India’s budget will draw more FDI

India’s budget will draw more FDI: Industry Leaders US

Nirmala Sitharaman Presenting her second budget to Parliament on Saturday,  gave tax breaks to foreign investors and especially to those including sovereign wealth funds willing to place a long-term bet on the economy.

She said the budget was aimed at boosting incomes and increasing purchasing power, stressing that the fundamentals of the economy were strong and inflation was well contained.

WASHINGTON: Finance Minister Nirmala Sitharaman’s 2020-21 budget will improve the ease of doing business India and draw more foreign direct investment, said US industry leaders.

“After a slowdown in growth, India’s global investment outlook remains strong and therefore the budget was a great opportunity to make global sentiment a reality.”

Measures such as simpler GST refunds, no audit requirement for MSMEs with up to Rs 5 Cr turnover, instant issuance of PAN by furnishing Aadhaar, pre-filing tax returns, faceless appeals and appraisals will further improve India’s reputation from a business perspective that is simple to do. Such moves together demonstrate that the tax policy of India is moving in the right direction.

Noting that e-commerce is a bright spot for the Indian economy and expected to reach USD 84 billion by 2021, Aghi urged the government to rethink its decision to place TDS on e-commerce at one percent.

While the USIBC hoped that the budget proposal would see an increase in the foreign direct investment (FDI) allowance for the insurance sector, “we look forward to continued engagement with the government on reforms needed to bring fresh investment into a critical sector”.

Classifying the budget as an all-inclusive, growth-oriented and disruptive budget, Karun Rishi, president of the U.S. Indian Chamber of Commerce, said he stressed the aim of the Indian government to build a strong foundation for the goal of making India a 5 trillion dollar economy by 2025.

“Nirmala Sitharaman has provided a huge boost to the business morale and entrepreneurship of the country. National Logistics Policy, which is much needed, will promote tourism, manufacturing and job creation. Increased attention to the infrastructure sector is a welcome step”.

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3.4 Lakh escape the tax on capital gains, MF sales

3.4 Lakh escape the tax on capital gains, MF sales

More than 3.4 lakh holders trading in classified equity shares and mutual funds are accused of evading or not disclosing long-term capital gains tax, an estimate by the income tax department revealed, leading officials to ignore demands for elimination of the levy introduced two years ago.

Data analysis on the impact of LTCG showed that in 2018-19, around 91,000 individuals and Hindu Undivided Families (HUFs), or 16 percent, did not file returns on listed shares and mutual funds that sold listed shares or mutual funds exceeding Rs 20 lakh. The selling value of these shares and units of the mutual fund was valued at 99,000 crore rs.

About 2.5 lakh individuals and HUFs, or 44 percent of the population who sold shares or MF units, reported either zero or significantly reduced interest in their income tax returns although the sales added up to more than Rs 4 lakh crore. The government has yet to decide the course of action to be taken against these bodies. This may explain why there is a desire for the elimination of LTCG and Securities Transaction Tax (STT) so that people’s earnings from shares etc. are not included in their taxes … When LTCG is eliminated, it will open up a major backdoor for tax avoidance, “an officer stated.

Government sources have said the tax also helps trace shareholders who would otherwise have gone unnoticed if they don’t pay income tax. Many of the penny stock transactions or those involving black money can be traced along this path, officials argued

“For decades, it has been a normal tax globally of approximately 95 percent, including the United States, Canada, Australia, China and several European countries levying it,” said the official, while pointing out the tax varies from 10 percent to 35 percent on profits from the sale of shares or mutual fund units.

The sources said demands for removal of a levy imposed two years ago were not in line with tax policy recommendations for stability and continuity.

Starting in April 2018, the selling of shares and equity-oriented mutual funds, held for one year or more, began to receive 10 percent LTCG (plus cessation) if a year’s benefit reached Rs 1 lakh.

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Refund under Inverted Duty Structure (IDS)

Refund under Inverted Duty  Structure (IDS)

Introduction:-Goods and Services Tax (GST) is a tax regime focused on destinations where taxes are discharged by credit and cash at multiple phases. Tax is paid to the manufacturer on the purchase of goods and/or services available as a payment to the retailer and when the dealer purchases those items, after using the credit available on the purchase of goods, the seller pays tax on the sale. Tax is therefore issued in two forms at the time of purchase and at the time of sale.

About GST Refund: GST refund can be of two types –

Type 1: Refund of excessive GST paid in cash Type 2: Refund of unused GST credit While Type 1 Refund is available under all conditions but Type 2 Refund is only available in the following scenarios-

Scenario 1- On zero-rated goods, made without payment of tax (considering that the products are not subject to export duty and that no tariff downside is claimed)

Scenario 2- Because the tax rate on input suppliers is higher than the tax rate on production products (Input supplies are inputs, input services, and capital goods).

Using an example, let’s consider scenario no. 2 where the rate of on-input supplies is higher than the rate of on-output supplies. To obtain lime, raw materials such as coal, limestone, petro coke, and other packaging material must be obtained. Petro coke and packaging material can now be taxed at 18%, while finished product duty is 5%.In such situations, each month the credit is carried forward leading to constant working capital blockage.

Who is not entitled under IDS to Claim a Refund?

While this may seem like refunding accrued tax credit, this may not always be the case. For example, a super stockist with an excessive credit balance at all times is not eligible to claim compensation under IDS just because of excessive credit. In this case, therefore, the dealers involved in merely trading goods are not eligible to claim the refund. This is the case with the parallel duty structure (PDS), and not the reversed obligation structure (IDS), where the input rate is equal to the production tax rate.

Legal provision: The reimbursement of unused ITC under IDS shall be governed by Section 54(3) of the CGST Act, read in accordance with Rule 89 of the CGST Rules. Further Rule 89(5) of the CGST Rules stipulates the Refund formula, which states:

Maximum Refund Amount = Turnover of Inverted Supply/ Adjusted Total Turnover* Net ITC – Tax payable on such Inverted Supply

“Net ITC” means input tax credit availed on inputs and input services during the relevant period. (This is up till 17th April
2018)

However, ITC on Input Services was specifically excluded from Net ITC after Notification No. 21/2018 dated April 18, 2018, while determining Refund under IDS. This exclusion of ITC on input services leaves one point open for discussion that whether ITC on input services, which are ancillary and secondary to the main transaction, is also covered by the scope of the above notification, the refund of which is intended to be prohibited. To explain this in detail, let us take an example to illustrate how ITC can be affected on Input Services, which is a part of the main transaction.

Say Mr. A of Delhi directed Mr. B of Mumbai to order goods.Mr. A would naturally like to collect the product at his place of business. To order to carry out this commercial transaction, goods must be reached to Mr. A’s location. Thus, Mr. B receives shipping costs and freight above and beyond the standard product value and retains tax on the whole amount, i.e. purchase value u / s 15 of the CGST as the value on which tax is payable.

The question to be discussed, however, is whether ITC on Input Services, which is being sought to be excluded by Notification No. 21/2018 of 18 April 2018, even includes certain input services that are merely a part of the dominant activity.

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