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GST on refrigerators, washing machine reduced to 18%

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washing machine refrigerator

New Delhi, July 21 : In a relief for common man, the GST Council on Saturday reduced tax rates on over 50 items including refrigerators, washing macines and small televisions, which would now be taxed at 18 per cent, down from the current 28 per cent.

Apart of bringing down rates, the Goods and Services Tax (GST) Council also exempted GST on sanitary napkins, rakhis, fortified milk and idols of deities made of stone, marble and wood.

The changes would come into effect across the country from July 27 onward, Finance Minister Piyush Goyal told media after the 28th meeting of the GST Council.

“Refrigerators, small televisions, of upto 25 inches, lithium ion batteries, vacuum cleaners, domestic electrical appliances, such as food grinders, mixers….storage water heaters, immersion heaters, hair dryers, hand driers, electric smoothing irons,” among others have been brought to the 18 per cent slab,” Goyal said.

The council also gave a major relief to the hotel industry by providing that tax rate shall be based on transaction value instead of declared tariff.

Earlier, there was a lack of clarity on the issue causing a lot of trouble for consumers booking hotels with ‘declared tariffs’ of Rs 7,500 and above which incurred 28 per cent GST.

While hotels with tariff below Rs 1,000 are exempted from GST, those with tariff between Rs 1,000-2,500 are taxed at 12 per cent, those between Rs 2,500-7,500 at 18 per cent, and above Rs 7,500 at 28 per cent.

However, it often happened that hotels offered discounts and hence the actual transaction cost would be much lower than the declared cost, but tax would still be charged at the declared cost.

Another significant decision the council made was regarding easing of return filing procedure by approving two new simplified forms called ‘Sugam’ and ‘Sahaj’, the minister said.

Also, enterprises with annual turnover of upto Rs 5 crore would have to file quarterly returns instead of the current monthly filing, although they would continue to pay tax on a monthly basis.

However, the implementation of the revamped return filing process would take some time as corresponding changes would have to be made into the GST network, the minister clarified.

The council also deferred the implementation of reverse charge mechanism by another year and now it will come into force from October next year.

The minister further informed that the council would have a special meeting on August 4 to address concern of small and medium enterprises.

Among other tax-reduction decisions, Goyal said, tax rate on handicraft items such as handbags, pouches and purses, jewellery box, wooden frames of paintings and photographs among others have been brought under the 12 per cent slab, from 18 per cent.

GST on handmade carpets and handmade textile floor coverings has been reduced from 12 per cent to 5 per cent.

The tax rate on ethanol, which is used in the blending of petrol and diesel also has been brought down to 5 per cent from 18 per cent.

During the meeting, the council also made certain amendments to the GST Act including raising the upper limit of turnover for opting for composition scheme from Rs 1 crore to Rs 1.5 crore.

It also approved an amendment which will enable taxpayers to opt for multiple registrations within a state in respect of multiple places of business located within the same state.

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Every company regardless of size, is important for India: FM Nirmala Sitharaman

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Finance Minister Nirmala Sitharaman (File Picture)

New Delhi, Sep 21 : Finance Minister Nirmala Sitharaman on Monday stated in the Lok Sabha that any company whether it is big, small, micro, medium or nano is important for the country.

Saying that “my friends are the companies”, the Minister said under the Companies Act even MSMEs are registered and anybody who is registered under this act and if, unfortunately, comes for a liquidation has to have a solution.

“Your friend, my friend does not matter. All are friends of this country. Unless business is run by small, medium or big that kind of a job which we are talking about will not happen. So, solution is required for everybody,” the Minister said while addressing the Lower House while pushing for the passage of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020.

The Bill, which was passed by the Rajya Sabha on Saturday, seeks amendment in the Insolvency and Bankruptcy Code, 2016 and replaces the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 which was promulgated by the President on June 5 this year.

The ordinance had prohibited the initiation of insolvency proceedings for defaults arising during the six months from March 25 this year (extendable up to one year).

Simply put, no insolvency proceedings can be initiated by either the corporate debtor or any of its creditors for defaults arising during this six-month period beginning March 25.

The ordinance came in response to the Covid-19 pandemic, which had created uncertainty and stress for businesses for reasons beyond their control. It was also felt that during the Covid-19-induced lockdown, it may be difficult to find an adequate number of resolution applicants to rescue the corporate debtors who may default in discharging their debt.

In parliament registry, Sitharaman said this is among one of those Bills, now an Act, which come very quickly each time when the ground situation requires changes so that this becomes a robust law.

Giving detailed reasons behind amendment in the law, the Minister said the need of such an ordinance has never been contextual in last 100 years. “Such kind of atmosphere cannot be in the coming 100 years too.”

Hinting at the Covid-19 pandemic, the Minister said the dimension and the scale of the pandemic was obvious and therefore the government had to come up with an ordinance which suspended the application of three sections–7,9 and 10– of the Insolvency and Bankruptcy Code.

“We had to prevent any company which is experiencing distress because of Covid being pushed into the insolvency proceedings. And therefore we had to suspend these sections.”

The Minister said the entire approach that the government has taken is to immediately help companies with some relief and then look at the way in which the second phase can go on.

She said this Bill is the part of the second approach. And the third phase, Sitharaman said, could have some kind of resolution mechanism for those who are not able to survive and hand-holding in particular incidences.

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Lok Sabha passes the Insolvency and Bankruptcy Code (Second Amendment) Bill 2020

The Ordinance prohibits the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).

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Bankruptcy

The Lok Sabha has passed The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020.

The Insolvency and Bankruptcy Code allows a corporate debtor as well as its creditors to initiate an insolvency resolution process. The Ordinance prohibits the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).

A director or a partner may be held liable if despite knowing that insolvency proceedings cannot be avoided, he did not exercise due diligence in minimising the potential loss to the creditors. The Ordinance removes this provision for defaults in the above period.

Key Issues and Analysis

The suspension of the insolvency resolution process raises several issues. First, it prohibits resolution even in cases where that may be the best way to preserve the value of assets. Second, it removes the option of a debtor to avail of the insolvency process for restructuring. Third, it is unclear why insolvency proceedings against specified defaults have been prohibited forever.

It may be questioned whether a personal guarantor to a corporate debtor should undergo insolvency proceedings for defaults for which insolvency proceedings are not allowed against the debtor

HIGHLIGHTS OF THE ORDINANCE

The Insolvency and Bankruptcy Code, 2016 provides a time-bound process to resolve insolvency among companies and individuals. Insolvency is a situation where an individual or company is unable to repay their outstanding debt. In light of the COVID-19 crisis, the World Bank identified two key challenges for an insolvency framework: (i) need to prevent otherwise viable firms from prematurely being pushed into insolvency and (ii) increase in the number of firms that will not survive the crisis without resolution of insolvency.

In India, the threshold of default for initiation of insolvency proceedings was raised from one lakh rupees to one crore rupees. Further, regulations were amended to provide that the lockdown period will not be counted in the timeline for ongoing proceedings for certain activities. In this context, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 was promulgated on June 5, 2020. The Ordinance notes that COVID-19 has created uncertainty and stress for businesses for reasons beyond their control and it is difficult to find an adequate number of resolution applicants to rescue the corporate debtor who may default in discharging their debt.

Key Features Prohibition on the initiation of insolvency proceedings for certain defaults:

The Code allows the corporate debtor as well as its creditors to initiate insolvency resolution process. The Ordinance provides that for defaults arising during the six months from March 25, 2020 (extendable up to one year), no insolvency proceedings can ever be initiated by either the corporate debtor or its creditors.

Liability for wrongful trading:

A director or a partner of the corporate debtor may be held liable to make personal contributions to the assets of the company in certain situations. This liability will occur if despite knowing that the insolvency proceedings cannot be avoided, the person did not exercise due diligence in minimising the potential loss to the creditors. The resolution professional may apply to the NCLT to hold such persons liable. The Ordinance prohibits the resolution professional from filing such an application in relation to the defaults for which insolvency proceedings have been prohibited.

Bar on the initiation of insolvency resolution process for certain defaults

The Insolvency and Bankruptcy Code, 2016 (IBC) allows the corporate debtor as well as its creditors to initiate the insolvency resolution process. The Ordinance provides that for defaults arising during the six months (extendable up to one year) from March 25, 2020, no insolvency proceedings can ever be initiated by either the corporate debtor himself or any of its creditors. We discuss some related issues below.

Need for the complete suspension of the corporate insolvency resolution process

The Ordinance prohibits initiation of insolvency proceedings against defaults arising during the specified period. This raises the question whether a complete suspension is required. On one hand, there is a need to safeguard companies, which were viable before the pandemic and whose insolvency is temporary, from being prematurely pushed into insolvency. On the other hand, a complete suspension of insolvency proceedings may take away a distressed company’s opportunity to seek recourse under the IBC framework. For certain companies, the deferral of insolvency proceedings may lead to further deepening of their financial stress and the resultant loss in value.

The Ordinance also states that it is difficult to find an adequate number of resolution applicants during this period. This may increase the risk of liquidation of a company which could have been rescued by sale as a going concern in a normal situation. However, another possible outcome of an insolvency resolution process is debt restructuring where debt obligations are reorganised to resolve insolvency, but the company is not sold to a third-party buyer. In United Kingdom, for instance, the insolvency law was amended in June 2020 to provide certain new types of restructuring options for companies facing financial difficulty.

Further, it raises a question whether all defaults during the specified period need to be treated in the same manner. There may be defaults which were not induced due to COVID-19 related disruptions but are a result of distress in companies before the pandemic. That said, whether a default is induced by COVID-19 or not will be subject to interpretation and may lead to disputes which can result in increased litigation.

Corporate debtor is prohibited from initiating insolvency proceedings

The Ordinance prohibits the initiation of insolvency proceedings by the corporate debtor. The question is whether the corporate debtor should be prohibited from initiating insolvency proceedings. The corporate debtor may be better placed to assess whether the recourse under the insolvency framework is warranted. A voluntary and timely initiation of insolvency proceedings by an insolvent debtor could maximise the benefits for the debtor as well as creditors. Note that in countries such as Spain, Germany, and France, while creditor-initiated insolvency proceedings were restricted and the duty of the debtor to file for insolvency were relaxed, voluntary insolvency proceedings by the debtor have been allowed.

Insolvency proceedings against the specified defaults are prohibited forever

The Ordinance states that no insolvency proceedings can ever be initiated against defaults occurring during the specified period. This could result in a scenario where creditors are unable to hold the company liable for these defaults even after the company’s ability to repay has been restored. It is unclear why a debtor should be protected from the liability for these defaults even after its temporary adverse situation has been resolved.

Initiation of insolvency proceedings against the personal guarantor to a corporate debtor

Under the Code, insolvency proceedings can be initiated against the personal guarantor of a corporate debtor. This is an individual who provides a guarantee for the debt of a corporate debtor. While the Ordinance prohibits insolvency proceedings against the corporate debtor for the defaults occurring during the specified period, it does not disallow such action against the personal guarantor. The question is whether the personal guarantor should be held liable for defaults for which the original debtor’s liability itself has been relaxed.

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Can RBI ensure banks infuse funds in Amrapali projects, SC asks

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Amrapali Group

New Delhi, Sep 21 : The Supreme Court on Monday asked the RBI to file an affidavit whether it can intervene to ensure that banks infuse funds to complete construction of the Amrapali housing projects.

A bench comprising Justices U.U. Lalit and Ashok Bhushan asked the advocate for the central bank to file an affidavit in the matter clarifying the regulatory provisions.

The observation from the top court came after the court-appointed receiver informed that as per the September 1 order, he had sent a letter to the Governor of RBI and CMDs of other banks inviting them to finance Amrapali projects and for release of the loan amounts.

However, the reply received by him is not very clear, he said.

Kumar Mihir, counsel for home-buyers, said: “I hope the RBI takes a regulatory position and removes all constraints in other banks extending project finance to Amrapali. Especially, when the Supreme Court is trying its best to raise funds to continuity in construction of these projects.”

The receiver also informed the court that no money has been received from the SWAMIH Investment Fund so far and the final approval is taking time.

On September 1, the apex court had said the SBI Caps will issue funds to the tune of Rs 625 crore from the SWAMIH Investment Fund for six projects and also directed the court-appointed receiver and SBI Caps to finalise the legal framework to regulate this funding. The bench asked him to inform about the status on the next date of hearing.

The receiver informed the top court that 5-6 banks have executed MoUs with him and they have started disbursing loan amounts, and it seems, by middle of next month, the home loan issue will be sorted with respect to all home-buyers.

The bench directed all home-buyers, who had defaulted in payment of their dues earlier when Amrapali was in management, to clear their dues by October 31, or otherwise the receiver will be permitted to take action, including cancellation of their allotments.

As the Institute of Chartered Accountants sought an extension of six months to finish disciplinary proceedings against Anil Mittal, the statutory auditor of Amrapali, the court asked the institute to file an additional affidavit giving exact dates of proceedings when they require his presence for necessary directions.

The receiver and MSTC informed the bench that to date, five properties of Amrapali have been sold for Rs 12.54 crore, out of which 25 per cent was deposited before the MSTC and rest was to be deposited in the UCO Bank. The court gave a direction to the receiver to file a detailed note on sale of properties by the next date of hearing, which is scheduled on October 5.

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