No 'beneficial decisions' by GST Council till polls on
The GST Council will not announce any "beneficial decisions" like rate cuts or extensions of time period for any schemes or compliance to GST rules at its meeting scheduled on March 19.
 
Sources said that the Council does not want that its decisions are seen as clashing with the Model Code of Conduct (MCC) that came into force post the announcement of the dates of the Lok Sabha election last Sunday.
 
With this, the Council has also received permission from the Election Commission to hold its next meeting - the 34th - on the scheduled date.
 
"The Council will desist from announcing any beneficial decisions including rate cuts and extension of time period for any compliance of rules of GST till elections are over to abide with the Model Code of Conduct. 
 
"We have received Election Commission of India's approval to hold the March 19th meeting on discussion and announcement of various issues including implementation of lower GST rates for the real estate sector as the decisions were already announced in the last meeting when the MCC was not in place," sources said.
 
At its 33rd meeting, the Council had slashed tax rates for under-construction flats to 5 per cent and affordable homes to 1 per cent, effective April 1.
 
As far as further lowering of rates are concerned under GST with an eye on on polls, after the Council's 31st meeting in December where it was announced that rates were being rationalised on a number of products and services, there are only 28 items left now in top 28 per cent tax bracket.
 
Among the items consumed/used by the common man, only cement continues to remain, along with luxury and 'sin' goods, in the top bracket. This major tax rationalisation, ahead of the 2019 general elections, had come after Prime Minister Narendra Modi promised to bring 99 per cent of the goods under the 18 per cent or lower GST slab.
 
But all the rate cuts have had their impact on GST collections, which in February dropped to Rs 97,247 crore from Rs 1.02 lakh crore in the previous month. The government has lowered the GST collection target for the current fiscal to Rs 11.47 lakh crore in the Revised Estimates, from Rs 13.71 lakh crore budgeted initially.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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CBDT Widens Tax Dragnet on Notional Income through Section 56(2), but Loopholes Remain
The abolition of Gift Tax Act in the year 1998 paved the way for one of the most dynamic sections of the Income Tax Act, 1961, namely, Section 56(2). Under this Section, all kinds of incomes and gains, which were from sources other than the sources mentioned in the Act at that time, were brought under the purview of income-tax (I-T). Now, incomes and gains arising out of such transactions, which were structured to pass on assets to some other party without any consideration or with inadequate consideration, are subject to be taxed under this Section.
 
While Section 56(2) gave the authorities a tool to keep a check on the transactions structured to merely launder unaccounted income, it also brought in many questions. The Central Board of Direct Taxes (CBDT) has, since, been releasing clarifications to address questions as well as making changes to the Section to cover all loose ends of laundering unaccounted incomes.
 

Recently, CBDT, in its circular dated 31 December 2018, came up with a clarification to address the question: 

 
Does the terms 'receives' with regards to Section 56 (2)(vii a) include receiving shares of companies (where the public are not substantially interested) by way of issues of shares by way of fresh issue/ bonus issue/ issue of rights shares/ transaction of a similar nature?
 
Before we get to the clarification, let's first analyse the Sections - 56(2)(vii), 56(2)(vii a) , 56(2)(vii b) & 56(2)(x)
 
Analysis of Section 56(2)(vii) Section 56(2)(vii a) Section 56(2)(vii b) & Section 56(2)(x)
 
 
Section 56(2)(vii a) of the IT Act, 1961 was inserted by Finance Act, 2010. Referring to the memorandum of Finance Act, 2010  clause (vii a) was incorporated in Section 56 to prevent the practice of transferring unlisted shares at a price which was different from the fair market value (i.e., inadequate consideration or none) of the shares and also to include within its ambit transactions undertaken in shares of the company (not being a company in which the public are substantially interested) either for inadequate consideration or without consideration where recipient is a firm or a company (not being a company in which the public are substantially interested).
 
In layman’s terms, the act of receiving means to receive something which was already in existence and the act of creation of that particular thing.
 
Similarly, receipt of shares, by way of fresh issue/ bonus issue/ issue of rights shares/ transaction of similar nature, is an act of creation of securities and not transfer of the same. The CBDT, in its circular dated 31 December 2018, has clarified the same. Section 56(2)(vii a) is applicable to transactions involving subsequent transfer of shares form the initial receiver to some third party, and not the time of issuance of such shares.
It is palpable that the shares would be treated as goods only when they come into existence and issuance of shares is the act of bringing the shares into existence. The word 'receives' with respect to section 56(2)(vii a) would not include issuance of shares within its ambit. 
 
The intent of insertion of clause (vii a) to Section 56 was to apply the anti-abuse provision, i.e., transfer of shares for no consideration or an inadequate one, it is hereby clarified by the CBDT circular that Section 56(2)(vii a) of the Act shall apply in cases where a company (not being a company in which the public are substantially interested)  or a firm receives the shares  of the company (not being a company in which the public are substantially interested) through transfer for no consideration or an in adequate one. Hence Section 56(2)(vii a) of the Act shall not be applicable on fresh issue of shares by the specified company. 
 
Taxation of fresh issue of shares comes under the purview of Section 56(2)(vii b). 
 
The Subhodh Menon Case in the Context of Section 56
 
Recently, the Income Tax Appellate Tribunal (ITAT) in the case of The Assistant Commissioner of Income Tax Vs. Shri Subhodh Menon, order dated 7 December 2018 held that a shareholder cannot be taxed under Section 56(2)(vii)(c) of the IT Act, 1961, so long as the shares are allotted to the holder on a proportionate basis (right shares), even if such shares are allotted at a value lower than the fair market value.
 
Drawing from the above case law, right shares issued at a value below the fair market value to an individual/ HUF where allotment is disproportionate will not be taxable under Section 56(2)(vii)(c) of the IT Act, 1961. Shares issued higher than the proportion offered (based on shareholding) shall attract tax provisions. 
 
Conclusion
 
The Union Budget 2017  introduced Section 56(2)(x) of the IT Act, 1961 widening the scope of income from other sources and also clubbing together Sections 56(2)(vii) & Section 56(2)(vii a).  I-T shall not be chargeable at the normal rate for a fresh issue of shares for closely held companies.
 
Since the offence that Section 56(2)(vii a) was trying to curb is the same as Section 56(2)(x), the question still remains as to whether the term 'receives' clarified in the CBDT circular, shall have the same analogy for Section 56(2)(x)? Simply put, whether Section 56(2)(x) of the Act will also be limited to transfer of existing shares and not cover fresh issue of shares?
 
(Yutika Lohia works at Vinod Kothari Consultants Pvt Ltd)
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GST Cut to Support Under-Construction Property Demand: Fitch
India's move to reduce the goods and services tax (GST) on under-construction properties and expand the scope of the affordable-housing category, which offers homebuyers interest-rate subsidies, will improve affordability and support demand, says Fitch Ratings. 
 
GST on under-construction homes will fall to 5%, from 12%, from April 2019, and to 1%, from 8%, for the affordable category. 
 
In a note, Fitch Ratings says, "We believe this will boost consumer sentiment and cut transaction costs, which can be as high as 18% in Mumbai after including other taxes, such as stamp duty, surcharge and registration fees. The measure also withdraws input-tax credits for developers, but we still expect marginal savings on overall transaction costs and more so for affordable housing as well as improved buyer confidence, as the measure eliminates ambiguity as to whether property developers are adequately passing on input-tax credit to buyers." 
 
The definition of affordable housing has also been expanded to include homes costing up to Rs45 lakh and measuring 60 square meters (sqm) in metros and 90sqm in non-metro cities, enabling more homebuyers to qualify for subsidised interest rates under the Pradhan Mantri Awas Yojana (PMAY) scheme. 
 
Fitch says it believes improved property demand should benefit Lodha Developers Ltd, which has a geographic focus on Mumbai and increasing presence in affordable housing, via stronger cash generation. However, the company's rating also captures its high leverage, which, despite these measures, is likely to remain elevated for two to three years, it added.
 
The Indian government has also recently banned unregulated deposit schemes in a continuation of its strategy to improve market transparency and enhance investor protection. 
 
According to Fitch Ratings, the ban will mostly affect unorganised property developers by curbing the practice of offering fixed-return schemes to investors and support further sector consolidation in favour of larger builders, such as Lodha.
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