Tuesday, July 8, 2025

GSTR-3B Hard Lock from July 2025: Linking Tax Liability to GSTR-1 with Finality

Starting from the return period of July 2025, the Goods and Services Tax Network (GSTN) will implement a hard lock mechanism in GSTR-3B, effectively linking key data fields directly to the filed GSTR-1. This reform marks a strategic evolution in GST compliance, making GSTR-1 the definitive source of outward supply data, thereby eliminating scope for post-facto adjustments in GSTR-3B.

What Will Be Auto-Locked in GSTR-3B

GSTR-3B TableAuto-Filled FromLock Effective From
3.1(a) – Outward taxable supplies (B2B/B2C)GSTR-1July 2025 return onwards
3.2 – Supplies to UIN holdersGSTR-1 (Table 6A)July 2025 return onwards

Once GSTR-1 is filed, these fields will auto-populate in GSTR-3B and become non-editable, thereby enforcing integrity in outward tax reporting.

Rationale Behind the Hard Lock Mechanism

  • Enforces accurate reporting at source (GSTR-1)

  • Minimises tax mismatches, audit risks, and departmental notices

  • Strengthens system-driven reconciliation across GSTR-1, GSTR-3B, and GSTR-2B

  • Boosts Input Tax Credit (ITC) reliability for buyers

Stepwise Compliance Process

1. Finalise and File GSTR-1 Accurately

  • Deadline: 11th of every month (Monthly filers) or via IFF for QRMP

  • Ensure inclusion of all invoices, credit/debit notes

  • Avoid duplication, late entries, or skipped documents

2. Reconcile Books vs GSTR-1

  • Match accounting records and ERP data with outward supply figures in GSTR-1

  • Use automated reconciliation tools for accuracy and audit trail

3. Filing GSTR-1 Locks GSTR-3B

  • GSTR-3B will now auto-populate from GSTR-1

    • Table 3.1(a) – Taxable outward supplies

    • Table 3.2 – Supplies to UINs

  • No manual changes will be allowed in these fields

4. File GSTR-3B with Residual Details

  • Validate auto-filled amounts

  • Enter other liabilities: RCM, ITC reversals, adjustments

  • File after internal approval

Practical Scenarios and Compliance Impact

ScenarioImpactResolution
GSTR-1 filed with over-reported turnoverExcess tax liability in GSTR-3BAmend in next GSTR-1 cycle
GSTR-3B filed before GSTR-1Not permitted from July 2025Must file GSTR-1 first
Missed invoices in GSTR-1Under-reporting, ITC mismatchDeclare in next month, may attract penalty

Practices for Smooth Transition

  • Lock GSTR-1 internally by 9th of each month for senior review

  • Deploy a maker-checker system for invoice uploads

  • Use GSTR-1A for corrections in future periods

  • Treat GSTR-1 as the primary tax reporting document, not a trial balance

  • Sync ERP systems with GST software for real-time data flow

Conclusion: Discipline is Now Embedded in the System

This reform signifies more than a technical update—it is a shift toward data sanctity and accountability. Businesses must now treat GSTR-1 as their final declaration of tax liability. GSTR-3B, once used by many as a patchwork for corrections, has now become a mere reflection of pre-reported data.

Compliance teams must invest in early reconciliation, proactive approvals, and reporting hygiene to remain penalty-free and audit-ready.

Monday, July 7, 2025

CIRP Cannot Shield Tax Evasion: Telangana High Court Reasserts Justice to the Aggrieved

 “CIRP should not be permitted to be used as a mechanism to overcome any misdeeds, misappropriations or illegalities deliberately done with an intention to evade tax.”

— Telangana High Court, VRDV Traders (P.) Ltd. v. Union of India, [2025] 176 taxmann.com 80

Introduction: Insolvency Resolution or Escape Mechanism?

India’s corporate insolvency framework under the Insolvency and Bankruptcy Code, 2016 (IBC) is designed to facilitate time-bound revival of distressed enterprises. However, a significant legal concern arises when the Corporate Insolvency Resolution Process (CIRP) is invoked not for restructuring, but as a strategic device to escape scrutiny for past misconduct—particularly in cases involving deliberate tax evasion or fraudulent transactions.

This issue came to the forefront in the recent judgment of the Telangana High Court in VRDV Traders (P.) Ltd. v. Union of India, where it was held that CIRP cannot override the Department’s jurisdiction to reopen assessments under the Income-tax Act, 1961, especially where prima facie indicators of tax evasion are present. The ruling marks a vital reaffirmation that statutory finality cannot defeat substantive justice.

Case Overview: Suspected Reversal Trades and Reassessment Notices

VRDV Traders (P.) Ltd. was engaged in currency derivatives trading and had undergone CIRP. A resolution plan had been approved by the National Company Law Tribunal (NCLT) under Section 31 of the IBC. Meanwhile, based on intelligence from Project Falcon, the Income Tax Department flagged a series of reversal trades executed by the assessee that exhibited characteristics of being non-genuine and manipulative:

  • Identical buy-sell quantities;

  • Same counter-parties across contracts;

  • Abnormal price variances;

  • Trades executed within seconds;

  • Use of shell entities.

The Department formed the belief that these trades were structured to suppress taxable income and generate fictitious losses. Reassessment notices under Sections 148A(b) and 148 were issued for AYs 2014–15 to 2016–17.

The company contended that the reassessment was barred as all liabilities stood extinguished by virtue of the approved resolution plan.

High Court’s Findings: CIRP Does Not Extinguish Fraud Scrutiny

The Telangana High Court dismissed the writ petition and delivered several important rulings that underscore the continuing jurisdiction of the Income Tax Department post-CIRP, particularly where fraud or illegality is alleged.

1. Reassessment Proceedings Are Legally Valid Post-CIRP

The Court clarified that Section 31 of the IBC does not prohibit the reopening of concluded assessments where prima facie evidence of evasion exists. While approved resolution plans may extinguish debt recovery claims, they do not nullify the statutory right to reassess under the Income-tax Act.

“If the Department wants to have reassessment of the assessment order, the same is not barred under law even after CIRP having been finalized and the resolution plan having been given effect to.”
(Para 21)

2. CIRP Cannot Serve as a Shield for Deliberate Misconduct

The Court strongly rejected the notion that CIRP could be used to erase past fraudulent conduct or suppress scrutiny:

“CIRP should not be permitted to be used as a mechanism to overcome any misdeeds, misappropriations or illegalities deliberately done with an intention to evade tax.”
(Para 24)

Such misuse not only defeats the object of the IBC but also compromises the integrity of the tax system and the rule of law.

3. Directors and Key Officers Remain Liable

The judgment affirmed that even if the company is resolved under CIRP, directors or promoters who orchestrated the evasion remain subject to legal consequences:

“At least appropriate proceedings can be initiated against the director/directors who were then responsible in managing the affairs of the business.”
(Para 22)

This ensures that corporate resolution does not become a tool for individual impunity.

Alignment with Judicial Precedents

The ruling in VRDV Traders is consistent with prior authoritative decisions:

  • Ghanshyam Mishra and Sons v. Edelweiss ARC (2021 SCC OnLine SC 313) clarified that resolution plans do not bar liability for fraud unless explicitly dealt with.

  • Dishnet Wireless Ltd. v. ACIT [2022] 139 taxmann.com 493 (Madras HC) held that reassessment proceedings are valid despite resolution, where tax evasion is suspected.

  • UOI v. Ashish Agarwal [2022] 138 taxmann.com 64 (SC) upheld the procedural legitimacy of reopening assessments under the amended regime where fresh material exists.

These judgments collectively support the conclusion that tax scrutiny survives CIRP where material irregularities are later unearthed.

Restoring Balance: Justice to the Aggrieved

The Court’s reasoning highlights a fundamental point—resolution cannot override restitution. Where shell companies, circular trades, and fabricated transactions are employed to evade tax, the real aggrieved party is not just the Revenue, but:

  • The honest taxpayer, whose burden increases;

  • The public exchequer, deprived of lawful dues;

  • The system of commercial justice, which risks distortion.

Allowing CIRP to erase these violations strips justice of its substance. The integrity of the insolvency process depends on ensuring that it does not operate as a mechanism of immunity for past illegality. Resolution must never come at the cost of truth, transparency, or tax accountability.

Conclusion: Resolution Must Not Mean Exoneration

The Telangana High Court’s decision in VRDV Traders (P.) Ltd. sends a powerful signal: CIRP is not a route to evade scrutiny for deliberate misconduct. Tax evasion, when proven or reasonably suspected, must be met with full statutory rigour—regardless of the resolution status of the corporate debtor.

Legal finality under the IBC cannot become an instrument to defeat the legitimate claims of the state or insulate wrongdoing. In such cases, justice to the aggrieved must prevail over procedural closure.

The principle is clear: where fraud exists, CIRP cannot cure—it must yield. Resolution, in its truest form, is not about burying the past, but about cleansing it through accountability. And justice—especially tax justice—can never be compromised in the name of commercial certainty.

Tax Assist Arrives, But ITR Utilities Lag: A Season of Smart Moves and System Gaps

By Surekha Ahuja | CA S Ahuja & Co | www.casahuja.com

India’s tax compliance season for AY 2025–26 is unfolding with both promise and pressure. On one hand, the Income Tax Department has launched the ‘Tax Assist’ facility, intended to support taxpayers with AI-driven guidance and human-assisted help. On the other, the persistent delay in releasing ITR-2 and ITR-3 utilities—even after the recent extension of the non-audit due date to 15 September 2025—has left a large segment of taxpayers in limbo, particularly those with capital gains, partnership income, or foreign disclosures.

This divergence between supportive initiatives and system readiness is creating mounting challenges for taxpayers and professionals alike—especially as audit deadlines loom.

What’s Working: The Tax Assist Facility

The introduction of ‘Tax Assist’ marks a positive step toward accessible and inclusive digital tax services. It is particularly useful for:

  • First-time or inexperienced filers

  • Senior citizens

  • Taxpayers in rural or digitally underserved regions

Key features of the initiative include:

  • AI-assisted form selection and filing guidance

  • Help with e-verification, password issues, and refund tracking

  • Real-time assistance via phone or chat

  • Support through designated facilitation centres in select locations

This initiative is a meaningful attempt to reduce procedural anxiety and support voluntary compliance, especially for those outside the traditional professional ecosystem.

However, the effectiveness of such assistance depends fundamentally on the availability of functional filing tools. That’s where current operational gaps become visible.

What’s Missing: Delayed ITR Utilities

As of mid-July 2025, the utilities for ITR-2 and ITR-3 remain unavailable—despite the final schemas being notified in May. These forms are required by:

  • Individuals with capital gains from shares, mutual funds, or property

  • HUFs with diversified investment income

  • Directors and partners in firms or LLPs

  • Taxpayers with foreign assets or income

While ITR-1 and ITR-4 were released earlier, the more complex ITRs that apply to higher-income and investment-based taxpayers are still pending—leaving a large portion of filings effectively stalled, despite taxpayers and consultants being fully prepared.

Deadline Extension: Relief for Non-Audit Filers, but Audit Cases Remain Pressured

The CBDT’s extension of the non-audit return filing deadline to 15 September 2025 is a welcome and necessary step in light of systemic delays. However, the deadline for audit cases under Section 44AB remains at 30 September 2025, compressing the professional workflow into just two weeks for one of the most detailed compliance tasks in the tax calendar.

Audit filings require:

  • Book finalisation and ledger review

  • Clause-by-clause Form 3CD disclosures

  • Reconciliation of GST, TDS, and financial statements

  • Final approval from management or promoters

Given the quantum and complexity of this work, the absence of a corresponding extension for audit returns places disproportionate pressure on professionals—especially as they simultaneously handle high volumes of capital gains and ITR-3 cases.

Capital Gains Reporting: Reformed but Resource-Intensive

The revised capital gains schedules introduced for AY 2025–26 are a significant step toward better data granularity. Taxpayers are now required to disclose:

  • Asset-wise capital gain classifications

  • Indexed cost of acquisition with year-wise breakup

  • PANs of buyers and co-owners for immovable property

  • Detailed data on improvements, exemptions, and deductions

These are positive reforms in principle, but they require considerable preparatory effort. Much of that effort is either delayed or duplicated due to the unavailability of the relevant utilities.

Progress with Operational Gaps

There is no question that the intent behind the Tax Assist initiative and capital gains reform is progressive. However, intent must be matched by execution. Without timely access to ITR utilities and coordinated compliance timelines, even the most well-designed support mechanisms remain underutilised.

Positive DevelopmentsKey Challenges Still Unresolved
Launch of AI-based Tax AssistITR-2 and ITR-3 utilities yet to be released
Support for first-time/rural taxpayersNo deadline relief for audit returns
Capital gains reporting reformsSignificantly increased documentation and prep burden

What Should Be Done to restore equilibrium between support and compliance, the following steps are recommended:
IssueSuggested Measures
Delays in ITR-2 and ITR-3 utilitiesRelease without further delay, after necessary testing
Overlap between ITR filing and audit prepExtend audit filing deadline to 31 October 2025
Absence of system-wide visibilityPublish real-time utility release updates and roadmaps
Support without tool availabilityAlign Tax Assist rollout with form accessibility

Planning Ahead Despite Uncertainty

In the interim, taxpayers and professionals are advised to begin backend preparations now, even without active utilities:

  • Initiate Form 3CD drafting and book closure for audit clients

  • Prepare capital gains schedules offline to avoid last-minute rush

  • Communicate with clients to collect necessary documentation in August

  • Use the Tax Assist facility where appropriate, but monitor form readiness closely

Real Support Requires System Readiness

The launch of Tax Assist reflects the government’s commitment to a more accessible and digitally driven tax experience. However, the benefits of AI-enabled assistance can only be fully realised when accompanied by functional utilities, realistic deadlines, and platform stability.

True compliance support requires more than guidance—it requires preparedness. Without timely tools and proportionate timelines, even the best support initiatives risk falling short of their intended impact.

Statutory Tax Compliance Calendar – July 2025

 July 2025 is packed with critical tax compliance obligations under the Income Tax Act, 1961, and GST Act, 2017. Key highlights include TDS/TCS deposits and quarterly returns, GSTR-3B for June, CMP-08, and various certificate issuances and statements.

Update: The original July 31 deadline for filing ITRs and linked declarations is extended to September 15, 2025, per CBDT Circular 06/2025.

Detailed Statutory Compliance Calendar – July 2025

1. Income Tax Act, 1961

DateAreaComplianceDescription
07 July (Monday)Income TaxTDS/TCS DepositPayment for June 2025
07 July (Monday)Income TaxQuarterly TDS DepositFor Q1 under Sections 192, 194A, 194D, 194H
07 July (Monday)Income TaxForm 27C UploadDeclarations received from buyers
15 July (Tuesday)Income TaxTDS CertificatesIssue under 194-IA, 194-IB, 194M, 194S for May 2025
15 July (Tuesday)Income TaxForm 15CCForeign remittance report (Q1)
15 July (Tuesday)Income TaxForm 27EQQuarterly TCS statement
15 July (Tuesday)Income TaxForm 15G/15H UploadDeclarations received in Q1
15 July (Tuesday)Income TaxForm 3BBStock exchange reporting
15 July (Tuesday)Income TaxForm 15CDRemittances by IFSC units (Q1)
15 July (Tuesday)Income TaxRule 114AABStatement by specified funds
15 July (Tuesday)Income TaxForm 24GGovt deductors (no challan)
30 July (Wednesday)Income TaxForm 27DQuarterly TCS certificates (Q1)
30 July (Wednesday)Income TaxChallan-cum-statementu/s 194-IA/IB/M/S for June 2025
31 July (Thursday)Income TaxVarious Forms & Declarations80GG, 80RRB, 89, 115BAC/BAD/BAE, etc. – Extended to 15.09.2025

2. GST Act, 2017

A. GSTR-3B Filing

CategoryTax PeriodDue DateRemarks
Turnover > ₹5 CrJune 202520.07.2025Monthly filing
Turnover ≤ ₹5 Cr (Group A)June 202522.07.2025QRMP – Group A States
Turnover ≤ ₹5 Cr (Group B)June 202524.07.2025QRMP – Group B States

B. GSTR-1 Filing

Tax PeriodDue DateRemarks
June 202511.07.2025Monthly & optional QRMP IFF

C. Other GST Filings

DateFormDescription
10 July (Thursday)GSTR-7GST TDS Return for June 2025
10 July (Thursday)GSTR-8GST TCS by e-commerce operators
13 July (Sunday)GSTR-6ISD Return for June 2025
13 July (Sunday)IFF (QRMP)Invoice Furnishing Facility (Optional)
18 July (Friday)CMP-08Q1 summary by composition dealers
20 July (Sunday)GSTR-5Return by non-resident taxable persons
20 July (Sunday)GSTR-5AOIDAR service providers’ return
25 July (Friday)PMT-06Monthly GST payment under QRMP
28 July (Monday)GSTR-11UIN holders’ statement of inward supplies
31 July (Thursday)RFD-10GST refund application (18-month deadline)

Group A States: Chhattisgarh, MP, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, Daman & Diu, Dadra & Nagar Haveli, Puducherry, Andaman & Nicobar Islands, Lakshadweep

Group B States: HP, Punjab, Uttarakhand, Haryana, Rajasthan, UP, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Meghalaya, Assam, WB, Jharkhand, Odisha, J&K, Ladakh, Chandigarh, Delhi

Saturday, July 5, 2025

Forfeiture of Booking Advances under GST: When It Becomes a Taxable Supply

In the automobile and consumer goods sector, it is common for dealers to collect advance booking amounts from customers. A frequent practical issue arises when the customer does not complete the transaction and fails to claim a refund. The dealer then forfeits the advance and adjusts it in the books. A critical legal question follows: Does such forfeiture of booking advance attract liability under the Goods and Services Tax (GST) regime?

This article addresses this issue through the lens of statutory provisions, CBIC’s official clarification, and legally defensible compliance planning.

Legal Framework: Advance Receipt in Supply of Goods

Under Section 12(2)(a) of the Central Goods and Services Tax Act, 2017, the time of supply of goods is the earlier of:

  • The date of invoice, or

  • The date of delivery.

However, the first proviso to this section explicitly excludes receipt of advance for goods from being treated as the time of supply.

Additionally, Rule 50 of the CGST Rules, 2017 requires the issue of a receipt voucher for advances received but does not create a tax liability merely on such receipt.

Legal interpretation:
Where a dealer receives a booking advance (e.g., ₹10,000) and neither issues an invoice nor delivers the goods, GST is not payable at that stage.

If Sale Does Not Materialise – Is Forfeiture a Taxable 'Supply'?

The next question is whether forfeiting the advance amount constitutes a supply of service under GST.

Section 7(1)(a) of the CGST Act defines “supply” to include:

“All forms of supply of goods or services… for a consideration in the course or furtherance of business.”

Further, Schedule II, Entry 5(e) deems the following as a supply of service:

“Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.”

Thus, if the forfeiture is construed as consideration for tolerating the customer's default, it could be classified as a deemed supply of service, triggering GST.

CBIC Circular No. 178/10/2022-GST dated 3 August 2022 – Clarification on Forfeiture

The CBIC, through this circular, clarified that:

  • Forfeited advances may be treated as consideration for a taxable supply under Entry 5(e) only where:

    • There is a binding contract or booking form;

    • The forfeiture clause is expressly agreed as a condition;

    • The dealer is contractually obliged to tolerate cancellation or default by the buyer.

Interpretation:
Only when forfeiture is a pre-agreed contractual consequence of non-performance can it be considered a taxable supply of service under GST.

Scenario-Based Legal Position

SituationContractual PositionGST Liability
No invoice issued, no delivery, and no forfeiture clauseNo enforceable obligation; unilateral forfeitureNo GST payable
Booking form or contract contains forfeiture clauseForfeiture becomes contractual consideration for tolerating non-performanceGST payable under Entry 5(e)
Voluntary adjustment without buyer's consent or documentationNo mutuality or legal basis for toleranceGenerally not taxable, but prone to dispute

Practical Compliance Strategy and Tax Planning

To mitigate GST exposure on forfeited advances:

  • Include forfeiture clauses in booking forms stating clearly that the advance is non-refundable upon cancellation or no-show.

  • Ensure the customer signs or accepts the terms explicitly to evidence mutual consent.

  • Do not raise invoices unless actual delivery is made or the supply is executed.

  • In cases where forfeiture is taxable, issue a tax invoice and discharge GST liability under the appropriate SAC (Service Accounting Code).

Forfeiture of a booking advance does not automatically attract GST liability. It becomes a taxable supply of service under Schedule II, Entry 5(e) only if the forfeiture is backed by a binding agreement, making it a consideration for tolerating non-performance. In absence of such contractual terms, unilateral forfeiture is not a supply under GST law.

Friday, July 4, 2025

Virtual Digital Assets in India: Tax Filing, Compliance & Legal aspects

India’s evolving stance on Virtual Digital Assets (VDAs)—including cryptocurrencies, NFTs, and blockchain-based tokens—has shifted from ambiguity to legal clarity. The Income-tax Act, 1961 currently governs the taxation and disclosure of VDAs. Further, the Income Tax Bill, 2025, introduced in Parliament on 13 February 2025, proposes a futuristic and streamlined legal regime effective from 1 April 2026 (FY 2026–27 onward).

For Assessment Year (AY) 2025–26 (relating to Financial Year 2024–25), the taxation and compliance requirements remain governed by the existing law—but with major updates that are critical for taxpayers to understand and comply with.

Updates and Effective Dates

UpdateEffective FromSource/Provision
Tax on income from VDAs at flat 30%1 April 2022 (AY 2023–24 onward)Section 115BBH, Finance Act 2022
Definition of VDA under Income-tax Act1 April 2022Section 2(47A)
TDS on VDA transfer @1% (Section 194S)1 July 2022Finance Act 2022
Mandatory use of ITR-2/3 for VDA reportingAY 2023–24 onwardCBDT-prescribed ITR forms
Schedule VDA introduced in ITR formsAY 2023–24ITR-2 and ITR-3
Mandatory foreign wallet disclosure in Schedule FAAY 2022–23 onwardRule 114H r/w Schedule FA
Income Tax Bill, 2025 introduced in Parliament13 February 2025Lok Sabha proceedings
Effective date of proposed Income Tax Bill, 20251 April 2026Clause 1 of the Bill
Extended ITR filing due date for non-audit cases15 September 2025CBDT Circular No. 06/2025 dated 27 May 2025

What is a Virtual Digital Asset (VDA)?

Under the Income-tax Act, 1961 (currently applicable law)
As per Section 2(47A), a VDA includes:

  • Any code, number, or token generated through cryptography

  • Not being Indian or foreign currency

  • Traded or transferred electronically

  • Includes cryptocurrencies and NFTs

Under the Income Tax Bill, 2025 (proposed law effective from 1 April 2026)
Section 2(111) expands the scope to include:

  • Any cryptographic asset with digital representation of value or rights

  • Assets stored, traded, or transferred electronically

  • Includes crypto-assets, NFTs, metaverse assets, and future notified digital instruments

How Are VDAs Taxed in AY 2025–26?

Section 115BBH – Flat Taxation at 30%

Applicable since AY 2023–24, all income from transfer of VDAs is taxed at 30% plus cess.

No Deductions or Expenses

Only cost of acquisition is allowed. Brokerage, mining fees, transfer costs cannot be claimed.

Loss Treatment

  • No set-off of VDA loss against any other income

  • No carry forward of such losses to subsequent years

TDS on VDA Transfers – Section 194S

Effective from 1 July 2022, buyers must deduct TDS at 1% on consideration paid for VDA transfers if:

  • Aggregate exceeds ₹50,000 for individuals/HUFs under audit or with income >₹50L

  • Exceeds ₹10,000 for other individuals

TDS applies even for barter or in-kind transactions. Defaults attract interest and penalty under Section 201.

Mandatory Filing and Disclosure Rules

ITR Form Requirement (AY 2025–26)

  • Use ITR-2 or ITR-3 only

  • ITR-1 or ITR-4 is invalid where VDA income is present

Schedule VDA

Introduced in AY 2023–24, it mandates disclosure of:

  • Type and name of digital asset

  • Date of purchase and sale

  • Cost of acquisition and consideration received

  • TDS deducted

Foreign Holdings: Schedule FA

If VDAs are held on foreign exchanges or in overseas wallets (e.g., Binance, Coinbase), details must be disclosed under Schedule FA.

Gifting, Inheritance & Unexplained VDAs

SituationLaw ApplicableTax Impact
Gift from non-relative > ₹50,000Section 56(2)(x)Taxable as income
Gift from relative, marriage, inheritanceExemptNot taxed
VDAs without source or explanationSection 69A r/w 115BBETaxed at 77.25% (incl. surcharge & cess)

Compliance Triggers and Penalties

AreaTriggerRisk/Consequence
TDS not deductedPurchase value > thresholdPenalty + interest under Sec 201
Wrong ITR form usedFiled ITR-1/4 with VDA incomeReturn treated as defective
Foreign crypto not disclosedSchedule FA not filledPenalty up to ₹10 lakh
Misreporting VDA giftsValue > ₹50,000 not shownTaxed as other income
Unexplained crypto incomeNo supporting sourceTaxed at 77.25% under 115BBE

Practical and Lawful Tax Planning Strategies

  1. Use Indian Regulated Exchanges: Ensures TDS compliance and automatic reporting in AIS and Form 26AS

  2. Gift VDAs to Family with Documentation: Gifts to spouse, children, and parents are exempt if documented

  3. Inherit or Will-Based Transfers: Inheritance and succession-based transfers are tax neutral

  4. Use of HUF or Family Trust: Legally structure long-term holdings through HUF or trusts

  5. Maintain Evidence: Keep KYC, trade logs, wallet screenshots, blockchain explorer data, invoices for 8 years

 Checklist for AY 2025–26

  • ✔ Use only ITR-2 or ITR-3 if you had any VDA income

  • ✔ Disclose foreign-held crypto assets under Schedule FA

  • ✔ Report all transfers accurately in Schedule VDA

  • ✔ Ensure TDS under Section 194S is deducted and paid

  • ✔ Reconcile AIS and Form 26AS before filing

  • ✔ File return by 15 September 2025 (non-audit) to avoid late fee under Section 234F

Conclusion

The legal regime for VDAs in India is now transparent, stringent, and compliance-heavy. Taxpayers must understand that crypto gains, even if informal or peer-to-peer, attract flat taxation with limited room for deductions or adjustments. The extended filing date till 15 September 2025 offers an opportunity for investors to reconcile their records, ensure accuracy, and avoid costly penalties.

The upcoming Income Tax Bill, 2025 will further deepen the legal recognition of digital assets starting April 2026, making it essential for users to build a compliant and well-documented digital investment trail now.

Disclaimer

This post is intended solely for educational and informational purposes. It is not a substitute for legal or professional tax advice. All laws and updates mentioned are current as of July 2025. Readers should consult a qualified tax professional before taking any action based on this guide.

SEBI Proposes SSE-EBP Platform for NPO Fundraising: A New Era for Social Impact Finance

In a significant step toward deepening the role of capital markets in the social sector, the Securities and Exchange Board of India (SEBI) has issued a draft circular dated July 3, 2025, proposing the launch of a dedicated Electronic Book Provider (EBP) platform for the Social Stock Exchange (SSE). This move aims to streamline fundraising by Not-for-Profit Organisations (NPOs) through enhanced transparency, efficiency, and accessibility.

1. Background: Bridging Capital Markets and Social Good

The Social Stock Exchange (SSE), introduced in India as a novel framework to mobilize capital for social development initiatives, allows NPOs to raise funds using instruments such as Zero Coupon Zero Principal (ZCZP) instruments. However, till now, the ecosystem lacked a centralised, regulated mechanism for such fundraising.

SEBI’s new proposal for an SSE-EBP platform seeks to fill that gap by offering a common bidding and settlement infrastructure—similar in structure to the electronic book building system used in debt markets.

2. Key Highlights of the Proposed SSE-EBP Platform

a. Applicability

  • Mandatory Use: NPOs intending to raise ₹50 lakh or more (either in a single issue or through a shelf prospectus) must route their fundraising through the SSE-EBP platform.

  • The regulation aims to ensure greater discipline, standardization, and investor protection in large-value issues.

b. Eligible Participants

  • The platform is open to Qualified Institutional Buyers (QIBs), non-institutional investors, and retail investors.

  • Excluded Categories: Notably, Foreign Portfolio Investors (FPIs), foreign funds, and foreign investor-backed funds are prohibited from participating—likely due to regulatory constraints and currency control mechanisms impacting NPO funding.

c. Bidding Process & Timelines

  • Bidding Window: Open from 9:00 am to 5:00 pm on working days of recognised stock exchanges.

  • The issuer must inform the SSE-EBP of the potential investor list at least one hour before bidding starts.

  • Customised Bidding Period: The issuer defines the exact window of bidding via an official bidding announcement.

d. Documentation Requirements

  • Issuers must submit:

    • A Draft Fund Raising Document (DFRD), and

    • A Term Sheet detailing:

      • Issue size,

      • Minimum application size,

      • Bidding terms,

      • Allotment method.

  • Timelines for Submission:

    • 2 working days before issue opening (for repeat issuers),

    • 5 working days in advance (for first-time issuers).

3. Accountability Mechanisms: Penalty for Unwarranted Withdrawal

To ensure issue discipline, the circular proposes temporary debarment (7 days) for issuers who withdraw after listing, except under two exceptions:

  • The issue fails to attract at least 75% subscription, or

  • Investor payment defaults occur post-bidding.

This clause reflects SEBI’s intent to prevent speculative or unserious issuances that could hurt investor sentiment and platform credibility.

4. Implications for the Sector

StakeholderImplication
NPOsGain access to a formalised, regulated marketplace for large-scale fundraising.
InvestorsAccess to verified issue documents, transparent bidding, and enhanced governance.
SSE EcosystemEvolution toward market-standard infrastructure matching debt and equity markets.

This platform is expected to significantly boost investor confidence and allow NPOs to raise larger and more consistent funding while complying with streamlined norms.

5. Way Forward: Call for Comments and Future Outlook

The draft circular is open for public comments, allowing stakeholders to shape the final contours of the SSE-EBP framework. Comments can be submitted to SEBI by referencing the draft circular dated 03.07.2025, accessible via SEBI’s official website.

This move is another pivotal step toward mainstreaming social finance, offering regulatory clarity and operational structure that could transform how the Indian philanthropic sector interacts with capital markets.

Conclusion: Strengthening the Backbone of Social Capital Markets

With this draft proposal, SEBI has reaffirmed its commitment to fostering responsible innovation in financial markets. The SSE-EBP platform, when finalised, will likely emerge as a game-changer for not-for-profits, enabling them to scale social impact projects by tapping into structured capital mechanisms—without compromising on transparency or governance.

As India moves into a new era of impact-linked finance, the SSE-EBP could become the institutional gateway for trust-based, mission-driven fundraising on a national scale.

Interest on Borrowed Funds Temporarily Invested in Mutual Funds is Deductible under Section 36(1)(iii) Incline Realty Private Limited vs DCIT [2025] 175 taxmann.com

 Introduction

A recurring issue in tax assessments concerns the deductibility of interest on borrowed funds when those funds are temporarily parked in mutual funds or fixed deposits before being used for the intended business purpose. The Mumbai ITAT has addressed this issue in a comprehensive ruling in the case of Incline Realty Private Limited, reaffirming that such interest is allowable under section 36(1)(iii) of the Income tax Act, 1961, provided the business nexus is clear and uninterrupted.

Legal Provision under Section 36(1)(iii)

Section 36(1)(iii) provides for deduction of interest paid in respect of capital borrowed for the purposes of business or profession. The section does not impose any restriction on interim use or temporary deployment of funds, as long as the purpose of borrowing remains wholly and exclusively for the business.

Key Conditions to Claim the Deduction

  1. Existence of a capital borrowing

  2. Payment of interest on the borrowed capital

  3. The borrowing must be for the purpose of the business or profession

There is no requirement in law that the borrowed funds must be used immediately or without any temporary investment.

Facts of the Case

Incline Realty Private Limited, a real estate company, raised funds by issuing secured debentures to acquire land from Tata Steel Limited. Due to the terms of the agreement, the payment for land acquisition was scheduled after a certain period. During the intervening period, the borrowed funds were temporarily invested in growth mutual funds and fixed deposits. Subsequently, the funds were withdrawn and used for the stated business purpose. The company claimed the interest cost incurred during the interim period as a deduction under section 36(1)(iii).

The Assessing Officer disallowed the claim, stating that since the funds were invested in financial instruments, the interest was not incurred for business purposes. The Commissioner of Income-tax Appeals confirmed the disallowance. The matter was taken up before the Income Tax Appellate Tribunal Mumbai Bench.

Tribunal's Ruling

The Tribunal reversed the disallowance and held that the interest was fully allowable under section 36(1)(iii). The following key points were considered:

  • The funds were raised specifically for the purchase of land which was to be used for a real estate development project. The purpose of borrowing was never in dispute.

  • The temporary parking of funds in mutual funds and deposits was done out of commercial prudence to reduce the cost of borrowing during the idle period. The funds remained earmarked for the land purchase.

  • The assessee had no intention to divert the funds for any non business purpose. The end use remained the same.

  • Income earned from the interim investments was offered to tax. The act of earning interim income does not nullify the business purpose of the borrowing.

  • The Tribunal reiterated that commercial expediency and business intent are paramount in evaluating such deductions.

Judicial Precedents Supporting the View

  1. CIT vs Bombay Samachar Limited 1969 74 ITR 723 SC
    Held that temporary deposits of borrowed funds do not break the nexus if the final use is business related

  2. DCIT vs Core Healthcare Limited 2008 298 ITR 194 SC
    Interest on borrowed capital is deductible even when the asset is under construction

  3. CIT vs Tata Chemicals Limited 2002 256 ITR 395 Bombay HC
    Temporary investment of borrowed funds does not disentitle deduction under section 36(1)(iii)

  4. S A Builders Limited vs CIT 2007 288 ITR 1 SC
    If the borrowing is made on grounds of commercial expediency, deduction cannot be disallowed

Tax Treatment and Practical Implications

Interest on borrowed funds remains deductible under section 36(1)(iii) even if the funds are temporarily parked in investments, provided:

  • There is clear documentation showing the original business intent

  • The temporary investment is safe, liquid and intended to reduce interest cost

  • The final application of funds is for business use

  • Income from temporary investments is reported under the head Income from Other Sources

Compliance Checklist

  • Maintain board resolutions and debenture issuance terms specifying purpose

  • Ensure the investment instruments are short term and easily redeemable

  • Keep records of redemption and application of funds towards the stated project

  • Disclose interest income and interest expense accurately in the books

  • Ensure consistency between financial statements and tax returns

  • Report interest under the appropriate clauses in Form 3CD of the tax audit report

When Deduction May Be Denied

  • If borrowed funds are used for unrelated investments or diverted to group entities without commercial justification

  • If there is no evidence of subsequent business use

  • If the investments are speculative or long term in nature

  • If the interim investment becomes a permanent arrangement

Conclusion

The Mumbai ITAT in Incline Realty Private Limited has reinforced the principle that temporary investment of borrowed funds does not break the business nexus required under section 36(1)(iii), provided the end use is for business and the investment is made out of commercial prudence. This decision is consistent with long standing judicial principles and provides clear guidance to taxpayers operating in capital intensive industries.

Proper documentation, transparency in fund flow, and commercial rationale are essential to sustain such claims during assessments. Taxpayers should ensure alignment of intent, accounting treatment, and legal compliance while handling interim deployment of borrowed capital.

Thursday, July 3, 2025

Corporate Social Responsibility (CSR) in India — The Ultimate Legal & Compliance Guide for FY 2024–25 & FY 2025–26

 Updated as on July 2025 | Law ⬩ Rules ⬩ Circulars ⬩ FAQs ⬩ Legal Interpretation

Legal Framework – Section 135 of the Companies Act, 2013

CSR is applicable if, during the immediately preceding financial year, the company satisfies any one of the thresholds under Section 135(1):

CriteriaThreshold
Net Worth₹500 Crore or more
Turnover₹1,000 Crore or more
Net Profit (Sec. 198)₹5 Crore or more

CSR applicability is assessed afresh every year. It is not presumed or carried forward based on past status.

Amendments (2021–2025): Shift to Annual Trigger-Based CSR

DateAmendment/EventImpact
Jan 2021Rule 3(2) introduced via GSR 40(E)Allowed CSR exit after 3 consecutive ineligible years
Sept 2022Rule 3(2) deleted via GSR 700(E)✅ CSR is now triggered purely based on preceding year financials
Feb 2022CSR-2 made mandatoryCSR digital compliance reporting initiated
Jan 2024Rule 12(1B) amendedCSR-2 to be filed separately by 31 December each year
Jan 2024Impact Assessment mandated (> ₹1 Cr projects)Enhances project accountability via 3rd-party review
Nov 2023MCA FAQs updatedClarified deemed CSR fulfillment for eligible Section 8 companies

CSR Applicability 

Financial YearCSR Applicability Based OnCSR Obligation?
FY 2024–25FY 2023–24If any threshold met in FY 2023–24
FY 2025–26FY 2024–25Fresh test required

 Applicability is rolling and real-time. CSR applies if any one condition is met in the immediately preceding FY.

Legal Interpretation – What the Law Now Requires

  • Trigger Point: CSR becomes applicable in the next FY if any threshold is met in the preceding FY.

  • Non-Applicability: If all criteria are missed in a given FY, CSR obligation does not arise in the following year.

  • Exit Logic Abolished: Rule 3(2), which allowed continuation/exits over 3 years, was deleted in 2022.

  • Re-Trigger: CSR re-applies whenever a company again satisfies any eligibility criteria under Section 135(1), even after a break.

CSR Spending Framework

ComponentRequirement
Spend RequirementMinimum 2% of average net profits (Sec. 198) over 3 preceding FYs
Eligible ActivitiesMust be aligned with items listed in Schedule VII
Net Profit BasisAs per Section 198 – excludes capital profits, revaluation reserves, etc.
Board DisclosureMust be reported in the Board’s Report under Section 134(3)(o)

Mandatory Impact Assessment

When RequiredConditionCapped Cost Allowance
For any project spending > ₹1 CroreThird-party Impact Assessment is mandatoryMax 2% of CSR obligation or ₹50 Lakhs, whichever is higher

Management of Unspent CSR Funds

CategoryAction RequiredTimeline
Ongoing ProjectsTransfer to Unspent CSR AccountWithin 30 days of FY end
Non-Ongoing ProjectsTransfer to PM CARES / Govt. FundWithin 6 months of FY end
Unused for 3 YearsTransfer to separate designated CSR FundAfter 3 years of inaction

CSR Compliance Calendar – FY 2024–25 & FY 2025–26

Compliance TaskTimelineRelevant Law / Rule
Check CSR applicability (Sec. 135(1))Post-audit every FYSection 135(1)
Form CSR Committee (if spend > ₹50L)At start of FYSection 135(1), Rule 5
Draft/Revise CSR PolicyWithin 6 months of applicabilityRule 6
Identify Schedule VII causesBefore allocation/spendingRule 4
Transfer Unspent Funds (Ongoing)Within 30 days of FY endRule 10
Transfer Unspent Funds (Other)Within 6 months of FY endRule 10
File Form CSR-2By 31 DecemberRule 12(1B)
Conduct Impact Assessment (> ₹1 Cr)Before next cycle beginsRule 8(3)
Disclosure in Board ReportAlong with financial statementsSection 134(3)(o), Rule 8

FAQs – Clarified with Law & Reasoning

QuestionAnswerLaw / Guidance
If only one criterion is met, does CSR apply?✅ Yes. Any one of net worth, turnover, or profitSection 135(1)
Can CSR continue if criteria aren’t met for one year?❌ No. Rule 3(2) deleted – annual re-testing onlyGSR 700(E), Sept 2022
Can CSR re-apply after previous inapplicability?✅ Yes. Once any threshold is met againSection 135(1)
Are Section 8 companies exempt from CSR?⚠️ No. But deemed fulfilled if 100% spent on Schedule VIIMCA FAQ, Nov 2023
What is the profit base for CSR spend calculation?Net Profit as per Section 198Section 135(5) + Sec. 198
Can a new company be tested for CSR applicability?❌ No. No preceding FY data availableMCA FAQ
Deadline for CSR-2 filing?📌 31 December following FY (after AOC-4)Rule 12(1B)

Legal Position Matrix – At a Glance

ScenarioCSR Applicable?Legal Reasoning
Any one Section 135(1) trigger met✅ YesLaw requires only one criterion
All triggers missed in one FY❌ NoNo obligation for following year
Triggers missed for 3 consecutive years❌ NoIrrelevant now – Rule 3(2) repealed
Trigger met again after break✅ YesRe-triggered by fresh satisfaction of Sec. 135(1)
Newly incorporated company❌ NoNo previous year data for testing
Section 8 Company using all income on CSR✅ Deemed fulfilledPer MCA FAQ (Nov 2023)

CSR Is a Responsibility, Not a Ritual

“CSR is not a legacy — it is a live test of governance, impact, and intention.”

  • CSR is dynamic, not frozen.

  • Compliance must follow real-time financials — not legacy assumptions.

  • Annual testing, transparent disclosure, and impact-driven outcomes are now the legal and ethical expectations.

  • Boardrooms must institutionalize CSR into strategy, policy, compliance, and reputation management.