Akshay Tritiya: A Day of Infinite Prosperity and Spiritual Awakening

Introduction: Akshay Tritiya, celebrated on the third day of the Vaishakha month, is considered one of the most powerful days in the Hindu calendar. Akshay meaning "eternal" or "imperishable" signifies that the wealth acquired on this day grows infinitely and remains ever-present. It is not just a day for purchasing gold or making investments, but a time to open our hearts and minds to divine prosperity that is everlasting in both material and spiritual realms.

While this day is often associated with acquiring wealth in its material form—like gold, real estate, or even stocks—the essence of Akshay Tritiya goes beyond tangible assets. It invites us to align our external prosperity with internal abundance, urging us to cultivate an unshakable foundation of spiritual growth and self-awareness.

The Spiritual Significance of Akshay Tritiya

Akshay Tritiya carries profound spiritual importance that calls on us to reflect on the nature of true wealth. The spiritual meaning of this day emphasizes that wealth is not only something that can be seen or touched but is primarily a state of being—a mindset that transcends the material.

1. Divine Prosperity through Devotion:

The story of Sudama and Lord Krishna during Akshay Tritiya is a powerful testament to the spiritual message of this day. Sudama, a poor but devoted Brahmin, presented Krishna with a humble offering of beaten rice. In return, Lord Krishna blessed him with boundless wealth, symbolizing that true prosperity comes from devotion, humility, and faith.

This is a reminder that wealth, whether material or spiritual, comes to those who are aligned with divine truth, simplicity, and selfless devotion. Akshay Tritiya encourages us to cultivate an attitude of surrender, faith, and gratitude, inviting divine blessings into every aspect of our lives.

2. Eternal Abundance in Consciousness:

The word Akshay refers not only to material wealth but to a form of abundance that exists beyond the finite. It signifies a mindset that is open to receiving and giving, both in material and spiritual terms. This eternal wealth is nourished by positive intentions, conscious decisions, and acts of kindness.

When we align ourselves with the divine energies of Akshay Tritiya, we open our hearts to infinite possibilities—prosperity in all its forms. The day serves as an opportunity to reflect on our intentions and desires, ensuring they are aligned with our higher purpose, not just for selfish gain, but for the benefit of all.

Wealth Creation and Spiritual Growth: Balancing Material Success with Higher Purpose

Akshay Tritiya provides an opportunity to make significant material investments, but it also encourages us to seek wealth that transcends financial success. The teachings of Akshay Tritiya suggest that material wealth, when paired with spiritual understanding, leads to true abundance.

1. Investments Rooted in Purpose:

On Akshay Tritiya, it is traditional to invest in gold, a timeless symbol of wealth, purity, and longevity. Gold, like spiritual wealth, does not tarnish over time. When purchasing gold or making other investments, we are reminded of the need for purity in our actions. Just as gold must be refined to achieve its true form, so must our actions be refined through wisdom and consciousness.

The day teaches us that material success, when pursued with mindfulness and purpose, can help us build lasting security and contribute to the well-being of society.

• Actionable Insight: As you make financial decisions today—whether investing in gold, property, or stocks—ask yourself: “Is this an investment that serves my higher purpose? Is it aligned with values of growth, security, and service to others?” Investments made with integrity tend to yield long-term prosperity.

2. Real Estate: Building a Legacy of Stability:

Real estate has long been associated with Akshay Tritiya. The acquisition of land or property is symbolic of creating a stable foundation for future generations. In both financial and spiritual terms, real estate represents a solid foundation that supports growth, stability, and the continuity of family traditions.

• Actionable Insight: Just as we build physical foundations for security, Akshay Tritiya reminds us to build spiritual foundations through knowledge, self-awareness, and service. Consider real estate investments that offer long-term growth, but also reflect on how they contribute to your life’s legacy—both material and spiritual.

3. Ethical Investments: Wealth Aligned with Values:

In today’s rapidly evolving financial landscape, ethical investments and socially responsible business practices are increasingly sought after. Akshay Tritiya encourages us to reflect on investments that serve the greater good, whether through sustainable businesses, green technologies, or social enterprises. This approach ensures that wealth not only benefits the individual but also has a lasting impact on the community and environment.

• Actionable Insight: Seek out investments that reflect your values and contribute positively to society. Impact investing is a growing trend, where your financial growth also aligns with a vision for a better, more sustainable world. Choose ventures that focus on long-term sustainability and contribute to the greater good.

4. Charity: The True Measure of Wealth:

On Akshay Tritiya, charity holds immense importance. It is believed that giving on this day multiplies blessings a thousandfold. True wealth is not just about accumulating possessions but in sharing one’s abundance. The practice of charity, when done with pure intentions, creates a flow of energy that multiplies both for the giver and the receiver.

• Actionable Insight: Consider dedicating a portion of your wealth to charitable causes today. Acts of generosity help cleanse the heart, and in return, they create a flow of positive energy that attracts prosperity. Giving, whether through financial resources, time, or energy, creates a ripple effect that spreads well-being.

Conclusion: Harmonizing Material and Spiritual Wealth

Akshay Tritiya is not simply a day for purchasing gold or making financial investments. It is a reminder that true prosperity arises from the balance between material success and spiritual awakening. On this day, as we seek to enhance our material wealth, we must remember to ground our actions in higher consciousness, aligning every financial decision with divine purpose and values.

As we celebrate Akshay Tritiya, let us invest not just in gold or real estate, but in the purity of our hearts, the kindness we show to others, and the integrity with which we make choices. The wealth of the world is available to all, but only those who align their desires with higher values are able to experience it in its truest, most enduring form.

Let this Akshay Tritiya be a celebration of both external prosperity and internal growth—a day to invoke the divine blessings that lead to infinite wealth, both in the material world and beyond.

The Future of Brand Valuation: Moving Beyond Revenue and Spreadsheets

 "In the world of brand valuation, true worth is no longer just about profits and numbers. It is about the connections, perceptions, and emotions that brands forge with their consumers."

Brand valuation has traditionally been seen through a financial lens, rooted in well-established models like Discounted Cash Flow (DCF), Cost, and Market-based methods. These models have served the industry for decades, providing a snapshot of a brand's worth based on historical and financial data. However, in today’s rapidly evolving landscape, these methods are increasingly insufficient to capture the full spectrum of value that a brand holds.

While the financial metrics still remain important, there are intangible elements at play that now play a huge role in shaping the real value of a brand. Emotional equity, consumer trust, cultural relevance, technological influence, and brand loyalty are no longer supplementary factors—they are the cornerstones of a brand’s real value. The way these elements are leveraged, protected, and projected is now central to how we assess a brand’s true worth.

In this article, we explore these new dimensions of brand valuation, offering an A to Z approach that includes the traditional financial measures and introduces emerging tools and concepts that are revolutionizing the way we perceive brand value. Here are 10 powerful insights that every professional, marketer, and founder should consider when reassessing brand valuation:

1. Traditional Valuation Models: Still Useful, But Not Enough

The traditional methods like Discounted Cash Flow (DCF), Cost, and Market-based models are still considered the gold standard for brand valuation. However, they have limitations in capturing intangible elements that are integral to modern brand valuation. Customer loyalty, brand perception, and emotional engagement are becoming increasingly critical in assessing brand value.

While traditional financial metrics will always play a role, the world of brand valuation now requires an expanded toolkit that goes beyond the confines of spreadsheets. To truly understand a brand’s worth, we must integrate these softer, intangible factors into our calculations.

"Brand value is no longer just about numbers. It’s about the emotional connections brands foster with their audiences."

2. Brand ≠ Buzz: Virality Doesn’t Equal Value

In today’s digital age, it’s easy to confuse virality with brand value. Social media campaigns and viral moments often lead to rapid spikes in brand visibility, but this doesn’t always translate into long-term brand value. Take Jet Airways, for example, a once-popular brand that saw its valuation plummet after a loss of trust and reliability.

On the other hand, Narayana Health proved that a quiet, consistent brand can command immense value. Their focus on building long-term trust, delivering high-quality healthcare, and having a dedicated customer base allowed them to maintain their value over time.

Lesson: While buzz can give brands a temporary boost, trust, customer loyalty, and brand credibility are the true drivers of sustainable value.

3. The Role of Emerging Tech: AI, Blockchain & Neuroscience

New technologies are reshaping how we measure and understand brand value. Blockchain is increasingly being used to verify customer loyalty, making programs more secure and transparent. Similarly, neuroscience and neuromarketing are providing deep insights into the emotional triggers that influence consumer decision-making.

As we venture into the future, technologies like Artificial Intelligence (AI) and predictive analytics will help capture insights that traditional financial models cannot. These tools will help us measure customer sentiment, brand influence, and market behavior in ways never seen before.

"The future of brand valuation lies in embracing technology. AI, blockchain, and neuromarketing are offering insights that were once unimaginable."

4. Intellectual Property (IP): The Hidden Power

Intellectual property (IP) often remains an invisible yet immensely valuable asset in brand valuation. Patents, trademarks, and copyrights can have a significant impact on a brand’s worth, especially if they’re protected and leveraged effectively. IP not only offers legal protection but also enhances brand differentiation in a crowded market.

When a brand's IP portfolio is strong, it adds to its credibility, marketability, and ultimately, its valuation. IP is the foundation of brand exclusivity, and its strategic management can significantly increase the long-term value of a business.

5. Customer Advocacy: The New Currency

In the digital world, customer advocacy has become one of the most valuable forms of marketing. Unpaid brand endorsements, genuine testimonials, and organic social media posts now play a critical role in shaping brand perceptions. These forms of advocacy carry more weight than traditional advertisements because they come from the customers themselves.

Customer advocacy can be viewed as brand equity in action, translating into repeat purchases, brand loyalty, and organic growth through word-of-mouth.

"Today, your customers are your most valuable marketers. Their advocacy is a true indicator of brand strength."

6. The Rise of Private Labels

Private labels like AmazonBasics, BigBasket’s store brand, and others are challenging traditional brand hierarchies. These brands are built within platforms, offering a direct connection to consumers while bypassing the need for traditional brand-building strategies.

While these private labels may not have the same legacy or recognition as established brands, their ability to provide competitive pricing and high-quality alternatives is making them a serious force in the market. Private labels demonstrate that brand value is increasingly being shaped by consumer experience and platform-driven trust.

7. Purpose-Driven Brands: Authenticity Pays

The increasing consumer demand for social responsibility is forcing brands to rethink their business models. Brands like The Good Glamm Group have shown that when a company integrates purpose with profit, it can generate both consumer loyalty and sustainable business growth.

"Brands that align with their consumers’ values, contributing to social causes, are seen as more authentic, and this authenticity pays off in both trust and long-term profitability."

8. The Brand Influence Coefficient (BIC)

One of the biggest challenges in brand valuation is accounting for cultural relevance, trust, and engagement. The Brand Influence Coefficient (BIC) is an experimental metric designed to quantify these intangible factors. While it is not an official measurement yet, BIC can give us an idea of how influence, engagement, and consumer sentiment contribute to a brand's value.

The rise of BIC reflects a broader trend towards moving away from purely financial metrics to include emotional and cultural factors in brand valuation.

9. Moving from Retrospective to Forward-Looking Valuation

Traditional valuation methods are historical in nature, primarily focusing on past performance. However, the brand landscape is evolving rapidly, and a brand’s value is no longer just about its past—it’s also about its future potential. Tools like predictive analytics, real-time sentiment analysis, and influence momentum are allowing us to forecast a brand’s future trajectory.

This shift from lagging indicators (like financials) to leading indicators (like customer sentiment and social influence) is helping professionals make forward-looking assessments of brand value.

10. The Future is Now: Brand Valuation in India is Evolving

The evolution of brand valuation is moving beyond traditional models. As businesses become more purpose-driven, technologically advanced, and consumer-focused, it’s essential to embrace a comprehensive approach to brand valuation. The Indian market, in particular, offers unique opportunities to redefine brand valuation through emotion, technology, and cultural relevance.

"Brand valuation is no longer just a snapshot of the past. It’s a dynamic process that requires us to look forward, integrating both traditional metrics and emerging trends."

 

AI-Based Scrutiny in Tax Filing: Essential Insights for AY 2025–26 Taxpayers

As AI reshapes the way tax returns are scrutinized, understanding its impact and preparing accordingly has become imperative for taxpayers and tax professionals alike.”

The Shift Towards AI in Scrutiny-Taxpayers Need to Know for AY 2025–26

In a bid to enhance efficiency and reduce human error, the Central Board of Direct Taxes (CBDT) is incorporating Artificial Intelligence (AI) into the scrutiny process for Assessment Year (AY) 2025–26. This move marks a significant departure from the traditional, manual scrutiny method and signals a new era in tax compliance.

The transition to AI-based scrutiny will drastically reduce delays and inconsistencies, but it also imposes higher scrutiny on the accuracy of tax filings. Taxpayers and tax professionals must understand the system’s intricacies to avoid potential issues.

AI-Based Scrutiny Operates: A Breakdown of the Process

1. Data Aggregation Across Multiple Sources:

AI will pull data from various sources, such as PAN records, AIS/TIS (Annual Information Statement / Taxpayer Information Summary), GST filings, bank statements, property transactions, and even past tax returns. This comprehensive data collection forms the foundation for automated scrutiny.

2. Risk Scoring: Identifying High-Risk Returns:

Each tax return will be assigned a risk score based on discrepancies or anomalies found across the data. Key risk indicators may include:

• Mismatched income details between forms (e.g., Form 16, AIS, Form 26AS).

• Unexplained transactions like large cash deposits or high-value purchases.

• Inflated or disproportionate deductions that don’t align with reported income.

A higher risk score will increase the likelihood of a return being flagged for further manual review.

3. Automated Flagging and Notices:

Returns identified as high-risk will be flagged for scrutiny. In some cases, AI will generate automated notices for review. However, the final decision on these notices will still rest with human officers.

AI Scrutiny Triggers by Raising Red Flags in Your Tax Return

1. Mismatched Income Reporting:

If the income reported in your ITR doesn’t align with the data available in Form 16, Form 26AS, or AIS, the AI system will detect these discrepancies immediately, triggering scrutiny.

2. Unjustified Large Transactions or Cash Deposits:

Any cash deposits or high-value transactions that appear inconsistent with your declared income will automatically raise flags. AI checks these against your financial history for anomalies.

3. Disproportionate Claims for Deductions:

Claims for deductions under sections like 80C, 80D, etc., that are too high compared to your income, will be scrutinized. The AI system will verify if these deductions are justifiable based on your financial status.

4. Property Purchases and Foreign Travel:

AI will cross-check significant property purchases or foreign travel expenses with your reported income. Any inconsistency in these areas could trigger scrutiny.

5. Non-Disclosure of Foreign Assets and Income:

AI can flag undeclared foreign income and foreign assets based on global financial data. Even minor omissions in these areas can lead to significant scrutiny.

Prepare for AI Scrutiny: Key Steps to Ensure a Smooth Filing

1. Cross-Check Your Data:

Before filing, ensure that the data in your AIS/TIS, Form 16, and other relevant documents aligns with your ITR. Double-check for any discrepancies that could lead to AI picking up mismatches.

2. Document All Deductions and Exemptions:

Ensure thorough documentation of deductions, exemptions, and expenses. AI will scrutinize these claims, so ensure they are consistent with your income and properly supported by documentation.

3. Justify Large Transactions:

Be prepared to justify large cash deposits or property purchases with the proper documentation, ensuring these are in line with your declared income.

4. Declare All Foreign Income and Assets:

Always disclose foreign assets and foreign income. The AI system cross-references global data, and hiding or omitting these details is a significant risk.

5. Use Technology to Spot Inconsistencies:

Leverage AI-powered tools designed to identify discrepancies before filing. These tools can help you quickly spot and rectify errors in your tax return, reducing the chances of AI scrutiny.

The Impact of AI Scrutiny: What This Means for Taxpayers and Professionals

For Taxpayers:

The introduction of AI scrutiny makes tax filing more transparent, but it also requires an unprecedented level of accuracy. Small errors or omissions could now trigger automated reviews, so ensuring that your returns are complete and error-free is paramount.

For Chartered Accountants (CAs):

The role of CAs has evolved from merely preparing tax returns to acting as auditors who must ensure that all data is consistent and accurate. The increased use of AI means that errors that might have been overlooked in the past are now more likely to be caught. Proactive, meticulous checks are now a fundamental part of the process.

Navigating the Future of Tax Filing with AI

As AI-based scrutiny becomes the norm for AY 2025–26, taxpayers and professionals alike must prioritize accuracy, completeness, and full disclosure. This shift towards automation in tax filing aims to enhance efficiency and transparency, but it also brings greater responsibility for those filing returns.

Action Points for a Seamless Filing Experience:

• Ensure consistency between your AIS/TIS and ITR data.

• Document all claims for deductions, exemptions, and expenses meticulously.

• Fully disclose foreign income and assets.

“The era of AI-powered scrutiny is here. While it makes tax filing smarter, it requires precision and transparency from both taxpayers and their professionals.”

Strategic Advisory: Managing Unutilized GST ITC in Apparel Exports

An apparel exporter paying 18% GST on inputs but exporting garments at 5% GST on items priced below ₹1000 faces a significant accumulation of excess input tax credit (ITC). Since exports are zero-rated under GST, exporters can claim a refund for the unutilized ITC. However, having been using the IGST refund mechanism for years (paying 5% IGST and claiming refunds), the company now holds a large carried-forward ITC balance, which has not been refunded separately. Switching to the LUT (Letter of Undertaking) mechanism allows the company to claim refunds for future ITC, but the past ITC (accrued over the years) may no longer be refunded due to the two-year time limit for refunds.

This advisory outlines strategies to legally utilize or monetize the accumulated ITC, with associated compliance steps, risks, and the pros and cons of each approach.

GST Zero-Rating & Refund Framework

Under GST, exports are treated as zero-rated supplies, meaning that the export of goods or services is subject to a 0% GST rate, effectively making them exempt from output tax. The zero-rating provision under Section 16(1) of the IGST Act allows exporters to either:

1. Pay IGST on exports and claim a refund of the IGST paid on inputs, or

2. Export without paying IGST (by submitting a Letter of Undertaking or bond) and claim a refund of the unutilized input tax credit in the credit ledger.

Both methods enable exporters to recover the input taxes paid on inputs and services used for export. However, refund claims for unutilized ITC must be filed within two years from the date of export, as per Section 54(6) of the Central Goods and Services Tax (CGST) Act.

Current Issue: Why ITC Is Accumulated

The company’s input taxes (18% GST on inputs) significantly exceed the output taxes on exports, which are taxed at only 5% on items priced below ₹1000. This results in excess ITC accumulation. As the company has been using the IGST route for refunds on exports, it has received refunds on the 5% IGST paid but has carried forward the excess credit. Over time, this ITC accumulation has grown substantially.

Because refunds of ITC are allowed only within two years (from the date of export), much of this legacy ITC may no longer be eligible for a refund. The current challenge lies in legally utilizing or monetizing this accumulated credit before it expires.

Option 1: Continue with the IGST Refund Mechanism

Approach:

The company can continue paying IGST (5%) on exports and claim the refund of IGST paid on the inputs used for exports. Any excess ITC can remain in the credit ledger, carried forward for future use.

• Action Steps: Ensure that all exports are invoiced with IGST and file the RFD-01 form for the refund of the IGST paid. Carry forward any remaining ITC balance in the GST credit ledger.

• Pros: There are no changes to the current export procedure, and the existing IGST refund mechanism continues to operate smoothly. No immediate compliance burden, and the company's export process remains unchanged.

• Cons: The accumulated ITC will not be utilized, and the past credits (which are now older than the two-year period for refund claims) cannot be refunded or monetized. Over time, this excess credit will continue to grow without any practical use.

• Risks: If any past refund claims have not been filed correctly or fully, the company may lose the opportunity to recover unutilized credits. Also, this approach does not address the existing large ITC balance and its monetization.

Option 2: Switch to the LUT Route (Future ITC Refunds)

Approach:

The company can switch to LUT (Letter of Undertaking) under the GST law, allowing it to export goods without paying IGST and instead claim a refund of the full unutilized ITC in the credit ledger.

• Action Steps: Apply for an LUT and submit RFD-01A for future refunds of unutilized ITC. Ensure all future export transactions are completed without the payment of IGST, using the LUT mechanism.

• Pros: Going forward, the company can recover the entire input taxes paid on exports in the form of a refund. This enhances cash flow as the company will not need to pay IGST upfront and can instead recover the input tax credit immediately.

• Cons: Past ITC (accumulated over the last 5-6 years) cannot be refunded due to the two-year limitation on refunds. The company will only be able to claim refunds on future ITC after switching to LUT. Additionally, the company may need to update its invoicing systems to reflect exports under the LUT mechanism.

• Risks: There is a risk of non-compliance with the LUT procedure, as exporters must meet certain conditions, such as providing bank guarantees (if required), and failing to adhere to the LUT regulations may lead to penalties or delays in refunds.

Option 3: Divert Some Exports to Domestic Sales to Absorb Credit

Approach:

The company could consider diverting some of its exports to the domestic market, where a higher GST rate applies. Selling domestically at 12% GST instead of exporting at 5% would enable the company to utilize some of the accumulated ITC.

• Action Steps: Identify specific products that can be sold domestically at a higher GST rate. File GST returns for domestic sales (CGST and SGST) and utilize the carried-forward ITC to pay the GST.

• Pros: Immediate use of the accumulated ITC. The company could increase its domestic sales while addressing the excess input credit. This approach would reduce the outstanding ITC balance and can help offset some of the excess credit.

• Cons: This will reduce exports, potentially impacting revenue. The company must be careful about maintaining competitive pricing in the domestic market. Additionally, a new compliance burden will arise, including domestic invoicing and filing separate returns.

• Risks: The company must ensure that it is genuinely supplying goods for domestic use, as GST authorities may scrutinize such changes. Misclassifying products or misusing the domestic supply route could invite penalties.

Option 4: Claim Inverted Duty Refund on Domestic Sales

Approach:

If the company starts domestic sales at a lower tax rate than the input tax, it can claim an inverted duty refund for the excess ITC incurred on inputs. For example, if the company is buying inputs at 18% GST but selling at 12%, it may be eligible for an inverted duty refund on the input tax.

• Action Steps: File GST RFD-01 after ensuring that the company qualifies for the inverted duty refund under Rule 89 and maintain the necessary documentation (e.g., invoices, receipts).

• Pros: Converts accumulated ITC into a cash refund. The company can use the inverted duty refund mechanism to reduce the credit balance and improve liquidity.

• Cons: The inverted duty refund mechanism is complex and subject to specific eligibility conditions. Not all input taxes are refundable under this scheme, and the refund process may take time. The company must ensure that domestic sales are correctly reported.

• Risks: Inaccurate documentation or claims under the inverted duty refund scheme could lead to audits or penalties by the tax authorities.

Option 5: Restructure Contract Labour or Job Work

Approach:

If the company is using contract labour or job work for certain processes, it may consider insourcing some of the jobs or working with registered composition suppliers. This would help reduce the input tax credit buildup from 5% job work GST, and by shifting to in-house processes, the company may avoid paying GST on services.

• Action Steps: Review labour structures, hire in-house staff, or work with composition suppliers who do not charge GST. Transition to in-house production for specific items where possible.

• Pros: Reduces ITC accumulation over time. The company may also benefit from greater control over production and reduced reliance on external vendors.

• Cons: Increased payroll and potential capital expenditure for in-house facilities. The savings on GST from job work reduction may not fully offset the higher operational costs.

• Risks: Changing vendor relationships or restructuring may lead to disruption in the business operations, and any misclassification of job workers or suppliers could lead to compliance issues.

Option 6: Corporate Restructuring or ITC Transfer

Approach:

In some cases, the company could consider restructuring its business by transferring its export operations to a different entity within the corporate group. Under Section 18 of the GST law, a business that transfers assets or operations as a going concern can transfer its unutilized ITC to the new entity.

• Action Steps: Initiate a slump sale or asset transfer to another company within the group, ensuring that the new entity can utilize the ITC.

• Pros: The accumulated ITC may be fully utilized by the receiving entity. This also provides a new legal entity focused on export activities.

• Cons: Complex legal processes and documentation requirements for restructuring. Potential risks of unforeseen compliance issues during the transfer of ITC.

• Risks: GST authorities could challenge the transfer if correct procedures are not followed, potentially leading to penalties or disallowed credits.

Conclusion and Strategic Recommendations

Given the complexity of the situation, the best course of action depends on the company’s future export projections, cash flow needs, and long-term business goals. However, the company should consider switching to the LUT mechanism for future ITC refunds and explore monetizing excess credits through options like domestic sales, inverted duty refunds, or restructuring.

Careful tax planning, diligent record-keeping, and understanding the legal nuances under GST will help maximize the value from unutilized ITC, ensuring that the company remains compliant while addressing its growing credit balance.

Maximizing ITC Monetization for Exporters: Advanced Legal Insights, Strategies, and Case Studies

Introduction:

In the competitive world of export business, ensuring efficient tax management is essential. The Input Tax Credit (ITC) mechanism under the Goods and Services Tax (GST) can significantly improve the financial health of exporters. However, the process of claiming refunds, avoiding common pitfalls, and adopting proactive strategies requires an in-depth understanding of GST law and its application. This article explores advanced strategies to maximize ITC benefits for exporters, including detailed case studies of two distinct export sectors—a garment exporter and an IT service exporter—along with practical solutions for each scenario.

Case Study 1: Garment Exporter Maximizing ITC Refunds and Domestic Utilization

Background:

Elegant Exports Ltd., a garment exporter with an annual turnover of ₹50 crore, faced challenges with ₹75 lakh ITC accumulated from various inputs including freight services, consulting, and raw materials for garment manufacturing. The company needed to monetize this ITC to improve liquidity and comply with GST regulations.

Action Steps:

1. Claiming Refund via IGST on Exports (Legal Reference: Section 16(3) of IGST Act):

   • Process: Elegant Exports opted for the refund process under Section 16(3) of the IGST Act, applying for refunds through Form GST RFD-01.

   • Key Documents: The exporter submitted the shipping bill, customs clearance certificates, export invoices, and bank realization certificates.

   • Outcome: The refund of ₹65 lakh was processed in 6 months, with the remaining ₹10 lakh deferred due to delayed export receipts.

   Critical Checkpoints for Refund Process:

   • Ensure that export proceeds are received within the specified timeframe (typically 1 year) to avoid delayed refund processing.

   • Double-check the shipping bills for accurate HSN codes, value declarations, and matching invoices to expedite the process.

2. Optimizing Liquidity via LUT Filing (Legal Reference: Rule 96A of CGST Rules):

   • Filing an LUT: Elegant Exports filed a Letter of Undertaking (LUT) under Rule 96A to avoid paying IGST on their export transactions.

   • Outcome: This decision allowed the company to maintain liquidity, as they no longer needed to pay IGST upfront on their exports valued at ₹20 crore annually.

   Key Points to Ensure Successful LUT Filing:

   • File LUT at the start of the financial year for uninterrupted export activity.

   • Ensure all GST returns (GSTR-1 and GSTR-3B) are filed on time to maintain compliance.

3. Domestic ITC Utilization (Legal Reference: Section 49(2)):

   • Domestic Sales Strategy: The company used ₹10 lakh of the ITC for its domestic sales, offsetting GST liabilities on ₹2 crore worth of local sales.

   • Legal Insight: Under Section 49(2), ITC can be utilized against domestic sales provided the credit is correctly matched to the purchases, and the goods/services are not excluded.

   Key Challenges in Domestic ITC Utilization:

   • Ensure that ITC on non-business goods/services is not claimed. Any ineligible ITC can lead to penalties or rejections.

   • Proper matching of invoices between purchases and sales is essential to avoid discrepancies during audits.

Outcome & Key Takeaways from Case Study 1:

• Timely Refund Claims: Refund claims should be submitted quarterly for faster processing, especially for exporters with significant ITC accumulation.

• LUT Filing: Filing an LUT ensures liquidity, preventing upfront IGST payment on exports.

• Domestic Utilization: Use ITC on local sales efficiently to reduce GST liabilities, thereby freeing up cash flow for business operations.

Case Study 2: IT Service Exporter Adjusting ITC Claims and Business Restructuring

Background:

TechExport Solutions Pvt. Ltd., a leading IT services exporter with a turnover of ₹100 crore, accumulated ₹40 lakh ITC on services such as cloud hosting, consulting, and freight services. The company faced issues with ITC utilization due to certain invoices being rejected and delayed export receipts.

Action Steps:

1. Claiming Refund on ITC for Export of Services (Legal Reference: Section 54(3)):

   • Refund Filing: TechExport filed a refund claim under Section 54(3) of the CGST Act for the unutilized ITC on their export services.

   • Required Documents: The company submitted Form GST RFD-01, export invoices, and bank realization certificates to establish proof of export.

   • Outcome: The refund was processed and received within 4 months.

   Critical Checkpoints for Export Services Refund:

   • Ensure bank realization certificates are matched with export invoices to avoid discrepancies.

   • Cross-check HSN codes and service descriptions to ensure they align with the export classification under GST.

2. LUT Filing for Future Exports (Legal Reference: Rule 96A of CGST Rules):

   • Action: TechExport filed an LUT to avoid IGST payments on future export services, streamlining cash flow.

   • Outcome: This approach freed up ₹3 lakh in working capital as the company no longer had to pay IGST upfront.

   LUT Filing Best Practices:

   • Ensure timely submission of LUT to avoid delays in export clearance.

   • Double-check GST returns for timely and accurate reporting of exports under LUT.

3. ITC Transfer via Business Restructuring (Legal Reference: Section 18(3)):

   • Business Restructuring: TechExport Solutions transferred ₹15 lakh ITC to a newly formed subsidiary for IT services.

   • Outcome: The subsidiary used this ITC to offset its GST liability on its own services, optimizing cash flow across the group.

   Key Considerations for ITC Transfer:

   • Restructuring must be done in accordance with Section 18(3), which allows the transfer of ITC during business reorganization or mergers.

   • Both entities must fulfill the ownership condition to ensure the legitimacy of the ITC transfer.

Challenges and Solutions in Case Study 2:

• Delayed Export Receipts: TechExport faced delays in receiving payment for some services, which could have delayed their refund processing.

  • Solution: Implement a real-time tracking system for receipts and ensure regular follow-up with international clients to avoid late payment issues.

• Invoice Matching Issues: A few invoices were initially rejected due to mismatches in HSN codes and service descriptions.

  • Solution: Regularly audit GST invoices and ensure the correct service codes are used in alignment with the HSN list for export services.

Tax Planning for Exporters: Key Considerations and Actionable Insights

1. Regular ITC Audits: Exporters should perform quarterly audits of their ITC claims to ensure that all eligible credits are correctly claimed and refunds are filed promptly.

2. LUT Filing Strategy: File an LUT at the beginning of the financial year to prevent paying IGST upfront. This improves liquidity and ensures smooth export operations.

3. ITC Optimization through Business Restructuring: For large export houses with multiple divisions, consider ITC transfer between business units under Section 18(3) for efficient tax management.

Comparison Table: Case Study 1 vs. Case Study 2

Aspect	Garment Exporter (Case Study 1)	IT Service Exporter (Case Study 2)
Refund Filing Time	6 months	4 months
LUT Filing	Yes	Yes
ITC Transfer Strategy	Utilized for domestic sales	Transferred to subsidiary
Refund Amount	₹65 lakh	₹40 lakh
Challenges	Documentation accuracy	Export receipt tracking, invoice matching

Conclusion

Exporters must adopt a comprehensive strategy for maximizing their ITC benefits. The detailed steps outlined in the case studies above, combined with proactive filing of LUTs and timely refund claims, can lead to improved cash flow, tax savings, and operational efficiency.

Actionable Steps for Exporters & consultants

• File ITC refund claims promptly to ensure faster processing and enhanced cash flow.

• Adopt an LUT filing strategy at the beginning of the financial year to reduce working capital requirements.

• Engage in business restructuring where applicable to optimize ITC utilization and enhance tax efficiency.

• Ensure timely and accurate filings of GST returns, LUTs, and ITC refund claims to enhance liquidity and avoid penalties.

• Advise clients on ITC transfer strategies during business restructuring to help them optimize their tax liabilities.

By following these advanced strategies and utilizing the insights from these real-world case studies, exporters can significantly enhance their financial position, streamline operations, and stay ahead of the curve in the complex GST landscape.

Impact of CBDT Notification No. 38/2025 on Regulatory Settlement Expenses

On April 23, 2025, the Central Board of Direct Taxes (CBDT) issued Notification No. 38/2025, which significantly modifies the treatment of settlement expenses under Section 37 of the Income-tax Act, 1961. These amendments introduce clarity on the non-deductibility of expenses related to settlements under specific regulatory frameworks, impacting the tax treatment of such costs. This will be effective from Assessment Year 2025-26 onwards.

Understanding the Legal Framework: Section 37 of the Income-tax Act

Section 37(1) of the Income-tax Act, 1961 provides that an expense will be allowed as a deduction if it is wholly and exclusively incurred for the purpose of the taxpayer's business or profession. However, expenses related to illegal activities or prohibited by law are explicitly disallowed.

Explanation 1 and Explanation 3 to Section 37

Explanation 1 to Section 37 ensures that illegal expenses or those incurred in activities prohibited by law cannot be claimed as business expenses.

Explanation 3, introduced through the Finance (No. 2) Act, 2024, broadens this provision by specifically including expenses incurred to settle proceedings initiated due to contraventions under certain specified laws. This clarification impacts regulatory proceedings under the following acts:

• Securities and Exchange Board of India Act, 1992 (SEBI Act)

• Securities Contracts (Regulation) Act, 1956 (SCRA)

• Depositories Act, 1996

• Competition Act, 2002

Key Impact of CBDT Notification No. 38/2025

The CBDT Notification No. 38/2025, issued on April 23, 2025, formally incorporates the SEBI Act, SCRA, Depositories Act, and Competition Act into the non-deductible expense category. This means that any expenses incurred by businesses in settling proceedings initiated due to violations or defaults under these laws will no longer be deductible under Section 37 of the Income-tax Act.

Practical Implications for Businesses

Non-Deductibility of Regulatory Settlement Expenses

Businesses involved in regulatory settlements related to the above-mentioned laws must account for settlement expenses in a manner consistent with the new tax treatment. These expenses will be treated as non-deductible and will increase the taxable income, leading to a higher tax liability.

Required Amendments to Tax Audit Reporting

From Assessment Year 2025-26, businesses must ensure proper disclosure of non-deductible settlement expenses in their Tax Audit Reports. This is done under Clause 21(b) of Form 3CD, which has been updated per CBDT Notification No. 23/2025 dated March 28, 2025.

Steps for Businesses to Ensure Compliance

To ensure compliance with the updated provisions, businesses should follow these steps:

1. Identify Non-Deductible Settlement Expenses

   • Review any expenses incurred in settlements under SEBI, SCRA, Depositories Act, or the Competition Act.

   • Ensure such expenses are flagged as non-deductible in accounting records.

2. Update Financial Records and Tax Calculation

   • Adjust your taxable income calculations to reflect the non-deductible nature of these expenses.

   • Ensure these expenses are clearly excluded from deductions in your tax filings.

3. Amend Tax Audit Disclosures (Form 3CD)

   • Disclose the non-deductible settlement expenses under Clause 21(b) of Form 3CD as per the updated CBDT notification.

   • Ensure the updated disclosures are submitted accurately to avoid non-compliance.

4. Revise Standard Operating Procedures (SOPs)

   • Update SOPs to incorporate these new guidelines and ensure future settlements are accounted for correctly with regard to tax implications.

5. Training for Internal Teams

   • Conduct training for your finance and compliance teams to familiarize them with the new amendments.

   • Ensure auditors are briefed on how to handle these expenses in light of the latest regulations.

Illustrative Checklist for Compliance

Action	Description	Responsible Department
Identify Non-Deductible Expenses	Review past and current regulatory settlement expenses.	Finance & Compliance
Flag Expenses in Accounting Records	Mark settlement-related expenses as non-deductible.	Accounting
Tax Audit Disclosures (Form 3CD)	Disclose non-deductible expenses in Clause 21(b) of Form 3CD.	Tax Auditors
Update SOPs	Revise SOPs to ensure tax-compliant handling of future settlements.	Management & Finance
Team Training & Awareness	Train finance teams and auditors on the new tax treatment.	HR & Compliance

Conclusion

CBDT Notification No. 38/2025 introduces crucial changes for businesses involved in regulatory settlements under specific laws. By disallowing the deduction of settlement expenses under the SEBI Act, SCRA, Depositories Act, and Competition Act, the notification ensures that these costs cannot be used to reduce taxable income, leading to an increase in overall tax liability.

For businesses, understanding and implementing the changes outlined in this notification is essential to remain compliant. Proper financial record-keeping, tax audit disclosures, and internal process updates are key steps to mitigate any risks of non-compliance. Businesses should also ensure that finance teams and auditors are fully aware of these changes, enabling them to handle the updated provisions effectively from Assessment Year 2025-26 onwards.