No more rejection for start-ups seeking tax sops

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Companies will be given a chance to amend and re-submit proposals, says DIPP

In what could be a morale booster for start-ups, the government has decided to do away with the practice of rejecting applications for tax sops.

Instead, start-ups will get an opportunity to apply again after making changes to the proposal based on the explanation given to them on the initial one.

Supportive policy

The Department of Industrial Policy and Promotion is also reworking the qualification criteria for start-ups for non-tax benefits, a government official told Business Line.

“Instead of dismissing proposals that do not meet the mark for tax-sops with a simple ‘rejected’, the inter-ministerial group examining it will give details of where they fell short. This will give the start-ups an opportunity to rework their proposals, and apply again for tax benefits,” the official said. “There has been no change in the criteria of judging whether a start-up qualifies for tax benefits. It still depends on how innovative the idea is.”

In the last meeting of the Inter Ministerial Group (IMG) on startups which met on May 1, about a dozen applications were approved.

The change in the Central government’s stance has been triggered by a general sense of dissatisfaction among start-ups with the new policy, as only about 10 proposals had qualified for tax sops till last month out of the 140 proposals vetted by the inter-ministerial group since the policy was announced last year. “The DIPP has decided to be a bit more empathetic while dealing with start-ups. After all, what good are tax sops if very few are able to benefit from it,” the official said. The 130 applicants for tax apps, who were rejected over the past year, will also get a detailed note on why their cases did not pass the test. As per the existing rules, start-ups (companies and Limited Liability Partnerships or LLPs) can get income tax exemption for three years in a block of seven years, if they are incorporated between April 1, 2016, and March 31, 2019.

Expanding definition

An IMG, including officials from the Department of Bio-technology, Department of Science and Technology and the DIPP, examine the proposals on the basis of innovation and use, and determine whether they qualify for tax sops or not.

“An official from the Ministry of Electronics, IT and Technology has been added to the IMG from May 1,” the official said.

The DIPP will come up with a new set of rules over the next few weeks, tweaking the definition of a start-up that will result in more companies and LLPs coming under in the category.

Source: https://www.pressreader.com/india/the-hindu-business-line/20170508/

As Narendra Modi government gets set to crack GST whip on tax evaders, India Inc voices concern

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According to Section 132 of the Central GST Bill cleared by the Lok Sabha recently, the taxman can also proceed against anyone for wrongly availing input tax credits.

Many functionaries from corporate India and tax experts have voiced concerns over the government’s plan to give unprecedented teeth to the country’s indirect tax administrators by making tax evasion above `5 crore a “cognizable and non-bailable offence” in the upcoming Goods and Services Tax (GST) regime. According to Section 132 of the Central GST Bill cleared by the Lok Sabha recently, the taxman can also proceed against anyone for wrongly availing input tax credits or refunds above the same threshold, treating it as a cognizable and non-bailable offence, where the police have the authority to arrest the person concerned without warrant.

While non-remittance of tax deducted at source could lead to non-bailable warrant under the Income-Tax Act, this has been sparingly used – one recent instance was that of the Bengaluru High Court denying a request of the I-T department to issue a non-bailable warrant against the beleaguered businessman Vijay Mallya.  The punitive provisions under indirect tax laws have, however, been less biting.

The service tax department had invited the Delhi high court’s ire last September for arresting a senior executive of travel portal MakeMyTrip for failing to deposit tax after collecting it from those who booked hotel room nights via the portal. Disturbed over the fact that the arrest took place without even issuing a show cause notice to the firm and giving it an opportunity to defend itself, the court awarded costs to the travel portal and asked the taxman to refund the service tax collected after the arrest. The tax department went in appeal against the court’s decision and the matter is now before the Supreme Court.

“It may be reasonable to make “collection of tax but non-payment to government’ a non-bailable offence, as there is very little room here for interpretation in such case. But availing tax credits through wrong invoices or obtaining higher-than-admissible refunds are subject to technical interpretations in the early days of GST and it would be extremely stringent to make these non-bailable offences,” Bipin Sapra, Indirect Tax partner at EY said. Echoing the view, Anita Rastogi, partner-indirect tax, PwC India said the country’s indirect laws have never had such tough provisions against tax evasion.

Section 132 of the CGST Bill also spells out the punishment for tax evasions above Rs.1 crore: if the amount evaded exceeds Rs. 5 crore, imprisonment up to five years is possible along with fine, Rs. 2-5 crore evasion could lead to imprisonment extending to three years and fine, Rs.1-2 crore evasion could invite up to 1-year jail term and fine.

Source: http://www.financialexpress.com/economy/as-narendra-modi-government-gets-set-to-crack-gst-whip-on-tax-evaders-india-inc-voices-concern/613908/

New ITR forms for Assessment Year 2017-18 notified by CBDT

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The CBDT has notified new income-tax return forms (ITR forms) for the assessment year 2017-18. It has prescribed simplified version of ITR-1 with fewer columns. A new column has been inserted in ITR Forms to report cash deposits in banks above 2 lakhs during the demonetisation period, i.e., from November 9, 2016 to December 30, 2016.

CBDT had prescribed new ‘Form ITR 4 Sugam’ for taxpayers opting for presumptive taxation scheme. A new column has been prescribed to mention digital receipts as the rate of presumptive income is 6% for such receipts.

The new ITR forms prescribed are listed below:-

ITR_1 For Individuals having Income from Salaries, one house property, other sources (Interest etc.) and having total income upto Rs.50 lakh

ITR_2 For Individuals and HUFs not carrying out business or profession under any proprietorship

ITR_3 For individuals and HUFs having income from a proprietary business or profession

ITR_4 For Presumptive Income from Business & Profession

ITR_5 For persons other than – (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7

ITR_6 For Companies other than companies claiming exemption under section 11

ITR_7 For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F)

Changes in new ITR forms are as follows.

1) Simplified one page ITR Form for Salaried class taxpayers

[ITR 1 Sahaj] Now the Govt. has notified simplified one page form ‘ITR-1 Sahaj’ for individuals earning income from salary, pension, one house property and income from other sources. It has removed columns which are not frequently used by the taxpayers.

New ‘ITR-1 Sahaj’ has retained those deductions which are most frequently used by the taxpayers, viz, under Section 80C, 80D, 80G and 80TTA.

If any taxpayer wants to claim deduction under any other provision of chapter VI-A he can specify the relevant Section in column titled as ‘Any other’. Schedules of TDS and TCS have been merged into one in order to make ITR 1 shorter and simpler.

However, new columns have been inserted to report dividend income and long-term capital gains exempt under Section 10(34) and Section 10(38) respectively.

2) Disclosure of cash deposits during demonetization

[ITR 1, 2, 3, 4, 5, 6, 7]  A new column has been introduced in all ITR Forms to report on cash deposited by taxpayers in their bank accounts during the demonetization period, i.e., from November 9, 2016 to December 30, 2016. However, taxpayers are required to fill up this column only if they have deposited Rs 2 lakh or more during the demonetization period.

3) Quoting of Aadhar Number

[ITR 1, 2, 3, 4] The Finance Bill, 2017 as passed by Lok Sabha has introduced a new Section 139AA requiring every person to quote Aadhar number in the return of income. If any person does not possess the Aadhaar Number but he had applied for the Aadhaar card then he can quote Enrolment ID of Aadhaar application Form in the ITR.

It may be noted that firms are also required to Quote Aadhaar number of their Partner/members in new ITR 5. Further, in case of trust Aadhaar number of Author(s) / Trustee(s) / Manager(s), etc., are required to be specified in new ITR 7.

4) Income taxable at special rates

Unexplained income     [ITR 2, 3, 5, 6, 7]

As per Section 115BBE any unexplained credit or investment attracts tax at 60% (plus surcharge and cess, as applicable), irrespective of the slab of income.

Now new columns have been inserted in ITR Forms under ‘Schedule OS’ to report such unexplained income under ‘Schedule SI’.

It may be noted that any taxpayer having unexplained income cannot opt for ITR-1 Sahaj.

Dividend above Rs 10 lakhs

As per Section 115BBDA the dividend received from domestic company is taxable at rate of 10% if aggregate amount of such dividend exceeds Rs. 10 lakh. New column has been inserted in ITR Forms to declare such dividend income in ‘Schedule OS’.

It may be noted that any taxpayer having dividend income above Rs 10 lakhs and covered under Section 115BBDA cannot opt for ‘ITR-1 Sahaj’.

Patent income

A new column has been inserted in ITR Forms to declare royalty income from patent developed and registered in India and chargeable to tax at 10% under section 115BBF.

5) Deduction under section 80EE

[ITR 2, 3, 4] Section 80EE allows deduction on home loan interest for first time home buyers. This deduction is over and above the Rs 2 lakhs limit covered under Section 24(b).

A new field has been provided in new ITR Forms under Schedule VI-A deductions to claim home loan interest under Section 80EE.

6) Declaration of value of assets and liabilities by Individuals/HUF earning above Rs 50 lakhs

[ITR 2, 3, 4] During 2016, the Govt. had introduced new Schedule requiring individuals/HUFs to declare the value of assets and liabilities if their total income exceeds Rs. 50 lakhs. Taxpayers were required to mention cost of immovable property, jewellery, bullion, vehicles, shares, bank and cash balance, etc.

Now tax payers are also required to disclose address of immovable property and description of movable assets in new ITR Forms. Further, new fields have been introduced in ITR Forms for disclosure of ‘Interest held in the assets of a firm or AOP as a partner or member’. Such members/partners are also required to disclose name, address, PAN of the firm or AOP.

7) Registration number of Chartered Accountant Firm

[ITR 3, 5, 6] Now taxpayers are required to mention registration number of firm of Chartered Accountant which has done audit in ITR Forms.

8) Bifurcation of receipt/expenses from business and profession in no account case.

[ITR 3, 5] In old ITR Forms there was no option to bifurcate income and expense of business and profession separately. All receipts were to be clubbed together and shown in ITR.

Now in new ITR forms, there is an option to show receipts from business and profession separately.

9) Deduction of additional depreciation in case of asset put to use for less than 180 days in preceding year

[ITR 3, 5, 6] In case of purchase of an asset which is put to use for less than 180 days, additional depreciation shall be restricted to 50% for that year and remaining would be allowable in the succeeding year.

In old ITR Forms, no column was there under ‘Schedule DPM’ to claim unutilized 50% additional depreciation in succeeding year. Now in new ITR Forms such column has been inserted to claim unutilized 50% depreciation.

10) Segregation of digital receipts and other receipts under presumptive taxation scheme

[ITR 4] As per the presumptive taxation scheme under Section 44AD, 8% of gross receipts or turnover will be deemed as income of the taxpayer. However, in 2017 Union Budget such limit has been proposed to be reduced to 6% for digital receipts of taxpayer.

In new ITR form, new columns have been inserted to show turnover received through digital mode. Consequently, columns have been inserted to show presumptive income at 6% and 8%.

The Finance Act 2016, had introduced the presumptive taxation scheme for professionals as well. Now new ITR 4 Form shows an option to avail such presumptive taxation scheme for professionals under Section 44ADA.

11) Details of receipts as mentioned in Form 26AS under TDS schedule

[ITR 4] ITR 4 which is now applicable for taxpayer opting for presumptive taxation scheme has a new column under the ‘Schedule TDS2’ to show the receipts as mentioned in Form 26AS.

12) Disallowance for non-deducting or non-payment of Equalisation levy

[ITR 3, 5, 6] The Finance Act, 2016 has introduced new provision to deduct 1% Equalization Levy on payment made for certain advertisement services paid to non-residents.

Any default in deduction or payment of Equalization levy would attract disallowance of Section 40(a)(ib). In new ITR Forms a new column has been inserted under ‘Part A-OI’ to mention such disallowance under section 40(a)(ib).

13) Disallowance of any amount payable for use of railway assets

[ITR 3, 5, 6] Any sum payable by the assessee to the Indian Railways for the use of railway assets shall be allowed as deduction on actual payment basis as per section 43B.

A new column has been inserted under ‘Part A-OI’ for disallowance under section 43B in case of non-payment of such amount on or before due date of furnishing return of income.

14) New schedule to report ‘receipt and payment’ account of a company under liquidation

[ITR 6] A new schedule ‘Part A-OL’ has been inserted in ITR 6 to furnish details of ‘receipt and payment’ account of company under liquidation.

15) Changes related to ITR 7 in respect of Charitable Trusts

[ITR 7] Various changes have been introduced in the new ITR 7 form. Now trust is required to furnish following additional details in new ITR 7 –

  1. a) Registration number and date of registration for business trusts registered with the SEBI.
  1. ) ‘Schedule AI’ to report aggregate of income referred to in section 11 and 12 excluding voluntary contribution.
  1. c) ‘Schedule ER’ to report amount applied to charitable or religious purposes (revenue account).
  1. d) ‘Schedule EC’ to report amount applied to charitable or religious purposes (capital account).
  1. e) ‘Schedule 115TD’ to report accreted income of trust under section 115TD

Fresh transfer pricing trouble for MNCs

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A new provision for secondary adjustment in transfer pricing, announced in the Union Budget for 2017-18, is likely to affect the cash flow of multinational corporations (MNCs) and the dividend distribution tax paid by their Indian subsidiaries. The provision has also sparked worry on Minimum Alternate Tax (MAT) and service tax payable by the subsidiaries, as well as retrospective implementation from 2013-14.   Experts claim the provision is in line with the norms of the Organisation for Economic Co-operation and Development (OECD) —but its wording is giving rise to apprehension.

Transfer pricing is the value at which companies trade products, services or assets between units across borders, a regular part of doing business for a multinational.

A primary adjustment is made, by tax administration, to company´s taxable profits on transactions with an associated enterprise in a secondary jurisdiction.

At present, there is only primary adjustment on transfer pricing of an MNC´s subsidiary.

This means if the subsidiary concerned agrees to the tax adjustment provided by an assessment officer, or on its own makes such an adjustment, it will pay taxes on that amount.

For instance, a company claims it has earned Rs.400 crore, and the transfer pricing officer claims it has earned Rs.600 crore, using the arm´s length principle.

If the company agrees to the assessment and pays tax on this, it is called primary adjustment.

Under the existing law, the additional Rs.200 crore would not need to be shown in the books of the company.

A secondary adjustment arises when simultaneous changes are made in the books of accounts of the company as well. This is what new provision aims at —the additional Rs.200 crore would also have to be shown in the books of the Indian subsidiary of MNC concerned.

“The parent company might not want to part with this Rs.200 crore, as the subsidiary in India might not be significant for its strategy,” said Eric Mehta, partner, transfer pricing, PwC India.

“An MNC might have a global presence, with India only a small part of its affairs.” Sending the money to India would also face hurdles because of lack of a contractual arrangement, said Amit Maheshwari, partner, Ashok Maheshwary and Associates.

He added it would have an adverse effect on the cash flow and business operations of MNCs.

If the Indian subsidiary concerned does not get the required amount, say Rs.200 crore, within a stipulated period, it would be considered a loan to the parent or associate, attracting interest.

(The time period has not been specified in the Budget documents.) “In case, the total amount is brought to the books of the Indian company, it will give rise to higher dividend, which in turn, will give rise to higher dividend distribution tax,” said Mehta.

Also, if the payment is towards services rendered by Indian subsidiaries, the higher receipt in books will give rise to higher service tax liability, added Mehta.

Maheshwari said higher receipt and hence profit in the books would also give rise to MAT as profit on the additional income, in this case  Rs.200 crore, was not shown earlier in the books earlier.

It should be noted that MAT is applicable to book profits.

All this will, however, only apply if the primary adjustment of the Indian entity exceeds Rs.1 crore the previous year —along with other conditions.

The provision has also given rise to fear of retrospective application, as the condition of primary adjustment exceeding Rs.1 crore is effective from April 1, 2016 or previous years.

Currently, the assessment of 2013-14 is underway for transfer pricing purposes, said Mehta, pointing to the possibility of secondary adjustments made from that year.

He agreed the purpose of the provision might not be to have retrospective effect, but the wording does not prevent it.