FAQs on GST on Directors’ Remuneration

By Ankit Bhalotia ,gst@vinodkothari.com

The GST law, introduced with effect from 1st July, 2017, makes a major rejig in the indirect tax system in the country. With its introduction, several concepts have been brought up, playing with the minds of the people. One such concept that has created havoc is the reverse charge mechanism and its viding applicability. Services of director i.e. sitting fees, commission has been covered under the Government notified services on which the tax would be payable on reverse charge.

Following are the some of the pertaining questions answered in respect of GST on Director Services Read more

CBDT clarifies its stand on section 269ST – NBFCs will breathe a sigh of relief

 

Abhirup Ghosh

abhirup@vinodkothari.com

One of the major highlights of the Finance Budget 2017 was the introduction of section 269ST of the Income Tax Act, 1961. The section was introduced with an intention to curb black money by reducing the scope of large ticket size cash transactions in the economy. As per the provisions of the section, no person can accept an amount of Rs. 2 lakhs or more:

  1. In aggregate from a single person in a day;
  2. In respect of a single transaction;
  3. In respect of transactions relating to one event or occasion from a person.

This section affected several businesses in the country, financial entities in particular. During the course of business, financial entities, like NBFCs, often accept repayments through cash, even though they lend out through banking channels, and this section was a certainly something to worry about.

There was a notion that if a loan is a transaction, then the instalments received against such loan transaction would have to be aggregated for the purpose of this section. This however was an unrealistic presumption because if one were to take a view that all payments made by the borrower under a loan contract will need to be aggregated, the amount that can be paid in cash, to avoid the applicability of the section, under clause (a) and under clause (b), will become completely disproportional. Clause (a) will capture the payments made in a single day, whereas the clause (b) will capture payments made over the tenure of the loan. Such wide amplitude is not the intent of the law.

For instance, if there is an invoice of Rs 3 lakhs, which is paid over three tranches, over 3 days, all in cash, the section shall get attracted. However, where there is an invoice, which is payable in 12 monthly instalments, one cannot argue that all the 12 instalments relate to a single transaction, and therefore, need to be aggregated.

Therefore, in the given example of extending of loan and accepting repayments in multiple instalments, loan extended and each of the instalments accepted must be treated as independent transactions for the purpose of section 269ST and must not be seen on a cumulative basis.

Subsequent to the introduction of the section, the Central Board of Direct Taxes received representation from several financial institutions, pursuant to which it came out with a clarification on 3rd July, 2017[1] stating:

…it is clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

Therefore, henceforth, for the purpose of section 269ST, NBFCs and HFCs will not have to aggregate all the instalments received in cash against a single loan transaction to see if it exceeds Rs. 2 lakhs or not. Each instalment will be treated as a separate transaction. So, if a single instalment of say, Rs. 3 lakhs, is split in two halves and paid in cash over 2 days, then this section will get attracted.

The position after this circular can be explained through the table below:

Instance Applicability of section 269ST
Loan of Rs. 3 lakhs – EMIs of Rs. 50,000 paid over 6 months in cash Not applicable
EMI of Rs. 300,000 split into two halves and paid in cash over two days Applicable
EMIs against more than one loan transactions in a single day from a single person aggregating to more than Rs. 2 lakhs Applicable

 

After this clarification, the NBFCs and HFCs will breathe a sigh of relief as this was going to affect their business seriously.

[1] http://www.incometaxindia.gov.in/communications/circular/circular22_2017.pdf

Rates for goods and services notified: Impact on leasing business

By Abhirup Ghosh, (gst@vinodkothari.com)

On the headway to GST, which is going to be introduced from 1st July, 2017, the Government of India is doing substantial amount of law making each day. In the past few days the Government has not only finalised the rules but has also notified the final rates for goods and services. Read more

Will GST provisions be a body blow to reverse factoring?, by Nidhi Bothra

Come midnight of 30th June, 2017, with the hitting of the gong, India will have its tryst begin with GST. The GST implementation and digging deeper into the provisions seemingly will go hand-in-hand. This article intends to discuss small proviso to the input credit availability provision in the Central GST Act (CGST Act) and its implications on trade financing. The nuances are worth the consideration and mulling. Read more

GST implications for sale of repossessed assets, by Nidhi Bothra

Lending is always to good borrowers but often the good borrowers become bad borrowers. Thus, the business of lending brings with it the trouble of enforcement of security interests as well. The repossession of the collateral asset and eventual sale for recovery of the losses due to default are a common phenomenon in lending business. This article deals with the GST implications for sale of repossessed assets. Read more

Impact of GST on factoring transactions

By Abhirup Ghosh, (gst@vinodkothari.com)

Factoring is a very popular product mode of working capital funding across the globe. In India, however, the picture is not quite rosy for factoring companies. Nevertheless, like every other thing in the country, factoring transactions will also be affected by the introduction of GST in India. Here in this article, we intend to walk you through the probable impact, GST would create on factoring transactions. Read more

No pass through status to trusts if the beneficiaries are not identified on the date of institution of trust.

By Nidhi Bothra & Vijaylakshmi Agarwal, (finserv@vinodkothari.com)

Executive summary

This tax update summarises a recent ruling of Chennai Income Tax Appeallate Tribunal (“Chennai ITAT”) in the case of TVS Investments iFund Vs ITO[1] wherein the issue before Chennai ITAT was whether interest income of beneficiaries rolled over to another venture capital fund would be taxed in the hands of the iFund or in the hands of the new fund (TVS Shriram Growth Fund). While contemplating on the issue, the matter pertaining to determinacy of the trust/ fund and tests relating to the same to achieve pass-through status under the Income Tax Act was also briefly discussed. Read more

GST on securitisation transactions.

By Nidhi Bothra, (gst@vinodkothari.com)

Transitioning into GST, assessing its impact on business and taking appropriate measures to bring about tax neutrality/ efficiency are the prime concern for all and sundry. GST therefore also has an impact on the securitisation transactions in India which now happens to be Rs. 85,000 crores[1] odd industry. In this article we are broadly trying to deal with GST impact on securitisation of standard as well as non-performing assets and its various facets. Read more