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  • Microeconomics — Short Summary

    Microeconomics Overview

    Microeconomics stands as a vital realm of economics, focusing on the behaviors of key economic agents within a society, namely households, individuals, and businesses.

    The term “firm” encompasses a wide array of commercial endeavors. Diverging from macroeconomics, which examines the economy holistically, microeconomics concentrates on dissecting the intricate threads of individual economic actions.

    In simpler terms, microeconomics delves into the social science that dissects how human choices interlace, especially in terms of their impact on resource consumption and allocation—a particularly crucial consideration given the scarcity of resources.

    The essence of microeconomics lies in illuminating the diverse worth of commodities, decoding the mechanisms driving rational and effective decision-making, and elucidating the dynamics of individual organization and collaboration.

    Origins of Microeconomics

    Adam Smith, often hailed as the pioneer of microeconomics and economics as a whole, championed the idea of laissez-faire economics—arguing for minimal government interference and taxation in free markets.

    Central to Smith’s philosophy was the concept of the “invisible hand.” This notion encapsulated the notion that free markets possess the inherent ability to self-regulate through the interplay of competition, supply and demand forces, and the pursuit of self-interest—an idea that garnered significant attention during his era.

    While Smith’s economic principles held sway for a substantial two centuries, the late 19th and early 20th centuries witnessed the ascendancy of Alfred Marshall (1842–1924), an economist born in London. His perspectives left an indelible mark on economic theory, ushering in a new era of thought.

    Examples of Microeconomics Explored

    Microeconomics delves into the intricate characteristics of smaller economic components, encompassing individuals, households, and businesses. In contrast, macroeconomics focuses on broader economic entities like capital investment, consumption, GDP, and unemployment. Nonetheless, both microeconomics and macroeconomics explore analogous concepts across different scales. Let’s delve into some key illustrations that exemplify microeconomics:

    1. Demand: The determination of commodity demand hinges upon factors such as income, preferences, cost considerations, and even expectations. These elements collectively shape how consumers choose to allocate their resources.
    2. Supply: Unveiling the dynamics of supply entails investigating how producers decide to enter markets, adjust their production levels, or exit markets altogether. It’s a reflection of their strategic choices in response to market conditions.
    3. Opportunity Cost: This concept revolves around the choices individuals and businesses must make when dealing with limited resources such as money, time, land, and capital. For instance, an individual opting to pursue higher education and initiate a business venture simultaneously may confront a scarcity of both time and financial means.
    4. Consumer Choice: Understanding the factors that influence consumer decisions involves dissecting their needs, assumptions, and available information. The principle of consumers maximizing their expected utility guides them to prioritize purchases that hold the greatest perceived value.
    5. Welfare Economics: This field assesses how social programs impact economic decisions, particularly in terms of labor participation and risk-taking. It scrutinizes the effects of such interventions on individual choices and overall economic well-being.

  • Transition and Transformation Towards GST 2.0 — Consultancy Invited to bid

    Infosys’ technology support contract for Goods and Services Tax (GST) is set to conclude in September 2024. In response, GST Network (GSTN) has initiated a search for a consultancy firm. This firm’s primary task will be to create a bid document for the selection of a new technology service provider and to outline a strategic path for elevating the system’s capabilities to what is referred to as GST 2.0. The chosen consultancy must ensure a competitive bidding process and a seamless transition of GSTN’s IT service infrastructure to the new technology provider. This provider will be responsible for furnishing the requisite software and hardware for GST systems over the ensuing seven years, commencing from October 1, 2024.

    The scope of responsibilities for the consultancy firm encompasses crafting a request for proposal (RFP) document through an evaluation of the existing system. This assessment will draw upon insights from the past seven years of GST technology. The firm is also tasked with plotting a trajectory for system enhancement and operations during the upcoming contractual term.

    India introduced the GST, a pivotal indirect tax reform, on July 1, 2017.

    Back in September 2015, prior to the GST’s launch, Infosys had secured a Rs 1,320-crore contract to construct the technological foundation for GST Network. This victory marked a win over competing giants like TCS, Wipro, Tech Mahindra, and Microsoft. The contract entailed establishing a database for the novel tax framework, facilitating enrollment, registration, full automation, and even creating a mechanism for claims and refunds.

    Infosys has since played a pivotal role in offering IT infrastructure support for GST-related activities, including business registration, return submissions, tax payments, and tax officer audits.

    As the tenure of the present Managed Service Provider (MSP) comes to a close, GSTN is actively pursuing a competitive bidding process to secure a new MSP. This entity will oversee the development, enhancement, and operation of the GST System for the next seven-year period, beginning October 1, 2024.

    An outreach to Infosys for comments on this matter yielded no response.

    The consulting firm chosen by GSTN will facilitate the competitive bid process for selecting the MSP, in addition to facilitating the transition from the incumbent MSP. The eligibility criteria for the consulting firm necessitates an average annual turnover of Rs 30 crore over the last three years from IT consulting services or IT application development for direct or indirect tax systems or financial systems in India.

    Interested parties must submit their bids by September 5.

    As a precursor to appointing an MSP, the consulting firm will formulate the detailed RFP, manage the MSP selection procedure on behalf of GSTN, and facilitate the handover of the GST System to the chosen MSP.

    The impending MSP’s mandate will extend beyond a mere migration of the current GST System; it will encompass substantial enhancements to system capabilities and the establishment of an efficient monitoring framework.

    “The consulting agency will evaluate the recommendations of the technical review committee and identify emerging technical trends to be incorporated into the RFP for the GST System. These requirements can be conceptualized as GST 2.0 in terms of system capabilities,” explains GSTN.

    The consulting agency will factor in the existing structure, historical growth patterns, modifications to the GST System beyond its original scope, and the evolving government roadmap—encompassing proposed changes by the GST Council, Law Committee, and others. This assessment will determine the required capacity sizing for operating and improving the GST System over the contractual term.

    “While provisioning sufficient capacity to ensure operational readiness for the next seven years and considering various growth parameters, the consulting agency should also include a provision for the potential MSP to phase in infrastructure enhancements throughout the project’s duration,” adds GSTN.

    Presently, there are 128 million registered taxpayers under GST. Since its inception in 2017, more than 1.25 billion invoices have been processed through GST systems, and over 670 million returns have been filed.

  • Rule No. 47 — Time Limit For Issuing Services Invoices

    Rule 47 deals with the time limit for issuing a tax invoice. In the scenario of providing taxable services, the invoice mentioned in rule 46 must be generated within thirty days from the actual date of supply of the service.

    Exceptions

    However, exceptions are in place. If the service provider falls under the category of an insurer, banking company, or financial institution (including non-banking financial companies), the window for issuing the invoice or a substitute document extends to forty-five days from the service supply date.

    Furthermore, for entities like insurers, banking companies, financial institutions (including non-banking financial companies), telecom operators, or any other service supplier class defined by the Government based on Council suggestions, and if they’re involved in taxable service supplies between distinct individuals as outlined in section 25, they have the flexibility to release the invoice prior to or at the moment they officially document the transaction in their accounting records. They can also issue the invoice before the end of the quarter in which the supply was executed.

  • Senior Tax Official Nabbed by CBI for Allegedly Taking a Bribe of Rs 5 Lakh

    The Central Bureau of Investigation (CBI) has taken decisive action by apprehending a senior official from the Goods and Services Tax (GST) department in Mumbai. This official, identified as Hemant Kumar, holding the position of Superintendent at the Bhiwandi Commissionerate, was arrested on charges of soliciting and receiving a bribe of Rs 5 lakh. The arrest comes after allegations surfaced of Hemant Kumar seeking an illicit advantage of Rs 30 lakh from a complainant in exchange for resolving a pending GST case for a company.

    However, investigations revealed that the accused engaged in negotiations that led to the bribe amount being lowered to Rs 15 lakh. In a strategic move, CBI officials set a trap that culminated in the arrest of Hemant Kumar while he was accepting the initial sum of Rs 5 lakh from the complainant. This was part of the larger bribe amount of Rs 15 lakh that he had allegedly demanded.

    Following the arrest, searches were conducted at both Hemant Kumar’s office and residence. CBI officials managed to recover a substantial sum of Rs. 42.70 lakh in cash, alongside various documents pertaining to the accused’s assets, and other incriminating materials.

    Subsequently, Hemant Kumar was presented before a special CBI judge, who remanded him to police custody until August 21. This resolute action by the CBI underscores their commitment to upholding justice and combating corruption within the government system.

  • RBI Directs Banks to Stop Charging Punitive Interest: Implications for Borrowers

    The Reserve Bank of India (RBI) has just issued new guidelines to banks and lenders on how they can charge borrowers for defaults, missed payments, or violations of terms. These guidelines aim to bring clarity and fairness to the way banks impose extra charges on borrowers who fail to meet their payment obligations.

    In a circular released recently, the central bank outlined its expectations for Regulated Entities (REs), which include banks and lenders, in ensuring that any punitive interest they impose is reasonable and transparent. This move comes as a response to the inconsistent practices among various REs that have resulted in customer complaints and dissatisfaction.

    The RBI stated that the purpose of imposing punitive interest or charges is to promote responsible borrowing behavior. These charges should not be seen as a way for banks to generate additional revenue beyond the agreed-upon interest rates.

    To address the concerns stemming from these practices, the RBI has issued specific instructions. One key point highlighted by the RBI is that any penalties for borrowers failing to meet the significant terms and conditions of a loan contract should be classified as “penal charges” rather than being integrated as additional “penal interest” on top of the loan’s interest rate.

    The RBI emphasized that there should be no compounding of penal charges. This means that no additional interest should be calculated based on these charges. However, this principle does not impact the standard procedures for compounding interest in the loan account.

    Furthermore, the RBI mandates that banks and lenders should refrain from adding any new components to the interest rate. They should strictly adhere to these guidelines both in their words and actions.

    The central bank also requires REs to create board-approved policies regarding penal charges or similar fees on loans. This policy should ensure that the quantum of penal charges is fair and appropriate, corresponding to the severity of the borrower’s non-compliance with loan terms. Importantly, these charges should not discriminate against specific categories of loans or borrowers.

    To ensure transparency, REs must explicitly state the amount and rationale behind penal charges in loan agreements, Key Fact Statements, and other relevant documents. This information should also be prominently displayed on the REs’ official websites.

    Moreover, when reminding borrowers of their contractual obligations, banks must inform them of the applicable penal charges. Any instance of levying such charges and the underlying reasons should be communicated to borrowers as well.

    The RBI’s directives are scheduled to take effect on January 1, 2024. REs are expected to align their policies and practices with these guidelines for all new loans issued or renewed from that date onwards. For existing loans, the transition to the new penal charges system should occur at the next review or renewal date or within six months of the circular’s effective date, whichever comes earlier.

  • Maharashtra State Records Highest GST Collection in India at 18% Over 4-Month Period

    Maharashtra’s GST revenue surge paints a striking picture, with an unwavering 18% growth from April through July in the current fiscal year. In contrast, the national expansion hovers modestly between 11% and 12%. This remarkable achievement in revenue stands as a testament to Maharashtra’s fiscal resilience. Notably, the state’s financial prowess was manifest in its INR 33,196 crore ($4.6 billion) revenue in April, experiencing a temporary dip in May but rallying in June and July.

    The driving forces behind this commendable surge are twofold: the robust performance of the service and manufacturing sectors and the vigilant endeavors of the central government to stymie tax evasion. This symbiotic collaboration between sectors and government strategy has propelled Maharashtra’s 2022-23 GST revenue to a noteworthy INR 2,70,346 crore, constituting a formidable 15% of the nation’s entire collection.

    Delving into the specifics of these months, April’s revenue alone, tallying at ₹33,196 crore, exhibits a robust 20.74% growth compared to the corresponding period in the previous fiscal year. A momentary stumble materialized in May, yielding a revenue of ₹23,536 crore, with a 15.87% deficit. However, this setback proved ephemeral, as June and July witnessed resurgent growth, culminating in revenues of ₹26,098 crore (16.82% growth) and ₹26,064 crore (17.78% growth), respectively.

    In contrast, the nation’s growth during these four months registered at 12% for April, May, and June, dwindling slightly to 11% in July. Maharashtra’s State Goods and Services Tax (SGST) collection, ranging between ₹7,409 crore and ₹10,392 crore, further bolstered by a monthly contribution of roughly ₹3,500 crore from integrated GST, underscores the state’s consistent financial vibrancy.

    State officials project lofty aspirations, aiming for a monthly collection of ₹11,337 crore against an annual target of ₹1,36,041 crore set by the state government. Remarkably, the current collection already surges above expectations by more than 7%, suggesting an eventual rise exceeding 12%.

    The exhilarating growth, exceeding both state government projections and national benchmarks, finds its genesis in the stellar performance of the service and manufacturing sectors. These sectors, constituting the bedrock of the state’s GDP, remain the fulcrum upon which GST growth pivots. The central government’s prudent employment of business intelligence tools to staunch tax evasion further contributes to this financial crescendo, propelling Maharashtra’s revenue trajectory.

    A forward-looking perspective maintains this growth momentum, bolstered by the impending election year. Historically, elections invigorate the economy with an infusion of capital, and this forthcoming electoral season is poised to be no exception. The central government’s emphasis on infrastructure development, with Maharashtra as a prominent beneficiary, will undoubtedly sustain the state’s economic acceleration, defying any prospects of stagnation.

    In retrospect, the preceding fiscal year bore testimony to Maharashtra’s fiscal eminence, with a staggering GST collection of ₹2,70,346 crore, dwarfing the second and third contenders, Karnataka (₹1.2 lakh crore) and Gujarat (₹1.1 lakh crore) by a considerable margin. This financial prowess cements Maharashtra’s reputation as a financial juggernaut, poised to continue its upward trajectory with unabated vigor.

  • Detecting Counterfeit GST Invoices — A Practical Guide

    In 2017, the Goods and Services Tax (GST) system was introduced with the explicit intention of simplifying taxation processes, supplanting numerous indirect taxes like VAT and service tax. For any business operating under the GST framework, the issuance of invoices is mandatory. These invoices must include a legitimate GSTIN, detailing the segmentation of Integrated GST, Central GST, and State GST. Yet, as with the inception of any novel system, unscrupulous individuals have seized the opportunity to exploit its nuances. The proliferation of spurious GST invoices has emerged as a significant conduit for tax evasion, casting a shadow over the credibility of the GST regime.

    Significantly, the unchecked rise of fraudulent activities through counterfeit GST invoices not only poses considerable challenges to small-scale enterprises but also jeopardizes the interests of consumers. This nefarious practice allows fraudsters to embezzle funds ostensibly collected as taxes from unsuspecting customers.

    Counterfeit GST Invoices

    The Union Finance Ministry highlights that counterfeit GST invoices are concocted by fraudsters to defraud both businesses and consumers, even in the absence of any genuine exchange of goods, services, or corresponding GST remittances. These fabricated invoices serve multiple illicit purposes, including tax evasion, conversion of Income Tax credits into liquid funds, recording fictitious transactions, and facilitating money laundering.

    Strategies for Detecting Counterfeit GST Invoices

    1. GSTIN Verification

    Individuals can diligently confirm the authenticity of a GST invoice by cross-referencing the provided GSTIN (Goods and Services Tax Identification Number) against the official GST portal: https://www.gst.gov.in/.

    1. Upon reaching the portal’s homepage, they should opt for the ‘Search Taxpayer’ function to corroborate the GSTIN listed on the invoice.

    2. If the GSTIN is genuine, the portal will promptly display the corresponding details.

    Decoding GSTIN Structure

    A further method to unveil spurious GST invoices is by deciphering the underlying structure of the 15-digit GSTIN. The initial two digits denote the state code, followed by the subsequent ten digits representing the seller’s or supplier’s PAN number. The 13th digit corresponds to the entity number of the same PAN holder, the 14th digit features the letter ‘Z,’ and the 15th digit is designated as the ‘checksum digit.’

    Reporting Incidences of Counterfeit GST Invoices

    Multiple avenues exist for reporting instances involving counterfeit GST invoices.

    1. Individuals can lodge their complaints through the ‘CBEC Mitra Helpdesk’ and ‘Raise Web Ticket’ on the official GST portal.
    2. Alternatively, they can direct their concerns via email to cbecmitra.helpdesk@icegate.gov.in.
    3. The GST official Twitter handle can also serve as a medium for engaging with the relevant authorities.

    In conclusion, the identification and subsequent reporting of fake GST invoices necessitate a pragmatic and proactive stance. By leveraging the recommended methods, stakeholders can contribute to upholding the integrity of the GST system and safeguarding the interests of both businesses and consumers alike.

  • Online Money Gaming Companies Confront Enormous Rs 45,000 Crore Tax Demand Following 28% GST Imposition

    Online gaming companies that used to claim they offered skill-based games are now facing the possibility of owing an extra tax of about Rs 45,000 crore, according to a report by ET. The Central Board of Indirect Taxes and Customs (CBIC) has looked into the GST (Goods and Services Tax) obligations that these companies have not fulfilled since 2017.

    In the ET report, officials explained that these firms were initially taxed at 18% of their total gaming revenue due to their skill-focused games. However, the proper tax rate should have been 28%. This miscalculation has led to a tax shortfall of Rs 45,000 crore. The distinction between games of skill and games of chance for tax purposes has been eliminated.

    The debate over whether online games are based on skill or chance has been ongoing. Some gaming companies have argued that their offerings are skill-based, and thus they should be taxed at 18%, not the 28% rate meant for chance-based games. However, on July 11, the GST Council changed the laws to treat all games equally, imposing a consistent 28% tax on the total betting amount.

    A high-ranking CBIC official shared, “Based on our analysis, we’ve found that the gaming industry alone has paid ₹45,000 crore less in taxes since the GST was put in place.” The Directorate General of GST Intelligence (DGGI) is currently sending notices to these companies.

    Companies that facilitate real-money gaming make up a significant portion, approximately 77%, of the online gaming sector. These companies have only paid less than Rs 5,000 crore in GST since 2017. However, their actual tax obligation goes beyond Rs 50,000 crore. This includes foreign gaming entities that have evaded taxes amounting to over Rs 12,000 crore and the Rs 21,000 crore levy on Gameskraft.

    Recently, the government filed a special petition in the Supreme Court opposing the Karnataka High Court’s ruling that overturned DGGI’s tax demand notice on Gameskraft. The official mentioned earlier clarified that the latest amendment to the CGST (Central Goods and Services Tax) has made it crystal clear regarding the GST obligations of online gaming companies. “Every online gaming company that deals with money will be subject to 28% GST and will need to pay the remaining tax,” the official stated.

    The Parliament approved changes to the CGST and IGST (Integrated Goods and Services Tax) laws, thereby enforcing the council’s adjustments. The industry is requesting that these amendments be applied only moving forward and not retrospectively.

  • MVIRDC Seeks Clarity on ITC for Capital Goods and GST Treatment of ESOPs

    The industry body has recently submitted a policy memorandum to the government, outlining a comprehensive set of 12 recommendations aimed at enhancing the efficiency of the indirect tax system, primarily through improvements to the GST portal. This move comes as a response to the prevailing challenges that taxpayers are currently grappling with.

    Despite strides made towards the ‘one nation, one tax’ objective with the implementation of Goods and Services Tax (GST), there remain distinct complexities due to multiple tax slabs and exemptions. In light of this, the industry body has put forth a series of pragmatic measures to address these issues and bring about greater clarity. An imperative among these measures is a call for clear guidelines regarding the application of GST on Employee Stock Option Plans (ESOPs), a matter that has triggered summonses and inquiries from GST authorities in specific states such as Karnataka. The memorandum asserts that prompt clarification by the government can preclude similar summonses and inquiries from emerging in other states.

    MVIRDC World Trade Center has voiced its recommendations directly to the Central Board of Indirect Taxes (CBIC) and the GST Council. The memorandum highlights the situation faced by service providers and goods exporters who allocate a significant portion of their expenditures to capital goods. Presently, these entities encounter challenges in obtaining input tax credit (ITC) for capital goods procurement when exporting their products or services without paying IGST under LUT (Letter of Undertaking). Despite the zero-rated status of exports under GST law, the existing formula does not facilitate the refund of input taxes, thereby posing an obstacle. To resolve this, the industry body proposes that the government ensures genuine exporters can benefit from zero-rated supply by granting input tax credits for capital goods procurement.

    In summation, the memorandum presents a pragmatic and actionable roadmap for refining the current indirect tax framework, addressing pertinent issues like GST on ESOPs and input tax credit on capital goods procurement. By taking heed of these recommendations, the government can steer the nation’s tax system towards enhanced coherence and efficiency, benefiting both taxpayers and the overall economy.

    Officer’s Authority and Limits in Vehicle Inspection and Interception Explained

    The powers vested in officers for the interception and inspection of vehicles under the GST regime warrant a closer look. Instances have arisen where GST inspection officials have caused delays in releasing goods in transit. They achieve this by scrutinizing factors such as the valuation of goods, the accuracy of goods classification, and the adequacy of tax payments. These officials possess the authority to verify documents like invoices and e-way bills. However, it’s crucial to note that their jurisdiction does not extend to investigating matters related to goods valuation, classification, and tax rates.

    Notably, there have been instances of High Court rulings asserting that, in accordance with GST Laws, these authorities lack the prerogative to detain cargo if proper e-way bills and invoices are furnished. In light of this, it is advisable for the Central Board of Indirect Taxes and Customs (CBIC) to issue clear directives to investigating officials, guiding them to abstain from withholding goods based on matters that do not fall within their purview.

    Add Functionality to the GST Portal

    Currently, the GST portal lacks the necessary features to accommodate the filing of multiple and supplementary claims when taxpayers genuinely overlook certain refund claims. To address this gap, the CBIC should implement new features within the portal that enable seamless filing for such cases. Furthermore, it would be prudent for the government to incorporate a mechanism for rectifying errors in both form GSTR 1 and GSTR 3B. This proposal aligns with the recommendation of the Karnataka High Court, which emphasized the importance of allowing taxpayers to rectify inaccuracies in these forms.

    Enable Real-time Data Transfer from Bill of Entry to Form GSTR 2B

    Businesses that import input materials encounter a predicament: they cannot promptly avail of input tax credit in the same month of import due to the lack of synchronization between data in the Bill of Entry and form GSTR 2B on the GST portal. Despite the availability of an option on ICEGATE to transfer Bill of Entry data to GSTR 2B, this process is not executed in real-time. To eliminate this hindrance, the CBIC should incorporate a feature that ensures the seamless and real-time flow of data from the Bill of Entry to form GSTR 2B within the GST portal. Such an enhancement would empower importers to swiftly claim input tax credits without unnecessary delays.

    Eligibility Confirmation for ITC/Refund of CVD & SAD Paid Before GST Era Transactions

    It’s essential to address the eligibility criteria for claiming Input Tax Credit (ITC) or seeking refunds for Countervailing Duty (CVD) and Special Additional Duty (SAD) payments made in transactions preceding the GST era.

    In situations where imports were carried out during the Central Excise regime prior to the GST’s enactment, certain provisional assessments have remained pending. The tax department has opted to maintain these assessments as provisional under the Customs Law in numerous instances. Once these assessments are eventually concluded, taxpayers will find themselves liable to settle the Countervailing Duty (CVD) and Special Additional Duty (SAD), alongside any differential customs duty. Unfortunately, within the current GST framework, individuals cannot assert credit or refunds for CVD or SAD payments, which were formerly admissible under the former Central Excise setup.

    The entitlement to credit against CVD and SAD represents a legitimate advantage for taxpayers, a privilege that should not be unjustly withheld by the governing authority. Therefore, it is prudent for the government to consider extending relief to these taxpayers. This relief could be in the form of permitting credit or refunds against the CVD and SAD payments made following the conclusive assessment of these older transactions.

    Appeal for Reopening FORM TRAN-1 on the GST Portal for Legitimate Cases

    A significant number of taxpayers have encountered difficulties due to unintentional omissions in claiming transitional credit during the implementation of GST. Despite the proactive measures undertaken by the government, certain genuine issues persist in asserting these credits.

    In response to this, the government introduced a common portal, offering a two-month window for taxpayers to revise their TRAN-1 and TRAN-2 forms. This provision aimed to rectify errors in these forms and facilitate the claiming of transitional credits. The government issued comprehensive guidelines through Circular 180/12/2022 on September 9, 2022, outlining procedures for filing or revising TRAN-1 and TRAN-2 forms, along with Circular 182/14/2022 on November 10, 2022, providing guidance for verifying transitional credits.

    Despite these commendable initiatives, a subset of taxpayers continues to encounter genuine challenges in asserting missed credits from the GST’s inception. To support these honest taxpayers, it would be prudent for the government to introduce an additional opportunity. This new window would enable them to assert the credits that inadvertently slipped through during the initial stages of GST implementation.

    Let’s reconsider Rule 96B of the CGST Rules.

    Exporters who find themselves issuing financial credit notes due to reasons such as price negotiations or defects in goods are encountering significant challenges stemming from their GST liabilities. In this context, a reevaluation of the provisions outlined in Rule 96B of the CGST Rules is warranted. This rule currently mandates the surrender of refunds equivalent to the unrealized portion of export proceeds. However, there is room for amendment to alleviate the burdens faced by these exporters. One potential adjustment could involve the recrediting of the IGST amount surrendered due to the issuance of financial credit notes.

    Addressing the Applicability of GST under RCM.

    A pressing need exists for the government to provide clarity on whether Indian exporters bear the responsibility of GST payment under the reverse charge mechanism (RCM) in relation to bank charges that are deducted by overseas banks when foreign buyers remit sales proceeds to Indian exporters. This matter is compounded by the fact that the exporter is not the designated recipient of the foreign buyer’s bank’s services, given that payment is made through the Authorized Dealer Bank of the Indian exporter. The absence of a clear legal standpoint is underscored by conflicting judicial verdicts regarding the true recipient of the service—be it the Indian exporter, the Authorized Dealer Bank, or the foreign buyer. In light of this, it is imperative for the government to provide a definitive clarification on the identity of the service recipient within this particular context.

    Clarifying Eligibility for ITC against IGST Paid via TR-6 Challan.

    To address prevailing ambiguities, it is advisable for the government to furnish clarification on whether exporters can legitimately lay claim to input tax credit against payments of Integrated Goods & Services Tax (IGST) made through TR-6 Challan for the import of input materials. A number of Export Oriented Units (EoUs) and exporters who have imported input materials under advance authorization licenses currently find themselves barred from seeking refunds for IGST payments associated with their exports, in accordance with Rule 96 (10) of CGST.

    Unveiling the Appraisal of Value for Transactions Among Associated Entities

    In accordance with Schedule I of the CGST Act, exporters are mandated to remit IGST through the mechanism of reverse charge even when facilitating transactions between interconnected entities without any monetary exchange. For instance, when an Indian subordinate employs the branding of its overseas parent company, it triggers an implied transaction, even in the absence of any monetary compensation from the former to the latter. The key quandary here revolves around the identification of the valuation or price for this transaction, given the absence of any financial considerations exchanged between the involved entities. Thus, there arises a necessity for governmental clarification regarding the methodology for determining the value of such interrelated transactions.

    Clarity Sought on the Application of GST to Dispatching Samples Abroad

    At present, a lack of lucidity persists regarding the obligation of remitting IGST for the export of samples. It is imperative for the government to elucidate the manner in which GST obligations are to be addressed concerning the dispatch of sample goods to foreign entities—whether they are affiliated or unrelated—or the consignment of sample merchandise abroad, intended for quality assessment, research and development, and other such objectives.

  • Ad Revenue from Twitter will attract GST

    In August, Elon Musk unveiled an exciting opportunity for X Premium (Blue) subscribers to partake in ad revenue sharing. However, this anticipated remuneration is not exempt from the tax man’s reach, as experts, in conversation with news agency PTI, predict an 18% GST imposition on the ad revenue share doled out by ‘X,’ formerly known as Twitter.

    These knowledgeable individuals assert that the ad revenue received by microblogging enthusiasts on the ‘X’ platform will be categorized as a supply under GST law, attracting the aforementioned 18% tax. A caveat exists, though, where this tax will only apply if an individual’s total income, spanning various services such as rental income, bank fixed deposit interest, and other professional services, exceeds ₹20 lahks within a year.

    Elon Musk’s stipulation for eligibility in the revenue-sharing program sets a bar at 15 million organic impressions on posts within a three-month period, coupled with a requisite minimum of 500 followers for an account. Recent revelations from Musk highlight Twitter’s disbursement of thousands of dollars in advertising revenue to its premium users.

    This initiative primarily benefits content creators on ‘X,’ empowering them to independently set up Ad Revenue Sharing and Creator Subscriptions. User testimonies reveal payments from ‘X’ and Twitter, with one individual stating, “Twitter just paid me $276.65 for 23,726,000 impressions in the past 127 days. For what it’s worth, YouTube paid me $289.31 in that exact same amount of time for 589,786 views and 7,223,639 impressions.”

    According to PTI’s report, experts suggest that the 18% GST will apply to the total income exceeding ₹20 lahks, factoring in revenue share earnings from Twitter posts and income from various sources like interest and rental income. Notably, income from these other sources remains outside the purview of GST, unless combined with ad revenue from ‘X.’

    Presently, individuals and entities earning revenue or income from services exceeding ₹20 lahks are obligated to obtain Goods and Services Tax registration, with a lower limit of ₹10 lahks for special category states like Mizoram, Meghalaya, and Manipur.

    Saurabh Agarwal, a Tax Partner at EY, emphasizes that the number of individuals creating content for digital platforms and receiving compensation has steadily risen over the past few years. This influx in content creators makes GST compliance, including registration, return filing, and tax payments, a mandatory requirement when surpassing the ₹20 lakh threshold.

    Many GST Experts share insights on the nature of income sources for content creators, highlighting ad revenue from Twitter as well as professional fees and sponsorships from corporates. Experts categorize the ad revenue share from Twitter as an ‘export of services in the nature of OIDAR under GST, as Twitter operates outside India, placing the supply outside the country.

    Ultimately, when considering the threshold limit of ₹20 lakhs for GST registration among content creators, all sources of income, including professional fees, sponsorships, rent, and bank interest, must be aggregated for compliance, as per experts.

    OIDAR full form is given in sec 2(17) of the IGST act which is as below :

     “online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as,

    1. Advertising on the Internet;
    2. Providing cloud services;
    3. Provision of e-books, movies, music, software, and other intangibles through telecommunication networks or the internet;
    4. providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;
    5. Online supplies of digital content (movies, television shows, music, and the like);
    6. Digital data storage; and
    7. Online gaming;