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2020 witnessed the sharpest contraction in global output
With cumulative loss of around USD 9 trillion, global GDP contracted from 3.5% to 4.3% in 2020
India indicated a V-Shaped recovery as its GDP contracted sharply by 15.7% decline in H1 with a modest 0.1% fall in H2
India’s GDP estimated to contract by 7.7% in FY 20-21, as compared to 4.2% growth in FY 19-20
Gradual Scaling back of lock down, Atmanirbhar Bharat Mission, Fiscal and monetary support provided by Government and RBI significantly contributed to the revival
Agriculture sector grew at 3.4% in H1 of FY 2020-21
The only sector which contributed positively to the GVA in H1
For FY 2021-22, India’s GDP is expected to grow at 11%
GDP growth
V-Shaped Growth in Indian GDP vis-à-vis Growth in world economies
World GDP Growth
AE – Advanced Economies,
EMDE – Emerging Market & Developing Economies
Fiscal deficit for FY 2020-21 was pegged at 9.5% of GDP (RE) as compared BE of 3.5%
Steep rise from 4.6% of GDP in FY 2019-20 (Provisional actuals) and 3.4% in FY 2018-19
Government spendings were ramped up post lock down to revive domestic demand
As the economy is still reviving from the effects of the pandemic, fiscal deficit for FY 2021-22 is budgeted to be on a higher side - 6.8% of GDP
It is intended to reduce fiscal deficits to below 4.5% of GDP by FY 2025-26
Fiscal deficits are proposed to be brought down by increasing buoyancy of tax revenues through improved compliance and monetization of assets, including Public sector enterprises and land
RE for Total expenditure for FY 20-21 rose to INR 34.5 lakh crores from BE of INR 30.42 lakh crores
Total expenditure grew at 11% during April-December 2020 (Flash estimates), with capital expenditure growing by 24.1% and revenue expenditure by 9.2% YoY
Fiscal Position
5.54
0
5
10
15
20
25
30
35
2020-21 (BE)
2020-21 (RE)
2021-22 (BE)
IN R
in L
ak h
C ro
re s
Revenue Expenditure Capital Expenditure
FY 2020-21 expected to bring in current account surplus of 2% of GDP
Reversing the trend of Current account deficit (CAD) which averaged 2.2% of GDP in last 10 years
Steep contraction in merchandise imports and lower outgo for travel services led to a sharper fall in current payments (by 30.8 %) than current receipts (15.1%)
Leading to a current account surplus of US$ 34.7 billion (3.1 % of GDP) in FY 20-21 H1
Increased FDI Inflows expressing confidence in the economy despite the pandemic
FY 20-21 H1 recorded net foreign inflows of USD 31.4 bn vis-à-vis USD 28.7 bn in FY 19-20 H1
April-Oct 2020 witnessed FDI inflow of USD 27.5 billion, 14.8% higher compared to preceding year
Between March to Dec 2020, INR depreciated by 4.1% in comparison with 36 currency nominal effective exchange rate (NEER), though it witnessed appreciation by 2.9% in terms of real effective exchange rate (REER)
External sector
Headline (CPI) inflation increased to 6.6% in April-Dec-20 before easing to 4.6% in Dec 2020
Mainly driven by increased food inflation of 9.1% in Apr-Dec 2020
CPI Core (non-food non-fuel) inflation declined from 5.8% in 2018-19 to 4% in 2019-20 and averaged 5.4% in Apr-Dec 20
Increase mainly driven by transport and communication service sector inflation and volatility in gold and silver prices
Wholesale Price Index (WPI ) inflation declined from 4.3% in 2018-19 to 1.7% in 2019-20 to deflation of 0.1% in Apr-Dec 20
WPI remained negative from April –July 20 and stood at 1.2% in Dec 20
Decline manly driven by fuel and power inflation and volatility in global crude oil prices
Inflation
We are having a bold Government ready to take the “bull by the horn” as it is said and would not deter from key policy initiatives and not give any knee jerk reaction.
We have 9.5 % of the GDP as fiscal deficit for 2020-21 and likely to have 6.8 % deficit in coming years, increasing our debt bill by about Rs. 19 lac Crores in 2020-21 and about Rs. 15 lac crores in 21-22.
Monetisation of the infra-structure assets would be key
We see the robust growth in coming years and international confidence on India is ever increasing and we should seize the opportunity.
The Government needs to work on the inflation – We still have high food inflation rates and with increased borrowings we may have this at risk.
Government has renewed focus on Capital Expenditure and therefore significant infra- structure creation investment would make things better in the long term.
Key Takeaways
Tax Rates
Corporate Tax Regime
Domestic Companies
- 25% regime [Sec 115BAA] 22% 10% 25.17%
- Other Companies with turnover up to INR 400 crores in FY 2019-20
25% 0% / 7% / 12% 29.12%
- Other Domestic Companies 30% 0% / 7% / 12% 34.94%
Foreign Companies 40% 0% / 2% / 5% 43.68%
All companies subject to education cess @ 4%, No Krishi Cess levied on income taxes
New Corporate Tax Regimes introduced in September 2019
Sec. 115BAB - 17% Tax Regime for New Manufacturing Companies
Eligible Companies –
Registered on or after 01 October 2019 and which commence production on or before 31 March 2023
Only engaged in eligible activities of manufacturing or production of article or thing, related research and generation of electricity
Liable to be taxed @ 15% (ETR ~ 17%) as against current rate of 25%/30% (ETR ~ 29% / 35%)
Tax on other income (Not derived from nor incidental to manufacturing or production) @ 22%
Sec. 115BAA - 25% Corporate Tax Regime, All companies eligible to opt
Liable to be taxed @ 22% (ETR ~ 25%) as against current rate of 25%/30% (ETR ~ 29% / 35%)
Not be eligible to claim Specified Tax Incentives / Deductions
Investment-linked or profit-linked incentives other than Sec 80JJAA and now Sec 80M (Dividend from Subsidiary)
Additional Depreciation
Corporate Tax Regime
Individual Tax Regime
< 2.5 Lacs 0 - -
10 to 50 Lacs 30% - 31.20%
50 Lacs to 1 Cr 30% 10% 34.32%
1 Cr to 2 Cr 30% 15% 35.88%
2 Cr to 5 Cr 30% 25% 39.00%
> 5 Cr 30% 37% 42.74%
Education cess @ 4% leviable in all cases, No Krishi Cess levied on income taxes
Option to be taxed at lower rates by foregoing certain deductions and benefits
Business Reorganization
Goodwill not eligible for depreciation
Recognises ‘Goodwill’ as asset but not eligible for Depreciation effective from AY 2021-22
Independent of mode of acquisition – Purchased / Acquired or self-generated or generated in course of merger
SC ruling in Smiff Securities Ltd. [2012] 348 ITR 302 (SC) effectively nullified
Where depreciation on goodwill claimed prior to AY 2021-22
Goodwill excluded from Block of Assets [amendment to Section 32]
Section 50 amended to prescribe manner to compute WDV for STCG on sale
However, mechanism to carry out relevant adjustment to WDV not provided for in Section 43(6)
In event of transfer of goodwill, Cost of Acquisition would be
Purchase price less depreciation already claimed in case of Purchased Goodwill (by Assessee or Previous Owner)
Nil in Other cases
Through Memorandum, Revenue has actually tried to establish their case for no Depreciation on self-generated or goodwill arising on merger
No amendment proposed u/s 43(1)
Goodwill not Depreciable
Excess realisation upon retirement of partner from partnership now taxable
Distribution of assets or money on dissolution or reconstitution of firm
Amounts received by retiring partner in excess of balance in capital account to be taxed in the hands of firm
Revaluation of assets accounted in books is to be ignored to arrive at capital account balance
Assets taken over by partner, if any, to be valued at fair market value
Relief granted at the time of actual transfer of asset for value already taxed upon partner retirement
Assets distributed to Partner even on reconstitution now taxable
Difference in Fair market value of asset and cost of acquisition taxed
Loosely drafted language can raise interpretation related issues
Absence of deeming fiction of ‘transfer of capital asset’ can raise interpretation related issues [ACIT v. Mohanbhai Pamabhai 165 ITR 166 (SC)]
Firm is charged with tax where it simply pays money to retiring partner and transfers no capital asset – genesis of charge read with computation
Value of asset for comparison with capital account balance not provided
Which value to be considered – book value, stamp duty value or market value?
Does it mean that taxable event arises only where there is gain?
Reconstitution of Firm / AOP / BOI
Slump sale to include Slump exchanges, to be taxed u/s 50B
Several rulings held slump exchange non-taxable due to failure of computation mechanism
Bennett Coleman & Co Ltd v ACIT (2018) 168 ITD 0631
CIT vs Bharat Bijlee Ltd [TS-270-HC-2014(BOM)]
Slump Exchange
Personal Tax
Withdrawal of exemption on ULIPs issued after Feb 1, 2021 if aggregate premiums > INR 2.5 Lacs in any year
Profits and gains on maturity of ULIPs taxable as capital gains @ 10% u/s 112A
Exemption u/s 10(10D) continues in case of death of policyholder
Interest on PPF and EPF contributions taxable if contributions exceed INR 2.5 Lacs in any year from April 1, 2021 onwards
Advance tax liability on dividends to arise only after declaration / payment of dividends
LTC exemption in respect of non-travel expenditure
In line with announcement made in October, rules yet to be framed
TDS to be made from interest income of citizens above 75 years only if they would have taxable income
Only if they have pension and interest income from same bank
TDS as per applicable rates in force
Return of Income also not required
Personal Tax
Amount spent out of Corpus contribution not to be regarded as ‘application of income’
However, reinstatement of such amount to Corpus fund subsequently will be treated as application
Similarly, any amount spent out of borrowed funds to be regarded as application of income upon repayment of borrowings
Exemption u/s 10(23C) on receipt from charitable purposes increased from INR 1 crore to INR 5 crore
Threshold limit of INR 5 crore applicable qua trust vis-à-vis previous threshold applicable qua university / hospital / institution
Charity & NGOs
International Tax
Non Resident E-commerce operator subjected to pay 2% Equalisation Levy in respect of online supply of goods or online provision of services
E-commerce operator means NR who owns, operates or manages digitial or electronic facility or platform for online sale of goods or online provision of services or both
Scope expanded w.e.f. April 1, 2020 through Explanation
Online sale of goods and provision of services to include one or more activities done online -
Acceptance of offer for sale
placing purchase order
Payment of consideration
Supply of goods or provision of services in part or whole
Equalisation Levy
Consideration subject to levy includes
Consideration for sale of goods / provision of service irrespective of whether e-commerce operator
Owns the goods or
Provides services or
Facilitates the services
Income from e-commerce supply or services chargeable to tax as royalty / FTS not to be subject to equalisation levy
To be taxed under income tax provisions taking into consideration DTAA provisions
Amendments to be retrospective w.e.f. April 1, 2020
Equalisation Levy
Re-introduction of Significant Economic Presence (SEP) with larger scope w.e.f. April 1, 2021
SEP shall mean
Transaction in respect of any goods, services or property carried out by a non-resident with any person in India if the aggregate payment exceed prescribed amount
Systematic and continuous soliciting of business activities or engaged in interaction with prescribed number of users in India
Significant overlap with transactions subject to Equalisation Levy
SEP not only covers online transactions but also physical transactions
However, transaction subject to Equalisation Levy not subject to Income Tax u/s. 10(50)
The expanded scope of SEP seeks to alter the very concept of ‘Business Connection’
Doing Business in India v. Doing Business with India
Taxing the income from transactions primarily on the ground of India being market (source of income)
Significant Economic Presence
Person considered “Liable to Tax” if tax liability imposed or exempted post imposition
Relevant in claiming DTAA benefits in countries with zero income taxes
DTAA benefits questionable where a country does not impose tax on income
Relevant also for amended Section 6 for NRI Taxation last year
However, with restricted scope of chargeability, it may not have any impact
Dividend payment to FII
Eligible for Treaty Benefit
Contrary ruling of Supreme Court in case of PILCOM nullified
Overseas Retirement Accounts to get relief
Modalities for the same to be prescribed
Non-Resident Taxation
Exemption for transactions with / by IFSC Units [*commencing operations before March 31, 2024]
Royalty for lease of aircraft paid by IFSC Unit*
Income attributable to Investment Division of Offshore Banking Units*
Gain on transfer of forward contracts with OBU which fulfils prescribed conditions
Gain on transfer of capital asset by Original Fund (overseas) to Resulting Fund (IFSC)
Gain on transfer of share / unit / interest in Original Fund in exchange for share / unit / interest in Resulting Fund
Grandfathering of Capital Gains exemption that would have been available had the Fund not relocated to IFSC
Gain on transfer of aircraft / aircraft engine leased to domestic airlines*
Relaxation in condition for Fund & Fund Managers u/s. 9A
IFSC Units
Business Tax
Only Individuals, HUFs and partnership firms (excluding LLPs) eligible for presumptive taxation on income from profession
Deems 50% of receipt as income, where gross receipts < INR 50 Lacs
Delayed deposit of employees’ contribution to EPF, superannuation fund, ESI or other employee welfare funds beyond statutory deadlines to be disallowed permanently
Excluded from being allowed u/s 43B on subsequent payment / deposit
Limits for exemption of tax audit increased from INR 5 crores to INR 10 crores where > 95% of receipts and payments are in modes other than cash
Tax audit continue to apply in cases where turnover or gross receipts > INR 1 crore if cash receipts and payments > 5%
Taxation of Business Profits
Book profits for MAT to be recomputed for past years where current year book profits include adjustments on account of APA / Secondary transfer pricing adjustment
Application to be made to give effect
Variation permitted from Stamp Duty value in case of residential property increased to 20% from 10%
For transfer between 12 Nov 2020 to 30 June 2021
First time allotment only
Taxation of Business Profits
Buyer to deduct TDS @ 0.1% on aggregate purchase of goods > INR 50 Lakhs in a year [Section 194Q]
Applicable to buyers with turnover / gross receipts > INR 10 crores
Not applicable if TDS / TCS [other than 206C(1H)] applicable under any other section
Effectively, TCS on sale of Goods [introduced last year] would have very limited application
Higher withholding @ 5% in non PAN cases
Higher TDS and TCS in case of non-filers of return [Section 206AB / 206CCA]
TDS @ twice the applicable TDS / TCS rate or 5%, whichever is higher
Applicable if
Payee does not file returns for 2 or more consecutive AYs preceding relevant financial year; and
Aggregate TDS / TCS in each of the 2 preceding years > INR 50,000
If PAN is not available, TDS at higher of 20% or rate as per Section 206AB is to be applied
Not applicable to non-residents not having PE in India
Tax Withholding
Incentives for Start Ups
1 year extension of exemption u/s 54GB for transfer of residential house for investment in start up
Extension of Sunset clause for incorporation of start ups, for deduction u/s 80-IAC for profits from eligible business, by one year to March 31, 2022
Incentives for Affordable Housing
Deduction for Interest on housing loan extended to loans sanctioned upto March 31, 2022
Deduction upto INR 1.5 Lacs for residential houses with stamp duty value < INR 45 Lacs
Sunset clause for approvals for affordable housing project for tax holiday extended to March 31, 2022
100% Deduction introduced on profits from developing and building rental housing projects approved prior to March 31, 2022
Tax Incentives
Filing & Compliances
Return filing due date for Partners aligned with due dates applicable to firms subject to TP
30th November to be revised due date for partners
Belated returns and Revised returns to be filed by December 31 of AY
Timeline for Notice and assessments
Intimation u/s 143(1) - 9 months (from 12 months) from the end of FY Return filing
Issuance of notice u/s 143(2) - 3 months (from 6 months) from the end of FY Return filing
Assessment u/s. 143(3) / 144 - 9 months (from 12 months) from the end of AY
Due date for completion of Assessments u/s. 143(3) (non-TP cases)
AY 2018-19 – March 31, 2021
AY 2019-20 – March 31, 2021
AY 2020-21 – March 31, 2022
AY 2021-22 – December 31, 2022
Rationalisation of Timelines
Reassessment proceedings for income escaping assessment revamped
Tax payers to be provided opportunity of being heard prior to reopening except in search cases
Judicial law now brought to Statute book
Requires prior approval from PCIT / CIT or PDIT / DIT
AO to possess information which suggests that income has escaped assessment
More concrete compared to the phrase ‘ Reason to believe’ that income escaped assessment
Stricter norms to exercise extra-ordinary jurisdiction
Information that suggest escapement means –
Information flagged in case of assessee for the relevant AY as per risk management strategy
Final objection raised by C&AG for the relevant AY
Reassessments and Search Assessments
Period of limitations in normal cases reduced from 4 / 6 years to 3 years from end of AY
Reassessment beyond 3 years but within 10 years
Only in specific cases where AO possesses evidence
Books / evidence revealing income having escaped assessment of INR 50 Lacs or more
Represented in form of Asset
Reopening up to 16 years in case of escapement of foreign assets income discontinued
Provisions deeming culpable mind replaced with requirement of positive evidences of evasion to exercise jurisdiction u/s. 148
Move to system based approach (based on risk management approach of Board)
Assessment u/s. 153A and 153C in case of search and seizure to be discontinued w.e.f. AY 2021-22
Reassessment proceedings in search cases, no separate search assessment proceedings
Reassessments and Search Assessments
Faceless proceedings at ITAT
Dispute Resolution for Committee for Small and Medium Tax payers
Where returned income < INR 50 lacs, variation proposed < INR 10 Lacs
Not applicable in search, survey, seizure or Information exchange under DTAA cases
DRC to have authority to reduce or waive penalties, immunity from prosecution under IT Act
Discontinuation of Settlement Commission from Feb 1, 2021
Interim Board for settlement of pending applications comprising 3 members of rank of CCIT
Option to taxpayer to withdraw pending applications within 3 months from Finance Act 2021
Board for Advance Rulings comprising 2 officers of rank of CCIT to replace AAR
AARs comprised of Chairman being retired judge of SC / HC, 1 revenue member and 1 law member
Rulings of Board to be non-binding on taxpayer and tax authorities, can be challenged before High Court
Would BAR serve purpose of providing tax certainty?
New ways to Dispute Resolutions
Goods & Services Tax
New clause inserted to provide that ITC shall be allowed to a recipient only if the supplier furnishes the details of outward supplies in the returns filed by him (Section 16 (2) (aa) of CGST Act)
Interest on delayed payment of tax shall be payable on the net liability paid in cash. This amendment was brought in the last year was but not clearly made retrospective. This ambiguity is now proposed to be removed by making it retrospectively applicable from 1 July 2017 (Section 50 (1) of CGST Act)
Activities or transactions by a person to its members or vice-a-versa for consideration has been specifically included in the scope of supply. Parallel amendment also made by omitting Para 7 of Schedule II (Section 7(aa) of CGST Act)
Certification of reconciliation statement in form GSTR 9C by specified persons is proposed to be removed. The Annual return will now include a self-certified reconciliation of the turnover with the financial statements. (Section 35(5) & 44 of CGST Act).
Goods & Services Tax
Tax liability declared in GSTR 1 but not included in GSTR 3B can be recovered under Section 79 (Explanation defining “self assessed tax” under Section 75).
Section 73 and 74 allowed closure of cases for all co-notices where the proceedings against the main noticee were concluded. It is proposed now that cases of detention and confiscation under Section 129 and 130 shall continue even where the main noticee has paid tax along with interest and penalty (Explanation to Section 74).
An appeal against the order of detention /seizure of goods or conveyance under Section 129 shall be filed after payment of 25% of penalty as a pre-deposit (Section 107 of CGST Act).
Penalty leviable for release of goods in case of detention increased to 200% (Section 130 of CGST Act)
Goods & Services Tax
Supplies made to SEZ developers or SEZ units to be eligible for zero rating only if such supplies are for authorized operations of the SEZ developers or SEZ units (Section 16 (1) of IGST Act)
Refund of unutilized ITC claimed by a person making zero rated supplies to be paid back along with interest in case of non receipt of export proceedings within 30 days of the time frame stipulated under FEMA. (Section 16(3) of IGST Act).
Export of goods/service with payment of IGST to be restricted to notified:
Class of taxpayers
Class of goods/service
Goods & Services Tax
Conditional Exemption notifications under Customs to have 2 years validity (Section 25(4A) of Customs Act)
All conditional notifications under Customs to expire after 31st March falling immediately two years after the date of exemption notification unless otherwise specified
All the existing conditional Customs exemptions shall be valid till 31st March 2023 unless otherwise specified or varied or rescinded
The time limit to file a Bill of Entry has been changed to one day before (including holiday) the arrival of goods at the customs station as against the present time limit which is the end of the next day (excluding holiday) following the day on which the aircraft, vessel or vehicle arrives at the customs port. (Section 46(3) of Customs Act)
Agriculture Infrastructure and Development Cess ranging from 1.5% to 100% introduced on limited category of goods such as crude oil, alcohol, coal, lignite, peat, ammonium nitrate, urea etc. The said Cess shall not apply in case where the goods are imported under Advance Authorization. (Clause 115 of Finance Bill)
Customs
As it is in GST, a common portal is notified for various processes and proceedings such as issuance of summons, notice, service of order, filing of Bill of Entry, Shipping Bills, registrations, amendments etc. (Section 149, 153(1)(ca) and 154C of Customs Act)
Penalty of up to 5 times of refund claimed in case where refund of unutilized ITC has been claimed on the basis of fraudulent invoice or willful misstatement or suppression of facts. Parallel penalty exists under the GST Act also. (Section 114AC of Customs Act)
Customs
Budget has carried on the trend of making thematic changes to the Customs tariff
The Finance Minister’s noted that these changes are aimed to augment Make in India and vision of Atmanirbhar Bharat programs.
Majority of the changes to the tariff are as below:
Increase in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
Electrical and Electronic Sector
Compressors equipment used in Refrigerating & in air-conditioning equipment From 12.5% to 15%
Printed Circuit Board Assembly of charger or adapter From 10% to 15%
Automobiles
• Safety glass, consisting of toughened (tempered) or laminated glass • Parts of Electrical lighting and signaling equipment, windscreen wipers, defrosters and demisters, of a kind
used for cycles or motor vehicle • Ignition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships • Instrument Panel Clocks and Clocks of a similar type for vehicles, Aircraft, Spacecraft or Vessels
From 10% to 15%
Increase in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
IT, Electronics and Renewable
Specified insulated wires and cables From 7.5% to 10%
Inputs or parts for manufacture of Printed Circuit Board Assembly (PCBA) of cellular mobile phone, Inputs or raw material for manufacture of specified parts like back cover, side keys etc. of cellular mobile phone Inputs or raw materials (other than Lithium-ion cell and PCBA) of Lithium- ion battery or battery pack Parts or components of PCBA of Lithium-ion battery or battery pack
From 0% to 2.5% (w.e.f. 1 April 2021)
Capital Goods
Parts and components for manufacture of tunnel boring machines with actual-user condition From 0 to 2.5%
Tunnel boring machines From 0 to 7.5%
Decrease in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
Metals
Iron and steel scrap, including stainless steel scrap Raw materials for use in manufacture of CRGO steel
From 2.5% to 0
Primary/Semi-finished products of non-alloy steel Flat products of non-alloy and alloy steel Long product of non-alloy, stainless and alloy steel
From 10/12.5% to 7.5%
Screw, bolts, nuts, etc. of iron and steel From 10% to 15%
Project Import Scheme
High Speed Rail Projects being brought under project imports From Applicable rate to 5%
Ahmedabad Arpit Jain Level 11, Tower B, Ratnaakar Nine Square, Vastrapur, Ahmedabad 380 015, India Email: [email protected]
Bengaluru Payal Shah 19/4, 4th Main, Between 7th & 8th Cross, Malleshwaram, Bengaluru 560 003, INDIA Phone: +91 80 23561880 Email: [email protected]
Mumbai Vishal Doshi 508, The Summit Business Bay, Nr. WEH Metro Station, Gundavali, Andheri East, Mumbai 400069 INDIA Phone: +91 22 26125834 Email: [email protected]
Vadodara Milin Mehta Meghdhanush, Race Course, Vadodara 390 007, INDIA Phone: +91 265 2341626 / 2440400 Email: [email protected]
website: www.kcmehta.com
With cumulative loss of around USD 9 trillion, global GDP contracted from 3.5% to 4.3% in 2020
India indicated a V-Shaped recovery as its GDP contracted sharply by 15.7% decline in H1 with a modest 0.1% fall in H2
India’s GDP estimated to contract by 7.7% in FY 20-21, as compared to 4.2% growth in FY 19-20
Gradual Scaling back of lock down, Atmanirbhar Bharat Mission, Fiscal and monetary support provided by Government and RBI significantly contributed to the revival
Agriculture sector grew at 3.4% in H1 of FY 2020-21
The only sector which contributed positively to the GVA in H1
For FY 2021-22, India’s GDP is expected to grow at 11%
GDP growth
V-Shaped Growth in Indian GDP vis-à-vis Growth in world economies
World GDP Growth
AE – Advanced Economies,
EMDE – Emerging Market & Developing Economies
Fiscal deficit for FY 2020-21 was pegged at 9.5% of GDP (RE) as compared BE of 3.5%
Steep rise from 4.6% of GDP in FY 2019-20 (Provisional actuals) and 3.4% in FY 2018-19
Government spendings were ramped up post lock down to revive domestic demand
As the economy is still reviving from the effects of the pandemic, fiscal deficit for FY 2021-22 is budgeted to be on a higher side - 6.8% of GDP
It is intended to reduce fiscal deficits to below 4.5% of GDP by FY 2025-26
Fiscal deficits are proposed to be brought down by increasing buoyancy of tax revenues through improved compliance and monetization of assets, including Public sector enterprises and land
RE for Total expenditure for FY 20-21 rose to INR 34.5 lakh crores from BE of INR 30.42 lakh crores
Total expenditure grew at 11% during April-December 2020 (Flash estimates), with capital expenditure growing by 24.1% and revenue expenditure by 9.2% YoY
Fiscal Position
5.54
0
5
10
15
20
25
30
35
2020-21 (BE)
2020-21 (RE)
2021-22 (BE)
IN R
in L
ak h
C ro
re s
Revenue Expenditure Capital Expenditure
FY 2020-21 expected to bring in current account surplus of 2% of GDP
Reversing the trend of Current account deficit (CAD) which averaged 2.2% of GDP in last 10 years
Steep contraction in merchandise imports and lower outgo for travel services led to a sharper fall in current payments (by 30.8 %) than current receipts (15.1%)
Leading to a current account surplus of US$ 34.7 billion (3.1 % of GDP) in FY 20-21 H1
Increased FDI Inflows expressing confidence in the economy despite the pandemic
FY 20-21 H1 recorded net foreign inflows of USD 31.4 bn vis-à-vis USD 28.7 bn in FY 19-20 H1
April-Oct 2020 witnessed FDI inflow of USD 27.5 billion, 14.8% higher compared to preceding year
Between March to Dec 2020, INR depreciated by 4.1% in comparison with 36 currency nominal effective exchange rate (NEER), though it witnessed appreciation by 2.9% in terms of real effective exchange rate (REER)
External sector
Headline (CPI) inflation increased to 6.6% in April-Dec-20 before easing to 4.6% in Dec 2020
Mainly driven by increased food inflation of 9.1% in Apr-Dec 2020
CPI Core (non-food non-fuel) inflation declined from 5.8% in 2018-19 to 4% in 2019-20 and averaged 5.4% in Apr-Dec 20
Increase mainly driven by transport and communication service sector inflation and volatility in gold and silver prices
Wholesale Price Index (WPI ) inflation declined from 4.3% in 2018-19 to 1.7% in 2019-20 to deflation of 0.1% in Apr-Dec 20
WPI remained negative from April –July 20 and stood at 1.2% in Dec 20
Decline manly driven by fuel and power inflation and volatility in global crude oil prices
Inflation
We are having a bold Government ready to take the “bull by the horn” as it is said and would not deter from key policy initiatives and not give any knee jerk reaction.
We have 9.5 % of the GDP as fiscal deficit for 2020-21 and likely to have 6.8 % deficit in coming years, increasing our debt bill by about Rs. 19 lac Crores in 2020-21 and about Rs. 15 lac crores in 21-22.
Monetisation of the infra-structure assets would be key
We see the robust growth in coming years and international confidence on India is ever increasing and we should seize the opportunity.
The Government needs to work on the inflation – We still have high food inflation rates and with increased borrowings we may have this at risk.
Government has renewed focus on Capital Expenditure and therefore significant infra- structure creation investment would make things better in the long term.
Key Takeaways
Tax Rates
Corporate Tax Regime
Domestic Companies
- 25% regime [Sec 115BAA] 22% 10% 25.17%
- Other Companies with turnover up to INR 400 crores in FY 2019-20
25% 0% / 7% / 12% 29.12%
- Other Domestic Companies 30% 0% / 7% / 12% 34.94%
Foreign Companies 40% 0% / 2% / 5% 43.68%
All companies subject to education cess @ 4%, No Krishi Cess levied on income taxes
New Corporate Tax Regimes introduced in September 2019
Sec. 115BAB - 17% Tax Regime for New Manufacturing Companies
Eligible Companies –
Registered on or after 01 October 2019 and which commence production on or before 31 March 2023
Only engaged in eligible activities of manufacturing or production of article or thing, related research and generation of electricity
Liable to be taxed @ 15% (ETR ~ 17%) as against current rate of 25%/30% (ETR ~ 29% / 35%)
Tax on other income (Not derived from nor incidental to manufacturing or production) @ 22%
Sec. 115BAA - 25% Corporate Tax Regime, All companies eligible to opt
Liable to be taxed @ 22% (ETR ~ 25%) as against current rate of 25%/30% (ETR ~ 29% / 35%)
Not be eligible to claim Specified Tax Incentives / Deductions
Investment-linked or profit-linked incentives other than Sec 80JJAA and now Sec 80M (Dividend from Subsidiary)
Additional Depreciation
Corporate Tax Regime
Individual Tax Regime
< 2.5 Lacs 0 - -
10 to 50 Lacs 30% - 31.20%
50 Lacs to 1 Cr 30% 10% 34.32%
1 Cr to 2 Cr 30% 15% 35.88%
2 Cr to 5 Cr 30% 25% 39.00%
> 5 Cr 30% 37% 42.74%
Education cess @ 4% leviable in all cases, No Krishi Cess levied on income taxes
Option to be taxed at lower rates by foregoing certain deductions and benefits
Business Reorganization
Goodwill not eligible for depreciation
Recognises ‘Goodwill’ as asset but not eligible for Depreciation effective from AY 2021-22
Independent of mode of acquisition – Purchased / Acquired or self-generated or generated in course of merger
SC ruling in Smiff Securities Ltd. [2012] 348 ITR 302 (SC) effectively nullified
Where depreciation on goodwill claimed prior to AY 2021-22
Goodwill excluded from Block of Assets [amendment to Section 32]
Section 50 amended to prescribe manner to compute WDV for STCG on sale
However, mechanism to carry out relevant adjustment to WDV not provided for in Section 43(6)
In event of transfer of goodwill, Cost of Acquisition would be
Purchase price less depreciation already claimed in case of Purchased Goodwill (by Assessee or Previous Owner)
Nil in Other cases
Through Memorandum, Revenue has actually tried to establish their case for no Depreciation on self-generated or goodwill arising on merger
No amendment proposed u/s 43(1)
Goodwill not Depreciable
Excess realisation upon retirement of partner from partnership now taxable
Distribution of assets or money on dissolution or reconstitution of firm
Amounts received by retiring partner in excess of balance in capital account to be taxed in the hands of firm
Revaluation of assets accounted in books is to be ignored to arrive at capital account balance
Assets taken over by partner, if any, to be valued at fair market value
Relief granted at the time of actual transfer of asset for value already taxed upon partner retirement
Assets distributed to Partner even on reconstitution now taxable
Difference in Fair market value of asset and cost of acquisition taxed
Loosely drafted language can raise interpretation related issues
Absence of deeming fiction of ‘transfer of capital asset’ can raise interpretation related issues [ACIT v. Mohanbhai Pamabhai 165 ITR 166 (SC)]
Firm is charged with tax where it simply pays money to retiring partner and transfers no capital asset – genesis of charge read with computation
Value of asset for comparison with capital account balance not provided
Which value to be considered – book value, stamp duty value or market value?
Does it mean that taxable event arises only where there is gain?
Reconstitution of Firm / AOP / BOI
Slump sale to include Slump exchanges, to be taxed u/s 50B
Several rulings held slump exchange non-taxable due to failure of computation mechanism
Bennett Coleman & Co Ltd v ACIT (2018) 168 ITD 0631
CIT vs Bharat Bijlee Ltd [TS-270-HC-2014(BOM)]
Slump Exchange
Personal Tax
Withdrawal of exemption on ULIPs issued after Feb 1, 2021 if aggregate premiums > INR 2.5 Lacs in any year
Profits and gains on maturity of ULIPs taxable as capital gains @ 10% u/s 112A
Exemption u/s 10(10D) continues in case of death of policyholder
Interest on PPF and EPF contributions taxable if contributions exceed INR 2.5 Lacs in any year from April 1, 2021 onwards
Advance tax liability on dividends to arise only after declaration / payment of dividends
LTC exemption in respect of non-travel expenditure
In line with announcement made in October, rules yet to be framed
TDS to be made from interest income of citizens above 75 years only if they would have taxable income
Only if they have pension and interest income from same bank
TDS as per applicable rates in force
Return of Income also not required
Personal Tax
Amount spent out of Corpus contribution not to be regarded as ‘application of income’
However, reinstatement of such amount to Corpus fund subsequently will be treated as application
Similarly, any amount spent out of borrowed funds to be regarded as application of income upon repayment of borrowings
Exemption u/s 10(23C) on receipt from charitable purposes increased from INR 1 crore to INR 5 crore
Threshold limit of INR 5 crore applicable qua trust vis-à-vis previous threshold applicable qua university / hospital / institution
Charity & NGOs
International Tax
Non Resident E-commerce operator subjected to pay 2% Equalisation Levy in respect of online supply of goods or online provision of services
E-commerce operator means NR who owns, operates or manages digitial or electronic facility or platform for online sale of goods or online provision of services or both
Scope expanded w.e.f. April 1, 2020 through Explanation
Online sale of goods and provision of services to include one or more activities done online -
Acceptance of offer for sale
placing purchase order
Payment of consideration
Supply of goods or provision of services in part or whole
Equalisation Levy
Consideration subject to levy includes
Consideration for sale of goods / provision of service irrespective of whether e-commerce operator
Owns the goods or
Provides services or
Facilitates the services
Income from e-commerce supply or services chargeable to tax as royalty / FTS not to be subject to equalisation levy
To be taxed under income tax provisions taking into consideration DTAA provisions
Amendments to be retrospective w.e.f. April 1, 2020
Equalisation Levy
Re-introduction of Significant Economic Presence (SEP) with larger scope w.e.f. April 1, 2021
SEP shall mean
Transaction in respect of any goods, services or property carried out by a non-resident with any person in India if the aggregate payment exceed prescribed amount
Systematic and continuous soliciting of business activities or engaged in interaction with prescribed number of users in India
Significant overlap with transactions subject to Equalisation Levy
SEP not only covers online transactions but also physical transactions
However, transaction subject to Equalisation Levy not subject to Income Tax u/s. 10(50)
The expanded scope of SEP seeks to alter the very concept of ‘Business Connection’
Doing Business in India v. Doing Business with India
Taxing the income from transactions primarily on the ground of India being market (source of income)
Significant Economic Presence
Person considered “Liable to Tax” if tax liability imposed or exempted post imposition
Relevant in claiming DTAA benefits in countries with zero income taxes
DTAA benefits questionable where a country does not impose tax on income
Relevant also for amended Section 6 for NRI Taxation last year
However, with restricted scope of chargeability, it may not have any impact
Dividend payment to FII
Eligible for Treaty Benefit
Contrary ruling of Supreme Court in case of PILCOM nullified
Overseas Retirement Accounts to get relief
Modalities for the same to be prescribed
Non-Resident Taxation
Exemption for transactions with / by IFSC Units [*commencing operations before March 31, 2024]
Royalty for lease of aircraft paid by IFSC Unit*
Income attributable to Investment Division of Offshore Banking Units*
Gain on transfer of forward contracts with OBU which fulfils prescribed conditions
Gain on transfer of capital asset by Original Fund (overseas) to Resulting Fund (IFSC)
Gain on transfer of share / unit / interest in Original Fund in exchange for share / unit / interest in Resulting Fund
Grandfathering of Capital Gains exemption that would have been available had the Fund not relocated to IFSC
Gain on transfer of aircraft / aircraft engine leased to domestic airlines*
Relaxation in condition for Fund & Fund Managers u/s. 9A
IFSC Units
Business Tax
Only Individuals, HUFs and partnership firms (excluding LLPs) eligible for presumptive taxation on income from profession
Deems 50% of receipt as income, where gross receipts < INR 50 Lacs
Delayed deposit of employees’ contribution to EPF, superannuation fund, ESI or other employee welfare funds beyond statutory deadlines to be disallowed permanently
Excluded from being allowed u/s 43B on subsequent payment / deposit
Limits for exemption of tax audit increased from INR 5 crores to INR 10 crores where > 95% of receipts and payments are in modes other than cash
Tax audit continue to apply in cases where turnover or gross receipts > INR 1 crore if cash receipts and payments > 5%
Taxation of Business Profits
Book profits for MAT to be recomputed for past years where current year book profits include adjustments on account of APA / Secondary transfer pricing adjustment
Application to be made to give effect
Variation permitted from Stamp Duty value in case of residential property increased to 20% from 10%
For transfer between 12 Nov 2020 to 30 June 2021
First time allotment only
Taxation of Business Profits
Buyer to deduct TDS @ 0.1% on aggregate purchase of goods > INR 50 Lakhs in a year [Section 194Q]
Applicable to buyers with turnover / gross receipts > INR 10 crores
Not applicable if TDS / TCS [other than 206C(1H)] applicable under any other section
Effectively, TCS on sale of Goods [introduced last year] would have very limited application
Higher withholding @ 5% in non PAN cases
Higher TDS and TCS in case of non-filers of return [Section 206AB / 206CCA]
TDS @ twice the applicable TDS / TCS rate or 5%, whichever is higher
Applicable if
Payee does not file returns for 2 or more consecutive AYs preceding relevant financial year; and
Aggregate TDS / TCS in each of the 2 preceding years > INR 50,000
If PAN is not available, TDS at higher of 20% or rate as per Section 206AB is to be applied
Not applicable to non-residents not having PE in India
Tax Withholding
Incentives for Start Ups
1 year extension of exemption u/s 54GB for transfer of residential house for investment in start up
Extension of Sunset clause for incorporation of start ups, for deduction u/s 80-IAC for profits from eligible business, by one year to March 31, 2022
Incentives for Affordable Housing
Deduction for Interest on housing loan extended to loans sanctioned upto March 31, 2022
Deduction upto INR 1.5 Lacs for residential houses with stamp duty value < INR 45 Lacs
Sunset clause for approvals for affordable housing project for tax holiday extended to March 31, 2022
100% Deduction introduced on profits from developing and building rental housing projects approved prior to March 31, 2022
Tax Incentives
Filing & Compliances
Return filing due date for Partners aligned with due dates applicable to firms subject to TP
30th November to be revised due date for partners
Belated returns and Revised returns to be filed by December 31 of AY
Timeline for Notice and assessments
Intimation u/s 143(1) - 9 months (from 12 months) from the end of FY Return filing
Issuance of notice u/s 143(2) - 3 months (from 6 months) from the end of FY Return filing
Assessment u/s. 143(3) / 144 - 9 months (from 12 months) from the end of AY
Due date for completion of Assessments u/s. 143(3) (non-TP cases)
AY 2018-19 – March 31, 2021
AY 2019-20 – March 31, 2021
AY 2020-21 – March 31, 2022
AY 2021-22 – December 31, 2022
Rationalisation of Timelines
Reassessment proceedings for income escaping assessment revamped
Tax payers to be provided opportunity of being heard prior to reopening except in search cases
Judicial law now brought to Statute book
Requires prior approval from PCIT / CIT or PDIT / DIT
AO to possess information which suggests that income has escaped assessment
More concrete compared to the phrase ‘ Reason to believe’ that income escaped assessment
Stricter norms to exercise extra-ordinary jurisdiction
Information that suggest escapement means –
Information flagged in case of assessee for the relevant AY as per risk management strategy
Final objection raised by C&AG for the relevant AY
Reassessments and Search Assessments
Period of limitations in normal cases reduced from 4 / 6 years to 3 years from end of AY
Reassessment beyond 3 years but within 10 years
Only in specific cases where AO possesses evidence
Books / evidence revealing income having escaped assessment of INR 50 Lacs or more
Represented in form of Asset
Reopening up to 16 years in case of escapement of foreign assets income discontinued
Provisions deeming culpable mind replaced with requirement of positive evidences of evasion to exercise jurisdiction u/s. 148
Move to system based approach (based on risk management approach of Board)
Assessment u/s. 153A and 153C in case of search and seizure to be discontinued w.e.f. AY 2021-22
Reassessment proceedings in search cases, no separate search assessment proceedings
Reassessments and Search Assessments
Faceless proceedings at ITAT
Dispute Resolution for Committee for Small and Medium Tax payers
Where returned income < INR 50 lacs, variation proposed < INR 10 Lacs
Not applicable in search, survey, seizure or Information exchange under DTAA cases
DRC to have authority to reduce or waive penalties, immunity from prosecution under IT Act
Discontinuation of Settlement Commission from Feb 1, 2021
Interim Board for settlement of pending applications comprising 3 members of rank of CCIT
Option to taxpayer to withdraw pending applications within 3 months from Finance Act 2021
Board for Advance Rulings comprising 2 officers of rank of CCIT to replace AAR
AARs comprised of Chairman being retired judge of SC / HC, 1 revenue member and 1 law member
Rulings of Board to be non-binding on taxpayer and tax authorities, can be challenged before High Court
Would BAR serve purpose of providing tax certainty?
New ways to Dispute Resolutions
Goods & Services Tax
New clause inserted to provide that ITC shall be allowed to a recipient only if the supplier furnishes the details of outward supplies in the returns filed by him (Section 16 (2) (aa) of CGST Act)
Interest on delayed payment of tax shall be payable on the net liability paid in cash. This amendment was brought in the last year was but not clearly made retrospective. This ambiguity is now proposed to be removed by making it retrospectively applicable from 1 July 2017 (Section 50 (1) of CGST Act)
Activities or transactions by a person to its members or vice-a-versa for consideration has been specifically included in the scope of supply. Parallel amendment also made by omitting Para 7 of Schedule II (Section 7(aa) of CGST Act)
Certification of reconciliation statement in form GSTR 9C by specified persons is proposed to be removed. The Annual return will now include a self-certified reconciliation of the turnover with the financial statements. (Section 35(5) & 44 of CGST Act).
Goods & Services Tax
Tax liability declared in GSTR 1 but not included in GSTR 3B can be recovered under Section 79 (Explanation defining “self assessed tax” under Section 75).
Section 73 and 74 allowed closure of cases for all co-notices where the proceedings against the main noticee were concluded. It is proposed now that cases of detention and confiscation under Section 129 and 130 shall continue even where the main noticee has paid tax along with interest and penalty (Explanation to Section 74).
An appeal against the order of detention /seizure of goods or conveyance under Section 129 shall be filed after payment of 25% of penalty as a pre-deposit (Section 107 of CGST Act).
Penalty leviable for release of goods in case of detention increased to 200% (Section 130 of CGST Act)
Goods & Services Tax
Supplies made to SEZ developers or SEZ units to be eligible for zero rating only if such supplies are for authorized operations of the SEZ developers or SEZ units (Section 16 (1) of IGST Act)
Refund of unutilized ITC claimed by a person making zero rated supplies to be paid back along with interest in case of non receipt of export proceedings within 30 days of the time frame stipulated under FEMA. (Section 16(3) of IGST Act).
Export of goods/service with payment of IGST to be restricted to notified:
Class of taxpayers
Class of goods/service
Goods & Services Tax
Conditional Exemption notifications under Customs to have 2 years validity (Section 25(4A) of Customs Act)
All conditional notifications under Customs to expire after 31st March falling immediately two years after the date of exemption notification unless otherwise specified
All the existing conditional Customs exemptions shall be valid till 31st March 2023 unless otherwise specified or varied or rescinded
The time limit to file a Bill of Entry has been changed to one day before (including holiday) the arrival of goods at the customs station as against the present time limit which is the end of the next day (excluding holiday) following the day on which the aircraft, vessel or vehicle arrives at the customs port. (Section 46(3) of Customs Act)
Agriculture Infrastructure and Development Cess ranging from 1.5% to 100% introduced on limited category of goods such as crude oil, alcohol, coal, lignite, peat, ammonium nitrate, urea etc. The said Cess shall not apply in case where the goods are imported under Advance Authorization. (Clause 115 of Finance Bill)
Customs
As it is in GST, a common portal is notified for various processes and proceedings such as issuance of summons, notice, service of order, filing of Bill of Entry, Shipping Bills, registrations, amendments etc. (Section 149, 153(1)(ca) and 154C of Customs Act)
Penalty of up to 5 times of refund claimed in case where refund of unutilized ITC has been claimed on the basis of fraudulent invoice or willful misstatement or suppression of facts. Parallel penalty exists under the GST Act also. (Section 114AC of Customs Act)
Customs
Budget has carried on the trend of making thematic changes to the Customs tariff
The Finance Minister’s noted that these changes are aimed to augment Make in India and vision of Atmanirbhar Bharat programs.
Majority of the changes to the tariff are as below:
Increase in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
Electrical and Electronic Sector
Compressors equipment used in Refrigerating & in air-conditioning equipment From 12.5% to 15%
Printed Circuit Board Assembly of charger or adapter From 10% to 15%
Automobiles
• Safety glass, consisting of toughened (tempered) or laminated glass • Parts of Electrical lighting and signaling equipment, windscreen wipers, defrosters and demisters, of a kind
used for cycles or motor vehicle • Ignition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships • Instrument Panel Clocks and Clocks of a similar type for vehicles, Aircraft, Spacecraft or Vessels
From 10% to 15%
Increase in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
IT, Electronics and Renewable
Specified insulated wires and cables From 7.5% to 10%
Inputs or parts for manufacture of Printed Circuit Board Assembly (PCBA) of cellular mobile phone, Inputs or raw material for manufacture of specified parts like back cover, side keys etc. of cellular mobile phone Inputs or raw materials (other than Lithium-ion cell and PCBA) of Lithium- ion battery or battery pack Parts or components of PCBA of Lithium-ion battery or battery pack
From 0% to 2.5% (w.e.f. 1 April 2021)
Capital Goods
Parts and components for manufacture of tunnel boring machines with actual-user condition From 0 to 2.5%
Tunnel boring machines From 0 to 7.5%
Decrease in Customs Duty
Customs Tariff – Rate changes
Particulars Increase in Duty
Metals
Iron and steel scrap, including stainless steel scrap Raw materials for use in manufacture of CRGO steel
From 2.5% to 0
Primary/Semi-finished products of non-alloy steel Flat products of non-alloy and alloy steel Long product of non-alloy, stainless and alloy steel
From 10/12.5% to 7.5%
Screw, bolts, nuts, etc. of iron and steel From 10% to 15%
Project Import Scheme
High Speed Rail Projects being brought under project imports From Applicable rate to 5%
Ahmedabad Arpit Jain Level 11, Tower B, Ratnaakar Nine Square, Vastrapur, Ahmedabad 380 015, India Email: [email protected]
Bengaluru Payal Shah 19/4, 4th Main, Between 7th & 8th Cross, Malleshwaram, Bengaluru 560 003, INDIA Phone: +91 80 23561880 Email: [email protected]
Mumbai Vishal Doshi 508, The Summit Business Bay, Nr. WEH Metro Station, Gundavali, Andheri East, Mumbai 400069 INDIA Phone: +91 22 26125834 Email: [email protected]
Vadodara Milin Mehta Meghdhanush, Race Course, Vadodara 390 007, INDIA Phone: +91 265 2341626 / 2440400 Email: [email protected]
website: www.kcmehta.com
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