Scrapping off Article 370: How does it change the taxation scenario?
On Monday August 05, 2019, Modi led government took a historic decision to scrape off Article 370 of the Constitution that granted special status to Jammu and Kashmir. The revocation follows the Centre's introduction of the Jammu and Kashmir Reorganisation Bill in Parliament which bifurcates the state of Jammu and Kashmir into two Union Territories - the Union Territory of Ladakh(without a legislature) and the Union Territory of Jammu and Kashmir(with a legislature).
The Article 370 - which came under Part XXI of the Constitution, which deals with "Temporary, Transitional and Special provisions" granted J&K a special autonomous status. Constitutional provisions that were applicable to other Indian states were not applicable to J&K. Article 370 allowed the state to not only have its own Constitution but also had rights to frame their own laws. The laws passed by Parliament had to be ratified by the assembly to be made laws in the state.
After the revocation of the Article was made. Many tax and finance enthusiasts have hovered questions about how it will change the financial and tax scenario in J&K. Here is a brief description of the same.
🍎Doing away with the exception under section 269S of the Income Tax Act 1961:
As per Sec. 1(2) of the Income-tax Act, 1961, the Income Tax Act, 1961 extends to the whole of India including the state of Jammu and Kashmir. The applicability of the Act extended to J&K as well which implies that scraping off of Article 370 doesn't come with any tax compliance burden for the people of J & K. However, the provisions of 'CHAPTER XXA - Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax' were not extended to the State of Jammu and Kashmir by virtue of the exception contained in section 269S of the Income Tax Act, 1961.
Now after the revocation of the article which implies the applicability of all the provisions of the Constitution of India to the State of Jammu & Kashmir. The existing restriction on the purchase or acquisition of any immovable property by a non-Kashmiri in the State of Jammu & Kashmir will no longer be in existence. Thus, it can be foreseen with reasonable amount of certainty that the said exception to the applicability of Chapter XXA of the Income Tax Act, 1961, concerning the “acquisition of immovable properties in certain cases of transfer to counteract evasion of tax”, as contained in section 269S of the Income Tax Act, 1961, will be done away with and the Revenue Authorities will be able to acquire/confiscate any immovable property owned by a tax defaulter resident in the State of Jammu & Kashmir. The said immunity from the confiscation or acquisition of any immovable property owned by a tax defaulter in the State of Jammu & Kashmir, is bound to go.
🍎GST Scenario:
A week after other states moved to GST, the assembly of J&K passed the resolution to join the tax framework. Because of the special provisions applicable to J&K, up till 7th July 2017, the provisions of Central Goods & Service Tax (CGST) & Integrated Goods & Service Act (IGST) were also not applicable in the State of Jammu & Kashmir.On 6th July 2017, the State of Jammu and Kashmir took the first step towards adopting the GST regime with the President of India giving assent to the Constitution (Application to Jammu and Kashmir) Amendment Order, 2017. Resultantly, the One Hundred and First Amendment Act, 2016 to the Constitution of India that paved the way for the introduction of GST in the country, became applicable to the State of Jammu and Kashmir also. Following this, on 7th July, 2017 the Jammu and Kashmir Goods and Services Tax Bill, 2017 was passed by the State legislature, empowering the State to levy State GST on intra-state supplies with effect from 8th July, 2017.
The Kashmir Reorganisation bill proposes to bifurcate the state of J&K into two union territories the Union Territory of Ladakh(without a legislature) and the Union Territory of Jammu and Kashmir(with a legislature). Since Ladakh will now become a Union Territory without a state legislature it will now get covered under the provisions of UTGST Act whereas J&K will continue to stay under the provisions of SGST Act