Aarushi Taxation & Consulting

20/08/2022

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27/12/2016

CMA Vineet Chopra
vineet-chopra

On 25th November 2016 the revised Model GST Law has been released by Central Board of Excise and Customs. An attempt has been made in this article to analyse the revised provisions of Input Tax Credit (ITC)..

1. Eligibility and Conditions for taking ITC:

a. A person must be registered as a Taxable Person

b. Goods or Services are used or intended to be used in the course or furtherance of business.

c. ITC to be taken in specified time and manner

d. ITC on Pipelines and telecommunication towers, their structure and foundation.
sr no. ITC to be taken in financial year (FY) Amount of Credit
1 First FY in which the said goods are received 1/3rd of total input tax
2 Second FY 1/3rd of total input tax
3 Third or subsequent FY balance of total input tax

e. Provisional: Credit can be taken as self-assessed and shall be provisionally credited to the Electronic Credit Ledger. Such credit shall be utilized only for payment of self-assessed output tax liability. (section 36)

f. Mandatory documents to take ITC: tax invoice or debit note or other prescribed taxpaying document issued by supplier.

g. Actual receipts: The goods or services must actually be received, however, an enabling deeming provision has been made for receipt of goods in cases where goods are supplied before or during its movement on direction of taxable person or agent so that ITC is not denied for non-receipt of goods for such transactions.

h. Tax payment: – Tax must have been paid.

i. Returns: are furnished as per section 34;

j. Goods received in Lots: ITC will be allowed on receipt of the last lot.

k. Payment of dues by recipient: In respect of supply of services, a proviso is added to sub section (2) of section 16 to ensure that where supplier of services has paid the taxes and recipient has taken ITC he must make the payment to his supplier within a period of three months from the date of issue of invoice failing which an amount equal to input tax credit availed by the recipient shall be added to his output tax liability along-with interest.

2. ITC not available: A Negative List is provided under sub-section 4 of section 17 capturing blocked credits in respect of:-

a. motor vehicle and other conveyances, except when they are used for providing taxable supplies viz.

i) further supply of such vehicles or conveyances; or

ii) transportation of passengers or goods; or

iii) imparting training of driving, flying, navigating such vehicles or conveyances

b. supply of goods and services namely

i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except when used for making an outward taxable supply of same category.

ii) Membership of club, health and fitness centre

iii) Rent a cab, life insurance, health insurance except where it is made mandatory for an employer under any law.

iv) Travel benefits to employees on vacation such as leave or home travel concession

c. Work contract services supplied for construction, re-construction, renovation, addition, alteration to the extent of capitalisation to the immovable property, other than plant and machinery; exception – input service used for further supply of work contract service

d. Goods or services received by a taxable person on his own account for construction, re-construction, renovation, addition, alteration or repairs to the extent of capitalisation to the immovable property, other than plant and machinery even when used in course or furtherance of business;

Since, ITC is allowed on plant and machinery including apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.

e. Taxable person who opted for composition levy scheme can’t take ITC; and

f. Goods and/or services used for personal consumption.

g. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

h. Any tax paid under section 67 (fraud), 89 (seizure of goods in transit and release) or 90 (confiscation)

i. If depreciation is claimed under the Income Tax Act on the tax component of capital goods then ITC shall not be allowed on the said amount of tax component. In other words, any one benefit can be enjoyed, either depreciation on tax component of cost of capital goods or ITC of tax component.

4. Time Limits: section 16

Time limits to take ITC in different cases are as under:-

a. Regular basis: sub section 4 of section 16: Time limit to take ITC in respect of an invoice or debit note in normal course shall be earlier of

Furnishing of Return under section 34 for the month of September following the end of financial year to which such invoice or debit note pertains OR

Furnishing of annual return. (last date for furnishing an annual return is 31st December following the end of financial year)

b. Specific cases: section 18

It is necessary to take full credit of input tax in respect of inputs held in stock; inputs contained in semi-finished (SFG) or finished goods (FG) stock and in cases of specific circumstances.
Case Entitlement to take credit of Input tax in respect of Maximum time limit to take ITC
1 A person who becomes liable to registration (under sec 23 read with schedule V), has applied for the same and has been granted such registration inputs held in stock or contained in semi finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax Within one year from the date of issue of tax invoice relating to such supply (sub section 5 of section 18)
2 A person who voluntarily takes registration though not liable inputs held in stock or in semi finished or finished goods held in stock on the day immediately preceding the date for grant of registration
3 A registered taxable person ceases to pay tax under composition levy scheme inputs held in stock or contained in semi finished goods or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to tax normally under section 8 (credit on capital goods shall be reduced by a prescribed %)
4 Exempt supplies becomes taxable supplies inputs held in stock or contained in semi finished goods or finished goods or on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable. (credit on capital goods shall be reduced by a prescribed %)
5 change in constitution of registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business with specific provision of transfer of liabilities, Shall be allowed to transfer unutilised ITC to transferee in the prescribed manner

c. Reversal of ITC: sub section 7 of section 18
Sr No. Event Amount of Reversal payment / reversal
1. After availing ITC -Switch over to composition scheme Equal to credit of input tax held in stock or contained in semi finished goods or finished goods and on capital goods on the day immediately preceding the date of such switch over or exemption (credit on capital goods shall be reduced by a prescribed %).

(balance of ITC shall lapse)
An amount to be paid by debiting electronic cash ledger or credit ledger
After availing ITC – Supplies becomes exempt absolutely under section 11
2. Supply of capital goods on which ITC has been taken pay an amount equal to the ITC taken on the said capital goods reduced by the prescribed percentage points or the tax on the transaction value of such capital goods, whichever is higher. However, if supplied as a scrap, the tax may be paid on transaction value

5. Utilisation of ITC: sub-section 5 of section 44

a. ITC on account of CGST shall be utilised first towards payment of CGST and amount remaining towards payment of IGST. (ITC of CGST cannot be utilised for payment of SGST)

b. ITC on account of SGST shall be utilised first towards payment of SGST and amount remaining towards payment of IGST. (ITC of SGST cannot be utilised for payment of CGST)

c. ITC on account of IGST shall be utilised first towards payment of IGST and amount remaining towards payment of CGST and then in payment of SGST.

To simplify: I = IGST, C = CGST, S= SGST,

I can be utilised against I then C then S ;

C can be utilised against C then I

S can be utilised against S then I

but C vs S or S -vs C is not allowed.

It is noteworthy that in terms of sub-section 4 of section 44 the amount available in the electronic credit ledger may be used for making payment towards output tax payable whereas the amount available in electronic cash ledger may be used for payment towards tax, interest, penalty, fees or any other amount payable under GST law.

6. ITC in respect of Inputs sent for job work

Here meaning of “principal” is relevant. ‘Principal’ means a person on whose behalf an agent carries on the business of supply or receipt of goods or services. In terms of provisions of section 20 subject to prescribed conditions, the registered taxable person (principal) shall be entitled to ITC on inputs / capital goods sent to a job-worker for job-work or even it is directly sent to the place of job worker without their being first brought to the principal’s place of business, provided that

a. the said inputs are received back by ‘principal’ within a period of one year of their being sent out. For capital goods this time limit is three years

b. If said inputs or capital goods are not received back after job-work or otherwise or even not supplied from place of job worker within aforesaid period, it shall be deemed to be supplied by the principal to job-worker on the day when the said inputs or capital goods were sent out.

c. If inputs or capital goods are sent directly to job-worker, the period of one year or three years shall be counted from the date of its receipt by the job worker.

d. In case of Moulds, dies, jigs, fixtures or tools the aforesaid conditions are not applicable as per sub section 7 of section 20.

7. Apportionment of credit (section 17)
Case:
1 Goods / Services used partly for business and partly for other purposes Amount of credit shall be restricted to Input tax attributable to the business purposes.
2 Goods / Services used for effecting taxable supplies, zero rates supplies or under IGST Act & partly for effecting exempt supplies Amount of credit shall be restricted to Input tax attributable to the taxable supplies including zero rated supplies
3 Banking company / financial institution / NBFC Options:-

Credit restricted to input tax attributed to taxable supplies OR

50% of eligible ITC on inputs, capital goods and input services in that month

8. Monitoring through matching mechanism – section 37

a. Matching

A matching system is provided to check accuracy of claims of ITC and therefore, details of every inward supply furnished by the ‘recipient’ for a tax period shall be matched

a. with the corresponding details of outward supply furnished by the corresponding‘supplier’ in his valid Return for the same tax period or any preceding tax period.

b. with the additional duty of customs paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him, and

c. for duplication of claims of input tax period.

b. Communication

On matching of aforesaid claims of ITC, it will be finally accepted and shall be communicated to recipient in prescribed manner.

c. Mismatch / excess claim / duplication

If recipient of inward supply claims excess ITC as declared or in case it is not declared by the supplier for same supply in his valid Returns it shall be communicated to both in prescribed manner for rectification. In case of no rectification is done in valid Returns for the month in which discrepancy was communicated, it shall be added to output tax liability of recipient in his return for succeeding the month of communication.

Similarly, rectification of duplication of ITC should be done failing which it shall be added to output tax liability of recipient in his Return for the month in which the duplication is communicated

In case of no discrepancy it shall be finally accepted and communicated to the recipient.

Where supplier declares the details of invoices / debit note in his valid return within specified time, the recipient shall be eligible to reduce the amount added as aforesaid from his output tax liability.

Interest shall be payable at prescribed rates in case amount as aforesaid has been added to output tax liability, however, it will be refunded (not exceeding interest paid) in case of reduction of output tax liability on rectification

26/12/2016

Where to download Aadhaar Payment App

The aadhaar pay merchant app will available for download from Google Play. (Link to download the app will be added here).

Join our WhatsApp Broadcast to get the app download link once officially available. Send “Add Me” to +91-7006100343
How to use Aadhaar Payment App?

Download the App. (Link will be added shortly)
If you are a merchant, login with your aadhaar number.
Validate the aadhaar using your fingerprint.
Now to accept payment from a customer, click on Aadhaar Pay.
Enter customer’s Aadhaar number.
Enter Customer’s bank name and amount to be paid.
Select ‘Yes’ to proceed.
Validate the transaction using customer’s fingerprint.
After successful authorisation, the amount will be transferred from customer’s bank account to merchant’s bank account.

26/12/2016

Arjuna (Fictional Character): Krishna, Christmas is a festival which is celebrated happily all over the world. In this festival Santa Claus gives many gifts. What kind of gifts are given by the Income Tax Department to small scale traders on this occasion of Christmas?

Krishna (Fictional Character): Arjuna, Everywhere people give and take gifts in this festival. After demonetisation of currency on 8th November 16, there is shortage of cash in hand everywhere. Because of that gifts are purchased by making payments through bank accounts, Paytm vaults, credit cards, etc. Traders are liable to pay taxes on the profit made by them. According to the section 44AD of Income tax Act, traders having eligible businesses under this section have to pay tax @8% of their total turnover. Businesses like- grocery stores, medicals, cloth stores, retailers etc. Government is promoting these traders to do their trading through bank accounts as there is shortage of cash. Government has given option to these traders under section 44AD to pay 6% tax on total turnover made through bank accounts. For this Income tax Department has given a press note on 19th December 2016. The changes made in the sections will be presented in coming budget. If customers will make payment through bank instead of cash than trader will get benefit of tax.

Arjuna (Fictional Character): Krishna, who all persons are eligible under section 44AD?

Krishna (Fictional Character): Arjuna, According to section 44AD assessee having a turnover of less than 1Crore in the financial year 2015-16 are eligible. The assessee can show a profit of 8% or more and pay taxes accordingly. In the Financial year 2016-17, this limit of 1Crore has been increased to 2Crores. In this the assessee is required to keep records relating to sales i.e for the purpose of turnover. The assessee need not maintain other books specified in the section 44AA. That’s why this provision is simpler than any other.

Arjuna (Fictional Character): Krishna, what are new options available to show 6% profit under section 44AD of Income tax Act?

Krishna (Fictional Character): Arjuna, Government has brought up this provision to promote purchase-sale transaction through bank instead of cash. Under section 44AD, 8% profit on the turnover made through cash transactions and 6% profit on the turnover made through bank transactions will have to be shown. Before this, the assessee has to show profit @ 8% on the total turnover made by him. Because of this provision the traders will get a benefit of 2% profit if they made sales through bank account. For example- If a trader having turnover through sales or receipt of 50Lacks in cash and 30Lacks through bank i.e a total of 80Lacks than he is liable to pay 8% on 50Lacks i.e 4Lacks and 6% on 30Lacks i.e 1.80Lacks on the sales which comes to 5.80Lacks on which tax have to be paid. Deduction under section 80 will be available to the assessee. Due date to file return under section 44AD is 31st July.

Arjuna (Fictional Character): Krishna, Who all can take benefit of this option?

Krishna (Fictional Character): Arjuna,

1. This option is applicable to Individual, HUF and Partnership firms. This option is not applicable to Company, LLP and other tax payers.

2. Taxpayers carrying on business can take benefit of it for e.g. retailer, wholesaler, and manufacturer, etc.

3. It is not applicable for professionals for e.g. C.A, Advocate, Doctors, etc. and also it is not applicable for the taxpayers having income from commission, brokerage and leasing, plying goods carriages.

Arjuna (Fictional Character): Krishna, What are the main features of section 44AD?

Krishna (Fictional Character): Arjuna, the important points to keep in mind while opting for this option are:

1. Tax payer can show profit @ 8% and 6% or more.

2. Taxpayer will not get the deductions of expenses under section 30 to 38,

3. Expenses of the business as per section 40, 40A, 43B will not be disallowed. For e.g. if the tax payer has not paid VAT before filing return then it will not be disallowed.

4. Income tax department had made available very easy form ITR 4 S (SUGAM). Only the taxpayer has to give information of debtors, creditors, cash and closing stock value as on 31st March in this form.

5. If the taxpayer has paid tax on profit at 8% and 6% or more then he may not have to face scrutiny.

6. Partnership firms cannot take the deduction of salary and interest given to partner under section 40 (b) from the financial year 2016-17.

7. In this section the assessee is liable to pay one installment of advance tax on 15th March from the financial year 2016-17.

Arjuna (Fictional Character): Krishna, what if the tax payer opt for tax audit?

Krishna (Fictional Character): Arjuna, if tax payer’s 1] profit is less than 8% and 6% or 2] if its taxable income is more than the tax exemption limit (Rs. 2.5 lakh) then he has to maintain the books of accounts as per section 44AA. Further he has to get his books of accounts audited from a Chartered Accountant. For e.g. If the annual turnover or receipt of the cloth merchant is Rs. 80 lakhs and his net profit is 4% i.e. Rs. 3,20,000, then he has to maintain the books of account and also he has to get his accounts audited from Chartered Accountant. Tax payer should choose appropriate and right option considering the income and expenses. If the tax payer wants to opt for this option i.e. to get his accounts audited then the due date for filling return is 30th September. If the assessee opts the option of tax audit then he has to get his books of account audited for minimum next 4 financial years and he will not be eligible to take benefit of 8% and 6% under section 44AD. That’s why the asseesee should take decision carefully.

Arjuna (Fictional Character): Krishna, What lesson should be taken by tax payers from this section?

Krishna (Fictional Character): Arjuna, the coming new year 2017 will lead to tremendous increase in the trading through bank transactions. Before this there were

excessively cash trading according to the traders wish but now this will not happen. More changes will be presented in the coming budget relating to provisions of business and Income Tax. Santa Claus gives his blessings to have happy and prosperous lives. In the similar manner there are a lot of gifts in the coming budget for the honest taxpayers and persons doing their business through banking. And there are punishments and fines for the one who do tax evasion. So everyone should take benefit by doing their business through banking.

26/12/2016

CA Bimal Jain
CA Bimal Jain

Since notification of the GST Council on September 12, 2016, six meetings of the GST Council have been held, wherein some of the important decisions have been taken, such as threshold limit for exemption from levy of GST, GST rates etc. (as mentioned in the report card issued by the Government on December 14, 2016).

In the series of events for GST implementation and amidst recent demonetisation of high-value currency by the Government which has led to lot of tussles in the Parliament, 7th GST Council meeting started with the agenda to build consensus on various major issues on 22-23 December, 2016, to roll out GST as envisaged from April 1, 2017. The key highlights of 7th GST Council meeting are as under:

The members debated over the provisions of the Model Central/State legislation and finally, the Council reached a broad consensus on the draft of CGST and SGST Laws. The legally vetted copy of the drafts will be circulated to the States.
GST Council agreed to a revenue sharing formula for compensating States losing out on account of GST rollout.
Regarding the Compensation Law, Mr. Arun Jaitley who headed 7th GST Council meet, while briefing the media on the same, said that:

√ A few issues are left to be settled such as the source of the compensation fund but the said Law will be placed for approval, along with the Draft CGST/SGST Law, in legal language in the next meeting of the GST Council going to be held on January 3-4, 2017.

√ States will be compensated 100 per cent loss for 5 years.

√ The compensation to the States for the loss of revenue, if any, from the rollout of GST would be paid every two months.

The Council, however, failed to arrive at consensus on Integrated GST Law and dual control regarding division of jurisdiction and administrative powers over tax assesses with an annual turnover of INR 1.5 crores, between the centre and the states.

Therefore, GST Council will meet again on January 3-4, 2017, to build a consensus on the contentious issue of dual control, cross-empowerment and Draft IGST Law. In this regard, Mr. Arun Jaitley added, by saying that:

“So, if I were to list the residual issues left for the next meeting, then they are the Interstate GST law, the issues of dual control and cross empowerment, and the approval of the legally vetted language”.

26/12/2016

ACS Priya Garg

The concept of One Person Company [OPC] is a new introduction in the companies act 2013 which allows a sole person to incorporate a company on its own with concessional/relaxed requirements under the Act.

Definition of OPC

As per Section 2(62) of the Companies Act, 2013 One Person Company” means a company which has only one person as a member;

Sections/Regulations/Rules/Schedule applicable to OPC

1.Section 2(62) of the Companies Act, 2013

2.Companies (Incorporation) Rules, 2014.

3. Schedule 1 of companies act 2013

Restriction on OPC

1..Only a natural person who is an Indian citizen and resident in India-

(a) shall be eligible to incorporate a One Person Company;

(b) shall be a nominee

2.No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.

3. Where a natural person, being member in One Person Company in accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria specified in point (2) within a period of one hundred and eighty days.

(4) No minor shall become member or nominee of the One Person Company or can hold share with beneficial interest

(5) Such Company cannot be incorporated or converted into a company under section 8 of the Act.

(6) Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporates.

(7) No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

Requirements of incorporating a OPC

a.A person having din to become shareholder and director of company

b.A nominee who shall become the shareholder in case of death/incapacity of the original shareholder.

Steps to Incorporate One Person Company (OPC)

1.Obtain Digital Signature Certificate [DSC] for the proposed Director(s).

2.Obtain Director Identification Number [DIN] for the proposed director(s).

3.Apply for name approval in INC 1 with the word OPC in name

4.After name approval file for incorporation in INC 2/INC 7

Documents required to be attached in INC 2/INC 7

a.MOA and AOA

b.INC 8 INC 9

c. INC 3 should be attached as scanned document

c.DIR 2

d.pan card id proof residential proof

e utility bill and NOC for registered office address

All documents to be attached as per companies incorporation rules 2014

Some Important Points

Authorised and subscribed capital should be same in opc
Opc cannot do the object of finance or investment related services
No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.

Penalty.-

If One Person Company or any officer of such company contravenes the provisions of the rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

Now OPC can be formed in spice form too where name can be applied with relevant documents.

19/12/2016

ICAI - The Institute of Chartered Accountants of India. Share this page: These are the converged Indian Accounting Standards (Ind ASs) hosted by MCA on its website. The date on which these will come into force is yet to be notified.
Indian Accounting Standards (IND ASs) - ICAI - The Institute of ...
www.icai.org/post.html?post_id=7543

ICAI - The Institute of Chartered Accountants of India set up by an act of parliament. ICAI is established under the Chartered Accountants Act, 1949 (Act No. ###VIII of 1949)