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Tax

Levy of 18 percent GST on House Rent

Do you know about the amendment brought to the GST Regime in India? And about the 18% GST on House Rent?

Watch now, our latest video where Avani Shukla, Associate- content & collaborations will help us understand the amendment more in detail, the applicability and non-applicability of the regulation and much more.

In this video –

Do you know about the amendment brought to the GST Regime in India – It is regarding the Levy of 18% GST on House Rent.

So, let us understand what it is about –

The government has introduced a new GST regulation for ‘Renting of Residential Property.’ As per this amendment when a residential property is rented to a GST-registered person, he will be subjected to GST under the Reverse charge Mechanism. In simple terms, a GST- registered tenant is required to pay GST at the rate of 18% when they rent a residential property.

This will not depend on whether the landlord is GST registered or not. Previously, residential properties were exempted from all taxes, regardless of whether the landlord or tenant is GST registered or not. In this amendment, the tax will be assessed using a reverse charge mechanism, rather than in a conventional manner.

But what does the reverse charge mechanism mean?

In the reverse charge mechanism, the tax obligations are imposed on the beneficiary of goods and services rather than the supplier of goods and services When does this regulation will not apply –

– When renting a residential home, tenants who are not registered for the GST are exempted from paying it.

– When renting a home, the salaried class person is exempted from these GST obligations.

If you want to know further details about Laws protecting tenants and homeowners, do watch our three-part series on renting laws where we talk about basic and specific laws that every tenant and landlord should know about.

Thanks for watching!

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Tax Updates : July-August 2022 | Jatin Arora, Phoenix Legal | LawWiser

There have been significant developments over last two months in the tax field. These changes have far reaching impact on businesses and general public.

Watch Now LawWiser’s video on Tax Updates : July- August where Jatin Arora, Partner, Phoenix Legal succinctly explains some the critical developments in the field of tax.

He explains about:

🆕 Recent circular by the Government on liquidated damages, notice pay recovery and other penal charges

🆕 Revenue augmentation measures

🆕 Section 194R of Income Tax

To know about all this and much more, watch the full feature now!

In the Video

Recent circular by the Government on liquidated damages, notice pay recovery and other penal charges

Starting with the most recent development, and an important one at that, the Government has issued three circulars on various contentious matters that have been languishing under the GST law for long. The first and most talked about circular is related to the applicability of GST on payments which are penal in nature but the controversy around them was whether these can be said to be a consideration for a supply of service or not. These are in the nature of liquidated damage, compensation, penalty, cancellation charges, late payment surcharge etc. arising out of breach of contract or otherwise and are related to the scope of the entry 5 (e) of Schedule II of the CGST Act, which is “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”. The circular clarifies that there are different situations that are envisaged under the above entry 5(e) and these are:

  1. Agreeing to the obligation to refrain from an act
  2. Agreeing to the obligation to tolerate an act or a situation
  3. Agreeing to the obligation to do an act

The Government has now clarified that payments which are in the nature of prevention of breach of a contract or are a deterrent to prevent breach of the obligation under a contract are not in the nature of a consideration given for a supply. Further explanation has been provided by way of examples in relation to liquidated damages in a contract, notice pay recovery or cheque bouncing charges, penalty by the statutory authorities in violation of the law, forfeiture earnest money deposit by buyer of immovable property etc. and it is said that these or similar situations are not covered under the schedule II of the GST Act and hence are not subject to levy of GST. 

On the other hand, the circular also talks about certain situations such as non-compete agreements, penal charges for cancellation of bookings of a service like travel or events where penalty is levied for last minute cancellation charges or amounts forfeited due to no show etc. The clarification provided in these circumstances is that these are subject to GST as these situations would fall under the three important limbs of the entry 5€ of schedule II.  

This is an important clarification by the Government and will bring a huge relief to the entire business community, especially on the issues of liquidated damages and notice pay recovery. Since this is a clarification on the taxability of such transactions, it will be applicable on all matters of past as well and would provide relief in all those cases where notices were issued by the department.

The other two circulars broadly provide rationale on the changes in rates and classification of various goods and services that were announced post the 47th GST council meeting. We will discuss few of them now. 

Revenue augmentation measures

  1. On the tax rate front, the Council has done some sweeping changes. One such change is in relation to levying 5% GST without input credits on non-ICU rooms in hospitals, where daily rental is more than Rs. 5000. Now one can argue that the impact of this change will be limited to few large hospitals and it is not really a common man issue, the levy leads to some important aspects. Whether the room charges in hospital is a standalone supply, separate from the overall healthcare service offered by the hospital, and hence can the government tax it as a separate supply. Second, this shows that the Government is looking at the healthcare sector now and we may see some more activities being carved out of the healthcare service definition and could be brought under GST next going forward. Moot point is how will the Government address the issue of splitting the composite supply of healthcare service of hospital and tax individual activities. Certainly, we will see litigation on this front. 
  1. Renting of residential units, which was exempt till now, will now be subject to GST if the renting is done to a business entity. This tax would be payable under RCM mechanism by the recipient. This is an important change not only from GST perspective, but also from income tax perspective. We know Various companies take residential flats or houses on long term lease, either for providing housing society arrangements for all employees or for short stays of their employees in different cities or for long term stay of senior executives or expatriate employees. All such arrangements will now be subject to GST. Mostly the ITC of the GST paid by the company under RCM would be challenged by the authorities on the pretext of personal use of employees, the cost of additional GST will also have bearing under the income tax law on the employee contracts. Companies will now be constrained to evaluate whether company lease would be better or giving HRA would be better. 
  1. All pre-packaged goods, whether having a brand name or not, which fulfil the conditions prescribed under Legal Metrology Act regarding retail packages, are now subject to levy of GST at 5%. The underlying condition here is that the pre-packaged goods should be liable to carry the specified declarations under the Legal Metrology Act. In other words, if a pre-packaged product is not considered a retail package in terms of Legal Metrology Act, then GST will not be levied on such packed product. These include goods sold in loose form that is not pre-packed form, or are in bulk form. The Government has also issued detailed FAQs on the applicability of GST in this segment, which amply makes it clear as to when the pre-packed items will be subject to GST and when not.
  1. Besides the above, the hotel rooms of up to 1000 per night, which were exempt till now have also been brought under GST levy at 12% rate. Cheque books and lose cheque leaves issued by the banks are also now subject to GST.

Other important developments

Section 194R of Income Tax

With effect from July 1, 2022 a new section has been introduced in the Income tax act and that is Section 194R. This section provides for deduction of tax at source on benefits or perquisites provided by an Indian tax resident to any person in India. Now there are few aspects related to this section which are very important. 

The section provides that any person, who is providing any benefit or perquisite, of more than Rs. 20,000 in a year, should withhold tax at the rate of 10% of the value of the benefit or the perquisite so provided. The tax has to be deducted and deposited with the Government before providing the benefit or the perquisite. 

CBDT issued detailed guidelines, in the form of a Circular, for removal of difficulty in implementation of the Section. The guidelines are said to have the legal force as these are issued under sun-section (2) of Section 194R, and thus are said to be binding. The guidelines deal with a variety of situations and provides clarity on how such situations will be dealt with. 

A specific illustration mention in the guidelines has created ripples specially for the pharmaceutical industry. The illustration relates to distribution of free samples by pharmaceutical manufacturing companies to doctors. It is explained in the guidelines, that provision of the free samples will be considered as benefit or perquisite provided to the doctors. 

Since the guidelines are issued by way of a circular, for removal of difficulties in implementation of the provisions of section 194R, the illustration provided therein may also be taken as a binding instruction, at least by the department authorities. However, what needs to be seen is how the free samples given to doctors can be considered as a benefit or perquisite in the hands of the doctors. Surely, we would see a spade of litigations on this matter whether related to what is the benefit, what should be the valuation etc.

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E-invoicing and GST Returns | Legal Update

With the current environment on GST compliance, proposed changes, the impact of the present process and other aspects.

here’s a bite on E-Invoicing and GST returns.

E-INVOICING AND GST RETURNS

The terms “E-Invoicing” and “GST” are often confused.

As both terms are related to electronic invoicing.

Electronic Invoicing

Electronic invoicing is electronic billing software that allows you to file and issue returns, receipts, etc., electronically through your company’s website.

Invoicing, billing, collecting, and processing of payments by electronic means are known as e-commerce. E-commerce has developed into an essential part of business in India.

With the growth of E-Invoicing and other online billing software packages, companies can manage their invoicing, billing, collecting and processing payments across the country and globe from their office or home computer.

E-Invoicing and other online billing solutions allow your customers to obtain an invoice instantly, print it out right away, and send you a check in the mail.

In the past, e-commerce was done only with software packages that were difficult to use, costly, and limited in function.

Today, many excellent, affordable e-invoicing and e-payment systems have all of the functionality needed for an online business.

You can also take advantage of built-in scheduling features that will automatically schedule billings for multiple billable items simultaneously.

An easy-to-use shopping cart option lets you maintain inventory, calculate sales tax, and change the layout as needed.

There are also other essential uses for customizing your e-invoice template. For instance, some companies choose to have their company logo or web address placed at the bottom of each page in an e-commerce solution.

It makes it easy to remember and makes your site more user-friendly. Some small businesses also prefer to place the names and logos of their key personnel in these templates.

You must work with an e-commerce and e-invoicing solution provider that has been around for a while and has built up substantial experience in handling both custom and business e-commerce and e-invoicing systems.

You should make sure that your e-commerce and e-invoicing solution provider has affordable monthly fees for after-sales support as well as monthly fees for setup and start-up.

INSIGHTS ABOUT GST RETURNS

What is a GST return?

A GST return is a document that certifies that all of the purchases you made in a certain province were made in the state where you reside. In other words, it is an identification card for all of your transactions.

There are several documents that you will need when filing your GST return. These documents include your statement of income, a list of all purchases, receipts or invoices for all transactions, and details about your family and dependents.

On the other hand, a GST Annual return is a type of GST return filed by the taxpayers once a year. The term GST Annual return is also known as GSTR 9.

The primary purpose of GST Annual return is to submit an annual compilation of outward supplies, inward supplies, tax liability and input tax credit availed during a financial year.

There have been some changes proposed in the compliance, such changes are-

  1. Authenticated data fed to GSTN for GST returns and E- waybill by IRP.
  2. Transactions can be amended in ANX 1/1 A
  3. Matched transactions eligible for credit computation and RET1 is also populated.
Conclusion

There is no single doubt how essential “E-invoicing and GST returns have become recently, and now after the amendments, we can expect some growth in the filing as ease has been served due to “real-time reporting of transactions for authentication”.

To get featured in more such conversations, write us on [email protected]

Amendments in Finance Bill 2020

Amidst the COVID-19 outbreak and lockdown in the country, the Finance Bill 2020 ( Bill) introduced vide Union Budget 2020-21 was passed by both Houses of Parliament, with certain amendments. Watch the quick guide on the amendments to the Bill. Read this blog to fully understand finance bill 2020

AMENDMENTS IN FINANCE BILL, 2020

There have been notable changes in 2020 about different acts, rules and regulations. Similarly, there have been amendments in finance bill 2020, which are necessary to discuss.

Before that, let us first know what the finance act all about is?

What is Finance Act?

A finance act is fiscal legislation regulated by the parliament, destined to affect the central government’s proposals. It contains provisions related to income taxes, customs etc.

Finance Bill 2020

The Lok Sabha (the lower house of India’s bicameral legislature) passed the finance bill on 23rd march 2020, including some of the amendments in the finance bill, which will be discussed in this article. The Rajya Sabha (upper house) also further passed the finance bill 2020.

It recognized its assent on the bill on 27th March 2020, with that the amendments in finance bill provisions took effect on 1st April 2020.

Finance Bill Amendments

Finance bill amendments in 2020 have vitally focused on the tax residency rules for the NR’s and emphasized the corporate tax regime.

The amendments in the finance bill are thereby discussed below-

  1. Insertion of Sec 6 (1) (a)

There have been some amendments to clause 1 (a) of section 6, which have put a threshold limit for further deciding the status of RNOR.

Only in those cases where the total income of visiting individuals during the financial year from sources other than foreign sources exceeds INR 15 lakhs.

‘Income from other sources” means income from foreign activities, which means income accruing outside India

  1. Reduction in period for RNOR (Resident but Not Ordinarily Resident)

There have been two categories listed for RNOR purposes:-

  1. Indian citizens/ persons of Indian origin who meet the threshold and have been in India for more than 120 days but less than 182 days i.e.
  2. Indian citizens mentioned in Explanation 1 (A) to section 6 (1).
  3. Amendment of Sec 115 A

This is one of the vital amendments from the amendment in finance bill 2020, which emphasizes the exemption for furnishing the tax returns for those deriving their income from foreign by way of FTS.

  1. Changes to the corporate tax regime
  2. Tax on income of domestic companies

The government has proposed amendments in Section 115 BAA, which focuses on the inter-corporate dividends to the domestic Companies opting to pay tax @ 22%, without claiming any deductions as per this section.

  1. Tax on income of new manufacturing domestic companies

This amendment has been made in Sec 115 BAB, which emphasis inter-corporate dividends to the domestic Companies opting to pay tax @ 15%, without claiming any deductions as per this section.

  1. Insertion of Sec 194 N

Sec 194 N was also in talks during the amendments in financial bill 2020; let us first have a quick check about the section and then the amendments.

Sec 194 N is all about the withdrawals about some limited amount such as it is applicable for withdrawals exceeding 1 Crore in a financial year.

The amendment says that the people withdrawing money over Rs 20 lakh are liable to 2 % as TDS.

The vision behind introducing Sec 194 N was to discourage cash transactions and promote digital transactions.

Apart from the above amendments in the finance bill, 2020, much importance has also been given to some “Enhancements in the Scope of Equalization Levy”, which are-

  1. Receipts from the online sale of goods owned by the e-commerce operator
  2. Receipts from the online provision of services provided by the e-commerce operator

III. Provided by person resident of India, Non-resident and person using IP address located in India

Conclusion

The amendments in the finance bill, 2020, can be thus said as a great effort by the government to put things in line on the relation between tax regime and threshold limited as levied by the government. Visit LawWiser to know more

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