India Regulatory Brief: India-Cyprus DTAA in Effect, GST Taxpayers to be Rated on Compliance

India-Cyprus Double Tax Treaty Agreement in force from April 2017

Tax authorities in Cyprus recently confirmed that the ratification procedures supporting the country’s Double Tax Treaty Agreement (DTAA) with India were finalized. 

This operationalizes the Treaty for the Avoidance of Double Taxation, which was signed on November 18 last year, following which the DTAA between Cyprus and India came into force on December 14.

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The treaty’s main provisions relate to withholding of tax at source – on all amounts paid or credited on or after January 1, 2017, and on any amounts of any tax year starting on or after January 1, 2017.

These developments bring to an end the previous standstill during which Cyprus was labelled a “notified” jurisdiction by Indian tax authorities due to the absence of information sharing. The new DTAA replaces the previous 1994 treaty.

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GST taxpayers to be rated on compliance

Taxpayers registered under India’s goods and services tax (GST) regime will be rated based on how promptly they upload invoices, pay taxes, and file returns. These ratings will be made public on the GST Network (GSTN) website to encourage compliance among companies.

According to the new rules, invoices must be matched for claiming input tax credit. This means that a manufacturer procuring goods from a supplier will not be able to claim credit for the tax paid until the seller uploads the invoices and the claims of the manufacturer and supplier are matched.

An immediate implication incentivizing prompt compliance is when multiple vendors offer the same price to the manufacturer. In such cases, the company may opt for the firm that uploads its invoices and files returns on time, thereby holding a better compliance rating.

India’s GST regime is set to be implemented from July 1.

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Karnataka levies higher stamp duty on urban land transactions

Karnataka’s state government has introduced a new tax system for urban land transactions involving large plots of land. The new rule came into effect April 1, and is expected to raise the cost of transactions in cities such as Bengaluru where land prices are already steep.

The updated system of levying stamp duty will only apply to land plots converted for non-agriculture use such as for housing, industrial, or commercial purposes. The changes are to stop any more loss to government revenue in the conversion of land in urban areas.

Consequently, five tax slabs have been created, fixing different rates. The value of plots measuring between 505.85 and 758.77 square meters will now be assessed at 70 percent of the prevailing market rate. The percentage will drop as the area increases: between 758.77 and 1011.7 sq. m (60 percent), 1011.7 and 2023.4 sq. m (40 percent), 2023.4 and 4046.8 sq. m (35 percent), and one acre and above (30 percent), which will soften transaction costs.

Registration authorities will assess the value based on the nature of the plot – residential, industrial, or commercial – and calculate the stamp duty.

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