II Indian Economy's GDP Tested (-VE) II GDP and Methods of Calculation II

What is Gross Domestic Product??

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period, often annually. The Gross Domestic Product measures the value of economic activity within a country.The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well

How is GDP Calculated???

There are 3 methods or formulae by which GDP can be determined. All the 3 methods have been shown by way of a tabular presentation as shown below:

Expenditure Approach	Income Approach	Production or Value-Added Approach
This is the most commonly used GDP formula, which is based on the money spent by various groups that participate in the economy Components of GDP by expenditure Approach GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).   Y = C + I + G + (X − M) C is normally the largest GDP component in the economy, consisting of private expenditures in the economy (household final consumption expenditure)   I: Capital Investment spending G is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. X: Exports of Goods and Services M: Imports of Goods and Services	GDP is the sum of the incomes earned through the production of goods and services.   Components of GDP by Income Approach Total factor income = employee compensation + corporate profits + proprietor's income + rental income + net interest Only those incomes that are come from the production of goods and services are included in the calculation of GDP by the income approach. We Exclude the following while calculating GDP by Income Approach 1) Transfer payments e.g. the state pension; income support for families on low incomes; the Jobseekers’ Allowance for the unemployed and other welfare assistance. 2) Private transfers of money from one individual to another   3) Income not declared to the tax Authorities i.e. Shadow Economy	Value added is the increase in the value of goods or services as a result of the production process   Components of GDP by Production or Value Added Approach   Value added = value of production - value of intermediate goods The sum of the gross value added in the various economic activities is known as "GDP at factor cost". For measuring output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods: 1) By multiplying the output of each sector by their respective market price and adding them together   2) By collecting data on gross sales and inventories from the records of companies and adding them together The value of output of all sectors is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost.

 

 

In India, contributions to GDP are mainly divided into 3 broad sectors – agriculture and allied services, industry and service sector. In India, GDP is measured as market prices and the base year for computation is 2011-12. GDP at market prices = GDP at factor cost + Indirect Taxes – Subsidies

India’s economy contracted by 23.9 per cent in April-June -- the worst performance since quarterly measurement began in 1996 and probably the first contraction since 1980.

The lockdown and the consequent suspension in economic activities due to the pandemic were so massive that among a mix of advanced and emerging economies, India’s GDP contraction in Q1 FY21 was the worst.

According to the latest release, the GDP at Constant (2011-12) Prices in Q1 of 2020-21 is estimated at Rs 26.90 lakh crore. This value was Rs 35.35 lakh crore in Q1 of 2019-20. Hence, the Indian economy has experienced a contraction of 23.9% as compared to 5.2% growth in Q1 2019-20.

While the GDP at Current Prices in the year Q1 2020-21 is estimated at Rs 38.08 lakh crore. This value was Rs 49.18 lakh crore in Q1 2019-20. Hence, it showed a contraction of 22.6% as compared to 8.1% growth in Q1 2019-20.


Key highlights from the Q1 FY21 GDP numbers:

1) The 'real' or inflation-adjusted gross domestic product (GDP) contracted 22.6 percent in the April-June quarter this fiscal.

2) Barring the agriculture sector that grew 3.4 percent, all others were in the red.

3)  Manufacturing, mining and construction contracted 39.3 percent, 23.3 percent and 50.3 percent respectively.

4) Trade, hotels, transport, communication and services related to broadcasting contracted 47 percent in the first quarter of 2020-21

5) The real estate sector, along with financial and professional services, shrank 5.3 percent in April-June 2020.

Reasons to Worry

If GDP growth falls again in the current quarter (July-September), India would technically be in a recession, an economic state characterised by at least two successive quarters of contraction.India was in a recession last in 1979 when the real GDP fell 5.2 percent.

According to my understanding the contraction is not alone due to COVID. Even before the pandemic struck, the Indian economy was experiencing a slowdown as it grew at 4.2 percent in FY20.Most of the announcements made so far, attempt at restarting the economy with reforms on the supply side. Former NITI Aayog Vice-Chairman Arvind Panagariya stated on August 8 that the nation is going to possibly require 'a little bit of stimulus' on the demand side as the country's economic activity begins to expand.

Pronab Sen, former chief statistician of India said the Q1 GDP data doesn't capture the whole extent of the damage that the lockdown did to the economy. He said that this data sample includes data from only the larger companies that were affected due to the lockdown and not the unlisted and smaller companies.

According to State Bank of India's research report - Ecowrap it has been estimated  Q2 real GDP decline in the range of (-) 12 percent to (-) 15 percent, while Q3 GDP is seen between (-) 5 percent and (-) 10 percent. Q4 is expected to be in (-) 2 percent to (-) 5 percent range.

 

60 DAYS STRATEGY AND SOME STUDY TIPS TO INCREASE EFFECTIVE STUDY HOURS

Planning is very Important to pass the CA Examination or any examination for that matter. Lot of times, I hear that students are not able to study effectively and not able to meet targets on time and this leads to frustration. The reason behind this is lack of planning as you need to plan very well to pass CA Final Examination. 

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TIPS TO INCREASE EFFECTIVE STUDY HOURS

1) The best way to increase effective hours is to steal a nap. As already suggested, you have to take small breaks as studying for long hours is not advisable. Your mind has a saturation point and it needs rest. Some people study in Libraries, so always choose a library which is close to your home so that you can come home for small breaks.   

2) Keep your mobile phones away when you sit for studying as mobile phones are the biggest source of distraction. I would not advise staying away from social media but don't let these distractions affect your study slots. You can do whatever you want in your free time. 

3) Walking is very important. Don't lock yourself in a room for the next 2 months. You need to go out to freshen yourself. These things are equally important as effective hours will increase only when your mind is fresh. So, go out daily that's probably the most important thing according to me.
 

4) Plan for the next day before going to sleep. Out of the last 2 hours slot, take out 30 mins to analyze your entire day performance and plan for the next day. Take out books that you will be using in the next days first slot so that you don't waste time after waking up.

5) Eat well and don't skip meals as if you eat well then only mind works. So, eating healthy food is also important.

6) Make a table dividing it into 2 parts i.e. time utilized and time wasted during a day. Do it for 2 days and you will get to know where you are wasting time. Track yourself for 2 days and do introspection on how you can utilize the time wasted.

7) Use a Stopwatch with lap feature and switch on when you sit down for studying and switch it off when you get up for even 5 minutes break. This will give you your effective hours as well as tell you the time slot where your sitting hours are maximum.

8) Always make short notes and revisionary charts especially for theory subjects as this will save your time in revision and give you motivation also as you tend to revise in lesser time with self prepared notes. 

CBIC Launches GSTR-2B (29th August 2020): Key Features

The government has decided to continue the existing GST (Goods and Services Tax) return filing system for the time being. The new GST return filing system with forms ANX-1, ANX-2, RET-1 and RET-2 as proposed by the government for the launch has been put on hold until further notice.

In place of launching the new GST return filing system, the government will try to introduce advanced features to the older system. 

SOME DECISIONS THAT GST COUNCIL TOOK IN THE 39TH GST COUNCIL MEETING DATED 14TH MARCH 2020

In order to plug the tax evasion it was decided to link the details of the statement of outward supplies in FORM GSTR-1 to the liability in FORM GSTR-3B. This would be followed by the linking of the input tax credit in FORM GSTR-3B to the details of the supplies reflected in the FORM GSTR-2A. In order to tackle evasion and preventing the gaming of the system, implementation of Aadhaar authentication and spike rules would also be initiated.

A measure to tackle ITC related  issue that Council recommended was introduction of an auto- drafted input tax credit (ITC) statement which would aid in assisting/ determining the input tax credit that is available for every taxpayer.

 The government has launched form GSTR 2B for the Input Tax Credit. The form will help the government as well as the assessees in matching the input and output of ITC in forms GSTR 3B, GSTR-1, and GSTR 2A, accordingly.

 

WHAT IS GSTR2B???

GSTR -2B an auto-drafted ITC statement which will be generated for every register person on the basis of the information furnished by his supplier in their respective GSTR-1, 5(non resident taxable person) and 6 (input service distributor) it is static statement and will be made available for each month on the 12th day of succeeding month. 

GSTR-2B will be available from July 2020 onwards. It can be generated by recipient taxpayers once a month on the 12th for the previous month. For instance, GSTR 2B for July 2020 can be accessed on 12th August 2020

 

KEY FEATURES OF GSTR 2B

1) It contain information on import of goods from the ICEGATE sytem including inward supplies of goods Received form Especial Economic Zone Unites /Developers

2) Taxpayers can now reconcile data generated in Form GSTR-2B, with their own records and books of accounts. Using this reconciliation, they can now file their Form GSTR 3B and they can ensure that no credit is taken twice,credit is reversed as per law, & tax on reverse charge basis is paid.
 

3) It consists of all documents filed by suppliers/ISD in their Form GSTR-1, 5 & 6, between 00:00 hours on 12th day of preceding month to 23:59 hours, on 11th day of current month. Thus, statement generated on 12th of August will contain data from 00:00 hours of 12th July to 23:59 hours of 11th

4) It also contains information on imports of goods from the ICEGATE system including data on imports from Special Economic Zones Units / Developers. Reverse charge credit on import of services is not part of this statement and need to be entered by taxpayers in Table 4(A) (2) of FORM GSTR-3B.

5) The statement will clearly show document-wise details of ITC eligibility.The contents of GSTR-2B is as follows:

a) Summary statement showing ITC available and non-available for every section

b) Advisory for every section that clarifies the kind of action that taxpayers must take.

c) Document-wise details such as invoices, credit notes, debit notes, etc. to view and download.

d) Cut-off dates and advisory for generating and using GSTR-2B.

e) Import of goods and import from SEZ units/developers (available from GSTR 2B of August 2020 onwards).

 

NOTABLE DIFFERENCES BETWEEN GSTR 2A AND GSTR 2B

 

1) GSTR 2A dynamic, as it changes from day to day, as and when the supplier uploads the documents whereas GSTR 2B remains static or constant, as the GSTR-2B for one month cannot change based on future actions of the supplier.

2) Source of Information for GSTR 2A is GSTR-1, GSTR-5 (NR), GSTR-6 (ISD), GSTR-7 (TDS), GSTR-8 (TCS) whereas source of Information for GSTR 2B is GSTR-1, GSTR-5, GSTR-6, ICEGATE system

 

3) GSTR 2A does not contains details of ITC related to Import of Goods whereas GSTR 2B contains ITC on import of goods as obtained from ICEGATE system.

This was a small write up to explain about recently released GSTR 2B. Since, this is the first time that the statement is being introduced, by taxpayers are advice to refer to GSTR -2B for the month of July 2020. 

All taxpayer as advised to view that detailed  advisory relating to GSTR -2B on the common portal before using the statement .

The Taxpayer can assess their GSTR-2B through: Login to GST Portal >Return Dashboard >Select Return period >GSTR2B

 

Download GSTR 2B Advisory 

 

 

 

 

 

KEY HIGHLIGHTS OF THE 41ST GST COUNCIL MEETING HELD ON 27TH AUG 2020 AT NEW DELHI

The 41st GST Council meeting was held today, 27/08/2020, Thursday with the agenda of compensation for loss of revenue arising from the implementation of GST. The 41st meeting of the GST Council was held via video conferencing.

States are guaranteed full compensation for the first five years of the GST regime in case they fail to record 14 per cent growth in revenues from GST on the base year of FY16.

The compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Hence, the total shortfall is estimated at Rs 2.35 lakh crore

The shortfall for the FY 2020-21 works out to be Rs 2,35,000 crore. Out of this, Rs 97,000 crore is the shortfall due to GST implementation, whereas the rest is considered as due to COVID-19, which is an act of god. The states have been provided with two options to meet the shortfall of compensation cess.

OPTION 1: The centre can facilitate Rs 97,000 crore to states as borrowings, through a special window by the RBI, and this can be repaid after 5 years on the collection of cess paying a reasonable rate of interest.

OPTION 2: The other is for states to borrow Rs 2.35 trillion from the market, with the RBI as a facilitator. However, the burden of repayment will not be on states. The timeline for cess imposed on sin and luxury goods will be extended beyond June 30, 2022 (up to which states are Constitutionally guaranteed compensation), to help service the debt.

This means that States can borrow about Rs 97,000 crore -- the deficit arising out of GST implementation -- or the entire Rs 2.35 lakh crore. If states agree to either of the options, it would effectively mean that cess would continue beyond five years of GST rollout

A detailed note on the two options would be shared with the states and they would give their views on it in seven working days.

The Centre has made a distinction between revenue lost due to implementation of the GST and the economic slowdown arising out of the COVID-19 crisis. The government said its legal obligation was only to compensate states for losses arising out of the GST rollout.

Breach of Trust by Government- Notification No 63/2020 Dated 25.08.2020

Text of Notification No 63/2020- Central Tax Dated 25th August 2020

In exercise of the powers conferred by sub-section (2) of section 1 of the Finance (No. 2) Act, 2019 (23 of 2019), the Central Government hereby appoints the 1st day of September, 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force. 

Some Facts to understand this issue

As per Sec 50 (1) of the CGST Act 2017 Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council.

The legislation effective from 1st July 2017 did not provide the needed clarity on whether the levy of interest is on gross liability or net liability remaining after setting off the ITC.

In the 31st GST Council meeting held in New Delhi on 22nd December 2018-‘Amendment of Section 50 of the CGST Act was proposed to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e., interest would be leviable only on the amount payable through the electronic cash ledger.’’

Amendment was inserted through the Finance Act, 2019 enacted on 1st August 2019, but the same was not notified

In 39th GST Council meeting held on 14th March 2020 it was proposed that as a measure for Trade Facilitation Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively). 

Copy of Press Release of the 39th GST Council Meeting 

Today i.e 25th August 2020 Notification No 63/2020 Central Tax has been issued which states Interest in GST to be levied on "Net Tax liability", a proviso, which was inserted vide section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), now got notified w.e.f 01/09/2020 vide Notification No. 63/2020-Central Tax, dated. 25th August, 2020.

Clearly this is Breach of Trust on part of Central Government and CAs, Council of the Institute of the Chartered Accountants of India and other professionals must raise this issue. This has to be rolled back.

IIPM Director Arindam Chaudhuri arrested for Rs 23 crore undue CENVAT claim

Arindam Chaudhuri, director of Indian Institute of Planning and Management (IIPM) has been arrested by the CGST South Delhi Commissionerate. Arrest has been made on an alleged undue claim of CENVAT of service tax credit of about Rs 23 crore.

He was arrested by the Central Goods & Services Tax (CGST) South Delhi Commissionerate under Section 89 of the Finance Act which enlists penalties for evading payment of service tax.

Chaudhuri faces charges relating to an alleged undue claim of Central Value Added Tax (CENVAT) of service tax credit of about Rs 23 crore.

Gurudas Malik Thakur, who is the Director of the company, has also been arrested under the same offences and sent to 14 days’ judicial custody.

The arrest was made over irregularities in IIPM balance sheet. He allegedly made a credit entry of nearly Rs 23 crore after facing a cash shortfall to pay the service tax.

He showed this amount in next year's balance sheets, but this was never paid.

Brief About Sec 89 of the Finance Act

Whoever commits any of the following offences, namely

89(1)(a) knowingly evades the payment of service tax under this Chapter

89(1)(b) avails and utilizes credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter

89(1)(c) maintains false books of account or fails to supply any information which he is required to supply under this Chapter or the rules made there under; or supplies false information

89(1)(d) collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due

shall be punishable

1) in the case of an offence where the amount exceeds Rs. 50 lakh: with imprisonment for a term which may extend to 3 years. However, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months. 

2) in any other case, with imprisonment for a term which may extend to 1 year.

Aadhaar verification or Physical verification of premises mandatory for GST registration from 21.08.2020 (Notification 62/2020 )

 


1) CBIC has issued Notification No 62/2020 dated 21st August 2020 which seeks to make Tenth ammendment to the CGST rules. These rules may be called the Central Goods and Services Tax (Tenth Amendment) Rules, 2020.

2) These shall be effective from 21st August 2020 i.e date of their publication in the Official Gazette.

3) As per the amendment the Businesses registered under GST can opt for Aadhaar authentication, in absence of which registration would be granted only after physical verification of the place of business.

4) Where a person fails to undergo authentication of Aadhaar number or does not opt for authentication of Aadhaar number, the registration shall be granted only after physical verification of the place of business in the presence of the said person

5) A taxpayer registering under GST can opt for Aadhaar authentication, in which case registration is deemed to be granted within 3 days without a physical inspection of the premises.

6) Notice in Form GST REG- 03 will be issued within 21 days from the date of submission of the application made without opting for Aadhaar Authentication

7) Officer has to act upon the application within 21 working days from the date of submission of the application in cases where Aadhaar Authentication is not opted for.

8) With the linkage of Aadhaar with GST and PAN (permanent account number), there would be a centralized database available with the government which will facilitate data analytics and help in checking tax evasion

9) In nutshell authentication of Aadhaar number would be a norm for GST registration in absence of which registration would be granted only after physical verification of the place of business.

10) The above changes shall be applicable for all applications of registration wef 21.08.2020    

PROCEDURE TO GET EXTENSION FOR HOLDING AGM AFTER CIRCULAR DATED 17TH AUG 2020

Ministry of Corporate Affairs has surprised all by issuing a circular No 28/2020 dated 17th August 2020 clarifying about the extension of holding Annual General Meeting for the companies completing their financial year as at 31st March 2020. 

The companies which are unable to hold their AGM for the financial year ended on 31.03.2020, ought to file their application in Form GNL-1 for seeking an extension of time in holding of AGM for the financial year ended on 31st March 2020 with the concerned Registrar of Companies on or before 29th September 2020.

Procedure to seek an extension of 2020 AGM

1) Hold Board Meeting for approving the extension of the AGM

2) After the Board Approve the proposal, make application to Registrar in Form GNL- 1 till 29th September 2020.

3) Due to Covid-19, the Registrar of companies is hereby advised to consider all such applications (Filed in GNL-1) liberally in view of hardship faced by stakeholders and to grant an extension for the period as applied for (Up to Three Months).

4) A true copy of Board resolution and reason for extension (Covid 19) to be attached and mentioned with GNL-1

5) The Registrar of Companies shall issue Certificate of Extension of Annual General Meeting upon submission of all required documents. However, there is a provision in the act which give power to Registrar of Companies to extend the time for holding of the AGM maximum by 3 months

Consequences of failing to hold AGM in time

If a a company fails to hold the AGM within the due date then, such a company is liable for penalties u/s 99 of the Companies Act, 2013 i.e. (complying with any directions of the Tribunal, the company and every officer of the company who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of continuing default, with a further fine which may extend to five thousand rupees for every day during which such default continues).

Turnover Computation & Tax audit applicability for F&O Transactions

Speculative Transaction

As per Section 43(5) of the Income Tax Act, 1961, any transactions relating to purchase and sale of commodity, shares and scripts settled without taking delivery (this means the purchase or sale won’t enter Demat account) will be treated as “Speculative transaction”. Thus, intra-day trading in stocks is a speculative transaction.

However, trading in derivatives and F&O transaction including commodity derivatives on a recognised stock exchange will not be considered as a speculative transaction (even though the delivery is not taken) and thus, F&O transaction is a Normal business transaction / Non-speculative transaction.

Turnover for the purpose of determining whether tax audit is applicable to F & O Trading or not is calculated a little differently. Based on the guidance note of ICAI, following items should be considered to constitute turnover:-

1) The total of positive and negative differences

2) Premium received on sale of options is also to be included in turnover

3) In respect of any reverse trades entered, the difference thereon But not the total value of contract.

Tax Audit in case of Futures and Options 

1) In the case of profit from derivative transactions, tax audit will be applicable if the turnover from such trading exceeds Rs. 1 crore.

2)If the turnover from such trading exceeds Rs. 1 crore but less than 2 crore then the audit can be avoided if we can show the profit at minimum 8% (6%, if all trades are digital).

3) Tax audit u/s 44AB r/w section 44AD will also be applicable, if the net profit from such transactions is less than 8% (6%, if all trades are digital) of the turnover from such transactions.

Further, please note that any turnover more than 2 crore then audit u/s 44AB will  be applicable irrespective of Profit and Loss

 4) If there is loss in F&O trading or the Net profit is less than 8% (6%, if all trades are digital) of the turnover or the turnover exceeds Rs. 1 crore, then provisions of Tax Audit are applicable and in order to get tax audit done, maintenance of books of account are mandatory.

SFT – Statement of Financial Transaction Scope Extended (13.08.2020)

SFT is a report of specified financial transactions by specified persons including prescribed reporting financial institution. Such specified persons who register, maintain or record such specified financial transaction are under a mandate to submit SFT to the income tax authority or such other specified authority or agency.

Section 285BA authorizes Central Board of Direct Taxes (CBDT) to prescribe different values with respect to different specified financial transactions in respect of different specified persons having regard to the nature of such transactions

The scope of Statement of Financial Transactions (SFT) has been expanded to widen the tax base. Once the CBDT releases the notification in this regard, the notified persons should report the following transactions in their SFT:

1) Payment to hotels above Rs. 20,000

2) Payment of property tax above Rs.20,000

3) Payment of health insurance premium above Rs.20,000

4) Payment of rent above Rs.40,000

5) Payment of life insurance premium above Rs.50,000

6) Electricity consumption above Rs.1 lakh

7) Payment of educational fee/donations above Rs.1 lakh p.a

8) Purchase of jewellery, white goods, painting, marble etc. above Rs.1 lakh

9) Deposit/credits in the current account above Rs.50 lakh

10)Deposit/credits in the non-current account such as savings accounts above Rs.25 lakh

11)Domestic business class air travel or foreign travel

12)Share transactions/D-MAT accounts/Bank lockers

Also, it is to be noted that the following persons should file their SFT return mandatorily:

1) A person having bank transactions above Rs.30 lakhs

2) All professionals and business having turnover above Rs 50 lakhs