FAQs on Section 43B(h) of Income Tax Act- Payment to MSEs

Section 43B of the Income Tax Act provides for certain deductions to be allowed only on actual payment.  Clause (h) has been inserted in the Section, by Finance Act 2023 (to be applicable from FY 2023-24), to include payments made to Micro and Small Enterprises within the ambit of Section 43B of the Income Tax Act.

Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006, provides that payment for any Goods or Services to Micro and Small Enterprises should be made within time as per written agreement, which cannot be more than 45 days . If there is no Agreement then the payment has to be made within 15 days.

Section 43B has been amended to provide that any sum payable by the assessee to a Micro or Small Enterprise beyond time limit specified in section 15 of MSMED Act (i.e. agreed time or 45 days whichever less), then deduction of same shall be allowed only on actual payment. Deduction will be allowed on accrual basis only if the payment has been made within the time mandated u/s 15 of the MDMED Act.

Micro or Small Enterprises as defined in MSMED Act mean, Manufacturers or Service providers having Turnover upto Rs.50 Crores and Investment in Plant & Machinery upto Rs. 10 Crore.

Whether the Section is applicable for Payments outstanding to Traders registered under Udyog Adhar?

Section 43B(h) is only applicable for payments outstanding to Micro or Small Enterprises.  Only Manufacturers and Service Providers with Turnover less than Rs.50 Crores are covered in the definition of Micro or Small Enterprises.

Traders (Even if Registered under Udyog Adhar), are not covered in definition of Micro or Small Enterprises under the MSMED Act 2006. As Registration of Traders under Udyog Aadhar is only for the limited purpose of Priority Sector Lending. Therefore there will not be any disallowance u/s 43B(h) if PAYMENT TO TRADERS is made beyond the period specified in section 15 of the MEMED Act.

 

Whether the Section is applicable for Payments outstanding to Manufacturers or Service Providers not registered under Udyog Aadhar?

Section 43B(h) is applicable for payments outstanding to Micro or Small Enterprises beyond period specified in section 15 of the MSMED Act. The Section 15 mentioning the Liability of the Buyer to make payment, is applicable only for payments to ‘Suppliers’. MSMED Act defines ‘Supplier’ as Micro or Small Enterprise which has filed memorandum as specified. Thus section 15 of the MSMED Act is not applicable for payment to Micro or Small Enterprises who are not registered under Udyog Aadhar.

Therefore this section will also not be applicable for Payments outstanding to Manufacturers or Service Providers not registered under Udyog Aadhar

 

The period of 15 days/ 45 days will be counted from which Date?

For the Purpose of calculating delayed payment u/s 15 of the MSMED Act, the period will be counted from day of acceptance or day of deemed acceptance, i.e.

a. Day of Actual Delivery of Goods or rendering of services.

b. Where any objection is made by buyer in writing regarding acceptance of goods or services within 15 days of delivery; the day on which the objection is removed.

Example:

Invoice Date: 1st March 2024

Actual Delivery of Goods: 6th March 2024

Agreement period: 45 days

The Period of 45 Days will be counted from 6th March 2024 and not from 1st March 2024. The Payment for the Invoice can be made till 20th April 2024 to avoid disallowance u/s 43B(h)

 

When should Payment to Micro and Small Enterprises be made for Expenditure of 2023-24 to claim deduction in 2023-24 itself?

Assuming there is an Agreement between Purchaser and Seller to make payment in 45 days, and Delivery of Goods is on the Date of Invoice

For Invoices raised till 15/02/2024: Payment should be made till 31st March 2024

For Invoices raised from 16/02/2024 to 31/03/2024: Payment should be made within 45 days

Examples:

Invoice Date 01/01/2024: if payment made till 31/03/2024 deduction allowed in 2023-24

Invoice Date 01/03/2024: if payment made till 15/04/2024 deduction allowed in 2023-24, if payment made on 20/04/2024 deduction allowed in 2024-25.

Whether old outstanding Balances as on 31/03/2023 will also be covered for disallowance u/s 43B(h)?

Section 43B(h) is applicable from FY 2023-24. Only the Expenditure incurred after 01/04/2023 will be covered for disallowance under this section. Old outstanding balances have already been allowed as deduction during the earlier Financial Years. These will not be covered for disallowance under this section for current year.

However if any payment is being made in the current year to any Supplier having outstanding balance as on 31/03/2023, the same will first be adjusted against old balance before making any adjustment for the Purchases of current year.

Example 1:

Amount outstanding to ABC Ltd as on 31/03/2023 : Rs.15 lakhs

Purchases during the FY 2023-24 : Rs.10 Lakhs

Payment during the FY 2023-24 to ABC Ltd : Rs.15 lakhs

The payment of Rs.15 lakhs in the current year will first be adjusted against old balance and Rs.10 lakhs out of current year Purchases, will be disallowed as the same has not been paid.

Example 2:

Amount outstanding to XYZ Ltd as on 31/03/2023 : Rs.10 Lakhs

No transaction during the FY 2023-24

No disallowance will be made u/s 43B(h) during FY 2023-24.

Whether this section is applicable only to Taxpayers who are covered under Tax Audit u/s 44AB?

This Section is applicable to all assesses whether they are covered under Tax Audit or not. In the Income Tax Return Forms recently notified for the AY 2024-25, a new column has been inserted under Part A-OI (Other Information) to disclose the sum payable to Micro or small enterprises beyond the specified time limit per the MSMED Act.

 

Will this section be applicable if ITR is filed on presumptive basis u/s 44AD or 44ADA?

Sections 44AD and 44ADA start with the words “Notwithstanding anything contained in sections 28 to 43C”. When ITR is filed under these sections, it is deemed that all Deductions/ Allowances under sections 28 to 43C have been allowed. There will not be any disallowance u/s 43B if ITR is filed u/s 44AD or 44ADA.

 

What is the Rate of Interest payable under MSMED Act for delayed payment?

When the payment is not made within the time specified u/s 15 of the MSMED Act, Buyer shall be liable to pay compound interest with monthly rests to supplier, at 3 times the Bank Rate notified by the RBI. (i.e. if Bank Rate notified by RBI is 6.75%, then Interest is payable at 20.25% for delayed payment). Moreover this Interest is also not allowed as Deduction while computing Profits from Business in Computation of Income. This Interest is payable even if there is no agreement between the Buyer and the Supplier.

 

Disclaimer: The information provided in this article is intended for general informational purposes only. While every effort has been made to ensure accuracy, completeness, and timeliness of the content, it should not be construed as legal or professional advice . Readers are advised to consult a qualified tax professional to obtain specific advice tailored to their individual circumstances. The author and publisher disclaim any liability for any loss or damage incurred by individuals or entities relying on the information presented in this article.

REFUNDS TO EXPORTERS OF INVERTED RATED GOODS

Refunds under GST are governed by Section 54 of the GST Act. First Proviso to Section 54(3) imposes restriction on claiming Refund of unutilized Input Tax Credit, by specifying that Refund of unutilized ITC can be claimed only in two cases:

1. Zero Rated supplies made without payment of tax, and
2. Credit accumulated due to rate of tax on inputs being higher than rate of tax on output supplies. (i.e. Inverted Rated Goods).

Sub section 3 of Section 54 is reproduced below for reference:

“(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than––

(i)             zero rated supplies made without payment of tax;

(ii)            where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

Second Proviso further restricts the Refunds by specifying that Refund will also not be allowed if the Goods Exported are subject to Export Duty.

Third Proviso specifies that the Refund of ITC shall not be allowed if the supplier avails drawback of Central Tax or claims refund of IGST paid on such supplies.

Both the Second Proviso and Third Proviso should apply to the Refund of ITC in case of zero rated supply without payment of Tax, and not to the Refund in case of Inverted Tax Structure. However both these provisos are placed such that these are interpreted to apply to Refund of ITC in all cases i.e. zero rated supplies without payment of tax as well as Refund in case of Inverted Rated Goods. Field Officers are interpreting the provisos in such manner and are restricting the Refunds to Exporters of Inverted Rated Goods. Let us understand this with an Example:

Scenario 1

A person makes outward supply of Goods Taxable at 12%, uses Inward Supply to manufacture those Goods. The Inward Supplies are taxable at 18%. The Person is entitled to claim Refund of Input Tax Credit accumulated due to Inverted Tax Structure. Assuming the person makes Domestic Sales of Rs.100/- , Tax on outward supplies will be Rs.12/-. And assuming the Raw Material is 80% of the Sales, Tax on Inward Supplies will be Rs.14.40. The Person is entitled to claim Refund of Rs.2.40 on account of inverted tax structure.

Scenario 2

Now the same person, instead of making Domestic Supplies, makes Export of Rs.100/- with Payment of Integrated Tax, and claims Refund of IGST of Rs.12/- on account of Export. Now as per Third Proviso to section 54(3), since the person has claimed Refund of IGST paid on the supplies, the person cannot claim Refund of Rs.2.40 (accumulated on account of inverted tax structure). The Exporter making supplies of Inverted Rated Goods is at disadvantageous position vis a vis the Person who is making Domestic Supplies.

The Exporters are always treated favorably vis a vis Domestic Suppliers, that is why the Exports are zero rated and even incentives are also given to Exporters. This cannot be the intention of the Law Makers to deny Refund of ITC on account of inverted Tax to Exporters who have claimed IGST on the Export of such goods.

The Field Officers are denying Refund of ITC on account of Inverted Tax in cases where IGST has been claimed on such supplies, by resorting to Third Proviso to Section 54(3). The Third Proviso which states that no Refund of ITC shall be allowed in cases where the supplier avails drawback of Central Tax or claims refund of IGST paid, should be applicable only in case of Refund of ITC on account of Export without payment of Tax under LUT/Bond. The Proviso should not be made applicable to Refund on account of Inverted Tax Structure. 

By making the proviso applicable to Refund on account of Inverted Tax, the Exporters are being denied a benefit which is rightfully theirs.

Even otherwise, if the person manufacturing Inverted Rated Goods, Exports the Goods without payment of Tax under LUT/Bond, then the person can claim entire Refund. In our above Example, if the Exporter exports Goods without payment of Tax, then he will have accumulated ITC of Rs.14.40. Then he can claim Refund of the same on account of Export. In this case he can claim Refund of entire Rs.14.40 rather than Rs.12/- as was being done earlier. In this case the person making Export without payment of Tax is better placed than the person making Export with payment of Tax. Even this cannot be the intention of the Law makers to treat both the Exports differently.

Either a clarification should be issued by the Department on the issue, or the wordings of the Section should be suitably amended to give Refunds of Inverted Tax to Exporters (who have claimed Refund of IGST) also, as is being given to Domestic Suppliers, so that both are treated at par.

DISCLAIMER: The contents of this article have been prepared on the basis of the relevant provisions and as per the information existing as on 27/12/2018. The views of the author are personal and cannot be relied upon before any authority, without the written permission of the author. The article is meant for general guidance and the author disclaims any liability for any loss arising to any person acting or refraining from acting on the basis of any material contained in this article. It is recommended that professional advice be sought based on specific facts and circumstances.

Late Fees of Aug in Sep 3B

Msg from GSTN👇🏼

You might have received complaint about late fee being applied in case of Sept month 3B. This is not for any delay on filing jb of Sept month as we have not reached 20th Oct. It is on account of late filing of return for previous period.
 

The system does entry into ledgers from 3B return on the date on which return is submitted (entries get frozen). The late fee till that date is applied, if date of submission is later than the last date of filing. In case the return is filed later than the date of filing then the late fee for the gap between date of filing and last date of filing return or date of submission (whichever is later) is added in the next month’s return.
 
In case a taxpayer had submitted last month’s return on 22nd Sept (D1) and filed the return on 26th Sept (D2), then late fee was calculated for 22nd -20th Sept and shown in the payment sheet of Sept Return (2*100*2). . The delay between date of submission (D1) and date of filing (D2) [26th -22nd Sept] amounting to 4*2*100  is to be paid by the taxpayer. The same is now being added in the return and shown to the taxpayer.

Hope this clarifies the position. 

A ticker has been put on the portal explaining this. Please disseminate this to taxpayers

Thanks
Team GSTN

8 States pass SGST Acts

Press Information Bureau
Government of India
Ministry of Finance
04-May-2017 18:13 IST

Eight States’ Assemblies pass the State GST Act within a short span of less than one month

Eight States have passed the State Goods and Services Tax (SGST) Act in their respective State Assembly in less than a month’s time. The Legislative Assembly of Telangana State passed the State GST Act on 9th April, 2017, that of Bihar State passed it on 24th April, 2017, Rajasthan Assembly on 26th April, 2017, that of Jharkhand on 27th April, 2017, Chhattisgarh Assembly on 28th April, 2017, that of Uttarakhand on 2nd May, 2017, Madhya Pradesh Assembly on 3rd May, 2017 while the Assembly of State of Haryana passed the State GST Bill today i.e. 4th May, 2017.

Earlier the GST Council had approved the model State GST (SGST) Bill in its 12th Meeting held on 16th March, 2017. The remaining States/UTs (having Legislative Assembly) are likely to pass the State GST Bill in their respective Assemblies before the end of this month, except one or two States which may pass the same in early next month.

The next GST Council meeting is scheduled to be held at Srinagar, J&K on 18th and 19th May, 2017. The Central Government has already informed that GST will be rolled-out from 1st July, 2017. The quick passage of the State GST Act by the different State Assemblies in a time bound manner shows the keenness on the part of the State Governments to ensure that implementation of the GST in letter and spirit is not further delayed and takes place from 1st July, 2017 as targeted by the Central Government. The officers of the Department of Revenue, Government of India led by the Revenue Secretary, Dr. Hasmukh Adhia and the concerned officials of the State Governments have already started the outreach programme in order to create general awareness among the people at large and stakeholders in particular and remove their doubts, if any, about the various provisions of GST and its related legislations. 

SOURCE: PRESS RELEASE MINISTRY OF FINANCE

Goods and Services Tax GST) Council approves the Central Goods and Services Tax (CGST) Bill and the Integrated Goods and Services Tax (IGST) Bill

The Goods and Services Tax GST) Council, in its meeting held today in Vigyan Bhawan in New Delhi under the Chairmanship of the Union Minister for Finance & Corporate Affairs, Shri Arun Jaitley has approved the draft CGST Bill and the draft IGST Bill as vetted by the Union Law Ministry. This clears the deck for the Central Government to take these two Bills to the Parliament for their passage in the ongoing Budget Session.

            Some of the main features of the two Bills, as finalized by the GST Council, are as follows:

i.             A State-wise single registration for a taxpayer forfiling returns, paying taxes,and to fulfil other compliance requirements. Most of the compliance requirements would be fulfilled online, thus leaving very little room for physical interface between the taxpayer and the tax official.

ii.           A taxpayer has to file one single return state-wise to report all his supplies, whether made within or outside the State or exported out of the country and pay the applicable taxes on them. Such taxescan be Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UTGST) and Integrated Goods and Services Tax (IGST).

iii.         A business entity with an annual turnover of upto Rs. 20 lakhs would not be required to take registration in the GST regime, unless he voluntarily chooses to do so to be a part of the input tax credit (ITC) chain. The annual turnover threshold in the Special Category States (as enumerated in Article 279A of the Constitution such as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of the North-East) for not taking registration is Rs. 10 lakhs.

iv.         A business entity with turnover upto Rs. 50 lakhs can avail the benefit of a composition scheme under which it has to pay a much lower rate of tax and has to fulfil very minimal compliance requirements. The Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector.

v.           In order to prevent cascading of taxes, ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law.

vi.         In order to ensure that ITC can be used seamlessly for payment of taxes under the Central and the State Law, it has been provided that the ITC entitlement arising out of taxes paid under the Central Law can be cross-utilised for payment of taxes under the laws of the States or Union Territories. For example, a taxpayer can use the ITC accruing to him due to payment of IGST to discharge his tax liability of CGST / SGST / UTGST. Conversely, a taxpayer can use the ITC accruing to him on account of payment of CGST / SGST / UTGST, for payment of IGST. Such payments are to be made in a pre-defined order.

vii.       In the Services sector, the existing mechanism of Input Service Distributor (ISD) under the Service Tax law has been retained to allow the flow of ITC in respect of input serviceswithin a legal entity.

viii.     To prevent lock-in of capital of exporters, a provision has been made to refund, within seven days of filing the application for refund by an exporter, ninety percent of the claimed amount on a provisional basis.

ix.         In order to ensure a single administrative interface for taxpayers, a provision has been made to authorise officers of the tax administrations of the Centre and the States to exercise the powers conferred under all Acts.

x.           An agriculturist, to the extent of supply of produce out of cultivation of land, would not be liable to take registration in the GST regime.

xi.         To provide certainty in tax matters, a provision has been made for an Advance Ruling Authority.

xii.       Exhaustive provisions for Appellate mechansim have been made.

xiii.     Detailed transitional provisions have been provided to ensure migration of existing taxpayers and seamless transfer of unutilised ITC in the GST regime.

xiv.     An anti-profiteering provision has been incorporated to ensure that the reduction of tax incidence is passed on to the consumers.

xv.       In order to mitigate any financial hardship being suffered by a taxpayer, Commissioner has been empowered to allow payment of taxes in instalments.

The remaining two Bills namely, State Goods and Services Tax (SGST) Bill and the Union territory Goods and Services Tax (UTGST) Bill, which would be almost a replica of the CGST Act, would be taken-up for approval after their legal vetting in the next meeting of GST Council scheduled on 16 March 2017.

SOURCE: PRESS INFORMATION BUREAU

Union Budget 2017

BUDGET 2017 PROPOSALS

TAX RATES

·         There is a change in Tax Rates, which will benefit Individual/HUF taxpayers. Tax Slab for Individual/HUF will be:

o   Upto Rs.250000/-                             NIL

o   Rs.250001 to Rs.500000                  5%

o   Rs.500001 to Rs.1000000               20%

o   Above Rs.1000000                           30%

·         Rebate of Rs.5000/- was allowed to taxpayers with Income below Rs.500000/-. Now this rebate has been reduced to Rs.2500/- and will be available only to persons with Income below Rs.350000/-.

·         Exemption Limit for Senior Citizens and Super Senior Citizens will continue to be Rs.300000/- and Rs.500000/- respectively.

·         Surcharge @ 10% has been imposed on the Individuals having income > 50 Lakhs and less than 1 Crore. Those with Income > 1 Crore will continue to pay surcharge @ 15%.

·         Corporate Tax in case of Domestic Companies will be 25% if Turnover was less than 50 crores in FY 2015-16.

MEASURES TO REDUCE CASH TRANSACTIONS

·         Revenue Expenditure incurred in Cash exceeding Rs.20000/- is not allowed as Expenditure while calculating Taxable Income. This limit is proposed to be reduced to Rs.10000/- w.e.f. 01/04/2017 (FY 2017-18, AY 2018-19)

·         Earlier restriction on Cash Expense was only applicable to revenue expenditure. Now this is proposed to be made applicable to Capital Expenditure also. If any Fixed Asset is purchased for which payment is made in Cash exceeding Rs.10000/-, then Depreciation will not be allowed on the Cash portion.

·         A new section 269ST has been proposed, which provides that no person shall receive amount of Rs.300000/- or more in Cash, in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person. Any person who contravenes the provision of this section can be levied penalty equal the amount of Cash received. [Eg. If Invoice is of R.450000/- and multiple Cash Receipts in respect of the Invoice are more than or equal to Rs. 300000/-, then penalty equal to the amount of cash received can be levied. ] This provision will be applicable from 1^st April 2017.

·         Deduction u/s 80G was allowed if the payment upto Rs.10000/- was made in Cash. Now this limit is proposed to be reduced to Rs.2000/-. If Donation of amount exceeding Rs.2000/- is made in Cash, then no deduction u/s 80G will be allowed.

PRESUMPTIVE TAXATION

·         Turnover limit for Presumptive Taxation for Businesses was increased from Rs.1 Crore to Rs. 2 Crore last year. It is again clarified that limit for Audit u/s 44AB is Rs.1 Crore. However if any person opts for presumptive taxation having turnover upto Rs.2 Crores, then he will not be required to get Books audited u/s 44AB.

·         To promote digital transactions and to reduce cash transactions, it is proposed that for persons opting for presumptive taxation u/s 44AD rate of income to be declared will be 6% for Non Cash Sales and 8% for Cash Sales. In respect of any Sale, if the payment is received otherwise than Cash, then deemed profit will be 6% of such Non Cash Sales. Such receipts can be made before the due date u/s 139(1) of filing Income Tax Return. This benefit will be given from FY 2016-17 (AY 2017-18).

·         Partnership Firms will have to declare income @ 8% (or 6% as applicable) of the Sales and pay tax on the same. Salary and interest to partners will not be allowed as deduction w.e.f. FY 2016-17 (AY 2017-18).

TDS/TCS

·         TDS on Rent is applicable in case of Individual/HUF only if the Turnover is more than 1 crore during the last Financial Year. Now TDS on Rent is proposed to be made applicable on Individuals/HUF with Turnover less than 1 Crores, or not doing Business, also. Applicable if monthly Rent is more than 50000/- pm. TDS @ 5% to be deducted. No need to obtain TAN only for this purpose. (applicable w.e.f. 01/06/2017)

·         TCS is applicable on Cash Sale of Jewellery if single invoice exceeds Rs. 5 Lakhs. This amount is proposed to be reduced to Rs.2 Lakhs. (w.e.f. 01/04/2017)

·         Form 15G/H can now also be filed by Insurance Commission Agents for non deduction of TDS, if Income is below exemption limit. (w.e.f. 01/06/2017)

·         TDS on Professional Services is proposed to be reduced to 2% in case of Call Centre Business.

·         TDS @ 20% or applicable rate (whichever higher) is applicable in case PAN of deductee is not available. No such provision existed in case of TCS. Similar provision is proposed to be introduced for TCS. TCS @ double the rate mentioned in section or 5%, whichever higher will be collected if PAN is not available. (w.e.f. 01/04/2017)

CAPITAL GAINS

·         In case of immovable property (Land or Building or Both), period of holding for qualifying an asset as long term has been reduced from 36 months to 24 months.

·         Base Year for calculation of Capital Gains will be shifted from 01/04/1981 to 01/04/2001.

·         In case of assets acquired before 01/04/2001, Fair Market Value as on 01/04/2001 shall be considered for Capital Gains calculation.

·         Presently Exemption is available on Sale of securities (Shares/ MF), if STT has been paid on the Sale. It is proposed that the Exemption of Capital Gain on Sale of Securities will only be available if the STT has also been paid on Purchase of such Securities (If Purchased after 01/10/2014). Some cases like IPO, Bonus Issue, Rights issue, etc. will be notified on which such condition will not apply. Now proof of Date of Purchase will also be required for claiming exemption.

·         To widen the scope of the section 54 EC, it is proposed to add notified bonds by the Central Government apart from bonds of REC or NHAI where investment can be made. (w.e.f. AY 2018-19 onwards)

OTHER PROVISIONS

·         Section 44AA is proposed to be amended to increase monetary limits of income and gross receipts for maintenance of books of accounts from Rs. 120000/- to Rs. 250000/- and from Rs. 10 Lakhs to Rs. 25 Lakh, respectively in the case of Individuals and HUF carrying on business or profession. (w.e.f. AY 2018-19). For Other Assessees, limit remains the same.

·          If return is not filed within due dates u/s 139(1)

(i) a fee of 5000/- shall be payable, if the return is furnished after the due date but on or before 31^st December of the Asst Year;

(ii) a fee of 10,000/- shall be payable in any other case.

However, in a case where the total income does not exceed five lakh rupees, it is proposed that the fee amount shall not exceed Rs.1,000/-. The amount of fees will have to be paid before filing the Return. If the Fees is not paid, then the same will be shown as demand during the processing.

·         For the Assessment Year 2018-19, the time limit for making assessment has been reduced to 18 months from the end of assessment year, from the existing 21 months. From the Asst Year 2019-20, the time limit will be 12 months from the end of the Asst Year.

·         Receipt of any sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 is chargeable to tax as Income from Other Sources in hands of recipient being Individual/HUF. Now this provision is made applicable to all assessees.

·          In case of Charitable Trusts, for claiming Exemption, they will have to file their Income Tax Return within Due Date. If Return is filed late, their exemption can be withdrawn. In case there is change in the Objects of the Trust, they have to file fresh registration by making application within a period of 30 days from the date of such change.

‘SUPPLY’ UNDER THE MODEL GST LAW

The Revised Model GST Law was placed in public domain on 26^th November 2016. In the GST Law, the taxable event would be SUPPLY. Under the existing laws there were multiple taxable events, i.e. manufacturing, provision of services, sales, etc. Under the GST law a single taxable event ‘supply’ will replace the multiple taxable events. Hence it is the most important part of the GST law, as it will determine the taxability or otherwise in the GST law.

Let us discuss the concept of Supply, as provided under the Model GST Law. The definition of Supply in the Model GST Law, is an inclusive one. It is contained in Section 3 of the Model GST Law. Apart from Section 3, Schedules I to IV are provided which explain various provisions related to supply.  

SUPPLY includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

IMPORT OF SERVICES

·         To be treated as supply if received for a consideration, whether for personal use or business use.

·         However if import of services is received without any consideration, then it will be treated as supply if it is received by a Taxable person from a related person or from any of his other establishment outside India, and it is in course or furtherance of business.

MATTERS TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

·         Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.

·         Supply of goods or services between related persons, or between distinct persons as specified in section 10, when made in the course or furtherance of business.

·         Supply of goods—

o   by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or

o   by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

The Central Government or State Government, may upon recommendation of the Council, notify the transactions that are to be treated as a supply of goods and not as supply of services, or a supply of services and not as supply of goods. Schedule II of the Model law specifies the matters to be treated as supply of goods or supply of services.

Matters to be treated as Supply of Goods

·         Any transfer of the title in Goods.

·         Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed

·         Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration.

·         Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

Matters to be treated as Supply of Services

·         Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof.

·         Any lease, tenancy, easement, licence to occupy land.

·         Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly.

·         Any treatment or process which is being applied to another person’s goods.

·         Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.

·         Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.

·         Temporary transfer or permitting the use or enjoyment of any intellectual property right;

·         Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

·         Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

·         Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

·         Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and

·         Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

·         Services by an employee to the employer in the course of or in relation to his employment.

·         Services by any Court or Tribunal established under any law for the time being in force.

·         The functions performed by the MP/MLA/MLC/ Members of Local Bodies.

·         The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority.

·         Services by a foreign diplomatic mission located in India.

·         Services of funeral, burial, crematorium or mortuary including transportation of the Deceased

·         Other Transactions notified by the Central or State Govt, upon the recommendation of the Council.

ACTIVITIES OR TRANSACTIONS UNDERTAKEN BY THE CENTRAL GOVERNMENT, A

STATE GOVERNMENT OR ANY LOCAL AUTHORITY WHICH SHALL BE TREATED

NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services provided by a Government or local authority to another Government or local

authority excluding the following services:

(i)                 services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services;

(ii)               services in relation to an aircraft or a vessel , inside or outside the precincts of a port or an aircraft; or

(iii)             transport of goods or passengers.

2. Services provided by a Government or local authority to individuals in discharge of its

statutory powers or functions such as-

(i)                 issuance of passport, visa, driving licence, birth certificate or death certificate; and

(ii)               assignment of right to use natural resources to an individual farmer for the purpose of agriculture.

3. Services provided by a Government or local authority or a governmental authority by way of:

(i)     any activity in relation to any function entrusted to a municipality under article 243W of the Constitution;

(ii)   any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution;

(iii) health care; and

(iv) education.

4. Services provided by Government towards-

(i) diplomatic or consular activities;

(ii) citizenship, naturalization and aliens;

(iii)             admission into , and emigration and expulsion from India;

(iv)             currency, coinage and legal tender , foreign exchange;

(v)               trade and commerce with foreign countries , import and export across customs frontiers, interstate trade and commerce; or

(vi)             maintenance of public order.

5. Any services provided by a Government or a local authority in the course of discharging any liability on account of any tax levied by such Government or authority.

6. Services provided by a Government or a local authority by way of –

(i) tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract; or

(ii) assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016:

PROVIDED that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource.

7. Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import or export of cargo on payment of Merchant Overtime Charges (MOT).

8. Services provided by Government or a local authority by way of-

(i) registration required under any law for the time being in force; or

(ii) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force.

The concepts of Composite Supply and Mixed Supply have been introduced in the Model GST Law.

COMPOSITE SUPPLY means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 

Illustration : Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.

A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.

MIXED SUPPLY means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply; 

Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.

DISCLAIMER: The contents of this article have been prepared on the basis of the relevant provisions and as per the information existing at the time of preparation. The views of the author are personal and cannot be relied upon before any authority, without the written permission of the author. The article is meant for general guidance and the author disclaims any liability for any loss arising to any person acting or refraining from acting on the basis of any material contained in this article. It is recommended that professional advice be sought based on specific facts and circumstances.

(Author: CA. Mohit Gaba, N.K.GABA & Co. Chartered Accountants. The author can be reached at camohitgaba@gmail.com, M: +919872473334)