Detailed Guide on E-Invoicing under GST (w.e.f. 01-Oct-2020)

The E-invoicing System under the provisions of the GST law relate to generation of a digital invoice on a portal as provided for such purpose by the GST Department.

Such invoices reported on the portal will automatically reflect for approval on GSTR-1 as well as E-Way Bill portals.

Applicability Threshold

Turnover Threshold: Generation of e-invoices and application of QR codes is mandatory for all businesses with annual  aggregate turnover (based on single PAN) of Rs. 500 crore or more (in any preceding FY from 2017-18 and onwards), with effect from 01-Oct-2020.

B2B & Exports: Such e-invoicing is required for B2B invoices and not for B2C invoices where the recipient is an unregistered person. Further, such e-invoices are also mandatory for exports, zero rated supplies, deemed exports, debit and credit notes for registered recipients.

Exempt Suppliers: Further, SEZ units, insurers, banks, NBFCs, GTAs, suppliers of passenger transport service, and suppliers of services by way of admission to exhibition of cinematograph films in multiplex screens have also been exempted from generating e-invoice.

Voluntary or Customer Mandated: For a few other businesses that do not meet this turnover criteria, customers may still mandate or stress on providing of e-invoices from their vendors to ensure that they do not lose out on input tax credit (ITC) in case the vendor makes any error in filing its GSTR-1. It is possible that currently, to manage traffic, the e-invoicing portal may have certain restrictions around voluntary generation of e-invoices.

Changes in Corporate Social Responsibility (CSR) Provisions

The Companies (Amendment) Act 2020 will be coming into effect now, with a primary purpose to decriminalize various offences. However, the following amendments have been brought about with respect to Corporate Social Responsibility requirements from companies.

Applicability of CSR Provisions

CSR provisions as specified under Section 135 of the Companies Act, 2013 are applicable on companies which satisfy any of the following criteria:

(a) Net worth of Rs. 500 crore or more;

(b) Annual Turnover of Rs. 1000 crore or more;

(c) Net Profit of Rs. 5 crore or more.

Such companies are required to spend at least 2% of their average net profit for the immediately preceding 3 financial years on CSR activities as directed and deliberated by a duly constituted CSR Committee as per an officially formulated and published CSR Policy.

There are no changes in the applicability provisions.

Relaxation from Formation of CSR Committee

It has now been proposed not to constitute CSR Committee in case the amount required to be spent under CSR does not exceed Rs. 50 lakh.

However, this does not absolve the company from its requirement to discharge CSR liability.

Setting off Excess Payment under CSR in Future Years

The Act now allows CSR applicant companies which have spent an amount in excess of the requirement of the Act to set off such excess amount out of their obligation in the succeeding financial years in such manner as may be provided by the rules.

Penalty for Non Compliance

Non compliance of CSR provisions may invite penalty of twice the amount required to be transferred by the company to the Unspent CSR account or Rs. 1 crore, whichever is less.

In addition, every officer shall also be liable to pay a penalty of 1/10th of the amount required to be transferred in Unspent CSR Account or Rs. 2 lakh, whichever is less.

Employee Stock Option Plans (ESOPs) for Start Ups

An Employee Stock Option Plan (ESOP) is an employee benefit that intends to give employees a share in the ownership of a company. The concept is more prevalent in start-ups, where the initial team works hard to create an intangible asset of high value in the long term, while agreeing to take relatively smaller remuneration packages in the first few years. In such cases, employee stock options become a good way to build ownership, and link employee compensation to the high value of the company or its product, which the business plans to achieve in a few years.

Contents

Definition & Validity of ESOPs in India

Eligible Employees

Important Terms used in ESOPs

Process for Implementing an ESOP Scheme

Compliance related to ESOPs

Valuation of ESOPs

Taxation of ESOPs for Employees

Definition & Validity of ESOPs in India

ESOPs can be issued by private limited companies, unlisted public companies, as well as listed companies.

As per Section 2(37) of the Companies Act, 2013, employees' stock option means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a predetermined price.

Further, Section 62(1)(b) provides that a company may, subject to compliance with conditions as prescribed under the Rules (in case of an unlisted company) and SEBI Regulations (in case of listed companies), offer shares to the employees under a scheme of employees' stock option.

Thus, an ESOP is an option or a right offered by a company to its employees to purchase its shares at a pre-determined price on a future date or event. Such event may be a specific date or achieving a certain milestone in terms of valuation or entry of a new investor.

Eligible Employees

An employee means a permanent employee of the company who has been working in India or outside India, or a director of the company, whether a whole time director or not but excluding an independent director.

Promoters and Founders of start-ups may not be eligible for ESOPs if they fall under the following restriction in the definition of employees eligible for ESOPs, as per the provisions of the Companies Act, 2013 read with the Companies (Share Capital and Debentures) Rules, 2014:

(i) an employee who is a promoter or a person belonging to the promoter group; or

(ii) a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than 10% of the outstanding equity shares of the company.

However, the Ministry of Corporate Affairs (MCA) vide Notification dated 19-Jul-2016 issued the Companies (Share Capital and Debentures) Third Amendment Rules, 2016 by which promoters and Directors of start-ups holding more than 10% of the shares were permitted to be issued ESOPs within the first 5 years from the date of incorporation. To be eligible for such exception, the company has to be an eligible and registered start-up under the DPIIT.

Important Compliance Before 30th Sep 2020

1. GST Rectifications for FY 2019-20

a) Reconcile and match all your sales for FY 2019-20 with sales reported in GSTR-3B and GSTR-1 for the year. In case of any errors, the GST Return for September 2020 is the last opportunity to pass rectification entries relating to the previous year in the returns as amendment.

b) Reconcile GSTR-2A with Input Credit Register on the basis of which ITC has been claimed in each month's GSTR-3B for FY 2019-20. Bifurcate differences into ITC reflecting in GSTR-2A but not availed, and ITC availed but not reflecting in GSTR-2A. Entries in the former category may be availed (if eligible) in the GSTR-3B of August/September. Errors falling in the latter category may require follow up with the vendor to show it in their GSTR-1 correctly to your credit, or reversal with interest liability @ 24% p.a., as the case may be.

c) GST Debit Notes or GST Credit Notes relating to your supplies for FY 2019-20 may be issued latest up to 30th September 2020.

d) Any ITC apportioned between exempt supplies and taxable supplies on provisional basis monthly, has to be finalized annually latest by the period of September.

e) Check if all expenses/purchases (being input goods or services) on which ITC has been availed, have been paid within 180 days. If not, the ITC on them may have to be reversed with interest payment. In case there is no reason to withhold such amounts as due on 31.03.2020, pay them off to avoid such reversals.

e) Such changes are allowed up to the due date of filing GST returns for September only. In case September GSTR-3B or GSTR-1 are delayed, such changes may not be allowed.

2. GSTR-9 & GSTR-9C for FY 2018-19

a) GSTR-9C (Reconciliation Statement; also called GST Audit) is due to be filed by 30th Sep for every registered person having aggregate turnover as per GST of Rs. 5 crore or more for FY 2018-19.

b) GSTR-9 (Annual Return) for FY 2018-19 for all other registered persons with turnover less than Rs. 5 crore to be filed by 30th Sep.

Extension of AGM Due Date by 3 Months

The Ministry of Corporate Affairs (MCA) directed all Registrar of Companies of various states on the 8th of September, 2020, to accord approval for a 3 month extension in date for conducting the Annual General Meeting for the year ended on 31st March, 2020.

Thus, the due date for conducting the AGM has now been extended by 3 months from the erstwhile 30th September, 2020.

This extension is due to delays caused by the lockdown and other environmental hindrances to business caused by the Covid-19 pandemic.

On issue of such direction, the Registrars of various states, including for NCT of Delhi & Haryana have issued Orders of the same date.

TCS on Sales Above Rs. 50 Lakhs w.e.f. 01-Oct-2020

Applicability

a) Turnover > Rs. 10 Crores: Person having sales turnover or gross receipts exceeding Rs. 10 crores in the immediately preceding financial year; and

b) Sale > Rs. 50 Lakhs: Receives any amount  as consideration for sale of any goods (excluding exports) of the value or aggregate of such value exceeding Rs. 50 lakhs.

c) Excluding:

- export of goods

- goods already covered under TCS provisions

- buyer is required to deduct TDS of the seller on such transaction

- if the buyer is Central Government, State Government, Local Authority, Embassy/ Consulate/ High Commission

TCS @ 0.1% w.e.f. 01-Oct-2020

a) Rate: From 01-Oct-2020, such seller will have to collect TCS at the rate of 0.1% on the sales consideration received from buyer exceeding Rs. 50 lakhs.

b) Reduced Rate up to 31-Mar-2020: Only for the period between 01-Oct-2020 to 31-Mar-2021, such TCS will be at the reduced rate of 0.075%.

c) No PAN Case: In case the buyer does not provide his PAN, TCS is to be charged @1% (reduced to 0.75% only up to 31-Mar-2020).

No MEIS Incentive w.e.f. 01-Jan-2021

The Ministry of Commerce and Industry has released Notification No. 30/2015-2020 dated 01-Sep-2020, by which it has made the following changes to the Merchant Export Incentive Scheme (MEIS).

1) An exporter cannot claim a total reward under the scheme for exports made between 01-Sep-2020 to 31-Dec-2020 of an amount above Rs. 2 crore.

2) An IEC holder who has not made any exports for one year or more before 01-Sep-2020 or any new IEC registrant after 01-Sep-2020 would not be eligible for any claim under the MEIS scheme.

3) The scheme stands withdrawn with effect from 01-Jan-2021.

4) An exporter may also not be eligible for claim up to Rs. 2 crore, and the ceiling of such amount may further be dropped so as to ensure that the amount allocated by the government for this scheme from September to December 2020 does not exceed Rs. 5000 crore.

Legal Tools Available to MSMEs for Recovery of Dues

Briefly examining a few sections of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, to provide highlights on the legal tools available to MSMEs for recovery of long outstanding dues from its customers.

No Delay in Payment Beyond 45 Days

As per Section 15 of the MSMED Act, a person buying goods or services from an MSME shall make the payment for such purchase on or before the agreed on date (appointed date). Further, such agreed date of payment should not extend beyond 45 days from the day of acceptance or the day of deemed acceptance.

Interest Payable @ 3 Times the Bank Rate

As per Section 16 of the Act, where the buyer fails to make such payment to the supplier within the time period specified above, the buyer shall, regardless of any terms agreed on between the buyer and the seller, be liable to pay compound interest with monthly rests to the MSME supplier on the pending amount payable from the appointed day at the rate being three times the bank rate notified by the Reserve Bank.

The prevailing bank rate can be checked on the RBI's website under Policy Rates.

The Bank Rate at the time of writing of this piece is 4.25%. Thus, the prevailing rate as on 02-Sep-2020 for delay in payment to MSME is 12.75% p.a. compounded monthly.

FAQs on ITR Filing AY 2020-21

The Income Tax Returns for AY 2020-21 are due to be filed by 30-Nov-2020. The following are a few FAQs that may answer queries that are often raised with us.

Who is eligible to file their Income Tax Return in Form ITR-1?

Any Individual being an Ordinary Resident can file his ITR in Form 1 if his total income includes:
- Salary/pension
- Rent/loss from 1 house property
- Income from other sources such as interest, other miscellaneous income (other than income chargeable at special rates)
- Income of spouse or minor child clubbed in his income, if falling in any of the above heads, and no TDS to be claimed as appearing in such other person's PAN

However, the form cannot be filed by the following category of individuals:

- Non Resident or Not Ordinarily Resident
- Director of a company
- Total income exceeds Rs. 50 lakhs
- Has income from more than 1 house property
- Holds unlisted equity shares at any time during the year
- Earning royalty income and claiming deduction u/s 80QQB or 80RRB
- Claiming deduction therefor u/s 10AA or Part-C of Chapter VI-A
- Brought forward loss to be carried forward
- Claim relief of tax paid in another country under section 90 or 91
- Having assets (incl. financial interest in any entity, or bank accounts) outside India
- Income to be apportioned in accordance with provisions of Section 5A
- Income from Business or Profession
- Capital Gains
- Income under Other Sources, taxable at special rate
- Dividends exceeding Rs. 10 lakhs
- Unexplained income taxable at 60% u/s 115BBE
- Agricultural income exceeding Rs. 5,000
- Claiming deduction u/s 57 from income under the head ‘Other Sources’, other than for family pension
- Income from any source outside India

Import Details, Eligibility Details in GSTR-2B

The CBIC has announced through a Press Release on 29-Aug-2020 that details of import of goods and the IGST paid thereon, which reflects on the Bill of Entry, will now be displayed in a new table in the GSTR-2A. This information will be taken from the ICEGATE System of the Customs Department.

Currently, the table is displaying information up to 06-Aug-2020 as filed at computerized ports only. Import information for Bills of Entry filed at non-EDI ports and imports through courier may not be displaying currently.

Further, information in Form GSTR-2B is also being made available on the GST portal, which shall display eligibility or ineligibility for ITC of all inputs that may be filed by a person's vendors/suppliers in their GSTR-1/GSTR-5/GSTR-6. This shall be available as static information on the 12th of every month after the respective filing has been completed by the suppliers on the due dates.

To access your GSTR-2B: Login to GST Portal > Returns Dashboard > Select Return period > GSTR-2B

It is recommended that you download your GSTR-2B and reconcile it with your ITC Register.