1. Introduction
Seamless flow of input tax credit was the core purpose of the GST law after subsuming all the indirect taxes. Here, the admissibility of credit on motor vehicles has emerged as the burning issue and still in infant stage §ng there is diversity in the provision of the law and the decision being given by Authority for Advance Rulings.
The relevant provision related to the issue under consideration is as under
"Section 17 - Apportionment of credit and blocked credits.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be Unavailable in respect of the following, namely:
[(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely
1. further supply of such motor vehicles; or
2. transportation of passengers; or
3. imparting training on driving such motor vehicles
(aa) vessels and aircraft, except when they are used -
1. for making the following taxable supplies, namely
further supply of such vessels or aircraft; or
transportation of passengers; or
imparting training on navigating such vessels; or
imparting training on flying such aircraft;
2. for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available --
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged —
in the manufacture of such motor vehicles, vessels or aircraft; or
in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;"
The assessee was engaged in supplying cabs on rental basis for the purpose of transportation of passengers. It was further submitted that as people take the car on rent for the transportation of
passengers, therefore, the services though claimed as "rent-a-cab" services but it is closely and essentially associated with transportation of passengers and hence, on reading of the provision as cited above the credit of tax paid on the purchase of motor vehicles is admissible to it
While discussing the matter, it was stated by the Authority for Advance Rulings that the GST Act has been amended with effect from 1-2- 2019 and before amendment the provisions of section 17(5)(b)(iii) of the Act did not allow credit of GST paid on inputs for supply of rent-a-cab service, except under certain specific conditions that are not applicable in the this case. It ruled out credit of input tax paid on the purchase of motor vehicles used for supply of rent-a-cab service if the transaction was effected before 1-2-2019
It further stated that the amended provisions of section 17(5)(b)(iii) of the GST Act do not contain reference to the rent-a-cab service. However, post-amendment, input tax credit shall not be available in respect of supply of the service of renting or hiring of motor vehicles in terms of section 17(5)(b)(i) of the GST Act, unless the inward and the outward supplies are of the same category, standalone or as an element of a taxable composite or mixed supply. Further, section 17(5)(a) of the Act provides that input tax credit shall not be available on inward supply of motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely -
1. a further supply of such motor vehicles; or
2. transportation of passengers: or
3. imparting training on driving such motor vehicles.
It was further discussed that "rent-a-cab" is not defined in the GST Act and therefore, the nature of services has to be identified from the invoices and the related facts. The assessee provides cab rental service to various institutions and in no case such services provided to institutions can fall under "passenger transportation services". From the facts, it was further’ inferred that the service receiver has to pay the assessee a certain amount per month as consideration, irrespective of what distance the cab travels in a particular month. Additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. For the purpose of covering the cost of fuel, the distance travelled needs to be brought into play, but only if it crosses a certain threshold.
It is, therefore, clear from the above discussion that the nature of the service the assessee provides is classifiable under SAC 9966 as renting of a motor vehicle.
In view of-the facts and the legal provisions stated above, it was held by the Authority for Advance Rulings that the credit of GST paid on purchase of motor vehicles or other inputs for the supply of the "rent-a- cab" service is not admissible.
6.Author's views
With due respect, the author of this article differs with the decision passed by the Authority for Advance Rulings in the above-mentioned case. The author wishes to throw light on the provision mentioned in section 17(5)(a)(A) of the CGST Act, 2017, wherein it was said that the credit of tax paid on motor vehicles is admissible where it is used for further supply of such motor vehicle. As the words highlight, it is very clear that the credit of tax paid on motor vehicle is admissible if the same is used in further supply. It is worthwhile to note that the term "supply" has its significance and from reading the meaning of supply as given to it in section 7 of the CGST Act, 2017, it is very widely interpreted to include all sorts of supply, service or sale including renting, leasing, etc.
Thus, where "rent-a-cab" is included in the meaning of the term "supply", and renting of motor vehicles is the further supply of such motor vehicles, hence, the conditions mentioned in section 17 are fulfilled in favour of admissibility of input tax credit to the assessee of tax paid on such motor vehicles. Hence, the above decision needs reconsideration in light of the provisions cited above.
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Pensions are categorized as "Income from Salaries" under the Income Tax Act. Pensioners need to file their Income Tax Return (ITR) if their total annual income exceeds the exemption limit. The pension amount can be commuted (a lump sum) or uncommuted (received monthly or yearly). Here’s a detailed guide on how to file the ITR for pensioners, focusing on making the process clear and straightforward.
Table of Contents
1. Types of ITR Forms for Pensioners
2. Filing ITR for Pension Income: Step-by-Step Process
3. Ways to Reduce Tax Liability on Pension
4. Things to Know While Filing Pensioners’ ITR
5. FAQs
ITR 1 (Sahaj): Most pensioners use this form. It applies to individuals whose income is mainly from a pension or salary. It’s a simple form that can be used by pensioners with a single house property and income from other taxable sources
ITR 2: This form is for individuals receiving pension income from funds where contributions were made by their employer. It requires details like the name, address, and Tax Deduction and Collection Account Number (TAN) of the employer. In this form, pensioners need to select "Pensioners" as their employment category.
Visit the Income Tax e-filing website: Log in using your credentials.
Navigate to 'e-File' > 'Income Tax Returns': Select the relevant assessment year and the online mode of filing.
Choose ITR Form: For pensioners, select 'ITR 1 (Sahaj)' from the options provided.
Prefill and Verify Details: Personal information will be pre-filled from your e-filing profile. Verify the gross total income, especially for pension and other sources.
Add Deductions: Enter details for various deductions under Sections 80C, 80D, 80TTB, etc. For example:
Section 80C: Investments in National Pension Scheme (NPS) and Public Provident Fund (PPF) schemes.
Section 80D: Medical insurance premiums.
Section 80TTB: Interest income from savings up to Rs50,000 for senior citizens.
Verify Total Tax Liability: Review the calculated tax liability and make any necessary payments.
Preview and Submit: Validate all the details, choose the verification mode (e-Verify Now or Later), and submit the return.
Standard Deduction: Pensioners over 60 can claim a standard deduction of Rs50,000. For individuals under 60, a deduction of Rs40,000 is allowed.
Section 80C Investments: Investing in PPF, NPS, and other qualified products can provide deductions of up to Rs1.5 lakh.
Medical Insurance (Section 80D): Medical insurance premiums can offer deductions, especially for senior citizens, up to Rs50,000.
Interest Income (Section 80TTB): Senior citizens can avail of a deduction of up to ?50,000 on interest income from deposits.
Tax on Commuted Pension: For government employees, the commuted pension is fully exempt. For private-sector employees, it’s partially exempt depending on the circumstances.
Family Pension: It is taxable under "Income from Other Sources." Family pensioners can claim a deduction of up to Rs15,000 or one-third of the pension amount, whichever is lower.
Exemptions for Senior Citizens: Section 194P exempts senior citizens aged 75 or above from filing ITR if they only have pension and interest income from the bank.
Filing an ITR is crucial for pensioners to stay compliant with tax regulations and avoid penalties. Knowing which form to use, understanding available deductions, and seeking professional assistance can make the process seamless.
Anil D’Souza & Associates (ADCA) is a premier chartered accountancy firm specializing in a comprehensive range of financial services, including income tax return filing for pensioners, GST compliance, and accounting solutions. With years of experience, ADCA ensures that pensioners navigate through the complexities of income tax with ease and efficiency. Their team of experts provides personalized guidance on minimizing tax liability, maximizing deductions, and simplifying the filing process. Trust ADCA for all your tax-related needs and secure a worry-free financial future.
1. Which ITR to be filed for pensioners?
Pensioners usually need to file ITR-1 (Sahaj) if they receive pension and interest income, and their total income does not exceed Rs50 lakh in a financial year. However, if they have additional sources of income, like capital gains or own more than one house property, they should opt for ITR-2.
2. How to show retirement benefits in ITR?
Pension: Report pension income under the "Income from Salary" section in the ITR form.
Gratuity, Commuted Pension, and Leave Encashment: These are partially or fully exempt under Section 10. The exempt portion should be entered under the "Exempt Income" section.
Uncommuted Pension: This is fully taxable and should be included under "Salary" in the ITR.
3. What is Section 10 10A of the Income Tax Act?
Section 10(10A) of the Income Tax Act provides the tax exemption on commuted pension:
For government employees, the entire commuted pension amount is exempt.
For non-government employees, the exemption is one-third of the commuted pension if gratuity is received and half of the commuted pension if gratuity is not received.
4. What is the deduction for pensioners?
Pensioners can claim a standard deduction of Rs50,000 on their pension income. This deduction is automatically considered during the tax calculation. They can also claim other deductions under sections like Section 80C (for investments such as PPF, NSC, etc.), Section 80D (for medical insurance premiums), and Section 80TTB (interest income from savings).
5. How to save tax on pension?
Investments under Section 80C: Invest in schemes like PPF, NPS, ELSS, or NSC to claim deductions of up to Rs1.5 lakh.
Section 80D: Deduct premiums paid for medical insurance for self, spouse, and dependents.
Section 80TTB: Senior citizens can claim a deduction of up to Rs50,000 on interest income from savings accounts and fixed deposits.
Standard Deduction: Utilize the Rs50,000 standard deduction on pension income.
6. What is the income tax exemption limit for pensioners?
The exemption limit varies based on age:
For individuals below 60 years, it is Rs2.5 lakh.
For senior citizens (60 to 80 years), it is Rs3 lakh.
For super senior citizens (above 80 years), it is Rs5 lakh.Pensioners should make the most of these exemptions and deductions to optimize their tax savings effectively.
Tax under section 194C is deducted where any sum is paid to any resident contractor for carrying out any work in pursuance of a contract between the contractor and the specified person
As per clause (iv) of the Explanation to section 194C, “work" shall include: -
1. advertising.
2. broadcasting and telecasting including production of programs for such broadcasting or telecasting.
3. carriage of goods or passengers by any mode of transport other than by railways.
4. catering
5. manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer
Section 194J provides for deduction of tax at source from payments of fees for professional services, technical services, royalty or sums referred to in section 28 (va) like non-compete fee, etc.
As clarified via CBDT Circular No. 681, dt. 8-3-1994 Service contracts would be covered by the provisions of this section since service means doing any work as explained above. However fees for technical services is governed by section 194J.
As per Circular No. 715, dt. 8-8-1995 routine, normal maintenance contracts which include supply of spares will be covered under section 194C. However, where technical services are rendered, the provision of section 194-J will apply in regard to tax deduction at source
Therefore one has to differentiate between routine services and technical services while ascertaining the applicability of TDS provision.
In ITO v. Maharashtra Pollution Control Board 2016 TaxPub(DT) 4437 (Mum-Trib) It was observed that repairs and maintenance and quality monitoring services, etc., provided under an annual maintenance contract (AMC) in Relation to machinery, were not of technical nature and were not covered under section 194J. Being contractual work, assessee was liable to x under section 194C.
Merely because technical persons were involved in rendering the services relating to maintenance, of installed machines it could not be inferred that these services were technical or professional in nature liable to TDS under section 194J. Therefore, tax was liable to be deducted under section 194C, and not under section 194J.—Vide Facets Polishing Works (P) Ltd. V. ITO (2015) 69 SOT 361 (Ahd V'-Trib).
In ITO Mumbai Metropolitan Regional Development Authority (2015) 40 ITR (Trib) 60 (Mum ‘B'-Trib): (2015) 155 ITD 314 (Mum 'B'-Trib). It was held that annual maintenance contract services related to minor repairing, replacement of spare parts, oiling, greasing, etc., would not fall Category of technical services and therefore, the payment made by assessee towards them was not subjected to TDS under section 194J. Also see, Dy.CIT v. Asian Heart Institute & Research Centre (P) Ltd. (2015) 173 TTJ (MUM 'A'-Trib) 832.
An assessee entered into a contract with the government department for repairing and servicing typewriter and other machines in government offices at periodical intervals and certain specified rates. The above contract was held to be a work contract—Vide Eastern Typewriter Service v.State of Andhra Pradesh (1978) 42 STC18 (AP).
Annual TDS on maintenance charges paid towards services of repetitive nature not requiring very high technical qualification, were subject to TDS under section 194C and not under section 194J Vide SBI Life Insurance Co.Ltd. v.Dy. CIT2016 TaxPub (DT) 4958 (Mum-Trib). TDS on repair and maintenance is required to be deducted under Section 194C of Income Tax Act 1961 at the rate of 1% or 2% for payments to residents.
In CIT v Saifee Hospital 2019 TaxPub (DT) 2050 (Bom-HC) the supplier of medical equipments to the assessee hospital had also rendered services of maintenance of these equipments. The assessee deducted tax under section 194C while making payment for maintenance services. However, the departmental authorities sought deduction of tax at source under section 194J.
The Tribunal in respect of the same assessee in earlier year held that the services which are rendered for maintenance of equipment would not be in the nature of technical services. These services being of routine nature, would not be qualified to be called technical services which would require deduction under section 194J of the Act. Purpose of these services was only to ensure the proper maintenance of the machinery/equipment so as to ensure long life for the same. Thus impugned payment would be covered under section 194C for being made for work contract
Where the services rendered in respect of the machinery and equipment are only in nature of maintenance services provided to ensure they function properly and would be able to provide services for a long period of time. This does not involve any technical service. Hence payment for routine maintenance services would be liable for TDS under section 194C instead of section 194J.
Many of us would have received a refund from the income tax department in the past. A tax refund or tax rebate is a refund furnished to the taxpayer when the tax liability is less than the taxes paid.
Taxpayers can avail a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim. Tax refunds are usually paid after the end of the tax year.
Refunds arise in those cases where the amount of tax paid by a person is greater than the amount which he/she is properly chargeable, as per the Income Tax and other Direct Tax laws. The same is noted under Sections 237 to 245 of the Income Tax Act, 1961.
Eligibility criteria for Income Tax Refund
1. If the tax that you have paid in advance, on the basis of self-assessment, is greater than the tax that you are liable to pay as per the regular assessment
2. If your tax deducted at source (TDS) from interest on securities or debentures, dividends, salary etc. is more than the tax payable based on regular assessment.
3. In case the same income is taxed in a foreign country (with which the government of India has an agreement to avoid double-taxation) and in India as well.
4. If the tax charged on the basis of regular assessments is reduced due to an error in the assessment process which was resolved.
5. If you find that that the tax payable is in the negative, after considering the taxes you’ve paid and the deductions you are allowed.
6. In case you have investments that offer tax benefits and deductions, which you are yet to declare.
But what is tax e-refund?
Electronic filing is the process of submitting tax returns over the Internet using tax preparation software that has been pre-approved by the relevant tax authority.
How do you claim tax e-refund.
1. The Income Tax Department issues refunds, if any, only as an e-refund to the assessee. The process of issuing refunds through cheques has been discontinued.
2. To be able to receive the refund amount, the bank account of the assessee should be linked to his permanent account number (PAN) and should have been pre-validated on the income tax e-filing portal.
3. The assessee is required to visit the e-filing portal of the Income Tax Department at https://www.incometaxindiaefiling.gov.in.
4. To access the portal, one needs to enter user name (PAN of the assessee) and password, along with Captcha code to log in.
5. After logging in, the assessee should check the ‘dashboard’ tab. Then, click on the ‘profile settings’ tab to see a drop-down menu of options. Choose the ‘prevalidate your bank account’ option and proceed.
6. The assesee will have to enter the bank account number, IFSC code, bank name, mobile number and e-mail ID. Note that the PAN, mobile number and e-mail ID should be the same as that registered with the bank account. After this, the assessee should click on ‘pre-validate’ button.
7. The pre-validation status is sent to the registered e-mail ID and mobile number of the assessee. Alternatively, view your status by logging in to the e-filing portal, and clicking on ‘profile settings’ and ‘pre-validate your bank account’ tabs.
What do I if the refund is not processed?
Income Tax Return form has to be verified by the relevant authority to process income tax returns. If you are yet to receive your refund even after 3 or 4 months after the deadline of 31st July of a particular assessment year, it perhaps implies that your refund has not been verified yet.
Interest payable on delay:
A number of cases have been reported where the taxpayers have stated that they haven’t received their refund in due time. If this has happened to you too, don’t panic. You will receive an interest of 0.5% on your expected refund amount, for every month or the part of a month for which the refund is delayed. This interest rate is calculated from the 1st of April of the assessment year. However, in case it is found that the reason for the delay can be attributed to you, you will not be liable to receive any interest for that duration.
Setting-off outstanding taxes against refunds:
There may also be a case where you have a certain amount of taxes is outstanding against your name. In this case, under Section 245, tax authorities have the power to set-off your refund amount against such outstanding taxes.
Whereas concessional rate GST of 8% and 12 % was respectively applicable for affordable and other than an affordable residential unit in a residential complex which has been brought down to 1% and 5% without the benefit of input credit with effect from April 1st 2019.
There was the controversy on the GST rate applicable for parking facility, preferential location charges(PLC) and other facilities provided as part of purchase of residential unit. Under pre-April rate structure, many builders (adopting a conservative approach) were charging tax at the full rate of 18 percent on PLC, parking charges, transfer charges etc. instead of charging the lower rate of 12 percent as applicable to construction services (post abatement).
The West Bengal Authority for Advance Ruling (AAR-WB) has made it clear that construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit and right to use car parking space and common areas and facilities, is a composite supply —construction service being the principal supply.
"Entire value of the composite supply is, therefore, to be treated, for the purpose of taxation, as supply of construction service," it said.
Though the rates have been lowered, but the practice of differential rate still continues.
As the AAR Ruling is binding only such individual case in which ruling has been given, and does not have precedent value, it has persuasive value. It means buyers can use the ruling of this matter in their petitions before the jurisdictional officer.
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Introduction
As per section 182 of the Indian Contract Act, 1872, an "agent" is a person employed to do any act for another or to represent another in dealings with the third person. The person for whom such act is done, or who is so represented, is called the "principal". As delineated in the definition, an agent can be appointed for performing any act on behalf of the principal which may or may not have the potential for representation on behalf of the principal. So, the crucial element here is the representative character of the agent which enables him to carry out activities on behalf of the principal.
1. Agent - Meaning
The term "agent" has been defined under sub-section (5) of section 2 of the CGST Act as follows:
"agent" means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.
The following two key elements emerge from the above definition of agent:
(a) the term "agent" is defined in terms of the various activities being carried out by the person concerned in the principal-agent relationship; and
(b) the supply or receipt of goods or services has to be undertaken by the agent on behalf of the principal.
From this, it can be deduced that the crucial component for covering a person within the ambit of the term "agent" under the CGST Act is corresponding to the representative character identified in the definition of "agent" under the Indian Contract Act, 1872.
2. Consideration and in course of - Meaning
Further, the two limbs of any supply under GST are "consideration" and "in the course or furtherance of business". Where the consideration is not extant in a transaction, such a transaction does not fall within the ambit of supply. But, in certain scenarios, as elucidated in Schedule I of the CGST Act, the key element of consideration is not required to be present for treating certain activities as supply. One such activity which has been detailed in para 3 of Schedule I (hereinafter referred to as "the said entry") is reproduced hereunder: Supply of goods—
Here also, it is worth noticing that all the activities between the principal and the agent and vice versa do not fall within the scope of the said entry. Firstly, the supply of services between the principal and the agent and vice versa is outside the ambit of the said entry, and would, therefore, require "consideration" to consider it as supply and thus; be liable to GST. Secondly, the element identified in the definition of "agent", I e., "supply or receipt of goods on behalf of the principal" has been retained in this entry.
It may be noted that the crucial factor is how to determine whether the agent is wearing the representative hat and is supplying or receiving goods on behalf of the principal. Since in the commercial world, there are ' various factors that might influence this relationship, it would be more prudent that an objective criteria is used to determine whether a particular > principal-agent relationship falls within the ambit of the said entry or not. Thus, the key ingredient for determining relationship under GST would be whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent or not. Where the invoice for further supply is being issued by the agent in his name then, any provision of goods from the principal to the agent would fall within the fold of the said entry. However, it may be noted that in cases where the invoice is issued by the agent to the customer in the name of the principal, such agent shall not fall within the ambit of Schedule I of the CGST Act. Similarly, where the goods being procured by the agent on behalf of the principal are invoiced in the name of the agent then, further provision of the said goods by the agent to the principal would be covered by the said entry. In other words, the crucial point is whether or not the agent has the authority to pass or receive the title of the goods on behalf of the principal. Looking at the convergence point between the character of the agent under both the CGST Act and the Indian Contract Act, 1872, the following examples are discussed:
Example 1
Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods and issue the invoice directly to Mr. A. In this example, Mr. B is only acting as the procurement agent, and has in no way involved himself in the supply or receipt of the goods. Hence, in accordance with the provisions of this Act, Mr. B is not an agent of Mr. A for supply of goods in terms of Schedule I.
Example 2
M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods. The auctioneer arranges for the auction and identifies the potential bidders. The highest bid is accepted and the goods are sold to the highest bidder by M/s XYZ. The invoice for the supply of the goods is issued by M/s XYZ to the successful bidder. In this example, the auctioneer is merely providing the auctioneering services with no role played in the supply of the goods. Even in this example, Mr. B is not an agent of M/s XYZ for the supply of goods in terms of Schedule I.
Example 3
Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting. M/s B arranges for the auction and identifies the potential bidders. The highest bid is accepted and the painting is sold to the highest bidder. The invoice for the supply of the painting is issued by M/s B on the behalf of Mr. A but in his own name and the painting is delivered to the successful bidder. In this scenario, M/s B is not merely providing auctioneering services, but is also supplying the painting on behalf of Mr. A to the bidder, and has the authority to transfer the title of the painting on behalf of Mr. A. This example is covered under Schedule I. A similar situation can exist in case of supply of goods as well where the C&F agent or commission agent takes possession of the goods from the principal and issues the invoice in his own name. In such cases, the C&F/commission agent is an agent of the principal for the supply of goods in terms of Schedule I. The disclosure or non-disclosure of the name of the principal is immaterial in such situations.
Example 4
Mr A sells agricultural produce by utilizing the services of Mr B who is a commission agent as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State. Mr B identifies the buyers and sells the agricultural produce on behalf of Mr. A for which he charges a commission from Mr. A. As per the APMC Act, the commission agent is a person who buys or sells the agricultural produce on behalf of his principal, or facilitates buying and selling of agricultural produce on behalf of his principal and receives, by way of remuneration, a commission or percentage upon the amount involved in such transaction. In cases where the invoice is issued by Mr. B to the buyer, the former is an agent covered under Schedule I. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent (Mr. B) does not fall under the category of agent covered under Schedule I.
3. Conclusion
In above mentioned example 1 and example 2, Mr. B shall not be liable to obtain registration in terms of clause (vii) of section 24 of the CGST Act. He, however, would be liable for registration if his aggregate turnover of supply of taxable services exceeds the threshold specified in sub-section (1) of section 22 of the CGST Act. In example 3, M/s B shall be liable for compulsory registration in terms of the clause (vii) of section 24 of the CGST Act. In respect of commission agents in example 4, Notification No. 12/2017 Central Tax (Rate), dt. 24-6-2017 has exempted "services by any APMC or board or services provided by the commission agents for sale or purchase of agricultural produce" from GST. Thus, the "services" provided by the commission agent for sale or purchase of agricultural produce is exempted. Such commission agents (even when they qualify as agent under Schedule I) are not liable to be registered according to sub-clause (a) of sub-section (1) of section 23 of the CGST Act, if the supply of the agricultural produce, and /or other goods or services supplied by them are not liable to tax or wholly exempt under GST. However, in cases where the supply of agricultural produce is not exempted and liable to tax, such commission agent shall be liable for compulsory. registration under sub-section (vii) of section 24 of the CGST Act.
Learn about Special Economic Zones (SEZ) under GST, including registration requirements, tax implications for supplies to and from SEZ units, refund mechanisms, reverse charge implications, and the interaction between the SEZ Act and GST laws.
Special Economic Zones (SEZs) were introduced as part of India’s export promotion strategy under the SEZ Act 2005. Unique regulations govern these designated areas to promote foreign exchange inflow, employment generation, and industrial growth. SEZs enjoy various fiscal and tax benefits, including zero rating under GST. However, the interplay between the SEZ Act and GST has introduced several complexities, which this blog aims to simplify.
1. Registration
Entities operating in Domestic Tariff Areas (DTA) and SEZs in the same state must obtain separate GST registrations. Under Section 25 of the CGST Act, this requirement ensures that inter-unit supplies, even without consideration, are taxable. However, it increases compliance responsibilities, including return filings and audits.
2. Taxability of Supplies by DTA Units to SEZ Units
Supplies made by DTA units to SEZ units are classified as inter-state supplies under Section 7 of the IGST Act and are subject to IGST. However, to ease compliance, such supplies are treated as zero-rated supplies under Section 16 of the IGST Act.
Suppliers can:
Supply goods or services without payment of IGST under a Bond or Letter of Undertaking (LUT) and claim a refund of unutilized ITC.
Supply goods or services on payment of IGST and claim a refund of the taxes paid.
3. Refund Mechanism
(i) Supplies for Authorized Operations
Refund claims are valid only for supplies made for authorized operations. Though not explicitly stated in the IGST Act, this condition has been upheld in rulings like M/s Coffee Day Global Limited (KAR ADRG 13/2018).
(ii) Supplies Under the "Bill to Ship to" Model
When goods are billed to an SEZ but shipped to a DTA, claiming a refund becomes challenging as goods do not physically enter the SEZ. In such cases, charging IGST rather than treating it as zero-rated can simplify compliance.
4. Taxability of Supplies by SEZ Units
To DTA Units: Supplies by SEZ units to DTA units are treated as imports into India, subject to customs duties and IGST. However, ambiguity exists regarding who should pay the IGST—the SEZ supplier or the DTA recipient.
To Outside India: Supplies to international clients are treated as zero-rated supplies under Section 16(1)(a) of the IGST Act, allowing refunds of taxes paid or ITC.
5. Imports by SEZ Units
Imports by SEZ units for authorized operations are exempt from GST under Notification No. 64/2017-Customs and Notification No. 18/2017-Integrated Tax (Rate). This exemption applies to goods and services.
6. Reverse Charge Mechanism (RCM)
For services attracting RCM (e.g., legal services), SEZ units must discharge the tax liability and claim a refund under the zero-rated mechanism. This creates additional compliance burdens for SEZ entities.
7. Challenges and Recommendations
While SEZs benefit from zero-rating on inward supplies, issues arise due to:
The requirement to distinguish between authorized and non-authorized operations.
The dual treatment of SEZ supplies—zero-rated for inward supplies but taxable for outward supplies.
To address these challenges, further clarifications and streamlined procedures from the government would be highly beneficial.
India has numerous SEZs, including prominent ones like:
Kandla SEZ (Gujarat)
SEEPZ SEZ (Mumbai)
Cochin SEZ (Kerala)
Chennai SEZ (Tamil Nadu)
Visakhapatnam SEZ (Andhra Pradesh)
The SEZ system is a policy framework to promote exports, attract foreign investments, and generate employment. SEZs offer businesses operating within their boundaries tax benefits, simplified compliance, and infrastructure support.
Established in 1965, Kandla SEZ in Gujarat is the first and one of the most successful SEZs in India.
The initial SEZs in India include:
Kandla SEZ (Gujarat)
SEEPZ SEZ (Mumbai)
Falta SEZ (West Bengal)
Chennai SEZ (Tamil Nadu)
SEZs are instrumental in driving India’s economic growth. The zero-rating provisions under GST significantly benefit SEZs, enabling them to operate cost-effectively. However, complexities such as the distinction between authorized and non-authorized operations and the dual tax treatment of SEZ supplies necessitate greater clarity. Businesses operating in SEZs can navigate these challenges with the help of professional advisory services.
Contact ADCA (Anil D’Souza and Associates) —a trusted chartered accountancy firm in Bangalore for expert assistance in GST compliance and SEZ-related matters.
Finding it difficult to understand GST? We are here to help. Contact ADCA - One of the reputed GST Consultants In Bangalore - for the complete assistance.
Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. Under this scheme, a taxpayer would be required to pay tax on the turnover based on the prescribed percentage as the tax rate is comparatively low than those prescribed for normal taxpayers. The threshold limit of composition scheme extended from INR 1 crore to INR 1.5 crore which shall also include 10% provision of normal taxpayer annual turnover within the composition scheme if in case the given 10% is provided as the service. The illuminating feature of this scheme is that the business or person who has opted to pay tax under this scheme can pay tax at a flat % of turnovers every quarter, instead of paying tax at normal rate every month.
Who is eligible for Composition scheme?
--> Small traders and manufacturers having turnover of INR 1.5 crore paying 1% GST
--> Service providers and suppliers of both goods and services with a turnover of INR 50 lakh paying 6% GST.
Who is not eligible for Composition scheme?
--> Services supplier other than restaurant related services
--> Ice cream, pan masala, or tobacco manufacturers
--> Inter-state supplies individuals
--> A non-resident taxable person or a casual taxable person
--> Businesses supplying goods through an e-commerce operator
Advantages of registration under composition scheme:
1. Limited tax liability
2. Least involvement of compliances
3. High liquidity as taxes are at a lower cost
Disadvantages of registration under composition scheme:
1. A dealer is barred from carrying out inter-state transactions which result in the limited territory of business.
2. Composition dealers will have no input tax credit
3. E-commerce supply portal cannot be taken in operation to supply exempt goods or goods.
If a composition scheme taxpayer is not furnishing the returns for two consecutive tax periods and a regular taxpayer who has not filed returns for a consecutive period of two months would not be allowed to generate e-way bill. It would act as an incentive for small and upcoming businesses to accept composition scheme without any fear of compliance resulting in relieving taxpayers from the burden of filing a detailed and hulking returns.
Read More
1. A Simple Guide To Resolve Your GST Registration Rejected Application
2. Filing Of NIL GSTR 3B Through SMS
3. Special Economic Zones - Related Issues Under GST
Finding it difficult to understand GST? We are here to help. Contact ADCA - One of the reputed GST Consultants In Bangalore - for the complete assistance.
Call Us +91 80-2572 4815
