Impact of revocation of Article 370 on Income Tax & GST

Modi version 2.0 along with Mota Bhai has finally dropped the Article 370 Bomb on Kashmir to revoke two key Constitutional provisions- Article 370 and Article 35(A).

[Image Source: Thequint. com]

Commerce Insiders supports this decision taken by the Government. However, consequences and response from J&K residents are yet to be seen.

Let's move straight to the point. Our concern is whether revocation of article 370 will make any impact on Income Tax & GST ? We are starting with its impact on Income Tax.



Whether Income Tax was applicable on the State of Jammu & Kashmir???

• The short answer is Yes but there was an exception.
• On 8th October 1954, The Taxation Laws(Extension to Jammu & Kashmir) Act, 1954 was passed by  the Indian Parliament which confirmed the applicability of provisions of the Income Tax Act, extended to the State of Jammu & Kashmir.
• Well there is an exception contained in Section 269S of the Income tax act which says that 'Chapter XXA of the Income Tax Act, 1961- "Acquisition of immovable properties in certain cases of transfer to prevent from evasion of tax'' shall NOT extend to Jammu & Kashmir.

Now what after the enactment of  The Constitution (Application to Jammu & Kashmir) order 2019:-

• It confirms that all the provisions of the Constitution of India is now applicable to Jammu & Kashmir.
• It is proposed to remove the existing restriction on the purchase or acquisition of an immovable property by a resident outside the J&K.
• Since after revocation of article 35(A), the restriction on property acquisition is going to vanished, now Income Tax department will be able to acquire/ confiscate any immovable property in J&K owned by a tax defaulter.
• So there is high probability of removal of exceptional provision contained in Section 269S of the Income tax Act which says that 'Chapter XXA of the Income Tax Act, 1961- "Acquisition of immovable properties in certain cases of transfer to prevent from evasion of tax'' shall not extend to Jammu & Kashmir
• Government may issue clarification very soon and there after there won't be any exception on applicability of Income Tax Act on J&K.
• This is the only possible change which could be made in Income Tax Act on Jammu & Kashmir.

 

[Image credit: Economic Times]

Jammu & Kashmir is no more a state.

Government passed ''The Jammu & Kashmir Reorganisation Bill, 2019. As a result  state will be bifurcated into two union territories- one Jammu & Kashmir with legislature & other Ladakh without a legislature. So basically, Jammu & Kashmir is no more a state now. So how it could impact GST? to understand this first you should know the structure of GST in India.

Structure of GST

The GST Law Comprises of:-

•  The Central Goods & Services Act, 2017 (1 Act)
•  The Interegated Goods & Services Act, 2017 (1 Act)
•  The Union Territory Goods & Services Act, 2017 (1 Act) 
• (This act is applicable for Union Territories without legislature (i.e Andaman & Nicobar Islands, Lakshadweep, Dadra & Nagar Haveli, Daman & Diu and Chandigarh).
• The Goods & Services Tax (Compensation to States Act),2017 (1 Act)
• The State Goods & Services Act, 2017 (31 Act)
• Seperate act for each state & union territories with legisture (Delhi & Puducherry), Hence, there are 29 State Acts and 1 SGST Act for Delhi and 1 for Puducherry.

With effect from 8.7.2017, the Provisions of CGST and IGST Act have also been extended to J&K. Similary like other states currently J&K too have its own State Goods & Services Act, 2017.

Expected Changes:-

• Since J&K is no more a state now, so now a question arises Which Act will apply in Jammu & Kashmir, J&K SGST Act or UTSGT Act?
• One possible outcome could be that J&K SGST may continue to apply because it has its own legislature similiar to Delhi & Puducherry. As Delhi & Puducherry have its own state act even though they are Union territories.
• And same Question arise for Ladakh? Which Act will be applicable in Ladakh? UTGST Act or J&K SGST Act? 
• It will impact charging of SGST or UTGST on tax invoices.
• We are waiting for the Government clarifications on aforesaid issues.

Note:-
[ We would like to make it clear that this is a personal interpretation of the writer. Government has not issued any circular, notification regarding these provisions. In the view of the writer, these are the basic provisions which are contradictory and  where clarification are required due to revocation of article 370. Commerce Insiders is not responsible for any action taken on the basis of this article.]

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