<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Contact us:
Email : [email protected]
Website: www.rajuandprasad.com
January 2017 Volume 3, Issue 11
FOCAL POINT Newsletter from Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Page 3 Raju and Prasad Chartered Accountants Page 1
Dear Reader,
Our editorial comments are on the upcoming budget
for 2017-18 and contains an analysis of what the government
earns and how it is spent.
This month we have covered Edible oils and Oil seeds in sequence
to other Agro Industries in industry review.
We have also included an article written by Mr. Krishna Kulkarni
explaining the model GST Law.
This is the season of migratory birds and photograph of month is
on Flamingoes.
Please give your views and also send this newsletter to your friends.
Regards
For Raju & Prasad
Chartered Accountants
M Siva Ram Prasad
Partner
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Page 3 Raju and Prasad Chartered Accountants Page 2
Contents Contents ............................................................................................................................................................. 2
Editorial ............................................................................................................................................................... 3
Union Budget ............................................................................................................................................................. 3
What we earn, where we spend ...................................................................................................................... 3 What are the Earnings? ........................................................................................................................................................................................ 3 What are the Expenditures? ............................................................................................................................................................................. 5
Industry Review ........................................................................................................................................... 7
Edible Oils and Oil Seeds ..................................................................................................................... 7 Variety of oil seeds ................................................................................................................................................................................................... 7 Production Process ................................................................................................................................................................................................... 8 Prospects ........................................................................................................................................................................................................................ 10 Programs and Policies .......................................................................................................................................................................................... 12 Issues and Challenges ......................................................................................................................................................................................... 14 National Mission on Oil Seeds and Oil Palm (NMOOP).............................................................................................................. 15
Goods and Service Tax .................................................................................................................... 17 Background .................................................................................................................................................................................................................. 17 What is GST and its Broad Impact ............................................................................................................................................................ 18 Avoidance of Double Taxation ...................................................................................................................................................................... 19 Taxing rights of the Centre and the State Governments made clear .......................................................................... 20 Scope restriction on levy of additional tax/cess ............................................................................................................................ 20 Benefits of GST in general ............................................................................................................................................................................... 20 Taxes that will be subsumed into GST .................................................................................................................................................. 21 Key takeaways of Model GST Law ............................................................................................................................................................. 21 Will GST be reality in April 2017 ................................................................................................................................................................. 24 Our View ......................................................................................................................................................................................................................... 24
Policy Watch ................................................................................................................................................. 25
Company Law .......................................................................................................................................................... 25 Commencement of section 248-252 of Companies Act, 2016 ........................................................................................ 25
RBI ................................................................................................................................................................................. 25 Rationalization of Merchant Discount Rate (MDR) for transactions upto ₹ 2000/- .......................................... 25
SEBI............................................................................................................................................................................... 26 Filing of Forms PAS-4 and PAS-5 in case of issuance of debt securities on private placement
basis………………………………………………………………………………………………………………………26
Verdicts ............................................................................................................................................................ 27
Direct Taxation ....................................................................................................................................................... 27
►►► PHOTOGRAPH OF THE MONTH ..................................................................................... 28
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Page 3 Raju and Prasad Chartered Accountants Page 3
Editorial
Union Budget
What we earn, where we spend
he budget presentation is advanced by
one month by union government this year.
This is an Annual Financial statement
presenting the receipts and payments. By
advancing one month the statistics on
receipts may not be accurate to that extent.
The relieving feature that is going to be in the
union budget is the concept of capital and
revenue expenditure in terms of normal
accounting practices instead of plan and
non-plan expenditure.
Another new feature in the coming budget
would be merging the receipts and payments
of railways.
What are the Earnings?
The receipts for the union government include
Tax revenues, non-tax revenues and
T
Page 4 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
borrowings. Overall, if we see the composition
of receipts, a major portion is taxes under
various heads like Corporation Tax, Income
tax, Service Tax, Central Excise, Customs with
charge of cess like education cess, Krishi
Kalyan Cess, Luxury Tax. In addition different
Cesses administered by various departments
like Coal & Coke, Salt, Rubber, Research and
Development cess, etc.
Non-Tax revenue includes interest receipts,
dividend and profits, external grants etc.
The borrowings in the form of loans and
advances, issue of various bonds etc., form the
capital receipts of the government.
The Broad Analysis of Receipt Budget 2016-17 is given below.
S.No Receipts 2016-17 Budget (Rs. In crores)
Percentage of Total Receipts
A) REVENUE RECEIPTS
1) Total Tax Revenue 1630888 63.84%
2) Total Non-Tax Revenue 322921 12.64%
3) Total Revenue Receipts (1+2) 1953809 76.47%
B) CAPITAL RECEIPTS
4) Non-debt Receipts 67134 2.63%
5) Debt Receipts 520709 20.38%
6) Total Capital Receipts 587843 23.01%
7) DRAW-DOWN OF CASH BALANCE 13195 0.52%
8) Total Receipts[3+6+7) 2554847 100.00%
Source: Receipts Budget 2016-17
Out of the total receipts, around 64% account
for tax revenues shared by Corporate Tax 19%,
Income Tax 14%, Customs 9%, Excise 12%,
Service Tax by 9% and Taxes from Union
Territories by less than 1%. The state’s share in
total tax revenue is Rs. 5.70 lakh crores (35% of
total tax revenue and 22.32% of total receipts)
The relieving feature that is going to be in
the union budget is the concept of capital
and revenue expenditure in terms of
normal accounting practices instead of
plan and non-plan expenditure.
Page 5 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Balance of receipts is composed of 12.64% of
Non-tax revenues like dividend from Public
Sector Undertakings and Public Sector Banks,
disinvestments etc., and 23% of borrowings
and other liabilities.
What are the Expenditures?
The expenditure is divided into Non plan and
Plan expenditure. For the year 2016-17 total
expenditure (proposed) is Rs. 19.78 lakh crores
out of which Revenue expenditure is Rs.17.31
lakh crores and capital expenditure is Rs. 2.47
lakh crores. The capital expenditure is 12.5 % of
the total expenditure.
Table showing expenditure budget for the year 2016-17.
The non-plan revenue expenditure is divided
into interest payments (24.91%), pensions
(6.24%), general services (1.77%), social
services (1.62%), economic services (1.73%),
defence services (8.23%), subsidies (12.66%)
and others (9.95%).
The trend of receipts and expenditure show
that in spite of increase in receipts,
expenditure mainly goes to revenue
expenditure which is maintenance, salaries,
pensions, administration etc.
In case of Railways also much of the revenue
goes to meet the requirements of fuel,
establishment, maintenance etc., and leaving
little surplus for development.
S.No
Expenditure 2016-17 Budget (Rs. In crores)
Percentage of Total Expenditure
A) NON-PLAN EXPENDITURE
1) Total Revenue Non-Plan Expenditure 1327408 67.11%
2) Total Capital Non-Plan Expenditure 100642 5.09%
3) Total Non-Plan Expenditure 1428050 72.19%
B) PLAN EXPENDITURE
4) Total Revenue Plan Expenditure 403628 20.41%
5) Total Capital Plan Expenditure 146382 7.40%
6) Total - Plan Expenditure 550010 27.81%
7) Total Expenditure[3+6) 1978060 100.00%
Source: Expenditure Budget 2016-17
At least this Budget should focus on “Make in
India”.
Page 6 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
In 2016-17 budget, total revenue receipts
include tax revenue of Rs. 16.3 lakh crores
which is 83.5% of total revenue receipts and
the remaining is non-tax revenue of Rs. 3.22
lakh crores. Out of the total receipts of Rs.
25.55 lakh crores including capital receipts, tax
revenue is working out to nearly 64%.
By analyzing expenditure trend over years,
expenditure on asset formation is low. In the
year 2015-16 the total expenditure was 17.90
lakh crores, out of which 15.37 lakh crores was
spent for revenue expenses and 2.53 lakh
crores is spent for asset formation which
accounts for 12.62% of total expenditure. Even
in 2016-17 the situation is more or less the same.
The trend over years is the same and if this
continues either asset formation will not grow
as per the requirements of growth or there will
be over dependence on private sector.
There are many Budget whispers regarding
reduction of taxes, low tax regime etc.
Contrary to this other gossips are short term
capital gain tax may be increased or tenure
for short term capital gains may be extended,
securities transaction tax may be increased,
cash transaction tax may be introduced etc.
The fact remains that the tax payer’s money is
going to maintain the revenue expenditure of
the government and any tax reduction will
hamper the functioning of the government.
Even if there is reduction of taxes in one
corner, the other corner will be taxed at a
higher rate to match the revenue. Ultimately
budget has become a balancing act rather
than a development oriented exercise. With
the slogan of level playing field and market
driven economy, country has become a level
playing field for other countries and driving the
market for others. At least this budget should
focus on “Make in India”.
- M SIVARAM PRASAD
The fact remains that the tax payer’s money is
going to maintain the revenue expenditure of
the government and any tax reduction will
hamper the functioning of the government.
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 7
Industry Review
Edible Oils and Oil Seeds
Variety of oil seeds
il seed farming is one of the major
agriculture activities in the country. Most
of Indian food is cooked with oil. There are
number of oil seeds grown in different regions
depending on the soil conditions, rainfall and
other climatic conditions. Oil seeds are
broadly classified into vegetable oil seeds,
plantation seeds and tree borne oil seeds.
Major oil seeds grown are groundnut,
rapeseed, mustard, sesame, safflower,
soybean and sunflower.
The non-edible oil seeds are castor and Niger.
The coconut and palm fruits are fruit varieties
from which oil is extracted. There are other
varieties of seeds classified as tree borne oil
O
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 8
seeds which include olive, karanja, sal,
mahua, simarouba, jatropha, neem, wild
apricot, walnut, tung etc.
Oil from Palm fruit is of recent origin in India
and is being imported to meet our demand
and supply gap. Oil from rice bran, though is
not produced in significant quantity, it is
propagated as good for health due to its high
content of mono saturated fatty acids. Cotton
seed oil is another nontraditional oil which is
blended with other edible oils for human
consumption. The edible oils have nutritious
value if consumed moderately.
Table showing the Nutritional value of edible oils per 100 gms:
The oil seeds are grown in agricultural lands
and some of them are grown in forest and
non-forest areas, hilly terrains and desert
areas.
Production Process
Previously, the oil seeds were crushed into oil in
a primitive way with a grinding wheel pulled
by a bullock and extract oil leaving 8% to 10%
of oil remaining in the cake. Later solvent
extraction plants were extracting the
remaining oil. Presently the oils are extracted
by modern processing units with efficiency in
collecting the maximum oil.
Peanut
Oil
Sesame
Oil
Mustard
Oil
Sunflower
Oil
Safflower
Oil
Palm Oil
Energy 884 kcal 884 kcal 884kcal 884 kcal 517 kcal 884 kcal
Carbohydrates 0 gm 0 gm 0 gm 0 gm 34 gm 0 gm
Fats
i. Saturated
ii. Monounsaturate
d
iii. Polyunsaturated
17 gm
46 gm
32 gm
14.20 gm
39.70 gm
41.70 gm
12 gm
59 gm
21 gm
9.748 gm
83.594 gm
3.798 gm
3.7 gm
4.8 gm
28 gm
49 gm
37 gm
9 gm
Source: USDA Nutrient Database
Page 9 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
The production of edible oil and its process
slightly varies for different agricultural produce
like vegetable seeds, cotton seeds,
groundnuts, palm oil and coconut oil.
In case of cotton seed oil additional process of
delinting and for ground nuts decortication
and in case of palm fruits kernel removal are
additional steps.
But the general process is to process the
material through expellers, after the material is
cleaned. The cleaned seeds are fed into
hullers and after the seeds are cracked, the
mixture of hulls and meats are passed though
reciprocated system. After this process the
meats are cooked in cookers or kettles and
fed into expellers and squeezed with pressure
which separate the oil from the meat. The oil is
separated and the cake is collected at the
bottom; this is unrefined oil. The oil cakes
collected at the bottom are passed through
solvent extraction plants where it is further fed
into extractor with low boiling petroleum
solvent called hexane, further hexane is
condensed to vapours of this solvent and
hexane is removed totally and the oil is
collected from the cake. After the solvent is
extracted from the cake, the cake is further
conditioned and packed.
Oil coming out from the oil mill and solvent
extraction plant will be processed further in
refineries for degumming, neutralization,
bleaching and deodorization. After this
process the oil is sent through homogenizer
and finally it is packed.
Page 10 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Prospects
The Indian edible oil industry is ranked as the
4th largest in the world after US, China and
Brazil, with a share of 10% in world production
of oil seeds. Still India is the largest importer of
edible oils.
As per Press Information Bureau release on 01-
01-2014 nearly 27 million hectares of land is
utilized for growing oil seeds, out of which 72%
is under rain fed agriculture. The oil seed
cultivation is approximately 13% of cropped
area and contributes to around 3% of gross
national product and 10% value of total
agricultural commodities. The consumption of
oil seeds is 32.06 million metric tonnes in 2015-
16. The percapita consumption is 17 kg per
annum which is low compared to world
average of 30 kg per annum. The demand is
likely to touch 20.4 million metric tonnes in
2017. The demand and supply gap is met by
imports mainly from Indonesia and Malaysia.
The prospects for this sector seem brighter as
per the forecast given by US Department of
Agriculture for the year 2016-17.
Oil seed production will increase from
130788 MMT in 2015-16 to 150457 MMT in
2016-17.
Consumption of oil will increase from 32060
MMT in 2015-16 to 34160 MMT in 2016-17.
Oil seed exports will increase from 684000 MT
in 2015-16 to 760000 MT in 2016-17.
In the last decade from 2005 to 2015, the
production of oil seeds has not shown much
increase. Whereas the import of oil has almost
three fold increase. The demand almost
doubled over a decade which accounts for
10% of average growth per annum.
Some of the major oil seeds which contribute
to about 88% of the total oil seeds production
are mustard, rape seed, soybean and
groundnut.
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 11
Table showing production of Edible Oilseeds and Edible Oils along with Import of Edible Oils:
Consumption of oils also vary from region to
region. Southern and western regions consume
groundnut oil, Eastern and Northern region
consume mustard-rapeseed oil. Coconut oil
and sesame oils are used more in Kerala and
South West Coast. The edible oil with modern
refining are blended with rice bran oil, safflower
oil and sunflower oils.
Consumption of blended oils is on the increase
among the urban population.
Year
Domestic Production
(‘000 tonnes)
Import of Edible Oils
(‘000 tonnes)
Total availability of Edible Oils
(‘000 tonnes) Edible
Oilseeds
Edible Oils
2005-06 27980 6906 4288 11194
2006-07 24290 5900 4269 10169
2007-08 29760 6964 4903 11867
2008-09 28160 6778 6714 13492
2009-10 24880 7946 8034 15980
2010-11 30479 9782 7242 17024
2011-12 29798 8957 9943 18900
2012-13 30943 9219 10605 19824
2013-14 32879 10080 10976 21056
2014-15 26675 8978 12731 21709
Source: Department of Food and Public Distribution
Page 12 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Table showing major producing states of different oil seeds
As per the above table oil seed production is
not spread in all states, only about 7 to 8 states
are contributing to the supply for the entire
country.
Programs and Policies
Three decades ago India was the largest
importer of edible oils in the world, importing
around half of the domestic requirement in the
1990s. The situation has not changed much
even now.
To solve the problem of edible oil supply
National Oil seed Development Project
(NODP) was started to give thrust for
development of oil seeds in 1984-85.
Technology mission on oil seeds was
launched in 1986 to increase productivity
with a moto of self-sufficiency in this field.
In 1991-92 Oil Palm Development Program
(OPDP) was commenced to encourage oil
palm cultivation.
Oilseed Major Producers
Soybean Madhya Pradesh (55.4%), Maharashtra (30.0%),
Rajasthan (9.8%), Others (4.8%)
Rapeseed-Mustard Rajasthan (46.2%), Haryana (12.2%), Madhya
Pradesh (12.0%), Uttar Pradesh (11.8%), West
Bengal (5.6%), Gujarat (4.9%), Others (7.3%)
Groundnut Gujarat (38.0%), Andhra Pradesh (16%), Tamil
Nadu (13.8%), Rajasthan (8.9%), Karnataka
(8.4%), Maharashtra (5.7%), Others (9.3%)
Sesame West Bengal (21.3%), Rajasthan (21.2%), Madhya
Pradesh (16.8%), Gujarat (14.1%), Uttar Pradesh
(7.6%), Andhra Pradesh (2.9%), Others (11.1%)
Sunflower Karnataka (37.3%), Andhra Pradesh (27.2%),
Maharashtra (14.6%), Punjab (4.4%), Bihar (3.9%),
Haryana (3.0%), Others (9.5%)
Source: Ministry of Agriculture, Govt. of India
Page 13 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Post liberalization era, the import of edible
oils was included in open general license to
meet the demand in the country.
However, this became a disincentive for
growth in oil seeds production.
Export of edible oils was banned in March
2008.
Ban on export of edible oils was relaxed on
castor oil, coconut oil, edible oil produced
from minor forest produce and organic
edible oils in February 2013.
Export of edible oils was allowed in
branded products up to 5 kg packs with
minimum export price of US $900 per MT in
February 2015.
Export in bulk of Rice Bran Oil was
permitted from 2015.
In September 2015 the import duties were
increased from 7.5% to 12.5% for crude oil
and 15% to 20% for refined edible oils.
National Mission on Oilseeds and Oil Palm
(NMOOP) was launched in January 2014
with an object of encouraging oil palm
cultivation in waste lands.
To prevent any shortage and for
regulating the price, Government has
imposed Stock Holding limits on edible oil
upto 30.09.2017.
The industry is also regulated by
Vegetable Oil Products (Regulation) order
1998, Edible Oil Packaging (Regulation)
order 1998, Solvent extracted Oil De-oiled
Meal and Edible Flour (Control) Order
1967.
Foreign Direct Investment is allowed upto
100% in vegetable oils, Vanaspati,
refineries and Palm oil plantation through
automatic route.
Page 14 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
India also exports certain oils, oil meal and oil seeds like castor to other countries
Table showing exports of oilseeds, edible oils and fats and oil meals during the last five years:-
Issues and Challenges
The sector suffers because of small land
holdings for crops like oil palm cultivation.
The crops are basically grown in rain fed
areas and the quality of the oil seeds is
effected due to insufficient and untimely
rainfall.
The production of oil seeds is almost
stagnant during the last decade.
The sector is fragmented and is dependent
on weather and by farmers shifting crop
pattern for economic reasons.
Productivity of oil seeds in India is one of the
lowest in the world.
Oil meal exports face competition due to
expanding capacities of processing in
neighbouring countries which are Pakistan
and Bangladesh.
Year
(April-
March)
Oil Seeds Edible Oils and Fats Oilcake/Extraction
Qty. (lakh
MT)
Value (Rs.
crore)
Qty. (lakh
MT)
Value (Rs.
crore)
Qty. (lakh
MT)
Value (Rs.
crore)
2011-12 13.24 8279.32 4.97 390.79 74.41 68010.92
2012-13 9.90 7533.16 6.18 869.68 67.38 16270.79
2013-14 10.42 7933.00 5.84 779.58 68.32 16701.80
2014-15 13.97 10727.77 0.85 1073.00 39.70 7479.44
2015-16
(upto Oct)
5.07 4043.39 1.52 510.78 13.32 2326.48
Source: DGCIS
Page 15 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
The cheaper imports and higher domestic
production costs coupled with inconsistent
supply of oil seeds force many processing
units to shut down.
Longer distance between the processing
units and actual raw material produced
areas make the quality and yield suffer in
case of rice bran oil, palm oil etc.
National Mission on Oil Seeds and
Oil Palm (NMOOP)
To tackle the sensitive edible oil production
and supply Government of India initiated
national Mission on Oil Seeds and Palm Oil
(NMOOP) in January 2014 with a grant of Rs.
32507 crores allocation in 12th Plan. The
strategy was to
Increase Seed Replacement Ratio with
focus on varietal replacement.
Increase irrigation coverage from 26%
to 36%.
Diversification of crop pattern from low
yielding oil seeds to higher yielding oil
seed crops.
Using fallow land after paddy and
potato crops for growing oil seeds.
Growing oil seeds in waste lands.
Improve methods of processing and
increase the availability of quality of
plants and encourage inter cropping
where plantation has gestation period.
The mission has three stages, 1st stage is aimed
at increasing production from 28.93 million
tonnes to 35.51 million tonnes in 12th plan and
Page 16 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
productivity from 1081 kg per hectare to 1328
kg per hectare. 2nd stage is to bring oil palm
cultivation in additional 1025 lakh hectares
and productivity from 4927 kg per hectare to
15000 kg per hectare. 3rd stage is targeting
tree borne oil seed production increase from 9
lakh tonnes to 14 lakh tonnes.
With these efforts, let us expect the production
of edible oils will increase to meet the
increasing demand.
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 17
Goods and Service Tax
Background
oods and Services tax (“GST”) is a very
important and game changing indirect
tax reform introduced in the financial history of
India. The GST constitution amendment Bill is
now passed by both the Houses of Parliament
and ratified by Legislative Assemblies of 23
states and Union Territories (yet to be ratified
by 8 states) and has received the President’s
assent on 8th September 2016. The Central and
the State governments shall pass their
respective GST Acts to monitor CGST (Centre's
GST) and SGST (States' GST). The respective
acts were not tabled in the recently
concluded winter session of the parliament
and are expected to be tabled in the
upcoming session. GST is new to India but not
to other countries of the world. France is the
first country to introduce GST in 1954. GST is
prevalent in countries including Australia,
Canada, Hong Kong, Malaysia, New Zealand,
Singapore etc. Further, Singapore has lowest
G
Page 18 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
GST @7% whereas, India is still struggling with
the idea of 4 tier rate structures.
GST is being introduced with the objective of
'one nation, one tax' and all the existing major
indirect taxes in India shall stand subsumed
into GST, by making the present ambiguous
structure extinct. GST is not simply a summation
of VAT plus service tax but is an improvement
over the previous system of VAT and disjointed
service tax. Due to the federal structure of
India, the two components of GST i.e. CGST
and SGST will be levied simultaneously by the
Centre and the States across the value chain.
Tax will be levied on every supply of Goods
and Services.
What is GST and its Broad Impact?
GST is an integrated tax on the supply of goods
and services, from the manufacturer to the
consumer. Credit for input taxes paid at each
stage will be available for set off in the
subsequent stage of value addition, which
makes it a tax only on value addition. The final
consumer of goods and services will bear only
the GST charged by the last dealer in the
supply chain, with set off benefits at all the
previous stages. From a broad and
macroeconomic perspective, the impact of
GST in the initial stages could be tumultuous.
However, the impact over the long run shall
definitely be favourable to all the stakeholders
be it the government, businesses or
consumers. It may have negative impact on
GDP growth in the short term as higher taxes
on services (which constitute largest share of
GDP) would affect consumption of services
and the businesses may not immediately pass
on the positive impact of lower taxes on goods
to consumers, thus restricting the growth in
consumption of goods. However, gains in
terms of higher productivity and ease of
compliance are expected in the long term
from a simplified, more efficient tax system
and the removal of interstate tax barriers. GST
is intended to merge 29 states into a single
market by integrating existing multiple taxes
thereby reducing cost of compliance,
facilitating ‘Ease of Doing Business in India’
and is expected to lift GDP by as much as 1%
point. The existing issues in the indirect tax
structure including multiple state and central
taxes, a complicated list of exemptions
leading to litigations and incomplete input
credit across different taxes and between
Page 19 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
goods and services are expected to be
addressed by the introduction of GST.
Advantages of GST over present Indirect tax
structure
In a federal structure like ours, the centre and
states are assigned with their own powers
which has led to frequent hiccups in the
taxation regime because of the following
factors-
a) Taxes with different nomenclatures being
levied on different aspects of a single
transaction by the centre and the state
governments.
b) Lack of understanding between the centre
and the state governments with regard to
the distribution of taxes and violating the
taxing rights of each other.
c) Levy of additional tax/cess by using the
residuary power under Article 248 of the
Constitution of India (Ex: Recent levy of
Swacch Bharat Cess and Krishi Kalyan
Cess)
In GST regime, both the Central and State
governments would have the power to
simultaneously levy GST on supply of goods
and/or services. The very purpose of this move
is to solve the above stated issues inherent in
present taxation structure. GST brings in a
whole new perspective to the indirect taxation
in India resulting in various advantages, few of
them are discussed as under-
Avoidance of Double Taxation
In the present structure, double taxation is
evident at many instances of the life cycle of
a given good/ service, few of them are–
i) Levy of excise duty on manufacturing
aspect and sales tax on sales aspect of
goods.
ii) Levy of service tax and VAT on both
service component and sales component
of goods in case of
a. Works contract
b. Construction contract
c. Sale of food in restaurants
d. Outdoor catering
Supply of food/drinks to guests
residing in a hotel
GST plugs in the above discussed loophole of
double taxation, for instance, in GST regime,
there shall not be any tax levied on
manufacture thereby eliminating levy of
excise duty. The tax (CGST + SGST) levied shall
be on supply of goods/services unifying the
event of taxation i.e. on supply and not on
various aspects of the same transaction.
Further, Schedule II of the Model GST law refers
to the factors that determine ‘supply of
service’. Further, it provides that the services
enlisted below shall fall into the ambit of
definition of ‘supply of service’ for the
purposes of GST-
Page 20 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
i) Works contract including transfer of
property in goods (whether as goods or
in some other form) involved in execution
of works contract
ii) Construction contracts
iii) Restaurant services
iv) Outdoor Catering
v) Supply of food/drinks to a person residing
in a hotel
Taxing rights of the Centre and the
State Governments made clear
Presently, there is dispute on account of
whether a particular levy imposed by the
Centre is within its powers or that it has usurped
the state’s rights, has led to ambiguity among
the taxpayers with regard to constitutional
validity of a particular levy. The dispute mainly
arises due to contradictory views expressed by
honourable courts with regard to the levy of a
specific tax on similar services. In GST, both the
Central Government and the State
Governments have been given the powers to
simultaneously levy the GST through Article
246A of the constitution and not through the
entries of three lists, thereby providing distinct
powers to both the governments and
facilitating predictable taxation in India.
Scope restriction on levy of
additional tax/cess
Article 248 of the Constitution of India gives
residuary powers to the Parliament to frame
laws with respect to any matter not
enumerated in the Concurrent List or the State
List. It is difficult to determine whether the
parliament has utilised its residuary powers
rationally and as a last resort and is legislatively
competent to make law. However, in GST
regime, this residuary power of the Parliament
has been made subject to Article 246A
overriding the residuary powers under Article
248. As a result, provisions of Article 246A would
apply on the levies proposed to be imposed
on goods and/or services covered in GST. It is
pertinent to note that, the Parliament cannot
resort to the residuary powers to make a law in
respect of goods and/or services covered
under GST.
Benefits of GST in general
The benefits of GST can be summarized
broadly as under –
a) For Business and Industry
i. Easy Compliance – A robust and
comprehensive IT System, Goods and
Services Network (GSTN) will be the
backbone of the GST regime in India.
All services such as registrations,
returns and payments would be
available to the taxpayers online.
ii. Uniformity of tax rates and structure –
GST regime will ensure that the indirect
Page 21 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
tax rates and structure are uniform
across the country.
iii. Improved competitiveness –
Reduction in transaction costs would
lead to improved competition in the
trade and industry.
iv. Gain to manufacturers and exporters
– By subsuming major central and
state taxes in GST, free flow of input tax
credits and phasing out of Central
sales tax (CST) would reduce the cost
of locally produced goods and
services.
b) For Central and State Governments
i. Simple and easy to administer –Single
nationwide tax is simpler to administer
than multiple taxes.
ii. Better controls on leakage – GST will
improve the compliance among
taxpayers due to its inherent features
like seamless input credit etc. and
thereby giving improved revenues to
the exchequer.
c) For end consumer
i. No hidden taxes
ii. Relief in Overall tax burden
Taxes that will be subsumed into
GST
Central Taxes to be
Subsumed
State Taxes to be
subsumed
Central Excise Duty
(CENVAT)
State VAT / Sales tax
Additional duties of
excise
Central Sales Tax
Additional duties of
customs (CVD &
SAD)
Purchase tax
Service Tax Entertainment Tax
Excise duty levied
under Medicinal &
Toiletries
Preparation Act
Luxury tax
Surcharges & Cess Entry Tax (All forms)
Taxes on lottery,
betting & gambling
Surcharges & Cess
Key takeaways of Model GST Law
1) Threshold limit for registration – The law
mandates registration for a dealer if his
aggregate turnover in a financial year
exceeds Rs.9 lakhs. However, dealers
conducting business in any North Eastern
State are required to take registration if their
turnover exceeds Rs.4 lakhs.
Page 22 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
2) Place of registration - The dealer has to take
registration in the State from where taxable
goods or services are supplied.
3) Migration of existing taxpayers to GST- Every
person already registered under extant law
will be issued a certificate of registration on
a provisional basis. This certificate shall be
valid for period of 6 months. Such person will
have to furnish the requisite information
within 6 months and on furnishing of such
information, final registration certificate
shall be granted by the Central/State
Government.
4) GST compliance rating score - Every
taxable person shall be assigned a GST
compliance rating score based on his
record of compliance with the provisions of
this Act. The GST compliance rating score
shall be updated at periodic intervals and
intimated to the taxable person and also
placed in the public domain.
5) Levy of Tax - The person registered under
this law is liable to pay tax if his aggregate
turnover in a financial year exceeds INR 10
lakhs. However, a dealer conducting
business in any of the North Eastern is
required to pay tax if his aggregate
turnover exceeds INR 5 lakhs. A negative list
has also been prescribed for transactions
and activities of Government and Local
Authorities which shall be exempt from GST
levy, like activities of issuance of passport,
visa, driving license, birth certificate or
death certificate, etc.
6) Taxable Event - The taxable event under
GST regime will be supply of goods or
services. Supply includes all forms of supply
of goods and/or services such as sale,
transfer, barter, exchange, license, rental,
lease or disposal made or agreed to be
made for a consideration. It also includes
importation of service, whether or not for a
consideration.
7) Point of taxation - CGST/SGST shall be
payable at the earliest of the following
dates, namely:
a) Date on which the goods are removed
for supply to the recipient (in case of
movable goods).
b) Date on which the goods are made
available to the recipient (in case of
immovable goods).
c) Date of issuing invoice by supplier; or
d) Date of receipt of payment by supplier;
or
e) Date on which recipient shows the
receipt of the goods in his books of
account.
8) TCS on online sales of goods or service -
Every e-commerce operator engaged in
facilitating the supply of any goods and/or
services (like Amazon, Flipkart, etc.) shall
Page 23 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
collect tax at source at the time of credit or
at the time of payment whichever is earlier.
9) Valuation Rules - Such Rules shall apply to
the supply of goods and/or services under
the IGST/CGST/SGST Bill. Some of the
methods prescribed for valuation are given
hereunder
a) Transaction Value
b) Transaction value of goods or services
of like kind
c) Computed Value Method
d) Residual Method
10) Utilization of credit:
a) Utilization of IGST: The amount of input
tax credit on account of IGST available
in the electronic credit ledger of dealer
shall first be utilized towards payment of
IGST and the amount remaining, if any,
may be utilized towards the payment of
CGST and SGST, in that order.
b) Utilization of SGST: The amount of input
tax credit on account of SGST available
in the electronic credit ledger shall first
be utilized towards payment of SGST
and the amount remaining, if any, may
be utilized towards the payment of
IGST.
c) Utilization of CGST: The amount of input
tax credit on account of CGST
available in the electronic credit ledger
shall first be utilized towards payment of
CGST and the amount remaining, if any,
may be utilized towards the payment of
IGST.
Note: The input tax credit on account of CGST
shall not be available for payment of SGST.
11) Payment - Any tax, interest, penalty, fee,
etc., shall be paid via internet banking or by
using credit/debit cards or NEFT or RTGS. This
amount shall be credited to the electronic
cash ledger of dealer.
12) TDS - The Central or a State Government
may mandate certain departments (viz,
local authority, Govt. agencies) to deduct
tax at the rate of one percent on notified
goods or services, where the total value of
such supply, under a contract, exceeds INR
10 lakhs.
13) Refund - A person can claim refund of any
tax and interest by making an application
in that regard to the prescribed officer of
IGST/CGST/SGST. The application can be
made before the expiry of two years from
the relevant date as may be prescribed. It
has been provided that the limitation of two
years shall not apply where such tax or
interest or the amount has been paid under
protest.
14) Returns – Dealers / Service Providers shall be
required to furnish following returns. The
same will be discussed in detail in our
subsequent articles
Page 24 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
a) Monthly Return
b) Return for Composition Scheme
c) TDS Return
d) Return for Input Service Distributor
e) First Return
f) Annual return
g) Final return
15) Transitional Provisions – Will be discussed in
depth in our subsequent articles
Will GST be reality in April 2017?
If one takes a reasonable view, the answer is
probably a big ‘No’. This is because the
Government has to frame the act and the
rules for the Centre and each of the State
Governments. Few issues between centre and
the states also have to be resolved amicably.
Though the Model GST Act, 2016 is passed, the
final enactment will certainly take
considerable time at the centre and the state
level. Hence, one can predict that 1st April
2018 may be a realistic date.
Our View
Pushing the much delayed indirect tax reform
is a welcome move. The government has to
continuously work towards realising the
expected benefits from the GST regime by
framing business friendly rules and guidelines
which indeed make the compliance easy and
in turn add to the tax exchequer by reducing
litigation. We believe that the proposed IT
infrastructure (GSTN) is robust enough to
accommodate large base of taxpayers
without any technical glitches.
We, at Raju and Prasad are looking forward to
release a series of articles covering various
aspects of GST through our newsletters/
emails. We invite comments/ suggestions/
queries from the readers and will strive to
clarify/ implement them in full spirit.
-KRISHNA KULKARNI
The government has to continuously work
towards realising the expected benefits from
the GST regime by framing business friendly
rules and guidelines which indeed make the
compliance easy and in turn add to the tax
exchequer by reducing litigation.
Page 25 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Policy Watch
Company Law
Commencement of section 248-252
of Companies Act, 2016
Ministry of corporate affairs vide notification
dated 26/12/2016 has notified that Section
248-252 which deal with powers of registrar to
remove name of the company from the
registrar of companies, effects of companies
notifies as dissolved, fraudulent application for
removal of name etc., shall come into force
from 26th December, 2016.
http://www.mca.gov.in/Ministry/pdf/Notific
atiion_28122016.pdf
RBI Rationalization of Merchant
Discount Rate (MDR) for
transactions upto ₹ 2000/-
RBI vide notification no. RBI/2016-17/184, in
order to facilitate wider acceptance of card
payments following the withdrawal of legal
tender characteristic of the old Rs.500/- and
Rs.1000/- notes, has rationalized the MDR for
transactions upto Rs.2000/- for a temporary
period. The new rates are 0.25% for a card
transaction value upto Rs.1000 and 0.5% for a
transaction value above Rs.1000/- and below
Rs.2000/-.
https://rbidocs.rbi.org.in/rdocs/notification/
PDFs/NOTI184186934442E944841914426D
7C29ABB22.PDF
Enhancement of daily limits for cash
withdrawal from ATMs.
RBI vide notification no. RBI/2016-17/213 dated
16thJanuary, 2017 has notified that the daily
withdrawal limits are increased from Rs.4500/-
to Rs.10000/- per day per card(within the
overall weekly limit of Rs. 24000/- per week)
and the limit of withdrawals from current
account are enhanced form Rs. 50000/- per
week to Rs. 100000/- per week.
Page 26 Raju and Prasad Chartered Accountants
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
https://rbidocs.rbi.org.in/rdocs/notification/
PDFs/CURRDBE74789AF9242E7B3C913EAFBADC396.PDF
Foreign Exchange Management
(Transfer or Issue of Security by a
Person Resident outside India)
(Fifteenth Amendment) Regulations,
2016.
RBI vide notification no. FEMA.377/2016-RB
dated 10th January, 2017 has made an
insertion to the existing regulation stating that
a person resident outside India (other than a
citizen of Pakistan or Bangladesh or an entity
incorporated in Pakistan or Bangladesh) may
purchase convertible notes issued by an
Indian startup company for an amount of Rs.
25 Lakhs or more in a single tranche and that
the company shall receive the amount of
consideration only by an inward remittance
through banking channels or by debit to the
NRE / FCNR (B) /Escrow account maintained
by the person concerned in accordance with
the Foreign Exchange Management (Deposit)
Regulations, 2016.
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NTF377F37181BC5130459C98E5E188
EC48E7F5.PDF
SEBI
Filing of Forms PAS-4 and PAS-5 in
case of issuance of debt securities
on private placement basis.
SEBI vide circular no.
SEBI/HO/IMD/DF1/CIR/P/2016/140 dated 23rd
December, 2017 has notified that the
companies, for the purpose of Section 42 of
Companies Act, 2013, shall make an offer or
invitation to subscribe for securities through a
private placement offer letter in Form PAS-4
and it shall maintain a complete record of
private placement offers in Form PAS-5. The
company shall also file a copy of such record
and the Form PAS-5 with the registrar and
where the company is listed, with SEBI within a
period of 30 days of circulation of private
placement offer letter.
http://www.sebi.gov.in/cms/sebi_data/atta
chdocs/1482490367327.pdf
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 27
Verdicts
Direct Taxation
Treatment of advances received by
a HUF by a closely held company as
deemed dividend.
-vide Supreme Court of India vide Gopal and Sons
(HUF) V. CIT
The Supreme Court of India vide Gopal and
Sons (HUF) V. CIT held that where a HUF
receives an advance or loan from a closely-
held company in which the Karta, who has a
substantial interest in the HUF (i.e. entitled to
20% or more of its income), is a shareholder,
such loan or advance is taxable in the hands
of the HUF as deemed dividend u/s 2(22)(e)
even if the HUF is not a registered shareholder
of the lending company.
https://www.taxmann.com/filecontent.aspx?Page=CASELAWS&id=1010100000001731
66&isxml=Y&search=&tophead=true&tophead=true
Annual value of property left vacant
throughout the year.
-vide High Court of Punjab and Hayana vide Sushma Singla V. Commissioner of Income Tax, Patiala.
The High Court of Punjab and Haryana vide
Sushma Singla V. Commissioner of Income Tax,
Patiala. held that where the assessee has
more than one property and one of the
properties is left vacant throughout the year,
the annual value of such property shall be
assessed under section 23(1) (a) and not
under section 23(1) (c) since the later deals
with the concept of real income and not
notional income (which is dealt under section
23(1) (a)).
https://www.taxmann.com/filecontent.aspx
?Page=CASELAWS&id=101010000000173021&isxml=Y&search=&tophead=true&tophead=true
Disclaimer Information in this Newsletter, charts, articles,
or any other statements regarding market or
any other financial information, is obtained
from the sources, which we feel reliable. We
do not warrant or guarantee the timeliness or
accuracy of the information. The reader shall
not take any decision based on the facts or
figures of the newsletter without professional
advice.
<<Hyderabad»NewDelhi»Mumbai»Bangalore»Jalgaon»Navi Mumbai >>
Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 28
►►► PHOTOGRAPH OF THE MONTH
Flamingoes at Sewri Mudflats, Mumbai.
- Clicked by M Siva Ram Prasad
Please visit http://www.rajuandprasad.com/newsletter.php for earlier issues