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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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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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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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GST: From rate rationalisation to reduction in compliance burden, what to expect from indirect taxes in 2022

 

India is looking at the year 2022 with eyes wide open for a positive daylight after the catastrophic year and a half due to the pandemic and the tax structure is an integral part of the revival plan.
Goods and Services Tax (GST) has been taking small steps in solidifying its position which has been questioned time and again by experts and corporates owing to various lags and ambiguous provisions. The year 2022 may witness a likely rejig of the GST provisions and rate slabs keeping in mind the demands of the industry, but also focussing on meeting its tax targets, given the sustained economic resurgence from the pandemic.

Digitization will be the mantra for the coming year, with a major shift to a digital economy tax regime. This will have a huge impact on the way India levies tax on offshore digital economy firms having a customer base here, which has also become a major concern for such overseas entities.
Further with recent emphasis on matching of returns to claim benefits of

ITC

Under GST, tax authorities will be laying greater emphasis on the use of technology by way of data analytics and enforcement of compliance, tax administration, assortment of information from third parties and enhanced communication between regulators and investigating agencies. Since tax authorities have been able to detect tax evasion in the form of fake invoicing the help of IT tools, it is expected that technology-based tax administration would gain greater importance in the coming year.

Rate rationalization
This is something that we have been talking about since the inception of GST. Rationalization of GST tax rate slab structure and advancing the efficacy of the indirect tax system in India will be a key focus for the policy makers. It is expected that the current 4 rate slab structure will be reduced to three slab structure by withdrawing major exemptions. This change will also lead to correction of inverted duty structure on various goods apart from increased as part of the rationalization.

Customs duty changes to support Aatma Nirbharta
With the focus of providing impetus to indigenous production, the Government is expected to continue to lower customs duty on raw materials, parts and components to be used by Indian manufacturers and simultaneously increase duties on import of finished goods in support of the Make in India scheme.

Reduction in compliance burden
There has been a huge hue and cry regarding the aspect of ease of doing business for MSMEs and SMEs. The MSME sector accounts for 30% of India’s GDP and contributes to 40% of exports from India. These sectors have been demanding improvement in compliance burden in every aspect, with minimal statutory compliance.

Recently as a step towards reduction in compliance burden, it has been announced that taxpayers with annual aggregate turnover up to Rs 5 crores are not required to file the reconciliation statement in Form GSTR-9C for FY 2020-21 onwards. Further, taxpayers having aggregate turnover up to Rs 2 crores are not required to file annual returns in Form GSTR-9 for FY 2020-21.
However, in juxtaposed to these steps, the enhanced restriction for availing ITC with the insertion of the condition of 100% matching of GSTR-1 of the supplier and GSTR-2A/2B of the recipient, will certainly add to the compliance burden on the taxpayers.

A taxpayer can reduce its output tax liability by utilizing tax paid on the inputs used in their business. Thus, putting such a restriction increases the compliance effort for taxpayers. Thus, it is not enough to be self-compliant, since if the supplier is not compliant, the buyer’s ITC claim will not be allowed.

GST Tribunal
A tax structure like India cannot work without a proper appellate forum. The absence of a GST Tribunal under the GST laws has been a long-standing problem which has been duly recognised by the Supreme Court as well. This has resulted in numerous unresolved disputes, with no opportunity to appeal consequently overburdening the High Courts. The non-existence of a proper appellate mechanism even after more than four years of introduction of GST is a big question to the Government’s priority and resolution of this issue.

Conclusion
It is evident that the GST landscape has progressed through law and policy changes, automation of compliance, etc. The Government has made many changes with respect to self-certification of audit reports, creating a compliance driven process through inter play of GST returns, e-way bills and the e-invoicing system. However, there are certain aspects where the Government must work towards in the coming year in order to address the concerns of the industry to achieve its target of ease of doing business in India.

CA Vipul Sheladiya

Shealdiya & Jyani

Chartered Accountants

 

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Important Gst Updates Applicable From 1St January 2022

 

1. NO ITC UNLESS REFLECTED IN GSTR 2A/2B

Input Tax Credit shall not be available unless details of invoices uploaded by supplier in Form GSTR-1 are communicated to the recipient (i.e reflected in GSTR 2A/2B). Margin of 5% will no more be available.

2. DIFFERENCE B/W GSTR -1 & 3B: DIRECT RECOVERY

Section 75(12) is amended to provide that tax declared under GSTR-1 but not included in GSTR-3B, will be considered as “Self Assessed Tax” and hence, direct recovery of such tax under Section 79 will be possible even without issuing any Show Cause Notice.

3. BLOCKING OF GSTR-1 FOR NON FILING OF GSTR 3B

GSTR-1 return filing facility will be blocked if a registered Taxpayer have not submitted the return in FORM GSTR-3B for the previous two return periods. For example, if a taxpayer has not filed GSTR-3B for October 2021 and November 2021, the GSTR-1 filing facility will be blocked from the 1st January 2022.

4. CORRECTION IN INVERTED DUTY STRUCTURE IN FOOTWEAR AND TEXTILES SECTOR

The GST Council recommended to introduce GST rate changes from January 2022 in order to correct the inverted duty structure in the Footwear and Textile Sector. All footwear, irrespective of prices will attract GST at 12 percent, while barring cotton, all textile products including readymade garments will have GST at the rate of 12 percent.

5. E-WAY BILL: 200% PENALTY TO RELEASE GOODS

At present, full tax and 100% penalty is required to be paid to release the goods which are seized for violation of E-way Bill related provisions and for non-carrying of other documents under Section 129. Now, it is provided that goods will be released on payment of penalty equal to 200% of tax and tax will be recovered through separate proceedings.

6. PROVISIONAL ATTACHMENT OF ASSETS OF BOGUS BILLING BENFICIARIES ALSO

Not only supplier and recipients but assets of the beneficiaries of bogus billing can also be provisionally attached.

7. SCOPE OF PROVISIONAL ATTACHMENT WIDENED

Provisional attachment is made applicable in all cases of proceedings of Assessment, Inspection, Search, Seizure and Arrest or Demands and recovery. Now, provisional attachment of property, like bank accounts, can be done not only in the case of Show Cause Notices and investigation but also for other proceedings like Scrutiny of Returns and tax collected but not paid.

8. 25% PRE-DEPOSIT FOR E-WAY BILL APPEALS

For filing appeals, before first appellate authority against order for violation of E-way bill and other provisions, it will be mandatory to pay pre-deposit of amount equal to 25% of penalty imposed.

9. E-WAY BILL CO-NOTICEE MAY NOT GET FREE BY PAYMENT OF 200% PENALTY BY MAIN NOTICEE

Where proceedings against main person liable to pay tax have been concluded under Section 74, proceedings against co-noticee are also deemed to be concluded as provided under Explanation 1(ii) to Section 74. However, now, such benefit will not be available to co-noticee for proceedings initiated to impose penalties for violation of E-way bill.

 

The changes are in terms of the recommendations of the recent GST Council meeting with an eye to curb evasion of tax.

The above message will serve as a one point reference for compression of important changes.

 

For more such news please visit our website or contact us.

CA Vipul Sheladiya

Shealdiya & Jyani

Chartered Accountants

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