INDEX. S. No. Topic. Cost. 1. Ind AS 12 Income Tax. 2. Liberalisation in FDI Regime. 3. GST-122 Constitutional Amendment Bill. 4. GST and E-commerce

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1 An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. Jack Welch INTEGRITY FIRST

2 Cost INDEX S. No. Topic 1. Ind AS 12 Income Tax 2. Liberalisation in FDI Regime 3. GST-122 Constitutional Amendment Bill 4. GST and E-commerce 5. ICAI Restriction on Number on Tax Audits

3 Ind AS 12 Income Taxes This article aims to highlight Objective of Ind AS 12 Scope Recognition of DTA/DTL Measurement of Taxes CA Chandan Kumar & Shreyansh Jain

4 Ind AS 12 - Income Taxes Objective The objective of this Standard is to prescribe the accounting treatment for income taxes. Scope This Standard shall be applied in accounting for income taxes. Recognition of deferred tax liabilities and deferred tax assets A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from: (a) the initial recognition of goodwill; or (b) the initial recognition of an asset or liability in a transaction which: (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, a deferred tax liability shall be recognised in accordance with paragraph 39. A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: (a) is not a business combination; and (b) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for deductible temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, a deferred tax asset shall be recognised in accordance with paragraph 44. Unused tax losses and unused tax credits A deferred tax asset shall be recognised for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The criteria for recognising deferred tax assets arising from the carry forward of unused tax losses and tax credits are the same as the criteria for recognising deferred tax assets arising from deductible temporary differences. Measurement Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities shall not be discounted The reliable determination of deferred tax assets and liabilities on a discounted basis requires detailed scheduling of the timing of the reversal of each temporary difference. In many cases such scheduling is impracticable or highly complex. Therefore, it is inappropriate to require discounting of deferred tax assets and liabilities.

5 Liberalisation in FDI Regime This article discusses: The background of topic Proposal in FDI Policy,and Comments CA Deepankar Katyal & Hunny Garg

6 Liberalisation in FDI Regime Background Continuing its agenda towards Make in India and moving its reform agenda forward, the Government has further liberalized its Foreign Direct Investment ( FDI ) policy, with the objective of providing major impetus to employment and job creation in India. The Government, in November 2015, had rolled out progressive reforms in FDI policy (refer Progressive reforms measures rolled out to the Foreign Direct Investment Policy for our BMR Edge). Due to such measures, the country received highest ever FDI inflows at US$ 55.4 billion in financial year Recognizing further potential to attract more foreign investment, vide press release dated June 20, 2016, the Government has further liberalized the FDI policy, which includes increase in sectoral cap, bringing more activities under automatic route and easing of conditionality s for foreign investment in sectors such as defense, aviation, pharmaceuticals, Single Brand Retail trading, broadcasting carriage services, amongst others. In subsequent paragraphs, we have tabulated below the existing and proposed changes in the FDI policy Proposal in FDI policy SECTOR EXISTING PROPOSED Trading (including through e-commerce mode) in foods products manufactured / produced in India Defence Covered under the general category of trading of products and accordingly are subject to restrictions and sect oral caps applicable for FDI in wholesale trading/single brand retail trading/ multi-brand retail trading, depending upon the case. FDI permitted upto 49 percent participation in the equity of a company under automatic route. 100 percent FDI under government approval route is proposed for trading, including through ecommerce, of food products manufactured or produced in India. FDI permitted upto 49 percent participation in the equity of a company under automatic route. FDI beyond 49 percent is permitted through Government approval on case to case basis, wherever it is likely to result in access to modern and state of art technology in the country. The condition of access to state of art technology in the country is proposed to be removed. Accordingly, foreign investment beyond 49 percent permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. FDI limit for defence sector is also proposed to be made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

7 Broadcasting Services: Teleports Direct to Home Cable Networks Mobile TV Carriage Headend in the Sky Broadcasting Service Upto 49 percent Automatic Route Beyond 49 percent- Government Route 100 percent Automatic Route. However, subject to the following: Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval. Cable networks Pharmaceuticals Greenfield project percent under automatic route Greenfield project percent FDI under automatic route. Civil aviation Brownfield project- FDI up to 100 percent under government approval route Greenfield project percent FDI under automatic route Brownfield project- FDI up to 74 percent under Automatic route and beyond 74 percent under government approval route Greenfield project percent FDI under automatic route Airports Civil aviation Schedule Air Transport Services / Domestic Schedule Passenger Airline Regional Air Transport Services Brownfield project- FDI up to 74 percent under Automatic route and beyond 74 percent under government approval route 49 percent FDI allowed under the automatic route Brownfield project percent FDI under automatic route 49 percent FDI will be allowed under automatic route. Beyond 49 percent, FDI is now proposed to be permitted under the Government Route Private Securities Agencies 49 percent FDI allowed under the Government Route 49 percent FDI will be allowed under Automatic route Beyond 49 percent, upto a limit of 74 percent is proposed to be permitted under the Government Route

8 Establishment of branch office ( BO ), liaison office ( LO ), project office ( PO ) Animal husbandry including breeding of dogs), Pisciculture, Aquaculture and Apiculture Single Brand Retail Trading ( SBRT ) Prior approval of RBI or separate security clearance is required, if the foreign company desirous of opening BO/LO/PO is principally into the business of Defence, Telecom, Private Security or Information and Broadcasting 100 percent FDI under Automatic Route is permitted under controlled conditions. FDI in companies engaged in SBRT are required to comply with certain conditions including mandatory 30 percent local sourcing norms from the local manufacturers. The requirement of obtaining prior approval from the RBI or separate security clearance, if the principal sector of the foreign company falls under Defence, Telecom, Private Security or Information and Broadcasting is dispensed with. 100 percent FDI is proposed to be permitted under the Automatic Route without any conditions Local sourcing norms relaxed upto three years Relaxed sourcing regime for another five years for entities having state-ofart and cutting edge technology. Other Comments With highest ever FDI inflows post reform measures in November 2015 and with the latest policy review, India should continue to attract further foreign investments and seen as amongst the preferred destination for FDI investments, as being rated by several international agencies. The proposal to permit 100% FDI under Government approval route for trading in respect of food products manufactured or produced in India is in line with the budget proposals of While the proposal to allow foreign investment beyond 49 percent under the government route for Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service is well appreciated, it would be interesting to see how the requirement of maintaining substantial ownership and effective control with the Indian nationals would simultaneously be met. As regards proposals in defense sector, due to ambiguity around the term state of art technology, the condition to access to state of art technology has been dispensed with. Foreign investment beyond 49% will now be permitted through government approval for access to modern technology or for reasons to be recorded, though the term modern technology requires further clarity. Extending the FDI limit for defense sector to manufacturing of small arms and ammunition will be big impetus to such sector. As regards Pharmaceuticals sector, proposals for no government approval for investment up to 74% in existing domestic companies will provide boost to the sector and will see more acquisitions in the sector, considering concerns were raised in the past over delayed government approval for FDI in brownfield projects. The relaxation in the requirement of locally sourcing at least 30 percent of the raw material, components or merchandise upto a period of three years and relaxed sourcing regime for another five years may be breather for global companies who wish to set up shops in India but were facing difficulties in meeting this requirement.

9 Salient Features of GST- 122 nd Constitutional Amendment Bill This article aims to: Provide Salient Features of GST Constitutional Amendment Bill Garima Sharma

10 Salient Features of GST Constitutional Amendment Bill Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies),central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling; Dispensing with the concept of declared goods of special importance under the Constitution

11 Levy of Integrated Goods and Services Tax on inter State transactions of goods and services GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years Creation of Goods and Services Tax Council to examine issues relating to GST and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have State Governments as Members

12 Road Ahead After passage of the GST Bill, as was amended by the Rajya Sabha last week, by the Lok Sabha on 9th August 2016, the GST Bill will be sent to the States Then 50% of State assemblies need to approve it. Subsequently, a GST Council will be set up within 60 days of the enactment of the GST Bill, comprising the Union Finance Minister, MOS-Revenue/Finance and State Finance Ministers, which will make important recommendations on GST rates, exempted goods and services, threshold limits, dual control and adjudication, etc. Then assent of Hon ble President of India will be required In this, there is high need of having elaborate discussion. It may take much time Last but not least- When GST Will Come GST Bill is being seen as a big victory for Modi Government. The next big challenge for the Modi Government is to get the States on board and get rest of the process as quickly as possible to meet the deadline implementation of GST by April We are hoping that if everything works smoothly then GST will come in mid of 2017 i.e. October The GST roll-out deadline of April 1, 2017, is certainly stiff. But it s still better to have a deadline -Shri. ArunJaitley, Finance Minister

13 GST and E-Commerce This article highlights Impact of GST on E-Commerce CA Puneet Mehra, Shraddha Sharda & Shubhi Dhawan

14 GST & E-Commerce Current Scenario E-Commerce market is growing at an unparalleled rate in India. The scope of E-Commerce is dynamic and consistently expanding. An online marketplace is the most popular type of E-Commerce in India, where product or service information is provided by multiple third parties, whereas transactions are processed by the marketplace operator. Currently multiple indirect taxes are levied, at both Central and State level. Due to the dynamic and complex business models in which E-Commerce players operate, the treatment of various transactions under indirect laws becomes ambiguous and disputed. GST the Game Changer GST will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. The introduction of GST will affect the very fundamental of how business is carried out in India. GST ensures absolute clarity with regard to applicability of indirect taxes on transactions undertaken by online businesses. It is the first step which devices clear laws for E- commerce, thereby providing a stable environment favorable for growth and development. E-commerce has been defined under the GST Act- electronic commerce shall mean the supply or receipt of goods and/or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to , instant messaging, shopping carts, Web Services, Universal Description. Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator. Positive Impact Pricing Impact The output rate of tax could be higher for the business compared to the current service tax rate. However the businesses should have a higher credit pool than they do in the current regime, which could reduce the prices of their services. Credits Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would generally not be allowed except in case of interstate supply or goods and services under the IGST model. Simple Taxation GST aims to minimize the hitches in the double taxation system. It simplifies the process by integrating all taxes into a uniform GST. Reduction in Logistic Cost GST eliminates border taxes which are levied upon movement of goods from one state to another. Hence the costs inculcated in the logistics movement will come down.

15 Negative Impact Multiple Registration Under GST regime, registration may be required for each place of business. Hence the E-Commerce businesses may be required to obtain multiple registrations, i.e. in each state where it has a place of business. Threshold Limit for Registration under GST Persons, who supply goods and/or services, other than branded services, through E-Commerce operators, and also every E-Commerce operator, will be mandatorily required to obtain registration, irrespective of the threshold limit. This may cause additional hardships for small traders who supply goods and/or services other than branded services, through E-Commerce operators. Further, for some startups whose turnovers are not expected to rise above the standard threshold in the initial years, the standard threshold would have provided some relief. The proposed provision is in contradiction with the Ease of Doing Business initiative of Government of India. Tax Collection at Source- An electronic commerce operator will be required to collect tax at prescribed rates from the amount payable or paid to the supplier, towards the supply of goods and/or services made through the said operator, and pay the said tax to the credit of the appropriate Government within ten days after the end of the month in which such collection is made. Inter State Sale of Goods and/or Services E-Commerce businesses sell across all states in India dealing with thousands of vendors. GST, being a consumer-based taxation regime, is to be paid in the State where the goods or services are consumed. This will lead to huge complexities in record keeping, accounting, and compliance (returns etc.). Procedural Complexities The E-Commerce operator would furnish a statement electronically, containing all prescribed particulars of amounts collected towards outward supply of goods and/or services effected by the said operator, within 10 days after the end of such calendar month. Given the quantum of transactions most of the E-Commerce businesses deal in, uploading every invoice within the system, coupled with a deadline of ten days for filing all information sought will bring administrative unrest in the sector. Manpower The E-Commerce sector has attracted a lot of start-ups which mostly do not operate with huge manpower at initial stages or are constrained to hire additional manpower due to limited revenue flows. Procedural complexities will end up putting an extra burden on these start-ups, thereby directly impacting the initiatives of the Government of India such as start-up, ease of doing business, etc. Conclusion E-Commerce is here to stay and would be one of the pillars of the Indian economy in the near future. Business can thrive and grow only in a tax conducive environment. Since GST is in its initial stage. There are many more changes to come. Source:

16 ICAI Restriction on Number of Tax Audits This article discusses: C&AG Report on Violation of Tax Audit Limit Prescribed by ICAI ICAI Provisions imposing Limit on Number of Tax Audit & Related Guideline issued by it Vipin Verma & Amit Gupta

17 ICAI Restriction on Number of Tax Audits Introduction The article discusses Legislative History behind enactment of Tax Audit Provisions, Imposition of Restriction on number of such Audit to be conducted by Chartered Accountants (CAs) by Institute of Chartered Accountant of India (ICAI), Decision of Honourable High Court and Supreme court on the issue, Report of C&AG on Violation of ICAI guidelines, Constitutional Validity of Such restriction imposed by ICAI, Disciplinary Proceeding by ICAI against erring members and Stay by Kerala High Court against Such action till disposal of their representation. Background In order to maintain the quality of tax audit to be conducted by CAs, ICAI prescribed a limit on tax audit assignments that can be under taken by a CA in a FY under Section 44AB of the Income Tax Act, In case of a Firm, specified number of tax audit assignments shall be applicable for every partners of the Firm. In view of the enhancement of professional competence of members to perform service in IT enabled environment, ICAI raised in February 2014 the limit of tax audit assignments from 45 to 60 and made it effective from audits conducted during F.Y onwards. ICAI has further changed the same limit from per Financial Year to per Assessment Year in July 2014 by amending the 6.0 and 6.1 of Council Guidelines No. 1-CA (7)/02/2008 dated 8th August, C&AG Report on Violation of Tax Audit Limit Prescribed by ICAI In December 2014, a C&AG Audit Report has revealed that 18.87% Chartered Accountants issued Tax Audit Reports U/s. 44AB more than the limit prescribed by ICAI under the provisions of the Chartered Accounts Act, C&AG report revealed that Tax Audit Report issued by such Chartered Accountant is Practice Ranged from 46 to 2471 and out CAs, CAs issued Excess Tax Audit Reports than the prescribed Tax Audit Limit. It has also come to notice that there were 22 CAs who issued more than 400 Tax Audit reports. Here one thing is of worthy noting that Income Tax Act, 1961 prescribes only when the provisions of Tax Audit is applicable and who can conduct such Audits but it do not put any limit on number of such audit a CA can perform in a Financial Year or Assessment Year and it s only the guideline issued by ICAI under the provisions of Chartered Accounts Act, 1949, which puts such restrictions. Based on above C&AG report ICAI has announced on 27th December, 2014 that it will act against the erring members wherever any act of professional misconduct is observed and it will Refer details of all such members to the Disciplinary Directorate, who are said to have done Tax Audit, under section 44AB of the Income Tax Act, 1961, more than the limit prescribed by the Institute. ICAI has further decided to develop an IT based system in coordination with the authorities concerned specially to obtain the report of total numbers of Tax Audit done by each member to find out the details of the members not adhering to the Institute s guidelines. ICAI has also constituted a group pursuant to C&AG s Report `Performance Audit on Appreciation of Third Party (Chartered Accountants) reporting in Assessment Proceedings and issued a press release to such effect on

18 ICAI Provisions imposing Limit on Number of Tax Audit & Related Guideline issued by it The profession of Chartered Accountants is governed by the Chartered Accountants Act, 1949 (herein after referred to as the CA Act 1949). Section 3 of the CA Act 1949 provides that chartered accountants registered under Section 4, constitute a body called the Institute of Chartered Accountants of India. The Council of the said Institute constituted under Section 9 of the Act carries out the various functions mentioned in Section 15 and other provisions of the Act. Various enactments such as the Companies Act, 1956, Income-tax Act, 1961 and the Banking Companies Regulations Act provide that only Chartered Accountants have as specified role to play in companies and other organizations. The intention obviously is that there should be uniform accountancy methods and high level of professionalism. Many years of hard work and knowledge is required to qualify as Member of the Institute and once a person has acquired the required qualification he is free to engage himself in the profession without any kind of restriction except for professional misconduct as mentioned in Section 2 2 of the CA Act The Council set up by the Act has a general power to enquire into the allegations of misconduct of members of the Institute. It may be mentioned that there is compulsory audit of the books of accounts and other records of companies incorporated under the Companies Act, 1956 and also of all other persons whose turnover is in excess of Rs.20 lakhs under the Income-tax Act. Only a Chartered Accountant can issue a certificate under these Acts. Section 22 of the CA Act 1949 defines professional misconduct as follows: For the purposes of the Act, the expression professional misconduct shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or the duty cast on the Council under Subsection (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances. The section is an inclusive section and not an exhaustive one and that discretion is vested in the Council to inquire into the conduct of any member of the Institute under any circumstances. The First Schedule, Part 1, defines what is professional misconduct in relation to chartered accountants in practice. Part II of the First Schedule sets out professional misconduct in relation to members of the Institute in service and Part III sets out professional misconduct in relation to members of the Institute in general. In exercise of the powers contained in Schedule II set out above, the Council has been issuing notifications. One such notification is dated , wherein restrictions were placed on right to practice as Chartered Accountant with regard to the number of audits that could be performed and the same was challenged before the Honourable Madras High Court as W.P.(C) No 5925 of 1989 and WPC No 5926 of The ICAI notification dated read as follows:- No.1-CA (7)/3/88:- In exercise of the powers conferred by clause ( ii) of Part-II of the Second Schedule to the Chartered Accountants Act, 1949, the Council of the Institute of Chartered Accountants of India hereby specifies that a member of the Institute in practice shall be deemed to be guilty of professional misconduct if he accepts, in a financial year, more than the specified number of tax audit assignments under Section 44 AB of the Income-tax Act, Conclusion The Limit imposed by ICAI seems to be without strong legal backing and position will clear only after Reply of ICAI on the representation of Petitioner and it is likely that ICAI may have to indulge in long legal battle with its members on the issue.

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