Weekly Round-up on Tax and Corporate Laws | 7th to 10th October 2024

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from October 07^th  to 10^th, 2024, namely:

1. CBDT invites public input for a comprehensive review of the Income Tax Act;
2. RBI unveils key regulatory reforms, proposes beneficiary name look-up for RTGS/NEFT, hikes UPI transaction limits;
3. CBDT further extends due date for filing audit report in Form 10B/10BB for AY 2023-24 to Nov 10, 2024;
4. Government has notified RCM on supply of Metal Scrap by unregistered to registered person;
5. Government has notified RCM on renting of commercial property by unregistered to registered person; and
6. Classifying Real Estate Property: Inventory vs. Investment Property.

1. CBDT invites public input for a comprehensive review of the Income Tax Act

In order to make the Income Tax Act concise, clear, and easy to understand, the Finance Minister, in her Budget 2024-25 Speech, announced a comprehensive review of the IT Act. The review will reduce disputes and litigation and provide greater tax certainty to taxpayers. It will also bring down the demand embroiled in litigation.

The Central Board of Direct Taxes (CBDT), vide Press Release dated 01-10-2024, stated that an internal committee of the Income Tax Department has been formed to oversee this review. A web page has been launched to invite public input and suggestions on the following:

• Simplifying the language
• Reducing litigation
• Reducing compliance burden
• Removing redundant and obsolete provisions.

The web page is live and accessible to the public on the e-filing portal, where users can enter their mobile number and validate it via OTP.

Suggestions should specify the relevant provision of the Income-tax Act, 1961 or Income-tax Rules, 1962 (mentioning the specific section, sub-section, clause, rule, sub-rule, or form number), as the case may be, to which the suggestion relates under the four categories mentioned above.

Read the Press Release

2. RBI unveils key regulatory reforms, proposes beneficiary name look-up for RTGS/NEFT, hikes UPI transaction limits

The RBI vide. Press Release, dated October 9, 2024, unveiled a series of significant development and regulatory policies, aimed at strengthening financial stability and promoting sustainability in the financial ecosystem. These initiatives focus on regulatory reforms, payment systems, encouraging innovation, improving transparency and protecting customer interests. Some key proposals outlined in the Statement on Developmental and Regulatory Policies include –

2.1 Beneficiary account name look-up feature for RTGS/NEFT transfers

The RBI has proposed introducing a beneficiary account name look-up facility to enable remitters in RTGS and NEFT to verify the name of the beneficiary account holder before initiating funds transfer. Remitters can input the account number and the branch IFSC code of the beneficiary, after which the beneficiary’s name will be displayed. This feature aims to increase customer confidence by reducing the possibility of wrong credits and fraud.

2.2 Enhancement of UPI123 Pay transaction limit to Rs 10,000 and UPI Lite wallet limit to Rs 5,000

To encourage wider adoption of UPI, the RBI has decided to enhance the transaction limits for UPI123 Pay and UPI Lite. UPI123 was launched in March 2022, to enable feature-phone users to use UPI. This facility is currently available in 12 languages. The per-transaction limit for UPI123 Pay is currently capped at Rs 5,000. The RBI has now decided to increase the per transaction limit to Rs 10,000.

Similarly, to expand the scope of usage of UPI Lite, the RBI has decided to raise the UPI Lite wallet limit to Rs 5,000 and the per transaction limit to Rs 1,000.

2.3 Creation of data repository, ‘Reserve Bank Climate Risk Information System’

Climate change is emerging as a significant risk to the financial system. Regulated entities must undertake climate risk assessments to ensure the stability of their balance sheets and the financial system. These assessments require high-quality data relating to local climate scenarios, climate forecasts, and emissions.

However, the available climate-related data is characterised by various gaps, such as fragmented and varied sources and differing formats, frequencies, and units. To address these gaps, the RBI has proposed creating a data repository, namely, the Reserve Bank—Climate Risk Information System (RB-CRIS), comprising of two parts. Further, access to this data portal will be made available only to the regulated entities in a phased manner.

2.4 Extension of ‘Foreclosure Charge Guidelines’ to Micro and Small Enterprises

As per the extant guidelines, banks and NBFCs are not allowed to levy foreclosure charges/pre-payment penalties on any floating rate term loan sanctioned to individual borrowers with or without co-obligants, for purposes other than business. To further safeguard customers’ interests by promoting better transparency and customer centricity among lenders, the RBI has decided to extend the scope of these regulations to cover loans to Micro and Small Enterprises (MSEs) provided by the Regulated Entities of the Reserve Bank.

Conclusion

In conclusion, the RBI’s recent regulatory and development initiatives aim to strengthen financial stability, promote sustainability and boost customer confidence within the financial ecosystem. By introducing features such as the beneficiary account name look–up for RTGS/NEFT, increasing transaction limits for UPI123 Pay and UPI Lite, creating the Reserve Bank Climate Risk Information System and extending foreclosure charge guidelines to MSEs, the RBI shows its commitment to encouraging innovation, transparency and customer-focused practices while addressing emerging risks like climate change. These measures are designed to support the evolving needs of the financial system and ensure its long-term resilience.

Read the Press Release

3. CBDT further extends due date for filing audit report in Form 10B/10BB for AY 2023-24 to Nov 10, 2024

The income of charitable trusts or institutions registered under section 10(23C) or 12AA or 12AB of the Income-tax Act, 1961 is exempt from income-tax subject to fulfilment of various conditions. One such condition is getting its accounts audited and furnishing the audit report in the prescribed Form on or before the specified date. The prescribed forms are, namely, Form 10B and Form 10BB.

Previously, Form 10BB was to be used when the income was computed under section 10(23C), while Form 10B was used when the income was calculated under sections 11, 12, and 12A of the Act. However, from Assessment Year (AY) 2023-24 onwards, the rules for submitting these forms were modified, effective from 01-04-2024. Instead of being determined by the applicable tax regime (Section 10(23C) or Section 11/12A), the choice of form now depends on factors such as receipt and application of income by the trust or institution, including foreign contributions and application of income outside India.

Following these changes, the CBDT found that many trusts or institutions had mistakenly filed Form 10B where Form 10BB was required, and vice versa. Since non-furnishing of audit report in the prescribed form would result in denial of exemption, the CBDT vide Circular No. 02/2024, dated 05.03.2024 intially extended the due date for furnishing the audit report in correct form to 31^st March 2024 if the trust or institution has already filed the audit report on or before 31^st October to 2023.

Various representations were received that taxpayers could not file the audit report in the prescribed form for AY 2023-24. In order to provide relaxation to the taxpayers, the CBDT has further extended the due date for furnishing the audit reports in Form 10B/10BB from 31^st March 2024 to  10^th November, 2024.

Read the Order

4. Government has notified RCM on supply of Metal Scrap by unregistered to registered person

Based on the recommendation of the 54th GST Council meeting, the Government has notified the levy of GST under RCM on the supply of Metal Scrap by an unregistered person to a registered person with effect from 10-10-2024. In this regard, Notification No. 06/2024 – Central Tax (Rate), dated 08-10-2024 has been issued.

Read the Notification

5. Government has notified RCM on renting of commercial property by unregistered to registered person

The GST Council in its 54th meeting recommended to levy GST on commercial property under reverse charge when supplied by an unregistered person to a registered person. Now, the Government has notified the levy of GST under RCM on renting of any property other than residential dwelling by an unregistered person to a registered person with effect from 10-10-2024. In this regard, Notification No. 9/2024 – Central Tax (Rate), dated 08-10-2024 has been issued.

Read the Notification

6. Classifying Real Estate Property: Inventory vs. Investment Property

In financial reporting, the classification of real estate properties is essential for the fair presentation of financial statements, ensuring that assets are accurately reflected according to their intended use. Proper classification is not only necessary for compliance but also provides stakeholders with a true representation of the company’s financial position and operations.

When dealing with real estate property, especially in situations where both rental income and the intent to sell are involved, the classification between inventory and investment property becomes crucial. Misclassification can lead to inaccurate financial statements and non-compliance with Ind AS. For companies operating in sectors like real estate or construction, where properties are often used for various purposes, the clarity between “held for sale” and “held for earning rentals or appreciation” needs careful evaluation.

Ind AS 40, Investment Property defines investment property as land or buildings held to earn rentals or for capital appreciation, rather than for sale in the ordinary course of business. On the other hand, Ind AS 2, Inventories states that inventories are assets held for sale in the ordinary course of business or in the process of production for such sale. Thus, the classification of real estate as either “inventory” or “investment property” depends on the primary intent of the entity i.e. whether the property is meant for sale or to generate rental income and appreciate in value.

In a case reviewed by the Expert Advisory Committee (EAC), a public sector undertaking (PSU) faced this classification issue with a property jointly developed with a municipal corporation. Despite completing the property in 2010, delays in obtaining regulatory approvals led the company to temporarily rent the property to generate income. The company’s management, however, maintained that the primary intent remained to sell the property once the necessary approvals were secured.

In this case, the EAC advised that the property should continue to be classified as “Inventory” rather than “Investment Property”. This was based on the fact that the primary intention was always to sell the property in the ordinary course of business, as evidenced by the agreements with the municipal corporation and repeated attempts to market and sell the property. The temporary rental agreements were just a short-term solution to cover holding costs until the property could be sold. The committee opined that even though the property earned rental income, it shall be classified as inventory, in line with Ind AS 2.

Read the Story