Table of Contents
1. Prologue
2. Registration
3. Input tax Credit
4. Itemised Sales
5. Slump Sale
6. Liability of companies w.r.t. order of court or Tribunal
7. Sale of Securities
1. Prologue
Corporate Restructuring through amalgamation, arrangement, mergers, acquisition and takeover has become vital to corporate strategy to day. To attain accelerated growth, corporate in India now a days resort more towards restructuring strategies. The Goods and Services Tax (GST) has been envisaged as an efficient tax system and it affects the structuring of the various operations in India. Corporate transaction in pursuance of amalgamation, arrangement, mergers, acquisition and takeover are also affected by GST. Thus, the industries are required to analyse the provisions of the GST Law and its impact on their business.
2. Registration
Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input tax credit for the taxes on his inward supplies. By virtue of section 22(3) of the CGST Act, where a business carried on by a taxable person registered is transferred, the transferee or the successor would be liable to be registered with effect from such transfer or succession and he will have to obtain a fresh registration with effect from the date of such transfer or succession.
Section 22(4) states that if the business is transferred as an order of a High Court, Tribunal or otherwise pursuant to –
Sanction of scheme
Arrangement for amalgamation
De-merger of two or more companies,
The transferee would be liable to obtain registration from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.
3. Input tax Credit
Section 18 enshrines the provisions regarding availment of input tax credit by taxable person. Section 18(3) of the CGST Act as well as rule 41 of the CGST Rules stipulates that in case of change of constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business, the registered person would be allowed to transfer the unutilized input tax credit to transferor. In this context, the registered person is required to furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business in Form GST ITC-02 electronically on the Common Portal along with a request to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee. The transferee would accept the details so furnished by the transferor on the Common Portal and, upon such acceptance, the unutilized credit would be credited to his electronic credit ledger.
In the case of demerger, the input tax credit would be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
4. Itemised Sales
Where assets and liabilities of a business are transferred by way of assigning a value to each item then it is called as itemized sale. Such sale involves the disposal of key or selected business assets. Under the merger and amalgamation, value of each asset is calculated separately i.e. the whole business is transferred but item wise.
Transaction of itemized sale is supposed as supply under the ambit of GST and individual asset would covered under the definition of goods as per schedule II of the CGST Act. Thus, GST would levy on itemized sale.
5. Slump Sale
Slump sale will have the same treatment as normal supply. Under the GST regime tax is payable by the registered taxable person on the supply of goods and/or services. The term ‘Supply’ is wide in its import cover all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Further, supply covers the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Accordingly, transfer of business assets is supposed as supply.
The transfer of business is amounted to transfer of a part of the assets and not the whole business. Moreover, para 4© of the schedule II specifies that in case business is transferred as a going concern then it would not constitute as supply. However, in pursuance of Notification No. 12/2017 Central tax (rate) dt 28.06.2017 services, which are provided by way of transfer of a going concern as a whole or an independent part thereof, are exempted from GST. Thus, no GST would applicable on slump sale transaction as transfer of business on a going concern basis.
6. Liability of companies w.r.t. order of court or Tribunal
According to section 87 of the CGST Act, when two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt would be included in the turnover of supply or receipt of the respective companies and they would be liable to pay tax accordingly.
Such two or more companies would be treated as distinct companies up to the date of order and the registration certificates of companies would be cancelled with effect from the date of the order.
7. Sale of Securities
In most case, the usual mode is the acquiring of company by making an offer by the transferee company to the shareholders of the transferor company to purchase their securities, in the transferor company, at a price stated for the purpose. The definition of goods as well as services under the GST regime do not cover the securities, therefore GST would not be levied on the sale of securities.
8. Summing Up
Goods and Services Tax have impact on each and every industry and business in India. Transfer of business under mergers, amalgamation and acquisitions do not attract any tax liability under GST regime, they are unlikely to impacted by indirect taxation. For calculating the Capital gains, the holding period is calculated from the date of original purchase of shares. The companies who opt for merger and acquisition, the liability to register arises on the date of transfer for transferee of a business as going concern. Further, GST Law stipulates transfer or sale of business assets can take place either as a slump sale or itemized sale. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilized ITC would be allowed to be transferred to transferee. Thus, GST Law brought the immense clarity on the taxability of business transfer and related aspect thereof.
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Need personal assistance in dealing with GST Registration & filing? Get in touch with ADCA - One of the best GST Consultants in Bangalore.
Introduction:
Many people have question about maximum cash they can give or accept without facing any problem under Income Tax Act.
People have lot of doubts on one can accept cash and give cash whether in form of loan, advance, deposit or against a business transaction.
Under Income Tax Different sections of IT ACT which prohibits dealing in cash transactions or limits the value of cash transactions.
These sections define the value of cash transactions that are allowed as per income tax Act. Remember there is no constitutional ban on dealing in cash, only thing is that the income tax department assesses cash transactions in different manner putting penalties on cash transaction done.
As per Section 269ST, any person who enters into a transaction of Rs.2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.
For example
If you buy an expensive watch for cash worth Rs.5 Lakh, it is the shopkeeper who receives payment in contravention of section 269ST will have to pay the tax (penalty) of Rs.5 Lakh. So here the tax rate is 100%.
Though this new section on cash Transaction limit sounds simple, we need to go through it in details, as I believe that this may have quite an impact on our daily financial lives.
2. What does section 269ST say ?
With effect from 1st April, 2017, no person shall receive an amount of Rs.2 Lakh or more;
The new Cash transaction limit is not applicable, if a person receives the amount through an Account Payee Cheque (or) an Account Payee Bank Draft (or) through use of electronic clearing system through a bank account. (Look like, any receipts done through e-Wallets like Paytm, credit cards etc, may also be hit by this new amendment, need more clarity though)
Kindly note that Penalty under section 271D will be imposed on a person who receives a sum of Rs.2 Lakh and above in cash. The extent of penalty will be a sum equal to amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention.
3. Section 269ST & Rs.2 Lakh cash Transaction Limit: Examples
Let us understand the above three points with examples;
Single Person
Cash receipt of Rs.2 Lakh or more, from a single person in a day is not allowed even if the amount has been paid through multiple transactions during the day which are below Rs.2 lakh.
For example
Mr.X buys a gold chain worth Rs.2 Lakh and pays the amount by cash to Mr.Y on a single day in 4 equal installments of Rs.50,000 each. As Mr.Y accepted cash worth Rs.2 lakh from a single person and in a single day, section 269ST is applicable in this case. Mr.Y has to pay a penalty of Rs.2 Lakh.
Single Transaction
Cash receipt of Rs.2 Lakh or more which are related to a single transaction are prohibited.
For example
Mr.A goes through a medical surgery and the hospital charges him a bill of Rs.4 Lakh. Mr.A clears the bill in 4 installments if Rs.1 lakh each on four different dates. Here, the cash receipt got by hospital are less than Rs.2 Lakh and have been received on different dates.
Whether this transaction violates section 269ST? – yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill/transaction. So, spitting of payments over several days is prohibited.
Single Event/Occasion
Cash transaction or cash receipts related to a single event or occasion, cannot be more than Rs.2 Lakh.
For Example
X gets married to Y. On their wedding occasion, their relatives gifted Cash amount worth Rs.10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs.2 lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable?
Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gift worth Rs.2 Lakh or more can not be received from relatives and other person.
4. Other Important Points
* Based on interpretation of section 269 ST, payment modes like bearer cheque and self-cheque will also be considered on par with Cash based transactions only.
* It has been clearly stated that penalty (if any) is chargeable to an individual who violates section 269ST, even if you do not have PAN and/or is not a tax assesse.
* The restriction of receipt of money in cash of Rs.2 Lakh or above in cash is applicable irrespective of whether it is for personal/business purpose, capital or revenue in nature, tax-free or taxable income.
* Kindly note that the payer of money is not liable to pay any penalty. It is the receiver of cash who has to bear the penalty under section 271DA.
* Donations in cash exceeding Rs.2,000 are not permitted (Donations can be claimed under section 80G)
* Premiums on Health insurance policies paid in cash cannot be claimed as deduction under section 80D.
* Loans or Deposits cannot be repaid in cash in excess of Rs.20,000 or more.
*Payment of above Rs.10,000 per person, cannot be made for any business payment towards any expenses (or) purchase of capital asset.
* One should not accept a loan or deposit or sale consideration of immovable assets in cash in excess of Rs.20,000.
5. Restriction on capital Expenditure for business in cash above Rs.10,000 (Section 32 of the income Tax Act, 1961)
Where an assessee incurs any expenditure for acquisition of a depreciable asset in respect of which a payment ( or aggregate of payment made to a person in a day ), otherwise than by an account payees cheque/draft or use of electronic clearing system through a bank account, exceeds Rs.10,000. Such a payment shall not be eligible for normal/additional depreciation.
6.Reduction in the limit of Cash Payment to Rs.10,000 in a Day (Section 40A (3) & 40A(3A) of the Income Tax Act, 1961)
The monetary limit on revenue expenditure in cash has been reduced from Rs.20,000 to Rs.10,000 (there is no change in the monetary limit pertaining to cash payment upto Rs.35000 to transport Contractors). Few exceptions are also provided in Rule 6DD of the Income Tax Rules. Consequently, any expenditure in respect of which payment (or aggregate of payment made to a person in a day), otherwise than by an account payee cheque/ draft/use of electronic clearing system through a bank account, exceeds Rs.10,000, no deduction shall be allowed in respect of such payment under sections 30 to 37 of Income Tax Act, 1961.
7.Conclusion
As a business owner or as an economic soldier we should try to avoid cash transactions. Cash is the main source for bribes at lower level of bureaucracy. The best we can do is to minimize cash transactions.
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What is tax exempt?
Tax-exempt refers to income or transactions which are free from Income Tax. The reporting of tax-exempt items may be on a taxpayer's individual or business tax return and shown for informational purposes only.
What is tax reimbursement/tax refund?
A tax refund(tax rebate) is a refund on taxes when the tax liability is less than the taxes paid. Tax payers can often get 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 often paid after the end of the tax year.)
Many of the allowances, reimbursements paid to us as a part of salary are either fully taxable or tax-exempt up to a certain limit but the tax exemption is subject to certain conditions. This limit determines how much of these allowances/reimbursements are taxable or otherwise in our hands. As a tax payer, it is must for you to know about the limits and conditions inorder to claim your tax exemption.
Some of these allowances are fully taxable and it is an important factor that has to be considered while calculating one's tax. We have combined the list of a few allowances and reimbursements that are often paid to employees as part of salary which are fully taxable, partially tax-exempt and the limits up to which these are exempted from tax.
1. House Rent Allowance (HRA): If you are receiving HRA as part of your salary and you pay for residential accommodation then you can claim the HRA paid to you as exempt from tax subject to certain limits and restrictions. These are as follows:
Minimum of the following HRA is exempt from tax:
(i) Actual HRA received
(ii) 50% of annual salary* if living in metro cities or else 40%
(iii) Excess of annual rent paid over 10% of annual salary*
*Salary here is considered as basic plus dearness allowance (if it forms part of retirement benefits) and commission received on the basis of sales turnover.
However, if no rent is paid by you, then whole HRA received is taxable.
2. Dearness Allowance (DA): Dearness Allowance is most of the time received by Government employees. However, it is fully taxable for every salaried taxpayer irrespective of whether they are a government or non-government employee.
3. Leave Travel Allowance (LTA): Employees (an Indian or foreigner) who receive LTA from their employers can claim exemption.
However, this exemption is subject to the following rules:
(i) The exemption is available on 2 journeys in one block of 4 years.
(ii) The amount of exemption available is lower of the actual amount spent to reach the destination via the shortest route or the amount received from the employer.
(iii) To claim exemption, the cost of reaching the destination can be taken as A/C first class (for railways) or economy class of national carrier (for air travel).
(iv) An exemption is allowed only if actual expenditure has been incurred for traveling anywhere in India.
4. City Compensatory Allowance : This is offered to employees to compensate for high cost of living in cities. Just like DA, it is fully taxable in an employee's hands.
5. Overtime Allowance: This allowance is taxable in the employee's hands.
6. Children Education Allowance : If you are receiving a children education allowance from your employer then you are eligible to claim a tax exemption under the Income Tax Act. However, the maximum amount exempted is Rs. 100 per month for maximum of up to 2 children. Along with this, you can also claim deductions for fees paid for your children under section 80C. Similarly, any hostel expenditure allowance received by you for your children from employer is eligible for exemption up to Rs. 300 per month or Rs. 3600 per annum for maximum up to 2 children.
7. Other allowances to meet specific expenses in course of employment under section 10(14(i) : Your salary can also include components like, Attire allowance ( granted to meet the expenses on dress code requirement), Telephone allowance ( To meet expenditure on telephone and internet expenses), Vehicle allowance ( to meet expenses on vehicle, if vehicle is used for performance of office duties), Helper Allowance etc. These allowances are exempt to the extent actual expenditure incurred.
Want to know about your own tax exemptions and reimbursements? call or Walk into ADCA's office - one of the top audit firms in bangalore.
As part of updating its registry Ministry of Corporate Affairs (MCA) has provided for filing of KYC by all directors on an Annual Basis. MCA has notified Companies (Appointment and Qualification of Directors) Fourth Amendment Rules 2018 on July 5th 2018, which will come into effect from July 10th 2018. Form DIR-3 KYC has been notified for the purpose.
Below is the FAQ on this compliance :
Who is required to file DIR-3 KYC ?
Every person holding a DIN on the last day of financial year is required to file a DIR-3 KYC. Even if a person is holding DIN and not a director in any of the companies, he/ she is required to file DIR-3 KYC.
What is due date? What is extended due date for financial year ending March 31st 2018 ?
Due is date is April 30th of following financial year. For Financial year ending March 31st 2018, due date has been extended to August 31st 2018.
Consequence of not filing DIR-3 KYC? How to rectify non-compliance?
If the DIR-3 KYC is not filed within due date, DIN would be marked as deactivated, and no filing will be allowed with such DIN. To remove the defect DIR-3 KYC need to filed with late fee upon which DIN would activated. Late fees has been prescribed at Rs 5,000/-
Who has to Certify Form DIR- 3 KYC ?
Form DIR 3 KYC need to be certified by DSC of Director and DSC of Practicing Professional.
What are the KYC Documents :
i Photo in JPEG format.
ii. Proof of Identity- self attested :
iii. Proof of Residence – self certified – any of following
iv. Valid Person Email id and Mobile No. Same will be verified by OTP.
Filing your KYC could be hasslesome and time consuming. Mr. Anil D'Souza of ADCA, a higly qualified CA in Bangalore, can help you with that.
Due date for Filing Income Tax Return & Consequences of not filing IT Return within Due Date
The Income Tax Depart Act has prescribed various due dates for filing of Income Tax Return by a different class of assessees. Section 139 of Income Tax Act, 1961 provides for following different due dates for different class of assesses:
Belated filing of Income Tax Return & consequence of not filing IT return within the due date :
Belated Filing :
If the return is not filed within due date same can still be filed within the end of Assessment year, i.e March 31st of the year following the financial year. For example, if Return pertain to Financial year 2017-18, the assessment year is 2018-19, and if the return is not filed within due of July 31st or Sep 30th of 2018, belated return can still be submitted by March 31st 2019.
Consequences of not filing IT return within the due date :
1. Late fees of Rs 5,000 is applicable if the return is filed by December 31st of Assessment Year / Late fees of Rs 10,000 is applicable if return is filed after December 31st of Assessment Year. ( Late fee will be limited to Rs 1,000 for those with income up to Rs 5 lakh).
2. Carry forward of losses (other than loss under House Property) are not allowed unless return is filed within due date.
3. Interest under section 234A @ 1% per month becomes applicable on amount tax payable after the due date. This is in addition to interest @ 1% per month under section 234B. So on any tax which is not paid within the due date for filing return, interest required to paid @ 2% per month on taxes paid after due date. It is advisable to deposit tax before the due date, even if for some reason return can’t be filed before due date to avoid interest @ 2% per month.
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Recently Few of them are shocked to see the outstanding Income taxt amount appearining at e-filing portal of income tax deportment.
Income Tax Departmrnt has updated the software to check regulary and clear ur outstanding income taxt amount.
Submit response to Outstanding Tax Demand process step by step:
Step 1: Login to www.incometaxindiaefiling.gov.in and check Refund/Demand status menu.
Step 2: If there is any outstanding tax demand, the “Response to Outstanding Tax Demand” will appear showing demand amount along with A.Y. for which demand exists.
Step 3: You can submit your response by selecting correct option. Option available is
Step 4: If you select demand is correct then you cannot disagree with the demand letter.
Step 5: If you select other options i.e. demand is partially correct or disagree with demand, you will have to provide reasons for exercising the option along with documentary evidence.
Step 6: Based on the reason selected, the assessee needs to provide additional information as below
Demand Paid:
Step 7: Demand already reduced by rectification/Revision/Appeal: Upload rectification order passed by AO and provide information on date of order, pending demand amount after rectification, etc.
Step 8: Rectification / Revised Return filed at CPC: If you have filed rectification for the demand amount, provide acknowledgement No of rectification application filed online. In case if you have filed revised return, you need to provide e-Filed acknowledgement No of the revised return.
Step 9: Rectification filed with AO: If you have filed rectification application manually to the jurisdictional assessing officer, provide date of filing application.
Once assessee submits the response, transaction id will get generated which can be viewed later.
Anil D'Souza & Associates are the Top chartered accountants firm in Bangalore, you can write a mail to service@adca.in, required any CA service
Petitioner asks whether he and his wife are residents of Yonkers, as opposed to New York City, for purposes of paying personal income taxes, when the entire physical house in which they reside is located in Yonkers and the front yard is located in the Bronx.
The following clarifications are given in this matter:-
(i) The purpose of this reform of making the change in tax regime is to encourage more private-sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.
(ii) Towards this objective, the Government has announced that Forty Percent(40%) of the total corpus withdrawn at the time of retirement will be tax-exempt both under-recognized Provident Fund and NPS.
(iii) It is expected that the employees of private companies will place the remaining 60% of the Corpus in Annuity, out of which they can get regular pension. When this 60% of the remaining Corpus is invested in Annuity, no tax is chargeable. So what it means is that the entire corpus will be tax free, if invested in an annuity.
(iv) The Government in this Budget has also made another change which says that when the person investing in Annuity dies and when the original Corpus goes in the hands of his heirs, then again there will be no tax.
(v) The idea behind this mechanism is to encourage people to invest in pension products rather than withdraw and use the entire Corpus after retirement.
(vi) The main category of people for whom EPF scheme was created are the members of EPFO who are within the statutory wage limit of Rs.15,000 per month. Out of around 3.7 crores contributing members of EPFO as on today, around 3 crore subscribers are in this category. For this category of people, there is not going to be any change in the new dispensation.
(vii) However, in EPFO, there are about 60 lakh contributing members who have accepted EPF voluntarily and they are highly – paid employees of private sector companies. For this category of people, amount at present can be withdrawn without any tax liability. We are changing this. What we are saying is that such employee can withdraw without tax liability provided he contributes 60% in annuity product so that pension security can be created for him according to his earning level. However, if he chooses not to put any amount in Annuity product the tax would not be charged on 40%.
(viii) There is no change in the existing tax treatment of Public Provident Fund (PPF).
(ix) Currently there is no monetary ceilings on the employer contribution under EPF with only ceiling being that it would be 12% of the salary of the employee member. Similarly, there is no monetary ceiling on the employer contribution under NPS, except that it would be 10% of salary.
(x) Now the Finance Bill 2016 provides that there would be monetary ceiling of Rs1.5 lakh on employer contribution considered with the ceiling of the 12% rate of employer contribution, whichever is less.
(xi) We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in the annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount. We have also received representations asking for not having any monetary limit on the employer contribution under EPF, because such a limit is not there in NPS. The Finance Minister would be considering all these suggestions and taking a view on it in due course.
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