Finance Bill, 2022: Highlights of Direct Taxes & GST Proposals

UNION BUDGET 2022-2023

HIGHLIGHTS OF THE FINANCE BILL, 2022

The fourth Union Budget presented by the Finance Minister Smt. Nirmala Sitharaman on 1^st February 2022; was like a booster dose for the economy in the endemic/post-pandemic era wherein the Government has chosen to lead the path by heavily increasing the capital expenditure to create a cycle of high growth, employment generation, spur in consumption which in turn is likely to bring buoyancy in revenues; rather than going for fiscal squeeze; which is required to take India to next level.

The Radical reforms include consistency in policy and tax rates, focus on renewable energy and developing green, clean and climate friendly economy, measures aimed at reducing avoidable litigation, introducing concept of ‘virtual digital asset’ for taxation income arising from cryptocurrencies and related digital assets, measures for ease of doing business, bringing efficiency in tax collections and administration by using technology, data analytics and reduction in human interface between taxpayer and officer, streamlining procedures of Faceless Assessment Scheme to address practical challenges faced by stakeholders, to name a few.

The Budget seeks to lay the foundation for achieving the vision of the Prime Minister for INDIA@100 and also making India a preferred choice for the world to do business.

Also, the Budget reflects the intent of forwarding the commitment made to taxpayers of transparency, minimum government maximum governance and does not include so called small print devils and many retrospective amendments.

As in the earlier years, we have made humble attempt to lucidly present in the following paragraphs; our analysis of some of the salient tax proposals, to enable you to grasp them easily.

As of date, these are proposals only, and if adopted by the Parliament and passed as Finance Act; will come into force for and from Assessment Year 2023-2024 relevant to Financial Year 2022-2023, unless specifically provided otherwise.

II. Finance Bill, 2022: Highlights of Direct Tax Proposals & Its Implications

Amendments proposed under the Income-tax Act, 1961 (hereafter referred to as “the Act”).

1. Rates of Tax-No change in basic rates, Surcharge on Long Term Capital Gains capped @15%:

To surprise of many, this time the Finance Minister has not proposed any change in the basic tax rates and maintained status quo for all types of Assessee’s, basis the last year.

However, it is proposed to extend capping of Surcharge @ 15% for any Long-Term Capital Gains earned by Individuals and HUF’s; which is currently applicable only to Capital Gains on listed shares and Dividend income whereas maximum Surcharge for balance income was 37%. This would reduce maximum effective tax rate on long-term capital gains from 28.5% to 23.92%, resulting in savings upto 4.6%.

2. Permitting filing of Updated Return of Income to avoid exposure to penal consequences:

With the objective of reducing avoidable litigation, the Finance Minister has introduced the concept of “Updated Return of Income” to provide taxpayers an opportunity to offer to taxation additional income which was omitted to be included in earlier return by payment of additional sum (25% or 50%) over and above tax, interest and fees, as applicable; and then submit an Updated Return of Income (“Updated ITR”) for that Assessment Year, so as to avoid any further penal consequences on such income.

The salient features of the new scheme of Updated ITR are as under:

• New Section 139(8A) and Section 140B to allow a person to file an updated ITR upto 24 months from the end of the relevant Assessment Year;
• Proof of payment of Tax, Additional Tax, Interest and Fee, as applicable, must for filing Updated ITR;
• If the Updated ITR is filed within one year from the end of Assessment Year, then Additional Tax is 25% of Aggregate Tax and Interest payable; else Additional Tax is 50% of Aggregate Tax and Interest payable, if the Updated ITR is filed between one to Two years from the end of Assessment Year;
• The benefit of filing Updated ITR is not permitted in specified circumstances like cases where search /survey has been initiated, proceedings are pending, prosecution is initiated, etc.
• Updated ITR cannot be used by Assessee to claim any benefit/Loss which was omitted to be claimed earlier-only permissible to make changes to income and tax liability in the interest of Department;
• Assessment of Updated ITR to be completed within Nine months from the end of the Financial Year in which such filing done.

The above new provision is a step further in the Government’s effort towards voluntary compliance and trustworthy taxation regime.

(The above amendment is applicable from Assessment Year 2022-23.)

3. Department not to file further appeal to ITAT or High Court, pending outcome on identical matters, which are sub-judice:

This is another welcome step introduced by the Finance Minister to avoid multiplicity of appeals being filed by the Department to the Income Tax Appellate Tribunal or the High Court when identical issue in case of same or different Assessee is pending before the jurisdictional High Court or the Supreme Court.

Hitherto, the provisions of Section 158AA of the Act were applicable in a situation where identical question of law arose for the same Assessee but in different year and appeal for the same was pending before Hon’ble Supreme Court.

Now, it is proposed to insert new Section 158AB which would cover cases of other Assessee(s) and even pending appeals to Jurisdictional High Court(s).

The critical points in this regard are:

• The Collegium [of 2 or more Principal Commissioner of Income Tax (CIT), Chief CIT or CIT] to decide if the subject question of law is identical to a question of law raised in case of same or different Assessee;
• Appeal to be kept in abeyance, only if an acceptance is received from the Assessee that the question of law in the other case is identical to that arising in the relevant case;
• Post receipt of Order of by the concerned CIT, further appeal to be filed within period of 60/120 days, as specified.

This move by the Government, is likely to reduce the amount of time and cost involved in filing/defending appeal at the end of Department and the Taxpayers in cases where a question of law is common and where a decision of the jurisdictional High Court, on the same question of law is available.

Consequential amendment is proposed in Section 158AA of the Act.

4. Surcharge and Education Cess-not deductible business expenditure-Retrospective Amendment!

With the objective of communicating the correct legislative intent to the taxpayers at large, the Finance Minister has proposed retrospective amendment in Section 40 that the term “tax” tax shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax; and hence no deduction is admissible on this account

This is a welcome measure to communicate to all Assessee(s) as plethora of appeals/applications are pending before various fora for allowance of such deduction basis the principle laid by the Hon’ble Rajasthan High Court in the case of Chambal Fertilisers vs. JCIT (ITA 52 of 2018) and Hon’ble Bombay High Court in the case of Sesa Goa Limited vs. JCIT (117 taxmann.com 96).

This proposal may adversely impact those Assessee(s) who have claimed a deduction of the Surcharge and Education Cess while filing their return of income and/ or during the assessment/appellate proceedings. Since the amendment is retrospective in nature, the pending appeals on this issue may be decided in favour of the Department, in which case it would be advisable for Assessee(s) to revisit this issue and consider likely impact of consequential Tax and Interest and the defenses against potential penalty, if any, raised by the authorities.

(The above amendment is applicable retrospectively from, Assessment Year 2005-06.)

5. Disallowance u/s.14A even in absence of exempt income:

In order to settle the controversy as to applicability of disallowance under Section 14A of the Act, in absence of earning any exempt income in the year; the Finance Minister has proposed to amend Section 14A so as to clarify the intention of legislature that irrespective of earning exempt income in the year or not, no deduction shall be allowed in respect of related expenditure, which ought to be disallowed.

This is aimed to counter the settled position in law as laid down by the Hon’ble Supreme Court in the case of CIT v. Chettinad Logistics (P.) Ltd. (95 taxmann.com 250), PCIT v. GVK Projects and Technical Services Ltd (106 taxmann.com 181) and PCIT v. Oil Industry Development Board (103 taxmann.com 326) and various other High Courts, that in the absence of any exempt income, disallowance under Section 14A of the IT Act of any amount is not permissible.

One wonders as to whether the theory of taxation of Real Income has been given a go by, through such amendments which are made in the guise of clarifying intent of law-makers… The constitutional validity of such provisions may be challenged in the Courts, for which we would have to wait and watch.

(The above amendment is applicable from Assessment Year 2022-23.)

6. Widening scope of Anti-abuse provisions of Dividend/Bonus Stripping:

The existing provisions of Section 94(8) of the Act are applicable only to Bonus stripping in case of units of Mutual Fund, and it did not cover securities and units of InvIT, REIT and AIF.

Also, many taxpayers had taken a view that provisions pertaining to “dividend stripping” were applicable to both units and securities whereas provisions pertaining to “bonus stripping’ were applicable only to units; and such view was accepted in few decisions, namely Bangalore Bench of Income Tax Appellate Tribunal in the case of B.G. Mahesh (43 taxmann.com 158) and Pune Bench of Income Tax Appellate Tribunal in the case of Adar Poonawalla (ITA No.2252/Pun/2014).

In order to curb the aforesaid view and set-out clear intention of the legislature, the Finance Minister has expanded the scope of Section 94(7) and Section 94(8), so as to extend it to securities and units. There apart, definition of units is amended to include therein InvIT, REIT and AIF which were out of the purview of Section 94 of the Act, hitherto.

7. Withdrawal of concessional rate of taxation of Dividend received from foreign subsidiary:

With the objective of bringing parity in taxation of Dividend receipts from foreign subsidiary and domestic subsidiary in the hands of Indian holding company, the Finance Minister has proposed to discontinue the concessional rate of 15% as per Section 115BBDA of the Act.

Post amendment, Dividends received from foreign subsidiaries would be taxed in the hands of the domestic holding company effectively @ 25.17% as against existing 17.16% (assuming holding company has opted for concessional scheme as per Section 115BAA).

8. Widening tax base-Requirement of TDS on perquisite arising on exercise of business/profession:

Taking note of the fact that the value of any benefit or perquisite, arising from business or exercise of profession is not getting reported in the return of income, the Finance Minister has proposed to introduce requirement of TDS whereby the person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, is required to do TDS at 10% of the value or aggregate of value of such benefit or perquisite, subject to following exclusions:

• If the aggregate value of perquisite or benefit provided to a person does not exceed Rs.20,000/- in a year;
• if provider of such benefit or perquisite is Individual or HUF having Turnover from business/profession less than Rs.1 Crore or Rs.50 Lakhs in earlier year.

This amendment is aimed to give information to Department for tracking perquisite/benefits provided in course of business/ profession, which hitherto may have gone unnoticed and untaxed. This additional requirement of TDS would ensure that receipt of such benefit or perquisite is properly reported and offered to Income Tax.

In our view, these amendments are likely to have wide ranging implications for all businesses/professions and going forward, one would have consider following points to ensure compliance with this new provision:

• To keep record of all non-monetary benefits being provided to vendors/business partners and check if the same is likely to be covered in definition of perquisite/benefit as per Section 28(iv) of the Act;
• Ensure TDS is done before providing such benefit/perquisite and file necessary returns;
• Recipient of the perquisite/benefits would have to check the data of such TDS on perquisites done under their PAN in Form No.26AS and accordingly would have to account for such benefits and include the same in return of income appropriately and claim credit of TDS;
• Difficulties may arise in valuation of such perquisite/benefits;

We expect appropriate amendment in the Income Tax Rules, 1962 to enable claim of such TDS credit in hands of person receiving such perquisite/ benefit.

(The above amendment is applicable from 1^st July, 2022.)

9. TDS on purchase of Immovable Property to be done on higher of transaction value or Stamp Duty Value:

It is now proposed to amend Section 194-IA to provide that TDS @1% of the consideration (exceeding Rs.50,00,000/-) would have to be on the Consideration amount or the Stamp Duty value, whichever is higher.

Due to the above new provision, now there may be instances of mismatch whereby the Buyer of immovable property has done TDS on Stamp Duty Value whereas Seller has offered to taxation actual consideration which is less than Stamp Duty Value (within tolerable range of 10% difference).

Also, there could be issue in deciding which Stamp Duty Value to consider for TDS, where consideration is being paid in installments at different points of time and sale document is registered at later date.

There apart, since these provisions are sought to be applicable from Assessment Year 2022-23, one may have to review the transactions done in Financial Year 2021-22 to check compliance with new requirement.

(The above amendment is applicable from Assessment Year 2022-23.)

10. Widening tax base for higher TDS/TCS in case of non-filers of return of income:

The existing definition of “specified person” in Sections 206AB and Section 206CCA of the Act, is proposed to amended to reduce requirement of return filing of Two earlier years to one year.

This would ensue that more number of persons are covered in definition of “specified person” requiring higher TDS/TCS to be done in their cases; which would ultimately encourage more number of Assessee(s) to file return of income.

11. Casting more obligation on taxpayers to substantiate Cash Credits under Section 68!

Under the existing provisions of Section 68 of the Act, an Assessee is required to explain identity and credit worthiness of creditor and genuineness of the transaction in respect of credits in the books of accounts. Only companies issuing shares were additionally required to establish source and nature of funds of shareholders.

It is now proposed to expand the scope of above obligation, by providing that explanation of the Assessee would be considered satisfactory only if the concerned creditor also offers satisfactory explanation about nature and source of such sum that he has lent to the Assessee, in absence of which addition may be made in hands of the Assessee.

However, such additional requirement would not apply in case where creditor is regulated entity like Venture Capital Fund, Venture Capital Company registered with SEBI.

Thus, from now on the Assessee has been saddled with the onerous obligation of also establishing the “source of source” in all cases to avoid any adverse consequence in his/her assessment. This appears to be far-fetched requirement and may not be practically workable for Assessee in all situations to obtain detail as to nature and source of funds of the lender, considering challenges of confidentiality etc.

12. No set off of Loss against Undisclosed income:

With the objective of increasing deterrence against tax evasion, it is now proposed to insert new Section 79A to provide that that no adjustment for set-off of losses or unabsorbed depreciation would be permissible against undisclosed income determined in search or survey proceedings.

(The above amendment is applicable from Assessment Year 2022-23.)

13. Amendments to the Faceless Assessment Scheme-to address challenges faced:

After considering the grievances of Taxpayers and Department with respect to the operation of Faceless Assessment Scheme, the Finance Minister has proposed to revamp the provisions of Section 144B of the Act, The critical points in this regard are stated hereunder:

• Request for personal hearing by the taxpayer to be mandatorily accepted and facilitated through video conference/ video telephony mode;
• Failure to follow prescribed procedure under Faceless Assessment provisions would not to make assessment invalid/ non est (effective retrospectively from 1^st April, 2021)
• The Timeline for issuing notification for Faceless Assessment Scheme for Transfer Pricing assessments, proceedings with Dispute Resolution Panel, Faceless appeals to ITAT and procedure of ITAT is extended 31^st March, 2024

14. Widening the scope of Income escaping assessment and Search assessments:

In the Finance Bill, 2021 a completely new procedure of assessment/reassessment in case of search and income escaping Assessment was rolled out, substituting the existing one with the objective that new system would result in less litigation and would provide ease of doing business to taxpayers.

Now, in the Finance Bill, 2022 the Finance Minister has proposed following changes:

1. To expand the scope of reassessment u/s.148 of the Act by extending the definition of “information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment”, as under:

Existing	Proposed
Any final objection raised by the CAG that the assessment has not been made in accordance with the provisions of Act	Any audit objection, or any information received from a foreign jurisdiction under an agreement; or directions contained in a court order, or information received under faceless collection of information scheme

(This amendment will take effect from 1^st April, 2022).

2. To remove the existing limitation of 3 years in case of search or survey, and hence Assessing Officer can now reopen assessment for 10 preceding years without making enquiry.

(This amendment will take effect from 1^st April, 2021).

3. Re-opening upto 10 years extended to cover cases where escaped income represented in form of:

• Expenditure in relation to a transaction, event or occasion; and
• Entry in the books of account

4. In case where the aggregate value of Investment in asset /expenditure incurred in multiple years exceeds Rs.50,00,000/- then reassessment notice u/s.148 are required to be issued for all such years (within the ten years’ time limit).

5. No separate approval required for issue of notice u/s.148 if a speaking order is passed by the Assessing Officer holding it to be a fit case for reassessment.

15. Scope of proceedings under Section 263 widened to include Transfer Pricing:

In order to remove the ambiguity as to who would exercise power under Section 263 in case of Orders passed by the Transfer Pricing Officer (‘TPO’) u/s.92CA(3) of the Act, the Finance Minister has proposed to clarify that the Commissioner of Income Tax having jurisdiction of Transfer Pricing is empowered to invoke revisionary powers in transfer pricing proceedings.

The above amendment would now render certain decisions of Hon’ble Mumbai Tribunal otiose wherein it was held that the Commissioner has no jurisdiction under Section 263 of the Act to revise the order passed by the TPO.

Further, it is also provided that the Assessing Officer is required to give effect to the revised order of Transfer Pricing Officer within Two months from the end of the month in which order is received.

(The above amendment is applicable from Assessment Year 2022-23.)

16. COVID Relief not taxable:

To give legal effect to the announcement made by the Government in Press Release dated 25^th June, 2021 and to avoid financial hardship to persons impacted by COVID-19 illness, the Finance Minister has proposed following relief:

• Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 would not amount to “perquisite”.
• Any sum of money received by an individual, from any person, in respect of reimbursement of expenditure incurred on medical treatment of himself/family related to COVID-19 is not taxable.
• Receipt of any sum, by family member, from an employer (or any other person to the extent of Rs.10 Lakhs) of deceased person within 12 months from the death arising due to COVID-19 related illness, shall not be taxable.

(The above amendments are applicable retrospectively from Assessment Year 2020-21.)

17. Extension of time limit for Start-ups and new manufacturing companies-welcome:

In order to support taxpayers at large, the Finance Minister has proposed to extend below time-limits:

• Time limit for incorporation of eligible start-ups for claiming tax holiday u/s.80IAC of the Act is extended from 31^st March, 2022 to 31^st March, 2023;
• Time limit for commencing manufacturing or production for availing the concessional regime as per Section 115BAB is extended from 31^st March, 2023 to 31^st March, 2024.

18. Payments not deductible as business expenditure:

To make intention of legislature clear and to avoid claim of expenditure by taxpayers as being incurred for purpose of business, which is otherwise not permissible; the Finance Minister has proposed amendment in Section 37 to provide that following expenditure would not be allowed as deductible:

• Payments for any offence or prohibition under Indian or foreign law;
• Payments for providing benefit to any persons in violation of code of conduct for the time being in force (like pharma company providing benefit to medical professions etc.)
• Payments for compounding of offence whether under Indian or foreign law.

(The above amendment is applicable from Assessment Year 2022-23.)

19. Amendment in Section 43B:

In order to overturn the ratio decided by certain Courts that conversion of outstanding interest into debentures or other debt instruments can be considered as a payment of interest and hence allowable; the Finance Minister has proposed amendment in Section 43B to clarify that such conversion would not be treated as actual payment.

20. Amendment in Section 80DD:

With the objective of extending benefit of deduction u/s.80DD to schemes providing for payment of annuity/lumpsum during the lifetime of the parent/ guardian or member of HUF, the Finance Minister has proposed following conditions for eligibility of deduction:

• Payments commence once the parent/ guardian or member of HUF has attained 60 years of age; and
• Deposits to the scheme has been discontinued.

Further, its is provided that amount so received by the dependant disabled person, during the lifetime of the Insurer shall not be taxable in the hands of such dependant disabled person.

21. Procedure for claim of Refund of TDS done from Non-residents prescribed:

The Finance Minister has proposed to incorporate new Section 239A to grant of refund of Tax Deduction at Source done from income of a non-resident, where it is claimed that no TDS was required. The existing mechanism to claim refund of such TDS is cumbersome and does not provide for any timeline.

The salient features about the new provision, are:

• The application for refund is to be made to the Assessing Officer after deposit of TDS;
• The Assessing Officer is bound to dispose off such application, by an order in writing; within six months from the end of month in which the application is received;
• Order of Assessing Officer is appealable to the Commissioner of Income Tax (Appeals).

It may be noted here that the refund can be claimed only in cases of ‘Nil’ TDS and not in case where the Deductor believes that TDS should have been done at a lower rate.

This is a welcome step, and we wonder why benefit of such TDS refund is noy extended to domestic payments.

(The above amendment is applicable from Assessment Year 2022-23.)

22. Taxation of Virtual Digital Assets: 

It appears that the Finance Minister has tactfully bypassed the ongoing controversy about legitimacy of Cryptocurrency and related assets, by carving out a separate asset class called “Virtual Digital Assets (‘VDA’)” and creating special regime to tax the income from VDA.

The salient features of this new regime are as under:

• Inclusive definition of VDA provided in Section 2(47A), which may be extended to include/exclude other digital assets, as prescribed;
• Income from transfer of VDA to be taxed at flat rate of 30% plus applicable Surcharge and Cess, without any deduction (except cost of acquisition) and set-off of losses;
• Loss from transfer of VDA would not be allowed to be carried forward nor allowed to be set-off against other income;
• Gift of VDA to be taxable in the hands of the recipient, as per Section 56(2)(x) (effective from the Assessment year 2022-23);
• TDS @1% to be done from consideration payable to another resident on transfer of VDA, subject to monetary threshold, as per Section 194S (effective from 1^st July 2022);

Given that Digital Assets are a totally different type of asset class without any precedents, most of the countries including India are grappling to understand the operation of such assets to decide legitimacy of such assets and taxation thereof. We expect more clarity on this from the Government in the time to come.

23. Succession and Business Re-organization:

In the past, various Courts have held that on account of business reorganization, the predecessor ceases to exist and hence the tax proceedings against predecessor become illegal and void.

To address such issues, the Finance Minister has proposed following amendments:

• proceedings made on the predecessor during the pendency of a business reorganization, shall remain valid and be deemed to have been made on the successor;
• New Section 170A is introduced to provide that in case of business reorganization, the successor shall be obligated to file a modified return of income within a period of 6 months from the end of the month in which order is issued, in respect of the period starting from the appointed date till the effective date of the order of such Tribunal or Court (effective from Assessment Year 2022-23).

This is welcome step and it would bring formal mechanism to file revise return post receipt of order of the adjudicating authority giving effect to the business re-organization for the period between the appointed date and the effective date of final order of the competent authority on business reorganization.

24. Rationalization of Penalty provisions:

The Finance Minister has proposed following amendments in order to improve deterrence against non-compliance by taxpayers:

• The Commissioner of Income Tax (Appeals) is now vested with power to levy penalty in respect of undisclosed income/ expenditure, unexplained income/ investments, false entry in books of account, etc. which hitherto could be done by the Assessing Officer;
• Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. to be increased from Rs.100 to Rs.500 per day.
• Provisions for rigorous imprisonment when specified offences are repeated extended to non- compliance of TCS requirements.

25. More Tax incentives for units located in International Financial Services Centre (IFSC):

In order to further promote foreign investors to set-up units in IFSC, the Finance Minister has proposed following incentives:

• Exemption with respect to income from offshore derivative instruments or over the counter derivatives entered into with an Offshore Banking Unit of an IFSC.
• Exemption extended to non-resident in respect of royalty or interest income on lease of ship to an IFSC  which is currently granted for lease of aircraft.
• Exemption extended to non-resident in respect of income from portfolio of securities/financial products/funds which are managed or administered by the portfolio manager in an account maintained with an Offshore Banking Unit in an IFSC.
• Explanation (aa) to Section 56(2)(viib) to be suitable amended to provide that angel tax provisions shall not apply to consideration received from Category-I or Category-II AIF regulated under IFSC Authority.
• Income from transfer of a “Ship” which was leased by any unit of the IFSC to any person shall also be eligible for 100% deduction under section 80LA.

26. Rationalization of the provision of Charitable Trust and Institutions:

The Finance Minister has proposed numerous amendments in the Finance Bill, 2022 related to Charitable Trusts/ institutions registered u/s.10(23C), u/s.12AA/12AB of the Act to ensure proper monitoring of such entities, bring consistency in application of provisions of the Act and bring clarity wherever required.

The important highlights of such amendments under both regimes, are stated below:

• Trust/ institution registered u/s.10(23C) or u/s.12AA/12AB are required to maintain books of account where total income before exemption exceeds the maximum amount not chargeable to tax;
• If accumulated income is not applied within 5 years, the same shall be taxed in the 5^th year itself;
• If income is applied for benefit of specified person/ invested in prohibited mode-then exemption is not available and same is taxable at special rate of 30%.
• Computation of taxable income in case where exemption denied– deduction for certain expenditure incurred on objects to be allowed.
• Application of income shall be allowed only when it is actually paid;
• Penalty in range of 100% to 200% of the unreasonable benefit granted to specified person.
• Exit tax upon conversion of charitable institution into a non-charitable institution to be extended to all forms of charitable trusts/ institutions.
• Trust/ institution, may at its option treat voluntary contributions received for the purpose of renovation or repair of temples, mosques, gurdwaras, church or others, as forming part of the corpus of the trust/ institution subject to fulfilment of certain specified conditions

For Cancellation of registration:

1. Order to be passed within six months from the end of the quarter in which inquiry initiated.

2. Scope of cancellation proposed to be enhanced to include inter alia:

> application of income other than for objects for which it is established;

> non-maintenance of separate books of accounts in respect of incidental business activities or undertaking business activities not incidental to objects of the Trust;

> application of income for the benefit of a particular religious community.

3. Commissioner of Income Tax to initiate enquiry suo-moto or on reference made by Assessing Officer.

Others:

> Alternative Minimum Tax rate for Co-operative societies is proposed to be reduced from existing 18.5% to 15% to bring parity with companies.

> To extend the benefit of Surcharge capping @15% to Association of Persons, whose members are only companies.

> A clarification that the reduction of Goodwill from the block of Assets would be considered as Transfer in computing the capital gains as per the provisions of section 50 of the Act.

> Requirement of higher TDS as per Section 206AB not applicable for payment of rent covered under Section 194-IB of the Act.

> No deduction shall be allowed to a donor in respect of donations made towards scientific research to any research association, university college or other eligible institutions if the recipient of the donation i.e., Donee does not file the statement of donations with the tax authorities.

> Amendments are proposed to revise Notice of Demand u/s.156 to give effect to Order of any Adjudicating Authority under Insolvency and Bankruptcy Code, 2016 and to modify demand appropriately.

II. Finance Bill, 2022: Highlights of GST Proposals & Its Implications

Key amendments proposed in respect to Goods and Service Tax are stated hereunder (to be effective from date to be notified unless otherwise specified):

1. The Finance Minister has proposed following Amendments in provisions relating to availment of Input Tax Credit (‘ITC’):

> to provide an auto-generated statement on GST portal which will prescribe the manner, conditions and restrictions for claiming ITC on inward supplies by the taxpayer;

The auto-generated statement would contain details of inward supplies –

• • where ITC may be available; and
  • where ITC (wholly or partly) cannot be availed by the recipient in the following situations:

♦ On supplies effected by the supplier within specified period of taking registration; or

♦ Supplier has defaulted in payment of tax and such default continues for prescribed period; or

♦ Tax payable declared by the supplier in Form GSTR-1 exceeds the tax paid by him in Form GSTR-3B by a prescribed limit; or

♦ ITC availed by the supplier exceeds eligible ITC by such limit and during such period as may be prescribed; or

♦ Supplier has defaulted in discharging his tax liability by utilizing the credit balance in excess of a prescribed limit; or

♦ Such other class of persons as may be prescribed.

> Reversal of ITC availed in respect of inward supplies where tax has not been paid by the supplier, along with applicable interest (i.e. 18%). Further, the recipient shall be entitled to re-avail the credit so reversed on payment of tax by the supplier.

> Extending time limit to claim ITC in respect of invoice or debit note pertaining to a financial year up to 30^th November following the end of said financial year (from current date of September).

> Provisions pertaining to matching of ITC [Section 42, 43 and 43A of the CGST Act, 2017 – not notified until date] is proposed to be omitted.

2. Extending time limit to issue Credit Notes in respect of any supply made in a financial year up to 30^th November following the end of said financial year (from current date of September).

3. Extending the time limit for carrying out amendment/ rectification in Form GSTR-1 or GSTR-3B or GSTR-8 to 30^th November following the end of said financial year (from current date of September).

4. GST authorities will be empowered to cancel GST registration where:

♦ composition taxpayer has failed to furnish return (i.e. Form GSTR 4) for the financial year beyond three months from due date of furnishing said return (i.e. 30^th April following the end of relevant financial year);

♦ regular taxpayer has failed to furnish returns for consecutive tax periods as may be prescribed.

5. Due date for filing monthly return by non-resident registered person stands revised to 13^th of subsequent month (currently, 20^th of subsequent month).

6. Taxpayer shall not be allowed to furnish details of outward supplies (i.e. Form GSTR 1) for a tax period, if details of outward supplies for previous tax periods are not furnished by him.

7. Taxpayer will not be entitled to furnish return (i.e. Form GSTR-3B), if:

♦ he has not furnished return (i.e. Form GSTR-3B) for any of previous tax periods; or

♦ he has not furnished details of outward supplies (i.e. Form GSTR-1) for the same tax period.

8. It is proposed to provide following option to taxpayers furnishing quarterly returns:

♦ pay tax on self-assessment basis duly considering inward and outward supplies of goods or services and ITC available; or

♦ pay an amount as may be prescribed.

9. Late fee of Rs.100 per day (upto Rs.5,000/-) prescribed for delayed filing of TCS return.

10. Any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger can be transferred to electronic cash ledger for:

♦ IGST, CGST, SGST or UTGST or cess; or

♦ IGST, CGST of a distinct person.

Such transfer shall not be allowed if there is any unpaid liability in his electronic liability register.

11. Government may specify the proportion of output tax which may be discharged through the balance in Electronic Credit Ledger subject to such conditions and restrictions as may be prescribed.

12. Retrospective amendment (with effect from July 1, 2017) proposed for levy of interest on ITC wrongly availed and utilized. Also, the rate of interest has been specified at 18 percent (slated to be effective from the enactment of Finance Bill, 2022).

13. Due date for claiming the refund in respect of the tax paid on supplies made to a SEZ unit / developer or, on the inputs / input services shall be a period of two years from the due date of furnishing the return in Form GSTR-3B for such supplies.

14. Presently, proper officer is empowered to withhold or adjust the refund of accumulated ITC due to registered person who has defaulted in furnishing any return or who has not paid undisputed tax, interest or penalty till such default is rectified where such refund is on account of zero-rated supplies as well as inverted duty structure. Now it is proposed to widen above referred power to withhold any refund due to registered person under any provision of GST law.

15. Refund of balance lying in Electronic Cash Ledger shall be claimed in such form and such manner as may be prescribed.

16. Presently, the time limit for applying refund of tax paid on inward supplies by specialised agency of United Nations Organisation, Consulate or Embassy of foreign countries is six months from the last day of quarter in which such supply is received. It is proposed to extend such time limit to two years from the last day of quarter in which inward supply is received.

*****

(Compiled By Partners of ‘B. S. Shah & Co., Chartered Accountant’ Namely (i) Bhupendra Shah -B.Com., L.L.B. (SP.), A.C.S., F.C.A. (ii) N. Krishnakumar- B. Com., F.C.A., Grad CWA and (iii) Shreyam Shah -B.Com. A.C.A.,DISA)