“Introduction of ‘Digital Rupee’ – New Digital Currency”

Finance Minister, SmtNirmalaSitharaman, has announced the introduction of Digital Rupee to be issued by the Reserve Bank of India starting 2022-23 while presenting the Union Budget 2022-23 in the Parliament. The Reserve Bank of India will launch the CBDC from the upcoming financial yearthat will be backed by blockchain technology.
Key Highlights:
  1. RBI to introduce Digital Rupee using Blockchain and other technologies.
  2. A digital version of fiat currency is, by definition, an online token and has no physical presence. In that, it is a perfect replacement of cash for an economy.
  3. The Central Bank Digital Currency (CBDC) will give a big boost to digital economy.
  4. Digital currency will also lead to a more efficient and cheaper currency management system.
  5. The Digital Currency will use block chain and other technologies.
  6. 75 Digital Banking Units To Be Setup In 75 Districts By Scheduled Commercial Banks
  7. The Reserve Bank had, in July 2021, indicated that it would soon begin work on the ‘phased implementation’ of the CBDC.
  8. CBDC or Central Bank Digital Currency is a legal tender issued by the Reserve Bank of India. A CBDC is an electronic record or digital token of a country’s official currency, which fulfils the basic functions as a medium of exchange, unit of account, store of value, and standard of deferred payment.
  9. CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer).
  10. CBDCs should be exchangeable at par with cash.
  11. CBDC will eliminate the need for interbank settlement.
  12. Users of Digital Rupee will be able to transfer purchasing power from their deposit accounts into their smartphone wallets in the form of online tokens, which will be a direct liability of the Reserve Bank of India — just like cash.
  13. “A CBDC, which is a liability of the RBI, will mitigate the risk of losses that Indian depositors face when dealing with commercial banks.”
  14. The Finance Minister assured that the financial support for digital payment ecosystem announced in the previous Budget will continue in 2022-23. This will encourage further adoption of digital payments. There will also be a focus to promote use of payment platforms that are economical and user friendly.
  15. The announcement regarding Digital Rupee in the Budget essentially expresses the government’s intention on cryptocurrencies and other virtual currencies.
Source: Union Budget 2022-23

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

No to Cash Transactions- The Income Tax Way

“Cash is King” has been the world known phrase for centuries. Cash is also considered as the biggest source of parallel economy, Money laundering, tax evasion, & criminal or illegal activities. There are various provisions which are enacted in the Income Tax Act-1961 just to say “No Cash Transactions”. Let us have a look at the income tax law which prohibits the transactions in cash as under:
  1. Business Expenses exceeding Rs. 10,000/- in Cash:Section 40A(3) requires every expenditure exceeding Rs. 10,000/- in a day to be paid by any mode other than cash. If the amount exceeding Rs. 10,000/- is incurred in cash then no deduction towards such expenditure is available against business income.
  2. Purchase of Assets for Business in Cash:Asset purchased for business purpose is eligible for depreciation. Section 43(1) provides the definition of the term “actual cost” for the purpose of claiming depreciation on it. The 2nd proviso to the said section specifies that if any expenditure for the acquisition of an asset is done in cash exceeding Rs. 10,000/- in a day then such expenditure shall not be considered as part of the actual cost. It means that the amount paid in cash will neither form the part of the cost of the assets nor will be eligible for depreciation.
  3. Higher Rate of Profit in respect of Cash Turnover:Section 44AD provides immunity to eligible business from maintenance of books of accounts if profit is offered for taxation on presumptive basis at minimum of 8% of the total turnover/gross receipts. However, the rate may be taken as 6% (as against 8% for cash sale/receipt) if the amount is received by digital mode.
  4. Acceptance of Loan (or advance against sale of property) exceeding Rs. 20,000/- not allowed in Cash:Section 269SS prohibits a person from taking or accepting from any person any loan or deposits equal to Rs. 20,000/- or more in cash. Even acceptance of advance against sale of the property of Rs. 20,000/- or more in cash is prohibited.
  5. Repayment of Loan (or advance against sale of property) exceeding Rs. 20,000/- not allowed in Cash:Section 269T prohibits any person from repaying any loan, deposit or any advance against immoveable property in cash if the amount is Rs. 20,000/- or more.
  6. Donation for deduction U/s 80G:Deduction u/s Section 80G towards donation is not available if the payment exceeding Rs. 2,000/- is done in cash. Further, section 13A of the Act requires all political parties to receive donations exceeding Rs. 2,000/- through digital mode so as to be able to claim exemption for such donation.
  7. Deduction for specified Businesses:Section 35AD provides that the term ‘any expenditure of capital nature’ shall not include any expenditure in respect of which the taxpayers makes payment (or an aggregate of payments) exceeding Rs. 10,000/- is done in cash.
  8. No deduction towards mediclaim policy for payment in Cash:
    Section 80D provides for deduction towards mediclaim policy. Deduction is admissible only if the payment is done in any mode other than cash.
  9. Acceptance in cash of Rs. 2 Lakh prohibited:Section 269ST prohibits acceptance of Cash exceeding Rs. 2,00,000/- (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person.
  10. Benefit of Stamp Duty Valuation as on the date of Agreement if accepted in cash:Section 43CA provides that where the date of agreement fixing the value of consideration for the transfer of the property and the date of registration of such property is different, then the stamp duty value on the date of the agreement can be taken as full value of consideration if the amount of consideration or a part thereof has been received by way of digital mode on or before the date of transfer. Similar provision is there in section 50C which provides for capital gain taxation on sale of capital assets and section 56 which provides for taxation of the amount if the property purchased is below the fair market value/stamp duty value. In short, the benefit of adopting stamp duty valuation as on the date of agreement shall not be available if the amount is transacted in cash.
  11. TDS on cash Withdrawals:
    Section 194N provides for Tax Deduction at Source (TDS) @ 2% on cash withdrawals from bank or post office in excess of Rs. 1 Crore in aggregate in a year. Further, if the person withdrawing cash is a non filer of income tax return then the threshold for non deduction shall be @ 2% for withdrawals from Rs. 20 Lakh to Rs. 1 Cr and @5% on amounts exceeding Rs. 1 Cr.
  12. Mandatory facility for acceptance by Digital Mode:
    Section 269SU makes it mandatory for the person with turnover exceeding Rs. 50 Crore to provide facility for accepting the payment through prescribed electronic mode in addition to payment option for other electronic mode of payment.
Conclusion:
Cashless payment has become one of the most preferred options now. Having transactions through digital mode has various advantages as well. It still remains strong evidence in court of law for all the legal purposes. The time has come to go digital and say “No cash please”.

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

Ease of Doing Business: Quick registration of companies in India

Ease of Doing Business

The Government of India has undertaken a number of steps to ensure the quick registration of companies in India, which are as under: 
i. A single integrated new web form called SPICe+ along with AGILE PRO-S has been deployed. This form provides eleven services related to ‘starting a business’ namely (i) Name Reservation, (ii) Incorporation, (iii) Permanent Account Number (PAN), (iv) Tax Deduction Account Number (TAN), (v) Director Identification Number (DIN), (vi) Employees’ Provident Fund Organisation (EPFO) Registration, (vii) Employees’ State Insurance Corporation (ESIC) Registration, (viii) Goods and Services Tax (GST) number, (ix) Bank Account Number, (x) Profession Tax Registration (Mumbai, Kolkata and Karnataka), (xi)  Delhi Shops and Establishment Registration. 
ii. Zero fee is now charged for incorporation of all companies with authorized capital up to Rs. 15 lakh or with up to 20 members where no share capital is applicable. 
iii. A Central Registration Centre (CRC) has been set up for name reservation and incorporation of companies & Limited Liability Partnership (LLP) within 1 day. 
iv. The LLP Incorporation Form called FiLLiP has also been integrated with Central Board of Direct Taxes (CBDT) to provide PAN/TAN at the time of Incorporation of LLP itself. 
(v) The Companies (Incorporation) Third Amendment Rules, 2020, now provide for extension of 
reservation of name through a simple web service available at www.mca.gov.in. 
(vi) Provisions with regard to incorporation and functioning of One-Person Companies (OPCs) have been revised so as to incentivize incorporation of OPCs. Now, Non-Resident Indians (NRIs) are also allowed to incorporate OPCs. OPCs are now allowed to convert into private or public companies at any point of time. The restrictions with regard to maximum amount of paid-up  capital and turnover for OPCs have also been removed. 
This information was given by the Minister of State in the Ministry of Commerce and Industry, Shri Som Parkash, in a written reply in the Lok Sabha today.

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

The Top 50 Transactions getting reflected in New Annual Information Statement (AIS)

The Income Tax Department has rolled-out of a new statement namely Annual Information Statement (AIS) as against erstwhile Form No. 26AS.

The AIS which would provide almost all details about your financial transactions during the year. So far, the Income Tax Department has been issuing Form 26AS to provide information related to taxable income and tax deducted at source (TDS), which will now be replaced with the Annual Information Statement (AIS). The new AIS statement will provide comprehensive information of the taxpayer and will be significantly useful while preparing the tax return. The information will be provided in AIS after removing duplicate information and taxpayers can download such information in PDF, JSON, CSV formats.

A taxpayer can submit online feedback if the information is erroneous or refers to another person/year, or is duplicate Here’s the list of Top 50 Transactions to be reported in the New Annual Information Statement.

1.Salary

Employer submits detailed breakup of salary, perquisites, profits in lieu of salary etc paid to the employee in Annexure II of the TDS statement (24Q) of the last quarter. This information is also provided by the employer to the employee (taxpayer) in Part B (Annexure) of Form 16. AIS displays all the financial transactions such as, salary income, dividend income, interest income from saving/fixed deposits, sale and purchase of securities, etc. With the help of all such financial information, it would be easy for a taxpayer to report the correct information in the income tax return

2. Rent Received

Tenants responsible for paying rent are liable to deduct tax at source on payment of rent. Deductor reports details of amount paid/credited, date of payment, details of Tax deduction made etc. in Form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Tenant (Individual/HUF) paying a rent of more than 50,000 is liable to deduct tax while making payment to the landlord. Tenant reports details of rent paid amount paid/credited, property details, date of payment and tax deduction details etc. pertaining to rent paid in Form26QC.

3. Dividends

Dividend paid/declared by all companies (reporting entity) is reported under Statement of Financial Transactions (SFT). Company paying/distributing dividend is liable to deduct TDS from the amount paid subject to the threshold applicable in the act and report through form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

4. Interest from savings bank

Interest paid/credited/accrued on saving account is reported under Statement of Financial Transactions (SFT).

5. Interest from deposit

Bank/deductor at the time paying/crediting interest on deposits is liable to deduct tax from deposit holder paid subject to the threshold applicable in the act. This information is reported by the Bank/deductor in form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

6. Interest from others

Interest paid/credited/accrued on others (other than savings account, term deposit, recurring deposit) is reported under Statement of Financial Transactions (SFT).  Bank/deductor at the time paying/crediting other interest (interest on securities) is liable to deduct tax from deposit holder paid subject to the threshold applicable in the act. This information is reported by the Bank/deductor in form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A

7. Interest from income tax refund

Interest received on Income Tax Refund in the financial year is liable to be taxed as Income from other sources.

8. Rent on plant & machinery

Tenant paying rent is liable to deduct tax at applicable rate as per the Act from rent paid. Details of rent on Plant & Machinery is reported by the deductor in TDS form 26Q. Tenant furnishes the details of rent paid on quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

9. Winnings from lottery or crossword puzzle

Payer is liable to deduct tax at applicable rate as per act from winnings from lottery or crossword puzzle etc. Information about winnings is reported by payer in TDS form 26Q. Information is reported on quarterly basis. Income is taxable at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

10. Winnings from horse race

Payer is liable to deduct tax at applicable rate as per act from winnings from Horse race. Information about winnings is reported by payer in TDS form 26Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

11. Receipt of accumulated balance of PF from employer u/s 111

Employer/recognised provided fund reports information about accumulated balance due to an employee in form 26Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

12. Interest from infrastructure debt fund

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

13. Interest from specified company by a non-resident u/s 115A(1)(a)(iiaa)

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

14. Interest on bonds and government securities

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

15. Income in respect of units of non-resident u/s 115A(1)(a)(iiab)

Information about income in respect of units of Non Resident is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

16. Income and long-term capital gain from units by an offshore fund u/s 115AB(1)(b)

Information about income and long-term capital gain from units payable to an off shore fund is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

17. Income and long-term capital gain from foreign currency bonds or shares of Indian companies u/s 115AC

Information about income and long-term capital gain from foreign currency bonds or shares of Indian companies is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

18. Income of foreign institutional investors from securities u/s 115AD(1)(i)

Information about income of foreign institutional investors from securities is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

19. Insurance commission

Information about insurance commission received is reported by the payer in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

20. Receipts from life insurance policy

Receipts from life insurance policy are exempt under section 10(10D) subject to conditions specified therein. If such conditions are not met, the receipts become taxable and tax is also deducted u/s 194DA. The information is reported by the payer in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

21. Withdrawal of deposits under national savings scheme

Withdrawals from NSS are taxable. Tax is also deducted on such withdrawals and reported in Form 26Q by the payer on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

22. Receipt of commission etc. on sale of lottery tickets

Commission on lottery business is subject to tax deduction under section 194G. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A

23. Income from investment in securitization trust

Income from investment made in securitization trust is subject to tax deduction. The payer reports such information in Form 27Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

24. Income on account of repurchase of units by MF/UTI

Receipt of income on account of repurchase of units by MF/UTI is subject to tax deduction under section 194F. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

25. Interest or dividend or other sums payable to government

Income from interest or dividend or other sums payable is not subject to tax deduction. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A

26. Payment to non-resident sportsmen or sports association u/s 115BBA

Information pertaining to amount paid to non-resident sportsmen or sports association is reported by deductor in form 27Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

27.  Sale of land or building

Sales consideration of immovable property transferred is reported under Statement of Financial Transactions (SFT). The information will be shown in AIS of all sellers to enable submission of feedback. Sale of immovable property is also reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. Information related to receipts under specified agreement is reported by person making payment for specified agreement entered into. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

28. Receipts from transfer of immovable property

Information related to receipts from transfer of immovable property is reported by buyer of property in Form 26QB. This information is provided by the deductor to the deductee (taxpayer) in Form 16B.

29. Sale of vehicle

Sale of motor vehicle is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

30. Sale of securities and units of mutual fund

In the SFT reporting of depository transactions, the estimated sale consideration for the debit transaction is determined on the best possible available price of the asset with the depository (e.g. end of day price). The taxpayer will be able to modify the sales consideration and other related information before filing the return. In the SFT reporting of depository transactions, the estimated sale consideration for the debit transaction is determined on the best possible available price of the asset with the depository (e.g. end of day price). The taxpayer will be able to modify the sales consideration and other related information before filing the return.

31. Off market debit transactions

In the SFT reporting of depository transactions, the depository reports details of off market debit transactions. The value of transaction is computed on the basis of end of day price of the security. In case, the consideration is available, the same is also shown.

32. Off market credit transactions

In the SFT reporting of depository transactions, the depository reports details of off market credit transactions. The value of transaction is computed on the basis of end of day price

33. Business receipts

Information pertaining to amount paid to contractor is reported by contractee in form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Information pertaining to amount paid to the service provider is reported by recipient of services in form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A

34. Business expenses

Information pertaining to purchase of alcoholic liquor is reported by tax collector in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 27D.

35.  Rent payments

Information is reported by person making payment in form 26QC. This information is provided by the deductor to the taxpayer in Form 16C

36. Miscellaneous payments

Information is reported by person making payment in form 26QD. This information is provided by the deductor to the taxpayer in Form 16D. Purchase of bank drafts or pay orders may be reported in Form 61 if PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person

37. Cash deposits

Information pertaining to cash deposits in an account other than current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback. Information pertaining to cash deposits in current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback.

38. Cash withdrawals

Information pertaining to Cash withdrawals from current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback. Sometimes, cash withdrawals from accounts other than current account are reported by the Reporting Entity in SFT-004. The information will be shown in AIS of all account holders to enable submission of feedback. Information pertaining to Cash withdrawals is reported by reporting entity through TDS statement 26Q. This information is provided by the deductor to the taxpayer in Form 16A.

39. Cash payments

Information pertaining to Cash payments for goods and services is reported by reporting entity in form 61A. Information pertaining to Purchase of bank drafts or pay orders or banker’s cheque in cash is reported by reporting entity in form 61A. Information pertaining to Purchase of prepaid instruments in cash is reported by reporting entity in form 61A.

40. Outward foreign remittance/purchase of foreign currency

Information of outward foreign remittance is reported by authorised dealer in form 15CC. Information about Remittance under LRS for educational loan taken from financial institutions mentioned in section 80E (Third proviso to Section 206C(1G)) is reported by authorised dealer through TCS form 27EQ for specified foreign remittances made by remitter PAN.Information about Remittance under LRS for purpose other than for purchase of overseas tour package or for educational loan taken from financial institution (Section 206C(1G(a))) is reported by authorised dealer through TCS form 27EQ for specified foreign remittances made by remitter PAN.

41. Receipt of foreign remittance

Information relating to payment of royalty or fees for technical services etc., paid to non- residents is reported by deductor in form 27Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Information is reported by authorised dealer in form 15CC for foreign remittances made by remitter PAN. Information of receipt of foreign remittance by a remittee is reported by authorised dealer in form 15CC.

42. Foreign travel

Information is reported by deductor in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 16D. Payment in connection with travel to any foreign country may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

43. Purchase of immovable property

Information relating to immovable property is reported by the Property Registrar through SFT. The information will be shown in AIS of all buyers to enable submission of feedback. Buyer at the time of making payment towards purchase of property is liable to deduct tax from the amount paid to the seller subject to the threshold applicable. This information is reported in form 26QB. Seller of property reports the details of property buyer in schedule CG of ITR. Payment for purchase of immovable property may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

44. Purchase of vehicle

Information is reported by deductor in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 16D. Payment for purchase of motor vehicle may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

45. Purchase of time deposits

Information relating to Purchase of Time deposits is reported by reporting entity (such as the bank) in the Statement of Financial Transaction (SFT). Information pertaining to investment in Time deposit is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

46. Purchase of securities and units of mutual funds

Information is reported by reporting entity in the Statement of Financial Transaction (SFT). Purchase of shares (including share application money). Information is reported by reporting entity in the Statement of Financial Transaction (SFT). Information is reported by reporting entity (such as mutual fund companies) in the Statement of Financial Transaction (SFT).

47. Credit/Debit card

Information pertaining to application for issuance of credit/debit card is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person.

48. Balance in account

Details of bank account other than saving and time deposits opened during the year , as reported in Form 61. Bank account with balance exceeding 50,000 at the closing of Financial year, as reported in Form 61.

49. Income distributed by business trust

Information relating to income from units of a business trust is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate.

50. Income distributed by investment fund

This information is reported by the deductor in Form 26Q on a quarterly basis

So now incometax department knows more about you & you have to be very careful in next ITR filing plus proper records to be maintained by all for above list of items as anytime department will ask about it.

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

Key income tax proposals of Finance Bill 2022

Union Budget 2022 – introduced as a blueprint to steer the Indian economy and foster growth – has proposed significant proposals to give a holistic fillip to infrastructure development, capital expenditure inducing measures, and a clear focus towards digital economy & fintech. 
 
Amid the pandemic, the government had to undertake a balancing act of containing the fiscal deficit, generating sufficient revenues for meeting its social obligations and giving a push to economic development, and promoting a stable and predictable tax regime.  

All significant aspects of the economy have been kept in view by the FM while presenting her budget for 2022-23. 
 
From an income-tax perspective also, the Finance Bill, 2022 (“Finance Bill”) has proposed important changes to the Income-tax Act, 1961 (“IT Act”).

Set out below are some such proposals: 
 
1. Unexplained cash credit | Source of source: The Finance Bill has proposed an amendment to section 68 of the IT Act (section 68 deals with taxability of “cash credits”, ie amounts received by a taxpayer for which satisfactory explanation cannot be offered by the taxpayer) to increase the burden on taxpayers from not only providing a satisfactory explanation about its source (ie the person from whom it received money), but also providing a satisfactory explanation about the “source of such source”. This proposal will be applicable for FY 2022-23 and onwards and is applicable to moneys received by way of loan or borrowing. Given that additions made under section 68 of the IT Act are taxable at a higher rate of tax (ie at the rate of 60%), it is an important proposal as it casts an additional onus on the taxpayer to substantiate the genuineness of its borrowings. 
 
2. Cryptocurrencies | Virtual Digital Assets (“VDAs”): One important highlight of the Finance Bill is the proposal to introduce a separate regime for taxation of VDAs, in terms of which: (i) gains arising from the transfer of VDAs will be taxable at a flat rate of 30% (plus applicable surcharge, cess) with no set-off of any loss or cost, except the cost of acquisition of such VDA, (ii) receipt of VDAs for nil or inadequate consideration will be taxable as ordinary income in the hands of the recipient, and (iii) payments made in relation to transfer of VDAs will be subject to TDS of 1% of such consideration above specified monetary thresholds. What must be noted is that introduction of a separate regime for VDA should not be extrapolated to interpret that the government has expressed any view about the legal aspects involved in relation to cryptocurrencies. 

3. Introduction of “Updated Tax Return” concept: The government is introducing a new concept of “Updated Return” to provide extra time (over and above the period that is already available under the IT Act for belated return / revised return) to taxpayers to furnish an “Updated Return” at any time within 3 years from the end of the relevant financial year (ie 2 years from the end of relevant assessment year). To take benefit of this new concept, an amount equal to 25% or 50% (depending upon the timing of filing of “Updated Return”) as additional tax on the tax and interest due on the additional income would be required to be paid; and the Updated Return will need to be accompanied by the proof of payment of such additional tax. Certain scenarios (ie search / survey cases, or cases where information is available to the tax officer under laws like anti-money laundering law, Black Money Act, etc) are not eligible for this facility. The government seeks to make use of the huge data with the income-tax department to result in additional revenue realization and facilitate ease of compliance to the taxpayer in a litigation free environment. 

4. Measure to reduce departmental appeals in income-tax matters: In continuation of the government’s litigation management efforts (ie to become a non-adversarial tax regime) the Finance Bill has proposed that where a “question of law” is pending before the Supreme Court or before the jurisdictional High Court (“Pending QOL”), then, the income-tax department will not be able to file an appeal in the case of the same taxpayer or some other taxpayer until the Pending QOL is decided by the Supreme Court / jurisdictional High Court. This is, of course, subject to the taxpayer accepting that the Pending QOL is identical to the “question of law” arising in its case. To implement this proposal, a collegium comprising 2 senior level officers of the income-tax department will be constituted. This is a welcome move and will go a long way in ensuring that the already over-burdened judiciary is not piled with more avoidable litigation, besides saving time and cost for taxpayers. 
 
All in all, Union Budget 2022 demonstrates the government’s clear intent to touch every aspect of the economy and to leave no stone unturned – be it digital economy push be it an infrastructure boost or be it the energy sector. 

While some demand inducing measures like reliefs in terms of personal taxation would have added more cheer to the general population, what needs to be kept in mind is the tight fiscal situation in which this massive budget exercise was undertaken.

What also needs to be applauded is the fact that the economy is gradually healing from the wounds of the pandemic. Now, various stakeholder discussions will take place in the next few weeks, and one will have to see what transpires into the Finance Act, 2022. 

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

Russia-Ukraine War To Strain Multiple Sectors of Indian Economy – CRISIL

Russia’s invasion of Ukraine, and the flurry of punitive sanctions imposed on the former by the US and European nations, has the potential to impact India Inc in two ways. One, the resultant spike in commodity prices, if not passed on, can increase input costs and squeeze the margins of downstream sectors. 

Two, trade and banking sanctions can cull India’s export-import activity in the affected region until workarounds are found. 

A report by CRISIL pointed out how, on the other hand, a few sectors such as steel and aluminium may benefit from rising prices. Net-net, the impact of the ongoing war will vary by sectors. But a clearer picture, including of credit quality of affected companies, will emerge only in due course after the geopolitical situation improves. 

The price of Brent crude has sky-rocketed above US$130/barrel from US$97/barrel before the Russian invasion began. Without a commensurate increase in retail fuel prices, oil marketing companies are already making losses. The impact of this is also being felt by sectors such as chemicals and paints which use crude oil-linked derivatives as their primary feedstock. These sectors may see some margin squeeze that could extend well into the first quarter of next fiscal, as inventories bought previously at lower prices run out.

Other commodities will also see further cost inflation. Steel and aluminium (Russia contributes almost 6% of global primary aluminium production) prices, which had shot up in recent times from their already-high levels, will have an upward bias. While this would benefit domestic primary steel makers and aluminium smelters because their realisations will rise, it would cascade negatively for the construction, real estate, and automobile sectors

Spot prices of natural gas, which are also linked to crude, could continue to climb. But this won’t impact the downstream sectors as much. Urea-makers, who use it as feedstock, can pass on the higher prices. But if the war prolongs, domestic availability of urea could become a bother for the farm sector because almost 8% of the requirement is imported from Russia and Ukraine. 

The credit rating agency highlighted that city gas operators have favourable cost economics versus competing fuels, which could permit them to pass on the gas price inflation downstream — at least to an extent. 

 Trade and banking-linked sanctions can also impact sectors sourcing key raw materials such as crude sunflower oil and rough diamonds, CRISIL said. Nearly 10% of India’s edible oil consumption is sunflower based, of which 90% is imported from Russia and Ukraine. 

 An extended war could disrupt supplies to domestic oil mills, which typically carry an inventory of 30-45 days and have limited options to change their sourcing at short notice. 

 For diamond polishers, continued disruption of trade can make roughs costlier, leading to a squeeze on their margins. Alrosa, Russia’s largest diamond miner, accounts for nearly 30% of the global production of roughs, the prices of which had surged 21% in 2021.  

The automobile sector is unlikely to get a respite from the ongoing semiconductor shortage. This is because Russia and Ukraine produce almost 75% of the neon gas which is used for several processes in the manufacturing of semiconductors like etching circuit designs into silicon wafers to create chips.

A protracted strife, and sanctions on Russia, would further curtail semiconductor production. Import dependence on palladium and platinum, which are used in catalytic converters, and nickel, which is used as a cathode in lithium-ion batteries, is relatively low and, hence, may have only a minimal impact on the automobile sector, according to the rating agency. 

The pharmaceuticals sector may see only a marginal impact as its exports to Russia and Ukraine are currently exempt from sanctions, and the exposure of Indian drug-makers to these geographies is low at almost 3% of their total exports, CRISIL said.

To be sure, the government and the affected companies are expected to take mitigating steps and CRISIL is closely monitoring the developments and will assess their impact on credit quality case by case.

Consumers will also have to brace for unprecedented rise in prices of animal protein including poultry, dairy products and seafood. Dairy industry leader Amul has increased retail milk prices by 4% starting 1st March in all-India markets. “This price rise is being done due to rising costs of energy, packaging, logistics, and cattle feeding costs. Thus the overall cost of operation and  production of milk has increased,” said Amul in a release.

Milk brand Mother Dairy too announced a price hike of Rs 2 from 6th March.

Continuing hostilities between Russia and Ukraine are set to impact the domestic selling prices of wheat and sunflower oil. Both countries produce massive quantities of wheat, while Ukraine is one of the world’s largest sunflower seeds exporters. Though India is self-sufficient in wheat, it does import some quantities of high-grade grain, analysts said. Moreover, the reduction in Russian and Ukrainian wheat in the international market will give an attractive opportunity for Indian exporters, thereby slightly pushing up domestic prices.

The prices of sunflower oil in the international market have increased by about 5% to 10% in 8-10 days. The Russia-Ukraine conflict has dimmed any hopes of respite from high cooking oil prices for the consumers who have been paying historically high prices for close to two years.

Chicken prices have jumped 25% since January and industry veterans expect a further increase of 10% to 50% in different parts of the country in March due to acute shortage of feed.

Exports of tea—incidentally called chai in both Russian and Ukrainian—may also face a challenge. Russia is one of the biggest importers of Indian tea with a share of 18% in Indian tea exports. The Russian market is crucial for Indian tea exports, given the fact that Iran shipments continue to be plagued by payment issues which have resulted in drastic fall in export volumes.

India’s agriculture sector is expected to face the heat from hostilities between Russia and Ukraine which are expected to push up prices and availability of—Potash—a key component used in the manufacturing of fertilisers.

At present, Belarus and Russia are key suppliers of potash in the global market. On the other hand, India is a major importer of potash, which is used in the manufacture of fertilisers. At an overall level, Russia, Ukraine and Belarus contribute 10%-12% of India’s total fertiliser imports. With already elevated prices, the subsidy bill, that the government will have to foot to maintain a reasonable retail price for farmers, will also witness a sharp increase.

In case Russia and Ukraine do not arrive at a resolution soon, there is a possibility of the conflict spilling beyond the region. And that would be bad news for businesses. But whether or not the conflict prolongs or ceases quickly, it might lead to galloping inflation which will impact a number of sectors.

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

Protect your business from cyber threats

Taking your business online can have its benefits, but it can also increase the risk of scams and security threats. Follow our steps to help protect your business from cyber threats. A single cyber-attack could seriously damage your business and its reputation.

1. Back up your data


Backing up your business’s data and website will help you recover any information you lose if you experience a cyber incident or have computer issues. It’s essential that you back up your most important data and information regularly. Fortunately, backing up doesn’t generally cost much and is easy to do.

It’s a good idea to use multiple back-up methods to help ensure the safety of your important files. A good back up system typically includes:

  • daily incremental back-ups to a portable device and/or cloud storage
  • end-of-week server back-ups
  • quarterly server back-ups
  • yearly server back-ups

Regularly check and test that you can restore your data from your back up.

Make it a habit to back up your data to an external drive or portable device like a USB stick. Store portable devices separately offsite, which will give your business a plan b if the office site is robbed or damaged. Do not leave the devices connected to the computer as they can be infected by a cyber-attack.

Alternatively, you can also back up your data through a cloud storage solution. An ideal solution will use encryption when transferring and storing your data, and provides multi-factor authentication for access.

2. Secure your devices and network


Make sure you update your software

Ensure you program your operating system and security software to update automatically. Updates may contain important security upgrades for recent viruses and attacks. Most updates allow you to schedule these updates after business hours, or another more convenient time. Updates fix serious security flaws, so it is important to never ignore update prompts.

Install security software

Install security software on your business computers and devices to help prevent infection. Make sure the software includes anti-virus, anti-spyware and anti-spam filters. Malware or viruses can infect your computers, laptops and mobile devices.

Set up a firewall

A firewall is a piece of software or hardware that sits between your computer and the internet. It acts as the gatekeeper for all incoming and outgoing traffic. Setting up a firewall will protect your business’s internal networks, but do need to be regularly patched in order to do their job. Remember to install the firewall on all your portable business devices.

Turn on your spam filters

Use spam filters to reduce the amount of spam and phishing emails that your business receives. Spam and phishing emails can be used to infect your computer with viruses or malware or steal your confidential information. If you receive spam or phishing emails, the best thing to do is delete them. Applying a spam filter will help reduce the chance of you or your employees opening a spam or dishonest email by accident.

Find out where to look for updates and how to turn on automatic updates for common devices.AUSTRALIAN CYBER SECURITY CENTRE

3. Encrypt important information


Make sure you turn on your network encryption and encrypt data when stored or sent online. Encryption converts your data into a secret code before you send it over the internet. This reduces the risk of theft, destruction or tampering. You can turn on network encryption through your router settings or by installing a virtual private network (VPN) solution on your device when using a public network.

4. Ensure you use multi-factor authentication (MFA)


Multi-factor authentication (MFA) is a verification security process that requires you to provide two or more proofs of your identity before you can access your account. For example, a system will require a password and a code sent to your mobile device before access is granted. Multi-factor authentication adds an additional layer of security to make it harder for attackers to gain access to your device or online accounts.

5. Manage passphrases


Use passphrases instead of passwords to protect access to your devices and networks that hold important business information. Passphrases are passwords that is a phrase, or a collection of different words. They are simple for humans to remember but difficult for machines to crack.

A secure passphrase should be:

  • long – aim for passphrases that are at least 14 characters long, or four or more random words put together
  • complex – include capital letters, lowercase letters, numbers and special characters in your passphrase
  • unpredictable – while a sentence can make a good passphrase, having a group of unrelated words will make a stronger passphrase
  • unique – don’t reuse the same passphrase for all of your accounts

If you use the same passphrase for everything and someone gets hold of it, all your accounts could be at risk. Consider using a password manager that securely stores and creates passphrases for you.

Administrative privileges

To avoid a cybercriminal gaining access to your computer or network:

  • change all default passwords to new passphrases that can’t be easily guessed
  • restrict use of accounts with administrative privileges
  • restrict access to accounts with administrative privileges
  • look at disabling administrative access entirely

Administrative privileges allow someone to undertake higher or more sensitive tasks than normal, such as installing programs or creating other accounts. These will be very different from standard privileges or guest user privileges. Criminals will often seek these privileges to give them greater access and control of your business.

To reduce this risk, create a standard user account with a strong passphrase you can use on a daily basis. Only use accounts with administrative privileges when necessary, limit those who have access, and never read emails or use the internet when using an account with administrative privileges.

Learn more about restricting administrative privileges.AUSTRALIAN CYBER SECURITY CENTRE

6. Monitor use of computer equipment and systems


Keep a record of all the computer equipment and software that your business uses. Make sure they are secure to prevent forbidden access.

Remind your employees to be careful about:

  • where and how they keep their devices
  • the networks they connect their devices to, such as public Wi-Fi
  • using USB sticks or portable hard drives – unknown viruses and other threats could be accidentally transferred on them from home to your business.

Remove any software or equipment that you no longer need, making sure that there isn’t any sensitive information on them when thrown out. If older and unused software or equipment remain part of your business network, it is unlikely they will be updated and may be a backdoor targeted by criminals to attack your business.

Unauthorised access to systems by past employees is a common security issue for businesses. Immediately remove access from people who don’t work for you anymore or if they change roles and no longer require access.

7. Put policies in place to guide your staff


A cyber security policy helps your staff to understand their responsibilities and what is acceptable when they use or share:

  • data
  • computers and devices
  • emails
  • internet sites

8. Train your staff to be safe online


Your staff can be the first and last line of defence against cyber threats. It’s important to make sure your staff know about the threats they can face and the role they play in keeping your business safe.

Educate them about:

  • maintaining good passwords and passphrases
  • how to identify and avoid cyber threats
  • what to do when they encounter a cyber threat
  • how to report a cyber threat

9. Protect your customers


It’s vital that you keep your customers information safe. If you lose or compromise their information it will damage your business reputation, and you could face legal consequences.

Make sure your business:

  • invests in and provides a secure online environment for transactions
  • secures any personal customer information that it stores

If you take payments online, find out what your payment gateway provider can do to prevent online payment fraud.

There are laws about what you can do with any personal information you collect from your customers. Be aware of the Australian Privacy Principles- external site (APPs) and have a clear, up-to-date privacy policy. If your business is online, it’s a good idea to display your privacy policy on your website.

10. Consider cyber security insurance 


Consider cyber insurance to protect your business. The cost of dealing with a cyber-attack can be much more than just repairing databases, strengthening security or replacing laptops. Cyber liability insurance cover can help your business with the costs of recovering from an attack. Like all insurance policies, it is very important your business understands what it is covered for.

11. Get updates on the latest risks


Keep up with the latest scams and security risks to your business.

Charging Electric Vehicle by Charging Stations – Exempt or 18% GST?

 BACKGROUND OF CHARGING STATIONS

 India is among a handful of countries that support the global electric vehicle (‘EV’) 30@30 campaign. The campaign have a target to at least 30% new vehicle sales be electric by 2030.
 In view of boosting the electric mobility and increase the number of electric vehicles in commercial fleets, the Department of Heavy Industry (DHI) has introduced the Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) – I and FAME II policies.
 An accessible and robust network of EV charging infrastructure is an essential pre-requisite to achieving the said ambitious target. In this regard, the Government of India has instituted various policies to promote the development of the charging infrastructure network in the Country.
 The functioning of an EV is based on the battery installed in it. The battery provides the necessary power to the EV whichinter-aliaenables it to operate
 There are different techniques for charging the batteries. The few important techniques as recoginsed by the Government in its guidelines1etc. are summarized as under:
Sl. No. Charging StationComments
 1.Public Charging Station (PCS)The PCS is an ‘EV charging station’ where a person can get the battery of its EV charged.
 2.Battery Swapping Station (BSS) The Battery Swapping Station (BSS) is a station where any electric vehicle can get its discharged battery or partially charged battery replaced by a charged battery.
 3.Captive Charging Station (CCS) It a charging station ‘exclusively’ for the EV owned or controlled by the owner of the charging station (such as Bus Station, Corporate Houses, etc.)

 The EV charging involves supply of direct current (DC) to the battery pack. As electricity distribution systems supply alternate current (AC) power, a converter is required to provide DC power to the battery.
 The charging stations may either have an AC based EVSE or DC based EVSE. The Electric Vehicle Supply Equipment (‘EVSE’) is the basic unit of EV charging infrastructure. The EVSE accesses power from the local electricity supply and utilizes a control system and wired connection to safely charge EVs.
 In the case of an AC EVSE, the AC power is delivered to the on-board charger of the EV, which converts it to DC. On the other hand, the DC EVSE converts the power externally and supplies DC power directly to the battery, bypassing the on-board charger. Irrespective of the type of EVSE, the battery receives the electricity and converts the electric form in to the chemical form and stores the same.
 The below roadmap2 of building EV infrastructure indicates that India would use both types of EVSEs (i.e. AC based as well as DC based EVSE):
 Vehicle SegmentSharing of Public ChargingCharger TypesNumber of chargers by 2025By
2030
 E-2 Wheeler10%Single Phase 15A Charger6343866
 E-3 Wheeler (Passenger/cargo)20%Single Phase 15A Charger2,5579826
 E-car (personal)10%Type-2AC (70%) 50KW DC Charger (30%)32306
 E-Car (Commercial)25%Type-2AC (60%) 50KW DC Charger (40%)2622303

2. HOW CHARGING STATION OPERATES?

 The Ministry of Power in its guidelines3 has laid down various requirement which a person would be required to comply in order to operate a charging station. Few relevant requirements are as under:
 PCS should maintain the customers database
 There should be an appropriate civil work
 Appropriate fire protection equipment and facilities, Availability of transformer including safety appliance should be installed at charging stations, etc.
 The charging of a battery in EVs requires electricity. In this regard, the DISCOMs are made responsible for providing the electricity connections for EV charging infrastructure
 The charging stations receives the power supply from the DISCOMs and using the EVSE it supplies the same to the customer

2.1. How Battery is charged? – Process

 The step-wise procedure involved in charging of battery is discussed in the below mentioned paragraphs

2.2-1. Supply of electrical energy by DISCOMs to Charging Station (Step-1)

 The DISCOM provides the electricity to the charging stations required for charging the EVs

2.2-2. Supply of electrical energy by Charging Station PCS to EV Battery (Step-2)AC based EVSE (Electric Vehicle Supply Equipment)

 The electrical energy in AC form received by the charging station from DISCOM is supplied to the battery in the same form through the socket installed in the EV

DC based EVSE (Electric Vehicle Supply Equipment)

 The electrical energy in AC form received by the charging station from DISCOM is converted in to the DC form by the EVSE (based on the adaptor) and the DC form of electric energy is supplied to the battery through the socket installed in the EV

2.2-3. Conversion of electrical energy in to chemical energy (Step-3)

 The electrical energy supplied by the EVSE (in AC/DC form) is converted ‘by the battery’ from the electrical energy to chemical energy. The battery stores the energy into the form of the chemical energy.
 We may note that the conversion activity of electric energy in to the chemical energy takes place within the battery.

2.2-4. Conversion of Chemical Energy in to Electrical Energy for operating EV (Step-4)

 The EV is operated based on the electrical energy which is generated from the conversion of the chemical energy stored in the battery. The battery releases the electrical energy which enables it to operate

3. GST ON CHARING EV – 18% OR EXEMPT?

 The Ministry of Power in its clarification4 relating to the requirement of licensing by the charging stations under the Electricity Act, 2003 clarified that charging of an EV battery by a charging station involves a service requiring the consumption of electricity by the charging station. The activity does not involve any sale of electricity. Relevant para of the said clarification reads as under:
 ‘The charging of battery essentially involves utilization of electrical energy for its conversion to chemical energy, which get stored in the battery. Thus, the charging of battery of an electric vehicle by a charging station involves a service requiring consumption of electricity by the charging station and earning revenue for this purpose for the owner of the vehicle. The activity does in any way includes sale of electricity to any person as electricity is consumed within the premises owned by the charging station which may be connected to the distribution system or otherwise for receiving electricity. By the same logic, the activity does not involve further distribution or transmission of electricity.’
 The above clarification categorically provides that the activity by charging station would qualify as services of charging the battery and thus the stations would not require any licence under the Electricity Act
 If one adopts the above position under GST (i.e. charging of EV by PCS is supply of service),the activity of charging would attract GST at the rate of 18%. However, the supply of electrical energy, if treated as sale of electricity, the same would be exempted5 from GST under the exemption notification issued in respect of the goods
 Thus the solitary question that arises in the given case, in context of GST, is that whether the charging of battery is an activity of supply of electricity (as goods) and thus exempted from GST or alternatively it is an overall charging services by the charging station which would be subject to GST at the rate of 18%.

4. ELECTRCITY, WHAT IT IS?

 Before deep diving into the solitary question of classification, one would need to understand the nature of electricity and its features
 The classification of electricity as ‘goods’ was much debated under the Electricity Duty Laws6. It was held in many cases7 that merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. The judiciary repeatedly classified the electricity as the moveable property.
 In an issue relating to the applicability of Electricity Duty by the States on the inter-state supply of electricity, the Supreme Court held8 that the unique feature of electricity is that its sale and consumption takes place simultaneously.
 If we briefly discuss the background of the above case then one may understand that Entry no 92A in List I of schedule VII of the Constitution enables the ‘Parliament’ to legislate laws relating to the ‘interstate Sale or purchase of goods other than newspaper’. The entry was inserted in the Constitution by the Constitution (Sixth Amendment) Act, 1956. Further, Entry No 53 of Schedule II of the Constitution enables the ‘State legislature’ to legislate laws relating to the levy of ‘tax on sale or consumption of electricity’. Notably, the Entry No 53 was not providing anything whether it is subject Entry 92A or not. The question arose that whether states can levy duty on inter-state supply of electricity as Entry no 53 was not subject to the newly introduced Entry no 92A
 To put in simple words, the States were arguing that they are very well entitled to charge electricity duty on the inter-state supply of electricity as Entry No 53 is not subject to Entry no 92A
 The Apex Court held otherwise that is the states cannot levy Electricity Duty on the inter-state supply of Electricity. In drawing its conclusion the Apex Court has noted the following features of the Electricity:
 Electrical Energy is a movable item and hence goods
 In electricity the continuity of supply and consumption starts from the moment energy passes through the meters
 Sale simultaneously takes place as soon as meter reading is recorded
 As soon as the electrical energy is supplied to the consumer and is transmitted thorough the meter, consumption takes place simultaneously with the supply.
 There is no hiatus in its operation.

5. GST ON EV CHARGING – SALE OF ELECTRICTY OR SERVICE OF CHARGING?

 As already discussed where the activity of charging qualifies as sale of electricity, the same would be exempted from GST. On the other hand, if it qualifies as a service,18% GST would apply. In view of this, the correct classification becomes the vital activity
 The Ministry of Power clarified that there is no sale of electricity in the activity of EV charging at charging station as the electricity is consumed within the premises owned by the charging station. The same would qualify as service of charging the battery
 However, if one carefully applies the position adopted by the Supreme Court, as discussed in para 4,in the facts of the impugned issue then one can argue that the given clarification is not correct from GST perspective
 There is no gap/hiatus between the sale and consumption in the case of electricity i.e. both takes place simultaneously. If both the activities are taking place simultaneously then would it be right to treat the impugned transaction as service merely on the ground that the consumption takes place within the premises of charging station.
 If one takes the example of the electricity supplied at our homes then in such case also the consumption takes place immediately once we switch on the power button and plug in any device. In this case, the activity is treated as supply of goods by DISCOMS9. The mere difference between these two cases is that we use the electricity for various purposes at home but in the impugned case the electricity is used especially for the one purpose i.e. charging the EV. But in both cases the fact remains same that there is a supply of electricity.
 The clarification of Ministry of Power that if instead of charging the EV within the charging station premises, the connection was provided to the distribution system or otherwise for receiving electricity then requirement of license under Electricity Act would arise, seems fine considering the intent and objective of the Electricity Act. In our view, the same cannot be adopted in context of tax laws.
 Here it is also to be noted that an EVSE can either supply the electricity energy in AC or DC form. The conversion activity of electrical energy in to chemical energy in either of cases takes place within the battery (as already explained in para 2.1 of this document).
 Given the above, in our considered view, the impugned activity by charging station can be well argued to be classified as the Sale of electricity under GST and thus exempted.
 If one takes the reference of the position adopted under the EU VAT, there the ‘supply of goods’ has been defined10 as the transfer of the right to dispose of tangible property as owner. Further, the electricity, gas, heat or cooling energy and the like are treated11 as tangible property.
 In a working paper dealing with ‘VAT rules applicable to transactions related to the recharging of electric vehicles’12, it was categorically clarified that the transaction carried out by the charging point operator providing the electricity for recharging the battery shall, in accordance with Articles 14(1) and 15(1), be considered as a supply of goods.
 One may also take note to the fact that a charging station apart from providing the electrical energy provides few ancillary services such as parking facility, remote reservation, provision of information on whether terminals are occupied, etc. In this case, the supply of electric energy to the battery is the main element of the transaction carried out by the charging station. The set of additional services supplied have the sole purpose of facilitating the access for electric vehicle to the charging point in order to have their battery recharged. Thus these set of services along with the supply of electricity would qualify as composite supply under GST. The treatment adopted for the supply of electricity would also be applicable to the said set of ancillary services.

6. CONCLUSION

 In view of our discussion in this document that there exists the ambiguity on whether to treat the supply of electricity by the charging stations as the supply of electricity as goods or supply of services of charging.
 Though the Ministry of Power in its clarification clearly concluded that the impugned transaction is a supply of services, however, in our view based on the science involved, the jurisprudence under the erstwhile laws and the position adopted under the EU VAT, it can well be argued that charging of electric vehicle in charging stations is the supply of electricity as goods for the purposes of GST laws.
 It is highly recommended that the relevant trade bodies, supplies etc. should approach the GST Council and CBIC to clarify the issue at the earliest.

Vipul Sheladiya

Sheladiya & Jyani

Chartered Accountants

Seeks to implement e-invoicing for the taxpayers having aggregate turnover exceeding Rs. 20 Cr from 01st April 2022.

Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes and Customs
Notification No. 01/2022 – Central Tax
New Delhi, the 24th February, 2022

New Delhi, the 24th February, 2022

G.S.R…..(E).- In exercise of the powers conferred by sub-rule (4) of rule 48 of the Central Goods and Services Tax Rules, 2017, the Government, on the recommendations of the Council, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 13/2020 – Central Tax, dated the 21st March,2020, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) videnumber G.S.R. 196(E), dated 21st March, 2020, namely:-

In the said notification, in the first paragraph, with effect from the 1st day of April, 2022, for thewords “fifty crore rupees”, the words “twenty crore rupees” shall be substituted.

[F. No. CBIC- 20021/1/2022-GST]


(Rajeev Ranjan)
Under Secretary to the Government of India

Note: The principal notification No. 13/2020 – Central Tax, dated the 21st March, 2020 was published in the Gazette of India, Extraordinary, vide number G.S.R. 196(E), dated 21st March, 2020 and was last amended vide notification No. 23/2021-Central Tax, dated the 1st June, 2021, published vide number G.S.R. 367(E), dated the 1st June, 2021.