Weekly Round-up on Tax and Corporate Laws | 20th to 25th February 2023

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 20th to 25th February 2023, namely:

(a) India’s UPI and Singapore’s PayNow are now linked to enable easy P2P fund transfers between India and Singapore;

(b) 50% of the rent is taxable in the wife’s hand if the sale deed doesn’t specify her share in joint property: ITAT;

(c) GSTIN introduces Negative Values in Table 4 of GSTR-3B;

(d) Penalty can’t be levied for multiple batch numbers on bags as there is no requirement to use new bags for carrying raw materials: HC; and

(e) How to account for the gratuity benefits with a defined capped contribution under Ind AS 19?

1. UPI and PayNow are now linked to enable easy P2P fund transfers between India and Singapore

The RBI has announced the launch of a cross-border payment system between India and Singapore using their respective fast payment systems, viz. Unified Payments Interface (UPI) and PayNow.

The UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI). It allows users to transfer money instantly between bank accounts using a mobile phone, without requiring the recipient’s bank account number or IFSC code, by simply using their UPI ID, mobile number, or QR code.

The Prime Minister of India and Singapore, Shri Narendra Modi and Mr Lee Hsien Loong witnessed the launch of this facility, which was initiated through token transactions by RBI Governor, Shri Shaktikanta Das and Managing Director of Monetary Authority of Singapore, Mr Ravi Menon.

The cross-border linkage is the product of extensive collaboration between RBI, the Monetary Authority of Singapore (MAS), and the Payment System Operators of both countries, viz. NPCI International Payments Limited (NIPL), Banking Computer Services Pte Ltd. (BCS), participating banks and non-bank financial institutions.

The linkage between UPI and PayNow will allow users to seamlessly transfer funds across borders using their respective mobile applications. This collaboration will enable users to enjoy a hassle-free, secure, instantaneous, and affordable cross-border payment experience.

With this linkage, users can leverage the convenience and efficiency of these two popular payment systems, making it easier to send and receive money internationally. This linkage is a significant step towards strengthening financial connectivity and promoting global economic integration.

Funds held in bank accounts or e-wallets can be transferred to and from India using the UPI-id, mobile number, or Virtual Payment Address (VPA). To begin with, the State Bank of India, Indian Overseas Bank, Indian Bank and ICICI Bank will facilitate both inward and outward remittances, and Axis Bank and DBS India will facilitate inward remittances. The service will be available for Singapore users through DBS-Singapore and Liquid Group (a non-bank financial institution).

The Indian users can send up to Rs. 60,000 per day (approximately SGD 1,000). The system will display the amount in both currencies for user convenience during the transaction.

The UPI-PayNow linkage transactions only allow Person to Person (P2P) remittances for the purpose of “Maintenance of Relatives Abroad”, and “Gift” under the Liberalised Remittance Scheme (LRS) and the LRS limits would be applicable.

Additionally, the apps of the participating banks in India have an opt-in/opt-out feature for receiving remittances from Singapore. The participating banks will implement updates to their respective UPI apps in a phased manner. To access the global remittance feature, customers will be required to update their UPI app.

Read the Press Release

2. 50% of the rent is taxable in the wife’s hand if the sale deed doesn’t specify her share in joint property: ITAT

The Delhi Tribunal has ruled that in the absence of specification of the shares of wife and husband in the sale deed, it must be held that both have equal shares. Thus, AO was justified in taxing 50% of the income from house property in the hands of the wife, who was a joint owner of a property along with her husband.

A search was conducted on the premises of the assessee. The search revealed that the assessee was a joint owner of a property along with her husband. However, the assessee didn’t disclose income from such house property while filing a return of income.

Since the registered sale deed of the property had not defined shareholding between the co-owners, the Assessing Officer (AO) considered 50-50 ownership of the property between the assessee and her husband. Accordingly, he assessed 50% of rental income in the hands of the assessee.

The assessee contended that she made a minor contribution to acquiring such house property. Thus, taxing 50% of house property income in the hands of the assessee was not justified.

The Tribunal held that the ownership is considered as per the mutation records. The sale deed only mentioned that the assessee is a co-owner of the property, but the share of each co-owner was not definite and ascertainable. No name has been mentioned, and the entire consideration of Rs. 3.50 crores was paid by both co-owners, husband and wife.

The contention of the assessee that her share is limited to the amount paid by her (approximately 5.4%) is baseless as the facts and circumstances do not affirm such a fact.

The Allahabad High Court in Saiyad Abdulla v. Ahmad AIR 1929 All 817 has held that in the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares.

Following such a decision, it must be held that the husband and wife purchased equal shares. Therefore, AO was justified in taxing 50% of the income from house property in the hands of the assessee.

Read the Ruling

3. Introduction of Negative Values in Table 4 of GSTR-3B: GSTN Update

The government has notified a few changes in Table 4 of Form GSTR-3B to enable taxpayers to report correct information regarding ITC availed, ITC reversed and ineligible ITC. According to the changes, the net ITC is to be reported in Table 4(A) and ITC reversal, if any, is to be reported in Table 4(B) of GSTR-3B. Currently, in GSTR-3B, credit notes are auto-populated in Table 4B(2), as ITC reversal.

The GSTN has issued an update to inform that the impact of credit notes and their amendments will now be auto-populated in Table 4(A) instead of Table 4(B) of GSTR-3B. In case the value of credit notes becomes higher than the sum of invoices and debit notes put together, then the net ITC would become negative, and the taxpayers will be allowed to report negative values in Table (4A). Also, taxpayers can enter negative values in Table 4D(2) of GSTR-3B. In this regard, the GSTN has issued a new update dated 17th February 2023 on GST Portal.

Read the Story

4. Penalty can’t be levied for multiple batch numbers on bags as there is no requirement to use new bags for carrying raw materials: HC

The Allahabad High Court has held that there is no requirement to use new bags for carrying raw materials. The petitioner has already submitted before the authorities and the first appellate authority that bags are used five to six times to transport raw materials. Therefore, goods can’t be detained, and the penalty paid shall be refunded.

The petitioner was carrying on the business of manufacturing soaps. The department intercepted raw material transported from Kutch, Gujarat to Haridwar, Uttarakhand. The goods were detained on the ground that bags being used to transport raw material had two batch numbers and were without an e-way bill.

The department issued a notice which was replied to by the petitioner. Thereafter, the goods were released on payment of penalty as the explanation afforded by the petitioner was not accepted, and the appeal was dismissed. It filed a writ petition against the order levying penalty and detention of goods.

The High Court noted that an e-way bill was not required for the transportation of raw materials in view of instructions issued by the GST Council as the requirement of having an e-way bill till 31-03-2018 was dispensed with. The petitioner contended that the bags were used multiple times for the transportation of raw materials. Due to this reason, these bags contained multiple batch numbers, which were not considered in the impugned orders.

Moreover, the requirement to use new bags would not arise as the bags were used for carrying raw materials and not finished products. Therefore, the Court held that the impugned orders were liable to be set aside, and any amount deposited shall be refunded.

Read the Ruling

The GST Council's 49th meeting recommended amendments and amnesty schemes under the GST law. These changes cover a wide range of topics, from reducing GST rates on certain items to extending exemption benefits and increasing time limits.
Taxmann's Advisory and Research team has analysed these recommendations to provide insights into their implications.

To learn more, read Taxmann's Analysis now!

5. How to account for the gratuity benefits with a defined capped contribution under Ind AS 19?

Ind AS 19 (Employee Benefits) defines Defined Contribution Plans (DCPs) as post-employment benefit plans under which an entity pays fixed contributions to a separate entity (a fund). It will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. It defines Defined Benefit Plans (DBPs) as post-employment benefit plans other than Defined Contribution Plans.

A company has a gratuity policy in place for its employees, which follows the regulations outlined in the Payment of Gratuity Act. As per the current guidelines, the defined gratuity benefit (i.e. Defined Benefit Plan) is limited to a maximum of Rs. 20 lakhs per employee. However, the company is obligated to comply with the government’s regulations which restrict the company from contributing more than 30% of an employee’s Base Pay (Basic + DA) towards benefits. But there is confusion regarding the accounting treatment under Ind AS 19 for the company’s gratuity policy, as it is unclear whether it should be treated as a DBP or a DCP due to the contribution amount being capped at 30% of Base Pay.

The Expert Advisory Committee (EAC) of ICAI has noted that under DBP, the employer’s obligation is not limited to the amount it agrees to contribute to the employee benefit funds. Rather, an employer is obliged to provide the agreed benefits to employees. Even when actuarial or investment experience is worse than expected, the employer’s obligation is increased because the employer is, in substance, underwriting the actuarial and investment risks associated with the plan. The Committee further noted that the cap is not on the post-retirement benefit entitlement of the employees of the company, and the employees continue to be entitled to their benefits even after the government guidelines. Therefore, the company’s obligation towards gratuity is not restricted to the company’s contributions and should be continued to be classified as DBP. Accordingly, the company should continue to measure its obligations towards the gratuity benefits plans as DBP as per the requirements of para 57 and para 64 of Ind AS 19.

Read the Story