Singapore: The Introduction Of GST In India - What Businesses Should Look Out For In 2017

Last Updated: 16 March 2017
Article by S. Sivanesan


The Constitution Amendment Bill for Goods and Services Tax (GST) has been approved by The President of India and the GST council have decided to enforce GST from 1st July 2017.

It was agreed that tax revenue from small tax payers with annual turnover of less than INR15 million under the GST regulations will be divided between the states and the centre in the ratio of 9:1 for the purposes of scrutiny and audit. All taxes above this annual turnover threshold will be equally shared between the states and the centre.

Currently, businesses in India have to contend with indirect taxes and restructure their systems and supply chain to fit this current tax regime. With GST being introduced, it will reform the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. GST will have a far-reaching impact on almost all aspects of the business operations in the country. Further, it will lead to increased tax compliance which may attract more foreign direct investments across sectors due to tax transparency and ease of doing business.

These are some of the salient features of the proposed GST system:

  1. GST is defined as "any tax on supply of goods and services other than on alcohol for human consumption".
  2. The power to make laws in respect of supplies in the course of inter-state trade or commerce will be vested only in the Union Government. States will have the right to levy GST on intra-state transactions, including services.
  3. Central taxes such as central excise duty, additional excise duty, service tax, additional custom duty and special additional duty as well as state-level taxes such as VAT or sales tax, central sales tax, entertainment tax, entry tax, purchase tax, luxury tax and Octroi will be subsumed under the GST.
  4. Entertainment tax, imposed by states on movie, theatre, etc, will be subsumed under GST, but taxes on entertainment at panchayat, municipality or district level will continue.
  5. GST may be levied on the sale of newspapers and advertisements. This would mean substantial incremental revenues for the Government.
  6. Stamp duties, typically imposed on legal agreements by states, will continue to be levied.
  7. Administration of GST will be the responsibility of the GST Council.

Impact of GST on businesses in India

While companies should still be wary of the exact fixing of the rate at which tax will be charged and chances of inflation in the early days of implementation, on the whole, GST should improve the gross domestic product of the country in the long run.

Some of the other major benefits of GST implementation include reduced logistics cost, supply chain efficiency, reduction in costs for tax and regulatory compliance, better market penetration and export effectiveness.

Taxation of M&A transactions

Amendments have been proposed in relation to the tax treatment of the sale of unquoted shares, receipt of listed securities and capital gains taxable if securities transaction tax was not paid on acquisition of shares in the Indian Union budget for the financial year 2017-2018.

'Fair market value' deemed to be sale consideration for sale of unquoted shares

Under the existing provisions of the Income Tax Act, income chargeable under "capital gains" is computed by taking into account the full value of consideration received on transfer of a capital asset. It is proposed that where the sale consideration of a capital asset, being unquoted shares, is less than the fair market value, the full value of consideration shall be deemed to be the fair market value for the purposes of computing the income under "capital gains tax". Hence, the actual price paid may not be considered to be the sale consideration. However, it is uncertain how the fair market value of an unquoted share of a company will be determined.

From an M&A transaction perspective of structuring and reorganisation, this proposed change may lead to unfavourable tax consequences for a group as a whole notwithstanding the actual value at which such shares were proposed to be transferred. Thus, it could force such transactions to take place at fair market value and consequential tax considerations have to be seriously considered.

One potential issue that may arise is that there are no proposed exceptions for transfer for an unquoted share by a holding company to a subsidiary company which could invite significant amount of unnecessary litigation. Similar to how a transfer of a capital asset by a holding company to its wholly-owned subsidiary company is exempted from tax, it is advisable for the same exception to apply in this scenario.

Receipt of listed securities at less than fair market value to be taxable

The Finance Bill 2017 (the Finance Bill), expected to come into force on 1 April 2018, proposes the following to be included as being taxable under "other income":

  1. sum of money without consideration, the aggregate value of which exceeds INR50,000; or
  2. any immovable property without consideration (the stamp duty value of which exceeds INR50,000) or for a consideration which is less than the stamp duty value by an amount exceeding INR50,000; or
  3. any property, other than immovable property, without consideration (the aggregate fair market value of which exceeds INR50,000) or for a consideration which is less than the aggregate fair market value of the property by an amount exceeding INR50,000.

From an investor's viewpoint, the proposed changes could impact private placement transactions. In effect, investments would likely need to be made at the fair market value. If this is not adhered to, there may be potential tax outflows of up to 30% of the discount (to the fair market value) granted to the specific resident investors. The impact on non-resident investors should also be considered given the exchange control regulations in India and double tax avoidance agreements entered into between India and the investors' respective home jurisdictions.

Capital gains taxable if securities transaction tax not paid on acquisition of shares

Provided that the sale of equity shares or units of equity is subject to Securities Transaction Tax (STT), long-term capital gains resulting from any transfer of such equity shares or units of an equity oriented fund is exempt from tax under the current provisions of the Income Tax Act. Many taxpayers have been misusing this exemption to declare their unaccounted income by entering into sham transactions. Hence, it has now been proposed that this exemption would only be applicable if STT was paid on the acquisition of such equity shares. Whilst curing this misuse, this amendment could also negatively affect certain genuine investment transactions like domestic private equity investments, strategic investments by domestic investors, preferential allotments to certain investors including financial institutions, shares acquired through off market transactions, employees allotted shares under an employee stock option scheme, shares acquired through a merger or demerger, etc. In such cases, shares would have been previously acquired by the investor without payment of STT.

Customs duty and the introduction of "beneficial owner"

On 1 February, 2017, India's Finance Minister Arun Jaitley introduced the Finance Bill. The Finance Bill introduced the concept of "beneficial owner" to subsection (3A) section 2 of Customs Act, 1962, stating that "beneficial owner means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported".

Further, subsections (20) and (26) of section 2 (i.e. definitions of exporter and importer respectively) have been amended accordingly to replace the words "any owner", with words "any owner, beneficial owner".

Rationale of amendment

In India, companies are given a unique Importer Exporter Code (IEC) which they use for import/export activities. However, companies have been misusing the code by "loaning out" their IECs to hide non-compliance for purposes of saving on duty payable at the time of import, where the final recipient is, in many situations, not the IEC holder. Therefore, in order to enforce accountability under the Customs Act and recover duty payable, the government is including "beneficial owners" as a legal basis for pursuing investigations of tax fraud and duty avoidance.

Impact on Singapore companies

Potential difficulties surrounding the exact definition and application of beneficial ownership may have implications on Singapore companies doing businesses with India in the trade and industry sector. Singapore companies must be particularly prudent when exporting goods into India and ensure that the parties in India they are dealing with comply with the applicable laws and regulations and possess the necessary IECs. In applying the beneficial concept, if ownership lies with the Singapore company, this could lead to the possibility of the Singapore company being made liable to duty and accountable for custom compliance under the Customs Act, as they would now be considered the importer.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions