Taxing Times Ahead

Rtn. Shariq Contractor talks about government policies during the Covid-19 lockdown.

There are many changes that have been brought in during the Covid-19 lockdown. The first that was announced recently was that the due date of filing returns has been extended to June 30th. This has been postponed not only with reference to Income Tax but a number of taxes, for example the wealth tax act income tax, the BENAMI property transaction act, the security transaction act, black money act, equalisation levy and the Vivad se Vishwas scheme that the Government has announced. The filing dates have been extended for all of these and now, these notifications have been referred to as Relief Notification. But we must understand that when the government says it’s Relief, it means relief to the taxpayer, of course, but also to the tax officer.

There are time constraints to the officer to complete various proceedings and pass orders. For example, there must be something for which there is a time limit for getting sanction from the higher authority, in all these situations even the officer gets extension of time limit till June 30th. So, it is not a one-way street. For example, the due dates for reopening an assessment proceeding for financial year 2014-15 was expanded to March 31st and now it gets extended to June 30th.

Of course, in our own case, the filing of the appeals and rectification application, due date to filing a belated return for 2018-19, or filing a revised return for 2018-19, will all get extended till June 30th. That is the good part, you have extension time. Similarly, all your withholding tax or TDS returns required to file, now get extended till June 30th. Essentially, the relief is that all due dates between March 20th and June 29th are shifted to June 30th.

Interestingly, there is also a time given for investment. For example, before, many would invest in Provident Fund before filing a return on March 31st, or LIC, and claim that as a deduction in our returns. Now, that time, too, has been extended to June 30th. So you can make your Public Provident Fund payment in April or May and you would have an option to decide whether you want to claim it as a benefit for your tax purposes in the year end of March 20-21.

Similarly, donations made – for instance towards Covid-19 – a corporate can give the donation and claim the ATG exemption for the year already gone by. The important thing to remember here is that though the ordinance is deferring the date of filing the return, it is not deferring the rate of interest. So, one would still have to pay the rate of interest on the above laws if you don’t pay the interest within the due time. Of course there is some relief given there, interest would be paid only to the extent of nine per cent rather than 18 per cent as at other times. Similarly, if you have not paid your TDS dues, interest of nine per cent will be applicable.

This makes things very interesting because an employer can pay the TDS to avoid the interest burden and the employee can invest in Public Provident Fund or other relief measures to get tax rebate which means that the higher tax will be deducted by the employee initially and the employee may later make a special investment to get a lower tax, and therefore he may have to file his return to get a refund. The other important thing to understand and remember is that the relief is given only if the interest payment is due between March 20th and June 29th. So if there was an old default before March 20th, then there is no relief, not even during this period, and the full 18 per cent interest would have to be paid.

Similarly, if you don’t make your payment by June 30th, then you lose the entire relief and even during this period you will not get the relief of nine per cent interest. It is important to make tax payments in time. In case, due to cash flow reasons, you cannot make it, ensure you do so by June 30th. If you don’t, you are much worse off in having to pay 18 per cent right from the rate on which the default occurred.

Then I go to the GST extension, an extension is given on filing the annual return which was to be filed in the financial year 2018- 19. The due date earlier was March 31st, now June 30th. Similarly, the monthly and quarterly returns that were required to be filed, there has been a waiver of late fees and reduction in payment of interest. So let me have been waived but the interest has been reduced, not completely waived. Except in cases where the turnover is less than Rs 5 crore, then there will be no interest if the payment has been made before the end of June 29th. But if your turnover is more than Rs 5 crore, then in that case you must pay your interest and file your returns within the 15 days of the due date if you don’t want the burden of interest. You can extend it to June 30th then you pay only nine per cent of interest but if you go beyond it, you’ll have to pay full 18 per cent right from the day from which the default occurred.

Similar exemptions have also been made in the excise and customs and service tax regime. So Central excise returns can also be filed by June 30th now. Similarly for appeals, refunds and applications. So the entire plethora is that the filings have been extended to June 30th, in case of GST it is in the last week of June. However the payment of taxes has to be done by the due date. In a simple way if it is not done by the due date, you may still have to pay interest of nine per cent if you pay taxes by June 30th, if you delay beyond that, then full 18 percent.

Then there is this Vivad se Vishwas scheme that the government has announced with a lot of fanfare. There was high expectation that a huge amount of taxes would be collected by the government, now that obviously has gone out of the window and the government has had to extend that scheme. Earlier as you know the scheme was March 31st you pay the full tax, you don’t have to pay the interest and penalty, but if you pay by June 30th after pay 10 per cent extra. Now they have extended this particular scheme also to June 30th. And this is sort of a dispute resolution scheme, if appeals or litigations are pending against you, you can go under the scheme and pay your taxes in full. Interest
and penalty would have completely waived.

So those are the direct tax amendments, there are many more but I am picking some of the important ones considering the time constraints that we have. Also the RBI has issued a notification, a clarification to say that there will be a moratorium on all payments of term loans, cash credits and overdrafts. So interest and loan repayments will be
differed by 90 days. During this period banks will not insist on the payment of loan installments or of the interest.
Again interest will not stop, if you do have the cash flow and better off making the payment, it is important to
make payment. Similarly on credit cards, there is deferment of payments but again the interest charge would continue.

The next is provisions related to company law. They issued a circular under what they called CFSS scheme. That is between April 2020 to September 2020, there is a moratorium period on levying any late filing fees or additional fees for filing any returns, statements, documents, etc by companies or even LLP. If you have not filed these statements, you will have relief, you can file them during this period; there are no late fees. Here what you need to know is that even mass fees will be condoned, even if there were pre-Covid defaults, it would also be filed and you can get the benefit. They have opened the floodgates, all your past sins will be wiped off if you make your filings before September 30th, 2020. Also any appeals to be filed due between March 1st and May31st, there is an extension 121 days to file an appeal.

The board meetings as they have to hold in every quarter, within a period of 120 days under section 173 Act, this has been extended to 60 days. Which means you can now have a gap between two board meetings of 180 days. Earlier it was 120 days now the board meetings can be held apart upto 180 days. Again independent directors were required to hold meetings without the presence of non-independent directors, members of management and for this purpose again if the meeting was not held it was considered the violation of the company law board, now they have clarified that because of this reason if you have not been able to hold the meeting, then it will not be treated as violation by the registrar of companies. So this meeting can be postponed ahead and held in the next year.

This has brought about an interesting change. There are a lot of companies that could hold the meetings virtual through video conferencing, but certain items had to be concluded or resolved through a regular meeting. For example, approval of financial statements, approval of a board’s report, approval of books of accounts and such matters related to merger and restructuring, require a physical meeting. Now the company law board has clarified that this can also be done virtually. So a lot of liberalisation has taken place in the way the meetings can be held. I think and this is going to change things perhaps post Covid. Perhaps we may continue to allow people to hold meetings virtually.

Also the company’s auditor’s reports were made applicable for financial year 2019-20. Now it has been extended to 2020-21. From the Rotary perspective another interesting amendment that has brought about is the amendment related to CSR spending. Covid-19 expenditure is eligible as a CSR activity and they have said that in Schedule 6, there are a number of items eligible for CSR spending and the government has said that these are very broad-based and it can be
interpreted liberally to also cover Covid-19 spendings.

During this period March 24-25, the finance act was passed. So this also falls among the major structural or policy changes that took place in the country during the Covid period. The two major amendments of this act were: the definition of Non Resident; the finance bill was proposing that a citizen of India or a person of Indian origin who is outside of India, and he comes for a visit to India, and he stays in India for 120 days or more, then he will be treated as a resident. There are other conditions to be satisfied as well but we are sticking to this. Now when the finance act has been passed by the Parliament and has been given the assent, it is provided that this threshold of 120 days will be applied only to the visiting Indians and persons of Indian origin if their income in India exceeds Rs 15 lakh.