Section 115 BAB – New Corporate tax rate for new manufacturing companies

Khushi Surana
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Section 115 BAB – New Corporate tax rate for new manufacturing companies

The Government, via Taxation Laws (Amendment) Ordinance, 2019 passed on 20 September 2019, has introduced a favorable new corporate tax rate for new manufacturing companies.  It has inserted Section 115BAB offering a low corporate taxrate of 15% (plus Surcharge and Health and Education Cess) making an effective rate of 17.16% to new manufacturing companies.

It has inserted Section 115BAB offering a low tax rate of 15% (plus Surcharge and Health and Education Cess) making an effective rate of 17.16% to new manufacturing companies.

ELIGIBILITY FOR NEW CORPORATE TAX BENEFITS UNDER SECTION 115BAB

The benefit of this section can only be utilized by Domestic companies and no other entity. However, there are some conditions attached which are explained below: 

  • The domestic company should have been set-up and registered on or after the 1st October 2019, and has commenced manufacturing or production of any article or thing on or before the 31st March 2023. 

Analysis: The government has introduced this section with an intention to favor the economic growth of the country.

The Secondary sector growth is vital for boosting the GDP growth and hence it is beneficial for both the economy and the corporates giving them a much-needed incentive to open up units of production and manufacturing. 

  • The business should not be formed by splitting up, or the reconstruction, of a business already in existence (not applicable to a business referred in Sec 33B of I.T Act,1961) 

Analysis: Splitted-up or Reconstructed businesses would not necessarily mean an addition to the existing production value being generated by the Company.

A newly set up entity would, on the contrary, mean that there is a supplementary production taking place in the country adding to the GDP growth.

The company should not use any machinery or plant previously used for any purpose. However, there are few exceptions to this condition which are as follows: 

  • Any Plant or machinery which has been imported to India from anywhere outside the country and the same is not used in India prior to the date on installation. 
  • Plant and machinery or part thereof which has been used before but the value of which, does not exceed 20% of the total value of the machinery or plant used by the company.
  • The deduction should not have been allowed on account of depreciation in respect of the plant or machinery at any previous time before installation  

Analysis: The intension behind attaching this particular condition is that the Government intends and expects companies to invest more and capitalize in the form of Plant and Machinery and other fixed assets. 

  • The company cannot use any building previously used as a hotel or a convention center, as the case may be, in respect of which deduction under Section 80-ID of I.T Act,1961 has been claimed and allowed. 

As per the definition in Section 80-ID “hotel” and “convention center” as been defined respectively: 
“hotel” means a hotel of two-star, three-star or four-star category as classified by the Central Government; 
“convention center” means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed; 

  • The company should not be engaged in any business other than: 
  • The business of manufacture or production of any article or thing  
  • Research in relation to the manufacturing or production of article or thing 
  • Distribution of such article or thing 

UNDER THIS NEWLY INSERTED SECTION 115BAB BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING DOES NOT INCLUDE THE FOLLOWING BUSINESS: 

  • development of computer software in any form or in any media
  • mining
  • conversion of marble blocks or similar items into slabs
  • bottling of gas into the cylinder
  • printing of books or production of a cinematograph film; or 
  • any other business as may be notified by the Central Government in this behalf; 

Analysis: By inserting this condition it is clarified that the section is only meant to benefit the manufacturing and production industry and activities carried on for facilitating the research and distribution of the same.

It has also listed out businesses that may create confusion regarding their status as to whether they would qualify and be eligible for this section.  

THE INCOME TAX OF THE COMPANY SHOULD BE COMPUTED WITHOUT CLAIMING FOLLOWING TAX EXEMPTIONS AND DEDUCTIONS:

  • Section 10AA: Deduction for units in Special Economic Zone 
  • Section 32: Deduction for additional depreciation under and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal 
  • Section 33AB: Deduction for tea, coffee and rubber manufacturing companies 
  • Section 33ABA: Deduction towards deposits made towards site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both in India 
  • Section 35:Deduction for expenditure made for scientific research  
  • Section 35AD: Deduction for the capital expenditure incurred by any specified business  
  • Section 35CCC: Deduction for the expenditure incurred on an agriculture extension project   
  • Section 35CCD: Deduction on a skill development project  
  • Deduction under Chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA and 80M (amendment brought in by Finance Bill 2020) 

Analysis: A few deductions and exemptions have been retracted by the government as the company is already benefitting from the concessional tax rate and to avoid double benefits to the company the necessary condition has been inserted.

NOTE-Set-off of loss and Unabsorbed Depreciation cannot be claimed where such loss or depreciation is attributable to the deductions enlisted above while computing Total Income of the company.
NOTE- While computing Total Income of the company, Depreciation under the provision of section 32 can be claimed but Additional Depreciation under clause (iia) of sub-section (1) of the said section cannot be claimed  

WHEN CAN THE COMPANY AVAIL THE BENEFIT OF SECTION 115BAB? 

The company has to exercise the option on or before the due date of filing income tax returns i.e usually 30th September of the assessment year.

Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently. 

WHAT DOES THE SECTION SAY REGARDING TRANSFER PRICING AND RELATED PARTY TRANSACTIONS? 

If there appears to the Assessing Officer that there is a close connection between the Company and any other person, and the course of business between them is so arranged that the business transacted between them produces to the person more than the ordinary profits which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and gains of such business for the purposes of this section, take the number of profits as may be reasonably deemed to have been derived therefrom. 

In case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the number of profits from such transaction shall be determined having regard to arm’s length price.  

Conclusion:

It’s a great incentive for the new manufacturing companies provided by the government.

However, one should make an in-depth study in the light of the deductions and exemptions the company would have to forego in order to avail the benefit of the concessional tax rate. 

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article

Understanding the Complex Section 14A of the Income Tax Act, 1961.

Sneha Kejriwal
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Understanding the Complex Section 14A of the Income Tax Act, 1961.

Introduction

Section 14A was inserted by Finance Act, 2001 having a retrospective effect from 01.04.1962. To understand the reason behind the insertion of section 14A, the relevant part of memorandum of Finance Act, 2001 is reproduced herewith:

“Certain incomes are not includible while computing the total income as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income.”

Section 14A reads as under:

(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act

Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.

Scope of section 14A

  1. Agricultural income

One of the common source of exempt income is income earned from agricultural activities which is exempted from taxation u/s. 10(1). According to the section 14A the assessee shall not be allowed to deduct any expenditure incurred to earn agricultural income as it is free from tax in the hands of assessee.

  • Income from partnership firm.

An individual earns income from partnership firm in the form of interest, remuneration and profits. All the components, except the profit earned from partnership firm, is taxable in the hands of the assessee. Therefore, section 14A shall apply only to expenditure incurred in order to earn profit.

There might be a circumstance where the assessee, a partner in a firm, may borrow funds and advance it to the firm. Therefore, the interest expense incurred on the said borrowed fund shall fall within the scope of Section 14A and will not be allowed as expense since the profit earned from the partnership firm, to which funds are advanced, is exempt u/s. 10(2A) in the hands of assessee.

However, according to the judgment of High Court of Bombay in the case of CIT vs. Delite Enterprises [I.T.A. No.: 110 of 2009], it is to be noted that if during the assessment year if partnership firm incurs loss then no disallowance of interest expense can be made u/s. 14A as there is no (tax free) profit for the relevant year.

  • Income from investments

A taxable person may earn dividend income, income from mutual funds, long term capital gain, which are exempt under relevant sections of Income Tax Act, 1961 and which shall attract section 14A disallowance.

In relation to the dividend income earned by the assessee, it is held that section 14A shall apply only to those dividends on which tax in the form of DDT is payable by the dividend paying company u/s. 115-O. As the dividend in the hands of the recipient is exempt, it will attract section 14A.

  • Exceptions

There are various other sources from which an assessee earns exempt income and expenditure on which will be disallowed u/s. 14A. However following are the various circumstances which doesn’t attract section 14A:

  • Expenditure incurred for earning of export income which is exempt u/s 80HHC, cannot be held to be income which does not form part of total income. Such expenses cannot be disallowed u/s14A – CIT v. Kings exports 318 ITR 100 (2009) (Punj. & Har.)
  • Section 14A could not be applied to provisions of Chapter VI-A where deductions are to be made in computing the total income and in no way that can be compared with the exempted income which does not form part of the total income- ACIT v. Tamil Nadu Silk Producers Federation Ltd. [2006] 103 TTJ (Chennai) 716]; ACIT vs. Bank of Madura [2011] 007 ITR (Trib) 139 ITAT [Chennai]
  • Deduction of income derived by a co-operative society u/s 80P is not a case of “exempt income” but of “deduction from income”. Therefore provisions of sec.14A are not applicable in this case ‐ACIT Vs. Kribhco 6 ITR 686 (2010) (ITAT‐Del)
  • Section 14A cannot be applied if the interest free funds available are more than the investments made from which the assessee earns exempt income. As held by Honourable ITAT in case of ACIT vs. Torrent Power Ltd.[I.T.A. No.1668/Ahd/2012,
    “The appellant has shown that it has aggregate interest free funds by way of share capital and reserves amounting to Rs.195.10 crores which is more than the investment in shares and mutual funds amounting to Rs.129.8 crores. Thus, the appellant is having enough interest free funds and, therefore, also the disallowance out of interest expenditure could not be made ..”.
    This is also covered in the judgement of High Court of Gujarat in case of CIT vs. Raghuvir Synthetics Ltd [(2013) 354 ITR 222 (Gujarat)] wherein the AO made disallowance of interest expense claimed u/s. 36(1)(iii) on account of interest free advances made to sister concern. It was held that
    “Factually, it found huge funds were available without any interest liability with the assessee and that there was no evidence to hold that the borrowed money was utilized for the purpose of advance to the sister concerns. All these aspects cumulatively led the Tribunal to hold that the disallowance made only on the ground that advances were given out of the borrowed funds, holding the assessee ineligible for allowance of interest by the Assessing Officer of the sum of Rs. 18.66 lakhs was not sustainable”.

Once the provisions of Section 14A are triggered, w.e.f A.Y 2008-09, the working of disallowance is to be made as per the provisions of Rule 8D. The same is covered in a separate article which can be found at itatorders.in/blog.

Do you need to disallow expense as per Section 14A of Income Tax Act even if you have sufficient interest free funds?

Sneha Kejriwal
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Do you need to disallow expense as per Section 14A of Income Tax Act even if you have sufficient interest free funds?

Judgement of High Court of Gujarat in case of PCIT vs. Sintex Industries Ltd [I.T.A No. 291 of 2017]. Further SLP dismissed by SC.

Facts of the case: In A.Y. 2009-10, the assessee had earned dividend income amounting to Rs. 2.02 crores from the investments made in mutual funds as well as equity shares and had suo moto disallowed expenditure of Rs. 5.10 lakhs in the return of income. During the year under consideration, the assessee was having reserve fund of Rs. 1981.55 crores and made investment of Rs. 144.51 crore. The AO made a disallowance of Rs. 90,97,470/- on account of expenditure incurred to earn exempt income as calculated u/s. 14A Rule 8D and disallowance of Rs. 24,37,500/- towards consultancy charges incurred for foreign exchange gain.

Findings: In this case the Ld CIT(A) confirmed the disallowance of expenditure in respect to interest and administrative expenditure of Rs. 90,97,470/- u/s. 14A and deleted the disallowance of expenditure of Rs. 24,37,500 incurred towards foreign exchange gain. On further appeal, the Honourable Tribunal and High Court of Gujarat deleted the disallowance of Rs. 90,97,470/- and Rs. 24,37,500/- as the assessee was already having its own surplus to the extent of Rs. 1981.55 crores against the investment of Rs. 144.51 crores. In the above judgement of High court it was stated that:

“Considering the aforesaid facts and circumstances, more particularly the fact that the assessee was already having its own surplus fund and that too to the extent of Rs. 1981.55 Crores against which investment was made of Rs. 144.51 Crores, there was no question of making any disallowance of expenditure in respect of interest and administrative expenses under Section 14A of the Act, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses of Rs. 24,37,500/- under rule 8D of the Rules. Under the circumstances and in the facts of the case, narrated hereinabove, it cannot be said that the learned Tribunal has committed any error in deleting the disallowance of expenditure of Rs. 90,97,470/- incurred in respect of interest and administrative expenses under Section 14A of the Act. We are in complete agreement with the view taken by the learned Tribunal. At this stage, decision of Division Bench of this Court in the case of Principal Commissioner of Income-tax vs. India Gelatine & Chemicals Limited, reported in [2015] 376 ITR 553 [Gujarat] needs a reference. In the said decision, it is observed and held by the Division Bench of this Court that when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified.”

Therefore, on the observation of the above judgement, it is stated that no disallowance of any expenditure can be made u/s. 14A when the assessee have sufficient interest free funds against the investments made from which exempt income is generated.

The SLP filed by the Department against the above decision was dismissed by Supreme Court in PCIT vs. Sintex Industries Pvt. Ltd. [(2018) 93 taxmann.com 24 (SC)]

Relying on the said judgement, The Honourable Ahmedabad ITAT Bench deleted the addition in case of RG Faith Creation Pvt Ltd vs. DCIT [ITA 2615/AHD/2017] and in case of ACIT vs. Torrent Power Ltd. [I.T.A. No.1668/Ahd/2012].

Conclusions: Where assessee had its surplus fund against which minor investment was made, no question of making any disallowance of expenditure in respect of interest and administrative expenses under section 14A arose and therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses under rule 8D; SLP filed against said decision dismissed.

RULE 8D of Income Tax Act: Method for determining amount of expenditure in relation to income not includible in total income

Sneha Kejriwal
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RULE 8D of Income Tax Act: Method for determining amount of expenditure in relation to income not includible in total income

What is Rule 8D of Income Tax Act, 1961?

Rule 8D of Income Tax Act reads as follow:

Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with—

(a) the correctness of the claim of expenditure made by the assessee; or

(b) the claim made by the assessee that no expenditure has been incurred,

in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—

(i) the amount of expenditure directly relating to income which does not form part of total income; and

(ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income :

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.

This is an amended provisions applicable now while the estrwhile Rule specifically focussed on disallowance of interest on proportionate basis.

Example

Let us look at an example of calculation of expenditure according to Rule 8D income tax act

During the FY 2016-17, Mr X took a loan of Rs. 10,00,000/- @ 10% p.a. which was utilised for making various investments, from which Mr. X earned dividend income which is exempt from tax.

Monthly closing balances of this investment are as follows:

April- 1,00,000, May- 1,50,000, June-1,50,000, July- 2,00,000, August- 2,10,000, September- 2,40,000, October- 2,50,000, November-2,50,000, December- 2,80,000, January- 3,00,000, February- 3,20,000, March- 3,50,000.

Opening balance as on March 2016 is Rs. 50,000

Calculation of disallowance

ParticularsAmount (in Rs)
Any amount of expenditure which is directly relating to exempt income (10,00,000*10%)1,00,000
Amount equal to 1% of annual average of monthly average of opening and closing balances of value of investment whose income is or shall be exempt – 1% of Rs 2,27,500 (See computation below)

Monthly average of Investment
April-( 50000+100000)/2                                                          1,00,000
May-(100000+150000)/2                                                          1,75,000
June-(150000+150000)/2                                                          1,50,000
July- (150000+200000)/2                                                          1,75,000 August-(200000+210000)/2                                                      2,05,000 September- (210000+240000)/2                                               2,25,000 October- (240000+250000)/2                                                    2,45,000 November-(250000+250000)/2                                                 2,50,000 December-(250000+280000)/2                                                 2,65,000 January-(280000+300000)/2                                                     2,90,000 February-(300000+320000)/2                                                   3,10,000 March-(320000+350000)/2                                                       3,40,000 Total                                                                                     27,30,000 Period                                                                                      12 months
Annual average (2730000/12)                                2,27,500                            		2,275
Total disallowance under Section 14A read with Rule 8D1,02,275

Analysis of section 14A rule 8D

  1. Recording Satisfaction– It is to be noted that as per the clause (2) of the section 14A, AO shall disallow expenditure in relation to the income which does not form part of the total income only after recording dissatisfaction of the correctness of the claim of expenditure made by the assessee in relation to the exempt income. According to the judgement of the High Court of Delhi in the case of PCIT vs. Vedanta Ltd. [2019] [102 taxmann.com 95], referring to the decision of Apex Court in Godrej & Boyce Manufacturing Company Ltd. has held that
    “Rule 8D of income tax act cannot be invoked and applied unless AO records his dissatisfaction regarding the correctness of claim made by assessee in relation to expenditure incurred to earn exempt income.”
    Further, in the judgement of Honourable ITAT [Ahd Bench] in case of Alidhara Textool Engineers P. Ltd vs. DCIT[I.T. A. No. 2738/AHD/2011] for A.Y. 2008-09 dated 04.04.2016, wherein it was held that: “In  our  view,  Rule  8D  comes  into  operation  where  the  Assessing Officer is not satisfied in relation to income which does not form part of  the  total  income  under  this  Act  and  thereafter  if  the  Assessing Officer  is  unable  to  determine  the  amount  of  such  expenditure incurred in relation to the income which does not form part of the total income then he may resort to the method with prescribed in Rule 8D of  the  IT  Rules,  1962.  In  the  case  of  assessee  no  such  satisfaction has  been  recorded by  the  Assessing Officer  about the incorrectness of  the  claim  of  assessee  towards  expenditure  incurred  for  earning exempt  income.”

    Therefore, recording dissatisfaction by the AO is a necessary prerequisite for imposing Rule 8D.

  2. Rule 8D does not have any retrospective application– As per the judgement of Supreme Court in case of Commissioner of Income-tax v. Essar Teleholdings Ltd. (2018) 401 ITR 445 (SC), Rule 8D does not have any retrospective application and it is applicable prospectively from A.Y. 2008-09. As a result, till AY 2008-09, disallowance cannot be made in accordance with Rule 8D but can be done as per the best judgment of the AO in accordance with the section 14A which has application from 1961.
  3. Disallowance cannot exceed exempt income: In the judgement of Honourable ITAT [Ahd Bench] in case of CLP India Pvt Ltd. Vs. DCIT[I.T.A No.: 1163 &1186/AHD/2018] it was held that assessee’s total dividend income is Rs. 50,000/-  so there cannot be disallowance of Rupees more than 50,000/-

    Further, as per the decision of High Court in case of CIT vs. Vision Finstock Ltd [I.T.A. No. 486 of 2017], it was held that “the assessee had earned exempt income of Rs. 55,604/-. As against that, the Assessing Officer had worked out the disallowance of expenditure under section 14A of the Act read with Rule 8D to Rs. 1,02,82,049/-. The Tribunal, while restricting the disallowance to Rs. 55,604/-, relied on the decision of Delhi High Court in case of Joint Investments (P) Ltd vs. CIT reported in 372 ITR 694 holding that disallowance of expenditure in terms of section 14A read with Rule 8D cannot exceed the exempt income itself.”

“LLP Settlement Scheme 2020”- File all pending returns with reduced additional fees- One time benefit for LLPs

CA Richa Agarwal
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“LLP Settlement Scheme 2020”- File all pending returns with reduced additional fees- One time benefit for LLPs

The Ministry of Corporate Affairs, Government of India has introduced the “LLP Settlement Scheme 2020” vide General Circular No. 06/2020 dated 04.03.2020 and modified the same further vide General Circular No. 13/2020 dated 30.03.2020.

What is LLP Settlement Scheme 2020?

The objective of introducing this Scheme is to promote ease of doing business and hence Central Government has decided to give a Onetime relaxation in additional fees to the defaulting LLPs to make good their default by filing pending documents and to serve as a compliant LLP in future.

The New LLP Settlement Scheme is effective from 1st April 2020 and shall continue until 30th September 2020.

LLP Settlement Scheme 2020 Applicability

Any Defaulting LLP is permitted to file belated documents, which are due for filing till 31st August 2020 in accordance with the provisions of this Scheme.

Payment of Fees

As per original LLP Settlement Scheme 2020, the defaulting LLPs may avail of the scheme for filing documents which have not been filed or registered in time on payment of additional fee Rs 10/- per day (instead of Rs.100/- for each day of such delay) maximum upto Rs.5,000 per document for delay in addition to the normal statutory filing fees prescribed under LLP Act and Rules thereunder.

However as per the modified Scheme, The defaulting LLPs may file forms till 30th September,2020, till then NO ADDITIONAL FEES will be charged to file forms.

Immunity from Prosecution

Defaulting LLPs which files pending documents till 30th September 2020 and makes good the default under the scheme will not be subjected to such prosecution.

LLP Forms and Documents Covered

The LLP Settlement Scheme 2020 is applicable for filing the following delayed documents from the LLP 2020 Act:

    1. Form-3  Information with regards to LLP agreement and its changes, if any, made therein.
    2. Form-4 Notice of cessation, appointment, changes in name, address, consent to become a partner or designated partner and designation of a partner or designated partner.
    3. Form-8 Statement of Account and Solvency either annual or interim.
    4. Form-11 Annual Return of Limited Liability Partnership (LLP).
    5. Form-15 Notice for change of place of registered office.
    6. Form-5 Notice for Change of Name.
    7. Form-12 Form for intimating other address for Service of Documents.
    8. Form-22 Notice of intimation of Order of Court/ Tribunal/CLB/ Central Government to the Registrar
    9. Form-31 Application for Compounding of an offence.
    10. Form-23 Application for direction to Limited Liability Partnership (LLP) to change its name to the Registrar.
    11. Form-29 Notice of (A) alteration in the certificate of incorporation or registration; (B) alteration in names and addresses of any of the persons authorized to accept service on behalf of a foreign limited liability partnership (FLLP) (C) alteration in the principal place of business in India of FLLP (D) cessation to have a place of business in India

Also Read:

1. Filing Annual Returns for LLP in Form11

2. Form 15CA and Form 15CB Return Filing

Non-Applicability of LLP Settlement Scheme 2020

If an LLP has made an application for striking-off its name to the Registrar as per the provisions of Rule 37(1), then such LLP cannot avail benefit under this scheme.

Conclusion-
On the conclusion of the Scheme, the Registrar shall take necessary action under the LLP Act, 2008 against the LLPs which have not availed this Scheme and are in default in filing of documents as required under the provisions of LLP Act, 2008 in a timely manner. Hence all defaulting LLPs has this one time opportunity to avoid penalties and reap the maximum benefit of reduced additional fees by availing this Scheme.

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.

Companies Fresh Start Scheme, 2020- One time opportunity for Companies to clear defaults

CA Richa Agarwal
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Companies Fresh Start Scheme, 2020- One time opportunity for Companies to clear defaults

The Ministry of Corporate Affairs has introduced Companies Fresh Start Scheme,2020 (‘CFSS Scheme’) vide circular no. 12/2020 dated March 30, 2020 under Section 460 of the Companies Act, 2013 (“Act”) read with Section 403.This is in furtherance of the Ministry’s Circular No. 11/2020, dated 24th March. 2020 and in order to facilitate the companies registered in India to make a fresh start on a clean slate, this Ministry has decided to take certain alleviative measures for the benefit of all companies. Salient Features of the Scheme is as follows.

ENFORCEMENT- The scheme shall come into force on 1st April, 2020 and shall remain in force till 30th September, 2020 (both days inclusive).

APPLICABILITY- Any ‘defaulting company’ is permitted to file belated documents which were due for filing on any given date in accordance with the provisions of this Scheme.

MANNER OF PAYMENT- Every defaulting company shall be required to pay normal fees as prescribed on the date of filing of each belated document without payment of any additional fees on account of delay.

FORM CFSS 2020-The Form CFSS-2020 is entirely self-declaration-based form to be made electronically.

IMMUNITY- Immunity from the launch of prosecution or proceedings for imposing penalty shall be provided only to the extent such prosecution/proceedings for imposing penalty under the Act pertains to any delay associated with the filings of belated documents. Any other consequential proceedings, including any proceedings involving interests of any shareholder or any other person qua the company or its directors or key managerial personnel would not be covered by such Immunity, meaning not against any substantive violation of law.

IMMUNITY CERTIFICATE- An application for seeking immunity may be filed after documents are filed, taken on record and approved by the the designated Authority (i.e. Registrar of Companies having jurisdiction over the registered office of the company) but maximum within a period of 6 months from the closure of the scheme i.e. maximum by 31st March, 2021. Based on this immunity certificate shall be issued by the concerned ROC.

EFFECT OF IMMUNITY- The designated authority shall withdraw the prosecutions before any courts and proceedings pending before adjudicating authority in respect of which the immunity has been granted by the designated authority.

WITHDRAWAL OF EXISTING APPEAL AND FURNISHING OF PROOF- If defaulting company has filed any appeal against any notice, complaint, order passed by court or by an adjudicating authority, it can file application under this scheme for immunity certificate only after withdrawing such appeal and furnish proof of such withdrawal with the application (CFSS-2020).

SPECIAL CIRCUMSTANCES WITH ORDER OF ADJUDICATING OFFICER WHERE APPEAL COULD NOT BE FILED- Where due to delay of filing any document with the registrar, Order of penalties were imposed by adjudicating officer and no appeal has been filled as on today then:

      • If last date for filing the appeal falls between March 01 to May 31, 2020, additional 120 days shall be allowed for filing the appeal, and
      • During this additional period no prosecution shall be initiated against the company or its officers, insofar as it relates to delay in filing.

EXCLUSIONS FROM THE SCHEME- CFSS 2020 will not apply to the following:

      1. Where action for striking-off has already been initiated by the Designated Authority or STK-2 for strike off of Company with ROC has been filed by the companies;
      2. Companies which have amalgamated;
      3. Companies which has already filed application for obtaining dormant status;
      4. To Vanishing Companies;
      5. Where any increase in authorized capital is involved (Form SH-7) and all charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9);
      6. In the matter of any appeal pending before the court of law and in case of management disputes of the company pending before any court of law or tribunal;
      7. In case any court has ordered conviction in any matter or an order imposing penalty has been passed by an adjudicating authority under the Act and no appeal has been preferred.

FOR INACTIVE COMPANIES- The scheme gives an opportunity to defaulting inactive companies while filling application under Form CFSS-2020,

      • To get their companies declared as Dormant Company under section 455 of the Companies Act, 2013 by filing e-form MSC-1 at a normal fee on said form; or
      • File e-form STK-2 for striking off the name of the company by paying the fee payable on form STK-2.

CONCLUSION-The MCA has earlier introduced Company Settlement Schemes in the year 2010, 2011, 2014, 2018 and now 2020. The Ministry has uploaded the list of 76 “Eligible Forms” in the public domain which waives off additional fees for belated filings which comprises of eforms under the Companies Act 2013, Companies Act 1956 and LLP’s. Once the Scheme is over, the Designated Authority have power to initiate all necessary action against companies who have not availed this scheme and are still in default in filing of required documents as per the provisions. Hence, the current CFSS Scheme is a one-time opportunity to clear all the belated defaults without additional fees.

Amendments to GST rules (23.03.2020)

CA Harshi Modi
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Amendments to GST rules (23.03.2020)

Summary of Important Amendments to GST Rules as per the notifications issued on 23.03.2020:-

GST Registration:-

As per Notification No. 16/2020- dated 23.03.2020:-

Authentication of Aadhaar number for grant of registration

  • As per  Rule 8 (4A) of CGST Rules, 2017 -The applicant shall, while submitting an application for registration under Rule 8(4)   with effect from 01.04.2020 undergo authentication of Aadhaar number for grant of registration.
  • As per Rule 9, effective from 01.04.2020 in case the applicant fails to provide Aadhaar number at the time of application for registration within 60 days from the date of application, registration shall be granted only after physical verification of principal place of business.

Input Tax credit on Capital Goods:-

Rule 43 (1) of CGST and SGST Rules, 2017

(a)Amount of ITC in respect of Capital Goods used or intended to be used exclusively for non-business purpose or exclusively for effecting exempt supplies shall not be credited to electronic credit ledger.

(b) Amount of ITC in respect of Capital Goods used or intended to be used exclusively for taxable supply including Zero rated supply shall be credited to electronic credit ledger.

(c)This clause has been substituted as follow:- The amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’ being the amount of tax as reflected on the invoice, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend up to 5 years from the date of the invoice for such goods:

Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, input tax in respect of such capital goods denoted as ‘A’ shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (a),denoted as ‘Tie’, shall be calculated at the rate of 5% points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed:

(d) This clause shall be substituted namely “The aggregate of the amounts of  “A” credited to the electronic credit ledger under clause (c) in respect of common capital goods whose useful life remains during the tax period, to be denoted as “Tc”, shall be the common credit in respect of such capital goods:

Provided that where any capital goods earlier covered under clause (b) are subsequently covered under clause (c), the input tax credit claimed in respect of such capital good(s) shall be added to arrive at the aggregate value “Tc”.

(e) The amount of ITC attributable to a tax period on common capital goods during the residual life , be denoted as Tm and calculated as  Tm=Tc/60, In clause (e), the following Explanation shall be inserted:-

Explanation.- For the removal of doubt, it is clarified that useful life of any capital goods shall be considered as five years from the date of invoice and the said formula shall be applicable during the useful life of the said capital goods.

Threshold limit for GST Audit for F.Y. 2018-19.

Rule 80(3) of CGST Rules, 2017- Provided that every registered person whose aggregate turnover during the financial year 2018-2019 exceeds Rs.5 crore shall get his accounts audited as specified u/s-35(5) and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C for the financial year 2018-2019, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

  • Electronic Cash ledger:
  • Rule-86(4A) of CGST Rules, 2017 where a tax payer has claimed refund of any amount as “tax wrongly paid or paid in excess” for which debit has been made from the electronic credit ledger and if such refund is proper and admissible then instead of giving refund in cash, such amount shall be re-credited in the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.

Valuation of Goods Exported under LUT option:-

  • In case of zero rated supply of goods or services or both without payment of tax under Bond/LUT in accordance with the provision of S. 16(3) of IGST Act, refund of ITC shall be granted as per the formula specified in Rule 89(4) of CGST Rules, 2017.
  • Refund Amount =(Turnover of Zero rated supply of goods and services) *Net ITC/ Adjusted Total turnover.

For the above purpose, Turnover of Zero rated supply of Goods has been substituted as “The value of zero-rated supply of goods made during the relevant period without payment of tax under bond or LUT or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;” [ clause C of Rule 89(4) substituted].

Refund of IGST paid on goods and services Exported outside India:-

  • In Rule 96, in sub-rule (10), clause (b) with effect from the 23rd October, 2017, the following Explanation shall be inserted:
  • Explanation. – For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid IGST, Service tax and compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.
  • Rule 96B of CGST Rules, 2017 in case of refund of unutilized ITC on account of export of goods under LUT option or of IGST paid on export of goods, if sale proceeds in respect of such exports have not been realized within the prescribed time limit allowed under Foreign Exchange Management Act, 1999 (FEMA) then – the person to whom the refund has been made shall deposit the amount so refunded, to the extent of non-realization of sale proceeds, along with applicable interest within 30 days of the expiry of the said period.

What is Reverse Charge Mechanism in GST?

Vedant Biyani
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What is Reverse Charge Mechanism in GST?

Normally, GST on goods and services is payable by the taxable person (i.e. person registered or liable to be registered under GST). However the Government have, on the recommendation of the council, by notification specified categories of supply of goods or services or both, the tax on which shall be paid on the reverse charge basis (by recipient) and all the provision of GST as applicable to the supplier shall apply to such recipient as if he is the supplier of goods and/or service.

 What is Reverse Charge Mechanism?

“Reverse charge” means the liability to pay tax by the person receiving goods or services or both instead of supplier of such goods and/or services under section 9(3) or 9(4) of CGST act or Section 5(3) or 5(4) of IGST Act.

Where is Reverse Charge Applicable?

There are two provisions under which GST is payable on the Reverse Charge:-

Reverse charge under gst notification:

Supply of goods where GST is payable under Reverse Charge is mentioned in Notification No. 4/2017-CT (Rate) and 4/2017-IT (Rate) both dated 28.06.2017 effective from 01.07.2017. This List includes items like Cashew nuts, Bidi wrapper leaves (tendu), Tobacco leaves, Silk Yarn, Supply of Lottery, Used vehicles, seized and confiscated goods, old and used goods, waste and scrap to Government or local authority, Raw Cotton, Priority Sector Lending Certificate.

Supply of Services where GST is payable under Reverse Charge is mentioned in Notification No. 13/2017-CT (Rate) and 10/2017- IT (Rates) both dated 28.06.2017.This list is mentioned at the end of the article.

Reverse charge where supplies is from unregistered person:-

If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.

However, an exemption was granted by Central Government vide Notification No. 08/2017 – Central Tax (Rate) dated 28-06-2017 to those registered dealers whose aggregate value of such supplies of goods or services or both received from any or all the suppliers, who is or are not registered, not exceeding five thousand rupees in a day.[This provision not relevant from 13.10.2017]

As the Central Government is yet to notify, on the recommendation of the council,  class of registered person and specified categories of goods or services or both, the applicability of provisions cannot be ascertained as on date.

Time of Supply under Reverse Charge:-

Time of Supply is the point to determine when the supply is liable to GST.

In case of Supply of Goods:-

The time of supply shall be the earliest of the following dates:

  • The date of receipt of goods
  • The date of payment
  • The date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Date of Payment: – The date of payment in the above situation refers to the date on which the payment is recorded in the books of account of entity that receives the service (recipient of service) or the date on which the payment is debited from the entity’s bank account, whichever is earlier.

In case of Supply of Service:-

The time of supply shall be the earliest of the following dates:-

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier

Compliance in respect of Supplies under GST Reverse Charge Mechanism:-

  • Person who are liable to pay tax under Reverse Charge are required to get registered, irrespective of the threshold limit specified- Section 24 of CGST Act. However, persons who are exempt from registration under section 23 of CGST Act are not required to get registration under Section 24. Section 23 of CGST Act provides for exemption from registration to those who are exclusively engaged in the supply of goods or services or both which are not liable to tax or are fully exempt.
  • As per Section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge under gst. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge under gst.
  • Self-invoicing is to be done when you have purchased from an unregistered supplier and such purchase of goods or services falls under reverse charge. This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.
  • Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge.
  • Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, only after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
  • Only a registered person is liable to pay tax under GST. Thus a person who is not required to get registered under GST is not required to pay GST under Reverse charge.

Also Read:
The loophole in GST Refund Application

List of Services as notified till 01.10.2019 under RCM is mentioned as below:-

GTA Services:- (From 01.07.2017)

Supply of Goods by GTA in respect of transpiration of goods by road to Factory/Society/Co-operative society/Firm, AOP, Body corporate, Casual taxable person if such recipients are located in a taxable territory.

If GTA is registered under GST and issue invoice along with GST, No tax shall be payable by the recipient of such service.

Also Read:

Amendments to GST Rules

Person who is paying freight is liable for the payment of GST.

[Not Applicable – Services provided by GTA to establishment of CG/SG/UT/LA/person registered under GST for the purpose of deducting TDS.]

Legal Services:- (From 01.07.2017)

Service supplied  by  an individual advocate including senior advocate by way of representational service before any court, Tribunal, or authority.

Services supplied by Individual or firm of advocate to another firm of advocate or to Business entity by way of legal services.

Also Read:

TDS in Priovision

Arbitral Services:- (From 01.07.2017)

Services supplied by an arbitral Tribunal to a business entity.

Sponsorship Services:- (From 01.07.2017)

Service provided by way of Sponsorship Service to anybody corporate or partnership firm located in a taxable territory.

Government Services:- (From 01.07.2017)

Services supplied by the CG/SG/UT/LA to a business entity (located in taxable territory) except the following:-

  • Renting of immovable property service, and
  • Services by the Department of posts by way of speed post, life insurance, and express parcel post and agency services provided to a person other than CG/SG/UT/LA.
  • Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
  • Transport of goods or passengers.

Services by the Government:- (From 25.01.2018)

Services supplied by the CG/SG/UT/LA by way of renting of immovable property to a person registered under the CGST Act, 2017

Transfer of Development Rights or FSI:- (From 01.04.2019)

Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter.

Lease of land:- ( From 01.04.2019)

Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (premium) and/or periodic rent for construction of a project by a promoter.

Services by the Director:– (From 01.07.2017)

Services supplied by a director of company/body corporate to the said company or a body corporate

Insurance Agent Service:- (From 01.07.2017)

Services provided by an insurance agent to person carrying on insurance business.

Recovery Agent Service:- (From 01.07.2017)

Services provided by a recovery agent to a banking company or a financial institution or NBFC.

Copyright Service:- (From  01.07.2017 to 30.09.2019)

Supply of Services by an author, music or the like by way of transfer or permitting the use or enjoyment of a copyright to Publisher, Music company, producer or the like.

Copyright Service:- (From 01.10.2019)

Supply of services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright to Music company, producer or the like

Copyright Service by Author:- (From 1.10.2019)

Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright to publisher.

Provided that nothing contained in this shall apply where, –

  • The author has taken registration under the GST Act, 2017 and where he exercises the option to pay central tax on the service specified in accordance with Section 9 (1) GST Act, 2017 along with declaration that he shall not withdraw the said option within a period of 1 year from the date of exercising such option
  • The author makes a declaration, as prescribed in Annexure II on the   invoice issued by him in Form GST Inv-I to the publisher.

Reserve Bank Services:- (From 13.10.2017)

Supply of services by the members of Overseeing Committee to RBI.

Services by DSAs:- (From 27-7-2018).

Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate partnership or LLP to bank or NBFCs

Business Facilitator:- (From 01.01.2019)

Services provided by Business Facilitator (BF) to a banking company

Business Correspondent:- (From 01.01.2019)

Services provided by an agent of Business Correspondent (BC) to Business Correspondent (BC)

Security Services:- (From 01.01.2019)

Services provided by  any person other than body corporate to a registered person by way of supply of security personnel but Not applicable to establishment of CG/SG/LA/UT, government agencies, Registered person paying tax under composition scheme.

Lending of Securities:- (From 01.10.2019)

Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of SEBI, as amended.

Renting of Motor Car:- (From 01.10.2010).

Services provided by way of renting of a motor vehicle provided to a body corporate

29 Things To Do This Lock Down

CA Chayan Agarwal
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29 Things To Do This Lock Down

We are at a stage and phase, no one planned. But this has happened in past too, experiencing and passing through a phase totally new for the world, which became history and the people who witnessed  could tell the world, ‘I witnessed ……..’ Some of these events which happened over past years were World War I & II, 1947, India Pakistan War, Emergency and many. This time it is LOCK-DOWN.

Lock Down – We haven’t experienced this – Staying at home for so many days, not having access to outside physical world, but just an internet world. Here is an attempt to list down the possible things we can do. Dividing list into 3.

Suggestion 1- Get back to normal work routine, Lock-down is not a holiday.

ONLY WORK during working hours (No Netflix, No series, No Movies, NO TP)

1.BUSINESS PLAN [i. Immediate – After Lockdown ends – understanding the impact & ii. Future- 3yr atleast)
2.TALKING WITH CLIENTS (This is a good time to build relationship and get in touch with them, discussing future developments, feedback, reviews and more 
3.UPGRADE (Use of Technology, Social Media, Cloud Service in your business)
4.INNOVATE & THINK-NEW – Business dynamics are getting competitive, this is the best time to think/discuss with your team about future developments/ restructuring/ expansions
5.ACCOUNTS COMPLETION (Today is 31st March, you need to get your accounts completed & finalised, if you don’t have access to your accounts at this time, think!!- Cloud)
6.SWOT Analysis of your business
7.DEVELOPING SOP for your non SOP workings
8.LEGAL & TAX discussion on pending matters with your consultant
9.Financial & INVESTMENT Review/Planning
10.CSR – How to contribute and become a helping hand towards society in this tough time.

Suggestion 2- Self Development & Learning- Optimum use of timing 

11.QUORA – Learn about topic of interest, Ask questions- Get answered from experts, also lots of existing content available.
12.CREATE YOUR OWN WEBSITE– The blog you are reading is my personal website & this website was fully created by me, from domain and webspace to designing everything (100%) done by me, no IT person involved.How? Youtube Channel – Nayyar ShaikhPS- I am commerce graduate 🙂
13.READ BOOKS – Pick the book available with you have at home also sharing some downloadable E-Books in the comment section.Couple of days back, I did webinar on Importance of Reading Habit – Link
14.YOUTUBE– There’s a lot to learn from youtube, select your topics of interest and search. Recommended Option – Technology, Innovation, Motivation, Economics, etc
15.LEARNING ABOUT FINANCE & STOCK MARKET – @stockistaan conducts financial literacy workshops through Webinar & Offline Certification workshops.
16.TEDx – Lots of video content available on app and youtube channel
17.LINKEDIN & OTHERS – Updating/completing incomplete details on various professional platforms
18.Learn PHOTOSHOP or VIDEO editing tools
19.FITNESS & MEDITATION – This might be your long-awaited wish list, time is right to start and give some time to your body and soul.

Suggestion 3- Enjoy!!

20.Movies (New and old favs)
21.     Series & Shows on various platforms (I watched Mahabharat’s 93 episodes few months back on Youtube, believe me it’s the most addicted series you will come across once you start)
22.Laughter Dose- On Various Apps, youtube (A popular old one – Great Indian Laughter Challenge)
23.Music
24.Video Games
25.Board Games
26.Kitchen Experiment- An attempt – Master Chef
27.Any long pending Wish (Singing, Dancing, Tik Tok, other)
28.Long hours of Sleep
29.    Refreshing Old Memories – Pictures and videos are not just to save in ever increasing mobile memory, but to cherish old memories, time is now to do that now.

Above are things you can do this lock-down apart from having good time with your family. If you have some other suggestion, please post in comment section.

Some suggestions

Youtube – Coldfusion (Interesting stuffs), Gaurav Kapoor, Gaurav Gupta (Laughter Dose), TEDx Talks (Learning), Berklee College of Music (AR Rehman’s lover)

Good Books to Read – Rich Dad Poor Dad, Who moved my cheese, Think & Grow Rich

Financial Learning – STOCKISTAAN

Connect on Twitter – @cachayan

If you have added any of the above point in your to do list, I’ll appreciate if you can share this. Thanks 🙂 

(Suggestion – 1 may not be fully possible for few professionals, you can ignore few and suggest some other applicable possibilities)

Writer – CA Chayan Agarwal (www.chayanagarwal.com)

Amendments in TDS Provision in Finance bill, 2020 – Section 194J, 194, 194K

Khushi Surana
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Amendments in TDS Provision in Finance bill, 2020 – Section 194J, 194, 194K

The Union Budget 2020 has brought several changes in the provisions of TDS which will take effect this financial year. Here are the Key Amendments that were introduced in the TDS Provision:

Section 194J-Fees for professional or technical services
There has been a change in the percentage of TDS rate which was 10% earlier for both professional and technical services. The rate has been reduced to 2% of such sum in case of technical services (not being professional services) and 10% of such sum in rest other cases.

The term ‘Professional Services’ means services rendered by a person carrying on Legal; Medical; Engineering or architectural profession or accountancy profession; Technical consultancy or interior decoration or advertising; or such other profession as notified by Board for the purpose of section 44AA.

Fees for technical services’ means any consideration for the rendering of any managerial, consultancy, or technical services. It includes the provision of services of technical or other personnel. It doesn’t include consideration for any construction, mining, assembly or like project undertaken by the recipient or consideration chargeable under the head ‘salary’.

Analysis- Technical Services TDS @ 2% and Professional Services & others cases of 194J @ 10%. However definition of both technical and profession services includes the term “Consultancy or Technical Services”, hence it opens a wide scope of variability in application of this new amendment.

Section 194– TDS on Dividends           

Dividend declared by domestic companies were subject to Dividend Distribution Tax (DDT) and dividend received was not taxable in the hands of recipient except income exceeding 10 Lakhs. With effect from 1st April 2020 , dividend received is taxable in the hands of the recipient if paid in any mode if income exceeds Rs. 5000, at the rate of 10 %.

Analysis- Dividend distribution tax has been withdrawn and the liability of taxability on dividend vests in the hands of the recipient. Also basic threshold is increased from Rs 2,500/- to Rs 5,000/- for dividend paid other than cash. Further, earlier the mode of payment was given as “an account payee cheque or warrant” which is now changed to any mode. 

Section 194K- TDS on Income from Certain Units

The said section was omitted w.e.f 01.06.2016 by the Finance Act 2016 and now the same is reintroduced. Section specifies any person responsible for paying to a resident any income in respect of

  1. units of a Mutual Fund specified under clause (23D) of section 10 or
  2. units from the administrator of the specified undertaking or
  3. units from the specified company

shall at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct TDS at the rate of 10%. This section shall not apply if such income or aggregate of such income in a financial year does not exceed 5000 rupees.

Analysis- The threshold limit is Rs.5,000/- and this section applies to income only from the above specified units and not form Capital Gain

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.

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