The Central Board of Direct Taxes (CBDT), the governing body for income tax and Securities Exchange Board of India (SEBI), the capital market regulator, have joined hands for exchange of information and data. “The MoU marks beginning of new era of cooperation and synergy between SEBI and CBDT,” CBDT said in a release. The CBDT and SEBI partnership would help in the smooth functioning of both organisations.

On 8th July 2020, CBDT and SEBI signed a Memorandum of Understanding (MOU) for the exchange of data. Both these authorities mutually agreed to share data of traders in three ways – request-based exchange, suo moto exchange, automatic exchange. As a part of the MOU, there would be sharing of data and information, maintaining the confidentiality and safe preservation of data.

What will CBDT share with SEBI?

Under the exchange of data, the Income Tax Department would share PAN details, ITR information, and trading transactions with SEBI. Further, CBDT will also share the date of PAN application, father’s name or husband’s name, date of birth, or date of incorporation, photograph, and signature. Further, ITR related information such as mobile, email, address, IP address, financial particulars, bank details, TDS & TCS, and income from trading in securities would also be shared.

In the capital market, stock market manipulation is a widely used fraudulent practice where various entities manipulate the price of stocks by leaking misleading information into the market. With the help of the information shared by IT Department, SEBI can trace such entities and take action against them.

A Data Exchange Steering Group has been constituted for the initiative which will meet periodically to review the data exchange status & to improve effectiveness of data sharing mechanism.
The MoU marks the beginning of a new era of cooperation & synergy between SEBI & CBDT.(2/2)

— Income Tax India (@IncomeTaxIndia) July 8, 2020

Tax Alert! ITD can now catch you for ignoring trading transactions

The Income Tax Department is working to build a warehouse of information of taxpayers by sourcing data from third parties. The IT Department would be able to fetch details of trading transactions using the data shared by SEBI.

Many investors who trade in equity having negligible profit/loss often ignore transactions and do not report them in the ITR. Earlier, the IT Department did not have details of such trades and thus could not detect such non-disclosure of income.

To trace such taxpayers, the IT department added a new Schedule 112A in the ITR Utility. The taxpayer should report details of LTCG from the sale of equity shares, equity-oriented mutual funds, or unit of business trust on which STT is paid under Section 112A. However, after many objections, the ITD made this trade-wise reporting optional for FY 2018-19 (AY 2019-20). Unfortunately, the ITR Utility for FY 2019-20 has once again made Schedule 112A reporting mandatory.

As a result of the SEBI-CBDT partnership, the IT department now has access to the trading data. It would now keep an eye on tax-evaders by sending out scrutiny notice for non-disclosure of income. On the other hand, the taxpayers should ensure reporting correct information and all their incomes in the Income Tax Return.

On a brighter side, the IT Department can pre-fill data of trading transactions in the ITR making tax filing simplified for traders and investors. As a result, this initiative has been applauded by a large number of taxpayers.

Import Your Trades
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Start Now

Import Your Trades

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Start Now

Day in and day out, we receive messages to boycott Chinese products. News channels are talking about it all day. It started with Wangchuk’s video which went viral on social media. The implications of importing from China is injurious. India’s ban on China could be useful to us in many ways.

So many of us have consciously stopped buying Chinese products. My family business used to deal in Chinese electrical goods. We put a stop to it years ago. So many around me have been doing the same. My neighbour was ready to lose a sum of 20 lakh he paid in advance to a Chinese furniture brand. Yes, all of us have been patriotic. But are we being sensible and rational? Many have argued about globalization. Meaning, a lot of products that we use might have its parts manufactured in China but assembled elsewhere.

India has been raising the import duties since the last three budgets. This will give boost to local manufacturers to produce cheaper alternatives. Recently, India has been holding all shipments coming from China. As a part of anti-chinese movement, 150 Foxconn shipments containing smartphones and electronic parts are stuck in the ports of Chennai. This is a good move. It has resulted in Apple moving its manufacturing unit to India. Also, Apple saves almost USD 100-200 on import taxes. This in turn makes the iPhone cheaper.

The question is, can this be done for all products? The major problem is that India imports a hefty amount of raw materials from China. This includes more than 8,000 items and a total of INR 4,40,101 crore worth of imports. The important fact to note is that import from the USA amounted to INR 2,36,933 crore, which is way less compared to China. 60-70% of pharmaceutical ingredients for many common medicines like paracetamol are imported. Delaying clearance of such ingredients might not be the very best option. India has to step forward to make a replacement facility for such raw materials. Bajaj used INR 1,000 crore of Chinese components. But it also exported two and three wheelers worth INR 15,000 crore. This would not have been a bad thing, if Bajaj could have bought all the components from India.

The government also banned 59 Chinese apps. A lot of these apps had a huge consumer base in India. With the ban, the tech companies are likely to suffer a major setback. Apps, is one field where India can compete on a global level. Narendra Modi launched the “Let us code” campaign. It focuses on giving a boost to the Indian startup ecosystem to create alternative apps. Chingari, a TikTok alternative, has already seen 10M plus downloads. KagazScanner, a replacement to CamScanner saw 100k in only 24 hours. Inida’s ban on China is going to have major implications on Indian startup ecosystem.

It is really crucial for us to think at a global level and multi-dimensional level. And we must think about why we are where we are. China has attained domination in the world economy. Although it might be really hard to be the next China, it is not impossible.

We need a single free national market. The Goods and Services Tax has been trying to achieve this since 3 years, but in no vain. It has failed to meet objectives and suffered a lot of hiccups. Even after three years, it still remains in the process of evolution. And our apparatchiks are still stuck at changing rates of Popcorn.

India has climbed to 63rd rank among the 190 countries in the World Bank’s ease-of-doing-business ranking. But we still have ways to go. There are so many forms to fill and so many clearances to go through. India has to do much better in this aspect to allow the citizens to be able to manufacture ‘anything and everything’. Someone has well-spoken by saying, “we can make superb satellites, but can’t make a safe safety pin.”

A large number of startups in India have been funded by Chinese companies. Even if we have tighter rules over Chinese FDI, investments can still easily be routed to India from Hong Kong or investment hubs like the Cayman Islands. Establishing investment hubs within the country can also be another great opportunity for India. Our very own version of SharkTank!

Indians are everywhere. Be it any country, Indians are never rare. As a country with such a huge population, at home and abroad, we need to make use of the immense brain-power.

It is said that employees working for Chinese companies like Huawei and ByteDance get paid anywhere between 70-80k. And that too with an experience of a  year or two. In some professions and industries, even people with 10 years worth of experience aren’t paid as much. This is only possible because of the massive amount of sales the companies make.

The telecommunication industry of India has been underestimated. They contribute 6.5% to India’s GDP. They are not allowed input tax credit on telecom towers. Also, there is no refund of the accumulated Goods and Services Tax paid on spectrum charges. On the other hand, China recognizes this sector as its national ‘champion’. Telecom industries in India have to pay approx 30% in GST, license fee, spectrum usage charge and others. Companies have INR 50,000 crore stuck as input credit with the government until March, impacting the cash flows. The current pandemic has shown how crucial the industry is. Furthermore, Reliance JIO has hit a record high of USD 16 billion in FDI from giants like Facebook, Intel and many more. We need to make the utmost use of our crucial industries. 

India is facing a lot of adverse situations; the pandemic along with tensions with China. But as someone has rightly said “innovation comes from adversity”. The biggest example being the PPE-kit industry. India has moved on to become the world’s second largest manufacturer in just two months. The surprising fact is that it started from near-zero!

The current scenario, hence, is a rare opportunity for India to realize its potential and capitalize on the areas she is lacking.

Under Budget 2018, the Finance Minister, Shri Arun Jaitley, removed the exemption under Section 10(38). He also introduced a new Section 112A with a 10% tax on LTCG in excess of INR 1 lac in the case of a long term capital asset on which STT is paid. The new Section 112A was applicable from FY 2018-19 (AY 2019-20).

Controversy surrounding Section 10(38) & it’s removal

Up to FY 2017-18 (AY 2018-19), Long Term Capital Gain (LTCG) on the sale of a capital asset on which STT (Securities Transaction Tax) is paid was exempt under Section 10(38) of the Income Tax Act. Thus, profit on the sale of listed equity shares, equity-oriented mutual funds, and units of business trust held for more than a year was exempt from income tax.

Since investors already paid STT on listed securities, provisions u/s 10(38) provided relief from double taxation to such investors. However, there was a growing sentiment that the provision encouraged diversion of funds from sectors such as manufacturing & infrastructure into capital markets.

Further, many taxpayers misused the exemption leading to loss of revenue and tax evasion due to abusive practices. Certain taxpayers earned windfall tax-free gains on the sale of penny stocks after inflating its market price by leaking misleading information amongst the investors.

Many other taxpayers earned compensation in the form of less salary and more stock options. Such taxpayers paid tax on salary only while they earned tax-free long term capital gains on the sale of shares. Thus, several taxpayers earned bogus long term capital gains without paying tax.

As a result, CBDT removed the exemption under Section 10(38) and made LTCG in excess of INR 1 lac taxable at 10% under Section 112A.

Confusion Galore: Grandfathering Rule Section 112A

Many investors invest in equity markets with an intention to earn tax-free profits in the form of Long Term Capital Gains. For such investors, CBDT introduced the grandfathering rule to ensure that gains up to 31st January 2018 are not taxed. For equity shares and equity mutual funds purchased on or before 31st January 2018 and sold after a year, Cost of Acquisition would be:

• Fair Market Value as on 31st Jan 2018 or the Actual Selling Price whichever is lower
• Step 1 or Actual Purchase Price whichever is higher

Long Term Capital Gain = Sales Value – Cost of Acquisition (as per grandfathering rule) – Transfer Expenses

Tax Liability = 10% (LTCG – INR 1 lac)

Long Term Captial Gain Tax on Shares - Equity Shares & Equity Mutual Funds

Learn how to calculate LTCG on sale of equity shares and mutual funds by applying the grandfathering rule

Read More

Long Term Captial Gain Tax on Shares - Equity Shares & Equity Mutual Funds

Learn how to calculate LTCG on sale of equity shares and mutual funds by applying the grandfathering rule

Read More

ITD Utility & Reporting woes of Section 112A

The grandfathering rule and Section 112A has increased complexity and confusion for the investors to Compute Capital Gains and file Income Tax Return. In the ITR utility, the IT department added a new Schedule 112A to calculate LTCG on trade wise basis after applying grandfathering rule.

After much uproar, Schedule 112A, the IT deparment made trade wise reporting optional for FY 2018-19 (AY 2019-20). However, the utilities released by the IT department this year has reignited the discussion.

The IT department issued ITR-2 excel utility for FY 2019-20 (AY 2020-21) on the Income Tax Website on 26th June 2020. It is now mandatory for the taxpayer to enter details of each trade under Schedule 112A. The taxpayer should enter details of each trade with ISIN, share name, quantity, sale price, purchase price, fair market value as on 31st Jan 2018, and transfer expenses to calculate LTCG (Long Term Capital Gain) or LTCL (Long Term Capital Loss).

P&L Reports from Brokers (Inadequate)

Investors/traders can download Tax P&L report from their brokers. Brokers like Zerodha provide both FMV as on 31st Jan 2018 and the cost of acquisition as per grandfathering rule in their Tradewise Tax P&L Report. However, the reports of many other brokers do not reflect such details making it extremely challenging for the traders and investors to file their Income Tax Returns.

With such reporting requirements in the ITR and missing information in the broker’s reports, the process of tax filing has become drastically complicated for traders and investors this year. Let us hope that the Income Tax Department comes out with a solution that makes tax filing less tedious for the taxpayers.

Import Your Trades
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Start Now

Import Your Trades

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Start Now

Income Tax Utility updates #TaxSeason2020

Now, while filing for capital gains with ITR 2 and ITR 3, you have to provide the following details of share sold during FY 2019-20:

1. ISIN (aka International Securities Identification Number)
2. Name of the share/unit
3. Number of shares
4. Sales-price per share/unit
5. Cost of Acquisition
6. FMV as on 31/01/2018
7. Expenditure related to transfer

Out of all the above details, ISIN was most difficult to procure as brokerages and investment platforms wouldn’t provide their customers with the same. Yes, it was such a hassle that traders were pulling their hair out.

Now, there might be a chance that the Income Tax Department heard the cries. It came up with a major relief a few days ago – you no longer need to lookup for ISIN. Instead, the trader can use an ‘INNOTAVAILAB’ as ISIN.

This can be used in place of the older/original ISIN! This will greatly reduce the stress in trade-wise reporting. Taxpayers now have to worry about one less detail in cases where the data is huge and time is less. Update on 4th Nov’20- LTCG realized on shares purchased after 31st Jan’18 can be reported at the aggregate level instead of trade level data.

Have any questions ?

The Income Tax Department keeps updating utilities for ease of compliance. Check them out here.

Ask

Have any questions ?

The Income Tax Department keeps updating utilities for ease of compliance. Check them out here.

Ask

We are Quicko, a team of accountants, developers, and designers on a mission to simplify taxes for all. For any queries or questions comment below.

India’s foreign exchange reserve has crossed the USD 500 billion mark. This is one upside for the economy. The level of reserves is enough to cover 13 months of imports. India’s reserve is now equivalent to nearly a fifth of the country’s gross domestic product. It’s also the fifth-largest in the world after China, Japan, Switzerland and Russia. (according to the International Monetary Fund) India’s fiscal outlook has deteriorated tremendously in the first quarter of F.Y. 21. But the ‘liquidity crunch’ can be kept in check now.

Why has the foreign exchange reserve become a strongbox?

India’s trade gap has narrowed to a 13-year low in May. Imports declined faster than exports. 

The RBI likely brought about $9 billion in the Forex market in the four weeks ended May 29, pushing up reserves to a record USD 493.5 billion.

There was a massive amount of inflow in the local stock market. Also, a huge influx of foreign direct investment in a unit of Reliance Industries Limited is one of the most important factors. RIL’s blue-chip platform JIO attracted investments worth USD 16 billion. In addition, inflows increased when Uday Kotak sold USD 919 million of its stake in Kotak Mahindra Bank to RBI. Net FDI flows constituted 51.7% of total capital flows in the year ended March 31, according to Deutsche Bank AG.

Due to lower dollar prices of crude oil, India is expected to save nearly USD 50 billion (INR 3.75 lakh crore) on its import bill. Even if the government doesn’t raise the excise tax, it hopes to garner an additional 1.6 lakh crore at the very least.

Data from the central bank show India’s external debt rose to USD 558.5 billion as of March 2020 from USD 474.4 billion five years ago. While the level has gone up, the ratio of foreign exchange reserves to overall debt has also risen to 85.5% from 72% in 2015.

Reasons why India is adding foreign exchange reserves

Maybe, India is guarding against a likely downgrade in India’s credit rating. It is also possible that the government wants to be ready for a bigger transfer of surplus to the revenue-starved government.

India’s equity markets have seen foreigners step up purchases. Unperturbed by Moody’s Investors Service’s downgrade of the nation’s ratin, USD 2.7 billion has been poured into stocks so far in the month of June. This is the most among big Asian markets. Foreign investors expect the economy to recover as the Government  gradually lifts the world’s biggest lockdown.

But the mop up is also a sign that the RBI sees the inflows as temporary and prone to reversal if growth fails to pick up. 

Current account deficit narrowed. But is this going to last?

India’s current account, the broadest measure of trade in goods and services, is likely to remain in surplus for the time being. But a recovery in imports might tilt the balance of India’s foreign exchange for the full year.

The demand has been hit hard in the last few months. But as the economy will revive, the need for capital goods and machinery will increase. The industrial sector needs to be brought back to pace. To add on, India receives its largest share of foreign exchange from export of services. And a weak global demand is likely to negatively affect services exports.

Data Source: Bloomberg

On the 3rd Anniversary of the biggest reform in Indirect Taxes in India: GST, let’s take a rundown some bittersweet moments.

The Goods and Service Tax took around 17 years to implement. From its first draft in 2000, it is the Indirect Tax which replaced a bunch of taxes like excise duty, VAT, services tax, etc. Hence, the idea behind it was to have a single domestic tax structure for India.

Here is a snapshot of what went on in the GST Regime:

The Glass Half-Full

GST was awaited because it hoped to abolish the cascading effect. Cascading effect means a tax on tax. A situation wherein a consumer bore a load of tax on tax and inflationary prices as a result of it. But, GST overthrew it. That encouraged more people to export goods and services overseas. And this was reflected in the monthly average GST revenue collections. Collections were ₹89,885 crores in 2017-18 and increased in 2018-19 by about 10 percent to ₹97,100 crores.

The second-most praised was the Input Tax Credit System. Input Tax Credit under GST means the credit of input tax paid on purchases, which the taxpayer can use it towards payment of output tax charged on sales. Its mechanism has reduced the indirect tax burden on the purchases by consumers. Simply put, It made a paradigm shift from businesses paying more taxes to more businesses paying taxes.

Calculate Input Tax Credit online: ITC calculator

Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.

Explore

Calculate Input Tax Credit online: ITC calculator

Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.

Explore

Now, what does this mean for the MSMEs? MSMEs are blessed due to the simple return filing system. The systematic composition scheme and introduction of quarterly filing option for taxpayers having turnover below Rs 1.5 crores proved to be a success.

In the 3 years of GST, the benefits extended not just to them, but E-commerce brands too! A proper structure and recognition were given to the E-commerce brands, thus giving these companies their own GST Section. Especially beneficial, if the Indian e-commerce market is expected to grow to US$ 200 billion by 2026. 

Thus, looking at the overall logistics (be it MSMEs or Multinationals) of businesses. The barbaric practice of maintaining multiple warehouses across states to avoid the state entry taxes on inter-state movement is stopped. Under GST, however, these restrictions on inter-state movement of goods have been reduced.

The Glass Half-Empty

In the 3 years of GST, it is far from being flawless. The ambitious plan it laid definitely suffered some hiccups.
The States were supposed to see annual revenue growth of 14% (as promised when GST came to power) over and above the earnings of 2015-16. However, that failed to happen, Central did not back the shortfalls as by Central as promised. In the March-April period of Financial Year 2019-20, GST revenue collection grew by a meager 3.8% to Rs12.2 trillion from a year ago.

The input tax credit system also suffered. A lot of misses in this ambitious system, suggests the process needs to speed up tremendously. For example, the companies that suffered damage to raw material and finished products during the Covid-19 lockdown are now experiencing double trouble— along with the loss of the goods, they cannot claim the input tax credit. The input tax credit allows businesses to set off tax paid on raw materials or input services against future tax liabilities. But no goods means no such credit. 

The number story: The future looked promising for the first two years. But COVID-19 and the subsequent Lockdown dipped the GST collection by a whopping 8% to ₹5.14 lakh crores.

Hence, when incidents like the GST Intelligence unit recently finding ₹40 crore tax evasion by an unregistered factory in Delhi pop, it only points to the need for measures to avoid tax evasions.

The Hopeful

In conclusion, if we see the glass half-full, GST is a promising and simplified tax infrastructure. Whereas the half-empty part focuses on the actual financials and the unachieved targets.

Maybe GST will see better days in the future. Let’s patiently watch out for what it brings for the era of GST. 

GST Application Status: Track GST Number Status using ARN

GST Application Reference Number or ARN is generated after GST Registration Application. Track GST Application Status for GST Number or GSTIN using ARN.

Explore

GST Application Status: Track GST Number Status using ARN

GST Application Reference Number or ARN is generated after GST Registration Application. Track GST Application Status for GST Number or GSTIN using ARN.

Explore