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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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:
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.
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.
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.
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.
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.
SEZ is a special scheme under Ministry of Commerce, as a part of the Government’s export promotion strategy. SEZ is a special area, subject to regulations that differ from the rest of the country, mainly to make it favorable for foreign exchange inflow into India. SEZs are governed by the special Economic Zone Act, 2005 (Hereinafter referred to as the ‘SEZ Act’). Section 7 of SEZ ACT provides for exemption to all goods or services.
*Exported out of SEZ; or
* Procured from a DTA or foreign suppliers by a SEZ
Further, as per section51 of the SEZ Act, the provisions of the SEZ Act would have an overriding effect on provisions of any other Act including taxation laws. However, the overriding effect of section 51 of the SEZ Act will not be the case in GST and in case of any conflict between SEZ Act and GST Act, later will prevail. This is because of Article 246A of the Constitution. Article 246A provides powers to Central/State Governments for taxing goods or services notwithstanding anything contained in Article 246 which gives power to enact the SEZ Act.
Supplies made by or to SEZ will now be under the ambit of the Goods and Services Tax Act, so far as indirect taxes are concerned. The law makers of GST have kept the provisions for the benefits of SEZs by introducing concept of Zero-rating for the suppliers made to SEZs and also exempting imports of goods or services by SEZ.
Table of Contents
2. Taxability of Supply of goods or services by DTA units to SEZ units
3. Refund claim in case of supplies to SEZ units relating to authorized operations
4. Refund claim for supplies under ‘bill to ship to model
5. Taxability of supply of goods or services by suppliers outside India to SEZ units
6. Taxability of supply of goods or services by SEZ units
7. Reverse charge mechanism
8. Concluding words
SEZs are specially designated economic areas, created with the principal motive to promote exports. There may be instances where an entity have a unit in Domestic Tariff area (DTA), as well as a unit, is SEZ in same State or Union territory. In such case, a question arises to mind as to whether both such units of same entity needs a registration separately under GST.
The answer is definitely a “Yes” as the second provision to section 25 of the Central Goods and Services Act, 2017 (hereinafter referred to as the CGST Act) read with rule 8 of the Central Goods and Services Rules, 2017 (Hereinafter referred to as the Rules) require a person having a unit in a Special Economic Zone or being a Special Economic Zone developer to apply for a separate registration, as distinct from his place of business located outside the Special Economic Zone in the same State or Union Territory.
This Separate registration requirement not only makes the inter-unit supplies taxable even though made without consideration but also increases the compliance burden of return filings, audit, assessment, etc.
3. Taxability of Supply of goods or services by DTA units to SEZ units.
Any supply of goods or services made to or by SEZ unit is treated as inter-State supply in terms of section7 of the integrated Goods and Services Tax Act, 2017 (Hereinafter referred to as the ‘IGST Act”) and is subject to levy of IGST. However, in order to provide relief to SEZ units. Concept of zero ratings has been made applicable for supplies made to SEZ under GST. Zero-rated supply as defined in section16 (1) of the IGST Act, means any of the following supplies of goods or services or both names.
a.Export of goods or services or both; or
b. Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
Under Zero-rated supply concept, the supplies are made by a registered supplier in DTA to SEZ unit, either without payment of taxes (under a Bond or Letter of Undertaking) and subsequently filing a refund claim of unutilized input tax credit or on payment of taxes and subsequently filing a refund claim of the taxes so paid. Therefore, there is no tax incidence of SEZ unit.
(i)Refund claim in case of supplies to SEZ units relating to authorized operations.
A person making zero-rated supplies can claim refund of input tax credits or claim refund of IGST paid on such supplies, as per section 16 of the IGST Act. The procedure for refund is given in section 54 of the CGST Act along with rule 89 of the CGST Rules. Accordingly, a supplier of goods or services to SEZ unit claiming refund of IGST paid on supplies to SEZ unit or input tax credits, may make an application before the expiry of two years from the relevant date in Form GST RFD-01 Rule 89 relating to refund stipulates that the supply, in respect of which tax had been paid and refund is sought, shall be necessarily for authorized operations. However, the term ‘authorised operation’ in this context is not explicitly used in the IGST Act. Therefore, an issue arises as to whether the benefit of Zero rating will be eligible only in respect of supplies made for SEZ’s authorized operations or in respect of all operations or in respect of all operations of SEZ in the course of its business.
In re M/s Coffee Day Global Limited (GST AAR Karnataka) KAR ADRG 13/2018 dated 26.07.2018, the question raised before AAR was whether supply of non-alcoholic beverages to SEZ units using coffee vending machines was in the nature of zero-rated supply as defined under section 16 of the IGST Act? The contention of applicant was that any supply of goods or services to SEZ units is zero-rated and it interpreted that the phrase ‘any supply’ would cover everything, including beverages and ingredients for beverages. Once the supplies are zero-rated, refund of input tax credit of the IGST paid on such supplies is automatic. The conditions such as they should be for authorized operations, etc.. can be treated as ultra vires.
The AAR held that benefit flowing out from the SEZ Act, 2005, accrues to anyone only when the condition of authorized operations is fulfilled. Therefore, even in the event of the IGST Act, not explicitly using the term ‘authorised operations’ in section 16 (1) (b), it is implicit that the supply of goods or services or both described in section 16 (1) (b) have to be read as in relation to authorized operations. Since applicant had not made out a case that the activity undertaken by them is certified as an authorized operation by the proper officer of the SEZ.
Therefore activity undertaken by the applicant did not qualify to be a zero-rated supply.
(ii) Refund claim for supplies under ‘bill to ship to model’
In a ‘bill to ship to model’, goods are delivered by a supplier to recipient based on the instruction of a third person. This model is also used in supplies relating to SEZ units. It can happen in two ways; (a) bill to SEZ and ship to DTA scenario or (b) bill to DTA and ship to SEX scenario.
A person making supplies to SEZ can claim refund of tax paid on such supplies under section 54 of the CGST Act, read with proviso to rule 89 of the CGST Rules. One of the conditions for claiming refund for supplying goods to SEZ unit is that an endorsement is required from the SEZ officer that the goods have been admitted in full into the SEZ for authorised operations.
In a bill to SEZ and ship to DTA scenario, the goods are not getting admitted to the SEZ and it becomes quite difficult to obtain the endorsement from the specified officer of the zone as the goods have not been admitted in full in SEZ. Therefore, a suggestive measure can be charging of IGST on sale of goods, instead of considering the same as zero-rated transaction.
4. Taxability of supply of goods or services by suppliers outside India to SEZ units
Any supplies of goods or services received by SEZ from outside India shall be treated as import of goods or services within the meaning of section 2 (10) and 2 (11) of the IGST Act respectively.
However, an exemption has been granted to all goods imported by SEZ units for authorized operations vide Notification No. 64/2017-cusoms, dated 05.07.2017. Further, vide Notification No.18/2017 Integrated Tax (Rate) dated 5.7.2017, an exemption has been granted to all services imported by SEZ units for authorised operations.
5. Taxability of supply of goods or services by SEZ units
(i) Supply of goods or services to DTA units.
Any supply of goods or services by a SEZ unit to DTA unit will fall under section 7(5) (b) of the IGST Act and shall be treated as inter-State supply chargeable to IGST as per section 5 of the IGST Act.
Section 53 of the SEZ Act provides that SEZ shall be deemed to be a territory outside the customs territory of India for the purpose of undertaking authorized operations and be deemed to be port, inland container depot, land station or land customs station for the Customs Act, 1962. Section 29 and 30 of the SEZ act further provides that removal of goods (procured, produced or manufactured) from SEZ to DTA will be chargeable to duties of customs as leviable on such goods when imported and the rate of duty shall be the rate in force on the date of such removal. Therefore DTA clearance are treated as an import into India and customs duty is to be paid by importer as per the scheme of SEZ Act.
Accordingly, basic customs duty and IGST are charged on supplies of goods made by SEZ units of DTA unit. As to who will discharge the liability of IGST, the GST laws do not offer any clarity in this regard. However, in view of instruction No.9 of Form GSTR-1 reading with SEZ Act provision, a view can be taken that supply by SEZ unit to DTA unit is to be treated akin to import and unless the recipient DTA unit is not required to file a bill of entry, IGST is to be paid by it. Representations have been made on this issue and a clarification to this effect will be a welcome relief for the stakeholders.
(ii) Supply of goods or services outside India
Any supply of goods and services by SEZ outside India shall be treated as zero-rated supply in view of section 16(1)(a) of the IGST Act. The supplier may opt any of the these two options (a) to supply without payment of taxes (under a Bond or Letter of Undertaking) and subsequently filing a refund claim of unutilized input tax credit or (ii) to supply by making payment of taxes and subsequently filing a refund claim of the taxes so paid.
6. Reverse charge mechanism
Under reverse charge mechanism, the liability to discharge the GST shifts from the supplier to the recipient and the GST laws applies to such recipient ‘as if he is the person liable for paying the tax”. However, any supplies to SEZ by any supplier from DTA are treated as zero-rated supplies in view of section 16 of the IGST Act. Hence for transactions attracting reverse charge like advocate services, etc. it is the SEZ unit who will require to discharge tax and obtain refunds for which it need to take registration compulsorily.
Import of services and goods are liable to reverse charge mechanism under section5 (3) of the IGST Act. However, an exemption has been granted to all goods and services imported by SEZ units for authorized operations – Vide Notification no.64/2017- Custom dated 05.07.2017 and Notification No.18/2017 integrated Tax (Rate) dated 05.07.2017.
7. Concluding words
SEZs are playing vital role in the growth of economy of our country. They have been a contributor in boosting exports, employment and generating foreign direct investment. It is a dedicated zone which enjoys a host of fiscal and tax benefits. Under GST regime, a major benefit of zero rating the supplies made to SEZ units has been provided. Beside this goods and services imported by SEZ unit for authorised operations are also being exempted from the levy of GST. However, refund claim of IGST paid or unutilized input tax credit on supplies made by DTA units to SEZ units under zero-rated supply are allowed only for authorized operations and not for all operations and it becomes a cumbersome process for DTA units to bifurcate the supplies used in authorised operations or other operations. Further, SEZ units are also being made liable to pay tax on supply of goods and services under reverse charge and obtain refund under zero-rated supply mechanism. On one side, supplies to SEZs are zero-rated and on another side, supplies by SEZs are being taxed. Therefore, it is in the interest of SEZ and business communities, that Government should come up with more clarifications on the issues relating to supplies to/by SEZs.
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The income tax return (ITR) forms for FY 2018-19 notified by the government are different from those used to file the previous year's returns, keeping the changes in income tax laws made in Budget 2018 for FY 2018-19 and onwards. Apart from that, there are other changes as well in the ITR forms which you should be careful about while filing your return for FY 2018-19.
The changes in ITR forms 1 & 2 that you should be aware of :
1. Online ITR filing is mandatory : In a departure from previous year, all individuals (except for super senior citizens) will be required to file their ITRs online. The ITR-1 for FY 2018-19 cannot be filed in paper format by the taxpayers having income below Rs 5 lakh with no refund.
2. Complete details of buyer to whom you have sold property : If you have sold a property in FY 2018-19, then while filing ITR-2, you will be required to provide complete details of the buyer to whom you have sold the property.
3. Property wise details of rent arrears : While filing ITR-1 or ITR-2 as applicable, if there are any rent arrears that are received by you in FY 2018-19 then you have to report them property wise as received.
4. Specifying the type of house property : While providing details of your one house property in ITR-1, you are required to specify whether the house is - 'Self Occupied', 'Let-out' or 'Deemed Let-out.'
5. Investment details in unlisted companies : If you are holding shares in an unlisted company then, you are required to disclose the details of your holdings in ITR-2. The details required are extensive - name of the company, PAN of the company, number and cost of acquisition at the beginning of the year, number of shares, face value, issue price (or purchase price) and date of purchase of shares acquired during the year, number and sale consideration of shares transferred during the year, number and cost of acquisition of shares held at the end of the previous year.
6. Reporting of salary details gets easier in ITR-1 : This year providing details of your salary income will be easier as the details required are in sync with the information available in Form-1
7. Full disclosure of interest income : Along with providing full break-up of salary income, taxpayers will be required to specify the full bifurcation details of the interest income or any other income received by them.
8. Residential status : The new ITR-2 form asks individuals not only to specify the residential status as resident, resident but not ordinarily resident or non-resident, but also to provide additional information with respect to his residential status, such as, number of days of stay in India, jurisdiction of his residence and tax identification number in case he is a non-resident.
9. Mention of DIN number : If you are Director of a company, then you will be required to specify your DIN (Director Identification Number) in ITR-2 or 3 whichever is applicable. Along with this you will also be required to provide information - name of company, PAN, whether shares are listed or unlisted.
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.
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Annually the Income tax department verifies the accuracy of the income tax returns filed by taxpayers by sending scrutiny notice to them. This is aimed at ensuring that the taxpayer has not understated the income or has not computed excessive loss or has not an underpaid tax.
Scrutiny notice received by an individual can be grouped into limited scrutiny or complete scrutiny. Under limited scrutiny, a taxpayer is only required to submit details with respect to specified transactions/query for which scrutiny has been initiated. whereas under complete scrutiny, a tax officer can ask the taxpayer to furnish an exhaustive list of documents/information, which he feels is relevant for a detailed audit of the tax return.
In order to issue scrutiny notice, tax department follows certain pre-determined criteria (e.g. substantial tax refunds, foreign tax credit, etc.) for selecting cases for scrutiny. Scrutiny cases are also being selected under Computer Aided Scrutiny Selection (CASS) based on broad-based selection parameters.
The income tax return can be picked up for scrutiny within 6 months from the end of Financial Year (FY) in which the return was filed. For example, if the tax return for FY17-18 was submitted on July 31, 2018, scrutiny notice can be issued by September 30, 2019.
Scrutiny notice requires a physical visit by a taxpayer or his authorized representative (i.e. chartered accountant, tax lawyers etc.), however, off-late in order to promote efficiency, transparency and accountability, income tax authorities have launched the ‘e-proceeding’ facility. Under this, the government has mandated income tax officers to take recourse to electronic communications for all limited and complete security cases.
Scrutiny of a tax return is a regular process and a taxpayer should not panic upon receiving scrutiny notice. Some key check points which help in responding to notices include
1.Verifying details on the notice such as name,
3.The FY for which the same has been issued, along with details of the jurisdiction of the tax officer.
It is important to review and arrange all documents depending on the type of scrutiny notice issued (e.g. computation sheet, Form 16, details of interest earned, Form 26AS, etc.) before the reply is submitted.
The scrutiny notice prescribes a date by which the requested documents/information need to be furnished to the tax officer/uploaded into the e-filing website. It is advisable that in case the requisite documents are not ready by the said date, then a request letter for adjournment is submitted to the tax officer seeking additional time to collate and submit the required documents/details. In all correspondences with tax authorities, it is important to quote the PAN and the FY.
It should also be kept in mind that the tax department has a mechanism in place to collate the details of major transactions carried out by a taxpayer during a particular FY. In case, at the time of filing of tax return any error was committed, the tax payer has an option to disclose the same before the tax officer.
It is also important to note that the tax officer has the right to complete the scrutiny on ‘Best Judgement’ basis as he deems fit as per the information available with him in case he is not satisfied with the details submitted before him or if full particulars of information sought, has not been submitted to him as per his satisfaction.
Section 50C in the Income tax Act, 1961 was inserted in the Act by the Finance Act, 2002 w.e.f. 1.4.2003. The scope and effect of such insertion have been elaborated in the following portion of the department Circular No.8 of 2002, dated 27th August, 2002, as under:-
a. Computation of capital gains in real estate transaction –The Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property.
b.It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value of the consideration and capital gains shall be computed accordingly under section 45 of the Income-tax Act.
c.It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revisions or reference before any authority or Court, the assessing officer may refer the valuation of the relevant asset to a Valuation officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the assessing officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation officer is more than the value adopted or assessed for stamp duty purpose, the assessing officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purpose.
2. Amendment to Section 50C
Some changes in the section by the Finance (No.2) Act, 2009 after the amendment provides that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed
[ (w.e.f. 1.10.2009) or assessable] by any authority of a State Government (Hereinafter in section 50C referred to as the ‘stamp valuation authority’) for the purpose of payment of stamp duty in respect of such transfer.
In such a situation, the value so adopted or assess [(w.e.f.1.10.2009) or assessable] shall for the purpose of section48 be deemed to be the full value of the consideration received or accruing as a result of such transfer
The object and purpose of section 50C is to see that the undisclosed income of Capital gains received by the assessee is taxed and the law should not encourage and permit the assessee to peg down the market value to avoid tax. – Vide Gouli Mohadevappa v. ITO (2013) 356 ITR 90 (Karn).
3. Whether value adopted for stamp duty purposes under section 50C shall apply for other heads of income also
The reply to this has to be in the negative. In Inderlok Hotels (P) Ltd.v.ITO (2009) 318 ITR 234 (Mum-Trib), it was held that on analyzing language used by legislature in section 50C, it appears that the said section specifically deals with transfer of ‘capital asset’ being land or building or both, and it provided for replacing value adopted or assessed for the purpose of stamp duty more particularly under section 48 in place of value or sale consideration shown by assessee. It is abundantly clear from Explanation given in CBDT Circular No.8, dated 27.08.2002 that basis intention to insert section 50C is for purpose of determining full value of sale consideration for purpose of computation of capital gains under section 48.
4. Applicability of section 50C to exemptions provided by sections 54 to 54G
These sections provide for exemption from capital gain in respect of long term capital gains arising from the transfer of prescribed conditions. The issue is whether the ‘full value of consideration’ referred in section 54F would be the full value as received by the assessee or as determined under section 50C of the Act. The legal position is that full value of consideration shall be as consideration received by the assessee and not as determined by the assessing officer for the purpose of application of section 50C of the Act. This view is supported by the Tribunal’s decision in the case of ITAT’s Lucknow Bench’s decision in the case of Anant Chetan Agarwal v.Dy.CIT, Circule-I, Bareilly (2018) 172 ITD 525 (Luck-Trib)
5. Tribunal’s Decision
The assessee sold an agricultural land (capital asset being situated within 9 kms from the municipal limit of Bareilly) for a consideration of Rs.27.46 lakh, Value of which as per circle rate was Rs.58.06 lakh. The assessee claimed deduction under section 54F amounting to Rs.27.46 lakh, i.e. entire net sale consideration. The investment made in the house property as claimed under section 54F was examined by the Assessing Officer and the assessee was required to explain as to why the capital gain on entire consideration of Rs.58.06 lakh (as per provision of section 50C) may not be charged. The assessee submitted that whatever sale consideration was received by him, has been invested under section 54F and therefore provision of section, 45, 48 and 50C applies to the case of the assessee and deduction under section 54F is not applicable. The assessing officer was of the opinion that section 45 and 48 are charging sections and provisions of section 50C were applicable as per the fair market value determined by the DVO. The matter was referred to the DVO by the assessing officer and DVO determined the fair market value of the property at Rs.40.61 lakh as against value of circle rate amounting to Rs.58.06 lakh. On appeal the Commissioner (Appeals) Confirm the order of the assessing officer.
(ii) Tribunal’s order
The Tribunal has decided that section50C specially mentions that for the purpose of section 48 value adopted as assessed for the purpose of stamp duty shall be deemed to be full value of consideration received or accruing as a result of transfer, meaning thereby, deeming fiction created in section 50C is limited only to the extent and for the purpose of section 48 and this deeming fiction cannot be extended or interpreted as meant for the purpose of other provision of the Act including section 54F. There is a doctrine of impossibility of performance wherein it is only to the extent of funds available with the assessee that he can be expected to invest. On perusal of section 54F, what is, therefore, relevant is the investment of the net consideration in respect of original asset which has been transferred and whether net consideration is fully invested in the new asset. The net consideration as determined under section 50C based on the stamp duty authority valuation is not a consideration which has been received by or has accrued to the assessee. Where the entire consideration received has been invested in the new asset, the provisions of section 54F(1)(a) have been complied with by the asessee and therefore, assessee become eligible for deduction in respect of whole of the capital gains to be computed under section 45, read with section 48 and 54F (1) (a)
In view of the provision of law as explained (supra), the Tribunal set aside the order of Commissioner (Appeals) and decided the appeal in favour of the assessee.