We are pleased to share below a summary of key indirect and direct tax proposals announced in the Union Budget 2023.
I. INDIRECT TAX
1. Goods and Services Tax
1.1. Restriction on availing input tax credit (ITC) for corporate social responsibility (CSR) activities
- No ITC to be available in respect of goods or services used or intended to be used for undertaking activities relating to CSR obligations, as referred to in section 135 of the Companies Act, 2013.
1.2. Maximum time limit prescribed for filing returns
- A maximum time limit of 3 (three) years has been prescribed for filing GSTR 1, GSTR3B, GSTR 9 and GSTR 8 returns, as applicable. Post this, no assessee will be allowed to file the return, unless specifically allowed by the Government on recommendations of the GST Council.
1.3. Compounding of offences
- The monetary threshold for launching prosecution for offences under GST law has been increased from Rs. 1 Crore to Rs. 2 Crores.
- No compounding available for persons involved in offences related to issuance of invoices without supplying of good or services or both.
1.4. Retrospective applicability of non-taxability of certain transactions
- Following transactions, which were declared as neither a supply
of goods nor a supply of service under the GST law in 2022 have now
been made non- taxable retrospectively since July 1, 2017:
- supply of goods from a non-taxable territory to another non-taxable territory;
- in bond supplies; and
- high sea sales
However, if any tax was paid by an assessee in any case, no refund of such tax will be given.
1.5. Facilitate e-commerce for micro enterprises
- Unregistered suppliers and composite taxpayers can make intra-state supply of goods through e-commerce operators subject to certain conditions.
- Penalty prescribed for following cases where an e-commerce
- allows a supply of goods or services or both through its platform by an unregistered person other than those exempted from registration by a notification;
- allows inter-state supply of goods or services through its platform by a supplier who is not eligible to make such inter-state supply; and
- fails to furnish the correct details of outward supply of goods by an unregistered supplier in Form GSTR-8.
1.6. Definition of "non-taxable online recipient" has been amended to mean "any unregistered person receiving online information and database access or retrieval services located in taxable territory." Further, unregistered person shall include persons who are solely registered for the purpose of TDS such as department or establishment of Central Government, State Government, local authority, government agencies.
1.7. Proviso to section 12(8) has been omitted so as to provide that in case where the destination of goods is outside of India, but both the supplier and recipient are located in India, the place of supply of such service will be in India only and hence subject to GST.
2. CUSTOMS LAW
2.1. Time limit of 9 (nine) months has been prescribed for disposal of application filed before the settlement commission.
2.2. Validity of 2 (two) years for conditional exemptions, not applicable in certain cases:
- It has been clarified that validity period of 2 (two) years,
prescribed for conditional exemptions given by the government, will
not apply to exemptions given in the following cases:
- any multilateral or bilateral trade agreement;
- obligations under international agreements treaties, conventions or such other obligations including with respect to united nations agencies, diplomats and international organizations;
- privileges of constitutional authorities;
- schemes under the foreign trade policy;
- the Central Government schemes having validity of more than 2 (two) years;
- re-imports, temporary imports, goods imported as gifts or personal baggage; and
- any duty of customs under any law for the time being in force, including integrated tax leviable under sub-section (7) of section 3 of the Customs Tariff Act,1975 (Custom Tariff Act), other than duty of customs leviable under section 12.
3. CUSTOM TARIFF
3.1. Retrospective amendments have been brought out to clarify the scope of the term's 'determination' and 'review' in respect of counter-vailing duty and anti-dumping duty. Also, amendment has been made in the provisions related to filing of appeals against such determination and review.
3.2. The first schedule to the Custom Tariff Act has been amended to increase the tariff rates on certain items with effect from February 2, 2023.
3.3. The first schedule to the Custom Tariff Act has been amended to modify the tariff rates on certain tariff items as a part of rationalization of customs duty rate structure with effect from the date of assent.
3.4. The heading 9801 of the first schedule of Custom Tariff Act has been amended to exclude solar power plant/solar power project from the purview of project imports with effect from the date of assent.
3.5. Rate Changes for major goods
- The BCD on camera lens for camera module and input/sub parts for lens of camera module of mobile phone has been reduced from 2.5% to Nil, subject to IGCR condition;
- The BCD on parts for manufacture of open cells of TV panels has been reduced from 5% to 2.5%, subject to IGCR condition;
- Exemption from BCD is being provided to vehicles, specified automobile parts/components, sub-systems and tyres, when imported by notified testing agencies for the purpose of testing and/ or certification, subject to specified conditions;
- The BCD on vehicle (including electric vehicles) in semi-knocked down (SKD) form has been increased from 30% to 35%. However, it is being exempted from SWS;
- The BCD on vehicle in Completely Built Unit (CBU) form, other than with CIF more than USD 40,000 or with engine capacity more than 3000 cc for petroleum run vehicles and more than 2500 cc for diesel-run vehicles, or with both has been increased from 60% to 70%;
- The BCD on bicycles has been increased from 30% to 35%. However, it is being exempted from SWS; and
- The BCD on toys and its parts has been increased from 60% to 70%. However, it is being exempted from SWS.
II. DIRECT TAX
- To bring parity between new manufacturing companies and new manufacturing co-operative societies, concessional tax rate of 15% currently applicable to new manufacturing companies extended to new manufacturing co-operative societies registered on or after April 1, 2023 and which commence manufacturing on or before March 31, 2024.
- Date of incorporation for claiming the tax incentive by start-ups extended from April 1, 2023 to April 1, 2024.
- Set off or carry forward of business losses on change in shareholding of eligible start-ups increased from 7 (seven) years of incorporation to 10 (ten) years.
- To address the decision of the Supreme Court on this issue, it has been clarified that benefits or perquisites paid in cash or partly in cash and partly in kind arising from business/ profession taxable as business income.
- Tax to be withheld at the rate of 10% on benefit or perquisite, arising from business/ profession, provided in cash or partly in cash and party in kind.
- To bring parity in treatment between residents and non-residents, consideration received by an unlisted company above the fair market value of shares issued by it to non-resident investors to be taxed as income from other sources of the unlisted company at applicable rates.
- Capital gains arising on sale of market linked debentures taxable as short-term capital gains without allowing deduction of Securities Transaction Tax.
- Continuing with the tax benefits provided under the Finance Act, 2022 and to incentivize operations from International Financial Service Centre, income arising to a non-resident from the following transactions have been exempted from tax: (a) transfer of non-deliverable forward contracts; (b) transfer of offshore derivative instruments; (c) transfer of over the counter derivatives; and (d) distribution of income on offshore derivative instruments issued by offshore banking units.
- Banking companies, in case of amalgamation with another banking institution or company pursuant to strategic disinvestment, permitted to carry forward their accumulated losses and unabsorbed depreciation if amalgamation takes place within 5 (five) years of strategic disinvestment.
- Assessee required to furnish transfer pricing documentation and information within 10 (ten) days of the proceedings instead of currently applicable time period of 30 (thirty) days.
- Deduction of amounts payable to MSMEs to be allowed as expense only if the payment has been made and not on accrual basis.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.