Companies Fresh Start Scheme -2020

The Ministry of Corporate Affairs issued Companies Fresh Start Scheme 2020 vide Circular 12/2020 dt 30.3.2020 which applies both public and private companies incorporated under Co Act 1956/2013.

The salient features are:-
(1) permits filing all pending Returns, Statements, Documents for any number of years.

(2) it shall come into operation on 1.4.2020 and remain effective up to 30th Sep 2020.

(3) it applies to all companies
both public or private who failed to file all returns statements or Documents including Annual Return remains for any number of years as on date of filing.

(4) Only normal fees as prevailing on the date of filing shall be payable.

(5)No late fee no penalty no prosecution only normal fees payable.

(6) Prosecution if any pending shall be disposed of after payment

(7) The scheme does not apply to those companies against whom a final notice under Section 248 has been given by ROC for striking off or who applied for striking off or applied for being declared dormant co; vanishing company or dormant company or companies under CIRP

(8) companies who name struck off cannot avail this scheme and have to get their name restored;

(9) Companies can avail this scheme for the purpose of (i) getting themselves dormant under Section 455 and also (ii) getting their name struck off

(10) After payment of normal fees and documents return statement is taken on record, an application shall be filed electronically (without any fees) for obtaining Immunity Certificate but it shall not be filed beyond six months from the date of expiry of the scheme.

(11)Scheme grants immunity against the filing of forms returns and documents but not against any punitive action being done by the company for which suitable can be taken by ROC. For example immunity in delaying in filing return of allotment but not against any illegality committed in allotment of shares.

This is a golden opportunity to file all pending Returns Annual Accounts, Statements including all pending Annual Returns pending for any number of years.

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Government’s Plan To Curb GST Credit Could Squeeze New Firms

The government’s efforts to curb goods and services tax evasion may make life difficult for newly incorporated firms.

The GST Council approved restrictions on the use of input tax credit — what businesses get for paying input taxes — by new firms. This may involve completely limiting the use of credit or the capping of claims, as stated by the person on the condition of anonymity.

For the first six months of incorporation, panel officers proposed limiting the input tax credit on supplies made by new “risky” taxpayers to Rs 20 lakh a month. The new risky taxpayers will be those with a new Permanent Account Number and no income tax or company turnover. The government also determines what the new threshold is if anything.

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The government is steadily seeking to control GST evasion as poor tax enforcement adds woes to its revenue collection in the face of a wider economic slowdown. This achieved monthly GST collection of targeted Rs 1 lakh crore in six out of the first 10 months of 2019-20. Potential input tax credit curbs are among other steps to mitigate the tax revenue loss.

While the restrictions would help check fraudulent firms for tax evasion, this could cause substantial hardship for legitimate business players. The government should ensure the versatility of transferring full input credit to companies that can substantiate real eligibility before enforcing the curbs.

The panel of officers decided the Rs 20-lakh limit as the government’s internal review found new taxpayers reported a tax of more than Rs 1 crore within the first three months of registration and used the input tax credit to change their liability.

Over 700 new GST identification numbers registered a tax liability in excess of Rs 1 crore in the first three months of the current financial year. Of these, 450 organizations used as an input tax credit 99 percent of the tax amount due. In the first three months, 2,355 new firms reported tax liability over excess of Rs 1 crore and used input credit of 95-100 percent to pay tax

Tax experts view it differently,

It is important to note that manufacturing firms, in particular, will have substantial credits at the outset due to the capital expenditure incurred in building the plant and machinery. These businesses will usually have only a minuscule tax payable in cash.

The proposed input credit limitations are likely to trigger financial and working capital distress for new taxpayers, given their initial business investments and gestation period to achieve sales and profitability.


There is another problem for businesses as the capping of the input tax credit is not the only option on the table. The panel of officers also indicated that if new firms decide to make more use of credit than Rs 20 lakh, they would have to deposit a fifth of that amount with the government as cash.

For eg, if a new firm claims Rs 1 input credit for crore over the limit, it would have to deposit Rs 20 lakh in cash. Moreover, the number, that can be used to pay GST in the future, will be included in their cash ledger.


After six months of the Rs 20 lakh limit, looking for a cash ledger balance to claim additional credit would only hurt new taxpayers. There were no such constraints in the pre-GST system. The government is taking these steps because it was unable to enforce the automated matching of invoices because of technical failures.

The tax authorities intend to carry out the system from the next financial year to match invoices from buyers and sellers of goods and services.

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Income Tax Return filing for NRIs

Budget 2020 proposes amending section 115A of the Income Tax Act.The Finance Minister has introduced major changes to the existing provisions of the Income Tax Act, 1961 (the Act), to promote foreign investment into India

Significant proposals TO BOOST NRI’s within Income tax framework include

  • Abolishing the Dividend Distribution Tax (DDT) and
  • Switching to the classic shareholder tax system,
  • Expanding the lower withholding tax rate of 5% for defined interest income,
  • Lower withholding tax rate of 4% for interest income from long-term bonds / rupee-denominated bonds, etc.

Another welcome move introduced in Budget 2020 is an exemption in certain situations for non-residents to file tax returns in India. It subscribes to the position of not filing income returns to non-residents whose total income includes income through royalty or Fees for Technical Service (FTS).

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Any non-resident receiving taxable income from India is currently under an obligation to file income returns in India (except in certain specified cases).

  • The said condition of compliance places undue hardship upon non-residents.
  • In addition, there are serious criminal and prosecutorial implications for non-residents who fail to file tax returns in India.
  • There have been a large number of litigations and disputes over the filing of non-resident income returns.

Below are some practical scenarios in which tax treaty provisions provide for tax relief for non-residents on different income streams earned in India. Thus, in such cases, non-residents would still be required to file returns of income in India.

A. Non-resident earning income in the nature of FTS

Here are some of the illustrative cases where a non-resident may have to explore whether the exemptions are available under the tax treaty:

1. Availability of “make available clause” in the tax treaty (for example Australia, Singapore, Canada, the United Kingdom, the United States, Portugal, etc.)
2. Non-taxable management service in the tax treaty (for example the United States, Spain, the United Kingdom, Portugal, Canada).
3. Absence of the FTS provisions of the tax treaty (for example Philippines, Thailand, United Arab Emirates, Pakistan, Turkey, Libya, Mozambique, Myanmar, Nepal, etc.)
4. Most Favored Nation (MFN) clause in the tax treaty (for example Finland, Nepal, Sweden, France, Netherlands, Spain, Belgium, Hungary, Kazakhstan, Israel, etc.)

B. Non-residents earning income in the nature of royalty
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Similarly, non-residents receiving royalty income may need to investigate whether the exemptions available under the tax treaty, as mentioned below, could be opted for:

  1. Shrink-wrapped/off-the-shelf software (copyright vs. copyrighted article) – In most of India’s tax treaties, software profits will not be considered as “royalty” if the charge is for the usage of ‘copyrighted article’ rather than ‘copyright.’
  2.  The royalty of equipment will not be taxable for tax treaties entered into with Greece, Israel, Sweden, the Netherlands, etc.
  3.  The concept of royalty under the tax treaties may not include transmission by satellite, cable, optic fiber or similar technology.
C. Non-resident earning income from dividend

With the announced abolition of DDT, income from dividends would be taxable in the hands of non-resident shareholders and the Indian corporation would be liable to withhold tax on that income. The dividend is taxed at 20 percent (plus additional surcharge and cessation) under the Act. Moreover, some tax treaties entered into by India provide a much lower tax rate for income from dividends (i.e., 5%, 10%, 15%).

D. Non-resident earning income from interest

Current provisions of section 115A(1) of the Act provide for a 20 percent tax rate (plus applicable surcharge and cessation) on interest income earned by non-residents (except for certain specified interest income2). However, Some tax treaties signed by India,  provide a much lower interest income tax rate (i.e. 10 percent).

In addition to the above, it would also be worth considering the tax return filing in India in the following scenarios for the non-residents:

1. To Claim Refund in the return of income

2. Revenue from capital gains or income attributable to a permanent establishment (PE) in India

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