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 January 20th to 25th, 2025, namely:

(a)?Principal Purpose Test (PPT) under DTAA to be applied prospectively: CBDT;

(b)?RBI directs banks to ensure nominations for accounts and lockers;

(c)?Waiver in late fees for pending GSTR-9C for FY 2017-18 to 2022-23 on filing before 31st March, 2025;

(d)?Central Goods and Services Tax (Amendment) Rules, 2025;

(e)?CBIC cautions against fraudsters issuing fake and fraudulent Summons for GST violations;

(f)?ICAI defers Peer Review Requirement for Practice Unit covered under Phase III and Phase IV of Peer Review Mandate; and

(g) ICAI releases Volume 3 of "Guidance on Non-Compliances Observed by QRB" to enhance audit quality.

Principal Purpose Test (PPT) under DTAA to be applied prospectively: CBDT

The Central Board of Direct Taxes (CBDT) has issued Circular No. 01/2025 to guide the application of the Principal Purpose Test (PPT) under India’s Double Taxation Avoidance Agreements (DTAAs). The circular clarifies the implementation of PPT, a measure introduced to prevent the misuse of tax treaties, as part of India’s commitment to the Multilateral Convention to Implement Tax Treaty Related Provisions to Prevent Base Erosion and Profit Shifting (MLI).

The MLI took effect for India on October 1, 2019, modifying several DTAAs. The PPT is a significant provision introduced through this convention. It aims to deny treaty benefits if it is reasonable to conclude that obtaining such benefits was one of the principal purposes of a transaction or arrangement. However, the PPT allows the taxpayer to establish that the benefits are in accordance with the object and purpose of the treaty, ensuring that the DTAAs are applied to promote legitimate economic activities such as trade, services, capital flows, and movement of individuals.

The circular explains that the application of the PPT is prospective.

Treaties incorporating the PPT through bilateral negotiations (such as Chile, Iran, Hong Kong, China, etc.), PPT should apply from the date the DTAA or the amending protocol came into effect.

For treaties modified through the MLI, PPT shall apply as follows:

(a)?For withholding taxes, the PPT applies to payments made in the previous year beginning after the MLI entered into force for both jurisdictions.

(b)?For all other taxes, the PPT takes effect for the previous year starting after the end of six months from the date the MLI comes into force for both treaty partners.

In India’s case, this date is October 1, 2019, while the dates for partner jurisdictions can be verified using the OECD’s MLI database.

Further, the circular addresses the interaction of the PPT with certain treaty-specific commitments. Grandfathering provisions in the India-Cyprus, India-Mauritius, and India-Singapore DTAAs are excluded from the scope of the PPT. These provisions are governed by the respective treaties’ specific clauses and remain unaffected by the PPT.

The circular also emphasises that applying the PPT requires an objective assessment of facts on a case-by-case basis. Tax authorities should refer to additional resources, such as the BEPS Action Plan 6 and the UN Model Tax Convention (2021) while considering India’s reservations. These supplementary materials provide clarity and context for the invocation of the PPT.

Read the Circular

RBI directs banks to ensure nominations for accounts and lockers

Imagine a family in Delhi, reeling from the loss of a loved one, only to face another trouble—claiming funds from a bank account without a nominee. This scenario, unfortunately, is not rare in India. According to the Reserve Bank of India (RBI), a significant number of deposit accounts lack nomination provisions, leaving families in distress and contributing to an alarming Rs. 42,270 crore in unclaimed deposits as of March 2023.

(a) The Importance of Nominations in Banking

A nomination allows account holders to designate someone to receive their funds, safe custody articles, or the contents of a safety locker upon their demise. It’s a simple yet powerful tool that can spare families from complex legal and administrative procedures during emotionally challenging times.

However, the RBI’s supervisory assessments reveal a stark reality: many deposit accounts in India still lack this provision. The absence of nominations creates unnecessary hurdles for families and legal heirs, who must navigate lengthy and often frustrating processes to access their rightful funds.

Such cases highlight the need for ensuring comprehensive coverage of the nomination facility in deposit accounts, safety lockers, and safe custody articles.

To address these issues, the RBI, through Circular No. DOS.CO.PPG/SEC.13/11.01.005/2024-25 dated January 17, 2025, has reiterated the importance of ensuring nomination in all eligible accounts.

(b) Factors Contributing to the Surge in Unclaimed Deposits

The surge in unclaimed deposits can be attributed to several factors, such as customers neglecting to close inactive accounts or losing track of accounts during relocations. The pandemic has further intensified this issue, leading to an increase in unclaimed balances from the accounts of deceased customers, particularly in cases where no nomination was made. The complex process of claiming these deposits, often involving multiple visits to bank branches and extensive documentation from legal heirs, exacerbates the accumulation of unclaimed funds.

(c) The ripple effect of missing nominations in Depositor Accounts

The absence of a nominee in depositor accounts leads to several challenges, preventing the proper utilization of funds. These include:

• Legal Complexities: Without a nominee, legal heirs often face lengthy procedures to claim funds, involving succession certificates or court orders. For example, a family in Mumbai spent over six months navigating legal hurdles to access the funds in their deceased father’s account, as no nominee had been designated.
• Emotional and Financial Strain: Families already grieving the loss of a loved one are further burdened by bureaucratic delays. A widow in Chennai had to wait for months to access her late husband's account, causing delays in paying medical bills, which led to further financial strain.
• Rising Unclaimed Deposits: Unclaimed deposits have reached alarming levels due to unclear legal ownership or the absence of nominees. As of March 2023, over Rs. 42,270 crores remained unclaimed, with funds often stuck due to lack of proper nomination, serving no one but staying idle in the system.
• Elderly and Rural Customer Challenges: Elderly customers or those in rural areas often lack awareness about the nomination facility. For instance, a senior citizen in a village near Kanpur was unaware that he could nominate someone for his savings account, leading to confusion and delays after his passing.

(d) Measures for Effective Implementation of Nomination Facility for Depositors

To ensure the successful implementation of the nomination facility and enhance customer awareness, a series of measures will be adopted, including:

• Customer Service Committee (CSC) Oversight: The Customer Service Committee (CSC) of the Board/Board of Directors will review the progress of nomination coverage periodically. The progress will be reported by the SEs in the Reserve Bank's DAKSH portal on a quarterly basis, beginning from March 31, 2025.
• Sensitization and Training of Frontline Staff: To ensure effective implementation, frontline staff at branches will be appropriately sensitised regarding the importance of obtaining nominations. Additionally, staff will be trained on the correct handling of claims from deceased customers, as well as interacting with nominees or legal heirs.
• Modifications to Account Opening Forms: Account Opening Forms will be revised, if necessary, to include provisions that allow customers to either avail or opt out of the nomination facility.

(e) Conclusion

The nomination facility is not just a regulatory requirement but a vital customer service mechanism. By implementing the RBI’s directives and spreading awareness, banks and financial institutions can mitigate the emotional and financial hardships faced by customers’ families. Moreover, such measures will enhance customer satisfaction, reduce unclaimed deposits, and streamline claim settlements. Ensuring comprehensive nomination coverage is not merely a compliance goal but a step towards a more inclusive and responsive banking system.

Read the Circular

Waiver in late fees for pending GSTR-9C for FY 2017-18 to 2022-23 on filing on before 31st March, 2025: Notification

The CBIC has issued notification to waive the late fees for filing of GSTR-9C for the financial years 2017-18 to 2022-23. The waiver is of the excess amount of late fee payable till the date of filing of Form GSTR-9 for the financial years 2017-18 to 2022-23.

This waiver is granted to registered persons who were required to file the reconciliation statement in FORM GSTR-9C along with the annual return in FORM GSTR-9 but failed to do so. In order to avail the waiver, FORM GSTR-9C must be filed on or before March 31, 2025.

It is also provided that no refund of late fees already paid for delayed filing of FORM GSTR-9C shall be available. In this regard, Notification No. 08/2025- Central Tax dated January 23rd, 2025 has been issued.

Read the Notification

Central Goods and Services Tax (Amendment) Rules, 2025

The CBIC has issued Central Goods and Services Tax (Amendment) Rules, 2025 to introduce new Rule 16A and changes in FORM GST REG-12 for grant of temporary identification number to person who is not liable to registration but is required to make any payment under the provisions of the GST Act.

The proper officer may grant a temporary identification number to the said person and issue an order in Part B of FORM GST REG-12. Also, amendments to Rule 87(4) and Form GST REG-12 have been made to incorporate references to Rule 16A. These changes would be effective from a date which shall be notified later. In this regard, Notification No. 07/2025- Central Tax dated January 23rd, 2025 has been issued.

Read the Notification

CBIC cautions against fraudsters issuing fake and fraudulent Summons for GST violations

The CBIC has issued a press release to caution taxpayers against fraudsters issuing fake and fraudulent Summons for GST violations. The fake summons resembles very closely with the original due to use of Department’s logo and Document Identification Number (DIN).

However, these DIN numbers are fake and are used by the fraudsters to make the document look and feel genuine. Now, the taxpayers can verify online any communication from DGGI or any office of CGST by using the ‘VERIFY CBIC-DIN’ window on CBIC website. On verifying the DIN, if any individual or taxpayer finds that the Summon/letter/Notice is fake, it may immediately be reported to the office concerned. In this regard, Press Release dated January 24th, 2025 has been issued.

Read the Press Release

ICAI defers Peer Review Requirement for Practice Unit covered under Phase III and Phase IV of Peer Review Mandate

The Institute of Chartered Accountants of India (ICAI), through its announcement dated 22.01.2025, has deferred the mandatory peer review requirement for Practice Units (PUs) covered under Phase III and Phase IV of the Peer Review Mandate. This initiative aims to enhance the quality of services rendered by members and expand the coverage of firms under the peer review process. Under Phase III, Practice Units proposing to undertake statutory audits of entities that have raised funds exceeding Rs. 50 crores or are categorized as public interest entities, as well as those rendering attestation services with four or more partners, must hold a valid peer review certificate. The revised mandatory date for Phase III compliance has been extended from 01.01.2025 to 01.07.2025.

Similarly, for Phase IV, which includes Practice Units auditing branches of public sector banks or rendering attestation services with three or more partners, the mandatory peer review requirement has been deferred from 01.04.2025 to 01.01.2026. The peer review certificate will remain a prerequisite for PUs before accepting the specified audits to ensure adherence to professional standards.

Read the Story

ICAI releases Volume 3 of "Guidance on Non-Compliances Observed by QRB" to enhance audit quality

The Institute of Chartered Accountants of India (ICAI) has released Volume 3 of the "Guidance on Non-Compliances Observed by Quality Review Board (QRB)." This edition provides comprehensive insights into critical audit quality aspects, covering Standards on Auditing (SA), Internal Financial Controls (IFC), and Quality Management Standards. Designed to enhance audit practices, the handbook promotes best practices, aligns engagements with global benchmarks, and strengthens compliance with professional and regulatory standards. It serves as a valuable resource for auditors and accounting professionals aiming to improve engagement quality and stay updated on advancements in audit and quality management practices.

Read the Story

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