Centre releases Rs 36,400-crore GST compensation to states

Source: Business Standard, Jun 04, 2020

New Delhi: Ahead of the Goods and Services Tax (GST) Council meeting next week, the Centre on Thursday released compensation worth Rs 36,400 crore to states for three months up to February 2020.

The much-delayed compensation comes at a time when state finances are under severe stress due to the Covid-19 lockdown.

“Taking stock of the current situation due to Covid-19 where state governments need to undertake expenditure while their resources are adversely hit, the central government has released the GST compensation for the period between December 2019 and February 2020 on Thursday,” the Ministry of Finance said in a release.

The GST compensation of Rs 1.15 trillion for April-November 2019 was released earlier, the government said. This stands against Rs 95,551 crore collected as cess in the compensation fund in 2019-20 (FY20).

The compensation mechanism to states under GST has come under strain due to inadequate cess collection amid bleak consumer demand.

Under the law, if states’ GST revenue does not grow by at least 14 per cent over the base year of 2014-15, the Centre pays them the difference, on a bi-monthly basis for the first five years of GST implementation.

States have been up in arms with the Centre over non-payment of compensation dues, while the Union government has conveyed its inability on account of cess shortfall.

Besides dwindling cess collection in the compensation fund, the rising dependency of states on the promised GST compensation amid sharp fall in revenue due to the Covid-19 pandemic has compounded the challenge.

In FY20, the Centre used Rs 47,271-crore surplus cess from 2017-18 and 2018-19.

The compensation cess is levied on luxury and sin items such as aerated drinks, coal, paan masala, cigarettes, and automobiles over the peak rate of 28 per cent.

The government is exploring a slew of options, including borrowing from the market and extending the cess period further, to repay.

The monthly GST compensation requirement is estimated at Rs 20,250 crore in 2020-21, against Rs 13,750 crore last year.

Under the GST structure, taxes are levied under 5, 12, 18, and 28 per cent slabs. The GST Council in its meeting held in March deliberated on whether it could go for borrowing if the compensation cess collections fall short of the requirement of states. It will seek opinion on various legal issues – who will give guarantee to the borrowing, how will it be repaid, how interest is to be paid, impact on the fiscal responsibility and budget management Act, etc.

Double whammy for service companies: Required to pay GST on defaults, bad debts

Source: The Economic Times, Jun 04, 2020

MUMBAI: As customer defaults mount due to the Covid-19 crisis, Indian services companies have been dealt a twin blow: Of unpaid bills, and Goods and Services Tax (GST) liabilities on those incidents on non-payment.

Under the current GST framework, there is no provision to allow adjustments of GST paid on supplies for which recoveries are not made. Companies have to pay GST when they raise the invoice or generate the bill, which often is at least a month or two before the customer pays the money.

As companies struggle with cash flows, they have to pay GST out of their own pocket even when the customer has defaulted. So, companies are seeking relief.

“The absence of a provision for allowing adjustment of GST paid on supplies for which recoveries are not made (bad debts) is a double whammy for businesses,” said Abhishek Jain, Tax Partner, EY. “It leads to a loss on account of consideration for supply not being received, coupled with an outflow of GST from their own pocket. While this has been a concern for businesses historically, in the current economically depressed times, the government should consider relief on this aspect.”

Customer defaults have been on the rise due to the Covid-induced job losses, salary cuts, business closures, and a general breakdown in corporate payment cycles.

“Companies have to pay GST based on point of taxation and the tax payout precedes the receipt of consideration for the supply. Often, leads to a situation when the supplier ends up paying the tax for which consideration is either not received or received after significant delay, thereby causing great financial and working capital issues for several service sectors and MSMEs,” said Abhishek A Rastogi, partner at Khaitan & Co.
Once a services company, such as a telecom or credit card company, raises the invoice, it has to pay GST to the government.

For instance, a telecom company generates a bill of Rs 1,000 to a consumer in the month of February, and levies Rs 180 as GST on that. The tax is paid in March by the company. However, if the consumer refuses to pay or delays the payment, the company is stuck with the outgo of Rs 180 in taxes and Rs 1,000 in unrealized revenue.

FinMin notifies retrospective amendment in CGST Law

Source: Business Standard, May 17, 2020

New Delhi: The Finance Ministry has notified retrospective amendment in the Central Goods and Services Act (CGST Act 2017). With this amendment the Centre has bought itself to disburse the pending input tax credit.

With this amendment in Section 140 of the Central Goods and Services Tax Act relating to transitional arrangements for input tax credit has formally been made effective, so as to prescribe the time limit and the manner for availing input tax credit against certain unavailed credit under the existing law. This amendment shall take effect retrospectively from July 1, 2017.

This amendment is expected to pose problems to every one except the petitioner of that ruling for claiming all pending transitional credit (technically known as input tax credit or ITC) till June 30. The Notification for the amendment says: May 18, 2020 is the date on which the provisions of section 128 of the said Act (Finance Act 2020, shall come into force.

The fine print of this amendment makes it clear that the power to prescribe a timeline now emanates from a law enacted by Parliament and not from the sub-ordinate legislation (read law). Since the Delhi High Court order focusses on rule, that is why notification will impact the claim settlement for number of businesses except the petitioners in the matter decided on May 5.

Rajat Mohan, Partner with AMRG, said that Delhi High Court’s landmark decision on Transitional Credits in favour of taxpayers would lose its grip in light of the defect occurring due to retrospective amendments brought in by the Finance Act, 2020. The Court had reasonably declared that the time limit of 3 years under the Limitation Act was relevant for transitional credit benefit, enabling all taxpayers to claim legitimate CENVAT credit till June 30, 2020.

“This ruling would have a far-reaching impact on the stressed revenue streams of the exchequer, however, now with the retrospective amendments, the tax authorities have tightened their grip around transitional credit,” he said.

Transitional credit refers to use of tax credit accumulated up to June 30, 2017, that is, last day of the erstwhile central excise and service tax regime.

After the introduction of Goods & Services Tax (GST), a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. However, there were some conditions set. The credit will be available only if returns for the last six months — from January 2017 to June 2017 — were filed in the previous regime (that is if VAT, excise and service tax returns had been filed). And Form TRAN I (to be filed by registered persons under GST, may be registered or unregistered under the old regime) has to be filed by December 27, 2017, to carry forward the input tax credit which further March 31, 2019.

Later Commissioners were authorised to extend the date for submitting the declaration electronically in Form GST TRAN-1 but not beyond December 31, 2019. The Court had ruled that the time limit for transitional credit was only ‘directory’ and not ‘mandatory’ and not only the petitioner but all assessees can claim all pending transitional credit (technically known as input tax credit or ITC) till June 30. A ‘mandatory’ rule means it must be strictly complied while ‘directory’, means it would be sufficient for it to be substantially complied.

Govt mulls tax holiday for companies making new investments in India

Source: Business Standard, May 12, 2020

New Delhi: Even as the Narendra Modi-led central government looks at measures to support the economy amid a global coronavirus crisis, the Union commerce and ministry could be planning a tax holiday for companies that bring new investments, suggests a Bloomberg report citing unnamed sources.

The finance ministry is said to be evaluating the proposed tax holiday of 10 years, which might apply to companies making more than $500 million worth of new investments.

According to Bloomberg, the companies will need to start operations within three years from June 1 and cover sectors like medical devices, electronics, telecom equipment and capital goods to be able to avail of the benefits.


The report also speaks of another plan, where a four-year tax holiday would be given to companies investing upwards of $100 million in labour-intensive sectors like food processing, textiles, leather and footwear. Additionally, a lower corporation tax is said to be planned for next six years, at the rate of 10 per cent. The finance ministry has yet to take a final decision on this, says the report.

CBDT amends rule for speedy resolution of tax disputes under treaties

Source: Business Standard, May 08, 2020

New Delhi: The Central Board of Direct Taxes (CBDT) has amended a rule to settle disputes expeditiously under the mutual agreement procedure (MAP), which is a dispute resolution process under tax treaties. It has also revised form 34F, which is used to make an application to invoke the MAP.

The direct tax board has amended rule 44G of MAP in this regard. The amended rule states that the competent authority in India will endeavour to arrive at a mutually agreeable resolution of tax disputes, in accordance with the agreement between the country and others, within an average of 24 months.

The amended rule further states that once a resolution is arrived at, the assessee concerned should communicate his acceptance or non-acceptance within 30 days of receiving the communication.

Upon acceptance, the assessee will withdraw any appeal filed in this regard and pay the tax determined by the assessing officer.

The amended rule requires the competent authority in India to call for relevant records from the income tax authorities, assessee in the country, and also understand the action taken by authorities that are not in accordance with the terms of the agreements between New Delhi and that country.

The revised form 34F seeks details of remedy sought along with documentary evidence, in addition to assessee-specific information contained in the earlier form.

MAP is an alternative dispute resolution process under the tax treaties. Under it, competent authorities of respective countries enter into discussions to resolve the dispute, which has arisen due to any action of a tax authority not in accordance with the treaty.

Sudin Sabnis, director at Nangia Andersen, said: “The indicative timeframe of an average 24 months to resolve the dispute under MAP would encourage taxpayers to hope for a speedy dispute resolution mechanism.”

Amit Maheshwari, tax partner at AKM Global, said the MAP proceedings are increasingly becoming popular with MNCs, even as the time taken to complete them is an issue.

“Post this amendment, MAP will increasingly be used by MNCs to resolve contentious issues.”

Income Tax refunds worth Rs 4,250 crore issued in a week: CBDT

Source: Financial Express, Apr 15, 2020

The Income Tax department has issued over 10.2 lakh refunds worth Rs 4,250 crore within a week, the Central Board of Direct Taxes (CBDT) said on Wednesday. The Finance Ministry had last week said it will fast track issuance of pending income tax refunds up to Rs 5 lakh, which will benefit around 14 lakh taxpayers, to provide relief to individuals and businesses hit by COVID-19 outbreak.

The CBDT has already issued over 10.2 lakh refunds totalling to around Rs 4,250 crore as on April 14, 2020. About 1.75 lakh more refunds are in the process of issuance in this week, an official statement said.

The CBDT, which is the apex body on matters relating to personal income and corporate tax, had in last fiscal issued 2.50 crore refunds totalling Rs 1.84 lakh crore.

In around 1.74 lakh cases, email responses are awaited from taxpayers regarding reconciliation with their outstanding tax demand for which a reminder email has been sent asking them to respond within 7 days so that the refund can be processed accordingly, CBDT added.

“It may be noted that these reminder emails from I-T department are in fact for the benefit of taxpayers as it seeks them to confirm their outstanding demand, their bank accounts and reconciliation of defect/mismatch prior to issue of refund,” CBDT said.

It asked taxpayers to provide a response to such emails at the earliest so that refunds could be processed and issued at the earliest.

Taxpayers can login to their e-filing account and respond to the I-T Department.

GST collection slips below Rs 1 trillion in March after four months

Source: Business Standard, Apr 02, 2020

New Delhi: Goods and services tax (GST) collection fell below the Rs 1-trillion mark in March after a gap of four months, even as disruptions caused by the coronavirus-induced lockdown will get captured only in the coming months.

The numbers pertain to GST paid in February but collected in March, suggesting that collections might turn grimmer going forward.

The GST mop-up in March stood at Rs 97,597 crore, down 8.4 per cent on a year-on-year basis, the data released by the Ministry of Finance showed on Wednesday. The government had targeted a collection of Rs 1.25 trillion in March. GST collection grew by a meagre 3.7 per cent in the full fiscal year 2019-20.

The dismal collection in March is despite the stringent anti-evasion measures introduced by the government, including the blockage of e-way bill and restricting input tax credit to 10 per cent in the case of failure of invoice uploads by suppliers.

Already hit by an economic slowdown, the country went into a 21-day lockdown from March 24 to prevent the spread of Covid-19. All industries that were struggling have become non-operational, which will reflect in the April GST collection figures.

Kerala Finance Minister Thomas Isaac told Business Standard that the April numbers, which would essentially be transactions in March would only be about 15-20 per cent of the March figures.

Pratik Jain, partner, PwC India, said, “It seems that many businesses may not have been able to pay GST because of liquidity issues being faced after the lockdown. As the second half of March 2020 has been significantly impacted due to the Covid-19 outbreak, collections in April are likely to be substantially lower.”

In a major relief for businesses facing lockdown due to coronavirus, the last date for GST return filing for March, April and May 2020 has been extended to June 30, with no interest, late fee and penalty, for companies with up to Rs 5 crore turnover and subsidised interest of 9 per cent, and no penalty or late fees for bigger companies.

M S Mani, partner, Deloitte India, said it was necessary for businesses to conserve cash in order to enable resumption of operations once the lockdown ends. Hence, any deferral of the GST payment timelines by a few months would significantly assist them in this process, Mani said.

Central GST collection for FY20 at Rs 4.95 trillion fell Rs 18,188 crore short of revised estimates for the fiscal year. The finance ministry, in Union Budget 2020-21, had lowered the CGST collection target for FY20 to Rs 5.13 trillion from Rs 5.26 trillion estimated in July.

Of the Rs 97,597-crore revenue in March, the central GST collection stood at Rs 19,183 crore, state GST at Rs 25,601 crore and integrated GST at Rs 44,508 crore, which included Rs 18,056 crore collected on imports, the finance ministry said in a statement.

GST collection on domestic transactions witnessed an 8 per cent decline, while GST collection on imports posted a negative growth of (-)23 per cent, indicating the beginning of Covid-related supply and demand disruption.

In order to plug revenue leakages, the Council allowed blocking of input tax credit in the case of fraudulent invoices and blocking of e-way bills in the case of non-filing of returns for three straight months.

The Council in its meeting on March 14 deferred the new simplified returns and e-invoicing till October, which was to be launched from April 1. Meanwhile, in order to improve collections, the government is aiming to correct inverted duty structure. It raised the GST on mobile phones to 18 per cent from 12 per cent, bringing the rate on a par with the inputs. Lower-than-expected revenues are also putting pressure on the Centre to compensate states for the revenue shortfall. The compensation cess collection stood at Rs 8,306 crore during the month, much smaller than the approximately Rs 14,000-15,000 crore compensation required by states on a monthly basis. States are up in arms with the Centre over a delay in payment of compensation dues and are planning to drag Centre to the Supreme Court.

14% shortfall likely in direct tax mop-up

Source: The Economic Times, Apr 01, 2020

New Delhi: Collection of direct tax for the just-concluded fiscal 2020 is expected at Rs 10.1 lakh crore, well short of the government’s most recent estimate of Rs 11.7 lakh crore, officials in the know said. The near-14% shortfall, or about Rs 1.6 lakh crore, from revised target set in the budget presented on February 1 is partly because of the ongoing lockdown, which is going to weigh on collections for the final fiscal quarter. The government had collected Rs 10.34 lakh crore in direct taxes in fiscal 2019.

Though collections for the last couple of days of the financial year ended March 31 are yet to be accounted for, the total would still be well short of the revised target. “Collections are on the lower side field formations are continuing to report numbers,” said an official, asking not to be named.

The government had in the February budget presentation lowered the direct-tax collection target for the year from the initially set Rs 13.35 lakh crore to Rs 11.7 lakh crore. Collection of corporate tax was projected at Rs 6.1 lakh crore in the revised estimates against Rs 7.6 lakh crore budgeted earlier. The revised target for personal income tax was Rs 5.56 lakh crore against the initial Rs 5.69 lakh crore.

“The shortfall is not entirely unexpected and reflects a general softening of economic activities as well as partly factors in the rate cut that was given out by the finance minister earlier in the financial year,” said Rohinton Sidhwa, a partner at Deloitte Haskins & Sells. The extra time given to settle tax disputes under the ‘Vivaad Se Vishwas’ scheme may have also dented collections. The government last week extended the deadline to avail of the scheme to June 30. Earlier, the deadline to settle tax disputes without paying any penalty of interest was March 31. A second official, meanwhile, said direct-tax collections were nearing the FY 2018-19 collections. “We’re closing in on the last financial year numbers, which is a good sign,” he added.

Direct tax shortfall likely to touch a 20-year high

Source: Business Standard, Mar 31, 2020

New Delhi: India’s direct tax collection for the current fiscal year ending March 31 is likely to see a whopping shortfall of about Rs 1.5 trillion compared to the revised estimates (RE).

This is set to take place for the first time in at least two decades, derailing the government’s fiscal deficit goals.

According to senior officials, the income tax department estimates total collection to be between Rs 10.5 trillion and Rs 10.7 trillion against the revised target of Rs 11.7 trillion.

However, the exact figures may come by April 1.

Tax officials attributed the acute shortfall to the global pandemic. But even the earlier months of the year had turned out to be bad for direct tax collection.

Sources in the department said that the Vivad se Vishwas scheme, which is expected to give a leg up to collections, has not seen a single big entry so far. Since the scheme has been pushed to June, people are likely to come forward only after the lockdown is lifted.

The government had set direct tax collection target of Rs 13.5 trillion for the current financial year ( 2019-20) in the budget estimates (BE), an increase of 17 per cent over the previous year.

However, during the year, businesses and corporates witnessed significant decline in demand. This led to job losses and cut in the investment targets.

Further, change in corporate tax structure coupled with the Covid-19 outbreak has worsened the situation.

The government had to revise the BE downwards to Rs 11.7 trillion in RE on account of reduction in the corporation tax rates. This is expected to hit the exchequer by Rs 1.45 trillion and slow down the economy.

According to official figures, the tax office managed to garner Rs 9.57 trillion till March 18, a decline of 5.3 per cent over the corresponding period in the previous year.

Sources said the tax department had started making efforts after seeing a drop in the third quarter (October-December) advance tax collection payment. In the third quarter, corporation tax mop-up dropped by 5 per cent.

In January, the total collection stood at Rs 7.3 trillion.

In the fourth quarter ( January-March), advance tax payment by corporates further slipped to 10 per cent.

The shortfall may widen the Centre’s fiscal deficit, which is pegged at 3.8 per cent of GDP in the current financial year, said a government source.

Fiscal deficit surpassed the budget target for FY20 by 28.5 per cent in absolute terms by January itself. However, the focus of the government is now not on the economic situation but to arrest the Covid-19 outbreak, which has halted every activity and eroded billions. Tax experts, too, feel that the priority is not fiscal math but to contain spread of the global outbreak.

“At this point, the immediate focus is to arrest the pandemic and not the fiscal deficit. Rather, the Centre and states should lend maximum to support venerable businesses, especially small and medium enterprise and in making them solvent,” said Sudhir Kapadia, national tax leader, EY India.

“Further, government should also focus on relevant sectors such as hotels, tourism entertainment and aviation, which are completely shut during the lockdown. All in all, there is no way any country, including India, can hope for taxes and improving fiscal math. Even if the fiscal deficit widened 1-2 per cent, the focus should be on the survival of business,” Kapadia said.

Sanjay Sanghvi, partner, Khaitan & Co, said, “This unfortunate development of Covid-19 and the complete lockdown have derailed the government’s tax collections target. This fiscal year will be an exceptional and historical year for the government in terms of low tax collection and growth. However, I think the first priority for the Centre in this trying moment is to contain the spread of this pandemic.”

Covid-driven tax reliefs to cost government 2-3% of GDP

Source: The Economic Times, Mar 26, 2020

Taxation experts have welcomed the measures announced by the government, saying these steps will add up to 2-3 per cent of GDP but will go a long way in addressing the issue of liquidity and deferment of payment obligations. The government on Tuesday came out with a slew of relaxation in tax and payment compliances by reducing the quantum of penalties, extending the deadline to make clear the dues among others to help the public and corporates.

Some of the key measures include extension of tax filing/returns and accordingly all tax due arising between March 20, 2020 and June 29, 2020 now stand extended to June 30, 2020.

This is across income tax and GST, and would apply to all return filings, replies/appeal filings, and other compliance documents. For delayed payments, interest rates have been reduced to 9% under both income tax and GST.

Welcoming the measures, Deloitte said these measures will help ease the compliance pressure on businesses and individuals and provide necessary relief to critical sectors in view of the Covid outbreak.

Many analysts have said the lockdowns will shave off as much as Rs 9 lakh crore of the GDP.

Gokul Chaudhri of Deloitte India said, “These steps will certainly give a lot of confidence to corporates and different sectors of the economy.
The relief measures and easing of compliance deadlines will enable businesses to sustain themselves in the current atmosphere and is likely to have a positive impact on economic activities and more importantly remove uncertainty in the system.

“From the tax point of view, the reliefs like tax breaks, accelerated depreciation, reliefs on payrolls, payments-weighted deduction, relief on contribution to PF will add up to 2-3 percent of GDP, which is much needed to help address the issue of liquidity and deferment of payment obligations,” he said.

The move to ensure 24/7 trade facilitation at ports through the customs will not only promote ease of doing business but also ensure smooth flow of trade, he added.

Jiger Saiya, partner and leader for tax and regulatory services at BDO India, said the extension to the Vivad Se Vishwas scheme will go a long way in making the entire scheme a success as in the original form it was an impossibility to attain the objective.

“With the extension, taxmen will now have time to clarify more aspects and taxpayers will have reasonable time to evaluate and seek settlement of tax disputes, under the scheme,” Saiya said.

Veena Sivaramakrishnan of Shardul Amarchand Mangaldas & Co said the tax measures are a step in the right direction and indicate more such practical measures to come in the future.

KPMG India’s Rajeev Dimri said the various tax reliefs announced by the finance minister would provide the much needed succor to all in these unprecedented times.

Naveen Aggarwal of KPMG said extension of the deadline under Vivad Se Vishwas from March 31 to June 30 without paying additional tax of 10 per cent is a welcome move and is in line with the representations made by taxpayers and industry forums.

This would help companies save for possible financial difficulties faced by companies in this crises.

On the IBC changes, Manish Aggarwal of KPMG said changing the operative sections of the IBC will help avoid large scale insolvencies.

The government also needs to consider sector specific measures to address the cash flow & liquidity enhancement measures to help businesses withstand this period.

Stopping the process towards insolvency is necessary but not a sufficient condition to address fundamental issues facing the businesses now.

Rajesh Narain Gupta, managing partner of SNG & Partners the measures announced will lead to a positive direction and will give a boost to trade and commerce.