Summary: During the week ending October 20, 2024, several significant notifications and circulars were issued concerning Income Tax and GST. In Income Tax, the West Bengal Pollution Control Board and various other authorities were granted exemptions under section 10(46) for income derived from specific fees and grants. Notifications also detailed the tolerance ranges for arm’s length pricing, clarified tax collection rules concerning the RBI, and amended several Income Tax Rules, including TCS and new forms for reporting income. Furthermore, guidance was provided on the Direct Tax Vivad se Vishwas Scheme and compounding offences, addressing various taxpayer queries. In GST, clarifications were issued regarding the input tax credit provisions, waivers for interest and penalties related to tax demands for specific financial years, and the introduction of an Invoice Management System (IMS) to aid taxpayers in reconciling invoices for accurate ITC claims. Additional advisories concerning auto-population of values in GSTR forms and the operation of the IMS were also released, aimed at enhancing compliance and efficiency for taxpayers.
Notifications & Circulars issued during week (14th – 20th Oct 2024)
A. Income Tax
Exemptions to West Bengal Pollution Control Board: West Bengal Pollution Control Board, a board constituted by the Government of West Bengal, has been notified under section 10(46) for exemption on its income arising from consent fee or no objection certificate fees, fees for air or water quality analysis or noise level survey, authorisation fees, cess, reimbursements from CPCB, sale of books and Interest on bank deposits. (Income Tax Notification 117/2024 Dated 18/10/2024)
Tolerance Range for Arm’s Length Price: The tolerance range has been set for variations in arm’s length price under Section 92C of the Income tax Act, for the assessment year 2024-25. For international or specified domestic transactions involving wholesale trading, the permissible variation between the arm’s length price and the actual transaction price is up to 1%. For all other cases, the tolerance limit is set at 3%. “Wholesale trading” is defined as transactions where at least 80% of the total cost pertains to the purchase of finished goods, and the average monthly closing inventory does not exceed 10% of sales. (Income Tax Notification 116/2024 Dated 18/10/2024)
No TCS to be made on any payments received from the RBI: The notification provides that no tax collection at source (TCS) under sub-section (1F) of Section 206C of the Income Tax Act, will be made on any payments received from the Reserve Bank of India (RBI). This decision, exercised under the powers conferred by sub-section (12) of Section 206C, exempts such payments from the scope of TCS. (Income Tax Notification 115/2024 Dated 16/10/2024)
Amendment in Income Tax Rules relating to TCS under section 206 of Income Tax Act: The key changes include modifications in Rule 31AA, such as the replacement of references from “fourth proviso” to “fifth proviso” and from “fifth proviso” to “sixth proviso.” A new clause requires details to be furnished when tax is not collected or collected at a lower rate due to specific notifications. Rule 37-I has also been updated to clarify that when the income of a collectee is assessable to another person, TCS credit will be given to that person, provided the collectee submits a declaration. Moreover, the collector must issue the TCS certificate in the name of the individual receiving the credit. (Income Tax Notification 114/2024 Dated 16/10/2024)
Amendment in Income Tax Rules 21AA, 26B and Forms: The Income tax Rule 21AA’s marginal heading and references have been modified to remove specific mentions of “section 89(1),” aligning it simply with “section 89.” Rule 26B now allows assessees to provide details regarding income from sources other than salaries and any tax deducted or collected at source during the financial year using a newly introduced Form No. 12BAA. Additionally, Form No. 16 and Form No. 24Q have been updated to include adjustments for tax deducted or collected as per Form No. 12BAA. (Income Tax Notification 112/2024 Dated 15/10/2024)
Amendment in Income Tax Rules relating to Form 10A and 10AB: The changes in Form No. 10A include the removal of the reference to “2C” and a new declaration format requiring the applicant to confirm the accuracy of the provided details and to communicate any alterations in their trust or institution. The revisions aim to streamline the registration process under sections 12A and 80G of the Income-tax Act. In Form No. 10AB, similar changes and a declaration format have been introduced. (Income Tax Notification 111/2024 Dated 15/10/2024)
Exemptions to District Legal Service Authority in the State of Haryana: District Legal Service Authority as constituted by Government of Haryana for every District in the State of Haryana, has been notified under section 10(46) for exemption on its income arising from grants from Punjab & Haryana High Court, Central authority, grants or donation from central or state govt, amounts received under orders of court, fees and Interest on bank deposits. (Income Tax Notification 110/2024 Dated 11/10/2024)
Exemptions to Real Estate Regulatory Authority, New Delhi: Real Estate Regulatory Authority, New Delhi, an Authority constituted under Real Estate (Regulation and Development) Act, has been notified under section 10(46) for exemption on its income arising from grant-in-aid or loan/advance from government, fee/penalty from builders/ developers or other stakeholders and Interest on bank deposits. (Income Tax Notification 109/2024 Dated 11/10/2024)
Exemptions to Gujarat Water Supply and Sewerage Board, Gandhinagar: Gujarat Water Supply and Sewerage Board, Gandhinagar, a Board constituted by the Government of Gujarat, has been notified under section 10(46) for exemption on its income arising from grants from government, local bodies and other govt agencies, centage, water charges, receipts from pension and gratuity contributions, other incomes and Interest on bank deposits. (Income Tax Notification 108/2024 Dated 11/10/2024)
Exemptions to State Load Despatch Centre Unscheduled Interchange Fund- West Bengal State Electricity Transmission Company Limited: State Load Despatch Centre Unscheduled Interchange Fund- West Bengal State Electricity Transmission Company Limited, constituted as trust under the Electricity Act, 2003, has been notified under section 10(46) for exemption on its income arising from residual money in unscheduled interchange pool balance account and Interest on bank deposits. (Income Tax Notification 107/2024 Dated 11/10/2024)
Guidance Note on provisions of the Direct Tax Vivad se Vishwas (DTVSV) Scheme: The DTVSV Scheme, 2024 has been implemented, which is aimed at resolving pending income tax disputes. In response to queries raised by various stakeholders regarding its provisions, CBDT has issued a Guidance Note 1/2024 in the form of frequently asked questions (FAQs). It will help provide clarity and assist taxpayers in better understanding the provisions of the Scheme. (Income Tax Circular 12/2024 and Press Release Dated 15/10/2024)
Revised Guidelines for compounding offences under the Income tax Act: CBDT has issued updated guidelines on the compounding of offences under Section 279(2) of the Income Tax Act, superseding previous guidelines. The new guidelines, apply to all new and pending applications, with provisions for recalculating compounding charges if found lower than previously determined. They allow rejected applications to be resubmitted if curable defects are rectified. Offences may be compounded if certain conditions, such as full payment of taxes, penalties, and related sums, are satisfied. A non-refundable fee of ₹25,000 for single applications and ₹50,000 for consolidated ones is required, adjustable against total compounding charges. The guidelines also clarify that prosecution under the Indian Penal Code cannot be compounded, although related complaints under the Income Tax Act may be withdrawn. (CBDT Letter and Press Release Dated 17/10/2024)
Claiming credit for TCS /TDS for salaried employees and enabling claiming TCS Credit of minors: Section 192(2B) of the Income-tax Act was amended to include any tax deducted or collected at source under the provisions of Chapter XVII-B or Chapter XVII-BB, as applicable, for the purpose of making tax deductions in the case of salaried employees. Form No. 12BAA has been introduced and employees must provide these particulars to their employers, who shall deduct TDS on salary after taking into account the furnished particulars.
— Section 206C(4) of the Act was amended to allow the credit of TCS to a person other than the collectee, such as a parent in the case of a minor collectee, when the minor’s income is clubbed with that of the parent. Rule 37-I of the Rules has been amended to allow credit of TCS to a person other than the collectee, in whose hands the income of the collectee is assessable. (Income Tax Press Release Dated 16/10/2024)
HC, Passing final assessment order beyond prescribed limit under section 144C is bad-in-law: Case of CIT vs Mavenir UK Holdings, HC Delhi Judgement Dated 25th September 2024. The court held that AO is required to pass final assessment order u/s. 144C within period of one month from the end of the month in which period of filing objection expires. Passing of final assessment order beyond the period prescribed under section 144C of the Income Tax Act is bad-in-law. (Delhi HC Judgement Dated 25/09/2024)
B. GST
Clarifications on implementation of provisions of section 16(5) and 16(6) of CGST: Reference is invited to section 16(5) and 16(6), whereby the time limit to avail input tax credit under provisions of of section 16(4) has been retrospectively extended in certain specified cases. Representations have been received for clarification in respect of various issues pertaining to availment of benefit of the said amendments the taxpayers against whom demands have been issued alleging wrong availment of input tax credit in contravention of provisions of section 16(4) of CGST Act, who are now entitled to avail the said input tax credit. A special procedure has been notified, and affected taxpayers can file applications electronically. (CGST Circular 237/2024 Dated 15/10/2024)
Clarification on waiver of interest and penalty Section 128A of the CGST: The Section 128A allows for the waiver of interest or penalty related to tax demands under Section 73 for financial years 2017-18, 2018-19, and 2019-20, subject to certain conditions. The circular outlines procedures to be followed, including filing applications in FORM GST SPL-01 or SPL-02, depending on the stage of the notice or order. The applications must be filed within three months from 31st March, 2025, or within six months in cases involving redetermination of tax under Section 73. Payment of tax must be completed by March 31, 2025, to avail of the waiver, with adjustments for tax amounts retrospectively changed due to amendments. (CGST Circular 238/2024 Dated 15/10/2024)
Advisory on Invoice Management System (IMS): IMS has made available to taxpayers from, 14th Oct, 2024. The new system shall facilitate taxpayers in matching their records/invoices vis a vis issued by their suppliers for availing the correct Input Tax Credit (ITC). The first GSTR-2B would be generated for the return period Oct’24 on 14th November, 2024 considering action taken on Invoice Management System. It may be noted that it is not mandatory to take action on invoices in IMS dashboard for GSTR-2B generation. (GSTN Advisory Circular Dated 14/10/2024)
Advisory for GSTR-9/9C: Starting FY 2023-24, GST system will auto-populate eligible ITC for domestic supplies (excluding reverse charge and imports ITC) from table 3(I) of GSTR-2B to table 8A of GSTR-9. These changes in GSTR-9 and 9C for the FY 2023-24 will be available on the GST portal from today i.e.,15th October 2024 onwards. Further, a validation utility will be executed progressively (for validation by taxpayers) to complete the auto population. (GSTN Advisory Circular Dated 15/10/2024)
Advisory, Additional FAQs on Invoice Management System (IMS): The IMS launched for the GSTR-2B return, helps taxpayers match invoices with those issued by their suppliers for claiming Input Tax Credit (ITC). Taxpayers can accept, reject, or hold invoices for future processing. The first GSTR-2B based on IMS actions will be generated on 14th November, 2024, for the October 2024 return period. Incorrectly rejected invoices can be corrected and accepted before filing GSTR-3B, ensuring ITC eligibility for FY 2023-24. Additional FAQs address scenarios like credit note rejections, ITC reversal rules, and actions on amended invoices. IMS also does not allow the deferral of credit notes, as suppliers reduce their liabilities upon issuing them, and rejections affect future GSTR-3B periods, not the current one. (GSTN Advisory Circular Dated 17/10/2024)
Advisory, Hard Locking of auto-populated values in GSTR-3B: The GSTN has enhanced the system by providing pre-filled GSTR-3B forms. These forms auto-populate tax liabilities from GSTR-1/GSTR-1A/IFF and Input Tax Credit (ITC) from GSTR-2B, offering taxpayers a detailed system-generated PDF for reference. Taxpayers can also correct their outward supplies through GSTR-1A and manage inward supplies using the Invoice Management System (IMS), allowing actions such as accepting, rejecting, or marking invoices as pending to ensure accurate ITC claims. Starting from the January 2025 tax period, the GST portal will hard-lock auto-populated values in GSTR-3B, preventing manual changes to data from GSTR-1/1A/IFF or GSTR-2B. Any necessary corrections should be made via GSTR-1A or IMS before final submission to maintain accuracy in the return filing process. (GSTN Advisory Circular Dated 17/10/2024)
Advisory, New GST Provision for Metal Scrap Transactions: The Notification 25/2024 dated 9th October, 2024, introduce new compliance requirements for businesses involved in metal scrap transactions under Section 51 of the CGST. This notification mandates these businesses to register for compliance through FORM GST REG-07. The GST portal will soon be updated to accommodate this registration process for businesses falling under this category. (GSTN Advisory Circular Dated 13/10/2024)
SC, No ITC to purchasing dealer without proof of genuine transactions: Case of Addl Comm commercial taxes vs Shankara Infrastructure Materials Limited, SC Judgement Dated 14th October 2024. The appellant submitted that since this is a case of bogus claim without any actual transactions, the assessee cannot claim the input tax credit. Transactions with a non- existing or bogus entities do not satisfy the criterion for claiming input tax credit. Having considered the above submission and the absence of any contest from the side of the respondent, the court considered earlier judgement in case of Ecom Gill Coffee Trading Private Limited (supra) and allowed the appeal. (SC Judgement Dated 14/10/2024)
HC, GST Registration Cancellation cannot be Withheld for Assessment/Recovery Proceedings: Case of Kundan Trading Company vs Comm Deptt of Trade and Taxes, HC Delhi Judgement Dated 9th September 2024. The court clarified that the cancellation of GST registration does not absolve the taxpayer from liabilities for prior statutory violations. The CBIC had issued a circular in 2018 stating that registration cancellations should generally be processed within 30 days, except in specific circumstances like incomplete applications. The court directed the respondent to consider the petitioner’s application for cancellation of GST registration without withholding it due to ongoing assessment or recovery proceedings. (Delhi HC Judgement Dated 09/09/2024)
C. Central Excise
No Notification/ Circular during the week.
D. Custom Duty
Fixation of Tariff Value of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver: CBDT notified the Tariff Values of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver, which shall come into force w.e.f. 16th October 2024. (Custom Notification 66/2024 Dated 15/10/2024)
Yogayatan in Maharashtra added as a new location for import and export activities: The amendment specifically relates to customs operations in the state of Maharashtra. “Yogayatan” location has been designated for unloading of imported goods and the loading of export goods, or any class of such goods. (Custom Notification 67/2024 Dated 18/10/2024)
Retrospective issuance of certificates of origin under India-UAE CEPA: The instruction clarifies that, per Rule 15(11) of the CEPA’s rules of origin, COOs may be issued retrospectively under exceptional circumstances, provided they are marked as “ISSUED RETROSPECTIVELY.” This must occur within twelve months from the date of shipment. Additionally, Rule 21(3) allows importers to claim refunds for excess duties paid when products could have qualified as originating but were not treated as such initially. Minor discrepancies in the COO will not invalidate it if they do not affect authenticity or accuracy. (Custom Instructions 21/2024 Dated 16/10/2024)
Guidelines for Implementation of Bhutan FSSAI Agreement: The instructions provide guidelines for implementation of agreement signed between the Food Safety and Standards Authority of India (FSSAI) and the Bhutan Food and Drug Authority (BFDA). It recognizes the official control exercised by the BFDA over Food Business Operators (FBOs) in Bhutan as equivalent to the requirements set by FSSAI. As part of this collaboration, the BFDA will issue Health Certificates to validate compliance for food exports to India. Customs authorities are instructed to clear food consignments from Bhutan if they are accompanied by the necessary Health Certificate issued by the BFDA. Importers or Customs Brokers must upload the Health Certificate on the e-Sanchit platform and ensure all details are accurate when filing the bill of entry. (Custom Instructions 22/2024 Dated 16/10/2024)
E. Directorate General of Foreign Trade (DGFT)
Electronic Submission of Appendix 4H Certificates: DGFT has introduced an electronic system for the submission of Appendix 4H certificates, streamlining the process for exporters and certifying authorities such as CAs and CMAs. Under this system, certifying authorities can digitally sign and submit the certificates, which document the consumption and stock of duty-free imported or domestically sourced raw materials under the Advance Authorization (AA) and Duty-Free Import Authorization (DFIA) schemes. Exporters can now draft Appendix 4H forms online and forward them to certifying authorities for verification and digital signing through the DGFT portal. The digitally signed certificates are automatically attached to AA or DFIA redemption applications, ensuring seamless integration with the Foreign Trade Policy (FTP) procedures. (DGFT Trade Notice 21/2024 Dated 17/10/2024)
F. Securities and Exchange Board of India (SEBI)
Corrigendum to Circular on Financial Disincentives by Market Infrastructure Institutions (MIIs): The original circular applied to MIIs, including Commodity Derivatives Exchanges and Clearing Corporations, but lacked explicit references to SEBI’s Master Circular for the Commodity Derivatives Segment dated August 04, 2023, which has now been provided. SEBI has added several cross-references, including paragraphs from the Master Circular and Annexure-ZF, which outline the procedures and responsibilities of MIIs in case of technical failures. SEBI also retains the right to take enforcement action against individuals responsible for such technical glitches. (SEBI Circular Dated 14/10/2024)
Monitoring Shareholding of Market Infrastructure Institutions (MIIs): The key aspects include appointing a designated depository (DD) to monitor shareholding limits and ensuring minimum public shareholding and fit & proper criteria for shareholders. MIIs must disclose their shareholding patterns quarterly, with listed MIIs additionally publishing this information on the respective stock exchanges. The DD monitors compliance with thresholds such as 5%, 15%, and 49% shareholding limits and notifies MIIs and relevant exchanges of any breaches. The circular also requires that trading members’ shareholding in stock exchanges does not exceed 49%, and provides specific protocols for freezing voting rights and corporate benefits in case of non-compliance. (SEBI Circular Dated 14/10/2024)
Monitoring of position limits for equity derivative segment: The new limits for index futures and options contracts are now set at the higher of INR 7,500 crore or 15% of total open interest (OI) in the market. These limits apply separately to futures and options positions in a specific underlying index. SEBI clarified that positions will be monitored based on the total OI from the previous trading day’s market, and participants will not be penalized for passive breaches if market OI decreases without a change in their positions. (SEBI Circular Dated 15/10/2024)
Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism: The facility allows issuers to offer put options on pre-specified dates, giving investors, especially retail investors, greater flexibility. Issuers may opt to provide this facility at their discretion and must ensure it is objective and transparent. Debt securities eligible for this facility will only be considered after one year from issuance, and issuers must specify a percentage of the issue size that will be available under the Liquidity Window. SEBI mandates that the facility be offered in a non-discriminatory manner, with transparency in pricing and valuations, and that any securities tendered be managed either through sale or extinguishment. (SEBI Circular Dated 16/10/2024)
Clarification with regard to usage of 3-in-1 type accounts for making an application in public issue of securities: The 3-in-1 accounts combine online trading, demat, and banking facilities into one. This clarification explicitly specify the usage of these accounts, for submitting applications in public issues of debt securities, non-convertible redeemable preference shares, municipal debt securities, and securitised debt instruments. The investors can continue using 3-in-1 accounts for submitting bid-cum application forms online, in addition to other existing modes. (SEBI Circular Dated 18/10/2024)
Consultation paper, Opening of demat account in the name of Association of Persons (AOPs) for holding securities in dematerialized form: Currently, demat accounts are only allowed in the names of natural persons associated with AOPs, partnership firms, and unregistered trusts. SEBI clarifies that AOPs, unlike partnership firms and unregistered trusts, may hold financial assets like corporate bonds, government securities, and mutual fund units, as permitted by law. The proposal aims to simplify the process for AOPs by permitting them to hold these securities directly in their own demat accounts, which would encourage the dematerialisation of physical securities and support ease of doing business. The comments from stakeholders are invited. (SEBI Consultation paper Dated 16/10/2024)
Process improvements make sale proceeds available to Foreign Portfolio Investors (FPIs) on settlement day itself: The revised system ensures that tax certificates for FPI sale trades executed on ‘T’ day are issued by 9:00 AM IST on ‘T+1’ day. This allows FPIs to receive sale proceeds on the settlement day itself, either for reinvestment or repatriation. This move is expected to generate efficiency gains, aligning FPIs with domestic institutional participants in terms of settlement timelines. (SEBI Press Release Dated 16/10/2024)
G. Ministry of Corporate Affairs (MCA)
No Notification/ Circular during the week.
H. Insolvency and Bankruptcy Board of India (IBBI)
NCLAT, Condonation rejected as time limit prescribed u/s. 61 of IBC not satisfied: Case of Southern Power Distribution Company, Telangana vs Kalvakolanu Murali Krishna Prasad, NCLAT Chennai Judgement Dated 1st October 2024. NCLAT held that appellant having knowledge of the proceedings fall within the purview of the term ‘Person Aggrieved’ u/s. 61(1) hence cannot be exempt from applying for certified copy within prescribed time. Accordingly, condonation of delay application rejected as beyond the limitation period prescribed u/s. 61 of IBC. (NCLAT Chennai Judgement Dated 01/10/2024)
NCLAT, Financial creditor can initiate insolvency resolution process u/s. 7 of IBC against co-borrower: Case of Amit Narang vs Aditya Birla Finance Limited, NCLAT Delhi Judgement Dated 25th September 2024. NCLAT held that insolvency resolution process against co-borrower justified as obligation of the Co-Borrower is coextensive and coterminous with that of the Primary Borrower. (NCLAT Delhi Judgement Dated 25/09/2024)
NCLT, Partnership firm not doesn’t qualify as personal guarantor hence insolvency proceedings u/s. 95 of IBC unjustified: Case of Union Bank of India vs KMR Enterprises, NCLT Hyderabad Judgement Dated 11th September 2024. NCLT ruled that partnership firms do not fall under section 95 of the IBC. It dismissed a petition filed by Union Bank of India (Financial Creditor) under section 95 of the IBC against KMR Enterprises. The appropriate forum to proceed against them will be the Debt Recovery Tribunal as provided under section 79 of the IBC. (NCLT Hyderabad Judgement Dated 11/09/2024)
IBBI suspends registration of IP Yogesh Kumar Gupta for violation of provisions of IBC: The committee found that he acted in contravention of the provisions of IBC. IBBI suspended the registration of Mr. Yogesh Kumar Gupta for a period of one years. The period of suspension will commence on the expiry of the three years period of suspension imposed on him vide earlier order dated 11th October 2024. (IBBI Order Dated 18/10/2024)
I. Reserve Bank of India (RBI)
RBI Access Criteria for NDS-OM Directions: RBI issued directions, revising the access criteria for the Negotiated Dealing System-Order Matching (NDS-OM) platform. These updates expand direct access to a broader range of regulated entities such as banks, non-banking financial companies, mutual funds, pension funds, and more. The process for seeking access has been streamlined, allowing eligible entities to apply through the updated directions or through existing procedures under RBI’s Master Directions on Payment Systems. Entities can now either gain direct access, allowing them to execute transactions on the NDS-OM platform, or opt for indirect access by partnering with an entity that holds direct access. (RBI Notification Directions 124/2024 Dated 18/10/2024)
J. Miscellaneous
SC, Minor Can Be a Transferee Though Not a Transferor of Immovable Property: Case of Neelam Gupta vs Rajendra Kumar Gupta, SC Judgement Dated 14th October 2024.The Apex Court noted that Section 6(h) of the Transfer of Property Act provides inter alia, that no transfer can be made “to a person legally disqualified to be a transferee.” Section 7 of the Transfer of Property Act deals with persons competent to transfer. It provides that every person competent to contract is competent to transfer property to the extent and in the manner allowed and prescribed by any law for the time being in force. Section 11 of the Indian Contract Act, 1872, provides as to who are competent to contract and it provides that every person is competent to contract who is of the age of majority according to the law to which he is subject (of course the reference is to the Indian Majority Act, 1875) and who is of sound mind and is not disqualified from contracting by any law to which he is subject.
— The Court further noted that though an agreement to sell is a contract of sale, going by its definition under Section 54 of the Transfer of Property Act, a sale cannot be said to be a contract. Sale, going by the definition thereunder, is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. The conjoint reading of all the aforesaid relevant provisions would undoubtedly go to show that they would not come in the way of transfer of an immovable property in favour of a minor or in other words, they would invariably suggest that a minor can be a transferee though not a transferor of immovable property. Thus the Court held that minor had no legal disability or disqualification at the time of purchase of suit land. (SC Judgement Dated 14/10/2024)
HC, Liability of signatory in cheque dishonour not absolved because of resolution proceedings against company: Case of Tushar Sharma vs State Bank of India, HC Himachal Pradesh Judgement Dated 6th September 2024. The Court held that that personal liability of signatory/ director of the company in a cheque dishonour case cannot be absolved because there is pending corporate liability resolution proceedings against the company under the provisions of Insolvency and Bankruptcy Code. (HC HP Judgement dated 06/09/2024)
EPFO, Utilization of Reserves and Surplus for crediting interests to the existing Trust beneficiaries: Exempted establishments have sought permission to appropriate the balance lying in the trusts reserves and surplus by crediting interests to the existing Trust beneficiaries either during the time of surrender of exemption or undertaken just prior to the initiation of surrender process.
— The EPFO clarified that such practices are illegal and violate Para 60 of the EPF Scheme and Section 17 of the Indian Trusts Act, which mandates impartiality in trust management. The circular highlighted that overdrawal of reserves is prohibited, and any interest credited must correspond to the fund’s earnings. Further, the use of surplus for distributing higher interest rates to select beneficiaries is deemed unjust enrichment, benefiting a few at the cost of others. Upon surrendering or cancellation of an exemption, all accumulated funds, including undistributed interest, must be transferred to the Central Board of Trustees (CBT), EPFO, in accordance with Para 28(2) of the EPF Scheme. (EPFO Circular Dated 07/10/2024)
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