Weekly Round-up on Tax and Corporate Laws | 26th June to 01st July 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 26^th June to 01^st July 2023, namely:

(a) Know the New TCS Provisions on LRS and Overseas Tour Packages;

(b) Writ petition can’t be entertained if the appellate remedy is available and questions of facts are involved: HC;

(c) New online compliance on Liability/Difference appearing in GSTR-1 and GSTR-3B: GSTN Advisory;

(d) SEBI launches ‘UPI Block Facility’ to transform Secondary Market Trading;

(e) SEBI prescribes various methods for achieving minimum public unit holding for REITs/InvITs;

(f) Government restores Rule 7 of FEM (CAT) Rules, 2000; exempts use of International Credit Card for overseas spending from LRS coverage;

(g) SEBI’s Board Meeting focuses on strengthening Indian Capital Markets with stricter FPI norms; and

(h) Resignation of an Auditor from a Company does not relieve him of responsibility to report suspected fraud: NFRA.

1. Know the New TCS Provisions on LRS and Overseas Tour Packages

Section 206C requires the collection of tax by the seller from certain transactions like the sale of alcohol, liquor, forest produce, scrap, and so forth. Sub-section (1G) of Section 206C requires tax collection on foreign remittances made under the Liberalised Remittance Scheme (LRS) and on the sale of Overseas Tour Program Packages (TPP).

The Finance Act 2023 has brought substantial changes in the provisions related to the collection of tax at source under Section 206C(1G).

In response to the comments and suggestions submitted by the stakeholders, the Govt. makes changes to the TCS provisions. The Govt. released a press release dated 28-06-2023, announcing several changes to Section 206C(1G). The CBDT has also released guidelines to remove the difficulty in implementing changes relating to TCS on LRS and TPP. A few of the important announcements are discussed below:

International Credit Card transactions vis-à-vis LRS provisions

When a resident individual makes the payment using his International Credit Card while in India, it will be counted towards the LRS limit, and the TCS shall be levied.

While on the other hand, if a resident individual uses International Credit Card to make a payment while on a visit abroad, it will not come under the ambit of the LRS; hence no TCS would apply.

Earlier, the Govt. notified that the use of International Credit Cards (ICC) while abroad shall be governed by the Liberalised Remittance Scheme (LRS). Accordingly, the limit of ICC transactions during foreign travel was capped at USD 2,50,000 and subjected to the TCS. In order to give adequate time to Banks and Card networks to put in place requisite IT-based solutions to track the breach of threshold where multiple credit cards are used from different bankers/credit card networks, the Government has decided to reinstate the exemption that was earlier available on usage of International Credit Card while being abroad and decided to postpone the implementation of the notification.

Thus, for the time being, the use of ICC while travelling abroad has been excluded from LRS and will not be subject to TCS.

Threshold of 7 lakhs for LRS restored

The Govt. has restored the Rs. 7 lakhs threshold for remittances made under LRS. This threshold of Rs. 7 lakhs shall be allowed per financial year per individual on all categories of LRS payments regardless of the purpose, except for overseas tour packages.

Threshold of Rs. 7 lakh applies collectively for all purposes under LRS

The CBDT has clarified that the Rs. 7 lakhs threshold is a combined threshold for the applicability of TCS on LRS, regardless of the purpose of the remittance.

Though the Finance Act 2023 limited the threshold limit to only education and medical treatment, the Government has reinstated the previous position. As a result, the threshold of Rs. 7 lakhs continues to apply regardless of the purpose in a financial year.

Authorised dealer to collect undertaking from remitters

The facility to provide real-time updates of remittance under LRS by remitter is still under development by the RBI. Thus, it has been clarified that the authorised dealer can obtain details of previous remittances made by the remitter under LRS during the financial year through an undertaking at the time of remittance.

If the authorised dealer accurately collects the tax based on the information provided in this undertaking, he will not be considered an “assessee in default’. If false information is provided in the undertaking, appropriate action may be taken against the remitter.

The seller of an overseas tour program package should follow the same approach of obtaining an undertaking from the buyer of the package.

Overseas Tour Package

There was no threshold limit prescribed under Section 206C(1G) for the purpose of collection of tax at source by the seller of an overseas tour program package.

The Government has now announced a threshold limit of Rs. 7 lakhs. Thus, TCS, at the rate of 5% shall apply for the first Rs. 7 lakh expenditure incurred towards the overseas tour program package. Any expenditure beyond this limit will be subject to a 20% tax rate.

New TCS norms shall be implemented from 01st October 2023

The Govt. has extended the deadline for implementing new TCS provisions from 01st July 2023 to 01st October 2023. Thus, the TCS provisions before the Finance Act 2023 shall continue to apply till 30th September 2023. Legislative amendment in this regard shall be made in due course.

Read the Article

2. Writ petition can’t be entertained if the appellate remedy is available and questions of facts are involved: HC

The Madras High Court held that a writ petition would not be entertained when questions of facts were involved and the petitioner failed to file an appeal despite the availability of appellate remedy.

The petitioner filed a writ petition to quash the assessment orders passed by the department. The department had denied input tax credit (ITC) on the ground of non-receipt of goods, indicating the absence of a sale transaction. The petitioner contended that the personal hearing was not granted by adjudicating authority. It was also claimed that the only reason for rejecting ITC was that the seller’s premises was found to be closed, and GST registration was cancelled.

The High Court noted that the notices and reminders for personal hearings were issued, but the petitioner had neither filed a manual reply nor an online reply. The department had denied ITC by concluding the use of the fake invoices for availing ITC since the address of the supplier was not a shop and no business was carried out since the premises had been vacated a year ago.

The Court further noted that the arguments advanced by the petitioner, such as taxes were paid, copy of inspection report not submitted etc., were factual and could not be considered while exercising writ jurisdiction. Therefore, the Court held that a writ petition was liable to be dismissed since an effective appellate remedy would be available with direction to file an appeal before Appellate Authority.

Read the Ruling

3. New online compliance on Liability/Difference appearing in GSTR-1 and GSTR-3B: GSTN Advisory

The GSTN has issued an advisory to inform that it has developed functionality to enable the taxpayer to explain the difference in GSTR-1 & 3B return online as directed by the GST Council. This feature is now live on the GST portal. The functionality compares the liability declared in GSTR-1/IFF with the liability paid in GSTR-3B/3BQ for each return period.

If the declared liability exceeds the paid liability by a predefined limit or the percentage difference exceeds the configurable threshold, the taxpayer will receive an intimation in the form of DRC-01B. Upon receiving such intimation, the taxpayer must file a reply in Form DRC-01B Part B and provide clarification through reasons in the automated dropdown and details regarding the discrepancy, if not included in the dropdown. In this regard, the GSTN has issued an update dated 29th June 2023.

Read the Update

4. SEBI launches ‘UPI Block Facility’ to transform Secondary Market Trading

SEBI has introduced UPI Block Facility, revolutionising trading with enhanced cash collateral protection, taking the trading experience to a new level. Under the UPI block facility, instead of transferring funds upfront to the trading member, the investor’s blocked funds will remain in their bank account. These funds will be blocked or reserved for trading purposes, providing protection for the investor’s cash collateral.

By integrating UPI with the secondary market trading and settlement process, SEBI aims to simplify and streamline the trading experience while ensuring the safety of investor funds. The UPI block facility will allow the seamless and efficient execution of trades while maintaining the necessary safeguards.

Availing UPI block facility shall be at the option of the investor. It shall be introduced as a non-mandatory facility to be provided by the stockbroker.

All investors permitted to use RBI’s UPI facility, and meet the criteria defined by CCs, shall be eligible. The facility is planned to be operational from 01st January 2024 once these changes and tests are completed successfully.

Read the Circular

5. SEBI prescribes various methods for achieving minimum public unit holding for REITs/InvITs

REIT and InvIT Regulations mandate every listed REIT and InvIT which has public unit holding below 25% to increase its public unit holding to a minimum of 25% within three years from the date of listing of units pursuant to the initial offer. In order to achieve this, SEBI, on 27th June 2023, has prescribed the methods of achieving minimum public unitholding of 25% by REITs/InvITs.

The Manager of the REIT/Investment Manager of InvIT shall adopt any of the following methods to achieve the minimum public unitholding:

(a) Public Offer
(b) Offer for sale through the issuance of offer document
(c) Offer for sale through the stock exchange mechanism
(d) Right issue to public unit holders
(e) Bonus issue to public unit holders
(f) Allotment of units under Institutional placement
(g) Sale of units held by Sponsor(s)/Manager/and their associates in open market
(h) Transfer of units held by Sponsor(s)/Manager/and their associates to an Exchange Traded Fund
(i) Other methods

This amendment aims to enhance transparency and investor participation in these investment vehicles. These measures contribute to a more inclusive and robust investment environment, fostering investor confidence in the real estate and infrastructure sectors.

Read the Circular

6. Government restores Rule 7 of FEM (CAT) Rules, 2000; exempts use of International Credit Card for overseas spending from LRS coverage

Earlier, the MoF omitted Rule 7 of the FEM (Current Account Transactions) Rules, 2000. Rule 7 of the FEM (CAT) Rules, 2000, specifically excluded the usage of an International Credit Card for making payments towards meeting expenses during an overseas visit from the purview of the LRS limit.

Later, the Govt. revoked the exemption on using International Credit Cards (ICC) while travelling abroad. This means including the use of International Credit Cards abroad under the purview of LRS. As a result, the limit of ICC transactions during foreign travel was capped at USD 2,50,000. The amended norms were made effective from 16^th May 2023.

Later on, to provide sufficient time to banks and card networks to implement the necessary IT-based solutions, the Government, through a press release dated 28-06-2023, postponed the implementation of the amended regulations until further notice.

Accordingly, the Govt. has reinstated Rule 7 to the FEM (CAT) Rules, 2000 w.e.f 16-05-2023. Therefore, till the time the amended norms are made applicable, the use of an International Credit Card while on a visit outside India will be out of the purview of the LRS.

Read the Notification

7. SEBI’s Board Meeting focuses on strengthening Indian Capital Markets with stricter FPI norms

In its board meeting dated 28^th June 2023, the SEBI approved implementing several regulatory changes to improve the efficiency and transparency of the Indian capital market. These changes are expected to significantly impact various aspects of the market and benefit both issuers and investors.

The key highlights of the meeting are as follows:

(a) Timeline for the listing of shares in Public Issue to be reduced to 3 days from the existing 6 days from the date of issue closure;
(b) SEBI to enforce stringent disclosure norms for FPIs concerning ownership, economic interest and control;
(c) Listed entities having outstanding NCDs to list their subsequent issuances of NCDs at the stock exchange;
(d) Enabling direct participation by clients in the Limited Purpose Clearing Corporation;
(e) Sponsor of InvIT/ REIT to maintain a minimum unitholding for the entire life of the Investment Vehicle;
(f) SEBI will introduce board nomination rights for unitholders of InvITs/REITs, to strengthen corporate governance and enhance investor protection in the InvIT and REIT sectors.

Read the Story

8. Resignation of an Auditor from a Company does not relieve him of responsibility to report suspected fraud: NFRA

During the discharge of its statutory duties, NFRA has observed that auditors are failing to meet their statutory obligations concerning the reporting of fraud, as required by the Companies Act, 2013 (CA 2013) and Standards on Auditing. Additionally, the NFRA has identified a misconception among some auditors, who believe that resigning from an audit engagement releases them from their responsibility to report fraud and the potential consequences under CA 2013 for non-reporting of such incidents.

Therefore, the NFRA has issued the Circular dated 26-06-2023, which clarifies as follows:

Auditor’s duties to report fraud/suspected fraud to Central Government in Form ADT-4 as required by the Companies Act, 2013

• Statutory Auditors are under a mandatory obligation to report fraud or suspected fraud if they observe suspicious activities, transactions, or operating circumstances in a company that indicate reasons to believe that an offence of fraud is being or has been committed against the company by its officers or employees.
• In such an event, the Statutory Auditor shall report the matter to the Board/Audit Committee within two days of his/her knowledge of the fraud. In case of fraud involves or is expected to involve individually an amount of Rs. one crore or above, and the auditor fails to get any reply/observations from the Board/Audit Committee within 45 days, the auditor shall forward ADT-4 to the Secretary, Ministry of Corporate Affairs, Government of India.
• The Statutory Auditor is duty-bound to submit Form ADT-4 to the Central Government even in cases where the Statutory Auditor is not the first person to identify the fraud/suspected fraud. This is contrary to the view of ICAI taken in Guidance Note on Reporting on Fraud under section 143(12) of the Companies Act, 2013, which suggests reporting is required only if he is the first person to identify such instance of fraud.

Whether the Resignation of the auditor absolves him of his responsibility to report suspected fraud or fraud as required under the Companies Act

• Resignation does not absolve the auditor of his responsibility to report suspected fraud or fraud as mandated by the law and does not relieve the auditor from the consequences of failure to report fraud.

NFRA view is in cognisance with the view taken by the Hon’ble Supreme Court of India in a recent judgment of Union of India and Another v/s Deloitte Haskins and Sells LLP & Anr [2023] 150 taxmann.com 77 (SC).

Read the Story