E-Invoicing Under GST Law

KORAH AND KORAH, CHARTERED ACCOUNTANTS

Q) What is this concept of E-Invoicing?

• A system in which Business to Business (B2B) invoices are authenticated electronically by the GST Network (GSTN) for further use on the common GST portal
• A 64-digit identification number called as Invoice Reference Number (IRN) will be issued against every invoice by the Invoice Registration Portal (IRP) managed by the GSTN.
• A Quick Response Code (QRC) will also be generated for every invoice reported which if scanned using the NIC QR code scanning application, will display details relating to a particular invoice.
• A B2B invoice generated by a specified person (to whom E-invoicing applies) without an IRN will not be considered valid under GST.

Q) What is the primary purpose?

• To bring in more transparency into GST reporting.
• To curb fake invoicing and reporting of bogus transactions for benefitting from input tax credit (ITC).
• Ease of flow of information to various returns (GSTR 1, E-Way portal etc.) and other compliance requirements.
• It is indeed a conscious step made by the government towards digitization and transparency.

Q) To whom is it applicable?

• E-invoicing was first made applicable from 1st April 2020 to all taxpayers having aggregate turnover exceeding INR 100 Crores. The applicability of the same was deferred to 1st October 2020.
• Thereafter, this threshold limit was further increased to INR 500 Crores with effect from 1st January 2021.
• From 1st April 2021 onwards, it is applicable to all registered tax payers whose aggregate turnover exceeds INR 50 Crores.
• If the aggregate turnover of a registered person exceeds the above limits for Financial Years 2017-18 onwards, then E-Invoicing would become applicable.
• Aggregate turnover for this purpose would have to be calculated at the PAN level i.e., taking the aggregate turnover of all units of a business.

Q) To whom is it not applicable?

• Units in Special Economic Zones (SEZ)
• Insurance / banking / non-banking financial companies
• Goods transport agencies (GTA’s) supplying services in relation to transportation of goods by road in a goods carriage.
• Suppliers of passenger transportation service.
• Suppliers of services by way of admission to the exhibition of cinematograph films.

Q) What is the process-flow under E-Invoicing?

Q) What is the pre-requisites of E-Invoicing?

• It is essential to ensure a confirmation from the customer before invoicing owing to the intricacies in this process of invoice cancellation once IRN is generated.
• Before adoption, it is very important to understand and confirm the extent to which the existing accounting software / ERP can support the integration.
• QR code generated by IRP must be printed on the physical invoice.
• The time limit for cancellation of an E-Invoice is 24 hours. This means that an invoice once reported to IRP can be cancelled only within 24 hours from the time of generation of IRN.
• Automatic filling up of GSTR-1 and linking of an invoice with the E-Way Bill.
• E-invoicing adds one more layer to the GSTR-2A reconciliation and further complicates the process.

Q) Best practices under E-Invoicing?

• Proper filling up of the offline-tool to ease process of uploading data.
• Securing access rights on ERP and IRP for generation and cancellation of documents.
• Daily monitoring of IRNs generated on the previous day by an independent person.
• Printing IRN on the invoice even though optional.
• It is advisable to obtain written declarations from vendors regarding applicability of E-Invoicing to them and confirmation of compliance, if applicable. This will serve as a basis for the recipients for availing the ITC.

In the light of the Union Budget 2020

KORAH AND KORAH, CHARTERED ACCOUNTANTS

Up to FY 2019-20, what was the tax treatment of dividends on shares declared / distributed / paid by companies?

A. For Domestic Companies

• All domestic companies were required to pay dividend distribution tax(DDT) at the rate of 15% (excluding cess and surcharge) on the dividends declared / distributed / paid under Section 115-O of the Income Tax Act,1961.

B. For Foreign Companies

• Foreign companies were not required to pay DDT.

Up to FY 2019-20, what was the taxability of such dividends in the hands of a shareholder?

A. From Domestic Companies

• As per Section 10(34), dividends on shares received from domestic companies were exempt in the hands of a shareholder (resident and non-resident).
• However as per Section 115BBDA of the Income Tax Act, 1961, a resident individual was liable to pay tax at 10% if his total income included income by way of dividends declared / distributed / paid by Domestic Companies in excess of INR 10 Lakhs.

B. From Foreign Companies

• If received by an individual shareholder, then normal income tax rates applied on such income.
• If it was received by an Indian Company holding 26% or more equity share capital in the Foreign Company, then dividends were taxed at 15%(excluding cess and surcharge) in the hands of the Indian Company as per Section 115BBD.

What are the changes now as per Finance Act 2020?

A. For Domestic Companies

• DDT has been abolishede. there is no requirement for domestic companies to pay DDT on dividends declared / distributed / paid to shareholders.

B. For Foreign Companies

• No change e. foreign companies are still not required to pay DDT.

C. For Shareholders

• Section 10(34) has been withdrawnand now the shareholders will be required to pay tax on such dividends received from domestic companies (like any other ordinary income) based on their Normal Income Tax Slabs.
• Also, fromFY 2020-21 onwards, Section 115BBDA has been abolished and dividends received by resident shareholders will be taxed as per Normal Income Tax Slabs without any threshold exemption of INR 10 Lakhs.
• There is no change as regards dividends from foreign companies i.e. shareholders will still continue to be liable to pay tax on dividends (as discussed above)

What are the amendments in the TDS provisions on dividend payments made by Companies?

• • Earlier, there was no requirementto deduct TDS on dividend payments made by Domestic Companies under Section 194 of the Income Tax Act, 1961 since the same was exempt in the hands of shareholders.
  • Now, this section has been amendedand accordingly, payment of dividends by Domestic Companies to resident recipients shall be liable for tax deduction at 10%.
  • A threshold limit of INR 5000has also been introduced i.e. the requirement to deduct tax at source is only if the aggregated payments made by a Company during a Financial Year exceeds INR 5000.
  • Dividend payments made to non-residents continue to be out of the purview of Section 194.
  • Also, there is no requirement to deduct TDS on dividend payments made by LIC, GIC and their wholly owned subsidiaries.

In the light of the Union Budget 2020

KORAH AND KORAH, CHARTERED ACCOUNTANTS

Up to FY 2019-20, what was the tax treatment of dividends received from Mutual Funds in the hands of a unitholder?

• Exemptin the hands of the unitholders (resident as well as non-resident) under Section 10(35) of the Income-tax Act, 1961.
• However, the Mutual Fund was required to pay dividend distribution tax (‘DDT’) on the amount of dividend under Section 115R

Up to FY 2019-20, what was the amount of DDT payable by Mutual Funds?

• The Mutual Fund was required to pay a DDT under Section 115Rof the Act at the following rates (excluding surcharge and cess) –.

*In the case of Infrastructure Debt Fund, the rate was 5%

As per the Finance Act 2020, how has this taxation changed?

• Removed the levy of DDT in the hands of the Mutual Fund (i.e. equity oriented and other than equity oriented mutual fund schemes under dividend pay-out and dividend reinvestment options).
• The dividend shall now be taxed only in the hands of the unitholders at applicable tax rates provided under the Act.
• The new tax regime shall be applicable e.f. April 1, 2020 and will apply from FY 2020-21.

What would be the TDS provisions from FY 2020-21 onwards on dividends paid by Mutual Funds to unitholders?

• Resident Unitholders:
  Mutual Funds shall be required to deduct tax at source (‘TDS’) as per Section 194K of the Act at the rate of 10%on dividend income credited / paid to resident unitholders.
• TDS provisions should not apply in case where the amount of dividend credited / paid does not exceed the threshold limit i.e. INR 5000 in aggregate in a particular financial year. (The threshold limit is to be computed at the PAN level)
• The dividend reinvested under the dividend reinvestment option shall be deemed as dividend paid and accordingly, TDS provision shall apply.

Non-Resident Unitholders:

• As per Section 196Aof the Act, TDS at the rate of 20% (plus applicable surcharge and cess) should be deducted on dividend income credited /paid to non-resident unitholders.
• There is no threshold limit applicable in case of dividend income credited / paid to non-resident unitholders.
• Also, as per Section 196D of the Act, TDS at the rate of 20%(plus applicable surcharge and cess) should be deducted on dividend income credited / paid to FII/FPI.

Some other points related to TDS:

• In case PAN of the unitholder is not available, TDS shall be deducted at 20%(plus applicable surcharge and cess) for both Residents & Non-residents.
• In case of dividend payments to a minor, the parent should provide a declaration under to the Mutual Fund for TDS deduction under the PAN of the parent. (In the absence of such a declaration, TDS shall be deducted on dividend credited / paid under the PAN of the minor)
• A resident unitholder may make an application to the Income-Tax Authorities under Section 197 of the Act for obtaining a certificate for lower / non-deduction of TDS on dividend income credited / paid by Mutual Fund.
• The non-resident unitholders/FII/FPI may offer the said dividend income to tax in his income-tax return at a lower tax rate by claiming the benefit under relevant tax treaty, if any, subject to eligibility and compliance with applicable conditions.

1. Background:

• Accumulation of black money has been one of the major threats to the Indian economy. The GOI along with the Ministry of Finance has been striving towards curbing black money and also widening the tax base.
• One such initiative was to cast an obligation on the Government agencies and other authorities to report high-value transactions. Such specified persons were required to submit ‘Annual Information Return (AIR)’introduced in 2003 with respect to specified financial transactions under Section 285BA of the Income Tax Act, 1961.
• Later,Finance Act 2014 replaced Section 285BA and renamed AIR as “Statement of Financial Transactions or Reportable Accounts” to widen the scope of specified persons and to introduce various other provisions.

1. Meaning:

• It is a report of specified financial transactions by specified persons.
• Financial transactions specifically required to be reported under Section 285BAare as follows:
• Transaction of purchase, sale/ exchange of goods or property or right or interest in a property; or
• Transaction for rendering any service; or
• Transaction under a works contract; or
• Transaction by way of an investment made or an expenditure incurred; or
• Transaction for taking or accepting any loan or deposit

1. The Financial Transactions:

• Section 285BAauthorizes Central Board of Direct Taxes (CBDT) to prescribe different values with respect to different specified financial transactions in respect of different specified persons having regard to the nature of such transactions. The same have been prescribed by CBDT via Rule 114E.
• Among the 13 SFT’s prescribed, the following are ones that are to be reported by banks (to which the Banking Regulation Act, 1949 applies):

*The threshold limits are to be checked based on the aggregate of all transactions.

**The most common transactions have been highlighted in yellow.

1. Filing of SFT Report

• SFT shall be submitted in Form 61Aelectronically, under DSC to the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation)
• SFT in Form 61A shall be submitted on or before 31st Mayof the FY, immediately following the FY in which the transaction is recorded or registered.
• A separate form is to be filed for each such transaction type.

1. SFT in Form 26AS

• From the Assessment Year 2020-21 (FY 2019-20), the Form 26AS would reflect the details of SFTs.
• The Income Tax Department vide Press release dated 07.2020informed that ‘the information being received by the Income Tax Department from the filers of these specified SFTs is now being shown in Part E of Form 26AS to facilitate voluntary compliance.

1. In the case of Mr. Rajiv Misra

• Part E of Form 26AS provides the details of the SFT as below:

1. Type of transaction: SFT-005
2. Name of SFT Filer: SBI, Mumbai

• Single/Joint Party Transaction: Single

1. No: of parties: 1
2. Amount: 7,98,000

• As per Notification No. 3 of 2018dated 5^th April 2018, the transaction type SFT-005 has been further explained in Annexure C:
• Therefore SFT-005 represents one or more-time deposits(other than a renewed time deposit) of a person for an amount aggregating to INR 10 Lakhs or more in a FY. The reporting entity in this case is a banking company to which the Banking Regulation Act, 1949 applies.

1. Issue Involved

• As mentioned above, SFT-005 is only applicable when aggregate of time deposits in a FY is >=INR 10 Lakhs.
• However, in this case, the amount as reported by SBI is only INR 7,98,000for FY 2019-20 which is below INR 10 Lakhs.
• In the Form 26 AS, there are several interest credits shown, from which it can be inferred that the assessee has Banking Deposits with State Bank of India, in excess of Rs 10 Lakhs. The question is why has this SFT which has been reported by SBI through Form 61A showing only an amount Rs 7,98,000/-. This could be a reporting error.
• We would advise that the assessee should obtain Interest Certificates for the FY 19-20 from the Banks where he has deposits. The higher of the interest figure appearing in the 26AS or the Interest Certificates issued by the Banks, should be shown as interest income, while filing the Income Tax Return. If the 26AS figure is substantially higher, then clarification should be sought from the concerned Bank regarding the variance, before filing the Tax Return.

State Budget 2020 Decoded (applicable for FY 2020-21 onwards)

BMG CONSULTANCY SERVICES  Strategy – Talent – Results

• Kerala Government is going to hire vehicles instead of buying them – a big boost for rent-a-car companies.
• CBL (Champions Boat League) allocated INR 20 Crores for conducting boat races across Kerala– a big boost to the tourism sector.
• Higher education to get INR 493 Crores by way of expansion of laboratories and new courses – a big boost to education.
• All street lights in Kerala to be replaced with LED. No filament and CFL bulbs from November 2020 – a big boost towards road safety and energy conservation.
• 75 coconut samplings to be distributed per ward and INR 3 Crores allocated for pineapple farming – a boost to fruit farming in rural areas.
• INR 2,400 Crores for Kuttanad District in health, education and farming after worst hit floods – a major fillip to many lost hopes.
• Alappuzha to be developed as a heritage town. INR 323 Crores allocated for tourism and Muziris Heritage to fully take-off from 2021 – a major boost to the tourism sector in Kerala.
• INR 10 Crores allocated to construct she-lodges for travelling single women – a major boost to women safety and tourism.
• INR 25 per meal at 1000 Kudumbashree Hotels across Kerala from April 2020 – a major boost towards upliftment of the poor.
• Metro line to be extended to the IT hub of Kakkanad. Silver Line, the semi-high-speed train project linking Calicut to Trivandrum to begin shortly – a major boost to the transportation and employment industry.
• 20 flyovers, 74 bridges, 44 stadiums with INR 20,000 Crores by KIIFB (Kerala Infrastructure Investment Fund Board). The Board also plans INR 4,383 Crores for drinking water – a major boost towards infrastructure.

 Let’s Compare:
 

• Movie tickets to be more costly as local bodies can now levy 10% entertainment tax on tickets.
• Tax rebate of 25% on private electric vehicles for 5 years and 50% for E-Autos – a major boost for the growth of electric vehicles.
• Bikes under INR 2 Lakhs and cars under 15 Lakhs will become more expensive as tax has been increased by 1% and 2% respectively.
• Hike in luxury building tax for all residential buildings above 3000 Sq. Ft to mop up additional revenue.
• Total area of Technopark, Infopark and Cyber Park will be expanded to 245 Lakh square feet. Security free loans for startups securing work from the Government – a major boost for the startup culture in Kerala.
• INR 100 crores allocated for clean drive in all cities and 12,000 public toilets will be constructed in 2020-21 – a big boost towards sanitation and public health.

What is Section 8 Company?

Section 8 Company is a Company that is licensed under Section 8 of the Companies Act, 2013 (the Act), which has the main object for promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment or any such other object, provided that the profits, if any, or the other income is applied for promoting only the objects of the company. Therefore, Section 8 Company is a company which is registered for charitable or not-for-profit purposes.

This Company is, however, similar to a Trust or Society with an exception that a Section 8 Company is registered under the Central Government’s “Ministry of Corporate Affairs (MCA)”whereas the Societies and Trusts are registered under the State Government regulations. This, however, has various advantages when it is compared to Trust or Society and it also has higher credibility amongst the donors, Government departments, and other stakeholders.

Main features of Section 8 Companies

• The members of the company do not receive any dividend;
• Any type of profit or income of the company can only be utilised for promoting its objectives;
• Section 8 a company shall enjoy all the privileges and shall be subject to all the obligations of a Limited Company. Every officer in default shall be liable for action under Section 447 of Companies Act for punishment of fraud. The punishment is imprisonment for a term not less than 6 months which may extend to 10 years and shall be liable for a fine which shall not be less than the amount involved in the fraud which may extend to three times the amount involved in the fraud. It is a non-compoundable offence. (Proviso to Section 8(11). *
• Section 8 company cannot use the suffix ‘Pvt. Ltd’ or ‘Ltd’ with its name;
• Section 8 will not be treated as a small company, whereas small company is company other than public company whose paid up share capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed and whose turnover does not exceed Rs.2 crore or higher amount as maybe prescribed.
• Articles of Section 8 company can only be amended with prior approval and permission of Central Government; otherwise, the Articles cannot be amended;
• Only Partnership firm or LLP may become a member of a company registered u/s 8.Also there is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. No another private/public company become a member of a Section 8 Company;
• A Section 8 company cannot be converted into a One Person Company;
• A company registered under section 8 which intends to convert into any other company shall pass a special resolution in its General Meeting for approving such conversion.

Eligibility/Minimum Requirements

The minimum requirements for the companies registered under section 8 are:

• There must be Minimum of two shareholders;
• There must be Minimum of two Directors (Directors and shareholders can be the same person);
• At least one of the Director shall be the resident in India;
• There is No requirement of Minimum capital. The required funds are brought in the form of subscriptions and donations from members and the general public;
• The Income-tax PAN is a mandatory requirement in case of the Indian nationals;
• Any one of the Identity Proof be it Voter ID/Aadhaar Card/Driving License/Passport is required; Passport is, however, a mandatory requirement for the proof of identity in case of the foreign nationals;
• Any one of the Proofs of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement);
• The Registered Office address proof (that is the rent agreement along with latest rent receipt and a copy of the latest utility bill in the name of the landlord and a no objection certificate from the owner of the premises, in case of rented premises);
• In case the premises are owned by either the Director and the Promoters, any of the documents establishing the ownership such as Sale Deed/House Tax receipt etc along with the no objection certificate.

Procedure for incorporation of Section 8 Company under Companies Act 2013

1. Application for name availability in form RUN

Application for name availability must be made in “Reserve Unique Name” facility. The name of Section 8 Company shall include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust, and the like etc.
You can propose maximum 2 names at a time and 1 resubmission is allowed in RUN facility. Fees for RUN is Rs. 1000/-. It is advisable to attach the object clause of the proposed company. This facility is available online in MCA website.

2.Preparation of Memorandum of Association and Articles of Association

Memorandum of association is the charter of the company and defines the scope of its activities. An article of association of the company is a document which regulates the internal management of the company.
Memorandum of Association of Section 8 Company must be in form INC-13 while there is no format prescribed for Articles of Association for Section 8 Company. One can adopt table F as per the Companies Act 2013 for the preparation of Articles of Association for the company which is limited by shares.
Memorandum and articles of association of the company shall be signed by each subscriber to the memorandum who shall mention his name, address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation.

3.Application in Form INC-12

After approval of name by Central Registration Centre (CRC), one can make an application in Form INC-12 to the Registrar for a license under sub-section (1) of section 8. Fees for INC-12 is Rs. 2,000/-
Attachments of INC-12:
1. Memorandum of Association in Form INC-13;
2. Articles of Association; (No Specified format)
3. Declaration in Form INC-14 by CS/CA/CWA in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
4. Declaration by each of the persons making the application in Form INC-15;
5. An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
6. Name Approval Letter received from Central Registration Centre (CRC);
*These are compulsory attachments to form INC-12. It is advisable to attach note on work proposed to be undertaken by the Company after incorporation and Grounds of application for issue of license under section 8.
Once the form INC-12 will be approved, License under section 8 will be issued in Form INC-16 which required to be attached in form SPICe.

4. Filing of SPICe 32 Form

After receiving Central Government approval i.e approval of form INC-12, one may go ahead with filing of form SPICe 32.

Attachment of SPICe 32:
1. Memorandum of Association in Form INC-13;
2. Articles of Association; (No Specified format)
3. Consent and Declaration by first Directors in form DIR-2;
4. Affidavit by the first subscriber in Form INC-9;
5. PAN card of first directors and subscribers;
6. Aaadhar card of first directors and subscribers;
7. Proof of Registered office like Sale Deed/Lease Deed/Rent Agreement etc;
8. Latest Utility Bill of Registered office like Electricity Bill;
9. NOC of owner/director if registered office is taken on rent/lease;
10. License issued in form INC-16;
*SPICe 33 and 34 i.e e-MOA and e-AOA can’t be used for Section 8 Company. Section 8 companies are mandatorily required to file MOA and AOA as pdf attachments to SPICe-32.

Advantages of Section 8 Company Registration:

• Exemption from Stamp Duty;
• Tax benefits under Section 12AA and 80G of Income Tax Act;
• Section 8 Companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations, subscriptions from members and general public;
• Section 8 Companies are not required to add the suffix Limited or Private Limited at the end of their name;
• Any Partnership Firm can be a member of its individual capacity and obtain directorship;
• A Section 8 Company has more credibility as compared to any other Non-profit organization structure like Trust or Society.

Disadvantages of Section 8 Company

• The profit of the company can only be utilised for the charitable aims and objectives of the company;
• There could be no payment of dividend to the shareholders unlike in other limited companies.
• Such a company cannot alter or amend its Memorandum of Association and Articles of Association without prior approval of the Central Government;
• The Central Government had imposed various conditions which has to be complied with and such regulations and the impositions have to be necessarily included in their Memorandum of Association and Articles of Association or as directed by the Central Government;
• The license is revocable under several grounds.