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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.


Section 148 of the Income Tax Act

Section 148 of the Income Tax Act, has been amended along with the insertion of new Section 148A by the Finance Act, 2021. With this, the process of reassessment has been revised and now the Assessing Officer has to comply with the provisions of Section 148A before issuance of a notice for reassessment under Section 148.

LawWiser takes you through Section 148 of the Income Tax Act, in an explainer by Paras Nath, Partner, TR Chadha &Co LLP. 

Paras shares the analysis of this provision and recent judgments on the legal validity of notice issued under Section 148 of the Income Tax Act, issued after April 01, 2021. 

In accordance with the power under Section 3(1) of the Relaxation Act, the CBDT had issued notifications extending the due dates for the issuance of Notices under erstwhile Section 148 from  March 31, 2021, to firstly, till 30th April 2021 and subsequently to June 30, 2021. And, on the basis of this extension, Income Tax Department has issued notices to the assessee under erstwhile Section 148 which was applicable till March 31, 2021, i.e., without adhering to the requirements of Section 148A.

With notices issued by the Income-tax Department during this extended time limit, the question arises regarding the validity of such Notices issued between April 01, 2021, to June 30, 2021, on the grounds that whether two different provisions in relation to the process of reassessment can be applicable at a time and whether the Relaxation Act gives the power to choose between two Finance Acts for issuance of Notice

On the issue of validity Paras takes us through some key cases filed before various High Courts. Watch the full video to understand the issue better. 

Stay tuned for more insightful content related to compliances for #MSME and #startups

#incometax #section148ncometaxact #taxexemption #notice #incometaxdepartment #cbdt #highcourt #supremecourtofindia #MSME #msmeindia 


Tax Holiday for Startups

There has been an increasing interest of global investors in Indian Startups. The startups are also playing a vital role in the economic growth of the country. The Government is also providing incentive schemes for start-ups to motivate more entrepreneurs.

Watch Now LawWiser’s explainer on “Tax Holidays for Startups” featuring Paras Nath, Partner, TR Chaddha & Co LLP, where he talks about startup income tax benefits and certain other startup tax exemptions.

Paras takes us through various incentives provided under the Income Tax Act for the startups. Some of them are :

The first incentive under the provisions of Section 80-IAC of the Income Tax Act, 100% of the profit of eligible start-ups can be claimed as a deduction for any 3 consecutive years out of a period of 10 years from incorporation.

The second one is a waiver from ‘Angel tax’. Any amount received by the company from residents in India more than FMV is liable to tax in the hands of the company, popularly known as ‘Angel tax’. 

The other incentive available is for new manufacturing companies under Section 115BAB of the Income Tax Act. The effective tax rate provided for new manufacturing companies under normal provisions is 17.16% (15% plus surcharge plus cess) with MAT provisions do not apply to them. 

However, certain conditions are required to be met for availing of this incentive which are: 

-Incorporated and registered in India as a company on or after 1st October 2019 and commenced manufacturing on or before 31st March 2024. 

-A company should not be formed by splitting up or reconstructing of an already existing business in existence.

The basis for allowing the reduced rate is to incentivize the new units, and therefore, to restrict the benefit being misused. 

Watch the full video to know all about Tax Holiday for Startups in detail.

Stay tuned for more insightful content related to compliances for #MSME and #startup

#incometax #startup #startupbusiness #taxexemption #MSME #msmeindia #manufacturingindustry #compliance #industryupdates #angelinvesting #legalknowledge #Legalvideo #video 


Taxation of virtual digital assets in India under the Union Budget, 2022

Watch now #LawWiser video on “Taxation of Virtual Digital Assets in India under the Union Budget, 2022″ featuring Gaurav Bhalla, Partner at Ahlawat and Associates. 

Gaurav takes us through Section 47A of the Finance Bill 2022, which defines a ‘virtual digital asset’. The Central Government, has, however, retained the power (through a notification in the Official Gazette) to exclude any digital asset from the definition of the virtual digital asset.

The Finance Bill has proposed the inclusion of Section 115BBH which provides that the amount of income-tax calculated on the income from transfer of such virtual digital assets shall be taxed at the rate of 30 per cent. However, there are issues with the interpretation of the term transfer. Whether the Government means that only the sale of Virtual Digital Assets will be considered as ‘transfer’? Or does the statute intend to include P2P transfer of Virtual Digital Assets as well? The answer to this can be found in the provision about the ‘gift’ of Virtual Digital Assets.

Gaurav further explains provisions regarding the deduction of TDS. The Finance Bill, 2021 has inserted Section 194S which provides that any person responsible for paying to a resident any sum as consideration for transfer of a Virtual Digital Asset, shall at the time of credit of such sum to the account of the resident, or at the time of payment of such sum by any mode, whichever is earlier, deducting an amount equal to one per cent of such sum as income-tax thereon. Accordingly, monetary transfers for Virtual Digital Assets will attract a TDS of 1%. While the statute doesn’t offer specific clarity on whether trading, the platform will be liable to deduct TDS; it can be presumed that they will be required to deduct TDS from its customers.

He also explains provisions relating to deductions and set-offs. The Finance Bill, 2021 under Section 115BBH mentions that no deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off, any loss shall be allowed to the assessee. Accordingly, the Government intends to not offer any deduction in respect of any expenditure or allowance to the assessee.

Watch the full video to understand all about the taxation of virtual digital assets in India under the Union Budget 2022. 

#taxation #Digitalservices #services #expenditure #virtualassets #union #budget2022 #budget #asset #tokens #token #transfer #pricing #strategy #consulting #firms #TDS #trading #customers #finance #governmentofindia #government #nonfungibletokens #legalnews #legalindustry #legalcommunity #expenditure 


 Input Tax credit in GST- changes in union budget- TRC- Himanshu Goel

Certain prominent changes associated with Input Tax Credit (ITC) under GST have been proposed in the Union budget 2022.

Tune into #LawWiser’s explainer on “Input Tax Credit (ITC) in GST” featuring Himanshu Goel, Partner, TR Chadha & Co LLP.

A retrospective amendment has been proposed on the levy of interest on ITC. That is wrongly availed and utilized interest would be payable at the rate of 18%per annum on such ITC. Thereby, meaning that the interest would be applicable only in cases where ITC is wrongly availed and utilized against payment of output liabilities and not when ITC is merely wrongly availed and is lying in E-credit ledger of the registered person.

Himanshu also takes us through another proposal related to ITC, which has yet again added a restriction in availing ITC by the business houses. With the proposed amendment for availing ITC, it would be a mandatory requirement that the ITC is not only reflected in 2B but is also not restricted to be availed as per GSTR 2B, report available on GST portal to the recipient of goods and services. This amendment is maybe a pain area for business houses initially in regard to the increased precaution and working capital requirement.

To understand more about the input tax credit watch the full video. 

#input #tax #gst #taxcredits #amendment #payment #liabilities #legalknowledge #msmeindia #msmes #startup #compliance #compliancesolutions 


Decoding the Union Budget 2022-23 | Panel Discussion

The #unionbudget2022-23 has created a lot of buzz around.

There have been many initiatives and incentives for various sectors and industries. Tune into #Lawwiser‘s panel discussion on “Decoding the #UnionBudget 2022″ Watch our host in conversation with Rahul Verma, Sr Director, Cipla; Abhishek Saxena, Co-founding Partner, Phoenix Legal and Jatin Arora, Partner, Phoenix Legal discuss various details regarding the budget.

In the video, our panellists share their views on incentives for startups and key highlights relating to the SME/MSME sector offered in the Union Budget.

They also take us through the impact of the withdrawal of customs duty exemptions for import-specified drugs, medicines and life-saving drugs and the impact on pharma sector.



#Budget2022 -23 – Key Takeaways |Budget 2022 highlights

Tune into #Lawwiser quick update on “BUDGET 2022-23-Key Highlights” Watch this update and, stay tuned till the end as we ask an interesting question related to it.

The finance minister, Ms Nirmala Sitharaman, has announced the Budget 2022.

Some significant changes are:-

MSME and startups –

  • For the MSME sector, Rs 6,000 crore programme to rate MSMEs will be rolled out over the next five years
  • For MSMEs portals such as Udyam, e-shram, NCS & Aseem will be inter-linked, and their scope will be widened Electrical Vehicles

Electrical Vehicles

  • Battery swapping policy to allow EV charging stations for automobiles will be framed


  • In the defence sector, the govt is committed to reducing imports and promoting self-reliance in the defence sector
  • Defense R&D will be opened up for industry, startups and academia with 25% of the defence R&D budget.

Finance & inclusion

  • As per Finance and Inclusion, some major initiatives taken by the government are
  • To introduce Digital Rupee by RBI using blockchain technology, starting 2022-23
  • Losses from the sale of virtual digital assets cannot be offset against other income
  • IBC amendments to enhance the efficiency of the resolution process
  • Facilitate cross-border insolvency resolution Healthcare

An open platform for the national digital health ecosystem will be rolled out.

Share your answers in the comment section and follow Lawwiser for more such updates. #Budget #Finance #Healthcare #Union #Ecosystem #Insolvency #Resolution #Digital #Defense #Legalvideo #Update #Video #Quickupdate


PLI Scheme to Benefit Pharmaceutical Sector

The Ministry of Chemicals and Fertilizers has announced that 55 pharmaceutical companies are likely to get benefitted from the Production-Linked Incentive scheme for pharmaceuticals which is part of the government’s flagship Atmanirbhar Bharat Plan. This scheme will help in enhancing India’s manufacturing capabilities and exports in ten sectors.

The financial outlay for this Production- Linked Incentive (PLI) Scheme is Rs 15,000 crore. This PLI scheme aims to enhance India’s manufacturing capabilities and also exports in ten different sectors which were approved by the Union Cabinet.

The Cabinet approved this scheme on February 24, 2021. The operational guidelines inviting applications for the pharmaceutical industries were issued on June 1, 2021. They were issued by the Department of Pharmaceuticals after consulting thoroughly with related departments, industries, and NITI Aayog. A total of 278 applications were received by 31st August on the scheme out of which 55 applicants got selected.

Watch Avani Shukla from LawWiser helps us understand different aspects related to it such as –

1. Aim of the PLI scheme

2. Invitation of applications for the PLI scheme and different categories associated with it

3. How is it going to benefit the pharma sector?

Tune into the video to learn and understand more about the scheme.


Recent Trends in the Tax Regime

Watch #LawWiser shorts on the topic of “Recent Trends in the Tax Regime”

Our speaker, Paras Nath, Partner, TRC has shared insights on the recent trends in the India tax regime. He explains that balancing income-tax rates with choosing the old and new regime has motivated for adhering compliances. The increased advance tax collections in FY 2021-22 clearly show the same benefit.

He also believes that efforts towards linking the transactions under the same PAN at one place in AIS (Annual Information Statement) and proposed prefilled ITRs will undoubtedly be a game-changer in 2022.


What is expected in the next GST council meeting?

#Tune into today’s update on “What is expected in the next meeting of GST Council?”

Watch Aditi sharing the quick update on how the centre is expecting to rationalize the GST rates and a correction of the inverted duty structure.

The Council has already approved it in many sectors, including textiles and footwear, which will be implemented from January 1, 2022.

The recommendations of GoM’s report are expected to be finalized before the expected meeting of the GST council in January 2022.

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