Extension of due date to file form for claiming 10AA exemption: CBDT Circular
– Income tax Act requires that the taxpayer must submit a report of an accountant to the income tax authorities to claim the deduction under section 10AA. For that, CBDT has come up with new Form 56F.
– For Assessment Year 2023-24, CBDT vide circular has extended the due date of furnishing the Form 56F to 31st December 2023.
Circular regarding Condonation of Delay In Filing Form No. 10-IC For Assessment Year 2021-22.
– The delay in filing of Form No. 10-IC as per Rule 21AE of the Rules for previous year relevant to AY 2021-22 is condoned in cases where the following conditions are satisfied:
i. The return of income for relevant assessment year has been filed on or before the due date specified under section 139(1) of the Act.
ii. The assessee company has opted for taxation u/s 115BAA of the Act in item (e) of “Filing Status” in “Part A-GEN” of the Form of Return of Income ITR-6.
iii. Form No. 10-IC is filed electronically on or before 31 st Jan 2024 or 3 months from the end of the month in which this Circular is issued, whichever is later.
Assessee can adopt provisions of Act for one source of Income and apply DTAA provisions for another source:
– Assesses, a tax resident of Mauritius had earned gains/incurred losses on alienation of shares of Indian companies.
– It had claimed that STCG (short term capital gain) as exempt from tax in India in accordance with article 13(4) of the India Mauritius DTAA and sought to carry forward the LTCL (Long term capital loss) under section 74(1).
– The Assessing Officer rejected the claim of the assessee observing that the capital gains derived by a tax resident of Mauritius in India were not taxable in India, and the same was not tax-deductible in Mauritius. Since, the capital gains derived by the assessee in India was exempt, the question of carrying forward of capital losses from such transactions did not arise at all either in India or in Mauritius.
– On further appeal, the Commissioner (Appeals) held that provisions of DTAA could not be selectively applied, hence, assessee was not entitled to carryforward LTCL as per provisions of section 74.
– Matter reaches to tribunal wherein it was observed that gains/losses arising from different transactions are distinct transactions and a separate source of income; accordingly, STCG/STCL and LTCG/LTCL are distinct and separate streams of income arising to an assessee. Section 90(2) provides the provisions of the Act or the provisions of the Treaty, whichever are beneficial, shall apply to the assessee.
– In view of the above, the Assessing Officer is to be directed to allow the assessee’s claim for carry forward of LTCL (Long term capital loss)
CBIC clarifies place of supply for co-location services
Circular No. 203 dated 27 th October, 2023
The Central Board of Indirect Taxes and Customs (CBIC) has issued clarifications regarding the determination of the place of supply in relation to co-location services.
– Co-location services involve businesses renting space in a data center facility for their servers and computing hardware, along with various bundled services related to hosting and IT infrastructure.
– Clarification on classification and place of supply in case of co-location services.
CBIC’s clarification addresses doubts related to the classification and place of supply for these services. The key points of clarification are as follows:
– Co-location services extend beyond passive access to physical space and include various services provided by the supplier related to hosting and IT infrastructure. These services may encompass network connectivity, backup facilities, firewall services, monitoring, and surveillance services to ensure the continuous operation of servers and related hardware.
– Consequently, co-location services should not be considered as services for the renting of immovable property. Instead, they fall under the category of “Hosting and information technology (IT) infrastructure provisioning services.” Therefore, the default provision for determining the place of supply, which considers the recipient’s location as the place of supply, would be applicable.
– However, if the supplier and recipient have a specific agreement that restricts the services to providing physical space and basic infrastructure without including the components of hosting and IT infrastructure provisioning services, and the recipient assumes responsibility for the maintenance, operation, monitoring, and surveillance of servers and related hardware, then the supply of services shall be considered as the rental of immovable property. In this case, the place of supply would be the location of the immovable property.
CBIC clarifies on taxability of reimbursement of electricity charges
The Central Board of Indirect Taxes and Customs (CBIC) has provided clarifications on the taxability of the reimbursement of electricity charges in a recent circular (Circular number 206). Here are the key points:
Composite Supply Clarification:
– When electricity is supplied as part of a broader service, such as renting immovable property and/or maintenance of premises, it is considered a part of a composite supply.
– The GST rate applicable to the principal supply, which is renting of immovable property and/or maintenance of premises, will be applicable to the ancillary supply of electricity. This applies regardless of whether the electricity is separately billed or not.
Tax Treatment as a Pure Agent:
-In cases where electricity charges are recovered by entities like real estate companies, malls, airport operators, Resident Welfare Associations (RWA), real estate developers, etc., as a pure agent, it will not be taxable.
Criteria for Deemed Pure Agent Status:
-Entities/persons mentioned above will be deemed to be acting as pure agents if they recover electricity charges at actuals from their lessees or occupants, as charged by the State Electricity Boards or DISCOMs to them.
Taxability of corporate guarantees
1. The issue of taxability surrounding the provision of personal guarantees by Directors and corporate guarantees by related persons had prompted several representations.
2. In response, the Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 204 dated 27 th October 2023.
Circular No. 204 Clarifications:
3. The circular addresses the taxability and valuation of two activities:
– Whether providing a personal guarantee by a director to secure credit facilities for the company without consideration is treated as a supply of service.
– Whether providing a corporate guarantee without consideration by a related person for another related person to secure credit facilities for the company is considered a supply of service.
4. Directors are treated as people related to the company. Even transactions without consideration are deemed supplies, and Rule 28 of CGST Rules, 2017 is applicable for valuation. The Open Market Value is considered as the transaction value.
5. The Circular refers to the RBI guidelines which emphasize that no consideration should be paid by the company to the director for personal guarantees. If no consideration is paid to the director, the Open Market Value, per Rule 28, is considered “Zero” and no tax is payable.
6. Exceptions exist for cases where the director is no longer associated with the company, and in such cases, the taxable value becomes the remuneration/consideration paid to the director.
7. For corporate guarantees provided by a company to banks/FIs on behalf of related persons, it is treated as a supply of service between related persons even without consideration.
8. Notification 52/2023, dated 26 th October 2023, inserted sub-rule (2) in Rule 28 to determine the taxable value of corporate guarantees. The new sub-rule stipulates that the value of corporate guarantee would be one percent of the guaranteed amount or the actual consideration, whichever is higher.
9. Notably, the Circular states that the exception in Rule 28(1) stating that the Open Market Value shall be the value declared in the invoice when the recipient is eligible for full Input Tax Credit (ITC) does not apply in this context.
The Ministry of Commerce and Industry has issued a notification on 7 th November 2023 to amend the SEZ Rules and substitute Rule 43A relating to Hybrid working options to SEZ units. Following are the salient features of new Rule 43A:
– The new Rule 43A permits SEZ units which provide Information Technology and Information Technology enabled Services to implement hybrid working option to its employees.
– The option may cover all the employees of SEZ unit.
– This permission is applicable up to 31st December 2024.
– Simplified email intimation mechanism to Development Commissioner before granting the permission.
– No need to submit the list of employees to the Development Commissioner. However, the Rule directs the SEZ units to maintain such list and submit whenever required by the Development Commissioner.
– Employees who are allowed for hybrid working option can carry duty-free goods with them such as laptop, desktop, other electronic equipment needed for the work from anywhere outside the SEZ without payment of duties on a temporary basis.
On 18 th October 2023, the Monetary Authority of Singapore (MAS) issued a set of consultation papers proposing guidelines on transition planning by banks, insurers and asset managers to enable the global transition to a net zero economy.
The Guidelines on Transition Planning (“Guidelines”) set out MAS’ supervisory expectations for financial institutions (FIs) to have a sound transition planning process to enable effective climate change mitigation and adaptation measures by their customers and investee companies in the global transition to a net zero economy and the expected physical effects of climate change.
The key expectations that MAS has set out for FI are as follows:
– Engagement, rather than divestment, should be the key lever for FI to steward their customers and investee companies to transition in an orderly manner. FI should engage their customers and investee companies on the physical and transition risks they face and work closely with them to implement effective measures to reduce their carbon footprint and build resilience to climate change. Indiscriminate withdrawal of credit, insurance coverage, or investments by FI from customers or investee companies deemed to be of higher climate-related risks will deprive those entities with credible transition and adaptation plans of the financing they need to decarbonise.
– FI should take a multi-year approach, beyond the typical financing or investment time horizons, to facilitate a more comprehensive assessment of climate-related risks. Given that the time horizons for physical and transition risks to manifest are long and uncertain, FI need to take a multi-year risk perspective when assessing the sustainability of their business models and portfolios.
– A holistic treatment of risks enables better risk discovery. The interactions across risk drivers in the transition towards a net zero economy are complex. As FI are exposed to climate-related risks through the effects of both transition and physical risks to their portfolios, they should take an integrated approach to climate mitigation and adaptation measures by working closely with their customers and investee companies.
– FI should consider environmental risks beyond climate-related risks in their transition planning. The loss of nature capital and biodiversity must be recognized and addressed as related but distinct environmental risks to be managed. FI should holistically consider the important inter-dependencies between climate and nature as well as the potential trade-offs such as environmental degradation arising from the pursuit of climate solutions.
– Transparency supports accountability and promotes credibility: FI are expected to disclose meaningful and relevant information to help stakeholders understand how they are responding in the short-, medium- and long-term to material climate-related risks, and the governance and processes for addressing such risks.
– The Guidelines build on MAS’ existing supervisory guidance to FI and focus on FI’s internal strategic planning and risk management processes to prepare for both risks and potential changes in business models associated with the transition. While the underlying risk principles are similar, the Guidelines were developed recognising the different business models and needs of FI in banking, insurance, and asset management.
On 31 st October 2023, the Monetary Authority of Singapore (MAS) has announced that it will launch a proof of concept (POC) for an interoperable Singapore Quick Response Code Scheme (SGQR+).
The POC, to be conducted from 1 to 30 November 2023, will explore the feasibility of enabling merchants in Singapore to accept QR payments from a variety of payment schemes through a single financial institution.
The introduction of SGQR in 2018 successfully combined multiple payment QR codes into a single SGQR label. SGQR has become widely adopted by merchants as a simple and trusted solution to accept payments digitally. However, merchants that wish to accept a range of payment schemes (local or foreign) need to maintain commercial relationships with different financial institutions. Consumers and tourists can only use their preferred payment applications if the merchant maintains a specific commercial relationship with the financial institution that corresponds with those payment schemes. There is therefore scope to enhance interoperability for QR payment schemes.
SGQR+ will increase the number of payment methods that merchants can accept. Merchants will only need to sign up with a single financial institution to unlock a diverse range of local and cross-border payment schemes. By aggregating multiple payment providers using SGQR+, merchants will no longer need to maintain commercial relationships with several financial institutions to accept different payment schemes.
With SGQR+, consumers can look forward to using their preferred payment applications at more merchant acceptance points. Tourists can enjoy transacting conveniently using their native payment applications, as merchants empowered by the SGQR+ solutions will be able to easily accept more international payment schemes.
The POC will be conducted through two separate tracks featuring different technology solutions.
– Track I is led by Liquid Group, which will operate a switch that processes payments between the financial institution serving the merchant and the financial institution serving the consumer. Consumers will also be able to use payment applications linked with credit cards to scan and pay at Liquid Group’s participating merchants.
– Track II is led by NETS, which will allow consumers to scan and pay at NETS’ participating merchants with a variety of local and foreign payment schemes. This solution is currently available to merchants that are part of the Government-subsidised Hawkers Go Digital programme. The POC will test the commercial feasibility of deploying this solution across other merchant segments with merchants paying for this service.
Banking Computer Services Pte Ltd, the operator of the SGQR Central Repository, will manage the POC and provide technical support to the POC participants.
Inland Revenue Authority of Singapore
The Inland Revenue Authority of Singapore (IRAS) recovered $79m in taxes and penalties between July 2020 and June 2023.
This came from companies with erroneous Corporate Income Tax (CIT) Returns filed for the Years of Assessment (YA) 2019 to 2021.
Two-thirds of all the cases audited were picked up through IRAS’ compliance audit programmes with the use of advanced data analytic tools.
The remaining cases were identified from random sampling, environmental scanning, and tip-offs.
IRAS observed 4 common tax filing mistakes including:
1. Understatement or omission of income due to incomplete recording of revenue
2. Incorrect claims of capital allowances on non-qualifying assets
3. Failure to apply the arm’s length principle for related party services
4. Poor record-keeping and incorrect claims by family-owned/ managed companies
Reduce Potential Errors for Form C-S Through Seamless Filing from Software (#SFFS)
IRAS encourages companies with simpler tax affairs to use #SFFS to file their Form C-S, which will help to reduce filing-related errors. With #SFFS, small companies qualifying to file Form C-S can look forward to a hassle-free tax filing experience with just a few clicks of buttons. Companies can enjoy the following key benefits of using #SFFS:
1. Automatic conversion of accounting data to tax data through an automatic conversion tool
2. Reduction of potential transposition errors by eliminating the need for manual data entry into myTax Portal
3. Productivity savings of up to 95% (from 8 hours to 15 minutes for preparing and filing of CIT Return)
4. Digital record keeping which reduces manual efforts and storage required for physical records
In addition, from YA 2023 to YA 2025, companies can enjoy further benefits when they submit their Form C-S with #SFFS:
1. Automatic extension of filing due date by 15 days (i.e., from 30 Nov to 15 Dec)
2. Waiver of penalties for errors made due to unfamiliarity with the use of the software
IRAS reminds all companies, including those with no business activities or those in a loss position, to file their YA 2023 CIT Returns by 30 st November 2023, unless they have received a waiver to file the CIT Returns. All directors are reminded to ensure that their companies’ tax returns are filed on time. Failure to file the CIT Return by the due date is an offence under the Income Tax Act, for which companies may be subject to penalties of up to $5,000.
IRAS has provided guides and samples to help business owners learn more about preparing statement of accounts.
Requirement to prepare statement of accounts
Under the law, business owners have to prepare statement of accounts so that their business income and expenses can be readily determined.
‘Statement of accounts’ comprises:
– Profit and loss account; and
– Balance sheet.
IRAS has issued few guides and working sheets which will help in preparation of statement of accounts.
1. Amendment to Legal Metrology (Packaged Commodities) (Amendment) Rules, 2011
The Ministry of Consumer Affairs, Food and Public Distribution, vide its notification dated 30 September 2023, has extended the effective date of the Legal Metrology (Packaged Commodities) (Amendment) Rules, 2023, by amending Rule 1(2) [Short Title and Applicability] of the abovementioned Rules. The Rules will now be effective from 1 st January 2024, as against the erstwhile date of 1 st October 2023.
2. Amendment to the Legal Metrology (Packaged Commodities) Rules, 2011
The Ministry of Consumer Affairs, Food and Public Distribution, vide its notification dated 6 th October 2023, amended the Legal Metrology (Packaged Commodities) Rules, 2011 (hereinafter referred to as “Rules”). Save as otherwise provided, the Rules shall come into effect from 01 January 2024. The key amendments are as follows:
i. In Rule 2 of the Rules, the definition of “combination package”, “group package”, “multi-piece package” has been inserted as Rule 2(ka), (kb) and (kc) respectively, along with their respective illustrations.
ii. Rule 6 stipulates declarations with respect to packages. As per Rule 6(1)(d), every package will bear the month and the year of the manufacture, or pre-packaging or the import, as the case may be.
This amendment sets out a proviso to Rule 6, which states that the above-mentioned details will not apply to spare parts and accessories used for the purpose of servicing with a warranty and not sold to end customers. Further, for electronic products, spare parts and accessories, the declaration of month and year of manufacture shall be specified anywhere on the retail package in a visible and legible manner [to be effective from 01 April 2024].
i. Rule 6(11) stipulates the way certain unit sales prices will be declared on pre-packaged commodities. A third proviso is inserted under the Rule, which exempts combination packages, group packages or multi-piece packages from such declarations.
ii. Rule 26 stipulates exemptions from applicability of the Rules with respect to certain packages. This Rule will now include loose commodities ordered through e-commerce channels, provided the requisite information such as name and address of the manufacturer, consumer care email id, retail sale price etc. is displayed.
3. Notification regarding the Mediation Act, 2023
In September 2023, the Mediation Act, 2023, has been published by the Ministry of Law and Justice. On 9 th October 2023, vide a notification, the Ministry has brought the following provisions in force:
Section 1 (Short title, extent and commencement), Section 3 (Definitions), Section 26 (Proceedings of Lok Adalat and Permanent Lok Adalat not to be affected), Chapter VIII (Mediation Council of India), Section 45 (Mediation Fund), Section 46 (Accounts and Audit), Section 47 (Power of the Central Government to issue directions), Section 50 (Protection of action taken in good faith), Section 51 (Power to make rules), Section 52 (Power to make regulations), Section 53 (Laying), Section 54 (Power to remove difficulties), Section 56 (Act to not apply to pending proceedings), Section 57 (Transitory provisions).
4. The Prevention of Money Laundering (Maintenance of Records) Third Amendment Rules, 2023
The Ministry of Finance has notified the Prevention of Money-Laundering (Maintenance of Records) Third Amendment Rules, 2023 (“PMLA Third Amendment Rules 2023”) on 17 th October 2023. The key amendments are as follows:
a. Rule 2(1)(b) sets out the definition of ‘client due diligence’. This definition has been revised to state that client due diligence will be carried out through reliable and independent sources of identification.
b. Rule 3 mandates the maintenance of records of transactions by stipulating the nature and value of the same. Rule 3A of the erstwhile Prevention of Money Laundering (Maintenance of Records) Rules, 2005 has been amended to substitute sub-rule (1), which casts a duty upon every reporting entity, who is part of a group, to formulate and implement group-wide programs against money-laundering and terrorist financing, which will also include group-wide policies capturing the extent of information required to be shared for the purposes of client due diligence, money laundering and terror finance risk management. The programs will include safeguards regarding confidentiality, information disclosures and measures to prevent tipping-off.
c. Rule 8 states the obligations of the principal officer with respect to the provision of information to the Director, i.e. authority under the Prevention of Money Laundering Act, 2002. The principal officer will now be required to promptly furnish the information to the Director, in cases of suspicious transactions. Further, another sub-rule is inserted in this Rule, which states that except for the provision of information for any analysis of suspicious transactions, the reporting entity, its employees and officers will ensure that the factum of maintenance of records and all records being furnished to the Director is kept confidential.
d. Rule 9 elaborates upon the procedure to be followed by reporting entities for client due diligence. The following amendments have been brought into effect:
i. Sub-rule (1) of Rule 9 has been substituted to include that at the time of commencement of an account-based relationship or carrying out transactions of an amount equal to or exceeding INR 50,000/- (Indian Rupees Fifty Thousand Only), either as a single transaction or through several transactions that appear to be connected, or any international money transfer operations, the reporting entities have to verify the identity of their clients and beneficial owners by “using reliable and independent sources of identification”. Further, reasonable steps ought to be undertaken by the reporting entities to ascertain the nature of the customer’s business along with its ownership and control.
ii. Further, a proviso has been added, which states that, in an event the client acts on behalf of beneficial owner who is a resident and deals with depositary receipts or equity shares of any entity incorporated in India, the due diligence norms thereof will be as per the respective jurisdiction, and the provisions of Rule 9(3) to Rule 9(9) will not be applicable to the same.
iii. Clause (a) of sub-rule (2) of Rule 9 has been amended to state that reporting entities will immediately obtain from its third party or the Central KYC Records Registry, the record or the information of such client due diligence carried out by the third party (this timeline was previously set for a period of 2 (Two) days to obtain such information).
iv. Clause (iii) of sub-rule 12 of Rule 9 has been amended to extend that reporting entities shall apply client due diligence measures to the extent that such information or data collected is kept up-to-date and relevant, particularly where there is a potentially high risk.
v. Rule 9(14) sets out the details regarding the issuance of guidelines by the regulator to verify the client’s identity, considering the type of client, business relationship, nature and value of transactions based on overall money laundering and terrorist financing risks involved. The same has been amended to insert another sub-clause (ib) whereby, such guidelines will also include countermeasures to be undertaken by any international or intergovernmental organization of which India is a member subject to acceptance by the Central Government.