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Direct Tax

Faceless assessment of income tax may face these 10 major roadblocks ahead

[Excerpts from Financial Express, 27 August 2020]

The faceless scheme is a very prominent initiative by the government. Though it has a number of perks linked to it, certain practical challenges need to be addressed for the scheme to be successful. A few challenges are listed below:

  • Income tax employees' resistance to the change;
  • Ability of tax officers to assess and understand the technicalities purely on a virtual platform;
  • Need for professional assistance - With the majority of small and mid-segment taxpayers and their accountants being familiar in local languages, a fully electronic assessment process would be difficult to manage, thereby forcing them to seek professional assistance, which could be expensive;
  • Restricted response (message) on the e-filing portal;
  • Maintenance of digital records requires huge storage capacity;
  • Cybersecurity concerns;
  • Additional time for completion of assessments.

Banks asked to refund charges collected for UPI, digital payments after 1 January 2020

[Excerpts from LiveMint, 30 August 2020]

As India now aims to become a digitalpayments driven economy, CBDT said that banks could not levy any extra charge on transactions made through electronic modes on or after 1 January 2020. According to the relevant section of the Payment and Settlement Systems Act 2007 (PSS), no bank or system provider shall impose any charge on a payer making payment or beneficiary receiving payment through electronic modes prescribed under Section 269SU of the IT Act. A breach of such provisions attracts penalties under Section 271DB of the Income-tax Act as well as Section 26 of the PSS Act. Accordingly, the banks were advised to refund charges collected from customers for a digital transaction on or after 1 January 2020.

CBDT permits sharing of information by IT authorities with scheduled commercial banks

[Excerpts from The Economic Times, 1 September 2020]

Recently, notifications and memoranda of understanding have been issued for the exchange of information between income tax authorities and SEBI, CBIC, MSME, NCB, IB, NIA, Cabinet Secretariat, Ministry of Agriculture. Further, in this regard, the CBDT has recently permitted the sharing of information by income tax authorities with scheduled commercial banks listed in the Second Schedule of the Reserve Bank of India Act, 1934. Such information sharing is mainly to control tax evasion and widen the tax base in the country.

5% tax on foreign fund transfer from 1 October 2020

[Excerpts from LiveMint, 10 September 2020]

Starting from 1 October 2020, any amount sent abroad to buy foreign tour packages, and every other foreign remittance made above INR 7 lakh, will attract a tax-collected-at source (TCS) unless the tax is already deducted at source (TDS) on that amount. Tax on foreign tour packages will be 5% for any amount. For other remittances, the tax would be applicable only for the amount spent above INR 7 lakhs. Tax will be 0.5% for the education-related foreign remittances funded by loans (amount above INR 7 lakhs), considering many Indian students take loans to pursue education abroad. In the recent times, the Union finance ministry has been extending the scope of both TDS and TCS, and encouraging electronic payments in order to have a better idea of transactions in the Indian economy and take control over the spending patterns of taxpayers with their reported taxable income.

IT dept launches functionality for banks to check refund filing status

[Excerpts from Business Standard, 2 September 2020

To ensure TDS, the Finance Act, 2020, with effect from 1 July 2020, amended the Income-tax Act, 1961, to lower the threshold of cash withdrawal to INR 20 lakh for TDS's applicability for non-filers. It also mandated TDS at a higher rate of 5% on cash withdrawal exceeding INR 1 crore by non-filers. The tax authorities said that the data on cash withdrawal helps to identify the individuals who have never filed the return of income but have withdrawn huge amounts of cash. In order to ensure return filing by these persons, it has launched a functionality for scheduled commercial banks to check the status of income tax returns filed by entities based on their PANs. Scheduled Commercial Banks are required to document and implement appropriate information security policies and procedures with clearly defined roles and responsibilities to ensure the security of information.

Tax Collection at Source (TCS) provisions are effective from 1 October 2020 and have wide reach and applicability. The Central Board of Direct Taxes also issued a Circular to address the impediments faced by taxpayers in implementing the TCS provisions. The issuance of the circular was imminent, considering the challenges amongst taxpayers around the subject. The circular elucidates several aspects including non-adjustment of GST component, discounts and sales return for calculating sales consideration amongst other aspects.
However, further clarity is required on the following issues:
1. Though it has been clarified in the Circular that TCS would be applicable where the invoice is issued before 1 October 2020 and payments are received after October 1, 2020, it remains unclear how TCS would be recovered from buyer when the same has not been shown as a separate line item on the face of the invoice. It is advisable to issue debit note for TCS amount and have clear understanding with buyer in this regard;
2. TCS is applicable @ 0.075% till 31 March 2021 and @ 0.10% thereafter. Again, it remains unclear how differential TCS would be recovered from buyer on sales consideration received on or after April 1, 2021 (for the invoices issued on or before 31 March 2021) when TCS has been shown @ 0.075% on the face of the invoice. It is advisable to include a condition in the invoice about recovery of differential TCS in the event of change in TCS rate and issuance of debit note for differential TCS amount;
3. Legally, modus operandi of TCS is ‘collect & pay.’ However, since TCS is a new tax, practically buyers are insisting to follow ‘pay & collect’ model wherein they will reimburse TCS to seller once it is reflected in their 26AS;
4. Whether TCS provisions would be applicable on deemed exports or not i.e., when goods are supplied to a special economic zone or a free trade warehousing zone;
5. Whether TCS provisions would be applicable on high sea sales or not i.e., if 'A' from India purchases from a foreign supplier and transfers the documents of title in the goods to 'B' before the goods cross the customs frontiers of India, 'B' is considered as the importer of goods and is required to file 'Bill of Entry' and clear goods on payment of customs duty. Whether 'A' is required to collect TCS from 'B'?;
6. In case the sales consideration is adjusted against the purchases from the same party, it is not clear as to how TCS provisions would apply. Ideally, TCS should be collected on gross receivable from the party.
The TCS rate has been kept low and buyer will eventually get the credit of TCS, hence, TCS is not a cost to the buyer. Therefore, it would be a prudent business practice to avoid taking any aggressive position to the extent possible and follow the TCS provision in law and spirit.

Mr. Ravi Shingari
Group Head - Accounts and Taxation
Apollo Tyres Ltd

Transfer Pricing

Revised Guidance Note on Report u/s 92E of the Income Tax Act, 1961 (Transfer Pricing) released by ICAI

Institute of Chartered Accountants of India (ICAI) has released the updated Guidance Note on report u/s 92E of the Income Tax Act, 1961 (Transfer Pricing), or 'the Act' in August 2020. The ICAI, through its Committee on International Taxation, has been issuing guidance for its members in respect of Report under Section 92E of the Act. The publication was last revised in the year 2019. Keeping in view the changes brought by the Finance Act 2020, ICAI has now released the Eight Edition of the Guidance Note.
Some of the salient amendments incorporated in the revised Guidance Note are listed below:

  • Amendments to Chapter 3 – Associated Enterprise to include source and deemed definitions, the relationship between Head Office and Branch Office and associated enterprises in relation to specified domestic transactions;
  • Amendments to Chapter 4 – International Transactions to include capital financing transactions, cost contribution arrangements, and free of cost services;
  • Amendments to Chapter 5 – Arm's Length Price to include the distinctive nature of the property/services, analysis on the functions, assets and risks, characterization, tested party, contractual terms and market conditions;
  • Amendments to Chapter 7 – Documentation and Verification to include ownership, profile and business of the taxpayer;
  • Extension of the provision of Safe Harbour Rules for AY 2020-21;
  • Amendment in section 92F wherein the due date for filing Form 3CEB is one month prior to filing return of income. The due date for filing Form 3CEB has been explained to be 31 October of the assessment year;
  • Amendment to Section 92CE giving clarification with regard to the applicability of the provision of secondary adjustment and the option to make a one-time payment by the taxpayer;
  • Option to the taxpayer to appoint joint auditors for carrying out a transfer pricing audit. Auditing Standard 299 – Joint Audit of Financial Statements to apply in such cases;
  • The accountant is well advised to refer to Standards on Auditing as well as the guidance notes issued by ICAI while conducting the transfer pricing audit.

All the amendments made up to Finance Act 2020 have been incorporated in the 8th Edition of the Guidance Note. ICAI has acknowledged the challenges involved in reporting and disclosure of international transactions in light of the COVID-19 pandemic. Further, an insight provided on intricate issues will prove to be immensely useful and beneficial for all stakeholders while discharging the reporting requirements of Section 92E of the Act.

Interpretation on the 60-day time limit for issuing transfer pricing order by the TPO

Under Indian Transfer Pricing Regulations, the time limit for issuing transfer pricing order by the TPO u/s 92CA(3A), falls any time before 60 days prior to the date of completion of assessment proceedings u/s 153. Madras HC has recently allowed a batch of writs filed by taxpayers, quashing timebarred TPO orders passed beyond the 60-day time limit relevant for completing assessment proceedings for AY 2016-17.

As seen from the below table, the time limit for issuing TP order falls anytime 'before' 60 days prior to to the date on which the time limit u/s153 expires, i.e., 31 December 2019. Accordingly, working backward, the 60th day prior to 31 December 2019 falls on 1 November 2019 (counting 30 days in both November and December). Therefore, the time limit for passing the TP order should be at any time before 1 November 2019, i.e., on or before 31 October 2019. The HC held, that TPO order passed on 1 November 2019 was time-barred and thus quashed.

Under Indian Income Tax Law, assessments framed after the statutory time limit are held to be invalid. Therefore, the correct interpretation of the time limits given in the law is of utmost importance. Based on the above interpretation laid down by HC, the following dates are applicable for passing TPO orders u/s 92CA (3A) read with section 153 –

Financial Year (FY) Assessment Year (AY) The time limit for completion of assessment proceedings u/s 153 when reference made u/s 92CA The time limit for passing TP Order u/s 92CA (3A)
FY 2015-16 AY 2016-17 33 months from the end of AY, i.e., 31 December 2019 On or before 31 October 2019
FY 2016-17 AY 2017-18 33 months from the end of AY, i.e., 31 December 2020 On or before 31 October 2020
FY 2017-18 AY 2018-19 30 months from the end of AY, i.e., 30 September 2021 On or before 31 July 2021
FY 2018-19 AY 2019-20 24 months from the end of AY, i.e., 31 March 2022 On or before 30 January 2022

Indirect Tax

Invoicing time limit extended for goods taken outside India for sale on approval basis

[Notification No. 66/2020 dated 21 September 2020]

Section 31(7) of the CGST Act requires the supplier of goods to issue its invoice when the supply takes place, or within six months of the date of removal, in case of goods sent or taken on approval for sale or return. Now, the government has notified that any compliance under this section which falls during the period from 20 March 2020 to 30 October 2020 and is pertaining to goods sent or taken on sale on approval basis to a place outside India, the time limit for compliance shall be extended up to 31 October 2020.

Government issues FAQs on e-invoicing mechanism applicable from 1 October 2020

The government has issued FAQs on the e-invoicing mechanism applicable to address the common concerns/queries raised by the industry. Some of the key clarifications issued are as follows:

  • Entities with an aggregated turnover of less than INR 500 crores are not allowed/enabled to undertake e-invoicing on a voluntary basis;
  • The ERP or accounting systems used by large taxpayers can be designed in such a way that they can report invoices in bulk to Invoice Registration Portal (IRP);
  • After reporting invoice details to IRP and receipt of IRN, at the time of issuing an invoice to the receiver (e.g., generating as PDF and printing a paper copy or forwarding via e-mail, etc.), any further customization, i.e., insertion of the company logo, additional text, etc., can be made by respective ERP/billing/accounting software providers;
  • At present, there is no separate placeholder for mentioning TCS under the Income Tax Act, 1961, collected by the suppliers. However, as a workaround, the field of 'Other Charges (Invoice Level)' can be used to mention TCS, where it doesn't form part of taxable value;
  • For items outside the GST levy, a separate invoice may be given by such businesses;
  • Printing of Invoice Reference Number (IRN) on the invoice is optional. IRN is anyway embedded in the QR Code to be printed on the invoice;
  • The QR code (containing, inter alia, the IRN), which comes as part of signed JSON from IRP, shall be extracted and printed on the invoice. However, the printing of QR code on a separate paper is not allowed;
  • Amendments are not possible on IRP. Any changes in the invoice details reported to IRP can be carried out on the GST portal (while filing GSTR-1). In case GSTR1 has already been filed, then the amendment should be made using the usual mechanism provided under the GST law.