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Extension in timeline for holding General Meetings through Video Conference or Other Audio Visual Means

Extension in timeline for holding General Meetings through Video Conference or Other Audio Visual Means

Home > Extension in timeline for holding General Meetings through Video Conference or Other Audio Visual Means

Extension in timeline for holding General Meetings through Video Conference or Other Audio Visual Means

SBC X ARP ADVISORY

  • The Ministry of Corporate Affairs (“MCA”) vide its General Circular No. 09/2024 dated September 19, 2024 has granted an extension in timeline for holding Annual General Meeting (“AGM”) due in the year 2024 and 2025 through Video Conference (“VC”) or Other Audio Visual Means (“OAVM”) and passing of resolutions thereof
  • Further, the above extension in timeline shall not be construed as an extension on the statutory timeline of holding an AGM and the companies not adhering to the statutory provisions shall be liable as per the provisions of the Act
  • In addition to AGM, the MCA has also allowed companies to hold their Extra-ordinary General Meetings through VC or OAVM
  • The extension is provided up to September 30, 2025
  • Companies are required to adhere to the requirements provided in the earlier circulars issued in this regard

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Direct Tax Vivad Se Vishwas Rules, 2024 (DTVSV 2.0) notified

Direct Tax Vivad Se Vishwas Rules, 2024 (DTVSV 2.0) notified

Home > Direct Tax Vivad Se Vishwas Rules, 2024 (DTVSV 2.0) notified

Direct Tax Vivad Se Vishwas Rules, 2024 (DTVSV 2.0) notified

Notification No. 104/2024, F. No. 370142/16/2024-TPL

Scheme Introduction and effect date

The DTVSV offers taxpayers a simplified way to resolve outstanding income tax disputes. The scheme aims to ease the burden on taxpayers and expedite the resolution process and is effective from 01-Oct-2024

Taxpayer Categories

The scheme classifies taxpayers case as “new” or “old” appellants, with new appellant case benefiting from lower settlements. Additionally, mechanism has been notified for loss/depreciation and MAT Credit cases.

Forms Notified

Form 1 – Declaration and Undertaking
Form 2 – Certificate by Designated Authority
Form 3 – Payment Declaration Form
Form 4 – Full & Final Settlement Order

Electronic Filing

Forms 1 and 3 must be submitted electronically via the Income Tax Department’s e-filing portal. Form-1 is to be filed separately for each dispute unless both appellant and tax authority have filed an appeal in respect of the same order.

Deadline Reminder

Submit declarations by December 31, 2024, for reduced settlement amounts under the DTVSV Scheme. Applicants filing declaration after such date shall be liable for higher settlement amounts.

Where can SBC assist?

• Analysing the open appeals for eligibility.
• Documentation and filing of appropriate Forms.
• Alternatives available and cost/benefit analysis.
• Representation before tax authorities for application till its disposal and give effect.
• DTVSV applicability for foreign taxpayers where the eligibility is challenged.

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Compounding of Offences Under FEMA Act 1999

Compounding of Offences Under FEMA Act 1999

Home > Compounding of Offences Under FEMA Act 1999

Compounding of Offences Under FEMA Act 1999

Compounding of Offences under FEMA Act 1999

Understanding of FEMA & Compounding of Offences

The Foreign Exchange Management Act (FEMA) of 1999 is the primary legislation governing foreign exchange transactions in India, ensuring adherence to international financial regulations. When violations occur, they can lead to penalties or legal actions. However, FEMA permits the compounding of offences, allowing offenders to pay a fee to resolve the violation without facing more severe penalties or prosecution.

The newly introduced Foreign Exchange (Compounding Proceedings) Rules, 2024, update the previous 2000 rules, aiming to streamline the process and improve transparency in handling foreign exchange violations

Compounding Authorities and Their Jurisdiction

The new rules specify that compounding authorities will be from both the Directorate of Enforcement and the Reserve Bank of India (RBI), depending on the type of violation.

1. Director of Enforcement: Acts as the principal authority for compounding violations under Section 3(a) of FEMA, which generally deals with the illegal transfer of foreign exchange and foreign security violations.

2. RBI Officers: RBI officers of various ranks have the authority to compound other contraventions based on the amount involved in the violation:

• Violations under Rs. 60 lakhs: Assistant General Manager or higher.
• Violations under Rs. 2.5 crores: Deputy General Manager or higher.
• Violations under Rs. 5 crores: General Manager or higher.
• Violations above Rs. 5 crores: Chief General Manager or higher.

Compounding Procedures: A Step-by-Step Overview

Users can not only present the presentation on the projector or computer, but they can also print out the presentation.

Application Submission

The applicant must submit a compounding application in the prescribed form (detailed in the annexure) to the relevant authority (RBI or Enforcement Directorate), along with a fee of Rs. 10,000 plus applicable Goods and Services Tax (GST).
The payment can be made via Demand Draft, NEFT, RTGS, or other electronic modes.

Evaluation by Compounding Authority

The authority may call for additional information, records, or documents relevant to the case. The applicant may be asked
to furnish further details regarding the transaction involved in the contravention.

Compounding Order

The authority must pass the compounding order within 180 days of receiving the application, ensuring that the case is resolved quickly. The order will include the specific provisions of FEMA violated, details of the contravention, and the amount payable for compounding the offence.

Compounding Procedures: A Step-by-Step Overview

Payment of the Compounded Sum

Once the order is passed, the applicant must pay the compounded sum within 15 days. Failure to make the payment within the stipulated time would mean the application for compounding is void, and the violation would be dealt with as a regular contravention under FEMA.

Discontinuation of Adjudication

If a contravention is compounded before adjudication, any ongoing or pending inquiry related to the violation will be discontinued. Once the compounded sum is paid, the contravention is fully settled, and no further penalties will be imposed.

Issuance of Copy of Compounding Order

A copy of the order is provided to the applicant and the Adjudicating Authority (if involved) to ensure transparency in the
process.

•The application fee has been raised from Rs. 5,000 (as per the 2000 rules) to Rs. 10,000 plus GST.
•Payments can now be made via NEFT, RTGS, and other online methods, moving away from the former demand draft-only requirement

Restrictions on Compounding Certain Offences

Not all FEMA violations are eligible for compounding. The rules specify the following conditions where compounding is not allowed:

Restrictions on Compounding Certain Offences

Implications of Non-payment and Non-compliance

If the compounded sum is not paid within the specified 15-day period, the application will be nullified and considered as if no compounding application had been submitted. In such situations, the standard provisions of FEMA will take effect, potentially resulting in higher penalties or legal action.

Key Amendments

Key Amendments

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Place of Supply of Data Hosting Services

Place of Supply of Data Hosting Services

Home > Place of Supply of Data Hosting Services

SBC_ GST Update_GST Clarification POS Data hosting services v3

CBIC vide Circular No. 232/26/2024GST dated 10th September 2024, addresses the issue in relation to the place of supply for data hosting services provided by service providers in India to cloud computing companies abroad. The trade industry have requested guidance on this matter to determine the correct place of supply under GST law. The following are the various issues and clarifications given by the CBIC

Issue 1: Does a data hosting service provider qualify as an ‘Intermediary’ under Section 2(13) of the IGST Act? Moreover, are the services considered intermediary services with the place of supply determined under Section 13(8)(b) of the IGST Act?

Clarification:

  • A data hosting service provider generally does not qualify as an ‘Intermediary’ under Section 2(13) of the IGST Act.
  • The service provider operates on a principal-to-principal basis, providing data hosting services directly to the cloud
    computing service facilitating provider, not or arranging services between the cloud computing service provider and its end customers. Hence, these services will not fall under the category of intermediary.
  • Thus, the place of supply for data hosting services provided by an Indian service provider to an overseas cloud computing service provider cannot be determined under Section 13(8)(b) of the IGST Act.

Issue 2: Whether data hosting services are in relation to goods “made available” by the recipient to the service provider, with the place of supply determined under Section 13(3)(a) of the IGST Act?

Clarification:

  • Data hosting services cannot be considered to be in relation to goods “made available“ by the cloud computing service providers to the data hosting service providers.
  • The data hosting service providers own or operate their infrastructure, including premises, hardware, software, power
    supply, and security, and independently handle operations and maintenance.
  • Thus, the place of supply for data hosting services does not fall under Section 13(3)(a) of the IGST Act.

Issue 3: Whether the data hosting services are provided in relation to immovable property, and if so, whether the place of
supply is governed by Section 13(4) of the IGST Act?

Clarification:

  • The services provided by data hosting service providers are not directly related to immovable property.
  • They involve a comprehensive supply of services related to data hosting, including managing data centres, ensuring
    uninterrupted power supply, providing network connectivity, and other essential services for cloud computing.
  • Therefore, the place of supply for such services cannot be determined under Section 13(4) of the IGST Act.

Conclusion:

  • The place of supply for data hosting services does not fit into any specific provisions under Sections 13(3) to 13(13) of the IGST Act.
  • Therefore, the place of supply is determined as per the default provision under Section 13(2) of the IGST Act, which is the location of the recipient of services.
  • If the recipient (cloud computing service provider) is located outside India, the place of supply will be considered
    outside India.
  • The supply of data hosting services by a provider in India to an overseas cloud computing entity can be considered as an export of services, subject to fulfillment of the other conditions mentioned in Section 2(6) of the IGST Act.

SBC Comments: It is a great relief for the people who are in data hosting services sector in India. If there are any open pending cases, it is advisable to proceed further based on the circular issued regarding the data hosting services. The circular contains important clarifications and guidelines that should address many of the issues you may be facing.

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Safe Harbour Rules – Indian Transfer Pricing Regulations

Safe Harbour Rules - Indian Transfer Pricing Regulations

Home > Safe Harbour Rules – Indian Transfer Pricing Regulations

Safe Harbour Rules - Indian Transfer Pricing Regulations

India’s Transfer Pricing Safe Harbour Regime: An Overview

Overview of the Indian Safe Harbour Regime

  • The Indian Safe Harbour Regime was established in response to escalating instances of transfer pricing audits and disputes. Introduced under the Finance (No.2) Act of 2009, effective from April 1, 2009, this regime was introduced vide Section 92CB of the Income Tax Act, 1961.
  • Under section 92CB, the determination of an arm’s length price, as defined by section 92C or Section 92CA, is required to adhere to safe harbour rules. These rules provide predefined acceptable ranges of profits or prices, enhancing certainty for transactions.
  • To provide greater advantages to taxpayers, the Central Board of Direct Taxes (CBDT) broadened the scope of Safe Harbour Rules through Rule 10TD of the Income-tax Rules. This expansion aims to streamline compliance procedures, encourage timely approvals, and reduce complexities associated with transfer pricing.
  • The Indian Safe Harbour Regime offers a structured and predictable framework that promotes compliance, minimizes disputes, and fosters a more harmonious business environment, ultimately contributing to a
    more efficient and effective transfer pricing ecosystem.

Eligible Assessee

A person who has validly opted for safe harbour rules under Rule 10TE of the Income Tax Rules, 1962.

Eligible Transactions

These eligible transactions qualify for safe harbour treatment under Rule 10TB, providing a simplified and predictable transfer pricing framework.

SBC TP Update - Indian Safe Harbour Rules

The Rational Choice: Selecting the Safe Harbour Option

Advantages of Choosing the Safe Harbour Approach

Enhanced Certainty

By providing advance insight into the acceptable range of profits or prices that meet Safe Harbour criteria, transactions gain a heightened level of certainty, offering stakeholders a clearer financial landscape.

Conflict Mitigation

Safe Harbour serves as an effective dispute avoidance mechanism, significantly curbing the potential for conflicts between taxpayers and revenue authorities. This fosters a more harmonious business environment, particularly significant given the high incidence of Indian Transfer Pricing litigation.

Streamlined Approvals & Assessment

Safe Harbour Rules offer a structured mechanism for application and approvals procedures, facilitating a smoother and time-bound process. This stands in stark contrast to the prolonged timelines associated with Domestic Litigation or Advance Pricing Agreements (APAs).

Comparative Compliance

In contrast to the complexities involved in Advance Pricing Agreements (APAs) and the Domestic Transfer Pricing Litigation Route, Safe Harbour Rules present a more favorable choice in terms of TP/ALP rates/margins, timelines, and associated costs. This streamlined approach can alleviate compliance burdens.

Resource Efficiency

The adoption of Safe Harbour Rules translates into substantial savings in terms of time, costs, and efforts, especially in potential litigation scenarios. This strategic choice can lead to optimized resource allocation and more efficient business operations.

Stakeholder Confidence

Safe Harbour instills confidence in taxpayers through its predictable framework, enhancing investor confidence and fostering robust business growth.

Safeguarding Reputational Capital

Choosing the Safe Harbour route mitigates the risk of reputational damage that could arise from contentious transfer pricing disputes. A clean record in compliance can enhance a company’s standing within its Group and among stakeholders.

Incentive for Voluntary Compliance

The transparent and predictable nature of Safe Harbour can incentivize voluntary compliance, enabling companies to proactively meet their transfer pricing obligations and contribute positively to the overall tax ecosystem.

Core Features of the Safe Harbour Rules in India

Safe Harbour Rules in India: Key Points for Taxpayers

For those seeking to opt for safe harbour rules and who have undertaken in eligible international transactions, adherence to specific guidelines is imperative. Here’s a concise breakdown of the crucial aspects:

Filing Requirement

Taxpayers opting for safe harbour need to file an income return and safe harbour application (Form No 3CEFA) to the Assessing Officer, both before the stipulated deadline i.e., 30 November following the relevant FY.

Compliance Commitment

Even if opting for safe harbour, taxpayers must fulfill the prescribed transfer pricing documentation and maintain/Form 3CEB filing compliances (Rule 10TD(5) of the Rules).

Geographical Limitations

Safe harbour doesn’t apply to transactions with Associated Enterprises/Related Parties location in low or no tax countries.

Mutual Agreement Procedure (MAP)

If approved, the transfer price by the tax authorities for an eligible international transaction bars the assessee from invoking the Mutual Agreement Procedure in a double taxation avoidance agreement with a foreign entity.

Adjustment Constraints

When opting for safe harbour, comparability adjustments and prescribed variation/range benefits (tolerance band) aren’t accessible (Rule 10TD(4) of the Rules).

Duration of Choice

The option exercised remains in effect for a period as notified by the CBDT.

Transaction Scope

Safe harbour applies solely to specified transactions, while TP scrutiny exposure remains open to other transactions not eligible under safe harbour.

Deemed Acceptance

If the Assessing Officer, Transfer Pricing Officer, or the Commissioner, as the case may be, does not make a reference or pass an order within the specified time, then the option for safe harbor exercised by the assessee shall be treated as valid.

Scope of definitions

The scope of Operating Revenue and Operating Expense to be used in the computation of the Operating Margin has been clearly defined in the Safe Harbour Rules.

Indian Safe Harbour Rules – Latest Safe Harbour
Margins

SBC TP Update - Indian Safe Harbour Rules

Safe Harbour Procedure

SBC TP Update - Indian Safe Harbour Rules

How can SBC assist you?

Navigating the Safe Harbour Application process doesn’t have to be overwhelming. We’re here to provide discreet and effective assistance every step of the way.

SBC support:

  • We provide assistance in filing Form No. 3CEFA (Safe Harbour Application), ensuring a smooth process.
  • Our experts evaluate your eligibility for Safe Harbour Rules (SHR) by undertaking functional analysis and review of inter-company transactions and underlying agreements to guide your decision-making.
  • We conduct a comprehensive cost-benefit analysis to help you assess your options effectively.
  • If needed, we calculate year-end transfer pricing adjustments to align with safe harbour rates.
  • Our support extends to year-end compliance, including Form No. 3CEB and transfer pricing documentation.
  • We offer representation support before tax authorities (AO & TPO) for safe harbour proceedings.

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GST Update – 54th GST Council Meeting Recommendations

GST Update – 54th GST Council Meeting Recommendations

Home > GST Update – 54th GST Council Meeting Recommendations

SBC _ GST 54th Council meeting update

The 54th GST Council

met inter alia made the following recommendations relating to changes in GST tax rates, measures for facilitation of trade and measures for streamlining compliances in GST.

1. List of Services to be added to RCM:

RCM applicability on 

a. Renting of commercial property by unregistered to registered person

SBC Comments:
Earlier, w.e.f. 18th July 2022, the renting of residential property was subject to Reverse Charge Mechanism (RCM). The proposal now suggests extending RCM to include the renting of commercial property. However, the term “commercial property” has not been explicitly defined in the law. It is also proposed that all types of commercial property rentals may eventually be brought under the purview of GST

b. Supply of Metal scrap by unregistered to registered person

Reverse Charge Mechanism (RCM) to be introduced on supply of metal scrap by unregistered person to registered person provided that the supplier shall take registration as and when it crosses threshold limit and the recipient who is liable to pay under RCM shall pay tax even if supplier is under threshold.

2. GST TDS on supply of metal scrap:

A TDS of 2% will be applicable on the supply of metal scrap by a registered person in B-to-B supply

SBC Comments:
Previously, the applicability of Tax Deducted at Source (TDS) was restricted to government companies and their related entities. As this metal scrap industry is an unorganized sector. It is now proposed that a 2% TDS will be imposed on the business-to-business (B2B) supply of metal scrap.

3. Proposed GST exemptions

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4. Recommendations

a)Introduction of RCM Ledger & IMS

Introduction of a Reverse Charge Mechanism (RCM) ledger, an Input Tax Credit Reclaim ledger (by 31 October 2024) and an Invoice Management System (IMS)

SBC Comments:
The Reverse Charge Mechanism (RCM) ledger and Invoice Management System (IMS) streamline compliance on the GST portal by allowing to manage of regular ITC and RCM ITC while also providing tools for effective invoice management.

b) Introduction of B2C e-Invoicing

SBC Comments:
B2B E-invoicing compliance was introduced on October 1, 2020. It was mandatory for businesses with a turnover exceeding INR 500 crore or more, which was gradually brought down to INR 5 crore or more. However, due to the large volume of transactions, B2C E invoicing is also being considered. The specific limits for B2C E-invoicing are currently under discussion and will be notified soon.

c) GST on life and health insurance

Constitute a Group of Ministers (GoM) to holistically look into the issues pertaining to GST on life insurance and health insurance. The GoM is to submit the report by end of October 2024.

d) GST on Preferential Location Charges

Location charges or Preferential Location Charges (PLC) paid along with the consideration for the construction services of residential/commercial/industrial complex before issuance of completion certificate forms part of composite supply
SBC Comments:
This clarification comes as a much-needed relief for the real estate industry, addressing the long-standing ambiguity regarding tax rates on Preferential Location Charges (PLC). For buyers, this is great news! Instead of the GST rate of 18% being applied to PLC, it will now be taxed at a reduced rate of 5%, or 1% for affordable housing.

e) Goods Transport Agency (GTA)

When a Goods Transport Agency (GTA) provides additional services (like loading, unloading, packing, unpacking, transshipment, or temporary warehousing) during the transportation of goods by road and issues a consignment note, these services are considered part of a composite supply.
If these services are provided separately and invoiced separately, they are not treated as part of the composite supply of transportation of goods

f) Introduction of sub-sections (5) and (6) into section 16

The GST Council recommended the early notification of sections 118 and 150 of the Finance (No. 2) Act, 2024, which introduce sub-sections (5) and (6) into section 16 of the CGST Act, 2017, with retrospective effect from July 1, 2017. They also suggested a special procedure for rectifying orders under section 148 of the CGST Act for taxable persons who received orders for wrong input tax credit claims but are now eligible under the new sub-sections. Additionally, a circular will be issued to clarify the procedure and address issues related to these new provisions.
SBC Comments:
A retrospective amendment of sub-sections (5) and (6) into section 16 provides great relief to the taxpayers who were affected by delayed claiming of ITC. They can now avail the benefit of it by approaching the appropriated appellate authority for revision of orders.

g) Removal of Rules 96(10), 89(4A), and 89(4B) from the CGST
Rules, 2017

The GST Council recommended that, where the inputs were initially imported without payment of IGST and compensation cess by availing benefits under Notification No. 78/2017-Customs dated 13.10.2017 or Notification No. 79/2017-Customs dated 13.10.2017 are later paid along with interest, the refunded IGST on exports will not breach Rule 96(10) of the CGST Rules. To ease the refund process for exporters, the Council also suggested the prospective removal of Rules 96(10), 89(4A), and 89(4B) from the CGST Rules, 2017.
SBC Comments:
Exporters who fulfill the conditions of paying IGST and compensation cess on imported inputs (along with interest) and having the Bill of Entry reassessed will no longer be required to repay the refunded IGST with interest and penalties under Section 74.
However, many exporters have already incurred penalties, including repayment of the IGST refund, interest, and additional penalties ranging from 15% to 100%.Many taxpayers were unable to claim refunds due to restrictions imposed under Rule 96(10). This is a huge relief given to the exporters with payment of tax.

h) Addition of Rule 164 to the CGST Rules, 2017

The GST Council recommended adding rule 164 to the CGST Rules, 2017, to outline the procedure and conditions for waiving interest or penalties on tax demands for FYs 2017-18, 2018-19, and 2019 20 under section 128A of the CGST Act. They also recommended that the insertion of section 128A (Amnesty Scheme) in CGST Act, 2017, may be notified with effect from 01.11.2024. and related circulars along with

i) The GST Council recommended issuing circulars to clarify and resolve ambiguities on the following issues:

a. Place of Supply for advertising services provided by Indian companies to foreign entities.
b. Availability of Input Tax Credit on demo vehicles for vehicle dealers.
c. Place of Supply for data hosting services provided by Indian service providers to foreign cloud computing service provider

5. Summary of Rate Changes and Exemptions:

Changes in GST Rates on Goods & Services:

2

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SBC Tax Alert e-DRS September 2024

SBC - Tax Alert e-DRS September 2024

Home > SBC – Tax Alert e-DRS September 2024

SBC - Tax Alert - e-DRS - September 2024

CBDT’s e-Dispute Resolution Scheme:

The Central Board of Direct Taxes (CBDT) has recently enabled the procedure for its e-Dispute Resolution Scheme, 2022 (e-DRS) via a press release dated 30-Aug 2024, in line with Section 245MA of the Income-tax Act, 1961 (IT Act).

Earlier in 2022, the income tax (IT) department had notified this scheme under Section 245MA of the IT Act, to reduce tax litigation and disputes.

This scheme aims to minimize litigation and offer relief to taxpayers by providing a streamlined electronic platform for dispute resolution. The scheme is particularly beneficial for smaller disputes where litigation costs and processes may be burdensome for taxpayers

SBC is pleased to present its Tax Alert summarizing the key features of the scheme and the procedure now notified. While the scope of the scheme appears limited, it is essential to understand the features of the scheme so that a taxpayer can diligently decide between:

a) Vivad Se Vishwas Scheme, 2024 (VSVS)
b) e-DRS
c) Normal Appeal Mechanism

Key Features of the e-DRS:

Eligibility:

Taxpayers are eligible to apply for the scheme if the returned income does not exceed ₹50
lakh for the relevant assessment year and the aggregate variation in the tax order (including
draft orders) does not exceed ₹10 lakh (Specified Order).

Ineligibility:

1.Assessees involved in search or survey cases.
2.Cases based on information received under international agreements (Section 90 or 90A).
3.Taxpayers who have been prosecuted for offenses under the Income-tax Act or other criminal laws as mentioned in Section 245MA.

Process outlined by:

1.Taxpayers can file an application electronically using Form 34BC on the Income-tax e-filing portal within one month of receiving a specified tax order.
2.If an appeal is already pending before the Commissioner of Income-tax (Appeals) [CIT(A)] or the Specified Order has been passed on or before 31-Aug-2024 and the time limit for filing appeal with CIT(A) has not been lapsed, the application should be filed by 30-Sep 2024.
3.A fee of INR 1,000 must be paid before making the application.
4.Upon receipt of order from the Dispute Resolution Committee (DRC), the Assessing Officer (AO) has to pass final assessment order for draft assessment order applied or modify the assessment order, in other cases
5.AO has to pass the order in conformity with directions of the DRC within 1 month 

Powers of the DRC:

1.The DRC can modify variations in tax orders.
2.It may reduce or waive penalties and offer immunity from prosecution provided the applicant has paid the tax due on the returned income and co-operates with DRC.
3.Orders must be passed by the DRC within six months from the date of admitting the application.
4.Decisions shall be by majority of the members of a DRC.

List of Jurisdictional Committees:

DRCs have been established across 18 jurisdictions in India. The complete list and contact
information are available on the Income-tax e-filing portal.

Constitution of the DRC:

• 2 retired officers from the Indian Revenue Service (Income-tax), who have held the post of Commissioner of Income-tax or any equivalent or higher post for five years or more; and
• 1 serving officer not below the rank of Principal Commissioner of Income-tax or Commissioner of Income-tax as specified by the Board.

The members shall be appointed by the Central Government for a period of three years.

SBC Comments and how can it assist:

Pros:
• Quick Resolution: Faster resolution of disputes, with a mandate for decisions within six months.
• Relief from Penalty/Prosecution: The scheme provides for the waiver or reduction of penalties and immunity from prosecution in certain cases.
• Electronic Filing: Convenient e-filing system reduces paperwork and eliminates physical interaction with tax officials 

Cons:
• Limited Scope: The orders covered are only where the returned income is below 50 lakhs (where return is filed) and the variation is up to INR 10 lakhs
• No Further Appeal: Once the DRC decision is accepted, no further appeal is allowed. The only legal recourse available is through a Writ Petition.
• Uncertainty in Initial Implementation: As the scheme is relatively new, there is some uncertainty regarding how favourable the committee’s decisions will be towards taxpayers considering the orders are not appealable. It may be prudent to wait and observe how the scheme is implemented before opting for it.

Conclusion:

The e-Dispute Resolution Scheme, 2022 offers a timely opportunity for eligible taxpayers to resolve smaller disputes efficiently. However, the inability to appeal further after opting for this scheme and uncertainty around its practical application should be carefully considered before proceeding. This scheme shall however be beneficial for cases where there is risk of penalty and prosecution though the tax impact is limited.

Taxpayers should evaluate their position, consult their tax advisors, and consider whether this scheme aligns with their dispute resolution needs (along with the alternative options that are available currently available VSVS v/s e-DRS Appeal Mechanism.

How can SBC assist?
• Analysing the eligibility under the Scheme
• Evaluation of options – VSVS v/s e-DRS v/s Appeal Mechanism
• Filing and processing of the application
• Representation and liaising with the tax authorities

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Transfer Pricing Compliances for Non Residents (NR) in India

Transfer Pricing Compliances for Non Residents (NR) in India

Home > Transfer Pricing Compliances for Non Residents (NR) in India

SBC TP Update - TP Compliances for NRs _2024

Transfer Pricing Compliances applicable to NRs in India:

The clock is ticking, and Indian Transfer Pricing (“TP”) Compliances for the financial year 2023-24 are just around the corner, with due dates in Oct/Nov ’24.

Ensuring compliance with Indian transfer pricing regulations isn’t just a box to tick; it’s a strategic imperative. Non-compliance can result in serious repercussions with tax authorities. While many multinationals are abreast and carefully track the TP compliances of resident entities, there has been confusion or oversight regarding TP compliances applicable to a non-resident entity especially the associated enterprises (“AEs”) of Indian entities.

In this update, we have highlighted the applicability of Indian TP compliances for Non-Residents (“NR”) in India.

Applicability of TP Provisions to NRs

Section 92(1) of the Income Tax Act, 1961 (“IT Act”) (the primary section for the applicability of TP) provides that income arising from international transactions has to be at arm’s length price (“ALP”). Accordingly, Indian TP provisions would apply to NRs only when they enter into international transactions that give rise to taxable income in India.

If an NR has taxable income in India as per the provisions of the ITA from its AEs in the nature of services income, royalty/license fees, interest, sale/transfer of shares (capital gains), guarantee commission, etc., the NR has to comply with TP regulations in India.

ALP analysis from the standpoint of Indian resident AEs alone is not sufficient, as the TP regulations require even the NR AEs to substantiate the ALP for taxable international transactions.

TP Compliances for NR Threshold for applicability Due date Penalty for non compliance
Accountants Report (Form No. 3CEB)
If International Transactions(irrespective of threshold) are undertaken with foreign Associated Enterprises (AEs). [Sec 92E (Form No. 3CEB) is applicable for all taxpayers including NR]
31st October
INR 1,00,000 [Sec 271BA is applicable to all taxpayers including NR]
Transfer Pricing Study Report
If aggregate value of International Transactions > INR 1 Crore. [Sec 92D & Rule 10D (TP Study) is applicable to NR having international transactions that gives rise to taxable income in India]
31st October
2% of value of international transactions [Sec 271AA(1) is applicable to all taxpayers including NR]
Master File (Form No. 3CEAA)
Part A is applicable if International Transactions are undertaken during the financial year (Part A is applicable to all MNEs irrespective of threshold)

Part B is applicable if below twin conditions are satisfied:

• Consolidated Group Revenue exceeds INR 500 Crores and

• Aggregate value of all International Transactions exceeds INR 50 crores, or the Intangible Property related International Transactions exceeds INR 10 Crores

[Sec 92D & Rule 10D (Form No. 3CEAA) is applicable for all taxpayers including NR]
30th November
INR 5,00,000 [Sec 271AA(2) is applicable to all taxpayers including NR]

Filing of Form No. 3CEB, maintenance of TP Study Report and Corporate Tax Return by NR

Income earned by NR Form 3CEB & TP Report compliance requirement Corporate Tax Return Requirement (“ROI”)
Taxable as per Income Tax Act & DTAA
To be reported in Form 3CEB & TP Study Report to be maintained (if value > INR 1 Crore)
Applicable unless TDS is deducted at rates given in Section 115A and there is no other income chargeable apart from incomes specified in Section 115A.
Taxable as per Income Tax Act but exempt as per DTAA
To be reported in Form 3CEB & TP Study Report to be maintained (if value > INR 1 Crore)
Applicable where DTAA benefit is opted by NR.
Not taxable as per Income Tax Act
Not to be reported (Can be disclosed in Form No. 3CEB out of abundant caution if there are any other taxable international transactions)
Not applicable
Other transactions of NR not impacting the taxable income
Not to be reported (Can be disclosed in Form No. 3CEB out of abundant caution if there are any other taxable international transactions)
Not applicable
TP compliances applicable even in case of ITR exemption Filing of Master File (Form No. 3CEAA) by NR
❑ Section 115A provides an exemption to NRs from filing a Return of Income (ROI) when their total income consists of interest, dividends, FTS (Fees for Technical Services), and royalties, if tax has been deducted as per the rates provided therein.

❑ To claim such exemption, NR must not have any additional income that is assessable under the IT Act.

❑ However, there is no corresponding exemption in Sections 92E and 92D, and it would be advisable for NRs to comply with TP regulations to avoid penalties u/s 271BA and 271AA of the IT Act.
❑ The Central Board of Direct Taxes (“CBDT”), vide Notification No. 31/2021 dated April 5, 2021, amended Rule 10DA(4).

❑ As a result, if there are more than one resident as well as non-resident constituent entities, Form No. 3CEAA can be filed by any one designated constituent entity on behalf of all constituent entities.

❑ Accordingly, this redundant compliance burden on NRs is eased by the government.

Mitigating the Risk of Potential Litigation

❑ Under the Indian TP litigation mechanism, the Assessing Officer (AO) must refer the scrutiny of international or specified domestic transactions to a designated Transfer Pricing Officer (TPO).

❑ The CBDT, via Instruction No. 03/2016, provides guidelines on risk parameters for referring cases to TPOs.

❑ Cases are selected for scrutiny based on “TP risk parameters” through the Computer Aided Scrutiny Selection (CASS) system or the Compulsory Manual Selection Process.

❑ Cases under corporate tax scrutiny may also be selected for TP scrutiny based on Non-TP risk parameters, such as:

  • Non-filing of Form No. 3CEB or non-reporting of transactions in Form No. 3CEB.
  • TP adjustments of INR 10 crore or more in prior years, upheld by judicial authorities or pending in an appeal.
  • Findings related to TP matters in india from search, seizure, or survey operations.

❑ Non-Residents must ensure transfer pricing compliance to avoid scrutiny and penalties related to the non-filing of Form No. 3CEB in India.

Check Points for NR TP Compliance

Check Points Explanation
Obtain PAN in India
When TP compliances are applicable, obtaining a PAN in India is crucial for electronic filings. For Non-Residents (NRs), obtaining a PAN through Form 49AA can be time-consuming, as it requires documents like the certificate of incorporation to be apostilled or attested by the Indian consulate or embassy abroad. It is advisable to initiate this process early to meet impending due dates.
Authorize Digital Signature Certificate (DSC) Holders in India
It is advisable to authorize a person holding a Digital Signature (DSC) in India by initiating a Power of Attorney (PoA), as electronic TP filings require digital signing. NR individuals acting as signatories for NR entities outside India may also consider obtaining a DSC depending on convenience.
Reliance on Available Documentation for TP Compliance
Since NR may not statutorily required to maintain books of accounts in India under any law, reliance should be placed on Form No. 26AS, invoices, agreements etc. Reliance can also be placed on documents, information and accounts maintained by the Indian AE with whom the NR AE has entered into international transaction.
Ensure Arm’s Length Price (ALP) Compliance
The Transfer Price should fall within the arm’s length range to meet the arm’s length requirements from the perspectives of both the Indian AE and NR AE, ensuring compliance from both sides.
Reconcile Form No. 3CEB with Form No. 26AS and Income Tax Return
Ensure that the value of international transactions reported in Form No. 3CEB matches with Form No. 26AS and the Income Tax Return to avoid scrutiny notices due to mismatches.
Report All Relevant International Transactions
Report all taxable international transactions and, where required, other international transactions as a precautionary measure to avoid penalties for failure to report qualifying international transactions.

Judicial Rulings in the context of NR TP Compliances

Case Law Reference Important Observations
Content
Venenburg Group B.V. [2007] 289 ITR 464 (AAR)
Case Summary:

The Authority for Advance Ruling (AAR) held that the applicant was not taxable in respect of capital gains on sale of shares held in its Indian subsidiary under the provisions of India Netherland Tax treaty. AAR held that since the provisions of the tax treaty were more beneficial to the assessee than provisions of the Act, the same were applicable to the assessee.

Conclusion:

The AAR further held that it was not necessary for the applicant to file tax return in India in the absence of tax liability in India and transfer pricing provisions under section 92 to 92F were not attracted in respect of the aforesaid transactions.
Praxair Pacific Ltd. [2010] 326 ITR 276 (AAR)
Case Summary:

The assessee, a tax resident of Mauritius, proposed to transfer its holding in Indian company to its wholly owned Indian subsidiary. The AAR held that the transaction could not be regarded as ‘transfer’ in view of provision of section 47(iv). Further, the AAR also held that the transaction was not subject to capital gain tax in view of provisions of India Mauritius tax treaty. The AAR further held that provisions of section 115JB (MAT provisions) were not applicable to foreign company.

Conclusion:

The AAR also held that transfer pricing provisions were not applicable as income was not taxable in India.
Dow Agro Sciences Agricultural Products Ltd. [2016] 380 ITR 668 (AAR)
Case Summary:

The applicant, a company, incorporated and registered in Mauritius, contends that its investment in Dow Agrosciences India (DAS India) is a capital asset. The Revenue argues about the existence of a Permanent Establishment (PE) in India, but the applicant has provided documents supporting no PE.

The applicant reiterates that profits from the sale of equity shares of DAS India won’t be taxable in India due to the DTAA between India and Mauritius.

Conclusion:

Transfer pricing provisions (Sections 92 to 95) are not applicable if the transaction is not taxable in India. Since the proposed share transfer does not attract tax in India under the tax treaty’s Article 13, these provisions do not apply.
Goodyear Tire and Rubber Co. [2011] 334 ITR 69 (AAR)
Case Summary:

In the facts of the given case, Goodyear Tire and Rubber Company USA, proposed to transfer its 74% shareholding in Goodyear India Limited (listed on BSE ) to its Singapore based subsidiary as ‘ Gift’ and at NIL value . Goodyear USA argued that since the full value of consideration received or accruing as a result of the transfer of shares was NIL, the mechanism to charge the capital gains to tax fails. The AAR upheld Goodyear’s contention and ruled that ‘It is settled law that Section 45 must be read with Section 48 and if the computation provision cannot be given effect to for any reason, the charge under Section 45 fails.

Conclusion:

The AAR further held that transfer pricing provisions under section 92 to 92F were not applicable to the facts of the case as the transaction was not taxable under Indian tax laws.
Vodafone India Services Pvt. Ltd. v. Union of India [2014] 368 ITR 1 (Bombay)
The Bombay High Court concluded that if ‘income’ is chargeable to tax under the normal provisions Of the Act, then alone Chapter X/transfer pricing provisions of the Act could be invoked. The Government of India vide Instruction No. 2/ 2015 dated 29.1.2015 has accepted the decision of the Bombay High Court in the case Of Vodafone Services Pvt. Ltd. According to the said instruction, the premium arising on issue of shares is a capital account transaction and does not give rise to income and hence not liable to transfer pricing adjustment.
Castleton Investment Limited. [2012] 348 ITR 537
Case Summary:

The AAR held that transfer pricing provisions (Sections 92 to 92F) are applicable even if the income, such as capital gains, is exempt from taxation. In the case of Castleton Investment Limited, a Mauritius-based company, which held shares in an Indian listed company, the AAR determined that the provisions are considered machinery provisions. As such, capital gains cannot be determined without applying these sections. Whether the gain is ultimately taxable in India or not, the transfer pricing provisions would still apply if the transaction falls within their ambit.

Conclusion:

The applicability of Section 92 does not depend on chargeability under the Act. Thus, the AAR ruled that transfer pricing provisions would be applicable in this case of transferring investment to an associated enterprise in Singapore.
Armstrong World Industries Mauritius Multiconsult Ltd. [2012] 349 ITR 303 (AAR)
Case Summary:

Armstrong World Industries Mauritius Multiconsult Ltd., a fully-owned subsidiary of Armstrong World Industries Ltd., UK (Armstrong UK) and a tax resident of Mauritius, intends to repurchase a portion of its shares from the applicant (holding 99.97% of shares) while the remaining shares (0.03%) are held by Armstrong UK. This proposed buyback is not liable to capital gains tax in India by virtue of the India-Mauritius.

Conclusion:

Thus, the AAR held that transfer pricing provisions would be applicable in the said case, taxpayer would be liable to comply with the Transfer Pricing provisions irrespective of whether the taxpayer earns any taxable income in India or not.
BNT Global Pvt. Ltd. v. ITO (ITA No. 4111/Mum/2016 dated 26 April 2017)
Case Summary:

The taxpayer has not filed the audit report in Form 3CEB for its international transaction involving the receipt of foreign remittance from its Non-Resident Indian (NRI) Director, who was also a beneficial shareholder, in exchange for share capital and share premium within the company.

Conclusion:

The ITAT upheld the penalty under Section 271BA for the failure as the share issuance transaction fell within the ambit of Section 92E, requiring the filing of Form No. 3CEB. The reliance on the Vodafone India Services Pvt. Ltd. case was rejected, as it dealt with different facts and penalties.
Convergys Customer Management Group Inc. [MA NO. 261/Del/2020 I.T.A. No. 3529//DEL/2015 MA NO. 262/Del/2020 in I.T.A. No. 3530//DEL/2015]
Case Summary:

Taxpayer only submitted Form 3CEB during the scrutiny and has not filed TP Study. Further, taxpayer did not disclose certain international transactions (of reimbursements, interest payments, FTS) on the premise that they are not subject to tax in India in accordance with the Treaty provisions. A categorical finding was given by the ITAT that every person has to maintain its own documents which taxpayer failed to and instead relied on its Indian subsidiary’s TP study.

Conclusion:

The ITAT upheld that Form 3CEB submission is not equivalent to TP documentation compliance u/s 92D while dismissing the Miscellaneous Application upholding levy of penalty u/s 271AA for non-maintenance of documents u/s 92D.
Without Prejudice
Commissioner of Wealth-tax v. Apar Ltd. [2002] 122 Taxman 631 (Bombay)
The term “without prejudice” was used to indicate to the Assessing Officer that filing a return and paying taxes should not impact the rights of the taxpayer. The taxpayer reserves the option to claim settlement as if the return was not filed under the Act. By filing the return “without prejudice,” the taxpayer denies liability to be assessed under the Act and implies the possibility of future rectification in accordance with the law.

However, when any compliance is undertaken “without prejudice,” it must be clearly disclosed, along with relevant facts and justifications, in the documentation maintained by the non-resident and in Form No. 3CEB issued by the accountant.
On maintenance of separate transfer pricing documentation by non – residents
DCIT v. Convergys Customer Management Group Inc. [ITA No. 3529/DEL/2015 and ITA No. 3530/DEL/2015]
Case Summary:

The ITAT imposed a penalty on Convergys Customer Management Group Inc., a US-based non-resident company, for not maintaining TP documents under Section 271AA of the Income Tax Act. The case involved its Indian subsidiary, Convergys India Services Pvt. Ltd., providing call center/back office support services. The Assessing Officer found a fixed place PE and Service PE in India with attributable profits, resulting in disallowances and penalties for not maintaining TP documents.

Conclusion:

In conclusion, the ITAT upheld the penalty imposed under Section 271AA of the Income Tax Act, stating that the CIT(A) was wrong in deleting the penalty.
On TP adjustments in hands of NR
Instrumentation Corporation Ltd., Finland v. ADIT [I.T.A. Nos. 1548 and 1549/Kol/2009]
Case Summary:

Instrumentarium Corporation, a Finnish company (F Co.), provided an interest-free loan to its Indian subsidiary, Datex Ohmeda India Pvt. Ltd. (I Co.). The case revolved around whether the loan was at arm’s length and whether it eroded India’s tax base.

Conclusion:

The Assessing Officer argued that the transaction was not at arm’s length, resulting in an adjustment to the interest income of F Co. The company contended that applying transfer pricing provisions in this situation would lead to a reduction in the Indian tax base and increased losses for I Co., which could be carried forward and set off in subsequent years.

The Income Tax Appellate Tribunal (ITAT) held that Section 92(3) of the Income Tax Act required assessing the impact on profits or losses for the year under consideration and for the taxpayer in question, rather than considering the impact on taxes in subsequent years. Thus, if the transaction was accepted without an arm’s length pricing adjustment, it would result in tax base erosion to the extent of the taxability of interest in the hands of F Co. The ITAT also rejected the argument that a corresponding deduction should be given to I Co.

Emphasis on Two-sided Transfer Pricing Analysis

❑ To satisfy the ALP test for both parties in a transaction, a two-sided comprehensive transfer pricing analysis is required.

❑ This analysis ensures that both the Indian AE and the NR AE meet the ALP standards.

❑ The transfer price must be set within an acceptable arm’s length range for both jurisdictions. The process is complex and time-consuming but is crucial to prevent double taxation and avoid tax disputes.

❑ The Kolkata Tribunal, in the landmark case of Instrumentarium Corporation Limited [I.T.A. Nos. 1548 and 1549/Kol/2009], emphasized the need for a two-sided TP analysis to determine the arm’s length price in both jurisdictions and mitigate risks of double taxation and tax disputes.

Conclusion

To successfully navigate the complex TP landscape in India, here’s what both residents and NRs should do:

❑ Ensure Compliance: It’s crucial for multinationals to diligently ensure compliance in India with applicable transfer pricing regulations for both resident and non-resident entities in India (i.e., filing all the relevant forms in India related to three-tiered documentation). Non-compliance could be viewed negatively by tax authorities.

❑ 360-Degree Analysis: It’s pertinent to ensure that the information disclosed in Form No. 3CEB, the local file, master file, and country-by-country report provides a comprehensive view and supports the transfer pricing and other tax positions of the multinational group. Applicability and filing of corporate tax returns should also be perused diligently.

❑ Robust Documentation: Remember, it’s not limited to filings alone. TP and tax filings should be backed up by the maintenance of robust supporting documentation to substantiate the TP positions and analysis in case of future audits/scrutiny by tax authorities.

In a nutshell, robust transfer pricing documentation and adherence to guidelines should be your top priority if you’re a multinational operating in India.

Disclaimer: This material and the information contained herein prepared by Steadfast Business Consulting LLP is intended for clients to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business. This Alert provides certain general information as well as specific information with respect to Steadfast Business Consulting LLP. This alert should neither be regarded as comprehensive not sufficient for the purposes of any decision-making.

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Tax Alert Clarification on ITCC August 2024

Tax Alert - Clarification on ITCC - August 2024

Home > Tax Alert – Clarification on ITCC – August 2024

Tax Alert - Clarification on ITCC - August 2024.pdf (1024 x 576 px)

Background:

  • Finance Minister Nirmala Sitharaman had announced a key amendment in the Union Budget 2024 aimed at individuals planning to relocate from India.
  • Under the new law, individuals domiciled in India are required to clear all pending tax dues and obtain a ‘Income-tax Clearing Certificate’ (ITCC) before departing the country. This amendment vide the Finance Act (No. 2), 2024 also included a reference to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, under Section 230(1A) of the Income-tax Act.
  • This means that liabilities under the Black Money Act are now treated in the same manner as liabilities under the Income-tax Act for the purpose of obtaining an ITCC.
  • However, there was confusion and reports in the media mainly on account of interpretation of Hon’ble Finance Minister’s speech whereby it was being reported that all the individuals leaving India shall be mandatorily required to
    obtain this ITCC.

Clarification issued on 20-Aug-2024:

  • Central Board of Direct Taxes (CBDT) has now issued a press release on 20-Aug2024 to clarify that contrary to some incorrect reports, not all Indian citizens domiciled in India are required to obtain an ITCC before leaving the country. The requirement applies only to specific cases:
    • If a person is involved in serious financial irregularities and is under investigation where a tax demand is likely to be raised.
    • If a person has outstanding direct tax arrears exceeding Rs. 10 lakh, which have not been stayed by any authority.
  • The decision to require an ITCC must be supported by recorded reasons and approved by the Principal Chief Commissioner or Chief Commissioner of Income-tax.
  • This clarification aims to dispel misinformation and reassure taxpayers that the ITCC requirement remains limited to rare and specific circumstances, unchanged since 2003.

SBC Comments:

ITCC is to be obtained from the concerned Income tax authority by filing application in in Form No. 31 by the individuals domiciled in India at the time of departure if:

  • The concerned Income tax authority (i.e., Assessing officer) is of the opinion that there are circumstances which necessitates such person to obtain such certificate.
  • The Income tax authority records the reasons and obtain approvals as mentioned.

This certificate shall be issued only if there are liabilities under the following Acts:

  • Income-tax Act, 1961
  • Wealth-tax Act, 1957 (27 of 1957)
  • Gift-tax Act, 1958 (18 of 1958), or
  • Expenditure-tax Act, 1987 (35 of 1987) or

Post the amendment vide the Finance Act (No.2) 2024, now the liabilities under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 shall be additionally considered while issuing such certificate.

It is now clear from the CBDT clarification that only in rare cases (serious financial irregularities or tax arrears are moas mentioned), ITCC shall be required. The tax authorities in such cases shall issue ITCC after perusing the liabilities under above regulations or after perusing that satisfactory arrangements have been made for the payment of all or any of such taxes/dues which are or may become payable by that person.

Where can SBC help?

  • Representation before tax authorities in relation to obtaining of ITCC
  • Advise on the applicability of ITCC and perusal of the specific facts applicable.
  • Advise and assist in mitigation of liabilities, if any, under any of the above laws mentioned.

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VSVS 2.0: Reintroducing the Vivad Se Vishwas Scheme in Union Budget 2024

Reintroducing the Vivad Se Vishwas Scheme in Union Budget 2024

Home > Reintroducing the Vivad Se Vishwas Scheme in Union Budget 2024

Tax Alert - Vivad se vishwas scheme2024_Updated .pdf (1024 x 576 px)

Introducing Vivad Se Vishwas Scheme, 2024

 

Executive Summary

Key Features of the Direct Tax Vivad Se Vishwas Scheme ( DT VSVS), 2024

Scheme Overview:

  • The Direct Tax Vivad Se Vishwas Scheme, 2024 (DT VSVS 2024 Scheme) is introduced in the Finance (No. 2) Bill, 2024 as part of Union Budget 2024, announced on July 23, 2024
  • The scheme draws applicability, procedure, and settlement methods from the Direct Tax Vivad Se Vishwas Act, 2020 (DT VSVS 2020 Scheme)
  • The start date and sunset date for the scheme are yet to be notified

Eligibility for settlement:

Disputes/appeals, including writs and special leave petitions [Appeal(s)], whether filed by the taxpayer or the tax authorities and are pending as on 22 July 2024 before the following forums:

  • The Supreme Court, High Court, Income Tax Appellate Tribunal (ITAT), Commissioner/Joint Commissioner (Appeals) [CIT(A)]
  • The Dispute Resolution Panel (DRP) or where DRP directions have been issued but the final assessment order is awaited
  • Revision petitions pending before the Commissioner of Income Tax

Settlement Process:

To resolve eligible disputes, taxpayers must pay amounts determined by the Designated Authority (DA) under the 2024 Scheme and follow the procedure prescribed

” For the resolution of certain income tax disputes pending in appeal, I am also proposing the Vivad Se Vishwas Scheme, 2024. I hope that taxpayers will make use of this opportunity to get relief from the vexatious litigation process” – Hon’ble Finance Minister, India“

Background

Given the success of the previous DTVSVS 2020 scheme and the growing backlog of litigation at various
appellate levels, Hon’ble Finance Minister, 2024 reintroduced Vivad Se Vishwas Scheme, 2024 (2024
Scheme).

Triumph of VSVS 2020

  • As of 4 July 2024
    • No. of pending income tax litigations where settlement sought by the declarants – 1,31,714
    • Number settled finally out of above declarations sought – 1,13,894
    • Payments made against Disputed Tax – INR 75,788.25 Cr
  • Remarkable progress has facilitated the payment of INR 75,788.25 crore(s) as taxes showcasing the scheme’s effectiveness in streamlining tax disputes and fostering a more efficient tax resolution process
  • VSVS 2.0 stands as a testament to the government’s commitment to simplifying tax compliance and dispute resolution, offering a major boost to the nation’s financial system

Key Terms of the DTVSVS 2024 Scheme

The Finance Act, 2024 has inserted a new Chapter IV to provide the DTVSVS 2024 Scheme.

Term Definition
Appellate forum
Includes the Supreme Court, High Court, ITAT, CIT(A), or Joint CIT(A), as applicable.
Declarant
A person who files a declaration.
Declaration
The declaration filed by the taxpayer under the Scheme.
Designated authority
An officer not below the rank of a Commissioner of Income-tax notified by the Principal Chief Commissioner for the purposes of the Scheme.
Disputed fee
Fee determined under the Income-tax Act for which an appeal has been filed.
Disputed income
Whole or so much Income as is relatable to the disputed tax.
Disputed interest
Interest determined under the Income-tax Act where it is not charged on disputed tax and an appeal has been filed.
Disputed penalty
Penalty determined under the Income-tax Act where it is not levied on disputed income or tax and an appeal has been filed.
Disputed tax
Income-tax payable by the appellant, including surcharge and cess, based on the potential outcome of various appeals, objections, or revisions.
Last date
Date notified by the Central Government in the Official Gazette.
Tax arrear
Includes disputed tax, interest chargeable or charged on such disputed tax, penalty leviable or levied on disputed tax, or disputed interest or disputed penalty or disputed fee (or any combination thereof related to the disputed tax)

Eligibility Criteria for Taxpayers

Reintroducing the Vivad Se Vishwas Scheme in Union Budget 2024

Ineligibility Criteria & Dispute Settlement
Guidelines

ineligible taxpayers

Settlement Amount for Dispute

For cases with disputed tax, interest charged or chargeable and penalty levied or leviable

Nature of Dispute/ Tax Arrear Settlement before 31 December 2024 Settlement on or after the 01 January 2025 but on or before last date to be notified
The declarant was an appellant at the same appellate forum on or before January 31, 2020.
110% of the disputed tax
120% of the disputed tax
The declarant is an appellant from February 1, 2020, up to the specified date.
100% of the disputed tax
110% of the disputed tax

For cases with disputed interest or disputed penalty or disputed fee

Nature of Dispute/ Tax Arrear Settlement before 31 December 2024 Settlement on or after the 01 January 2025 but on or before last date to be notified
The declarant was an appellant at the same appellate forum on or before January 31, 2020.
30% of disputed interest/ penalty/fee
35% of disputed interest/penalty/fee
The declarant is an appellant from February 1, 2020, up to the specified date.
25% of disputed interest/ penalty/fee
30% of disputed interest/penalty/fee

*Settlement amounts payable to be reduced to 50% in following cases:-Where appeal/writ/Special leave petition is filed by the tax authorities.-The Appellant’s case is favorably covered by the ITAT/High Court decision in taxpayer’s own case.

Procedural Requirements for Relief

Any Assessee opting for the scheme shall follow the following procedure as specified in the guidelines

procedural requirements for relief

• The above forms are further discussed in the ensuing slides. The above forms are based on the DTVSVS 2020 Scheme and the Forms for DTVSVS 2024 scheme are yet to be notified. However, given the similarity in the schemes, there may be minor changes in the fields and format of the Form while the essence remaining intact

Important: The declaration under the Scheme shall be deemed not to have been made if,–
(a) any material particular furnished is found to be false at any stage; or
(b) Violation of conditions of the Scheme; or
(c) the declarant acts in any manner which is not in accordance with the undertaking given by him.

All the proceedings and claims which were withdrawn under this section and all the consequences under the Income-tax Act against the declarant shall be deemed to have been revived.

Form Details & Immunities

An in-depth understanding of the forms specified earlier is detailed below:
Form No. Form For Form Content
Form 1
Declaration
Form 1 has 5 sections:
Part A: General information and eligibility details
Part B: Dispute-related information
Part C: Tax arrears details
Part D: Amount payable details
Part E: Payments made against tax arrears
Part F: Net amount payable or refundable to the appellant
Form 2
Undertaking
This form pertains to the undertaking in which the taxpayer waives all rights to any remedy or claim related to the matter they choose to settle under the DT VSVS Scheme.
Form 3
Granting of Certificate
The designated authority will issue an electronic certificate detailing the tax arrears and amount due. The declarant must pay the amount specified in Form 3 within the given timeframe, or the Form 1 declaration will be void.
Form 4
Intimation of payment and proof of Withdrawal
Payment details per Form 3 must be submitted to the designated authority using this form, along with proof of withdrawal of any related appeals, petitions, or claims filed by the declarant.
Form 5
Issuance of order
The designated authority will issue an order in this form, confirming that the taxpayer has paid the dues stated in Form 3 and granting immunity from prosecution or penalty proceedings.

Immunity & Essential Considerations

 

  • Any amount paid under a declaration made is non-refundable.
  • If the declarant paid more than the amount due before filing the declaration, they are entitled to a refund of the
    excess but without interest under section 244A of the Income-tax Act.
  • Except as specifically stated, the scheme grants no additional benefits, concessions, or immunity beyond the
    matters covered in the declaration.
  • The order issued by the designated authority is final and cannot be reopened in any other proceedings.
  • No new proceedings for offences, penalties, or interest can be initiated.
  • Appellate forums, arbitrators, conciliators, or mediators cannot rule on cases where the designated authority has
    issued an order.
  • Settling the dispute does not set a precedent for conceding a tax position i.e., the tax authority cannot
    proceed for any other AY or proceeding based on declaration or settlement under the DTVSVS Scheme.

How can SBC assist you?

 

SBC Comments:


The proposed scheme is advantageous for taxpayers who have been experiencing lengthy litigation cycles or anticipate high litigation costs:

✓ Settlements do not set precedents, preserving case uniqueness.
✓ Encourages cooperation between taxpayers and authorities.
✓ Provides clear resolution and certainty on tax obligations.
✓ Helps avoid lengthy and costly litigation.
✓ Waives interest and penalties, reducing financial strain.
✓ Allows use of available tax losses, enhancing financial stability.
✓ It significantly reduces the costs associated with legal disputes

However, the following issues may arise, and it is advisable to seek professional guidance to address them

✓Immediate cash outflows may disrupt budgeted expenses.
✓Quick decisions and fast analysis are required due to tight deadlines.
✓Partial settlement is not allowed; all issues must be resolved or litigated.
✓The scheme doesn’t address double taxation or high-stakes cases; APA or MAP may be needed
✓There were FAQs issued even for application of the earlier DTVSVS Scheme and it shall be necessary to see the tax positions on calculating disputed tax or arrears for settlement.

SBC Support:


Navigating the Vivad se Vishwas Scheme 2.0 can be complex, and our team at SBC is here to support you
every step of the way. Here’s how we can assist:

  • Eligibility Assessment: We’ll review your litigation status to determine scheme qualification and offer tailored advice.
  • Documentation & Filing: Our experts will assist in gathering and preparing required documents for timely and accurate submission under VSVS 2.0.
  • Compliance & Risk Management: We’ll guide you through compliance, identify risks, and develop mitigation strategies.
  • Representation & Negotiation: We’ll represent and negotiate on your behalf with authorities for optimal outcomes.

SBC has extensive and exclusive experience in assisting non-resident taxpayers, including successfully filing applications under the DTVSVS 2020 Scheme. In a notable case, SBC facilitated the admission of an application that was initially rejected, by filing a WRIT Petition, ultimately securing a favorable outcome for the client.

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