Registration Under GST - Part 1 Requirement of Registration

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GST Impact on Reorganisation of Jammu and Kashmir

Our nation witnessed a drastic change on 1^st July, 2017 when Goods and Services Tax was implemented. However, the same was not applicable to the State of Jammu and Kashmir with effect from 1^st July, 2017. The State of Jammu and Kashmir adopted GST on 7^th July, 2017 and accordingly Goods and Services Tax was implemented in Jammu and Kashmir with effect from 8^th July, 2017.

The State of Jammu and Kashmir was considered to be a special category state as per sub-clause (g) of clause (4) of Article 279A of the Constitution. However, on implementation of the Central Goods and Services Tax (Extension to Jammu and Kashmir) Act, 2017, the State was considered as exception to the list of special category states. (Explanation (iii) to section 22 of the Central Goods and Services Tax Act, 2017)

Till 5^th August, 2019, the State of Jammu and Kashmir was given a special status vide Article 35A and Article 370 of the Constitution of India. However, the Government of India abolished the Article 370 with effect from 5^th August, 2019. Accordingly, the special status of the State was withdrawn.

Further, on 9^th August, 2019 the Government of India also enacted the Jammu and Kashmir Reorganisation Act, 2019 resulting into the bifurcation of the State of Jammu and Kashmir into two union territories namely Jammu and Kashmir (UT with legislature) and Ladakh (UT without legislature). This act shall be effective with effect from 31^st October, 2019. It means, Jammu and Kashmir shall cease to be a state with effect from 31^st October, 2019 and shall be bifurcated into the said Union Territories.

The reorganisation of Jammu and Kashmir has led to lot of confusions and speculations amongst the people with respect to the applicability of Goods and Services Tax to the State. The confusions are with regards to applicability of various GST acts to the UTs after the reorganisation of the State.

According to section 2(103) of the Central Goods and Services Tax Act, 2017, a Union Territory with legislature is also considered as a State. Consequently, the UT of Jammu and Kashmir shall have a State GST Law and the UT of Ladakh shall come under the purview of Union Territory GST Law. But the question is what shall be the status of applicability of the same.

The Jammu and Kashmir Reorganisation Act, 2019 clears all the confusion with regards to applicability of GST Laws to the State post its reorganisation. The Fifth Schedule to the Act mentions the various central laws applicable to the State and the status of state laws as applicable to the State before the appointed date, i.e. 31^st October, 2019.

Table 4 of Fifth Schedule contains the list of the state laws that shall continue to be effective post reorganisation of the State into two union territories. The list contains the Jammu and Kashmir Goods and Services Tax Act, 2017. Accordingly, the State GST Act shall remain effective in the State till further enactment or notification or amendment to the Reorganisation Act.

To conclude, the GST laws shall remain to be effective in the State of Jammu and Kashmir post its reorganisation as they were before. So, the taxpayers shall continue to charge CGST and J&K SGST, for intrastate transaction, till further changes in law. This clears the confusion amongst the taxpayers and professionals with regards to the applicability of GST Laws upon the reorganisation of the State.

© CA. Amol Gopal Kabra

A Brief Overview of Section 194N of Income Tax Act, 1961

In order the discourage the cash transactions and encourage the digital economy, the Hon. Finance Minister Smt. Nirmala Sitharaman ji had introduced a new section 194N in the Income Tax Act, 1961 through the Finance Bill, 2019 presented at the Union Budget, 2019 on 5^th July, 2019. Let us have a brief overview on the section.

The section reads as follows –

“Payments of certain amounts in cash.

194N. Every person, being, —

(i)                   a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);

(ii)                 a co-operative society engaged in carrying on the business of banking; or

(iii)                a post office,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to, —

(i)                   the Government;

(ii)                 any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii)                any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);

(iv)               any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007);

(v)                such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.

Let us discuss this section here.

Ø Applicable to whom?

The section is applicable to the following persons (let us term it as payer) –

i.             A Bank – either public sector, private sector, cooperative bank or even a branch of a foreign bank in India.

ii.            A cooperative society engaged in banking business – Any cooperative society not being a bank but engaged in banking business.

iii.           A post office.

Ø Who is recipient?

Recipient is any person to whom the payer pays an amount from one or more accounts maintained with it by such person.

Ø Applicable when?

The section is applicable when the payer is responsible to pay the recipient an amount, or aggregate of amounts during a previous year, in excess of one crore rupees in cash. So, when the payer pays an amount of more than one crore rupees in cash, either a single amount of aggregate of all amounts during the previous year (or for simple understanding the financial year), the provisions of this section shall be applicable.

Ø Responsibility of Payer

When the section becomes applicable, the payer shall be responsible to deduct an amount of 2% from the amount paid to the recipient in excess of one crore rupees. When during the entire year the amount paid in cash to the recipient by the payer exceeds one crore rupees, on each such amount paid in excess of one crore rupees, the payer shall deduct a sum of 2% from such payment. Such amount shall be deposited to the credit of central government and shall be reported in TDS return whereby the recipient shall get the credit of the tax so deducted.

This section is unlike other TDS provisions where, on applicability, tax is deducted on entire amount of payment. Under this section, tax shall not be deducted on one crore rupees. It shall be deducted on amount in excess of one crore rupees. For example, if a person withdraws one crore and fifty lakh rupees from a bank, tax shall be deducted on fifty lakh rupees and not on entire amount withdrawn.

Ø Effective date of applicability

As mentioned in the Finance Act, 2019 this section shall be effective w.e.f. 1^st September, 2019. Any amount paid by the payer to the recipient on or after 1^st September, 2019 shall be eligible for TDS if it satisfies all other conditions as mentioned above.

Ø Exempted recipients

Following recipients are exempted from the provisions of this section. When the payer pays an amount to following recipients, it is not required to deduct any tax on cash payments.

i.             The Government

ii.            Any banking company or cooperative society engaged in banking business or post office

iii.           Any banking correspondent

iv.          Any white label ATM operator of a banking company or cooperative bank engaged in banking business

v.           Such other person or class of persons as may be notified by the Central Government by way of notification

Let us now discuss some issues related to the applicability of the section

Ø Applicability for the financial year 2019-2020

The section becomes effective from 1^st September, 2019, i.e. in mid of the year. There were lot of confusions about the applicability of the section for the F.Y. 2019-2020. However, the Income Tax Department has issued a clarification dated 30^th August, 2019 whereby it has clarified the applicability of the provisions.

Accordingly, the tax deduction shall be applicable on cash payments post 1^st September, 2019 but the limit of one crore rupees shall be counted with effect from 1^st April, 2019. Following table shall clarify the applicability of this section under various circumstances.

Amount withdrawn till 31st August, 2019	Amount withdrawn after 31st August, 2019	Total Amount Withdrawn during FY 2019-2020	Date of Crossing of One Crore Rupees	Date of Applicability of TDS	Amount on which tax is deducted
50,00,000	70,00,000	1,20,00,000	15th Oct.	15th Oct.	20,00,000
1,50,00,000	1,50,00,000	3,00,00,000	18th Jul.	1st Sep.	1,50,00,000
80,00,000	15,00,000	95,00,000	-	N. A.	Nil
2,50,00,000	1,00,000	2,51,00,000	25th Jun.	1st Sep.	1,00,000
1,00,000	5,00,00,000	5,01,00,000	12th Nov.	12th Nov.	4,01,00,000

The above illustrations are given for understanding purposes.

Ø Applicability – per bank or per person?

There is a concern regarding applicability of section 194N that whether it is applicable per bank or per person across all banks. The reading of the section clearly poses responsibility on a banking company. The limit of one crore rupees is applicable to each bank irrespective of accounts maintained with it. So, if a person withdraws ninety lakh rupees each from 3 different banks during a financial year, the provisions of this section shall not be applicable as the limit of one crore rupees not been completed in any of the banks.

Ø What if bearer cheque is issued to any other person?

The section speaks of an amount paid to ‘a recipient’ during the previous year. Recipient according to the section is a person who maintains one or more accounts with the banking company, cooperative society or the post office. In case a person issues a bearer cheque to another person, the person to whom the bearer cheque is issued doesn’t come in the meaning of recipient as per the section. So, the doubt remains about applicability of section for bearer cheque issued to third person.

Other provisions of Act shall be applicable such as 40A(3), 269T, etc. However, in case any bearer cheque is paid to an agriculturist of primary producer who are exceptions to section 40A(3) vide rule 6DD, whether such amount shall be eligible for TDS or not. Lets hope for a clarification from the Income Tax Department.

In my opinion, tax shall be deducted even if a bearer cheque is issued to a third person.

Ø Credit of Tax Deducted under this section

There is a fear amongst assessees regarding the treatment of the tax deducted by the banks on applicability of this section. There is no need to worry as this amount shall be eligible as tax credit while filing of return of income of person whose tax is so deducted.

This is in fact a good move by the Central Government to reduce the cash economy and promote the digital economy. However, even if the Government is promoting the digital economy and has introduced this section to discourage the cash withdrawals and accordingly cash payments, this section is going to adversely affect few sectors of the business community.

Especially, the agricultural commodity market where payments are allowed to be made in cash to farmers and cash payment is prominent mode of payments. The assessees in the Agriculture Produce Market Committee who have thin margins ranging from 1-2% shall now have 2% of their payments blocked as TDS.

Also, the businesses which are predominantly dependent on seasonal or temporary daily labour that require daily payments of labour to be met in cash, shall also face a hardship as considerable sum of money shall be blocked by the TDS credit.

Hopefully, the Government takes concern of this situation and comes up with some exemption or solution for the hardship faced by this sector.

Disclaimer:

The content of this hand-book is based on the interpretation of the author and is subject to difference of opinion with others. Care has been taken with respect to correctness the legal provisions mentioned herein. However, any errors or omissions are unintentional. The contents of the handbook should not be taken as opinion of the author for entering into any transaction.

APPLICABILITY OF UDIN TO STATUTORY BANK BRANCH AUDIT

The ICAI vide announcement dated 26th September, 2018 has introduced the concept of UDIN. Initially it was applicable mandatory w.e.f. 1st January, 2019 which was later postponed to be applicable w.e.f. 1st February, 2019 in phased manner.

ICAI has issued an announcement dated 14^th March, 2019 wherein the applicability of UDIN is clarified. Accordingly, the UDIN is made mandatory to generated and used by members in practice, in following phases.

Effective Date	Type of Certifications
1st February, 2019	All certifications done by Practicing CAs
1st April, 2019	All GST and Tax Audit Reports
1st July, 2019	All other attest functions.

BANK AUDITS

The Members are now concerned about the applicability of UDIN for Statutory Bank Branch Audits for the financial year 2018-2019 that are set to be conducted in the first half of April, 2019. I have discussed the applicability of UDIN in the process of Statutory Bank Branch Audit in the ongoing paragraphs.

FIRST PHASE – 1^ST FEBRUARY, 2019 -ALL CERTIFICATIONS DONE BY PRACTICING CAs

In the first phase, the ICAI had made it mandatory to generate and mention UDIN on all certifications done by Practicing Chartered Accountants. However, it had specifically excluded the audit and attest functions from the first phase that was mandatory with effect from 1^st February, 2019.

ICAI had also issued an illustrative list (enclosed in annexure 1 for ready reference) of certificates for which UDIN is mandatory. The list consisted of 29 types of certificates and 1 general heading ‘others’ for which UDIN has to be generated. Under that list point number 21 (i.e. roman xxi) states about “Certificate issued by Statutory Auditors of Banks.”

There are various certificates that are issued during the course of statutory audit of banks. Accordingly, for any certificate issued by the statutory auditors during the course of statutory audit of banks, UDIN has to be mandatorily generated and used.

In case of multiple certificates to be signed in course of statutory audit of banks, no need to generate multiple UDINs for the same. One blanket UDIN can be generated for multiple certificates generated and signed on one day for a given branch.

SECOND PHASE – 1^ST APRIL, 2019 – ALL GST AND TAX AUDIT REPORTS

In the second phase, the UDIN is applicable to all GST and Tax Audit Reports with effect from 1^st April, 2019.

The statutory auditors of banks are also required to conduct and sign the tax audit of the bank also. Accordingly, the auditors have to generate and use UDIN on the tax audit reports signed on or after 1^st April, 2019. There is no need to generate separate UDINs for Form 3CA, 3CD and related annexures and certificates coming under the purview of Tax Audit. Again, a blanket UDIN can be generated for all of these.

However, care has to be taken that the UDIN generated for certificates and that for tax audit should be different as these are different attest functions. Again, care has to be taken that separate UDIN has to be generated for tax audit of each branch.

THIRD PHASE – 1^ST JULY, 2019 – ALL OTHER ATTEST FUNCTIONS

For all other attest functions, UDIN is mandatory with effect from 1^st July, 2019. These include audits under other statutes.

During the statutory audit of bank branches, the auditors also have to issue statutory audit report. As the statutory audit report comes under other attest functions, there is no need to generate and use UDIN for statutory audit reports of bank branches for the financial year 2018-2019 completed and signed before 1^st July, 2019. However, it shall be applicable for the financial year 2019-2020, i.e. next year.

REPORTS AND CERTIFICATES ISSUED IN A DIGITAL FORM

Few banks, like State Bank of India, require various reports and certificates to be issued in digital form and signed digitally. In such cases, wherever possible the UDIN should be mentioned on the certificate before signing it digitally. However, wherever it is not possible to mention UDIN on digitally signed certificates and audit reports, the UDIN shall be generate and preserved to be intimated on request to the authorities as and when required.

REQUIREMENT OF UDIN IN SHORT

The requirement of UDIN during the statutory bank branch audit is briefed below.

Statutory Audit Report	No
Tax Audit Report	Yes
Certificates	Yes

POINTS TO REMEMBER

Following care should be taken by the auditors while generating UDIN in the course of Statutory Bank Branch Audit.

Ø UDIN has to be generated separately for each branch.

Ø UDIN has to be generated separately for each type of assignment per branch, e.g. tax audit, certification, etc.

Ø If certificates for one branch are issued and signed on different dates, separate UDIN is to be generated on daily basis.

Ø In case of certificates issued and signed in a digital form, where there is no provision to mention UDIN, UDIN has to be generated and preserved to be intimated if required in future.

Ø There is no need to upload any certificate for generating UDIN.

ANNEXURE – 1

List of certificates for which UDIN is applicable from 1^st February, 2019. (This is illustrative list obtained from the dropdown list while generating UDIN.)

(i)	Certificates issued on the basis of Financial books of accounts and annual financial statements-Capital Contribution Certificate/net worth certificate
(ii)	Certificates issued on the basis of Financial books of accounts and annual financial statements - Turnover Certificate
(iii)	Certificates issued on the basis of Financial books of accounts and annual financial statements -Working Capital Certificate/Net Working Capital Certificate
(iv)	Certificates issued on the basis of Statutory records being maintained under Indian Companies Act, 2013 and applicable provisions
(v)	Certification of Fair Values of Shares of Company for the scope of merger / de-merger, Buy Back, Allotment of further shares and transfer of shares from resident to non-resident.
(vi)	Certificates for Foreign Remittance outside India in form 15CB.
(vii)	Net worth Certificates for Bank finances
(viii)	Net worth Certificates for Bank Guarantee
(ix)	Net worth Certificates for Student Study Loan
(x)	Net worth Certificates for Issuance of Visa by Foreign Embassy
(xi)	Certificate in respect of Liquid Asset under Section 45-IB of RBI Act, 1945
(xii)	Certification of arms length price u/s 92 of the income Tax Act, 1961.
(xiii)	Certificates for  funds/ Grants utilisation  for NGO’s
(xiv)	Certificates for  funds/ Grants utilisation  for Statutory Authority
(xv)	Certificates for  funds/ Grants utilisation  Under FERA/FEMA/other Laws
(xvi)	Certificates for  funds/ Grants utilisation  Charitable trust/institution
(xvii)	Certification under the Income-Tax laws for various Deductions, etc.
(xviii)	Certification for claim of refund under GST Act and other Indirect Taxes.
(xix)	Certification under Exchange Control legislation for imports, remittances, ECB,DGFT,EOU, etc
(xx)	Certificates in relation to initial Public Issue/compliances under ICDR and LODR.
(xxi)	Certificate issued by Statutory Auditors of Banks
(xxii)	Certificate issued by Statutory Auditors of Insurance Companies
(xxiii)	Additional Certification  by Concurrent Auditors of Banks not forming part  of the concurrent audit assignment
(xxiv)	Certificate of Short Sale of securities issued by Concurrent Auditors of Treasury Department of Banks
(xxv)	Certificate of physical verification of securities issued by Concurrent Auditors of Treasury Department of Banks
(xxiv)	Certificate issued for KYC purpose to banks confirming sole proprietorship
(xxv)	Certificate Regarding  Sources of Income
(xxvi)	Certificates for Claiming Deductions and Exemptions under various Rules and Regulations
(xxvii)	Certificates issued under LLP Act
(xxviii)	RBI Statutory Auditor Certificate for NBFCs
(xxix)	Certificate issued under RERA
(xxx)	Others

In case of any further query, members are free to contact me on following contact details.

CA. Amol Gopal Kabra

Latur, Maharashtra

Mobile – 9881-922-822

Email – amol@amolgkabra.in

Blog – https://www.amolgkabra.in

Twitter – www.twitter.com/amolgkabra