Taxmann – This Week
Welcome to Taxmann.com | Newsletter – Reporting the Facts with Taxmann’s Analysis. This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from February 10th to 15th, 2025, namely:
(a) Income-tax Bill 2025: Neatly organises the cupboard by ironing the wrinkles and removing the old ones;
(b) SEBI launches MITRA: A one-stop solution to track and reclaim forgotten Mutual Fund investments;
(c) CBIC directed dept. to withdraw appeals filed for wrong calculation of interest & penalty if tax is paid as per Section 128A;
(d) GSTN issued new advisory for outlining procedural modifications under GST Registration process;
(e) ICAI releases Exposure Draft of Accounting Standards for LLPs; and
(f) NFRA’s 2023 inspection highlights gaps in Related Party Transactions compliance by two audit firms.
1. Income-tax Bill 2025: Neatly organises the cupboard by ironing the wrinkles and removing the old ones
During the Budget Speech on July 23, 2024, Finance Minister Smt. Nirmala Sitharaman announced a comprehensive review of the Income Tax Act 1961 (ITA). She explained that the rationale behind this move is to make the Act concise, clear, and easier to read and understand. The aim is to reduce disputes and litigation, thereby providing taxpayers with tax certainty. She announced that the review would be completed within six months. During her budget speech on 1st?February 2025, she stated that the Income-tax Bill 2025 ('ITB') would be tabled within a week. The Bill was tabled in parliament on 13th?February 2025.
When passed, the 600+ pages Income Tax Bill will replace the 65-year-old Income Tax Act 1961 and become a new Income Tax Act of 2025. However, it will apply from 1st?April 2026. The ITB contains 2.56 lakh words, almost 50% fewer than the half a million words in the ITA. Despite the significant reduction in the legislation's size, the essence has been retained. The ITB is a remarkable departure from the 1961 Act, which respects the legacy of the 1961 Act. The ITB simplifies the structure, removes the redundant and omitted provisions of ITA, and replaces the Provisos and Explanations of ITA with sub-sections, clauses, or sub-clauses.
The ITB provides interesting facts compared to the ITA. The 911 sections (including omitted sections) and 11 schedules of the ITA are restructured into 536 sections (Clauses) and 16 schedules in the ITB. The ITB eliminates more than 300 provisions of the ITA that have become redundant or were omitted over time. The provisions included within 1,200+ Provisos and 550+ Explanations of the ITA are presented as sub-sections, clauses, or sub-clauses in the ITB. The entire ITB does not contain a single Proviso or an Explanation. Section 2 of the ITB includes 112 clauses that explain all important definitions in one place, which were defined in the relevant provisions of the ITA. The words "Previous Year" and "Assessment Year" now rest in peace and are reincarnated as "Tax Year".
The legacy of the ITA, with structural adjustments, has been retained in the ITB to prevent unsettling the ITA, which has gained certainty after more than thousands of amendments through 80+ Finance and Amendments Acts. However, the provisions for the taxation of charitable trusts, amended by more than 20 Finance Acts since 1961, have found a successor, a new name, and a dedicated chapter. Chapter XVII-B encompasses all provisions related to non-profit organisations in one place, including registration, computation, accreted tax, and more.
The ITB has 16 schedules, compared to 11 in the ITA. These schedules contain provisions that were previously covered under sections of the ITA. One schedule specifies conditions for eligible investment funds and fund managers; six schedules provide a list of incomes exempt from tax (corresponding to section 10 of the ITA); one schedule specifies conditions for exemption to political parties and electoral trusts, while five schedules pertain to profits and gains from business or profession, including two new schedules that address agricultural boards. One schedule explains deductions allowed under Section 123 (corresponding to Section 80C of the ITA), another outlines the rules related to recognised provident funds or approved superannuation funds or gratuity funds, and the final schedule details the forms and modes of investment or deposits permitted for charitable and religious trusts (corresponding to section 11(5) of the ITA).
2.?SEBI launches MITRA: A one-stop solution to track and reclaim forgotten Mutual Fund investments
In a significant move to protect investor interests and enhance financial transparency, SEBI vide Circular dated February 12, 2025, has launched the MITRA platform, a user-friendly solution designed to help investors track and reclaim inactive and unclaimed Mutual Fund folios. Developed by Computer Age Management Services Limited (CAMS) and KFIN Technologies Limited, MITRA provides a centralized search mechanism enabling investors, nominees and legal heirs to identify forgotten investments and update KYC details. By bridging the gap between investors and their rightful holdings, the platform strengthens security, minimizes fraud risks, and ensures greater transparency in the mutual fund ecosystem.
a) Background and Rationale
Mutual Fund investors sometimes lose track of their investments, especially those made in physical form with minimal KYC details. Investments in open-ended growth option mutual fund schemes may remain invested indefinitely unless the investor/his nominee/legal heir approaches the concerned AMC for redemption, transfer or transmission.
Further, the absence of PAN, email ID, or valid address may prevent these MF folios from appearing in the unitholder’s Consolidated Account Statement. Such inactive folios become susceptible to fraudulent redemptions, highlighting the need for a strong mechanism to trace and secure these investments. Thus, MITRA aims to address this issue by providing investors with a user-friendly search platform.
b) What is MITRA Platform?
The Mutual Fund Investment Tracing and Retrieval Assistant (MITRA) is a platform designed to help investors recover their inactive and unclaimed mutual fund folios. It enables investors, nominees, and legal heirs to trace investments that may have been forgotten due to incomplete KYC details or lack of regular monitoring. By providing a user-friendly mechanism, MITRA ensures easy access to unclaimed investments while safeguarding them from potential fraud.
c)?Key features of MITRA Platform
The MITRA platform, developed by Registrar and Transfer Agents (RTAs), provides investors with a centralised database of inactive and unclaimed mutual fund folios across the industry. It serves multiple purposes that are as follows –
d)?Classification of Inactive Mutual Fund Folios
A mutual fund folio is classified as inactive if there have been no investor-initiated transactions, either financial or non-financial, in the last 10 years. Yet, a unit balance remains in the account.
Inactive folios include cases where investors have remained invested in an open-ended scheme but either chose not to redeem or lost track of their investments. There is no impact on folios appearing in the platform where the unitholder is aware of their investment and has intentionally chosen to remain invested. MITRA will list such folios to encourage rightful owners to claim their investments and update KYC records.
e) Hosting and Cyber Security Framework of MITRA
The MITRA platform will be hosted jointly by two Qualified RTAs (QRTAs), Computer Age Management Services Limited (CAMS) and KFIN Technologies Limited, who will act as agents of asset management companies (AMCs). The platform will be accessible through the websites of MF Central, AMCs, the Association of Mutual Funds in India (AMFI) the two QRTAs and SEBI.
To ensure security, MITRA will adhere to SEBI’s Cyber Resilience framework as set in the Master Circular on Mutual Funds dated June 27, 2024. The QRTAs will be responsible for system audits, cybersecurity audits and compliance with Business Continuity Plan (BCP) and Disaster Recovery (DR) guidelines.
f) Awareness regarding MITRA platform
SEBI has instructed AMCs, QRTAs, Registered Investment Advisors (RIAs), and mutual fund distributors to actively promote awareness of MITRA among investors. The platform must be made operational within 15 working days of the issuance of the circular. A beta version will be launched for 2 months to allow for testing and refinements.
g) Role of ‘Unit Holder Protection Committee’ (UHPC) in strengthening investor protection
To strengthen investor protection, SEBI has updated the responsibilities of the ‘Unit Holder Protection Committee’ (UHPC) under its Master Circular on Mutual Funds dated June 27, 2024. The UHPC will now be responsible for reviewing inactive folios and unclaimed dividend and redemption amounts, ensuring that AMCs take necessary measures to reduce the quantum of unclaimed funds. Also, AMCs, through their RTAs must provide the MITRA platform for investors to trace inactive and unclaimed Mutual Fund folios.
h) Conclusion
The introduction of the MITRA platform marks a significant step toward enhancing investor protection and financial transparency in the mutual fund industry. By enabling investors to trace inactive and unclaimed folios while encouraging KYC compliance, MITRA helps to safeguard investments from fraud and mismanagement. With SEBI’s proactive measures and industry-wide participation, the platform is set to streamline the process of reclaiming forgotten investments, ultimately strengthening investor confidence in mutual funds.
3.?CBIC directed dept. to withdraw appeals filed for wrong calculation of interest & penalty if tax is paid as per Section 128A
The CBIC has received references from various field formations seeking clarification from the Board as to whether the benefit of section 128A be extended to taxpayers in cases where the tax amount has been paid but the department has gone in Appeal on the basis of wrong arithmetic calculation of interest, or where penalty is either not imposed or imposed less than the prescribed threshold etc.
Now, the CBIC has issued instruction to department to withdraw appeal in cases where tax amount has been fully paid by the taxpayer on demands made under section 73 of the CGST Act as per Section 128A and department is in appeal or under the process of filing an appeal only on account of wrong interest calculation and/or wrong imposition or non-imposition of penalty amount.
4.?GSTN issued new advisory for outlining procedural modifications under GST Registration process
The GSTN has issued an advisory outlining procedural modifications in GST registration under Rule 8, specifying verification protocols for both Aadhaar-authenticated and non-Aadhaar-authenticated applicants.?
The applicants who choose not to undergo Aadhaar authentication must visit the designated GSK for photo capture and document verification. Upon selecting “NO” for Aadhaar authentication, they will receive an email containing GSK details and a list of required documents, along with an appointment scheduling requirement. The applicant must visit the GSK at the scheduled time to complete verification. It is also informed that in case of failure to comply within 15 days will result in the non-generation of the Application Reference Number (ARN), thereby preventing GST registration.?
For applicants opting for Aadhaar authentication, biometric verification at the GSK is mandatory for Promoters/Partners unless they have previously been verified in any State/UT. The Primary Authorized Signatory (PAS) must carry the necessary documents for verification. If the PAS has already completed biometric verification, only document verification is required. Failure to complete these steps within 15 days of submitting Part B of REG-01 will lead to the non-generation of the ARN. Any discrepancies in Aadhaar details must be resolved before verification to prevent authentication failures.
5. ICAI releases Exposure Draft of Accounting Standards for LLPs
The Institute of Chartered Accountants of India (ICAI) has released an Exposure Draft for Limited Liability Partnerships (LLPs), marking a significant step towards aligning their accounting standards with those of companies. The draft incorporates necessary modifications to adapt existing accounting principles, ensuring consistency with the framework applicable to non-company entities. This move is in response to the Ministry of Corporate Affairs’ (MCA) initiative to create a distinct set of standards for LLPs. The Exposure Draft is open for public review until February 28, 2025, and stakeholders are encouraged to submit their comments.
6.?NFRA’s 2023 inspection highlights gaps in Related Party Transactions compliance by two audit firms
The 2023 audit quality inspection conducted by the National Financial Reporting Authority (NFRA) on Price Waterhouse Chartered Accountants LLP and Price Waterhouse & Co Chartered Accountants LLP identified several deficiencies in the audit of related party transactions (RPTs).
The inspection revealed that the audit firms did not provide sufficient documentation to support their conclusions regarding the arm's length nature of RPTs. Although the audit involved comparing prices with unrelated transactions, the specific goods or services being compared were not clearly identified, which made it difficult to verify the accuracy of these comparisons. The focus of the testing was primarily on the pricing aspect, without considering other crucial factors such as the terms of the contracts, any guarantees associated with the transactions, or the payment conditions. These factors are essential to fully assess whether the transactions were conducted fairly and at arm's length, as required by regulations.
This approach did not fully comply with the requirements of Ind AS 24, Related Party Disclosures. These issues raised concerns about the transparency and fairness of RPTs, which could potentially result in financial misstatements. In response, the audit firms acknowledged the deficiencies and committed to improving their audit methodologies, including enhancing documentation practices and adopting a more comprehensive approach to the verification of RPTs in the future.
That's it from us for today!
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