necessary documents.

Kindly note that the following important points to be noted to make sure the documents are prepared error-free:

  • IEC/RCMC should show the applicant as a manufacturer exporter.
  • IEC/RCMC should have the address where the machine is proposed to be installed.
  • MSME/SSI/Manufacturing proof should have the export products listed in the EPCG License.
  • After filling all the details, submit the application.
  • After a successful application, DGFT will issue the EPCG License

CAPITAL GOODS NOT ELIGIBLE UNDER THE SCHEME 

1. Second-hand goods

2. Capital goods including captive power plants and generator sets

For

(i) Export of electrical energy
(ii) Supply of electrical energy under deemed export
(iii) Use of energy in own unit
(iv) Supply/ export of electricity transmission services

What are the export turnovers included to count Export obligation?

  1. Goods exported under AA, DFIA, DBK/ Reward schemes.
  2. Turnover of physical exports and supplies under specified deemed exports (say EOU/STP/EHTP etc.)
  3. Forex received for R&D services and royalty payments
  4. INR (Rupees) received for specified services.

The authorisation holders under the EPCG scheme need to file a bond with or without bank guarantee with the customs before the import of capital goods. The bank guarantee should be equivalent to 100% of the differential duty (for merchant exporters) and 25% (for manufacturer exporters) to fulfil the specified export obligation. The bank guarantee will also secure the interest of the revenue.

VALIDITY PERIODS OF AUTHORIZATION

i) Export Authorization
ii) Advance Authorization
iii) DFIA and replenishment authorization for gems and jewellery		12 months
Export of SCOMET items24 months
Import authorization for restricted items18 months
EPCG18 months
Deemed exports12 months or coterminous with contracted duration of project authorization whichever is more

PENALTY IN CASE OF NON-COMPLIANCE

In cases where the licence holder under the EPCG scheme fails to fulfill the stipulated export obligation then the licensee shall be liable to pay the customs dues along with 15% interest per annum to the customs authority.

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Applicability of Section 9B and Section 45(4) of the Act

Section 9B is attracted when the Specified entity (Firm / AOP/ BOI) transfers capital asset or stock in trade to the specified person (Partner of firm/ Member of AOP/ Member of BOI) on event of dissolution or reconstitution of such specified entity;

Section 45(4) triggers when Specified entity transfers any capital asset or money to specified person on account of reconstitution of such specified entity;

Reconstitution shall cover the following events:

  • Retirement/death of one or more partners; or
  • Admission of new partners, provided at least one existing partner continues; or
  • Change in respective profits shares of all or some of the partners.

Hence, it is clear that in case of dissolution of Specified entity only Section 9B would apply, however in case of reconstitution of the specified entity Section 9B as well as Section 45(4) will apply. It is also important to understand that during reconstitution of specified entity if stock in trade is transferred then only section 9B would come into picture as Section 45(4) does not include transfer by way of stock in trade.

Here one can argue that during reconstitution of the Specified Entity, if such entity transfers any capital assets to the Specified person, double taxability would trigger. Yes there is a double taxability but with benefits given u/s 48(iii) in form of cost of acquisition which is discussed later in this article.

Process to be followed when there is double taxability (Transfer of capital asset during reconstitution)

Step 1:  First compute capital gain for specified entity u/s 9B, capital gain shall be taxable in the hands of the specified entity during the year when capital asset is received by the   Specified person. For the purpose of Section 48 Full Value of Consideration (‘FVOC’) shall be Fair Market Value (‘FMV’) on the date of receipt by the Specified person, Cost of Acquisition would be just like any other asset as per Section 55 of the Act.

Step 2: After calculating tax as per Section 9B of the Act, distribute the profit [FMV u/s 9B –Book value of Asset – Tax u/s 9B] on such transfer of capital asset in profit sharing ratio of all Specified person (including retiring person). Subsequent to this distribution, capital balances of Specified persons would be increased.

Step 3: Now calculate capital gains tax u/s 45(4) of the Act by using following formula:

A= FMV of the asset received by the Specified person (same as considered for Section 9B in step 1)

B= value of Money received by Specified person

C= Capital balance post 9B calculation (enhanced capital balance as per step 3)

Capital gain would be A+B-C, if gains results in negative then capital gains would be deemed as zero. Gains would be either long term or short term in nature depending upon the period of holding as per Section 2(42A) of the Act, However as per Rule 8AA of the Income tax rule 1962, (‘the Rule’), if capital asset is forming part of block of asset or it is self-generated asset and self-generated goodwill then the gains would always be short term in nature.

If we conscientiously observe Step 1 and Step 3, there is double time taxability of the same capital asset transferred by Specified entity during reconstitution, first in Section 9B and then in Section 45(4). This dual taxability situation is however remedied by insertion of Section 48(iii) of the Act, which is described in Step 4 below.

Step 4: The capital gain calculated as per Section 45(4) of the Act in step 3 above, shall now be added to remaining other assets (other than capital asset transferred) of the specified entity, on the basis of increase in their value due to revaluation based on the valuation report of registered valuer. The addition to other assets would increase the cost of acquisition u/s 48 of the Act, while calculating capital gain on sale of such other assets.

However, if the other asset of the specified entity is the depreciable asset forming part of block of asset then such attributable amount shall not be added to the block of asset, but shall be netted off from the gross sale proceeds at the time of transfer of such other assets.

Other points

The specified entity shall on or before the due date of return of income u/s 139, furnish the details of amount attributed to capital asset remaining with the specified entity in Form No. 5C

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants.

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Due Date Extension for filing of TDS statement in Form 26Q for the 2nd quarter of FY 2022-23

Considering the difficulties in filing of TDS statement in the revised and updated Form 26Q, the Central Board of Direct Taxes (CBDT)has extended the due date of filing of Form 26Q for the second quarter of Financial Year 2022-23 from 31st October,2022 to 30th November,2022.

 CBDT Circular No. 21/2022 in F.No.275/25/2022-IT(B) dated 27.10.2022 issued.

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Businesses will be able to claim pre-GST tax credits from October 1

The businesses that could not claim tax credits for taxes paid during the pre-goods and services tax (GST) era may soon get an opportunity to do so. The government, from October 1, is likely open a special window for businesses to file their claims, according to a report by Mint.

According to the report, the credits are expected to be worth Rs 400 crore. “Based on the information that we have, the amount that is estimated is around Rs 400 crore. We are waiting for the window to open so that people can start filing claims,” a person aware of the matter told Mint.

When the new tax regime under GST was introduced in 2017, several businesses could not file their tax claims due to a lack of clarity on the rules. The businesses also reportedly faced technical glitches. These have now been resolved, Mint stated.

The window for claiming the credits open on October 1 and close on December 1. The Supreme Court (SC) had earlier asked the government to open the window on September 1 but it granted an extra four weeks to prepare the IT systems to avoid technical glitches.

When the new tax regime under GST was introduced in 2017, several businesses could not file their tax claims due to a lack of clarity on the rules. The businesses also reportedly faced technical glitches. These have now been resolved, Mint stated.

The window for claiming the credits open on October 1 and close on December 1. The Supreme Court (SC) had earlier asked the government to open the window on September 1 but it granted an extra four weeks to prepare the IT systems to avoid technical glitches.

It had also directed the government to keep in mind the high court judgements around transitional GST credit. Experts have said that the GSTN will accept the claims of tax credits, and the eligibility of the credit will be checked in the courts.

The taxpayers can either file fresh claims or revise their earlier forms on the GST portal. Also, they will be required to submit self-certified copies of the forms within seven days of filing the claim online.

On September 9, the Central Board of Indirect Taxes and Customs (CBIC) issued guidelines to clarify the procedure and timeline of the credit claims, to the officials.

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Govt clarifies on the new rule of GST on Residential Properties

Government has clarified that the new rule on levying 18% Goods and Services Tax (GST) on house rent for tenants is applicable to business entities only. A tweet by the official twitter handle of the Press Information Bureau has stated that the levy is applicable in case of renting of residential units to business entities only and the levy would not be applicable when it is rented to a private person for personal use.

The fact-checking arm of the Press Information Bureau on Friday tweeted that reports claiming 18% GST on house rent for tenants are misleading.

PIB Fact Check clarified on Twitter that there would be no GST when a house is rented to a private person for personal use, and not even when the proprietor or partner of a firm wants to rent a residence for personal use.

“Renting of residential units taxable only when it is rented to a business entity. No GST when it is rented to a private person for personal use. No GST even if the proprietor or partner of a firm rents residence for personal use,” PIB Fact Check tweeted from its official handle.

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Govt clarifies there is no plan to levy any charges for UPI services

Government has clarified that there is no plan to levy any charges for UPI services. In a series of tweets, Finance Ministry said, UPI is a digital public good with immense convenience for the public and productivity gains for the economy. The clarification came amid some reports that there may be possibility of UPI transactions charge.

The Ministry said, the concerns of the service providers for cost recovery have to be met through other means. It said, the government had provided financial support for the Digital Payment ecosystem last year and has announced the same, this year as well to encourage further adoption of Digital Payments and promotion of payment platforms that are economical and user-friendly.

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CBDT exempts non-resident corporate from TCS on remittances, tour packages

The income tax department has exempted non-resident corporate entities and firms not having a permanent establishment or a fixed place of business in India from 5 per cent TCS on foreign remittances and tour packages.

The Central Board of Direct Taxes (CBDT) has notified changes to I-T rules and expanded the scope of exemption (that was previously available only to non-resident individuals) under section 206(1G) of the I-T Act.

Section 206C(1G) was introduced by Finance Act, 2020, effective October 2020 to keep a tab on forex spends by persons resident in India. The provision requires tax to be collected at source (TCS) at the rate of 5 per cent on foreign remittances of Rs 7 lakh or more under the Liberalized Remittance Scheme (LRS) of RBI.

The TCS was to be deducted by domestic tour operators on money received from non-resident Indians visiting India and booking their overseas tour package from the country.

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