20 July, 2017
Goods and Services Tax
Goods and Services Tax (‘GST ’) has come into force with effect from July 1, 2017, and the Central Goods and Services Tax Act, 2017 (‘CGST ’), The Integrated Goods and Services Act, 2017 (‘IGST ’) and the Union Territory Goods and Services Tax Act, 2017 (‘UTGST ’) were notified in this regard. Further, all States have notified their respective State GST laws as well. Some of the key aspects of GST are as under:
i. GST is a levy on ‘Supply’ of goods and services in India and would be computed on the value of such supply. It is structured to be a dual GST i.e. GST would be levied by both Central and State Governments on a transaction. The indirect taxes such as
excise duty, service tax, and State value added taxes, entry tax, entertainment tax and similar taxes have been subsumed into GST .
ii. The threshold exemption limit prescribed under GST is . 2,000,000 (approx. US$ 30,880) and . 1,000,000 (approx. US$ 15,440) for certain special category states. The threshold exemption would not apply in certain cases e.g. a non-resident taxable person, e-commerce operator, etc.
iii. For computing GST , the value of supply of goods or services would be the ‘transaction value’, which is the price actually paid or payable for supply of goods or services. However, in case of related party transactions or other specified situations, the taxable value will be determined as per the prescribed valuation rules.
iv. Under GST , broadly the tax rates prescribed are nil rate, 5%, 12%, 18% and 28%. Applicable rates for goods and services would depend on the nature of such goods, services and classification thereof.
v. Certain supplies have been declared as non-supplies of goods and services for the purposes of GST . These include services by an employee, services by a Court or Tribunal and sale of land or building. Additionally, certain goods have also been
exempted from GST.
vi. Rules dealing with, inter alia , registration, valuation, input tax credits, returns, search and seizure and maintenance of records under GST have been notified.
vii. An enabling provision on ‘anti-profiteering’ has been introduced which requires businesses to pass on any benefit obtained under GST as a result of reduction in rate of tax or input tax credit to customers by way of commensurate reduction in prices. An authority and mechanism has been set up to examine and monitor the implementation of these measures.
Qualification for Long Term Capital Gains Tax Exemption
Finance Act, 2017 (‘Finance Act ’) had amended Section 10(38) of Income Tax Act, 1961 (‘ITA ’) to withdraw the long-term capital gains tax exemption available on transfer of listed equity shares acquired on or after October 1, 2004 and which were not chargeable to Securities Transaction Tax (‘STT ’). However, the Central Government was authorized to carve out those transactions, which would not lose the capital gains tax exemption, by issuing a notification in that regard.
In pursuance thereof, the Central Board of Direct Taxes (‘CBDT ’) has issued a notification dated June 5, 2017 listing both, i.e. the transactions which will lose exemption and also those transactions which will not lose the exemption, as per details below:
i. Acquisition of existing listed equity shares in a company, whose equity shares are not frequently traded in a recognized stock exchange of India, which are made through a preferential issue. However, the following acquisition of listed equity shares (even if made through a preferential issue) are protected and continue to be covered by Section 10(38) exemption:
a. Acquisition of shares which has been approved by the Supreme Court (‘SC ’), High Court (‘HC ’), NCLT , SEBI or RBI in this behalf;
b. Acquisition of shares by any non-resident in accordance with foreign investment guidelines;
c. Acquisition of shares by an Investment fund or a Venture Capital Fund or a QIB ; and
d. Acquisition of shares through a preferential issue to which the provisions of Chapter VII of the ICDR Regulations do not apply.
ii. Transactions for acquisition of existing listed equity shares in a company which are not entered through a recognized stock exchange. However, the following acquisitions of listed equity shares are protected (even if not made through a recognized stock exchange) and continue to be covered by Section 10(38) exemption.
a. Acquisition through an issue of share by a company other than preferential issue, as an example receipt of bonus shares, shares upon conversion of instruments or splitting of shares;
b. Acquisition by scheduled banks, reconstruction or securitization companies or public financial institutions during their ordinary course of business;
c. Acquisition which has been approved by the SC , HC s, NCLT , SEBI or RBI in this behalf;
d. Acquisition under employee stock option scheme or employee stock purchase scheme framed under the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
e. Acquisition of shares by any non-resident in accordance with foreign investment guidelines;
f. Acquisition of shares under SAST Regulations;
g. Acquisition from the Government;
h. Acquisition of shares by an Investment fund or a Venture Capital Fund or a QIB ; and
i. Acquisition by mode of transfer referred to in Sections 47 or 50B of the ITA if the previous owner of such shares has not acquired them by any mode which is not eligible for exemption as per this notification.
iii. Acquisition of equity shares of a company during the period of its delisting from a recognized stock exchange.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
